Ethos FR: 2006 annual report shows big financial loss

[fuelsaving]

I guess many of us remember the stories in 2005 and early 2006 of how Ethos Environmental Inc was supposedly selling hundreds of millions of dollars a year of their "wonder" additive, Ethos FR. And we remember how the filings in advance of their reverse merger showed the real sales from 2002 up to mid-2006 were less than three million. At the time, many supporters claimed that the sales were in some way "hidden" and all would be revealed after the reverse merger was completed in November 2006.

Well, the 2006 annual report is out now (http://biz.yahoo.com/e/070417/etev.ob10ksb.html) and guess what? No vast earnings! Total sales in 2006 were just over 4 million dollars. As Wes would say, "I'm shocked I tell you. Shocked"

Even more interesting is that they lost 6.5 million dollars in 2006, mainly due to spending almost 5 million dollars on "business consulting fees". They have had to do a sale-and-leaseback on the manufacturing equipment, and the loan for the purchase of the new building is interest-only.

Boy, things are really going great for this company

[wserra]

If you have a few minutes, it's fun to skim the entire 10k as filed with the SEC rather than the Yahoo short version. One finds nuggets like this, useful for quoting to brain dead MLM wannabe millionaires:

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 substantial doubt and is dependent upon obtaining additional financing and/or achieving a sustainable profitable level of operations.

And, from its auditors:

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.

Sounds promising.

And the CEO, Enrique de Vilmorin, received total 2006 compensation of $1.2M, doubtless as a reward for the 2006 net loss of five times that. I would really love to know who received the nearly $5M in "business consulting fees", and what they supposedly did in return for those fees.

[fuelsaving]

There is an amusing "interview" with Enrique at http://www.redchip.com/visibility/inves ... rom=pr0426. It sounds to me like basically paid advertising, since the interviewer conveniently fails to ask any awkward questions and accepts Enrique's bulls**t at face value. Interestingly, Enrique claims that the big loss in 2006 was just a carry-forward of old Victor Industries losses, for tax reasons. To me, that doesn't fit the definition of "business consulting fees" in the 10K.

Enrique also claims that their new miracle engine will only use 1% as much fuel as current engines. Since current engines are typically 25% efficient, that implies an efficiency of 2500% - which violates the Second Law of Thermodynamics at the very least.

[fuelsaving]

I just noticed something interesting in Ethos's 2007 Q1 filing (http://www.sec.gov/Archives/edgar/data/ ... bethos.htm). On page 18 they say "Throughout this “proof-of-concept” sales and marketing phase, gross sales for Ethos Environmental have consistently exceeded forecasts".

Yet we know for a fact that the sales in 2006 were well below the claimed forecasts:
http://www.prweb.com/releases/2006/4/prweb372820.htm: "The company expects revenue in 2006 of $100 million from China and Ecuador alone"
http://www.sec.gov/Archives/edgar/data/ ... 123106.htm: "We recognized revenues of $4,768,013 for the year ended December 31, 2006"

Does that mean they are guilty of lying in their SEC filings? Isn't that a criminal offence?

[wserra]

And, from the same 10-q:

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 substantial doubt and is dependent upon obtaining additional financing and/or achieving a sustainable profitable level of operations.

How about that, all you future millionaires?

Does that mean they are guilty of lying in their SEC filings? Isn't that a criminal offence?

It would be. However, I think it much more likely that they're telling something resembling the truth to the SEC, and lying to the marks.

[fuelsaving]

I see that, after opening at $11 following the flotation / reverse merger in November 2006, the share price is now down to $1.16. I guess maybe we skeptics were right about the company. Funnily, still no sign of the hundreds of millions of dollars of supposed "hidden" income.

[JohnnyB]

There is an amusing "interview" with Enrique at http://www.redchip.com/visibility/inves ... rom=pr0426. It sounds to me like basically paid advertising, since the interviewer conveniently fails to ask any awkward questions and accepts Enrique's bulls**t at face value. Interestingly, Enrique claims that the big loss in 2006 was just a carry-forward of old Victor Industries losses, for tax reasons. To me, that doesn't fit the definition of "business consulting fees" in the 10K.

Enrique also claims that their new miracle engine will only use 1% as much fuel as current engines. Since current engines are typically 25% efficient, that implies an efficiency of 2500% - which violates the Second Law of Thermodynamics at the very least.

Unfortunately the investor presentation video of the Red Chip Investors Conference in Phoenix (Feb 2007) is no longer available online. However, Enrique was in fine b.s. form. Some highlights were:

1. He says that based on contracts in hand, EEI would do $120 million in 2007

2. He says that EthosFR is presently in HALF the fuel supply in Africa

3. He says that EthosFR is being used to significantly reduce greenhouse gases in Beijing

EEI's second quarter financials were released and 89% of all revenues were generated through sales to Ecquador. Not China, Not USA and Not Africa.

EEI reported 'contracts pending' worth $16 million. Yet in February Enrique said he had contracts for $120 million. Where is the missing $100 million?

Plus, Enrique has a contract in-hand for $2 million with Nigeria, but his financials show almost nothing presently sold to Africa. How in the hell can EthosFR be in half of Africa's fuel supply with little or no product sold there???

Furthermore, once again we see ZERO evidence of any significant sales to China/Beijing. For a guy who claimed sales of $7 million a month to China, one can only assume the boats sunk.

[wserra]

Once again, anyone interested should take a look at the actual 10-q. Some interesting observations:

• EEI had a net loss for the quarter of almost $7M, a net loss of $.29 for each share of common stock.
  
  Administrative expenses were $1.5M, sixty percent of revenue.
  
  Once again, EEI itself (or their auditors) point out that "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 substantial doubt and is dependent upon obtaining additional financing and/or achieving a sustainable profitable level of operations."
  
  Incredibly, what JohnnyB writes is absolutely true: 89% of their sales come from Ecuador.

  (1) Petro Industrial, an Ecuadorian company, accounted for 46.14% of revenues;
  
  (2) Electroguayas S.A., an Ecuadorian company, accounted for 29.77% of revenues; and
  
  (3) PetroEcuador, another Ecuadorian company, accounted for 13.4% of revenues.

A great opportunity for future millionaires.

[fuelsaving]

Once again, EEI itself (or their auditors) point out that "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 substantial doubt and is dependent upon obtaining additional financing and/or achieving a sustainable profitable level of operations."

EEI have now found a simple solution to this problem - they have sacked their auditors.

[wserra]

EEI have now found a simple solution to this problem - they have sacked their auditors.

And they apparently have a somewhat more difficult problem: no operating capital. Their latest 8-K shows what Tony wrote - they fired Peterson Sullivan, their auditor. Their next-to-latest 8-K shows that de Vilmorin sold their plant (to a private equities firm named GreenBridge Capital Partners) and leased it back. This after the large Q2 losses posted in this thread.

What happens when there is nothing left to sell, future millionaires?

[JohnnyB]

Seems like investors aren't very excited about Ethos' potential contracts with China or with the announcement that 4E Corp is the official Indy Car sponsor of Al Unser III.

The stock plummeted 26% today to close at $0.79. It opened in November at $11.25.

For the past two weeks it flirted with a drop below one dollar, yet there were always mystery small purchases which seemed to overpay and keep it in the $1.10 to $1.50 range. Today the volume was 5 times the daily average and everyone was selling.

[wserra]

Well, now Ethos joins the crowd in marketing their useless nostrums to third-world countries, and in language that would make P.T. Barnum blush.

It appears that Ethos has given itself an award in Nigeria. It also apparently "has been officially endorsed for use in Nigeria by the Federal Ministry of Environment" - just as soon as the envelope disappeared inside the desk. You guys sure that you don't need any help getting your rich dead uncle's billions out of the country?

Most egregious, though, is the following claim: "The United States military uses it in extremely expensive vehicles and large trucking, while haulage companies are saving millions of dollars in fuel cost every year, in the United States, Canada, Australia, among others." Wait a second, guys. Didn't your latest SEC filings (see above) show that 89% of sales went to Ecuador? Oh, I see, you guys set up little villages in Ecuador named "United States", "Canada" and "Australia" (among others) and paid the folks there to use your stuff?

Doesn't sound kosher.

[wserra]

Ethos Environmental just filed an 8-k (a current activities report) with the SEC which contains its new contract with Enrique de Vilmorin to continue his inspired leadership. A couple of key points: The term is a minimum of five years. Compensation is a base of $30K per month, bonuses at the discretion of the Board. Five million share (common stock) signing bonus. Not Warren Buffett territory, but not bad, right? He must be doing OK.

Bzzt. From the latest 10-q (quarterly report):

The Company has incurred significant losses from operations in the last two years, and as of September 30, 2007 the Company has an accumulated deficit of $18,932,444. The cumulative net losses incurred for the year ended December 31, 2006 and for the nine months ended September 30, 2007 of $9,065,867 are mainly due to non-cash transactions for issuance of stock for services and loss on impairment of building (see Stock Based Compensation, following).

And 89% of their revenues still come from Ecuador.

Good work, Enrique.

[JohnnyB]

Ethos has reported strong revenues recently, almost all to Equador. Last week, Ethos Environmental sent out a few feel good press releases, which appear to be in anticipation of the bad news.

EEI has gone through 3 accounting firms in a matter of months. We now know that the latest group of Ethos accountants resigned over a dispute regarding the reporting of revenues.

Seems that a high % of sales to Equador remain as 'uncollectable'.

So while EEI is reporting $9 million in sales, 83% has not been paid for. It also looks like one of EEI's customers has a consignment arrangement, but revenues are booked otherwise.

http://biz.yahoo.com/e/080124/etev.ob8-k_a.html

Sales to these customers represented 85% of sales that were to be reported for the nine months ended September 30, 2007, of which approximately 83% was still receivable at September 30, 2007.

In addition, the substance of an arrangement with another customer led JHC to question whether sales had occurred or whether the Registrant's inventory was on consignment with that customer's customers.

[Mr_Schmoo]

I'm curious - has anybody here actually used the product?
For how long, and what were your results?
Thanks,
Will

[wserra]

I'm curious - has anybody here actually used the product?

It seems clearly unwise to put anything in a complicated, valuable item such as a car which (1) has never been proven to do anything positive, and (2) will void the car's warranty if it does something harmful. So - no, I've never used "Ethos FR".

For how long, and what were your results?

Even if I had, I wouldn't think my "results" meaningful, for many reasons. An automotive engineer who posts here from time to time explains why. It comes down to how many uncontrolled variables are built into such a "test", with the result that the tester is unable to attribute any change in (for example) fuel ecomony to one variable vs. others. Additionally and importantly, of course, the test is not blind, let alone double-blind - you know which test vehicle is using the substance you want to test.

Thanks

No problem.

[simmysam]

The fact that they actually made $4 million dollars is feat upon itself. I know there were gullible people out there, but geez $4 million bucks??!!