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 September 30, 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
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(State of incorporation) (I.R.S. Employer File Number)
47 School Avenue, Chatham, New Jersey 07928
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(Address of principal executive offices)
(973) 635-4047
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(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 2,057,582 shares of the
issuer's common stock, par value $.0000001 per share, outstanding as of November
9, 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. Financial Statements:
Balance Sheets as of September 30, 2006 (unaudited) and
December 31, 2005 3
Statements of Operations Cumulative During the Development
Stage (August 1, 2005 to September 30, 2006) and for the
three and nine months ended September 30, 2006
and 2005 (unaudited) 4
Statements of Cash Flows Cumulative During the Development
Stage (August 1, 2005 to September 30, 2006) and for the
nine months ended September 30, 2006 and 2005 (unaudited) 5
Notes to the Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 9
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 11
SIGNATURES 12
EXHIBIT INDEX 13
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.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
ENTRUST FINANCIAL SERVICES, INC
(A Development Stage Company)
BALANCE SHEETS
SEPTEMBER 30, 2006 DECEMBER 31
ASSETS (UNAUDITED) 2005
------ ------------------------------------
Cash $ 6,949 $ 34,673
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TOTAL ASSETS $ 6,949 $ 34,673
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts Payable & accrued expenses $ 2,339 $ 14,242
----------- -----------
Total liabilities 2,339 14,242
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SHAREHOLDERS' EQUITY
Preferred stock; $0.000001 par value, 1,000,000
authorized, none issued -- --
Common stock, $.0000001 par value; 100,000,000 shares
authorized, 2,057,582 shares issued and outstanding 1 1
Additional paid-in capital 8,142,555 8,127,555
Accumulated deficit (8,062,548) (8,062,548)
Deficit accumulated during the development period (75,398) (44,577)
----------- -----------
Total shareholders' equity 4,610 20,431
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,949 $ 34,673
=========== ===========
The accompanying notes are an integral part of these financial statements.
-3-
ENTRUST FINANCIAL SERVICES, INC
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
Cumulative During
the Development
Stage Three Months Ended Nine Months Ended
August 1, 2005 to September 30, September 30,
September 30, 2006 2006 2005 2006 2005
------------------ ---------------------------- ----------------------------
REVENUES $ -- $ -- $ -- $ -- $ --
----------- ---------------------------- ----------------------------
Expenses
Compensation expense 15,600 -- -- -- --
Professional fees 48,016 2,998 3,708 23,350 3,708
Filing fees 11,749 1,771 -- 7,455 --
Other expenses 33 -- -- 16 --
----------- ---------------------------- ----------------------------
Total expenses 75,398 4,769 3,708 30,821 3,708
----------- ---------------------------- ----------------------------
Net loss from continuing operations (75,398) (4,769) (3,708) (30,821) (3,708)
Loss from discontinued operations, net of taxes -- -- 358,063 -- 34,017
----------- ---------------------------- ----------------------------
Net (loss) income $ (75,398) $ (4,769) $ 354,355 $ (30,821) $ 30,309
=========== ============================ ============================
Basic and diluted loss per share
from continuing operations $ (0.00) $ (0.00) $ (0.01) $ (0.01)
Basic and diluted income per share
from discontinued operations 0.00 0.36 0.00 0.08
---------------------------- ----------------------------
Basic and diluted (loss) income per share $ (0.00) $ 0.36 $ (0.01) $ 0.07
---------------------------- ----------------------------
Basic and diluted weighted average
shares outstanding 2,057,582 980,707 2,057,582 450,350
==============================================================
The accompanying notes are an integral part of these financial statements.
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ENTRUST FINANCIAL SERVICES, INC
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
Cumulative During
the Development
Stage Nine Months Ended
August 1, 2005 to September 30,
September 30, 2006 2006 2005
------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (75,398) $ (30,821) $ 30,309
Non-cash items:
Common stock issued for services 22,000 -- --
(Increase) decrease in:
Accounts receivable -- -- 54,796
Mortgage loans held for sale -- -- 42,618,137
Prepaid expenses and other assets -- -- 1,636,437
Increase (decrease) in:
Accounts payable and accrued expenses 2,339 (11,903) (118,742)
Accrued other expenses -- -- (876,139)
------------------------------------------------
Net cash provided (used) by operating activities (51,059) (42,724) 43,344,798
------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of property & equipment -- -- 409,107
Decrease in restricted cash -- -- 2,805
------------------------------------------------
Net cash provided by investing activities -- -- 411,912
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments, warehouse lines of credit -- -- (41,662,386)
Repayment of long-term debt -- -- (3,120,139)
Proceeds from sale of stock -- -- 500,000
Payment of dividend -- -- (400,000)
Repayments, capital lease obligations -- -- (134,540)
Additional paid-in-capital contributions 15,000 15,000 --
------------------------------------------------
Net cash provided (used) by financing activities 15,000 15,000 (44,817,065)
------------------------------------------------
Decrease in cash (36,059) (27,724) (1,060,355)
Cash, at beginning of period 43,008 34,673 1,101,155
------------------------------------------------
Cash, at end of period $ 6,949 $ 6,949 $ 40,800
================================================
SUPPLEMENTAL INFORMATION
------------------------
Cash Paid for Income Taxes $ -- $ -- $ --
Cash Paid for Interest $ -- $ -- $ 1,096,182
The accompanying notes are an integral part of these financial statements.
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ENTRUST FINANCIAL SERVICES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 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.
Effective September 18, 2006, the Company completed a one-for twenty eight
reverse split of its issued and outstanding shares of Common Stock. As a result,
the number of issued and outstanding shares of Common Stock was reduced from
57,612,295 to 2,057,582 shares. Unless otherwise stated, all share and per share
information in these unaudited financial statements is presented as if the
reverse split took place at the beginning of all periods presented.
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, 1,767,857
shares (49,500,000 pre-reverse split 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.
The Company's 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
September 30, 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 nine months ended
September 30, 2006 of $30,821 and there are no prospects of it generating
revenue in the near term. 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 (the "SEC") 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 September 30, 2006 and for the three and
nine month periods ended September 30, 2006 and 2005 has been prepared without
audit, pursuant to the rules and regulations of 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, as 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
September 30, 2006, and results of operations and cash flows for the three and
nine months ended September 30, 2006 and 2005, as applicable, have been made.
The results of operations for the three and nine months ended September 30, 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 as of September 30, 2006 and
2005, on such calculation, would have been anti-dilutive for all periods
presented. 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
September 30, 2006
(unaudited)
NOTE 4 - STOCKHOLDERS' EQUITY
On July 26, 2005, at a special meeting of the shareholders, the Company's
shareholders ratified and approved the amendment of the Articles of
Incorporation of the Company to increase the authorized shares of common stock
("Common Stock") from 50,000,000 to 100,000,000 shares.
On August 5, 2005, Arnold P. Kling and R&R Biotech Partners, LLC purchased
1,767,857 shares (49,500,000 pre-reverse split 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 196,429 shares (5,500,000 pre-reverse split
shares) of our Common Stock were authorized for issuance to three individuals
who provided services to the Company. We issued 69,643 shares (1,950,000
pre-reverse split shares) to each of Arnold Kling and Kirk Warshaw for their
services as the Company's president and chief financial officer, respectively,
and 57,143 shares (1,600,000 pre-reverse split shares) to MBA Investors, Ltd.,
an affiliated company of Thomas Pierson, a consultant, for services rendered.
Messrs. Kling and Warshaw's services were valued at $7,800 each and Mr.
Pierson's services at $6,400.
During the three months ended June 30, 2006, a shareholder contributed $15,000
to the Company as Additional Paid-in-Capital.
On September 18, 2006, the Company effected a one-for-twenty eight reverse split
of its issued and outstanding shares of Common Stock. As a result, as of that
date, the number of issued and outstanding shares of Common Stock was reduced
from 57,612,295 to 2,057,582 shares. As of September 30, 2006, the Company had
100,000,000 shares of Common Stock authorized of which 2,057,582 shares of
Common Stock were issued and outstanding.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
USE OF FORWARD-LOOKING STATEMENTS
Some of the statements in this Form 10-QSB, including some statements in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" are forward-looking statements about what may happen
in the future. They include statements regarding our current beliefs, goals, and
expectations about matters such as our expected financial position and operating
results, our business strategy, and our financing plans. These statements can
sometimes be identified by our use of forward-looking words such as
"anticipate," "estimate," "expect," "intend," "may," "will," and similar
expressions. We cannot guarantee that our forward-looking statements will turn
out to be correct or that our beliefs and goals will not change. Our actual
results could be very different from and worse than our expectations for various
reasons. We undertake no obligation to revise or update publicly any
forward-looking statements for any reason. You are urged to carefully consider
these factors, as well as other information contained in this Form 10-QSB and in
our other periodic reports and documents filed with the Securities and Exchange
Commission ("SEC").
In our Form 10-KSB filed with the SEC for the year ended December 31, 2005 and
in the notes to the unaudited Financial Statements in this report, we have
identified critical accounting policies and estimates for our business.
RESULTS OF CONTINUING OPERATIONS
On July 31, 2005, our mortgage brokerage business carried out by our wholly
owned subsidiary Entrust Mortgage, Inc. ("Entrust Mortgage"), was sold to BBSB,
LLC ("BBSB") in exchange for the cancellation of all obligations owed by us and
Entrust Mortgage to BBSB and the assumption of certain of our third-party
obligations. On August 5, 2005, we sold in a private placement, pursuant to a
Stock Purchase Agreement, 1,767,857 shares (49,500,000 pre-reverse split shares)
of common stock to R&R Biotech Partners, LLC and Moyo Partners, LLC in exchange
for aggregate gross proceeds to us of $500,000. Simultaneously with this sale of
common stock, our management changed. From the date of consummation of the Stock
Purchase Agreement on August 5, 2005 to-date, we have had no operations. See
note 1 to our Notes to Unaudited Financial Statements for further information
related to the organization and description of our business since these two
transactions.
The following is a discussion of our operations for the three and nine months
ended September 30, 2006 and 2005:
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30, 2005
We did not have any revenues during the three and nine months ended September
30, 2006 and September 30, 2005, respectively. Total expenses for the three and
nine months ended September 30, 2006 were $4,769 and $30,821, respectively, and
$3,708 for the same periods in 2005. The expenses incurred in 2006 consisted
primarily of professional and administrative fees.
The interim results for the three and nine months periods ended September 30,
2005 relate to our discontinued mortgage brokerage business.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2006, Entrust did not have any revenues from operations. Absent
a merger or other combination with an operating company Entrust does not expect
to have any revenues from operations. 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 or capital contributions from
its present shareholders and/or management and there can be no assurances that
its present shareholders or management will make any loans or capital
contributions to Entrust. At September 30, 2006, Entrust had cash of $6,949 and
working capital of $4,610.
Entrust's present material commitments are professional and administrative fees
and expenses associated with the preparation of its filings with the SEC 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.
-9-
ITEM 3. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our 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 the period covered by this report 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
There are no material pending legal proceedings, which we are a party.
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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibits: See the attached Exhibit Index following the signature page.
-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: November 9, 2006 /s/ Arnold P. Kling
-------------------------------------------
Arnold P. Kling, President
(Principal Executive Officer)
Dated: November 9, 2006 /s/ Kirk M. Warshaw
--------------------------------------------
Kirk M. Warshaw, Chief Financial Officer
(Principal Financial and Accounting Officer)
-12-
EXHIBIT INDEX
Form 10-QSB
Quarter Ended September 30, 2006
EXHIBIT
NO. DESCRIPTION
-----------------------------------
3.1 Articles of Amendment of the Articles of Incorporation
31.1 Certification of President pursuant to Sec. 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of CFO pursuant to Sec. 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification of President pursuant to Sec. 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification of CFO pursuant to Sec. 906 of the Sarbanes-Oxley Act
of 2002
-13-