UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                           ---------------------------

                                   FORM 10-KSB

(MARK ONE)

|X|   Annual Report Pursuant to Section 13 or 15(d) of Securities Exchange Act
      of 1934. For the fiscal year ended December 31, 2004

|_|   Transition report under Section 13 or 15(d) of the Securities Exchange Act
      of 1934 For the transition period from _______ to _______

                          Commission File No. 33-49797

                               ETOTALSOURCE, INC.
                 (Name of Small Business Issuer in Its Charter)

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

  1510 Poole Boulevard, Yuba City, CA                        95993
  -----------------------------------                        -----
(Address of Principal Executive Offices)                   (Zip Code)

                                 (530) 751-9615
                ------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

      Securities registered pursuant to Section 12(b) of the Exchange Act:

        Common Stock        Name of each exchange on which registered
        ------------        -----------------------------------------
        No par value                           N/A

        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 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  |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in the definitive proxy or
information statement incorporated by reference in Part III of this Form 10-KSB
or amendment to Form 10-KSB.

Yes |X|  No  |_|

Issuer's revenues for fiscal year ended December 31, 2004:  $0.00

Aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity of the registrant
as of March 1, 2005 was $1,868,433.

Number of authorized outstanding shares of the registrant's common stock, no par
value, as of March 1, 2005 was 46,710,821.

Transitional Small Business Disclosure Format:  No.

<PAGE>

                               ETOTALSOURCE, INC.
                   FISCAL YEAR 2004 FORM 10-KSB ANNUAL REPORT
                                      INDEX


                                     PART I

ITEM 1.    DESCRIPTION OF BUSINESS...........................................1
ITEM 2.    DESCRIPTION OF PROPERTY...........................................7
ITEM 3.    LEGAL PROCEEDINGS.................................................7
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............8

                              PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS...............................................9
ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.......11
ITEM 7.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................15
ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT'S ON ACCOUNTING
           AND FINANCIAL DISCLOSURE.........................................15
ITEM 8A.   CONTROLS AND PROCEDURES..........................................15
ITEM 8B.   OTHER INFORMATION................................................15

                             PART III

ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.....16
ITEM 10.   EXECUTIVE COMPENSATION...........................................18
ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...19
ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................21
ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K.................................21
ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES...........................24

SIGNATURES..................................................................26

Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer
Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer
Exhibit 32.1 Section 1350 SOX Certification by Chief Executive Officer
Exhibit 32.2 Section 1350 SOX Certification by Chief Financial Officer

Consolidated Financial Statements


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<PAGE>

                                     PART I

Item 1. Description Of Business.

      The Company was incorporated in Colorado on September 16, 1987 as Premium
Enterprises, Inc. On December 20, 2002, Premium Enterprises, Inc. ("Premium")
entered into a Plan and Agreement of Reorganization with eTotalSource, Inc., a
California corporation ("ETLS" or the "Company"), and its shareholders whereby
Premium acquired 91% of the issued and outstanding common stock of eTotalSource,
Inc. 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 Enterprises 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.

      On December 20, 2002, Premium entered into a Plan and Agreement of
Reorganization with eTotalSource, Inc., and its shareholders whereby Premium
acquired 91% of the issued and outstanding common stock of eTotalSource, Inc. in
exchange for 15,540,001 shares of common stock Premium. The contract was
completed December 31, 2002 and eTotalSource, Inc., a California corporation
became a subsidiary of Premium. The sole business of the Company is that of
eTotalSource, Inc.

General.

      The Company is 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 work with ETLS to develop, produce,
market, and distribute multimedia development software. ETLS is also marketing
educational training programs it has produced utilizing its proprietary
software.

      eTotalSource, Inc., a California corporation, 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 ProTM platform was completed. Presenta ProTM 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 ProTM as a platform for distance learning and computer-based training.
Presenta ProTM is delivered via the Internet, intranet, or CD/DVD Rom. Presenta
ProTM simplifies the production and delivery of multimedia presentations and
content while at the same time improving the quality and effectiveness of the
presentations. Presenta ProTM is designed with cost saving features and it
offers post-production opportunities.


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<PAGE>

Presenta ProTM features include:

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

ETLS Business Model.

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

      SOFTWARE LICENSING: ETLS is licensing Presenta ProTM software via
distribution partners and an internal sales and marketing team. The marketing
team will be directing its sales effort in targeting the education, corporate
and government markets. The cost of the product ranges from $5,500 to $15,000,
and the Company is aggressively positioning the software package for a volume
intensive market. 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 publishes and produces original content and
postproduction services, and participates in the sales and distribution of the
final published product.

      ETLS shares in the revenue derived from program sales. The Company
carefully chooses 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 currently being marketed include:

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

      Management believes that the production, postproduction and publishing
also create an avenue for added revenues and potential profits. For example, the
U.S. Department of Defense will provide for their employees over 100,000
finished packages of one topic area, produced and distributed by ETLS. The
resulting gross profit margin for the Company is estimated to be over 84%.

Intellectual Property Differentiation.

      ETLS currently has four patents pending. The Company's technological
differentiation is based on high quality and low cost software. The Company
believes that Presenta ProTM is easier to use and considerably more flexible
than the Company's closest competitor. Management believes that competitors have
chosen, via their pricing policies, to alienate most of the business community


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<PAGE>

due to high cost. Presenta ProTM is priced to be affordable and cost/training
effective. The Company believes that Presenta Pro'sTM ease of implementation and
quality it a viable choice for authoring software and distance learning tools.

Technology.

      The Presenta ProTM, 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, CD or DVD. The Presenta ProTM system has been created using
the Delphi development system. The server portion of Presenta ProTM 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 TCP/IP. The end-user client can be run on any Windows-based PC 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. Management believes that the Company's technology and user
interface are advanced in their simplicity of use and ability to deliver
multiple platforms and media simultaneously.

      At the present, the company employs 5 full-time employees and 2 part-time.
Three of the full-time employees are officers, one is in
production/post-production and one is in IT/Technical. The two part-time
employees are clerical.

Risk Factors Related to ETLS' Business.


ETLS Lost Money For The Year Ended December 31, 2003 And Losses May Continue In
The Future

      For the 12 months ended December 31, 2004 and 2003, we incurred a net loss
of $2,372,675 and $1,966,575, respectively. For the year ended December 31,
2002, we incurred a net loss of $1,214,305. We anticipate that we will in all
likelihood have to rely on external financing for all of our capital
requirements. Future losses are likely to continue unless we successfully
implement our business plan. Our ability to continue as a going concern will be
dependent upon our ability to draw down on the Standby Equity Distribution
Agreement which we have entered into with Cornell Capital Partners, LP. If we
incur any problems in drawing down or the Standby Equity Distribution Agreement,
we may experience significant liquidity and cash flow problems. If we are not
successful in reaching and maintaining profitable operations, we may not be able
to attract sufficient capital to continue our operations. Our inability to
obtain adequate financing will result in the need to curtail business operations
and will likely result in a lower stock price.


There Is Substantial Doubt About Our Ability To Continue As A Going Concern Due
To Insufficient Revenues To Cover Our Operating Costs, Which Means That We May
Not Be Able To Continue Operations Unless We Obtain Additional Funding

      Our independent auditors added a going concern qualification to their
report issued in connection with their audit of our December 31, 2004, December
31, 2003, and 2002 financial statements. The auditors noted in their report that
ETLS incurred significant recurring losses, and as of December 31, 2004 had a
substantial liquidity shortage, including default conditions on certain notes
payable and judgments payable to creditors. As a consequence, the auditors noted
that ETLS required significant additional financing to satisfy outstanding
obligations and continue operations, and the auditors opined that unless ETLS
obtained suitable significant additional financing, there is substantial doubt
about ETLS' ability to continue as a going concern.

      The accompanying financial statements have been presented assuming that
ETLS will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
ETLS has incurred significant operating losses since inception and as of
December 31, 2004, had a net working capital deficit of approximately
$2,497,528, a stockholders' deficit of $2,558,023, notes payable totaling
$1,167,469 of which $582,000 were in default with related accrued interest in
arrears of $52,045, and legal judgments against ETLS totaling $205,000 have been
adjudicated.


                                       3
<PAGE>

      Management anticipates that ETLS will incur net losses for the immediate
future, and expect ETLS' operating expenses to increase significantly, and, as a
result, ETLS will need to generate monthly revenue if it is to continue as a
going concern. To the extent that we do not generate revenue at anticipated
rates from contracts with the government and others, that we do not obtain
additional funding, that our stock price does not increase, that we are unable
to adjust operating expense levels accordingly, we may not have the ability to
continue on as a going concern. Our financial statements which accompany this
prospectus do not include any adjustments that might result from the outcome of
this uncertainty.

We May Not Be Able To Access Sufficient Funds When Needed Under The Standby
Equity Distribution Agreement And The Price Of Our Common Stock Will Affect Our
Ability To Draw Down On The Standby Equity Distribution Agreement

      Currently, we are dependent upon external financing to fund our
operations. Our financing needs are expected to be provided, in large part, by
the Standby Equity Distribution Agreement. The amount of each advance under the
Standby Equity Distribution Agreement is subject to a maximum of $200,000 every
seven trading days. Because of the advance restriction, we may not be able to
access sufficient funds when needed. If the market price of our shares of common
stock declines, we would be required to issue more shares of common stock in
order to draw down the same dollar amount of an advance than if our stock price
was higher. Therefore, if we are unable to draw down on our Standby Equity
Distribution Agreement, we may be forced to curtail or cease our business
operations.


We Have Negative Working Capital

      We had negative working capital of $2,497,528 and $2,385,502 at December
31, 2004 and December 31, 2003, respectively, and continue to need cash for
operations. We have relied on significant external financing to fund our
operations. As of December 31, 2004, we had $37,849 of cash on hand and total
current assets were $39,145, and our total current liabilities were $2,536,673.
We will need to raise additional capital to fund our anticipated operating
expenses and future expansion. Among other things, external financing may be
required to cover our operating costs. Unless we obtain profitable operations,
it is unlikely that we will be able to secure additional financing from external
sources. If we are unable to secure additional financing or we cannot draw down
on the Standby Equity Distribution Agreement, we believe that we have sufficient
funds to continue operations for approximately 1 month. We estimate that we will
require $2,000,000 to fund our anticipated operating expenses for the next 12
months. The sale of our common stock to raise capital may cause dilution to our
existing shareholders. Our inability to obtain adequate financing will result in
the need to curtail business operations. Any of these events would be materially
harmful to our business and may result in a lower stock price. Our inability to
obtain adequate financing will result in the need to curtail business operations
and you could lose your entire investment. Our financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


We Need Additional Capital To Be Successful, Which Will Potentially Dilute The
Value Of Our Shareholders' Shares

      We need substantial capital to execute our business plan. To finance our
operations to date, we have relied on private offerings, exercises of warrants,
and loans. As of December 31, 2004, we have issued a total of 46,710,821 shares
of common stock, of which an aggregate of 11,731,908 shares were issued in
exchange for cash to finance our operations and the remainder were issued in
exchange for services rendered to ETLS. We will issue up to an additional
33,534,700 shares if all of the outstanding debentures are converted and all
options and warrants exercised. The terms on which we obtain additional
financing, including the exercise of outstanding warrants, may dilute the
existing shareholders' investment, or otherwise adversely affect their position.
It is also possible that we will be unable to obtain the additional funding we
need as and when we need it. If we are unable to obtain additional funding as
and when needed, we could be forced to curtail or cease our operations.


All Of Our Assets Are Securing Our Obligations To Cornell Capital Partners

      Pursuant to the terms contained in that certain Security Agreement dated
October 6, 2004, by and between ETLS and Cornell Capital Partners, LP, all of
our obligations under the Securities Purchase Agreement, the Secured Convertible
Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer
Agent Instructions, and the Escrow Agreement are secured by all of our non-cash
assets as of such date or thereafter acquired by us. Accordingly, if we are


                                       4
<PAGE>

unable to satisfy any of our obligations under the foregoing agreements, our
assets may be foreclosed upon and our business may be shut down.


Our Success Is Based On Increasing Demand For Our Products

      We depend on the continued demand for our products and on favorable
general economic conditions. We cannot assure you that our business strategy
will be successful or that we will successfully address these risks or
difficulties. If we should fail to adequately address any of these risks or
difficulties, we could be forced to curtail or cease our business operations.


We Rely On Our Senior Management And Will Be Harmed If Any Or All Of Them Leave

      Our success is dependent on the efforts, experience and relationships of
Terry Eilers, our Chief Executive Officer and Chairman, Virgil Baker, our Chief
Financial Officer and a director, and Michael Sullinger, our Chief Operating
Officer and a director, and other essential staff. If any of these individuals
become unable to continue in their role, our business or prospects could be
adversely affected. Although we have entered into employment agreements with
each of our executive officers, we cannot assure you that such individuals will
continue in their present capacity for any particular period of time.


Fluctuations In Our Operating Results May Adversely Affect Our Stock Price And
Purchasers Of Our Shares Of Common Stock May Lose All Or A Portion Of Their
Investment

      Historically, there has been volatility in the market price for our common
stock. Our quarterly operating results, the number of shareholders desiring to
sell their share, changes in general conditions in the economy, the financial
markets or the healthcare industry, or other developments affecting us or our
competitors, could cause the market price of our common stock to fluctuate
substantially. We expect to experience significant fluctuations in our future
quarterly operating results due to a variety of factors.

      Accordingly, in one or more future quarters, our operating results may
fall below the expectations of securities analysts and investors. In this event,
the market price of our common stock would likely be materially adversely
affected. If the selling shareholders all elect to sell their shares of our
common stock at the same time, the market price of our shares may decrease. It
is possible that the selling shareholders will offer all of the shares for sale.
Further, because it is possible that a significant number of shares could be
sold at the same time, the sales, or the possibility thereof, may have a
depressive effect on the market price of our common stock.


Our Common Stock May Be Affected By Limited Trading Volume And May Fluctuate
Significantly

      Our common stock is currently traded on the Over-the-Counter Bulletin
Board and Pink Sheets. Prior to this offering, there has been a limited public
market for our common stock and there can be no assurance that an active trading
market for our common stock will develop. This could adversely affect our
shareholders' ability to sell our common stock in short time periods, or
possibly at all. Our common stock is thinly traded compared to larger, more
widely known companies in our industry. Thinly traded common stock can be more
volatile than common stock traded in an active public market. The average daily
trading volume of our common stock from approximately January 1, 2004 through
December 31, 2004 was 104,392 shares. The high and low trading price of our
common stock for the last 52 weeks has been $0.24 and $0.04, respectively. Our
common stock has experienced, and is likely to experience in the future,
significant price and volume fluctuations, which could adversely affect the
market price of our common stock without regard to our operating performance. In
addition, we believe that factors such as quarterly fluctuations in our
financial results and changes in the overall economy or the condition of the
financial markets, could cause the price of our common stock to fluctuate
substantially.


Our Common Stock Is Deemed To Be "Penny Stock," Which May Make It More Difficult
For Investors To Sell Their Shares Due To Suitability Requirements

      Our common stock is deemed to be "penny stock" as that term is defined in
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as amended.
Penny stocks are stock:


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<PAGE>

      o     with a price of less than $5.00 per share;

      o     that are not traded on a "recognized" national exchange;

      o     whose prices are not quoted on the NASDAQ automated quotation system
            (NASDAQ-listed stock must still have a price of not less than $5.00
            per share); or

      o     stock in issuers with net tangible assets less than $2,000,000 (if
            the issuer has been in continuous operation for at least three
            years) or $5,000,000 (if in continuous operation for less than three
            years), or with average revenues of less than $6,000,000 for the
            last three years.

      Broker-dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker-dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.

      Shareholders should be aware that, according to United States Securities
and Exchange Commission, the market for penny stocks has suffered in recent
years from patterns of fraud and abuse. Such patterns include (i) control of the
market for the security by one or a few broker-dealers that are often related to
the promoter or issuer; (ii) manipulation of prices through prearranged matching
of purchases and sales and false and misleading press releases; (iii) "boiler
room" practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired consequent investor losses. ETLS'
management is aware of the abuses that have occurred historically in the penny
stock market. Although ETLS does not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to ETLS' securities.

Existing Shareholders Will Experience Significant Dilution From Our Sale Of
Shares Under The Standby Equity Distribution Agreement We Have Entered Into With
Cornell Capital Partners, LP

      The sale of shares pursuant to the Standby Equity Distribution Agreement
that we entered into with Cornell Capital Partners, LP on October 6, 2004 will
have a dilutive impact on our stockholders. At our current stock price of $0.03,
we would have to issue 333,333,333 shares of common stock to draw down the
entire $10 million available to us under the Standby Equity Distribution
Agreement with Cornell Capital Partners, LP. These shares would represent
approximately 88% of our outstanding common stock upon issuance. Please refer to
the section of this report entitled "Liquidity & Capital Resources" beginning on
page 12 for a detailed explanation of the Standby Equity Distribution Agreement.


The Standby Equity Distribution Agreement Could Have An Adverse Effect On Our
Ability To Make Acquisitions With Our Common Stock

      We cannot predict the actual number of shares of common stock that will be
issued pursuant to the Standby Equity Distribution Agreement, in part, because
the purchase price of the shares will fluctuate based on prevailing market
conditions and we have not determined the total amount of advances we intend to
draw. In addition, we are not registering enough shares to draw down the entire
$10 million available under the Standby Equity Distribution Agreement given our
recent stock price of $0.03. At such price, we would have to issue 333,333,333
shares to draw down the entire $10 million under the Standby Equity Distribution
Agreement. It may be necessary for us to seek approval from our shareholders to
increase our authorized common stock so as to permit us to register additional
shares of common stock in order to have sufficient authorized shares available
to make acquisitions using our common stock. As we issue shares of common stock
pursuant to the Standby Equity Distribution Agreement, we may not have


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<PAGE>

sufficient shares of our common stock available to successfully attract and
consummate future acquisitions. In the event we desire to draw down any
available amounts remaining under the Standby Equity Distribution Agreement, we
will have to file a registration statement with the United States Securities and
Exchange Commission to cover such shares which we will issue for additional draw
downs under the Standby Equity Distribution Agreement. Please refer to the
section of this report entitled "Liquidity & Capital Resources" beginning on
page 12 for a detailed explanation of the Standby Equity Distribution Agreement.


Sale Of Shares Eligible For Future Sale Could Adversely Affect The Market Price

      All of the approximate 8,117,946 shares of common stock which are
currently held, directly or indirectly, by management have been issued in
reliance on private placement exemptions under the Securities Act of 1933, as
amended. Such shares will not be available for sale in the open market without
separate registration except in reliance upon Rule 144 under the Securities Act
of 1933, as amended. In general, under Rule 144 a person (or persons whose
shares are aggregated), who has beneficially owned shares acquired in a
non-public transaction, for at least one year, including persons who may be
deemed affiliates of ETLS, as defined, would be entitled to sell within any
3-month period a number of shares that does not exceed the greater of 1% of the
then outstanding shares of common stock, or the average weekly reported trading
volume during the four calendar weeks preceding such sale, provided that current
public information is then available. If a substantial number of the shares
owned by these stockholders were sold under Rule 144 or a registered offering,
the market price of the common stock could be adversely affected.

ETLS' Competition is Better Capitalized and Has Greater Marketing Capabilities
Which Could Adversely Affect ETLS' Ability to Compete in the Marketplace

      ETLS is in competition with other services and products developed and
marketed by much larger corporations, which are better capitalized and have far
greater marketing capabilities than ETLS. ETLS expects to be at a disadvantage
when competing with many firms that have substantially greater financial and
management resources and capabilities than ETLS. As a result of these
disadvantages, ETLS may not be able to effectively complete in the markets in
which its products and services are sold, which would, in turn, affect its
ability to continue to operate.

Item 2. Description Of Property.

      The Company leases its corporate offices in Yuba City, California on a
month-to-month basis with no expiration date. Monthly payments under the lease
are approximately $2,560. Such premises are adequate to serve the Company's
current staffing level. The offices consist of approximately 1,700 square feet.

Item 3. Legal Proceedings.

      We are not currently a party to any material litigation, nor are we aware
of any potential material litigation, other than as set forth below.

      ETLS has defended an action and has reached a settlement for $50,000 with
Alchemy Communications in connection with a breach of contract claim involving
co-location of ETLS' servers with Alchemy. $83,000 has been accrued as a
judgment payable as of December 31, 2002. ETLS intends to pay $50,000 as soon as
sufficient funds are available to do so, and in March of 2003, ETLS issued
30,000 shares of its common stock in partial satisfaction of the settlement. No
action has been taken by Alchemy to enforce the terms of the settlement and ETLS
does not anticipate any action will be taken by Alchemy to enforce the
settlement, provided that the balance of funds owed is paid within a reasonable
period of time.

      In 1997, Premium Enterprises, Inc. was sued by Tusco, Inc. for an alleged
breach of the company's lease with Tusco. Tusco prevailed in its suit and
obtained a judgment against Premium for $75,000. No action has been taken by
Tusco to enforce the judgment against Premium or ETLS, its successor, and ETLS
does not anticipate any action will be taken by Tusco to enforce the judgment.
Nonetheless, ETLS has recorded a liability for the full amount of the judgment.


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<PAGE>

      In 1996, Premium Enterprises, Inc. was sued by Ally Capital Corporation
for an alleged breach of contract claim. Ally prevailed in its suit and obtained
a judgment against Premium for $47,000. No action has been taken by Ally to
enforce the judgment against Premium or ETLS, its successor, and ETLS does not
anticipate any action will be taken by Ally to enforce the judgment as Ally is
no longer in business according to Colorado Secretary of State's office.
Nonetheless, ETLS has recorded a liability for the full amount of the judgment.

Item 4. Submission Of Matters To A Vote Of Security Holders.

      On February 4, 2005, at a special meeting of the Company's shareholders,
the shareholders approved an amendment to the Company's Articles of
Incorporation to increase the number of common shares authorized from one
hundred million (100,000,000) to three hundred million (300,000,000). The
measure was passed with 30,898,791 shares voting in favor and 296,896 shares
voting against, which was sufficient to approve the proposal.


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<PAGE>

                                     PART II

Item 5. Market For Registrant's Common Equity And Related Stockholder Matters.

      The Company's common stock trades on the Over-the-Counter Bulletin Board
under the symbol "ETLS.OB." The range of high, low and close trade quotations
for the Company's common stock by fiscal quarter within the last two fiscal
years, as reported by the National Quotation Bureau Incorporated, was as
follows:

                                                   Year Ended December 2003
                                                   ------------------------
                                                   High Bid         Low Bid
                                                   --------         -------
   First Quarter ended March 31, 2003                $0.10           $0.09
   Second Quarter ended June 30, 2003                $0.37           $0.06
   Third Quarter ended September 30, 2003            $0.31           $0.05
   Fourth Quarter ended December 31, 2003            $0.17           $0.07


                                                   Year Ended December 2004
                                                   ------------------------
                                                   High Bid         Low Bid
                                                   --------         -------
   First Quarter ended March 31, 2004                $0.24           $0.12
   Second Quarter ended June 30, 2004                $0.23           $0.07
   Third Quarter ended September 30, 2004            $0.14           $0.05
   Fourth Quarter ended December 31, 2004            $0.12           $0.04

-----------------

The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.

Number Of Holders.

      As of December 31, 2004 there were 343 record holders of the Company's
common Stock.

Dividends.

      The Company has not declared or paid any cash dividends on its common
stock and does not anticipate paying dividends for the foreseeable future.

Recent Sales Of Unregistered Shares.

      During the last two years, ETLS issued the following unregistered
securities:

      On October 6, 2004, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners. Pursuant to the Standby Equity
Distribution Agreement, we may, at our discretion, periodically sell to Cornell
Capital Partners shares of our common stock for a total purchase price of up to
$10,000,000. For each share of common stock purchased under the Standby Equity
Distribution Agreement, Cornell Capital Partners will pay ETLS 98% of the lowest
volume weighted average price of our common stock on the Over-the-Counter
Bulletin Board or other principal market on which our common stock is traded for
the five trading days immediately following the notice date. Further, Cornell
Capital Partners will retain a fee of 5% of each advance under the Standby
Equity Distribution Agreement. In connection with the Standby Equity
Distribution Agreement, Cornell Capital Partners received a one-time commitment
fee in the form of 3,833,334 restricted shares of our common stock issued on
October 8, 2004.


                                       9
<PAGE>

      Also on October 6, 2004, we issued a secured Convertible Debenture to
Cornell Capital Partners in the principal amount of $175,000. The Convertible
Debenture accrues interest at the rate of 5% per year. At ETLS' option, the
entire principal amount and all accrued interest can be either: (i) paid to the
holder of the Convertible Debenture on the third-year anniversary of the
Convertible Debenture or (ii) converted into shares of ETLS common stock. The
Convertible Debenture is convertible into shares of our common stock as a price
per share that is equal to the lesser of: (i) an amount equal to 120% of the
closing bid price as listed on a principal market, as quoted by Bloomberg, L.P.,
on October 6, 2004, or (ii) an amount equal to 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 Convertible Debenture
accrues interest at a rate of 5% per year and is convertible at the holder's
option. The Convertible Debenture has a term of two years and is secured by all
of our assets. At ETLS' option, the Convertible Debenture may be paid in cash or
converted into shares of our common stock unless converted earlier by the
holder. Except after an event of default, as set forth in the secured
Convertible Debenture, the holder is not entitled to convert such debenture for
a number of shares of our common stock in excess of that number of shares which,
upon giving effect to such conversion, would cause the aggregate number of
shares of common stock beneficially held by such holder and its affiliated to
exceed 4.99% of our outstanding shares of common stock. After we file a
registration statement with the Securities and Exchange Commission registering
the shares of common stock underlying the Convertible Debenture, we will issue a
second secured Convertible Debenture to Cornell Capital Partners in the
principal amount of $200,000 upon the same terms and conditions as the first
secured Convertible Debenture above.

      ETLS engaged Newbridge Securities Corporation, an unaffiliated registered
broker-deal, to advise ETLS in connection with the Standby Equity Distribution
Agreement. Newbridge Securities Corporation was paid a one-time fee of $10,000
by the issuance of 166,666 restricted shares of ETLS' common stock on October 8,
2004.

      On September 30, 2004, each of the following persons were issued 400,000
restricted shares of common stock in exchange for services provided to ETLS:
Michael Sullinger, COO, Virgil Baker, CFO, and A. Richard Barber. The effective
price per share issued was $0.05.

      In July of 2004, ETLS issued 100,000 restricted shares of common stock to
an unrelated individual for $9,000 of services accrued for in the second
quarter.

      Also in July of 2004, ETLS issued 1,400,000 shares of restricted common
stock to a former contract consultant in settlement of a contract. The fair
value of the shares were accrued for in the second quarter based on the quoted
price of the stock on the date of settlement, a total of $126,000.

      Also in July of 2004, ETLS issued 2,000,000 shares of restricted common
stock to an unrelated company for sales and marketing services completed and
accepted in the third quarter. The shares were recorded at their fair value,
$300,000, based on the quoted price of the stock at the date of the contract.

      Effective December 19, 2003, ETLS entered into a private placement
agreement for the sale of up to 12,000,000 shares of its common stock pursuant
to Regulation S of the Securities Act of 1933, as amended, commencing in January
of 2004. The purchaser had until the sooner of April 30, 2004 or until
12,000,000 shares are sold to deliver one or more purchase notices to ETLS. The
agreement provided for a variable purchase price based on a percentage of the
five-day average closing price on the date of a purchase with a floor price of
$0.08 cents net to ETLS. Based on the foregoing private placement, ETLS sold a
total of 8,125,000 shares resulting in net proceeds to ETLS of $530,000. The
purchaser represented to ETLS that it intended to acquire the shares for its own
account with no then present intention of dividing its interest with others or
reselling or otherwise disposing of all or any portion of the shares. The shares
were offered in a private transaction, not part of a distribution of shares.

      Except as otherwise indicated above, ETLS believes that all of the above
transactions were transactions not involving any public offering within the
meaning of Section 4(2) of the Securities Act of 1933, as amended, since (a)
each of the transactions involved the offering of such securities to a
substantially limited number of persons; (b) each person took the securities as
an investment for his/her/its own account and not with a view to distribution;
(c) each person had access to information equivalent to that which would be
included in a registration statement on the applicable form under the Securities
Act of 1933, as amended; (d) each person had knowledge and experience in
business and financial matters to understand the merits and risk of the
investment; therefore no registration statement needed to be in effect prior to
such issuances.


                                       10
<PAGE>

Item 6. Management's Discussion And Analysis Or Plan Of Operations.

Financial Condition And Changes In Financial Condition.

Forward-Looking Statements.

This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act, as amended. Such statements include eTotalSources's
beliefs, expectations, hopes, goals and plans regarding the future, including
but not limited to statements regarding eTotalSource's strategy, competition,
development plans, financing, revenue and operations. Forward-looking statements
often can be identified by the use of terms such as "may," "will," "expect,"
"anticipate", "estimate," or "continue," or the negative thereof. Such
forward-looking statements speak only as of the date made. Any forward-looking
statements represent management's best judgment as to what may occur in the
future. However, forward-looking statements are subject to risks, uncertainties,
and important factors beyond the control of eTotalSource that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. eTotalSource disclaims
any obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.

Changes in Financial Condition.

      On December 30, 2002, Premium acquired 91% of the preferred and common
stock of ETLS pursuant to an Agreement and Plan of Reorganization effective
December 30, 2002, by issuing 15,540,011 shares of Premium common stock to ETLS
shareholders.

      Immediately after the transaction, the ETLS shareholders owned
approximately 88.5% of the Company's common stock. Coincident with the
transaction, the Company changed its fiscal year from June 30 to December 31.

      The reorganization is recorded as a recapitalization effected by a reverse
merger wherein Premium is treated as the acquiree for accounting purposes, even
though it is the legal acquirer. The transaction has been accounted for as a
purchase, and accordingly, since the transaction occurred December 31, 2002, the
results of operations for the periods presented represent solely those of the
accounting acquirer, ETLS. Since Premium was a non-operating shell with limited
business activity, goodwill was not recorded.

      On February 4, 2005, ETLS' shareholders approved an increase of authorized
shares from 100 million shares to 300 millions shares. The measure was passed
with 30,898,791 shares voting in favor and 296,896 shares voting against, which
was sufficient to carry out the proposal.

Results of Operations for the fiscal year ended December 31, 2004, compared to
fiscal year ended December 31, 2003.

      The Company had revenues from operations of $209,198 and $281,919 in the
years ended December 31, 2004 and 2003, respectively, a decrease of $72,721, or
a 26% decrease. The decrease in revenues was attributable to lower sales of the
CD training programs and no post-production income.

      The Company incurred expenses incident to operations in the amount of
$2,390,905 in 2004 and $1,860,146 in 2003, an increase of $530,759, or a 29%
increase. The increase was primarily due to an increase in stock compensation,
payroll expenses, and fees connected with the convertible debenture bonds. Stock
compensation for 2004 was $287,855 more than the comparable 2003 period. Payroll
expenses for 2004 were $90,918 more than the comparable 2003 period, a 25%
increase. Investment advisory fees for 2004 were $50,855 more than the
comparable 2003 period, a 294% increase.

      Interest expense for 2004 was $190,592 as compared with $602,045 for the
corresponding 2003 period, a $411,453 decrease, or a 68% decrease. The decrease


                                       11
<PAGE>

in interest expense is the result of the June 2003 retirement of mortgages
payable upon the sale of the Company's business office building, conversion of
debt to equity in 2004 and a decrease in amortization expense in 2004 of the
fair value of warrants issued as incentives to lenders.

      The Company had a net loss on operations of $2,372,675 in 2004 compared to
a loss of $1,966,575 in 2003. The loss per share was approximately $0.06 in 2004
and $0.10 in 2003.

Liquidity & Capital Resources.

      The Company had $37,849 in cash at year end and no other capital
resources. The Company will be dependent on its shareholders for loans for
expenses, and has no capital availability except through a Standby Equity
Distribution Agreement, which has been arranged for 2005.


      Standby Equity Distribution Agreement.

      On October 6, 2004, we entered into a Standby Equity Distribution
Agreement ("SEDA") with Cornell Capital Partners, LP. Pursuant to the SEDA, we
may, at our discretion, periodically sell to Cornell shares of our common stock
for a total purchase price of up to $10 million. For each share of common stock
purchased under the SEDA, Cornell will pay us 98% of the lowest volume weighted
average price of our common stock on the Over-the-Counter Bulletin Board or
other principal market on which our common stock is traded for the five
consecutive trading days immediately following the advance notice date. Cornell
is a private limited partnership whose business operations are conducted through
its general partner, Yorkville Advisors, LLC. Further, Cornell will retain a fee
of 5% of each advance under the SEDA. We also paid Cornell a one-time commitment
fee pursuant to the SEDA on October 6, 2004, which was paid by the issuance of
3,833,334 shares of our common stock.

      In addition, we engaged Newbridge Securities Corporation, a registered
broker-dealer, to advise us in connection with the SEDA. For its services,
Newbridge received a fee of $10,000 paid in 166,666 shares of our common stock
on October 6, 2004. ETLS is registering 15,000,000 shares of common stock for
the SEDA pursuant to the accompanying registration statement. The costs
associated with this registration will be borne by us. There are no other
significant closing conditions to draws under the SEDA.

      Pursuant to the SEDA, we may periodically sell shares of common stock to
Cornell to raise capital to fund our working capital needs. The periodic sale of
shares is known as an advance. We may request an advance every seven trading
days with a maximum of $200,000 per advance. A closing will be held five trading
days after such written notice at which time we will deliver shares of common
stock and Cornell will pay the advance amount.

      We may request advances under the SEDA once the underlying shares are
registered with the United States Securities and Exchange Commission.
Thereafter, we may continue to request advances until Cornell has advanced $10
million or 24 months after the effective date of the accompanying registration
statement, whichever occurs first.

      The amount of each advance is limited to a maximum draw down of $200,000
every seven trading days. At a recent stock price of $0.03, we would have to
issue 6,666,666 shares of common stock to Cornell to draw down the maximum
advance amount of $200,000. The amount available under the SEDA is not dependent
on the price or volume of our common stock. Our ability to request advances are
conditioned upon our registering the shares of common stock with the United
States Securities and Exchange Commission. In addition, we may not request
advances if the shares to be issued in connection with such advances would
result in Cornell owning more than 9.9% of our outstanding common stock. We do
not have any agreements with Cornell regarding the distribution of such stock,
although Cornell has indicated that it intends to promptly sell any stock
received under the SEDA.

      We cannot predict the actual number of shares of common stock that will be
issued pursuant to the SEDA, in part, because the purchase price of the shares
will fluctuate based on prevailing market conditions and we have not determined
the total amount of advances we intend to draw.

      You should be aware that there is an inverse relationship between our
stock price and the number of shares to be issued under the SEDA. That is, as
our stock price declines, we would be required to issue a greater number of


                                       12
<PAGE>

shares under the SEDA for a given advance. The issuance of a larger number of
shares under the SEDA may result in a change of control. That is, if all or a
significant block of such shares are held by one or more shareholders working
together, then such shareholder or shareholders would have enough shares to
assume control of ETLS by electing its or their own directors.

      In the event we desire to draw down any available amounts remaining under
the SEDA, we will have to file a registration statement to cover such additional
shares which we will issue for draw downs under the SEDA. We cannot predict the
total amount of proceeds to be raised in this transaction because we have not
determined the total amount of advances we intend to draw.

      We expect to incur expenses of approximately $85,000 in connection with a
registration of the shares underlying the SEDA, consisting primarily of
professional fees. In connection with the SEDA, we paid Cornell a one-time
commitment fee by the issuance of 3,833,334 shares of our common stock. In
addition, we issued 166,666 shares of common stock to Newbridge as a placement
agent fee in connection with the SEDA.

      On November 24, 2004, the Company filed a Registration Statement on Form
SB-2 with the United States Securities and Exchange Commission for purposes of
registering shares underlying the SEDA. The Company intends to withdraw this
registration statement in the first quarter of 2005 because of the desire by the
Company and Cornell to amend the SEDA and related financing documents. Once
these documents are amended, the Company will file a new Registration Statement
on Form SB-2 to register the shares underlying the amended SEDA and related
financing documents.

Contractual Obligations and Commercial Commitments.

      As of December 31, 2004, the following contractual obligations were
outstanding:

<TABLE>
<CAPTION>
                                                                Payments Due by Period
                                     ----------------------------------------------------------------------------
                                        Less than                                      After
Contractual Obligations                   1 year       2-3 years       4-5 years       5 years          Total
----------------------------------   --------------   -----------     -----------    -----------     ------------
<S>                                  <C>              <C>             <C>            <C>             <C>
Judgments payable                    $      204,788   $       .00     $       .00    $       .00     $    204,788
Short Term note payables                    882,000           .00             .00            .00          882,000
Convertible debentures                      167,569       117,900                                         285,469
Other current liabilities                 1,282,316           .00             .00            .00        1,282,316
                                     --------------   -----------     -----------    -----------     ------------
Total contractual cash obligations   $    2,536,673   $   117,900     $       .00    $       .00     $  2,654,573
                                     ==============   ===========     ===========    ===========     ============
</TABLE>

      The Company leases its corporate offices in Yuba City, California on a
month-to-month basis with no expiration date. Monthly rentals under the lease
are approximately $2,500.

Critical Accounting Policies and Estimates.

      The Company recognizes revenue in accordance with Statement of Position
No. 97-2 "Software Revenue Recognition" issued by the Accounting Standards
Executive Committee of the AICPA. Revenues are recorded net of an allowance for
estimated returns and collectibility at the time of billing.

      Product revenue is derived primarily from the sale of self-produced
training multimedia and not related off-the-shelf software products. The Company
recognizes revenue from sales of these products at the time of shipment to
customers. Service revenue is primarily derived from production of videos for
others and is recognized upon customer acceptance.


                                       13
<PAGE>

      Deferred revenue includes payments received for product licenses covering
future periods and advances on service contracts that have not yet been
fulfilled.

      Significant estimates include evaluation of the Company's income tax net
operating loss carry-forwards and valuation of non-monetary transactions in
connection with issuances of common stock and common stock warrants and options.

Need for Additional Funding.

      The Company is unable to carry out any plan of business without funding.
The Company cannot predict to what extent its 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 the Company can
continue as a going concern without substantial funding, for which there is no
source.

      The Company does not have capital sufficient to meet the Company's current
cash needs. The Company will have to seek loans or equity placements to cover
such cash needs. Lack of its existing capital may be a sufficient impediment to
prevent it from accomplishing the goal of successfully executing its business
plan. The Company will need to raise additional funds to conduct its business
activities in the next twelve months. At the present, our current cash will last
less than a month.

      No commitments to provide additional funds have been made by management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to the Company to allow it to cover its expenses as they
may be incurred.

      Irrespective of whether the Company's cash assets prove to be inadequate
to meet the Company's operational needs, the Company might seek to compensate
providers of services by issuances of stock in lieu of cash.

      The Company has no plans for any research and development in the next 12
months. The Company has no plans at this time for purchases or sales of fixed
assets which would occur in the next twelve months.

      The Company has no expectation or anticipation of significant changes in
number of employees in the next 12 months. It may add full- or part-time
employees of an unknown number in the next 12 months if its business expands.

Going Concern Qualification.

      The Company has incurred significant losses from operations for the year
ended December 31, 2004, 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. 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 consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. Our auditors have added
a going- concern qualification to their audit.

Net Operating Loss.

      For federal income tax purposes, the Company has net operating loss carry
forwards of approximately $3 million as of December 31, 2004. These carry
forwards will expire at various dates from 2020 through 2024. The use of such
net operating loss carry forwards to be offset against future taxable income, if
achieved, may be subject to specified annual limitations.


                                       14
<PAGE>

Item 7. Financial Statements And Supplementary Data.

      Attached hereto and filed as part of this Form 10-KSB are the Company's
consolidated financial statements for the fiscal year ended December 31, 2004.

Item 8. Changes In And Disagreements With Accountant's On Accounting And
Financial Disclosure.

      In 2003, the Company engaged Gordon, Hughes & Banks, LLP, certified public
accountants in Denver, Colorado, as its new principal independent accountants to
audit the Company's financial statements. The prior accountant was Michael
Johnson & Co., LLC. whose last audit was for fiscal year June 30, 2002. There
has been no disagreement between accountants regarding the application of
accounting principles to any specific completed or contemplated transaction, or
as to policies as to accounting.

      In connection with the audits of the two most recent fiscal years and any
interim period preceding resignation, no disagreements exist with any accountant
for any matter of accounting principles or practices, financial statement
disclosure, or auditing scope of procedure, which disagreements if not resolved
to the satisfaction of the former accountant would have caused him to make
reference in connection with his report to the subject matter of the
disagreement(s).

      The principal accountants' reports on the financial statements for any of
the past two years contained no adverse opinion or a disclaimer of opinion nor
were they qualified as to uncertainty, audit scope, or accounting principles
except for the "going concern" qualification.

ITEM 8A. CONTROLS AND PROCEDURES

(A) Evaluation Of Disclosure Controls And Procedures

As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
Principal Executive Officer and Principal Financial Officer of the effectiveness
of the design and operation of the Company's disclosure controls and procedures.
The Company's disclosure controls and procedures are designed to provide a
reasonable level of assurance of achieving the Company's disclosure control
objectives. The Company's principal Executive Officer and Principal Financial
Officer have concluded that the Company's disclosure controls and procedures
are, in fact, effective at this reasonable assurance level as of the period
covered. In addition, the Company reviewed its internal controls, and there have
been no changes in its internal controls during the Company's last fiscal
quarter or in other factors that have materially affected, or are reasonably
likely to materially affect those controls subsequent to the date of their last
evaluation or from the end of the reporting period to the date of this Form
10-KSB.

(B) Changes In Internal Controls Over Financial Reporting

In connection with the evaluation of the Company's internal controls during the
Company's fourth fiscal quarter ended December 31, 2004, the Company's Principal
Executive Officer and Principal Financial Officer have determined that there are
no changes to the Company's internal controls over financial reporting that has
materially affected, or is reasonably likely to materially effect, the Company's
internal controls over financial reporting.

Item 8b. Other Information.

      None.


                                       15
<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters And Control Persons.

      The following persons are members of our board of directors and/or
executive officers, in the capacities indicated, as of December 31, 2004:

<TABLE>
<CAPTION>
NAME                             AGE             POSITION HELD                    TENURE
--------------------------      -----           --------------------------       ------------
<S>                             <C>             <C>                              <C>
Terry Eilers                      57             President, CEO, Director         Since 2002
Virgil Baker                      52             CFO, Director                    Since 2002
Michael Sullinger                 59             Secretary, COO, Director         Since 2002
A. Richard Barber                 64             Director                         Since 2002
J. Cody Morrow                    50             Director                         Since 2002
</TABLE>

      The directors named above will serve until the next annual meeting of
eTotalSource's stockholders. Thereafter, directors will be elected for one-year
terms at the annual stockholders' meeting. Officers will hold their positions at
the pleasure of the Board of Directors, absent any employment agreement, of
which none currently exists or is contemplated.

      There is no arrangement or understanding between the directors and
officers of eTotalSource and any other person pursuant to which any director or
officer was or is to be selected as a director or officer.

      The directors of eTotalSource will devote such time to eTotalSource's
affairs on an "as needed" basis, but less than 20 hours per month. As a result,
the actual amount of time which they will devote to eTotalSource's affairs is
unknown and is likely to vary substantially from month to month.

      Terry Eilers, CEO and Chairman

      Mr. Eilers has served as CEO and a Director of eTotalSource since its
formation, and has served as its Chairman of the Board of Directors since 2000.
From 1994 to 2002, Mr. Eilers, along with Virgil Baker, devoted all of his time
to the development of online training and the prototype software for Presenta
Pro(TM). In 2000, Mr. Eilers, along with Virgil Baker, formed eTotalSource.com,
Inc. and became the CEO and President. From 1987 to 1994, Mr. Eilers was founder
of a seminar company and traveled all over the world giving seminars on Real
Estate and motivational seminars. From 1984 to 1987, Mr. Eilers served as Vice
President, Regional Manager and Regional Training Director for Lawyers Title
Company. Mr. Eilers was involved in the creation, operation and sale of Sydney
Cambric Publishing from 1983 to 1985, where he was in charge of implementing
marketing and management systems, developing and supervising management training
and conducting live seminars worldwide for many Fortune 500 companies. Over the
past 30 years, Mr. Eilers management and computer sales programs have been
utilized by major real estate entities, banks, savings and loans, insurance
companies, sales and research organizations and publishing companies worldwide.
Mr. Eilers is a frequent author, having written, and published through Crescent
Publishing, Sydney Cambric Publishing and the Disney Corporation-Hyperion
Publishing, 12 books concentrated in the real estate, business management and
personal development fields. Some of the titles Mr. Eilers has written include:
How to Sell Your Home Fast (Disney/Hyperion), How To Buy the Home You Want
(Disney/Hyperion), The Title and Document Handbook (Sydney Cambric), Mortgage
Lending Handbook (Sydney Cambric), Mastering Peak Performance (EMR Publishing),
Real Estate Calculator Handbook (Sydney Cambric). Mr. Eilers earned his AA in
the Administration of Justice from Sacramento City College in 1971 and from 1970
to 1985 completed extensive course work at California State College, Sacramento,
Yuba College, and Lincoln School of Law.

      Virgil Baker, CFO and Director

      Mr. Baker has served as CFO of eTotalSource since 2002 and has served as a
director since 2003. From 1996 to 2000, Mr. Baker, along with Terry Eilers,
devoted all of his time to the development of online training and the prototype
software for Presenta Pro(TM). In 2000, Mr. Baker, along with Terry Eilers,
formed eTotalSource.com, Inc. and became the CFO. From 1993 to 1996, Mr. Baker


                                       16
<PAGE>

was the CFO for AGRICO, a large agriculture corporation, where he designed and
integrated the network programs for the accounting, cash flow and inventory
systems on a nationwide basis. Mr. Baker earned a BA in Accounting from
California State University in Chico in 1992.

      Michael Sullinger, COO and Director

      Mr. Sullinger has served as COO and a director of eTotalSource since 2003.
Mr. Sullinger's background is in development and management of partnerships and
joint ventures. Since 1993, Mr. Sullinger has practiced law in Yuba City,
California. Mr. Sullinger has served on the board of director of numerous
government, business and philanthropic organizations. Mr. Sullinger earned his
BA in Business from San Francisco State University in 1977, and earned his JD
from California Northern School of Law in 1993.

      J. Cody Morrow, Director

      Mr. Morrow has served as a director of eTotalSource since 2003. Mr. Morrow
is currently President of Morrow Marketing International, a position he has held
since 1995. Mr. Morrow has many years experience in opening foreign markets to
new businesses. From 1989 to 1993, Mr. Morrow was President of Monarch
Development Corporation, a Southern California-based real estate development
company.

      A. Richard Barber, Director

      Mr. Barber has served as a director of eTotalSource since 2003. Since
1983, Mr. Barber has served as senior partner of A. Richard Barber & Associates,
a literary agency and consultant to numerous major publishing companies. From
1969 to 1983, Mr. Barber was the Director of Development for Network
Enterprises, Inc., where he supervised the creations and writing of television
and film properties. Mr. Barber was a Director and Senior Editor of Public
Relations for Viking Penguin, Inc. From 1971 to 1989, Mr. Barber was a lecturer
in publishing at New York, Harvard and Radcliff Universities. Mr. Barber earned
an M.A. and PhD from Columbia University in 1962-1963.

Family Relationships.

      To our knowledge, there are no family relationships between or among the
directors, executive officers or any other person.

Legal Proceedings.

      None of the Company's directors have been involved in legal proceedings.

Audit Committee Financial Expert.

      The Company does not have an audit committee, nor an audit committee
financial expert.


Code Of Ethics

      On November 16, 2004, eTotalSource's Board of Directors adopted a written
Code of Ethics designed to deter wrongdoing and promote honest and ethical
conduct, full, fair and accurate disclosure, compliance with laws, prompt
internal reporting and accountability to adherence to the Code of Ethics. This
Code of Ethics was filed as an exhibit to the Company's pending registration
statement on Form SB-2 filed with the United States Securities and Exchange
Commission on November 24, 2004.

Section 16(A) Beneficial Ownership Reporting Compliance.

      Section 16(a) of the United States Securities Exchange Act of 1934, as
amended, requires the Company's officers and directors, and certain persons who
own more than 10% of a registered class of the Company's equity securities


                                       17
<PAGE>

(collectively, "Reporting Persons"), to file reports of ownership and changes in
ownership ("Section 16 Reports") with the United States Securities and Exchange
Commission. Reporting Persons are required by the United States Securities and
Exchange Commission to furnish the Company with copies of all Section 16 Reports
they file.

      Based solely on its review of the copies of such Section 16 Reports
received by it, or written representations received from certain Reporting
Persons, no forms were required to be filed pursuant to Section 16(a).

Item 10. Executive Compensation.

      The Company accrued or paid compensation to the executive officers as a
group for services rendered to the Company in all capacities during the 2004
fiscal year as shown in the following table. No cash bonuses were or are to be
paid to such persons for services rendered in the fiscal year ended December 31,
2004.

<TABLE>
<CAPTION>
                                           Annual Compensation                           Awards
                                           ----------------------   ----------------------------------------------------
                                                                                               Securities
                                                                                   Restricted  Underlying
                                                                    Other Annual     Stock      Options/     All Other
     Name and Principal                        Salary      Bonus    Compensation    Award(s)      SARS     Compensation
     Position(s)                    Year        ($)         ($)          ($)          ($)         (#s)          ($)
     ---------------------------- ------    ----------   ---------  ------------   ----------  ----------- -------------
     <S>                          <C>       <C>          <C>        <C>            <C>         <C>         <C>
     Terry Eilers, President, CEO 2002        $37,000         0              0                  $100,000               0
                                  2003        $79,000         0              0             0           0               0
                                  2004              0         0              0             0           0        $200,000

     Michael Sullinger,           2002              0         0              0             0    $200,000               0
     Secretary,
     COO, Legal Counsel
                                  2003              0         0              0             0           0        $200,000
                                  2004        $46,000         0              0       $20,000           0               0

     Virgil Banker, CFO           2002        $18,000         0              0             0    $100,000               0
                                  2003        $76,900         0              0             0           0               0
                                  2004        $96,000         0              0       $20,000           0               0
</TABLE>

      There are no compensatory plans or arrangements, with respect to any
executive officer of the Company, which result or will result from the
resignation, retirement or any other termination of such individual's employment
with the Company or from a change in control of the Company or a change in the
individual's responsibilities following a change in control.

Director Compensation.

      Except as noted below, directors received no cash compensation for their
service to the Company as directors for the fiscal year ended December 31, 2004,
but can be reimbursed for expenses actually incurred in connection with
attending meetings of the Board of Directors.

      For the fiscal year ended December 31, 2004, the Company issued to A.
Richard Barber, a director of ETLS, 400,000 shares of the Company's common stock
at $0.05 per share.

Employment Contracts.

      Agreements were executed with the Chief Executive Officer, Terry Eilers,
and the Chief Financial Officer, Virgil Baker, at the inception of the Company
(February 7, 2000) which expire December 31, 2005. Annual salary is $150,000 and
$96,000, respectively, and each accrues an annual non-accountable automobile
allowance of $9,000. The agreements also provide for 10% royalties on license
revenues of the Company's Presenta ProTM software and an annual bonus of
incentive stock options (covering 200,000 shares each). In addition, the CEO is
entitled to a 5% referral commission on certain sales. Unpaid salary and
commissions can be paid with warrants to purchase common stock at $1 per share.
During both 2004 and 2003, CEO compensation expensed pursuant to these
arrangements totaled $159,000, and CFO compensation totaled $105,000,
respectively (exclusive of the fair value of incentive stock options).


                                       18
<PAGE>

      An agreement was executed August 1, 2002 with the Chief Operating Officer,
Michael Sullinger, which expires December 31, 2007. Annual salary is $120,000
and a non-accountable automobile allowance of $9,000. The agreement also
provides for a 10% royalty on the license revenues of the Company's Presenta
ProTM software and an annual bonus of incentive stock options (covering 200,000
shares). Unpaid salary and commissions can be paid with warrants to purchase
common stock at $1 per share. During 2004 and 2003, COO compensation expensed
pursuant to these arrangements was accrued on a "half-time" basis and totaled
$69,000 and $64,500, respectively (exclusive of the fair value of incentive
stock options).

<TABLE>
<CAPTION>
                                                          Percent of total
                                 Number of securities       options/SARs
                                      underlying             granted to        Exercise or
                                 options/SARs Granted   employees in fiscal     base price
             Name                        (#)                    year              ($/SH)        Expiration date
------------------------------- ----------------------- --------------------- --------------- --------------------
<S>                             <C>                     <C>                   <C>             <C>
Terry Eilers                           200,000 *                                     $.50         12/15/2011
Terry Eilers                           100,000 *                                     $.50         12/12/2012
Virgil Baker                           200,000 *                                     $.50         12/15/2011
Virgil Baker                           100,000 *                                     $.50         12/12/2012
Michael Sullinger                      200,000 *                                     $.50         12/12/2012
Richard Barber                          25,000 *                                     $.50         12/15/2011
Richard Barber                          25,000 *                                     $.50         12/12/2012
Morrow Revocable Trust
(beneficially J. Cody Morrow
& Family)                             200,000  *                                     $.50         12/15/2011
</TABLE>

----------------


* Were assumed by the Company as part of reorganization.


                        Aggregated Options/SAR Exercises
                             In Last Fiscal Year And
                       Fiscal Year End Options/SAR Values

<TABLE>
<CAPTION>
                                                                      Number of Securities
                                                                      Underlying Unexercised    Value of Unexercised
                                                                         Options/SARs at            In-the-Money
                                      Shares                           Fiscal Year End (#)         Options/SARs at
                                    Acquired on        Value             Exercisable/           Fiscal Year End (R)
             Name                  Exercise (#)      Realized ($)         Unexercisable        Exercisable/Unexercisabl
-----------------------------     --------------    -------------     ----------------------  ---------------------------
<S>                               <C>               <C>               <C>                     <C>
None for any officer or
director                                 0                0                     0                         0
</TABLE>

<TABLE>
<CAPTION>
             Long-Term Incentive Plans - Awards in Last Fiscal Year

                                                                                Estimated future payouts under
                                                      Performance or              non-stock price-based plans
                                  No. of Shares,    other period until    ------------------------------------------
                                  units or other       maturation or       Threshold         Target        Maximum
             Name                   rights (#)            payout            ($ or #)        ($ or #)       ($ or #)
-----------------------------     --------------    ------------------    ----------       ----------  -------------
<S>                              <C>                <C>                   <C>              <C>         <C>

None for any officer or                                                       0               0             0
director                                 0                    0
</TABLE>

Committees of the Board of Directors.

      Currently, ETLS does not have an executive, audit or any standing
committees of the Board of Directors.


                                       19
<PAGE>

Item 11.  Security Ownership Of Certain Beneficial Owners And Management.

         The Company has 46,710,821 shares of common stock issued and
outstanding as of December 31, 2004. There are no shares of preferred stock
issued and outstanding as of December 31, 2004. The table below sets forth
certain information with respect to the common stock beneficially owned by (i)
each Director, nominee and executive officer of the Company; (i) each person who
owns beneficially more than 5% of the common stock; and (iii) all Directors,
nominees and executive officers as a group.

<TABLE>
<CAPTION>
                                                                Amount and Nature of
 Title of Class     Name and Address of Beneficial Owner       Beneficial Ownership (1)      Percentage of Class
------------------ ----------------------------------------- ----------------------------   ---------------------
<S>                <C>                                       <C>                            <C>
Common             Terry Eilers                                          6,372,039, plus                    13.6%
                   1510 Poole Boulevard                              300,000 options (1)                      .6%
                   Yuba City, CA  95993

                   Morrow Revocable Trust (beneficially J.               1,645,056, plus                     3.5%
                   Cody Morrow & Family)                             200,000 options (1)                      .4%
Common
                   12655 Rough & Ready
                   Grass Valley, CA  95945

Common             Michael Sullinger                                       468,544, plus                     1.0%
                   1510 Poole Boulevard                              200,000 options (1)                      .4%
                   Yuba City, CA  95993

Common             Virgil Baker                                          1,277,363, plus                     2.7%
                   1510 Poole Boulevard                              300,000 options (1)                      .6%
                   Yuba City, CA  95993

Common             A.  Richard Barber                                      948,352, plus                     2.0%
                   1510 Poole Boulevard                               50,000 options (1)                     .01%
                   Yuba City, CA  95993

                   All directors and executive officers as
                   a group (5 persons)                                  10,711,354, plus                    22.9%
                                                             11,711,354 with options (1)                    25.1%

Common             Clark Davenport                                             1,535,386                     3.3%
                   1510 Poole Boulevard
                   Yuba City, CA  95993

Common             Cornell Capital Partners, L.P.                              3,833,334                     8.2%
                   101 Hudson Street, Suite 3700
                   Jersey City, NJ 07302

                   Robert H.  Baker, as Trustee of the RHB                     2,287,500                     4.9%
Common             Trust, dated June 7, 2002
                   1940 Blossom Rock Pl.
                   Gold River, CA 95670

Common             James Boras                                                 3,162,500                     6.8%
                   3501 Autumn Point Lane
                   Carmichael, CA 95608
</TABLE>


                                       20
<PAGE>


---------------------

(1)   Options exercisable within 60 days computed pursuant to Section 13.


(2)   Unless otherwise indicated, the persons named in the table have sole
      voting and investment power with respect to all shares of common stock
      shown as beneficially owned by them.


      Each principal shareholder has sole investment power and sole voting power
over the shares.


Item 12. Certain Relationships And Related Transactions.

      On December 30, 2002, Premium acquired 91% of the preferred and common
stock of ETLS pursuant to an Agreement and Plan of Reorganization effective
December 30, 2002, by issuing 15,540,011 shares of Premium common stock to ETLS
shareholders. Immediately after the transaction, the ETLS shareholders owned
approximately 88.5% of the Company's common stock. Coincident with the
transaction, the Company changed its fiscal year from June 30 to December 31.

      The reorganization is recorded as a recapitalization effected by a reverse
merger wherein Premium is treated as the acquiree for accounting purposes, even
though it is the legal acquirer. The transaction has been accounted for as a
purchase, and accordingly, since the transaction occurred December 31, 2002, the
results of operations for the periods presented represent solely those of the
accounting acquirer, ETLS. Since Premium was a non-operating shell with limited
business activity, goodwill was not recorded.

      No officer, director, or affiliate of the Company has or proposes to have
any direct or indirect material interest in any asset proposed to be acquired by
the Company through security holdings, contracts, options, or otherwise.

Item 13. Exhibits And Reports On Form 8-K

      The following documents are filed as part of this report:

      (a)   Exhibits.

<TABLE>
<CAPTION>
 DESIGNATION OF EXHIBIT
AS SET FORTH IN ITEM 601
    OF REGULATION S-B                        DESCRIPTION                                   LOCATION
------------------------   ---------------------------------------------    ---------------------------------------
<S>                        <C>                                              <C>
2.1                        Agreement and Plan of Merger, dated August 7,    Incorporated  by  reference  to Exhibit
                           2000 between Calipso and Knowledge               2(1) to Form  8-K  filed  on  September
                           Foundations, Inc.                                27, 2000 to

2.2                        Merger Agreement, dated April 23, 2002,          Incorporated  by  reference  to Exhibit
                           between ETotalSource, Inc., Knowledge            99.2 to Form 8-K filed on May 9, 2002
                           Foundations, Inc. and KFI, Inc.

2.3                        First Amendment to Merger Agreement dated        Incorporated  by  reference to Form S-4
                           August 8, 2002, between ETotalSource, Inc.,      filed on August 13, 2002
                           KFI, Inc. and Knowledge Foundations, Inc.
</TABLE>


                                       21
<PAGE>

<TABLE>
<CAPTION>
 DESIGNATION OF EXHIBIT
AS SET FORTH IN ITEM 601
    OF REGULATION S-B                        DESCRIPTION                                   LOCATION
------------------------   ---------------------------------------------    --------------------------------------------
<S>                        <C>                                              <C>
2.4                        Separation and Distribution Agreement by and     Incorporated  by  reference to Form S-4
                           among Knowledge Foundations, Inc., Cyber         filed on August 13, 2002
                           Knowledge, Inc. and CKI Group

3.1                        Articles of Incorporation                        Incorporated by reference to the Form 10-KSB
                                                                            filed on March 25, 2005

3.2                        Bylaws                                           Incorporated by reference to the Form 10-KSB
                                                                            filed on March 25, 2005

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

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

3.5                        Articles of Amendment to the Articles of         Incorporated by reference to the Form 10-KSB
                           Incorporation                                    filed on March 25, 2005

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

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


                                       22
<PAGE>

<TABLE>
<CAPTION>
 DESIGNATION OF EXHIBIT
AS SET FORTH IN ITEM 601
    OF REGULATION S-B                        DESCRIPTION                                   LOCATION
------------------------   ---------------------------------------------    ---------------------------------------
<S>                        <C>                                              <C>
10.3
                           Employment Agreement of Virgil Baker dated       Incorporated by reference to the
                           February 7, 2000                                 pending Registration Statement on Form
                                                                            SB-2 dated November 24, 2004 (File no.
                                                                            333-120786)

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


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


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


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


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


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


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


                                                        23
<PAGE>

<TABLE>
<CAPTION>
 DESIGNATION OF EXHIBIT
AS SET FORTH IN ITEM 601
    OF REGULATION S-B                        DESCRIPTION                                   LOCATION
------------------------   ---------------------------------------------    ---------------------------------------
<S>                        <C>                                              <C>
10.11                      Secured Convertible Debenture                    Incorporated by reference to the
                                                                            pending Registration Statement on Form
                                                                            SB-2 dated November 24, 2004 (File no.
                                                                            333-120786)


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

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

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

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)

31.1                       Rule 13a-14(a)/15d-14(a) Certification By CEO    Provided Herewith

31.2                       Rule 13a-14(a)/15d-14(a) Certification by CFO    Provided Herewith

32.1                       Section 1350 SOX Certification by CEO            Provided Herewith

32.2                       Rule 1350 SOX Certification by CFO               Provided Herewith
</TABLE>


      (b)   Reports on Form 8-K

            None.

Item 14. Principal Accountant Fees And Services

      Gordon, Hughes & Banks, LLP, CPAs ("GHB") is the Company's principal
auditing accounting firm.

      GHB billed the Company $34,000 for the following professional services:
audit of the annual financial statement of the Company for the fiscal year ended


                                       24
<PAGE>

December 31, 2004, and review of the interim financial statements included in
quarterly reports on Form 10-QSB for the periods ended March 31, 2004, June 30,
2004, and September 30, 2004. GHB billed the Company $25,000 for the 2003 audit.

      There were no audit related fees in 2003 or 2004. There were no tax fees
or other fees in 2003 or 2004. GHB billed the Company $3,863 for preparing the
2003 tax returns.

      The Company's Board acts as the audit committee and had no pre-approval
policies and procedures in effect for the auditors' engagement for the audit
year 2003 and 2004.

      All audit work was performed by the auditors' full-time employees.


                                       25
<PAGE>

                                   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.

                                     ETOTALSOURCE, INC.

                                     By:   /s/ Terry Eilers
                                           -------------------------------------
                                           Terry Eilers
                                           President and Chief Executive Officer

                                     Date: June 3, 2005



         In accordance with the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons or on behalf of the
Registrant and in the capacities on the dates indicated.



                                     By:   /s/ Terry Eilers
                                           ---------------------------
                                           Director

                                     Date: June 3, 2005



                                     By:   /s/ Virgil Baker
                                           ---------------------------
                                           Virgil Baker, Director

                                     Date: June 3, 2005



                                     By:   /s/ Michael Sullinger
                                           ---------------------------
                                           Michael Sullinger, Director

                                     Date: June 3, 2005



                                     By:   /s/ Cody Morrow
                                           ---------------------------
                                           Cody Morrow, Director

                                     Date: June 3, 2005



                                     By:   /s/ Richard Barber
                                           ---------------------------
                                           Richard Barber, Director

                                     Date: June 3, 2005


                                       26
<PAGE>
                               eTotalSource, Inc.
                        Consolidated Financial Statements
                                Table of Contents

                                                                         PAGE

Consolidated Financial Statements

              Report of Independent Registered Public Accounting Firm     F-1

              Balance Sheet                                               F-2

              Statements of Operations                                    F-3

              Statement of Stockholders' Equity (Deficit)                 F-4

              Statements of Cash Flows                                    F-5

              Notes to Consolidated Financial Statements                  F-6
<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
eTotalSource, Inc.
Yuba City, California

We have audited the accompanying consolidated balance sheet of eTotalSource,
Inc. (formerly Premium Enterprises, Inc. - the "Company") as of December 31,
2004 and the related consolidated statements of operations, cash flows and
stockholders' equity (deficit) for the years ended December 31, 2004 and 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of eTotalSource, Inc.
at December 31, 2004, and the results of its consolidated operations and its
cash flows for the years ended December 31, 2004 and 2003, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been presented assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As
discussed in Note 1 to the financial statements, the Company has incurred
significant recurring losses, and as of December 31, 2004 has a substantial
liquidity shortage, including default conditions on certain notes payable and
judgments payable to creditors. As a consequence, the Company requires
significant additional financing to satisfy outstanding obligations and continue
operations. Unless the Company successfully obtains suitable significant
additional financing, there is substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in Note 1. The financial statements do not include any
adjustments to reflect the possible future effect on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.



/s/ Gordon, Hughes & Banks, LLP
-------------------------------
    Greenwood Village, Colorado
    February 28, 2005


                                      F-1
<PAGE>

                                 eTotalSource, Inc.
                             Consolidated Balance Sheet
                                  December 31, 2004
<TABLE>
<CAPTION>
   ASSETS
<S>                                                                         <C>
Current Assets
Cash                                                                        $     37,849
Other                                                                              1,296
                                                                            ------------
Total Current Assets                                                              39,145
                                                                            ------------

Property and Equipment
Furniture and equipment                                                           88,122
   Less accumulated depreciation                                                 (56,786)
                                                                            ------------
                                                                                  31,336
                                                                            ------------
Other Assets
Patent applications and trademarks, less $15,431 accumulated amortization         24,907
Deposits                                                                           1,162
                                                                            ------------
                                                                                  26,069
                                                                            ------------
Total Assets                                                                $     96,550
                                                                            ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities

Convertible notes payable                                                   $    417,569
Other notes payable                                                              632,000
Judgements payable                                                               204,788
Accounts payable                                                                 183,461
Accrued compensation payable                                                     845,880
Accrued interest payable                                                         185,475
Deferred revenue                                                                  67,500
                                                                            ------------
Total Current Liabilities                                                      2,536,673

Convertible Notes Payable, less current maturities                               117,900
                                                                            ------------

Total Liabilities                                                              2,654,573
                                                                            ------------

Commitments and Contigencies

Stockholders' Equity (Deficit)
Common stock; no par value; 100 million shares authorized,
  46,710,821 shares issued and outstanding                                     5,784,300
Accumulated (deficit)                                                         (8,342,323)
                                                                            ------------
Total Stockholders' Equity (Deficit)                                          (2,558,023)
                                                                            ------------

Total Liabilities and Stockholders' Equity (Deficit)                        $     96,550
                                                                            ============
</TABLE>


                                      F-2
<PAGE>

                                 eTotalSource, Inc.
                        Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                      December 31,
                                             ----------------------------
                                                 2004             2003
                                             ------------    ------------
<S>                                          <C>             <C>
Revenues                                     $    209,198    $    281,919

General and Administrative Expenses             2,390,905       1,860,146
                                             ------------    ------------

Operating Income (Loss)                        (2,181,707)     (1,578,227)

Other Income (Expense)
Gain on sale of building                               --         205,705
Interest expense                                 (190,592)       (602,045)
Other income (expense), net                          (376)          7,992
                                             ------------    ------------
Total Other Income (Expense)                     (190,968)       (388,348)
                                             ------------    ------------

Net (Loss)                                   $ (2,372,675)   $ (1,966,575)
                                             ============    ============

Basic and Diluted (Loss) per Share           $      (0.06)   $      (0.10)
                                             ============    ============

Weighted Average Common Shares Outstanding     37,897,170      19,830,586
                                             ============    ============
</TABLE>


                                      F-3
<PAGE>

                               eTotalSource, Inc.
            Consolidated Statements of Stockholder's Equity (Deficit)

<TABLE>
<CAPTION>
                                                                  Common Stock              Accumulated
                                                        -------------------------------
                                                            Shares           Amount          (Deficit)            Total
                                                        --------------  --------------- ------------------  -----------------
<S>                                                     <C>             <C>             <C>                 <C>
 December 31, 2002                                         17,565,151      $ 1,381,311       $ (4,003,073)      $ (2,621,762)

      Issued for services or in lieu of interest
          ($.08 to $.525 per share)                         4,050,000          751,350                 --            751,350

      Conversion of notes payable -
          Convertible notes ($.35 per share)                  459,056          160,670                 --            160,670
          Other notes payable ($.08 and $.24 per share)     2,500,000          361,950                 --            361,950

      Issuance for cash in private placement
          ($.08 per share)                                  6,625,000          530,000                 --            530,000

      Exercise of warrants ($.09 per share)                   350,000           31,500                 --             31,500

      Options and warrants -
          Interest                                                 --          364,721                 --            364,721
          Services                                                 --           75,382                 --             75,382

      Shares rescinded by officer                          (2,000,000)              --                 --                 --

       Net (loss)                                                  --               --         (1,966,575)        (1,966,575)
                                                        --------------  --------------- ------------------  -----------------

December 31, 2003                                          29,549,207        3,656,884         (5,969,648)        (2,312,764)

      Issued for services or in lieu of interest
          ($.05  to $.53 per share)                        13,644,505        1,443,505                 --          1,443,505

      Conversion of debt -
          Convertible notes ($.165 to $.20 per share)         469,318           87,500                 --             87,500
          Other payables ($.075 to $.20 per share)          1,766,495          320,000                 --            320,000
          Reorganization debt ($.167 to $.176 per share)      583,505          100,000                 --            100,000

      Options and warrants -
         Services                                                  --          101,911                 --            101,911
         Interest                                                  --            4,500                 --              4,500

      Pre-reorganization shares issued (*1)                   697,791               --                 --                 --

      Additional paid-in-capital -
         Discounts-- convertible debenture bonds                   --           70,000                 --             70,000

       Net (loss)                                                  --               --         (2,372,675)        (2,372,675)
                                                        --------------  --------------- ------------------  -----------------

December 31, 2004                                          46,710,821      $ 5,784,300       $ (8,342,323)      $ (2,558,023)
                                                        ==============  =============== ==================  =================
</TABLE>

*1    These shares were not issued at the time of the reorganization and were
      not used in the weighted average calculation prior to this issuance.


                                      F-4
<PAGE>

                                 eTotalSource, Inc.
                        Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                           ----------------------------
                                                                               2004             2003
                                                                           ------------    ------------
<S>                                                                        <C>             <C>
Cash Flows From (Used in) Operating Activities:
Net (loss)                                                                 $ (2,372,675)   $ (1,966,575)

   Depreciation and amortization                                                 26,938          30,383
   Gain on sale of building                                                          --        (205,705)
   Loss on retirement of assets                                                   1,745           4,460
   Stock issued for services and in lieu of interest                          1,391,105         751,350
   Stock issued for accrued interest upon debt conversion                        52,400         182,620
   Stock options and warrant expense                                            106,411         440,103
   Changes in assets and liabilities:
   Decrease (increase) in accounts receivable                                       414              --
   Decrease (increase) in other current assets                                   (1,296)         47,708
   Decrease (increase) in deposits                                                  196           2,618
   Increase (decrease) in payables, credit cards and accrued liabilities        222,604         170,347
   Increase (decrease) in deferred revenue                                      (45,000)        (45,000)
                                                                           ------------    ------------

   Net Cash (Used in) Operating Activities                                     (617,158)       (587,691)
                                                                           ------------    ------------

   Cash Flows From (Used in) Investing Activities:
   Net proceeds from sale of fixed assets                                         1,000         142,596
   Purchase of equipment                                                         (9,077)         (9,005)

                                                                           ------------    ------------
   Net Cash (Used in) Investing Activities                                       (8,077)        133,591
                                                                           ------------    ------------

   Cash Flows From (Used in) Financing Activies:
   Proceeds from issuance of convertible notes payable                          350,000              --
   Payments on mortgages and notes payable                                           --        (204,642)
   Proceeds from issuance of notes payable                                           --         360,000
   Proceeds from sale of stock                                                       --         561,500
                                                                           ------------    ------------

   Net Cash From Financing Activities                                           350,000         716,858
                                                                           ------------    ------------

   Increase (decrease) in Cash and Cash Equivalents                            (275,235)        262,758

   Cash and Cash Equivalents - Beginning of Period                              313,084          50,326
                                                                           ------------    ------------

   Cash and Cash Equivalents - End of Period                               $     37,849    $    313,084
                                                                           ============    ============

   Supplemental Disclosures:
      Interest paid                                                        $    109,535    $    378,804
      Income taxes paid                                                           1,600             800
      Non-cash investing and financing transactions:
         Conversion of accounts payable and accrued expenses to equity          427,500              --
         Conversion of debt to equity                                            80,000         340,000
         Convertible notes payable discount                                      70,000              --
</TABLE>


                            See accompanying notes.


                                      F-5
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

NOTE 1.  BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business
eTotalSource, Inc., (the "Company" - formerly named Premium Enterprises, Inc.
("PMN"), was incorporated in Colorado on September 16, 1987. The principal
activities of the Company are developing and publishing proprietary multimedia
software technology and training media. The Company's primary customers are
corporations, governmental organizations and agencies. The Company is based in
Yuba City, California.

Reorganization in 2002
On December 30, 2002, PMN acquired 91% of the preferred and common stock of
eTotalSource, Inc. ("eTS" - incorporated in California on February 7, 2000),
pursuant to an Agreement and Plan of Reorganization effective December 30, 2002,
by issuing 15,540,011 shares of PMN common stock to eTS shareholders.
Immediately after the transaction, the eTS shareholders owned approximately
88.5% of the Company's common stock. During 2004, the Company issued 697,791
shares of previously reserved common stock to acquire the remaining eTS stock
and 583,505 shares to settle pre-reorganization accounts payable of PMN totaling
$100,000.

Going Concern Considerations
The accompanying financial statements have been presented assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company has incurred significant operating losses since inception and as of
December 31, 2004 had a net working capital deficit of approximately
$(2,498,000), a stockholders' deficit of $(2,558,023), notes payable totaling
$582,000 were in default with related accrued interest in arrears of $60,955,
and legal judgments against the Company of $204,788 had been adjudicated.
Management's plans to address these matters include the issuance of debt and
equity securities and increasing revenue. Unless the Company successfully
obtains suitable significant additional financing and attains profitable
operations, there is substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effect on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.


                                      F-6
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary after the elimination of intercompany balances and
transactions.

Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position No.97-2
"Software Revenue Recognition" issued by the Accounting Standards Executive
Committee of the AICPA. Revenues are recorded net of an allowance for estimated
returns and collectibility at the time of billing.

Product revenue is derived primarily from the sale of self-produced training
multimedia and related off-the-shelf software products. The Company recognizes
revenue from sales of these products at the time of shipment to customers.
Service revenue is primarily derived from production of videos for others and is
recognized upon customer acceptance.

Deferred revenue includes payments received for product licenses covering future
periods and advances on service contracts that have not yet been fulfilled.

Software and Development Costs
The Company capitalizes purchased software that is ready for use and development
costs of marketable software incurred from the time of technological feasibility
until the software is ready for use. Research and development costs and other
computer software maintenance costs are expensed as incurred. As of December 31,
2004, the Company has not capitalized any software development costs.

Furniture and Equipment
Furniture and equipment are recorded at cost. Maintenance and repairs are
charged to operations when incurred. When property and equipment are sold or
otherwise disposed of, the asset account and related accumulated depreciation
account are relieved, and any gain or loss is included in operations. The cost


                                      F-7
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

of property is depreciated using the straight-line method over estimated useful
lives ranging from five to seven years. Depreciation charged to operations was
$17,435 in 2004 and $25,092 in 2003.

Patents and Trademarks
Patents and trademarks represent the legal and application costs of multimedia
technology used in operations and are amortized using the straight-line method
over an estimated useful life of ten years.

Comprehensive Income
For the periods presented, the Company had no items of comprehensive income or
loss, and accordingly, comprehensive income is the same as the net loss
reported.

Segment Reporting
In June 1997, Statement of Financial Accounting Standards ("SFAS") 131,
"Disclosure about Segments of an Enterprise and Related Information," was
issued. Operating segments, as defined in the pronouncement, are components of
an enterprise about which separate financial information is available and that
are evaluated regularly by management in deciding how to allocate resources and
assess performance. As of December 31, 2004 and 2003, the Company had one
operating segment, publishing proprietary multimedia software technology and
training media.

Income Taxes
Deferred income taxes are based on temporary differences between the financial
statement and tax basis of assets and liabilities existing at each balance sheet
date using enacted tax rates for years during which taxes are expected to be
paid or recovered.


Cash Equivalents
For the purpose of reporting cash flows, the Company considers as cash
equivalents all highly liquid investments with a maturity of three months or
less at the time of purchase.

Asset Impairment
If facts and circumstances suggest that a long-lived asset may be impaired, the
carrying value is reviewed. If this review indicates that the value of the asset
will not be recoverable, as determined based on projected undiscounted cash
flows related to the asset over its remaining life, then the carrying value of
the asset is reduced to its estimated fair value.


                                      F-8
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

Earnings (Loss) Per Share
Basic earnings per share are computed using the weighted average number of
shares outstanding during each period. Diluted earnings per share is computed on
the basis of the average number of common shares outstanding and the dilutive
effect of convertible notes payable, stock options and warrants using the
"treasury stock" method. Basic and diluted earnings per share are the same
during the periods presented since the Company had net losses and the inclusion
of stock options and warrants would be anti-dilutive.

Stock-Based Compensation
The Company accounts for stock-based compensation using Accounting Principles
Board's Opinion No. 25 ("APB 25"). Under APB 25, compensation expense is
recognized for stock options with an exercise price that is less than the market
price on the grant date of the option. For stock options with exercise prices at
or above the market value of the stock on the grant date, the Company has
adopted the Financial Accounting Standards Board ("FASB") disclosure-only
provisions of Statement of Accounting Standards No. 123 Accounting for
Stock-Based Compensation ("SFAS 123"). The Company has adopted the
disclosure-only provisions of SFAS 123 for stock options granted to the
employees and directors. There were no options granted in 2004 or 2003.

Beneficial Conversion Feature of Debt
In accordance with Emerging Issues Task Force No. 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios, and No. 00-27, Application of Issue No. 98-5 to
Certain Convertible Instruments, the Company recognizes the value of conversion
rights attached to convertible debt. These rights give the debt holder the
ability to convert his debt into common stock at a price per share that is less
than the trading price to the public on the day the loan is made to the Company.
The beneficial value is calculated based on the market price of the stock at the
commitment date in excess of the conversion rate of the debt and related
accruing interest and is recorded as a discount to the related debt and an
addition to additional paid in capital. The discount is amortized and recorded
as interest expense over the remaining outstanding period of related debt.


                                      F-9
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS 123R "Share-Based Payment," a revision to
FASB No. 123. SFAS 123R replaces existing requirements under SFAS 123 and APB
25, and requires public companies to recognize the cost of employee services
received in exchange for equity instruments, based on the grant-date fair value
of those instruments, with limited exceptions. SFAS 123R also affects the
pattern in which compensation cost is recognized, the accounting for employee
share purchase plans, and the accounting for income tax effects of share-based
payment transactions. For small-business filers, SFAS 123R will be effective for
interim periods beginning after December 15, 2005. The Company is currently
determining what impact the proposed statement would have on its results of
operations and financial position.



In November 2004, the FASB issued SFAS 151, which revised ARB 43, relating to
inventory costs. This revision is to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs and wasted material
(spoilage). This Statement requires that these items be recognized as a current
period charge regardless of whether they meet the criterion specified in ARB 43.
In addition, this Statement requires the allocation of fixed production overhead
to the costs of conversion be based on normal capacity of the production
facilities. This Statement is effective for financial statements for fiscal
years beginning after June 15, 2005. Earlier application is permitted for
inventory costs incurred during fiscal years beginning after the date this
Statement is issued. Management believes this Statement will have no impact on
the financial statements of the Company once adopted.



In December 2004, the FASB issued SFAS 152, which amends SFAS 66, "Accounting
for Sales of Real Estate", to reference the financial accounting and reporting
guidance for real estate time-sharing transactions that is provided in AICPA
Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing
Transactions. This Statement also amends SFAS 67, Accounting for Costs and
Initial Rental Operations of Real Estate Projects, to state that the guidance
for (a) incidental operations and (b) costs incurred to sell real estate
projects does not apply to real-estate time-sharing transactions. The accounting
for those operations and costs is subject to the guidance in SOP 04-2. This
Statement is effective for financial statements for fiscal years beginning after
June 15, 2005. Management believes this Statement will have no impact on the
financial statements of the Company once adopted.


                                      F-10
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

In December 2004, the FASB issued SFAS 153. This Statement addresses the
measurement of exchanges of non-monetary assets. The guidance in APB 29,
Accounting for Non-monetary Transactions, is based on the principle that
exchanges of non-monetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This Statement amends APB 29 to eliminate the
exception for non-monetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of non-monetary assets that do not
have commercial substance. A non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a
result of the exchange. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. Earlier application is permitted for
non-monetary asset exchanges incurred during fiscal years beginning after the
date of this Statement is issued. Management believes this Statement will have
no impact on the financial statements of the Company once adopted.


NOTE 2.  NOTES PAYABLE
<TABLE>
<CAPTION>
<S>                                                                                                          <C>
Note  payable to a trust;  interest at 15% payable  monthly  through  December 18, 2003 when
principal and unpaid interest are due.  The note is in default.                                              $172,000

Note payable to a trust;  interest at 10% and  principal  due January 17, 2003,  extended to                  110,000
December 17, 2003 (with  interest  increased to 18% and due monthly  beginning  February 17,
2003).  The note is in default.

Note payable to a trust; interest at 14% payable monthly through December 18,
2003 when principal and unpaid interest are due.  The note is in default.                                      40,000

Promissory  notes  payable;  interest  at  6%  payable  monthly,  due  in  2001,  unsecured.                  150,000
Principal  and accrued  interest  ($36,200 at December 31, 2004) are  convertible  to common
stock at $.50 per  share.  Warrants  also  issued to two note  holders  to  purchase  37,500
shares of common stock for five years at $.50 per share.  The notes are in default.

Promissory note payable;  principal and accrued interest at 8% payable in 2002,  extended to
May 15,  2003,  unsecured.  Principal  and accrued  interest  ($18,081 at December 31, 2004)                  100,000
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.

Note payable to an unrelated trust;  stated interest rate of 10% due June 2003,  extended to                   50,000
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.
</TABLE>


                                      F-11
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
<S>                                                                                                           <C>
Note payable to an unrelated  trust;  principal  and interest at 10% due monthly.  This note                  250,000
is a revolving  credit  obligation and eTotalSource can repay and borrow up to the amount of
the note.  In October 2004, the note was extended to April 2005.

Convertible  debenture bonds to an unrelated company,  principal and interest at 5%, payable                  285,469
October  6, 2006 and  December  2,  2006,  secured  by  31,250,000  shares of common  stock.
Principal and accrued interest ($2,757 at December 31, 2004)  convertible to common stock at
a  conversion  price  equal to the lower of (i) 120% of the  closing bid price of our common
stock as listed on a principal  exchange,  as quoted by  Bloomberg,  L.P.,  as of October 6,
2004 and December 2, 2004, respectively,  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
$70,000; the debt is stated net of the remaining discount of $64,531.

Note payable to a director;  principal and interest at 9.2%, due December 4, 2002,  extended
to May 1, 2003, unsecured.  The note is in default.                                                            10,000
                                                                                                            ---------

Total                                                                                                       1,167,469

Less: current maturities                                                                                    1,049,569
                                                                                                            ---------

Long-term maturities                                                                                        $ 117,900
                                                                                                            =========
</TABLE>


NOTE 3.  INCOME TAXES
At December 31, 2004, the Company had a net operating loss carryforward of
approximately $3 million that may be offset against future taxable income
through from 2020 through 2024. These carryforwards are subject to review by the
Internal Revenue Service.

The Company has fully reserved the $1 million tax benefit of the operating loss
carryforward, by a valuation allowance of the same amount, because the
likelihood of realization of the tax benefit cannot be determined. The net
change in the valuation allowance for deferred tax assets was a decrease of $1.3
million during 2004.

Temporary differences between the time of reporting certain items for financial
statement and tax reporting purposes consists primarily of depreciation and
deferred revenue.


                                      F-12
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

NOTE 4.  STOCKHOLDERS' EQUITY

Convertible Notes Payable
During 2004, notes payable and accrued interest totaling $87,500 were converted
to 469,318 shares of common stock ($.165 - $.20 per share) as follows:

<TABLE>
<CAPTION>
    Notes Payable      Accrued Interest             Total         Conversion Price
    -------------      ----------------           ---------       ----------------
    <S>                <C>                        <C>             <C>
         $ 50,000               $ 7,500           $ 57,500          $     .20
           30,000                   -               30,000
                                                                         .165
</TABLE>

In addition, during 2004, accounts payable and accrued liabilities totaling
$420,000 were converted into 2,350,000 shares of common stock at conversion
prices of $.075 to $.20 per share.

During 2003, 459,056 shares of common stock were issued to convertible note
holders at $.35 per share. In addition, other notes payable and accrued interest
totaling $361,950 were converted into 2,500,000 shares of common stock at
conversion prices of $.08 to $.35 per share.

Stock Issued for Services and Interest
During 2004, the Company issued 13,369,505 shares of common stock for services,
expensed at the fair value of the stock based on contemporaneous stock market
quotes at $.05 - $.17 per share (a total of $1,391,105).

During 2004, the Company issued 275,000 shares of common stock to note holders
as compensation for additional interest. The Company has expensed the fair value
of the stock based on contemporaneous stock market quotes at $.09 - $.53 per
share (a total of $52,400).

During 2004, the Company issued 697,791 shares of common stock previously
reserved in connection with the December 30, 2002 reorganization.

In 2003, 4,050,000 shares of common stock were issued to six individuals for
services or in lieu of interest at per share valuations ranging from $.08 to
$.525.


                                      F-13
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

Stock Options and Warrants Issued for Services and in Lieu of Interest
In 2004 and 2003, the Company recorded expenses for options and warrants to
purchase common stock issued to consultants and lenders totaling $106,411 and
$440,103, respectively. 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 5.  STOCK OPTIONS AND WARRANTS

Stock Option Plan
Effective December 3, 2001, the Company adopted the eTotalSource, Inc. 2001
Stock Option Plan (the "Plan"). A total of 1.8 million shares of Company common
stock were reserved for exercise of stock options under the Plan. The Plan,
administered by the Company's board of directors, provides for the grant of
incentive stock options to employees and directors at fair market value and
nonstatutory stock options to consultants and others. No option can be for a
term of more than ten years from the date of grant. The option price is at the
discretion of the board; provided however, for incentive stock options it shall
not be less than fair market value on the date of grant (110% for certain
options becoming exercisable that exceed $100,000), and for nonstatutory options
not less than 85% of fair market value on the date of grant. All options issued
by the Company to date have exercise prices which were equal to the estimated
fair market value of the Company's common stock at the date of grant. A summary
of stock options outstanding and exercisable as of December 31, 2004 follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                   Options Outstanding     Options Outstanding    Options Exercisable       Options Exercisable
---------------------------------------------------------------------------------------------------------------------
   Range of                                 Weighted Average                             Weighted Average Exercise
Exercise Prices     Number Outstanding        Remaining Life       Number Exercisable              Price
---------------------------------------------------------------------------------------------------------------------
<S>                 <C>                     <C>                    <C>                   <C>
---------------------------------------------------------------------------------------------------------------------
     $0.50              1,262,500               6.9 years              1,262,500                   $0.50
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Information concerning all stock option activity is summarized in the following
table:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                     Option Shares                   Option Prices Per Share
---------------------------------------------------------------------------------------------------------------------
<S>                                         <S>                              <S>
Outstanding, December 31, 2002                            1,560,700                            $  0.50
---------------------------------------------------------------------------------------------------------------------
  Granted                                                        --                                 --
---------------------------------------------------------------------------------------------------------------------
  Forfeited                                                 (48,200)                           $  0.50
---------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-14
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
<S>                                         <S>                              <S>
---------------------------------------------------------------------------------------------------------------------
  Exercised                                                      --                                 --
---------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 2003                            1,512,500                            $  0.50
---------------------------------------------------------------------------------------------------------------------
  Granted                                                        --                                 --
---------------------------------------------------------------------------------------------------------------------
  Forfeited                                                (250,000)                           $  0.50
---------------------------------------------------------------------------------------------------------------------
  Exercised                                                      --                                 --
---------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 2004                            1,262,500                            $  0.50
---------------------------------------------------------------------------------------------------------------------
</TABLE>

There were no options granted under the Plan in 2003 or 2004.

Stock Options and Warrants Issued to Others

eTotalSource also has outstanding options and warrants that it has issued to
consultants and lenders to purchase a total of 1,056,500 shares of common stock
of eTotalSource at $0.75 per share: 74,000 expire in 2005, 40,000 expire in
2006, 817,500 expire in 2007, and 125,000 expire in 2011. As of December 31,
2004, the weighted average expected life of all such compensatory options and
warrants was 5.7 years.


NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts for cash, accounts payable and accrued liabilities
approximate fair value because of their short-term maturities. The fair value of
notes and judgments payable approximates fair value because of the market rate
of interest on the debt.


NOTE 7. FINANCIAL INSTRUMENTS AND CONCENTRATIONS


Financial Instruments
Financial instruments, which potentially subject the Company to significant
concentrations of credit risk, consist principally of cash.

The Company maintains its cash deposits in one bank. Its bank accounts are
guaranteed by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000.
The amount on deposit in the financial institution did not exceed the $100,000
FDIC insured limit at December 31, 2004. Management believes that the financial
institution is financially sound.


                                      F-15
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

Significant Customers
Revenue from customers in excess of ten-percent of total Company revenue
follows:



                  Customer                2004                    2003
                  --------                ----                    ----
                  A                        46%                      6%
                  B                        11%                     --%


NOTE 8. COMMITMENTS AND CONTINGENCIES

Executive Employment Contracts

The Company has employment agreements with its three executive officers:

1.    Agreements were executed with the Chief Executive Officer and the Chief
      Financial Officer at the inception of the Company (February 7, 2000) which
      expire December 31, 2005. Annual salary is $150,000 and $96,000,
      respectively, and each accrues a non-accountable automobile allowance of
      $9,000. The agreements also provide for an annual bonus of incentive stock
      options (covering 200,000 shares each). In addition, the CEO is entitled
      to a 5% referral commission on certain sales. Unpaid salary and
      commissions can be paid with warrants to purchase common stock at $1 per
      share. During both 2004 and 2003, CEO compensation expensed pursuant to
      these arrangements totaled $159,000, and CFO compensation totaled
      $105,000, respectively (exclusive of the fair value and of incentive stock
      options). Both officers have elected to forego the 2004 and 2003 annual
      bonus of incentive stock options.

2.    An agreement was executed August 1, 2000 with the Chief Operating Officer
      which expires December 31, 2007. Annual salary is $120,000 and a
      non-accountable automobile allowance of $9,000. The agreement also
      provides for an annual bonus of incentive stock options (covering 200,000
      shares). Unpaid salary and commissions can be paid with warrants to
      purchase common stock at $1 per share. During 2004 and 2003, COO
      compensation expensed pursuant to these arrangements was accrued on a
      "half-time" basis and totaled $69,000 and $64,500, respectively (exclusive
      of the fair value of incentive stock options). The officer has elected to
      forego the 2004 and 2003 annual bonus of incentive stock options.


                                      F-16
<PAGE>

eTotalSource, Inc.
Notes to Consolidated Financial Statements

NOTE 9. EVENTS SUBSEQUENT TO DECEMBER 31, 2004

On February 4, 2005, at a Special Meeting of Shareholders, the shareholders
approved an amendment to the Company's Articles of Incorporation to increase the
number of Common Shares authorized from one hundred million (100,000,000) to
three hundred million (300,000,000). The measure was passed with 30,898,791
shares voting in favor and 296,896 shares voting against, which was sufficient
to carry out the proposal.



                                      F-17