UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
Commission File No. 0-23965
ENTRUST FINANCIAL SERVICES, INC.
----------------
(Name of Small Business Issuer in its Charter)
Colorado 84-1374481
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State or other jurisdiction of I.R.S. Employer Identification
incorporation or organization Number
47 School Avenue
Chatham, New Jersey 07928
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Address of principal executive office Zip Code
Issuer's telephone number: (973) 635-4047
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, $0.0000001 PAR VALUE
------------------------------
(Title of Class)
Check whether the issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. [ ]
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [ ]
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
For the year ended December 31, 2005, the registrant had no revenues.
As of March 20, 2006, 57,612,295 shares of the registrant's common
stock were outstanding. The aggregate market value of the common stock of the
registrant held by non-affiliates of the registrant (based upon the closing
price on the Nasdaq OTC Bulletin Board of $0.16 on March 20, 2006) was
approximately $673,968.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
ENTRUST FINANCIAL SERVICES, INC.
FORM 10-KSB
PART I
Item 1. Business.............................................................................................2
Item 2. Properties..........................................................................................10
Item 3. Legal Proceedings...................................................................................10
Item 4. Submission of Matters to a Vote of Security Holders.................................................10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters............................................11
Item 6. Plan of Operation...................................................................................12
Item 7. Financial Statements................................................................................14
Item 8. Change in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................................................14
Item 8A. Controls And Procedures.............................................................................14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(a) of the Exchange Act...................................................................15
Item 10. Executive Compensation..............................................................................16
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.........................................................................18
Item 12. Certain Relationships and Related Transactions......................................................19
Item 13. Exhibits............................................................................................19
Item 14. Principal Accountant Fees and Services..............................................................20
FORWARD LOOKING STATEMENT INFORMATION
CERTAIN STATEMENTS MADE IN THIS ANNUAL 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 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 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 PARTICULARLY IN VIEW OF THE CURRENT STATE OF OUR
OPERATIONS, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A
STATEMENT BY US OR ANY OTHER PERSON THAT OUR OBJECTIVES AND PLANS WILL BE
ACHIEVED. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE
NOT LIMITED TO, THE FACTORS SET FORTH HEREIN UNDER THE HEADINGS "BUSINESS,"
"RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS." WE UNDERTAKE NO OBLIGATION TO REVISE OR UPDATE
PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON.
1
PART I
ITEM 1. BUSINESS.
Entrust Financial Services, Inc. was incorporated on November 8, 1996, under the
laws of the State of Colorado as "Centennial Banc Share Corporation." We changed
our name to "Entrust Financial Services, Inc." on April 6, 2001. We were
initially formed for the purpose of developing and maintaining a mortgage
brokerage business. In April 1999, we acquired Entrust Mortgage, Inc., a
mortgage banking business which became our wholly-owned subsidiary and was our
primary business until July 31, 2005 ("Entrust Mortgage"). 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 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 (the "Entrust Mortgage
Sale"). Following the Entrust Mortgage Sale, we had no operations.
On August 5, 2005, pursuant to a Common Stock Purchase Agreement entered into on
May 12, 2005, we sold, in a private placement transaction, 49,500,000 shares of
our 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 us of $500,000 (the "Entrust Stock Sale"). Effective upon the
closing of the Entrust Stock Sale, Arnold P. Kling joined us as our president
and sole director and Kirk M. Warshaw joined as our 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 our liabilities and to pay the
expenses related to the Entrust Stock Sale. As of August 6, 2005, our
headquarters was relocated to Chatham, New Jersey.
Since July 31, 2005, our purpose is to serve as a vehicle to acquire an
operating business and we are currently considered a "shell" company inasmuch as
we are not generating revenues, do not own an operating business, and have no
specific plan other than to engage in a merger or acquisition transaction with a
yet-to-be identified company or business. We have no employees and no material
assets.
Because of these circumstances, all of our activities that occurred prior to
July 31, 2005 have been accounted for as Discontinued Operations. As such, all
of the prior activity has been shown in our financial statements as one line
item that is labeled "Income (Loss) from Discontinued Operations, net of taxes."
Our activities since July 31, 2005 are shown in the income statement under the
section labeled "Loss from Continuing Operations." These amounts are for
expenses incurred since July 31, 2005 and are of the nature we expect to incur
in the future, whereas the Income (loss) from Discontinued Operations are from
activities we are no longer engaged in.
2
We currently have no definitive plans, agreements or understandings with any
prospective business combination candidates and there are no assurances that we
will find a suitable business with which to combine. The implementation of our
business objectives is wholly contingent upon a business combination and/or the
sale of our securities. We intend to utilize the proceeds of any offering, any
sales of equity securities or debt securities, bank and other borrowings or a
combination of those sources to effect a business combination with a target
business which we believe has significant growth potential. While we may, under
certain circumstances, seek to effect business combinations with more than one
target business, unless additional financing is obtained, we will not have
sufficient proceeds remaining after an initial business combination to undertake
additional business combinations.
A common reason for a target company to enter into a merger with a shell company
is the desire to establish a public trading market for its shares. Such a
company would hope to avoid the perceived adverse consequences of undertaking a
public offering itself, such as the time delays and significant expenses
incurred to comply with the various federal and state securities law that
regulate initial public offerings.
As a result of our limited resources, unless and until additional financing is
obtained we expect to have sufficient proceeds to effect only a single business
combination. Accordingly, the prospects for our success will be entirely
dependent upon the future performance of a single business. Unlike certain
entities that have the resources to consummate several business combinations or
entities operating in multiple industries or multiple segments of a single
industry, we will not have the resources to diversify our operations or benefit
from the possible spreading of risks or offsetting of losses. A target business
may be dependent upon the development or market acceptance of a single or
limited number of products, processes or services, in which case there will be
an even higher risk that the target business will not prove to be commercially
viable.
Our officers are only required to devote a small portion of their time (less
than 10%) to our affairs on a part-time or as-needed basis. Our officers may be
entitled to receive compensation from a target company they identify or provide
services to in connection with a business combination. We expect to use outside
consultants, advisors, attorneys and accountants as necessary. We do not
anticipate hiring any full-time employees so long as we are seeking and
evaluating business opportunities.
We do not expect our present management to play any managerial role for us
following a business combination. Although we intend to scrutinize closely the
management of a prospective target business in connection with our evaluation of
a business combination with a target business, our assessment of management may
be incorrect.
In evaluating a prospective target business, we will consider several factors,
including the following:
- experience and skill of management and availability of additional
personnel of the target business;
- costs associated with effecting the business combination;
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- equity interest retained by our shareholders in the merged entity;
- growth potential of the target business;
- capital requirements of the target business;
- capital available to the target business;
- stage of development of the target business;
- proprietary features and degree of intellectual property or other
protection of the target business;
- the financial statements of the target business; and
- the regulatory environment in which the target business operates.
The foregoing criteria are not intended to be exhaustive and any evaluation
relating to the merits of a particular target business will be based, to the
extent relevant, on the above factors, as well as other considerations we deem
relevant. In connection with our evaluation of a prospective target business, we
anticipate that we will conduct a due diligence review which will encompass,
among other things, meeting with incumbent management as well as a review of
financial, legal and other information.
The time and costs required to select and evaluate a target business (including
conducting a due diligence review) and to structure and consummate the business
combination (including negotiating and documenting relevant agreements and
preparing requisite documents for filing pursuant to applicable corporate and
securities laws) cannot be determined at this time. Our president intends to
devote only a very small portion of his time to our affairs, and, accordingly,
the consummation of a business combination may require a longer time than if he
devoted his full time to our affairs. However, he will devote such time as he
deems reasonably necessary to carry out our business and affairs. The amount of
time devoted to our business and affairs may vary significantly depending upon,
among other things, whether we have identified a target business or are engaged
in active negotiation of a business combination.
We anticipate that various prospective target businesses will be brought to our
attention from various sources, including securities broker-dealers, investment
bankers, venture capitalists, bankers and other members of the financial
community, including, possibly, the executive officers and our affiliates.
As a general rule, federal and state tax laws and regulations have a significant
impact upon the structuring of business combinations. We will evaluate the
possible tax consequences of any prospective business combination and will
endeavor to structure a business combination so as to achieve the most favorable
tax treatment to our company, the target business and our respective
shareholders. There can be no assurance that the
4
Internal Revenue Service or relevant state tax authorities will ultimately
assent to our tax treatment of a particular consummated business combination. To
the extent the Internal Revenue Service or any relevant state tax authorities
ultimately prevail in recharacterizing the tax treatment of a business
combination, there may be adverse tax consequences to our company, the target
business, and our respective shareholders.
We may acquire a company or business by purchasing the securities of such
company or business. However, we do not intend to engage primarily in such
activities. Specifically, we intend to conduct our activities so as to avoid
being classified as an "investment company" under the Investment Company Act of
1940, as amended (the "Investment Company Act") and therefore avoid application
of the costly and restrictive registration and other provisions of the
Investment Company Act and the regulations promulgated thereunder.
Section 3(a) of the Investment Company Act excepts from the definition of an
"investment company" an entity which does not engage primarily in the business
of investing, reinvesting or trading in securities, or which does not engage in
the business of investing, owning, holding or trading "investment securities"
(defined as "all securities other than government securities or securities of
majority-owned subsidiaries") the value of which exceed 40% of the value of its
total assets (excluding government securities, cash or cash items). We intend to
operate any business in the future in a manner which will result in the
availability of this exception from the definition of an investment company.
Consequently, our acquisition of a company or business through the purchase and
sale of investment securities will be limited. Although we intend to act to
avoid classification as an investment company, the provisions of the Investment
Company Act are extremely complex and it is possible that we may be classified
as an inadvertent investment company. We intend to vigorously resist
classification as an investment company, and to take advantage of any exemptions
or exceptions from application of the Investment Company Act, which allows an
entity a one-time option during any three-year period to claim an exemption as a
"transient" investment company. The necessity of asserting any such resistance,
or making any claim of exemption, could be time consuming and costly, or even
prohibitive, given our limited resources.
Various impediments to a business combination may arise, such as appraisal
rights afforded the shareholders of a target business under the laws of its
state of organization. This may prove to be deterrent to a particular
combination.
AVAILABLE INFORMATION
The public may read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers such as us that file electronically with the SEC. The website
address is www.sec.gov.
5
RISK FACTORS
WE HAVE NO OPERATING HISTORY OR BASIS FOR EVALUATING PROSPECTS.
Since the Entrust Stock Sale we have no operating business or plans to develop
one. We are currently seeking to enter into a merger or business combination
with another company. Our president, Arnold Kling, was appointed in August 2005
and has had limited time to evaluate merger prospects and accordingly, only a
limited basis upon which to evaluate our prospects for achieving our intended
business objectives. To date, our efforts have been limited to meeting
regulatory requirements and searching for a Merger Target.
WE HAVE LIMITED RESOURCES AND NO REVENUES FROM OPERATIONS, AND WILL NEED
ADDITIONAL FINANCING IN ORDER TO EXECUTE ANY BUSINESS PLAN; OUR AUDITORS HAVE
EXPRESSED DOUBT AS TO OUR ABILITY TO CONTINUE BUSINESS AS A GOING CONCERN.
We have limited resources, no revenues from operations since the Entrust Stock
Sale and our cash on hand may not be sufficient to satisfy our cash requirements
during the next twelve months. In addition, we will not achieve any revenues
(other than insignificant investment income) until, at the earliest, the
consummation of a merger and we cannot ascertain our capital requirements until
such time. Further limiting our abilities to achieve revenues, in order to avoid
status as an "Investment Company" under the Investment Company Act of 1940, we
can only invest our funds prior to a merger in limited investments which do not
invoke Investment Company status. There can be no assurance that determinations
ultimately made by us will permit us to achieve our business objectives. Our
auditors have included an explanatory paragraph in their report for the year
ended December 31, 2005, indicating that certain conditions raise substantial
doubt regarding our ability to continue as a going concern. The financial
statements included in this Form 10-KSB do not include any adjustment to asset
values or recorded amounts of liability that might be necessary in the event we
are unable to continue as a going concern. If we are in fact unable to continue
as a going concern, shareholders may lose their entire investment in our common
stock.
WE WILL BE ABLE TO EFFECT AT MOST ONE MERGER, AND THUS MAY NOT HAVE A
DIVERSIFIED BUSINESS.
Our resources are limited and we will most likely have the ability to effect
only a single merger. This probable lack of diversification will subject us to
numerous economic, competitive and regulatory developments, any or all of which
may have a material adverse impact upon the particular industry in which we may
operate subsequent to the consummation of a merger. We will become dependent
upon the development or market acceptance of a single or limited number of
products, processes or services.
6
WE DEPEND SUBSTANTIALLY UPON A SINGLE EXECUTIVE OFFICER AND DIRECTOR, WHOSE
EXPERIENCE IS LIMITED, TO MAKES ALL MANAGEMENT DECISIONS.
Our ability to effect a merger will be dependent upon the efforts of our
president and sole director, Arnold Kling. Notwithstanding the importance of Mr.
Kling, we have not entered into any employment agreement or other understanding
with Mr. Kling concerning compensation or obtained any "key man" life insurance
on any of his life. The loss of the services of Mr. Kling will have a material
adverse effect on our business objectives. We will rely upon the expertise of
Mr. Kling and do not anticipate that we will hire additional personnel.
THERE MAY BE CONFLICTS OF INTEREST BETWEEN OUR MANAGEMENT AND OUR NON-MANAGEMENT
SHAREHOLDERS.
Conflicts of interest create the risk that management may have an incentive to
act adversely to the interests of other investors. Our officers may be entitled
to receive compensation from a target company they identify or provide services
to in connection with a business combination. A conflict of interest may arise
between our management's personal pecuniary interest and its fiduciary duty to
our shareholders. Further, our management's own pecuniary interest may at some
point compromise its fiduciary duty to our shareholders. In addition, Mr. Kling
and Mr. Warshaw, our officers and sole director, are currently involved with
other blank check offerings and conflicts in the pursuit of business
combinations with such other blank check companies with which they and
affiliates of our majority shareholder are, and may in the future be affiliated
with, may arise. If we and the other blank check companies that our officers and
directors are affiliated with desire to take advantage of the same opportunity,
then those officers and directors that are affiliated with both companies would
abstain from voting upon the opportunity. Further, Rodman & Renshaw, LLC, a
registered broker-dealer and affiliate of our majority shareholder, may act as
investment banker, placement agent or financial consultant to us or an
acquisition candidate in connection with a potential business combination
transaction and may receive a fee for such services. We cannot assure you that
conflicts of interest among us, Rodman & Renshaw and our shareholders will not
develop.
THERE IS COMPETITION FOR THOSE PRIVATE COMPANIES SUITABLE FOR A MERGER
TRANSACTION OF THE TYPE CONTEMPLATED BY MANAGEMENT.
We are in a highly competitive market for a small number of business
opportunities which could reduce the likelihood of consummating a successful
business combination. We are and will continue to be an insignificant
participant in the business of seeking mergers with, joint ventures with and
acquisitions of small private and public entities. A large number of established
and well-financed entities, including small public companies and venture capital
firms, are active in mergers and acquisitions of companies that may be desirable
target candidates for us. Nearly all these entities have significantly greater
financial resources, technical expertise and managerial capabilities than we do;
consequently, we will be at a competitive disadvantage in identifying possible
business
7
opportunities and successfully completing a business combination. These
competitive factors may reduce the likelihood of our identifying and
consummating a successful business combination.
FUTURE SUCCESS IS HIGHLY DEPENDENT ON THE ABILITY OF MANAGEMENT TO LOCATE AND
ATTRACT A SUITABLE ACQUISITION.
The nature of our operations is highly speculative. The success of our plan of
operation will depend to a great extent on the operations, financial condition
and management of the identified business opportunity. While management intends
to seek business combination(s) with entities having established operating
histories, we cannot assure you that we will be successful in locating
candidates meeting that criterion. In the event we complete a business
combination, the success of our operations may be dependent upon management of
the successor firm or venture partner firm and numerous other factors beyond our
control.
WE HAVE NO EXISTING AGREEMENT FOR A BUSINESS COMBINATION OR OTHER TRANSACTION.
We have no agreement with respect to engaging in a merger with, joint venture
with or acquisition of, a private or public entity. No assurances can be given
that we will successfully identify and evaluate suitable business opportunities
or that we will conclude a business combination. Management has not identified
any particular industry or specific business within an industry for evaluation.
We cannot guarantee that we will be able to negotiate a business combination on
favorable terms, and there is consequently a risk that funds allocated to the
purchase of our shares will not be invested in a company with active business
operations.
MANAGEMENT WILL CHANGE UPON THE CONSUMMATION OF A MERGER.
After the closing of a merger or business combination, it is likely our current
management will not retain any control or managerial responsibilities. Upon such
event, Mr. Kling and Mr. Warshaw intend to resign their positions with us.
CURRENT SHAREHOLDERS WILL BE IMMEDIATELY AND SUBSTANTIALLY DILUTED UPON A MERGER
OR BUSINESS COMBINATION.
Our Articles of Incorporation authorized the issuance of 100,000,000 shares of
common stock. There are currently 57,612,295 authorized but unissued shares of
common stock available for issuance. To the extent that additional shares of
common stock are issued in connection with a merger or business combination, our
shareholders could experience significant dilution of their respective ownership
interests. Furthermore, the issuance of a substantial number of shares of common
stock may adversely affect prevailing market
8
prices, if any, for the common stock and could impair our ability to raise
additional capital through the sale of equity securities.
CONTROL BY EXISTING SHAREHOLDER.
R&R Biotech Partners, LLC beneficially owns over 68% of the outstanding shares
of our common stock. As a result, this shareholder is able to exercise control
over matters requiring shareholder approval, including the election of
directors, and the approval of mergers, consolidations and sales of all or
substantially all of our assets.
OUR COMMON STOCK IS A "PENNY STOCK" WHICH MAY RESTRICT THE ABILITY OF
SHAREHOLDERS TO SELL OUR COMMON STOCK IN THE SECONDARY MARKET.
The SEC has adopted regulations which generally define "penny stock" to be an
equity security that has a market price, as defined, of less than $5.00 per
share, or an exercise price of less than $5.00 per share, subject to certain
exceptions, including an exception of an equity security that is quoted on a
national securities exchange. Our common stock is not now quoted on a national
exchange but is traded on Nasdaq's OTC Bulletin Board ("OTCBB"). Thus, they are
subject to rules that impose additional sales practice requirements on
broker-dealers who sell these securities. For example, the broker-dealer must
make a special suitability determination for the purchaser of such securities
and have received the purchaser's written consent to the transactions prior to
the purchase. Additionally, the rules require the delivery, prior to the
transaction, of a disclosure schedule prepared by the SEC relating to the penny
stock market. The broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered underwriter, and current quotations
for the securities, and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, among other requirements, monthly statements must be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. The "penny stock" rules,
may restrict the ability of our shareholders to sell our common stock in the
secondary market.
OUR COMMON STOCK HAS BEEN THINLY TRADED, LIQUIDITY IS LIMITED, AND WE MAY BE
UNABLE TO OBTAIN LISTING OF OUR COMMON STOCK ON A MORE LIQUID MARKET.
Our common stock is quoted on the OTCBB, which provides significantly less
liquidity than a securities exchange (such as the American or New York Stock
Exchange) or an automated quotation system (such as the Nasdaq National Market
or SmallCap Market). There is uncertainty that we will ever be accepted for a
listing on an automated quotation system or a securities exchange.
Often there is currently a limited volume of trading in our common stock, and on
many
9
days there has been no trading activity at all. The purchasers of shares of our
common stock may find it difficult to resell their shares at prices quoted in
the market or at all.
ITEM 2. PROPERTIES.
During the first seven months of 2005, we operated from leased office facilities
in Denver, Colorado. Since August 6, 2005, we have been operating from offices
located at 47 School Avenue, Chatham, New Jersey which are owned by an
affiliated company of Kirk Warshaw, our chief financial officer and secretary,
for no rent, on a month to month basis. We do not own or intend to invest in any
real property.
ITEM 3. LEGAL PROCEEDINGS.
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.
10
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
PRINCIPAL MARKET OR MARKETS
Our common stock has traded on the OTCBB since May 2000. Currently, our common
stock trades under the symbol ENFN. The following table sets forth the high and
low bid quotation for our common stock for each quarterly period in 2005 and
2004. Such quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not necessarily represent actual transactions.
BID PRICE
HIGH LOW
---- ---
2005
----
First Quarter $0.80 $0.05
Second Quarter $0.34 $0.09
Third Quarter $0.27 $0.11
Fourth Quarter $0.13 $0.06
2004
----
First Quarter $ 0.32 $0.13
Second Quarter $ 0.65 $0.15
Third Quarter $ 1.05 $0.40
Fourth Quarter $ 1.01 $0.54
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of March 20, 2006, we had a total of 57,612,295 shares of common stock issued
and outstanding. The number of holders of record of our common stock at that
date was approximately 250.
DIVIDENDS
Holders of common stock are entitled to receive such dividends as may be
declared by our Board of Directors. Other than the special $0.153 per share
dividend paid to shareholders of record on July 25, 2005 in connection with the
Entrust Mortgage Sale, no dividends were declared or paid during the periods
reported herein. We do not anticipate paying dividends in the foreseeable
future.
11
RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to our sales of unregistered securities during
the fiscal year ended December 31, 2005. These sales of securities were made in
reliance upon an exemption from the registration provisions of the Securities
Act of 1933, as amended (the "Securities Act") set forth in Section 4(2) thereof
and the rules and regulations under the Securities Act, including Regulation D,
as a transaction by an issuer not involving any public offering and/or sale to a
limited number of purchasers who were acquiring such securities for their own
account for investment purposes and not with a view to the resale or
distribution thereof.
On August 5, 2005, we sold 49,500,000 shares in the Entrust Stock Sale.
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 us. We
issued 1,950,000 shares each to Arnold Kling and Kirk Warshaw for their work as
our president and chief financial officer, respectively, and 1,600,000 shares to
MBA Investors, Ltd., an affiliated company of Thomas Pierson who provided
consulting services. We valued the services provided by Messrs. Kling and
Warshaw at $7,800 each, and Mr. Pierson's services at $6,400.
ITEM 6. PLAN OF OPERATION.
STATEMENTS CONTAINED IN THIS PLAN OF OPERATION OF THIS ANNUAL REPORT ON FORM
10-KSB INCLUDE "FORWARD-LOOKING STATEMENTS". FORWARD-LOOKING STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE OUR
ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS NOT TO OCCUR OR BE REALIZED. SUCH
FORWARD-LOOKING STATEMENTS GENERALLY ARE BASED UPON OUR BEST ESTIMATES OF FUTURE
RESULTS, GENERAL MERGER AND ACQUISITION ACTIVITY IN THE MARKETPLACE, PERFORMANCE
OR ACHIEVEMENT, CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "PROJECT," "EXPECT," "BELIEVE," "ESTIMATE,"
"ANTICIPATE," "INTENDS," "CONTINUE," "POTENTIAL," "OPPORTUNITY" OR SIMILAR
TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS OR OTHER
VARIATIONS OF THOSE TERMS OR COMPARABLE WORDS OR EXPRESSIONS.
GENERAL
Our plan is to seek, investigate, and consummate a merger or other business
combination, purchase of assets or other strategic transaction (i.e. a merger)
with a corporation, partnership, limited liability company or other business
entity (a "Merger Target") desiring the perceived advantages of becoming a
publicly reporting and publicly held corporation. We have no operating business,
and conduct minimal operations necessary to meet regulatory requirements. Our
ability to commence any operations is contingent upon obtaining adequate
financial resources.
12
We are not currently engaged in any business activities that provide cash flow.
The costs of investigating and analyzing business combinations for the next 12
months and beyond such time will be paid with money in our treasury.
During the next twelve months we anticipate incurring costs related to:
(i) filing Exchange Act reports, and
(ii) consummating a transaction with a Merger Target.
We believe we will be able to meet these costs through use of funds in our
treasury and additional amounts, as necessary, to be loaned to or invested in us
by our shareholders, management or other investors.
We may consider a business which has recently commenced operations, is a
developing company in need of additional funds for expansion into new products
or markets, is seeking to develop a new product or service, or is an established
business which may be experiencing financial or operating difficulties and is in
need of additional capital. In the alternative, a business combination may
involve the acquisition of, or merger with, a company which does not need
substantial additional capital, but which desires to establish a public trading
market for its shares, while avoiding, among other things, the time delays,
significant expense, and loss of voting control which may occur in a public
offering.
In August 2005, following the Entrust Stock Sale, Arnold P. Kling joined us as
our president and sole director and Kirk M. Warshaw joined us as our chief
financial officer and secretary. Messrs. Kling and Warshaw are only required to
devote a small portion of their time (less than 10%) to our affairs on a
part-time or as-needed basis. No cash compensation will be paid to any officer
or director in their capacities as such. We do not anticipate hiring any
full-time employees as long as we are seeking and evaluating business
opportunities.
Since the Entrust Stock Sale we have not incurred any material costs or expenses
other than those associated with our minimal operations necessary to meet
regulatory requirements. As of December 31, 2005 we had cash on hand of $34,673.
Since we have no revenue or plans to generate any revenue, if our expenses
exceed our cash currently on hand we will be dependent upon loans to fund
expenses incurred in excess of our cash.
EQUIPMENT AND EMPLOYEES
As of December 31, 2005, we had no operating business, no equipment, and other
than Arnold Kling and Kirk Warshaw our president and chief financial officer,
respectively, we had no employees. Neither of our officers receive any cash
compensation and each provides services on an "as needed basis". We do not
intend to develop our own operating business but instead plan to merge with
another operating company.
13
CONTINUING OPERATIONAL EXPENSES FOR THE DEVELOPMENT STAGE PERIOD ENDED
DECEMBER 31, 2005
As noted, all activity associated with Entrust Mortgage and its sale which
occurred prior to July 31, 2005 has been accounted for as Discontinued
Operations and, as such, is not evaluated in this report as it has little
relevance to our future operations.
Operating expenses from continuing activities for the twelve months ended
December 31, 2005 were $130,520 compared to $158,380 for the twelve months ended
December 31, 2004. These expenses consist of the legal, accounting, shareholder,
and filing related expenses incurred to file reports with the SEC and are of a
continuing and recurring nature.
Net cash used in our continuing operating activities for the development period
ended December 31, 2005 was $8,335. During the five months ended December 31,
2005, we had no revenues. As a result, cash on hand decreased by $8,335 during
the five month developmental period ended December 31, 2005 to $34,673.
The operating expenses of $44,577 for the five month developmental period ended
December 31, 2005 resulted primarily from accounting/auditing, legal and general
administrative expenses.
ITEM 7. FINANCIAL STATEMENTS.
See the index to Financial Statements below, beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Effective February 4, 2006, we dismissed Richey May & Co., LLP ("Richey
May") from serving as our independent accountants and engaged Lazar Levine &
Felix LLP ("Lazar") as our new independent accountants. Our Board of Directors,
operating as our audit committee, unanimously recommended the change in audit
firms, directed the process of review of candidate firms to replace Richey May
and made the final decision to engage Lazar.
There were no disagreements with Richey May or occurrence of any event
described in paragraph (a)(1)(iv) of Item 304 of Regulation S-B.
ITEM 8A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Management, with the
participation of our president and the 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, as amended (the "Exchange Act")
Rules 13a-15(e) and 15-d-
14
15(e)) as of the end of the period covered by this report (the "Evaluation
Date"). Based upon that evaluation, the president and the 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.
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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth information concerning our officers and sole
director as of March 20, 2006:
NAME AGE TITLE
---- --- -----
Arnold P. Kling 47 President and Sole Director
Kirk M. Warshaw 48 Chief financial officer and secretary
ARNOLD P. KLING. Mr. Kling has served as a Director and our president since
August, 2005. Mr. Kling is currently a Managing Director of GH Venture Partners,
LLC, a private equity and merchant banking boutique for which he also served as
a Managing Director and General Counsel from 1995 to 1999. From 1999 through
August 2005, Mr. Kling was the president of Adelphia Holdings, LLC, a
merchant-banking firm, as well as the managing member of several private
investment funds. From 1993 to 1995 he was a senior executive and General
Counsel of Buckeye Communications, Inc., a Nasdaq listed licensing and
multimedia company. From 1990 through 1993, Mr. Kling was an associate and
partner in the corporate and financial services department of Tannenbaum,
Helpern, Syracuse & Hirschtritt LLP, a mid-size New York law firm. Mr. Kling
received a Bachelor of Science degree from New York University in International
Business in 1980 and a Juris Doctor degree from Benjamin Cardozo School of Law
in 1983. Mr. Kling currently serves as a Director and president of Twin Lakes,
Inc., R&R Acquisition I, Inc., R&R Acquisition II, Inc., R&R Acquisition III,
Inc., R&R Acquisition IV, Inc. and R&R Acquisition V, Inc. (each a publicly
reporting, non-trading company) and 24 Holdings, Inc. (OTCBB:TFHD).
15
KIRK M. WARSHAW. Mr. Warshaw has served as our chief financial officer and
secretary since August, 2005. Mr. Warshaw is a financial professional who, since
1990, has provided clients in a multitude of different industries with advice on
accounting, corporate finance, and general business matters. Prior to starting
his own consulting firm, from 1983 to 1990, he held the various titles of
Controller, chief financial officer, president, and Chief Executive Officer at
three separate financial institutions in New Jersey. From 1980 through 1983, Mr.
Warshaw was a Senior Accountant at the public accounting firm of Deloitte,
Haskins & Sells. Mr. Warshaw is a 1980 graduate of Lehigh University and has
been a CPA in New Jersey since 1982. Mr. Warshaw is currently the chief
financial officer of Twin Lakes, Inc. R&R Acquisition I, Inc., R&R Acquisition
II, Inc., R&R Acquisition III, Inc., R&R Acquisition IV, Inc. and R&R
Acquisition V, Inc. (each a publicly reporting, non-trading company), the chief
financial officer and a Director of 24 Holdings, Inc. (OTCBB:TFHD), a Director
of Empire Financial Holding Company (AMEX:EFH), and a Director of two privately
owned entities.
Mr. Kling and Mr. Warshaw are not required to commit their full time to our
business affairs and they will not devote a substantial amount of time to our
business affairs.
COMPENSATION AND AUDIT COMMITTEES
As we only have two board members and given our limited operations, we do not
have separate or independent audit or compensation committees. Our Board has
determined that it does not have an "audit committee financial expert," as that
term is defined in Item 401(e) of Regulation S-B.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers
and persons who beneficially own more than ten percent of our common stock
(collectively, the "Reporting Persons") to report their ownership of and
transactions in our common stock to the SEC. Copies of these reports are also
required to be supplied to us. To our knowledge, during the fiscal year ending
December 31, 2005 the Reporting Persons complied with all applicable Section
16(a) reporting requirements.
CODE OF ETHICS
We have not adopted a Code of Ethics given our limited operations. We expect
that our Board of Directors following a merger or other acquisition transaction
will adopt a Code of Ethics.
ITEM 10. EXECUTIVE COMPENSATION.
Arnold Kling and Kirk Warshaw are our sole officers and Arnold Kling is our sole
director. Neither receives any regular compensation for their services rendered
on our behalf. Since the Entrust Stock Sale we have paid no cash compensation to
our officers or
16
directors. On November 1, 2005, our Board of Directors authorized the issuance
to both Mr. Kling and Mr. Warshaw, 1,950,000 shares of our common stock for
services they provided to us. Each stock grant was determined to be worth $7,800
and the expense was recognized in the 2005 financial statements. No officer or
director is required to make any specific amount or percentage of his business
time available to us.
While we do not presently anticipate engaging the services of professional firms
that specialize in finding business acquisitions on any formal basis, we may
engage such firms in the future, in which event we may be required to pay a
finder's fee or other compensation. In no event, however, will we pay a finder's
fee or commission to any of our officers and directors or any entity with which
an officer or director is. We do not have any incentive or stock option plan in
effect.
17
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table sets forth certain information as of March 20, 2006
regarding the number and percentage of common stock (being our only voting
securities) beneficially owned by each officer and director, each person
(including any "group" as that term is used in Section 13(d)(3) of the Exchange
Act) known by us to own 5% or more of our common stock, and all officers and
directors as a group.
Amount and Nature of Percentage of
Name (1) Beneficial Ownership (1) Shares Owned
----------- ------------------------ -------------
R&R Biotech Partners, LLC 39,600,000 68.7%
1270 Avenue of the Americas - 16th Floor
New York, NY 10020
Attention: Thomas Pinou, CFO
Moyo Partners, LLC (2) 9,900,000 17.2%
c/o Arnold P. Kling
712 Fifth Avenue - 11th Floor
New York, NY 10019
Arnold P. Kling 1,950,000 3.4%
712 Fifth Avenue - 11th Floor
New York, NY 10019
Kirk M. Warshaw (3) 1,950,000 3.4%
47 School Avenue
Chatham, NJ 07928
All Officers and Directors as a Group 13,800,000 24.0%
(2 persons)
----------------------------
(1) Unless otherwise indicated, the company has been advised that all
individuals or entities listed have the sole power to vote and dispose of the
number of shares set forth opposite their names. For purposes of computing the
number and percentage of shares beneficially owned by a security holder, any
shares which such person has the right to acquire within 60 days from March 20,
2006 are deemed to be outstanding, but those shares are not deemed to be
outstanding for the purpose of computing the percentage ownership of any other
security holder.
(2) Arnold P. Kling, our president and our sole director, controls Moyo
Partners, LLC and therefore is the beneficial owner of the shares held by this
entity.
(3) Mr. Warshaw is our chief financial officer and secretary.
18
We currently do not maintain any equity compensation plans.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13. EXHIBITS.
(a) EXHIBITS
Exhibit Number Description
-------------- -----------
3.1 Articles of Incorporation (1)
3.2 By-Laws (1)
3.3 Articles of Amendment of Articles of Incorporation to change
name to easy Qual.com, Inc. (2)
3.4 Articles of Amendment of Articles of Incorporation to change
name to Entrust Financial Services, Inc. (2)
3.5 Articles of Amendment of Articles of Incorporation dated
February 6, 2006*
31.1 Chief Executive Officer Certification pursuant to section 302
of the Sarbanes-Oxley Act of 2002*
31.2 Chief Financial Officer Certification pursuant to section 302
of the Sarbanes-Oxley Act of 2002*
32.1 Chief Executive Officer Certification pursuant to section 906
of the Sarbanes-Oxley Act of 2002*
32.2 Chief Financial Officer Certification pursuant to section 906
of the Sarbanes-Oxley Act of 2002*
-----------------------------
* Filed with this report
(1) Filed as an exhibit to the Company's Registration Statement on Form 10-SB
filed on March 27, 1998 and incorporated herein by reference.
19
(2) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2000, filed on April 16, 2001 and incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
We paid audit and financial statement review fees totaling $5,000 to Lazar
Levine & Felix LLP, our current independent accountants for the year ended
December 31, 2005 and $8,750 for the year ended December 31, 2004 to our former
independent accountants Richey May and Co.
AUDIT-RELATED FEES
None
TAX FEES
We paid tax preparation fees totaling $1,000 to Lazar Levine & Felix LLP, our
current independent accountants for the year ended December 31, 2005 and $8,750
for the year ended December 31, 2004 to our former independent accountants
Richey May and Co.
ALL OTHER FEES
None.
AUDIT COMMITTEE POLICIES AND PROCEDURES
We do not currently have a standing audit committee. The above services were
approved by our Board of Directors.
20
SIGNATURES
In accordance with Section 13 or 15(d) 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.
Date: March 30, 2006
By: /s/ Arnold P. Kling
-------------------------------
Arnold P. Kling, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: March 30, 2006
By: /s/ Arnold P. Kling
-------------------------------
Arnold P. Kling, President, Sole Director
(Principal Executive Officer)
Date: March 30, 2006
By: /s/ Kirk M. Warshaw
-------------------------------
Kirk M. Warshaw, Chief Financial Officer
(Principal Financial and Accounting Officer)
21
ENTRUST FINANCIAL SERVICES, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX
Independent Auditors' Report - Current Auditor F-2.
Independent Auditors' Report - Predecessor Auditor F-3.
Financial Statements:
Balance Sheet as of December 31, 2005 F-4.
Statements of Operations for the Development Stage Period (August 1,
2005 to December 31, 2005) and the Years Ended December 31, 2005 and
2004 F-5.
Statement of Shareholders' Equity (Deficit) for the Years Ended December
31, 2005 and 2004, including the Development Stage Period (August 1,
2005 to December 31, 2005) F-6.
Statements of Cash Flows for the Development Stage (August 1, 2005 to
December 31, 2005) and the Years Ended December 31, 2005 and 2004 F-7.
Notes to Financial Statements F-8.
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders
Entrust Financial Services, Inc.
Chatham, New Jersey
We have audited the accompanying balance sheet of Entrust Financial Services,
Inc. (a development stage company), as of December 31, 2005 and the related
statements of operations, shareholders' equity and cash flows for the year then
ended and the statements of operations, shareholders' equity, and cash flows for
the development stage period August 1, 2005 to 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. 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 also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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 Entrust Financial Services,
Inc. (a development stage company) as of December 31, 2005, and the results of
its operations and its cash flows for the year then ended and for the
development stage period August 1, 2005 to December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has been in the development stage since the
Entrust Financial Stock Sale on August 5, 2005. The Company's lack of financial
resources and liquidity raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to this matter are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/LAZAR LEVINE & FELIX LLP
---------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
March 23, 2006
F - 2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders
Entrust Financial Services, Inc.
Chatham, New Jersey
We have audited the accompanying statements of operations, shareholders' equity
and cash flows of Entrust Financial Services, Inc. (a development stage company)
for the year ended December 31, 2004. 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. 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 also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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 results of operations and cash flows of Entrust
Financial Services, Inc. (a development stage company) for the year ended
December 31, 2004 in conformity with accounting principles generally accepted in
the United States of America.
/s/ Richey, May & Co., LLP
--------------------------
Richey, May & Co., LLP
Englewood, Colorado
March 29, 2006
F - 3
ENTRUST FINANCIAL SERVICES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 2005
- ASSETS -
CURRENT ASSETS:
Cash $ 34,673
-----------
Total Current Assets 34,673
-----------
TOTAL ASSETS: $ 34,673
===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 14,242
-----------
Total Current Liabilities 14,242
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.000001 par value,
1,000,000 authorized, none issued --
Common stock, $.0000001 par value;
100,000,000 shares authorized,
57,612,295 shares issued and outstanding 6
Additional paid-in capital 8,127,550
Accumulated deficit (8,062,548)
Deficit accumulated during development stage (44,577)
-----------
Total Shareholders' Equity 20,431
-----------
TOTAL LIABILITIES and EQUITY $ 34,673
===========
See accompanying notes
F - 4
ENTRUST FINANCIAL SERVICES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
CUMULATIVE DURING THE
DEVELOPMENT STAGE YEAR ENDED DECEMBER 31,
AUGUST 1, 2005 TO
DECEMBER 31, 2005) 2005 2004
--------------------- ----------- ----------
REVENUES $ -- $ -- $ --
-------- ----------- ----------
COSTS AND EXPENSES:
Compensation expense 15,600 15,600 --
Professional fees 24,665 91,192 135,887
Filing and shareholder expense 4,295 23,711 22,493
Other expenses 17 17 --
-------- ----------- ----------
Total expenses 44,577 130,520 158,380
-------- ----------- ----------
Net loss from continuing operations (44,577) (130,520) (158,380)
-------- ----------- ----------
Income (loss) from discontinued operations:
Loss from operations, net of taxes -- (262,769) (57,870)
Gain on disposal, net of taxes -- 382,729 --
-------- ----------- ----------
-- 119,960 (57,870)
-------- ----------- ----------
NET LOSS $(44,577) $ (10,560) $ (216,250)
======== =========== ==========
BASIC AND DILUTED EARNINGS PER SHARE FROM
CONTINUING OPERATIONS $ (0.00) $ (0.06)
BASIC AND DILUTED EARNINGS PER SHARE FROM
DISCONTINUED OPERATIONS (0.00) (0.02)
----------- ----------
BASIC AND DILUTED EARNINGS PER SHARE $ (0.00) $ (0.08)
=========== ==========
WEIGHTED AVERAGE NUMBER OF
BASIC AND DILUTED SHARES OUTSTANDING 22,496,910 2,594,545
----------- ----------
See accompanying notes
F - 5
ENTRUST FINANCIAL SERVICES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Deficit
Accumulated
Common Shares Additional Retained During Shareholders'
------------------------ Paid-in Earnings Development Equity
Number Amount Capital (Deficit) Stage (Deficit)
----------- ---------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 2,576,795 $ 1 $ 7,583,655 $(7,480,315) $ -- $ 103,341
Net loss for year ended December 31, 2004 -- -- -- (216,250) -- (216,250)
Issuance of common shares for services 35,500 -- 21,900 -- -- 21,900
----------- ---------- ----------- ----------- ----------- -----------
Balance at December 31, 2004 2,612,295 1 7,605,555 (7,696,565) -- (91,009)
Sale of common stock for cash 49,500,000 4 499,996 -- -- 500,000
Dividend paid -- -- -- (400,000) -- (400,000)
Issuance of compensatory shares for fair value
of services 5,500,000 1 21,999 -- -- 22,000
Net loss for year ended December 31, 2005 -- -- -- 34,017 (44,577) (10,560)
----------- ---------- ----------- ----------- ----------- -----------
Balance at December 31, 2005 57,612,295 $ 6 $ 8,127,550 $(8,062,548) $ (44,577) $ 20,431
=========== ========== =========== =========== =========== ===========
See accompanying notes
F - 6
ENTRUST FINANCIAL SERVICES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Cumulative During the
Development Stage Year Ended December 31,
(August 1, 2005 to ---------------------------------
December 31, 2005) 2005 2004
--------------------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (44,577) $ (10,560) $ (216,250)
Adjustments to reconcile net loss to net cash
utilized by operating activities:
Gain on sale of discontinued operations -- (382,729) --
Depreciation -- 146,177 223,686
Compensatory shares 22,000 22,000 21,888
Provision for loan losses -- -- 298,073
(Increase) Decrease in:
Accounts receivable -- (37,287) 39,977
Mortgages held for sale -- 19,613,277 (17,111,613)
Prepaid assets -- (9,828) 174,245
Increase (decrease) in accrued expenses 14,242 (157,494) (355,980)
------------ ------------ ------------
Net cash provided (utilized) by operating
activities (8,335) 19,183,556 (16,925,974)
------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Sale (purchase) of property & equipment -- (16,050) (133,841)
Decrease in restricted cash -- 2,805 497,245
------------ ------------ ------------
Net cash provided by investing activities -- (13,245) 363,404
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayment), warehouse lines of
credit -- (19,534,785) 16,992,091
Repayment of long term debt -- (761,570) (300,000)
Repayment of capital leases -- (40,438) (71,108)
Proceeds from sale of common shares -- 500,000 --
Payment of dividend -- (400,000) --
------------ ------------ ------------
Net cash (utilized) provided by financing
activities -- (20,236,793) 16,620,983
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,335) (1,066,482) 58,413
Cash and cash equivalents at beginning of period 43,008 1,101,155 1,042,742
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 34,673 $ 34,673 $ 1,101,155
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing and financing activities
(i) On July 31, 2005, the Company sold its wholly owned subsidiary to a
note-holder in exchange for the cancellation of all debts owed. The liabilities
exceeded the assets sold and costs incurred by $382,729.
See accompanying notes
F - 7
ENTRUST FINANCIAL SERVICES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 1 - DESCRIPTION OF COMPANY:
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 July 31, 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.
F - 8
ENTRUST FINANCIAL SERVICES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 1 - DESCRIPTION OF COMPANY (Continued):
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.
NOTE 2 - 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) STATEMENTS OF CASH FLOWS:
For purposes of the statements of cash flows the Company considers all highly
liquid investments purchased with a remaining maturity of three months or less
to be cash equivalents.
(c) 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.
F - 9
ENTRUST FINANCIAL SERVICES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) INCOME TAXES:
The asset and liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for operating
loss and tax credit carry forwards and for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the results of operations in the period
that includes the enactment date. A valuation allowance is recorded to reduce
the carrying amounts of deferred tax assets unless it is more likely than not
that such assets will be realized.
(e) STOCK OPTIONS:
SFAS No. 148, "Accounting for Stock Based Compensation-Transition and
Disclosure, an Amendment of FASB Statement No. 123" ("SFAS 148"), amended FASB
Statement No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"), to
provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based compensation. However, it allows an
entity to continue to measure compensation cost for those instruments using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," provided
it discloses the effect of SFAS 123, as amended by SFAS 148, in footnotes to the
financial statements. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method.
F - 10
ENTRUST FINANCIAL SERVICES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(e) STOCK OPTIONS (Continued):
The Company accounts for stock-based awards granted to employees using the
intrinsic value-based method of accounting in accordance with APB 25 and related
interpretations, under which no compensation cost is recognized for stock option
awards granted at fair market value. Had compensation costs of such option
awards been determined under a fair value alternative method as stated in SFAS
148, the Company would have been required to prepare a fair value model for such
options and record such amount in the financial statements as compensation
expense. Pro forma stock-based employee compensation costs, net income and
earnings per share, as they would have been recognized if the fair value method
had been applied to all such awards, are presented in the table below.
2005 2004
Net loss $ (8,760) $(216,250)
Pro forma stock-based compensation expense 4,700 16,114
-------- ---------
Pro forma net loss $(13,460) $(232,364)
======== =========
Basic and diluted earnings per share:
As reported $ (0.00) $ (0.08)
Pro forma $ (0.00) $ (0.09)
The Company has used the Black-Scholes option pricing model in calculating the
fair value of options and restricted stock awards granted. The assumptions used
and the weighted-average information for years ended December 31, 2005 and 2004
are as follows:
2005 2004
Expected Yield 1.00% 1.00%
Risk-free interest rate 1.12% 1.12%
Expected life in years 3 3
Expected volatility 1.27 1.27
Weighted average fair value of
options granted $0.56 $0.56
Under the recently revised Financial Accounting Standards Board Statement SFAS
No. 123 (R), "Share-Based Payment," the Company will apply the expense
recognition provisions relating to stock options beginning in the first quarter
of 2006. See "Recent Accounting Pronouncements" below for further explanation.
F - 11
ENTRUST FINANCIAL SERVICES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(f) NEW ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY:
In December 2004, the FASB issued a revision of SFAS No. 123 "Share-Based
Payment" (No. 123R). The statement establishes standards for the accounting for
transactions in which an entity exchanges its equity investments for goods and
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. The statement does not change the accounting guidance for
share-based payments with parties other than employees. The statement requires a
public entity to measure the cost of employee service received in exchange for
an award of equity instruments based on the grant-date fair value of the award
(with limited exception). That cost will be recognized over the period during
which an employee is required to provide service in exchange for the award
(usually the vesting period). A public entity will initially measure the cost of
employee services received in exchange for an award of a liability instrument
based on its current fair value; the fair value of that award will be remeasured
subsequently at each reporting date through the settlement date. Changes in fair
value during the requisite service period will be recognized as compensation
over that period. The grant-date fair value of employee share options and
similar instruments will be estimated using option-pricing models adjusted for
the unique characteristics of these instruments. The Company will be required to
comply with this pronouncement for periods beginning after December 15, 2005. As
the Company currently accounts for share-based payments using the intrinsic
method as allowed by APB Opinion No.25, adoption of the fair value method under
SFAS 123(R) will have an impact on its results of operations. However, the
extent of the impact cannot be predetermined at this time because it will depend
on levels of share-based payments granted in the future.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS No. 154"). SFAS No. 154 is a replacement of Accounting
Principles Board Opinion No. 20 and SFAS No. 3. SFAS No. 154 provides guidance
on the accounting for and reporting of accounting changes and error corrections.
It establishes retrospective application as the required method for reporting a
change in accounting principle. SFAS No. 154 provides guidance for determining
whether retrospective application of a change in accounting principle is
impracticable and for reporting a change when retrospective application is
impracticable. SFAS No. 154 also addresses the reporting of a correction of an
error by restating previously issued financial statements. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. We will be adopting this pronouncement
beginning in our fiscal year 2006 and do not currently believe that it will have
a material impact on our financial statements.
F - 12
ENTRUST FINANCIAL SERVICES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 3 - DISCONTINUED OPERATIONS:
On July 31, 2005, Entrust Mortgage, a wholly owned subsidiary, was sold in
exchange for the cancellation of all obligations owed by Entrust Mortgage to the
acquirer and the assumption of certain of Entrust Mortgage's third party
obligations by the acquirer ("the Entrust Mortgage Sale"). Following the Entrust
Mortgage Sale, we had no operations.
Effective with the filing of our Form 10-QSB for the quarter ended September 30,
2005, we have accounted for the Entrust Mortgage Sale and the related operations
as discontinued operations per SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets."
Because the liabilities assumed by the acquirer utilized in the operation of
Entrust Mortgage exceeded the assets, a net gain of $382,729 resulted from the
Entrust Mortgage Sale. This gain on sale coupled with a loss for the period from
the discontinued operation of $262,769 results in income from discontinued
operations of $119,960 for the year ended December 31, 2005.
NOTE 4 - SHAREHOLDERS' EQUITY:
As of December 31, 2005, 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.
The number of authorized shares was increased during the year ended December 31,
2005 from 50 million shares to the current 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's and Warshaw's services were
valued at $7,800 each and Mr. Pierson's was valued at $6,400.
F - 13
ENTRUST FINANCIAL SERVICES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 5 - STOCK OPTIONS AND WARRANTS:
The following information is provided regarding stock options granted by the
Company:
WEIGHTED AVERAGE
SHARES SUBJECT TO EXERCISE PRICE PER
OUTSTANDING OPTIONS SHARE
December 31, 2003 105,000 $1.52
Granted 45,000 $0.80
Exercised/Cancelled --
--------
December 31, 2004 150,000 $1.28
Granted --
Cancelled (50,000) $2.00
--------
December 31, 2005 100,000 $0.55
========
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
Average Life (in
Exercise Price Shares years) Shares
$0.51 60,000 0.60 60,000
$0.60 40,000 0.60 40,000
The Company had issued warrants to purchase common stock to certain consultants
of the Company. These warrants have terms ranging from two years to three years.
At December 31, 2003, warrants to purchase 530,000 shares of the Company's
common stock at a weighted average exercise price of $1.08 per share were
outstanding. At December 31, 2003 warrants for 430,000 shares were exercisable
and the balance maybe exercised according to a specific schedule. At December
31, 2004 all warrants had expired without being exercised.
F - 14
ENTRUST FINANCIAL SERVICES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 6 - INCOME TAXES:
2005
Deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Net operating loss carry forwards $ 1,750,000
Less valuation allowance (1,750,000)
-----------
$ --
===========
At December 31, 2005, the Company had approximately $4,473,000 of net operating
loss carry forwards ("NOL's") available which expires in years beginning in
2020. The benefits of these NOL's may be reduced in the future if the Company is
successful in establishing a new business.
NOTE 7 - SUBSEQUENT EVENT:
On January 31, 2006, a Special Shareholders Meeting was held at which time the
shareholders voted to authorize the Board of Directors to amend its Articles of
Incorporation to effect a reverse stock split of its common stock, in its sole
discretion, 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.
The shareholders also authorized an amendment to the Company's 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 not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting.
F - 15