Ethos Form 10QSB Q3 2006
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________________________
FORM
10 - QSB
_______________________________
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934.
For
the quarterly period ended September 30, 2006
000-30237
(Commission
File Number)
Ethos
Environmental, Inc.
(Exact
name of registrant as specified in its charter)
Nevada
|
88-0467241
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification
Number)
|
7015
Alamitos Ave.
San
Diego, CA 92154
(Address
of principal executive offices including zip code)
(619)
575-6800
(Registrant’s
telephone number, including area code)
with
a
copy to:
SteadyLaw
Group, LLP
Tel:
(619) 399-3090
Fax:
(619) 330-1888
Check
whether the issuer: (1) filed all reports required to be filed by Section 13
or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90 days.
Yes
|X|
No |_|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
|
| No |X|
As
of the
close of business on November 15, 2006, there were 478,209 shares of the
issuer's common stock, par value $.001 per share outstanding.
Transitional
Small Business Disclosure Format (Check one):
Yes
|
| No |X|
September
30, 2006
Table
of Contents
Ethos
Environmental, Inc.
|
|
|
Part
I.
|
|
|
FINANCIAL
INFORMATION:
|
|
|
|
Item
1. Financial Statements:
|
FS
-1 |
|
Consolidated
Balance Sheet (Unaudited)
|
|
|
|
|
|
Consolidated
Statements of Stockholders Deficit (Unaudited)
|
|
|
|
|
|
Consolidated
Statements of Operations (Unaudited)
|
|
|
|
|
|
Consolidated
Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
|
|
|
Item
2. Management's Discussion and Analysis and Plan of
Operation
|
|
|
|
|
|
Item
3. Controls and Procedures
|
|
|
|
|
Part
II.
|
|
|
OTHER
INFORMATION:
|
|
|
|
Item
1. Legal Proceedings
|
|
|
|
|
|
Item
2. Unregistered
Sales Of Equity Securities And Use Of Proceeds
|
|
|
|
|
|
Item
3. Defaults Upon Senior Securities
|
|
|
|
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
|
|
|
|
|
Item
5. Other Information
|
|
|
|
|
|
Item
6. Exhibits and Reports on Form 8-K
|
|
|
|
|
SIGNATURES
|
|
|
|
|
|
EXHIBITS
|
|
|
PART
I.
Item
1. FINANCIAL STATEMENTS
|
|
|
|
VICTOR
INDUSTRIES, INC.
|
|
|
|
|
|
AND
SUBSIDIARY
|
|
|
|
|
|
(now
known as Ethos Environmental, Inc.)
|
|
|
|
|
|
Consolidated
Balance Sheet
|
|
|
|
|
|
(UNAUDITED)
|
|
|
|
September
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash
|
|
$
2,702
|
|
Prepaid
expenses
|
|
63,360
|
|
Total
Current Assets
|
$
66,062
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Deficit
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
Payable and Accrued Expenses
|
$
179,485
|
|
Notes
Payable-Related Parties
|
53,122
|
|
Liabilities,
net of assets, of discontinued operations-New Wave Media
|
87,827
|
|
|
Total
Current Liabilities
|
320,434
|
|
|
|
|
|
|
Stockholders'
Deficit
|
|
|
Common
stock, $0.0001
par value, 1,000,000,000
|
|
|
|
|
shares
authorized, 438,471 shares
|
|
|
|
|
issued
and outstanding
|
44
|
|
Common
stock issuable, 6,250 shares
|
1
|
|
Additional
paid in capital
|
6,792,863
|
|
Accumulated
deficit
|
(7,047,280)
|
|
|
|
|
|
|
|
|
Total
stockholders' deficit
|
(254,372)
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficit
|
$
66,062
|
|
|
|
|
|
|
|
|
|
|
|
|
VICTOR
INDUSTRIES, INC. AND SUBIDIARY
(now
known as Ethos Environmental, Inc.)
|
|
|
|
|
|
Consolidated
Statements of Stockholders' Deficit
For
the Nine months Ended September 30, 2006
(UNAUDITED)
|
|
|
|
Paid
|
Issuable
|
Common
|
|
|
Total
|
|
Common
|
Common
|
In
|
Common
|
Stock
|
Subscription
|
Accumulated
|
Stockholders'
|
|
Shares
|
Stock
|
Capital
|
Shares
|
Issuable
|
Receivable
|
Deficit
|
Deficit
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
219,952
|
$22
|
$5,718,249
|
6250
|
$1
|
$(54,200)
|
$(6,454,392)
|
$(790,320)
|
|
|
|
|
|
|
|
|
$-
|
|
|
|
|
|
|
|
|
$-
|
Issued
for payment of debt
|
145,878
|
$15
|
$542,602
|
|
|
|
|
$542,617
|
Issued
for services
|
28,519
|
$3
|
$237,625
|
|
|
|
|
$237,628
|
Issued
for prepayment of expenses
|
22,466
|
$2
|
$133,279
|
|
|
|
|
$133,281
|
|
|
|
|
|
|
|
|
$-
|
Net
Loss
|
|
|
|
|
|
|
$(254,580)
|
$(254,580)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2006
|
416,815
|
$42
|
$6,631,755
|
6250
|
$1
|
$(54,200)
|
$(6,708,972)
|
$(131,374)
|
|
|
|
|
|
|
|
|
$-
|
Black
Star Shares Held cancelled
|
(9,167)
|
$(1)
|
$(53,100)
|
|
|
$54,200
|
|
$1,099
|
|
|
|
|
|
|
|
|
$-
|
Net
Loss
|
|
|
|
|
|
|
$(162,116)
|
$(162,116)
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2006
|
407,648
|
$41
|
$6,578,655
|
6,250
|
$1
|
$-
|
$(6,871,088)
|
$(292,391)
|
|
|
|
|
|
|
|
|
|
Stock
issued for Notes Payable - Related Party
|
17,789
|
$2
|
$96,690
|
|
|
|
|
$96,692
|
Stock
issued for expenses
|
1,356
|
$-
|
$14,760
|
|
|
|
|
$14,760
|
Stock
issued for accrued liabilities
|
11,678
|
$1
|
$49,437
|
|
|
|
|
$49,438
|
|
|
|
|
|
|
|
|
-
|
Effects
of reverse stock split (1 for 1200)
|
|
|
$53,321
|
|
|
|
|
$53,321
|
|
|
|
|
|
|
|
|
-
|
Net
Loss
|
|
|
|
|
|
|
$(176,192)
|
$(176,192)
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2006
|
438,471
|
$44
|
$6,792,863
|
6,250
|
$1
|
$-
|
$(7,047,280)
|
$(254,372)
|
|
|
|
|
VICTOR
INDUSTRIES, INC.
|
|
|
|
|
AND
SUBSIDIARY
(now
known as Ethos Environmental, Inc.)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
(UNAUDITED)
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
July
1, 2006
|
July
1, 2005
|
|
|
|
|
|
To
|
To
|
|
|
|
|
|
September
30, 2006
|
September
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
-
|
$
-
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
-
|
-
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
-
|
-
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
Selling
and administrative
|
|
|
175,866
|
138,916
|
|
Depreciation
and Amortization
|
|
|
-
|
640
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
175,866
|
139,556
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(175,866)
|
(139,556)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and Other Expenses
|
|
|
(326)
|
(666)
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
$
(176,192)
|
$
(140,222)
|
|
|
|
|
|
|
|
Basic
and diluted loss per weighted average share of
|
|
|
|
|
|
common
stock outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(loss) earnings per share
|
|
|
$
(0.00)
|
$
(0.00)
|
|
|
|
|
|
|
|
Weighted
Average Shares
|
|
|
424,735
|
197,264
|
|
|
|
|
|
|
|
|
|
|
|
VICTOR
INDUSTRIES, INC.
|
|
|
|
|
AND
SUBSIDIARY
(now
known as Ethos Environmental, Inc.)
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations
|
|
|
|
|
(UNAUDITED)
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
January
1, 2006
|
January
1, 2005
|
|
|
|
|
|
To
|
To
|
|
|
|
|
|
September
30, 2006
|
September
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
-
|
$
4,385
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
-
|
1,567
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
-
|
2,818
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
Selling
and administrative
|
|
|
591,700
|
376,028
|
|
Depreciation
and Amortization
|
|
|
-
|
2,159
|
|
|
|
|
|
-
|
-
|
|
|
Total
Operating Expenses
|
|
|
591,700
|
378,187
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(591,700)
|
(375,369)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and Other Expenses
|
|
|
(1,188)
|
(1,280)
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
$
(592,888)
|
$
(376,649)
|
|
|
|
|
|
|
|
Basic
and diluted loss per weighted average share of
|
|
|
|
|
|
common
stock outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(loss) earnings per share
|
|
|
$
(0.00)
|
$
(0.00)
|
|
|
|
|
|
|
|
Weighted
Average Shares
|
|
|
386,296
|
197,197
|
|
|
|
|
|
|
|
|
|
|
|
VICTOR
INDUSTRIES, INC.
|
|
|
|
|
AND
SUBSIDIARY
|
|
|
|
|
(now
known as Ethos Environmental, Inc.
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
(UNAUDITED)
|
|
|
|
Period
from
|
|
|
|
January
1, 2006
|
January
1, 2005
|
|
|
|
To
|
To
|
|
|
|
September
30, 2006
|
September
30, 2005
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
|
$
(592,888)
|
$
(376,649)
|
|
Adjustments
to reconcile net loss to net cash provided by
|
|
|
|
operating
activities, net of effects from discontinued operations:
|
|
|
|
|
Depreciation
and amortization
|
-
|
2,159
|
|
|
Common
stock issued for expenses
|
255,971
|
13,000
|
Change
in Assets and Liabilities
|
|
|
|
|
Prepaid
expenses
|
72,615
|
10,957
|
|
|
Accounts
Receivable
|
|
(49)
|
|
|
Accounts
payable and accrued expenses
|
203,372
|
259,525
|
|
|
Change
in net assets and liabilities of discontinued operations
|
|
6
|
Cash
used in Operating Activities
|
(60,930)
|
(91,051)
|
|
|
|
|
|
Provided
(Used) by Financing Activities
|
|
|
|
Loans
from Shareholders
|
60,930
|
91,070
|
Net
cash provided by financing activities
|
60,930
|
91,070
|
|
|
|
|
|
Net
increase in cash
|
|
0
|
19
|
|
|
|
|
|
Cash
at beginning of period
|
2,702
|
219
|
|
|
|
|
|
Cash
at end of period
|
|
$
2,702
|
$
238
|
|
|
|
|
|
SUPPLEMENTAL
NON CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Common
stock issued for accrued expenses
|
$
544,154
|
|
|
|
Common
stock issued for debt
|
$
165,614
|
$
-
|
|
|
Common
stock issued for expenses
|
$
255,971
|
|
|
|
Common
stock issued for prepaid services
|
$
135,975
|
13,000
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Nine
months ended September 30, 2006
Note
1. Summary of Significant Accounting Policies
Business
Operations
Victor
Industries, Inc. was originally organized under the laws of the State of
Idaho
on January 19, 1926, under the name of Omo Mining and Leasing Corporation.
After several name changes through the years, the name was changed to Victor
Industries, Inc. on December 24, 1977. In 1993, the Company began zeolite
mining and marketing operations. Zeolite is an ammonia absorbent, air purifier,
and hazardous waste absorbent. Victor Industries, Inc. is presently refining
the
development of and marketing a fertilizer product using zeolite.
On
April
20, 2006, Victor Industries, Inc. (the “Registrant”), with the approval of its
Board of Directors, executed an Agreement and Plan of Merger ("APR Merger”) with
San Diego, CA based Ethos Environmental, Inc. (“Ethos”), a Nevada corporation.
See Note 7.
Consolidation
The
accompanying consolidated financial statements include the accounts of Victor
Industries, Inc. and its wholly owned subsidiary, New Wave Media (collectively
the "Company"). All inter-company accounts and transactions have been
eliminated.
Interim
Period Financial Statements
The
interim period consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosure
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such SEC rules and regulations. The interim period
consolidated financial statements should be read together with the audited
consolidated financial statements and accompanying notes for the years ended
December 31, 2005 and 2004, included in the Company's annual reports on
Form 10-KSB. In the opinion of the Company, the unaudited consolidated financial
statements contained herein contain all adjustments necessary (consisting
of a
normal recurring nature) to present a fair statement of the results of the
interim periods presented.
The
results of operation for the three and nine months ended September 30,
2006, are not necessarily indicative of the results to be expected for the
entire year ending December 31, 2006.
Discontinued
Operations
The
Company's subsidiary, New Wave Media, operated a radio station in Montana,
utilizing a Time Brokerage Agreement. In July 2003, the licensee of the Time
Brokerage Agreement shut down the radio station claiming non-payment of the
required fees. On August 20, 2003, the Montana Eighth Judicial District
Court awarded New Wave Media a permanent injunction. The Company has filed
litigation against the licensee for monetary damages. During October 2003,
the
Company reported that the licensee once again turned the power off at the
radio
station. The Company has made the decision not to attempt to gain another
injunction and instead exercise its legal rights in court. Accordingly,
operating results of this segment have been presented as discontinued operations
in these consolidated financial statements.
Note
2. Going Concern
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. However, the Company has incurred
continuing operating losses and has an accumulated deficit of $7,047,280
as of
September 30, 2006. The Company's ability to continue as a going concern
is in
substantial doubt and is dependent upon obtaining additional financing and
achieving a sustainable profitable level of operations. The consolidated
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty. The Company has met its historical working capital
requirements from sale of capital shares and loans from shareholders. However,
there can be no assurance that such financial support shall be ongoing or
available on terms or conditions acceptable to the Company.
Note
3. Earnings Per Share
Basic
loss per share is computed by dividing the net loss available to common
shareholders by the weighted average number of common shares outstanding
in the
period. Diluted earnings per share takes into consideration common shares
outstanding (computed under basic earnings per share) and potentially dilutive
common shares. There were no dilutive securities outstanding at September
30,
2006 or 2005.
Common
stock issuable is considered outstanding as of the original approved date
for
purposes of earnings per share computations.
As
a
result of the 1 for 1,200 reverse stock split effective November 16, 2006
(Note
7), all per share amounts have been restated to reflect the retroactive effect
of the reverse stock split.
Note
4. Stock Based Compensation
Prior
to
January 1, 2006, the Company accounted for stock-based awards under the
intrinsic value method, which followed the recognition and measurement
principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”,
and related
Interpretations.
The intrinsic value method of accounting resulted in compensation expense
for
stock options to the extent that the exercise prices were set below the fair
market price of the Company’s stock at the date of grant.
As
of
January 1, 2006, the Company adopted SFAS No. 123(R) “share-based payments”
using the modified prospective method, which requires measurement of
compensation cost for all stock-based awards at fair value on the date of
grant
and recognition of compensation over the service period for awards expected
to
vest. The fair value of stock options is determined using the Black-Scholes
valuation model, which is consistent with the Company’s valuation techniques
previously utilized for options in footnote disclosures required under SFAS
No.
123, “Accounting for Stock Based Compensation”, as amended by SFAS No. 148,
“Accounting for Stock Based Compensation Transition and
Disclosure”.
Since
the
Company did not issue stock options to employees during the nine months ended
September 30, 2006 or 2005, there is no effect on net loss or earnings per
share
had the Company applied the fair value recognition provisions of SFAS No.
123(R)
to stock-based employee compensation. When the Company issues shares of common
stock to employees and others, the shares of common stock are valued based
on
the market price at the date the shares of common stock are approved for
issuance.
Note
5. Related
Party Transactions
During
the quarter ended September 30, 2006 Penny Sperry, a former officer and director
loaned the Company $3,500.
Note
6. New Accounting Pronouncements
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, Accounting
for Uncertainties in Income Taxes,
(“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes and
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected
to be
taken in a tax return. FIN 48 is effective for financial statements as of
January 1, 2007. The Company has not yet determined the impact of applying
FIN
48.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, Fair
Value Measurements (“FAS
157”). FAS 157 defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements but does not
require
any new fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The Company has not yet determined the impact
of
applying FAS 157.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans,
(“FAS
158”). FAS 158 requires an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan (other than a multiemployer
plan) as an asset or liability in its statement of financial position and
to
recognize changes in that funded status in the year in which the changes
occur
through comprehensive income. FAS 158 is effective for financial statements
as
of December 31, 2006. The Company does not expect any material impact from
applying FAS 158.
Note
7. Subsequent Events
Acquisition
In
November 2006, the Company executed a 1 for 1,200 share reverse stock split.
Also in November 2006, the Company completed a merger with San Diego, CA
based
Ethos Environmental, Inc. (“Ethos”), a Nevada corporation. In exchange for all
of the issued and outstanding shares of Ethos, the Company issued 17,718,187
post-split shares of common stock. There was no other consideration paid
between
the parties.
As
a
result of the issuance of the shares to Ethos, the controlling shareholders
of
Ethos acquired 97% voting control of the Company by way of their investment
in
Ethos. Accordingly, consistent with SFAS No. 141, a reverse acquisition occurs
if a company other than the legal acquirer is deemed to be the “accounting
acquirer” in a business combination effected by the issuance of voting
securities. In this regard, Ethos is considered to be the accounting acquirer
and the Company is considered the accounting target.
Subsequent
to the merger, the Company has redomiciled to Nevada, changed its name to
Ethos
Environmental, Inc. and has adopted the business plan of Ethos. Accordingly,
the
management team of the Company was replaced with the management team of
Ethos.
The
Company is currently determining the amount of the purchase price and the
appropriate treatment of any resulting intangible assets that may arise from
any
excess of purchase price over the net book value of assets acquired should
any
such excess result.
Stock
Issuances
There
were 47,685,805* shares issued for services subsequent to the quarter ended
September 30, 2006.
*On
a
post reverse split basis, above number represents 39,739 shares of Ethos
Environmental, Inc. as of November 16, 2006.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF
OPERATION
*THE
INFORMATION SET FORTH HEREIN IS FOR THE QUARTER ENDED SEPTEMBER 30, 2006 AND
PERTAINS ONLY TO THE REGISTRANT’S OPERATIONS DURING SUCH QUARTER.
This
discussion and analysis should be read in conjunction with the accompanying
Consolidated Financial Statements and related notes. Our discussion and analysis
of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of any contingent liabilities at the financial statement date and
reported amounts of revenue and expenses during the reporting period. On an
on-going basis we review our estimates and assumptions. Our estimates are based
on our historical experience and other assumptions that we believe to be
reasonable under the circumstances. Actual results are likely to differ from
those estimates under different assumptions or conditions, but we do not believe
such differences will materially affect our financial position or results of
operations. Our critical accounting policies, the policies we believe are most
important to the presentation of our financial statements and require the most
difficult, subjective and complex judgments, are outlined below in ‘‘Critical
Accounting Policies,’’ and have not changed significantly.
In
addition, certain statements made in this report may constitute “forward-looking
statements”. These forward-looking statements involve known or unknown risks,
uncertainties and other factors that may cause the actual results, performance,
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking
statements. Specifically, 1) our ability to obtain necessary regulatory
approvals for our products; and 2) our ability to increase revenues and
operating income, is dependent upon our ability to develop and sell our
products, general economic conditions, and other factors. You can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continues" or the negative of these terms or other
comparable terminology. Although we believe that the expectations reflected-in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements.
OVERVIEW
The
following management discussion and analysis relates to the business of Victor
Industries, Inc., which develops, manufactures, and markets products related
to
the use of the mineral known as zeolite. Zeolites have the unique distinction
of
being nature's only negatively charged mineral. Zeolites are useful for metal
and toxic chemical absorbents, water softeners, gas absorbents, radiation
absorbents and soil and fertilizer amendments. Clinoptilolite, one type of
natural zeolite, is our primary focus. Clinoptilolite's absorption capabilities
of ammonia provide a number of applications in the agricultural industry. We
are
primarily focusing on two zeolite compounds in order to produce revenue. We
believe that the two primary sources of nitrate and phosphate pollution are
fertilizers and large animal feeding operations.
ENVIROLIZER
was formulated around the use of zeolite to absorb the ammonia that is released
by animal discharge from large animal feeding operations. We will then utilize
the nutrients from the absorption process and turn it into a slow demand release
fertilizer. We believe that wide spread use of our absorption process will
significantly reduce pollution from these feeding operations while reducing
the
leaching of nitrates and phosphates into the ground water. Because of the
absorption capabilities of zeolite, we believe that our fertilizer compound
will
work effectively for up to three years, depending on the type of crop or plants
being fertilized, thereby reducing the need for multiple fertilizer applications
every year. The ENVIROLIZER fertilizer compound is expected to absorb up to
45%
of its weight in water and slowly release it when the soil begins to dry thus
reducing the irrigation cycle. We cannot give any assurances that we will be
successful in producing a marketable or profitable product.
The
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America, which contemplate
continuation of the Company as a going concern. Although the Company’s revenues
and gross margins increased significantly in recent periods, it has sustained
significant operating losses in the first nine months of 2006 and the years
2005
and 2004. At September 30, 2006, the Company had stockholders’ deficit of
$254,372 and a working capital deficiency of $254,374. The Company believes
its
resources are sufficient to fund its needs through mid second quarter of 2006
and it is considering alternatives to provide for its capital requirements
for
the balance of 2006 and beyond in order to continue as a going concern. Its
liquidity and cash requirements will depend on several factors. These factors
include (1) the level of revenue growth; (2) the extent to which, if any, that
revenue growth improves operating cash flows; (3) its investments in research
and development, facilities, marketing, regulatory approvals, and other
investments it may determine to make, and (4) the investment in capital
equipment and the extent to which it improves cash flow through operating
efficiencies. There are no assurances that it will be successful in raising
sufficient capital.
THIRD
QUARTER HIGHLIGHTS
During
the period ended September 30, 2006, the Company had several important
developments:
(1) |
The
Registrant, on or about July 20, 2006, concluded preliminary discussions
with one of the top ten largest wine producers in the United States
for a
test of Victor's Envirolizer. Tests conducted in Europe have shown
adding
the main constituent of Envirolizer's formula increased fruit yield
by as
much as thirty percent. With vineyard establishment costs doubling
in the
past decade, the identification of adapted grape cultivars and soil
additives which maximize their chances of successful introduction
will
allow growers to avoid significant losses associated with planting
non-adapted cultivars. We are currently formulating a protocol for
the
proposed test and reviewing the request from the grower for exclusive
use
of Envirolizer in the area viticulture for a period of 3
years.
|
(2) |
During
the quarter ended September 30, 2006, a meeting was held in Los Angeles,
California with principals of the venture capital firm FutureVest
()
Of most immediate common interest was a newly acquired organic fertilizer
manufacturing company in northern China. Arrangements have been made
to
ship samples of the appropriate agricultural ground zeolite to that
entity. Further, as FutureVest has several investments in cement
manufacturing companies in northern China an interest was express
in the
aggregate qualities of zeolites when used in cements plaster and
stucco.
Technical data will be exchanged between FutureVest and Jose Gonzales
PhD., noted zeolite expert and consultant to the
Company.
|
Subsequent
to the quarter ended September 30, 2006, the Company announced the
following:
(1) |
The
Company, on November 2, 2006, closed on the pending merger with Ethos
Environmental. Immediately thereafter, the Company filed its Amended
Articles of Incorporation by filing a Certificate of Amendment with
the
Secretary of State of Idaho effectuating a reverse stock split of
one 1
for 1,200. Following this, the Company redomiciled to Nevada and
changed
its name to Ethos Environmental,
Inc.
|
(2) |
In
connection with the merger, the former Directors resigned, and Enrique
de
Vilmorin, Luis Willars and Jose Manuel Escobedo were appointed directors
of the Company.
|
Critical
Accounting Policies and Estimates
We
believe that there are several accounting policies that are critical to
understanding our historical and future performance, as these policies affect
the reported amounts of revenue and the more significant areas involving
management’s judgments and estimates. These significant accounting policies
relate to revenue recognition, research and development costs, valuation of
inventory, valuation of long-lived assets and income taxes. For a summary of
our
significant accounting policies (which have not changed from December 31, 2005),
see our annual report on Form 10-KSB for the period ended December 31,
2005.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AS COMPARED WITH
THE
THREE MONTHS ENDED SEPTEMBER 30, 2005
The
following analysis of historical financial condition and results of operations
are not necessarily reflective of the on-going operations of the Company.
Overall
Operating Results - Comparison to Quarter Ended September 30,
2005
We
had no
zeolite sales for during the quarter ended September 30, 2006. We
anticipate that increased marketing efforts and the successful approval of
our
patent for the fertilizer compound in the future will generate the required
revenues to sustain our anticipated growth. There can be no assurances that
such
sales will occur.
Selling
& Administrative expenses incurred during the quarter totaled $175,866.
These expenses were incurred primarily for the following reasons:
·
|
Legal
fees of approximately $23,050.
|
·
|
Accounting,
audit, bookkeeping and director fees totaling approximately
$53,900.
|
·
|
Business
consulting fees of $98,250.
Outside
services of $315.
Office
expenses of $31.
|
Similar
expenses incurred for the quarter ended September 30, 2005 were $138,916 and
were incurred primarily for consulting services of a similar nature.
Also,
for
comparison purposes, there were no newly issued shares for the payment of
services during the period ended September 30, 2006, just as there were no
new
shares issued for services during the period ended September 30,
2005.
We
incurred a net loss for the current quarter of $176,192 as compared to a
net loss of $140,222 for the comparable prior year quarter. These losses
were attributable to the aforementioned operating expenses.
Income
Taxes
We
have
accumulated approximately $7,047,280 of net operating loss carry-forwards as
of
September 30, 2006, that may be offset against future taxable income. There
will
be limitations on the amount of net operating loss carry-forwards that can
be
used due to the change in the control of the management of the Company. No
tax
benefit has been reported in the financial statements, because we believe there
is a 50% or greater chance the carry-forwards will expire unused.
Accordingly,
the potential tax benefits of the loss carry-forwards are offset by valuation
allowance of the same amount.
LIQUIDITY
AND CAPITAL RESOURCES
We
have
been financed through related parties as there has been no substantial revenue
generated to date. During the quarter ended September 30, 2006 the Company
received $60,390 in loans from Penny Sperry, Lana Pope and Blue Rock Minerals,
officers and shareholders. They have agreed to accept restricted stock in
satisfaction of the aforementioned loans and those payments for the period
equaled $211,174. The Company did not engage in any offering of any kind during
the quarter ended September 30, 2006.
We
will
need additional financing in order to implement our business plan and continue
as a going concern. We do not currently have a source for any additional
financing and we cannot give any assurances that we will be able to secure
any
financing.
Inflation
Our
results of operations have not been affected by inflation and we do not expect
inflation to have a significant effect on its operations in the future.
RECENT
DEVELOPMENTS AND VICTOR INDUSTRIES” PLAN OF OPERATIONS FOR THE NEXT TWELVE
MONTHS
Please
see section entitled Overview and in particular the “Third Quarter
Highlights.”
On
a
going forward basis, now that the merger has been closed, our Plan of Operations
for the next twelve months is as follows:
Since
inception in 2000, Ethos Environmental has grown its customer base to thousands
of diverse clients in over 15 countries worldwide, using the most effective
sales tool possible - a product that works! In addition to an effective and
desirable product, the company’s success also derives from the careful
development and tenacious implementation of a structured “proof-of-concept”
marketing strategy.
Throughout
this “proof-of-concept” sales and marketing phase, gross sales for Ethos
Environmental have consistently exceeded forecasts, reaching more than $1.78
million by the end of 2005. Even more significant growth is anticipated for
2006, with sales in established markets in the U.S., China, Ecuador and Europe
expected to top current forecasts. Furthermore, market implementation plans
anticipate growth in 2006 and beyond, leading to gross multi million sales
in
2008. These projections are based on the product’s proven ability to improve
fuel efficiency while reducing emissions, the Company’s proven ability to
penetrate new markets and build a solid base of loyal customers, and the world’s
increasing costs in the petro-economic markets.
Looking
forward, marketing will constitute a significant portion of company expenditures
as Ethos Environmental continues to develop sales of new ester-based fuel and
engine enhancing products. We are in the process of developing new products
covering areas of synthetic oils, sulfur substitutes, and varied formulations
of
the original Ethos
FR
and its
enhancements.
In
addition, we will continue to initiate patents to cover ongoing development
of a
new engine design that combines past, present and state-of-the-art technologies.
This new system generates rotary shaft power using only a fraction of the fuel
consumed by today’s internal combustion engines, and testing has yielded power
output that rivals current technologies with just a fraction of the emissions.
We have great hope that this project will revolutionize power generation as
we
know it, significantly easing pollution from the usage of fossil
fuels.
The
management of Ethos Environmental is excited by the enthusiastic acceptance
that
Ethos
FR products
have received - domestically and all around the world. We are proud to provide
a
product that is part of the solution to the high cost of fuel and the health
costs of environmental pollutants. Since inception management has been focused
on the development of a solid infrastructure, building relationships and
establishing the foundation of a business that will continue to grow - non-stop
- into the future.
Fertilizer
Business
During
2005, and to date in 2006, the Company has made progress in marketing the
Envirolizer product to large potential customers. A preeminent sod farm in
Southern California has agreed to conduct a one acre test. Such tests have
been
conducted in the past and we are confident that the results will convince the
sod company to begin to implement Envirolizer in the balance of their properties
as well as influence other sod companies to begin using the product. This
influential sod company has approximately 1000 retail outlets in the form of
garden centers, nursery stores and landscape companies that will directly hear
the Envirolizer story from the sod company. Our own labeling is being discussed.
Sod beds are often alternated with vegetable crops and it is anticipated that
the clear benefits of Envirolizer will be demonstrated for several growing
seasons in sod as well as in alternated crops. This way we hope to attract
further agricultural and horticultural interest.
Victor
Industries has made progress in securing sales in Mainland China. We have
developed a contact that has gained permission to conduct tests of Envirolizer
at a prominent Chinese University, a necessary prerequisite for significant
sales on the mainland. Awareness of the products ability to mitigate nitrogen
compounds from migrating into the water table is of much interest to those
in
Beijing preparing for the 2008 Olympics.
Victor
Industries has won approval to clean the waters of the Lakeside Shrine in
Pacific Palisades, California to demonstrate the effectiveness of our products
in absorbing ammonium produced by the large koi that live in the lake. The
shrine is well known and we believe our success there will lead to publicity
regarding our products that no amount of advertising dollars could pay
for.
The
management has continued development of a diagnostic cat litter. Economic
sources have been found for the three main components necessary to produce
a cat
premium cat litter which is capable of diagnosing FUS Feline Urinary Syndrome
which effects as many as sixty percent of all cats and is often fatal if not
diagnosed in a timely fashion.
Long-term
price stability contracts are in process to ensure economical exclusive access
to the world largest and purest form of the primary mineral which is the basis
to all our products.
Acquisitions
and Mergers
Victor
Industries is interested in acquiring businesses outside of the Company's
traditional fertilizer business. In this regard, the Company will continue
to
explore opportunities that have been presented to the Company from other private
and public entities.
In
our
opinion, the Company will have to raise working capital from outside sources
during the next twelve months to meet our obligations and commitments as they
become payable. Historically, we have been successful in our efforts to secure
working capital from private placements of common stock and loans from
private investors.
Now
that
the merger has been consummated, new management of the Company has indicated
that they are unsure as of yet whether they will continue operations of the
pre-transaction Company.
Inflation
Our
results of operations have not been affected by inflation and we do not expect
inflation to have a significant effect on our operations in the
future.
New
Wave Media Corp.
The
station has been closed since 2004 and all employees dismissed.
BUSINESS
OF REGISTRANT AS OF NOVEMBER 2, 2006
Ethos
Environmental manufactures and distributes an array of proprietary fuel
reformulating products under the name Ethos
FR,
Ethos
Fuel Reformulators.
Ethos
FR is
a
unique line of fuel reformulators based on a blend of high quality, non-toxic,
non-petroleum based esters. When added to any fuel, these specially designed
esters add cleaning and lubricating properties. They make engines run more
efficiently - smoother, cooler and cleaner. Ethos
FR
improves
the formula of commonly used fuels such as gasoline, diesel, methanol, ethanol,
CNG or bio-diesel. Only the elements of carbon, hydrogen and oxygen are used
in
Ethos
FR
products
and are 99.9% clean upon ignition, ashless upon combustion and free of
carcinogenic compounds.
Over
the
last decade, the unmatched value of Ethos
FR
products
has been proven through millions of miles of on-the-road testing. On average,
customers have achieved a 7% to 19% increase in fuel mileage, and more than
a
30% reduction in emissions.
As
environmental entrepreneurs, the management at Ethos Environmental seeks both
a
cleaner environment and economic success. As the name Ethos suggests, we are
committed to the highest ethical standards - in the product that we sell, in
the
relationship with our clients, and in the conduct of our business. The Company’s
approach is to sell Ethos
FR“one
gallon at a time”, earning the trust and loyalty of each customer by providing
products that perform as promised and make a positive difference in the
world.
The
mission of Ethos Environmental is to be recognized as the industry standard
for
high quality, non-toxic cleaning and lubricating products that increase fuel
mileage and reduce emissions.
Ethos
Environmental customers exist everywhere that budgets are affected by the rising
cost of fuel and where solutions are sought for the pervasive ills of air
pollution. Our customers are motivated both by cost savings and environmental
concerns, and it is our mission to provide products to meet their needs, risk
free, and at an economic gain to every client.
Furthermore,
it is our goal to build on our success in the domestic U.S. market and continue
to grow internationally, offering the benefits of Ethos
FR
products
to companies and countries around the world.
ITEM
3. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As
of the
end of the period covered by this report, the Company conducted an evaluation
under the supervision and with the participation of the principal executive
officer and principal financial officer, of the Company’s disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the
principal executive officer and principal financial officer concluded that
the
Company’s disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files
or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
Changes
In Internal Controls Over Financial Reporting
There
have been no changes in internal controls over financial reporting that occurred
during the most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
PART
II.
ITEM
1. LEGAL PROCEEDINGS
None.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
during the quarter ended September 30, 2006. However, the Company did file
a
Definitive Schedule 14A on October 4, 2006.
A
majority of security holders voted in favor of all seven items submitted to
a
vote, including the merger and reverse stock split.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
Exhibits.
EXHIBIT
NUMBER
|
DESCRIPTION
|
LOCATION
|
3.1
- 3.2
|
Articles
of Incorporation and Bylaws
|
Previously
Filed.
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification (CEO)
|
Filed
herewith
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification (CFO)
|
Filed
herewith
|
32.1
|
Section
1350 Certification (CEO)
|
Filed
herewith
|
32.2
|
Section
1350 Certification (CFO)
|
Filed
herewith
|
(b) Reports
on Form 8-K.
The
following reports on Form 8-K are incorporated by reference herein:
(a) |
Form
8-K filed on or about November 7,
2006.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
DATE:
November 20, 2006
|
ETHOS
ENVIRONMENTAL, INC.
(Registrant)
By:
/s/ Enrique de Vilmorin
|
|
Enrique
de Vilmorin
Director,
CEO and CFO
|