Entheos Tech, Internat'l Energy, PhytoMedical, and Octillion Corp.-- No Bargains in This Penny Stock Bin

According the Bureau of Labor Statistics, there were nearly 24 million small businesses in America in 2003, responsible for creating up to 80% of net new jobs annually over the past decade and generating more than half of the nation's non-farm gross domestic product (GDP).

These businesses cited "sending and receiving email" among their three most important uses of the Internet.

Entheos Technologies, Inc. (ETHT-$0.66), through its wholly owned subsidiary, Email Solutions, Inc., had hoped to capture some of this business by offering a proprietary application capable of delivering over 1,000,000 customized email messages per hour, with the ability to handle upwards of 20,000,000 emails per day.

Business Model

The Company’s business strategy was to market its email ASP services, which included the deployment, management and hosting of pre-packaged software applications through centrally located servers to this market of small to mid-sized enterprises (with fewer than 500 employees).

To date the Company—according to management—has realized limited success at attracting clients due to (1) strong competition and (2) a dearth of high volume email clients, many of whom are either entrenched with existing vendors or have developed in house applications and infrastructures.

The 10Q Detective believes the explication of Entheos’ financial failing has more to do with the conflicting interests of its CEO than any rivalry in the marketplace for ASP services.

CEO Harmel S. Rayat, 46, who beneficially owns 95.9% of the outstanding common stock, has had a parasitic relationship with the Company for almost a decade, to the detriment of Entheos itself.

Operating History

Entheos presently operates on a limited basis and plans to sell its ASP business and use the sale proceeds, as well as other available cash, to invest in or develop other technology-based ventures.

However, its ASP business may not be saleable, for the Company failed to upgrade its technology and network infrastructure (due to limited financial resources). In addition, a sale may not generate enough to recoup development costs.

Similar to all of the companies where Rayat is a Named Executive Officer, Entheos has a colorful lineage, knee-deep in high hopes but drenched with failure—in perpetual “start-up” mode.

That o'er my sky fresh clouds arise
And drench my path with rain. ~ Grace Troy

The Company was incorporated in the State of Utah on July 14, 1983, under the name of Far West Gold, Inc. In 1998, the Company switched its business model to that of an online brokerage service, Rowland, Carmichael and Associates, Inc.

In January 1999, the Company shifted its planned principal operations—again—entering the field of Internet streaming with the launch of a media-streaming portal, whatsonline.com (purchase cost of domain name was $50,000). On May 20,1999, Far West changed its name to WhatsOnline.com, Inc.

The Company also operated a website focused on the home improvement market (www.callapro.com).

On March 21, 2001, Entheos announced its plans to sell both of its online properties due to low traffic and lack of meaningful revenues from the sites. Unable to find a buyer, during the fourth quarter of 2001, the Company wrote off the remaining value of the whatsonline site and charged to operations $31,250.

In June 2000, the Board approved a proposal to change the Company's name from WhatsOnline.com, Inc. to Entheos Technologies, Inc.

On September 15, 2000, the Company purchased 100% of the voting common stock of Email Solutions, Inc., a Nevada corporation, for $283,000—from Harmel Rayat. Assets acquired consisted primarily of software and computer hardware equipment used in the emailing of news alerts.

Entheos has had limited revenues since inception, and revenues of $0 for the years ended December 31, 2003 - 2006. Historically, the Company has not been profitable, experiencing an accumulated deficit of $(3.79) million through December 31, 2006.

For the year ended December 31, 2002, the Company recorded a net loss of $262,401, or $(0.10) per share, on sales of $919,418, versus a net loss of $317,965, or $(0.16) per share, on sales of $463,288, for the same twelve-month period ending December 31, 2001.

Related Party Conflicts of Interest

Approximately 98% of the Company’s revenues for 2002 were derived from related entities, all controlled by Harmel S. Rayat: (i) Innotech Corporation for emailing services and (ii) e.Deal.net, (an on-line auto auction site) for web development and hosting services. Until the first quarter of 2002, all of Entheos’ revenues were derived from Innotech for emailing services.

In this world it is not what we take up, but what we give up, that makes us rich. ~ Henry Ward Beecher (1813 – 1887).

In our view, clergyman Beecher got it wrong, for you can get rich by take, take, and taking some more—ask Rayat.

• Despite limited operational activity, in fiscal 2000 and 1999, the Company rewarded Rayat with $100,000 and $200,000, respectively, for management and consulting fees! On December 13th, 2002, in lieu of a cash payment, the Board of Directors authorized the issuance of 14.13 million restricted common shares (at a price of $0.02 per share) in exchange for the satisfaction of $282,666 still owed to Rayat. At the close of trading today, the value of these shares were worth about $9.33 million!
• In another coup for Rayat, in August 2002, Entheos agreed to accept 600,625 shares of restricted common stock (in another company controlled by Rayat) in eDeal.net, in lieu of a cash payment of $48,050 due from eDeal.net for web development and web hosting services rendered by Entheos. The number of eDeal.net shares issued to satisfy its debt to Entheos was calculated based on the then most recent quoted market closing price of eDeal.net’s common stock ($0.08 per share) at the settlement date.
• And, during the fourth quarter of 2002, the Company wrote off $459,798 in accounts receivable representing amounts due from Innotech, which no longer had the ability to repay! The Company’s principal client, EquityAlert.com, Inc. (an online community site for investors), a subsidiary of Innotech Corporation, ceased operations during October 2002.
• Despite a company owned by Rayat stiffing Entheos out of $459,798, on February 11, 2003, the Board of Entheos awarded a Stock Option Agreement to Mr. Harmel S. Rayat covering 6,000,000 shares at an exercisable price of $0.01 per share.
• The Company’s principal office is located at premises owned by Rayat (Vancouver, British Columbia, Canada). The Company pays a monthly rent of C$700 effective from April 1, 2006. The Company paid rent of $5,631 for the year ended December 31, 2006.

Postmortem.

In June 2002, InnoTech filed papers with the SEC of its intent to terminate the continued registration of its common stock.

eDeal.net was inactive for fiscal years 2005 and 2004. Effective June 20, 2005, the Company completed a reorganization, ceased its business of providing online automotive information through e.Deal Enterprises and changed its name to International Energy, Inc. (IENI-$1.01), an exploration stage company involved in the (alleged) acquisition and exploration of petroleum and natural gas reserves in various parts of the United States and Canada.

Management said in its recent 10Q filing that for the year ended March 31, 2007, and three months ended June 30, 2007, the Company was focused solely on petroleum and natural gas exploration: “At present, we continue to investigate potential petroleum and natural gas prospects and additionally, we are also seeking to augment our position in the petroleum and natural gas sector through the acquisition of and/or joint venture with, other energy related ventures or technologies.”

We dispute this statement. Like so many of Rayat’s other business ventures, International Energy is running cash flow from operations in the red—$(1.69) million, as of June 30, 2007. To date, the Company’s cash flow requirements have been primarily met by (an endless loop of) debt and equity financings.

As at June 30, 2007, the Company had a cash balance of $20,269.

IENI currently has no sales and marketing force to generate revenue—nor any customers. International Energy’s management needs to devote substantially all of its present efforts to secure additional funds.

And like the aforementioned Entheos Technologies, International Energy has not made prudent business decisions with the monies it did have to invest.

For example, on June 13, 2005, IENI entered into a Joint Venture Agreement with Reserve Oil and Gas, Inc. for the purpose of purchasing oil and gas leases, drilling, completing oil and gas wells and the resale of acquired leases. The Company paid cash $112,000 to purchase four leases totaling 312.7 acres in Sevier County, Utah. The Company abandoned the properties and wrote off the cost of $112,000 on March 31, 2007!

Irrespective of whether the underlying company is profitable, Rayat always seems to come out ahead. To wit:

On September 22, 2006 the Board of IENI approved a stock acquisition agreement pursuant to which Mr. Rayat acquired 2,402,500 shares of the common stock of at a price of $0.035 per share or $84,087 in the aggregate. The Board’s approved the stock acquisition agreement based on their assessment of various factors including, “the Company’s financial needs over the next 12 to 24 months and the limited trading volume of International Energy Inc. stock on the NASD OTCBB.”

IENI is also obligated to pay rent for its principal office (located in Vancouver, British Columbia, Canada) to a private corporation controlled by CFO Harmel S. Rayat (who beneficially owns 69% of IENI, worth about $26 million). The Company paid rent to the lessor of $1,896 for the three months ended June 30, 2007.

Since January 2002, Mr. Rayat has been president of Montgomery Asset Management Corporation, a privately held firm providing financial consulting services to emerging growth corporations. The 10Q Detective believes that the activities of Harmel S. Rayat might be more akin to that of a moneylender—the Companies he is affiliated with have all borrowed monies from Rayat—perhaps because no bank will lend to them (for they all have less-than viable business plans). In the end, Rayat ends up with the controlling interest in the foregoing companies.

Rayat is also the leading shareholder of PhytoMedical (PYTO-$0.40), an early stage research based biopharmaceutical company focused on the development and eventual commercialization of innovative plant derived drugs, beneficially owning about 69% of the outstanding common stock, worth about $51.8 million (on paper); and is the majority shareholder in Octillion Corp (OCTL-$4.40), a technology incubator focused on the acquisition and eventual commercialization of emerging technologies [Ha! Ha!], owning 72% of the stock, worth an estimated $161.5 million (on paper).

As with the other public companies owned by ‘venture-capitalist,’ Harmel S. Rayat, PYTO or OCTL have not generated any revenues since inception and are not expected to generate any revenues for the foreseeable future. In addition, the ability of PYTO and OCTL to continue as going concerns will be dependent on their ability to obtain additional funding.

In our view, existing shareholders need to fear, for even though Rayat will end up lending all the monies PYTO and OCTL (and IENI, ETHT) need to stay operational—it will come at a price: the probability that when the companies shift to other activities—and after reverse and forward stock splits—existing shareholder positions after dilution will be nil!

Unlike with homeopathy, stockholders benefit little from dilution.

Editor David J. Phillips does not hold a position in any of the stocks mentioned in this column. The 10Q Detective has a Full Disclosure Policy.