EXHIBIT "A"
U.S. 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, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the transition period from _____________ to _____________
Commission file number: 0-49936
St. Joseph, Inc.
________________________
(Name of small business issuer in its charter)
Colorado CH47-0844532
_______________________________ _________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4870 S. Lewis, Suite 250, Tulsa, OK 74105
_______________________________________ _______________
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (918) 742-1888
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
____________________________
(Title of class)
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 disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not 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. [ ]
Issuer's revenues for its most recent fiscal year: $0.00
Aggregate market value of voting stock held by non-affiliates of the issuer as
of: 12/31/03: $309,480
Number of shares of common stock, $.001 par value, outstanding on
12/31/03 was 4,491,712
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
St. Joseph Energy, Inc.
FORM 10-KSB
TABLE OF CONTENTS
PART I
PAGE
ITEM 1. DESCRIPTION OF BUSINESS 1
ITEM 2. DESCRIPTION OF PROPERTY 5
ITEM 3. LEGAL PROCEEDINGS 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS 8
ITEM 7. FINANCIAL STATEMENTS 11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 11
ITEM 8A. CONTROLS AND PROCEDURES 11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT 12
ITEM 10. EXECUTIVE COMPENSATION 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 17
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 18
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 19
ITEM 14. CONTROLS AND PROCEDURES 19
ii
FORWARD LOOKING STATEMENTS
References in this document to "us," "we," "the Company," or "St. Joseph" refer
to St. Joseph, Inc.
This report contains "forward-looking" statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are based on
certain assumptions and describe future plans, strategies and expectations of
the Company. They are generally identifiable by use of the words "believe",
"expect", "intend", "anticipate", "estimate", "project" or similar expressions.
These statements are not guarantees of future performance, events or results and
involve potential risks and uncertainties. Accordingly, actual performance,
events or results may differ materially from such forward-looking statements.
We undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
Factors that could cause actual results to differ materially from current
expectations include, but are not limited to, changes in general economic
conditions, changes in interest rates, legislative and regulatory changes, the
unavailability of equity and debt financing, unanticipated costs associated with
our potential acquisitions, expanding a new line of business, ability to meet
competition, loss of existing key personnel, ability to hire and retain future
personnel, our failure to manage our growth effectively and the other risks
identified in this filing or other reports of the Company filed with the U.S.
Securities and Exchange Commission. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning us and our
business, including additional factors that could materially affect our
financial results, is included in our other filings with the U.S. Securities and
Exchange Commission.
iii
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business
________
(a) Business Background
St. Joseph, Inc. ("St. Joseph" or the "Company") was organized as a Colorado
Corporation on March 19, 1999, as Pottery Connection, Inc. On March 19, 2001,
St. Joseph changed its corporate name from Pottery Connection, Inc. to St.
Joseph Energy, Inc. in anticipation of changing its business purpose to the
exploration and development of oil and gas properties. However, after the
unsuccessful investment in two oil wells located in the State of Louisiana,
St. Joseph elected to abandon that endeavor and return to its original business
purpose. On November 6, 2003, St. Joseph Energy, Inc., changed its corporate
name to St. Joseph, Inc.
St. Joseph conveyed its oil and gas working interests to a third party, a
shareholder of the Company, in exchange for debt, which was an "as is"
conveyance. St. Joseph has no reason to believe or has any knowledge of any
anticipated liability from any lingering environmental issue or other liability
from the oil and gas exploits in the State of Louisiana.
(b) Business of St. Joseph
St. Joseph was originally organized to produce and sell pottery of all forms, as
well as, publish and sell, on both a wholesale and retail basis; (i) limited
edition fine art lithographs, serigraphs, bas-reliefs, sculptures, aquatints and
etchings; (ii) oil and acrylic paintings and other original works of art; and
(iii) posters, and limited editions of other pottery artifacts. St. Joseph had
determined to establish itself in a niche market, by developing a gallery on the
Internet ("gallery on the web"), which was to be a web site to facilitate online
retail sales. St. Joseph at this time does not own nor does it propose to not
establish art galleries at physical locations and all sales were to have taken
place through its web site. St. Joseph's did not generate any sales through the
proposed web site. The domain name of, www.gallerysaintjoseph.com, has been
reserved by the Company. However, at this time, St. Joseph has elected to
abandon its current business purpose and will now focus on the growth and
further development of its wholly owned subsidiary, Staf*Tek Services, Inc.
(c) Acquisition of Staf*Tek Services, Inc.
On December 2, 2003, the Company entered into an Agreement of Exchange and
Purchase and Sale (the "Agreement") with Staf*Tek Services, Inc. ("Staf*Tek"),
an Oklahoma corporation. Staf*Tek was organized as an Oklahoma corporation on
January 2, 1997. The purchase of Staf*Tek by the Company took place on December
2, 2003 and the acquisition closed on January 2, 2004 at which time Staf*Tek
became a wholly owned subsidiary of St. Joseph.
1
Pursuant to the terms of the Agreement, the Company acquired 100 percent of the
issued and outstanding shares of Staf*Tek's common stock in exchange for (1)
380,500 shares of the Company's $.001 par value convertible preferred stock;
(2) 219,500 shares of the Company's $.001 par value common stock; and (3)
$200,000 in cash. The Company's convertible preferred stock has a face value
of $3.00 per share with a yield of 6.75 percent dividend per annum, which is
paid quarterly on a calendar basis for a period of five (5) years. The Company
paid $6,122 in preferred stock dividends as of December 2003. The convertible
preferred stock may be converted to the Company's common stock at the rate of
one share of convertible preferred stock for one share of common stock at any
time by the shareholder. The convertible preferred stock can be called for
redemption by the Company no sooner than two (2) years after the date of
issuance, and only if the Company's common stock is trading on a recognized
United States stock exchange for a period of no less than thirty consecutive
trading days at a market value of $5.00 or more per share. However, there is
no publicly trading market at this time.
As of March 1, 2004, the Company had paid the $200,000 cash owed under the terms
of the Agreement.
(d) Business of Staf*Tek Services, Inc.
Staf*Tek specializes in the recruiting and placement of professional technical
personnel on a temporary and permanent basis. Staf*Tek provides Information
Technology employees in areas ranging from multiple platform systems integration
to end-user support, including specialists in programming, networking, systems
integration, database design and help desk support. Staf*Tek's candidate
databases concerning Information Technology (IT) experience, skills, and
performance are continually being updated regarding new referrals and existing
candidates. Staf*Tek's contract services are performed by a nucleus of both
permanent and temporary professionals. Staf*Tek responds to a broad range of
assignments from technical one-person assignments to major projects including,
but not limited to: Internet/Intranet Development, Desktop Applications
Development, Project Management and Completion, Enterprise Systems Development,
SAP Implementation and Legacy MainFrame Projects. Staf*Tek also provides
computer training, online assessments and certification at its web-site
www.staftek.com through Get Smart Online. The Get Smart Online technology
provides anyone with internet access the opportunity to get tested and certified
in over fifty (50) Information Technology skill sets.
Staf*Tek was founded on the premise that there was an increasing demand for high
quality outsourced professional services. Staf*Tek's business premise combines
the client service orientation and commitment to quality. Staf*Tek is
positioned to take advantage of what the Company believes are two converging
trends in the outsourced professional services industry; increasing demand for
outsourced professional services by corporate clients and increasing the supply
of professionals interested in working on an outsourced basis. Staf*Tek
believes that its business premise allows it to offer challenging yet flexible
career opportunities, attract highly qualified, experienced professionals and,
in turn, attract clients with varying professional needs.
As of March 31, 2004, Staf*Tek employed 23 professional service associates which
are on assignment. Staf*Tek has placed its service contract professionals with
six (6) clients. These clients include, MCI, Conoco Phillips, SUNOCO, Inc., TMS
Sequioa, Inc. Phillips, Inc. and PPCO/SA. The outsourcing placement business is
a multi billion dollar business, which generated an estimated $58.6 billion
dollars nationally in annual revenues in 2002.
2
While Staf*Tek has several clients, it is primarily dependant on its one large
client, MCI. In the past 12 months, MCI accounted for approximately 66% of
Staf*Tek's total revenues. The loss of this client or in the event that there
is a decrease in business could have a material adverse effect on Staf*Tek's
business. (See Risk Factor "MCI is Staf*Tek's Largest Client".)
Staf*Tek is primarily a regional professional service firm that provides
experienced and highly qualified information technology personnel who can
demonstrate diversity, and flexibility in the work force.
Staf*Tek has determined that its market is primarily in the Tulsa, Oklahoma area
which is a market of approximately $30,000,000 dollars in annual revenues.
Thus, Staf*Tek has estimated that within a 12 month period it could penetrate
the market by 20% and generate annual revenues of approximately $6,000,000
dollars. In order to reach this goal the Company proposes to hire one (1)
additional sales personnel and increase its advertising.
Staf*Tek currently has one office located in Tulsa, Oklahoma. However, as the
business begins to develop, it will open an office in Dallas, Texas within the
next 12 months.
Industry Background
___________________
Staf*Tek's services address a range of professional areas. The market for
professional services is broad and independent, thus, independent data on the
size of the market is fragmented. For instance, the most recent annual figures,
conducted in 2002 by Staffing Industry Analysis, Inc. put the size of the
professional sector of the staffing industry at $58.6 billion dollars. Staf*Tek
believes it is a viable alternative in providing clients with professionals who
need the Staf*Tek's services because clients can:
* strategically access specialized skills and experiences;
* effectively supplement internal resources;
* increase labor flexibility; and
* reduce their overall hiring and training costs.
Typically, companies use a variety of alternatives to fill their project and
non-project professional service needs. Companies may outsource entire projects
to consulting firms; this provides them access to the expertise but often
entails significant cost and less management control of a project. Companies
may use contract employees from traditional staffing firms. This allows
resources to be applied on a project basis without increasing the number of
employees.
However, it has been flexibility that has caused the staffing industry
employment to double in the 1990s and it is the reason the staffing industry
employment declined over the past several years. And, flexibility is the reason
that the staffing industry employment will resume its growth as the economy
strengthens. Employees and business need flexibility.
3
Supply of Professionals
_______________________
Concurrent with the growth in the demand for outsourced services, Staf*Tek is
of the belief, based on discussions with Staf*Tek associates, that the number of
professionals seeking work on a project and non-project basis has increased due
to a desire for:
* more flexible hours and work arrangements, coupled with competitive wages and
benefits; and
* challenging engagements that advance their careers, develop their skills and
add to their experience.
* the Company maintains its own database of 15,000 trained professionals.
Marketing and Recruiting
________________________
The Company markets its temporary and permanent staffing services to business
clients as well as employment candidates. Marketing and recruiting directed to
business clients and employment candidates consists primarily of yellow pages
advertisements, classified advertisements, websites, trade shows and web-site
promotion on the Internet.
Staf*Tek and its subsidiary own several trademarks, service marks and trade
names, including the getsmartonline.com, staftek.com, confidentialsearch.com
and stjosephinc.com.
Management of the Company's temporary and permanent staffing operations is
coordinated from its headquarters in Tulsa, Oklahoma. The Company's
headquarters provides support and centralized services related to
administrative, marketing, public relations, accounting and training.
Staffing in the Future
______________________
Because the staffing industry allows business to quickly adjust their labor
levels up or down to match demand for their products or services, it is highly
sensitive to economic cycles. Historically when the economy is weakening,
temporary and contract staffing falls. As the economy is recovering, more jobs
ensue and staffing employment rebounds.
The U.S. Bureau of Labor Statistics predicts that more jobs will be created in
personnel supply services, which includes staffing, than in any other industry
in this decade, and that it will be the fifth fastest growth industry through
2010. In addition, two of the top three fastest growth industries; computer/
data processing, and health services are major components of the staffing
industry.
After this most recent recession, both employees and companies will be looking
for increased flexibility. Both will benefit as flexibility helps boast
employment and economic growth, and, both will benefit as flexibility improves
over all economic security and stability.
4
Competition
___________
The Company's temporary and permanent staffing services face competition in
attracting clients as well as high-quality specialized employment candidates.
The temporary and permanent placement businesses are highly competitive, with
a number of firms offering services similar to those provided by the Company
on a national, regional or local basis. In many areas the local companies are
the most successful competitors. The most significant competitive factors in
the temporary and permanent placement businesses are price and the reliability
of service, both of which are often a function of the availability and quality
of professional personnel. The Company believes it derives a competitive
advantage from its extensive experience with and commitment to the specialized
employment market,
Temporary employees placed by the Company are, in fact, the Company's employees
for all purposes while they are working on assignments. The Company pays the
related costs of employment, such as workers' compensation insurance, state and
federal unemployment taxes, social security and certain fringe benefits. The
Company provides access to voluntary health insurance coverage to interested
temporary employees.
Reports to security holders
___________________________
The Company will send an annual report, together with audited Financial
Statements of the Company to security holders.
Any member of the public may read and copy any materials the Company files with
the Securities and Exchange Commission at the Securities and Exchange
Commission's Public Reference Room at Fifth Street, NW, 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 Securities and Exchange Commission
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov.
ITEM 2. DESCRIPTION OF PROPERTY
Staf*Tek leases approximately 3317 square feet of office space from a non-
affiliated third party at 4870 South Lewis, Suite 250, Tulsa, OK 74105 and
requires monthly lease payments of $3,870.
ITEM 3. LEGAL PROCEEDINGS
The Company nor its officers and directors are a party to any material pending
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's shareholders during the
fiscal year covered by this report.
5
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of the date of this Form 10-KSB, there is no public trading market for the
Company's Common Stock.
The Company proposes to engage a broker/dealer to file with the NASD to have its
Common Stock traded on NASD's OTC Bulletin Board upon effectiveness of a
Registration Statement the Company has filed with the Securities and Exchange
Commission ("SEC").
The authorized capital of the Company is One Hundred Million (100,000,000)
common shares with a par value of $0.001 per share. As of the date of this Form
10-KSB, there are 4,491,712 common shares issued and outstanding, of which
1,701,720 shares could be sold pursuant to Rule 144 under the Securities Act of
1933, as amended. The Rule provides that a minimum of one year must elapse
between the date of the acquisition of the restricted securities from the issuer
or an affiliate of the issuer, whichever is later. Shares held by a non-
affiliate who hold the shares for a combined two (2) year period may be sold
without limitations under Rule 144(k). However, shares purchased by an
"affiliate" of St. Joseph are restricted until the minimum holding period of one
(1) year has elapsed. At such time the restricted legend may be removed and may
be sold in the event that there is an effective registration statement and there
is a publicly trading market for the securities. However, an affiliate will
always be bound by Rule 144.
The Company has not agreed to register any shares of Common Stock under the
Securities Act of 1933, as amended, for sale by security holders. None of the
holders of the Company's common shares have any right to require the Company to
register its common shares pursuant to the Securities Act of 1933.
There are 2,800,000 outstanding options or warrants to purchase shares, and
386,208 securities convertible into, shares of the Company's Common Stock. The
options may be converted into common shares at an exercise price of $0.10 per
share and the preferred shares may be converted into common shares on a one for
one basis.
As of December 31, 2003, the number of holders of record was approximately 105.
The Company has never paid a cash dividend on its Common Stock nor does the
Company anticipate paying cash dividends on its Common Stock in the near future.
It is the present policy of the Company not to pay cash dividends on the Common
Stock but to retain earnings, if any, to fund growth and expansion. Any payment
of cash dividends of the Common Stock in the future will be dependent upon the
Company's financial condition, results of operations, current and anticipated
cash requirements, plans for expansion, as well as other factors the Board of
Directors deems relevant.
The Company has not established an Equity Compensation Plan and has not
authorized the issuance of any securities for under such plan.
6
During December 2003, the Company sold 20,000 shares of its common stock for
$.50 per share pursuant to the exemptions afforded by Section 4(2) of the
Securities Act of 1933 (the "Act"), as amended. The Company received gross
proceeds of $10,000.
During December 2003, the Company issued 3,292 shares of its common stock in
exchange for legal services related to the Staf Tek acquisition. The
transaction has been valued based on contemporaneous common stock sales at
$1,646, or $.50 per share.
During October 2003, the Company issued 250,000 shares of its common stock to
an individual in exchange for services provided to the Company. The transaction
was valued at the cost of the services rendered as the common stock had no
publicly traded market value on the date of the transaction. The Company
recognized stock-based compensation expense totaling $1,250 as a result of the
transaction.
During September 2002, the Company sold 7,200 shares of its common stock for
$.25 per share pursuant to the exemptions afforded by Section 4(2) of the
Securities Act of 1933 (the "Act"), as amended. The Company received gross
proceeds of $1,800.
During June 2002, the Company sold 40,000 shares of its common stock for $.25
per share pursuant to the exemptions afforded by Section 4(2) of the Act. The
Company received gross proceeds of $10,000.
During the November and December of 2000, the Company sold 600,000 shares of its
common stock for $.25 per share pursuant to the exemptions afforded by Section
4(2) of the Act. The Company received gross proceeds of $150,000.
During the March and April of 1999, the Company sold 101,720 shares of its
common stock for $.25 per share pursuant to the exemptions afforded by Section
3(b) and 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder.
The Company received net proceeds of $24,720 after deducting offering costs
totaling $710.
In general, under Rule 144 as currently in effect, a shareholder, including
an affiliate of St. Joseph, may sell shares of Common Stock, after at least one
year has elapsed since such shares were acquired from St. Joseph or an affiliate
of St. Joseph. The number of shares of Common Stock which may be sold within
any three-month period is limited to the greater of one percent of the then
outstanding shares of Common Stock or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding the date on which notice
of such sale was filed under Rule 144. Certain other requirements of Rule 144
concerning availability of public information, manner of sale and notice of sale
must also be satisfied. In addition, a shareholder who is not an affiliate of
St. Joseph (and who has not been an affiliate of St. Joseph for 90 days prior to
the sale) and who has beneficially owned shares acquired from St. Joseph or an
affiliate of St. Joseph for over two years may resell the shares of Common Stock
without compliance with the foregoing requirements under Rule 144.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock, or the perception that such sales may
occur, could have a material adverse effect on prevailing market prices.
7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this Form 10-KSB. This discussion and analysis
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors including, but not limited to,
those discussed in Risk Factors following this discussion, and elsewhere in this
Report on Form 10-KSB.
General
The Company has not generated revenues since its inception, however, in December
of 2003, St. Joseph acquired Staf*Tek Services, Inc. and now generates it
operating revenues exclusively from its wholly owned subsidiary, Staf*Tek. St.
Joseph, through its wholly owned subsidiary, Staf*Tek, is a regional recruiting
and placement of professional technical personnel on a temporary and permanent
project basis. Staf*Tek assists its clients with projects that require
specialized expertise ranging from multiple platform systems integration to end-
user support, including specialists I programming, networking, systems
integration, database design and help desk support.
St. Joseph was formed as a Colorado Corporation in March of 1999, with the
purpose of entering the art industry; however, in March of 2001, St. Joseph
abandoned its original business purpose and pursued a business interest I the
oil and gas business. However, that endeavor was not successful, and St.
Joseph again returned to its original business purpose. In December of 2003,
St. Joseph elected to pursue a new business purpose and on December 2, 2003, St.
Joseph entered into an agreement of Exchange and Purchase and Sale with Staf*Tek
Services, Inc. ("Staf*Tek"), an Oklahoma corporation.
On January 2, 2004, St. Joseph completed the acquisition of Staf*Tek by
acquiring all of the issued and outstanding common shares of Staf*Tek. Since
inception, Staf*Tek has been a leader in the recruiting and placement of
professional technical personnel on a temporary and permanent basis in the
Tulsa, Oklahoma area. In 1999, Staf*Tek was ranked 10th as one of the most
successful businesses in the Tulsa, OK area. In 1998, Staf*Tek had total gross
revenues of $5,373,233, up from $1,149,830 in 1996. While the Company has not
reached its high, new management is of the belief it can again capture 20% of
the $30,000,000 in revenues that are generated by the industry in the Tulsa, OK
area.
The primary reason that the revenues have declined since 1998 is because its
President and CEO passed away in 2001. Mr. Alan Bell was an integral part of
Staf*Tek's operation and his death had a material detrimental effect on Staf*Tek
and its revenues.
Staf*Tek generates its revenue primarily by contracting with its clients to
provide its associates. The clients involved on an hourly basis for the
professional services of its associates.
8
Staf*Tek's Results of Operations: Year ended December 31, 2003 versus December
31 2002.
St. Joseph, while in existence since March 19, 2001, has never generated any
revenues. St. Joseph's wholly owned subsidiary has been successful in
generating revenues since its inception, January 2, 1997.
For the year ending December 31, 2003, Staf*Tek's total service revenues
increased by $382,001 or approximately 33%, to $1,550,442, as compared to
$1,168,441 for December 31, 2002. Net income went from a negative $264,169 for
the year ended December 31, 2002, to a positive net income of $26,190 for the
year ended December 31, 2003.
Staf*Tek attributes its increases in service revenues to positive economic
conditions and the increase in business with its primary client, MCI. Staf*Tek
proposes to increase its sales force and to re-establish relationships with
clients that have been inactive.
Material Accounting Policies
The discussion and analysis of St. Joseph's condition and result of operations
are based on the consolidated financial statements that have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires estimates and assumptions
that effect the reported amounts and disclosures.
RISK FACTORS
The Company's business prospects are subject to various risks and uncertainties
that impact its business. The most important of these risks and uncertainties
are as follows:
1. Limited Operating History; History of Losses
St. Joseph was incorporated in the State of Colorado on March 18, 1999, and
until it acquired Staf*Tek Services, Inc., an Oklahoma corporation, had not
carried on any significant operations and was considered to be in its
development stage. Accordingly, St. Joseph has limited operating history as
a holding Company. However, its wholly owned subsidiary Staf*Tek, has generated
positive revenues since its inception, January 2, 1997. There is no assurance
that the Company through the operation of its wholly owned subsidiary will
continue to achieve profitability in the future in such a competitive market.
2. Dependence on Wholly Owned Subsidiary.
St. Joseph has not generated any revenues since its inception, and in the
future, St. Joseph does not expect to generate any revenues. St. Joseph will
look to its wholly owned subsidiary for revenues. St. Joseph cannot predict if
Staf*Tek will continue to be successful in the future.
9
3. New Business Strategy.
St. Joseph has responded to losses that have been incurred since inception and
lack of revenues and has adapted a new business strategy. St. Joseph has
abandoned its pottery and development of art galleries and its oil and gas
ventures and has now entered into the information technology (referred to IT)
services to a broad range of clients. St. Joseph believes that this business
endeavor can be profitable due to the experience and the quality of management
that St. Joseph has acquired. The market St. Joseph is entering is highly
competitive and it is likely that only the best managed and most efficient
companies providing the best IT services will economically survive in such a
market.
4. Dependence on Key Personnel.
St. Joseph and its wholly owned subsidiary, Staf*Tek, is dependent, to a great
extent, on the experience, abilities, and combined service of John H. Simmons,
the Company's President and CEO. The loss of services of John H. Simmons or
other key personnel could have a material adverse effect on the Company's
business, financial condition or results of operations. St. Joseph, currently,
does not have key man life insurance on the life of John H. Simmons, but expects
to obtain life insurance in the last quarter of fiscal year, 2004.
5. Business is Highly Dependent Upon the State of the Economy.
The demand for the Staf*Tek's temporary and permanent staffing services, is
highly dependent upon the state of the economy and upon the staffing needs of
the Staf*Tek's clients. Any variation in the economic condition or unemployment
levels in the United States or in the economic condition of the region Staf*Tek
services, or in any specific industry may severely reduce the demand for the
Company's services and thereby significantly decrease the Company's revenues and
profits.
6. Availability of Candidates.
The Company's temporary and permanent staffing services business consists of the
placement of individuals seeking temporary and permanent employment. There can
be no assurance that qualified candidates for employment will continue to seek
employment through Staf*Tek. Qualified candidates generally seek temporary or
permanent positions through multiple sources, including Staf*Tek and its
competitors. Any shortage of qualified candidates could materially adversely
affect the Company's revenues.
7. Highly Competitive Business.
The temporary and permanent staffing services business is highly competitive
and, because it is a service business, the barriers to entry are quite low.
There are many competitors, some of which have greater resources than the
Company, and new competitors are entering the market all the time. In addition,
long-term contracts form a negligible portion of the Company's revenue.
Therefore, there can be no assurance that the Company will be able to retain
clients or market share in the future. Nor can there be any assurance that the
Company will, in light of competitive pressures, be able to remain profitable
or, if profitable, maintain its current profit margins. If Staf*Tek fails to
compete successfully in this highly competitive market in which Staf*Tek
operates, its business, financial condition, and results of operations will be
materially and adversely affected.
10
8. Changes in Technology.
The market for IT services change rapidly because of technological innovation,
new product introductions, changes in customer requirements, declining prices
and evolving industry standards, among other factors. New products and new
technology often render existing information services or technology
infrastructure obsolete, excessively costly or otherwise unmarketable. As a
result, Staf*Tek's success depends on its ability to timely innovate and
integrate new technologies into its service offerings. Staf*Tek cannot
guarantee that it will be successful in adapting and integrating new
technologies into its service offerings in a timely manner. Thus, these
changes in technologies could adversely affect Staf*Tek competitiveness,
revenues and profits.
9. MCI is Staf*Tek's Largest Client.
At the present time, MCI is Staf*Tek's largest client and makes up 66% of its
business. The loss of this client or the decline in business could have a
material adverse effect on the Company's revenues and profits.
ITEM 7. FINANCIAL STATEMENTS.
St. Joseph's audited Financial Statements are attached as a Schedule.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 8A. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, John H. Simmons, St.
Joseph's Chief Executive Officer and Kenneth L. Johnson, its acting Chief
Financial Officer, evaluated the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Rule 13a-15b under
the Securities Exchange Act of 1934. Based on their review of the Company's
disclosure controls and procedures, they have concluded that St. Joseph's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company that is required to be included
in their periodic SEC filings. Further, there were no significant changes in
the internal controls or in other factors that could significantly affect these
controls after the evaluation date and the date of this report.
11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following information sets forth the names of the directors, executive
officers, promoters control persons of the Company, their present positions
with the Company, and their biographical information.
Name Age Office
John H. Simmons(1) 51 President/CEO/Director
Kenneth L. Johnson(1) 44 Secretary-Treasurer/Director
Bruce Schriener(1) 49 Director
Kimberly A. Samon(1) 36 Director
Dr. Milton S. Harbuck, D. D. S. (1) 75 Director
Jerry A. Malone(1) 64 Director
Gerald McIlhargey(1) 56 Director
(1) These persons may be deemed "promoters" of the Company as that term is
defined under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
Executive Officers and Directors
John H. Simmons, President, C.E.O. - Mr. Simmons has been President and Chief
Executive Officer of St. Joseph, Inc. since October, 2003. Mr. Simmons is also
an Officer and Director of Staf*Tek. Before becoming St. Joseph's Chief
Executive Officer, Mr. Simmons served as Director of Business Development for
Lacerte Technologies, a national technologies corporation, from June 2001
through May 2003. Prior to joining Lacerte, Mr. Simmons served as Executive
Vice-President for Seirios International, a professional employer organization,
from September1996 to August, 2000. During his tenure with Seirios, Mr. Simmons
was appointed President and Chief Operating Officer in August, 2000 and served
in that capacity until June, 2001
Kenneth L. Johnson - Mr. Johnson has been a Director and Secretary/Treasurer
of the Company since April of 2000. Mr. Johnson has been the Secretary/
Treasurer and Director of Staf*Tek from December of 2003, to the present.
For the past nine years, Mr. Johnson has been employed as a senior support
representative with College Bookstore Management Systems (CMBS), a division
of Nebraska Book Co., Inc. A provider of point of sale and inventory control
computer software for the college bookstore industry. Mr. Johnson is involved
in product development, customer support and training.
Mr. Johnson graduated from Hastings College in 1985, earning a Bachelor of Arts
Degree in Business Administration.
Bruce E. Schreiner, CPA - Mr. Schreiner, CPA, has been a Director of the Company
since October of 2003. Mr. Screiner has also been a Director of Staf*Tek
Services, Inc. since October, 2003, to the present. Mr. Schreiner is a partner
in the accounting firm of Schroeder & Schreiner,
12
P.C. He served as an Agent with the Internal Revenue Service for over five
years, culminating in an appointment to the Technical and Review Staff of Omaha,
Nebraska, for the Nebraska District.
Mr. Schreiner is a member of the American Institute and Nebraska Society of
Certified Public Accountants and the Grand Island Area Chamber of Commerce. Mr.
Schreiner is currently on the Board of Directors of Sense Technologies, Inc., a
public company.
Mr. Schreiner graduated magna cum laude from Hastings College in 1975 earning a
Bachelor of Arts Degree in both Economics and Business Administration with
emphasis in accounting.
Kimberly A. Samon - Ms. Samon has been a Director of St. Joseph since March
2004. Ms. Samon worked with Kinko's, Inc., a business service company, from
April 2003 through December 2003 in an executive HR position. From April 2002
through March 2003, Ms. Samon worked for Lacerte Technologies, Inc., a human
resources consulting, outsourcing and technologies firm. From 1998 through
December 31, 2001, Ms. Samon worked for HQ Global Workplaces & Office Services
Company.
In 1996, Ms. Samon graduated from Stetson University College of Law, located
in St. Petersburg, Florida, with a JD degree. In 1993, Ms. Samon graduated from
Mercer University's School of Business and Economics in Atlanta, Georgia. Ms.
Samon graduated from Cornell University in 1990
Dr. Milton S. Harbuck, D. D. S. - Dr. Harbuck has been a Director of the Company
since December of 2003. Dr. Harbuck has practiced dentistry at a senior level
at the Veterans Administration in Little Rock, Arkansas for a number of years.
During the 1990's Dr. Harbuck was involved in Private Practice on a part-time
basis. Dr. Harbuck served as Chief of the Dental Services for John McClellan
Veterans Administration Medical Center in the late 1980's. Dr. Harbuck is an
active member in the American Dental Association as well as the Arkansas State
Dental Association.
Dr. Harbuck is a graduate of the University of Tennessee College of Dentistry,
Memphis Tennessee.
Jerry A. Malone - Mr. Malone has been a Director of the Company since March of
2004. Mr. Malone is currently a consultant for a medical supply company, after
serving nine years as Executive Vice President for Medquik Supply, Inc (a
medical sales and computer technology company) in Ft. Lauderdale, FL. Prior
to Medquik, Mr. Malone was President of Malone & Malone Systems, Inc. for ten
years.
Mr. Malone is a graduate of Louisiana Tech University and Louisiana State
University.
Gerald McIlhargey - Mr. McIlhargey has been a Director of St. Joseph since March
of 2004. Mr. McIlhargey has spent over 25 years in management consulting for
public companies. In his various management roles, Mr. McIlhargey has extensive
experience in Marketing and Manufacturing as well as the Financing of Public
Companies. Mr. McIlhargey has had a key role with several public companies,
including International Corona Resources, Collingwood Energy, Sense Technologies
Inc. and Male Leaf Petroleum.
Mr. McIlhargey received a Bachelor of Education degree from Simon Fraser
University in British Columbia, Canada in 1972.
13
The Company's Directors will serve in such capacity until the next annual
meeting of the Company's shareholders and until their successors have been
elected and qualified. There are no family relationships among the Company's
officers and directors, nor are there any arrangements or understanding between
any of the directors or officers of the Company or any other person pursuant to
which any officer or director was or is to be selected as an officer or
director. The Directors held meetings and took action eleven (11) times by
written consent during the fiscal year ended December 31, 2003.
Advisory Board
In February of 2004, St. Joseph's Board of Directors elected to establish an
Advisory Board to advise the Board of Directors on new business development,
procedures, technologies, new business practices and effective businesses
practices with respect to professional employer organization. The Advisory
Board Member's biographies are as follows:
Kimberly Alexandrich, was appointed to the Advisory Board on March 23, 2004.
Ms. Alexandrich in the past five years worked at Inercore, Inc. and as General
Manager of Somerset Growers, Inc.
Donal Kent Ford, was appointed to the Advisory Board on February 3, 2004.
For the past ten years Mr. Ford has been President of Pinnacle Financial
Services, Inc., a Third Party Administrator for Pension and Profit Sharing Plans
located in Lantana, FL. Mr. Ford is a Credentialed Member of the American
Society of Pension Actuaries and is actively involved in the South Florida
Benefits Council.
David Goler, was appointed to the Advisory Board on February 3, 2004. For the
past ten years Mr. Goler has worked for Pinnacle Financial Services, Inc. as
National Marketing Director.
John Hershenberg, was appointed to the Advisory Board on February 3, 2004. Mr.
Hershenberg, For the past seven years, has worked for Inercore, Inc. a national
marketing firm dedicated to the marketing support of Professional Employer
Organizations.
Ted Key, was appointed to the Advisory Board on March 23, 2004. For the past
seven years Mr. Key worked with Lincoln Financial Advisors focusing on
investment planning and most recently Professional Employer Organization
division.
John K. Lucas, was appointed to the Advisory Board on February 3, 2004. In the
past five years Mr. Lucas has been Regional Chief Executive Officer for Lincoln
Financial Advisors Corporation.
Maureen O'Brien, was appointed to the Advisory Board on February 3, 2004. For
the past two years Ms. O'Brien has worked as Executive Assistant to David Core,
CEO of Pinnacle Financial Services, Inc. For seven years prior to that Ms.
O'Brien specialized in start up ventures with Real Applications, Inc.
14
Brian R. Smith, was appointed to the Advisory Board on February 3, 2004. Mr.
Smith is a retired Army Major, and has worked for the past seven years in the
Professional Employers Organization Industry with Lincoln Financial Advisors
Corporation.
Executive Committees
The Company has established two executive committees: An audit committee
consisting of Mr. Bruce Schreiner, Ms. Kimberly Samon and Mr. Gerald McIlhargey.
A compensation committee consisting of Mr. Bruce Schreiner, Mr. Gerald
McIlhargey and Dr. Milton Harbuck. However, there have been no pre-approved
policies and procedures established as of the date of this Form 10-KSB.
Promoters
The Company does not have any promoters other than the directors or officers
of the Company.
Control Persons
Other than the directors or officers of the Company, which are considered
control persons of the Company, Mr. David William Dean Core is the only person
holding greater than 20% of the issued and outstanding shares of the Company.
(See Item 11-Security Ownership of Certain Beneficial Owners and Management)
David W. D. Core - Mr. Core is a control person in the Company and is the
founder and CEO of Pinnacle Financial Services, Inc., which was established in
1984. Mr. Core is a member of the International Association of Financial
Planners.
Mr. Core completed his B.S./B.A. degrees at the University of Florida, majoring
in finance and has attained the professional certifications of CERTIFIED
FINANCIAL PLANNER(tm) practitioner, Certified Life Underwriter and Chartered
Financial Consultant.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 (the "34 Act") requires
our officers and directors and persons owning more than ten percent of our
Common Stock to file initial reports of ownership and changes in ownership with
the Securities and Exchange Commission ("SEC"). Additionally, Item 405 of
Regulation S-B under the 34 Act requires us to identify in our Form 10-KSB and
proxy statement those individuals for whom one of the above referenced reports
was not filed on a timely basis during the most recent fiscal year or prior
fiscal years. Given these requirements, we have the following report to make
under this section: None of our officers or directors, and all persons owning
more than ten percent of its shares have filed the subject reports, if required,
on a timely basis during the past fiscal year.
15
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Annual Restricted Securities LTIP All Other
Principal Salary Bonus Compensation Stock Award(s) Underlying Payouts Compensation
Position Year ($) ($) ($) ($) Options/SARs (#) ($) ($)
- ---------------- ---- ------- ----- ------------ ------------ --------------- ------- -------------
Hohn H. Simmons 2003 $120,000 0 $7,200(1) 0 2,000,000 0 0
President/CEO
Director
Kenneth L. Johnson 2003 100,000
Secretaryy/Treasurer
Director
Bruce Schreiner 2003 100,000
Director
Kimberly A Samon 2004 100,000
Director
Jerry A. Malone 2004 100,000
Director
Dr. Milton S.
Harbuck 2004 100,000
Director
Gerald McIlhargey 2004 100,000
Director
(1) Mr. Simmons is being provided by the Company a car allowance of $600.00
per month.
The following is a summary of the options awarded to the officers, directors and
Advisory Board members.
Option Grants in Last Fiscal Year (Individual Grants)
Name Weighted Number of Date Issued Vesting Date Exercise Expiration Date
averaged Securities Price per
fair value Underlying share
Options
John H. Simmons $0 2,000,000 October 28, 2003 Immediately $0.10 October 28, 2008
Kenneth L. Johnson $0 100,000 October 28, 2003 Immediately $0.10 October 28, 2008
Bruce Schreiner $0 100,000 October 28, 2003 Immediately $0.10 October 28, 2008
Kemberely A. Samon $0 100,000 March 23, 2004 Immediately $0.10 March 23, 2009
Jerry A. Malone $0 100,000 March 23, 2004 Immediately $0.10 March 23, 2009
Dr. Milton S. Harbuck $0 100,000 December 24, 2003 Immediately $0.10 December 24, 2008
Gerald McIlhargey $0 100,000 March 23, 2004 Immediately $0.10 March 23, 2009
John K. Lucas $0 25,000 February 3, 2004 Immediately $0.10 February 3, 2009
16
Donal Kent Ford $0 25,000 February 3, 2004 Immediately $0.10 February 3, 2009
David Goler $0 25,000 February 3, 2004 Immediately $0.10 February 3, 2009
Brian R Smith $0 25,000 February 3, 2004 Immediately $0.10 February 3, 2009
John Hershenberg $0 25,000 February 3, 2004 Immediately $0.10 February 3, 2009
Ted Key $0 25,000 March 23, 2004 Immediately $0.10 March 23, 2009
Kimberly Alexandrich $0 25,000 March 23, 2004 Immediately $0.10 March 23, 2009
Maureen O,Brien $0 25,000 February 3, 2004 Immediately $0.10 February 3, 2009
Director Compensation
The Directors receive no annual compensation other than the original options
they received as inducement to become directors in St. Joseph; however, they
are reimbursed for out-of-pocket expenses incurred in connection with the
Company's business.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the date hereof, based on
information obtained from the persons named below, with respect to the
beneficial ownership of the Common Stock by (i) each person who is known to
the Company to be the beneficial owner of more than 5 percent of the Company's
Common Stock, and (ii) each Director and Officer, and (iii) all Directors and
Officers of the Company, as a group:
Name and Address Amount of Beneficial Percentage
Title of Class of Beneficial Owner(1) Ownership (2) of Class
- -------------- ------------------- -------------------- ----------
Common Stock John H. Simmons-President 1,125,000 25.05%
12 Lee Court
Trophy Club, TX 76262
Common Stock David William Lee Core 1,125,000 25.05%
6965 N. Grande
Baca Raton, FL 33433
Common Stock Kimberely A. Samon-Director 10,000 .02%
14595 Creek Club Drive
Alpharetta, GA 30004
Common Stock Fannk Davis 250,200 5.57%
4903 36th St
Columbus, NE 68501
Common Stock Mark Johnson 250,000 5.57%
5210 East 81st, Suite 134
Tulsa, OK 74137
Common Stock Tom Johnson 250,000 5.57%
8914 Starlamp Lane
Huston, TX 77095
Common Stock Frank Rodriguez 250,200 5.57%
3236 Alcott St.
Denver, CO 80211
17
Common Stock Phyllis L. Bell 250,368 5.57%
113 Carter Lake Club
Carter Lake, Iowa 51510
Common Stock Bruce Schreiner-Director 0 0
2535 N. Carleton Ave.,
Suite B
Grand Island, NE 68802
Common Stock Kenneth L. Johnson-Director 0 0
Secretary/Treasurer
4335 South Street
Lincoln. NE 68506
Common Stock Dr. Milton S. Harbuck, DDS 0 0
Director
101 Fieldstone Lane
Sherwood, AR 75210-6544
Common Stock Jerry A. Malone-Director 0 0
3101 Esplanade Ave.
Shreveport, LA 71109
Common Stock Gerald McIlhargey-Director 0 0
495 Howe St., Suite 305
Vancouver, B.C. V6C 2T5
Total Officers, Directors
and shareholders of 5%
or more of St. Joseph's
common stock as a group 3,5210,768 78.00%
- ------------- ----------------------- ---------- --------
[1] All of the security holders listed above own options to purchase shares of
the Company's common stock at an exercise price of $.10 per share. (See
"Executive Compensation")
[2] Unless otherwise indicated, this column reflects amounts as to which the
beneficial owner has sole voting power and sole investment power.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None of the Directors or Officers of the Company, nor any proposed nominee for
election as a Director of the Company, nor any person who beneficially owns,
directly or indirectly, shares carrying more than 10% of the voting rights
attached to all outstanding shares of the Company, nor any promoter of the
Company, nor any relative or spouse of any of the foregoing persons has any
material interest, direct or indirect, in any transaction since the date of
the Company's incorporation or in any presently proposed transaction which, in
either case, has or will materially affect the Company. The Company has not
entered into transactions with any member of the immediate families of the
foregoing persons, nor is any such transaction proposed.
18
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description of Document
3(i) Articles of Incorporation of Pottery Connection, Inc. *
3(ii) Amended Articles of Incorporation (Name change to St. Joseph *
Energy, Inc.)
3(iii) Bylaws of Pottery Connection, Inc. *
3(iv) Amended Articles of Incorporation (Name change to St. Joseph, Inc.)
4.0 Specimen form of Registrant's common stock *
10.1 Exclusive Agreement between David Johnson-St. Joseph Energy, Inc. *
10.2 St. Joseph Energy, Inc. User Agreement *
31.1 John H. SimmonsCertification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
31.2 Kenneth L. Johnson Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 John H. Simmons Certification pursuant to ss. 906 of the Sarbanes-Oxley
Act of 2002
32.2 Kenneth L. Johnson Certification pursuant to ss. 906 of the Sarbanes-
Oxley Act of 2002
* Incorporated by reference to a previously filed exhibit or report.
(b) Reports on Form 8-K. During the fiscal year ended December 31, 2003, there
were no reports filed on Form 8-K:
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees: The Company's auditor is Cordovano and Honeck, P.C., located at 201
Steele Street, Suite 300, Denver, Colorado 80206 and the Company paid them
$10,050 in audit and review fees for the fiscal year ended December 31, 2003,
and $8,000 for fiscal 2002.
Audit-Related Fees: The Company paid $890 in audit-related fees for 2003 and
paid $900 fees for fiscal 2002.
Tax Fees: The Company did not pay its auditor any fees related to tax
compliance, tax advice, and tax planning for the fiscal years ended December 31,
2003 or 2002.
All Other Fees: The Company did not pay its auditor any fees related to any
other products or services.
19
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: April 14, 2004.
St. Joseph, Inc.
/S/John S. Simmons
John H. Simmons, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Company in
the capacities and on the dates indicated.
Signature and Title Date
/s/John H. Simmons April 14, 2004
John H. Simmons, President,
Chief Executive Officer and
Director,COB
/s/Kenneth L. Johnson April 14, 2004
Kenneth L. Johnson,
Secretary-Treasurer and Director
/s/Jerry Malone April 14, 2004
Jerry Malone, Director
/s/Kimberely A. Simon April 14, 2004
Kimberly A. Samon, Director
/s/Milton Harbuck April 14, 2004
Milton Harbuck, Director
/s/Bruce Schreiner April 14, 2004
Bruce Schriener, Director
20
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Index to Financial Statements
Page
Report of Independent Auditors............................................F-2
Consolidated Balance Sheet at December 31, 2003...........................F-3
Consolidated Statements of Operations for the
years ended December 31, 2003 and 2002................................F-4
Consolidated Statement of Changes in Shareholders' Equity for the
years ended December 31, 2003 and 2002................................F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 2003 and 2002................................F-7
Notes to Consolidated Financial Statements................................F-8
F-1
Report of Independent Auditors
To the Board of Directors and Shareholders:
St. Joseph, Inc. (formerly St. Joseph Energy, Inc.)
We have audited the consolidated balance sheet of St. Joseph, Inc. as of
December 31, 2003, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for the years ended December
31, 2003 and 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of St. Joseph, Inc. as
of December 31, 2003, and the results of their operations and their cash flows
for the years ended December 31, 2003 and 2002, in conformity with accounting
principles generally accepted in the United States of America.
Cordovano and Honeck, P.C.
Denver, Colorado
March 8, 2004
F-2
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Consolidated Balance Sheet
December 31, 2003
Assets
Current assets:
Cash...........................................................$ 194,519
Marketable securities.......................................... 10,276
Accounts receivable............................................ 169,255
Prepaid expenses............................................... 13,595
_________
Total current assets...................................... 387,645
Property and equipment, net (Note 3)............................... 44,892
Goodwill (Note 7).................................................. 306,149
_________
$ 738,686
=========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities.......................$ 103,950
Line of credit (Note 4)........................................ 75,000
Due to former owners of subsidiary (Note 7).................... 80,000
_________
Total current liabilities................................. 258,950
Long-term debt:
Note payable to officer (Note 2)............................... 195,000
_________
Total liabilities......................................... 453,950
_________
Shareholders' Equity (Note 6):
Preferred stock, $.001 par value; 25,000,000 shares authorized,
386,208 shares issued and outstanding........................ 386
Common stock, $.001 par value; 100,000,000 shares authorized,"
4,491,712 shares issued and outstanding...................... 4,492
Additional paid-in capital..................................... 517,042
Retained deficit, including $253,562 incurred during the
development stage............................................ (237,184)
_________
Total shareholders' equity................................ 284,736
_________
$ 738,686
=========
See accompanying notes to consolidated financial statements
F-3
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Consolidated Statements of Operations
Years Ended
December 31,
_________________
2003 2002
____ ____
Operating expenses:
Selling, general and administrative.................$ 22,499 $ 37,336
Contributed rent (Note 2)........................... 2,400 2,400
Depreciation........................................ 2,778 3,605
Stock-based compensation (Note 6)................... 5,750
Gain on liability settlement........................ (20,000) -
Interest expense.................................... 2,000 -
________ ________
Loss from operations........................... (15,427) (43,341)
________ ________
Income tax provision (Note 5).......................$ - -
________ ________
Net Loss $ (15,427) $ (43,341)
======== ========
Basic and diluted loss per share........................$ (0.01) $ (0.02)
======== ========
Weighted average common
shares outstanding.................................. 3,021,420 2,717,002
========= =========
See accompanying notes to consolidated financial statements
F-4
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Consolidated Statement of Changes in Shareholders' Equity
Additional
Preferred Stock Common Stock Paid-in Retained
_________________ ____________________
Shares Par Value Shares Par Value Capital Deficit Total
______ _________ ______ _________ _______ _______ _____
Balance, January 1, 2002................ - $ - 2,701,720 $2,702 $ 180,618 $ (172,294) $ 11,026
June 2002, sale of common stock at
$.25 per share (Note 6)............... - - 40,000 40 9,960 - 10,000
September 2002, sale of common stock
at $.25 per share (Note 6)............ - - 7,200 7 1,793 - 1,800
Fair value of office space contributed
by an officer (Note 2)................ - - - - 2,400 - 2,400
Net loss................................ - - - - - (43,341) (43,341)
______ ___ _________ _____ ________ _________ ________
Balance, December 31, 2002.............. - - 2,748,920 2,749 194,771 (215,635) (18,115)
October 2003, common stock issued
in exchange for services at $.005
per share (Note 6).................... - - 250,000 250 1,000 - 1,250
November 2003, exercised common
stock options (Note 6)................ - - 1,250,000 1,250 5,000 - 6,250
December 2003, sale of common stock
at $.50 per share (Note 6)............ - - 20,000 20 9,980 - 10,000
Fair value of office space contributed
by an officer (Note 2)................ - - - - 2,400 - 2,400
December 2003, preferred and
common stocks issued to acquire
subsidiary (Note 7)................... 380,500 380 219,500 220 299,400 - 300,000
December 2003, preferred and
common stocks issued in exchange
for legal services (Note 6)........... 5,708 6 3,292 3 4,491 - 4,500
Preferred stock dividends (Note 7)...... - - - - - (6,122) (6,122)
Net loss................................ - - - - - (15,427) (15,427)
_______ ____ _________ ______ ________ __________ ________
Balance, December 31, 2003.............. 386,208 $ 386 4,491,712 $ 4,492 $ 517,042 $ (237,184) $ 284,736
======= ==== ========= ====== ======== ========== ========
See accompanying notes to consolidated financial statements
F-5
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Consolidated Statements of Cash Flows
Years Ended
December 31,
_________________
2003 2002
____ ____
Cash flows from operating activities:
Net loss............................................. $ (15,427) $ (43,341)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation..................................... 2,778 3,605
Office space contributed by an officer (Note 2).. 2,400 2,400
Common stock issued in exchange for services..... 5,750 -
Gain on liability settlement..................... (20,000) -
Changes in operating assets and liabilities:
Inventory...................................... 1,068 -
Accounts payable and accrued liabilities....... 2,105 29,500
________ ______
Net cash used in
operating activities........................ (21,326) (7,836)
________ ______
Cash flows from investing activities:
Cash proceeds from subsidiary acquisition............ 124,991 -
Payment to acquire subsidiary........................ (120,000) -
_______ ______
Net cash used in
investing activities........................ 4,991 -
_______ ______
Cash flows from financing activities:
Proceeds from note payable to officer (Note 2)....... 195,000 -
Payments for preferred stock dividends............... (6,122) -
Proceeds from the sale of common stock............... 16,250 11,800
_______ ______
Net cash provided by
financing activities........................ 205,128 11,800
_______ ______
Net change in cash.......................... 188,793 3,964
Cash, beginning of period.............................. 5,726 1,762
_______ _____
Cash, end of period.................................... $ 194,519 $ 5,726
======= =====
Supplemental disclosure of cash flow information:
Income taxes......................................... $ - $ -
======= =====
Interest............................................. $ 2,000 $ -
======= =====
Non-cash investing and financing activities:
Stock issued to acquire subsidiary (Note 7).......... $ 300,000 $ -
======= =====
See accompanying notes to consolidated financial statements
F-6
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Organization and Basis of Presentation
St. Joseph, Inc. (formerly St. Joseph Energy, Inc.) (the "Company") was
incorporated in Colorado on March 19, 1999 as Pottery Connection, Inc. On March
19, 2001, the Company changed its name to St. Joseph Energy, Inc. and on
November 6, 2003, the Company changed its name to St. Joseph, Inc.
The Company was originally organized to produce and sell pottery in all forms,
as well as publish and sell other types of artwork including lithographs,
sculptures and paintings. However, in 2000, the Company invested $335,000 in
two oil and gas properties through an agreement with LDC Operating, Inc., an
unrelated third party, who owned the working interests in the properties. The
Company borrowed $200,000 from an individual and used a portion of the proceeds
from its stock offering to make the investment. In August 2001, the Company
assigned all of its rights in the properties to the lender in satisfaction of
the $200,000 debt and wrote-off the remaining investment as a total loss. The
loss on the investment, which was charged to operations, totaled $119,500.
Thereafter, the Company returned to its original business plan.
Effective December 31, 2003, the Company entered into an Agreement of Exchange
and Purchase and Sale with Staf Tek Services, Inc., an Oklahoma corporation (see
Note 7).
Management changed the manner in which it presents the Company's operating
results and cash flows during the year ended December 31, 2003. Management no
longer considers the Company in the development stage as defined by the FASB
Statement of Standards No. 7, "Accounting and Reporting by Development Stage
Enterprises." As a result, cumulative operating results and cash flow
information is no longer presented in the consolidated financial statements.
This change does not affect the Company's operating results or financial
position. Accordingly, no pro forma financial information is necessary.
Historical information has been revised in conformity with current practice.
Principles of Consolidation
The consolidated financial statements for the year ended December 31, 2003
included in this report consolidate the activities of St. Joseph, Inc. and its
wholly-owned subsidiary, Staf Tek Services, Inc. ("Staf Tek") All significant
intercompany balances and transactions have been eliminated in consolidation.
Cash equivalents and fair value of financial instruments
For the purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. The Company had no cash equivalents at
December 31, 2003.
The carrying amounts of cash and current liabilities approximate fair value due
to the short-term maturity of the instruments.
Accounts Receivable
The Company's management believes all accounts receivable are fully collectible;
therefore, there is no allowance for doubtful accounts at December 31, 2003.
F-7
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Notes to Consolidated Financial Statements
Property, equipment and depreciation
Property and equipment are stated at cost. Property and equipment are
depreciated using the straight-line method over the estimated useful lives of
the assets as follows:
Pottery equipment....................... 5 years
Furniture and fixtures.................. 7 years
Office equipment........................ 5 years
Computer equipment...................... 3 years
Other Property (signs).................. 10 years
Upon retirement or disposition of an asset, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in operations. Repairs and maintenance are charged to expense as
incurred and expenditures for additions and improvements are capitalized.
Goodwill
Goodwill consists of an amount recorded with the acquisition of Staf Tek on
December 31, 2003, $306,149. In accordance with Statements of Financial
Accounting Standard ("SFAS") No. 142, goodwill is not amortized but is tested
for impairment at the end of each accounting period.
Impairment and disposal of Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets". Statement No. 144 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amount.
If such assets are impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
value or fair value, less costs to sell. No impairments have been recorded for
the years ended December 31, 2003 and 2002.
Loss per common share
The Company reports earnings (loss) per share using a dual presentation of basic
and diluted earnings per share. Basic loss per share excludes the impact of
common stock equivalents. Diluted loss per share utilizes the average market
price per share when applying the treasury stock method in determining common
stock equivalents. Common stock options outstanding at December 31, 2003 were
not included in the diluted loss per share as all 2,300,000 options were anti-
dilutive. Therefore, basic and diluted losses per share at December 31, 2003
were equal.
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
consolidated financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the recorded book basis
and the tax basis of assets and liabilities for financial and income tax
reporting. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. Deferred
taxes are also recognized
F-8
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Notes to Consolidated Financial Statements
for operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with Accounting Principles Board ("APB") Opinion 25, "Accounting for
Stock Issued to Employees" and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of grant,
between the fair value of the Company's stock and the exercise price. The
Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123. SFAS 123 requires the fair value based method of
accounting for stock issued to non-employees in exchange for services.
Companies that elect to use the method provided in APB 25 are required to
disclose pro forma net income and pro forma earnings per share information that
would have resulted from the use of the fair value based method. The Company
has elected to continue to determine the value of stock-based compensation
arrangements under the provisions of APB 25. Pro forma disclosures are not
included in the accompanying consolidated financial statements as the employee
stock-based compensation arrangements resulted in no compensation under the fair
value method.
Use of estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principals requires management to make estimates
and assumptions that affect certain reported amounts of assets and liabilities;
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements; and the reported amounts of revenues and expenses during
the reporting period. Accordingly, actual results could differ from those
estimates.
Year-end
The Company operates on a calendar year.
New accounting pronouncements
Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities", an
interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements". Interpretation 46 establishes accounting guidance for
consolidation of variable interest entities that function to support the
activities of the primary beneficiary. Interpretation 46 applies to any
business enterprise, both public and private, that has a controlling interest,
contractual relationship or other business relationship with a variable interest
entity. The Company believes it has no investment in or contractual
relationship or other business relationship with a variable interest entity and
therefore the adoption did not have any impact on its financial position or
results of operations. However, if the Company enters into any such arrangement
with a variable interest entity in the future, its financial position or results
of operations may be adversely impacted.
F-9
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Notes to Consolidated Financial Statements
Amendment of Statement 133 on Derivative Instruments and Hedging Activities
On April 30, 2003, the FASB issued Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". Statement 149 is
intended to result in more consistent reporting of contracts as either
freestanding derivative instruments subject to Statement 133 in its entirety,
or as hybrid instruments with debt host contracts and embedded derivative
features. In addition, Statement 149 clarifies the definition of a derivative
by providing guidance on the meaning of initial net investments related to
derivatives. Statement 149 is effective for contracts entered into or modified
after June 30, 2003. The Company does not believe the adoption of Statement 149
will have a material effect on its financial position, results of operations or
cash flows.
Financial Instruments with Characteristics of Both Liabilities and Equity
On May 15, 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
Statement 150 establishes standards for classifying and measuring as liabilities
certain financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. Statement 150 represents a
significant change in practice in the accounting for a number of financial
instruments, including mandatorily redeemable equity instruments and certain
equity derivatives that frequently are used in connection with share repurchase
programs. The Company currently does not use such instruments. Statement 150
is effective for all financial instruments created or modified after May 31,
2003, and to other instruments as of September 1, 2003. The Company has adopted
Statement 150 and does not believe the effect of adopting this statement will
have a material impact on its financial position, results of operations or cash
flows.
(2) Related Party Transactions
During December 2003, an officer advanced the Company $195,000 for working
capital in exchange for a promissory note. The note carries a ten percent
interest rate, payable quarterly, and matures on June 15, 2005.
An officer contributed office space to the Company for all periods presented.
The office space was valued at $200 per month based on the market rate in the
local area and is included in the accompanying consolidated financial statements
as contributed rent with a corresponding credit to contributed capital.
On March 19, 1999, the Company sold 2,000,000 shares of its restricted common
stock to three officers for $2,000 ($.001 per share).
(3) Property and Equipment
Property and equipment consisted of the following at December 31, 2003:
F-10
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Notes to Consolidated Financial Statements
Pottery equipment......................... $ 7,492
Furniture and fixtures.................... 35,447
Office equipment.......................... 58,295
Computer equipment........................ 41,487
Other property............................ 540
_______
Total property and equipment.......... 143,261
Less accumulated depreciation............. (98,369)
_______
Property and equipment, net $ 44,892
=======
(4) Line of Credit
The Company has a $100,000 line of credit of which $25,000 was unused at
December 31, 2003. The interest rate on the credit line was 5.15 percent at
December 31, 2003. Principal and interest payments are due monthly.
(5) Income Taxes
A reconciliation of U.S. statutory federal income tax rate to the effective rate
is as follows:
Yeard Ended
December 31,
2003 2002
U.S. Federal statutory rate................... 15.00% 15.00%
State income tax,
net of federal benefit...................... 5.10% 3.94%
Contributed rent.............................. -3.13% -1.05%
Net operating loss for which no tax
benefit is currently available.............. -16.97% -17.89%
______ ______
0.00% 0.00%
======= ======
At December 31, 2003, the Company's current tax benefit consisted of a net tax
asset of $59,439, due to operating loss carryforwards of $219,662, which was
fully allowed for, in the valuation allowance of $59,439. The valuation
allowance results in deferred tax expense, which offsets the net deferred tax
asset for which there is no assurance of recovery. The changes in the valuation
allowance for the years ended December 31, 2003 and 2002 were $2,618 and $7,752,
respectively. Net operating loss carryforwards will expire through 2023.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At
that time, the allowance will either be increased or reduced; reduction could
result in the complete elimination of the allowance if positive evidence
indicates that the value of the deferred tax asset is no longer impaired and the
allowance is no longer required.
Should the Company undergo an ownership change, as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation
which could reduce or defer the utilization of those losses.
F-11
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Notes to Consolidated Financial Statements
(6) Shareholders' Equity
Preferred Stock
The Board of Directors is authorized to issue shares of preferred stock in
series and to fix the number of shares in such series as well as the
designation, relative rights, powers, preferences, restrictions, and limitations
of all such series. The Company issued 380,500 preferred shares as part of its
acquisition of Staf Tek (see Note 7). The Company also issued 5,708 shares of
its preferred stock in exchange for legal services related to the Staf Tek
acquisition. Each share of preferred stock is convertible to one share of
common stock; therefore the transaction has been valued based on contemporaneous
common stock sales at $2,854, or $.50 per share.
Common Stock
During December 2003, the Company sold 20,000 shares of its common stock for
$.50 per share pursuant to the exemptions afforded by Section 4(2) of the
Securities Act of 1933 (the "Act"), as amended. The Company received gross
proceeds of $10,000.
During December 2003, the Company issued 3,292 shares of its common stock in
exchange for legal services related to the Staf Tek acquisition. The
transaction has been valued based on contemporaneous common stock sales at
$1,646, or $.50 per share.
During October 2003, the Company issued 250,000 shares of its common stock to an
individual in exchange for services provided to the Company. The transaction
was valued at the cost of the services rendered as the common stock had no
publicly traded market value on the date of the transaction. The Company
recognized stock-based compensation expense totaling $1,250 as a result of the
transaction.
During September 2002, the Company sold 7,200 shares of its common stock for
$.25 per share pursuant to the exemptions afforded by Section 4(2) of the
Securities Act of 1933 (the "Act"), as amended. The Company received gross
proceeds of $1,800.
During June 2002, the Company sold 40,000 shares of its common stock for $.25
per share pursuant to the exemptions afforded by Section 4(2) of the Act. The
Company received gross proceeds of $10,000.
During the November and December of 2000, the Company sold 600,000 shares of
its common stock for $.25 per share pursuant to the exemptions afforded by
Section 4(2) of the Act. The Company received gross proceeds of $150,000.
During the March and April of 1999, the Company sold 101,720 shares of its
common stock for $.25 per share pursuant to the exemptions afforded by Section
3(b) and 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder.
The Company received net proceeds of $24,720 after deducting offering costs
totaling $710.
Common Stock Options
During the year ended December 31, 2003, the Company granted options to its
president to purchase 1,250,000 shares of the Company's common stock at an
exercise price of $.005 per share. The Company's common stock had no publicly
traded market value on the date of grant. The weighted average exercise price
and weighted average fair value of these options as of December 31, 2003 were
$.005 and $-0-, respectively. During November 2003, the president exercised the
options and paid the Company $6,250.
F-12
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Notes to Consolidated Financial Statements
During the year ended December 31, 2003, the Company granted options to four of
its officers and directors to purchase 2,300,000 shares of the Company's common
stock at an exercise price of $.10 per share. The Company's common stock had no
publicly traded market value on the date of grant. The weighted average
exercise price and weighted average fair value of these options as of December
31, 2003 were $.10 and $-0-, respectively. Directors' options are considered
employee options and are accounted for under APB 25.
The following schedule summarizes the changes in the Company's stock options for
the years ended December 31, 2003 and 2002:
Options Outstanding and Exercisable Weighted Average
___________________________________
Number of Exercise price Exercise price
Shares Per Share Per Share
________ __________ ______________
Balance at December 31, 2001..... - N/A N/A
Options Granted................ - N/A N/A
Balance at December 31, 2002..... - N/A N/A
Options Granted................ 3,550,000 $.005 to $.10 $ 0.067
Options Exercised.............. (1,250,000) $0.005 $ 0.005
__________ ____________ _________
Balance at December 31, 2003..... 2,300,000 $0.10 $ 0.10
==========
Pro forma information regarding net income and earnings per share is required by
SFAS 123 as if the Company had accounted for its granted stock options under the
fair value method of that Statement. However, the employee stock-based
compensation arrangements resulted in no compensation under the fair value
method, therefore, pro forma disclosures are not included.
(7) Staf Tek Acquisition
On December 2, 2003, the Company entered into an Agreement of Exchange and
Purchase and Sale (the "Agreement") with Staf Tek Services, Inc. ("Staf Tek"),
an Oklahoma corporation. The transaction took place on December 2, 2003 and the
acquisition closed on January 2, 2004. However the consolidated financial
statements have been prepared as if the acquisition took place on December 31,
2003.
Under the terms of the Agreement, the Company acquired 100 percent of the issued
and outstanding shares of Staf Tek's common stock in exchange for (1) 380,500
shares of the Company's $.001 par value convertible preferred stock; (2) 219,500
shares of the Company's $.001 par value common stock; and (3) $200,000 in cash.
The Company's convertible preferred stock has a yield of 6.75 percent dividend
per annum, which is paid quarterly on a calendar basis for a period of 5 years.
The Company paid $6,122 in preferred stock dividends in December 2003. The
convertible preferred stock may be converted to the Company's common stock at
the rate of one share of convertible preferred stock for one share of common
stock at any time by the shareholder. The convertible preferred stock can be
called for redemption by the Company no sooner than 2 years after the date of
issue, and only if the Company's common stock is trading on a recognized United
States stock exchange for a period of no less than thirty consecutive trading
days at a value of $5.00 or more.
As of December 31, 2003, the Company had paid $120,000 of the $200,000 cash owed
under the terms of the Agreement. The remaining $80,000 is included in the
accompanying consolidated financial statements as "Due to former owners of
subsidiary".
F-13
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Notes to Consolidated Financial Statements
Following the closing of the Agreement, Staf Tek became the Company's wholly-
owned subsidiary.
Goodwill
The aggregate purchase price was $500,000, consisting of 380,500 preferred
shares and 219,500 common shares of the Company valued at $.50 per share based
on contemporaneous stock sales, and cash of $200,000. The following table
summarizes the estimated fair values of the assets acquired and liabilities
assumed at the date of acquisition:
December 31, 2003
Cash................................ $ 124,991
Marketable securities............... 10,276
Accounts receivable................. 169,255
Prepaid expenses.................... 13,595
Property and equipment, net......... 43,079
_________
Total assets acquired............... 361,196
_________
Accounts payable and accruals....... (92,345)
Line of credit...................... (75,000)
_________
Total liabilities assumed........... (167,345)
_________
Net assets acquired................. $ 193,851
=========
Goodwill recognized in the acquisition totaled $306,149, consisting of the
amount the purchase price ($500,000) exceeds the fair value of the net assets
acquired ($193,851).
Pro Forma Financial Statements
The unaudited Pro Forma Condensed Statements of Operations for the years ended
December 31, 2003 and 2002 give effect to the Agreement between the Company and
Staf Tek as if the acquisition occurred at the beginning of the periods
presented. The unaudited Pro Forma Condensed Balance Sheet is based upon the
historical financial statements of the Company and Staf Tek and should be read
in conjunction with the audited financial statements and related footnotes of
both parties.
The pro forma adjustments and the resulting unaudited Pro Forma Condensed
Statements of Operations have been prepared based upon available information and
certain assumptions and estimates deemed appropriate by the Company.
The unaudited Pro Forma Condensed Statements of Operations have been prepared
for informational purposes only and does not purport to be indicative of the
results of operations that actually would have occurred if the acquisition had
been consummated at the beginning of the periods presented. Furthermore, the
unaudited Pro Forma Condensed Statements of Operations do not reflect changes
that may have occurred as the result of post-acquisition activities and other
matters.
The following unaudited Pro Forma Condensed Statements of Operations give effect
to the acquisition of Staf Tek by the Company, which resulted in Staf Tek
becoming the Company's wholly-owned subsidiary:
F-14
ST. JOSEPH, INC.
(Formerly St. Joseph Energy, Inc.)
Notes to Consolidated Financial Statements
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
Unaudited
Staf Tek Pro Forma
_______________________
St. Joseph Services Adjustments Combined
__________ ___________ _______ ___________
Service revenues................ $ - $ 1,550,442 $ - $ 1,550,442
Costs of Services............... - 1,105,882 - 1,105,882
Operating expenses.............. 10,927 418,370 4,500 433,798
________ ___________ ______ ___________
Net income (loss)............... $ (10,927) $ 26,190 $(4,500) $ 10,762
======== =========== ====== ===========
Net income (l,oss) per
share-basic and diluted....... $ (0.00) $ 0.07 $ 0.00
======== =========== ======= ===========
Basic and diluted common
shares outstanding 3,021,420 380,500 3,244,212
========= =========== ===========
The following footnotes should be read in understanding the pro forma
adjustments to the unaudited Pro Forma Condensed Statement of Operations:
1. Record issuance of 3,292 common shares and 5,708 preferred shares to an
attorney for services related to the Agreement.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2002
Unaudited
Staf Tek Pro Forma
_______________________
St. Joseph Services Adjustments Combined
__________ ___________ _______ ___________
Service revenues................ $ - $ 1,168,441 $ - $ 1,168,441
Costs of Services............... - 840,437 - 840,437
Operating expenses.............. 43,341 592,173 4,500 640,014
________ ___________ ______ ___________
Net income (loss)............... $ (43,341) $ (264,169) $(4,500) $ (312,010)
======== =========== ====== ===========
Net income (l,oss) per
share-basic and diluted....... $ (0.02) $ (0.69) $ (0.11)
======== =========== ======= ===========
Basic and diluted common
shares outstanding 2,717,002 380,500 2,939,794
======== =========== ===========
The following footnotes should be read in understanding the pro forma
adjustments to the unaudited Pro Forma Condensed Statement of Operations:
1. Record issuance of 3,292 common shares and 5,708 preferred shares to
an attorney for services related to the Agreement.
F-15
STAF TEK SERVICES, INC.
Index to Financial Statements
Page
Independent Auditors' Report............................................. F-17
Balance Sheet at December 30, 2003....................................... F-18
Statements of Operations from January 1, 2003 through December 30,
2003 and for the year ended December 31, 2002.......................... F-19
Statement of Changes in Shareholders' Equity from January 1, 2002
through December 30, 2003.............................................. F-20
Statements of Cash Flows from January 1, 2003 through December 30,
2003 and for the year ended December 31, 2002.......................... F-21
Notes to Financial Statements............................................ F-22
F-16
Independent Auditors' Report
The Board of Directors and Shareholders
Staf Tek Services, Inc.:
We have audited the accompanying balance sheet of Staf Tek Services, Inc. (an
S-corporation) as of December 30, 2003, and the related statements of
operations, changes in shareholders' equity, and cash flows from January 1,
2003 through December 30, 2003 and for the year ended December 31, 2002. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 Staf Tek Services, Inc. as of
December 30, 2003, and the results of its operations and its cash flows from
January 1, 2003 through December 30, 2003 and for the year ended December 31,
2002 in conformity with accounting principles generally accepted in the United
States of America.
Cordovano and Honeck, P.C.
Denver, Colorado
March 8, 2004
F-17
STAF TEK SERVICES, INC.
Balance Sheet
December 30, 2003
Assets
Current assets:
Cash...............................................................$ 124,991
Marketable securities.............................................. 10,276
Accounts receivable................................................ 169,255
Prepaid expenses................................................... 13,595
_________
Total current assets........................................... 318,117
Property and equipment, less accumulated
depreciation of $115,819 (Note 3).................................. 13,079
_________
$ 331,196
=========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable...................................................$ 72,830
Accrued liabilities................................................ 19,515
Line of credit (Note 4)............................................ 75,000
_________
Total current liabilities...................................... 167,345
_________
Shareholders' equity:
Common stock, $1.00 par value; 500,000 shares authorized,
380,500 shares issued and outstanding............................ 380,500
Additional paid-in capital (Note 2)................................ 6,160
Retained deficit................................................... (222,809)
_________
Total shareholders' equity..................................... 163,851
_________
$ 331,196
=========
See accompanying notes to financial statements
F-18
STAF TEK SERVICES, INC.
Statements of Operations
January 1,
2003
Through Year Ended
December 30, December 31,
2003 2002
__________ __________
Service revenues, net (Note 5).......................$ 1,550,442 $ 1,168,441
Direct costs of services............................. 1,105,882 840,437
__________ __________
Gross profit......................................... 444,560 328,004
Selling, general and administrative expenses......... 388,063 569,182
Depreciation......................................... 17,355 27,609
Interest income...................................... (1,096) (1,731)
Interest expense..................................... 11,232 4,724
Gain on disposal of asset............................ (3,182) -
Loss on disposal of asset (Note 2)................... 5,998 (7,611)
__________ __________
Net income (loss)....................................$ 26,190 $ (264,169)
========== ==========
Basic and diluted income (loss) per share............$ 0.07 $ (0.69)
========== ==========
Weighted average common shares outstanding........... 380,500 380,500
========== ==========
See accompanying notes to financial statements
F-19
STAF TEK SERVICES, INC.
Statement of Changes in Shareholders' Equity
Additional
Common Stock Paid-in Retained
____________________
Shares Par Value Capital Deficit Total
______ ________ _______ ________ _________
Balance, January 1, 2002.............380,500 $ 380,500 $ - $ 40,170 $ 420,670
Shareholder distributions............ - - - (25,000) (25,000)
Net loss............................. - - - (264,169) (264,169)
_______ ________ ______ _________ _________
Balance, December 31, 2002...........380,500 380,500 - (248,999) 131,501
Gain on transfer of an asset to
a related party (Note 2)............. - - 6,160 - 6,160
Net income........................... - - - 26,190 26,190
_______ ________ ______ _________ _________
Balance, December 30, 2003...........380,500 $ 380,500 $ 6,160 $ (222,809) $ 163,851
======= ======== ====== ========= =========
See accompanying notes to financial statements
F-20
STAF TEK SERVICES, INC.
Statements of Cash Flows
January 1,
2003
Through Year Ended
December 30, December 31,
2003 2002
____ ____
Cash flows from operating activities:
Net income (loss).....................................$ 26,190 $ (264,169)
Adjustments to reconcile net loss to net cash
(used in)prorvided by operating activities:
Depreciation..................................... 17,355 27,609
Loss (gain) on disposal of assets................ 2,816 (7,611)
Changes in operating assets and liabilities:
(Increase) decrease in receivables and
prepaid expenses............................... (133,343) 313,999
Increase (decrease) in accounts payable and
accrued liabilities............................ 78,248 (34,757)
_________ _________
Net cash (used in) provided by
operating activities..................... (8,734) 35,071
_________ _________
Cash flows from investing activities:
Purchases of equipment............................... (7,000) (30,751)
Purchase of marketable securities.................... (10,276) -
Proceeds from sale of assets......................... 33,314 39,901
_________ _________
Net cash provided by
investing activities............................ 16,038 9,150
_________ _________
Cash flows from financing activities:
Proceeds from line of credit......................... 24,711 84,000
Principal payments on line of credit................. (11,975) (91,736)
Proceeds from officer loan (Note 2).................. 50,000 -
Principal payments on officer loan (Note 2).......... (50,000) -
Shareholder distributions............................ - (25,000)
Principal payments on note payable................... (1,637) (30,652)
_________ _________
Net cash provided by (used in)
financing activities............................ 11,099 (63,388)
_________ _________
Net change in cash............................ 18,403 (19,167)
Cash, beginning of period.............................. 106,588 125,755
_________ _________
Cash, end of period....................................$ 124,991 $ 106,588
========= =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes...........................$ - $ -
========== =========
Cash paid for interest...............................$ 11,232 $ 4,724
========== =========
Non-cash investing and financing transactions:
Vehicle acquired for note payable...................$ 28,052 $ -
========== =========
See accompanying notes to financial statements
F-21
STAF TEK SERVICES, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Organization and Basis of Presentation
Staf Tek Services, Inc. (the "Company") was incorporated on January 2, 1997.
The Company specializes in the recruitment and placement of professional data
processing and technical personnel for clients on both a permanent and contract
basis.
Effective December 31, 2003, the Company entered into an Agreement of Exchange
and Purchase and Sale with St. Joseph, Inc., a Colorado corporation (see
Note 6).
Basis of Presentation
The Company's financial statements are prepared in conformity with generally
accepted accounting principles and the rules of the Securities and Exchange
Commission. In the opinion of management, all adjustments necessary for a fair
presentation of the financial position and results of operations for the periods
presented have been included.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition
Staffing service revenues are recognized when the services are rendered by the
Company's contract employees. Permanent placement revenues are recognized when
employment candidates accept offers of permanent employment.
Direct Costs of Services
Direct costs of staffing services consist of payroll, payroll taxes, contract
labor, and insurance costs for the Company's contract employees. There are no
direct costs associated with permanent placement staffing services.
Advertising Costs
The Company expenses all advertising as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less when acquired, to be cash equivalents. The Company had no
cash equivalents at December 30, 2003.
Accounts Receivable
The Company's management believes all accounts receivable are fully collectible;
therefore, there is no allowance for doubtful accounts at December 30, 2003.
F-22
Property, Equipment and Depreciation
Property and equipment are recorded at cost. Depreciation expense is computed
on the straight-line method over the following useful lives:
Upon retirement or disposition of equipment, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in operations. Repairs and maintenance costs are charged to expense
as incurred and expenditures for additions and improvements are capitalized.
Impairment and disposal of Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets". Statement No. 144 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amount. If such assets are impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying value or fair value, less
costs to sell. No impairments have been recorded for the period ended December
30, 2003 or the year ended December 31, 2002.
Income Taxes
The Company, with the consent of its shareholders, has elected to be taxed as
an "S" corporation under the Internal Revenue Code. In lieu of corporate income
taxes, the shareholders of an S-corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability for
federal or state income taxes has been included in the financial statements.
(2) Related Party Transactions
During June 2003, an officer loaned the Company $50,000 for working capital.
The Company paid the officer $6,250 in interest expense before repaying the loan
in November 2003.
During the period ended December 30, 2003, the Company gave the title to one of
its vehicles to an officer as payment of a bonus owed to the officer. The
vehicle was fully depreciated at the time of the transaction. Because the
transaction occurred with a related party, the gain on the disposal of the
asset, $6,160, was recorded as additional paid-in capital.
During the period ended December 30, 2003, the Company gave the title to one of
its vehicles to an officer subject to the debt associated with the vehicle. The
Company recognized a loss on the transaction totaling $5,998.
(3) Property and Equipment
Property and equipment consisted of the following at December 30, 2003:
Furniture and fixtures............ $ 35,447
Office equipment.................. 58,295
Computer equipment................ 35,156
__________
128,898
Less accumulated depreciation..... (115,819)
__________
$ 13,079
==========
(4) Line of Credit
The Company has a $100,000 line of credit of which $25,000 was unused at
December 30, 2003. The interest rate on the credit line was 5.15 percent at
December 30, 2003. Principal and interest payments are due monthly.
(5) Concentration of Credit Risk
The Company conducts a significant portion of its operations with one customer.
During the period ended December 30, 2003, approximately 51 percent of the
Company's service revenues were conducted with one customer.
The Company has concentrated its credit risk for cash by maintaining deposits
in financial institutions, which may at times, exceed the amounts covered by
insurance provided by the United States Federal Deposit Insurance Corporation
(FDIC). The loss that would have resulted from that risk totaled $28,630 at
December 30, 2003, for the excess of the deposit liabilities reported by the
financial institution over the amount that would have been covered by federal
insurance. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk to cash.
(6) Agreement of Exchange and Purchase and Sale
On December 2, 2003, the Company entered into an Agreement of Exchange and
Purchase and Sale (the "Agreement") with St. Joseph, Inc. ("St. Joseph"),
a Colorado corporation. The transaction took place on December 2, 2003 and
the acquisition closed on January 2, 2004. However the financial statements
have been prepared as if the acquisition took place on December 31, 2003.
Under the terms of the Agreement, St. Joseph acquired 100 percent of the issued
and outstanding shares of the Company's common stock in exchange for (1) 380,500
shares of St. Joseph's $.001 par value convertible preferred stock; (2) 219,500
shares of St. Joseph's $.001 par value common stock; and (3) $200,000 in cash.
The convertible preferred stock of St. Joseph has a stated value of $3.00 per
share with a yield of 6.75 percent dividend per annum, which is paid quarterly
on a calendar basis for a period of 5 years. The convertible preferred stock
may be converted to St. Joseph's common stock at the rate of one share of
convertible preferred stock for one share of common stock at any time by the
shareholder. The convertible preferred stock can be called for redemption by
St. Joseph no sooner than 2 years after the date of issue, and only if the St.
Joseph common stock is trading on a recognized United States stock exchange for
a period of no less than thirty consecutive trading days at a value of $5.00 or
more.
Following the closing of the Agreement, the Company became a wholly-owned
subsidiary of St. Joseph.
F-24