Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of March 31, 2008 –299,998,972 shares of common stock
See accompanying notes.
See accompanying notes.
See accompanying notes.
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, 2007 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.
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.
NOTE 2. CONVERTIBLE NOTES PAYABLE AT MARCH 31, 2008
The Company has a Convertible notes payable with interest at 6% payable monthly, due in 2001, unsecured. Principal ($50,000 at March 31, 2008) and accrued interest ($19,248 at March 31, 2008) are convertible to common stock at $.50 per share. The note and interest are in default.
The Company has Convertible notes payables with interest ranging from 6% - 8% payable monthly, due in between the years of 2001 and 2003, unsecured. Principal ($175,000 at March 31, 2008) and accrued interest ($91,941 at March 31, 2008) are convertible to common stock at $.50 per share. Warrants also issued to note holders to purchase 73,748 shares of common stock for five years at $.50 per share. The notes and interest are in default. The note holder received a judgment against the Company on March 27, 2008 in the amount of $266,940 for the principal and interest outstanding.
NOTE 3. NOTES PAYABLE AT MARCH 31, 2008
The Company has a Note payable with interest at 6% payable monthly, due in 2001, unsecured. Principal ($25,000 at March 31, 2008) and accrued interest ($9,624 at March 31, 2008) are due. Warrants also issued to note holder to purchase 18,750 shares of common stock for five years at $.50 per share. The note and interest are in default.
The Company has a Note payable to an unrelated individual; principal and interest at 12%, due October 15, 2006. Principal ($25,000 at March 31, 2008) and unpaid interest ($4,998 at March 31, 2008) are due. The note and interest are default.
The Company has a Note payable; interest at 15% payable monthly through December 18, 2003. Principal ($172,000 at March 31, 2008) and unpaid interest ($61,257 at March 31, 2008) are due. The note and interest are in default.
The Company has a note payable; interest at 10% and principal due January 17, 2003, extended to December 17, 2003. Principal ($110,000 at March 31, 2008) and unpaid interest ($41,129 at March 31, 2008) (with interest increased to 18% and due monthly beginning February 17, 2003) are due. The note and interest are in default.
The Company has a note payable; interest at 15% payable monthly through December 18, 2003. Principal ($40,000 at March 31, 2008) and unpaid interest ($14,246 at March 31, 2008) are due. The note and interest are in default.
The Company has a note payable; 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. Principal ($52,483 at March 31, 2008) and unpaid interest ($10,511 at March 31, 2008) are due. This note and interest are in default.
The Company has a note payable; 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. Principal ($262,631 at March 31, 2008) and unpaid interest ($52,598 at March 31, 2008) are due. This note and interest are in default.
The Company has a note payable; principal and interest at 9.2%, due December 4, 2002, extended to May 1, 2003. Principal ($20,000 at March 31, 2008) and unpaid interest ($11,677 at March 31, 2008) are due, unsecured. The note and interest are in default.
The Company has a note payable to YA Global; principal and interest at 10%, due August 1, 2005. Principal ($25,000 at March 31, 2008) and unpaid interest ($6,904 at March 31, 2008) are due. The note and interest are in default.
The Company has a note payable to YA Global Investors; principal and interest at 14%, due October 1, 2007. Principal ($7,640 at March 31, 2008) and unpaid interest ($787 at March 31, 2008) are due.
The Company has a note payable to YA Global; principal and interest at 12%, due August 1, 2005. Principal ( $100,000 at March 31, 2008) and unpaid interest ($35,375) at March 31, 2008) are due. The note and interest are in default.
NOTE 4. CONVERTIBLE DEBENTURES AT MARCH 31, 2008
The Company has a Convertible debentures payable to a YA Global, 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. The principal balance as of March 31, 2008 was $849,250.
The Company has a Convertible debentures payable to a YA Global,, principal and interest at 12%, payable December 21, 2008. 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. At the due date the Company has the option to repay the debt or issue common stock. The principal balance as of March 31, 2008 was $7,642.
On April 13, 2007, the Company issued a convertible debenture to YA Global, 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. The principal balance as of March 31, 2008 was $72,000.
On December 4, 2007, the Company issued a convertible debenture to YA Global, in the principal amount of $17,620(principal and interest at 15% payable November 9, 2008). Principal and accrued interest convertible to common stock at a conversion price equal to the lower of (i) $.002 price per share of common stock or (ii) 95% of the lowest volume weighted average price of our common stock, as quoted by Bloomberg, L.P., for the thirty trading days immediately preceding the conversion date. The principal balance as of March 31, 2008 was $17,620.
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. The Company ceased the majority of operations in the fourth quarter of 2006 due to lack of capital.
Recent Developments
Management Transition. On March 27, 2007, the Company’s Board of Directors accepted the resignations of Terry Eilers and A. Richard Barber as members of the Board. The Company did not have a disagreement with any of the resigning directors. Neither Mr. Eilers nor Mr. Barber served 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 Company currently has no active operations, but, is actively pursuing operating business acquisition opportunities. The Company expects to incur additional losses until it acquires an operating business. There can be no assurance that Company will ever achieve any revenues or profitable operations. The new management team will be undertaking an analysis and evaluation of the Company’s 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 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 on terms acceptable to the Company.
Debenture Financings. We have entered into a series of debenture financings with YA Global Investments, L.P, f/k/a Cornell Capital Partners, L.P. (“YA Global”) as described in greater detail below in this report. Most recently, we issued and sold a $7,642 debenture to Cornell in December 2006, a $72,000 debenture to YA Global in April 2007 and a $17,620 debenture to YA Global in December 2007. The proceeds from these three debt financings were used to pay professional fees associated with securities law compliance, audit fees, transaction costs, and related fees.
Financial Condition
There is substantial doubt about the ability of ETLS to continue as a going concern as disclosed in the Note 1 to the three months ended March 31, 2008 financial statements filed by ETLS in this Report. Those conditions continued through the end of thee months ended March 31, 2008 resulting in operating losses and liquidity shortages, including default conditions on all notes payable and judgments payable to creditors. The Company had a net loss of $123,493 for the three months ended March 31, 2008. Additionally, as of March 31, 2008, current liabilities exceed current assets by approximately $4,381,894.
Management continued to meet operating deficits primarily through short-term borrowings and may attempt to utilize debt and equity financing alternatives to sustain operations. Whether such financing will be available as needed and the ultimate form of such financing is uncertain and the effects of this uncertainty could ultimately lead to bankruptcy.
Going Concern Uncertainty
The Company has incurred losses from operations for the three months ended March 31, 2008, and such losses are expected to continue. In addition, the Company has no working capital. The foregoing raises substantial doubt about the Company's ability to continue as a going concern. Management's plans include seeking additional capital and/or debt financing, and re-evaluation of the Company’s business strategy as discussed above in this report. There is no guarantee that additional capital and/or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to the Company. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company currently has no active operations, but, is actively pursuing operating business acquisition opportunities, and the organic development of opportunities in real estate, investment, and financing. The Company expects to incur additional losses until it acquires an operating business, or until its organic business opportunities reach a critical mass. There can be no assurance that Company will ever achieve any revenues or profitable operations.
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 three months ended March 31, 2008 and 2007. 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 For The Three Months Ended March 31, 2008, Compared To Three Months Ended March 31, 2007.
Revenues.
Revenues for the three ended March 31, 2008 and 2007 were $0.
General & Administrative Expenses.
Operating expenses for the three months ended March 31, 2008 were $7,650 as compared to $16,222 for the comparable 2007 period, or a decrease of $8,572. This decrease was primarily due to the cease in operations of eTotalSource.
(Loss) From Operations.
eTotalSource recognized a loss for the three months ended March 31, 2008 in the amount of ($7,650), as compared with a loss of ($16,222) for the corresponding period ended March 31, 2007. The decrease of $8,572 was attributable to the cease in operations of eTotalSource.
Interest Expense
Interest expense for the three months ended March 31, 2008 was $114,908 as compared to $76,394 for the comparable 2007 period, an increase of $38,514. This increase was attributed to the additional debentures accruing interest.
Net Income/(Loss)
Net loss for the three months ended March 31, 2008 was ($123,493) as compared to a net loss of ($92,616) for the comparable 2007 period, an increase of $30,877. This increase was attributed to the additional debentures accruing interest.
Liquidity & Capital Resources.
At March 31, 2008, eTotalSource had $969 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, 2008. 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.
Contractual Obligations and Commercial Commitments.
As of March 31, 2008, the following obligations were outstanding:
Contractual Obligations | | Less than 1 year | |
| Judgments payable | | $ | 204,788 | |
| Short Term note payables | | | 1,064,754 | |
| Convertible debentures | | | 867,197 | |
| Other current liabilities | | | 2,249,075 | |
| Total contractual cash obligations | | $ | 4,385,813 | |
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
None
Item 4. Controls and Procedures.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of March 31, 2008 and (ii) no change in internal controls over financial reporting occurred during the quarter ended March 31, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Disclosure controls and procedures and other procedures are designed to ensure that information required to be disclosed in our reports or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our president and financial officer as appropriate, to allow timely decisions regarding required disclosure.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On March 27, 2008, Gary Miller received a default judgment against ETotalSource in the amount of $266,940.78. The breakdown of the judgment is as follows: principal was $175,000, and interest was $91,140.78. Principal and interest have been recorded prior to the issuance of this judgment.
Item 2. Unregistered Sales of Equity Securities and use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
As of March 31, 2008, the Company is in default under the following notes payable:
The Company has a Convertible notes payable with interest at 6% payable monthly, due in 2001, unsecured. Principal ($50,000 at March 31, 2008) and accrued interest ($19,248 at March 31, 2008) are convertible to common stock at $.50 per share. The note and interest are in default.
The Company has Convertible notes payables with interest ranging from 6% - 8% payable monthly, due in between the years of 2001 and 2003, unsecured. Principal ($175,000 at March 31, 2008) and accrued interest ($91,941 at March 31, 2008) are convertible to common stock at $.50 per share. Warrants also issued to note holders to purchase 73,748 shares of common stock for five years at $.50 per share. The notes and interest are in default. The note holder received a judgment against the Company on March 27, 2008 in the amount of $266,94 for the principal and interest outstanding.
The Company has a Note payable with interest at 6% payable monthly, due in 2001, unsecured. Principal ($25,000 at March 31, 2008) and accrued interest ($9,624 at March 31, 2008) are due. Warrants also issued to note holder to purchase 18,750 shares of common stock for five years at $.50 per share. The note and interest are in default.
The Company has a Note payable to an unrelated individual; principal and interest at 12%, due October 15, 2006. Principal ($25,000 at March 31, 2008) and unpaid interest ($4,998 at March 31, 2008) are due. The note and interest are default.
The Company has a Note payable; interest at 15% payable monthly through December 18, 2003. Principal ($172,000 at March 31, 2008) and unpaid interest ($61,257 at March 31, 2008) are due. The note and interest are in default.
The Company has a note payable; interest at 10% and principal due January 17, 2003, extended to December 17, 2003. Principal ($110,000 at March 31, 2008) and unpaid interest ($41,129 at March 31, 2008) (with interest increased to 18% and due monthly beginning February 17, 2003) are due. The note and interest are in default.
The Company has a note payable; interest at 15% payable monthly through December 18, 2003. Principal ($40,000 at March 31, 2008) and unpaid interest ($14,246 at March 31, 2008) are due. The note and interest are in default.
The Company has a note payable; 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. Principal ($52,483 at March 31, 2008) and unpaid interest ($10,511 at March 31, 2008) are due. This note and interest are in default.
The Company has a note payable; 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. Principal ($262,631 at March 31, 2008) and unpaid interest ($52,598 at March 31, 2008) are due. This note and interest are in default.
The Company has a note payable; principal and interest at 9.2%, due December 4, 2002, extended to May 1, 2003. Principal ($20,000 at March 31, 2008) and unpaid interest ($11,677 at March 31, 2008) are due, unsecured. The note and interest are in default.
The Company has a note payable to YA Global; principal and interest at 10%, due August 1, 2005. Principal ($25,000 at March 31, 2008) and unpaid interest ($6,904 at March 31, 2008) are due. The note and interest are in default.
The Company has a note payable to YA Global; principal and interest at 12%, due August 1, 2005. Principal ( $100,000 at March 31, 2008) and unpaid interest ($35,375) at March 31, 2008) are due. The note and interest are in default.
The Company has a Convertible debentures payable to a YA Global, 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. The principal balance as of March 31, 2008 was $849,250. The debenture is in default.
The Company has a Convertible debentures payable to a YA Global,, principal and interest at 12%, payable December 21, 2008. 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. At the due date the Company has the option to repay the debt or issue common stock. The principal balance as of March 31, 2008 was $7,642. The debenture is in default.
On April 13, 2007, the Company issued a convertible debenture to YA Global, 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. The principal balance as of March 31, 2008 was $72,000. The debenture is in default.
On December 4, 2007, the Company issued a convertible debenture to YA Global, in the principal amount of $17,620(principal and interest at 15% payable November 9, 2008). Principal and accrued interest convertible to common stock at a conversion price equal to the lower of (i) $.002 price per share of common stock or (ii) 95% of the lowest volume weighted average price of our common stock, as quoted by Bloomberg, L.P., for the thirty trading days immediately preceding the conversion date. The principal balance as of March 31, 2008 was $17,620. The debenture is in default.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits
| 31.1 | Certification of CEO Pursuant to 13a-14(a) under the Exchange Act |
| | |
| 32.1 | Certification of the CEO pursuant to 18 U.S.C Section 1350 |
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. |
| | |
| May 7, 2008 | By: | /s/ Frank J. Orlando |
| | Frank J. Orlando |
| | Chief Restructuring Officer and |
| | Chief Financial Officer |
