IElement (IELM) 10QSB 2008 Q3 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

(Mark One)

[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: December 31, 2007

[  ] Transition report under Section 13 or 15(d) of the Exchange Act of 1934

For the transition period from __________ to __________

Commission File No. 000-29331

IELEMENT CORPORATION

(Exact Name of Small Business Issuer as Specified in its Charter)

Nevada	76-0270295
(State or Other Jurisdiction of	(IRS Employer
Incorporation or Organization)	Identification No.)

P.O. Box 279, Lyndeborough, New Hampshire, 03082

(Address of Principal Executive Offices)

(603) 654-2488

(Issuer's Telephone Number, Including Area Code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

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

Yes [ X] No [  ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN

BANKRUPTCY PROCEEDINGS DURING THE

PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

Yes [ ] No [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

There were 27,799,499 issued and outstanding shares of the registrant's common stock, $.001 par value per share, on February 14, 2008.

Transitional Small Business Disclosure Format (check one):

Yes [  ] No [X]

TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements	1
Item 2. Management's Discussion and Analysis or Plan of Operation	15
Item 3. Controls and Procedures	24
PART II OTHER INFORMATION
Item 1. Legal Proceedings	24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults upon Senior Securities	25
Item 4. Submission of Matters to a Vote of Securities Holders	25
Item 5. Other Information	25
Item 6. Exhibits	26

THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT THE COMPANY AND ITS INDUSTRY. FORWARD LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS AND PROSPECTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD LOOKING STATEMENTS FOR ANY REASON EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.

Unless otherwise indicated or the context otherwise requires, all references to “IElement,” the “Company,” “we,” “us” or “our” and similar terms refer to IElement Corporation and its subsidiaries.

PART I

FINANCIAL INFORMATION

ITEM 1.        FINANCIAL STATEMENTS

IELEMENT CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

FOR THE NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006

TABLE OF CONTENTS

Condensed Consolidated Financial Statements:

	PAGE(S)
Condensed Consolidated Balance Sheet as of December 31, 2007	1
Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2007 and 2006
And the Nine Months Ended December 31, 2007 and 2006	2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2007 and 2006	3-4
Notes to Condensed Consolidated Financial Statements (Unaudited)	5-13

IELEMENT CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

December 31, 2007

ASSETS
	December 31,
	2007
CURRENT ASSETS:
Cash and cash equivalents	$	260,000
Total current assets		260,000
Fixed assets, net of depreciation		-
TOTAL ASSETS	$	260,000
LIABILITIES AND STOCKHOLDERS'  (DEFICIT)
CURRENT LIABILITIES:
Current portion - notes payable	$	1,314,499
Accounts payable and accrued expenses		13,680
Total current liabilities		1,328,179
LONG-TERM LIABILITIES:
Notes payable, net of current portion		287,348
Total long-term liabilities		287,348
Total Liabilities		1,615,527
STOCKHOLDERS' (DEFICIT)
Preferred stock, $.001 Par Value, 12,500,000 shares authorized;
-0- shares issued and outstanding		-
Common stock, $.001 Par Value, 125,000,000 shares authorized;
20,365,865 shares issued and outstanding		325,854
Additional paid-in capital		4,428,180
Accumulated deficit		(6,109,561	)
Total Stockholders' (Deficit)		(1,355,527	)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)	$	260,000

The accompanying notes are an integral part of these consolidated financial statements.

1

IELEMENT CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006

	Three Months Ended						Nine Months Ended
	December 31,			December 31,			December 31,			December 31,
	2007			2006			2007			2006
OPERATING REVENUE:
Income from continuing operations	$	-		$	-		$	-		$	-
OPERATING EXPENSES
Cost of sales		-			-			-			-
General and administrative		40,234			36,792			80,007			72,432
Selling expense		-			-			-			-
Total Operating Expenses		40,234			36,792			80,007			72,432
(LOSS) BEFORE OTHER INCOME		(40,234	)		(36,792	)		(80,007	)		(72,432	)
OTHER INCOME (EXPENSE)
Gain on disposal		952,708			-			-			-
Discontinued operations		(406,963	)		(540,989	)		(1,370,590	)		(1,800,973	)
Total Other Income (Expense)		545,745			(540,989	)		(1,370,590	)		(1,800,973	)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES		505,511			(577,781	)		(1,450,597	)		(1,873,405	)
Provision for Income Taxes		-			-			-			-
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES	$	505,511		$	(577,781	)	$	(1,450,597	)	$	(1,873,405	)
NET INCOME (LOSS) PER BASIC SHARES	$	0.03		$	(0.05	)	$	(0.09	)	$	(0.18	)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC		18,553,047			11,493,044			17,022,530			10,465,162
NET INCOME (LOSS) PER DILUTED SHARES	$	0.03		$	(0.05	)	$	(0.09	)	$	(0.18	)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, DILUTED		20,051,377			11,493,044			17,022,530			10,465,162

The accompanying notes are an integral part of these consolidated financial statements.

2

IELEMENT CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006

	Nine Months Ended
	December 31,			December 31,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)	$	(1,450,597	)	$	(1,873,405	)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization		(1,066,033	)		225,212
Bad debt expense		52,975			67,499
Stock issued for services		481,386			726,229
Stock based employee compensation		139,608			178,734
Stock sold for cash		7,000			-
Interest paid in stock		71,400			-
Changes in assets and liabilities
Decrease (increase) in accounts receivable		303,052			(36,293	)
(Increase) in notes receivable		-			-
Decrease in accrued interest receivable		18,542			-
Decrease (increase) in other current assets		7,930			(496	)
Decrease (increase) decrease in deposits		62,227			(160,658	)
(Decrease) in accounts payable and accrued expenses		(949,894	)		(124,754	)
Increase in accrued interest payable		44,079			10,846
(Decrease) in customer deposits		(101,741	)		(33,604	)
(Decrease) in receivable financing payable		(313,047	)		(68,755	)
Decrease in unearned compensation expense		12,200			-
Increase (decrease) in commissions payable		(8,723	)		(4,725	)
(Decrease) in deferred revenue		(513,779	)		(132,340	)
Total adjustments		(1,752,818	)		646,895
Net cash (used in) operating activities		(3,203,415	)		(1,226,510	)
CASH FLOWS FROM INVESTING ACTIVITIES
Disposal (acquisition) of fixed assets		1,579,951			(65,048	)
Net cash provided by (used in) investing activities		1,579,951			(65,048	)

The accompanying notes are an integral part of these consolidated financial statements.

3

IELEMENT CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED)

FOR THE NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006

	Nine Months Ended
	December 31,		December 31,
	2007		2006
CASH FLOWS FROM FINANCING ACTIVITES
Payments of notes payable	$	-	$	(19,000	)
Defaults on subscriptions receivable		900,000		-
Defaults on notes receivable		-		-
Proceeds from notes payable		818,112		595,008
Net cash provided by financing activities		1,718,112		576,008
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS		94,648		(715,550	)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD		165,352		719,450
CASH AND CASH EQUIVALENTS - END OF
PERIOD	$	260,000	$	3,900
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest expense	$	15,875	$	800
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:
Accounts payable converted to equity	$	66,337	$	49,948
Notes payable converted to equity	$	27,778	$	523,097
Stock issued for services	$	481,386	$	726,229
Stock issued for subscription receivable	$	-	$	900,000
Stock issued for payment of interest	$	71,400	$	-
Stock based compensation	$	139,608	$	178,734

The accompanying notes are an integral part of these consolidated financial statements.

4

IELEMENT CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

FOR THE NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006

NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements included herein have been prepared by IElement Corporation and Subsidiary (the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as allowed by such rules and regulations, and the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the March 31, 2007 audited financial statements and the accompanying notes thereto. While management believes the procedures followed in preparing these condensed financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.

The management of the Company believes that the accompanying unaudited condensed consolidated financial statements contain all adjustments (including normal recurring adjustments) necessary to present fairly the operations and cash flows for the periods presented.

MK Secure Solutions Ltd. was established as a messaging security and Management company. On March 25, 2004, pursuant to an Agreement and Plan of Merger, Global Diversified Acquisition Corp. ("GDAC"), acquired all of the outstanding capital stock of MK Secure Solutions Ltd ("MKSS"), a holding company incorporated on March 11, 2003, under the laws of the British Virgin Islands. The transaction was effected by the issuance of shares such that the former MKSS shareholders owned approximately 90% of the outstanding MailKey stock after the transaction. GDAC then changed its name to MailKey Corporation ("MailKey").

The Company's Chairman and Chief Executive Officer resigned in September 2004 and the Company's Chief Financial Officer and member of the Board resigned in November 2004. Both positions were filled by the Company's founder and deputy chairman.

In the first quarter of 2005 the Company was unable to continue funding the development of its messaging security solutions, and the rights were transferred to the development team in return for the cancellation of most of the liabilities which the Company owed to them. The Company retains an interest of 20% in the messaging security solutions; however to date there has been no commercialization of the solutions. In the first quarter 2005 the Company sold its insolvent British Virgin Islands subsidiary, MK Secure Solutions Limited, for $1 to a UK based accounting firm, SS Khehar & Company. SS Khehar & Company has agreed to deal with the winding up of the former subsidiary for a fee of $1,800.

On November 9, 2004, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the MailKey Corporation, MailKey Acquisition Corp., a Delaware corporation and our wholly-owned subsidiary ("Merger Sub"), Inc., a Nevada Corporation, IElement, Inc. ("IElement") and Ivan Zweig, pursuant to which the Company agreed to acquire all of the issued and outstanding shares of capital stock of IElement. This transaction closed in January 2005. At the closing of the Merger, Merger Sub was merged into IElement, at which time the separate corporate existence of Merger Sub ceased and IElement now continues as the surviving company. The Share Exchange has been accounted for as a reverse merger under the purchase method of accounting. Accordingly, IElement will be treated as the continuing entity for accounting purposes and the historical financial statements presented will be those of IElement.

Under the terms of the Merger Agreement, MailKey issued its common stock, $.001 par value per share, in exchange for all of the issued and outstanding shares of capital stock of IElement. The exchange ratio setting forth the number of shares of MailKey common stock issued for each issued and outstanding share of capital stock of IElement was 3.52 shares of MailKey common stock for each issued and outstanding share of capital stock of IElement.

IElement, incorporated in Nevada on December 30, 2002, is a facilities-based nationwide communications service provider that provides state-of-the-art telecommunications services to small and medium sized businesses ("SMBs"). IElement provides broadband data, voice and wireless services by offering integrated T-1 lines as well as Layer 2 Private Network solutions that provide SMBs with dedicated Internet access services, customizable business solutions for voice, data, wireless and Internet, and secure communications channels between the SMB offices, partners, vendors, customers and employees without the use of a firewall or encryption devices. IElement has a network presence in 18 major markets in the United States, including facilities in Los Angeles, Dallas and Chicago. The Company started business in 2003.

5

In connection with the closing of the merger, MailKey entered into a letter of intent with Ivan Zweig and Kramerica Capital Corporation ("Kramerica"), a corporation wholly-owned by Mr. Zweig, which stipulates that MailKey and IElement enter into a four year employment agreement with Kramerica and Mr. Zweig pursuant to which Mr. Zweig will serve as the Chief Executive Officer of MailKey and IElement. The letter of intent provides that Mr. Zweig will receive an annual base salary of $300,000. In addition to his base salary, Mr. Zweig will be entitled to annual performance bonuses with targets ranging from $1,000,000 to $3,000,000 during the second, third and fourth years provided IElement achieves certain performance goals. If Mr. Zweig is terminated without cause, MailKey is obligated to pay the remaining salary owed to Mr. Zweig for the complete term of the employment agreement, to pay off all notes owed to Mr. Zweig or Kramerica, all outstanding options shall become fully vested, MailKey shall pay all earned performance bonuses and all accrued vacation. If Mr. Zweig is terminated for any reason other than cause, MailKey shall pay in full the notes owed to either Mr. Zweig or Kramerica Capital Corporation and at least 75% of the earned bonus plan set forth by the directors.

Effective January 24, 2005, Mr. Zweig was also appointed to the Board of Directors of MailKey. Ivan Zweig has served as the Chief Executive Officer of IElement since March 2003. Mr. Zweig is also the Chief Executive Officer, director and sole shareholder of Kramerica, a personnel services corporation. Since December 1998, Mr. Zweig has served as the Chief Executive Officer and director of Integrated Communications Consultants Corp. ("ICCC"), a nationwide data carrier specializing in high speed Internet access and secure data transaction. ICCC provides IElement with resold telecom services and IElement pays ICCC approximately $80,000 on a monthly basis for such services. On October 1, 2004, ICCC filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court, Northern District of Texas, Dallas Division. On January 19, 2005, upon the consummation of the acquisition, IElement issued eight (8) promissory notes to, Kramerica, certain members of Mr. Zweig's immediate family and others in the aggregate amount of $376,956 (the "Notes") with no interest. Upon issuance, the Notes were payable in 36 monthly installments with the first payment commencing six months after the closing of the merger and were secured by substantially all of the assets of IElement. IElement did not make any payments on the Notes. On March 25, 2006 each of the Notes were cancelled and IElement issued new convertible promissory notes to the same individuals in the same principal amount of $376,956., again with no interest thereon. The first payment on each of the new convertible promissory notes was due in September 2006 with a total of 36 monthly installments through August 2009. The Lender has the right to convert all or a portion of the outstanding balance, at any time until the notes are paid in full, into IElement's common stock at a conversion price of $0.035 per share. Any past due balance on the old Notes was forgiven at the time of cancellation of the old Notes and issuance of the new convertible promissory notes. The new convertible promissory notes were secured by substantially all the assets of IElement, as were the original Notes. The aggregate of the Kramerica notes is $120,000 and was issued for services rendered prior to issuance. The $50,000 note was originally issued on June 1, 2004 for services prior to that date and was restated subsequent to the merger on January 19, 2005. The remaining $70,000 note was issued on January 19, 2005 for services rendered prior to that date. On October 2, 2006, all eight holders of the promissory notes to Mr. Zweig’s immediate family extended the payment terms so that the first of the 36 monthly payments is now due on April 1, 2007 and the last is due on March 1, 2010. No principle payments have been made on any of the notes and no interest is currently accruing.

The Company's consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and have been presented on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company received consent to amend the Articles of Incorporation to increase the number of shares of common stock authorized to be issued from 100,000,000 shares to 2,000,000,000 shares, and consented to the authorization of 200,000,000 shares of Blank Check Preferred Stock. There are no current plans to designate any Blank Check Preferred Stock.

On August 1, 2005, the Company filed an Information Statement in the definitive form on schedule 14C with the SEC to change its name from MailKey Corporation to IElement Corporation. Concurrent with this name change, the Company received a new stock trading symbol (IELM.OB) on the NASD Over-the-Counter Electronic Bulletin Board.

On August 8, 2005, Tim Dean-Smith and Susan Walton resigned their positions on the Board of Directors (the “Board”) of the Company. Tim Dean-Smith also resigned from his position as Chief Financial Officer of the Company. The resignations of Mr. Dean-Smith and Ms. Walton were consistent with the expectations of the parties pursuant to the consummation of the merger between IElement and the Company on January 19, 2005, and do not arise from any disagreement on any matter relating to the Company’s operations, policies or practices, nor regarding the general direction of the Company. Neither Mr. Dean-Smith nor Ms. Walton served on any subcommittees of the Board. Ivan Zweig, the current Chairman of the Board and Chief Executive Officer was appointed as the Chief Financial Officer of the Company until a new Chief Financial Officer is found.

In March 2006, Ivan Zweig, as the only Director, appointed Lance Stovall and Ken Willey to the Board of Directors until the next annual meeting, when all three Directors were up for re-election.

On December 6, 2006 the Board of Directors unanimously appointed Charles Carlson to the Board of Directors until the next annual meeting after the annual meeting scheduled for December 15, 2006.

On December 15, 2006, Ivan Zweig, Lance Stovall and Ken Willey were re-elected to the Board of Directors at the Company’s annual meeting. Charles Carlson also continued to serve on the Board of Directors until the next annual meeting but was not up for re-election at this time.

6

On June 27, 2007 Ken Willey resigned from his position on the Board of Directors.  His resignation did not arise from any disagreement on any matter relating to the Company’s operations, policies or practices, nor regarding the general direction of the Company.

On August 7, 2007 the Board of Directors unanimously appointed Art Eckert to the Board of Directors until the next annual meeting.

On September 13, 2007 the Board of Directors removed Art Eckert from the Board of Directors.

On December 20, 2007 the Company sold its main operating subsidiary, I-Element, Inc., along with certain assets and liabilities related to the that telecommunications business, to Ivan Zweig.  In conjunction with this transaction, Mr. Zweig released the Company from any and all liability under his employment agreement as well as the consulting agreement with Kramerica Capital Corporation, both dated January 1, 2007, and resigned all officer and director positions he held with the Company.  In addition, Mr. Zweig agreed to cancel all of his outstanding warrants and options to purchase the Company’s stock.  Mr. Zweig and I-Element, Inc. also agreed to indemnify the Company from liabilities arising prior to December 20, 2007.

On December 20, 2007 the Board of Directors unanimously appointed Susan Pursel CEO, President and Chairman of the Board of Directors.

On December 20, 2007 Lance Stovall resigned from the Board of Directors.

On December 24, 2007 the Board of Director appointed Paul Lengemann to the Board of Directors.

On December 27, 2007 the Board of Directors approved a reverse stock split whereby each 16 shares of its old common stock was exchanged for one new share of its common stock.  The split took effect on January 11, 2007 and the stock symbol was changed from IELM to IELE at that time.

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

Basis of Consolidation

The condensed consolidated financial statements include the financial position and results of IElement. All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents 

The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash or cash equivalents.

The Company maintains cash and cash equivalents with a financial institution which is insured by the Federal Deposit Insurance Corporation up to $100,000. At various times throughout the year the Company had amounts on deposit at the financial institution in excess of federally insured limits.

The cash and cash equivalents balance as of December 31, 2007 consisted entirely of marketable securities.

Revenue and Cost Recognition

The Company records its transactions under the accrual method of accounting whereby income is recognized when the services are provided rather than when billed or the fees are collected, and costs and expenses are recognized in the period they are incurred rather than paid for. In determining when to recognize revenue the Company relies on Staff Accounting Bulletin Topic 13. The Company uses four criteria in determining when revenue is realized or realizable and earned. First, the Company must have persuasive evidence of the existing of an arrangement. The Company utilizes written contracts with its customers to meet this criterion. Second, delivery must have occurred or services must have been rendered. The Company defers revenue from the date invoiced, usually 35-40 days before services are rendered, to the month services are deemed completely rendered, thereby satisfying this criterion. Third, the price must be fixed and determinable. The Company delivers invoices to every customer stating the exact amount due for services, thereby satisfying this criterion. Fourth, the company determines credibility of its customers and collectibility of its invoices by evaluating its ongoing history and relationship with each customer, the fact that each customer is dependant upon the Company to provide its telephone and internet services and, in many cases, the fact that the customer has a security or service deposit with the Company in the amount of one month's service charges. When the Company cannot determine that a particular customer is credible and a particular invoice is collectible, the company will not record this invoice as revenue until the payment is collected from that customer. Thus, the Company meets the fourth criterion that collectibility be reasonably assured.

7

For the three and nine months ended December 31, 2007, the Company did not recognize any revenue earned after the sale of its subsidiary, I-Element, Inc., on December 20, 2007.

Accounts Receivable

The Company factored 99% of its billings with an outside agency. The Company invoiced its customers on the 28th of the month for services to be rendered approximately 35 days subsequent to the billing date. The Company received 75% of the aggregate net face value of the assigned accounts at the time of placement with the factor.  On December 20, 2007 the Company ceased factoring its receivables.  All outstanding accounts receivable were sold at that time as part of the sale of the Company’s subsidiary, I-Element, Inc.

Deferred Revenue

Deferred revenue consists of customers billed in advance of revenue being earned.

Provision for Bad Debt

Under SOP 01-6 “Accounting for Certain Entities (including Entities with Trade Receivables)”, the Company has intent and belief that all amounts in accounts receivable are collectible. The Company has determined that based on their collections an allowance for doubtful accounts of $0 and $10,684 has been recorded December 31, 2007 and 2006, respectively.

Bad debt expense for the three months ended December 31, 2007 and 2006 was $34,647 and $25,928, respectively.  Bad debt expense for the nine months ended December 31, 2007 and 2006 was $52,975 and $67,499, respectively.

Advertising Costs

The Company expenses the costs associated with advertising and marketing as incurred. Advertising and marketing expenses included in the statements of operations for the three months ended December 31, 2007 and 2006 were $231 and $78,573, respectively.  Advertising and marketing expenses included in the statements of operations for the nine months ended December 31, 2007 and 2006 were $231 and $82,357, respectively.

Income Taxes

The income tax benefit is computed on the pretax loss based on the current tax law. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates. No benefit is reflected for the three and nine months ended December 31, 2007 or 2006.

Fair Value of Financial Instruments

The carrying amount reported on the balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported for notes payable approximates fair value because, in general, the interest on the underlying instruments fluctuates with market rates.

Fixed Assets

Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

  Furniture and equipment                                5 Years

  Telecommunications equipment                   5 Years

8

When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals or betterments.

Income (Loss) Per Share of Common Stock

Historical net income (loss) per common share is computed using the weighted average number of common shares outstanding. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be anti-dilutive for the periods presented.

The following is a reconciliation of the computation for basic and diluted EPS:

	Three Months Ended					Nine Months Ended
	December		December			December			December
	31, 2007		31, 2006			31, 2007			31, 2006
	(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)
Net Income (Loss)		$505,511		$(577,781	)		$(1,450,597	)		$(1,873,405	)
Weighted average common shares outstanding (Basic)		18,553,047		11,493,044			17,022,530			10,465,162
Weighted average common stock equivalents		-		-			-			-
Stock options		1,002,969		-			-			-
Warrants		495,361		-			-			-
Weighted average common shares outstanding (Diluted)		20,051,377		11,493,044			17,022,530			10,465,162

A total of 12,500 options were issued during the nine months ended December 31, 2007.  A total of 1,498.330 options and warrants were outstanding as of December 31, 2007. Including the options and warrants outstanding for the three months ended December 31, 2006 or the nine months ended December 31, 2007 and 2006 would have been anti-dilutive.

9

Stock-Based Compensation

Effective April 1, 2006, the Company adopted the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standard ("SFAS") No. 123(R), "Share-Based Payments," which establishes the accounting for employee stock-based awards. Under the provisions of SFAS No.123(R), stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). The Company adopted SFAS No. 123(R) using the modified prospective method and, as a result, periods prior to March 31, 2006 have not been restated. The Company recognized stock-based compensation for awards issued under the Company's stock option plans in other income/expenses included in the Condensed Consolidated Statement of Operations. Additionally, no modifications were made to outstanding stock options prior to the adoption of SFAS No. 123(R), and no cumulative adjustments were recorded in the Company's financial statements.

The Company measures compensation expense for its non-employee stock-based compensation under the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.

The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.

SFAS No. 123(R) requires disclosure of pro-forma information for periods prior to adoption. The pro-forma disclosures are based on the fair value of awards at the grant date, amortized to expense over the service period. The following table illustrates the effect on net income and earnings per share as if the Company had applied fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, for the period prior to the adoption of SFAS No. 123(R), and the actual effect on net income and earning per share for the period after the adoption of SFAS No. 123(R).

Stock-based compensation for the three months ended December 31, 2007 and 2006 was $45,416 and $44,841, respectively.  Stock-based compensation for the nine months ended December 31, 2007 and 2006 was $139,608 and $178,734, respectively.

On April 1, 2007, the Company issued 12,500 stock options to its employees. The options have an exercise price of $0.16 and vest over 48 months.  They have a fair value of $1,920 using the Black-Scholes pricing model.

Recent Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces Accounting Principles Board (“APB”) Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including the cumulative effect of changing to the new accounting principle in net income in the period of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 did not have a material impact on the Company’s financial position or results of operations.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140.” SFAS No. 155 resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets,” and permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006. The Company is currently evaluating the effect the adoption of SFAS No. 155 will have on its financial position or results of operations.

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In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140.” SFAS No. 156 requires an entity to recognize a servicing asset or liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract under a transfer of the servicer’s financial assets that meets the requirements for sale accounting, a transfer of the servicer’s financial assets to a qualified special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale or trading securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. Additionally, SFAS No. 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, permits an entity to choose either the use of an amortization or fair value method for subsequent measurements, permits at initial adoption a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights and requires separate presentation of servicing assets and liabilities subsequently measured at fair value and additional disclosures for all separately recognized servicing assets and liabilities. SFAS No. 156 is effective for transactions entered into after the beginning of the first fiscal year that begins after September 15, 2006. The Company is currently evaluating the effect the adoption of SFAS No. 156 will have on its financial position or results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (“FAS 157”). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of FAS 157 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

The FASB also issued in September 2006 Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statement No. 87, 88, 106 and 132(R), (“FAS 158”) . This Standard requires recognition of the funded status of a benefit plan in the statement of financial position. The Standard also requires recognition in other comprehensive income certain gains and losses that arise during the period but are deferred under pension accounting rules, as well as modifies the timing of reporting and adds certain disclosures. FAS 158 provides recognition and disclosure elements to be effective as of the end of the fiscal year after December 15, 2006 and measurement elements to be effective for fiscal years ending after December 15, 2008. The Company has not yet analyzed the impact FAS 158 will have on its financial condition, results of operations, cash flows or disclosures.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

NOTE 3- FIXED ASSETS

Property and equipment as of December 31, 2007 was as follows:

	December 31,
	2007
Property and equipment	$0
Less: accumulated depreciation	(0)
Net book value	$0

There was $72,949 and $75,994 charged to operations for depreciation expense for the three months ended December 31, 2007 and 2006, respectively, and $233,766 and $225,212 for the nine months ended December 31, 2007 and 2006, respectively.

NOTE 4- NOTES PAYABLE

The Company has 33 notes payable at December 31, 2007 in the aggregate principal and interest amount of $1,601,847 owed to 26 note holders. As of December 31, 2007 we were current in all obligations except for past due total payments of $632,331 on 20 notes. As of February 14, 2008 we have come to terms with the holders of 18 of these past due notes and are currently negotiating with the remaining two.  No default has been declared. The following is a more detailed discussion of the 33 notes.

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On January 19, 2005, IElement issued eight (8) promissory notes to Kramerica and certain members of Mr. Zweig's immediate family and others in the aggregate amount of $376,956 (the "Notes") with no interest. In particular, the Notes are payable to Heather Walther ($20,000), Kramerica, Inc. (aggregate of $120,000), Mary Francis Strait Trust ($55,611), Peter Walther ($30,000), Richard Zweig ($20,000), Richard Zweig IRA ($27,500) and Strait Grandchildren Trust ($103,845). Upon issuance, the Notes were payable in 36 monthly installments with the first payment commencing six months after the closing of the merger and were secured by substantially all of the assets of the Company. We did not make any payments on the Notes.

On March 25, 2006 each of the eight (8) Notes were cancelled and we issued new convertible promissory notes to the same individuals in the same principal amount of $376,956, again with no interest thereon. The first payment on each of the new convertible promissory Notes was due in September 2006 with a total of 36 monthly installments through August 2009. The Lender has the right to convert all or a portion of the outstanding balance, at any time until the Notes are paid in full, into share of our common stock at a conversion price of $0.035 per share. Any past due balance on the old Notes was forgiven at the time of cancellation of the old notes and issuance of the new convertible promissory Notes. The new convertible promissory Notes are secured by substantially all the assets of IElement as were the original Notes.

On October 6, 2006 we reached agreements with the holders of these eight Notes to extend the first payment date until April 1, 2007. We did not make any payments on the notes.

These eight Note holders received a total of 5,400,000 shares of the Company’s common stock on June 19, 2007 to compensate them for foregone interest. This amount was recorded as interest expense. The total aggregate principle balance of these eight notes as of December 31, 2007 and February 14, 2008 was $376,956. Each of these Notes is still secured by substantially all of the Company’s assets and is convertible into shares of the Company’s common stock at a rate of $0.035 per share.

In January 2008, six of these Notes were sold by the note holder.  In particular, the $50,000 note to Kramerica, the $55,611 note to Mary Francis Straight, the $20,000 note to Heather Walther, the $30,000 note to Peter Walther, the $20,000 note to Richard Zweig and the $27,500 note to Richard Zweig IRA were sold there note to third parties.  On January 23, 2008, we converted the six notes to 3,173,612 shares of the Company’s common stock.  The two remaining notes are the $70,000 note to Kramerica and the $103,845 note to Straight Grandchildren Trust.  Both of these notes are now owned by Kramerica.

In addition to these notes, the Company also has another promissory note payable to Kramerica in the principle amount of $25,000. This note was issued on August 24, 2006 and bears interest at an annual rate of ten percent. As of December 31, 2007 the accrued interest on this note was $27,697. This note is secured by substantially all of the Company’s assets.

On August 8, 2005, IElement issued four promissory notes in the aggregate principal amount of $183,097 to Timothy Dean Smith ($53,930), Susan Walton ($30,000), Jeremy Dean Smith ($54,603) and Dolphin Capital ($44,564), with no interest. Upon issuance the notes were payable in 36 monthly installments with the first payment due in February, 2006. IElement did not make any payments on these notes.

On March 25, 2006 each of the four notes were cancelled and IElement issued new convertible promissory notes to the same individuals in the same principal amount of $183,097, again with no interest thereon. The first payment on each of the new convertible promissory notes was due in September 2006 with a total of 36 monthly installments through August 2009. The Lenders had the right to convert all or a portion of the outstanding balance, at any time until the notes were paid in full, into IElement's common stock at a conversion price of $0.035 per share. Any past due balance on the old notes was forgiven at the time of cancellation of the old notes and issuance of the new convertible promissory notes. These four notes were each converted to common stock at a price of $0.035 per share on November 13, 2006.

One of the remaining notes is held by Duane Morris in the principle amount of $34,631. The Duane Morris note was issued in exchange for a settlement of disputed attorneys fees on August 16, 2005 and was originally agreed to be paid in nine monthly installments beginning on September 30, 2005 and ending May 30, 2006. As of February 14, 2008 we are past due on our payments on the Duane Morris note but intend to resume payments in the coming months. This note bears no interest.

On June 8, 2006 we issued a note payable in the amount of $100,000 to Rhino Limited which bears a ten percent interest rate. It matured when we secured funding from exercise of outstanding warrants.  Those warrants expired unexercised on December 30, 2007.  The current principle and interest balance on this note as of December 31, 2007 was $115,802.

On June 19, 2006 we issued a note payable in the amount of $20,000 to Veronica Kristi Prenn. It bore a ten percent interest rate and matured on December 19, 2006.   The current principle and interest balance on this note as of December 31, 2007 was $23,096.  On January 17, 2008 this note was converted to shares of the Company’s common stock.

On August 4, 2006 we issued a note payable to Walton Hansen in the amount of $24,808. It bore a ten percent interest rate and matured when we secured funding from exercise of outstanding warrants. This note was converted to shares of the Company’s common stock on October 9, 2007.

On September 5, 2006 we issued a note payable to William Goatley in the amount of $60,000. It bore a ten percent interest rate and matured on December 5, 2006. The current principle and interest balance on this note as of December 31, 2007 was $67,972. On January 17, 2008 this note was converted to shares of the Company’s common stock.

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On March 16, 2007 we issued a note payable to Michael Bloch in the amount of $110,000. It bears a ten percent interest rate and matured on June 16, 2007.  On July 20, 2007 the maturity on this note was extended to October 31, 2007 in exchange for 62,500 shares of the Company’s common stock.  On October 31, 2007 the maturity on this note was extended to November 30, 2007 in exchange for $1,500.  The current principle and interest balance on this note as of December 31, 2007 was $111,865. This note is secured by substantially all of our assets.  We are currently renegotiating the terms of this note.

On May 18, 2007 we issued a note payable to Secure Acquisition Financial Entity L.P. (SAFE) in the amount of $200,000 in exchange for $200,000 cash and a note receivable from Micro-Data Systems, Inc. in the amount of $50,000.  The note payable bears an 18 percent annual interest rate and the note receivable bears a 20 percent annual interest rate.  The current principle and interest balance on this note payable as of December 31, 2007 was $213,389.  We are currently renegotiating the terms of this note.

During July of 2007 we issued 10 notes payable to various entities in the aggregate amount of $170,000.  All 10 of these notes bore a ten percent interest rate and were convertible into shares of our common stock at a rate of $0.16 per share.  The current principle and interest balance on these notes as of December 31, 2007 was $177,581.  On January 17, 2008 all 10 of these notes were converted to shares of the Company’s common stock.

On August 23, 2007 we issued a note payable to Ivan Zweig in the amount of $41,943 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $43,436.  This note is now owned by Kramerica.

On September 17, 2007 we issued a note payable to Ivan Zweig in the amount of $76,000 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $78,207. This note is now owned by Kramerica.

On September 20, 2007 we issued two notes payable to Kramerica in the amounts of $15,000 and $34,113, respectively.  They each bear a ten percent interest rate.  The current principle and interest balances due on these notes as of December 31, 2007 were $15,423 and $35,076, respectively.

On October 1, 2007 we issued a note payable to Kramerica in the amount of $44,000 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $45,097.

On November 8, 2007 we issued a note payable to Kramerica in the amount of $16,187 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $16,422.

On November 9, 2007 we issued a note payable to Kramerica in the amount of $17,900 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $18,155.

On December 12, 2007 we issued a note payable to Newsgrade Corporation in the amount of $200,000 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $201,041.

The notes payable balances at December 31, 2007 were as follows:

	December 31,
	2007
Total notes payable	$	1,601,847
Less: current maturities		(1,314,499	)
	$	287,348

The amount of principal maturities of the notes payable for the next four

years ending September 30 and in the aggregate is as follows:

2008	$	1,314,499
2009		130,283
2010		125,652
2011		31,413
	$	1,601,847

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NOTE 5- OPERATING LEASES

The Company leased office space under a lease that commenced in June of 2005.  The lease was payable on a month-to-month basis. Monthly payments under the current lease were $3,284.   As of December 20, 2007 the Company sold its I-Element, Inc. subsidiary and this lease was included in the sale.

Rental payments charged to expense for the three months ended December 31, 2007 and 2006 were $12,526 and $7,790, respectively.  Rental payments charged to expense for the nine months ended December 31, 2007 were $34,437 and $27,494, respectively.  As of December 31, 2007 the Company no longer had any operating leases.

NOTE 6- STOCKHOLDERS’ (DEFICIT)

Common Stock 

As of December 31, 2007, the Company has 125,000,000 shares of common stock authorized at a par value of $0.001 and 20,365,865 shares issued and outstanding, as adjusted for the reverse stock split effective on January 11, 2008.

The following details the stock transactions for the nine months ended December 31, 2007, as adjusted for the reverse stock split effective on January 11, 2008:

The Company revoked 1,500,000 shares of common stock to that had previously been issued for services rendered in the amount of $288,000.

The Company issued 4,148,449 shares of common stock for services rendered valued at $466,136.

The Company issued 400,000 shares of common stock for the extension of maturity dates on notes payable.  Those shares were valued at $71,400 and recorded as interest expense.

The Company issued 95,313 shares of common stock upon the exercise of employee stock options.

The Company issued 668,242 shares of common stock to retire accounts payable in the amount of $66,337.

The Company issued 218,750 shares of common stock for $7,000 in cash.

The Company issued 434,032 shares of common stock to retire notes payable in the principle amount of $27,778.

Blank Check Preferred Stock

The company also has 12,500,000 shares of Blank Check Preferred Stock authorized, as adjusted for the reverse stock split effective on January 11, 2008. There are no current plans to issue any Blank Check Preferred Stock.

NOTE 7- PROVISION FOR INCOME TAXES

Deferred income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes will be measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.

At December 31, 2007, deferred tax assets consist of the following:   

Net deferred tax assets	$	1,832,868
Less: valuation allowance		(1,832,868	)
	$	-0-

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At December 31, 2007, the Company had deficits accumulated in the approximate amount of $6,109,561 available to offset future taxable income through 2027. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.

NOTE 8- GOING CONCERN

As shown in the accompanying condensed consolidated financial statements, the Company has sustained net operating losses for the nine months ended December 31, 2007 and 2006. There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations. This raises substantial doubt about the Company’s ability to continue as a going concern.

The Company’s future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing.

Management believes that the sale of the I-Element, Inc. subsidiary on December 20, 2007 will substantially reduce the cash burn and allow the Company to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets andliabilities that might result should the Company be unable to continue as a going concern.

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO OF THE COMPANY, CONTAINED ELSEWHERE IN THE FORM 10-QSB.

Forward-looking statements in this report may prove to be materially inaccurate. In addition to historical information, this report contains forward-looking information that involves risks and uncertainties. The words "may", "will", "expect", "anticipate", "continue", "estimate", "project", "intend" and similar expressions are intended to identify forward-looking statements. Actual results may differ materially from those included within the forward-looking statements as a result of factors, including the risks described above and factors described elsewhere in this report.

COMPANY OVERVIEW

IElement was a facilities-based nationwide communications service provider that offered telecommunications services to small and medium sized businesses ("SMBs"). As a facilities-based provider, we owned our own network equipment including telephone switches. In other words, we sold local and long distance telephone service and Internet access primarily via digital T-1 connections and tailored the particular service to the customer's needs by regulating bandwidth, number of telephone lines, and type of service.

Although we had a solid, steady revenue stream, characterized by our base of customers which were under long-term contracts and most of which had been our customers for several years, revenue attrition is a universal, unavoidable trend in the telecommunications industry. Competition between providers for services that many small and medium sized businesses see as commodities leads customers to change providers based largely on price. The resulting effect was detrimental to our business model in two ways. First, our customers left us for other providers and second, when we did renew our customers' contracts, we did so at rates up to 20 percent lower than they had been paying.

To combat this revenue attrition, we intended to partner with a company who has a dedicated sales force. This would have allowed us to pursue new customers that more than replaced the revenue lost to attrition.

Our overall financial condition improved significantly with the completion of our private equity placement in January 2006 and the increased liquidity it brought. Since that time, however, our overall financial condition has continued to deteriorate, we continue to use cash and we currently have to rely on financing from outside sources, the acquisition of a business with positive cash flows or continued cost-cutting measures.

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The telecommunications business was failing because our negative cash flow required continued fundraising efforts or the acquisition of a cash flow positive business.  While we pursued a number of such businesses and fundraising opportunities, we were unable to complete an acquisition or secure adequate funding.

We significantly enhanced our financial position by selling our subsidiary, I-Element, Inc. and exiting the cutthroat telecommunications business on December 20, 2007.

On December 27, 2006, we entered into a Management Services and Vendor Agreement with Sutioc Enterprises, Inc, to offer management and vendor services to both Sutioc Enterprises, Inc. and its majority owned subsidiary U.S. Wireless, Inc. In addition to being a majority shareholder, Sutioc Enterprises was party to a Management Agreement with US Wireless Online, Inc. whereby Sutioc Enterprises was appointed the Manager of US Wireless Online with broad discretion to retain the services of third parties to perform management and other services both on behalf of Sutioc Enterprises, in its capacity as Manager for US Wireless Online, and for US Wireless Online directly.  Both our management agreement with Sutioc and Sutioc’s agreement with US Wireless were terminated on August 30, 2007.

On August 7, 2007 the Company entered into a letter of intent with Micro Data Systems, Inc whereby IElement Corporation may acquire Micro Data Systems in a merger transaction. Although the letter of intent was largely non-binding, some of the provisions were binding upon the parties.  In September of 2007 talks with Micro Data broke down and we ceased considering that merger transaction.

On December 20, 2007 the Company entered into a stock purchase agreement with then Chairman and CEO Ivan Zweig to sell all outstanding stock in our subsidiary, I-Element, Inc, to Ivan Zweig.  Under this agreement, the Company ceased operating as a telecommunications provider.

As consideration for the Share Purchase, Mr. Zweig agreed to:

(a)   assume, through Target, certain liabilities of the Target.

(b)   release the Company from any and all liability under that certain Employment Agreement between the Company and Mr. Zweig dated January 1, 2007 as disclosed in the Company’s Form 8-K filed with the Securities Exchange Commission (the “SEC”) on April 20, 2007 (the “Employment Release”).   In connection therewith, Mr. Zweig agreed to resign his positions as a director and an officer of the Company.

(c)   release the Company from any and all liability under that certain Consulting Agreement between the Company and Kramerica Capital Corporation (“Kramerica”) dated January 1, 2007 as disclosed in the Seller’s Form 8-K filed with the SEC on April 20, 2007 (the “Kramerica Release”).  Mr. Zweig owns 100% of the equity of Kramerica Capital Corporation and as such has full power and authority, on behalf of Kramerica, to enter into the IElement Agreement.  

 (d)   relinquish and cancel all stock options and warrants held by Mr. Zweig for the purchase of the stock of the Company, and

(e)   enter into an Indemnity Agreement in favor of the Company in which Mr. Zweig agrees to indemnify the Company for any and all liabilities of the Company, none of which are listed on Schedule 2.2.6 of the IElement Agreement and which liability arose prior to the Closing hereof.

On December 20, 2007, the Company entered into a Stock Purchase Agreement with Newsgrade Corporation (“Newsgrade”), (the “Newsgrade Agreement”), pursuant to which the Company agreed to purchase from Newsgrade 1 million shares of common stock of The Retirement Solutions.com, Inc. (“TRS”).  As consideration for the purchase, the Company agreed to pay to Newsgrade at closing $200,000 in the form of the Convertible Promissory Note (the “Convertible Note”).  The Convertible Note, in part, is due and payable one year from issuance with 10% interest and is convertible into shares of common stock of the Company.

Pursuant to the IElement Agreement described above, effective December 20, 2007 Ivan Zweig resigned as a director and an officer of the Company.  In addition, effective December 20, 2007 Lance Stovall resigned as a director of the Company.  Neither resignation was due to a dispute with the Company.

On December 20, 2007, the board of the directors of the Company appointed Susan Pursel to the Board of Directors and on December 24, 2007, the Company appointed Paul Lengemann to the Board of Directors.  Also effective December 20, 2007 Susan Pursel has been appointed as the Company’s Chairman, Chief Executive Officer, President, Secretary and Treasurer.

Susan Pursel and Paul Lengemann are currently the sole officers and directors of the Company.  Ms. Pursel and Mr. Lengemann shall serve until the next annual meeting.  Neither individual is a director of any other Company subject to the reporting requirements of the Securities Exchange Act of 1934, as amended.  Neither Ms. Pursel nor Mr. Lengemann, is related to any directors, executive officer or persons nominated or chosen by the Company to become directors or executive officers.

Ms. Pursel is a minority stockholder of Newsgrade and former President of StockDataNews.com, Inc., a wholly owned subsidiary of Newsgrade,  which as more fully set forth in Items 1.01 and 2.01 entered into a transaction with the Company whereby the Company purchased 1,000,000 shares of the The Retirement Solutions.com, Inc. (“TRS”).  As consideration for the purchase, the Company agreed to pay to Newsgrade at closing $200,000 in the form of the Convertible Promissory Note.

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Mr. Lengemann was President of Stockdiagnostics.com, Inc., a wholly owned subsidiary of Newsgrade between 2002 and 2004.  As more fully set forth in Items 1.01 and 2.01 Newsgrade entered into a transaction with the Company whereby the Company purchased 1,000,000 shares of the The Retirement Solutions.com, Inc. (“TRS”).  As consideration for the purchase, the Company agreed to pay to Newsgrade at closing $200,000 in the form of the Convertible Promissory Note.

The Board of Directors of the Company approved on December 27, 2007, a reverse split of Company common stock in a ratio of one (1) new share for every sixteen (16) existing shares of common stock. The Company’s authorized shares of common stock will be proportionately reduced so therefore shareholder approval is not necessary.  The record and effective date of the reverse split was January 8, 2008

On January 22, 2008 the Company issued a total of 3,173,612 post split (50,777,778 pre-split) shares of its common stock in exchange for the release of indebtedness in the total amount of $203,111.

OUR PLAN OF OPERATION

IElement is a shell company in that it has no or nominal operations and either no or nominal assets. At this time, IElement's purpose is to seek, investigate and, if such investigation warrants, acquire an interest in business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of an Exchange Act registered corporation. The Company will not restrict its search to any specific business, industry, or geographical location and the Company may participate in a business venture of virtually any kind or nature. This discussion of the proposed business is purposefully general and is not meant to be restrictive of the Company's virtually unlimited discretion to search for and enter into potential business opportunities. Management anticipates that it may be able to participate in only one potential business venture because the Company has nominal assets and limited financial resources. This lack of diversification should be considered a substantial risk to shareholders of the Company because it will not permit the Company to offset potential losses from one venture against gains from another.

 Management has substantial flexibility in identifying and selecting a prospective new business opportunity. IElement would not be obligated nor does management intend to seek pre-approval by our shareholders.

IElement may seek a business opportunity with entities which have recently commenced operations, or which wish to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service, or for other corporate purposes. IElement may acquire assets and establish wholly owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.

IElement intends to promote itself privately. The Company has not yet begun such promotional activities. The Company anticipates that the selection of a business opportunity in which to participate will be complex and risky. Due to general economic conditions, rapid technological advances being made in some industries and shortages of available capital, management believes that there are numerous firms seeking the perceived benefits of a publicly registered corporation. Such perceived benefits may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes), for all shareholders, and other factors. Potentially, available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities difficult and complex.

IElement has, and will continue to have, little or no capital with which to provide the owners of business opportunities with any significant cash or other assets. On December 31, 2007 IElement had a cash balance of approximately zero and a cash equivalents balance of $260,000. However, management believes the Company will be able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in a publicly registered company without incurring the cost and time required to conduct an initial public offering. The owners of the business opportunities will, however, incur significant legal and accounting costs in connection with the acquisition of a business opportunity, including the costs of preparing Form 8K's, 10K's or 10KSB's, agreements and related reports and documents. The Securities Exchange Act of 1934 (the "34 Act"), specifically requires that any merger or acquisition candidate comply with all applicable reporting requirements, which include providing audited financial statements to be included within the numerous filings relevant to complying with the `34 Act. The officer and director of IElement has not conducted market research and is not aware of statistical data which would support the perceived benefits of a merger or acquisition transaction for the owners of a business opportunity.

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The analysis of new business opportunities will be undertaken by, or under the supervision of, the officer and director of the Company with such outside assistance as he may deem appropriate. Management intends to concentrate on identifying preliminary prospective business opportunities, which may be brought to its attention through present associations of the Company's officer and director. In analyzing prospective business opportunities, management will consider such matters as the available technical, financial and managerial resources; working capital and other financial requirements; history of operations, if any; prospects for the future; nature of present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for further research, development, or exploration; specific risk factors not now foreseeable but which then may be anticipated to impact the proposed activities of the Company; the potential for growth or expansion; the potential for profit; the perceived public recognition of acceptance of products, services, or trades; name identification; and other relevant factors. Management of IElement expects to meet personally with management and key personnel of the business opportunity as part of the investigation. To the extent possible, the Company intends to utilize written reports and investigation to evaluate the above factors. The Company will not acquire or merge with any company for which audited financial statements are not available.

The foregoing criteria are not intended to be exhaustive and there may be other criteria that management may deem relevant. In connection with an evaluation of a prospective or potential business opportunity, management may be expected to conduct a due diligence review.

 The Officer of IElement has limited experience in managing companies similar to the Company and shall mainly rely upon his own efforts, in accomplishing the business purposes of the Company. The Company may from time to time utilize outside consultants or advisors to effectuate its business purposes described herein. No policies have been adopted regarding use of such consultants or advisors, the criteria to be used in selecting such consultants or advisors, the services to be provided, the term of service, or regarding the total amount of fees that may be paid. However, because of the limited resources of the Company, it is likely that any such fee the Company agrees to pay would be paid in stock and not in cash.

The Company will not restrict its search for any specific kind of firm, but may acquire a venture which is in its preliminary or development stage, which is already in operation, or in essentially any stage of its corporate life. It is impossible to predict at this time the status of any business in which the Company may become engaged, in that such business may need to seek additional capital, may desire to have its shares publicly traded, or may seek other perceived advantages which the Company may offer. However, IElement does not intend to obtain funds in one or more private placements or public offerings to finance the operation of any acquired business opportunity until such time as the Company has successfully consummated such a merger or acquisition.

The time and costs required to pursue new business opportunities, which includes negotiating and documenting relevant agreements and preparing requisite documents for filing pursuant to applicable securities laws, cannot be ascertained with any degree of certainty.

Management intends to devote such time as it deems necessary to carry out the Company's affairs. The exact length of time required for the pursuit of any new potential business opportunities is uncertain. No assurance can be made that we will be successful in our efforts. We cannot project the amount of time that our management will actually devote to our plan of operation.

IElement intends to conduct its activities so as to avoid being classified as an "Investment Company" under the Investment Company Act of1940, and therefore avoid application of the costly and restrictive registration and other provisions of the Investment Company Act of 1940 and the regulations promulgated thereunder.

IElement is a Blank Check Company

At present, IElement is a development stage company with no revenues and has no specific business plan or purpose. IElement's business plan is to seek new business opportunities or to engage in a merger or acquisition with an unidentified company. As a result, IElement is a blank check company and any offerings of our securities needs to comply with Rule 419 under the Act. IElement has no current plans to engage in any such offerings.

IElement's Common Stock is a Penny Stock

IElement's common stock is a "penny stock," as defined in Rule 3a51-1 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its sales person in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that the broker-dealer, not otherwise exempt from such rules, must make a special written determination that the penny stock is suitable for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. So long as the common stock of IElement is subject to the penny stock rules, it may be more difficult to sell our common stock.

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Acquisition of Opportunities

In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. It may also acquire stock or assets of an existing business. On the consummation of a transaction, it is probable that the present management and shareholders of the Company will no longer be in control of the Company. In addition, the Company's directors may, as part of the terms of the acquisition transaction, resign and be replaced by new directors without a vote of the Company's shareholders or may sell their stock in the Company. Any and all such sales will only be made in compliance with the securities laws of the United States and any applicable state.

It is anticipated that any securities issued in any such reorganization would be issued in reliance upon an exemption from registration under applicable federal and state securities laws. In some circumstances, however, as a negotiated element of its transaction, the Company may agree to register all or a part of such securities immediately after the transaction is consummated or at specified times thereafter. If such registration occurs, of which there can be no assurance, it will be undertaken by the surviving entity after the Company has successfully consummated a merger or acquisition.

As part of IElement's investigation, the officer and director of the Company may personally meet with management and key personnel, may visit and inspect material facilities, obtain analysis and verification of certain information provided, check references of management and key personnel, and take other reasonable investigative measures, to the extent of the Company's limited financial resources and management expertise.

With respect to any merger or acquisition, negotiations with target company management are expected to focus on the percentage of the Company which the target company shareholders would acquire in exchange for all of their shareholdings in the target company. Depending upon, among other things, the target company's assets and liabilities, the Company's shareholders will in all likelihood hold a substantially lesser percentage ownership interest in the Company following any merger or acquisition. The percentage ownership may be subject to significant reduction in the event the Company acquires a target company with substantial assets. Any merger or acquisition effected by the Company can be expected to have a significant dilutive effect on the percentage of shares held by the Company's then shareholders.

IElement will participate in a business opportunity only after the negotiation and execution of appropriate written agreements. Although the terms of such agreements cannot be predicted, generally such agreements will require some specific representations and warranties by all of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to and after such closing, will outline the manner of bearing costs, including costs associated with the Company's attorneys and accountants, will set forth remedies on default and will include miscellaneous other terms.

IElement does not intend to provide its security holders with any complete disclosure documents, including audited financial statements, concerning an acquisition or merger candidate and its business prior to the consummation of any acquisition or merger transaction.

Conflicts of Interest

Our management is not required to commit his full time to our affairs. As a result, pursuing new business opportunities may require a greater period of time than if he would devote his full time to our affairs. Management is not precluded from serving as an officer or director of any other entity that is engaged in business activities similar to those of IElement, though management is not currently serving in such a position. In the future, management may become associated or affiliated with entities engaged in business activities similar to those we intend to conduct. In such event, management may have conflicts of interest in determining to which entity a particular business opportunity should be presented. In general, officers and directors of a Colorado corporation are required to present certain business opportunities to such corporation. In the event that our management has multiple business affiliations, he may have similar legal obligations to present certain business opportunities to multiple entities. In the event that a conflict of interest shall arise, management will consider factors such as reporting status, availability of audited financial statements, current capitalization and the laws of jurisdictions. If several business opportunities or operating entities approach management with respect to a business combination, management will consider the foregoing factors as well as the preferences of the management of the operating company. However, management will act in what he believes will be in the best interests of the shareholders of IElement and other respective public companies. IElement shall not enter into a transaction with a target business that is affiliated with management.

Management is reviewing and negotiating a potential business opportunity at the time of filing this Form 10Q-SB.  However, Management has no definitive agreements or understandings regarding such potential opportunity.

COMPETITION

IElement will remain an insignificant participant among the firms which engage in the acquisition of business opportunities. There are many established venture capital and financial concerns which have significantly greater financial and personnel resources and technical expertise than the Company. In view of IElement's combined extremely limited financial resources and limited management availability, the Company will continue to be at a significant competitive disadvantage compared to the Company's competitors

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EMPLOYEES

IElement currently has one employee.

RESULTS OF OPERATIONS

REVENUES

Revenues from continuing operations for the both the three and nine months ended December 31, 2007 and 2006 were $0.

COST OF REVENUES

Cost of revenues for continuing operations the both the three and nine months ended December 31, 2007 and 2006 was $0.

OPERATING EXPENSES

Operating expenses for continuing operations including cost of revenues for the three months ended December 31, 2007 were $40,234 as compared to $36,792 for the three months ended September 30, 2006.  Operating expenses for continuing operations including cost of revenues for the nine months ended December 31, 2007 were $80,007 as compared to $72,432 for the nine months ended December 31, 2006.

(LOSS) FROM OPERATIONS

Loss from continuing operations for the three months ended December 31, 2007 was $40,234 as compared to $36,792 for the three months ended December 31, 2006.  Loss from continuing operations for the nine months ended December 31, 2007 was $80,007 as compared to $72,432 for the nine months ended December 31, 2006.

INTEREST EXPENSE

Interest expense for continuing operations for both the three and the nine months ended December 31, 2007 and 2006 was $0.

NET INCOME (LOSS) APPLICABLE TO COMMON STOCK

Net income applicable to common stock for the three months ended December 31, 2007 was $505,511 as compared to a net (loss) of $577,781 for the three months ended December 31, 2006. Net income per common share, adjusted for the reverse stock split effective on January 11, 2008, was $0.03 for the three months ended December 31, 2007.  Net (loss) was $0.05 per share, adjusted for the reverse stock split effective on January 11, 2008, for the three months ended December 31, 2006.  Net (loss) applicable to common stock for the nine months ended December 31, 2007 was $1,450,597 as compared to $1,873,405 for the nine months ended December 31, 2006. Net (loss) per common share was $0.09 for the nine months ended December 31, 2007 and $0.18 for the nine months ended December 31, 2006.

The net (loss) for the three months ended December 31, 2006 and the nine months ended December 31, 2007 and 2006 can be attributed to the fact that we did not employ a dedicated sales force and therefore were unable to generate enough new revenue to cover our costs, which were largely fixed.

The net income for the three months ended December 31, 2007 is a direct result of the sale of the I-Element, Inc. subsidiary.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have funded our operations primarily through private sales of equity securities and the utilization of short-term convertible debt. As of December 31, 2007 we had a cash and cash equivalents balance of $260,000 consisting entirely of marketable securities.

In order to facilitate working cash flow, we factored approximately 99% of accounts receivables for customer billing with an outside agency, thereby receiving 75% of the aggregate net face value of the assigned accounts at the time of placement with the factor. We ceased factoring invoices on December 20, 2007 and do not maintain a line of credit or term loan with any commercial bank or other financial institution.  The balance of our corporate credit card was eliminated with the sale of our I-Element, Inc. subsidiary on December 20, 2007.  To date, our capital needs have been principally met through the receipt of proceeds from factoring customer receivables and the sale of equity and debt securities.

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In January 2006 we closed a private placement offering for an aggregate sale price of $1,579,375, of which up to 10% is subject to deduction for fees in connection with the private placement, and warrants for the purchase of an aggregate total of 1,410,156 shares at a strike price of $1.60 per share, adjusted for our reverse stock split effective January 11, 2008. The proceeds of the private placement offering improved our cash balance.  All of the warrants expired unexercised on December 30, 2007.

We currently require additional funds to maintain operations since we do not have revenues.  We plan to generate these addition funds by acquiring an operating business and seeking additional debt and/or equity investors.

As of December 31, 2007, we did not have any accounts receivable.

The Company has 33 notes payable at December 31, 2007 in the aggregate principal and interest amount of $1,601,847 owed to 26 note holders. As of December 31, 2007 we were current in all obligations except for past due total payments of $632,331 on 20 notes. As of February 14, 2008 we have come to terms with the holders of 18 of these past due notes and are currently negotiating with the remaining two.  No default has been declared.

Only the 25 notes issued in or subsequent to June 2006 are interest bearing. The following is a more detailed discussion of the notes.

On January 19, 2005, IElement issued eight (8) promissory notes to Kramerica and certain members of Mr. Zweig's immediate family and others in the aggregate amount of $376,956 (the "Notes") with no interest. In particular, the Notes are payable to Heather Walther ($20,000), Kramerica, Inc. (aggregate of $120,000), Mary Francis Strait Trust ($55,611), Peter Walther ($30,000), Richard Zweig ($20,000), Richard Zweig IRA ($27,500) and Strait Grandchildren Trust ($103,845). Upon issuance, the Notes were payable in 36 monthly installments with the first payment commencing six months after the closing of the merger and were secured by substantially all of the assets of the Company. We did not make any payments on the Notes.

On March 25, 2006 each of the eight (8) Notes were cancelled and we issued new convertible promissory notes to the same individuals in the same principal amount of $376,956, again with no interest thereon. The first payment on each of the new convertible promissory Notes was due in September 2006 with a total of 36 monthly installments through August 2009. The Lender has the right to convert all or a portion of the outstanding balance, at any time until the Notes are paid in full, into share of our common stock at a conversion price of $0.035 per share. Any past due balance on the old Notes was forgiven at the time of cancellation of the old notes and issuance of the new convertible promissory Notes. The new convertible promissory Notes are secured by substantially all the assets of IElement as were the original Notes.

On October 6, 2006 we reached agreements with the holders of these eight Notes to extend the first payment date until April 1, 2007. We did not make any payments on the notes.

These eight Note holders received a total of 5,400,000 shares of the Company’s common stock on June 19, 2007 to compensate them for foregone interest. This amount was recorded as interest expense. The total aggregate principle balance of these eight notes as of December 31, 2007 and February 14, 2008 was $376,956. Each of these Notes is still secured by substantially all of the Company’s assets and is convertible into shares of the Company’s common stock at a rate of $0.035 per share.

In January 2008, six of these Notes were sold by the note holder.  In particular, the $50,000 note to Kramerica, the $55,611 note to Mary Francis Straight, the $20,000 note to Heather Walther, the $30,000 note to Peter Walther, the $20,000 note to Richard Zweig and the $27,500 note to Richard Zweig IRA were sold there note to third parties.  On January 23, 2008, we converted the six notes to 3,173,612 shares of the Company’s common stock.  The two remaining notes are the $70,000 note to Kramerica and the $103,845 note to Straight Grandchildren Trust.  Both of these notes are now owned by Kramerica.

In addition to these notes, the Company also has another promissory note payable to Kramerica in the principle amount of $25,000. This note was issued on August 24, 2006 and bears interest at an annual rate of ten percent. As of December 31, 2007 the accrued interest on this note was $27,697. This note is secured by substantially all of the Company’s assets.

On August 8, 2005, IElement issued four promissory notes in the aggregate principal amount of $183,097 to Timothy Dean Smith ($53,930), Susan Walton ($30,000), Jeremy Dean Smith ($54,603) and Dolphin Capital ($44,564), with no interest. Upon issuance the notes were payable in 36 monthly installments with the first payment due in February, 2006. IElement did not make any payments on these notes.

On March 25, 2006 each of the four notes were cancelled and IElement issued new convertible promissory notes to the same individuals in the same principal amount of $183,097, again with no interest thereon. The first payment on each of the new convertible promissory notes was due in September 2006 with a total of 36 monthly installments through August 2009. The Lenders had the right to convert all or a portion of the outstanding balance, at any time until the notes were paid in full, into IElement's common stock at a conversion price of $0.035 per share. Any past due balance on the old notes was forgiven at the time of cancellation of the old notes and issuance of the new convertible promissory notes. These four notes were each converted to common stock at a price of $0.035 per share on November 13, 2006.

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One of the remaining notes is held by Duane Morris in the principle amount of $34,631. The Duane Morris note was issued in exchange for a settlement of disputed attorneys fees on August 16, 2005 and was originally agreed to be paid in nine monthly installments beginning on September 30, 2005 and ending May 30, 2006. As of February 14, 2008 we are past due on our payments on the Duane Morris note but intend to resume payments in the coming months. This note bears no interest.

On June 8, 2006 we issued a note payable in the amount of $100,000 to Rhino Limited which bears a ten percent interest rate. It matured when we secured funding from exercise of outstanding warrants.  Those warrants expired unexercised on December 30, 2007.  The current principle and interest balance on this note as of December 31, 2007 was $115,802.

On June 19, 2006 we issued a note payable in the amount of $20,000 to Veronica Kristi Prenn. It bore a ten percent interest rate and matured on December 19, 2006.   The current principle and interest balance on this note as of December 31, 2007 was $23,096.  On January 17, 2008 this note was converted to shares of the Company’s common stock.

On August 4, 2006 we issued a note payable to Walton Hansen in the amount of $24,808. It bore a ten percent interest rate and matured when we secured funding from exercise of outstanding warrants. This note was converted to shares of the Company’s common stock on October 9, 2007.

On September 5, 2006 we issued a note payable to William Goatley in the amount of $60,000. It bore a ten percent interest rate and matured on December 5, 2006. The current principle and interest balance on this note as of December 31, 2007 was $67,972. On January 17, 2008 this note was converted to shares of the Company’s common stock.

On March 16, 2007 we issued a note payable to Michael Bloch in the amount of $110,000. It bears a ten percent interest rate and matured on June 16, 2007.  On July 20, 2007 the maturity on this note was extended to October 31, 2007 in exchange for 62,500 shares of the Company’s common stock.  On October 31, 2007 the maturity on this note was extended to November 30, 2007 in exchange for $1,500.  The current principle and interest balance on this note as of December 31, 2007 was $111,865. This note is secured by substantially all of our assets.  We are currently renegotiating the terms of this note.

On May 18, 2007 we issued a note payable to Secure Acquisition Financial Entity L.P. (SAFE) in the amount of $200,000 in exchange for $200,000 cash and a note receivable from Micro-Data Systems, Inc. in the amount of $50,000.  The note payable bears an 18 percent annual interest rate and the note receivable bears a 20 percent annual interest rate.  The current principle and interest balance on this note payable as of December 31, 2007 was $213,389.  We are currently renegotiating the terms of this note.

During July of 2007 we issued 10 notes payable to various entities in the aggregate amount of $170,000.  All 10 of these notes bore a ten percent interest rate and were convertible into shares of our common stock at a rate of $0.16 per share.  The current principle and interest balance on these notes as of December 31, 2007 was $177,581.  On January 17, 2008 all 10 of these notes were converted to shares of the Company’s common stock.

On August 23, 2007 we issued a note payable to Ivan Zweig in the amount of $41,943 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $43,436.  This note is now owned by Kramerica.

On September 17, 2007 we issued a note payable to Ivan Zweig in the amount of $76,000 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $78,207.  This note is now owned by Kramerica.

On September 20, 2007 we issued two notes payable to Kramerica in the amounts of $15,000 and $34,113, respectively.  They each bear a ten percent interest rate.  The current principle and interest balances due on these notes as of December 31, 2007 were $15,423 and $35,076, respectively.

On October 1, 2007 we issued a note payable to Kramerica in the amount of $44,000 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $45,097.

On November 8, 2007 we issued a note payable to Kramerica in the amount of $16,187 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $16,422.

On November 9, 2007 we issued a note payable to Kramerica in the amount of $17,900 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $18,155.

On December 12, 2007 we issued a note payable to Newsgrade Corporation in the amount of $200,000 that bears a ten percent interest rate.  The current principle and interest balance on this note as of December 31, 2007 was $201,041.

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Our total debt servicing requirements on the 33 outstanding promissory notes over the next 12 months was approximately $1,314,499.  However, we have converted a substantial amount of outstanding debt to shares of the Company’s common stock and are currently negotiating further conversions.

Although cash flow from current business operations alone would is not sufficient to satisfy our current debt obligations, we intend to satisfy those obligations through a combination of the following. First, we are trying to generate positive cash flows from the acquisition of a operating business.  Second, renegotiating the terms of the debt obligations, in particular the debt obligations to Mr. Zweig and his family, has generally been fairly easy. Finally, we would not be required to make cash payments on those debt obligations which are converted to stock.  As of February 14, 2008, 12 of these notes with principle and interest totaling $268,649 have been converted to shares of the Company’s common stock.

On December 27, 2006 we issued 30,000,000 shares of our common stock to Sutioc Enterprises, Inc. in exchange for a promissory note in the amount of $900,000. On the same date we entered into management agreements with both Sutioc Enterprises, Inc. and US Wireless Online, Inc. In order to facilitate these transactions and secure our interest in both the management contracts and the promissory note, we entered into a material contingent liability that does not appear on our condensed consolidated balance sheet.

This contingent liability was in the form of a guarantee granted to Richard Williamson, former owner of US Wireless Online’s subsidiary, DHR Technologies. On December 27, 2006 we guaranteed that US Wireless Online will repay promissory notes to Mr. Williamson in the amounts of $150,000 and $141,179. This guarantee was secured by substantially all of our assets and would only effect us in the event of a US Wireless Online default.  Richard Williamson released IElement from any obligation under this guarantee on September 18, 2007.

On January 10, 2007 we entered into a guarantee agreement whereby we guaranteed US Wireless Online, Inc.’s line of credit for factoring receivables to Rockland Credit Finance, LLC. Under the agreement, should US Wireless Online be unable to pay down its line of credit with Rockland Credit Finance, IElement would be required to do so. The agreementwas secured by substantially all of the assets of IElement.

While we believe that default is unlikely because it would require a significant number of US Wireless Online’s customers to default, Ivan Zweig and I-Element, Inc. indemnified IElement against any possible liability under this guarantee agreement on December 20, 2007. As of February 14, 2008 the balance of this line of credit was under $10,000.

The Company is not aware of any other undisclosed actual or contingent liabilities.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2007, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships.

On December 27, 2006 we issued 30,000,000 shares of our common stock to Sutioc Enterprises, Inc. in exchange for a promissory note in the amount of $900,000 which was written off as uncollectible on September 30, 2007.  As of December 31, 2007, Sutioc did not own any of these 30,000,000 shares and had nothing of value for us to collect.  On the same date we entered into management agreements with both Sutioc Enterprises, Inc. and US Wireless Online, Inc. In order to facilitate these transactions and secure our interest in both the management contracts and the promissory note, we entered into a material contingent liability that does not appear on our condensed consolidated balance sheet.

This contingent liability was in the form of a guarantee granted to Richard Williamson, former owner of US Wireless Online’s subsidiary, DHR Technologies. On December 27, 2006 we guaranteed that US Wireless Online will repay promissory notes to Mr. Williamson in the amounts of $150,000 and $141,179. This guarantee was secured by substantially all of our assets and would only effect us in the event of a US Wireless Online default.  Richard Williamson released IElement from any obligation under this guarantee on September 18, 2007.

On January 10, 2007 we entered into a guarantee agreement whereby we guaranteed US Wireless Online, Inc.’s line of credit for factoring receivables to Rockland Credit Finance, LLC. Under the agreement, should US Wireless Online be unable to pay down its line of credit with Rockland Credit Finance, IElement would be required to do so. The agreement was secured by substantially all of the assets of IElement.

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While we believe that default is unlikely because it would require a significant number of US Wireless Online’s customers to default, Ivan Zweig and I-Element, Inc. indemnified IElement against any possible liability under this guarantee agreement on December 20, 2007. As of February 14, 2008 the balance of this line of credit was under $10,000.

CRITICAL ACCOUNTING POLICY AND ESTIMATES

Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America as promulgated by the Public Company Accounting Oversight Board. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the condensed consolidated financial statements included in this quarterly report.

ITEM 3. CONTROLS AND PROCEDURES

The term “disclosure controls and procedures” is defined in Rules 13(a)-15e and 15(d) - 15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2007. She has concluded, as of December 31, 2007 that our disclosures were effective to ensure that:

(1) That information required to be disclosed by the Company in reports that it files or submits under the act is recorded, processed, summarized and reported, within the time periods specified in the Commissions' rules and forms, and

(2) Controls and procedures are designed by the Company to ensure that information required to be disclosed by IElement Corporation and its subsidiary, IElement Inc., in the reports it files or submits under the Act is accumulated and communicated to the issuer's management including the Chief Executive Officer and the Chief Financial Officer or persons performing similar functions, as appropriate to allow timely decisions regarding financial disclosure.

This term refers to the controls and procedures of a Company that are designed to ensure that information required to be disclosed by a Company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Our Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report. She has concluded that, as of December 31, 2007 our disclosure and procedures were effective in ensuring that required information will be disclosed on a timely basis in our reports filed under the exchange act.

There have been no other changes in our internal controls over financial reporting that occurred during the period covered by this Report on Form 10-QSB that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

NONE.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We received $7,000 in cash for equity securities during the three months ended December 31, 2007. The following details our unregistered equity transactions during the three months ended December 31, 2007 and through the date of this Report:

On October 9, 2007 we issued 434,032 shares of our common stock, adjusted for our reverse stock split effective January 11, 2008, at $0.064 per share to Walten Hansen to convert a note payable valued at $27,778. The shares were issued in reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive legend in accordance with Rule 144.

On November 7, 2007 we issued 218,750 shares of our common stock, adjusted for our reverse stock split effective January 11, 2008, at $0.032 per share to Sat Dewan for cash in the amount of $7,000. The shares were issued in reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive legend in accordance with Rule 144.

On December 10, 2007 we issued 162,309 shares of our common stock, adjusted for our reverse stock split effective January 11, 2008, at $0.064 per share to Dominic Antonini to retire accounts payable in the amount of $10,388. The shares were issued in reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive legend in accordance with Rule 144.

On December 14, 2007 we issued 625,000 shares of our common stock, adjusted for our reverse stock split effective January 11, 2008, at $0.0768 per share to Susan Pursel for consulting services rendered in the amount of $48,000. The shares were issued in reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive legend in accordance with Rule 144.

On December 14, 2007 we issued 625,000 shares of our common stock, adjusted for our reverse stock split effective January 11, 2008, at $0.0768 per share to Dan Plenzo for consulting services rendered in the amount of $48,000. The shares were issued in reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive legend in accordance with Rule 144.

On December 21, 2007 we issued 187,500 shares of our common stock, adjusted for our reverse stock split effective January 11, 2008, at $0.064 per share to Susan Pursel for consulting services rendered in the amount of $12,000. The shares were issued in reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive legend in accordance with Rule 144.

On January 17, 2008 we issued 4,197,646 shares of our common stock at $0.064 per share to 12 note holders to convert notes payable in the amount of $268,649. The shares were issued in reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive legend in accordance with Rule 144.

On January 17, 2008 we issued 62,500 shares of our common stock at $0.15 per share to Paul Lengemann for consulting services rendered in the amount of $9,375. The shares were issued in reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive legend in accordance with Rule 144.

On January 23, 2008 we issued 3,173,612 shares of our common stock at $0.064 per share to various entities to convert notes payable in the amount of $203,111.  The shares were issued in reliance on Section 4 (1) of the Securities Act of 1933 and do not contain a restrictive legend.

ITEM 3. DEFAULTS ON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

We did not submit any matters to a vote of our stockholders, through the solicitation of proxies or otherwise, during the third quarter of fiscal 2008.

ITEM 5. OTHER INFORMATION.

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ITEM 6. EXHIBITS

(a) The following documents are filed as exhibits to this report.

EXHIBIT INDEX

Exhibit No.  Description

2.1 Agreement and Plan of Merger, dated February 20, 2004, by and among Global Diversified Acquisition Corp., G.D. Acquisition Corp., MK Secure Solutions Limited and Westvale Consulting Limited.*

2.2 First Amendment to Agreement and Plan of Merger, dated March 23, 2004, by and among Global Diversified Acquisition Corp., G.D. Acquisition Corp., MK Secure Solutions Limited and Westvale Consulting Limited. *

2.3 Agreement and Plan of Merger, dated November 9, 2004, by and among Mailkey Corporation, MailKey Acquisition Corp., I-Element, Inc. and Ivan Zweig. *

2.4 First Amendment and Waiver to Agreement and Plan of Merger, dated December 30, 2004, by and among MailKey Corporation, MailKey Acquisition Corp., I-Element, Inc. and IvanZweig. *

3(i).1 Articles of Incorporation. *

3(i).2 Amendment to Articles of Incorporation*

3(i).3 Amendment to Articles of Incorporation*

3(i).4 Amendment to Articles of Incorporation*

3(i).5 Certificate of Correction*

3(i).6 Amended Articles of Incorporation of MailKey Corporation dated August 1, 2005. *

3(ii) Restated By-Laws of IElement*

3(ii).1 Restated By-laws of IElement***

4.1 2006 Stock Plan**

10.1 Employment Agreement with Ivan Zweig in the form of Binding Letter of Intent dated January 18, 2005*

10.2 Form of Warrant*

10.3 Form of Amended and Restated Convertible Secured Promissory Notes dated March 25, 2006*

10.4 Integrated Communications Consultants Corporation Master Services Agreement by and between Integrated Communications Consultants Corporation and IElement, Inc. dated April 30, 2003. *

10.5 Lease Agreement between IElement, Inc. and 13714 Gamma, Ltd dated June 9, 2005. *

10.6 Form of Vista Capital warrant*

10.7 Rhino Limited note dated June 8, 2006******

10.8 Veronica Kristi Prenn note dated June 19, 2006******

10.9 Walton Hansen note dated August 4, 2006******

10.10 William Goatley note dated September 5, 2006******

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10.11 Restated Bylaws of IElement dated December 6, 2006***

10.12 Management Services and Vendor Agreement****

10.13 Security Agreement****

10.14 Secured Promissory Note****

10.15 Secured Promissory Note****

10.16 Factor Assignment Agreement*****

10.17 Guarantee Agreement*****

10.18 Guarantee Agreement*****

10.19 Stock Purchase Agreement with Ivan Zweig effective December 20, 2007*******

10.20  Form of Release of Employment Agreement*******

10.21  Form of Release of Consulting Agreement*******

10.22  Form of Indemnity Agreement*******

10.23  Stock Purchase Agreement with Newsgrade Corporation dated Dec. 20, 2007*******

10.24  Form of Convertible Promissory Note*******

31.1 Certification pursuant to Sarbanes-Oxley Sec. 302

32.1 Certification pursuant to 18 U.S.C. Sect. 1350

* Previously filed with Amendment No. 7 to Registration Statement on Form SB-2 filed on September 1, 2006.

**Previously filed with the Form S-8 filed on September 25, 2006.

***Previously filed with the Form S-8 filed on December 12, 2006.

****Previously filed with the Form S-8 filed on January 4, 2007.

*****Previously filed with the Form S-8 filed on January 29, 2007.

******Previously filed with the Form 10-Q on November 20, 2006.

******* Previously filed with the Form 8-K on December 28, 2007

(b) Reports on Form 8-K.

On September 18, 2007 we filed a report on Form 8-K regarding the termination of a letter of intent to acquire Micro Data Systems and the removal of Art Eckert from the Board of Directors.

On December 28, 2007 we filed a report on Form 8-K regarding the sale of our subsidiary, I-Element, Inc., the purchase of The Retirement Solution.com, Inc. stock from Newsgrade Corporation in exchange for a promissory note, the grants of stock to Susan Pursel and Paul Lengemann, the departure of Ivan Zweig as CEO, CFO, President and Chairman of the Board of Directors, the departure of Lance Stovall as COO and from the Board of Directors, the appointment of Susan Pursel as CEO, President and Chairman of the Board of Directors, the appointment of Paul Lengemann to the Board of Directors, and the reverse stock split.

On February 2, 2008 we filed a report on Form 8-K regarding the issuance of 3,173,612 shares of our common stock in exchange for the release of indebtedness in the amount of $203,111.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

IELEMENT CORPORATION

Date: February 14, 2008

SUSAN PURSEL

/s/ Susan Pursel

Susan Pursel,

Chairman,

Chief Executive Officer,

Chief Financial Officer

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