Etotalsource 10QSB 2007 Q3 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-QSB

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934, AS AMENDED:

For the Quarterly Period Ended September 30, 2007

_________________________________

Commission File No. 33-49797

_________________________________

ETOTALSOURCE, INC.

(Name of Small Business Issuer in Its Charter)

Colorado	84-1066959
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1818 North Farwell Avenue, Milwaukee, WI	53202
(Address of Principal Executive Offices)	(Zip Code)

( 414) 727-2695
(Issuer’s Telephone Number, Including Area Code)

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, 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 o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of September 30, 2007, the issuer had 195,265,639 shares of common stock, no par value, issued and outstanding.

Transitional Small Business Disclosure Format. Yes o No x

ETOTALSOURCE, INC.

FORM 10-QSB

TABLE OF CONTENTS

PART I. - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS	3
Balance Sheets - September 30, 2007 and December 31, 2006	3
Statements of Operations - Three Months and Nine Months Ended September 30, 2007 and 2006	4
Statements of Cash Flows - Nine Months Ended September 30, 2007 and 2006	5
Notes to Financial Statements	6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION	9
ITEM 3. CONTROLS AND PROCEDURES	13

PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	14
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	14
ITEM 5. OTHER INFORMATION	14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K	15

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

eTotalSource, Inc.
Balance Sheets

	Unaudited September 30, 2007			December 31, 2006
*Current Assets*
Cash	$	5,439		$	563
Prepaid Expense		2,950			-
Total Current Assets		8,389			563

*Other Assets*
Deposits		-			801
-					801

*Total Assets*	$	8,389		$	1,364

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

*Current Liabilities*
Other convertible notes payable	$	50,000		$	50,000
Convertible notes payable - related parties		175,000			175,000
Other notes payable		50,000			50,000
Notes payable - related parties		789,754			782,114
Judgments payable		204,788			204,788
Accounts payable and other accrued liabilities (including $74,158 owed to related parties)		319,986			340,359
Accrued compensation payable		1,092,204			1,249,203
Accrued interest payable		38,609			24,500
Accrued interest payable - related parties		462,961			302,314
Accrued interest payable - judgments		201,237			174,975
Total Current Liabilities		3,384,539			3,344,253
Convertible Debentures, to a Related Party, less current maturities and net of unamortized discount of $113,732 and 173,946, respectively		835,410			761,666
Total Liabilities		4,219,949			4,105,919

Commitments and Contingencies
*Stockholders' Equity (Deficit)*
Common stock; no par value; 300 million shares authorized,
195,265,639 and 80,168,019 shares issued and outstanding, respectively		6,595,717			6,467,521
Accumulated (deficit)		(10,807,277	)		(10,572,076	)
Total Stockholders' Equity (Deficit)		(4,211,560	)		(4,104,555	)

*Total Liabilities and Stockholders' Equity (Deficit)*	$	8,389		$	1,364

See accompanying notes.

eTotalSource, Inc.
Condensed Statements of Operations Unaudited

	Three Months Ended September 30						Nine Months Ended September 30
		2007			2006			2007			2006

Revenues	$	-		$	333		$	-		$	25,980

General and Administrative Expenses		9,940			108,386			131,288			438,782

Operating Income (Loss)		(9,940	)		(108,053	)		(131,288	)		(412,802	)

Other Income (Expense)
Interest expense		(94,284	)		(89,340	)		(274,162	)		(311,140	)
Gain (loss) on sale or retirement of assets		-			-			-			594
Bad debt write-off		-			-			-			85,121
Other income (expense), net		170,250			1,099			170,250			1,099
Total Other Income (Expense)		75,966			(88,241	)		(103,912	)		(224,326	)

Net (Loss)	$	66,026		$	(196,294	)	$	(235,200	)	$	(637,128	)

Basic and Diluted (Loss) per Share	$	0.001		$	(0.01	)	$	(0.002	)	$	(0.01	)

Weighted Average Common Shares Outstanding		126,622,940			54,303,104			98,665,714			57,440,090

See accompanying notes.

eTotalSource, Inc.
Statements of Cash FlowsUnaudited

	Nine Months Ended September 30,
		2007			2006
Cash Flows From (Used in) Operating Activities:
Net (loss)	$	(235,200	)	$	(637,128	)
Depreciation and amortization		-			115,934
Amortization of discounted convertible debentures		74,146			-
Gain (loss) on sale or retirement of assets		-			43
Stock options and warrant expense		55,796			76,015
Changes in assets and liabilities:
Decrease (increase) in other current assets		801			(4,252	)
Decrease (increase) in deposits		-			(80	)
Decrease (increase) in prepaid expense		(2,950	)		-
Increase (decrease) in payables (related party)		-			-
Increase (decrease) in payables, and accrued liabilities		(167,373	)		326,947
Increase (decrease) in accrued interest payable		14,108			-
Increase (decrease) in accrued interest payable (related party)		159,646			-
Increase (decrease in accrued interest payable (judgments)		26,262			-
Increase (decrease) in deferred revenue		-			(22,500	)
Net Cash (Used in) Operating Activities		(74,764	)		(145,021	)

Cash Flows From (Used in) Investing Activities:
Purchase of equipment		-			-
Net Cash (Used in) Investing Activities		-			-

Cash Flows From (Used in) Financing Activities:
Proceeds from exercise of warrants		-			2,000
Proceeds from issuance of convertible debt		72,000			-
Proceeds from notes payable related party		7,640			25,000
Net Cash From Financing Activities		79,640			27,000

Increase (Decrease) in Cash		4,876			(118,021	)

Cash - Beginning of Period		563			118,958

Cash - End of Period	$	5,439		$	937

Supplemental Disclosures of Cash flow Information:
Interest paid	$	-		$	24,377
Income taxes paid		-			800
Non-cash investing and financing transactions:
Conversion of debt to equity		-			65,000
Conversion of convertible debenture		58,000			-
Discount on convertible debentures		14,400			-

See accompanying notes.

eTotalSource, Inc.

Notes to Condensed Financial Statements as of September 30, 2007

NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with Securities Exchange Commission requirements for interim financial statements. Therefore, they do not include all information and footnotes required by accounting principles generally accepted in the United states for complete financial statements. These financial statements should be read in conjunction with the financial statements and notes there to contained in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006 as filed with the Securities Exchange Commission.

The results of operations for the interim period shown in this report are not necessarily indicative of results to be expected for the full year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim period a fair statement of such operations. All such adjustments are of a normal recurring nature.

Reclassification

Certain reclassifications have been made to the prior year's financial statements to conform with the current year presentation. These reclassifications have had no impact on the net equity or income (loss) from operations.

Going Concern Uncertainty

The Company’s financial statements are prepared based on the going concern principle. That principal anticipates the realization of assets and payments of liabilities through the ordinary course of business. No adjustments have been made to reduce the value of any assets or record additional liabilities, if any, if the Company were to cease to exist. The Company has incurred significant operating losses since inception. These operating losses have been funded by the issuance of capital, loans and advances. There are not guarantees that the Company will continue to be able to raise the funds necessary. Additionally, the lack of capital may

limit the Company’s ability to establish a viable business.

Recent Accounting Pronouncements

On February 15, 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115. The fair value option established by Statement 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date. Statement 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company does not expect that adoption of SFAS No. 159 will have a material effect on its financial position, results of operations, or liquidity and does not currently believe it will have a material impact on our financial statements.

NOTE 2. OTHER CONVERTIBLE NOTES PAYABLE AT SEPTEMBER 30, 2007

Convertible notes payable; interest at 6% payable monthly, due in 2001, unsecured. Principal and accrued interest ($17,744 at September 30, 2007) are convertible to common stock at $.50 per share. The notes are in default.

50,000

NOTE 3. CONVERTIBLE NOTES PAYABLE (RELATED PARTIES) AT SEPTEMBER 30, 2007

Convertible notes payable to a shareholder; interest at 6% payable monthly, due in 2001, unsecured. Principal and accrued interest ($25,816 at September 30, 2007) are convertible to common stock at $.50 per share. Warrants also issued to note holders to purchase 18,500 shares of common stock for five years at $.50 per share. The notes are in default.	75,000

Convertible note payable to a shareholder; principal and accrued interest at 8% payable in 2002, extended to May 15, 2003, unsecured. Principal and accrued interest ($28,766 at September 30, 2007) convertible to Company common stock at $.50 per share. Warrants also issued to the note holder to purchase 55,248 shares of common stock for five years at $.50 per share. The note is in default.	100,000

Total	175,000

NOTE 4. OTHER NOTES PAYABLE AT SEPTEMBER 30, 2007

Note payable; interest at 6% payable monthly, due in 2001, unsecured. Principal and accrued interest ($8,8,72 at September 30, 2007) . Warrants also issued to note holder to purchase 18,750 shares of common stock for five years at $.50 per share. The notes are in default.	25,000

Note payable to an unrelated individual; principal and interest at 12%, due October 15, 2006, when principal and unpaid interest ($3,494 at September 30, 2007) are due. The note is in default.	25,000

Total	50,000

NOTE 5. NOTES PAYABLE (RELATED PARTIES) AT SEPTEMBER 30, 2007

Note payable to a shareholder; interest at 15% payable monthly through December 18, 2003 when principal and unpaid interest ($48,322 at September 30, 2007) are due. The note is in default.	$ 172,000

Note payable to a shareholder; interest at 10% and principal due January 17, 2003, extended to December 17, 2003 when principal and unpaid interest ($35,614 at June 30 ,2007) (with interest increased to 18% and due monthly beginning February 17, 2003) are due. The note is in default.	110,000

Note payable to a shareholder; interest at 15% payable monthly through December 18, 2003 when principal and unpaid interest ($11,238 at September 30, 2007) are due. The note is in default.	40,000

Note payable to a shareholder; stated interest rate of 10% due June 2003, extended to June 2004. As consideration for forbearance, the note holder received 50,000 shares of common stock in 2004, valued at $.525 per share ($26,250). In October 2004, the note was extended to April 2005. In December 2005, the note was extended to June 2006, when principal and unpaid interest ($7,880 at September 30, 2007) are due. This note is in default.	52,483

Note payable to a shareholder; principal and interest at 10% due monthly. This note is a revolving credit obligation and the Company can repay and borrow up to the amount of the note. In October 2004, the note was extended to April 2005. In December 2005, the note was extended to June 2006, when principal and unpaid interest ($39,431 at September 30, 2007) are due. This note is in default.	262,631

Note payable to a shareholder; principal and interest at 9.2%, due December 4, 2002, extended to May 1, 2003 when principal and unpaid interest ($10,754 at September 30, 2007) are due, unsecured. The note is in default.	20,000

Note payable to Cornell, a shareholder; principal and interest at 10%, due August 1, 2005, when principal and unpaid interest ($5,651 at September 30, 2007) are due. The note is in default.	25,000

Note payable to YA Global Investors, a shareholder; principal and interest at 14%, due October 1, 2007, when principal and unpaid interest ($141 at September 30, 2007) are due.	7,640

Note payable to Cornell, a shareholder; principal and interest at 12%, due August 1, 2005 when principal and unpaid interest ($29,359 at September 30, 2007) are due. The note is in default.	100,000

Total	789,754

NOTE 6. CONVERTIBLE DEBENTURES (RELATED PARTIES) AT SEPTEMBER 30, 2007

Convertible debentures payable to a Cornell, a shareholder, principal and interest at 12%, payable November 1, 2008, secured by 225,000,000 shares of common stock and 7 million warrants. Principal and accrued interest convertible to common stock at a conversion price equal to the lower of (i) $.024 price per share of common stock or (ii) 80% of the lowest closing bid price of our common stock, as quoted by Bloomberg, L.P., for the five trading days immediately preceding the conversion date. At the due date the Company has the option to repay the debt or issue common stock. In connection with this transaction, the Company recorded a discount of $320,734, for the fair value of the warrants; as of September 30, 2007, the debt is stated net of the unamortized discount of $101,737. During the period ending September 30, 2007, the holder converted $82,000 to 115,097,620 shares of common stock.	767,763

Convertible debentures payable to a Cornell, a shareholder, principal and interest at 12%, payable December 21, 2008. Principal and accrued interest ($25 at December 31, 2006) convertible to common stock at a conversion price equal to the lower of (i) $.0018 price per share of common stock or (ii) 80% of the lowest closing bid price of our common stock, as quoted by Bloomberg, L.P., for the five trading days immediately preceding the conversion date. At the due date the Company has the option to repay the debt or issue common stock. In connection with this transaction, the Company recorded a discount of $1,528, for the relative value of the warrants; as of September 30, 2007, the debt is stated net of the unamortized discount of $934.	6,708

On April 13, 2007, the Company issued a convertible debenture to Cornell, a shareholder, in the principal amount of $72,000(principal and interest at 12% payable April 13, 2009). Principal and accrued interest convertible to common stock at a conversion price equal to the lower of (i) $.0018 price per share of common stock or (ii) 80% of the lowest closing bid price of our common stock, as quoted by Bloomberg, L.P., for the five trading days immediately preceding the conversion date. In connection with this transaction the Company recorded a discount of $14,400, for the fair valued of the warrant; as of September 30, 2007, the debt is stated net of the unamortized discount of $11,061.	60,939

Total	835,410

NOTE 7. STOCK OPTIONS AND WARRANTS ISSUED FOR SERVICES AND IN LIEU OF INTEREST

For the nine month ended September 30 2007, the Company recorded expenses for options and warrants to purchase common stock issued to consultants and lenders totaling $55,796. Valuations of the transactions are based on the estimated fair value of the options or warrants on the grant date using the Black-Scholes pricing model. Consulting expense is recognized over the term of the option or warrant period. Interest expense is recognized over the related term of the related obligation on a straight-line basis.

NOTE 8. RELATED PARTY TRANSACTONS

For the nine month ended September 30, 2007, the Company wrote off $170,250 of accrued officer compensation expense from previous periods as debt forgiveness.

NOTE 9. STOCKHOLDER EQUITY AND RELATED PARTY TRANSACTONS

For the nine month ended September 30, 2007, Cornell, a shareholder and a holder of Convertible Debentures converted $58,000 of convertible debentures into 115,097,620 shares of common stock.

Item 2. Management's Discussion And Analysis Or Plan Of Operations.

Forward-Looking Statements and Associated Risks. This Report contains forward-looking statements. Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, (e) our anticipated needs for working capital, (f) our lack of operational experience, and (g) the benefits related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur as projected.

Description of Our Business

The Company was incorporated in Colorado on September 16, 1987 as Premium Enterprises, Inc. (“Premium”) On December 20, 2002, Premium entered into a Plan and Agreement of Reorganization with eTotalSource, Inc., a California corporation (the “Company” or “eTotalSource”) and its shareholders whereby Premium acquired 91% of the issued and outstanding common stock of eTotalSource in exchange for 15,540,001 shares of common stock of Premium. The contract was completed December 31, 2002. On June 17, 2003, shareholders voted to amend the Articles to change the name of Premium Enterprises, Inc. to eTotalSource, Inc.

History.

For a period of time in 1988-1994, Premium operated three fast lube locations, at various times in Arizona and Colorado as “Grease Monkey” franchises. The locations were unprofitable, two were sold, and the last franchise closed in 1994.

Premium then attempted to enter the automobile and truck tire recycling business in 1994. It formed a limited partnership, of which it owned 62.5%, and commenced limited tire recycling operations. The equipment proved to be inadequate and Premium ran out of capital and ceased all operations in 1996. Premium wrote-off all of its investment in equipment and licenses for tire recycling in 1996 and became dormant.

Business.

The sole business of the Company is that of eTotalSource.

Recent Developments

Management Transition . On March 27, 2007, the Company’s Board of Directors accepted the resignations of Terry Eilers, A. Richard Barber, and Michael Sullinger as members of the Board. The Company did not have a disagreement with any of the resigning directors. Mr. Eilers, Mr. Barber, and Mr. Sullinger did not serve on any committees of the Board. On March 27, 2007, the Company’s Board of Directors also accepted the resignations of the following officers: Terry Eilers, President and Chief Executive Officer, and Michael Sullinger, Chief Operating Officer and Secretary. The Company did not have a disagreement with any of the resigning officers.

In addition, on March 27, 2007, the Board of Directors of the Company appointed David Marks as a member of the Board and appointed Frank Orlando as Chief Restructuring Officer, Chief Financial Officer and Secretary of the Company. Mr. Orlando and Mr. Marks are not our employees, and as of the date of this report we do not have employment contracts with either of them nor agreements regarding compensation and related matters. Mr. Orlando and Mr. Marks are each an officer of Crivello Group, LLC and other entities. We expect that Crivello Group, LLC will enter into a management services agreement with us.

The new management team will be undertaking an analysis and evaluation of the Company’s current business model and industry, our assets and liabilities, our financial condition, and overall prospects in order to determine whether to continue the Company’s current operations or to develop and implement a new business strategy that could result in a substantial change in the Company’s business model, a liquidation of the Company’s existing assets, and other changes. During this evaluation phase, we have substantially reduced our production and sales programs and certain other operations and reduced our personnel to no full-time employees and no part-time employees in order to minimize operating costs pending the outcome of the analysis noted above. In addition, during this evaluation phase, we anticipate that our operating revenues will be negligible, that the Company will generate a significant loss from operations, and that the Company will need to obtain debt and/or equity financing for working capital purposes. No assurance can be given that such financing will be available purposes. No assurance can be given that such financing will be available on terms acceptable to the Company.

Debenture Financing. We have entered into a series of debenture financings with Cornell Capital Partners, L.P. (“Cornell”) as described in greater detail below in this report. Most recently, we issued and sold a $7,642 debenture to Cornell in December 2006 and a $72,000 debenture to Cornell in April 2007. The proceeds from these two debt financing were used to pay professional fees associated with securities law compliance, audit fees, transaction costs, and related fees.

Recent Historical Operations.

The Company’s business has been as a developer and supplier of proprietary multimedia software technology, and a publisher of multimedia training content. Its clients have included: U.S. Department of Defense, Boeing, Steven Spielberg Online Film School, Pacific Bell/SBC, Grant School District, California State University, Logistics Management Institute, First American Title Company, and other corporate entities. The Company's clients have worked with ETLS to develop, produce, market, and distribute multimedia development software. ETLS has also marketed educational training programs it has produced utilizing its proprietary software.

eTotalSource was founded in February 2000 with the express goal of designing a better interface for information and education multimedia delivery. Approximately one year after inception, the beta Presenta Pro ^TM platform was completed. Presenta Pro ^TM features back-end development of multi-panel time synchronized presentations and course work, as well as testing, feedback and performance monitoring. Clients are utilizing Presenta Pro ^TM as a platform for distance learning and computer-based training. Presenta Pro ^TM is delivered via the Internet, intranet, or CD/DVD ROM. Presenta Pro ^TM simplifies the production and delivery of multimedia presentations and content while at the same time improving the quality and effectiveness of the presentations. Presenta Pro ^TM is designed with cost saving features and it offers post-production opportunities.

Presenta Pro ^TM features include:

·	Multi-panel time synchronized presentation;
·	Quick content and program development;
·	Rich video and content experience;
·	Still images;
·	Graphics;
·	Flash;
·	Links to Website;
·	Live Cams;
·	Test and quizzes to tract performance;
·	Users progress can be tracked;
·	Diagrams;
·	Simple server requirements;
·	Reduces training and learning curve time; and
·	Easy to implement and use.

Business Model.

STRATEGY: The Company has employed a dual strategy to meet market demands and opportunities that includes both software licensing and publishing.

SOFTWARE LICENSING: The Company has licensed Presenta Pro ^TM software via distribution partners and an internal sales and marketing team. The cost of the product ranges from $5,500 to $15,000. The nearest competitor (in quality or functionality), Virage, prices its product at substantially higher prices. The Company believes that its aggressive pricing policy appeals to governments, schools and corporate clients.

PUBLISHING: The Company has published and produced original content and postproduction services, and has participated in the sales and distribution of the final published product.

ETLS shares in the revenue derived from program sales. The Company has carefully chosen its content, identifying unique subjects and niches offering more probable sales. The Company believes that these topics/markets are generally underserved and in need of the program packages that are produced by ETLS. Examples of finished products that have been marketed include:

·	Anger Management Facilitator Training and Certification;
·	Domestic Violence Facilitator Training and Certification;
·	School Maintenance, Cleaning Training and Certification;
·	Emergency Disaster Preparedness - Terrorist Awareness; and
·	Mandated School Internet Acceptable Use Policy.

Intellectual Property Differentiation.

ETLS currently has five patents pending:

Multiple screen operating environment, framework and tools for transacting e-commerce;

System and method for pre-loading still imagery data in an interactive multimedia presentation, which provides an image pre-loading system that maximizes available network bandwidth;

System and method for dynamically managing web content using a browser independent framework, which provides an interactive system for enabling dynamic updating of web content to “live” websites;

System and method for providing an interactive multimedia presentation environment with low bandwidth capable sessions, which provides an integrated presentation environment consisting of multi-screen clinic logically defined within a browser application; and

Presenta Pro™ production and delivery system, which provides a multi-screen environment for presenting multimedia presentations with video, images, flash images and text all integrating with the video.

ETLS’ technological differentiation is based on high quality and low cost software. We believe that Presenta Pro ^TM is easier to use and considerably more flexible than eTotalSource’s closest competitor. We believe that Presenta Pro ^TM is priced to be affordable, cost-effective, and training-efficient. Presenta Pro’s ^TM ease of implementation and quality has made it a viable choice for authoring software and distance learning tools.

Technology.

The Presenta Pro ^TM production and delivery system is modular and was designed to allow rapid addition of functionality. The platform provides high quality streaming of video and audio, and was designed for delivery over the Internet, intranet, compact disk (“ CD”) or digital video disk (“ DVD”). The Presenta Pro ^TM system has been created using the Delphi development system. The server portion of Presenta Pro ^TM is a custom control that connects to a Microsoft SQL server. The data is distributed to the viewing client via a custom control that connects to the server via Extensible Markup Language (“ XML”). The backend is scalable and transportable. The production client uses all custom code written in Delphi connecting to the SQL server via Transmission Control Protocol/Internet Protocol (“ TCP/IP”). The end-user client can be run on any Windows based personal computer and requires minimum system resources. There are several modules to the end-user client that allow the producer to export video to either a CD/DVD format or stand alone website. We believe that ETLS’ technology and user interface are advanced in their simplicity of use and ability to deliver multiple platforms and media simultaneously.

eTotalSource has no plans for any research and development in the next 12 months.

Set forth below is a discussion of the financial condition and results of operations of etotalSource, Inc. (the "Company," "we," "us," or "our") for the nine months ended September 30, 2007 and 2006. The following discussion should be read in conjunction with the information set forth in the consolidated financial statements and the related notes thereto appearing elsewhere in this quarterly report.

Results of Operations - Three months ended September 30, 2007 compared to the three months ended September 30, 2006.

Revenues.

Revenues for the three months ended September 30, 2007 were $0 verses $333 for the corresponding 2006 period, a decrease of $333 or 100%. This decrease was attributed to the decrease in operations of eTotalSource.

Expenses.

Operating expenses for the three month period ended September 30, 2007 were $9,940 as compared to $108,386 for the comparable 2006 period, or a decrease of $98,446 or 91%. This decrease was primarily due to the decrease in operations of eTotalSource.

(Loss) From Operations.

eTotalSource recognized a loss for the three month period ended September 30, 2007 in the amount of $9,940, as compared with a loss of $108,053 for the corresponding period ended September 30, 2006. The increase of $98,113 or 91% was attributable to the decrease in operations of eTotalSource.

Interest Expense

Interest expense for the three month period ended September 30, 2007 was $94,284 as compared to $89,340 for the comparable 2006 period, a decrease of $4,944 or 5%. This decrease was attributed to the reduction in related warrants and related imputed interest.

Other Income/(Expense)

Other income (expense) for the three month period ended September 30, 2007 was $75,966 as compared to ($88,241) for the comparable 2006 period, an increase of $164,207 or 100%. This increase was attributed to the accrued officer compensation expenses from previous periods reversed as unforgiven expenses.

Net Income/(Loss)

Net income for the three month period ended September 30, 2007 was $66,026 as compared to a net loss of ($196,294) for the comparable 2006 period, an increase of 262,320 or 100%. This increase was attributed to the decrease in operations of eTotalSource.

Results of Operations - Nine months ended September 30, 2007 compared to the nine months ended September 30, 2006.

Revenues.

Revenues for the nine months ended September 30, 2007 were $0 verses $25,980 for the corresponding 2006 period, a decrease of $25,980 or 100%. This decrease was attributed to the decrease in operations of eTotalSource.

Expenses.

Operating expenses for the nine month period ended September 30, 2007 were $131,288 as compared to $438,782 for the comparable 2006 period, or a decrease of $307,498 or 70%. This decrease was primarily due to the decrease in operations of eTotalSource.

(Loss) From Operations.

eTotalSource recognized a loss for the nine month period ended September 30, 2007in the amount of ($131,288), as compared with a loss of ($412,802) for the corresponding period ended September 30, 2006. The decrease of $281,514 or 68% was attributable to the decrease in operations of eTotalSource.

Interest Expense

Interest expense for the nine month period ended September 30, 2007 was $274,162 as compared to $311,140 for the comparable 2006 period, a decrease of $36,978 or 12%. This decrease was attributed to the reduction in related warrants and related imputed interest.

Other Income/(Expense)

Other income (expense) for the nine month period ended September 30, 2007 was ($103,912) as compared to ($224,326) for the comparable 2006 period, an increase of $120,414 or 200%. This increase was attributed to the accrued officer compensation expenses from previous periods reversed as unforgiven expenses.

Net Income/(Loss)

Net loss for the nine month period ended September 30, 2007 was ($235,200) as compared to a net loss of ($637,128) for the comparable 2006 period, an increase of $401,928 or 200%. This decrease was attributed to the decrease in operations of eTotalSource.

Liquidity and Capital Resources

At September 30, 2007, eTotalSource had $18 in cash with which to conduct operations, and no other capital resources. The company needs equity or debt financing for working capital but has no commitments for new capital availability. There can be no assurance that ETLS will be able to pursue its business plan or fully exploit business opportunities that management may identify. Accordingly, ETLS will need to seek additional financing through loans, the sale and issuance of additional debt and/or equity securities, or other financing arrangements, including loans from our shareholders to cover expenses. ETLS presently has no sources of capital. ETLS is unable to carry out any plan of business without funding. Because of the re-evaluation of our business model currently in process, we are unable to quality and estimate our working capital requirements for the 12 months ending December 31, 2007. We cannot predict to what extent our current lack of liquidity and capital resources will impair the continuation of business or whether it will incur further operating losses. There is no assurance that we can continue as a going concern without substantial funding, for which there is no source.

The April 2007 Debenture.

On April 13, 2007 Cornell and the Company entered into an agreement providing for the Company’s issuance of a secured convertible debenture to Cornell in the face amount of $72,000 for a purchase price of $72,000 (the “April 2007 Debenture”). The conversion price per share, subject to adjustment, is the less of (i) $.0018 price per share of common stock or (ii) 80% of the lowest closing bid (as defined in the debenture) of the Company’s common stock for the five trading days immediately preceding the conversion date (as defined in the debenture).

August 2007 Promissory Note

On August 13, 2007, the Company signed a promissory note in the amount of $7,640 with YA Global Investments, L.P. at an interest rate of 14%.. This promissory note is due on or before October 1, 2007. The proceeds of this note are to be distributed as follows: $3,933 to the auditor, $2,000 to Vintage Filings, and $1,707 to the Chief Restructuring Officers for expenses incurred.

Contractual Obligations and Commercial Commitments

As of September 30, 2007, the following obligations were outstanding:

Payments Due Period

Contractual Obligations	Less than 1 year		1-3 years		4-5 years		After 5 years		Total
Judgments payable	$	204,788	$	.00	$	.00	$	.00	$	204,788
Short Term note payables		1,064,754		.00		.00		.00		1,064,754
Convertible debentures (unamortized discount- $113,732)		.00		835,410		.00		.00		835,410
Other current liabilities		2,114,997		.00		.00		.00		2,114,997
Total contractual cash obligations	$	3,384,539	$	835,410	$	.00	$	.00	$	4,219,949

Dividends

eTotalSource does not intend to pay dividends in the foreseeable future.

Item 3. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b) Changes in internal controls. There was no change in our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 2. Unregistered Sales of Equity Securities and use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

As of September 30, 2007, the Company is in default under the following notes payable:

Convertible Note payable to unrelated party in the amount of $50,000 at 6% interest is in default. As of September 30, 2007, $50,000 in principal and $17,744 in interest was outstanding on this note.

Convertible Note payable to a shareholder in the amount of $75,000 at 6% interest is in default. As of September 30, 2007, $75,000 in principal and $25,816 in interest was outstanding on this note.

Convertible Note Payable issued on December 3, 2001 to a shareholder in the amount of $100,000 at 8% interest is in default. As of September 30, 2007, $100,000 of principal and $28,766 in interest was outstanding on this note.

Note payable to an unrelated party in the amount of $25,000 at 6% interest rate is in default. As of September 30, 2007, $25,000 in principal and $8,872 in interest was outstanding on this note.

Note Payable issued on April 15, 2006 to an unrelated party in the amount of $25,000 at 12% interest is in default. As of September 30, 2007, $25,000 of principal and $3,494 in interest was outstanding on this note.

Note Payable issued on August 13, 2007 to an unrelated party in the amount of $7,640 at 14% interest is in default. As of September 30, 2007, 7,640 of principal and $141 in interest was outstanding on this note.

Notes Payable issued on January 4, 2002 to a shareholder in the amount of $172,000 at 14% interest is in default. As of September 30, 2007, $172,000 in principal and $48,322 in interest was outstanding on these notes.

Notes Payable issued on January 4, 2002 to a shareholder in the amount of $110,000 at 14% interest is in default. As of September 30, 2007, $110,000 in principal and $35,614 in interest was outstanding on these notes.

Notes Payable issued on January 4, 2002 to a shareholder in the amount of $40,000 at 14% interest is in default. As of September 30, 2007, $40,000 in principal and $11,238 in interest was outstanding on these notes.

Notes Payable issued on April 15, 2003 and August 3, 2003 to a shareholder in the amount of $52,483 and $262,631 at 10% interest are in default. As of September 30, 2007, $ 315,114 of principal was outstanding on these notes in addition to $7,880 and $39,431 in interest respectively.

Note payable issued on January 4, 2002 to a shareholder in the amount of $20,000 at 9.2% is in default. As of September 30, 2007, $20,000 of principal and $10,754 in interest was outstanding on this note.

Notes Payable issued on April 20, 2005 and June 27, 2005, respectively, to a shareholder, due August 1, 2005, in the amount of $100,000 at 12%, and $25,000 at 10%, are in default. As of September 30, 2007, $125,000 of principal was outstanding on these notes in addition to $29,359 and $5,651 in interest respectively.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

Exhibits pursuant to Regulation S-K:

DESIGNATION OF EXHIBIT AS SET FORTH IN ITEM 601 OF REGULATION S-B	DESCRIPTION	LOCATION

3.1	Articles of Incorporation	Incorporated by Reference to the Registration Statement of Form SB-2 filed on April 21, 2005.

3.2	Bylaws	Incorporated by Reference to the Registration Statement of Form SB-2 filed on April 21, 2005.

3.3	Certificate of Amendment of the Articles of Incorporation	Incorporated by reference to the current report on Form 8-K dated July 14, 2003. (File no. 000-49797)

3.4	Articles of Amendment to the Articles of Incorporation	Incorporated by reference to the current report on Form 8-K dated December 1, 2003 (File no. 000-49797)

4.1	2003 Stock Plan	Incorporated by reference to the current report on Form S-8 dated May 23, 2003. (File no. 333-105518)

4.11	2004 Stock Plan	Incorporated by reference to the current report on Form S-8 dated July 15, 2004. (File no. 333-111732)

10.1	Plan & Agreement of Reorganization dated December 18, 2002 by and between Premium Enterprises, Inc and eTotalSource, Inc.	Incorporated by reference to the Annual Report on Form 8-K dated December 30, 2002. (File no. 000-49797)

10.2	Employment Agreement of Terry Eilers dated February 7, 2000	Incorporated by reference to the pending Registration Statement on Form SB-2 dated November 24, 2004 (File no. 333-120786)

10.3	Employment Agreement of Virgil Baker dated February 7, 2000	Incorporated by reference to the pending Registration Statement on Form SB-2 dated November 24, 2004 (File no. 333-120786)

10.4	Employment Agreement of Michael Sullinger dated August 1, 2002	Incorporated by reference to the pending Registration Statement on Form SB-2 dated November 24, 2004 (File no. 333-120786)

10.5	Securities Purchase Agreement, dated October 6, 2004 by and between eTotalSource, Inc. and Cornell Capital Partners, L.P.	Incorporated by reference to the pending Registration Statement on Form SB-2 dated November 24, 2004 (File no. 333-120786)

10.6	Investor Registration Rights Agreement, dated October 6, 2004, by and between eTotalSource, Inc. and Cornell Capital Partners, L.P.	Incorporated by reference to the pending Registration Statement on Form SB-2 dated November 24, 2004 (File no. 333-120786)

10.7	Security Agreement, dated October 6, 2004, by and between eTotalSource, Inc. and Cornell Capital Partners, L.P.	Incorporated by reference to the pending Registration Statement on Form SB-2 dated November 24, 2004 (File no. 333-120786)

DESIGNATION OF EXHIBIT AS SET FORTH IN ITEM 601 OF REGULATION S-B	DESCRIPTION	LOCATION

10.8	Irrevocable Transfer Agent Instructions, dated October 6, 2004, by and among eTotalSource, Inc., Cornell Capital Partners, L.P., and Executive Registrar & Transfer, Inc.	Incorporated by reference to the pending Registration Statement on Form SB-2 dated November 24, 2004 (File no. 333-120786)

10.9	Escrow Agreement (SEDA), dated October 6, 2004, by and among eTotalSource, Inc., Cornell Capital Partners, L.P., and David Gonzalez, Esq.	Incorporated by reference to the pending Registration Statement on Form SB-2 dated November 24, 2004 (File no. 333-120786)

10.10	Termination Agreement, dated November 2, 2005, by and among eTotalSource, Inc. and Cornell Capital Partners, L.P.	Incorporated by reference to the Current Report on Form 8-K dated November 8, 2005.

10.11	Agreement dated December 21, 2006 by and between eTotalSource, Inc. and Cornell Capital Partners, L.P.	Incorporated by reference to the Company’s on Form 10-QSB dated December 21, 2006.

10.12	Secured Convertible Debenture dated December 21, 2006 in the Principal Amount of $7,642 issued by eTotalSource, Inc. to Cornell Capital Partners, L.P.	Incorporated by reference to the Company’s on Form 10-QSB dated December 21, 2006.

14.1	Code of Ethics	Incorporated by reference to the pending Registration Statement on Form SB-2 dated November 24, 2004 (File no. 333-120786)

15.1	Letter on Change in Certifying Accountants	Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 30, 2006

16.1	Letter on Departure of Director -Virgil Baker	Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 30, 2006

16.2	Letter on Departure of Director - John (Cody) Morrow	Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 30, 2006

31.1	Certification of Chief Executive Officer and Interim Chief Financial Officer (one person) pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act	Filed herewith

32.1	Certification of Chief Executive Officer and Interim Chief Financial Officer (one person) pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


	eTotalSource, Inc.

November 19, 2007	By:	/s/ Frank J. Orlando
		Frank J. Orlando
		Chief Restructuring Officer, Chief Financial Officer, Secretary and Director

Etotalsource (ETLS) Inactive 10QSB2007 Q3 Quarterly report (small business)