**UNITED
      STATES**




**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**


**___________________________**




**FORM
      10-KSB**




( mark
      one )


þ
              Annual
                  Report Pursuant to Section 13 or 15(d) of Securities Exchange Act
                  of 1934.For
                  the fiscal year ended**December
                  31, 2006**o
              Transition
                  report under Section 13 or 15(d) of the Securities Exchange Act
                  of
                  1934For
                  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
              or
                Organization)
            (I.R.S.
                Employer Identification No.)**1510
                Poole Boulevard, Yuba City, CA**
            **95993**(Address
                of Principal Executive Offices)
            (Zip
                Code)**(530)
                674-4030**(Issuer’s
                Telephone Number, Including Area
                Code)





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





Securities
      registered pursuant to Section 12(g) of the Exchange Act: **** Common
      Stock (Title of Class)





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. [_]





Note:
            Checking
                the box above will not relieve any registrant required to file reports
                pursuant to section 13 or 15(d) of the Exchange Act from their obligations
                under those Sections.





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
o





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
o





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





Issuer’s
      revenues for fiscal year ended December 31, 2006: **$25,980**





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 April
      12, 2007 **** was
      $167,336. The aggregate market value was based upon the closing price of the
      Company’s common stock on April 12, 2007 as quoted by the Over-the-Counter
      Bulletin Board (“OTC-BB”) under the symbol (“ETLS.OB”), which was
      $0.002.




(ISSURERS
      INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)







Check
      whether the issuer has filed all documents and reports required to be filed
      by
      Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
      under a plan confirmed by a court. Yes  o No o





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: as of April 12, 2007 83,668,019 shares of
      common stock.




DOCUMENTS
      INCORPORATED BY REFERENCE





If
      the
      following documents are incorporated by reference, briefly, describe them and
      identify the part of the Form 10-KSB (e.g., Part 1, Part II, etc.) into which
      the document is incorporated: (1) any annual report to security-holders; (2)
      any
      proxy or information statement; and (3) any prospectus filed pursuant to Rule
      424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
      documents should be clearly described for identification purposes (e.g., annual
      report to security holders for fiscal year ended December 24, 1990).
      None.





Transitional
      Small Business Disclosure Format: **** No. ****




ii


**ETOTALSOURCE,
      INC.**


**FISCAL
      YEAR** **2006
      FORM 10-KSB**





**TABLE
      OF CONTENTS**





Part
                IItem
                1.
            Description
                of Business
            1Item
                2.
            Description
                of Property
            4Item
                3.
            Legal
                Proceedings
            4Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            5Part
                IIItem
                5.
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                  Purchase of Equity Securities
            5Item
                6.
            Management’s
                Discussion and Analysis or Plan of Operation......
            9Item
                7.
            Financial
                Statements
            19Item
                8.
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure
            19Item
                8a.
            Controls
                and Procedures
            19Item
                8b.
            Other
                Information
            20Part
                IIIItem
                9.
            Directors
                and Executive Officers of the Registrant
            20Item
                10.
            Executive
                Compensation
            23Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            25Item
                12.
            Certain
                Relationships and Related Transactions
            25Item
                13.
            Exhibits
            25Item
                14.
            Principal
                Accountant Fees and Services
            27





iii




**FORWARD-LOOKING
      STATEMENTS**





Certain
      statements made in this report on Form 10-KSB are "forward-looking statements"
      regarding the plans and objectives of management for future operations. Such
      statements involve known and unknown risks, uncertainties and other factors
      that
      may cause actual results, performance or achievements of eTotalSource, Inc.
      (the
      "Company") to be materially different from any future results, performance
      or
      achievements expressed or implied by such forward-looking statements. The
      forward-looking statements included herein are based on current expectations
      that involve numerous risks and uncertainties. The Company's plans and
      objectives are based, in part, on assumptions involving judgments with respect
      to, among other things, future economic, competitive and market conditions
      and
      future business decisions, all of which are difficult or impossible to predict
      accurately and many of which are beyond the control of the Company. Although
      the
      Company believes its assumptions underlying the forward-looking statements
      are
      reasonable, any of the assumptions could prove inaccurate and, therefore, there
      can be no assurance the forward-looking statements included in this report
      will
      prove to be accurate. In light of the significant uncertainties inherent in
      the
      forward-looking statements included herein, the inclusion of such information
      should not be regarded as a representation by the Company or any other person
      that the objectives and plans of the Company will be achieved.




**PART
      I**




**Item
                1.**
            **Description
                o****f
                Business.**




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




**History.**




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




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




**Business.**




The
      sole
      business of the Company is that of eTotalSource.




**Recent
      Developments.**




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




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




1




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




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




**Recent
      Historical Operations.**





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




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




Presenta
      Pro TM features
      include:




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




2




**Business
      Model.**




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




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




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




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




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




**Intellectual
      Property Differentiation.**




ETLS
      currently has five patents pending:




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





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





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





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





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





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




**Technology.**




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




3




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




**Employees.**




As
      of
      December 31, 2006, we had two full-time employees, all of which were executive
      personnel. No employees are presently, nor as of the end of the 2006 fiscal
      year, represented by any labor unions. As of the date of this report, we have
      no
      full-time employees. As noted above, we have recently implemented a management
      transition and the new management team is currently evaluating our personnel
      requirements for the next twelve months in conjunction with determining the
      Company’s business model. These decisions might or might not require the hiring
      of additional employees in the next twelve months.




**Item
                2.**
            **Description
                Of Property.**





The
      Company occupies approximately 400 square feet out of approximately 700 square
      feet of office/administrative and storage space leased by Michael Sullinger
      on a
      month-to-month basis. The Company’s monthly obligation for this space is
      approximately $400. Such premises are adequate to serve the Company’s current
      requirements.




**Item
                3.**
            **Legal
                Proceedings.**




On
      December 6, 2006, a
      creditor, Gary Miller, filed an action against ETLS and Terry Eilers, former
      President, CEO and Director, for breach of contract in the Superior Court of
      California, Sutter County claiming damages of $175,000.




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.




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.




4


**Item
                  4.**
              **Submission
                  Of Matters To A Vote Of Security
                  Holders.**
  None.


**PART
        II**
  **Item
                  5.**
              **Market
                  For Common Equity, Related Stockholder Matters**and Small Business Issuer Purchases of Equity
                  Securities****
 
 Our
        common stock is currently traded on the OTC-BB under the symbol “ETLS.OB”. The
        table below sets forth, for each of the quarterly periods indicated, the
        highest
        and lowest closing bid prices for our common stock as reported on the OTC-BB
        and
        the over-the-counter market in the Pink Sheets as maintained by Pink Sheets
        LLC.
        The closing bid price for our common stock on April 12, 2007 was $0.002.
        Such
        quotations reflect inter-dealer prices, without retail mark-up, mark-down
        or
        commission and may not represent actual transactions
  **Fiscal
                  2005**
              
              **High**
              
              **Low**First
                  (ended March 31, 2005)
              
              $
              0.045
              
              $
              0.014Second
                  (ended June 30, 2005)
              
              $
              0.052
              
              $
              0.015Third
                  (ended September 30, 2005)
              
              $
              0.040
              
              $
              0.015Fourth
                  (ended December 31, 2005)
              
              $
              0.040
              
              $
              0.018**Fiscal
                  2006**
              
              
              **High**
              
              
              **Low**First
                  (ended March 31, 2006)
              
              $
              0.020
              
              $
              0.006Second
                  (ended June 30, 2006)
              
              $
              0.015
              
              $
              0.002Third
                  (ended September 30, 2006)
              
              $
              0.006
              
              $
              0.002Fourth
                  (ended December 31, 2006
              
              $
              0.003
              
              $
              0.001
  ***Number
        Of Holders.***
  As
        of
        April 12, 2007 our shareholders list contained approximately 337 shareholders
        of
        record of the Company's Common Stock.
  ***Dividends.***
  We
        have
        not paid any dividends on our common stock and do not anticipate paying any
        cash
        dividends in the foreseeable future. We intend to retain any earnings to
        finance
        the growth of the business. We cannot assure you that we will ever pay cash
        dividends. Whether we pay any cash dividends in the future will depend on
        the
        financial condition, results of operations and other factors that the Board
        of
        Directors will consider.


5





***Securities
      Authorized for Issuance Under Equity Compensation
      Plans***




The
      following table sets forth information as to securities issuable upon exercise
      of outstanding options and warrants and available for issuance under equity
      compensation plans as of December 31, 2006.




**Number****Number**
              
              
              
              **of
                  Securities****of
                  Securities**
              
              **Weighted-Average**
              
              **Remaining
                  Available****To
                  Be Issued**
              
              **Exercise
                  Price**
              
              **for
                  Future Issuance****Upon
                  Exercise**
              
              **of
                  Outstanding**
              
              **Under
                  Equity****of
                  Outstanding**
              
              **Options,**
              
              **Compensation
                  Plans****Options,
                  Warrants**
              
              **Warrants
                  and**
              
              **(Excluding
                  Securities****and
                  Rights**
              
              **Rights**
              
              **Reflected
                  in Column(A))****(A)**
              
              **(B)**
              
              **(c)**Equity
                  compensation plans approved
                by
                  security holders
              
              N/A
              
              N/A
              
              N/AEquity
                  compensation plans not approved
                by
                  security holders
              
              1,262,500
              
              0.50
              
              0Total
              
              1,262,500
              
              0.50
              
              0


***Recent
          Sales Of Unregistered Shares.***




During
      the last three years, ETLS issued the following unregistered securities pursuant
      to Section 4(2) and Rule 506 under Regulation D of the Securities Act of 1933,
      as amended, unless otherwise noted:




On
      December 21, 2006, the Company issued and sold a $7,642 convertible debenture
      to
      Cornell Capital Partners, L.P. (“Cornell”).




On
      November 3, 2006, Cornell converted $2,500 of convertible debentures into
      3,125,000 shares of common stock.





On
      October 11, 2006, Cornell converted $5,000 of convertible debentures into
      3,125,000 shares of common stock.





On
      September 24, 2006, Cornell converted $5,000 of convertible debentures into
      2,500,000 shares of common stock.





On
      August
      23, 2006, Cornell converted $4,100 of convertible debentures into 2,562,500
      shares of common stock.





On
      August
      4, 2006, Cornell converted $4,300 of convertible debentures into 2,529,412
      shares of common stock.





On
      July
      12, 2006, Cornell converted $3,500 of convertible debentures into 2,058,824
      shares of common stock.





On
      June
      28, 2006, Cornell converted $4,600 of convertible debentures into 2,300,000
      shares of common stock.





On
      June
      12, 2006, Cornell converted $5,500 of convertible debentures into 2,291,667
      shares of common stock.




6




On
      May
      24, 2006, Cornell converted $6,000 of convertible debentures into 2,500,000
      shares of common stock.





On
      May
      10, 2006, Cornell converted $9,000 of convertible debentures into 2,500,000
      shares of common stock.





On
      April
      27, 2006, Cornell exercised its warrant to purchase 2,000,000 shares of common
      stock for a payment to the Company of $2,000.





On
      April
      19, 2006, Cornell converted $6,500 of convertible debentures into 1,911,765
      shares of common stock.





On
      April
      4, 2006, Cornell converted $6,500 of convertible debentures into 1,969,697
      shares of common stock.





On
      November 2, 2005, the Company issued to Cornell secured convertible debentures
      in the principal amount of $1,000,000 (“ November 2005 Debentures ”).
      The
      November 2005 Debentures were issued to consolidate the 2004 Debentures, in
      the
      original principal amount of $350,000, and the August 2005 Debenture, in the
      original principal amount of $100,000, plus accrued and unpaid interest on
      the
      2004 Debentures and the August 2005 Debenture, and to reflect additional funding
      in the amount of $530,130. The November 2005 Debentures are secured by
      substantially all of the Company’s assets, have a three-year term and accrue
      interest at 12% per annum. **** Cornell
      is entitled, at its option, to convert, and sell all or any part of the
      principal amount of the November 2005 Debentures, plus accrued interest thereon,
      into shares of the Company’s common stock at the price per share equal to the
      lesser of (a) $0.024 or (b) an amount equal to 80% of the lowest
      closing bid price of the Company’s common stock for the five trading days
      immediately preceding the conversion date (which price may be adjusted pursuant
      to certain other terms of the November 2005 Debentures). The November 2005
      Debentures have been fully subscribed.




On
      August
      24, 2005, the Company issued to Cornell secured convertible debentures in the
      principal amount of $100,000 (the “ August 2005 Debenture ”).
      Any
      part of the principal amount of the August 2005 Debenture, plus accrued interest
      thereon, is convertible at any time up to maturity, at Cornell’s option, into
      shares of the Company’s common stock at a conversion price equal to $0.02. The
      August 2005 Debenture was secured by substantially all of the Company’s assets,
      had a one-year term and accrued interest at 12% per annum. **** In
      the
      event the August 2005 Debenture would have been redeemed, then eTotalSource
      would issue to Cornell a warrant to purchase 5,000,000 shares at an exercise
      price of $0.02 or as subsequently adjusted under the terms of the warrant.
      The
      August 2005 Debenture was consolidated into the November 2005 Debentures. The
      August 2005 Securities Purchase Agreement, along with the related Security
      Agreement, related Secured Convertible Debentures, and related Escrow Agreement
      were mutually terminated by the Company and Cornell pursuant to the termination
      agreement executed by Cornell and the Company on November 2, 2005 (the
“ November Termination Agreement ”).




On
      April
      20, 2005, we entered into a standby equity distribution agreement (the
“ 2005
      SEDA ”)
      with
      Cornell. Pursuant to the 2005 SEDA, we could have, at our discretion,
      periodically sold to Cornell 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
      2005 SEDA, Cornell would have paid 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 would have retained
      a fee of 5% of each advance under the 2005 SEDA. In connection with the 2005
      SEDA, Cornell received a one-time commitment fee in the form of 3,833,334
      restricted shares of our common stock. In light of the limitations contained
      in
      the 2005 SEDA, we would have had to submit a $200,000 advance request
      approximately every 10 trading days for 23 months in order to attain the full
      $10,000,000 available under the 2005 SEDA. At a recent stock price of $0.012,
      we
      would have had to issue 17,006,803 shares of common stock to Cornell to draw
      down the maximum advance amount of $200,000.  The
      2005
      SEDA, along with the related Investor Registration Rights Agreement, related
      Placement Agent Agreement, related Irrevocable Transfer Agent Instructions,
      and
      related Escrow Agreement, all of which were dated as of April 20, 2005, were
      terminated by ETLS and Cornell pursuant to the November Termination
      Agreement.




7




eTotalSource
      engaged Newbridge Securities Corporation (“ Newbridge ”),
      an
      unaffiliated registered broker-related deal, to advise ETLS in connection with
      the 2004 SEDA. In connection therewith, Newbridge was paid a one-time fee of
      $10,000 by the issuance of 166,666 restricted shares of ETLS’ common stock
      issued on October 8, 2004.




Also
      on
      April 20, 2005, we issued a secured convertible debenture to Cornell in the
      principal amount of $350,000 (the “ 2005
      Secured Convertible Debenture ”),
      plus
      accrued interest. **** The
      2005
      Secured Convertible Debenture accrued 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 2005 Secured Convertible Debenture on
      the second-year anniversary thereof or (ii) converted into shares of
      eTotalSource common stock. The 2005 Secured Convertible Debenture was
      convertible into shares of our common stock as a price per share that is equal
      to $0.112. The 2005 Secured Convertible Debenture was convertible at the
      holder’s option. The 2005 Secured Convertible Debenture had a term of two years
      and was secured by all of our assets. At ETLS’ option, the 2005 Secured
      Convertible Debenture could have been 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 2005 Secured Convertible Debenture,
      the
      holder was 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. As described below, Cornell purchased a
      2004
      Secured Convertible Debenture in the principal amount of $175,000 from ETLS
      on
      October 12, 2004, and a second 2004 Secured Convertible Debenture in the
      principal amount of $175,000 from ETLS on or about December 2, 2004 pursuant
      to
      the 2004 Secured Convertible Debenture. These two 2004 Secured Convertible
      Debentures were mutually terminated by ETLS and Cornell pursuant to that certain
      termination agreement executed by the parties on April 20, 2005 (the
“ April
      Termination Agreement ”);
      however, the principal amounts and accrued interest outstanding under the 2004
      Secured Convertible Debentures are now subject to the terms and conditions
      contained in the 2005 Secured Convertible Debentures (i.e., the 2004 Secured
      Convertible Debentures were refinanced as the 2005 Secured Convertible
      Debenture). The April 2005 Securities Purchase Agreement, along with the related
      Security Agreement, related Secured Convertible Debentures, and related Escrow
      Agreement, all of which were dated as of April 20, 2005, were mutually
      terminated by ETLS and Cornell pursuant to the November Termination Agreement.
      On November 2, 2005, the Company consolidated the 2005 Secured Convertible
      Debentures (which included the 2004 Secured Convertible Debentures) and the
      August 2005 Debenture, plus accrued and unpaid interest on the 2004 Debentures
      and the August 2005 Debenture, as well as additional funding in the amount
      of
      $530,130, under the terms of the November 2005 Debentures.




On
      October 12, 2004, we issued a secured convertible debenture to Cornell in the
      principal amount of $175,000, and on or about December 2, 2004, we issued a
      second secured convertible debenture to Cornell in the principal amount of
      $175,000 (collectively, the “ 2004
      Secured Convertible Debentures ”).
      The
      2004 Secured Convertible Debentures were mutually terminated by ETLS and Cornell
      pursuant to the April Termination Agreement; however, the principal amounts
      and
      accrued interest outstanding under the 2004 Secured Convertible Debentures
      are
      now subject to the terms and conditions contained in the 2005 Secured
      Convertible Debenture (i.e., the 2004 Secured Convertible Debentures were
      refinanced as the 2005 Secured Convertible Debenture). The 2004 Secured
      Convertible Debentures accrued interest at the rate of 5% per year. At ETLS’
option, the entire principal amount and all accrued interest could have been
      either: (i) paid to the holder of the 2004 Secured Convertible Debenture on
      the third-year anniversary thereof or (ii) converted into shares of ETLS common
      stock. The 2004 Secured Convertible Debentures were 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 12, 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
      2004 Secured Convertible Debentures were convertible at the holder’s option. The
      2004 Secured Convertible Debentures had terms of two years and were secured
      by
      substantially all of our assets. At ETLS’ option, the 2004 Secured Convertible
      Debentures could have been paid in cash or converted into shares of the
      Company’s common stock unless converted earlier by the holder. Except after an
      event of default, as set forth in the 2004 Secured Convertible Debentures,
      the
      holders were not entitled to convert such debentures for a number of shares
      of
      the Company’s 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.




8




On
      October 6, 2004, we entered into a standby equity distribution agreement (the
      “ 2004
      SEDA ”)
      with
      Cornell. Pursuant to the 2004 SEDA, we could have, at our discretion,
      periodically sold to Cornell 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
      2004 SEDA, Cornell would have paid 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 was traded for the five trading
      days immediately following the notice date. Further, Cornell would have retained
      a fee of 5% of each advance under the 2004 SEDA. In connection with the 2004
      SEDA, Cornell received a one-time commitment fee in the form of 3,833,334
      restricted shares of our common stock issued on October 22, 2004. The 2004
      SEDA,
      along with the related Investor Registration Rights Agreement, related Placement
      Agent Agreement, related Irrevocable Transfer Agent Instructions, and related
      Escrow Agreement, each dated October 6, 2004, were mutually terminated by the
      Company and Cornell on April 20, 2005 pursuant to the April Termination
      Agreement. However, the 3,833,334 shares of common stock issued as a one-time
      commitment in connection with the 2004 SEDA were not been cancelled and retained
      registration rights to be registered in the Company’s next Registration
      Statement. These shares were registered in the Company’s registration statement
      that was declared effective in February 2006.




On
      September 30, 2004, each of the following persons was issued 400,000 restricted
      shares of common stock in exchange for services provided to ETLS: Michael
      Sullinger, Chief Operating Officer, Virgil Baker, Chief Financial Officer,
      and
      A. Richard Barber, a director of the Company. 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 was 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 will be 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
      1933 Act 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 1933 Act, 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 1933 Act; (d) each person had knowledge and experience in business
      and
      financial matters to understand the merits and risk of the
      investment.




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




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




9




***Financial
      Condition and Changes In Financial Condition.***




**Background.**




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




Immediately
      after the transaction, the eTotalSource shareholders owned approximately 88.5%
      of Premium’s common stock. Coincident with the transaction, Premium changed its
      fiscal year from June 30 to December 31. The reorganization was recorded as
      a
      recapitalization effected by a reverse merger wherein Premium was 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,
      eTotalSource. Since Premium was a non-operating shell with limited business
      activity, goodwill was not recorded.




**Results
      Of Operations For The Fiscal Year Ended December 31, 2006, Compared To Fiscal
      Year Ended** **December
      31, 2005.**




The
      Company had revenues from operations of $25,980 and $54,715 in the years ended
      December 31, 2006 and 2005, respectively, a decrease of $23,735 or 53%. The
      decrease in revenues was attributable to lower sales of the CD training
      programs, no post-production income or software sales and final deferred revenue
      recorded in 2 nd quarter.




The
      Company incurred expenses incident to operations in the amount of $635,110
      in
      2006 and $1,054,727 in 2005, a decrease of $419,616 or 40%. The decrease was
      primarily due to a decrease in payroll expenses, fees connected with the
      convertible debenture bonds and general curtailing of business activities.
      Payroll expenses for 2006 were $102,996 less than the comparable 2005 period,
      a
      34% decrease. Stock issued for services were $48,000 less than the comparable
      2005 period, an 80% decrease.




Interest
      expense for 2006 was $409,333 as compared with 285,746 for the corresponding
      2005 period, an increase of $123,587 or 43%. The increase in interest expense
      is
      the result of additional imputed interest on the convertible debenture bonds.




The
      Company had a net loss on operations of $945,092 in 2006 compared to a loss
      of
      $1,284,661 in 2005, a decrease of $334,358 or 26%. The loss per share was
      approximately $0.01 in 2006 and $0.03 in 2005.




**Liquidity
      & Capital Resources** ***.***




The
      Company had $563 in cash at fiscal 2006 year-end and no other capital resources.
      The Company needs equity or debt financing for working capital but has no
      commitments for new capital availability. **** There
      can be no assurance that ETLS will be able to pursue its business plan or fully
      exploit business opportunities that management may identify. Accordingly, ETLS
      will need to seek additional financing through loans, the sale and issuance
      of
      additional debt and/or equity securities, or other financing arrangements to
      cover expenses. ETLS presently has no sources of capital. ETLS is unable to
      carry out any plan of business without funding. Because of the re-evaluation
      of
      our business model currently in process, we are unable to quantify and estimate
      our working capital requirements for the 12 months ending December 31, 2007.
      We
      cannot predict to what extent our current lack of liquidity and capital
      resources will impair the continuation of business or whether it will incur
      further operating losses. There is no assurance that we can continue as a going
      concern without substantial funding, for which there is no source.




10




**The
      Standby Equity Distribution Agreement** **s.**




On
      November 2, 2005, we terminated the 2005 SEDA, the 2005 Secured Convertible
      Debentures, the 2005 Securities Purchase Agreement, and all other financing
      agreements that we entered into with Cornell on April 20, 2005 by execution
      of
      the November Termination Agreement. The 2004 SEDA, along with the related
      Investor Registration Rights Agreement, related Placement Agent Agreement,
      related Irrevocable Transfer Agent Instructions, and related Escrow Agreement,
      each dated October 6, 2004, were mutually terminated by the Company and Cornell
      on April 20, 2005 pursuant to the April Termination Agreement. We have recently
      entered into a December 2006 Debenture and an April 2007 Debenture. All of
      the
      foregoing documents are defined and described in detail in this report.




**The
      November 2005 Debentures.**




On
      November 2, 2005, the Company entered into a Securities Purchase Agreement
      with
      Cornell, pursuant to which we issued to Cornell secured convertible debentures
      in the principal amount of $1,000,000 (i.e., the November 2005 Debentures).
      Of
      this amount, $175,000 was previously funded on October 7, 2004, $175,000 was
      previously funded on December 2, 2004, $100,000 was previously funded on August
      19, 2005, and $530,130 was funded on November 4, 2005. The November 2005
      Debentures were issued to consolidate these prior debentures and to Debentures
      were issued to consolidate these prior debentures and to reflect additional
      funding to the Company in the amount of $530,130.





The
      November 2005 Debentures are secured by substantially all of the Company’s
      assets, has a three-year term and accrues interest at 12% per annum. **** Cornell
      is entitled, at its option, to convert, and sell all or any part of the
      principal amount of the November 2005 Debenture, plus accrued interest thereon,
      into shares of the Company’s common stock, at a price per share equal to the
      lesser of (a) an amount equal to an amount equal to 120% of the closing bid
      price of the common stock as listed on a principal market as quoted by Bloomberg
      L.P., on the November 2, 2005 closing date or (b) an amount equal to
      80% of the lowest closing bid price of the common stock for the five trading
      days immediately preceding the conversion date which may be adjusted pursuant
      to
      the other terms of the November 2005 Debenture.  In
      the
      event the November 2005 Debentures are redeemed, then we will issue to Cornell
      a
      warrant to purchase 2,000,000 shares at an exercise price of $0.001 or as
      subsequently adjusted under the terms of the warrant.





**The
      December 2006 Debenture.**





On
      December 21, 2006 Cornell and the Company entered into an agreement providing
      for the Company’s issuance of a secured convertible debenture to Cornell in the
      face amount of $7,642 for a purchase price of $7,642 (the “December 2006
      Debenture”). The conversion price per share, subject to adjustment, is the
      lesser of (a) $0.0018 or (b) 80% of the lowest Closing Bid Price (as defined
      in
      the debenture) of the Company’s common stock for the five trading days
      immediately preceding the Conversion Date (as defined in the
      debenture).





**The
      April 2007 Debenture.**





On
      April
      13, 2007 Cornell and the Company entered into an agreement providing for the
      Company’s issuance of a secured convertible debenture to Cornell in the face
      amount of $72,000 for a purchase price of $72,000 (the “April 2007 Debenture”).
      The conversion price per share, subject to adjustment, is the lesser of (a)
      $0.0018 or (b) 80% of the lowest Closing Bid Price (as defined in the debenture)
      of the Company’s common stock for the five trading days immediately preceding
      the Conversion Date (as defined in the debenture).




11




***Contractual
      Obligations and Commercial Commitments.***




As
      of
      December 31, 2006, the following contractual obligations were
      outstanding:




**Payments
                Due by Period****Contractual
                Obligations**
            
            **Less
                than**
              **1
                year**
            
            **2-3
                years**
            
            **4-5
                years**
            
            **After**
              **5
                years**
            
            **Total**Judgments
                payable
            
            $
            204,788
            
            $
            .00
            
            $
            .00
            
            $
            .00
            
            $
            204,788Short
                Term note payables
            
            
            1,047,114
            
            
            .00
            
            
            .00
            
            
            .00
            
            
            1,047,114Convertible
                debentures (net discounts - $173,476)
            
            
            .00
            
            
            761,666
            
            
            .00
            
            
            .00
            
            
            761,666Other
                current liabilities
            
            
            2,092,352
            
            
            .00
            
            
            .00
            
            
            .00
            
            
            2,092,352Total
                contractual cash obligations
            
            $
            3,344,254
            
            $
            761,666
            
            $
            .00
            
            $
            .00
            
            $
            4,105,919





In
      addition to the commitments listed in the table above, t he
      Company occupies office/administrative space in Yuba City, California on a
      month-to-month basis with no expiration date. Monthly rentals under the lease
      are approximately $400 **.**




***Critical
      Accounting Policies And Estimates***




ETLS
      recognizes revenue in accordance with Statement of Position No. 97-2 “Software
      Revenue Recognition” issued by the Accounting Standards Executive Committee of
      the American Institute of Certified Public Accountants. 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. ETLS 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 be 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.




None
      of
      these policies had any material or substantial effect upon ETLS’
operations.




***Financial
      Condition***




There
      is
      substantial doubt about the ability of ETLS to continue as a going concern
      as
      disclosed in the notes to the December 31, 2006 financial statements filed
      by
      ETLS in this Report. Further, the auditor’s report, which accompanied said
      financial statements, also contained a going concern paragraph which calls
      into
      question our ability to continue as a going concern. Those conditions continued
      through the end of fiscal year 2006 resulting in operating losses and liquidity
      shortages, including default conditions on certain notes payable and judgments
      payable to creditors. As of December 31, 2006, current liabilities exceed
      current assets by approximately $3,344,000.




12




Management
      continued to meet operating deficits primarily through short-term borrowings
      and
      may attempt to utilize debt and equity financing alternatives to sustain
      operations. Whether such financing will be available as needed and the ultimate
      form of such financing is uncertain and the effects of this uncertainty could
      ultimately lead to bankruptcy.




***Going
      Concern Uncertainty***




The
      Company has incurred significant losses from operations for the year ended
      December 31, 2006, and such losses are expected to continue. In addition, the
      Company has no working capital. The foregoing raises substantial doubt about
      the
      Company's ability to continue as a going concern. Management's plans include
      seeking additional capital and/or debt financing, and re-evaluation of the
      Company’s business strategy as discussed above in this report. There is no
      guarantee that additional capital and/or debt financing will be available when
      and to the extent required, or that if available, it will be on terms acceptable
      to the Company. The consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty. Our auditors
      have included a going-concern paragraph to their audit report.




***Net
      Operating Loss.***




For
      federal income tax purposes, the Company has net operating loss carry forwards
      of approximately $5.9 million as of December 31, 2006. 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.




***Off-Balance
      Sheet Arrangements.***




None.




**Risk
      Factors Related to the Company.**




*If
      any of the risks discussed in this report actually occur, our business,
      financial condition and results of operations could be materially and adversely
      affected. If this were to happen, the price of our stock could decline
      significantly and you may lose all or part of your investment. The risk factors
      described below are not the only ones that may affect us. Our actual results
      could differ materially from those anticipated by our forward-looking statements
      as a result of the risk factors below.*




***ETLS*** ***Lost Money For The Year Ended December 31, 2006 And Losses May Continue In
      The
      Future. We Had Negligible Operating Revenue in Fiscal 2006 and Anticipate the
      Same in Fiscal 2007***




For
      the
      12 months ended December 31, 2006 and 2005, we incurred a net loss of
      $945,092 **** and
      $1,284,661, respectively. For the year ended December 31, 2004, we incurred
      a
      net loss of $2,372,675. 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,
      which
      we are currently re-evaluating. We had negligible operating revenue in fiscal
      2006 and anticipate the same in fiscal 2007. Our ability to continue as a going
      concern will be dependent upon our ability to raise additional debt and/or
      equity capital from third party sources, but no such negotiations are currently
      taking place. If we incur any problems in raising such additional capital,
      we
      will 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, could result in our bankruptcy, and will likely result in a lower
      stock price.




13




***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, 2006, December 31, 2005,
      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, 2006 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. The Company
      has incurred significant operating losses since inception and as of December
      31,
      2006 had a net working capital deficit of approximately $3,344,000, a
      stockholders’ deficit of $4,104,000, notes payable totaling $1,047,000 were in
      default with related accrued interest in arrears of $191,358 and legal judgments
      against the Company of $204,788 had been adjudicated.




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 ,
      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 report do not include any adjustments that might result from
      the
      outcome of this uncertainty.




***We
      Have Negative Working Capital***




We
      had
      negative working capital of approximately $3,344,000 and **** $2,723,000 at December 31, 2006 and December 31, 2005, respectively, and
      continue to need cash for operations. We have relied on significant external
      financing to fund our operations. As of December 31, 2006, we had $563 of cash
      on hand and total current assets were $563, and our total current liabilities
      were $3,344,254. We will need to raise additional capital to fund our
      anticipated operating expenses and future expansion. Among other things,
      external financing will 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, we believe that we have sufficient funds to continue
      operations for approximately one month. **** We
      are
      unable to presently estimate the working capital that we will require to fund
      our anticipated operating expenses for the next 12 months because of the
      business model re-evaluation this is currently in process. 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*** ***Will
      Need Additional Capital To Be Successful, Which We May Be Unable To Obtain
      On
      Terms Acceptable To Us, If At All, And Which Will Potentially Dilute The Value
      Of Our Shareholders’ Shares. Significant Dilution Is Possible to Existing
      Shareholders.***




We
      anticipate we will need substantial capital to execute our business plan once
      our management’s re-evaluation of our business model is completed. To finance
      our operations to date, we have relied on private offerings, exercises of
      warrants, and loans. As of December 31, 2006, we have issued a total of
      80,168,019 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 could be required
      to
      issue a substantial number of additional 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 will be forced to curtail
      or
      cease our operations.




14




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




Pursuant
      to the terms contained in that certain Amended and Restated Security Agreement,
      dated November 2, 2005, by and between ETLS and Cornell, all of our obligations
      under said Agreement, the November 2005 Debentures and subsequent debentures
      described in other parts of this report, the related Investor Registration
      Rights Agreement, the related Irrevocable Transfer Agent Instructions, and
      the
      related Escrow Agreement are secured by substantially all of our assets as
      of
      such date or thereafter acquired by us. Accordingly, if we are unable to satisfy
      any of our obligations under the foregoing agreements, our assets may be
      foreclosed upon and our business may be shut down.




***Cornell
      Could Acquire A Significant Amount Of Our Common Stock And, If It Does So,
      Could
      Exercise Significant Influence Over Us By Means Of Its Stockholdings As Well
      As
      Though Its Rights As A Secured Debentureholder. The Interests Of Cornell May
      Differ From Those of Other Stockholders***





As
      of the
      date of this report, Cornell owns 3,571,429 shares of ETLS common stock and
      a
      warrant to purchase 5,000,000 shares of ETLS common stock at $0.02 per share.
      Based upon those warrants and the conversion rights under the convertible
      debentures as described in this report, Cornell could acquire a substantially
      greater position in our common stock, subject to the terms and conditions of
      the
      applicable agreements limiting exercise or conversion of the overlying
      securities, in addition to the rights that Cornell holds as a secured
      debentureholder. Thus, Cornell could exercise significant influence over the
      election of directors, determination of policies, appointing the persons
      constituting management, and determining the outcome of corporate actions
      requiring stockholder approval, including mergers, consolidations, and the
      sale
      of all or substantially all of our assets. The interests of Cornell may differ
      from the interests of other stockholders.




***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 our senior
      management: David Marks and Frank Orlando. If any of these individuals become
      unable to continue in their role, our business or prospects could be adversely
      affected. We do not have employment agreements with Messrs. Marks and Orlando.
      The new director and officer will be evaluating our assets and business model.
      Such evaluation could result in a substantial change in our business model,
      a
      liquidation of the Company’s existing assets, or other significant changes in
      the business.




***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
      our 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.




15




***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. Historically, 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. 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:




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




·
            that
                are not traded on a “recognized” national
                exchange;




·
            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




·
            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 “ SEC ”
or
      the
“ 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.





16





***Existing
      Shareholders Will Experience Significant Dilution From The Conversion Of
      Debentures***





Cornell
      may convert the November 2005 Debenture, the December 2006 Debenture and April
      2007 Debenture into shares of ETLS’ common stock, at a conversion price which is
      the lesser of a contractually established price per share or a 20% discount
      to
      the market price. The subsequent sale of such shares by Cornell could cause
      significant downward pressure on the price of ETLS’ common stock. This is
      especially the case if the shares being placed into the market exceed the
      market’s demand for the shares of ETLS’ common stock. As the stock price of
      ETLS’ common stock declines, Cornell will be entitled to receive an increasing
      number of shares under the convertible debentures. The sale of such increasing
      number of shares by Cornell could cause further downward pressure on the stock
      price to the detriment and dilution of existing stockholders.




Further,
      there is no maximum number of shares ETLS might be required to issue under
      securities with market-price based conversion or exercise prices, such as
      securities issued in connection with the Cornell Debentures, except for the
      4.99% limitation on Cornell’s ownership interest in ETLS at any one time. This
      limitation may be waived by Cornell upon not less than 65 days prior notice
      to
      the Company.




As
      a
      result, our net income per share could decrease in future periods, and the
      market price of our common stock could decline. In addition, the lower our
      stock
      price, the more shares of common stock we will have to issue upon conversion
      of
      the Cornell Debentures. If our stock price is lower, then our existing
      stockholders would experience greater dilution.




***The
      Sale Of Material Amounts Of Common Stock Under The Company’s Registration
      Statement Could Encourage Short Sales By Third
      Parties***





In
      many
      circumstances the provisions contained in convertible debentures for companies
      that are traded on the Over-the-Counter Bulletin Board have the potential to
      cause a significant downward pressure on the price of common stock. This is
      especially the case if the shares being placed into the market exceed the
      market’s ability to take up the increased stock or if ETLS has not performed in
      such a manner to show that the debt raised will be used to grow the Company.
      Such an event could place further downward pressure on the price of common
      stock.




The
      outstanding Debentures are convertible at a 20% discount to the market price
      of
      our common stock. As a result, the opportunity exists for short sellers and
      others to contribute to the future decline of ETLS’ stock price. Persons
      engaging in short sales first sell shares that they do not own, and thereafter,
      purchase shares to cover their previous sales. To the extent the stock price
      declines between the time the person sells the shares and subsequently purchases
      the shares, the person engaging in short-sales will profit from the transaction,
      and the greater the decline in the stock, the greater the profit to the person
      engaging in such short-sales. Because the Debentures are convertible at a
      discount to market, it is possible that the debentures could be converted if
      the
      market price of our common stock declines, thus, supplying any short sellers
      with the opportunity to cover their short positions. By contrast, a person
      owning a long position in a stock, first purchases the shares at the then market
      price, if the stock price declines while the person owns the shares, then upon
      the sale of such shares the person maintaining the long position will incur
      a
      loss, and the greater the decline in the stock price, the greater the loss
      which
      is incurred by the person owning a long position in the stock.




If
      there
      are significant short-sales of our stock, the price decline that would result
      from this activity will cause our share price to decline more so which in-turn
      may cause long holders of our stock to sell their shares thereby contributing
      to
      sales of stock in the market. If there is an imbalance on the sell side of
      the
      market for our stock the price will decline. It is not possible to predict
      if
      the circumstances whereby short-sales could materialize or to what our share
      price could drop. In some companies that have been subjected to short-sales,
      their stock price has dropped to near zero. We cannot provide any assurances
      that this situation will not happen to us.




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




Shares
      that have been issued in reliance on private placement exemptions under the
      Securities Act of 1933, as amended (the “ 1933
      Act ”)
      will
      not be available for sale in the open market without separate registration
      except in reliance upon Rule 144 under the 1933 Act. 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 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.




17




***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.





***Our
      substantial indebtedness could adversely affect our cash flow and our ability
      to
      fulfill our obligations.***





Our
      substantial level of indebtedness increases the possibility that we may be
      unable to generate cash sufficient to pay, when due, the principal of, interest
      on or other amounts due in respect of our indebtedness or other costs and
      expenses. Our substantial leverage could have significant consequences
      including:





·
            making
                it more difficult for us to satisfy our obligations with respect
                to the
                secured convertible debentures;





·
            increasing
                our vulnerability to general adverse economic and industry
                conditions;





·
            limiting
                our ability to obtain additional
                financing;





·
            requiring
                us to dedicate a substantial portion of our cash flow from operations
                to
                payments on our indebtedness, which will reduce the amount of our
                cash
                flow available for other purposes, including capital expenditures
                and
                other general corporate purposes;





·
            requiring
                us to sell debt securities or to sell some of our core assets, possibly
                on
                terms unfavorable to us;





·
            restricting
                us from making strategic acquisitions or exploiting business
                opportunities;





·
            limiting
                our flexibility in planning for, or reacting to, changes in our business
                and our industry; and





·
            placing
                us at a possible competitive disadvantage compared to our competitors
                that
                have less debt.





***Restrictive
      covenants in our convertible debentures and related agreements could adversely
      affect our business by limiting our operating and strategic
      flexibility.***





The
      convertible debentures and related agreements governing certain of our
      outstanding indebtedness contain restrictive covenants that limit our ability
      to, among other things:





·
            issue
                or sell our common stock or preferred
                stock;





·
            issue
                or sell any warrant, option, right, contract, call or other security
                convertible into shares of our common
                stock;





·
            file
                a registration statement on Form
                S-8;




18




·
            enter
                into certain transactions with affiliates;
                and





·
            merge
                with another company, reorganize, restructure, consummate a reverse
                stock
                split consolidation, or sell all or substantially all of our
                assets.





These
      covenants could have an adverse effect on our business by limiting our ability
      to take advantage of a financing, merger and acquisition or other corporate
      opportunities. **** Upon the
      occurrence of an event of default under our convertible debentures, the holder
      of such indebtedness could elect to declare all amounts outstanding under such
      indebtedness, together with accrued interest, to be immediately due and payable
      in cash or shares of our common stock. If the holder accelerates the payment
      of
      that indebtedness, our assets currently would be insufficient to repay in full
      that indebtedness and any other debt.





***To
      service our indebtedness, make capital expenditures and fund our operations,
      we
      will require a significant amount of cash. Our ability to generate cash depends
      on many factors beyond our control.***





Our
      ability to make payments on our indebtedness and to fund potential capital
      expenditures will depend on our ability to generate and have excess cash in
      the
      future, which is dependent on various factors. These factors include our ability
      to market our products as well as general economic, financial, competitive,
      legislative, regulatory and other factors that are beyond our control. We may
      not be able to generate sufficient cash flow from operations, we may not realize
      currently anticipated cost savings and operating improvements on schedule or
      at
      all, and future borrowings and/or equity financing may not be available to
      us in
      amounts sufficient to enable us to pay our indebtedness or to fund our other
      liquidity needs. We may need to refinance all or a portion of our indebtedness
      before maturity. We may not be able to refinance any of our indebtedness on
      commercially reasonable terms or at all.





***Our
      Chief Restructuring Officer and Director are not our employees; we do not have
      definitive contracts with them.***





Mr.
      Orlando and Mr. Marks were appointed to their ETLS positions on March 27, 2007,
      are not our employees, and as of the date of this report we do not have
      employment contracts with either of them nor agreements regarding compensation
      and related matters. Mr. Orlando and Mr. Marks are each an officer of Crivello
      Group, LLC and other entities. We expect that Crivello Group, LLC will enter
      into a management services agreement with us. Mr. Orlando and Mr. Marks do
      not
      devote 100% of their working time to us. If Mr. Orlando or Mr. Marks were unable
      or unwilling to provide services to us for whatever reason, our business
      operations would be adversely affected.




**Item
                7.**
            **Financial
                Statements And Supplementary
                Data.**




Attached
      hereto and filed as part of this Report are the Company’s consolidated financial
      statements for the fiscal year ended December 31, 2006.




**Item
                8.**
            **Changes
                In And Disagreements With Accountants On Accounting And Financial
                Disclosure.**




None.




**Item
                8a.**
            **Controls
                And Procedures.**




***a.***  ***Evaluation
      Of Disclosure Controls And Procedures***




ETLS’
      Principal Executive Officer and Principal Accounting Officer, after evaluating
      the effectiveness of eTotalSource’s disclosure controls and procedures (as
      defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
      of
      1934, as amended (the “ Exchange Act ”))
      as of
      the end of the period covered by this Report, have concluded that as of such
      date, ETLS disclosure controls and procedures were adequate and effective to
      ensure that material information relating to ETLS that is required to be
      disclosed by ETLS in reports that it files or submits under the Exchange Act,
      is
      recorded, processed, summarized and reported within the time periods specified
      in SEC rules and accumulated and communicated to ETLS’ management, including its
      Principal Executive Officer and Principal Accounting and Financial Officer,
      to
      allow timely decisions regarding required disclosure **.**




19




***b.***  ***Changes
      In Internal Controls Over Financial Reporting***




In
      connection with the evaluation of ETLS’ internal controls during the Company’s
      last fiscal quarter, ETLS’ Principal Executive Officer and Principal Accounting
      Officer have determined that there are no changes to ETLS’ internal controls
      over financial reporting that have materially affected, or are reasonably likely
      to materially effect, the Company’s internal controls over financial reporting.




**Item
      8b. Other Information.**




None.




**PART
      III**




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




The
      following persons were members of the Company’s Board of Directors (the
“ Board ”)
      and/or
      executive officers, in the capacities indicated, as of December 31,
      2006:




**NAME**
            
            **AGE**
            
            **POSITION
                HELD**
            
            **TENURE**Terry
                Eilers(1)
            
            58
            
            President,
                CEO, Director
            
            2000
                - March 27, 2007Michael
                Sullinger(2)
            
            60
            
            Secretary,
                COO, Director
            
            2002
                - March 27, 2007A.
                Richard Barber(3)
            
            65
            
            Director
            
            2003
                - March 27, 2007____________________




(1) On
      March
      27, 2007, Terry Eilers resigned as President, Chief Executive Officer and
      Director. There was no disagreement between the Company and Mr. Eilers and
      Mr.
      Eilers did not serve on any committees of the Board.





(2) On
      March
      27, 2007, Michael Sullinger resigned as Secretary, Chief Operating Officer
      and
      Director. There was no disagreement between the Company and Mr. Sullinger and
      Mr. Sullinger did not serve on any committees of the Board.





(3) On
      March
      27, 2007, A. Richard Barber resigned as Director. There was no disagreement
      between the Company and Mr. Barber and Mr. Barber did not serve on any
      committees of the Board.




***New
      Director and Executive Officer***





On
      March
      27, 2007, the Board appointed David Marks as a member of the Company’s Board of
      Directors and appointed Frank Orlando as Chief Restructuring Officer, Chief
      Financial Officer and Secretary of the Company.





Mr.
      Marks
      will serve as a Director until the next annual meeting of the Company’s
      stockholders, or until his successor is appointed. Officers will hold their
      positions at the pleasure of the Board, absent any employment agreement, of
      which none currently exists.





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





The
new
      director and executive officer of ETLS will devote their time to the Company’s
      affairs on an as needed basis. As a result, the actual amount of time which
      they
      will devote to ETLS’ affairs is unknown and may vary substantially from
      month-to-month.





20





***Business
      Histories of New Director and Executive Officer***




**David
      Marks**




Mr.
      Marks
      has been the Chairman of Titan Global Holdings, Inc. (“Titan”), a diversified
      holding company, since May 2005 and previously served as the Chairman from
      September 2002 until May 2003. From May 2003 until May 2005, Mr. Marks served
      as
      one of the Directors of Titan. Mr. Marks has been a member of the Board of
      Directors of Tech Laboratories, Inc. since February 22, 2007. In addition,
      from
      November 2004 until November 2006, Mr. Marks served as the Chairman of the
      Board
      of Directors of Thomas Equipment, Inc., a manufacturer and distributor of skid
      steer loaders and pneumatic and hydraulic components and systems. Mr. Marks
      has
      served as Trustee of Irrevocable Children's Trust and Irrevocable Children's
      Trust No. 2 since 1994. Irrevocable Children's Trust and Irrevocable Children's
      Trust No. 2 currently have an ownership or investment interest in commercial
      properties, private residences, natural resources, telecommunications, and
      technology companies, and other business and investment ventures. Mr. Marks
      has
      the responsibility in overseeing all investments by Irrevocable Children's
      Trust
      and Irrevocable Children's Trust No. 2 with responsibilities beginning at
      acquisition and continuing through ownership. Mr. Marks generally acts in the
      capacity of officer or director for all of the operating companies that are
      vehicles for investments by the Trusts and is involved in strategic planning,
      and major decision-making. Mr. Marks is also a managing member of Farwell Equity
      Partners. Mr. Marks holds a BS in Economics from the University of Wisconsin.




**Frank
      J. Orlando**




Mr.
      Orlando has served as Chief Restructuring Officer, Chief Financial Officer,
      Secretary and a Director of Headliners Entertainment Group, Inc since January
      2007. Since 2004, Mr. Orlando has served as the Executive Vice President and
      Director of Marine Growth Ventures, Inc. From September 1996 until April 2002,
      Mr. Orlando was vice president and director of corporate development for Phoenix
      Internet Technologies, Inc., a start up Internet service provider (ISP). In
      April 2002, Mr. Orlando was integral in procuring a buyer for Phoenix Internet
      Technologies and was responsible for seeing the transaction through to its
      closing, and remained with new owners in a similar capacity until September
      2003.  From September 2003 through September 2004, Mr. Orlando acted as a
      consultant to Phoenix Investors, LLC. Mr. Orlando’s areas of expertise include
      corporate development, operations, and management, management of strategic
      acquisitions, and asset liquidation.  Mr. Orlando received Bachelors
      Degrees in Marketing and Production & Operations Management from the
      University of Wisconsin - Oshkosh in 1995.





***Business
      Histories of Former Directors and Officers***





**Terry
      Eilers, Former President, CEO and Director**




Mr.
      Eilers served as CEO and a Director of ETLS since its formation, and served
      as
      its Chairman of the Board of Directors from 2000 until his resignation as
      President, CEO and Director on March 27, 2007. 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 ProTM. 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.




21




**Michael
      Sullinger, Former Secretary, COO and Director**




Mr.
      Sullinger served as Secretary, COO and a Director of ETLS from 2002 until his
      resignation as Secretary, COO and Director on March 27, 2007. 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 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.




**A.
      Richard Barber, Former Director**




Mr.
      Barber served as a Director of ETLS from 2003 until his resignation as Director
      on March 27, 2007. 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
      and
      executive officers.




***Legal
      Proceedings.*** ****




On
      December 6, 2006, a creditor, Gary Miller, filed an action against ETLS and
      Terry Eilers, former President, CEO and Director, for breach of contract in
      the
      Superior Court of California, Sutter County claiming damages of $175,000. ****




**Committees;
      Audit Committee Financial Expert.**




Currently,
      ETLS does not have an executive, audit or any standing committee of the Board.
      The Company does not have an audit committee, or an audit committee financial
      expert.




***Code
      o*** ***f
      Ethics***




On
      November 16, 2004, ETLS’ Board 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 the Registration Statement on Form SB-2 filed on April 21, 2005
      (File No. 333-124220).




***Section
      16(A) Beneficial Ownership Reporting Compliance.***




Section
      16(a) of the Exchange Act and the rules promulgated thereunder require ETLS’
officers and directors, and persons who beneficially own more than 10% of a
      registered class of ETLS’ equity securities, to file reports of ownership and
      changes in ownership with the Commission and to furnish the Company with copies
      thereof. Based on its reviews of the copies of the Section 16(a) forms received
      by it, or written representations from certain reporting persons, ETLS believes
      that, during the last fiscal year, all Section 16(a) filing requirements
      applicable to its officers, directors and greater than 10% beneficial owners
      were complied with and timely filed.




22




**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 2006 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, 2006.




**SUMMARY
      COMPENSATION TABLE**




**Name
                    and Principal Position**
                
                
                **Year**
                
                
                **Salary**
                  **($)**
                ****
                ****
                **Bonus**
                  **($)**
                ****
                ****
                **Stock
                    Awards**
                  **($)**
                ****
                ****
                **Option
                    Awards($)**
                ****
                ****
                **Non-Equity
                    Incentive Plan Compensation**
                  **($)**
                ****
                ****
                **Change
                    in Pension**
                  **Value
                    and Nonqualified Deferred Compensation Earnings**
                  **($)**
                ****
                ****
                **All
                    Other Compensation ($)**
                ****
                ****
                **Total**
                  **($)**Terry
                    Eilers, President and CEO(1)
                
                
                2005
                
                $
                25,000
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                $
                25,0002006
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0Michael
                    Sullinger, Sec.,
                  COO,
                    Legal Counsel(2)
                
                
                2005
                
                $
                85,000
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                $
                85,0002006
                
                $
                11,500
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                $
                11,500Virgil
                    Baker, CFO(3)
                
                
                2005
                
                $
                30,000
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                $
                30,0002006
                
                $
                16,500
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                $
                16,500




(1) March
      27,
      2007, Terry Eilers resigned as President, Chief Executive Officer and Director.


( 2 ) On March
      27, 2007, Michael Sullinger resigned as Secretary, Chief Operating Officer
      and
      Director


( 3 ) On May
      15, 2006, Virgil Baker resigned as Chief Financial Officer.





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, 2006, but can be
      reimbursed for expenses actually incurred in connection with attending meetings
      of the Board.




***Employment
      Contracts.***




Agreements
      were executed with the Chief Executive Officer, Terry Eilers, and the Chief
      Financial Officer, Virgil Baker, at the inception of ETLS (i.e., February 7,
      2000), which expired December 31, 2006 as to Mr. Eilers and expired May 15,
      2006
      as to Mr. Baker. Annual salary was $150,000 and $96,000 respectively, and each
      accrued an annual non-accountable automobile allowance of $9,000. The agreements
      also provided for 10% royalties on license revenues of ETLS’ Presenta ProTM
software and an annual bonus of incentive stock options (covering 200,000 shares
      each). In addition, under the employment agreement for Mr. Eilers, he was
      entitled to a 5% referral commission on certain sales. Unpaid salary and
      commissions could have been paid with warrants to purchase common stock at
      $1.00
      per share. During 2006 and 2005, CEO compensation expensed pursuant to these
      arrangements totaled $159,000 and $159,000, respectively, and CFO compensation
      totaled $93,000 and $105,000, respectively, (exclusive of the fair value of
      incentive stock options).




23




An
      agreement was executed August 1, 2002 with the Chief Operating Officer, Michael
      Sullinger, which was terminated by Mr. Sullinger on March 27, 2007 upon Mr.
      Sullinger’s resignation. Annual salary was $120,000 and a non-accountable
      automobile allowance of $9,000. The agreement also provided for a 10% royalty
      on
      the license revenues of ETLS’ Presenta ProTM software and an annual bonus of
      incentive stock options (covering 200,000 shares). Unpaid salary and commissions
      could have been paid with warrants to purchase common stock at $1.00 per share.
      During 2006 and 2005, COO compensation expensed pursuant to these arrangements
      on a half-time basis totaled $69,000 and $69,000, respectively (exclusive of
      the
      fair value of incentive stock options).




The
      following table sets forth, for the fiscal year ended December 31, 2006 certain
      information regarding the options/SARs granted to ETLS’ named executive
      officers.




OPTION/SAR
      GRANTS TABLE





**Name**
            
            **No.
                of Securities Underlying Options/SARs Granted**
              **(#)**
            
            **%
                Total Options/SARs Granted to Employees in year
                ended**
              **December
                31, 2005**
              **(%)**
            
            **Exercise
                or Base Price**
              **($
                per Share)**
            
            **Expiration
                Date**Terry
                Eilers
            
            
            200,000
            
            
            *
            
            $
            0.50
            
            
            12/15/2011Terry
                Eilers
            
            
            100,000
            
            
            *
            
            $
            0.50
            
            
            12/12/2012Virgil
                Baker
            
            
            200,000
            
            
            *
            
            $
            0.50
            
            
            12/15/2011Virgil
                Baker
            
            
            100,000
            
            
            *
            
            $
            0.50
            
            
            12/12/2012Michael
                Sullinger
            
            
            200,000
            
            
            *
            
            $
            0.50
            
            
            12/12/2012Richard
                Barber
            
            
            25,000
            
            
            *
            
            $
            0.50
            
            
            12/15/2011Richard
                Barber
            
            
            25,000
            
            
            *
            
            $
            0.50
            
            
            12/15/2012Morrow
                Revocable Trust
              (beneficially
                J. Cody Morrow & Family)
            
            
            200,000
            
            
            *
            
            $
            0.50
            
            
            12/15/2011




_____________


*
      Were
      assumed by eTotalSource as part of reorganization




The
      following table sets forth certain information regarding options exercised
      in
      the fiscal year ended December 31, 2006 by the Company’s named executive
      officers.




**Aggregated
      Options/SAR Exercises**


**In
      Last Fiscal Year And**


**Fiscal
      Year End Options/SAR Values** ****





**Name**
            
            **Shares**
              **Acquired
                on**
              **Exercise
                (#)**
            
            **Value**
              **Realized
                ($)**
            
            **Number
                of Securities Underlying Unexercised**
              **Options/SARs
                at**
              **Fiscal
                Year End (#) Exercisable/ Unexercisable**
            
            **Value
                of Unexercised**
              **In-the-Money**
              **Options/SARs
                at**
              **Fiscal
                Year End ® Exercisable/Unexercisable**None
                for any officer or director
            
            
            0
            
            
            0
            
            
            0
            
            
            0





The
      following table sets forth certain information regarding long-term incentive
      plan awards in the fiscal year ended December 31, 2006 by ETLS’ named executive
      officers.





**Long-Term
      Incentive Plans - Awards in Last Fiscal Year**




**Estimated
                future payouts under**
              **non-stock
                price-based plans****Name**
            
            
            **No.
                of Shares, units or other rights (#)**
            
            
            **Performance
                or other period until maturation or payout**
            
            
            **Threshold**
              **($
                or #)**
            
            
            **Target**
              **($
                or #)**
            
            
            **Maximum**
              **($
                or #)**None
                for any officer or director
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0




24


**Item
      11.     Security Ownership of Certain Beneficial Owners
      a** **nd
      Management.**




The
      Company had 83,668,019 shares of common stock issued and outstanding as of
      April
      12, 2007. There were no shares of preferred stock issued and outstanding as
      of
      April 12, 2007. 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.




**Title
                of Class**
            
            **Name
                and Address of Beneficial Owner**(1)
            
            **Amount
                of Beneficial Ownership**
            
            **Percentage**
              **of
                Class**(2)Common
            
            
            Terry
                Eilers
            
            
            6,672,039(3)
            
            
            7.9
            %1510
                Poole BoulevardYuba
                City, CA 95993Common
            
            
            Michael
                Sullinger
            
            
            668,544(4)
            
            
            0.8
            %1510
                Poole BoulevardYuba
                City, CA 95993Common
            
            
            A.
                Richard Barber
            
            
            998,352(5)
            
            
            1.2
            %1510
                Poole BoulevardYuba
                City, CA 95993ALL
                DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (3 PERSONS NAMED
                ABOVE)
            
            
            8,338,935
            
            
            9.9
            %


_____________




(1)  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.


(2)  Applicable
      percentage of ownership is based on 83,668,019 shares of common stock
      outstanding as of April 12 2007 together with securities exercisable or
      convertible into shares of common stock within 60 days of April 12, 2007 for
      each stockholder. Beneficial ownership is determined in accordance with the
      rules of the Commission and generally includes voting or investment power with
      respect to securities. Shares of common stock subject to securities exercisable
      or convertible into shares of common stock that are currently exercisable or
      exercisable within 60 days of December 31, 2006 are deemed to be
      beneficially owned by the person holding such options for the purpose of
      computing the percentage of ownership of such person, but are not treated as
      outstanding for the purpose of computing the percentage ownership of any other
      person.




(3)Includes
        options held by Terry Eilers to purchase up to 300,000 shares of the Company’s
        common stock exercisable within 60 days of April 17, 2007.
 
 (4)Includes
        options held by Michael Sullinger to purchase up to 200,000 shares of the
        Company’s common stock exercisable within 60 days of April 17,
        2007.
 
 (5)Includes
        options held by A. Richard Barber to purchase up to 50,000 shares of the
        Company’s common stock exercisable within 60 days of April 17,
        2007.




Mr.
      Marks
      and Mr. Orlando were appointed to their ETLS positions on March 27, 2007, and
      neither of them directly or indirectly owned any of the Company’s securities as
      of December 31, 2006 or as of the date of this report.




**Item
      12.     Certain Relationships And Related
      Transactions.**




Since
      January 1, 2006 ETLS has not entered into a transaction with a value in excess
      of the lesser of (a) $120,000 or (b) one percent of the average of the Company’s
      total assets at year-end for the last three completed fiscal years with any
      director or executive officer or beneficial owner of 5% or more of the Company’s
      common stock or with any family member of any such beneficial owner of 5% or
      more of the Company’s common stock.




No
      officer, director, or affiliate of ETLS has or proposes to have any direct
      or
      indirect material interest in any asset proposed to be acquired 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.***




25




**DESIGNATION
                  OF EXHIBIT AS SET FORTH IN ITEM 601 OF REGULATION
                  S-B**
              
              **DESCRIPTION**
              
              **LOCATION**10.1
              
              Securities
                  Purchase Agreement, dated November 2, 2005 by and between eTotalSource,
                  Inc. and Cornell Capital Partners, L.P.
              
              Incorporated
                  by reference to the Current Report on Form 8-K dated November 8,
                  2005
                  (File No. 000-49797).10.2
              
              Investor
                  Registration Rights Agreement, dated October 6, 2004, by and between
                  eTotalSource, Inc. and Cornell Capital Partners, L.P.
              
              Incorporated
                  by reference to the Current Report on Form 8-K dated November 8,
                  2005
                  (File No. 000-49797).10.3
              
              Secured
                  Convertible Debenture
              
              Incorporated
                  by reference to the Current Report on Form 8-K dated November 8,
                  2005
                  (File No. 000-49797).10.4
              
              Amended
                  and Restated Security Agreement, dated November 2, 2005, by and
                  between
                  eTotalSource, Inc. and Cornell Capital Partners, L.P.
              
              Incorporated
                  by reference to the Current Report on Form 8-K dated November 8,
                  2005
                  (File No. 000-49797).10.5
              
              Warrant
                  issued to Cornell Capital Partners, L.P.
              
              Incorporated
                  by reference to the Current Report on Form 8-K dated November 8,
                  2005
                  (File No. 000-49797).10.6
              
              Escrow
                  Agreement (SEDA), dated November 2, 2005, by and among eTotalSource,
                  Inc.,
                  Cornell Capital Partners, L.P., and David Gonzalez, Esq.
              
              Incorporated
                  by reference to the Current Report on Form 8-K dated November 8,
                  2005
                  (File No. 000-49797).10.7
              
              Irrevocable
                  Transfer Agent Instructions, by and among eTotalSource, Inc., Cornell
                  Capital Partners, L.P., and Executive Registrar & Transfer,
                  Inc.
              
              Incorporated
                  by reference to the Current Report on Form 8-K dated November 8,
                  2005
                  (File No. 000-49797).10.8
              
              Termination
                  Agreement, dated November 2, 2005, by and among eTotalSource, Inc.,
                  and
                  Cornell Capital Partners, L.P.
              
              Incorporated
                  by reference to the Current Report on Form 8-K dated November 8,
                  2005
                  (File No. 000-49797).
  26
  **DESIGNATION
                  OF EXHIBIT AS SET FORTH IN ITEM 601 OF REGULATION
                  S-B**
              
              **DESCRIPTION**
              
              **LOCATION**
 10.9
              
              Agreement
                  dated December 21, 2006 by and between eTotalSource, Inc. and Cornell
                  Capital Partners, L.P.
              
              Incorporated
                  by reference to the Quarterly Report of Form 10-QSB dated December
                  21,
                  200610.10
              
              Secured
                  Convertible Debenture dated December 21, 2006 in the Principal
                  Amount of
                  $7,642 issued by eTotalSource, Inc. to Cornell Capital Partners,
                  L.P.
              
              Incorporated
                  by reference to the Quarterly Report of Form 10-QSB dated December
                  21,
                  200610.11
              
              Agreement
                  dated April 13, 2007 by and between eTotalSource, Inc. and Cornell
                  Capital
                  Partners, L.P.
              
              Filed
                  Herewith10.12
              
              Secured
                  Convertible Debenture dated April 13, 2007 in the Principal Amount
                  of
                  $72,000 issued by eTotalSource, Inc. to Cornell Capital Partners,
                  L.P.
              
              Filed
                  Herewith14.1
              
              Code
                  of Ethics
              
              Incorporated
                  by reference to the Registration Statement on Form SB-2 filed on
                  April 21,
                  2005 (File No. 333-124220).31.1
              
              Certification
                  of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley
                  Act of 2002
              
              Filed
                  Herewith31.2
              
              Certification
                  of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley
                  Act of 2002
              
              Filed
                  Herewith32.1
              
              Certification
                  of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002
              
              Filed
                  Herewith32.2
              
              Certification
                  of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002
              
              Filed
                  Herewith





***(b)***  ***Reports
      on Form 8-K filed during the quarter ended December 31,
      2006*** :
      None.




**Item
      14.      Principal Accountant Fees And
      Services**




Gordon,
      Hughes & Banks, LLP (“ GHB ”),
      an
      independent registered public accounting firm, was the Company's principal
      auditing accounting firm. GHB was dismissed on May 15, 2006.




27




GHB
      billed the Company $18,919 for the following professional services: audit of
      the
      annual financial statement of the Company for the fiscal year ended December
      31,
      2005, review of the Registration Statements filed with the SEC. GHB billed
      the
      Company $18,161 for the 2005 audit.




Effective
      May 15, 2006, the Company engaged Beadle, McBride, Evans & Reeves, LLP
      (“ BMER ”)
      located at 2285 Renaissance Drive in Las Vegas, Nevada 89119, to become
      eTotalSource’s new certifying accountant retained to audit the financials of the
      Company.




BMER
      billed the Company $13,200 for the following professional services: review
      of
      the interim financial statements included in quarterly reports on Form 10-QSB
      for the periods ended March 31, 2006, June 30, 2006, and September 30, 2006
      and
      review of the Registration Statements filed with the SEC.




The
      Board
      acts as the audit committee and had no pre-approval policies and procedures
      in
      effect for the auditors' engagement for the audit year 2005 and
      2006.





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




28




**SIGNATURES**




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




**ETOTALSOURCE,
              INC.**April
                17, 2007
            By:
            */s/*Frank
                J. OrlandoFrank
                J. Orlando, Principal Executive Officer
              (Chief
                Restructuring Officer)April
                17, 2007
            By:
            */s/*Frank
                J. OrlandoFrank
                J. Orlando, Principal Accounting and Financial Officer
              (Chief
                Financial Officer)





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




April
                17,
                2007
            By:
            /s/David M. MarksDavid
                M. Marks, Director





29




**eTotalSource,
                  Inc****Consolidated
                  Financial Statements****Table
                  of Contents**PAGEConsolidated
                  Financial StatementsReport
                  of Independent Registered Public Accounting Firm
              F-1Report
                  of Independent Registered Public Accounting Firm
              F-2Balance
                  Sheet
              F-3Statements
                  of Operations
              F-4Statement
                  of Stockholders' Equity (Deficit)
              F-5Statements
                  of Cash Flows
              F-6Notes
                  to Consolidated Financial Statements
              F-7
 
 
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
        the
        Board of Directors of
 *e* TotalSource,
        Inc.
 1510
        Poole Blvd.
 Yuba
        City, CA 95993
 
 We
        have
        audited the accompanying balance sheet of eTotalSource, Inc. as of December
        31,
        2006, and the related statements of operations, changes in stockholders'
        equity
        and cash flows for the years ended December 31, 2006. 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 audit 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 balance
        sheets are free of material misstatement. The
        Company is not required to have, nor were we engaged to perform, an audit
        of its
        internal control over financial reporting. Our audit included consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Company’s internal control
        over financial reporting. Accordingly, we express no such opinion. An
        audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the balance sheets. 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
        audit provides a reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of the Company as of December 31,
        2006, and the results of its operations and its cash flows for the year ended
        December 31, 2006, in conformity with U.S. generally accepted accounting
        principles.
 
 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, 2006 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/Beadle,
        McBride, Evans & Reeves, LLP*
  Las
        Vegas, Nevada
 April
        12,
        2007
  F-1
  **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
          the
          Board of Directors
 eTotalSource,
          Inc.
 Yuba
          City, California
 
 We
          have
          audited the accompanying consolidated statements of operations, stockholders’
equity (deficit) and cash flows of eTotalSource, Inc. (the “Company”) for the
          year ended December 31, 2005. 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 audit.
  We
          conducted our audit 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. The Company is not required
          to
          have, nor were we engaged to perform, an audit of its internal control
          over
          financial reporting. Our audit included consideration of internal control
          over
          financial reporting as a basis for designing audit procedures that are
          appropriate in the circumstances, but not for the purpose of expressing
          an
          opinion on the effectiveness of the Company’s internal control over financial
          reporting. Accordingly, we express no such opinion. 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 audit provides
          a
          reasonable basis for our opinion.
  In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the results of the Company’s operations and its cash
          flows for the year ended December 31, 2005, 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, 2005 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***
 
 Golden,
          Colorado
 March
          7,
          2006
 F-2
 
 **eTotalSource,
                  Inc.****Consolidated
                  Balance Sheet****December
                  31, 2006*****Current
                  Assets***Cash
              
              $
              563*Total
                  Current Assets*
              
              
              563***Property
                  and Equipment***Furniture
                  and equipment
              
              
              -Less
                  accumulated depreciation
              
              
              --***Other
                  Assets***Deposits
              
              
              801***Total
                  Assets***
              
              $
              1,364**LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)*****Current
                  Liabilities***Convertible
                  notes payable
              
              $
              250,000Other
                  notes payable
              
              
              797,114Judgments
                  payable
              
              
              204,788Accounts
                  payable and other accrued liabilities (Including $84,158 owed to
                  related
                  parties)
              
              
              337,593Accrued
                  compensation payable
              
              
              1,249,203Accrued
                  interest payable
              
              
              505,555*Total
                  Current Liabilities*
              
              
              3,344,253**Convertible
                  Notes Payable, less current maturities********and
                  $171,969 discount**
              
              
              761,666**Total
                  Liabilities**
              
              
              4,105,919**Commitments
                  and Contingencies*****Stockholders'
                  Equity (Deficit)***Common
                  stock; no par value; 300 million shares authorized,80,168,019
                  shares issued and outstanding
              
              
              6,467,521Accumulated
                  (deficit)
              
              
              (10,572,076
              )*Total
                  Stockholders' Equity (Deficit)*
              
              
              (4,104,555
              )***Total
                  Liabilities and Stockholders' Equity
                  (Deficit)***
              
              $
              1,364
  See
        accompanying notes.
 F-3
 
 **eTotalSource,
                  Inc.****Consolidated
                  Statements of Operations**
  **December
                  31,****2006**
              
              **2005****Revenues**
              
              $
              25,980
              
              $
              54,715**General
                  and Administrative Expenses**
              
              
              635,110
              
              
              1,054,727**Operating
                  Income (Loss)**
              
              
              (609,130
              )
              
              (1,000,012
              )**Other
                  Income (Expense)**Gain
                  (loss) on sale or retirement of asset
              
              
              594
              
              
              (245
              )Interest
                  expense
              
              
              (409,332
              )
              
              (285,746
              )Bad
                  debts recovered
              
              
              85,121
              
              
              -Loss
                  on impaired assets
              
              
              (13,444
              )
              
              -Other
                  income (expense), net
              
              
              1,099
              
              
              1,342**Total
                  Other Income (Expense)**
              
              
              (335,962
              )
              
              (284,649
              )(Loss)
                  before income tax
              
              
              (945,092
              )
              
              (1,284,661
              )Income
                  tax
              
              
              -
              
              
              -**Net
                  (Loss)**
              
              $
              (945,092
              )
              $
              (1,284,661
              )**Basic
                  and Diluted (Loss) per Share**
              
              $
              (0.015
              )
              $
              (0.03
              )**Weighted
                  Average Common Shares Outstanding**
              
              
              62,954,670
              
              
              46,710,821
 
 See
        accompanying notes.
  F-4
 
 **eTotalSource,
                  Inc.****Consolidated
                  Statement of Stockholders' Equity (Deficit)**
  **Common
                  Stock**
              
              **Accumulated****Shares**
              
              **Amount**
              
              **(Deficit)**
              
              **Total****December
                  31, 2004**
              
              
              **46,710,821**
              
              **$**
              **5,784,300**
              
              **$**
              **(8,342,323**
              **)**
              **$**
              **(2,558,023**
              **)**Options
                  and warrants -Services
                  and interest
              
              
              **-**
              
              
              97,685
              
              
              **-**
              
              
              97,685Additional
                  paid-in-capitalDiscounts
                  - convertible debentures
              
              
              **-**
              
              
              344,921
              
              
              **-**
              
              
              344,921Net
                  (loss)
              
              
              **-**
              
              
              **-**
              
              
              (1,284,661
              )
              
              (1,284,661
              )**December
                  31, 2005**
              
              
              **46,710,821**
              
              
              **6,226,906**
              
              
              **(9,626,984**
              **)**
              
              **(3,400,078**
              **)**Common
                  StockConversion
                  of debentures ($.0016-.0048 per share)
              
              
              31,457,198
              
              
              72,500
              
              
              -
              
              
              72,500Conversion
                  of warrants ($.001 per share)
              
              
              2,000,000
              
              
              2,000
              
              
              -
              
              
              2,000Options
                  and warrants -Services
                  and interest
              
              
              **-**
              
              
              101,632
              
              
              **-**
              
              
              101,632Additional
                  paid-in-capitalDiscounts
                  - convertible debentures
              
              
              **-**
              
              
              1,528
              
              
              **-**
              
              
              1,528Vested
                  FV of stock compensation cost
              
              
              **-**
              
              
              62,955
              
              
              **-**
              
              
              62,955Net
                  (loss)
              
              
              **-**
              
              
              **-**
              
              
              (945,092
              )
              
              (945,092
              )**December
                  31, 2006**
              
              
              **80,168,019**
              
              **$**
              **6,467,521**
              
              **$**
              **(10,572,076**
              **)**
              **$**
              **(4,104,555**
              **)**
 
 See
        accompanying notes.
 F-5
 
 **eTotalSource,
                  Inc.****Consolidated
                  Statements of Cash Flows**
  **December
                  31,****2006**
              
              **2005****Cash
                  Flows From (Used in) Operating Activities:**Net
                  (loss)
              
              $
              (945,092
              )
              $
              (1,284,661
              )Depreciation
                  and amortization
              
              
              141,450
              
              
              122,314Gain
                  (loss) on sale or retirement of assets
              
              
              43
              
              
              245Stock
                  options and warrant expense
              
              
              101,632
              
              
              97,685Vested
                  stock compensation expense
              
              
              62,955
              
              
              -Impairment
                  of patents and trademarks
              
              
              -
              
              
              20,873Impairment
                  of assets
              
              
              13,444
              
              
              -Changes
                  in assets and liabilities:Decrease
                  (increase) in other current assets
              
              
              (4,252
              )
              
              74Decrease
                  (increase) in deposits
              
              
              (80
              )
              
              441Increase
                  (decrease) in payables, credit cards and accrued
                  liabilities
              
              
              499,363
              
              
              394,138Increase
                  (decrease) in deferred revenue
              
              
              (22,
                  500
              )
              
              (45,000
              )Net
                  Cash (Used in) Operating Activities
              
              
              (153,037
              )
              
              (693,891
              )**Cash
                  Flows From (Used in) Investing Activities:**Purchase
                  of equipment
              
              
              -
              
              
              -Net
                  Cash (Used in) Investing Activities
              
              
              -
              
              
              -**Cash
                  Flows From (Used in) Financing Activities:**Proceeds
                  from conversion of warrants
              
              
              2,000
              
              
              -Proceeds
                  from convertible debentures
              
              
              7,642
              
              
              650,000Proceeds
                  from notes payable
              
              
              25,000
              
              
              125,000Net
                  Cash From Financing Activities
              
              
              34,642
              
              
              775,000Increase
                  (Decrease) in Cash and Cash Equivalents
              
              
              (118,395
              )
              
              81,109Cash
                  and Cash Equivalents - Beginning of Period
              
              
              118,958
              
              
              37,849Cash
                  and Cash Equivalents - End of Period
              
              $
              563
              
              $
              118,958**Supplemental
                  Disclosures:**Interest
                  paid
              
              $
              24,567
              
              $
              78,718Income
                  taxes paid
              
              
              -
              
              
              1,600Non-cash
                  investing and financing transactions:Conversion
                  of convertible debenture
              
              
              72,500
              
              
              -Discount
                  on convertible debentures
              
              
              1,528
              
              
              344,921Conversion
                  of accrued interest payable to principal
              
              
              -
              
              
              15,114
 See
          accompanying notes.
 F-6
  **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 Uncertainty*
  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, 2006 had a net working capital deficit of approximately $3,338,000,
        a stockholders’ deficit of $4,104,555, notes payable totaling $897,114 were in
        default with related accrued interest in arrears of $167,194 and 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.
 
 *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 inter-company 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.
  F-7
 **eTotalSource,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 *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,
        2006, 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 of property
        is depreciated using the straight-line method over estimated useful lives
        ranging from five to seven years. Depreciation charged to operations was
        $9,946
        in 2006 and $12,281 in 2005.
 
 *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. A loss on impairment in the amount
        of $20,873 was recognized in 2005 as the Company fully impaired the unamortized
        cost of its patent applications and trademarks.
 
 *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, 2006 and 2005, 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.
  *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.
  F-8
 **eTotalSource,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 *Stock-Based
        Compensation*
  Prior
        to
        January 1, 2006, the Company accounted for stock-based compensation using
        the
        intrinsic value method prescribed in APB Opinion No. 25, "Accounting for
        Stock
        Issued to Employees," and related interpretations. On January 1, 2006 the
        Company adopted SFAS No.123 (Revised 2004), "Share Based Payment," ("SFAS
        123R"), using the modified prospective method. There were no options granted
        in
        2006 or 2005.
  *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 as interest
        expense over the remaining outstanding period of related debt.
 
 *Recent
        Accounting Pronouncements*
  On
        February 15, 2007, the FASB issued FASB Statement No. 159, *The
        Fair Value Option for Financial Assets and Financial Liabilities - Including
        an
        Amendment of FASB Statement No. 115.* The
        fair
        value option established by Statement 159 permits all entities to choose
        to
        measure eligible items at fair value at specified election dates. A business
        entity will report unrealized gains and losses on items for which the fair
        value
        option has been elected in earnings (or another performance indicator if
        the
        business entity does not report earnings) at each subsequent reporting date.
        Statement 159 is effective as of the beginning of an entity’s first fiscal year
        that begins after November 15, 2007. The
        Company does not expect that adoption of SFAS No. 159 will have a material
        effect on its financial position, results of operations, or liquidity and
        does
        not currently believe it will have a material impact on our financial
        statements **.**
 
 On
        September 29, 2006, the FASB issued FASB Statement No. 158, *Employers'
        Accounting for Defined Benefit Pension and Other Postretirement Plans — An
        Amendment of FASB Statements No. 87, 88, 106, and 132R.* This new
        standard requires an employer to: ( *a* ) 
recognize in its statement of financial position an asset for a plan’s
        overfunded status or a liability for a plan’s underfunded status; ( *b* )
        measure
        a plan’s assets and its obligations that determine its funded status as of the
        end of the employer’s fiscal year (with limited exceptions); and ( *c* )
        recognize changes in the funded status of a defined benefit postretirement
        plan
        in the year in which the changes occur. The requirement to recognize the
        funded
        status of a benefit plan and the disclosure requirements are effective as
        of the
        end of the fiscal year ending after December 15, 2006, for entities with
        publicly traded equity securities, and at the end of the fiscal year ending
        after June 15, 2007, for all other entities. The requirement to measure plan
        assets and benefit obligations as of the date of the employer’s fiscal year-end
        statement of financial position is effective for fiscal years ending after
        December 15, 2008. The Company does not expect that adoption of SFAS
        No. 158 will have a material effect on its financial position, results of
        operations, or liquidity and does not currently believe it will have a material
        impact on our financial statements **.**
 
 In
        September 2006, the FASB issued Statement No. 157, *Fair
        Value Measurements* .
        This
        new standard provides guidance for using fair value to measure assets and
        liabilities. Statement 157 applies whenever other standards require (or permit)
        assets or liabilities to be measured at fair value but does not expand the
        use
        of fair value in any new circumstances. Under Statement 157, fair value refers
        to the price that would be received to sell an asset or paid to transfer
        a
        liability in an orderly transaction between market participants in the market
        in
        which the reporting entity transacts. In this standard, the FASB clarifies
        the
        principle that fair value should be based on the assumptions market participants
        would use when pricing the asset or liability. The provisions of Statement
        157
        are effective for financial statements issued for fiscal years beginning
        after
        November 15, 2007, and interim periods within those fiscal years. The
        Company does not expect that adoption of SFAS No. 157 will have a material
        effect on its financial position, results of operations, or liquidity and
        does
        not currently believe it will have a material impact on our financial
        statements **.**
  F-9
 **eTotalSource,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 On
        July
        13, 2006, FASB Interpretation (FIN) No. 48, *Accounting
        for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
        109,* was
        issued. FIN 48 clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise’s financial statements in accordance with FASB
        Statement No. 109, *Accounting
        for Income Taxes.* FIN 48
        also prescribes a recognition threshold and measurement attribute for the
        financial statement recognition and measurement of a tax position taken or
        expected to be taken in a tax return. The new FASB standard also provides
        guidance on de-recognition, classification, interest and penalties, accounting
        in interim periods, disclosure, and transition. The provisions of FIN 48
        are
        effective for fiscal years beginning after December 15, 2006. The
        Company does not expect that adoption of (FIN)No. 48 will have a material
        effect on its financial position, results of operations, or liquidity and
        does
        not currently believe it will have a material impact on our financial
        statements **.**
 
 **NOTE
        2. NOTES PAYABLE**
 
 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.
              
              $
              172,000Note
                  payable to a trust; interest at 10% and principal due January 17,
                  2003,
                  extended to December 17, 2003 (with interest increased to 18% and
                  due
                  monthly beginning February 17, 2003). The note is in default.
              
              
              110,000Note
                  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.
              
              
              40,000Promissory
                  notes payable; interest at 6% payable monthly, due in 2001, unsecured.
                  Principal and accrued interest ($36,701 at December 31, 2006) 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.
              
              
              150,000Promissory
                  note payable; principal and accrued interest at 8% payable in 2002,
                  extended to May 15, 2003, unsecured. Principal and accrued interest
                  ($18,868 at December 31, 2006) convertible to Company common stock
                  at $.50
                  per share. Warrants also issued to the note holder to purchase
                  55,248
                  shares of common stock for five years at $.50 per share. The note
                  is in
                  default.
              
              
              100,000Note
                  payable to an unrelated trust; stated interest rate of 10% due
                  June 2003,
                  extended to June 2004. As consideration for forbearance, the note
                  holder
                  received 50,000 shares of common stock in 2004, valued at $.525
                  per share
                  ($26,250). In October 2004, the note was extended to April 2005.
                  In
                  December 2005, the note was extended to June 2006. Accrued unpaid
                  interest
                  of $2,483 was added to the principal in 2005. *
              
              
              52,483
  F-10
 **eTotalSource,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 Note
                  payable to an unrelated trust; principal and interest at 10% due
                  monthly.
                  This note 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. In December 2005, the note was extended
                  to June
                  2006. Accrued unpaid interest of $12,631 was added to the principal
                  in
                  2005. *
              
              
              262,631Convertible
                  debentures payable to an unrelated company, principal and interest
                  at 12%,
                  payable November 1, 2008, secured by 225,000,000 shares of common
                  stock
                  and 7 million warrants. Principal and accrued interest ($136,431
                  at
                  December 31, 2006) convertible to common stock ata
                  conversion price equal to the lower of (i) $.024 price per share
                  of common
                  stock or (ii) 80% of the lowest closing bid price of our common
                  stock, as
                  quoted by Bloomberg, L.P., for the five trading days immediately
                  preceding
                  the conversion date. At the due date the Company has the option
                  to repay
                  the debt or issue common stock. In connection with this transaction,
                  the
                  Company recorded a discount of $320,734, for the relative value
                  of the
                  warrants; as of December 31, 2006, the debt is stated net of the
                  unamortized discount of $171,968. During 2006, the holder converted
                  $72,500 to 31,457,198 shares of common stock. On January 4, 2007,
                  the
                  holder converted $3,500 to 3,500,000 shares.
              
              
              755,531Convertible
                  debentures payable to an unrelated company, principal and interest
                  at 12%,
                  payable December 21, 2008. Principal and accrued interest ($25
                  at December
                  31, 2006) convertible to common stock ata
                  conversion price equal to the lower of (i) $.0018 price per share
                  of
                  common stock or (ii) 80% of the lowest closing bid price of our
                  common
                  stock, as quoted by Bloomberg, L.P., for the five trading days
                  immediately
                  preceding the conversion date. At the due date the Company has
                  the option
                  to repay the debt or issue common stock. In connection with this
                  transaction, the Company recorded a discount of $1,528, for the
                  relative
                  value of the warrants; as of December 31, 2006, the debt is stated
                  net of
                  the unamortized discount of $1,507.
              
              
              6,135Note
                  payable to an unrelated individual; principal and unpaid interest
                  at 12%,
                  due October 15, 2006. The note is in default.
              
              
              25,000Note
                  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.
              
              
              10,000Note
                  payable to an unrelated company; principal and interest at 10%,
                  due August
                  1, 2005. The note is in default.
              
              
              25,000Note
                  payable to an unrelated company; principal and interest at 12%,
                  due August
                  1, 2005. The note is in default.
              
              
              100,000Total
              
              
              1,808,780Less:
                  current maturities
              
              
              1,047,114Long-term
                  maturities
              
              $
              761,666
  *
                  In connection with the extension of the maturity date of these
                  notes to
                  June 2006, the Company is obligated to issue 2,000,000 shares of
                  its
                  common stock to the note-holder of both notes. The Company has
                  accrued
                  this liability based on the fair market value of its common stock
                  as of
                  the date of the extension agreement and recorded the related interest
                  expense in the accompanying financial
                  statements.
 
 F-11
 **eTotalSource,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **NOTE
          3. INCOME TAXES**
 The
        provision (benefit) for income taxes consists of the following:
 
 2006
              
              2005Current
                  expense (benefit)
              
              $
              (249,000
              )
              $
              (376,000
              )Deferred
                  expense
              
              
              -
              
              
              -Valuation
                  allowance
              
              
              249,000
              
              
              376,000Income
                  tax expense (benefit)
              
              $
              -
              
              $
              -
 
 A
        reconciliation of income tax computed at the U.S. statutory rate to the
        effective income tax rate is as follows:
  2006
              
              2005Income
                  tax (benefit) expense at statutory rate
              
              $
              (323,000
              )
              $
              (437,000
              )Permanent
                  tax differences:Expenses
                  paid with options
              
              
              23,000
              
              
              33,000Accrued
                  officers compensation
              
              
              81,000
              
              
              76,000Deferred
                  revenue
              
              
              (8,000
              )
              
              (15,000
              )State
                  taxes
              
              
              (22,000
              )
              
              (33,000
              )Valuation
                  allowance
              
              
              249,000
              
              
              376,000Income
                  tax expense
              
              $
              -
              
              $
              -
 
 The
        components of deferred income taxes at December 31, 2006 are as
        follows:
  Net
                  operating loss carryovers
              
              $
              2,016,000Other
              
              
              73,000Total
                  deferred tax asset
              
              
              2,089,000Valuation
                  allowance
              
              
              (2,089,000
              )Total
                  net deferred tax
              
              $
              -
 
 SFAS
        109
        requires that all deferred tax balances be determined using the tax rates
        and
        limitations expected to be in effect when the taxes will actually be paid
        or
        recovered. Consequently, the income tax provision will increase or decrease
        in
        the period in which a change in tax rate or limitation is enacted. As of
        December 31, 2006, the Company had total deferred tax assets of $2,089,000.
        The
        Company recorded a valuation allowance in the full amount of $2,089,000 at
        December 31, 2006, against the amount by which deferred tax assets exceed
        deferred tax liabilities. The valuation reserve at December 31, 2006 has
        been
        provided due to the uncertainty of the amount of future taxable income. The
        Company provides a valuation allowance in the full amount of its deferred
        tax
        assets because under the criteria of SFAS No. 109, the Company does not have
        a
        basis to conclude that it is more likely than not that it will realize the
        deferred tax assets.
 
 The
        Company has accumulated net operating loss carry-forwards of approximately
        $5,929,000. To the extent not used, the net operating loss carry-forwards
        expire
        in varying amounts beginning in 2020. As of December 31, 2006, all identified
        deferred tax assets are reduced by a valuation allowance. Therefore, any
        additional operating loss carry-forwards not recognized would not result
        in a
        benefit in the provision for income taxes due to the uncertainty of future
        realization of those additional loss carry-forwards.
  F-12
 **eTotalSource,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **NOTE
        4. STOCKHOLDERS’ EQUITY**
 
 *Stock
        Issued from Exercising of Warrants*
  On
        April
        27, 2006, Cornell exercised its warrant to purchase 2,000,000 shares of common
        stock for a payment to the Company of $2,000.
 
 *Stock
        Issued Conversion of Debentures*
  On
        April
        4, 2006, Cornell Capital Partners, L.P. (“Cornell”) converted $6,500 of
        convertible debentures into 1,969,697 shares of common stock.
 
 On
        April
        19, 2006, Cornell converted $6,500 of convertible debentures into 1,911,765
        shares of common stock.
 
 On
        May
        10, 2006, Cornell converted $9,000 of convertible debentures into 2,500,000
        shares of common stock.
 
 On
        May
        24, 2006, Cornell converted $6,000 of convertible debentures into 2,500,000
        shares of common stock.
 
 On
        June
        12, 2006, Cornell converted $5,500 of convertible debentures into 2,291,667
        shares of common stock.
 
 On
        June
        28, 2006, Cornell converted $4,600 of convertible debentures into 2,300,000
        shares of common stock.
 
 On
        July
        12, 2006, Cornell converted $3,500 of convertible debentures into 2,058,824
        shares of common stock.
 
 On
        August
        4, 2006, Cornell converted $4,300 of convertible debentures into 2,529,412
        shares of common stock.
 
 On
        August
        23, 2006, Cornell converted $4,100 of convertible debentures into 2,562,500
        shares of common stock.
 
 On
        September 24, 2006, Cornell converted $5,000 of convertible debentures into
        2,500,000 shares of common stock.
 
 On
        October 11, 2006, Cornell converted $5,000 of convertible debentures into
        3,125,000 shares of common stock.
 
 On
        November 3, 2006, Cornell converted $2,500 of convertible debentures into
        3,125,000 shares of common stock.
 
 *Stock
        Options and Warrants Issued for Services and in Lieu of
        Interest*
  In
        2006
        and 2005, the Company recorded expenses for options and warrants to purchase
        common stock issued to consultants and lenders totaling $166,339 and **** $97,685,
        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.
 
 *Accrued
        Stock For Services*
  *In
        2006 and 2005, the Company recorded expenses for accrued stock for unpaid
        officer salary totaling $12,000 and $12,000 respectively. The total amount
        accrued from 2001 to 2006 was $122,787.50.*
  F-13
 **** **eTotalSource,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
  **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 non-statutory 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 non-statutory 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.
 
 On
        January 1, 2006 the Company adopted SFAS No.123 (Revised 2004), "Share Based
        Payment," ("SFAS 123R"), using the modified prospective method. In accordance
        with SFAS No. 123R, the Company measures the cost of employee services received
        in exchange for an award of equity instruments based on the grant-date fair
        value of the award. That cost is recognized over the period during which
        an
        employee is required to provide service in exchange for the award - the
        requisite service period. The Company determines the grant-date fair value
        of
        employee share options using the Black-Scholes option-pricing
        model.
 
 Under
        the
        modified prospective approach, SFAS No. 123R applies to new awards and to
        awards
        that were outstanding on January 1, 2006 that are subsequently modified,
        repurchased or cancelled. Under the modified prospective approach, compensation
        cost recognized for the year ended December 31, 2006 includes compensation
        cost
        for all share-based payments granted prior to, but not yet vested on, January
        1,
        2006, based on the grant-date fair value estimated in accordance with the
        pro
        forma provisions of SFAS No. 123R, and compensation cost for all share-based
        payments granted subsequent to January 1, 2006, based on the grant-date fair
        value estimated in accordance with the provisions of SFAS No. 123R. Prior
        periods were not restated to reflect the impact of adopting the new standard.
        During 2006 the Company recorded $62,955 in non-cash charges for the
        implementation of SFAS No. 123R.
 
 The
        Company did not grant any options during 2006. The fair value of stock options
        granted in prior years was estimated using the Black-Scholes model with the
        following assumptions: expected volatility of 406.37%, expected term of 10
        years, risk-free interest of 7.08%, and expected dividend yield of 0%. Expected
        volatility is based on the historical volatilities of the Company's common
        stock. The expected life of employee stock options is determined using
        historical data of employee exercises and represents the period of time that
        stock options are expected to be outstanding. The risk free interest rate
        is
        based on U.S. Treasury constant maturity for the expected life of the stock
        option.
 
 A
        summary
        of stock options outstanding and exercisable as of December 31, 2006
        follows:
  **Options
                  Outstanding**
              
              **Options
                  Outstanding**
              
              **Options
                  Exercisable**
              
              **Options
                  Exercisable****Range
                  of Exercise Prices**
              
              **Number
                  Outstanding**
              
              **Weighted
                  Average Remaining Life**
              
              **Number
                  Exercisable**
              
              **Weighted
                  Average Exercise Price**$0.50
              
              
              1,262,500
              
              
              5.4
                  years
              
              
              1,262,500
              
              $
              0.50
  F-14
 **eTotalSource,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 Information
        concerning all stock option activity is summarized in the following
        table:
  **Option
                  Shares**
              
              **Option
                  Prices**
                **Per
                  Share**Outstanding,
                  December 31, 2004
              
              
              1,262,500
              
              $
              0.50Granted
              
              
              —
              
              
              —Forfeited
              
              
              —
              
              
              —Exercised
              
              
              —
              
              
              —Outstanding,
                  December 31, 2005
              
              
              1,262,500
              
              $
              0.50Granted
              
              
              —
              
              
              —Forfeited/Expired
              
              
              —
              
              
              —Exercised
              
              
              —
              
              
              —Outstanding,
                  December 31, 2006
              
              
              1,262,500
              
              $
              0.50
 
 Prior
        to
        January 1, 2006, the Company accounted for stock-based compensation using
        the
        intrinsic value method prescribed in APB Opinion No. 25, "Accounting for
        Stock
        Issued to Employees," and related interpretations. Had compensation cost
        for the
        plan been determined based on the fair value of the options at the grant
        dates
        consistent with the method of SFAS No. 148, "Accounting for Stock-Based
        Compensation - Transition and Disclosure - an Amendment of SFAS No. 123,"
        the
        Company's net earnings and earnings per share would have been:
 
 2006
              
              2005Net
                  loss as applicable to common shareholders
              
              $
              (945,092
              )
              $
              (1,284,661
              )Deduct:
                  Total stock-based employee compensation expense determined under
                  fair
                  value based method for all awards, net of related tax
                  effects
              
              
              -
              
              
              (120.957
              )Pro
                  forma net loss
              
              
              (945,092
              )
              
              (1,405,618
              )Earnings
                  per share:Basic
                  - as reported
              
              $
              (0.015
              )
              $
              (0.03
              )Basic
                  - pro forma
              
              $
              (0.015
              )
              $
              (0.03
              )
 
 The
        pro
        forma compensation costs presented above were determined using the weighted
        average fair values of options granted under the Company's stock option plans.
        The fair value of the grants was estimated using the Black-Scholes option
        pricing model with the following weighted-average assumptions. The assumptions
        utilized for prior years were:
  Expected
                  lifeRisk-free
                  interest rate
              
              
              7.08
              %Dividend
                  yield
              
              
              —Volatility
              
              
              406.37
              %
 
 F-15
 **eTotalSource,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 *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 7,982,500 shares of common stock of eTotalSource
        at prices ranging from $.001 to $.50 per share: 40,000 expire in 2006, 817,500
        expire in 2007, 7,000,000 expire in 2010 and 125,000 expire in 2011. As of
        December 31, 2006, the weighted average expected life of all such compensatory
        options and warrants was 4.4 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, 2006. Management believes that the financial
        institution is financially sound.
 
 **NOTE
        8. COMMITMENTS AND CONTINGENCIES**
  *Executive
        Employment Contracts*
  The
        Company has employment agreements with its two executive officers:
  1.
              Agreements
                  were executed with the Chief Executive Officer at the inception
                  of the
                  Company (February 7, 2000) which expires December 31, 2006. Annual
                  salary
                  is $150,000 and 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). 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
                  2006 and 2005, CEO compensation expensed pursuant to these arrangements
                  totaled $159,000 during 2006 and 2005, respectively (exclusive
                  of the fair
                  value and of incentive stock options). The CEO has elected to forego
                  the
                  2006 and 2005 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 2006 and 2005, COO
                  compensation expensed pursuant to these arrangements was accrued
                  on a
                  “half-time” basis and totaled $69,000 and $69,000, respectively (exclusive
                  of the fair value of incentive stock options). The officer has
                  elected to
                  forego the 2006 and 2005 annual bonus of incentive stock
                  options.
  F-16
 **** **eTotalSource,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
  On
        April
        3, 2006, Virgil Baker, the Chief Financial Officer, submitted his resignation
        as
        Chief Financial Officer and Director, such resignation to be effective on
        May
        15, 2006.
 
 On
        May 1,
        2006, John (Cody) Morrow submitted his resignation as Director, such resignation
        to be effective on May 1, 2006.
 
 On
        December 6, 2006, ETLS
        and
        Terry Eilers are being sued by Gary Miller for an alleged breach of contract
        claim. Gary Miller is a holder of three note payables totaling $175,000.
        The
        lawsuit is asking for payment of the notes plus all unpaid interest and attorney
        fees. As of December 31, 2006, accrued unpaid interest was approximately
        $46,000.
  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.
  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.
  **NOTE
        9. EVENTS SUBSEQUENT TO DECEMBER 31, 2006 (Unaudited)**
  On
        January 4, 2007, Cornell converted $3,500 of convertible debentures into
        3,500,000 shares of common stock.
 
 On
        March
        28, 2007, Cornell converted $2,500 of convertible debentures into 3,571,429
        shares of common stock.
 
 On
        March
        27, 2007, the Board of Directors of Etotalsource, Inc., a corporation organized
        under the laws of the state of Colorado (the "Company"), accepted the
        resignations of Terry Eilers and A. Richard Barber as members of the Board
        of
        Directors of the Company. The Company did not have a disagreement with any
        of
        the resigning directors. Neither Mr. Eilers nor Mr. Barber served on any
        committees of the Board of Directors.
  On
        March
        27, 2007, the Board of Directors of the Company accepted the resignations
        of the
        following officers: Terry Eilers - President and Chief Executive Officer,
        and
        Michael Sullinger Chief Operating Officer and Secretary. The Company did
        not
        have a disagreement with any of the resigning directors.
  On
        March
        27, 2007, Board of Directors of the Company appointed David Marks as a member
        of
        the Board of Directors and appointed Frank Orlando as Chief Restructuring
        Officer, Chief Financial Officer and Secretary of the Company.
  On
          April
          13, 2007, the Company issued a convertible debenture to Cornell in the
          principal
          amount of $72,000 (principal and interest at 12% payable April 13, 2009).
          Principal and accrued interest convertible to common stock at a conversion
          price
          equal to the lower of (i) $.0018 price per share of common stock or (ii)
          80% of
          the lowest closing bid price of our common stock, as quoted by Bloomberg,
          L.P.,
          for the five trading days immediately preceding the conversion
          date.
  F-17