8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): January 8, 2009

ETHOS ENVIRONMENTAL, INC.

(Exact name of registrant as specified in its charter)

Nevada	000-30237	88-0467241
(State or other jurisdiction	(Commission File Number)	(IRS Employer
of Incorporation)		Identification Number)
	6800 Gateway Park Drive San Diego, CA 92154
	(Address of principal executive offices)
	619-575-6800
	(Registrant’s Telephone Number)

(Former name or former address, if changed since last report)

Copy of all Communications to:

Luis Carrillo

Carrillo Huettel, LLP

501 W. Broadway, Suite 800

San Diego, CA 92101

phone: 619.399.3090

fax: 619.330.1888

    Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

    o    Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

    o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

    o    Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

    o    Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Item 1.01 Entry into a Material Definitive Agreement.

MKM Opportunity Master Fund, Limited

On January 9, 2009, Ethos Environmental, Inc. (the “Company” or “Ethos”) entered into a Settlement Agreement and General Release (the “MKM Settlement Agreement”) with MKM Opportunity Master Fund, Limited, a Cayman Islands corporation (the “MKM”) and non-affiliated investor, pursuant to which the Company and MKM amended the terms and conditions relating to a series of transactions by and between the Company and MKM, as set forth herein. In August 2008, Ethos issued a Convertible Promissory Note to MKM for the principal amount of $300,000. At that same time, in August 2008, Ethos issued a Common Stock Purchase Warrant to MKM for 1,000,000 shares of Ethos common stock (the “August Warrant”). Subsequently, in October 2008, Ethos issued a Common Stock Purchase Warrant to MKM for 500,000 shares of Ethos common stock (the “October Warrant”). The Note, August Warrant and October Warrant shall collectively be referred to as the “Prior Agreements.” The parties have resolved to terminate the Prior Agreements and enter into a new Common Stock Purchase Warrant and a new Convertible Promissory Note pursuant to terms and conditions herein as fully set forth in the MKM Settlement Agreement.

Pursuant to the terms of the MKM Settlement Agreement, MKM has provided additional financing to the Company in the amount of $250,000 and, in exchange, the Company has agreed to: (i) issue to MKM five hundred thousand (500,000) shares of the Company’s common stock (the “Settlement Shares”); (ii) pay five thousand dollars ($5,000) to MKM for legal fees incurred as part of the MKM Settlement Agreement (the “Legal Fees”); (iii) issue to MKM a five year Common Stock Purchase Warrant to purchase up to one million five hundred thousand (1,500,000) shares of Company common stock at $.25 per share (the “MKM Warrant”); and, (iv) issue a replacement Convertible Promissory Note (the “MKM Note”) in the principal amount of $550,000 bearing simple interest at a rate of ten percent (10%) per annum, which becomes due and payable on September 30, 2009. The MKM Note also contains customary events of default.

The respective descriptions of: (i) MKM Settlement Agreement; (ii) the MKM Note; and, (iii) the MKM Warrant are brief summaries only and are qualified in their entirety by their respective terms set forth in each document, forms of which are filed as exhibits to this Current Report on Form 8-K (the “Current Report”).

Private Placement

The Company is in the process of completing a non-brokered private placement, subject to market and other conditions, of $1,000,000 of 12% Convertible Debentures (the “Private Placement”). The Private Placement consists of 20 Units (each a “Unit”) offered at $50,000 per Unit, with each Unit being comprised of a 12% Convertible Debenture (the “2009 Note”), a Common Stock Purchase Warrant (the “2009 Warrant”) for the purchase of 100,000 shares of the Company’s Common Stock at $0.25 per share and 33,000 shares of the Company’s Common Stock as incentive shares for the purchase of each Unit. The Private Placement agreements contain standard representations, and warranties and affirmative and negative covenants, and are described in greater detail below. 

The 2009 Note carries 12% interest and a 24 month maturity date and the entire principal amount of the 2009 Note, including any accrued interest, may be converted into shares of the Company’s common stock by election of the Holder at any time at a rate of $0.25 per share. Additionally, the Company may convert the entire principal amount of the 2009 Note, including accrued interest, into shares of the Company’s common stock if the closing price of the Company’s stock as reported on the Over the Counter Markets is $0.50 or more for 15 consecutive trading days with such conversion at a rate of $0.25 per share as well. The 2009 Note also contains customary events of default.  The 2009 Warrant is exercisable for an aggregate of 100,000 shares of Common Stock at an exercise price of $0.25 per share for three (3) years from date of issue.

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The common stock being sold through this Private Placement has not and will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirement under the Securities Act. This Current Report is neither an offer to sell nor a solicitation of an offer to buy any of these securities.

The description of the Private Placement documents are brief summaries only and are qualified in their entirety by their respective terms set forth in each document, forms of which are filed as exhibits to this Current Report.

On January 9, 2009, pursuant to the Company’s Private Placement, the Company sold two Units to GreenBridge Capital Partners, IV, LLC, (“GBCP”) for an aggregate amount of $100,000.  The managing member of GBCP is Corey P. Schlossmann, our CEO.

On January 9, 2009, pursuant to the Company’s Private Placement, the Company sold one Unit to Dr. Luis Carrillo in the amount of $50,000.

Dick F. Chase

On January 8, 2009, the Company entered into a Settlement Agreement and Mutual General Release (the “Chase Settlement Agreement”) with Dick F. Chase, an individual (“Mr. Chase”) a non-affiliated investor pursuant to which the Company and Mr. Chase amended the terms and conditions relating to a Promissory Note issued by the Company on March 31, 2008 (the “2008 Note”).  On March 31, 2008, the Company issued the 2008 Note to Chase in the principal amount of $300,000 bearing interest at 12% per annum, payable monthly in arrears. The 2008 Note was to be due in full on March 31, 2009. The Company and Mr. Chase have now amended the 2008 Note in order to convert $50,000 of the principal amount due under the 2008 Note into one Unit under the Private Placement. Additionally, the Company will issue a new note in the principal amount of $250,000 bearing interest at 12% per annum, due in full on or before December 31, 2009 (the “Chase Note”) which provides that Mr. Chase shall have the right to convert any amounts due under the Chase Note into additional Units as set forth therein.

The respective descriptions of (i) Chase Settlement Agreement (ii) the Chase Note; and (iii) the Private Placement documents are brief summaries only and are qualified in their entirety by their respective terms set forth in each document, forms of which are filed as exhibits to this Current Report.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information set forth above in Item 1.01 of this Current Report on Form 8-K is incorporated herein by this reference.

Item 3.02 Unregistered Sales of Equity Securities.

The Securities issued pursuant to the MKM Settlement Agreement, the Chase Settlement Agreement and the Private Placement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent the registration or an applicable exemption from the registration requirements of the Securities Act. The transactions contemplated by the MKM Settlement Agreement, the Chase Settlement Agreement and the Private Placement are exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) and/or Regulation D thereunder. In each of MKM Settlement Agreement, the Chase Settlement Agreement and the Private Placement, the investing party made representations to the Company regarding their respective suitability to invest, including, without limitation, that each investor qualifies as an “accredited investor” as that term is defined under Rule 501(a) of the Securities Act. The Company did not engage in general solicitation in connection with the sale of the Securities.

This Current Report shall not constitute an offer to sell, the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

The information set forth in Item 1.01 of this Current Report is incorporated by reference into this Item 3.02.

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Item 9.01 Financial Statements and Exhibits.

(a) Not applicable

(b) Not applicable

(c) Not applicable

(d) Exhibits.

Exhibit No.	Description
10.1	Settlement Agreement and Mutual General Release (MKM Settlement Agreement)
10.2	Convertible Promissory Note (MKM Note)
10.3	Common Stock Purchase Warrant (MKM Warrant)
10.4	Settlement Agreement and Mutual General Release (Chase Settlement Agreement)
10.5	Convertible Promissory Note (Chase Note)
10.6	Private Placement Securities Purchase Agreement
10.7	Private Placement Convertible Promissory Note
10.8	Private Placement Common Stock Purchase Warrant
10.9	Private Placement Security Agreement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: January 13, 2009	Ethos Environmental, Inc.
	By:  /s/ Corey P. Schlossmann
	Corey P. Schlossmann,
	President & CEO

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EX-10.1

SETTLEMENT AGREEMENT AND

GENERAL MUTUAL RELEASE

This Settlement Agreement and General Mutual Release (“Agreement”) is made and entered into as of December ___, 2008, by and between Ethos Environmental, Inc. (“ETHOS”) and MKM Opportunity Master Fund, Limited, a Cayman Islands corporation (“MKM”).  ETHOS and MKM are sometimes referred to herein as “Party” or “Parties”.

RECITALS

WHEREAS, on or about August 1, 2008, Ethos issued a Convertible Promissory Note to MKM for the principal amount of $300,000 (the “Note”).

WHEREAS, on or about August 1, 2008, Ethos issued a Common Stock Purchase Warrant to MKM for 1,000,000 shares of Ethos common stock (the “August Warrant”).

WHEREAS, on or about October 1, 2008, Ethos issued a Common Stock Purchase Warrant to MKM for 500,000 shares of Ethos common stock (the “October Warrant”).

WHEREAS, The Note, August Warrant and October Warrant shall collectively be referred to as the “Prior Agreements.”

WHEREAS, the parties have resolved to terminate the Prior Agreements and enter into a new Common Stock Purchase Warrant and a new Convertible Promissory Note pursuant to terms and conditions herein.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which is acknowledged, the Parties covenant and agree as follows:

A.Consideration.  As full consideration for the Settlement and Mutual General Release hereunder:

1.MKM shall provide additional financing to ETEV in the amount of: (i) $150,000 within three (3) business days from the date of the Agreement; and, (ii) $100,000 within thirty (30) days from the date of this Agreement; and,

2.ETEV shall: (i) issue to MKM five hundred thousand (500,000) shares of ETEV common stock within ten (10) business days from the date of this Agreement; (ii) pay five thousand dollars ($5,000) to MKM within ten (10) business days from the date of this Agreement; (iii) shall issue to MKM a five year Common Stock Purchase Warrant for the purchase of one million five hundred thousand (1,500,000) shares at a purchase price of $.25 per share; and, (iv) ETEV shall issue a replacement Convertible Promissory Note (the “New Note) in the principal amount of $450,000 bearing simple interest at a rate of ten percent (10%) per annum,  with the face value of the New Note to be increased to $550,000 upon receipt of the additional financing amount as set forth in Section A(1)(ii) above, with the New Note maturing and becoming due and payable on September 30, 2009.

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B.Breach; Action for Damages.  Either Party may seek damages against the other resulting from a breach of this Agreement.

C.Attorneys’ Fees.  In the event of any action or proceeding instituted between the Parties in connection with any breach of this Agreement, the prevailing Party shall be entitled to recover from the losing Party all of the prevailing Party’s litigation costs and expenses, including attorneys’ fees and non-statutory costs.

D.Each Party to Bear Previous Fees and Costs.  Except as otherwise set forth herein, each Party hereto shall be responsible for payment of its own attorneys’ fees, costs, and all other expenses incurred at any time with respect to the drafting of this Agreement.

E.No Waiver.  The waiver by any party of the performance of any covenant, condition, promise or breach shall not invalidate this Agreement, nor shall it waive that Party’s or any other Party’s right to future performance of such covenant, condition or promise.  The failure to pursue or the delay in pursuing any remedy or in insisting upon full performance any covenant, condition or promise shall not prevent a party from later pursuing remedies or insisting upon full performance for the same or similar defaults, breaches or failures.

F.Notices.  All notices, approvals, requests, demands and other communications required or permitted to be given under this Agreement shall be in writing and shall either be delivered in writing personally or sent by overnight mail delivery or sent by certified first class mail, postage prepaid, deposited in the United States mail, and properly addressed to the Party at its address below, or at any other address that such Party may designate by written notice to the other Parties, with copies to the counsel at the addresses shown below, or to such other counsel as the Parties may designate by written notice to the other Parties.  Notice shall be effective immediately upon personal delivery, after five (5) calendar days if made by regular mail or after two (2) business days if given by overnight mail or by facsimile.

If to ETHOS With a copy to:	Ethos Environmental, Inc. Attn: Corey P. Schlossmann 6800 Gateway Park Drive San Diego, CA  92154 Fax: (619) 575-9300 Luis Carrillo, Esq. 6800 Gateway Park Drive San Diego, CA  92154 Fax:  (619) 575-9300
If to MKM:

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G.Mutual Release.  MKM, on the one hand, and ETHOS, on the other hand, for themselves and their respective predecessors, successors, affiliates, officers, directors, principals, partners, employees, executors, beneficiaries, representatives, agents, assigns, attorneys, and all others claiming by or through them hereby release and forever discharge each other and their respective predecessors, successors, affiliated entities, subsidiaries, parent companies, affiliates, officers, directors, principals, partners, employees, executors, beneficiaries, representatives, agents, assigns, and attorneys from any and all claims, causes of action, suits, proceedings, debts, contracts, controversies, claims and demands of any kind, nature or description, that were alleged, or could have been alleged, related to or arising out of the Prior Agreements, whether based upon a tort, contract or other theory of recovery, and whether for compensatory damages, punitive damages or other relief in law, equity or otherwise.

H.Release of Unknown Claims Arising from Actions.  The Parties acknowledge that they are familiar with Section 1542 of the California Civil Code, which provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

The Parties expressly waive and relinquish any and all rights and benefits which they may have under, or which may be conferred upon them by the provisions of Section 1542 of the California Civil Code, as well as under any other similar state or federal statute or common law principle, with respect to all claims alleged, or that could have been alleged, related to or arising out of the Prior Agreements.  The Parties acknowledge that such waiver shall not prevent the Parties from seeking damages against the other resulting from a breach of this Agreement.

I.Entire Agreement; No Oral Modification. This Agreement constitutes the complete and entire written agreement of compromise, settlement and release between the Parties and constitutes the complete expression of the terms of the settlement. All prior and contemporaneous agreements, representations, and negotiations are superseded and merged herein. The terms of this Agreement can only be amended or modified by a writing, signed by duly authorized representatives of all Parties hereto, expressly stating that such modification or amendment is intended.

J.Future Actions.  The Parties hereto agree that, for their respective selves, heirs, executors and assigns, they will abide by this Agreement, which terms are meant to be contractual, and further agree that they will do such acts and prepare, execute and deliver such documents as may reasonably be required in order to carry out the purposes and intents of this Agreement.

K.Authority to Execute.  Each Party executing this Agreement represents that it is authorized to execute this Agreement. Each person executing this Agreement on behalf of an entity, other than an individual executing this Agreement on his or her own behalf, represents that he or she is authorized to execute this Agreement on behalf of said entity.

L.Warranty Against Assignment.  The Parties represent and warrant to each other that they have not and will not encumber, assign or transfer or purport to encumber, assign or transfer, in whole or in part, to any person, firm or corporation whatsoever, any claim, debt, liability, demand, obligation, cost, expense, damage, action or cause of action herein released or settled.

M.Binding on Successors.  This Agreement shall inure to the benefit of and shall be binding upon the Parties hereto and their respective heirs, executors, successors, and assigns.

N.Construction of Agreement.  The Parties and their counsel have reviewed and negotiated this Agreement, and the normal rule of construction to the effect that any ambiguities in an agreement are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

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O.Headings.  Headings are informational only and shall not be used to interpret this Agreement.

P.Voluntary Agreement.  The Parties have read this Agreement, have had the benefit of counsel and freely and voluntarily enter into this Agreement.

Q.Tax Consequences.  The Parties to this Agreement acknowledge and understand that there may be certain tax consequences which arise as a result of the execution and performance of this Agreement and, by executing this Agreement, each Party confirms that no other Party to this Agreement or any counsel has made any representations regarding such consequences.

R.Severance.  If a provision of this Agreement is held to be illegal or invalid, such provision shall be (a) rewritten by the Court to be legal and valid so long as the rewritten provision remains consistent with the intent of the Parties expressed herein or (b) deemed to be severed and deleted.  Neither such revision nor such severance and deletion shall affect the validity of the remaining provisions.

S.Counterparts.  This Agreement may be executed in counterparts and, if so executed, each counterpart shall have the full force and effect of an original. Further, a telecopied signature page by any signatory shall constitute an original for all purposes.

T.Governing Law.  This Agreement shall be construed and enforced according to the laws of the State of California.

IN WITNESS WHEREOF, the Parties have entered into this Agreement made and effective as of the date first hereinabove written.

Dated:  December __, 2008	Ethos Environmental, Inc.
By:
	Name: Thomas Maher
	Title: Chief Financial Officer

Dated:  December __, 2008	MKM Opportunity Master Fund, Limited
By:
	Name:

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EX-10.2

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION OF THIS NOTE OR OF THE COMMON STOCK ISSUABLE UPON THE CONVERSION HEREOF MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.

CONVERTIBLE PROMISSORY NOTE

ETHOS ENVIRONMENTAL, INC.

$550,000	January ____, 2009
	San Diego, CA

For value received, Ethos Environmental, Inc., a Nevada corporation (the “Company”), promises to pay to MKM Opportunity Master Fund, Limited, a Cayman Islands corporation (the “Holder”), the principal sum of Five Hundred Fifty Thousand Dollars ($550,000), together with interest as set forth herein. This Note is subject to the following terms and conditions.

1.Maturity; Payment due upon Maturity; Default.Unless converted as provided in Section 3, this Note will automatically mature and be due and payable on September 30, 2009 (the “Maturity Date”).   The amount payable upon the maturity of this Note shall be equal to five hundred fifty thousand dollars ($550,000).  Notwithstanding anything in the foregoing, the entire unpaid principal sum of this Note shall become immediately due and payable upon an “Event of Default”, which is: the insolvency of the Company, the failure of the Company to pay interest as set forth in Section 2 hereof, the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company.

2.Interest.  Simple interest will accrue (on the basis of actual days elapsed in a 360-day year of twelve 30-day months) at a rate equal to ten percent (10%) per annum on the unpaid principal amount hereof beginning on January 1, 2009, until paid in full or converted pursuant to Section 3, at which time the Company promises to pay such interest (subject to the provisions of Section 3, if such payment is in connection with a conversion of this Note).

3.Conversion.

(a)           Conversion.

(i)           Conversion on Maturity.  Should the Company not repay the Note in full prior to the Maturity Date, the entire principal amount shall at the option of the Holder be converted into shares of the Company’s common stock as of the Maturity Date at a conversion rate of $0.25 per share or such other amount as determined in accordance with Section 3(d) (such conversion rate, as adjusted, being the “Conversion Price”).

(ii)           Conversion upon Event of Default.  Should there occur an Event of Default as defined in Section 2, the Holder may in its sole discretion elect to convert any portion of the principal amount into shares of the Company’s common stock at Conversion Price.

(b)           Prepayment.The Company shall have the right to prepay the principal due under this Note, in full, upon 10 days written notice to the Holder.  During the 10 day notice period, the Holder shall have the right to convert the entire principal amount of the Note into shares of the Company’s common stock. Should the Holder elect to convert the entire principal due under this Note such conversion shall be at the Conversion Price.

(c)  Mechanics and Effect of Conversion.Upon conversion of this Note pursuant to this Section 3, the Holder shall surrender this Note at the principal offices of the Company or any transfer agent of the Company. At its expense, the Company will, as soon as practicable thereafter, issue and deliver to such Holder a certificate or certificates for the number of shares to which such Holder is entitled upon such conversion, together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Note, including a check payable to the Holder for any accrued interest due. Upon conversion of this Note, the Company will be forever released from all of its obligations and liabilities under this Note with regard to that portion of the principal amount being converted including without limitation the obligation to pay such portion of the principal amount and accrued interest.

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(d)           Weighted-Average Anti-Dilution Protection.

(i)Stock Dividends and Splits. If the Company, at any time while this Note is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Note or the other securities issued or to be issued in this transaction), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon conversion of this Note shall be proportionately and equitably adjusted.  Any adjustment made pursuant to this Section 3(d)(i) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

(ii)Subsequent Equity Sales. If at any time while this Note is outstanding the Company shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or any securities of the Company or of any subsidiary of the Company which would entitle the holder thereof to acquire at any time Common Stock (hereinafter, “Common Stock Equivalents”), including without limitation, any debt, preferred stock, rights, options, Notes or other instrument that is at any time convertible into or exchangeable for or otherwise entitles the holder thereof to receive Common Stock, entitling any Person to acquire shares of Common Stock, at an effective price per share less than the Conversion Price then in effect (such issuances collectively, a “Dilutive Issuance”), as adjusted hereunder (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to Notes, options or rights per share which is issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price in effect on such date of the Dilutive Issuance), then, the Conversion Price shall be adjusted pursuant to the following formula:

NP = OP x [OB + (AMT/OP)]

(OB+SI)

where

NP is the new Conversion Price;

OP is the Conversion Price in effect immediately prior to such adjustment;

OB is the number of shares of Common Stock outstanding prior to the Dilutive Issuance;

AMT is the dollar amount of the Dilutive Issuance, and

SI is the number of shares of Common Stock issuable in the Dilutive Issuance.

The Company shall notify the Holder in writing, no later than the business day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable information required by the formula above (such notice the “Dilutive Issuance Notice”).

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(iii)           Pro Rata Distributions.  If the Company, at any time during the term of this Note, shall distribute to all holders of Common Stock evidences of its indebtedness or assets (including cash and cash dividends) or rights or Notes to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(d)(ii) above), then in each such case the Conversion Price shall be adjusted by multiplying the Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Closing Price (defined below) determined as of the record date mentioned above, and of which the numerator shall be such Closing Price on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith, or at the option of the Holder, by an independent appraiser selected by the Holder. and reasonably acceptable to the Company.  In either case the adjustments shall be described in a statement provided by the Company to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.  At the time of such adjustment, the number of shares of common stock issuable following such adjustment shall be equitably and proportionally adjusted upward.

As used herein, “Closing Price”, shall mean the first of the following clauses that applies:  (A) if, at the time of any such calculation, the Common Stock is listed or quoted on the American Stock Exchange, or the New York Stock Exchange, or the NASDAQ Market, the NASDAQ Capital Market or the Archipelago Exchange, the Closing Price shall be the closing or last sale price reported for the last business day immediately preceding the date of any such calculation; (B) if, at the time of any such calculation, the Common Stock is quoted on the OTC Bulletin Board or listed in the “Pink Sheets” published by the National Quotation Bureau Inc. or a similar agency or organization succeeding to its function or reporting prices, the Closing Price shall be the average of the high closing bid and low ask prices reported for the last five (5) trading days immediately preceding the date of any such calculation, or (C) in all other cases, the Closing Price of a share of Common Stock shall be the price determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

(iv)           Adjustment for Reorganization, Consolidation, Merger, etc.  In the event that the Company shall (A) effect a reorganization, (B) consolidate with or merge into any other entity or (C) transfer all or substantially all of its properties or assets to any other entity under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition precedent to the consummation of such a transaction, proper and adequate provision shall be made whereby the Holder of this Note, on the conversion hereof as provided in this Section 3, at any time after the consummation of any such reorganization, consolidation or merger or the effective date of any such dissolution, shall receive in lieu of the shares of Common Stock issuable on such conversion immediately prior to any such consummation or effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled to receive upon any such consummation or dissolution if the Holder had so converted this Note immediately prior to such consummation or dissolution.

(v)Certificate as to Adjustments.  The computation of any adjustments described in this Section shall be the sole responsibility of the Company, which shall expeditiously prepare and mail to the Holder a notice setting forth the nature of any necessary adjustment together with the basis thereof and the calculations therefor.  The Company shall immediately notify the Holder of any information which bears on any of the events referenced in this Section 3 and which may have an effect on the conversion of this Note.  If the Company issues a variable rate security, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised in the case of a Variable Rate Transaction (as defined below).

As used herein, the term “Variable Rate Transaction” shall mean a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock (other than pursuant to standard anti-dilution features) or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price

(vi)           Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3 the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

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(vii)           Voluntary Adjustment By Company. The Company may at any time during the term of this Note reduce (but not increase) the then-current Conversion Price, as the case may be, to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

(viii)           Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; or (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; or (C) the Company shall authorize the granting to all holders of the Common Stock rights or Notes to subscribe for or purchase any shares of capital stock of any class or of any rights; or (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or (E)the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the books and records of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (y) the date on which a survey of the holders of record is to be taken for the purpose of such dividend, distribution, redemption, rights or Notes, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or Notes are to be determined or (z) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the unintentional failure to mail such notice or any unintentional defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to convert this Note during the 20-day period commencing on the date of such notice to the effective date of the event triggering such notice.

(ix)  Excluded Events. Notwithstanding any other provision in this Section 3, the Conversion Price shall not be adjusted by virtue of (a) the issuance of capital stock to employees, consultants, officers or directors of the Company for services and/or pursuant to stock purchase or stock option plans or agreements approved by the Board (but not exceeding 20% of the Company's Common Stock outstanding as of the date hereof for all such issuances in the aggregate), (b) the issuance of securities to financial institutions, suppliers or lessors in connection with commercial credit arrangements, equipment financings or similar transactions in the ordinary course of business, or (c) the repurchase of Common Stock shares from the Company's employees, consultants, advisors, service providers, officers or Directors at such person's cost (or at such other price as may be agreed to by the Company's Board of Directors).

(x)           Exercise Limitations. The Company shall not effect any conversion of this Note, and Holder shall not have the right to convert any portion of this Note, pursuant to Section 3 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, non-converted portion of this Note beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other  Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 3(d)(x), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith.   To the extent that the limitation contained in this Section 3(d)(x) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Note is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.   In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 3(d)(x), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent periodic or annual report, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d)(x) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.  Notwithstanding the forgoing, the Holder at its sole discretion, may waive the Beneficial Ownership Limitation of 9.99% upon 61 days notice to the Company.

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4.Payment.All payments shall be made in lawful money of the United States of America at such place as the Holder hereof may from time to time designate in writing to the Company. Payment shall be credited first to the accrued interest then due and payable and the remainder applied to principal.

5.Transfer; Successors and Assigns.The terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Notwithstanding the foregoing, the Holder may not assign, pledge, or otherwise transfer this Note without the prior written consent of the Company. Subject to the preceding sentence, this Note may be transferred only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to the Company. Thereupon, a new note for the same principal amount and interest will be issued to, and registered in the name of, the transferee. Interest and principal are payable only to the registered holder of this Note.

6.Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Note (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of San Diego.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of Los San Diego for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.  If either party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or procequestions concerning the construction, validity, enforcement and interpretation of this Note.

7. Notices. All notices and other communications in respect of this Note (including, without limitation, any modifications of, or requests, waivers or consents under, this Note) shall be given or made in writing (including, without limitation, by facsimile) (a) in the case of the Company, at the “Address for Notices” specified below its name on the signature page hereof and (b) in the case of the Holder, at the address for such purpose as shall have been most recently specified to the Company by the Holder; or, as to either the Company or the Holder, at such other address as shall be designated by such party in a notice to the other party.  Except as otherwise provided in this Note, all such communications shall be deemed to have been duly given when transmitted by facsimile or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid.

8. Amendments and Waivers.No provision of this Note may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Holder, or in the case of a waiver, by the party against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any provision shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

9. Stockholders, Officers and Directors Not Liable.In no event shall any stockholder, officer or director of the Company be liable for any amounts due or payable pursuant to this Note.

10.Action to Collect on Note.If action is instituted to collect on this Note, the Company promises to pay all costs and expenses, including reasonable attorney’s fees, incurred in connection with such action.

11.Successors and Assigns.  All agreements of the Company in this Note shall bind its successors and permitted assigns.  This Note shall inure to the benefit of the Holder and its permitted successors and assigns.  The Company shall not delegate any of its obligations hereunder without the prior written consent of Holder.

12.Loss of Note.Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and indemnity reasonably satisfactory to the Company (in case of loss, theft or destruction) or surrender and cancellation of such Note (in the case of mutilation), the Company will make and deliver in lieu of such Note a new Note of like tenor, at the Company’s expense.

[SIGNATURE PAGE FOLLOWS]

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COMPANY:

ETHOS ENVIRONMENTAL, INC.

By:	________________________
	Corey P. Schlossmann, CEO

Address & Fax for Notice:

6800 Gateway Park Drive

San Diego, Ca 92154

Fax: 619.575.9300

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EX-10.3

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

 ETHOS ENVIRONMENTAL, INC.

Warrant Shares: 1,500,000   Initial Exercise Date: December   ___, 2008

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, MKM Opportunity Master Fund, Limited, a Cayman Islands corporation (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on the fifth year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Ethos Environmental, Inc., a Nevada corporation (the “Company”), up to 1,500,000 shares (the “Warrant Shares”) of Common Stock.  The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1.                      Definitions.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.  With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

“Common Stock Equivalents” means any securities of the Company or the subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

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“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Trading Day” means a day on which the New York Stock Exchange is open for trading.

“Trading Market” means any market or exchanges on which the Common Stock is listed or quoted for trading on the date in question.

“Transfer Agent” means Action Stock Transfer, the current transfer agent of the Company with a mailing address of 7069 S. Highland Dr., Suite 300, Salt Lake City, UT 84121, and a facsimile number of (801) 274-1099, and any successor transfer agent of the Company.

“Variable Rate Transaction” means a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

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Section 2.                      Exercise.

a)Exercise of Warrant.  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company); and, within 3 Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received  payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within 3 Trading Days of the date the final Notice of Exercise is delivered to the Company.  Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases.  The Company shall deliver any objection to any Notice of Exercise Form within 1 Business Day of receipt of such notice.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

b)Exercise Price.  The exercise price per share of the Common Stock under this Warrant shall be $.25, subject to adjustment hereunder (the “Exercise Price”).

c)Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other  Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 2(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith.   To the extent that the limitation contained in this Section 2(c) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.   In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 2(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent periodic or annual report, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant.  The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(d) shall continue to apply.  Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.  Notwithstanding the forgoing, the Holder at its sole discretion, may waive the Beneficial Ownership Limitation of 9.99% upon 61 days notice to the Company.

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d)Mechanics of Exercise.

i.Delivery of Certificates Upon Exercise.  Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system and either (A) there is an effective Registration Statement permitting the resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (“Warrant Share Delivery Date”).  This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company.  The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such shares, have been paid..

ii.Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii.Rescission Rights.  If the Company fails to cause its the Transfer Agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

iv.No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

v.Charges, Taxes and Expenses.  Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

vi.Closing of Books.  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

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Section 3.                      Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicabe, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment.  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”).  For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

c)Subsequent Rights Offerings.  If the Company, at any time while the Warrant is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below, then the Exercise Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP.  Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

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d)Pro Rata Distributions.  If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

e)Fundamental Transaction. If, at any time while this Warrant is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(e) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor entity shall pay at the Holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the Fundamental Transaction, an amount of cash equal to the value of this Warrant as determined in accordance with the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (i) a price per share of Common Stock equal to the VWAP of the Common Stock for the Trading Day immediately preceding the date of consummation of the applicable  Fundamental Transaction, (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of the date of consummation of the applicable Fundamental Transaction and (iii) an expected volatility equal to the 100 day volatility obtained from the “HVT” function on Bloomberg L.P. determined as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction.

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f)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

g)Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

h)Notice to Holder.

i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company enters into a Variable Rate Transaction (as defined in the Purchase Agreement), despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

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Section 4.                      Transfer of Warrant.

a)Transferability.  Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

Section 5.                      Miscellaneous.

a)No Rights as Shareholder Until Exercise.  This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(e)(i).

b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

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d)Authorized Shares.

The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Warrant (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of San Diego.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of Los San Diego for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.  If either party shall commence an action or proceeding to enforce any provisions of this Warrant, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or procequestions concerning the construction, validity, enforcement and interpretation of this Warrant.

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f)Restrictions.  The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered or subject to resale pursuant to Rule 144, will have restrictions upon resale imposed by state and federal securities laws.

g)Nonwaiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be:  (i) if to Holder, at its address of records as contained in the Warrant Register, and (ii) if to Company, at its corporate headquarters.

i)Limitation of Liability.  No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j)Remedies.  Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

k)Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

l)Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

m)Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n)Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

ETHOS ENVIRONMENTAL, INC.

By:__________________________________________

     Name: Corey Schlossmann

     Title: CEO

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NOTICE OF EXERCISE

TO:           ETHOS ENVIRONMENTAL, INC.

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

[  ] in lawful money of the United States; or

[ ] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4)  Accredited Investor.  The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated:  ______________, _______

Holder’s Signature:                                           _____________________________

Holder’s Address:                                _____________________________

_____________________________

Signature Guaranteed:  ___________________________________________

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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EX-10.4

SETTLEMENT AGREEMENT

AND

MUTUAL GENERAL RELEASE

This Settlement Agreement and Mutual General Release (hereinafter referred to as the “Settlement Agreement”), is effective as of January ___, 2009, and is made by and between Ethos Environmental, Inc., a Nevada corporation (the “Company”) and Dick F. Chase, an individual (“Chase”). Ethos and Chase shall hereinafter collectively be referred to as “the Parties.”  This Agreement is made in consideration of the following facts and recitals:

BACKGROUND INFORMATION

A.           Whereas, on March 31, 2008, the Company issued a Promissory Note to Chase in the principal amount of $300,000 and bearing interest at 12% per annum, payable monthly in arrears (the “2008 Note”). The 2008 Note is due in full on March 31, 2009.

B.           Whereas, the Company is currently offering $1,000,000 of 12% Convertible Debentures, pursuant to a private placement (the “Private Placement”). The Private Placement is comprised of 20 Units (each a “Unit”) offered at $50,000 per Unit, each Units includes the 12% Convertible Debenture, a Common Stock Purchase Warrant for the purchase of 100,000 shares of the Company’s Common Stock at $0.25 per share and 33,000 shares of the Company’s Common Stock are included as incentive shares for the purchase of each Unit.

C.           Whereas, the Parties wish to: (i) amend the 2008 Note and convert $50,000 of the principal amount due under the 2008 Note into one Unit under the Private Placement; (ii) the Company and Chase shall enter into those documents evidencing the Private Placement, including a Securities Purchase Agreement,  Convertible Debenture, Common Stock Purchase Warrant and Security Agreement; (iii) the Company shall issue a new note in the principal amount of $250,000 bearing interest at 12% per annum, due in full on or before December 31, 2009 (the “New Note”); and, the New Note shall provide that Chase shall have the right to convert any amounts due under the New Note into additional Units based on each new Unit purchased by entities or individuals introduced to or referred by Chase to the Company.

D.           Whereas, as a result of negotiations between the Parties the foregoing resolution is deemed by each Party to be fair and equitable, and by this Settlement Agreement wish to compromise, resolve, waive and release any and all claims, known or unknown, which exist or may exist between them today, except for any claims that are intended to survive this Settlement Agreement as set forth herein, on the terms set forth herein.

AGREEMENT

Now, wherefore, for good and valuable consideration, the Parties hereto agree as follows:

1.           Mutual General Release.

1.1           Release By the Company.  Except as to such rights or claims as may be created by this Settlement Agreement or any agreement executed by the Parties pursuant to this Settlement Agreement, and subject to and conditioned upon the performance and completion of the undertakings by Chase as set forth in Section 2, below, the Company hereby discharges and releases Chase, and his assigns, agents, representatives, attorneys, predecessors and successors in interest, from any and all claims, demands, obligations, or causes of action heretofore or hereafter arising out of, connected with, or incidental to Chase’s relationship with the Company.

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1.2           Release by Chase.  Except as to such rights or claims as may be created by this Settlement Agreement or any agreement executed by the Parties pursuant to this Settlement Agreement, and subject to and conditioned upon the performance and completion of the undertakings by Company as set forth in Section 2, below, Chase hereby discharges and releases the Company, and the Company’s current and former officers, directors, employees, shareholders, note holders, attorneys, assigns, agents, representatives, predecessors and successors in interest, from any and all claims, demands, obligations, or causes of action heretofore or hereafter arising out of, connected with, or incidental to Chase’s relationship with the Company prior to the effective date hereof.

1.3           Release of Unknown Claims.   The Parties acknowledge and agree that this release applies to all claims for any injuries, damages, losses or claims, whether known or unknown, foreseen or unforeseen, patent or latent, that the Parties hereto now have or may acquire, and each Party hereto hereby waives application of California Civil Code Section 1542, and any and all provisions, rights and benefits conferred by any law of any state or territory of te United States, or principle of common law, which is similar, comparable or equivalent to California Civil Code Section 1542.

(a)Each Party hereto certifies that such party is aware of the provisions of California Civil Code Section 1542 which states:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

(b)The Parties understand and acknowledge the significance and consequences of the waiver of California Civil Code Section 1542; and that this release and waiver of California Civil Code 1542 is a significant material part of the consideration of entering into this Settlement Agreement.The Parties expressly acknowledge that this Settlement Agreement except for ongoing obligations set forth in the attached agreements, is intended to include a release, without limitation, of all claims, and acknowledges that the execution of this Settlement Agreement is entered into for the purpose of extinguishing any such claim or claims.

(c)The Parties further understand and acknowledge that if any party hereto, or such Parties respective officers, directors, employees, shareholders, attorneys, assigns, agents, representatives, predecessors and successors in interest, eventually discover additional damages or claims arising out of the facts and claims released herein, that Party will not be able to make any claim for any such losses or damages.  Furthermore, the Parties acknowledge that they intend these consequences even as to claims for losses or damages that may exist as of the date of this Settlement Agreement but which the Parties hereto do not presently know to exist, and which if known, would have materially affected the Party’s decision to execute this Settlement Agreement.

1.4           The Parties understand and agree the word “claims” to include all actions, claims, and grievances, whether actual or potential, known or unknown, and specifically but not exclusively all claims arising and relating directly or indirectly out of any of the facts, acts, omissions, events, damages and/or injuries arising from or relating in any way to any litigation which is pending between the Parties, that have arisen, or may arise in the future, or from or relating directly or indirectly from any and all events or relationships between the Parties.  All such claims (including related fines, penalties, interest, attorneys’ fees and costs, rights of injunctive relief) are forever barred by this Agreement and without regard to whether those claims are based on any alleged breach of a duty arising in a statute, contract, or tort; any alleged unlawful act, including, without limitation, fraud and deceit, negligent misrepresentation, conversion of labor, breach of partnership, intentional interference with business contract, breach of contract; or any other claim or cause of action; and regardless of the forum in which it might be brought.

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2.           Agreements and Undertakings of the Parties. Concurrently with the execution of this Settlement Agreement, and as a conditioned precedent to the settlement of the Parties contemplated by this Settlement Agreement, the Parties shall enter into the following agreements and undertakings:

2.1           Execution of Private Placement Documents.  The Company and Chase shall enter into those certain Agreements comprising the Company’s Private Placement, including a Securities Purchase Agreement attached hereto as Exhibit 2.1.1, the Convertible Promissory Note attached hereto as Exhibit 2.1.2, the Common Stock Purchase Warrant attached hereto as Exhibit 2.1.3, and the Security Agreement attached hereto as Exhibit 2.1.4.

2.2           Execution of Promissory Note.  The Company and Chase shall enter into that certain New Note, as attached hereto as Exhibit 2.2 evidencing the remaining $250,000 due and payable to Chase and including the right to convert any such principal and interest due and owing into additional Units based on any Units sold by the Company to an individual or entity referred to or introduced by Chase to the Company.

3.           Representations, Warranties and Covenants of Chase.

3.1           Acknowledgment of Potential Increase in Share Value and/or Sale of the Company.

(a)           Chase acknowledges that the sale price for the shares of the Company’s Common Stock has been determined based on negotiations and the terms of this settlement and not on actual market value of the shares.

(b)           Chase acknowledges that Chase is not relying upon any person, firm or corporation, in making his decision to purchase pursuant to the Private Placement.

(c)           Chase further acknowledges and represents that he understands that the shares of common stock of the Company could depreciate in value considerably in the near term or otherwise in the future and notwithstanding such possibility Chase desires to enter into this Settlement Agreement and the related agreements identified herein.

3.2           Authority.   Chase represents and warrants that he has all requisite power and authority to execute and deliver this Settlement Agreement, and any of the related agreements and documents, and to consummate any of the transactions contemplated hereby.  This Settlement Agreement when duly executed and delivered by Chase, assumes the due authorization, execution, and delivery thereof Chase, and constitutes the legal, valid, and binding obligation of Chase in accordance with its terms.

4.           Representations, Warranties and Covenants of the Company

4.1           Authority.   The Compnay represents and warrant that it has all requisite power and authority to execute and deliver this Settlement Agreement, and any of the related agreements and documents, and to consummate any of the transactions contemplated hereby or thereby.  The execution and delivery of this Settlement Agreement and the consummation of the transactions contemplated hereby has been duly authorized by all necessary corporate action, and no other proceedings on the part of the Company is necessary to authorize this Settlement Agreement or to consummate the transactions contemplated hereby.

5.           Notices.  All notices, requests, demands and other communications under this Agreement, including any request or demand for indemnification under paragraph 3, shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given or within five (5) business days if mailed to the party to whom notice is to be given, by first-class mail, registered, or certified, postage prepaid and properly addressed as follows:

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If to the Company:                Ethos Environmental, Inc.

6800 Gateway Park Drive

San Diego, Ca 92154

Attention: Mr. Corey P. Schlossmann, Chairman and CEO

Telephone: 619-575-6800

Facsimile:  619.575.9300

If to Chase: To the address and fax number set forth on the signature pages hereto.

Any notice mailed to any party hereunder will be deemed effective within five business days of deposit in the United States mail.

6.           Disclaimer of Liability.It is understood and agreed that this Settlement Agreement is a compromise of disputed claims, and that neither the mutual release specified above nor the negotiation of this settlement shall be considered as admissions of any liability whatsoever by anyone.  It is understood that the Parties deny, any past or present wrongdoing, and no wrongdoing shall be implied from any negotiations or entry into this Agreement.

7.           Payment of Costs and Expenses; Attorney’s Fees.  Each party hereto shall be responsible for the payment of its own costs, expenses and attorneys’ fees in conjunction with the matters referred to herein. However, in the event litigation is commenced to interpret or enforce any of the provisions of this Agreement, to recover damages for the breach of any of the provisions of this Settlement Agreement, or to obtain declaratory relief in connection with any of the provisions of this Settlement Agreement, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and costs from the other party.

8.           Confidentiality of Entire Agreement.

8.1           The Parties and their attorneys, and each of their agents or persons acting for them, are prohibited from disclosing the nature and substance of the claims involved, settlement terms and conditions, and the history, background, negotiations, terms and conditions of all settlements with any individual other than their attorneys of record and/or advisers for income tax or other legal purposes.  The Parties may make such disclosures to their attorneys or to any other person or entity such as accountants, auditors or insurers, shareholders, or any other similar entity or individual to whom such disclosure is required in the ordinary course of the business, or to any potential financing source, acquirer, investor or partner of the Company, or to anyone to whom disclosure is required by subpoena or other legal process or operation of law.

8.2           The Parties and their attorneys, and each of their agents or persons acting for them, may not make any statements, either directly or indirectly, by implication or innuendo, to the press or media, concerning the fact or amount of settlement, the nature and substance of the claims resolved herein or describe or characterize the settlement in any way.  The Parties and their attorneys, and each of their agents or persons acting for them, may not use their involvement in this settlement as the basis for speeches, interviews, seminars, articles, books or promotional materials of any kind.  Any inquiry made of the Parties and their attorneys, and each of their agents or persons acting for them, into the subject matter of these settlement terms, by anyone, including the press or media, will be met by a statement that the disagreements were disposed of to the mutual satisfaction of the parties’ and that they have no further comment.

9.           Further Assurances.  Each of the Parties to this Agreement agrees to perform such further acts and to execute and deliver any and all further documents that may reasonably be necessary or desirable to effectuate the purpose of this Agreement.

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10.           Representation of Comprehension of Document, Undertakings and Representations and Warranties.

10.1           In entering into this Agreement, the Parties hereto represent that they have read the contents of this Agreement, that the terms of this Agreement have been explained to them by their attorney, that those terms are fully understood and voluntarily accepted by them, that they have relied upon the legal advice of their respective attorney, who is an attorney of their own choosing, and that hereafter no such party shall deny the validity of this Agreement on the ground that he, she or it did not have adequate advice of counsel.

10.2           Each party to this Agreement has made such investigation of the facts pertaining to this Agreement and of all the matters pertaining thereto as it deems necessary.  In entering into this Agreement provided for herein, each party assumes the risk of any misrepresentation, concealment, or mistake.  If any party should subsequently discover that any fact relied upon by it in entering into this Agreement was untrue, or that any fact was concealed from it, or that its understanding of the facts or of the law was incorrect, such party shall not be entitled to any relief in connection therewith, including, without limitation on the generality of the foregoing, any alleged right or claim to set aside or rescind this Agreement.  This Agreement is intended to be and is final and binding between the parties hereto, regardless of any claims of misrepresentation, promise made without the intention of performing, concealment of fact, mistake of fact or law, or of any other circumstance whatsoever.

10.3           Each party is aware that it may hereafter discover claims or facts in addition to or different from those it now knows or believes to be true with respect to the matters related herein.  Nevertheless, it is the intention of the Parties to fully, finally, and forever settle and release all such matters and claims relative thereto, which do now exist, may exist, or heretofore have existed between them.  In furtherance of such intention, the releases given herein shall be and remain in effect as full and complete mutual releases of all such matters, notwithstanding the discovery or existence of any additional or different claims or facts relative thereto.

11.           Entire Agreement.  This Settlement Agreement, together with Exhibits 2.1.1, 2.1.2, 2.1.3, 2.1.4 and 2.2, constitutes the entire written agreement between the Parties, and with the exception of this agreements and instruments to be executed pursuant to the terms of this Settlement Agreement, there are no other agreements modifying its terms.  The terms of this Settlement Agreement can only be modified by a writing signed by all of the parties which expressly states that such modification is intended, and this Settlement Agreement cannot be amended by a partially or fully executed oral modification.

12.           Governing Law.  This Agreement is being executed and delivered, and is intended to be performed, in the State of California, and to the extent permitted by law, the execution, validity, construction, and performance of this Agreement shall be construed and enforced in accordance with the laws of the State of California without giving effect to conflict of law principles.  This Agreement shall be deemed made and entered into in San Diego County, State of California, United States of America; however, it is intended to resolve all claims, known or unknown, between the Parties in any jurisdiction.

13.           Waiver of Jury Trial.  The Parties hereto hereby voluntarily and irrevocably waives trial by jury in any Proceeding brought in connection with this Settlement Agreement, any of the related agreements and documents, or any of the transactions contemplated hereby or thereby. For purposes of this Settlement Agreement, “Proceeding” includes any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing, or any other actual, threatened, or completed proceeding, whether brought by or in the right of any party or otherwise and whether civil, criminal, administrative, or investigative, in which an Indemnified Party was, is, or will be involved as a party or otherwise.

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14.           Interpretation of Agreement.This Settlement Agreement shall not be construed against any party on the basis that his, her or its attorney drafted it as each Party and their respective legal counsel has had an opportunity to review, make comments, changes and modifications to the Settlement Agreement prior to its execution.

15.           Signature in Counterpart; Facsimile Signatures.This Settlement Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Facsimile signatures shall be sufficient for execution of this Agreement.

16.           Independent Advice of Counsel.The Parties hereto, and each of them, represent and declare that in executing this Settlement Agreement they relied solely upon their own judgment, belief, knowledge and the advice and recommendations of their own independently selected counsel, concerning he nature, extent, and duration of their rights and claims, and that they have not been influenced to any extent whatsoever in executing the Settlement Agreement by any representations or statements covering any matters made by any other party or that party’s representatives hereto.

17.           Successors.  This Settlement Agreement shall be binding upon the Parties and their heirs, representatives, administrators, successors and assigns, and shall inure to the benefit of the released parties and each of them, and to their heirs, representative, successors and assigns.

18.           Severability.  If any provision of this Settlement Agreement is held by a Court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force without being impaired or invalidated in any way.

19.           Exhibits. All of the Exhibits hereto are material provisions of this Settlement Agreement, and the terms of those Exhibits are expressly made part of this Settlement Agreement.

IN WITNESS THEREOF, each of the undersigned has executed this Settlement Agreement and General Mutual Release.

        ETHOS ENVIRONMENTAL, INC.

Dated: _______________                                                _______________________________

By: Corey P. Schlossmann

Its: President

DICK F. CHASE

Dated: _______________                                                _______________________________

Dick F. Chase

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EX-10.5

USD$250,000	San Diego, California
	January ___, 2009

PROMISSORY NOTE

 FOR VALUE RECEIVED, Ethos Environmental, Inc., a Nevada corporation (the “Payor”) hereby unconditionally promises to pay to the order of Dick F. Chase (the “Payee”), the principal amount of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000). All amounts payable hereunder shall be payable to Payee in United States dollars at such bank account as shall be designated by the Payee in immediately available funds or as otherwise specified to Payor in writing. The principal amount is due and payable on December 31, 2009 (the “Maturity Date”).

 INTEREST RATE:  The Promissory Note (the “Note”)shall bear interest an annual rate of 12% payable monthly in arrears and be payable in monthly installments of two thousand five hundred dollars ($2500.00) beginning January 1, 2009 and continuing the Maturity Date.

 BORROWER'S PRE-PAYMENT RIGHT:  Payor may at any time and from time to time prepay the principal amount, in whole or in part, without premium or penalty.

 PLACE FOR PAYMENT.  Borrower promises to pay to the order of Payee at the place for payment and according to the terms for payment the principal amount plus interest at the rates stated above. All unpaid amounts shall be due by the final scheduled payment date.

 DEFAULT AND ACCELERATION CLAUSE.  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues after Payee gives Borrower notice of the default, all sums owing on this Note shall bear interest until paid in full at a rate per annum equal to the Interest Rate plus ten percent (10.00%) (the “Default Rate”).

 FORM OF PAYMENT.  Any check, draft, Money Order, or other instrument given in payment of all or any portion hereof may be accepted by the holder and handled in collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of the holder hereof except to the extent that actual cash proceeds of such instruments are unconditionally received by the payee and applied to this indebtedness in the manner elsewhere herein provided.

 ATTORNEY'S FEES.  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney's fees and court costs in addition to other amounts due.

SEVERABILITY.  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.

BINDING EFFECT.  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.

DESCRIPTIVE HEADINGS.  The descriptive headings used herein are for convenience of reference only and they are not intended to have any effect whatsoever in determining the rights or obligations under this Note.

CONSTRUCTION.  The pronouns used herein shall include, where appropriate, either gender or both, singular and plural.

GOVERNING LAW.  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

 IN WITNESS THEREOF, each of the undersigned has executed this Promissory Note in favor of the Payee.

ETHOS ENVIRONMENTAL, INC.

Dated: _______________                                                _______________________________

By: Corey Schlossmann

Its: President

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EX-10.6

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of _______, 2009, is made and entered into by and between Ethos Environmental, Inc., a Nevada corporation, with its principal executive offices located at 6800 Gateway Park Drive San Diego, California  92154 (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder, the Company desires to issue and sell to Purchaser, and Purchaser desires to purchase from the Company, securities of the Company as more fully described in this Agreement; and,

WHEREAS, the Purchasers, severally and not jointly, desire to purchase and the Company desires to issue and sell to the Purchasers, in each case upon the terms and subject to the conditions set forth in this Agreement: (i) 12% secured convertible promissory notes of the Company in the aggregate principal amount of up to One Million Dollars ($1,000,000) (a “Note” or the “Notes”), and (ii) common stock purchase warrants to purchase shares of the Company’s par value $.001 common stock (a “Warrant” or the “Warrants”).

NOW THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements herein contained, the Company and each of the Purchasers severally (and not jointly) hereby agree as follows:

1.   Purchase and Sale of Units.

(a)           Sale and Issuance of Units.  Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Closing (as defined below), and upon payment of the Purchase Price (as defined below), the Company agrees to sell and issue to each Purchaser a unit or units (the “Units”). Each Unit shall consist of the following:

(i)           a convertible promissory note in substantially the form attached to this Agreement as Exhibit A (the “Note”), with a term of two year, which may be convertible into common stock of the Company on the terms stated therein;

(ii)           a common stock purchase warrant, in the form of Exhibit B (the “Warrant”), for the right to purchase that number of shares of Company Common Stock equal to 100,000 shares per Unit purchased, which shall be exercisable immediately and have a two year term of exercise at an exercise price of $0.25 per share; and,

(iii)           an incentive bonus allotment of 33,000 shares of the Company’s common stock (the “Incentive Shares”).

 (b)           Form of Payment.  On the Closing Date: (i) each Purchaser shall pay the Purchase Price (as hereinafter defined) for each Unit at the Closing (as defined below) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, and (ii) the Company shall deliver such Notes and Warrants duly executed on behalf of the Company, to such Purchaser, against delivery of such Purchase Price.

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(c)           Closing Date.  Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 5 and Section 6 below, the date and time of the issuance and sale of the Notes and the Warrants pursuant to this Agreement (the “Closing Date”) shall be 10:00 a.m., Pacific time, on the date first written above, or such other mutually agreed upon time.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties and may be undertaken remotely by facsimile or other electronic transmission.

(d)           Separate Agreements and Sales.  The Company’s agreements with each of the Purchasers are separate agreements, and the sales of the Units to each of the Purchasers are separate sales.

(e)           Purchase Price; Minimum and Maximum.   The Purchase Price per Unit is $50,000.00 (the “Purchase Price”) and the Company is offering 20 Units for gross proceeds of $1,000,000.00.

(f)           Security Interest. Each Unit sold shall be collateralized by a security interest in Company property as fully set forth in the Security Agreement as attached hereto as Exhibit C.

2.           Representations and Warranties of the Purchasers.  Each Purchaser severally (and not jointly) represents and warrants to the Company solely as to such Purchaser that:

(a)           Investment Purpose.  As of the date hereof, the Purchaser is purchasing the Notes and the Warrants and the shares of Common Stock issuable upon exercise thereof (the “Warrant Shares” and, collectively the Notes,  Warrants, and Bonus Shares the “Securities”) for its own account and not with a view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the Securities Act; provided, however, that by making the representations herein, the Purchaser does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act.

(b)           Accredited Investor Status.  The Purchaser is an “accredited investor,” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act (an “Accredited Investor”), and Purchaser has completed the “Investor Questionnaire” as attached hereto as Annex B.

(c)           Reliance on Exemptions.  The Purchaser understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Securities.

(d)           Information.  The Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Purchaser or its advisors.  The Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Notwithstanding the foregoing representations, neither such inquiries nor any other due diligence investigation conducted by Purchaser or any of its advisors or representatives shall modify, amend or affect Purchaser’s right to rely on the Company’s representations and warranties contained in Section 3 below.

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(e)           No Governmental Review.  The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

(f)           Transfer or Resale.  The Purchaser understands that:

(i)           the sale or resale of the Securities has not been and is not being registered under the Securities Act or any applicable state securities laws, and the Securities may not be transferred unless:

(A)           the Securities are sold pursuant to an effective registration statement under the Securities Act,

(B)           the Purchaser shall have delivered to the Company, at the cost of the Company, a customary opinion of counsel that shall be in form, substance and scope reasonably acceptable to the Company, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration,

(C)           the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the Securities Act (or a successor rule) (“Rule 144”)) of the Purchaser who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor,

(D)           the Securities are sold pursuant to Rule 144, or

(E)           the Securities are sold pursuant to Regulation S under the Securities Act (or a successor rule) (“Regulation S”),

and, in each case, the Purchaser shall have delivered to the Company, at the cost of the Company, a customary opinion of counsel, in form, substance and scope reasonably acceptable to the Company;

 (ii)           neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

 (g)           Legends.  The Purchaser understands that the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended.  The securities may not be sold, transferred or assigned in the absence of an effective registration statement for the securities under said Act, or an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, that registration is not required under said Act or unless sold pursuant to Rule 144 or Regulation S under said Act.”

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The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws: (i) such Security is registered for sale under an effective registration statement filed under the Securities Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold or (ii) such holder provides the Company with a reasonable and customary opinion of counsel to the effect that a public sale or transfer of such Security may be made without registration under the Securities Act.  The Purchaser agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any.

(h)           Authorization; Enforcement.  Each  document to which the Purchaser is a party: (i) has been duly and validly authorized, (ii) has been duly executed and delivered on behalf of the Purchaser, and (iii) will constitute, upon execution and delivery by the Purchaser thereof and the Company, the valid and binding agreements of the Purchaser enforceable in accordance with their terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and general principles of equity that restrict the availability of equitable or legal remedies.

(i)           Residency.  The Purchaser is a resident of the jurisdiction set forth immediately below such Purchaser’s name on the signature pages hereto.

3.           Representations and Warranties of the Company.  The Company hereby represents and warrants to each Purchaser as of the date hereof (unless the context specifically indicates otherwise) that:

(a)           Organization and Qualification.  The Company is a corporation or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or organized, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.

(b)           Authorization.  All corporate action on the part of the Company, its officers and directors necessary for the authorization, execution and delivery of this Agreement and the authorization, sale, issuance and delivery of the Units, and the performance of all obligations of the Company hereunder and thereunder has been taken or will be taken prior to the Closing.  This Agreement when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

(c)           SEC Documents; Financial Statements.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”).  The SEC Documents are in the form available to the public via the SEC’s EDGAR system.  As of the date hereof the Company has informed Purchaser that the Company’s previously filed SEC Documents, specifically, all financial statements filed since and including the Annual Report on Form 10-KSB for the year ended December 31, 2006 may not be relied upon and that presently the Company is undertaking to have all of such previously filed financial statements restated to accurately reflect the Company’s financial situation. Such restatement may have an adverse effect on the Company.

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(d)           No General Solicitation. Neither the Company nor any person participating on the Company’s behalf in the transactions contemplated hereby has conducted any “general solicitation,” as such term is defined in Regulation D promulgated under the Securities Act, with respect to any of the Securities being offered hereby.

(e)           Finder’s Fee.  The Company  may pay, where applicable, a reasonable finder's fee (the “Fee”), not to exceed 10% of the Purchase Price.

4.           Covenants.  In addition to the other agreements and covenants set forth herein, the applicable parties hereto hereby covenant as follows:

(a)           Stop Orders.  The Company will advise each Purchaser promptly after it receives notice of issuance by the SEC, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of the Securities, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.

(b)           Form D; Blue Sky Laws.  The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Purchaser promptly after such filing.  The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Purchasers at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to each Purchaser on or prior to the Closing Date.

(c)           Authorization and Reservation of Shares.  The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion or exercise of the outstanding Notes and Warrants and issuance of the Warrant Shares in connection therewith (based on the Exercise Price of the Warrants in effect from time to time) and as otherwise required by the Notes (collectively, the “Reserved Amount”).  The Company shall not reduce the number of shares of Common Stock reserved for issuance upon exercise of the Warrants.  If at any time the number of shares of Common Stock authorized and reserved for issuance (“Authorized and Reserved Shares”) is below the Reserved Amount, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company’s obligations under this Section 4(d), in the case of an insufficient number of authorized shares, obtain stockholder approval of an increase in such authorized number of shares, and voting the shares of the Company’s officer’s and directors in favor of an increase in the authorized shares of the Company to ensure that the number of authorized shares is sufficient to meet the Reserved Amount.  The Company shall use its best efforts to obtain such stockholder approval within thirty (30) days following the date on which the number of Reserved Amount exceeds the Authorized and Reserved Shares.

(d)           Corporate Existence.  So long as a Purchaser beneficially owns any Notes or Warrants, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction: (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly-traded corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq National Market, Nasdaq Capital Market, American Stock Exchange or New York Stock Exchange.

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5.           Conditions to the Company’s Obligation to Sell.  The obligation of the Company hereunder to issue and sell the Notes and Warrants to a Purchaser at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

(a)           The applicable Purchaser shall have executed this Agreement, and delivered the same to the Company.

(b)           The applicable Purchaser shall have delivered the Purchase Price in accordance with Section 1(b) above.

(c)           The representations and warranties of the applicable Purchaser shall be true and correct in all material respects, and the applicable Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the applicable Purchaser at or prior to the Closing Date.

(d)           No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

6.           Conditions to Each Purchaser’s Obligation to Purchase.  The obligation of each Purchaser hereunder to purchase the Notes and Warrants at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for such Purchaser’s sole benefit and may be waived by such Purchaser at any time in its sole discretion:

(a)           to such Purchaser duly executed Notes (in such denominations as the Purchaser shall request) and Warrants in accordance with Section 1(b) above.

(b)           The representations and warranties of the Company shall be true and correct in all material respects, and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. (c)No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

7.           Governing Law; Jurisdiction.  This agreement shall be enforced, governed by and construed in accordance with the laws of the state of California applicable to agreements made and to be performed entirely within such state, without regard to the principles of conflicts of law.

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 8.           Miscellaneous.

(a)           Counterparts; Signatures by Facsimile.  This Agreement may be executed in one or more counterparts (with the Purchasers each executing the counterpart in the form of Annex A hereto.  Each of such counterparts shall be deemed an original, and all of which shall, when taken together, constitute one and the same agreement, and shall become effective when counterparts have been signed by each party and delivered to the other party.  This Agreement, once executed by a party (including in the manner described above), may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

(b)           Headings.  The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.

(c)           Severability.  In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

(d)           Entire Agreement; Amendments.  This Agreement, the other Transaction Documents and the instruments, documents and schedules referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the Company and a majority in interest of the Purchasers.

(e)           Notices.  Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile transmission and shall be effective five days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile transmission, with printed confirmation of receipt, in each case addressed to a party.  The addresses for such communications shall be:

If to the Company:               Ethos Environmental, Inc.

6800 Gateway Park Drive

San Diego, Ca 92154

Attention: Mr. Corey Schlossmann, Chairman and CEO

Telephone: 619-575-6800

Facsimile:  619.575.9300

If to a Purchaser: To the address and fax number set forth immediately below such Purchaser’s name on the counterpart signature pages hereto.

Each party shall provide notice to the other party of any change in address, telephone or facsimile number.

(f)           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.  Neither the Company nor any Purchaser shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other.  Notwithstanding the foregoing, but subject to the provisions of Section 2(f) hereof, any Purchaser may, without the consent of the Company, assign its rights hereunder to any person that purchases Securities in a private transaction from a Purchaser or to any of its “affiliates,” as that term is defined under the Exchange Act.

(g)           Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

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(h)           Survival; Indemnification; Limitation on Liability.

(i)           The representations and warranties of the Purchasers and the Company set forth in Sections 2 and 3 hereof shall survive for 18 months following the Closing Date notwithstanding any due diligence investigation conducted by or on behalf of the Purchasers or the Company, as applicable. The agreements and covenants of the Company set forth in Section 4 shall survive for so long as any Purchaser beneficially owns any Securities.

(ii)           The Company agrees to indemnify and hold harmless each of the Purchasers and all of their respective officers, directors, employees, agents and representative from and against any and all claims, costs, expenses, liabilities, obligations, losses or damages (including reasonable legal fees) of any nature (“Losses”), incurred by or imposed upon any such party arising as a result of or related to any actual or alleged breach by the Company of any of its representations, warranties and covenants set forth in Sections 3 and 4 hereof or any of its covenants, agreements and obligations under this Agreement or any other Transaction Document.

(iii)           Each Purchaser agrees, severally but not jointly, to indemnify and hold harmless the Company and its officers, directors, employees and agents for Losses arising arising as a result of or related to any actual or alleged breach any breach by such Purchaser of any of its representations or warranties set forth in Section 2 hereof or any of its covenants, agreements and obligations under this Agreement or any other Transaction Document.

(i)           Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

(j)           No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first above written.

ETHOS ENVIRONMENTAL, INC.

By: ________________________________

       Name: Corey Schlossmann

       Title: CEO

PURCHASERS:

The Purchasers executing the Signature Page in the form attached hereto as Annex A and delivering the same to the Company or its agents shall be deemed to have executed this Agreement and agreed to the terms hereof.

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Annex A

Securities Purchase Agreement

Purchaser Counterpart Signature Page

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Purchaser: _____________________________________________________________

Signature of Authorized Signatory of Purchaser: ______________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Purchaser: ______________________________________________________

Fax Number of Purchaser: ________________________________________________________

Address for Notice of Purchaser:

______________________________________________________________________________

______________________________________________________________________________

Address for Delivery of Securities for Purchaser (if not same as above):

______________________________________________________________________________

______________________________________________________________________________

Subscription Amount: $______________________________________

Number of Units Purchased: __________________________________

Principal Amount of Note:  $__________________________________

Warrant Shares: ____________________________________________

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Annex B

 PURCHASER QUALIFICATION QUESTIONNAIRE

(Confidential)

Ethos Environmental, Inc.

a Nevada Corporation

This Questionnaire is being given to each individual who has expressed an interest in purchasing Shares and becoming a security-holder in the Company.  The proposed sale of the Units is a “Private Placement” proposed to be effective without registration under the Securities Act of 1933 (the “Act”) on the basis of the exemption set forth in section 4(2) of the Act and the standards imposed by Regulation D promulgated by the Securities and Exchange Commission under the Act.

The purpose of this Questionnaire is to assure the Company, that each of the proposed Purchasers meets the standards imposed for application of that exemption including, but not limited to, whether the proposed Purchaser qualifies as an “accredited investor” as defined in rule 501 under the Act.  Your answers will at all times be kept strictly confidential. However, by signing this Questionnaire you agree that the Company may present this Questionnaire to such parties as they deem appropriate if called upon under the law to establish the availability under the Act of an exemption from registration of the private placement or if the contents thereof are relevant to any issue in any action, suit or proceeding to which the Company is a party or by which it may be bound.  The undersigned realizes that this Questionnaire does not constitute an offer by the Company or any sales agent to sell Shares but is a request for information.

Please print your response to each question, and where the answer to any question is “none” or “not applicable”, please so state.

Please complete and return this Questionnaire to:

Ethos Environmental, Inc.

6800 Gateway Park Drive

San Diego, Ca 92154

Attention: Mr. Corey Schlossmann, Chairman and CEO

Telephone: 619.575.6800

Facsimile:  619.575.9300

If you are in doubt as to the meaning or implication of any of the terminology used in the Questionnaire, or as to the significance of any particular question, please call the telephone number above.

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PURCHASER QUALIFICATION QUESTIONNAIRE

(Confidential)

Ethos Environmental, Inc.

a Nevada Corporation

Name:	Marital Status:
Social Security No.	Profession:

Check preferred mailing address

o	Residence:
	Phone:
o	Business:
	Phone:

CAPACITY:

1.           Are you acting as an individual purchasing the Units for your own personal account?

o Yes           oNo     (If Yes Then Skip to #8)

2.           If you are not acting as an individual purchasing for your own personal account, please specify the capacity in which you are acting (e.g. agent, trustee, partner, corporate officer, joint tenant or tenant in common).

3.           If you represent an entity, when was the entity formed?  (Please provide the filing date of the articles of incorporation, trust formation date or the agreement or certificate of partnership, where applicable).

4.           In what state, territory, possession or foreign country was the entity formed?

5.           If you represent an entity such as a corporation, partnership, trust, association, Joint Stock Company or other incorporated association, was such entity organized for the purpose of acquiring the Units?

oYes           oNo   (If No Then Skip to #8)

6.           If the answer to question (5) is yes, please list in the space provided below the names, addresses and telephone numbers of each beneficial owner of the entity and supply the information requested in the remaining questions below with respect to each beneficial owner of the entity. You may have each such beneficial owner complete and sign a photocopy of this form.

Name Address City State Zip Telephone

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7.           If you arenot purchasing as an individual, then are you any one of the following?

a.           Any of the following institutions: bank (whether acting in its individual or fiduciary capacity); insurance company; registered investment company or business development company; licensed Small Business Investment Company; an employee benefit plan subject to the Employee Retirement Income Security Act of 1974, if the investment decision is made by a “plan fiduciary” which is either a bank, insurance company or investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000;

o    Yes           o   No

b.           Any private business development company as defined in the Investment Advisors Act of 1940;

o   Yes           o   No

c.           Any tax-exempt organization described in section 501(c)(3) of the Internal Revenue Code with total assets in excess of $5,000,000.

oYes           oNo

8.           Individual gross income for most two most recent tax years:

Year: _________                                Income: $_______________

Year: ________                                  Income: $_______________

Joint income, with spouse, for two most recent tax years:

Year: _________                                Income: $_______________

Year: ________                                  Income: $_______________

9.           Estimated gross income, individual or combined with spouse, for current tax year:

$_____________________

10.           Will your individual net worth, independently or jointly with your spouse, exceed $1,000,000 at the time of purchase?

oYes           o No

11.           Are you a director or executive officer of Ethos Environmental, Inc.?

oYes           oNo

12.           Indicate the company employing you and, if less than five years please list previous business activity or other employment during the last five years.

Employer Date Employed Your Title

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13.           Please circle the highest level of education you have achieved.

Elementary	High School	College/Graduate Level	Degrees
1 2 3 4 5 6 7 8	1  2  3  4	1 2 3 4 /1 2 3

15.           Has your business activity and/or employment experiences or other positions previously or currently held by you provided you with sufficient knowledge and experience in financial and business matters so that you are capable of evaluating the merits and risks of this proposed investment?

o  Yes            oNo

14.           Have you previously purchased securities, which were sold in reliance on the private offering exemption from registration under the Securities Act of 1933, or invested in limited partnerships or tax shelters?

  o Yes             oNo

15.           Please indicate the nature and extent of your present holdings in limited partnerships or other private investment vehicles:

Number of investments:
Total Dollar Value:	Over  $20,000
	Over  $50,000
	Over $100,000
	Over $200,000
	No investments

16.           Indicate tax shelter investments, if any, to date:

17.           In making the investments listed in answers 16 and 17, have you relied on the advice of a Purchaser Representative (e.g. lawyer, accountant, investment advisor)?

o Yes           o No

If yes, please indicate the name, address and telephone number of your Purchaser Representative and the respective investments for which they give advice.

Name:

Address:

Telephone Number:

Investment:

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18.           Does the above-named investment advisor have such knowledge and experience in financial and business matters that he, she or they are capable of evaluating the merits and risks of an investment in the Company?

o Yes           o No

20.           Please indicate how long you have dealt with each advisor professionally and the attributes, which qualify them to knowledgeably evaluate the merits and risks of this investment.  (education, accounting certificates, SEC registration, etc.).

21.           If in connection with the proposed investment, you will receive advice from bankers, lawyers, accountants, investment advisors, or other persons please give the following information with respect to such person or persons:

o Yes           o No

Name	Profession	Address	Telephone	Contact ?
				o Yes    o No
				o Yes    o No
				o Yes    o No

22.           Can you bear the economic risks in and afford a complete loss of any investment you may make by virtue of an investment in the Company and can you afford to hold any investment therein for an indefinite period?

o Yes           o No

23.           Do you understand the nature of this particular investment in the Company and the risks associated with such an investment?

o   Yes            o No

24.  Are you purchasing these securities for investment and not with the intent to resell them?

o Yes           o   No

25.           In making your investment decision you have relied on your own examination of the company and the terms of the Offering, including the merits and risks involved and acknowledge that the Units have not been recommended by any federal or state securities commission or regulatory authority or any securities commission of any other country.

o Yes           o No

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PURCHASER ACKNOWLEDGMENT

I understand that the Company will be relying on the accuracy and completeness of my responses to the foregoing questions and I represent and warrant to the Company as follows:

1) The answers contained in the Questionnaire are complete and correct and may be relied upon by the Company in determining whether this offering in connection with which I have executed this Questionnaire is exempt from registration under the Securities Act of 1933, pursuant to Rule 506 or otherwise;

2) I will notify the Company immediately of any material change in any statement made herein occurring prior to the closing of any purchase by me of an interest in the investment;

3) I personally have knowledge and experience in financial and business matters, either alone or together with my professional advisors, to be capable of evaluating the merits and risks of my investment in the Company.

IN WITNESS WHEREOF, I have executed this Questionnaire this _______ day of ____________, 2008.

______________________________

(signature)

______________________________

(print name)

15

Exhibit A

Form of Note

16

Exhibit B

Form of Warrant

17

Exhibit C

Form of Security Agreement

18

EX-10.7

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

SECURED CONVERTIBLE PROMISSORY NOTE

$_______	__________,200__
	San Diego, California

For value received, Ethos Environmental, Inc., a Nevada corporation (the “Company”), promises to pay to __________________ (the “Holder”), theprincipal  of __________ ($_______). Interest shall accrue from the date of this Note on the unpaid principal amount at 12% per annum. This Note is one of a series of Secured Convertible Promissory Notes (the “Notes”) containing substantially identical terms and conditions issued under that certain Securities Purchase Agreement dated concurrently herewith (the “Purchase Agreement”).

1.Maturity.Unless converted, this Note will be due and payable on ____________ (the “Maturity Date”). Accrued interest shall be due and payable on the Maturity Date. Notwithstanding the foregoing, the unpaid principal of this Note, and any interest, shall become immediately due and payable upon the insolvency of the Company, the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a petition in bankruptcy, or the appointment of a receiver or trustee to take possession of the assets of the Company.

     2.Conversion.

  (a)          Conversion by Holder.The entire principal amount of this Note and any accrued interest may be converted into shares of the Company’s common stock by election of the Holder at any time during the term of this Note. The number of shares to be issued upon such conversion shall be determined by dividing (i) the entire principal amount of this Note plus any accrued interest by (ii) 0.25, rounded up to the nearest whole share.

  (b)           Conversion by the Company.The Company may convert the entire principal amount of this Note, including accrued interest into shares of the Company’s common stock if the closing price of the Company’s stock as reported on the Over the Counter Markets is $0.50 or more for 15 consecutive trading days. The number of shares to be issued upon such conversion shall be determined by dividing (i) the entire principal amount of this Note plus any accrued interest by (ii) 0.25, rounded up to the nearest whole share.

  (c) Mechanics and Effect of Conversion.Upon conversion of this Note, the Holder shall surrender this Note at the principal offices of the Company or any transfer agent of the Company. At its expense, the Company will, as soon as practicable issue and deliver to Holder, a certificate or certificates for the number of shares to which such Holder is entitled upon conversion. Upon conversion of this Note, the Company will be released from all of its obligations under this Note.

1

4.Payment.All payments shall be made in lawful money of the United States of America at such place as the Holder hereof may from time to time designate in writing to the Company. Payment shall be credited first to the accrued interest and the remainder applied to principal.

5.Transfer; Successors and Assigns. The Holder may not assign, pledge, or otherwise transfer this Note without the prior written consent of the Company.

6.Governing Law.This Note and the rights and obligations of the parties hereto shall be governed in accordance with the laws of the State of California.

7. Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or 48 hours after being deposited in the U.S. mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party’s address or facsimile number as set forth below or as subsequently modified by written notice.

8. Amendments and Waivers.This Note may be amended only with the written consent of the Company.

9.Security Interest.This Note is secured by certain assets of the Company in accordance with a separate security agreement (the “Security Agreement”) of even date herewith between the Company and the Holder. In case of an Event of Default (as defined in the Security Agreement), the Holder shall have the rights set forth in the Security Agreement.

10. Action to Collect on Note.If action is instituted to collect on this Note, the Company promises to pay all costs and expenses, including reasonable attorney’s fees, incurred in connection with such action.

11. Loss of Note.Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and indemnity satisfactory to the Company (in case of loss, theft or destruction) or surrender and cancellation of such Note (in the case of mutilation), the Company will make and deliver in lieu of such Note a new Note of like tenor.

[ONE SIGNATURE PAGE FOLLOWS]

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COMPANY:

ETHOS ENVIRONMENTAL, INC.

By: _________________________________

       Corey Schlossmann, CEO

Address & Fax for Notice:

6800 Gateway Park Drive

San Diego, Ca 92154

Fax: 619.575.9300

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EX-10.8

Warrant No. 2008-__

ETHOS ENVIRONMENTAL, INC.

(a Nevada corporation)

Warrant for the Purchase of [__________]

Shares of Common Stock, Par Value $0.001

[This Warrant Will Be Void

After 5:00 P.M. Mountain Time

On ________, 2010]

These securities have not been registered with the U.S. Securities and Exchange Commission (the

“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), and are being

offered in reliance on exemptions from registration provided in Section 4(2) of the

Securities Act and Rule 506 of Regulation D promulgated thereunder and

preemption from the registration or qualification requirements (other

than notice filing and fee provisions) of applicable state laws under

the National Securities Markets Impovement Act of 1996.

THIS WARRANT (this “Warrant”) certifies that, for value received, _____________, or registered assigns (the “Holder” or “Holders”), is entitled, at any time on or before 5:00 p.m. Pacific Standard Time on ________, 2010, to subscribe for, purchase, and receive [____________] shares (the “Shares”) of fully paid and nonassessable common stock, par value $0.001 (the “Common Stock”) of Ethos Environmental, Inc., a Nevada corporation (the “Company”). This Warrant is exercisable to purchase the Shares at a price of $0.25 per share (the “Exercise Price”). The number of Shares to be received on exercise of this Warrant and the Exercise Price may be adjusted on the occurrence of certain events as described herein. If the rights represented hereby are not exercised by 5:00 p.m. Pacific Standard Time on __________, 2010, this Warrant shall automatically become void and of no further force or effect, and all rights represented hereby shall cease and expire.

Subject to the terms set forth herein, this Warrant may be assigned by the Holder in whole or in part by execution of the form of assignment attached hereto or may be exercised by the Holder in whole or in part by execution of the form of exercise attached hereto and payment of the Exercise Price in the manner described above, all subject to the terms hereof.

1.Exercise of Warrants. The Holder shall have the rights of a stockholder only with respect to Shares fully paid for by the Holder under this Warrant. On the exercise of all or any portion of this Warrant in the manner provided above, the Holder exercising the same shall be deemed to have become a Holder of record of the Shares as to which this Warrant is exercised for all purposes, and certificates for the securities so purchased shall be delivered to the Holder within a reasonable time, but in no event longer than 10 days after this Warrant shall have been exercised as set forth above. If this Warrant shall be exercised in respect to only a part of the Shares covered hereby, the Holder shall be entitled to receive a similar Warrant of like tenor and date covering the number of Shares with respect to which this Warrant shall not have been exercised.

2.Assignment of Warrants. In the event this Warrant is assigned in the manner provided herein, the Company, upon request and upon surrender of this Warrant by the Holder at the principal office of the Company accompanied by payment of all transfer taxes, if any, payable in connection therewith, shall transfer this Warrant on the books of the Company. If the assignment is in whole, the Company shall execute and deliver a new Warrant or Warrants of like tenor to this Warrant to the appropriate assignee expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder; and if the assignment is in part, the Company shall execute and

1

deliver to the appropriate assignee a new Warrant or Warrants of like tenor expressly evidencing the right to purchase the portion of the aggregate number of Shares as shall be contemplated by any such agreement, and shall concurrently execute and deliver to the Holder a new Warrant of like tenor to this Warrant evidencing the right to purchase the remaining portion of the Shares purchasable hereunder that have not been transferred to the assignee.

3. Fully Paid Shares. The Company covenants and agrees that the Shares that may be issued on the exercise of this Warrant will, on issuance pursuant to the terms of this Warrant, be fully paid and nonassessable, free from all taxes, liens, and charges with respect to the issue thereof, and not issued in violation of the preemptive or similar right of any other person. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will have authorized and reserved a sufficient number of Shares of Common Stock to provide for the exercise of the rights represented by this Warrant.

4.Adjustment of Exercise Price and Number of Shares.

(a)           Adjustment of Exercise Price and Number of Shares. The number of Shares purchasable on the exercise of this Warrant and the Exercise Price shall be adjusted appropriately from time to time as follows:

(i)In the event the Company shall declare a dividend or make any other distribution on any capital stock of the Company payable in Common Stock, rights to purchase Common Stock, or securities convertible into Common Stock, or shall subdivide its outstanding shares of Common Stock into a greater number of shares or combine such outstanding stock into a smaller number of shares, then in each such event, the number of Shares subject to this Warrant shall be adjusted so that the Holder shall be entitled to purchase the kind and number of Shares of Common Stock or other securities of the Company that it would have owned or have been entitled to receive after the happening of any of the events described above, had such Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto; an adjustment made pursuant to this subsection (a) shall become effective immediately after the effective date of such event retroactive to the record date for such event.

(ii)No adjustment in the number of Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least 1% in the number of Shares purchasable on the exercise of this Warrant; provided, however, that any adjustments that by reason of this subsection (a) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.

(iii)Whenever the number of Shares purchasable on the exercise of this Warrant is adjusted, as herein provided, the Exercise Price payable on exercise shall be adjusted by multiplying the Exercise Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of Shares purchasable on the exercise of this Warrant immediately prior to such adjustment and the denominator of which shall be the number of Shares so purchasable immediately thereafter.

(iv)Whenever the number of Shares purchasable on the exercise of this Warrant or the Exercise Price of such Shares is adjusted, as herein provided, the Company shall cause to be promptly mailed by first class mail, postage prepaid, to the Holder of this Warrant notice of such adjustment or adjustments and shall deliver a resolution of the board of directors of the Company setting forth the number of Shares purchasable on the exercise of this Warrant and the Exercise Price of such Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment, together with the computation by which such adjustment was made. Such resolution, in the absence of manifest error, shall be conclusive evidence of the correctness of adjustment.

(v)All such adjustments shall be made by the board of directors of the Company, which shall be binding on the Holder in the absence of demonstrable error.

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   (b)            No Adjustment in Certain Cases. No adjustments shall be made in connection with:

(i)the issuance of any Shares on the exercise of this Warrant;

(ii)the conversion of shares of Preferred Stock;

(iii)the exercise or conversion of any rights, options, warrants, or convertible securities containing the right to purchase or acquire Common Stock;

(iv)the issuance of additional Shares or other securities on account of the anti-dilution provisions contained in or relating to this Warrant or any other option, warrant, or right to acquire Common Stock;

(v)the purchase or other acquisition by the Company of any shares of Common Stock, evidences of its indebtedness or assets, or rights, options, warrants, or convertible securities containing the right to subscribe for or purchase Common Stock; or

(vi)the sale or issuance by the Company of any shares of Common Stock, evidences of its indebtedness or assets, or rights, options, warrants, or convertible securities containing the right to subscribe for or purchase Common Stock or other securities pursuant to options, warrants, or other rights to acquire Common Stock or other securities.

5.            Notice of Certain Events. In the event of:

(a)any taking by the Company of a record of the holders of any class of securities of the Company for the purpose of determining the holders thereof who are entitled to receive any dividends or other distribution, or any right to subscribe for, purchase, or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other rights;

(b)any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, or any transfer of all or substantially all of the assets of the Company to any other person, or any consolidation, share exchange, or merger involving the Company; or

(c)any voluntary or involuntary dissolution, liquidation, or winding up of the Company,

the Company will mail to the Holder(s) of this Warrant, at least 20 days prior to the earliest date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, or right; the amount and character of such dividend, distribution, or right; or the date on which any such reorganization, reclassification, transfer, consolidation, share exchange, merger, dissolution, liquidation, or winding up of the Company will occur and the terms and conditions of such transaction or event.

 6.           Limitation of Transfer. Subject to the restrictions set forth in paragraph 7 hereof, this Warrant is transferable at the offices of the Company. On such transfer, every Holder hereof agrees that the Company may deem and treat the registered Holder(s) of this Warrant as the true and lawful owner(s) thereof for all purposes, and the Company shall not be affected by any notice to the contrary.

 7.           Disposition of Warrants or Shares. Each registered owner of this Warrant, by acceptance hereof, agrees for itself and any subsequent owner(s) that, before any disposition is made of any Warrants or Shares of Common Stock, the owner(s) shall give written notice to the Company describing briefly the manner of any such proposed disposition. No such disposition shall be made unless and until:

(a)           the Company has received written assurances from the proposed transferee confirming a factual basis for relying on exemptions from registration under applicable federal and state securities laws for such transfer or an opinion from counsel for the Holder(s) of the Warrants or Shares stating that no

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registration under the Securities Act or applicable state statute is required with respect to such disposition; or

(b)           a registration statement under the Securities Act has been filed by the Company and declared effective by the SEC covering such proposed disposition and the disposition has been registered or qualified, or is exempt therefrom, under the state having jurisdiction over such disposition.

8. Restricted Securities: Registration of Securities. The Holder acknowledges that this Warrant is, and that the Shares issuable on exercise hereof will be, “restricted securities” as that term is defined in Rule 144 promulgated under the Securities Act. Accordingly, this Warrant must be taken for investment and held indefinitely. Likewise, any Shares issued on exercise of this Warrant must be taken for investment and held indefinitely and may not be resold unless such resale is registered under the Securities Act and/or comparable state securities laws or unless an exemption from such registration is available. A legend to the foregoing effect shall be placed conspicuously on the face of all certificates for Shares issuable on exercise of this Warrant.

9. Reports under Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell the Shares issuable on exercise of this Warrant, the Company shall, until such Shares may be resold pursuant to the provisions of Rule 144 or any similar provision:

(a)make and keep public information available, as those terms are understood and defined in SEC Rule 144;

(b)file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act of 1934; and,

(c)furnish to any Holder, forthwith upon request (i) a written statement by the Company that it has complied with Rule 144, the Securities Act and the Securities Exchange Act of 1934, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-2 or Form S-3; (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form.

10.Governing Law. This Warrant shall be construed under and be governed by the laws of the state of California.

11.Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

12.Nonwaiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

13.Remedies.  Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

14.Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders of this Warrant from the Initial Exercise Date through the Termination Date, and shall be enforceable by any such Holder or holder of Warrant Shares.

15.Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

16.Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

17.Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

18.Loss, Theft, Destruction, or Mutilation. Upon receipt by the Company of reasonable evidence of the ownership of and the loss, theft, destruction, or mutilation of this Warrant, the Company will execute and deliver, in lieu thereof, a new Warrant of like tenor.

19.           Taxes. The Company will pay all taxes in respect of the issue of this Warrant or the Shares issuable upon exercise thereof.

DATED this____________ day of_______________, 2008.

ETHOS ENVIRONMENTAL, INC.

By: _________________________

       Corey Schlossmann, CEO

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Notice of Exercise

(to be signed only upon exercise of Warrant)

TO:          ETHOS ENVIRONMENTAL, INC.

The undersigned, the owner of the attached Warrant, hereby irrevocable elects to exercise the purchase rights represented by the Warrant for, and to purchase thereunder,_____________shares of Common Stock of Ethos Environmental, Inc., and herewith makes payment of $____________________therefor. Please issue the shares of Common Stock as to which this Warrant is exercised in accordance with the instructions set forth below and, if the Warrant is being exercised with respect to less than all of the Shares to which it pertains, prepare and deliver a new Warrant of like tenor for the balance of the Shares purchasable under the attached Warrant.

DATED this____day of_____, 20___.

Signature:

Signature Guaranteed:

INSTRUCTIONS FOR REGISTRATION OF STOCK

Name: (Please Type or Print) Address:

NOTICE: The signature to the form of purchase must correspond with the name as written upon the face of the attached Warrant in every particular without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

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EX-10.9

ETHOS ENVIRONMENTAL, INC.

SECURITY AGREEMENT

This Security Agreement (the “Agreement”) is made and entered into as of ______________, by and between Ethos Environmental, Inc., a Nevada corporation (the “Debtor” or the “Company”), and each of the secured parties listed on Exhibit A attached to this Agreement (each a “Secured Party” and together the “Secured Parties”).

RECITALS

WHEREAS, this Agreement is being executed in connection with the issuance of those certain Convertible Promissory Notes (the “Notes”) issued by Debtor in favor of Secured Parties under the terms of that certain Securities Purchase Agreement dated even herewith, such Notes are intended by the parties hereto to be secured by those certain assets of the Debtor as more fully set forth herein.

AGREEMENT

For other good and valuable consideration, the Debtor hereby agrees with the Secured Parties as follows:

1.            Grant of Security Interest; Subordination.

(a)           To secure the Debtor’s performance of its obligations to the Secured Parties pursuant to the Notes (including, without limitation, Debtor’s obligations to convert the Notes into shares of the Company’s equity securities and to timely pay the principal amount of, and interest on, the Notes and any other amounts payable with respect to the Note) (the “Obligations”), the Debtor hereby grants to the Secured Parties as a whole, and to each individual Secured Party the undivided percentage interest in the Collateral that is set forth opposite such Secured Party’s name on Exhibit A (the “Participating Interest”), a continuing lien on and security interest (the “Security Interest”) in the following collateral (the “Collateral”): (1)  inventory of the Company’s principal products, “Ethos FR” and/or “Ethos BC” (collectively the “Products”), (2) raw materials to produce the Products, or (3) outstanding receivables for Products shipped on or after the date of this Agreement. For purposes of this Agreement, each unpackaged unlabeled gallon of Product shall have a deemed fair market value of $35.00 per gallon.

    (b) Each Secured Party hereto agrees to subordinate the Security Interest in the Collateral as set forth in Section 1(a) above, should the Company be able to secure additional financing in the amount of $1,000,000 or more and such financing is predicated upon, fully or in part, the ability of the Company to subordinate the Security Interest hereunder.

2.            Representations and Warranties.The Debtor hereby represents and warrants to the Secured Party that:

(a)Ownership of Collateral.Except for the Security Interest granted to the Secured Parties pursuant to this Agreement, the Debtor has rights in or the power to transfer the Collateral free and clear of any adverse lien, security interest or encumbrance except as created by this Security Interest. No financing statements covering any Collateral or any proceeds thereof are on file in any public office (other than filings listing Secured Parties as the secured party)

(b)Valid Security Interest.The Security Interest granted pursuant to this Agreement will constitute a valid and continuing perfected security interest in favor of the Secured Parties in the Collateral for which perfection is governed by the UCC. Such Security Interest will be prior to all other liens on the Collateral.

(c)Organization and Good Standing.The Debtor has been duly incorporated, and is validly existing and in good standing, under the laws of the State of Nevada and has a Nevada corporate identification number of E 031068-2006-5.

(d)Location, State of Incorporation and Name of Debtor.Debtor’s chief executive office is located at 6800 Gateway Park Drive San Diego, California 92154. Debtor’s state of incorporation is Nevada and the exact legal name of the organization is as set forth in the first paragraph of this Agreement.

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3.           Rights and Obligations of Secured Parties.

 (a) Ratable Sharing of Collateral.Each Secured Party acknowledges and it is the intent of the Secured Parties that the Security Interest granted by Debtor is evidenced by a single Security Agreement and each Secured Party hereby agrees (and each Secured Party hereby irrevocably advises and instructs Debtor to recognize) that each Secured Party shall participate in the percentage of the total amount of any Collateral and proceeds of the Collateral calculated by multiplying the Debtor’s total Obligations by each Secured Party’s Participating Interest in the Collateral.

 (b) Event of Default.If an Event of Default shall have occurred and is continuing, those Secured Parties, who are not officers or directors of the Company, holding a majority of the Participating Interests in the Collateral shall collectively appoint such person whom shall represent the Secured Parties (the “Secured Party Representative”) and shall notify the Company and the Secured Party Representative of such default and direct the Secured Party Representative with the course of action to take in enforcing the Secured Parties’ rights and remedies under this Agreement against the Debtor and Collateral including foreclosing on the Collateral if necessary. In the event of foreclosure on the Collateral, if the Collateral is not purchased by a third party at a trustees sale or otherwise as provided under the UCC, the Secured Party Representative shall cause title to vest in the names of each Secured Party, as tenants in common, with undivided interests in the Collateral in accordance with its Participating Interest. The Secured Parties may also direct Secured Party Representative to exercise any further rights or remedies under this Agreement, the Purchase Agreement, or Notes; provided, however, that any interest in or amounts recorded with respect to the Collateral shall be vested in the names of each Secured Party in accordance herewith. Any proceeds received from any such foreclosure, remedial action, redemption or receivership proceeding related to the Collateral shall be shared between the Secured Parties pari passu in a manner proportionate to their undivided interest in the Collateral at the time of determination.

 (c) Actions by Secured Parties; Settlement of Claims.All actions by Secured Parties or decisions effecting the rights of the Secured Parties including any settlement of claims the Secured Parties may have against Debtor shall only be effected by those Secured Parties, who are not officers or directors of the Company, holding a majority of the Participating Interest in the Collateral.

4.           Covenants.The Debtor covenants and agrees with the Secured Parties that, from and after the date of this Agreement until the Obligations are paid in full:

 (a) Other Liens.Except for the Security Interest, the Debtor has rights in or the power to transfer the Collateral and its title and will be able to do so hereafter free from any adverse lien, security interest or encumbrance (other than purchase money security interests that will be discharged upon Debtor’s payment of the purchase price for the applicable property), and the Debtor will defend the Collateral against the claims and demands of all persons at any time claiming the same or any interest therein.

 (b) Maintenance of Records.The Debtor will keep and maintain at its own expense complete and satisfactory records of the Collateral.

 (c) Inspection Rights.The Secured Parties shall have full access during normal business hours, and upon reasonable prior notice, to all the books, correspondence and other records of the Debtor relating to the Collateral. The Secured Parties or their repre­sentatives may examine such records and make photocopies or otherwise take extracts from such records. The Debtor agrees to render to the Secured Parties, at the Debtor’s expense, such clerical and other assistance as may be reasonably requested with regard to the exercise of its rights pursuant to this paragraph.

 (d) Compliance with Laws, etc.The Debtor will comply in all material respects with all laws, rules, regulations and orders of any governmental authority applicable to any part of the Collateral or to the operation of the Debtor’s business; provided, however, that the Debtor may contest any such law, rule, regulation or order in any reasonable manner which does not, in the reasonable opinion of the Debtor, adversely affect the Secured Parties’ rights or the priority of its liens on the Collateral.

5.           Event of Default; Secured Party’s Appointment as Attorney-in-Fact.

 (a) Event of Default.For purposes of this Agreement, the occurrence of any one of the following events (each, an “Event of Default”) shall constitute a default hereunder and under the Note:

(i)A material breach of a representation or warranty made by the Debtor under the Purchase Agreement as of the date thereof;

(ii)The insolvency of the Debtor, the commission of any act of bankruptcy by the Debtor, the execution by the Debtor of a general assignment for the benefit of creditors, the filing by or against the Debtor of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the appointment of a receiver or trustee to take possession of the property or assets of the Debtor; or

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 (b) Powers.The Debtor hereby appoints the Secured Parties and any officer or agent of the Secured Parties, with full power of substitution, as its attorney-in-fact with full irrevocable power and authority in the place of the Debtor and in the name of the Debtor or its own name, from time to time in the Secured Parties’ discretion so long as an Event of Default has occurred and is continuing, for the purpose of carrying out the terms of this Agreement, to take any appropriate action and to authenticate any instrument which may be necessary or desirable to accomplish the purposes of this Agreement. Without limiting the foregoing, so long as an Event of Default has occurred and is continuing, the Secured Parties shall have the right, without notice to, or the consent of, the Debtor, to do any of the following on the Debtor’s behalf:

(i)to direct any party liable for any payment under any of the Collateral to make payment of any and all amounts due or to become due thereunder directly to the Secured Parties or as the Secured Parties directs;

(ii)to ask for or demand, collect, and receive payment of and receipt for, any payments due or to become due at any time in respect of or arising out of any Collateral;

(iii)to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to enforce any right in respect of any Collateral;

(iv)to defend any suit, action or proceeding brought against the Debtor with respect to any Collateral;

(v)to settle, compromise or adjust any suit, action or proceeding described in subsection (v) above and to give such discharges or releases in connection therewith as the Secured Parties may deem appropriate;

(vi)generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral and to take, at the Secured Parties’ option and the Debtor’s expense, any actions which the Secured Parties deem necessary to protect, preserve or realize upon the Collateral and the Secured Parties’ liens on the Collateral and to carry out the intent of this Agreement, in each case to the same extent as if the Secured Parties were the absolute owner of the Collateral for all purposes.

The Debtor hereby ratifies whatever actions the Secured Parties shall lawfully do or cause to be done in accordance with this Section 5. This power of attorney shall be a power coupled with an interest and shall be irrevocable.

5.           No Duty on Secured Parties’ Part.The powers conferred on the Secured Parties by this Section 5 are solely to protect the Secured Parties’ interests in the Collateral and shall not impose any duty upon it to exercise any such powers. The Secured Parties shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither the Secured Parties nor any of their officers, directors, employees or agents shall, in the absence of willful misconduct or gross negligence, be responsible to the Debtor for any act or failure to act pursuant to this Section 5.

6.Performance by Secured Parties Debtor’s Obligations.If the Debtor fails to perform or comply with any of its agreements or covenants contained in this Agreement and the Secured Parties perform or comply, or otherwise cause performance or compliance, with such agreement or covenant in accordance with the terms of this Agreement, then the reasonable expenses of the Secured Parties incurred in connection with such performance or compliance shall be payable by the Debtor to the Secured Parties on demand and shall constitute Obligations secured by this Agreement.

7. Remedies.If an Event of Default has occurred and is continuing, the Secured Parties may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement relating to the Obligations, all rights and remedies of a secured party under the UCC. Without limiting the foregoing, the Secured Parties, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law) to or upon the Debtor or any other person (all of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances collect, receive, appropriate and realize upon any or all of the Collateral, and/or may sell, lease, assign, give an option or options to purchase, or otherwise dispose of and deliver any or all of the Collateral (or contract to do any of the foregoing), in one or more parcels at a public or private sale or sales, at any exchange, broker’s board or office of any Secured Party or elsewhere upon such terms and conditions as the Secured Parties may deem advisable, for cash or on credit or for future delivery without assumption of any credit risk. The Secured Parties shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase all or any part of the Collateral so sold, free of any right or equity of redemption in the Debtor, which right or equity is hereby waived or released. To the extent permitted by applicable law, the Debtor waives all claims, damages and demands it may acquire against the Secured Parties arising out of the exercise by the Secured Parties of any of its rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least five (5) days before such sale or other disposition. The Debtor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations and the fees and disbursements of any attorneys employed by the Secured Parties to collect such deficiency.

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8.Private Sale and Compliance with Law.

(a)Secured Parties shall not incur any liability as a result of the sale of Collateral, or any part thereof, at any private sale conducted in a commercially reasonable manner. Debtor hereby waives any claim against Secured Parties arising by reason of the fact that the price at which Collateral may have been sold at such a private sale conducted in a commercially reasonable manner was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if Secured Parties accept the first offer received and does not offer Collateral to more than one offeree.

(b)Debtor agrees that in any sale of any of the Collateral whenever an event of default hereunder shall have occurred and be continuing, Lender is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and Debtor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall Secured Parties be liable or accountable to Debtor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction.

9. Application of Payments with Respect to the Collateral.In the event of any foreclosure, sale or other disposition of or realization in any manner upon any of the Collateral, all monies or other property collected or received by the Secured Parties or their representatives or counsel with respect to the Collateral, in excess of the amount paid to discharge liens upon the Collateral (if any), shall be distributed by the Secured Parties as follows:

(a)First: to the ratable, pari passu payment of any advances made by any of the Secured Parties to satisfy any lien or other claim that may impair the Collateral, ratably according to the total amounts owing to the respective Secured Party as a result of such advances;

(b)Second: to the Secured Parties and their representatives and counsel in the amount of, and to apply to, the payment of reasonable costs and expenses incurred by Secured Parties representatives and counsel in connection with the administration and enforcement of the foreclosed upon Collateral, as the case may be, including the reasonable fees and out-of-pocket expenses of counsel employed by the Secured Parties to the extent that such fees, advances, costs and expenses, shall not previously have been paid or reimbursed to the Secured Parties; and

(c)Third: to each Secured Party, pari passu, in a manner proportionate to its Participating Interests in the Collateral at the time of determination until all indebtedness and other obligations owed by Debtor under the Notes have been satisfied in full, then any excess amount to Debtor.

10. Limitation on Duties Regarding Preservation of Collateral.The Secured Parties’ sole duty with respect to the custody, safekeeping and preservation of the Collateral, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Secured Parties deal with similar property for their own account. Neither the Secured Parties nor any of their directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Debtor or otherwise.

11. Powers Coupled with an Interest.All authorizations and agencies contained in this Agreement with respect to the Collateral are irrevocable and are powers coupled with an interest.

12. No Waiver; Cumulative Remedies.The Secured Parties shall not by any act (except by a written instrument pursuant to Section 14(f) hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Notes or in any breach of any of the terms and conditions of this Agreement. No failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Secured Parties of any right or remedy under this Agreement on any one occasion shall not be construed as a bar to any right or remedy which the Secured Parties would otherwise have on any subsequent occasion. The rights and remedies provided in this Agreement are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law.

13. Termination of Security Interest.Upon satisfaction of the Debtor’s obligations pursuant to the Note, or conversion of the Notes into shares of the Company’s equity securities pursuant to the terms of the Notes, the security interest granted herein shall terminate and all rights to the Collateral shall revert to the Debtor. Upon any such termination, the Secured Parties shall authenticate and deliver to the Debtor such documents as the Debtor may reasonably request to evidence such termination.

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14.Miscellaneous.

(a)Successors and Assigns.The terms and conditions of this Agreement shall be binding upon the Debtor and its successors and assigns, as well as all persons who become bound as a debtor to this Agreement and inure to the benefit of the Secured Parties and their successors and assigns. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(b)Governing Law.This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

(c)Counterparts.This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

(d)Titles and Subtitles.The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(e)Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or 48 hours after being deposited in the U.S. mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party’s address or facsimile number as set forth below or as subsequently modified by written notice.

(f)Amendments and Waivers.Any term of this Agreement may be amended with the written consent of the parties or their respective successors and assigns. Any amendment or waiver effected in accordance with this Section 11(f) shall be binding upon the parties and their respective successors and assigns.

(g)Severability.If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

(h)Entire Agreement.This Agreement, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto concerning such subject matter are expressly canceled.

IN WITNESS WHEREOF, the Debtor and Secured Party have caused this Agreement to be duly executed and delivered as of the date first above written.

DEBTOR:

ETHOS ENVIRONMENTAL, INC.

By: ______________________               

Corey Schlossmann, CEO

Address: 6800 Gateway Park Drive

San Diego, CA 92154

[SIGNATURE PAGES OF SECURED PARTY TO FOLLOW]

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IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the date first written above.

	SECURED PARTY:
By:
Name:
	(print)
Title:
	ADDRESS FOR NOTICE
c/o:
Street:
City/State/Zip:
Attention:
Tel:
Fax:
Email:

[SIGNATURE PAGE TO SECURITY AGREEMENT]

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EXHIBIT A

SCHEDULE OF SECURED PARTIES

Name and Address of Secured Party	Original Principal Amount of Note	Participating Interest in Collateral in %
TOTAL		100%

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