U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2006
[_] TRANSITION UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-23965
ENTRUST FINANCIAL SERVICES, INC.
--------------------------------
(Exact name of small business issuer in its charter)
COLORADO 84-1374481
(State of incorporation) (I.R.S. Employer File Number)
47 School Avenue, Chatham, New Jersey 07928
-------------------------------------------
(Address of principal executive offices)
(973) 635-4047
--------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's common equity as
of the last practicable date: There were a total of 57,612,295 shares of the
issuer's common stock, par value $.0000001 per share, outstanding as of May 10,
2006.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
ENTRUST FINANCIAL SERVICES, INC.
FORM 10-QSB
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Balance Sheets as of March 31, 2006 (unaudited)
and December 31, 2005 3
Statements of Operations Cumulative During the
Development Stage (August 1, 2005 to March 31, 2006)
and for the three months ended March 31, 2006
and 2005 (unaudited) 4
Statements of Cash Flows Cumulative During the
Development Stage (August 1, 2005 to March 31, 2006)
and for the three months ended March 31, 2006
and 2005 (unaudited) 5
Notes to the Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Item 3. Controls and Procedures 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
FORWARD-LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-QSB are
"forward-looking statements" regarding the plans and objectives of management
for future operations and market trends and expectations. Such statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements 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. Our
plans and objectives are based, in part, on assumptions involving the continued
expansion of our business. Assumptions relating to the foregoing involve
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 our control.
Although we believe that our assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that 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 us
or any other person that our objectives and plans will be achieved. We undertake
no obligation to revise or update publicly any forward-looking statements for
any reason. The terms "we", "our", "us", or any derivative thereof, as used
herein refer to Entrust Financial Services, Inc., a Colorado corporation, and
its predecessors.
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
ENTRUST FINANCIAL SERVICES, INC.
(A Development Stage Company)
BALANCE SHEETS
MARCH 31, 2006 DECEMBER 31,
(UNAUDITED) 2005
----------- -----------
ASSETS
Cash $ 25,018 $ 34,673
----------- -----------
TOTAL ASSETS $ 25,018 $ 34,673
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 23,596 $ 14,242
----------- -----------
Total liabilities 23,596 14,242
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, $.000001 par value,
1,000,000 authorized, none issued
Common stock, $.000001 par value, 100,000,000 shares -- --
authorized, 57,612,295 issued and outstanding 6 6
Additional paid-in capital 8,127,550 8,127,550
Accumulated deficit (8,062,548) (8,062,548)
Deficit accumulated during development stage (63,586) (44,577)
----------- -----------
Total shareholders' equity 1,422 20,431
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 25,018 $ 34,673
=========== ===========
See accompanying notes to the unaudited financial statements.
3
ENTRUST FINANCIAL SERVICES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
Cumulative During the Three Months Ended
Development Stage
August 1, 2005 to March 31, March 31,
March 31, 2006 2006 2005
-------- ----------- -----------
REVENUES $ -- $ -- $ --
-------- ----------- -----------
COSTS AND EXPENSES
Compensation expense 15,600 -- --
Professional fees 39,200 14,535 --
Filing and shareholder expense 8,769 4,474 --
Other expense 17 -- --
-------- ----------- -----------
Total expenses 63,586 19,009 --
-------- ----------- -----------
Net loss from continuing operations (63,586) (19,009) --
Loss from discontinued operations,
net of taxes -- -- (30,951)
-------- ----------- -----------
NET LOSS $(63,586) $ (19,009) $ (30,951)
======== =========== ===========
Basic and Diluted Loss per share
from Continuing Operations $ (0.00) $ (0.00)
Basic and Diluted Loss per share
from Discontinued Operations (0.00) (0.01)
----------- -----------
Basic and Diluted Loss per share $ (0.00) $ (0.01)
----------- -----------
Basic and Diluted Weighted Average
Shares Outstanding 57,612,295 2,612,295
=========== ===========
See accompanying notes to the unaudited financial statements.
4
ENTRUST FINANCIAL SERVICES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
CUMULATIVE
DURING THE
DEVELOPMENT
STAGE THREE THREE
AUGUST 1, MONTHS MONTHS
2005 TO ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2006 2006 2005
-------- -------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(63,586) $(19,009) (30,951)
Non-cash items:
Depreciation and amortization -- -- 62,519
Provision for loan losses -- -- 15,742
Common stock issued for services 22,000 --
(Increase) decrease in:
Accounts receivable -- -- (31,392)
Mortgage loans held for sale -- -- 28,652,976
Prepaid expenses and other assets -- -- 51,326
Increase (decrease) in:
Accounts payable 23,596 9,354 16,680
Accrued other expenses -- -- (489,087)
-------- -------- ------------
Net cash provided (used) by (17,990) (9,655) 28,247,813
operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -- -- (1,829)
-------- -------- ------------
Net cash used by investing activities -- -- (1,829)
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments, warehouse lines of credit -- -- (28,218,085)
Repayment of long-term debt -- -- (300,000)
Repayments, capital lease obligations -- -- (17,003)
-------- -------- ------------
Net cash used by financing activities -- -- (28,535,087)
DECREASE IN CASH AND CASH EQUIVALENTS (17,990) (9,655) (289,103)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 43,008 34,673 1,101,155
-------- -------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD
$ 25,018 $ 25,018 $ 812,052
======== ======== ============
SUPPLEMENTAL INFORMATION
------------------------
Cash Paid For Income Taxes $ -- $ -- $ --
Cash Paid For Interest $ -- $ -- $ 575,460
See accompanying notes to the unaudited financial statements.
5
ENTRUST FINANCIAL SERVICES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(unaudited)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Entrust Financial Services, Inc. (the "Company") was incorporated on November 8,
1996, under the laws of the State of Colorado as Centennial Banc Share
Corporation. The Company changed its name to Entrust Financial Services, Inc. as
of April 6, 2001. The Company was initially formed for the purpose of developing
and maintaining a mortgage brokerage business. In April 1999 it acquired Entrust
Mortgage, Inc., ("Entrust Mortgage") a mortgage banking business which became
its wholly-owned operating subsidiary and was the Company's core operations
until July 31, 2005. Entrust Mortgage engaged primarily in the origination and
wholesale purchase of non-conforming residential mortgage loans in thirty-eight
states.
On July 31, 2005, Entrust Mortgage was sold to BBSB, LLC ("BBSB") in exchange
for the cancellation of all obligations owed by the Company and Entrust Mortgage
to BBSB and the assumption of certain third-party obligations of the Company
(the "Entrust Mortgage Sale"). Following the Entrust Mortgage Sale, the Company
has had no operations.
On August 5, 2005, pursuant to a Common Stock Purchase Agreement entered into on
May 12, 2005, the Company sold, in a private placement transaction, 49,500,000
shares of its common stock to R&R Biotech Partners, LLC and Moyo Partners, LLC
(as assignee) (the "Entrust Stock Purchasers") in exchange for aggregate gross
proceeds to the Company of $500,000 (the "Entrust Stock Sale"). Effective upon
the closing of the Entrust Stock Sale, Arnold P. Kling joined the Company as its
president and sole director and Kirk M. Warshaw joined as its chief financial
officer and secretary.
Our shareholders did not receive any consideration in the Entrust Mortgage Sale,
but shareholders of record on July 25, 2005, received a one time aggregate
dividend from the Entrust Stock Sale of $400,000, or approximately $0.153 per
share. The remaining $100,000 of the consideration paid by the Entrust Stock
Purchasers was used to satisfy or reserve for the Company's liabilities and to
pay the expenses related to the Entrust Stock Sale. As of August 6, 2005, the
Company's headquarters was relocated to Chatham, New Jersey.
Since August 1, 2005, the Company's purpose is to serve as a vehicle to acquire
an operating business and is currently considered a "shell" company inasmuch as
the Company is not generating revenues, does not own an operating business, and
has no specific plan other than to engage in a merger or acquisition transaction
with a yet-to-be identified company or business. The Company has no employees
and no material assets. Accordingly, the Company is considered to be a
development stage entity beginning on August 1, 2005.
Due to the Company's lack of financial resources and accumulated deficit, there
is doubt about its ability to continue as a going concern. The Company is
seeking to acquire a business and is currently considered a "blank check"
company in as much as the Company is not generating revenues, does not own an
operating business and has no specific business plan other than to engage in a
merger or acquisition transaction with a yet-to-be identified company or
business. The Company has no employees and no material assets. Administrative
services are currently being provided by an entity controlled by an officer of
the Company at no charge.
6
ENTRUST FINANCIAL SERVICES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(unaudited)
NOTE 2 - BASIS OF PRESENTATION
The Company's financial statements have been presented on the basis that the
Company will continue as a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. The
Company incurred a loss from Continuing Operations during the quarter of $19,009
and as there are no prospects of creating revenue there is substantial doubt
about the Company's ability to continue operating as a going concern. The
Company's present material commitments consist of professional and
administrative fees and expenses associated with the preparation of its filings
with the Securities and Exchange Commission and other regulatory requirements.
Because the sale of Entrust Mortgage met all of the requirements of paragraph 30
of Statements of Financial Accounting Standards ("SFAS") 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", the assets and liabilities of the
subsidiary were considered as Held for Sale and the results of operations for
all periods prior to August 1, 2005 have been presented as discontinued
operations.
The interim financial information as of March 31, 2006 and for the three-month
periods ended March 31, 2006 and 2005 has been prepared without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although we believe that the disclosures made are adequate to
provide for fair presentation. These financial statements should be read in
conjunction with the financial statements and the notes thereto, included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2005,
previously filed with the SEC.
In the opinion of management, all adjustments (which include normal recurring
adjustments) necessary to present a fair statement of financial position as of
March 31, 2006, and results of operations and cash flows for the three months
ended March 31, 2006 and 2005, as applicable, have been made. The results of
operations for the three months ended March 31, 2006 are not necessarily
indicative of the operating results for the full fiscal year or any future
periods.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies are in accordance with accounting principles
generally accepted in the United States of America. Outlined below are those
policies considered particularly significant.
(a) USE OF ESTIMATES:
In preparing financial statements in accordance with accounting principles
generally accepted in the United States of America, management makes certain
estimates and assumptions, where applicable, that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. While actual results could
differ from those estimates, management does not expect such variances, if any,
to have a material effect on the financial statements.
(b) EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share has been computed on the basis of the weighted
average number of common shares outstanding during each period presented
according to the provisions of SFAS No. 128 "EARNINGS PER SHARE". Diluted
earnings (loss) per share has not been presented separately as the effect of the
common stock purchase options (140,000) outstanding, on such calculation, would
have been anti-dilutive. Such securities could potentially dilute basic earnings
per share in the future.
7
ENTRUST FINANCIAL SERVICES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(c) NEW ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY:
FASB 155 - Accounting for Certain Hybrid Financial Instruments
In February 2006, the FASB issued FASB Statement No. 155, which is an
amendment of FASB Statements No. 133 and 140. This Statement; a) permits
fair value remeasurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require
bifurcation, b) clarifies which interest-only strip and principal-only
strip are not subject to the requirements of Statement 133, c)
establishes a requirement to evaluate interests in securitized financial
assets to identify interests that are freestanding derivatives or that
are hybrid financial instruments that contain an embedded derivative
requiring bifurcation, d) clarifies that concentrations of credit risk
in the form of subordination are not embedded derivatives, e) amends
Statement 140 to eliminate the prohibition on a qualifying
special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative
financial instrument. This Statement is effective for financial
statements for fiscal years beginning after September 15, 2006. Earlier
adoption of this Statement is permitted as of the beginning of an
entity's fiscal year, provided the entity has not yet issued any
financial statements for that fiscal year. Management believes this
Statement will have no impact on the financial statements of the Company
once adopted.
FASB 156 - Accounting for Servicing of Financial Assets
In March 2006, the FASB issued FASB Statement No. 156, which amends FASB
Statement No. 140. This Statement establishes, among other things, the
accounting for all separately recognized servicing assets and servicing
liabilities. This Statement amends Statement 140 to require that all
separately recognized servicing assets and servicing liabilities be
initially measured at fair value, if practicable. This Statement
permits, but does not require, the subsequent measurement of separately
recognized servicing assets and servicing liabilities at fair value. An
entity that uses derivative instruments to mitigate the risks inherent
in servicing assets and servicing liabilities is required to account for
those derivative instruments at fair value. Under this Statement, an
entity can elect subsequent fair value measurement to account for its
separately recognized servicing assets and servicing liabilities. By
electing that option, an entity may simplify its accounting because this
Statement permits income statement recognition of the potential
offsetting changes in fair value of those servicing assets and servicing
liabilities and derivative instruments in the same accounting period.
This Statement is effective for financial statements for fiscal years
beginning after September 15, 2006. Earlier adoption of this Statement
is permitted as of the beginning of an entity's fiscal year, provided
the entity has not yet issued any financial statements for that fiscal
year. Management believes this Statement will have no impact on the
financial statements of the Company once adopted.
8
ENTRUST FINANCIAL SERVICES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(unaudited)
NOTE 4 - STOCKHOLDERS' EQUITY:
The number of authorized shares of the Company was increased during the year
ended December 31, 2005 from 50 million shares to 100 million shares. The
Company's shareholders ratified and approved the amendment of the Articles of
Incorporation of the Company to increase the authorized common stock to 100
million shares at a special meeting of the shareholders which was held on July
26, 2005.
On August 5, 2005, Arnold P. Kling and R&R Biotech Partners, LLC purchased
49,500,000 shares of our common stock in exchange for aggregate gross proceeds
of $500,000. Mr. Kling subsequently assigned his interests under the Purchase
Agreement to Moyo Partners, LLC ("Moyo") an entity which Mr. Kling controls.
On November 1, 2005, a total of 5,500,000 shares of our common stock were
authorized for issuance to three individuals who provided services to the
Company. We issued 1,950,000 shares each to Arnold Kling and Kirk Warshaw for
their work as the Company's president and chief financial officer, respectively
and 1,600,000 shares to MBA Investors, Ltd., an affiliated company of Thomas
Pierson, for consulting services. Messrs. Kling and Warshaw's services were
valued at $7,800 each and Mr. Pierson's work at $6,400.
As of March 31, 2006, the Company has authorized 100 million shares of common
stock, par value $.0000001 per share. There are issued and outstanding,
57,612,295 shares of common stock. All shares of common stock currently
outstanding are validly issued, fully paid, and non-assessable.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In our Form 10-KSB filed with the Securities and Exchange Commission for the
year ended December 31, 2005 and in the Footnotes to the unaudited Financial
Statements for this report, we have identified critical accounting policies and
estimates for our business.
RESULTS OF CONTINUING OPERATIONS
Following is a discussion of our operations for the three months ended March 31,
2006. As discussed above we currently have no operations.
THREE MONTHS ENDED MARCH 31, 2006
Because we currently do not have nor have we ever had since the consummation of
the Stock Purchase Agreement any business operations as a blank check company,
we did not have any revenues during the three months ended March 31, 2006. Total
expenses for the three months ended March 31, 2006 were $19,009. These expenses
consisted of professional and administrative fees.
LIQUIDITY AND CAPITAL RESOURCES
Entrust does not have any revenues from any operations absent a merger or other
combination with an operating company and no assurance can be given that such a
merger or other combination will occur or that Entrust can engage in any public
or private sales of Entrust's equity or debt securities to raise working
capital. Entrust is dependent upon future loans from its present shareholders or
management and there can be no assurances that its present shareholders or
management will make any loans to Entrust. At March 31, 2006, Entrust had cash
of $25,018 and working capital of $1,422.
Entrust's present material commitments are professional and administrative fees
and expenses associated with the preparation of its filings with the Securities
and Exchange Commission and other regulatory requirements. In the event that
Entrust engages in any merger or other combination with an operating company, it
will have additional material commitments, although Entrust presently is not
engaged in any material discussions regarding any merger or other combination
with an operating company and cannot offer any assurances that it will engage in
any merger or other combination with an operating company within the next twelve
months.
ITEM 3. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of the President and chief financial
officer, carried out an evaluation of the effectiveness of our "disclosure
controls and procedures" (as defined in the Securities Exchange Act of 1934 (the
"Exchange Act") Rules 13a-15(e) and 15-d-15(e)) as of the end of the period
covered by this report (the "Evaluation Date"). Based upon that evaluation, the
President and chief financial officer concluded that, as of the Evaluation Date,
our disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act (i) is recorded, processed, summarized and reported, within the
time periods specified in the SEC's rules and forms and (ii) is accumulated and
communicated to our management, including our President and chief financial
officer, as appropriate to allow timely decisions regarding required disclosure.
(b) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal controls over financial reporting that
occurred during our fiscal first quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
10
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held a Special Meeting of Shareholders on January 31, 2006, at which holders
of 51,450,000 shares of common stock (representing approximately 89% of our
total issued and outstanding common stock) were present and unanimously approved
all matters presented to them for a vote.
The following matters were unanimously approved by the shareholders at the
Special Meeting:
o to authorize our Board of Directors to amend our Articles of
Incorporation to effect a reverse stock split of our common stock at a
ratio of not less than one-for-five nor more than one-for-sixty shares
at any time prior to September 20, 2006 at its sole discretion; and
o to authorize an amendment to our Articles of Incorporation to provide
that except as otherwise provided under the Colorado Business
Corporations Act (the "CBCA"), any action required or permitted under
the CBCA to be taken at a shareholders' meeting may be taken by the
written consent of the shareholders holding shares having not less than
the minimum number of votes that would be necessary to authorize or take
such action at a meeting.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
Exhibit No. Description
----------- -----------
31.1 Certification of the President pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the President pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENTRUST FINANCIAL SERVICES, INC.
Dated: May 10, 2006 /s/ Arnold P. Kling
--------------------------------------------
Arnold P. Kling, President
(Principal Executive Officer)
Dated: May 10, 2006 /s/ Kirk M. Warshaw
--------------------------------------------
Kirk M. Warshaw, Chief Financial Officer
(Principal Financial and Accounting Officer)
12