**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


**FORM
      10-KSB/A**





**AMENDMENT
      NO. 1**





**o ANNUAL
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**




**For
      the Fiscal Year Ended December 31, 2006**




**Commission
      File Number:   000-26673**







**ETHOS
      ENVIRONMENTAL, INC.**


(Name
      of
      Small Business Issuer in Its Charter)




**Nevada**
            
            **88-0467241**(State
                or Other Jurisdiction
            
            IRS
                Employerof
                Incorporation or Organization)
            
            Identification
                Number




**6800
      Gateway Park**


**San
      Diego, CA 92154**


**(619)
      575-6800**


(Address
      and Telephone Number of Principal Executive Offices)




Securities
                registered under Section 12(b) of the Exchange Act:Title
                of each class registered:
            Name
                of each exchange on which registered:**None**
            **Over-the-Counter
                Bulletin Board**Securities
                registered under Section 12(g) of the Exchange Act:**Common
                Stock, par value $0.001**
              (Title
                of class)




Indicate
      by check mark whether the registrant is a well-known seasoned issuer, as defined
      in Rule 405 of the Securities Act.    Yes   ̈    No  x





Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Exchange
        Act.    ̈





Indicate
      by check mark whether the
      registrant (1) has filed all reports required to be filed by Section 13 or
      15(d)
      of the Securities Exchange Act of 1934 during the preceding 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. Yesx Noo




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Indicate
      by check mark whether the
      registrant is a shell company as defined in Rule 12b-2 of the Exchange
      Act.  Yeso Nox




Check
      if there is no disclosure of
      delinquent filers in response to Item 405 of Regulation S-B not contained in
      this form, and no disclosure will be contained, to the best of the registrant’s
      knowledge, in definitive proxy or information statements incorporated by
      reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
      Yeso Nox




Revenues
      for year ended December 31, 2006: $4,768,013.




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates was approximately $85,254,407 as of April 16, 2007 based upon
      the
      average bid and asked price of the registrant’s common stock on the Over the
      Counter Bulletin Board.




Number
      of
      shares of the registrant’s common stock outstanding as of April 16, 2007 was:
      23,681,687.




Transitional Small Business Disclosure Format: Yes o Nox


**DOCUMENTS
      INCORPORATED BY REFERENCE**




Portions
      of the Company’s definitive proxy statement for its 2006 Annual Meeting of
      Shareholders are incorporated by reference in Part I and III of this Form
      10-KSB.





**EXPLANATORY
      NOTE:**





This
      Form
      10-KSB/A is being filed to restate the Registrant’s Financial Statements in
      accordance with the Form 8-K filed on November 8, 2007.  Additional
      changes include a more thorough discussion regarding the Registrant’s business
      description and the Management Discussion & Analysis.





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**Ethos
      Environmental, Inc.**


**ANNUAL
      REPORT ON FORM 10-KSB**




**FOR
      THE YEAR ENDED DECEMBER 31, 2006**






**INDEX**




PART
                IPageItem
                1.
            Description
                of BusinessThe
                Company
            5Products
            9Trademarks
            10Significant
                Events
            10Item
                2.
            Properties
            33Item
                3.
            Legal
                Proceedings
            33Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            33PART
                IIItem
                5.
            Market
                for Common Equity and Related Stockholder Matters
            34Item
                6.
            Management’s
                Discussion and Analysis or Plan of Operation
            35Item
                7.
            Financial
                Statements
            47Item
                8.
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure
            56Item
                8A.
            Controls
                and Procedures
            56Item
                8B.
            Other
                Information
            57PART
                IIIItem
                9.
            Directors,
                Executive Officers and Corporate Governance
            57Item
                10.
            Executive
                Compensation
            58Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            60Item
                12.
            Certain
                Relationships and Related Transactions
            61Item
                13.
            Exhibits
            61Item
                14.
            Principal
                Accountant Fees and Services
            62






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**FORWARD-LOOKING
      STATEMENTS**




This
      Annual Report on Form 10-KSB contains forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”). These forward-looking statements are not
      historical facts but rather are based on current expectations, estimates and
      projections. We use words such as “anticipate,” “expect,” “intend,” “plan,”
“believe,” “foresee,” “estimate” and variations of these words and similar
      expressions to identify forward-looking statements. These statements are not
      guarantees of future performance and are subject to certain risks, uncertainties
      and other factors, some of which are beyond our control, are difficult to
      predict and could cause actual results to differ materially from those expressed
      or forecasted. These risks and uncertainties include the
      following*:*




·
            The
                availability and adequacy of our cash flow to meet our
                requirements;




·
            Economic,
                competitive, demographic, business and other conditions in our local
                and
                regional markets;




·
            Changes
                or developments in laws, regulations or taxes in our
                industry;




·
            Actions
                taken or omitted to be taken by third parties including our suppliers
                and
                competitors, as well as legislative, regulatory, judicial and other
                governmental authorities;




·
            Competition
                in our industry;




·
            The
                loss of or failure to obtain any license or permit necessary or desirable
                in the operation of our business;




·
            Changes
                in our business strategy, capital improvements or development
                plans;




·
            The
                availability of additional capital to support capital improvements
                and
                development; and




·
            Other
                risks identified in this report and in our other filings with the
                Securities and Exchange Commission or the
                SEC.




You
      should read this report completely and with the understanding that actual future
      results may be materially different from what we expect. The forward looking
      statements included in this report are made as of the date of this report and
      should be evaluated with consideration of any changes occurring after the date
      of this Report. We will not update forward-looking statements even though our
      situation may change in the future and we assume no obligation to update any
      forward-looking statements, whether as a result of new information, future
      events or otherwise.




**Use
      of Term**




Except
      as
      otherwise indicated by the context, references in this report to “Company,”
“ETEV,” “we,” “us” and “our” are references to the pre-merger business of Victor
      Industries, Inc. and post-merger business of Ethos Environmental, Inc.  All
      references to “USD” or “$” refer to the legal currency of the United States of
      America.




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 4


**PART
      I**





**Item
      1.    Description of
      Business**




***Overview***




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 these ecologically damaging emissions from vehicles, and
      at a
      price everyone can afford.  The goal of the company is to make the
      world a better place, “one gallon at a time”. According to the Environmental
      Protection Agency (EPA), “The burning of fuels releases carbon dioxide (CO2) into the
      atmosphere and contributes to climate change [Global Warming], but these
      emissions can be reduced by improving your car’s fuel
      efficiency.”  Air pollution caused by cars, trucks and other vehicles
      burning petroleum-based fuels is one of the most harmful and ubiquitous
      environmental problems. Furthermore, local accumulation in heavy traffic is
      the
      greatest source of community ambient exposure, largely because carbon monoxide
      is formed by incomplete combustion of carbon containing fuels.





Ethos
      Environmental manufactures and distributes a unique line of fuel reformulators
      that contain a blend of low and high molecular weight esters.  The
      product adds cleaning and lubrication qualities to any type of fuel or motor
      oil.  The overall benefits are increased fuel mileage, reduced
      emissions and reduced maintenance costs as the product allows engines to perform
      cooler, smoother and with more vigor.





***Esters***





In
      the
      simplest terms, esters can be defined as the reaction products of acids and
      alcohols. Thousands of different kinds of esters are commercially produced
      for a
      broad range of applications. Within the realm of synthetic lubrication, a
      relatively small substantial family of esters have been found to be very useful
      in severe environment applications.





Esters
      lubricants have already captured certain niches in the industrial market such
      as
      reciprocating air compressors and high temperature industrial oven chain
      lubricants. When one focuses on high temperature extremes and their telltale
      signs such as smoking, wear, and deposits, the potential applications for the
      problem solving ester lubricants are virtually endless.





In
      many
      ways esters are very similar to the more commonly known and used synthetic
      hydrocarbons or PAOs. Like PAOs, esters are synthesized form relatively pure
      and
      simple starting materials to produce predetermined molecular structures designed
      specifically for high performance lubrication. Both types of synthetic base
      stocks are primarily branched hydrocarbons which are thermally and oxidatively
      stable, have high viscosity indices, and lack the undesirable and unstable
      impurities found in conventional petroleum based oils. The primary structural
      difference between esters and PAOs is the presence of multiple ester linkages
      (COOR) in esters which impart polarity to the molecules. This polarity affects
      the way esters behave as lubricants in the following ways:





**Volatility**:
      The polarity of the ester molecules causes them to be attracted to one another
      and this intermolecular attraction requires more energy (heat) for the esters
      to
      transfer from a liquid to a gaseous state. Therefore, at a given molecular
      weight or viscosity, the esters will exhibit a lower vapor pressure which
      translates into a higher flash point and a lower rate of evaporation for the
      lubricant. Generally speaking, the more ester linkages in a specific ester
      the
      higher its flash point and the lower its volatility.





**Lubricity**:
      Polarity also causes the ester molecules to be attracted to positively charged
      metal surfaces. As a result, the molecules tend to line up on the metal surface
      creating a film which requires additional energy (load) to penetrate. The result
      is a stronger film which translates into higher lubricity and lower energy
      consumption on lubricant applications.





**Detergency/Dispersency**:
      The polar nature of esters also makes them good solvents and dispersants. This
      allows the esters to solubilize or disperse oil degradation by-products which
      might otherwise be deposited as varnish or sludge, and translates into cleaner
      operation and improved additive solubility in the final lubricant.





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**Biodegradability**:
      While stable against oxidative and thermal breakdown, the ester linkage provides
      a vulnerable site for microbes to begin their work of biodegrading the ester
      molecule. This translates into very high biodegradability rates for ester
      lubricants and allows more environmentally friendly products to be
      formulated.





Ethos
      Environmental manufactures and distributes Ethos FR, a unique combination of
      high-quality, non-toxic, specially designed esters that uses only the elements
      of carbon, hydrogen and oxygen. It significantly reduces emissions, fuel
      consumption, and engine maintenance costs. Ethos FR provides an immediate,
      cost-effective strategy for fighting air pollution caused by fossil fuels and
      the internal combustion engine. This combination of low molecular cleaning
      esters and the high molecular lubricating esters, reformulates any fuel whether
      it’s gasoline, diesel, methanol, ethanol, LNG, compressed natural gas or
      bio-diesel. When blended with fuels, Ethos FR reduces the emissions of
      hydrocarbons (HC), nitrogen oxides (NOx), carbon monoxide (CO), particulate
      matter (PM) and other harmful products of combustion. Yet, the emission of
      O2 is
      significantly increased. An EPA registered laboratory, confirms that Ethos
      FR is
      99.99976% clean upon ignition and ashless upon combustion. Ethos FR is free
      of
      carcinogens.





Ethos
      FR
      is a light colored, multi-functional fuel reformulator. It is designed for
      use
      in all fuels to increase power and mileage, dissolve gums and varnishes,
      lubricate upper cylinder components and keep the entire fuel system clean and
      highly lubricated. It is recommended for use at 1 part in 1280, which is equal
      to 1 fluid ounce of Ethos FR per 10 gallons of fuel.





**Typical
                Specifications****Tests**
            **Results**Viscosity
                @ 37.8o C,CS
            10.39Viscosity
                @ 100o F, SSU
            60.2Specific
                Gravity @ 15.6/15.6oC
            0.93API
                Gravity, Degrees
            26.6Flash
                Point, COC, oC (oF)
            149oC
                (300oF)Color
                and Appearance
            Light,
                bright and clearSediment
            None





Ethos
      Environmental offers a cost-effective solution to relieve skyrocketing fuel
      prices and help lessen environmental regulatory pressures. Ethos products
      address one problem that has two side effects, wasted fuel and air
      pollution. Fuel burns inefficiently in an internal combustion engine and
      that inefficiency leads to wasted fuel transformed into toxic emissions. Ethos
      products make fuel burn more efficiently so it significantly improves both
      of
      the aforementioned adverse effects. Most important, the use of Ethos results
      in
      fuel cost savings to the customer.





**Fuel
      and Maintenance Costs Savings:**





•
      Increases Miles-Per-Gallon between 7% and 19% Fleet-Wide


•
      Enhances Engine Performance by Reducing Heat Produced by Friction





**Fines
      and Downtime are Reduced Due To Air Pollution:**





•
Reduces
      Toxic Emissions By 30% or More


•
Free
      Of
      Carcinogens


•
      Non-Toxic & Non-Hazardous


•
Not
      a
      Petrochemical


•
      99.99976% Ashless upon Combustion





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**Repairs:**




•
      Improves Combustion


•
Cleans
      Fuel System


•
      Lubricates Moving Components


•
Extends
      Engine Life by Reducing Friction





***How
      Do Ethos Products Work?***





Ethos
      products reformulate any fuel, resulting in two important benefits. The first
      benefit is the added lubricity to the engine. The second is adding cleansing
      properties to the fuel. All of the internal components benefit from the
      cleansing and lubricating action including the fuel lines, filters, carburetors,
      spark plugs and injectors. Ethos also conditions the engine seals, keeping
      them
      tighter for a longer period of time. A cleaner, more lubricated engine runs
      smoother, requires less maintenance and reduces engine heat significantly,
      thereby returning horsepower closer to the manufacturer’s specifications. Ethos
      removes carbon deposits that cause fuel to combust incompletely, resulting
      in
      wasted fuel that creates toxic emissions. The combination of cleaning and
      lubricating esters in our products stabilize the fuel without changing its
      specifications.





In
      Ethos
      FR®, for example, a group of low molecular weight esters clean the dirty
      deposits formed by fuels and the combustion process. These deposits lower
      performance of an engine making it less fuel-efficient. Causing it to exhaust
      raw fuel, which is the primary contributor to pollution. A group of high
      molecular weight esters lubricate the engine surfaces as the fuel runs through
      it. Their molecular structure is small enough to penetrate the metal and form
      a
      lubricating layer between surfaces. This process allows the moving components
      of
      an engine to operate smoother and with less power-robbing friction and
      heat.





The
      primary task for the Company is to distinguish itself as an industry leader
      in
      the reduction of fuel costs and emission problems at a profit gain to the
      commercial user. Part of the challenge before us is to differentiate Ethos
      products from two types of products in this industry, additives - that are
      purported to increase fuel mileage and oxygenates - which are mandated to lower
      emissions. Both additives and oxygenates provide short-term benefits at the
      price of long-term engine or environmental problems.





Additives
      contain highly refined petrochemicals or compressed hydrocarbons that promise
      better fuel mileage and sometimes lower emissions, by “cleaning” the engine.
      Used mainly by individual consumers, they are expensive and commonly sold at
      the
      auto parts and retail stores. More than five thousand EPA-registered fuel
      additives compete in the retail market and although the EPA requires that such
      products be registered, that registration constitutes neither endorsement nor
      validation of the product’s claims.





Oxygenates,
      such as methyl tertiary butyl ether (MTBE) and Ethanol, are intended to lower
      emissions by adding oxygen to the fuel. Ethos FR® products
      actually
      complement federally mandated oxygenates by lowering emissions, but as mentioned
      earlier, Ethos FR® is not
      an oxygenate
      and cannot be used for the purpose of complying with current language federal
      legislation.





In
      contrast, Ethos products have cleaning properties that contribute to the
      lubrication of the engine instead of destroying it. The ester-based formula
      dissolves the gums and residues and adds important lubrication that an engine
      needs. The engine stays clean and lubricated, allowing it to run smoothly and
      efficiently.





Both
      E85
      and biodiesel, such as B5, are alternative measures currently being considered
      for use by the federal government.  However, these alternative
      measures rely entirely on agricultural resources such as corn, barley, wheat
      and
      vegetable oils.  Realistically, the agricultural sector of the economy
      cannot hope to produce sufficient quantities of these products to cause an
      appreciable effect on global warming.  This is a problem not facing
      Ethos as the product is readily available and continuously produced at a lower
      price.





While
      the
      debate on emissions reduction solutions continues, Ethos Environmental is making
      a difference in cleaning the air today while reducing fuel costs to its
      customers.  Extensive road tests with Ethos FR® have proven
      that
      commercial fleets, on average, increase fuel mileage between 7% and 19% and
      reduce emissions by more than 30%.  Ethos FR® is non-toxic,
      non-hazardous and works with any fuel used in cars, trucks, buses, RV’s, ships,
      trains and generators.





*Table
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 7


The
      overall result is that Ethos FR® makes engines
      combust fuel more efficiently.  When an engine uses each measure of
      fuel to the maximum degree possible, it has two very important
      benefits.  It reduces fuel consumption and reduces non-combusted
      residues that an engine expels in the form of exhaust emissions such as
      hydrocarbons, nitrogen oxides, carbon monoxide, particulate matter and other
      harmful products of combustion.  Unused fuel is saved in the fuel
      tank, waiting to be used efficiently by the engine, instead of exhausted in
      the
      form of toxic emissions.  Ethos FR® reduces
      emissions
      without adding any of its own components to the exhaust since it is 99.99976%
      ash-less upon combustion, and free of carcinogenic compounds.





Ethos
      Environmental is also at the forefront in the development of new blending
      methods and is positioned to become an industry leader with new products
      currently under development.





***Our
      Corporate History***





We
      were
      originally incorporated under the laws of the State of Idaho on January 19,
      1926
      under the name of Omo Mining and Leasing Corporation. The Company was renamed
      Omo Mines Corporation on January 19, 1929. The name was changed again on
      November 14, 1936 to Kaslo Mines Corporation and finally Victor Industries,
      Inc.
      on December 24, 1977.





As
      Victor
      Industries, Inc., the Company developed, manufactured, and marketed 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.





***Reverse
      Acquisition of Ethos***





On
      November 2, 2006, as part of a two-step reverse merger, the Company merged
      with
      and into Victor Nevada, Inc. a newly incorporated entity for the purpose of
      redomiciling under the laws of the State of Nevada. Concurrently therewith,
      we
      completed the merger transaction with Ethos Environmental, Inc., a privately
      held Nevada corporation “Ethos”. The Company was the surviving entity. To more
      adequately reflect the new direction of the Company, the name was
      changed to Ethos Environmental, Inc. and the Company adopted the business
      plan of Ethos.




**Acquisition**





On
      April
      20, 2006, Victor Industries, Inc., with the approval of its Board of Directors,
      executed an Agreement and Plan of Merger with San Diego, CA based Ethos
      Environmental, Inc., a Nevada corporation.





At
      a
      meeting of the shareholders of the Company held on October 30, 2006, a majority
      of shareholders voted in favor of the merger. On November 2, 2006, the merger
      was consummated. As part of the merger, the Company redomiciled to Nevada,
      and
      changed its name to Ethos Environmental, Inc. In addition thereto, and as part
      of the merger, the Company set a record date of November 16, 2006 for a reverse
      stock split of 1 for 1,200.





The
      merger provides for a business combination transaction by means of a merger
      of
      Ethos with and into the Company, with the Company as the corporation surviving
      the merger. Under the terms of the merger, the Company acquired all issued
      and
      outstanding shares of Ethos in exchange for 17,718,187 shares of common stock
      of
      the Company. Shares of Company common stock, representing an estimated 97%
      of
      the total issued and outstanding shares of Company common stock, was issued
      to
      the Ethos stockholders. Ethos shareholders were able to exchange their shares
      beginning on or after November 16, 2006, the record date set for the reverse
      stock split.




The
      shares issued by the registrant (17,718,187) were revalued at the new par value
      of $.0001.  Another adjustment to common stock and additional paid in
      capital was generated due to the cancellation of pre-merger shares
      (17,717,477).  Due to the effect of the reverse merger, the Buyer’s
      shares outstanding (479,500) were converted to common stock and the effect
      of
      the net assets acquired was adjusted to additional paid in
      capital.  During the year, another 4,910,000 shares of common stock
      were issued for services based upon the price at date of
      issuance.




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 8


The
      merger was intended to qualify as a reorganization within the meaning of
      Section 368(a) of the Internal Revenue Code and no gain or loss will be
      recognized by the Company as a result of the merger.





The
      merger is accounted for under the purchase method of accounting as a reverse
      acquisition in accordance with U.S. generally accepted accounting principles
      for
      accounting and financial reporting purposes. Under this method of accounting,
      Ethos is treated as the “accounting acquirer” for financial reporting purposes.
      In accordance with guidance applicable to these circumstances, the merger was
      considered to be a capital transaction in substance. Accordingly, for accounting
      purposes, the merger was treated as the equivalent of Ethos issuing stock for
      the net monetary assets of the Company. The net monetary assets of the Company
      have been stated at their fair value.




In
      connection with the merger, Lana Pope and Dave Boulter voluntarily resigned
      from
      the board of directors of the Company on November 3, 2006.




Following
      such resignations, as a result of the merger, three persons became the Company’s
      board of directors: Enrique de Vilmorin, President, Chief Executive Officer,
      and
      Director, Jose Manuel Escobedo, Director and Secretary, and Luis Willars,
      Director and Treasurer.




A
      summary
      of the merger follows:





·
            The
                Company was the surviving legal corporation,·
            The
                Company acquired all issued and outstanding shares of Ethos in exchange
                for 17,718,187 shares of common stock of the Company. Shares of Company
                common stock, representing an estimated 97% of the total issued and
                outstanding shares of Company common stock, was issued to the Ethos
                stockholders,





·
            The
                shareholders of the Company received pro rata for their shares of
                common
                stock of Ethos, 17,718,187 shares of common stock of the Company
                in the
                merger, and all shares of capital stock of Ethos were
                cancelled,·
            The
                officers and directors of Ethos became the officers and directors
                of the
                Company,





·
            The
                name of Victor Industries, Inc. was changed to “Ethos Environmental,
                Inc.”, and·
            Ethos
                requested a new symbol for trading on the Over the Counter Bulletin
                Board
                (“OTCBB”), which also reflects the reverse stock split of 1 for 1,200, the
                new symbol of the Company is
“ETEV.”





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.





Ethos
      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.





**Products**





Ethos
      manufactures a unique line of fuel reformulators that contain a blend of low
      and
      high molecular weight esters. Ethos products add cleaning and lubricating
      qualities to any type of fuel or motor oil, allowing engines to perform cooler,
      smoother and with more vigor. The overall benefits are increased fuel mileage,
      reduced emissions, and reduced maintenance costs.





Ethos
      fuel reformulating products increase fuel mileage and reduce emissions by
      burning fuel more completely. Exhaust is essentially unburned fuel, i.e. wasted
      fuel, so when that fuel is used more completely, the engine delivers better
      mileage from every tank. Efficient fuel use also improves engine performance
      due
      to the fact that a more complete combustion process obtains increased power
      from
      every engine revolution.





The
      management of Ethos Environmental firmly believes that the market for our
      product is aggressively expanding.  Worldwide fuel consumption is
      approximately 85 million barrels per day and projected by the Energy Information
      Administration to continue to grow to 97 million barrels per day by 2015, and
      118 million barrels per day by 2030.  Much of the dramatic growth over
      the past decade has been fueled by the dramatic expansion of India, China and
      Brazil.  As additional undeveloped countries begin to expand, so too
      will fuel consumption and the Company’s market base.  In addition,
      consumers are becoming more sensitive to increased fuel economy as oil prices
      have increased eight times since the late 1990s.





*Table
          of Contents*
 9


Ethos
      products reduce fuel emissions, benefiting the environment in two notable
      ways:





1.
            The
                use of Ethos**products reduce engine exhaust emissions by 30%
                or more, including measurable reductions in the emission of hydrocarbons
                (HC), nitrogen oxides (Nox), and carbon monoxide (CO).  All of
                these emissions are highly toxic and detrimental to the
                environment.





2.
            Ethos
                products reduce emissions of particulate matter, especially in
                diesel-powered engines. Diesel fuel is commonly dirty and maintaining
                a
                diesel engine in the prime condition necessary to reduce emissions
                is both
                expensive and time-consuming.  As a result, diesel engines are a
                constant source of air contaminants. In most industrialized countries,
                including the U.S., diesel engines are one of the largest sources
                of air
                pollution. When Ethos products are added to diesel fuel, the engine
                runs
                cleaner, smoother and cooler - significantly reducing sooty exhaust.
                Engines treated with Ethos run with less friction, heat and noise.
                Fuel
                and lubricating systems, filters, tanks, and injectors last longer,
                reducing maintenance costs.








Ethos
      has
      two products, Ethos FR® and Ethos Bunker Fuel Conditioner (“Ethos BFC”). There
      are two esters used in each product, a light ester and a heavy ester.  For
      the Ethos FR®, we obtain the esters from Hatco and Cognis.  The mineral oil
      used in the Ethos FR® is obtained, primarily, from Chevron, and, at times, from
      Proctor and Gamble.





Ethos
      FR®
can be used in any fuel. Ethos BFC is primarily used for Maritime Diesel Fuels
      and Power Plant Diesel Fuel, or external combustion engines.  Ethos BFC
      uses two esters distinct from those used in the Ethos FR® as the diesel fuel
      used in external combustion engines is heavier and thicker than normal diesel
      fuel. We obtain the heavy ester for the Ethos BFC from Tekat (a Netherlands
      Company headquartered in the UK).  The light ester is purchased from
      Cognis. While there is no toxicity in the Ethos FR®, Ethos BFC has some degree
      of toxicity, though not much.





Ethos
      products provide risk-free benefits with an economic gain to the client. To
      date, all customers have testified, either verbally or in writing, that they
      experienced a monetary gain on fuel savings, with all stating that they
      experienced an average improvement in mileage per gallon between 7% and 19%,
      depending on the fuel (gasoline or diesel), the vehicle used, and the individual
      driver’s practices and driving traits.





***Trademarks***





We
      own
      the following trademark(s) used in this document (which is registered with
      the
      United States Patent and Trademark Office under Registration Number 3,015,561):
      Ethos FR®.
      Trademark rights are perpetual provided that we continue to keep the mark in
      use. We consider these marks, and the associated name recognition, to be
      valuable to our business.





***Air
      Quality Standards***





It
      is
      believed that with the increased worldwide focus on the greenhouse effects
      of
      petroleum products, the ability of Ethos to reduce emissions by 30% can only
      increase the Company’s market presence.****Political and
      media pressures are causing more people to become concerned about our
      environment and the effects of global warming.  For example, per the
      National Snow and Ice Data Center in Boulder, Colorado, the ice cover in the
      Arctic Ocean has shattered the all-time low record during the summer months
      of
      2007.  Most researchers had anticipated the complete disappearance of
      the Arctic ice pack during the summer months would not happen until after the
      year 2070, but now believe it could happen as early as 2030.





*Table
          of Contents*
 10


Ethos
      Environmental began the manufacturing and marketing of Ethos products after
      ten
      years of successful product testing. During the early years, widespread public
      environmental concerns were only beginning to surface. Air quality standards
      were non-existent and fuel costs were low, making penetration of the market
      an
      uphill battle.





In
      recent
      years most of the improvements in air quality have come through advancements
      in
      engine technologies.  Through catalytic converters and computer
      controlled air and fuel injection systems, engineers have designed cars that
      use
      fuel much more efficiently and pollute far less than ever before.  But
      as new engine technologies have reached their limits, the government has turned
      its attention to the oil companies to produce cleaner-burning
      fuels.





The
      approach of Ethos Environmental is to sell our products “one gallon at a time”,
      earning the respect and trust of each user. Over the past decade, our products
      have gone though extensive miles of road tests, with all such testing verifying
      the ability of our products to significantly reduce emissions while improving
      gas mileage.  Now, at a time of skyrocketing fuel costs, the value of
      Ethos products is paying off for a long list of domestic customers and a growing
      contingent of international clients.





***Market
      Research***





Air
      pollution caused by cars, trucks and other vehicles burning petroleum-based
      fuels is one of the most harmful and ubiquitous environmental problems.
      Furthermore, local accumulation in heavy traffic is the greatest source of
      community ambient exposure, largely because carbon monoxide is formed by
      incomplete combustion of carbon containing fuels.





Diesel
      exhaust is a major contributor of particulate matter concentrations.
      Representing only 2 percent of the vehicles on the road, diesel powered vehicles
      generate more than half of the particulates and nearly a third of the nitrogen
      oxides in the air, according to a study by the California Air Resources
      Board.  Air pollution monitoring efforts by the American Lung
      Association indicate that diesel accounts for 70% of the cancer risk.
      Furthermore, pioneers in the study of global warming factors have come to
      believe that particulate matter, such as that emitted by diesel engines, plays
      a
      far more critical role in the development of the “greenhouse effect” than
      previously suspected.





To
      combat
      this problem the U.S. Environmental Protection Agency developed a two-step
      plan
      to significantly reduce pollution from new diesel engines. (New Emission
      Standards for Heavy-Duty Diesel Engines Used In Trucks and Buses) (October
      1997,
      EPA 420-F-97-016).  The first step set new emissions standards for
      diesel engines beginning in 2000. The second step sets even more stringent
      emission standards that will take effect in 2007, combined with mandated
      reductions in the sulfur levels of all diesel fuel.





As
      crude
      oil is heated, various components evaporate at increasingly higher temperatures.
      First to evaporate is butane, the lighter-than-air gas used in cigarette
      lighters, for instance. The last components of crude oil to evaporate, and
      the
      heaviest, include the road tars used to make asphalt paving. In between are
      gasoline, jet fuel, heating oil, lubricating oil, bunker fuel (used in ships),
      and of course diesel fuel. The fuel used in diesel engine applications such
      as
      trucks and locomotives is a mixture of different types of molecules of hydrogen
      and carbon and include aromatics and paraffin. Diesel fuel cannot burn in liquid
      form. It must vaporize into its gaseous state. This is accomplished by injecting
      the fuel through spray nozzles at high pressure. The smaller the nozzles and
      the
      higher the pressure, the finer the fuel spray and vaporization. When more fuel
      vaporizes, combustion is more complete, so less soot will form inside the
      cylinders and on the injector nozzles. Soot is the residue of carbon, partially
      burned and unburned fuel.





Sulfur
      is
      also found naturally in crude oil. Sulfur is a slippery substance and it helps
      lubricate fuel pumps and injectors. It also forms sulfuric acid when it burns
      and is a catalyst for the formation of particulate matter (one of the exhaust
      emissions being regulated). In an effort to reduce emissions, the sulfur content
      of diesel fuel is being reduced through the refinery process, however, the
      result is a loss of lubricity.





*Table
          of Contents*
 11


Diesel
      fuel has other properties that affect its performance and impact on the
      environment as well. The main problems associated with diesel fuel
      include:





·
            Difficulty
                getting it to start burning o Difficulty getting it to burn completely
                o
                Tendency to wax and gel


·
            With
                introduction of low sulfur fuel, reduced
                lubrication


·
            Soot
                clogging injector nozzles


·
            Particulate
                emissions


·
            Water
                in the fuel


·
            Bacterial
                growth





Today’s
      advanced diesel engines are far cleaner than the smoke-belching diesels of
      recent decades. Unfortunately, even smokeless diesel engines are not clean
      enough to meet current stricter air pollution regulations.





While
      diesel engines are the only existing cost-effective technology making
      significant inroads in reducing “global warming” emissions from motor vehicles,
      it is not sufficient to satisfy regulators and legislators. Diesel engines
      will
      soon be required to adhere to stringent regulatory/legislative guidelines that
      meet near “zero” tailpipe emissions, especially on smog-forming nitrogen oxides
      (NOx), particulate matter (PM) and “toxins”; the organic compounds of diesel
      exhaust.





The
      U.S.
      Department of Energy, Energy Information Administration (“EIA”) estimates that
      worldwide annual consumption of diesel fuel approximates 210 billion U.S.
      gallons. A breakdown of this estimate is summarized as follows:









Based
      o
      further EIA published data, the following table* depicts domestic distillate
      fuel oil consumption by energy use for 2001.


*
      Sources: Energy Information Administration’s Form EIA-821, “Annual Fuel Oil and
      Kerosene Sales Report,” for 1997-2001 and “Petroleum Supply Annual,” Volume 1,
      1997-2001. Totals may not equal sum of components due to independent
      rounding.





*Table
          of Contents*
 12


When
      blended with fuels, Ethos products reduce the emissions of hydrocarbons (HC),
      nitrogen oxides (Nox) carbon monoxide (CO), particulate matter (PM) and other
      harmful compounds of combustion.  Given these conditions, the
      commercial fuels consumer market represents an important target for Ethos
      Environmental.





***Competition***





The
      market for products and services that increase diesel fuel economy, reduce
      emissions and engine wear is rapidly evolving and intensely competitive and
      management expects it to increase due to the implementation of stricter
      environmental standards. Competition can come from other fuel additives, fuel
      and engine treatment products and from producers of engines that have been
      modified or adapted to achieve these results. In addition, we believe that
      new
      technologies, including additives, will further increase
      competition.





Alternative
      fuels, gasoline oxygenates and ethanol production methods are continually under
      development. A number of automotive, industrial and power generation
      manufacturers are developing more efficient engines, hybrid engines and
      alternative clean power systems using fuel cells or clean burning gaseous fuels.
      Vehicle manufacturers are working to develop vehicles that are more fuel
      efficient and have reduced emissions using conventional gasoline. Vehicle
      manufacturers have developed and continue to work to improve hybrid technology,
      which powers vehicles by engines that utilize both electric and conventional
      gasoline fuel sources. In the future, the emerging fuel cell industry offers
      a
      technological option to address increasing worldwide energy costs, the long-term
      availability of petroleum reserves and environmental concerns.





The
      diesel fuel additive business and related anti-pollutant businesses are subject
      to rapid technological change, especially due to environmental protection
      regulations, and subject to intense competition. We compete with both
      established companies and a significant number of startup enterprises. We face
      competition from producers and/or distributors of other diesel fuel additives
      (such as Lubrizol Corporation, Chevron Oronite Company, Octel Corp., Clean
      Diesel Technologies, Inc. and Ethyl Corporation), from producers of alternative
      mechanical technologies (such as Algae-X International, Dieselcraft, Emission
      Controls Corp. and JAMS Turbo, Inc.) and from alternative fuels (such as
      bio-diesel fuel and liquefied natural gas) all targeting the same markets and
      claiming increased fuel economy, and/or a decrease in toxic emissions and/or
      a
      reduction in engine wear.





Ethos
      FR®
and Ethos BFC areunique, and comparative fuel reformulators do not exist.The
      primary task for the Company is to distinguish itself as an industry leader
      in
      the reduction of fuel costs and emission problems at a profit gain to the
      commercial user.  Part of the challenge before us is to differentiate
      Ethos products from two types of products in this industry, additives - that
      are
      purported to increase fuel mileage and oxygenates - which are mandated to lower
      emissions. Both provide short-term benefits at the price of long-term engine
      or
      environmental problems.





Additives
      contain highly refined petrochemicals or compressed hydrocarbons that promise
      better fuel mileage and sometimes lower emissions, by “cleaning” the engine.
      Used mainly by individual consumers, they are expensive and commonly sold at
      the
      auto parts and retail stores. More than five thousand EPA-registered fuel
      additives compete in the retail market and although the EPA requires that such
      products be registered, that registration constitutes neither endorsement nor
      validation of the product’s claims.





Oxygenates,
      such as methyl tertiary butyl ether (MTBE) and Ethanol, are intended to lower
      emissions by adding oxygen to the fuel. Ethos FR® products
      actually
      complement federally mandated oxygenates by lowering emissions, but as mentioned
      earlier, Ethos FR® is not
      an oxygenate
      and cannot be used for the purpose of complying with current language federal
      legislation.





In
      contrast, Ethos FR® products
      have
      cleaning properties that contribute to the lubrication of the engine instead
      of
      destroying it. The ester-based formula dissolves the gums and residues and
      adds
      important lubrication that an engine needs.  The engine stays clean
      and lubricated, allowing it to run smoothly and efficiently.





*Table
          of Contents*
 13


***Marketing
      Strategy***





Ethos
      products are ideally positioned to capitalize on increasing fuel prices and
      regulatory pressure to tighten emissions standards.  Fuel is a
      significant operating cost for companies that use cars, trucks or vessel fleets
      in their daily business, especially where competitive markets make it difficult
      to pass along fuel increases. Every hike in the price of fuel hurts the
      profitability of that company.  For these businesses, obtaining better
      mileage offers a crucial competitive edge, and the goal of Ethos Environmental
      is to help them maximize their fuel use and maintain profitability.





From
      its
      earliest days, Ethos has focused on the product demonstration as the most
      effective means of introducing Ethos FR® to potential
      users.
      During this demonstration phase, Ethos supplies product to treat a sample of
      the
      fleet at no cost to the client. It is vital that the customer understand and
      prove the effectiveness of Ethos FR® in their
      fleets.
      This demonstration phase will last as long as necessary to quantify the value
      and projected savings possible once the entire fleet is treated.





Through
      this demonstration process, we prove to each customer that they can realize
      the
      benefits of reduced emissions, smoother-running vehicles and lower maintenance
      costs at virtually no risk, because the reduction in fuel usage will more than
      cover the expense of using Ethos FR®. In fact,
      the
      addition of Ethos FR® will result
      in fuel
      savings beyond the cost of treatment, resulting in monetary gain to the
      user.





Commercial
      fleets vary in size from a few to thousands of vehicles. Such fleets generally
      produce immediate sales results because administrative requirements are minimal
      and the product demonstration phase is brief.  Typically, a sample of
      the fleet is treated and the potential customer is quickly able to quantify
      the
      value and project the savings that the use of Ethos FR® will produce.
      Usually a fleet’s oldest and dirtiest vehicles, or vehicles out of warranty, are
      included in the demonstration. Such vehicles amplify the effectiveness of the
      products and help to ease any initial client objections regarding manufacturer
      warranties. Once the demonstration is underway, Ethos FR® products
      sell
      themselves, increasing fuel mileage between 7% and 19% and reducing emissions
      by
      more than 30%.  Once the effectiveness of the product has been
      established, a conscientious customer-service program ensures continued
      use.





The
      Ethos
      Environmental strategy has been to approach each market from the perspective
      of
      the customer’s strongest motivation, whether to reduce fuel costs or reduce
      engine emissions. From a marketing standpoint, it is most cost-effective for
      Ethos Environmental to focus on commercial fuel users that keep track of
      maintenance and operating expenses. These consumers are more sensitive to
      pressures from rising fuel costs and more concerned about meeting emissions
      standards.





Rising
      fuel costs will always be a marketing advantage for Ethos. Higher fuel prices
      decrease the cost to treat each gallon of fuel; resulting in even greater
      savings to Ethos clients.  The Company’s marketing strategy
      strengthens as the price of fuel increases.  Even where cost savings
      are a client’s primary motivator, the use of Ethos FR® identifies
      the user
      as an environmentally conscientious business. It also creates goodwill within
      the community through the reduction of unhealthy and unsightly exhaust
      emissions.





***Ethos
      FR – Proof of Performance***





An
      integral part of our sales process is to conduct proof of performance
      demonstrations for potential customers wherein we accumulate historical data
      that documents the effects of the use of Ethos FR® (i.e. advantages
      in
      terms of increased fuel economy, a decrease in engine wear and reductions in
      toxic emissions) on that customer’s specific vehicles or vessels. In connection
      with the proof of performance demonstrations, we provide fleet monitoring
      services and forecasts of fuel consumption for purposes of the prospective
      customer’s own analysis.





The
      results below
      are test results of customer experiences using Ethos FR®.  The
      first results are for a fleet of trucks for Allied Waste.  The second
      results are for Ecuador for Ethos BFC used in external combustion
      engines.  On our website are results for other customers
      including:  US Department of Justice; LA Transport; Lucar Transport;
      Mission Linen Supply; Vista City; China City Bus Company; Oceanside School
      District; San Diego Port District; and the Shenzhen Public Transport
      Group.  In all tests the results have been consistent, with a 7% to
      19% cost saving, and an over 30% reduction in emissions.





Following
      is a Management Report outlining the process and methodology of the testing
      of
Ethos
      FR®
      for Allied Waste Services:




*Table
              of Contents*
 14


**MANAGEMENT
      REPORT**





**Testing
      of Ethos Fuel Reformulator**


**Allied
      Waste Services, Southwestern Region**





**Overview**





Ethos
      FR
      has been used, without interruption, at multiple Allied Waste locations in
      Southern California since the year 200.





Based
      on
      the positive results realized at those locations (estimated at a 10 reduction
      in
      fuel consumption plus significant reductions in maintenance/repair costs and
      emissions) an initial test was conducted at one location in the Southwestern
      Region of Allied Waste during the months of July and August,
      2006.  The results of this initial 4 week test showed an estimated
      reduction in fuel consumption of 10.35%, as measured by gallons per engine
      hour,
      compared to a baseline period of the previous 12 months (July 2005 through
      June
      2006).





Based
      on
      these positive results, a second phase of testing was initiated in May 2007
      encompassing 4 locations in the Southwestern Region.  The period of
      testing was generally the months of May, June and July 2007, however, one
      location continued Ethos use through August.  The detailed data
      obtained from this testing period is content of this report.





**Testing
      Procedures and Data Compilation & Reporting
      Methodology**





Upon
      initiation of the testing period, fuel consumption and engine hour data was
      obtained from each location for a baseline period in order to establish a point
      of comparison for the test.  The baseline period for each location was
      generally the period of January through March, 2007.





The
      standard CFA report obtained from each location was the “Fuel Transaction Detail
      by Equipment #” report.  This report provides the most comprehensive
      daily listing of fuel dispensed and engine hours recorded for each vehicle
      during each time period.  It is important to note that
**detailed** reports were used throughout the compilation of the
      data contained in this analysis because every report from every location
      contains several “anomalies” which could distort the accuracy of any data from
      any report.





Most
      common among these “anomalies” are:





1.
            Vehicles
                showing fuel consumed but few or no engine hours recorded (which
                would
                result in a higher fuel per hour calculation than is actually the
                case),


2.
            Vehicles
                showing no fuel consumed yet have engine hours recorded (which would
                result in a lower fuel per hour calculation than is actually the
                case),
                or


3.
            Vehicles
                that do not have recorded data for both comparative
                periods.  This would
                include:


·
            new
                vehicles that have been added to the fleet (and therefore have no
                baseline
                data)


·
            vehicles
                that have been retired from the fleet or are out of service for repairs
                or
                maintenance (these vehicles will have baseline data but no data in
                one or
                more of the test periods).





*Table
          of Contents*
 15


**Raw
      Data vs. Comparable Data**





Due
      to
      the frequency and significance of the anomalies outlined above, a detailed
      process was implemented to ensure that any such reporting inaccuracies did
      not
      undermine the validity of the comparative data obtained during this
      test.





The
      procedures utilized by Green Fleet Associates were as follows:





1.
            Every
                CFA report that was obtained from every location for every time period
                as
                reviewed line-by-line, vehicle-by-vehicle to assure the validity
                of the
                data.  Any obvious anomalies were highlighted on the raw CFA
                report.


2.
            This
                raw data from the CFA report was transferred to a spreadsheet in
                order to
                facilitate ongoing side-by-side, vehicle-by-vehicle comparisons of
                baseline to test period data.  Any anomalies or missing data for
                any vehicle was highlighted on the spreadsheet for reach comparative
                period.


3.
            A
                true “apples-to-apples” comparison was obtained for each time period by
                removing all highlighted items.





**Verification
      of Ethos Use**





Equally
      important in assuring the validity of the data collected was making best efforts
      to verify that all of the fuel being consumed by each location during the
      testing period was being treated with Ethos.  The method utilized to
      check this compliance was a detailed tracking of fuel deliveries compared the
      Ethos inventory at each location during the testing period.  While
      almost all locations maintained a consistent treatment schedule throughout
      the
      three month testing period, there were some minor exceptions.





The
      spreadsheets detailing the baseline & test period data, for each month at
      each location are as follows:








*Table
            of Contents*
 16











Following
      is a summary of the test results for Ethos Bunker Fuel Conditioner, tested
      at
      Esmeraldas, Ecuador.





**1.)**
            **O2**
                levels increased by **41.53 %** after the application of the
                Ethos Bunker Fuel Conditioner.


2.)
            CO2
                levels decreased by 7.79% after the application of the Ethos
                BFC.


3.)
            CO
                levels decreased by 91.75 % after the application of the Ethos Bunker
                Fuel
                Conditioner.


4.)
            SO2
                levels decreased by 1.69% after the applications of the Ethos
                BFC.


5.)
            NO
                levels decreased by .82% after the application of the Ethos
                BFC.


6.)
            NO2
                levels remained constant at 0.


7.)
            Nox
                levels decreased by .82% after the application of the Ethos
                BFC.


8.)
            tf
                levels decreased by 9.18% after the application of the Ethos
                BFC.


9.)
            ta
                levels decreased by 1.16% after the application of the Ethos
                BFC.


10.)
            CO2
                max levels decreased by .69% after the application of Ethos
                BFC.


11.)
            Excess
                air readings increased by 48.14% after the application of the Ethos
                BFC.





*Table
            of Contents*
 17







***Ethos
          FR – Proof of Performance Demonstrations***
 
 Ethos
          Environmental’s fuel reformulating products reduce emissions by burning fuel
          more completely, which improves fuel mileage. Exhaust is essentially unburned
          fuel, wasted fuel, so when the fuel is used more completely the engine
          delivers
          better mileage from every tank. Efficient fuel use also means improved
          engine
          performance because a more complete combustion process obtains increased
          power
          from each engine revolution.
 
 In
          the
          last decade hundreds of thousands of miles in road tests have been conducted.
          Test after test, Ethos products have proven to reduce engine exhaust emissions
          by 30% and more, including measurable reductions in the emissions of
          hydrocarbons (HC), nitrogen oxides (NOx), carbon monoxide (CO), and sooty
          exhaust or particulate matter (PM). All of these emissions are highly toxic
          and
          as a result, fuel mileage increases have been significant, ranging from
          7% to
          19% fleet wide.
 
 Ethos
          Environmental uses an opacity meter, a detection device for diesel vehicles
          that
          measures the percentage of opacity (light obstructed from passage through
          an
          exhaust smoke plume), to demonstrate dramatic reductions in emissions.
          In more
          that 1,000 heavy-duty diesel vehicles treated (a motor vehicle having a
          manufacturer’s maximum gross vehicle weight rating (GVWR) greater than 6,000
          pounds), emissions were lowered by as much as 90%. The Society of Automotive
          Engineers (SAE) recommended practice SAE J1667 “Snap Acceleration Smoke Test
          Procedure” to be used for heavy-duty diesel powered vehicles. Attached are
          samples of opacity test sheets, taken from diesel-powered engines, demonstrating
          the positive results after using Ethos FR®.
  *Table
              of Contents*
 18
 ***Target
          Markets***
 
 According
          to the American Petroleum Institute, the United States fuels consumer market
          is
          comprised of the following segments: retail consumer 27%, government agencies
          16%, ground fleets 14%, industrial users 10%, aircraft 9%, maritime 6%,
          miscellaneous 18%.
 
 The
          Company’s typical customers use cars, trucks or vessels in their day-to-day
          operations. Fuel is a significant operating cost, and consequently these
          fleets
          are particularly sensitive to fuel price fluctuations and strict emissions
          standards. The ideal clients are those with fleet managers and are conscientious
          about keeping track of operating expenses. They understand that every hike
          in
          fuel price hurts their profitability, this being a critical factor wherever
          competitive markets make it difficult to pass on the price increases to
          their
          clients; thereby making it critical for businesses to obtain better mileage
          as a
          competitive advantage.
 
 Maritime
          and government agencies are desirable for their large fuel volume use and
          industry credibility.  They offer the Company medium to long-term
          sales, since the process requires a longer lead-time to close. The product
          demonstration phase and administrative requirements are generally more
          complex,
          particularly with large government institutions. At the same time, they
          offer
          large volume sales and a continual source of staged orders that promote
          production stability.
 
 Marine
          vessels run on bunker fuel that is less refined than diesel.  A
          mid-size ship will use more than half a ton per hour of operation, or 125
          gallons of fuel per hour. For example, a mid-size vessel running on bunker
          on a
          typical trip to Japan from Los Angeles will require a half ton per hour,
          or 180
          tons.  This represents a total of 45,000 gallons of fuel that requires
          4,500 oz. (35 gallons) of Ethos BFC. This vessel would use approximately
          one
          drum (55gals.) of Ethos BFC per month. Accordingly, maritime customers
          represent
          a large and solid client base.
 
 Countries
          all around the world are endeavoring to deal with the high costs of petroleum
          products and the detrimental effects of those products on the environment,
          much
          like the United States.  The Company has found broad and enthusiastic
          acceptance of its Ethos products globally.  During the past three
          years, the Company has opened markets in Asia, Latin America, Canada, Australia,
          Africa and Europe, often dealing directly with government entities that
          possess
          the power to implement widespread use of Ethos products – whether in citywide
          public transportation systems or countrywide fuel distribution
          structures.
 
 As
          with
          our domestic client base, international customers of Ethos appreciate the
          benefits of improved mileage and reduced emissions.  In countries that
          lack the regulatory structures necessary to control vehicle emissions and
          fuel
          efficiency, the benefits of Ethos are even more pronounced.
 
 *Table
              of Contents*
 19
 ***Customers***
 
 We
          have a
          diversified customer list which presently numbers 59 and is composed of
          state
          governments, corporations and high net worth individuals.  There are
          two who account for over 10% of our revenue:  Petroindustrial 76.64%
          and Petroecuador 10.51%.  We do not have contracts with our
          customers.  Purchase orders are used as Ethos products are required
          and ordered.  We derive revenue from our customers as discussed in
          Note 1, "Organization and Significant Accounting Policies: Revenue Recognition"
          of the consolidated financial statements. Two customers accounted for 88%
          of our
          revenues for the fiscal year ended December 31, 2006. One customer accounted
          for
          40% and the second customer accounted for 48%. One of these customers accounted
          for 62% of our accounts receivable at December 31, 2006. As our products
          reach
          more customers, the concentration of credit risk will spread out amongst
          the
          base of our clientele, and will lessen the effect of the risk shown during
          the
          year ended December 31, 2006.
 
 ***Supply
          Arrangements***
 
 We
          presently obtain our raw materials on an exclusive basis from five (5)
          suppliers. However, these arrangements are not governed by any formal written
          contract. Accordingly, either party may terminate the arrangement at any
          time,
          including the exclusivity aspect of the arrangement. If a supplier is not
          able
          to provide us with sufficient quantities of the product, or chooses not
          to
          provide the product at all (for any reason), or if exclusivity is lost,
          business
          and planned operations could be adversely affected. Although management
          has
          identified alternate suppliers of the products, no assurance can be given
          that
          the replacement products will be comparable in quality to the product presently
          supplied to us by current suppliers, or that, if comparable, products can
          be
          acquired under acceptable terms and conditions.
 
 ***Revenue
          and Fixed Assets***
 
 The
          Company’s revenue is generated in the United States and abroad through our San
          Diego, California office, which at present is our only operating
          office.  All of the fixed assets are located in the San Diego,
          California office.  In February, 2007, the Company entered into a sale
          and leaseback arrangement as outlined below under Loan Facilities.
 
 ***Vendors***
 
 The
          Company maintains strong relationships with all vendors. We are not dependent
          upon any one vendor for our business.
 
 ***Governmental
          Regulation***
 
 In
          the
          United States, fuel and fuel additives are registered and regulated pursuant
          to
          Section 211 of the Clean Air Act. 40 CFR Part 79 and 80 specifically relates
          to
          the registration of fuels and fuel additives. Typically, there are registration
          and regulation requirements for fuel additives in each country in which
          they are
          sold. In accordance with the Clean Air Act regulations at 40 CFR 79,
          manufacturers (including importers) of gasoline, diesel fuel and additives
          for
          gasoline or diesel fuel, are required to have their products registered
          by the
          EPA prior to their introduction into commerce.
 
 However,
          EPA registered additives are derived from petroleum while Ethos FR® is
          a reformulator.
          Even though you “add it” to the fuel, Ethos FR® is
          not derived from
          petroleum and is non-toxic and non-hazardous and therefore not subject
          to
          governmental regulations.  There could be unforeseen future changes to
          the registration requirements under the Clean Air Act and Ethos FR® may
          have to seek
          registration under such new requirements.  In addition, we currently
          sell our product outside of the United States and intend to further expand
          our
          sales efforts internationally.  We may need to seek registration in
          other countries for the Ethos FR®
          product.
 
 *Table
              of Contents*
 20
 At
          this
          time the Company is not aware of any present or pending rules or regulations
          that would require the Company to seek registration of the Ethos FR® product
          either
          domestically or internationally.
 
 ***Research
          and Development Costs***
 
 Research
          and development costs are charged to operations when incurred and are included
          in operating expenses. The amounts charged for the years ended December
          31, 2006
          and 2005 amounted to $112,051 and $132,404, respectively. All of these
          costs are
          borne by the Company.
 
 Following
          is the Ethos FR® Material
          Safety
          Data Sheet (MSDS)
  *Table
              of Contents*
 21
  *Table
            of Contents*
 22
 
  *Table
            of Contents*
 23
 ***Employees***
 
 As
        of
        March 31, 2007, we had 25 full-time and 10 part-time employees.
 
 **RISK
        FACTORS**
 
 *You
        should carefully consider the risks described below before investing in the
        Company. We consider these risks to be significant to your decision whether
        to
        invest in our Common Stock at this time. If any of the following risks actually
        occur, our business, results of operations and financial condition could
        be
        seriously harmed, the trading price of our Common Stock could decline and
        you
        may lose all or part of your investment.*
 
 **Risks
        Related to Our Business**
  ***Due
        to the newness of our company and our products, our technology has received
        only
        limited market acceptance.***
 
 Our
        technology is a relatively new product to the market place.  Although
        ever growing concerns and regulations
        regarding   the   environment   and   pollution   has   increased   interest
        in environmentally friendly products generally, the engine treatment and
        fuel
        reformulator, i.e. additive, market remains an evolving market.  The
        Ethos FR®
        technology  competes with more established  companies such
        as Lubrizol  Corporation,  Chevron Oronite Company
        (a  subsidiary  of  Chevron  Corporation),  Octel  Corp.,  Clean  Diesel
        Technologies,  Inc.  and
        Ethyl  Corporation,  as well as
        other  companies  whose products or
        services  alter,  modify or adapt diesel  engines
        to increase  their fuel efficiency and reduce
        pollutants.  Acceptance of Ethos FR® as an
        alternative
        to such traditional products and/or services depends upon a number of factors
        including:
 
 ·
              favorable
                  pricing vis a vis projected savings from increased fuel
                  efficiency
 ·
              the
                  ability to establish the reliability of Ethos FR®
                  products
                  relative to available fleet data
 ·
              public
                  perception of the product
 
 Since
        we
        market a range of products within only one product line, we are entirely
        dependent upon the acceptance of Ethos FR® in the
        market place
        for our success. Our business operations are not diversified. If we do not
        generate sufficient sales of the Ethos FR® product,
        we will
        not be successful, and unlikely to be able to continue in business.
  ***We
        have a limited operating history with significant losses and expect losses
        to
        continue for the foreseeable future, though we expect our sufficient revenues
        to
        sustain our operations.***
  We
        have yet to establish any history of profitable operations. We have incurred
        net
        losses allocable to shareholders of $6,490,113 and $1,051,637, respectively
        for
        the fiscal years ended December 31, 2006 and 2005. As a result, at
        December 31, 2006 we had an accumulated deficit of $9,866,577. We expect,
        however, that our revenues will be sufficient to sustain our operations for
        the
        foreseeable future. Our profitability though will require the successful
        commercialization of our fuel reformulator.
 
 We
        believe that a viable market exists for our technology as there are many
        conventional or competitive products in the markets that we have identified
        for
        exploitation. In the event that a viable market for our products cannot be
        created as envisaged by our business strategy, we may need to commit greater
        resources than are currently available to further develop our technology
        into a
        commercially viable product. Should this occur, we may not be able to continue
        operations.
 
 Our
        independent auditors have added an explanatory paragraph to their audit report
        issued in connection with the financial statements for the year ended
        December 31, 2006 relative to our ability to continue as a going concern.
        Our financial statements do not include any adjustments that might result
        from
        the outcome of this uncertainty.
  *Table
            of Contents*
 24
 ***We
        rely on commercial arrangements with third parties, and any failure to retain
        relationships with these third parties could negatively impact our ability
        to
        develop and market our products.***
  We
        anticipate that our success in creating markets for our products will depend
        largely on our ability to identify and establish strategic alliances with
        companies and individuals that have experience in manufacturing and distributing
        products to the markets we have identified. We have supplied our fuel
        reformulator for evaluation purposes to a number of strategic partners and
        customers. As such, our plans are dependent on and have been developed on
        the
        assumption that our product(s) will be promoted by our strategic partners
        and
        adopted by potential customers.  Should our commercial arrangements
        with current or future strategic partners deteriorate or cease, it can be
        expected that this would have a material adverse affect on our financial
        conditions, business, results of operations, and continues growth
        prospects.
 
 ***The
        Company’s core product may not be acceptable to commercial customers due to
        transportation, storage, and handling issues.***
  Our
        core
        product is a fuel reformulator. However, as with any new technology, there
        are
        risks associated with the commercial production and use of this product and
        we
        have experienced technical difficulties when deploying in commercial
        applications which have required us to take additional precautions when
        transporting, storing and handling our product(s). These characteristics
        may
        make the finished product(s) unattractive to certain distributors, customers
        and
        end-users. In addition, the finished fuel may only be stored and dispensed
        from
        tanks that meet stringent standards for cleanliness and not all tanks may
        be
        capable of achieving these standards.
 
 Our
        products must be distributed in commercial quantities, in compliance with
        regulatory requirements, and at an acceptable cost and these factors could
        harm
        our business and future prospects.
 
 ***Our
        future revenues are unpredictable and our operating results may fluctuate
        as a
        result of the lack of a sales history of our
        products.***
  We
        expect
        to experience significant fluctuations in our future operating results due
        to a
        variety of factors, including (i) demand for our products,
        (ii) introduction or enhancement of products by competitors,
        (iii) market acceptance of our products, (iv) price reductions by
        competitors or changes in how new products are priced, (v) availability of
        raw materials of adequate quality and at prices which are economical,
        (vi) availability of distribution channels through which our products are
        to be sold, (vii) potential costs of litigation and intellectual property
        protection, (viii) our ability to attract, train and retain qualified personnel,
        (ix) the amount and timing of unforeseeable operating costs and capital
        expenditures related to the expansion of our business, operations and
        infrastructure, (x) any technical difficulties with respect to the use of
        our products, and (xi) effects of current and future governmental
        regulations on the sale of our products, which may be significant.
  As
        a
        result of the lack of a sales history of our products, we do not have relevant
        historical financial data for any periods on which to forecast revenues or
        expected operating expenses in connection with growing revenues in the future.
        Our expense levels are based in part on certain expectations with regard
        to
        future revenues. We may be unable to adjust spending in a timely manner to
        compensate for any unexpected revenue shortfall. As a result, any significant
        shortfall in anticipated demand for our products relative to our expectations
        would have an immediate adverse effect on the Company’s business, financial
        conditions and results of operations.
  ***Our
        ability to operate at a profit is dependent on the price and availability
        of raw
        materials.***
  Our
        results of operations and financial condition have been and will continue
        to be
        significantly affected by the cost and supply of raw materials used to produce
        our product(s). The price of raw materials can be volatile as a result of
        a
        number of factors, such as the overall supply and demand, the level of
        government support, and the availability and price of competing
        products.
  *Table
            of Contents*
 25
 Generally,
        higher prices, in relation to diesel and bio-diesel fuels and related products,
        will produce lower profit margins. This is especially true if market conditions
        do not allow us to pass through these increased costs to our customers. It
        is
        important that we be able to pass through these higher raw material costs
        to our
        customers. If higher raw material prices were to be sustained for an extended
        period of time, such pricing may have a material adverse effect on our ability
        to grow profitable sales and operations, with a corresponding adverse impact
        on
        our cash flows and financial performance.
  We
        intend
        to contract with third parties to help control the costs of raw materials
        purchased and reduce short-term exposure to price fluctuations. Currently,
        we do
        not have definitive agreements with third parties for all of our needed
        supply.
 
 Ethos
        has
        two products, Ethos FR® and Ethos BFC. Should we be unable to obtain the
        necessary raw materials to manufacture these products, this would have a
        negative impact on our revenue forecast and financial results. In addition
        to
        being able to obtain the necessary quantity of raw materials, it is important
        to
        carefully select raw material suppliers because there is a wide range of
        various
        quality of such materials in the marketplace. It is critical that the raw
        materials we purchase be of a consistently high quality and that they meet
        certain other specifications. Should inferior raw materials be used, this
        could
        negatively impact our customers results and our future business with
        them.
 
 ***Our
        business could suffer if we are unable to effectively compete with our
        competitors’ technologies.***
 
 We
        have
        identified as competitors a number of technologies and companies who are
        predominantly focusing on the fuel emission reduction market. In addition,
        other
        companies, many of which are likely to have substantially greater financial,
        research and development, sales and marketing and personnel resources, may
        currently be developing, or may develop in the future, technologies and products
        that are equally or more effective and/or economical as any product we may
        develop, or which would otherwise render our technologies obsolete.
 
 ***If
        we were to lose the services of our founders or our senior management team,
        we
        may not be able to execute our business strategy.***
 
 Our
        future success depends in large part upon the continued service of key members
        of our senior management team. In particular, Enrique de Vilmorin is critical
        to
        our overall management, as well as to the development of our technology,
        our
        culture and our strategic direction. Thomas Maher, our Chief Financial Officer,
        is the only full-time trained financial professional in our organization;
        he
        performs most of the duties that in many other cases would be performed by
        several people within a larger and deeper organization. We do not maintain
        any
        key-person life insurance policies. The loss of any of our management or
        key
        personnel could seriously harm our business.
 
 ***Our
        failure to protect our intellectual property could cause an erosion of our
        current competitive strengths.***
 
 We
        regard
        the protection of our patents, trademarks, copyrights, trade secrets and
        other
        intellectual property as critical to our success.  We rely on a combination
        of patent, copyright, trademark, service mark and trade secret laws and
        contractual restrictions to protect our proprietary rights.  We have
        entered into confidentiality and non-disclosure agreements with our employees
        and contractors, and non-disclosure agreements with parties with whom we
        conduct
        business, in order to limit access to and disclosure of our proprietary
        information.  These contractual arrangements and the other steps taken by
        us to protect our intellectual property may not prevent misappropriation
        of our
        technology or deter independent third-party development of similar technologies.
         We also seek to protect our proprietary position by filing U.S. and
        foreign patent applications related to our proprietary technology, inventions
        and improvements that are important to the development of our business.
 Proprietary rights relating to our technologies will be protected from
        unauthorized use by third parties only to the extent they are covered by
        valid
        and enforceable patents or are effectively maintained as trade secrets.  We
        pursue the registration of our trademarks and service marks in the United
        States
        and internationally.  We recognize that there are certain jurisdictions
        where we have not applied for patent protection and where no patent protection
        may be available.  Our ability to market products or technology in
        these jurisdictions may be limited.
 
 *Table
            of Contents*
 26
 ***The
        steps we have taken to protect our proprietary rights may be inadequate and
        third parties may infringe or misappropriate our trade secrets, trademarks
        and
        similar proprietary rights.***
 
 Any
        significant failure on our part to protect our intellectual property could
        make
        it easier for our competitors to offer similar services and thereby adversely
        affect our market opportunities.  Our products are unique and one of a
        kind, and should a comparative product come to market as a result of our
        inability to protect our trade secrets, this could have a material adverse
        affect on the Company’s business and future. In addition, litigation may be
        necessary in the future to enforce our intellectual property rights, to protect
        our trade secrets or to determine the validity and scope of the proprietary
        rights of others.  Litigation could result in substantial costs and
        diversion of management and technical resources and may not be
        successful.
 
 ***We
        may not be able to manufacture and to market our products in commercial
        quantities due to facilities or raw material supplies not meeting our
        needs.***
 
 Our
        products must be manufactured in commercial quantities, in compliance with
        regulatory requirements and at an acceptable cost. If our existing facilities
        and/or raw material supplies cannot meet our needs, we will seek other
        manufacturers. The availability, pricing and supply of our products are
        currently dependent on arrangements with our raw material suppliers. The
        cost
        and availability of raw materials and esters, the availability of tax and
        other
        incentives for our products and arrangements for the distribution of our
        products by others, could change. Also, although we believe there is sufficient
        manufacturing capacity to meet our long term objectives, this could change
        as
        well.  Should the situation change with any of these important
        components in the manufacture and distribution of our products this could
        have a
        significant negative effect on the company’s business, and outlook.
 
 ***Our
        business may be harmed if we fail to obtain regulatory approvals or comply
        with
        legislative and regulatory requirements.***
 
 The
        manufacturing, marketing, supply, distribution and use of fuel and fuel
        reformulators are subject to extensive legislation and regulation in most
        jurisdictions in which we intend to do business. Our reformulator and the
        resultant ester blend will be competing with both ordinary diesel fuel and
        other
        fuels and solutions that claim to offer environmental benefits. The business
        of
        Ethos depends, in part, on the availability of environmental legislation
        which
        requires or provides incentives to customers to use products similar to our
        own.
        New or revised legislation and regulations as a result of changes in the
        prevailing political climate or for any other reasons, which for example
        remove
        the availability of incentives or which impose additional compliance burdens
        on
        us, or which provide incentives to distributors and customers to adopt
        competitive products, could have an adverse effect on our business, prospects,
        results of operations and financial position.
 
 ***The
        development and manufacture of our technology may subject us to environmental
        compliance or remediation obligations.***
 
 Our
        technology is and will be subject to many environmental laws and regulations
        wherever it is used. Such laws and regulations govern, among other things,
        fuel
        emissions, the use and handling of hazardous substances, waste disposal and
        the
        investigation and remediation of soil and groundwater contamination. As with
        other companies engaged in similar activities, a risk of environmental liability
        is inherent in our current and historical activities. Future additional
        environmental compliance or remediation obligations could adversely affect
        our
        business through increased production costs from implementing environmental
        compliance. By restricting or prohibiting the manufacture, distribution and
        use
        of our products, environmental regulations could harm our business.
 
 *Table
            of Contents*
 27
 ***Our
        business is subject to extensive and potentially costly environmental
        regulations that could significantly increase our operating costs and our
        ability to successfully operate.***
 
 We
        are
        subject to a number of environmental regulatory bodies such as the EPA, as
        well
        as other regulatory agencies.
 
 In
        accordance with the regulations promulgated under the US Clean Air Act,
        manufacturers (including importers) of gasoline, diesel fuel and additives
        for
        gasoline or diesel fuel, are required to have their products registered with
        the
        EPA prior to their introduction into the market place. Currently, Ethos FR® has such
        a
        registration (1910-0001).  However, unforeseen future changes to the
        registration requirements may be made, and Ethos FR® may not
        be able to
        qualify for registration under such new requirements. The loss of our EPA
        registration or restrictions on its current registration could have an adverse
        affect on our business and plan of operation.
 
 We
        have
        registered this product with the US Environmental Protection Agency. This
        registration permits us to sell Ethos FR® for domestic
        on-road use in the United States.  However, there are provisions in
        the Environmental Protection Act that could require further testing. In
        addition, we currently sell our product outside of the United States and
        intend
        to further expand our sales efforts internationally. Accordingly, Ethos FR® is registered
        in
        the United States only, and we are considering its registration in other
        countries.  Further testing could be needed in these or other
        countries. The  failure  of  Ethos FR®  to  maintain  or
        obtain  registration  in countries  or
        areas  where we would  like to market it
        would  have a  materially adverse effect on our business and
        plan of operation.
 
 Our
        business is favorably affected by stricter air quality regulations and
        regulations regarding emission controls.  If these regulations are
        withdrawn or determined to be invalid, our prospects would be adversely
        affected.
 
 Additionally,
        environmental laws and regulations, both at the federal and state level,
        are
        subject to change and changes can be made retroactively. Consequently, even
        if
        we obtain approval, we may be required to invest or spend considerable resources
        to comply with future environmental regulations. If any of these events were
        to
        occur, they may have a material adverse impact on our operations, cash flows
        and
        financial performance.
 
 ***Developing
        new products, creating effective commercialization strategies for our technology
        and enhancing our products and strategies are subject to inherent risks.
        These
        risks include unanticipated delays, unrecoverable expenses, technical problems
        or difficulties, as well as the possibility that funds will be insufficient.
        Any
        one of these could make us abandon or substantially change our technology
        commercialization strategy.***
 
 Our
        success will depend upon, among other things, our products meeting targeted
        cost
        and performance objectives for large-scale production, our ability to adapt
        technologies to satisfy industry standards, satisfying consumer expectations
        and
        needs and bringing our products to market before the market is saturated.
        We may
        encounter unanticipated technical or other problems that result in increased
        costs or substantial delays in introducing and marketing new products. Current
        and future products may not be reliable or durable under actual operating
        conditions or otherwise commercially viable. New products may not satisfy
        price
        or other performance objectives when introduced in the marketplace. Any of
        these
        events could adversely affect our realization of revenues from such new
        products.
 
 *Table
            of Contents*
 28
 ***Product
        liability claims related to our products could prove to be costly to defend
        and
        could harm our business reputation.***
 
 Fuel
        and
        fuel-additive businesses may be adversely affected by litigation and complaints
        from distributors, customers and government authorities resulting from fuel
        quality, illness, injury or other health concerns or other issues. Adverse
        publicity surrounding such allegations could negatively affect our products,
        regardless of whether the allegations are true, by discouraging distributors
        and
        customers from buying our products. We could also incur significant costs
        and
        the diversion of management time in defending the Company against claims,
        whether or not such claims have any basis.
 
 ***We
        face management, financial and information systems and controls challenges
        that
        must be met to manage our anticipated growth and failure to do so will hurt
        our
        financial situation and the company’s future
        prospects.***
 
 In
        order
        to successfully manage our anticipated growth, we must improve our management,
        financial and informational systems and controls, and expand, train and manage
        our employee base effectively. There will be additional demands placed on
        our
        technical, sales, marketing and administrative resources as we expand in
        our
        target markets. Our ability to cope with these demands may be impaired as
        a
        result.
 
 ***Our
        business may suffer if we are unable to attract and retain key officers or
        employees.***
 
 We
        believe our future success will depend greatly upon the expertise and continued
        service of certain key executives and technical personnel. Furthermore, our
        ability to expand operations to accommodate our anticipated growth will also
        depend on our ability to attract and retain qualified management, finance,
        marketing, sales and technical personnel. However, competition for these
        types
        of employees is intense due to the limited number of qualified professionals.
        We
        have attempted to reduce these personnel risks by (i) entering into
        contracts with certain key employees, (ii) providing employment benefits
        such as
        vacations and health coverage, and (iii) adopting an employee stock option
        plan that covers most employees. However, these measures do not guarantee
        that
        employees will remain with the Company, or ensure that qualified employees
        can
        be recruited in the future.
 
 ***Our
        ability to continue as a going concern is uncertain.***
 
 The
        report of our independent registered public accounting firm on our consolidated
        financial statements for the fiscal year ended December 31, 2006 states
        that there is substantial doubt about the Company’s ability to continue as a
        going concern. This “going concern” opinion could adversely affect our ability
        to sell our products, attract and retain strategic relationships and obtain
        additional financing.
 
 ***Our
        ability to use our net operating loss carry forward may be
        limited.***
 
 As
        of December 31, 2006, we have approximately $9,866,577 million in federal
        and
        state net operating loss carry forwards which will begin to expire in 2022
        if
        not used to offset future federal and state taxable income. Our net loss
        carry
        forwards are subject to various limitations and have not been audited by
        the
        Internal Revenue Service. We anticipate the net loss carry forwards will
        be used
        to offset the federal and state taxable income and the related tax payments
        which we would otherwise be required to make with respect to income, if any,
        generated in future years.
 
 ***The
        growth of our business is dependent upon the availability of adequate
        capital.***
 
 The
        growth of our business will depend on the availability of adequate capital,
        which in turn will depend in large part on cash flow generated by our business
        and the availability of equity and debt financing. Our cash flow is dependent
        on
        the successful commercialization of our products, principally Ethos FR®. Should
        it be insufficient to achieve our financial projections, our ability to obtain
        additional funding will determine our ability to continue as a going
        concern.
 
 ***We
        face intense competition and may not have the financial and human resources
        necessary to keep up with rapid technological changes which may result in
        our
        technology becoming obsolete.***
 
 The
        fuel
        additive  business and
        related  anti-pollutant  businesses  are  subject
        to
        rapid  technological  change,  especially  due
        to  environmental protection regulations, and subject to intense
        competition. We compete with both established companies and a significant
        number
        of startup enterprises. We face competition  from
        producers  and/or  distributors of other diesel fuel
        additives (such as Lubrizol  Corporation,
        Chevron  Oronite  Company,  Octel
        Corp.,  Clean Diesel Technologies, Inc. and Ethyl Corporation), from
        producers of alternative mechanical technologies (such as Algae-X
        International,  Dieselcraft,  Emission Controls Corp. and
        JAMS Turbo, Inc.) and from alternative  fuels (such as bio-diesel fuel
        and liquefied natural gas) all targeting the same markets and claiming increased
        fuel economy, and/or a decrease in toxic emissions  and/or a reduction
        in engine wear.  Most of our competitors have substantially greater
        financial and marketing resources than we do and may independently develop
        superior technologies which may result in our technology becoming less
        competitive or obsolete. We may not be able to keep pace with this change.
        If we
        cannot keep up with these advances in a timely manner, we will be unable
        to
        compete in our chosen markets.
 
 *Table
            of Contents*
 29
 ***Competition
        from the advancement of alternative fuels may lessen the demand for our products
        and negatively impact our profitability.***
 
 Alternative
        fuels, gasoline oxygenates and ethanol production methods are continually
        under
        development. A number of automotive, industrial and power generation
        manufacturers are developing more efficient engines, hybrid engines and
        alternative clean power systems using fuel cells or clean burning gaseous
        fuels.
        Vehicle manufacturers are working to develop vehicles that are more fuel
        efficient and have reduced emissions using conventional gasoline. Vehicle
        manufacturers have developed and continue to work to improve hybrid technology,
        which powers vehicles by engines that utilize both electric and conventional
        gasoline fuel sources. In the future, the emerging fuel cell industry offers
        a
        technological option to address increasing worldwide energy costs, the long-term
        availability of petroleum reserves and environmental concerns. Fuel cells
        have
        emerged as a potential alternative to certain existing power sources because
        of
        their higher efficiency, reduced noise and lower emissions. Fuel cell industry
        participants are currently targeting the transportation, stationary power
        and
        portable power markets in order to decrease fuel costs, lessen dependence
        on
        crude oil and reduce harmful emissions. If the fuel cell and hydrogen industries
        continue to expand and gain broad acceptance, and hydrogen becomes readily
        available to consumers for motor vehicle use, we may not be able to compete
        effectively. This additional competition could reduce the demand for Ethos
        FR® products,
        which would negatively impact our profitability, causing a reduction in the
        value of your investment.
 
 ***Our
        officers and directors have significant voting power and may take actions
        that
        may not be in the best interest of other
        stockholders.***
 
 Our
        officers and directors control 46% of our outstanding common stock, of which
        Enrique de Vilmorin, our Chairman, controls approximately 45%.  If these
        stockholders act together, they may be able to exert significant control
        over
        our management and affairs requiring stockholder approval, including approval
        of
        significant corporate transactions.  This concentration of ownership may
        have the effect of delaying or preventing a change in control and might
        adversely affect the market price of our common stock.  This concentration
        of ownership may not be in the best interests of all our
        stockholders.
 
 **Risks
        Related to Regulation and Governmental Action**
 
 ***A
        change in government policies unfavorable to our products may cause demand
        for
        our products to decline.***
 
 Growth
        and demand for our products may be driven primarily by federal and state
        government policies. The continuation of these policies is uncertain, which
        means that demand for our products may decline if these policies change or
        are
        discontinued. A decline in the demand for our products may negatively affect
        our
        results of operations, financial condition and cash flows.
 
 *Table
            of Contents*
 30
 ***A
        change in environmental regulations or violations thereof could result in
        the
        devaluation of our common stock and a reduction in the value of your
        investment.***
 
 Environmental
        laws and regulations, both at the federal and state level, are subject to
        change
        and changes can be made retroactively. Consequently, even if we have the
        proper
        permits at the present time, we may be required to invest or spend considerable
        resources to comply with future environmental regulations or new or modified
        interpretations of those regulations, which may reduce our
        profitability.
 
 ***Volatility
        in gasoline selling price and production cost may reduce our gross
        margins.***
 
 Ethos
        FR® products
        are used as a fuel reformulator to reduce vehicle emissions.  Therefore,
        the supply and demand for gasoline impacts the price of raw materials and
        our
        business and future results of operations may be materially adversely affected
        if gasoline demand or price decreases.
 
 **Risks
        Related to Our Stock Being Publicly Traded**
 
 ***We
        have a material weakness in internal controls due to a limited segregation
        of
        duties, and if we fail to maintain an effective system of internal controls,
        we
        may not be able to accurately report our financial results or prevent fraud.
        As
        a result, current and potential stockholders could lose confidence in our
        financial reporting which could harm the trading price of our
        stock.***
 
 Effective
        internal controls are necessary for us to provide reliable financial reports
        and
        prevent fraud. Inferior internal controls could cause investors to lose
        confidence in our reported financial information, which could have a negative
        effect on the trading price of our stock. With only 25 employees at the Company,
        there is very limited segregation of duties, which the Company has identified
        as
        a material weakness in our internal controls.
  ***Our
        stock price may be volatile.***
 
 Since
        our
        recent name change to Ethos Environmental, our Common Stock has been trading
        in
        the public market since November 16, 2006. We cannot predict the extent to
        which
        a trading market will develop for our Common Stock or how liquid that market
        might become. The trading price of our Common Stock has been and is expected
        to
        continue to be highly volatile as well as subject to wide fluctuations in
        price
        in response to various factors. These factors include:
 
 ·
              Quarterly
                  variations in our results of operations or those of our
                  competitors.
 
 ·
              Announcements
                  by us or our competitors of acquisitions, new products, significant
                  contracts, commercial relationships or capital
                  commitments
 
 ·
              Disruption
                  to our operations.
 
 ·
              The
                  emergence of new sales channels in which we are unable to compete
                  effectively.
 
 ·
              Our
                  ability to develop and market new and enhanced products on a timely
                  basis.
 
 ·
              Commencement
                  of, or our involvement in,
                  litigation.
 
 ·
              Any
                  major change in our board of directors or
                  management.
 
 ·
              Changes
                  in governmental regulations or in the status of our regulatory
                  approvals.
 
 ·
              Changes
                  in earnings estimates or recommendations by securities
                  analysts.
 
 ·
              General
                  economic conditions and slow or negative growth of related
                  markets
 
 *Table
            of Contents*
 31
 In
        addition, the stock market in general, and the market for technology companies
        in particular, have experienced extreme price and volume fluctuations that
        have
        often been unrelated or disproportionate to the operating performance of
        those
        companies. These broad market and industry factors may seriously harm the
        market
        price of our Common Stock, regardless of our actual operating performance.
        In
        addition, in the past, following periods of volatility in the overall market
        and
        the market price of a company’s securities, securities class action litigation
        has often been instituted against these companies. Such litigation, if
        instituted against us, could result in substantial costs and a diversion
        of our
        management’s attention and resources.
 
 ***The
        liquidity of our common stock is affected by its limited trading
        market.***
 
 Shares
        of our common stock are quoted on the OTC Bulletin Board under the symbol
        ETEV.OB. We expect our shares to continue to be quoted in that market and
        not to
        be de-listed, as we have no intention to stop publicly reporting.  An
“established trading market” may never develop or be maintained. Active trading
        markets generally result in lower price volatility and more efficient execution
        of buy and sell orders. The absence of an active trading market reduces the
        liquidity of an investment in our shares.  The trading volume of our common
        stock historically has been limited and sporadic.  Our daily trading volume
        has averaged approximately 4,664 shares since November 16, 2006.  As a
        result of this trading activity, the quoted price for our common stock on
        the
        OTC Bulletin Board is not necessarily a reliable indicator of its fair market
        value, and the low trading volume may expose the price of our common stock
        to
        volatility.  Further, if we cease to be quoted, holders would find it more
        difficult to dispose of, or to obtain accurate quotations as to the market
        value
        of, our common stock and the market value of our common stock would likely
        decline.
 
 ***A
        significant number of our shares will soon become eligible for sale and their
        sale or potential sale may depress the market price of our common
        stock.***
 
 Some
        or
        all of the shares of common stock may be offered from time to time in the
        open
        market pursuant to Rule 144, and these sales may have a depressive effect
        on the
        market for our shares of common stock. In general, a person who has held
        restricted shares for a period of one year may, upon filing with the SEC
        a
        notification on Form 144, sell into the market common stock in an amount
        equal
        to the greater of 1% of the outstanding shares or the average weekly number
        of
        shares sold in the last four weeks prior to such sale. Such sales may be
        repeated once each three months, and any of the restricted shares may be
        sold by
        a non-affiliate after they have been held two years.
 
 ***Investors
        should not anticipate receiving cash dividends on our common
        stock.***
 
 We
        have
        never declared or paid any cash dividends or distributions on our capital
        stock.
 We currently intend to retain any future earnings to support operations
        and to finance expansion and, therefore, we do not anticipate paying any
        cash
        dividends on our common stock in the foreseeable future.
 
 ***Our
        Common Stock has a small public float and future sales of our Common Stock,
        or
        sales of shares being registered under this document may negatively affect
        the
        market price of our Common Stock.***
 
 We
        cannot
        predict the effect, if any, that future sales of shares of our Common Stock
        into
        the market will have on the market price of our Common Stock. However, sales
        of
        substantial amounts of Common Stock may materially and adversely affect
        prevailing market prices for our Common Stock.
 
 ***Because
        the market for and liquidity of our shares is volatile and limited, and because
        we are subject to the "Penny Stock" rules, the level of trading activity
        in our
        Common Stock may be reduced.***
 
 Our
        Common Stock is quoted on the OTCBB. The OTCBB is generally considered to
        be a
        less efficient market than the established exchanges or the NASDAQ markets.
        While our Common Stock continues to be quoted on the OTCBB, an investor may
        find
        it more difficult to dispose of, or to obtain accurate quotations as to the
        price of our Common Stock, compared to if our securities were traded on NASDAQ
        or a national exchange. In addition, our Common Stock is subject to certain
        rules and regulations relating to "penny stocks" (generally defined as any
        equity security that is not quoted on the NASDAQ Stock Market and that has
        a
        price less than $5.00 per share, subject to certain exemptions). Broker-dealers
        who sell penny stocks are subject to certain "sales practice requirements"
        for
        sales in certain nonexempt transactions (i.e., sales to persons other than
        established customers and institutional "accredited investors"), including
        requiring delivery of a risk disclosure document relating to the penny stock
        market and monthly statements disclosing recent bid and offer quotations
        for the
        penny stock held in the account, and certain other restrictions. If the
        broker-dealer is the sole market maker, the broker-dealer must disclose this,
        as
        well as the broker-dealer's presumed control over the market. For as long
        as our
        securities are subject to the rules on penny stocks, the liquidity of our
        Common
        Stock could be significantly limited. This lack of liquidity may also make
        it
        more difficult for us to raise capital in the future.
 
 *Table
            of Contents*
 32
 ***Available
        Information***
  We
        file
        electronically with the Securities and Exchange Commission our annual reports
        on
        Form 10-KSB, quarterly reports on Form 10-QSB, and current reports on Form
        8-K,
        pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. 
You may obtain a free copy of our reports and amendments to those reports
        on the
        day of filing with the SEC by going to http://www.sec.gov.
  **Item
        2.    Properties**
  We
        are
        located at 6800 Gateway Park Drive San Diego, CA 92154.  We own,
        approximately 70,000 square feet of industrial space and manufacturing
        space.  We purchased our current facility in 2006.  It is
        our belief that the space is more than adequate for our immediate and future
        needs.   The company is also still obligated to a long-term lease
        at its prior facility.  Please see Note 5. “Operating Leases” in the
        consolidated financial statements.
 
 **Item
        3.    Legal Proceedings**
 
 From
        time
        to time, we are involved in routine legal matters incidental to our business.
        In
        the opinion of management, the ultimate resolution of such matters will not
        have
        a material adverse effect on our financial position, results of operations
        or
        liquidity.
 
 **Item
        4.    Submission of Matters to a Vote of
        Security Holders**
  None.
  *Table
              of Contents*
 33
 **PART
        II**
  **Item
                  5**. **Market for the Common Equity and Related Stockholder
                  Matters**
  ***Price
        Range of Our Common Stock***
  Our
        shares of common stock are currently trading on the OTC Bulletin Board
        (“OTCBB.  Prior to November 16, 2006, our trading symbol was “VICI.”
On November 16, 2006, to reflect our new name and the 1 for 1,200 stock split,
        our trading symbol was changed to “ETEV”. The OTCBB is a regulated quotation
        service that displays real-time quotes, last-sale prices, and volume information
        in over-the-counter equity securities. An OTCBB equity security generally
        is any
        equity that is not listed or traded on NASDAQ or a national securities exchange.
        The reported high and low bid and ask prices for the common stock are shown
        below for the period from January 1, 2005 through December 31,
        2006.
  **Bid*****Low**
              
              **High**2005
                  Fiscal YearJan
                  - March 2005
              
              $
              6.00
              
              $
              18.00Apr
                  - June 2005
              
              $
              7.20
              
              $
              12.00July
                  - Sept 2005
              
              $
              3.00
              
              $
              32.40Oct
                  – Dec 2005
              
              $
              6.00
              
              $
              22.802006
                  Fiscal YearJan
                  - Mar 2006
              
              $
              6.60
              
              $
              13.20Apr
                  - June 2006
              
              $
              6.00
              
              $
              11.76July
                  - Sept 2006
              
              $
              3.00
              
              $
              7.68Oct
                  – Dec 2006
              
              $
              2.00
              
              $
              11.15
   *All
        of
        the prices indicated in the table above reflect the reverse stock split,
        which
        became effective November 16, 2006.
  ***Because
        our common stock is subject to the SEC's penny stock rules, broker-dealers
        may
        experience difficulty in completing customer transactions, and trading activity
        in our securities may be adversely affected.***
 
 Transactions
        in our common stock are currently subject to the "penny stock" rules promulgated
        under the Securities Exchange Act of 1934. Under these rules, broker-dealers
        who
        recommend our securities to persons other than institutional accredited
        investors must:
  ·
              make
                  a special written suitability determination for the
                  purchaser;
  ·
              receive
                  the purchaser's written agreement to a transaction prior to
                  sale;
  ·
              provide
                  the purchaser with risk disclosure documents which identify certain
                  risks
                  associated with investing in "penny stocks" and which describe
                  the market
                  for these "penny stocks" as well as a purchaser's legal remedies;
                  and
  ·
              obtain
                  a signed and dated acknowledgment from the purchaser demonstrating
                  that
                  the purchaser has actually received the required risk disclosure
                  document
                  before a transaction in a "penny stock" can be
                  completed.
 
  *Table
            of Contents*
 34
 As
        a
        result of these rules, broker-dealers may find it difficult to effectuate
        customer transactions and trading activity in our securities may be adversely
        affected. As a result, the market price of our securities may be depressed,
        and
        you may find it more difficult to sell our securities.
 
 ***Holders***
  As
        of
        December 31, 2006, there were approximately 855 holders of record of our
        common
        stock.
  ***Dividends***
  We
        have
        not paid any cash dividends on our common stock or preferred stock since
        inception and presently anticipate that all earnings, if any, will be retained
        for development of our business and that no dividends on our common stock
        or
        preferred will be declared in the foreseeable future. Any future dividends
        will
        be subject to the discretion of our Board of Directors and will depend upon,
        among other things, future earnings, operating and financial condition, capital
        requirements, general business conditions and other pertinent facts. Therefore,
        there can be no assurance that any dividends on our common stock or preferred
        stock will be paid in the future.
  ***Securities
        Authorized for Issuance Under Equity Compensation
        Plans***
  On
        November 20, 2006, the board of directors adopted the 2006 Stock Incentive
        Plan
        or the 2006 Plan. The 2006 Plan reserves 3,500,000 shares of our common stock
        for issuance in connection with stock options, stock awards and other
        equity-based awards to be granted under the 2006 Plan.
  ***Recent
        Sales of Unregistered Securities***
  None
        (other than in connection with the merger described herein).
 
 **Item
        6. Management's Discussion and Analysis or Plan of
        Operation.**
 
 *The
        following discussion should be read in conjunction with our audited financial
        statements and notes thereto included herein. In connection with, and because
        we
        desire to take advantage of, the “safe harbor” provisions of the Private
        Securities Litigation Reform Act of 1995, we caution readers regarding certain
        forward looking statements in the following discussion and elsewhere in this
        report and in any other statement made by, or on our behalf, whether or not
        in
        future filings with the Securities and Exchange Commission. Forward-looking
        statements are statements not based on historical information and which relate
        to future operations, strategies, financial results or other developments.
        Forward looking statements are necessarily based upon estimates and assumptions
        that are inherently subject to significant business, economic and competitive
        uncertainties and contingencies, many of which are beyond our control and
        many
        of which, with respect to future business decisions, are subject to change.
        These uncertainties and contingencies can affect actual results and could
        cause
        actual results to differ materially from those expressed in any forward looking
        statements made by, or our behalf. We disclaim any obligation to update
        forward-looking statements.*
 
 **General
        Discussion on Results of Operations and Analysis of Financial
        Condition**
  We
        begin
        our General Discussion and Analysis with a discussion of the Critical Accounting
        Policies and the Use of Estimates, which we believe are important for an
        understanding of the assumptions and judgments underlying our financial
        statements. We continue with a discussion of the Results of Operations for
        the
        three-month periods ended March 31, 2007 and 2006 and for the years ended
        December 31, 2006 and 2005, followed by a discussion of Liquidity and
        Capital Resources available to finance our operations.
 
 Since
        inception in 2000, Ethos has been used by over 10,000 corporations and/or
        consumers in over 40 countries worldwide, which extends to six of the seven
        continents.  Each and every such end-user has reported to us, either
        in writing or verbally, that after using the Ethos FR product, they experienced
        cost savings of anywhere from 7% to 19% and emissions reductions of at least
        30%
        as mentioned in this report. 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.
 
 *Table
            of Contents*
 35
 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, and $4.77 million by the end of 2006. Even more
        significant growth is anticipated for 2007, with sales in established markets
        in
        the U.S., China, Ecuador, Africa and Europe expected to top current forecasts.
        Based on our growth to date, the 100% satisfaction rate and testimonials
        we are
        receiving from our satisfied customers, 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, we project that top line
        revenue will grow to the tens of millions in 2008 and beyond.
 
 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 begin 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
        our products, primarily *Ethos FR®,*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.
 
 **The
        Company and Our Business**
  Ethos
        Environmental, Inc. (“*Ethos”*or the *“Company”)* manufactures
        and distributes fuel reformulating products designed to enable fuels to burn
        cleaner. The products developed by the Company are proprietary and, as such,
        protected by the Uniform Trade Secrets Act.  Our products, distributed
        using our registered trademark, *Ethos FR**®**,*are comprised of a unique line of fuel reformulators that consist of
        a
        blend of high quality, non-toxic, non-petroleum based esters.
 
 Ethos
        products are non-toxic, non-hazardous and work with any fuel and in both
        internal and external combustion engines, which includes cars, trucks, buses,
        RV’s, ships, trains and generators. Ethos products reduce fuel costs by
        producing a net gain in mileage above cost. Our products contain two families
        of
        esters, a group of cleaning esters and a group of lubricating esters, both
        of
        which are combined with a mineral oil base. Our products serve to clean and
        lubricate the internal parts of an engine without the use of petroleum-derived
        products commonly found in fuel additives. The main objective is to make
        fuels
        self-cleaning and self-lubricating without increasing toxic
        emissions.  Importantly, since moving parts function more smoothly
        with reduced heat and friction, less engine maintenance is required and
        horsepower returns closer to the manufacturer specifications. Ethos products
        remove carbon deposits, one of the culprits that cause fuel to combust
        incompletely, resulting in wasted fuel that creates toxic emissions. The
        combination of cleaning and lubricating esters in Ethos products serve to
        stabilize fuel without changing its formula or specifications.
 
 Overall,
        our products make engines combust fuel more completely. When an engine uses
        each
        measure of fuel to the maximum degree possible, it has two very important
        benefits. First, it reduces fuel consumption and reduces non-combusted residues
        that an engine expels in the form of exhaust emissions, such as hydrocarbons,
        nitrogen oxides, carbon monoxide, particulate matter and other harmful products
        of combustion. Next, unused fuel is saved in the fuel tank, waiting to be
        used
        efficiently by the engine, instead of exhausted in the form of toxic emissions.
        Ethos products reduce emissions without adding any of its own components
        to the
        exhaust.  EPA Laboratory tests confirm that Ethos FR®is 99.99976% clean upon ignition and ashless upon
        combustion.
 
 *Table
            of Contents*
 36
 Ethos
        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 sales is “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.
 
 ***Overview***
  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’
        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.
 
 The
        management of Ethos Environmental firmly believes that the market for our
        product is aggressively expanding.  Worldwide fuel consumption is
        approximately 85 million barrels per day and projected by the Energy Information
        Administration to continue to grow to 97 million barrels per day by 2015,
        and
        118 million barrels per day by 2030.  Much of the dramatic growth over
        the past decade has been fueled by the dramatic expansion of India, China
        and
        Brazil.  As additional undeveloped countries begin to expand, so too
        will fuel consumption and the Company’s market base.  In addition,
        consumers are becoming more sensitive to increased fuel economy as oil prices
        have increased eight times since the late 1990s.
 
 It
        is our
        goal to continue to aggressively build on our success in the domestic and
        international markets, offering the benefits of our products to companies
        and
        countries around the world.  During 2006, our revenue base increased
        by 168% over 2005.  Since 2004, the company has increased its revenue
        base by 450%, and by 573% since 2003.
 
 The
        company’s management is directed to continued growth with its attention focused
        on comparative savings in marketing and production costs.  Our
        attention going forward is to increase market awareness of our name and the
        benefits provided by our product line.
 
 During
        2007, the company will be directing concerted focus to full compliance with
        Sarbanes-Oxley requirements, as revised in Audit Standard No. 5 for small
        businesses, in implementing Section 404(a) of the Act.
 
 ***PLAN
        OF OPERATIONS FOR THE NEXT TWELVE MONTHS***
 
 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, and $4.77 million by the end of 2006. Even more
        significant growth is anticipated for 2007, 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 2007 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.
 
 *Table
            of Contents*
 37
 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.
 
 ***Results
        of Operations***
 
 The
        following financial data compares the balances as relates to Ethos
        Environmental, Inc. for the fiscal years ended December 2006 and
        2005.  The following discussion has been updated using the restated
        financial statement balances.
  ***Revenues***
 
 The
        Company recognized revenues of $4,768,013 for the year ended December 31,
        2006
        compared to $1,780,825 for the year ended December 31, 2005, an increase
        of
        $2,987,188 or 168%. The primary source of revenue for the years ended December
        31, 2006 and 2005 is from the sale of *Ethos
        FR**®.*Other components of revenue include freight and
        service.  Freight is billed to the customer and compared to the amount
        of freight recorded in cost of sales, so that the Company is adequately
        capturing the cost of freight and billing to the client
        appropriately.
 
 During
        2006 the Company added a major new distributor in the United States, 4E Corp.,
        and experienced a dramatic growth in sales to Latin America.  In
        addition, the Company has contracted sales scheduled in 2007 to new markets
        in
        Africa and Australia.
 
 Our
        main
        priorities relating to revenue are to: (1) increase market awareness of
*Ethos FR®* product through our sales and marketing plan, (2) increase
        growth in the number of customers and vehicles per customer, and (3) provide
        extensive customer service and support.
 
 Our
        future growth is significantly dependent upon our ability to generate sales.
        Our
        main priorities relating to revenue are: (1) increase market awareness of
        Ethos
        FR® product
        through our sales and marketing plan, (2) growth in the number of customers
        and
        vehicles per customer, and (3) providing extensive customer service and
        support.
 
 *Table
            of Contents*
 38
 ***Gross
        Profit***
 
 Gross
        profit, defined as revenues less cost of goods sold, was $3,154,647 or 66%
        of
        sales for the year ended December 31, 2006, compared to $1,254,366 or 70%
        of
        sales for the year ended December 31, 2005. The reason for the decrease in
        gross
        profit and increase in cost of sales in 2006 is due to the addition of
        depreciation of the building beginning in 2006, of which substantially most
        of
        this depreciation is included within cost of sales.
 
 Management
        continues to direct attention to increasing production efficiency and thereby
        reducing cost of sales as a percentage of sales.  Cost of sales
        includes the following components:  Material, labor, depreciation, and
        freight.
  ***Operating
        Expenses***
  The
        Company’s current operating expenses are comprised of costs associated with
        administration; including salaries, consulting, marketing, legal and business
        development. We will incur additional operating expenses for new staff
        members as they are hired.
 
 Depreciation
        expense incurred for the year ended December 31, 2006 was $292,096, versus
        $83,209 for the year ended December 31, 2005.  The increase in
        depreciation was due to the purchase in 2006 of the new building which
        represented approximately $200,000 of the total depreciation of $292,096.
        Production and office equipment are depreciated on a 5-year basis, and the
        building is depreciated on a 25-year basis.  Only $18,865 of
        depreciation is shown in general and administrative expenses, as the remainder
        is included in cost of sales.
 
 General
        and Administrative expenses incurred during the year ended December 31, 2006
        totaled $4,987,623. These expenses were incurred primarily in the following
        accounts:
 
 Legal
        fees of approximately $ 136,598 - of which the majority relates to fees
        generated by the merger
 Accounting,
        audit, bookkeeping and director fees totaling $ 57,676
 Business
        consulting fees of approximately $ 4,500,000 - of which the majority
        relates to the non-cash issuance of stock
 Outside
        services of $ 159,749
 Office
        expenses of $ 129,410
 
 Similar
        expenses incurred for the year ended December 31, 2005 totaled $1,821,160
        and
        were primarily for consulting services of a similar nature.
  For
        comparison purposes, the Company issued 4,910,000 new shares of common stock
        for
        the payment of services during the year ended December 31, 2006, compared
        to
        5,108,190 shares issued for cash during the year ended December 31, 2005. 
Of the 4,910,000 shares issued in 2006, 3,600,000 shares were for services
        directly associated with the merger contract between Ethos Environmental,
        Inc.
        and Victor Industries, Inc.  These shares were accounted for at the
        book value of $0.25 and charged against general and administrative expenses
        (business consulting) in accordance with Generally Accepted Accounting
        Principles (GAAP).  The remaining 1,310,000 shares were issued in
        compliance with prior****consulting agreements
        and****valued at the market price at the date of issue,
        $5.10.  The value of these shares was charged against both selling
        expenses and general and administrative expenses.  There was no cash
        involved in this transaction.
 
 The
        stock
        award given to the CEO consisted of 3,500,000 shares of common stock which
        was
        valued at $.25, the book value of Ethos at the date of merger.
 
 The
        CEO’s
        salary at December 31, 2006 consisted of shareholder loans which had been
        on the
        books of the Company prior to the merger.  These loans totaled
        approximately $344,325 and were converted to compensation for the CEO during
        the
        year ended December 31, 2006.
 
 *Table
            of Contents*
 39
 ***Research
        and Development Costs***
 
 Research
        and development costs are charged to operations when incurred and are included
        in general and administrative expenses. The amounts expensed for the years
        ended
        December 31, 2006 and 2005 amounted to $112,051 and $132,404, respectively.
        Research and development (R&D) costs will continue to decrease in the future
        due to the completion of much of the R&D of the *Ethos FR®*product.
 
 ***Net
        Loss***
 
 The
        Company incurred a net loss for the year ended December 31, 2006 of $6,490,113
        as compared to a net loss of $1,051,637 for the year ended December 31,
        2005.  Even though revenues increased by 168% during 2006, as compared
        to December 31, 2005, the net loss increased by approximately
        $5,400,000.  The main reason for the increase in net loss is due to
        the issuance of stock associated with the merger, and for services provided
        which totaled $7,580,990.    No cash was transferred in this
        transaction.  The stock compensation is included in the consolidated
        statement of operations under both selling expenses and general and
        administrative expenses.
 
 In
        addition, during 2006, the Company purchased a new building for its corporate
        headquarters at a cost of $5,300,000, as well as, an additional $1,235,000
        spent
        on building improvements and production equipment.  The total value of
        fixed assets at December 31, 2006 totaled $6,783,145.  These purchases
        were funded partially with interest-bearing notes valued at
        $5,141,800.  Due to this increase in fixed assets, depreciation
        increased accordingly, and totaled $292,096 in 2006, versus $83,209 in
        2005.
 
 ***NON-OPERATING
        INCOME AND EXPENSES***
 
 Non-operating
        income, net of expenses, increased in the year ended December 31, 2006 versus
        2005, due to the settlement of a substantial amount due to one of our vendors.
        A
        substantial order placed with one of our suppliers in previous years, and
        carried on the books of Ethos Environmental, Inc., was canceled with the
        vendor
        in early 2006, and full credit given by the vendor.  A liability is
        considered extinguished for financial reporting purposes if either of the
        following is met:  The debtor pays the creditor and is relieved of its
        obligation or the debtor is legally released from the primary obligation
        under
        the liability.  In this case, the creditor relieved the Company
        (debtor) for materials that were found to be faulty and invoiced and expensed
        in
        a prior year.  Extinguishment of debt is shown as a gain or loss in
        the period occurred and should only be classified as extraordinary if certain
        criterion is met for being unusual and infrequent. This is not an extraordinary
        event. The amount of $670,200 is presented correctly as other
        income.
 
 Interest
        expense totaled $620,244 during the year ended December 31, 2006 as compared
        to
        $8,907 in 2005. The interest was primarily associated with the interest-only
        loan for $4,750,000, related to the purchase of the new building. Other expenses
        totaled and $58,931 in 2006 versus $0 in 2005.
 
 ***Liquidity
        and Capital Resources***
 
 On
        December 31, 2006, we had working capital of $49,801 and stockholders’ equity of
        $1,696,269 compared to a working capital deficit of $(405,752) and stockholders’
equity of $610,392 on December 31, 2005.
 
 On
        December 31, 2006, the Company had $64,867 in cash and $300,000 in restricted
        cash, total assets of $7,519,474 and total liabilities of $5,823,205, compared
        to $198,498 in cash and $300,000 in restricted cash, total assets of $1,446,212
        and total liabilities of $793,395 on December 31, 2005.
 
 The
        Company purchased a building in 2006.  The initial term of the
        building loan was for a period of one year with a maturity date of January,
        2007.  To further increase cash flow and working capital, the Company
        proposed new terms to the note holders.  Effective, December, 2006 the
        note was assigned to a new note holder with reduced interest of 14% compared
        to
        the original 17%.  The decrease in the interest rate on the note adds
        to the future of the Company’s overall liquidity and functional capital
        resources.
 
 *Table
            of Contents*
 40
 Subsequent
        to year end (May 23, 2007), an agreement to modify the promissory note was
        negotiated.  Terms of the modified note include an extension to March
        31, 2009, and a reduction of interest to 12%.  The conversion feature
        was replaced with a three-year warrant to purchase up to 1.9 million shares
        of
        common stock at an exercise price of $2.50.  The warrant expires March
        31, 2010. This transaction is reflected in the 8K which was filed May 24,
        2007.
 
 **During
        2006, the company re-evaluated its reserve for doubtful accounts and reduced
        its
        reserve to $126,500 from the $576,800 level maintained in 2005.  This
        change is believed by management to more closely reflect the corporate risk
        for
        accounts receivable delinquent for more than 90 days.**
 
 In
        January 2006, the Company received a credit from a supplier for $670,200
        of
        materials purchased and booked in 2005, and found to be faulty. This has
        no
        effect on cash; however, the corresponding accounts payable account was reduced
        accordingly increasing working capital for the year.
 
 We
        anticipate, based on currently proposed plans and assumptions relating to
        our
        operations, that our current cash and cash equivalents together with projected
        cash flows from operations and projected revenues will be sufficient to satisfy
        our contemplated cash requirements for the next twelve months. Our contemplated
        cash requirements for 2007 and beyond will depend primarily upon the level
        of
        sales of our products, inventory levels, product development, sales and
        marketing expenditures and capital expenditures.
 
 The
        Company has incurred significant losses from operations in the last two years.
        The Company's ability to continue as a going concern is in doubt and is
        dependent upon obtaining additional financing and/or achieving a sustainable
        profitable level of operations.
 
 The
        net
        loss incurred at December 31, 2006 increased significantly due to issuance
        of
        stock for services in the amount of $7,580,990, as reflected within the cash
        flow.  This was a non-cash transaction that increased expenses and
        increased equity.  In addition, depreciation expense increased
        significantly due to the purchase of a building in 2006.  The Company
        decreased its allowance for doubtful accounts based upon a more in depth
        analysis of the client base and realization of receivables, and an overall
        increase in collections reflected the decrease in receivables for 2006.
        Inventory has increased each year, due to the need for keeping larger quantities
        of inventory on hand as sales have increased over 100% from 2005 to
        2006.  Accounts payable and accrued expenses decreased due to more
        efficient handling of vendor bills and quicker payment turnaround, as well
        as,
        the change due to the other income relayed above in non-operating income
        and
        expenses.  A significant increase in both purchases of fixed assets
        and notes payable are due to the building purchase and the note
        thereon.  In conclusion, cash decreased by approximately $134K for the
        year ended December 31, 2006.
 
 Management
        of the Company has undertaken steps as part of a plan with the goal of
        sustaining Company operations for the next twelve months and beyond. These
        steps
        include: (a) attempting to raise additional capital and/or other forms of
        financing, some of which was consummated during the first quarter 2007 (please
        see ‘Loan Facilities’, below); (b) controlling overhead and operating expenses;
        and (c) continuing to increase the sales of its fuel reformulating product.
        During the first quarter 2007 the company increased its presence in Africa,
        Australia and Latin America and has made strong progress in the
        Caribbean.****There can be no assurance that any of these
        efforts will be successful.
 
 **Loan
        Facilities**
  On
        February 7, 2007, the Company entered into an equipment lease agreement with
        Mazuma Capital Corp. wherein the Company agreed to a 24-month sale and leaseback
        arrangement for up to $800,000 of its manufacturing equipment. The lease
        calls
        for a monthly payment based on a factor of .04125 times the average outstanding
        loan balance during the month. Through March 29, 2007, the company has placed
        property valued at $737,968 under this lease arrangement with Mazuma Capital
        Corp.
 
 The
        contract for this sale and leaseback of equipment should be accounted for
        as an
        operating lease per SFAS 13 and 28, and will be shown as such in
        2007.  There is no bargain purchase option at the end of the lease,
        and neither the 75% nor the 90% test has been met.  The title may pass
        back to the Company at the end of the lease; however, the lease may also
        be
        continued at the end of the 24 month period. The Company feels the appropriate
        stance is to show this as an operating lease in 2007; thereby recording the
        reduction of equipment, the corresponding loss, and treating the payments
        as
        lease expense.
 
 *Table
            of Contents*
 41
 The
        Company is in negotiations to extend the term of the mortgage on the building,
        and reduce the interest rate accordingly.
  Inflation
        has not significantly impacted the Company’s operations.
 
 ***Off-Balance
        Sheet Arrangements***
  We
        do not
        have any off-balance sheet arrangements that have or are reasonably likely
        to
        have a current or future effect on our financial condition, changes in financial
        condition, revenues or expenses, results of operations, liquidity, capital
        expenditures or capital resources that are material to our
        investors.
  ***Critical
        Accounting Policies***
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make a wide variety of estimates
        and assumptions that affect (i) the reported amounts of assets and liabilities
        and disclosure of contingent assets and liabilities as of the date of the
        financial statements, and (ii) the reported amounts of revenues and expenses
        during the reporting periods covered by the financial statements. Our management
        routinely makes judgments and estimates about the effect of matters that
        are
        inherently uncertain. As the number of variables and assumptions affecting
        the
        future resolution of the uncertainties increases, these judgments become
        even
        more subjective and complex. The most significant accounting policies that
        are
        most important to the portrayal of our current financial condition and results
        of operations are as follows:
  ***Revenue
        Recognition***
  The
        Company recognizes revenue in accordance with Securities and Exchange Commission
        Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial
        Statements”. Revenue consists of the sale of products and is recognized only
        when the price is fixed or determinable, persuasive evidence of an arrangement
        exists, the product is shipped, and collectibility is reasonably
        assured.
  *Table
            of Contents*
 42
 ****REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM****
 To
          the
          Board of Directors
 Ethos
          Environmental, Inc.
 San
          Diego, CA
 
 
 We
          have
          audited the accompanying consolidated balance sheet of Ethos Environmental,
          Inc., ("the Company") as of December 31, 2006, and the related consolidated
          statements of operations, stockholders' equity, and cash flows for the
          years
          ended December 31, 2006 and 2005.  These consolidated financial
          statements are the responsibility of the Company's management.  Our
          responsibility is to express an opinion on these consolidated financial
          statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States).  Those standards require
          that we plan and perform the audit to obtain reasonable assurance about
          whether
          the financial statements are free of material misstatement.  The
          Company has determined that it is not required to have, nor were we engaged
          to
          perform, an audit of its internal control over financial
          reporting.  Our audit included consideration of internal control over
          financial reporting as a basis for designing audit procedures that are
          appropriate in the circumstances, but not for the purpose of expressing
          an
          opinion on the effectiveness of the Company's internal control over financial
          reporting.  Accordingly, we express no such opinion.  An
          audit includes examining, on a test basis, evidence supporting the amounts
          and
          disclosures in the financial statements.  An audit also includes
          assessing the accounting principles used and significant estimates made
          by
          management, as well as evaluating the overall financial statement
          presentation.  We believe that our audits provide a reasonable basis
          for our opinion.
 
 In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of Ethos Environmental,
          Inc.,
          as of December 31, 2006, and the results of its operations and its cash
          flows for the years ended December 31, 2006 and 2005, in conformity with
          accounting principles generally accepted in the United States.
 
 The
          accompanying consolidated financial statements have been prepared assuming
          the
          Company will continue as a going concern.  As discussed in Note 1
          to the consolidated financial statements, the Company has experienced recurring
          losses from operations.  This raises substantial doubt about the
          Company's ability to continue as a going concern.  Management's plans
          regarding this matter are also described in Note 1.  The
          financial statements do not include any adjustments that might result from
          the
          outcome of this uncertainty.
 
 As
          discussed in Note 2, the accompanying 2006 consolidated financial statements
          have been restated.
 
 /S/
          PETERSON SULLIVAN PLLC
 
 Seattle,
          Washington
 April 15,
          2007, except for the effects of the restatement described in Note 2 for
          which
          the date is November 16, 2007
  43
 **Item
        7.    Financial
        Statements**
 
 
 **ETHOS
        ENVIRONMENTAL, INC.**
 **CONSOLIDATED
        BALANCE SHEET**
 
 ASSETS
              
              December
                  31,
                2006
                (Restated)CURRENT
                  ASSETS:Cash
              
              $
                  64,867Restricted
                  Cash
              
              300,000Accounts
                  Receivable, net of allowance for doubtful accounts
              
              327,324Inventory
              
              410,915Other
                  Current Assets
              
              19,900Total
                  Current Assets
              
              $
                  1,123,006Property
                  and Equipment, net
              
              6,391,468Other
                  Assets
              
              5,000Total
                  Assets
              
              $
                  7,519,474
 
 LIABILITIES
        AND SHAREHOLDERS’ EQUITY
 
 LIABILITIES:
 
 CURRENT
                  LIABILITIES:Accounts
                  Payable
              
              $
                  503,898Accrued
                  Expenses
              
              101,488Notes
                  Payable
              
              5,167,819Note
                  Payable Related Party
              
              50,000Total
                  Current Liabilities
              
              5,823,205SHAREHOLDERS’
                  EQUITY:Common
                  Stock, $.0001 par value; 100,000,000shares
                  authorized; 23,107,687 issued andoutstanding
              
              2,311Additional
                  Paid-in Capital
              
              11,560,535Accumulated
                  Deficit
              
              (9,866,577)Total
                  Shareholders’ Equity
              
              1,696,269Total
                  Liabilities and Shareholders’ Equity
              
              $
                  7,519,474
 
 See
        notes
        to consolidated financial statements.
  *Table
            of Contents*
 44
  **ETHOS
        ENVIRONMENTAL, INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **For
        the Years Ended December 31, 2006 and 2005**
 
 2006
                (Restated)
              
              2005Revenue
              $
                  4,768,013
              
              $
                  1,780,825Cost
                  of Sales (exclusive of depreciation shown below)
              1,613,366
              
              526,459Gross
                  Profit
              3,154,647
              
              1,254,366Operating
                  Expenses:Depreciation
                  (other than in cost of sales above)
              18,865
              
              83,209Selling
                Expenses
              4,689,910
              
              483,953General
                and Administrative
              4,987,623
              
              1,737,951Total
                Operating Expenses
              9,696,398
              
              2,305,113Operating
                  Loss
              (6,541,751)
              
              (1,050,747)Other
                Income
              730,813
              
              0Interest
                Expense
              (620,244)
              
              (890)Other
                Expense
              (58,931)
              
              0Net
                  Loss
              $
                  (6,490,113)
              
              $
                  (1,051,637)Net
                  Loss per Common Share
              $
                  (6.76)
              
              $
                  (5.38)Weighted
                  average shares used in per share calculation (basic and fully
                  diluted)
              960,685
              
              195,504
  See
        notes
        to consolidated financial statements.
 *Table
              of Contents*
 45
 **ETHOS
                  ENVIRONMENTAL, INC.**CONSOLIDATED
                  STATEMENTS OF STOCKHOLDERS' EQUITYFor
                  the Years Ended December 31, 2006 and 2005Common
                  Stock
              
              Additional
                  Paid-in CapitalNumber
                  of Shares
              
              Amount
              
              
              Accumulated
                  Deficit
              
              TotalBalance
                  at December 31, 2004
              17,609,287
              
              $
                  17,610
              
              $
                  3,793,046
              
              $(2,324,827)
              
              $1,485,829Common
                  stock issued for cash
              5,108,190
              
              5,108
              
              171,092
              
              
              
              176,200Net
                  loss
              
              
              
              
              
              
              (1,051,637)
              
              (1,051,637)Balance
                  at December 31, 2005
              22,717,477
              
              22,718
              
              3,964,138
              
              (3,376,464)
              
              610,392Common
                  stock repurchased
              
              (5,000,000)
              
              (5,000)
              
              (45,000)
              
              
              
              (50,000)Capital
                  contribution
              
              
              
              
              
              45,000
              
              
              
              45,000Adjust
                  shares to par (.0001) from (.001)
              
              (17,717,477)
              
              (17,718)
              
              17,718Common
                  Stock issued to effect reverse acquisition (Restated)
              
              17,718,187
              
              1,772
              
              (1,772)Shares
                  converted with merger (Restated)
              
              479,500
              
              48
              
              (48)Common
                  stock issued for services (See Note 1)
              4,910,000
              
              491
              
              7,580,499
              
              
              
              7,580,990Net
                  Loss (Restated)
              
              
              
              
              
              
              
              (6,490,113)
              
              (6,490,113)Balance
                  at December 31, 2006 (Restated)
              
              23,107,687
              
              $2,311
              
              $11,560,535
              
              ($9,866,577)
              
              $1,696,269
 
 See
        notes
        to consolidated financial statements.
  *Table
            of Contents*
 46
  **ETHOS
        ENVIRONMENTAL, INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **For
        the Years Ended December 31, 2006 and 2005**
 2006(Restated)
              
              2005Cash
                  Flows from Operating ActivitiesNet
                  Loss  (Restated)
              $
                  (6,490,113)
              
              $
                  (1,051,637)Adjustments
                  to Reconcile Net Loss to Net Cash provided by (used by) operating
                  activitiesCommon
                  Stock Issued for Expenses
              7,580,990
              
              0Depreciation
              292,096
              
              83,209Changes
                  in allowance for doubtful accounts
                Changes
                  in Operating Assets and Liabilities
              (450,297)
              
              527,847Assets:Accounts
                  receivable
              413,030
              
              (451,030)Inventory
              (151,351)
              
              (200,816)Other
                  assets
              67,209
              
              (10,000)Liabilities:Accounts
                  payable
              (246,658)
              
              567,575Accrued
                  expenses
              10,929
              
              90,559Net
                  Cash Provided (Used) by Operating Activities
              1,025,835
              
              (444,293)Cash
                  Flows from Investing ActivitiesBuilding
                  Deposit
              0
              
              (200,000)Purchase
                  of Property and Equipment
              (6,359,874)
              
              (101,549)Cash
                  Received from Acquisition
              589Net
                  Cash Used by Investing Activities
              (6,359,285)
              
              (301,549)Cash
                  Flows from Financing ActivitiesProceeds
                  from Note Payable
                Proceeds
                  from Related Party Note Payable
              5,167,819
                50,000
              
              11,003
                0Repayment
                  of Note Payable
                Repurchase
                  of Common Stock
                Proceeds
                  from Common Stock sales
              (13,000)
                (50,000)
                0
              
              0
                0
                176,200Proceeds
                  from Capital Contribution
              45,000
              
              0Net
                  Cash Provided by Financing Activities
              5,199,819
              
              187,203Net
                  Change in Cash and Cash Equivalents
              (133,631)
              
              (558,639)Cash
                  at Beginning of Period
              498,498
              
              1,057,137Cash
                  at End of Period
              $
                  364,867
              
              $
                  498,498Reconciliation
                  to Balance Sheet Presentation:Cash
              $
                  64,527
              
              $
                  198,498Restricted
                  Cash
              300,000
              
              300,000$
                  364,527
              
              $
                  498,498
 
 
 See
        notes
        to consolidated financial statements.
  *Table
            of Contents*
 47
 **NOTES
        TO FINANCIAL STATEMENTS**
  **Note
        1. Organization and Significant Accounting Policies**
 
 **Organization**
 
 Ethos
        Environmental, Inc. ("the Company") manufactures and distributes fuel
        reformulating products that increase fuel mileage, reduce emissions, and
        maintain lower fuel costs. The Company is based in Southern California and
        sells
        its product, primarily in the United States, Latin America, Europe, Africa,
        Australia and Asia.
 
 **Acquisition**
 
 On
        April
        20, 2006, Victor Industries, Inc., with the approval of its Board of Directors,
        executed an Agreement and Plan of Merger with San Diego, CA based Ethos
        Environmental, Inc., a Nevada corporation.
 
 At
        a
        meeting of shareholders of the Company held on October 30, 2006, a majority
        of
        shareholders voted in favor of the merger. On November 2, 2006, the merger
        was
        consummated. As part of the merger, the Company redomiciled to Nevada, and
        changed its name to Ethos Environmental, Inc. In addition thereto, and as
        part
        of the merger, the Company set a record date of November 16, 2006 for a reverse
        stock split of 1 for 1,200. All of the per share data in these consolidated
        financial statements are presented on a post-split basis.
 
 The
        merger provides for a business combination transaction by means of a merger
        of
        Ethos with and into the Company, with the Company as the corporation surviving
        the merger. Under the terms of the merger, the Company acquired all issued
        and
        outstanding shares of Ethos in exchange for 17,718,187 shares of common stock
        of
        the Company. Shares of Company common stock, representing an estimated 97%
        of
        the total issued and outstanding shares of Company common stock, was issued
        to
        the Ethos stockholders. Ethos shareholders were able to exchange their shares
        beginning on or after November 16, 2006, the record date set for the reverse
        stock split.
 
 The
        transaction between the Company and Ethos Environmental, Inc. is accounted
        for
        as a purchase transaction; that is, the transaction is equivalent to the
        issuance of shares by the Registrant for the net assets of Ethos
        Environmental, Inc. The shares issued by the Registrant were valued at $0.25
        per
        share, a value determined by management’s estimate of the dilution effect
        expected to occur from the issuance of such a large block of shares, i.e.
        17,718,187 shares of common stock.
  The
        merger was intended to qualify as a reorganization within the meaning of
        Section 368(a) of the Internal Revenue Code and no gain or loss will be
        recognized by the Company as a result of the merger.
 
 The
        merger is accounted for under the purchase method of accounting as a reverse
        acquisition in accordance with U.S. generally accepted accounting principles
        for
        accounting and financial reporting purposes. Under this method of accounting,
        Ethos is treated as the “accounting acquirer” company for financial reporting
        purposes. Accordingly the operations of the company are included in these
        financial statements as of November 2, 2006. In accordance with guidance
        applicable to these circumstances, the merger was considered to be a capital
        transaction in substance. Accordingly, for accounting purposes, the merger
        was
        treated as the equivalent of Ethos issuing stock for the net monetary assets
        of
        the Company. The net monetary assets of the Company have been stated at their
        fair value.
  *Table
            of Contents*
 48
 The
        terms
        of the acquisition included the Company's issuance of 17,718,187 shares of
        common stock to the shareholders of Ethos. Upon the Company’s issuance of the
        17,718,187 shares, Ethos cancelled its 17,717,477 shares of common stock
        issued
        and outstanding. Since this was accounted for as a reverse acquisition, the
        Company is the legal acquirer while Ethos is the accounting acquirer.
        Accordingly, the financial statements present the activities of Ethos while
        the
        stock issued and outstanding is that of the Company. The accounting effect
        of
        the reverse acquisition is reflected in the consolidated statements of
        stockholders’ equity.
 
 As
        part
        of the reverse acquisition, the prior activities of the Company were
        discontinued. No discontinued operations are presented in these financial
        statements since there were no expenses or revenues incurred after November
        2,
        2006 related to these operations.
 
 The
        Company agreed to acquire Ethos Environmental, Inc. because of its anticipated
        future growth in a marketplace that is in strong demand for its product,
        and it
        was believed that the acquisition would benefit the existing shareholders
        of
        both companies.
 
 Of
        the
        4,910,000 shares issued in 2006, 3,600,000 shares were for services directly
        associated with the merger contract between Ethos Environmental, Inc. and
        Victor
        Industries, Inc.  These shares were accounted for at the book value of
        $0.25 and charged against general and administrative expenses (business
        consulting) in accordance with Generally Accepted Accounting Principles
        (GAAP).  The remaining 1,310,000 shares were issued in compliance with
        prior consulting agreements and valued at the market price at the date of
        issue,
        $5.10.  The value of these shares was charged against selling expenses
        and general and administrative expenses. There was no cash involved in this
        transaction.
 
 **Going
        Concern**
 
 The
        Company has incurred significant losses from operations in the last two
        years. The Company's ability to continue as a going concern is in doubt and
        is dependent upon obtaining additional financing and/or achieving a sustainable
        profitable level of operations. The net loss incurred at December 31, 2006
        is
        mainly due to non-cash transactions for issuance of stock for
        services.
 
 Management
        of the Company has undertaken steps as part of a plan with the goal of
        sustaining the Company operations for the next twelve months and beyond.
        These
        steps include: (a) attempting to raise additional capital and/or other forms
        of
        financing; (b) controlling overhead and operating expenses; and (c) continuing
        to increase the sales of its fuel reformulating product. There can be no
        assurance that any of these efforts will be successful.
  **Principles
        of Consolidation**
 
 These
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiary. All material inter-company accounts have been
        eliminated in consolidation.
 
 **Use
        of Estimates**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect certain reported amounts and disclosures. Actual
        results could differ from the estimated amounts.
 
 **Cash**
 
 Cash
        includes a payroll account and an operating checking account held at a financial
        institution. The Company's cash balances have exceeded federally insured
        limits
        from time to time during the year ended December 31, 2006.
 
 Restricted
        cash consists of a deposit made in August 2005 that is being held in a bank
        in
        Beijing, China. This deposit is required by the government of China and must
        be
        held in the account a minimum of eighteen months in order for the Company
        to
        conduct business in China.
 
 *Table
            of Contents*
 49
 **Accounts
        Receivable**
 
 Accounts
        receivable are stated at their principal balances, do not bear interest and
        are
        generally unsecured. Management considers all balances over 30 days old to
        be
        past due. However, if credit is extended management conducts a periodic review
        of the collectibility of its accounts receivable. If an account is determined
        to
        be uncollectible based on historical experience and the current economic
        climate, an allowance is established and the account is written off against
        the
        allowance. The Company recorded an allowance of $126,485 and $576,782 at
        December 31, 2006 and 2005, respectively. At December 31, 2006, 62% of
        accounts receivable is due from one customer.
 
 **Inventory**
 
 Inventory
        consists primarily of the Company's fuel reformulating product and is stated
        at
        the lower of cost or market. In production, the company accounts for its
        inventory on a first-in-first-out basis (FIFO).
 
 Property
        and Equipment
  
 Property
        and equipment are recorded at cost. Depreciation is calculated on the
        straight-line method over the estimated useful lives of the assets. Leasehold
        improvements are amortized over the shorter of the anticipated lease term
        or the
        estimated useful life. The Company's policy is to capitalize items with a
        cost
        greater than $4,000 and an estimated useful life greater than one year. The
        Company reviews all property and equipment for impairment at least annually.
        Typically, the company depreciates its assets over a 5 year period except
        for
        the building which is depreciated on a 25 year basis.
 
 **Notes
        Payable**
 
 On
        December 26, 2006, the company entered into a Demand Loan Agreement with
        a third
        party for $500,000 with an annual interest rate of 12%. At December 31, 2006,
        $417,819 had been funded. The remainder of the Demand Note was funded on
        January
        2, 2007.
 
 On
        January 26, 2006 the Company secured a loan for its building in the amount
        of
        $4,750,000 with a convertible Promissory Note. The Note was convertible at
        $2.50
        per common share up to 1.9 million shares. The Note carried an annual
        interest rate of 17% with interest-only payments   and a term of
        one year. On December 6, 2006, the Note was assigned to another third party,
        and
        interest was renegotiated at 14%.
 
 Prior
        to
        maturity, the Company approached the current note holders and requested that
        they extend the maturity of the Note to March 31, 2009. As part of its offer
        to
        induce the note holders to extend the maturity date, the Company offered
        to
        rescind the conversion feature and issue 1.9 million detachable
        warrants.  The Company is still currently negotiating the terms of a
        mutually acceptable extension.
 
 **Note
        Payable - Related Party**
 
 During
        2006, there was one Loan Payable to the President of the Company in the amount
        of $50,000. The loan has no stated repayment terms, is due on demand, is
        unsecured and does not bear interest. The Note was issued for a deposit to
        the
        Company account for short-term working capital needs.
 
 **Fair
        Value of Financial Instruments**
 
 The
        carrying value of the Company's accounts receivable, accounts payable, accrued
        expenses, note payable, note payable related party and building loan approximate
        their estimated fair value due to the relatively short maturities of those
        instruments.
 
 *Table
            of Contents*
 50
 **Revenue
        Recognition**
 
 Revenue
        from the sale of fuel reformulating products is recorded when the product
        is
        shipped, the price is fixed and determinable, collection is reasonably assured,
        and no further obligations of the Company remain.
 
 Two
        customers accounted for 88% of the Company’s revenues for the fiscal year ended
        December 31, 2006. One Mexican customer accounted for 40% and one U.S. customer
        accounted for 48%.
 
 There
        was
        one U.S. customer that accounted for 40% of 2005 sales and one Hong Kong
        customer that accounted for 30% of 2005 sales.
 
 **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 payment” 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 year ended December
        31, 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.
 
 **Loss
        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 loss 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 December
        31,
        2006 or 2005. The convertible feature of the Notes Payable is not included
        in
        the calculation of diluted earnings per share since the effect is anti-dilutive
        due to the Company’s net loss.
 
 **Advertising
        Costs**
 
 Advertising
        costs are expensed as incurred. Advertising expense for the years ended
        December 31, 2006 and 2005 was $132,955 and $231,380, respectively and are
        included in selling expenses in the consolidated financial
        statements.
 
 **Shipping
        and Handling**
 
 Expenses
        related to shipping and handling is expensed as incurred and is included
        in
        "cost of sales" in the statement of operations.
 
 *Table
            of Contents*
 51
 **Research
        and Development**
 
 Research
        and development costs are expensed to operations when incurred and are included
        in general and administrative expenses.  The amounts expensed for the
        years ended December 31, 2006 and 2005 amounted to $112,051 and $132,404,
        respectively.
 
 **Concentrations**
 
 The
        Company uses five vendors for most of its fuel reformulating products although
        there are other companies that can provide equivalent products. These vendors
        accounted for 90% of product purchases in 2006. During 2005, the company
        primarily used one vendor for most of its fuel reformulating products. That
        vendor accounted for 90% of products purchased in 2005.
 
 **Income
        Taxes**
 
 The
        Company accounts for its income taxes under the provisions of Statements
        of
        Financial Accounting Standards No. 109 (SFAS No. 109). Income taxes are provided
        for the tax effects of transactions reported in the financial statements
        and
        consist of taxes currently due plus deferred taxes related primarily to
        differences between the bases of certain assets and liabilities for financial
        and tax reporting. Deferred taxes represent the future tax return consequences
        of those differences, which will either be taxable or deductible when the
        assets
        and liabilities are recovered or settled. No provision for deferred taxes
        is
        reflected in the financial statements as the valuation allowance offsets
        any
        deferred tax benefit.  See Note 4.
 
 **Foreign
        Operations**
 
 Transaction
        gains and losses that arise from exchange rate fluctuations on transactions
        denominated in a currency other than the local functional currency (the U.S.
        Dollar) are included in "general and administrative" expenses in the statements
        of operations, which amounts were not material for the years ended
        December 31, 2006 and 2005. Currently, the company requires all sales,
        receipts, purchases and disbursements to be calculated in U.S.
        Dollars.
 
 **Reclassification**
 
 Certain
        items from the 2005 financial statements have been reclassified to conform
        to
        the 2006 presentation.
 
 **Recent
        Accounting Pronouncements**
 
 During
        October 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”). This statement does not require any new fair value measurements
        but provides guidance on how to measure fair value and clarifies the definition
        of fair value under accounting principles generally accepted in the United
        States of America. The statement also requires new disclosures about the
        extent
        to which fair value measurements in financial statements are based on quoted
        market prices, market-corroborated inputs, or unobservable inputs that are
        based
        on management’s judgments and estimates. The statement is effective for fiscal
        years beginning after November 15, 2007. The statement will be applied
        prospectively by the Company for any fair value measurements that arise after
        the date of adoption.
 
 The
        FASB
        has also issued SFAS No. 158, “Employers’ Accounting for Defined Benefit
        Pension and Other Postretirement Plans—an amendment of FASB Statements
        No. 87, 88, 106, and 132(R)”. As the Company has no plans covered by this
        standard, it will have no effect on the consolidated financial
        statements.
 
 The
        SEC
        has issued Staff Accounting Bulletin No. 108, “Considering the Effects of
        Prior Year Misstatements when Quantifying Misstatements in Current Year
        Financial Statements” (“SAB 108”), in September 2006. SAB 108 requires entities
        to quantify misstatements based on their impact on each of their financial
        statements and related disclosures. SAB 108 is effective as of December 31,
        2006. The adoption of this standard is not expected have an impact on the
        Company’s consolidated results of operations, cash flows or financial
        position.
 
 *Table
            of Contents*
 52
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities-Including an amendment of FASB
        Statement No. 115.”  This statement permits entities to choose to measure
        eligible items at fair value at specified election dates.  The statement is
        effective as of the beginning of an entity’s first fiscal year that begins after
        November 15, 2007 although early adoption is permitted provided that an entity
        also adopts SFAS 157. The Company has not determined the impact this standard
        will have on its consolidated operating results or financial position upon
        adoption.
 
 **Note
        2. Restatement of Previously Issued Financial Statements**
 
 **The
        Company has restated its consolidated balance sheet as of December 31, 2006,
        and
        the related consolidated statements of operations, stockholders’ equity, and
        cash flows for the years ended December 31, 2006.  The Company has
        reassessed certain accounting policies and concluded certain items had been
        accounted for incorrectly in the past and has restated them
        accordingly.**
 
 **The
        restated items are as follows:**
 ·
              The
                  Company corrected the accounting for the reverse acquisition of
                  Victor
                  Industries, Inc. (former name of Registrant).  Since Victor
                  Industries, Inc. was determined to meet the definition of a public
                  shell,
                  the transaction should be accounted for as a
                  recapitalization.  Accordingly, no goodwill or other intangible
                  assets are recognized in conjunction with this
                  transaction. Therefore, there was a reduction of goodwill,
                  customer list, accumulated amortization, accumulated depreciation
                  and
                  additional paid in capital resulting from this correction, in the
                  amount
                  of $2,411,103, $2,000,726, $66,690, 11,160 and $4,400,669, respectively.
                  The net effect on the statement of operation resulted in a reduction
                  of
                  the net loss of $66,690 for the amortization which had previously
                  been
                  recorded on the intangibles.
 ·
              The
                  Company corrected the classification of depreciation between cost
                  of sales
                  and general and administrative
                  expenses.
 
 The
        following table presents the effects of the restatement adjustments on net
        loss
        for the periods ended December 31, 2006:
 
 Net
                loss, as previously
                reported
              $(6,556,803)Restatement
                adjustments:Amortization
                  of intangibles
              66,690Net
                loss, as restated
              $(6,490,113)
 
 The
        following table presents the effects of the restatement adjustments on the
        Company’s previously reported financial position and results of operations as of
        and for the year ended December 31, 2006:
 
 As
                  Previously
                Reported
              
              As
                  RestatedRevenue
              $    
                   4,768,013
              
              $ 
                       4,768,013Cost
                of sales
              1,340,135
              
              1,613,366Operating
                expenses
              10,036,319
              
              9,696,398Other
                income/expense
              51,638
              
              51,638Net
                  loss
              $  
                  (6,556,803)
              
              $   
                  (6,490,113)Net
                  Loss per Common Share
              $            (6.83)
              
              $      
                        (6.76)Total
                current assets
              $    
                   1,123,006
              
              $     
                  1,123,006Property
                and intangibles, net
              10,725,447
              
              6,391,568Other
                assets
              5,000
              
              5,000Total
                assets
              $   
                  11,853,453
              
              $    
                   7,519,474Total
                current liabilities
              $    
                   5,823,205
              
              $    
                   5,823,205Stockholders’
                equity
              6,030,248
              
              1,696,269Total
                liabilities and stockholders’ equity
              $   
                  11,853,453
              
              $    
                   7,519,474
 
 *Table
            of Contents*
 53
 **Note
        3. Property and Equipment**
 
 The
        Company’s property and equipment consisted of the following at
        December 31:
 
 2006
              
              
              2005Building
              
              $
              5,845,417
              
              
              $
              0Equipment
              
              
              886,353
              
              
              
              167,591Furniture
                  and fixtures
              
              
              14,727
              
              
              
              14,727Computers
              
              
              36,648
              
              
              
              35,7906,783,145
              
              
              
              218,108Less:
                  accumulated depreciation
              
              
              (391,677)
              
              
              
              (63,153)$
              6,391,468
              
              
              $
              154,955
 
 **Note
        4. Income Taxes**
 
 The
        Company is liable for taxes in the United States. As of December 31, 2006,
        the Company does not expect to have any income for tax purposes and therefore,
        no tax liability or expense has been recorded in these financial
        statements.
 
 The
        Company estimates that it has tax losses of approximately $9,900,000 (as
        restated)****which may be available to reduce future taxable
        income. Any tax loss carry forwards available expire between the years 2020
        and
        2026.
 
 The
        deferred tax asset associated with the estimated tax loss carry forward is
        approximately $3,366,000 (as restated). The Company has provided for a valuation
        allowance as an offset against the deferred tax asset as it is unknown at
        this
        time if the asset will be utilized.  The valuation allowance increased
        by approximately $2,210,000 and $358,000 for the years ended 2006 and 2005,
        respectively.
 
 *Table
            of Contents*
 54
 **Note
        5. Operating Leases**
 
 The
        Company leases an office building under a lease agreement that expires in
        July
        2012. The rent expense for the year ended December 31, 2006 and 2005, totaled
        to
        $66,844 and $48,634, respectively.
 
 The
        Company’s future annual minimum lease payments are as follows for years ending
        December 31:
 
 2007
              
              $
              52,6572008
              
              
              54,2362009
              
              
              55,8632010
              
              
              57,5392011
              
              
              59,265Thereafter
              
              
              35,170Total
              
              $
              314,730
 
 
 **Note
        6. Stock Option Plan**
 
 In
        2006,
        the Company adopted the 2006 Stock Incentive Plan which reserves a total
        of
        3,500,000 common shares to provide the Company with a means of compensating
        selected key employees (including officers), directors and consultants. No
        options were granted in 2006 under this Plan.
 
 **Note
        7. Subsequent Events**
 
 On
        February 7, 2007, the Company entered into an equipment lease agreement with
        Mazuma Capital Corp. wherein the Company agreed to a 24-month sale and
        lease-back arrangement for up to $800,000 of its manufacturing equipment.
        The
        lease calls for a monthly payment based on a factor of .04125 times the average
        outstanding loan balance during the month. Through March 29, 2007, the Company
        has placed property valued at $737,968 under this lease arrangement with
        Mazuma
        Capital Corp.
 
 Between
        January 1, 2007 and April 14, 2007, the Company issued 574,000 shares of
        our
        common stock for services rendered by key consultants, officers, and
        directors.
 
 On
        March
        9, 2007, the Company closed on a private placement of 50,000 shares of common
        stock for a total of $50,000.
 
 On
        April
        4, 2007, the Company cancelled and returned to treasury 50,000 shares of
        our
        common stock.
 *Table
              of Contents*
 55
 **Item
        8.     Changes in and Disagreements with
        Accountants on Accounting and Financial Disclosure**
  The
        Registrant’s Board of Directors approved the engagement of Peterson Sullivan,
        PLLC (“PS”) as the Registrant’s independent registered public accounting firm to
        audit the Company’s financial statements for the year ended December 31,
        2006.
 
 The
        report issued by PS in connection with the audit for the year ended December
        31,
        2006 did not contain an adverse opinion or a disclaimer of opinion, nor was
        such
        report qualified or modified as to audit scope or accounting
        principles.
  **Item
        8A.   Controls and Procedures**
 
 *(a)*           *Evaluation
        of Disclosure Controls and Procedures:*
 
 Our
        President and Chief Financial Officer, after evaluating the effectiveness
        of our
“disclosure controls and procedures” (as defined in Exchange Act
        Rules 13a-15(e) and 15d-15(e)), have concluded that, as of
        December 31, 2006 our disclosure controls and procedures contained
        significant internal control weaknesses that, in the aggregate, represent
        material weaknesses.
 
 *(b)           Management’s
        Annual Report on Internal Control Over Financial Reporting:*
 
 In
        connection with the preparation of our financial statements for the year
        ended
        December 31, 2006, certain significant internal control deficiencies became
        evident to management that, in the aggregate, represent material weaknesses,
        including,
 
 (i)
              Lack
                  of a control environment that sufficiently promotes effective internal
                  control over financial reporting throughout the management
                  structure;(ii)
              Lack
                  of independent directors for our audit
                  committee;
 (iii)
              Lack
                  of training in public company reporting requirements;(iv)
              Lack
                  of control processes for recording and approving journal
                  entries;
 (v)
              Lack
                  of controls over the sales transaction process;(vi)
              Lack
                  of controls over invoice posting
                  process;
 (vii)
              Insufficient
                  policies and procedures over various financial statement
                  areas;(viii)
              Insufficient
                  documentations for accounting or business
                  transactions;
 (ix)
              Lack
                  of policies and procedures over records retention;(x)
              Lack
                  of an audit committee financial
                  expert;
 (xi)
              Insufficient
                  personnel in our finance/accounting functions;(xii)
              Insufficient
                  segregation of duties; and
 (xiii)
              Insufficient
                  corporate governance policies.
 
 As
        part
        of the communications by Peterson Sullivan, PLLC, or Peterson Sullivan, with
        our
        management with respect to Peterson Sullivan’s audit procedures for fiscal 2006,
        Peterson Sullivan informed management that these deficiencies constituted
        material weaknesses, as defined by Auditing Standard No. 2, “An Audit of
        Internal Control Over Financial Reporting Performed in Conjunction with an
        Audit
        of Financial Statements,” established by the Public Company Accounting Oversight
        Board, or PCAOB.
 
 In
        accordance with Section 404 of the Sarbanes-Oxley Act of 2002, we intend to
        take appropriate and reasonable steps to make the necessary improvements
        to
        remediate these deficiencies during 2007. We intend to consider the results
        of
        our remediation efforts and related testing as part of our year-end 2007
        assessment of the effectiveness of our internal control over financial
        reporting.
  *(c)           Changes
        in Internal Control Over Financial Reporting:*
  There
        were no changes in our internal control over financial reporting during the
        quarter ended December 31, 2006 that have materially affected, or are reasonably
        likely to materially affect our internal controls over financial
        reporting.
  *Table
            of Contents*
 56
 **Item
        8B.****Other Information**
  None.
  **PART
        III**
 
 **Item 9.
        Directors, Executive Officers, Promoters, Control
        Persons and Corporate Governance; Compliance With Section 16(a) of the
        Exchange Act**
  The
        following sets forth the names and ages, as of March 31, 2007, of the
        members of the Board of Directors, their respective positions and offices
        with
        the Company, the period during which each has served as a director of the
        Company and their principal occupations or employment during the past five
        years.
  ***Directors***
  **Name**
              
              **Age**
              
              **Position**
              
              **Director/Officer
                  Since**Enrique
                  de Vilmorin
              
              55
              
              Chief
                  Executive Officer, President and Director
              
              2006Jose
                  Manuel Escobedo
              
              66
              
              Director
              
              2006Luis
                  Willars
              
              65
              
              Director
              
              2006
  All
        directors serve until their successors have been duly elected and qualified,
        unless they earlier resign.
  **Enrique
        de Vilmorin**
  Since
        2000, Mr. de Vilmorin has served and President, CEO and Director of Ethos
        Environmental, Inc.  Mr. de Vilmorin has more than 25 years experience
        in multi-national corporations. His areas of expertise include finance,
        management and manufacturing. His hands-on approach makes him as comfortable
        with clients as he is in the warehouse or in the boardroom. His background
        includes work with Intel, IBM, First Union Bank, and the World Bank Group
        and a
        Masters Degree in Economics from the University of Southern
        California.
 
 **Jose
        Manuel Escobedo**
 
 Since
        2000, Mr. Escobedo has served as Treasurer and Director of Ethos Environmental,
        Inc.  Mr. Escobedo brings to the Company more than 30 years of
        entrepreneurial experience and an MBA from IPADE. Mr. Escobedo has owned
        and
        managed businesses within the oil and fuels industry. He is a director of
        the
        Company.
 
 **Luis
        Willars**
 
 Since
        2000, Mr. Willars has served as Secretary and Director of Ethos Environmental,
        Inc.  Mr. Willars, an Economist with more than 30 years experience in
        government and private sector corporations, adds a strong knowledge in corporate
        finance and administration.  Mr. Willars holds a Masters Degree in
        Economics from IETSM.  He is responsible for Ethos Environmental’s
        worldwide Strategic Planning and Finance.
 
 *Table
            of Contents*
 57
 Executive
        officers of the company are as follows:
 
 **Enrique
        de Vilmorin**- President and Chief Executive Officer (see
        above).
 
 **Thomas
        W. Maher**–****Chief Financial Officer
 
 Mr.
        Maher
        brings to the company over 20 years of senior financial management experience.
        Over this period, he has served as Chief Financial Officer for both privately
        held and publicly reporting corporations. Over the past 10 years he has served
        as a Chief Financial Officer of a publicly traded international sign
        manufacturing company, Luminart Corp., and as a Chief Financial Officer of
        a
        commercial construction general contracting firm RC Vannatta Inc. Mr. Maher
        has
        a MBA degree in Finance and Economics from the University of
        Detroit.
 
 ***Involvement
        in Certain Legal Proceedings***
 
 We
        are
        not currently involved in any legal proceedings.
 
 During
        the last five (5) years none of our directors or officers has:
  (1)
              any
                  bankruptcy petition filed by or against any business of which such
                  person
                  was a general partner or executive officer either at the time of
                  the
                  bankruptcy or within two years prior to that
                  time;  (2)
              been
                convicted in a criminal proceeding or subject to a pending criminal
                proceeding;  (3)
              been
                subject to any order, judgment, or decree, not subsequently reversed,
                suspended or vacated, of any court of competent jurisdiction, permanently
                or temporarily enjoining, barring, suspending or otherwise limiting
                his
                involvement in any type of business, securities or banking activities;
                or  (4)
              been
                found by a court of competent jurisdiction in a civil action, the
                Commission or the Commodity Futures Trading Commission to have violated
                a
                federal or state securities or commodities law, and the judgment
                has not
                been reversed, suspended, or vacated.
  
 ***Section
        16(a) Beneficial Ownership Reporting Compliance***
  Section
        16 of the Securities Exchange Act of 1934 requires the Company’s directors and
        certain executive officers and certain other beneficial owners of the Company’s
        common stock to periodically file notices of changes in beneficial ownership
        of
        common stock with the Securities and Exchange Commission.  To the best of
        the Company’s knowledge, based solely on copies of such reports received by it,
        and the written representations of its officers and directors, the Company
        believes that for 2006 all required filings were timely filed by each of
        its
        directors and executive officers.
  ***Code
        of Ethics***
  We
        have
        adopted a Code of Ethics and Business Conduct for Officers, Directors and
        Employees that applies to all of our officers, directors and
        employees.
 
 **Item
        10.  
Executive Compensation**
  ***Summary
        Compensation Table***
  The
        following table sets forth the overall compensation earned over each of the
        past
        two fiscal years ending December 31, 2006 by (1) each person who served as
        the
        principal executive officer of the Company during fiscal year 2006; (2) the
        Company’s most highly compensated executive officers as of December 31, 2006
        with compensation during fiscal year 2006 of $100,000 or more; and (3) those
        individuals, if any, who would have otherwise been in included in section
        (2)
        above but for the fact that they were not serving as an executive of the
        Company
        as of December 31, 2006.
 
 *Table
            of Contents*
 58
 The
        following executive compensation was paid during 2005 or 2006, if
        any.
 
 **Salary
                  Compensation****Name and**
                **Principal**
                **Position**
              
              **Fiscal**
                **Year**
              
              **Salary ($)**
              
              **Bonus**
                **($)**
              
              **Stock**
                **Awards
                  ($)**
              
              **Options**
                **Awards**
                **($)(1)**
              
              **Non-Equity**
                **Incentive Plan**
                **Compensation**
                **($)**
              
              **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings ($)**
              
              **All Other**
                **Compensation**
                **Compensation**
                **($) (2)(3)**
              
              **Total ($)**Enrique
                  de Vilmorin –
                CEO
                  & President
              
              2006
              
              $
              344,325
              
              $
              —
              
              875,000
              
              
              —
              
              —
              
              —
              
              —
              
              $
              1,219,3252005
              
              $
              --
              
              $
              —
              
              —
              
              —
              
              —
              
              —
              
              —
              
              $Thomas
                  W. Maher –
                CFO
              
              2006
              
              $
              --
              
              
              --
              
              --
              
              
              --
              
              --
              
              --
              
              --
              
              $
  
 There
        were no stock options granted or exercised by the named executive directors
        in
        2006.
 
 **GRANTS
        OF PLAN BASED AWARDS**
 Estimated Future Payouts Under
                Non-Equity
                  Incentive Plan Awards
              
              Estimated
                  Payouts Under
                Equity
                  Incentive Plan AwardsName
              
              Grant
                  Date
              
              Threshold
                ($)
              
              Target
                ($)
              
              Maximum
                ($)
              
              Threshold
                (#)
              
              Target
                (#)
              
              Maximum
                (#)
              
              All
                  Other Stock Awards; Number of Shares of Stock or Units
                (#)
              
              All
                  Other Option Awards; Number of Securities Underlying Options
                (#)
              
              Exercise
                  or Base Price of Option Awards
                ($/Sh)
              
              Grant
                  Date Fair Value of Stock and Option Awards-
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              --
              -
              -
              -
              -
              -
              -
  There
        were no other stock based awards under the Stock Incentive Plan in 2006 to
        the
        Named Executive Officers.
 
 *Table
            of Contents*
 59
 ***Executive
        Officer Outstanding Equity Awards at Fiscal Year-End***
 
 The
        following table provides certain information concerning any common share
        purchase options, stock awards or equity incentive plan awards held by each
        of
        our named executive officers that were outstanding as of December 31,
        2006.
 
 **Option Awards**
              
              **Stock Awards****Name**
              
              **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options(#)**
                **Exercisable**
              
              **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options(#)**
                **Unexercisable**
              
              **Equity**
                **Incentive Plan**
                **Awards:**
                **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Unearned**
                **Options (#)**
              
              **Option**
                **Exercise**
                **Price ($)**
              
              **Option**
                **Expiration**
                **Date**
              
              **Number of**
                **Shares or**
                **Units of**
                **Stock That**
                **Have Not**
                **Vested (#)**
              
              **Market**
                **Value of**
                **Shares or**
                **Units of**
                **Stock That**
                **Have Not**
                **Vested**
              
              **Equity**
                **Incentive**
                **Plan**
                **Awards:**
                **Number**
                **of**
                **Unearned**
                **Shares,**
                **Units or**
                **Other**
                **Rights**
                **That Have**
                **Not**
                **Vested**
              
              **Equity**
                **Incentive Plan**
                **Awards:**
                **Market or**
                **Payout Value of**
                **Unearned**
                **Shares, Units or**
                **Other Rights**
                **That Have Not**
                **Vested**Enrique
                  de Vilmorin
                CEO
                  & President
              
              
              —
              
              
              —
              
              
              —
              
              $
              —
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Thomas
                  Maher
                CFO
              
              
              —
              
              
              —
              
              
              —
              
              $
              —
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
  **OPTION
        EXERCISES AND STOCK VESTED**
 
 There
        were no options exercised and there was no unvested stock outstanding during
        the
        year ended December 31, 2006.
 
 **PENSION
        BENEFITS AND NONQUALIFIED DEFERRED COMPENSATION**
 
 The
        Company does not maintain any qualified retirement plans or non-nonqualified
        deferred compensation plans for its employees or directors.
  **EMPLOYMENT
        AGREEMENTS**
 
 On
        December 4, 2006, Ethos Environmental, Inc. (the “Company”) entered into an
        employment agreement (the “Maher Agreement”) with Thomas W. Maher defining the
        terms of his employment with the Company as Chief Financial Officer, effective
        December 1, 2006 (the “Effective Date”). The initial term of Mr. Maher’s
        employment under the Maher Agreement is through December 1, 2007 (unless
        earlier
        terminated in accordance with the terms of the Maher Agreement), with automatic
        one-year renewals for each of the successive two years following the Effective
        Date.
 
 The
        Company has no other written employment agreements with any of its named
        executive officers or directors.
  **DIRECTOR
        COMPENSATION**
 
 ***Stock
        Options***
 
 The
        Company does not currently have a fixed stock option plan that provides for
        the
        issuance of incentive and non-qualified stock options to officers, directors,
        employees and non-employees.
  ***Cash
        Compensation***
  Directors
        receive no cash compensation for services rendered.
  **Item
        11. 
Security
        Ownership of Certain
        Beneficial Owners and Management and Related Stockholder
        Matters**
 
 The
        following table sets forth certain information regarding beneficial ownership
        of
        common stock as of December 31, 2006, by:
 
 ·
              Each
                  person known to us to own beneficially more than 5%, in the aggregate,
                  of
                  the outstanding shares of our common
                  stock;
 ·
              Each
                  director;
 ·
              Each
                  of our chief executive officer and our other two most highly compensated
                  executive officers; and
 ·
              All
                  executive officers and directors as a
                  group.
 
 *Table
            of Contents*
 60
 The
        number of shares beneficially owned and the percent of shares outstanding
        are
        based on 23,107,669 shares outstanding as of December 31, 2006. Beneficial
        ownership is determined in accordance with the rules of the SEC and generally
        includes voting or investment power with respect to securities.
 
 **Beneficial
                    Owner**
              
              **Shares of Common Stock Number**
              
              
              **Beneficially Owned Percent**Enrique
                  de Vilmorin
              
              10,500,000
              
              
              45.44
              %Jose
                  Manuel Escobedo
              
              250,000
              
              
              1.08
              %%All such directorsand
                  executiveOfficers as a group
              
              10,750,000
              
              
              46.52
              %Total
              
              10,750,000
              
              
              46.52
              %
 
 
 ***Changes
        in Control***
 
 We
        know
        of no plans or arrangements that will result in a change of control at our
        company.
 
 **Item
        12.   Certain Relationships and Related
        Transactions**
 
 During
        2006, there was one Loan Payable to the President of the Company in the amount
        of $50,000.  The loan has no stated repayment terms, is due on demand,
        is unsecured and does not bear interest.
 
 **Item
        13.  Exhibits**
  EXHIBIT
                  NUMBER
              DESCRIPTION
              LOCATION3.1
                  - 3.2
              Articles
                  of Incorporation and Bylaws
              Incorporated
                  by reference as Exhibits to the Form 8-K filed on December 12,
                  2004 as
                  amended on February 3, 2005.10.1
              Agreement
                  and Plan of Merger by and between the Company and Ethos Environmental,
                  Inc.
              Incorporated
                  by reference as an Exhibit to the Form 8-K filed on April 24,
                  2006.10.2
              2006
                  Definitive Proxy Statement.
              As
                  filed with the Commission on October 4, 2006.10.3
              Sale/Leaseback
                  Agreement with Mazuma Capital Corp.
              Filed
                  herewith.10.4
              Amendment
                  No.1 to Agreement with Mazuma Capital Corp.
              Filed
                  herewith.31.1
              Rule
                  13a-14(a)/15d-14(a) Certification (CEO)
              Filed
                  herewith31.2
              Rule
                  13a-14(a)/15d-14(a) Certification (CFO)
              Filed
                  herewith32.1
              Section
                  1350 Certification (CEO)
              Filed
                  herewith32.2
              Section
                  1350 Certification (CFO)
              Filed
                  herewith
  *Table
            of Contents*
 61
 **Item
        14.  Principal Accounting Fees and
        Services**
  During
        the year ended December 31, 2006, we engaged Peterson Sullivan PLLC as our
        independent auditor.  For the year ended December 31, 2006, we incurred
        fees to Peterson Sullivan PLLC as discussed below.
   ·
              *Audit
                  Fees:*Fees for audit and quarterly review services totaled
                  $81,868 and $20,076 for 2006 and 2005, respectively, including
                  fees
                  associated with consents and the review of this
                  report.
   ·
              *Tax
                  Fees:*  We did not engage PETERSON SULLIVAN PLLC, for any tax
                  related services during 2006 or
                  2005.
   ·
              *All
                  Other Fees:*Fees for other services not included in the above
                  were $0in both 2006 and 2005.  *Table
              of Contents*
 62
 **SIGNATURES**
  In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized on the 19th day of
        November,  2007.
  **Ethos
                  Environmental, Inc.**
                a
                  Nevada CorporationBy:
              /s/
                  Enrique de VilmorinEnrique
                  de Vilmorin
                *Chief
                  Executive Officer*
  Pursuant
        to the requirements of the
        Securities Exchange Act of 1934, the following persons on behalf of the
        Registrant and in the capacities and on the dates indicated have signed this
        report below.
  Signature
              
              Position
              
              Date/s/
                  Enrique de Vilmorin
              
              Chief
                  Executive Officer and Director
              
              November
                  19, 2007Enrique
                  de Vilmorin/s/
                  Jose Manuel Escobedo
              
              Director
              
              November
                  19, 2007Jose
                  Manuel Escobedo/s/
                  Luis Willars
              
              Director
              
              November
                  19, 2007Luis
                  Willars/s/
                  Thomas W. Maher
              
              Principal
                  Accounting Officer
              
              November
                19, 2007Thomas
                  W. Maher
              
              Chief
                  Financial Officer
  *Table
              of Contents*
 63