ABOUT THE COMPANY

Ethos Environmental is focused on developing and marketing products that reduce fuel costs and emissions. Its competitive advantage is a winning marketing strategy, proven product, state-of-the-art blending method and numerous patents in development.

More than twenty-six technical and non-technical staff members make up the marketing and sales team of Ethos Environmental. Six full time chemical engineers and support staff at the blending facility in addition to it's development and testing laboratory also support the company.

Ethos Environmental has six products in the patenting process that will supercede the original 1990 patent and formulation. In addition, it has several products in development and others ready to market. They include an ester-based sulfur substitute, a product for a heavy fuel oil use, a tablet form of Ethos FR as well as similar products for aviation application.

In addition to in-house testing the company also supports various evaluation programs such as the one currently underway with the Department of the Airforce Management and Equipment Evaluation Program (MEEP) Langley Airforce Base in Virginia as the contracting agency and with Nellis Airforce Base in Nevada conducting the field operations.

Ethos Environmental continues to lead the industry with environmentally friendly and safe products to help curb the impact of fossil fuels on the environment.

SALES STATUS REPORT

Ethos Environmental Inc. has experienced tremendous sales growth developing and marketing products that reduce fuel costs and emissions. During the last three years, it has opened markets in the United States, Asia, Latin America, Canada and Europe. Its customer base has grown and matured to include more than 5,000 diverse clients. They range from public transportation companies, commercial fleets, solid waste management and heavy-duty truck transportation industries worldwide. Ethos Environmental has made inroads in gasoline, diesel and alternative fuel powered fleets and has demonstrated time and time again it's ability to cost-effectively reduce fuel costs and emissions in any size fleet while delivering excellent service. Ethos Environmental is proud to highlight some of the Company's most visible clients and growing markets.

Domestic Solid Waste Management Hauling and Collection Industry:

Pacific Waste Services has been treating the fuel used in it's entire fleet with Ethos FR-- for nearly 4 years. It has been serving San Diego County for over 25 years and employs more than 250 local residents with two locations in San Diego County. Pacific Waste provides non-hazardous residential and commercial waste collection and recycling services to over 12,000 local businesses and 45,000 local residents. It is a company of Allied Waste Industries, the second largest national waste management and recycling company in the United States with more than 500 collection and landfill locations. Pacific Waste generates more than $75,000 in annual sales for Ethos Environmental and plans are underway to expand the fuel treatment program to other Allied Waste sites; a nationwide implementation program will generate more than $18 million in annual sales.

Ethos FR-- cleans and lubricates an 80 percent to 20 percent mixture of diesel fuel and soybean-based fuel called biodiesel, which is an EPA registered alternative fuel. By treating the fuel combination with Ethos FR--, Pacific Waste has dramatically dropped it's fleet emissions by 63 percent while increasing fuel mileage by more than 10 percent, which has helped defray the additional cost of the biodiesel, in addition to reducing maintenance costs. The Ethos FR-- treatment program, in the two San Diego locations alone, is reducing more than 500 tons of pollution annually--far exceeding State emissions standards, without the cost-prohibitive engine conversions required by alternative fuel like natural gas.

Ethos Environmental is helping this solid-waste hauling truck fleet set a precedent for California diesel-powered fleets by using Ethos FR-- in combination with an alternative fuel. This innovative program demonstrates the creativity and resourcefulness of the marketplace to use cleaner fuel, reduce the adverse health effects from the use of diesel fuel alone, and use fuel produced in the United States. All around it is a uniquely viable choice for any size fleet. It doesn't require state subsidies or significant capital costs and is compatible with "green" diesel technologies.

In addition to the environmental advantages this alternative fuel program offers flexibility. It runs in existing unmodified diesel engines, integrates with existing fueling infrastructure, allow better performance, realizes substantial fuel and maintenance cost savings and is safe to handle. This type of technology has tremendous applicability throughout the world as alternative fuels increase in demand.

International

In November 2001, the Republic of China certified Ethos FR distribution nationwide. The government-run stationary engine laboratory and field tests that were conducted proved that Ethos FR-- achieved a 7% reduction in fuel consumption and a 36% reduction in exhaust smoke. The fuel economy test was conducted with a Sokki Fuel Flow Meter. Ethos FR-- is the first product to achieve the highest performance results in any similar Chinese government test. The Chinese government has tested numerous other products that have made fuel efficiency claims, but have only shown a maximum of 3% reduction in fuel consumption. Unlike Ethos FR--, they are derived from petroleum, which adversely affects engines over time as well as the environment.

Since October 2001, the Shenzhen Transportation Group, a government-run city bus company with more than 4,000 buses servicing more than 500,000 metropolitan commuters, has been using Ethos FR to reduce emissions and increase fuel economy. Additional government run as well as privately owned bus companies in Shenzhen, Guangzhou, Shanghai, and Beijing are currently conducting field performance demonstrations with Ethos FR-- and procurement is expected within this year as part of the agreement with Shenzhen Zhangchang Science Technology Co., LTD, valued at more than $22 million dollars. As part of the contract, SZST will purchase a minimum of 680 drums this year valued at $1.1 million dollars. The first container was shipped and arrived in China in March 2002.

During our visit to China in March 2002, we introduced Ethos Bunker Fuel Conditioner, in addition to the marketing and distribution of Ethos FR--. The Meishi Group, which owns and operates three power plants in Shenzhen, is conducting a performance evaluation with Ethos Bunker Fuel Conditioner for application in its 22 MW power generating plant. At the conclusion of the evaluation an increase in fuel efficiency and a reduction in vanadium corrosion is expected. Procurement of approximately 500 drums a year with a sales value of $1 million dollars is expected to begin in June of this year.