U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004
[_] 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 CH 47-0844532
------------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4870 S. Lewis, Suite 250 Tulsa, OK 74105
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (918) 742-1888
--------------
St. Joseph Energy, Inc.
-----------------------
Former name, former address and former fiscal year if changed since last report
Indicate by checkmark whether the registrant (1) has 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 [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date:
Outstanding at March 31, 2004
4,631,712
$.001 par value common stock
ST. JOSEPH, INC.
FORM 10-QSB
TABLE OF CONTENTS
Page
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements................................................ 1
ITEM 2. Management Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 2
ITEM 3. Controls and Procedures............................................. 3
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings................................................... 3
ITEM 2. Changes in Securities and Use of Proceeds........................... 4
ITEM 3. Defaults Upon Senior Securities..................................... 5
ITEM 4. Submission of Matters to a Vote of Security Holders................. 5
ITEM 5. Other Information................................................... 5
ITEM 6. Exhibits and Reports on Form 8-K.................................... 5
ii
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
ST. JOSEPH, INC.
CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
UNAUDITED
INDEX
Page
Unaudited Condensed Consolidated Balance Sheet............................ F-1
Unaudited Condensed Consolidated Statements of Operations for the
Three-months ended March 31, 2004 and 2003.............................. F-2
Unaudited Condensed Consolidated Statement of Changes in
Shareholders' Equity.................................................... F-3
Unaudited Condensed Consolidated Statements of Cash Flows for the
Three-months ended March 31, 2004 and 2003.............................. F-4
Notes to Unaudited Condensed Consolidated Financial Statements............ F-5
1
ST. JOSEPH, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 2004
ASSETS
Current assets:
Cash....................................................... $ 189,005
Marketable securities...................................... 10,861
Accounts receivable........................................ 159,167
Employee advances.......................................... 5,700
-------------
Total current assets................................... 364,733
Property and equipment, net..................................... 38,459
Deposit......................................................... 3,870
Goodwill........................................................ 306,149
-------------
$ 713,211
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................... $ 120,686
Line of credit (Note 3).................................... 75,000
Accrued interest payable (Note 2).......................... 4,875
Preferred dividend accrual (Note 4)........................ 289
-------------
Total current liabilities.............................. 200,850
Long-term debt:
Note payable to officer (Note 2)........................... 195,000
-------------
Total liabilities...................................... 395,850
-------------
Shareholders' equity (Note 4):
Preferred stock; 386,208 shares issued and outstanding..... 386
Common stock; 4,631,712 shares issued and outstanding...... 4,632
Outstanding stock options - 2,900,000...................... 242,800
Additional paid-in capital................................. 586,902
Retained deficit........................................... (517,944)
Other comprehensive income................................. 585
-------------
Total shareholders' equity............................. 317,361
-------------
$ 713,211
=============
See accompanying notes to condensed consolidated financial statements
F-1
ST. JOSEPH, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2004 2003
-------------- -------------
Service revenues, net........................... $ 446,759 $ --
Direct costs of services........................ 307,206 --
-------------- -------------
Gross profit........................... 139,553 --
Selling, general and administrative............. 146,122 1,329
Contributed rent (Note 2)....................... -- 600
Depreciation.................................... 6,433 433
Stock-based compensation (Note 4)............... 242,800 --
-------------- -------------
Loss from operations................... (255,802) (2,362)
Non-operating income:
Interest income............................ 205 --
Interest expense................................ (5,519) --
-------------- -------------
Loss before income taxes............... (261,116) (2,362)
Income tax provision (Note 5)................... -- --
-------------- -------------
Net loss............................... (261,116) (2,362)
Preferred stock dividend requirements........... (19,644) --
-------------- -------------
Loss applicable to common stock................. $ (280,760) $ (2,362)
============== =============
Basic and diluted loss per common share......... $ (0.06) $ (0.00)
============== =============
Weighted average common
shares outstanding......................... 4,568,379 2,748,920
============== =============
See accompanying notes to condensed consolidated financial statements
F-2
ST. JOSEPH, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
OTHER
COMPREHENSIVE
INCOME
----------
PREFERRED STOCK COMMON STOCK OUTSTANDING ADDITIONAL UNREALIZED
----------------- ------------------- STOCK PAID-IN RETAINED INVESTMENT
SHARES PAR VALUE SHARES PAR VALUE OPTIONS CAPITAL DEFICIT GAINS TOTAL
------- --------- --------- --------- --------- ---------- ---------- --------- ---------
Balance, January 1, 2004..... 386,208 $ 386 4,491,712 $ 4,492 $ -- $ 517,042 $ (237,184) $ -- $ 284,736
Sale of common stock at
$.50 per share (Note 4)..... -- -- 140,000 140 -- 69,860 -- -- 70,000
Granted stock options
(Note 4).................... -- -- -- -- 242,800 -- -- -- 242,800
Preferred stock dividends.... -- -- -- -- -- -- (19,644) -- (19,644)
Comprehensive income (loss):
Unrealized investment gains. -- -- -- -- -- -- -- 585 585
Net loss.................... -- -- -- -- -- -- (261,116) -- (261,116)
Comprehensive income (loss).. -- -- -- -- -- -- -- -- (260,531)
------- --------- --------- --------- --------- ---------- ---------- --------- ---------
Balance, March 31, 2004...... 386,208 $ 386 4,631,712 $ 4,632 $ 242,800 $ 586,902 $ (517,944) $ 585 $ 317,361
======= ========= ========= ========= ========= ========== ========== ========= =========
See accompanying notes to condensed consolidated financial statements
F-3
ST. JOSEPH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2004 2003
-------------- -------------
Net cash provided by (used in)
operating activities....................... $ 23,841 $ (3,315)
-------------- -------------
Cash flows from investing activities:
Payment to acquire subsidiary.............. (80,000) --
-------------- -------------
Net cash used in investing activities........... (80,000) --
-------------- -------------
Cash flows from financing activities:
Payments for preferred stock dividends..... (19,355) --
Proceeds from the sale of common stock..... 70,000 --
-------------- -------------
Net cash provided by financing activities....... 50,645 --
-------------- -------------
Net change in cash......................... (5,514) (3,315)
Cash, beginning of period....................... 194,519 5,726
-------------- -------------
Cash, end of period............................. $ 189,005 $ 2,411
============== =============
Supplemental disclosure of cash flow information:
Income taxes............................... $ -- $ --
============== =============
Interest................................... $ 644 $ --
============== =============
See accompanying notes to condensed consolidated financial statements
F-4
ST. JOSEPH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed financial statements presented herein have been prepared by the
Company in accordance with the instructions for Form 10-QSB and the accounting
policies in its Form 10-KSB for the year ended December 31, 2003 and should be
read in conjunction with the notes thereto.
In the opinion of management, the accompanying condensed financial statements
contain all adjustments (consisting only of normal recurring adjustments) which
are necessary to provide a fair presentation of operating results for the
interim periods presented. The results of operations presented for the three
months ended March 31, 2004 are not necessarily indicative of the results to be
expected for the year.
Financial data presented herein are unaudited.
(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. As of March 31,
2004, the Company also owed the officer $4,875 in accrued interest on the note.
An officer contributed office space to the Company through December 31, 2003.
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.
(3) LINE OF CREDIT
The Company has a $100,000 line of credit of which $25,000 was unused at March
31, 2004. The interest rate on the credit line was 5.15 percent at March 31,
2004. Principal and interest payments are due monthly.
(4) 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. In December 2003, the Company issued 386,208 shares of
convertible preferred stock that remain outstanding at March 31, 2004. Each
share of preferred stock is convertible to one share of common stock and 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 $19,355 in preferred stock
dividends during the three months ended March 31, 2004. Accrued dividends,
unpaid at March 31, 2004, totaled $289.
COMMON STOCK
During the three months ended March 31, 2004, the Company sold 140,000 shares of
its common stock at $.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 $70,000.
COMMON STOCK OPTIONS
The following schedule summarizes the changes in the Company's stock options for
the three months ended March 31, 2004:
F-5
ST. JOSEPH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OPTIONS OUTSTANDING
AND EXERCISABLE WEIGHTED
------------------------------- AVERAGE
NUMBER OF EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE PER SHARE
--------------- -------------- -------------
Balance at January 1, 2004..... 2,300,000 $ 0.10 $ 0.10
Options granted............. 600,000 $ 0.10 $ 0.10
Options exercised........... -- $ 0.00 $ 0.00
--------------- -------------- -------------
Balance at March 31, 2004...... 2,900,000 $ 0.10 $ 0.10
===============
OPTIONS GRANTED TO EMPLOYEES
During the three months ended March 31, 2004, the Company granted options to
three members of its board of Directors to purchase 300,000 shares of the
Company's common stock at an exercise price of $.10 per share. The options
vested on the date of grant. The Company's common stock had no publicly traded
market value on the date of grant; however the stock did have a fair value of
$.50 per share based on contemporaneous stock sales to unrelated third parties.
The weighted average exercise price and weighted average fair value of these
options as of March 31, 2004 were $.10 and $.50, respectively. Directors'
options are considered employee options and are accounted for under APB 25.
Stock-based compensation totaling $120,000 has been recognized in the
accompanying condensed consolidated financial statements related to these
options.
During the three months ended March 31, 2004, the Company granted options to
four employees to purchase 100,000 shares of the Company's common stock at an
exercise price of $.10 per share. The options vested on the date of grant. The
Company's common stock had no publicly traded market value on the date of grant;
however the stock did have a fair value of $.50 per share based on
contemporaneous stock sales to unrelated third parties. The weighted average
exercise price and weighted average fair value of these options as of March 31,
2004 were $.10 and $.50, respectively. The employee options and are accounted
for under APB 25. Stock-based compensation totaling $40,000 has been recognized
in the accompanying condensed consolidated financial statements related to these
options.
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. The fair value for the options granted
during the three months ended March 31, 2004 was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
Risk-free interest rate......................................... 3.00%
Dividend yield.................................................. 0.00%
Volatility factor............................................... 0.00%
Weighted average expected life.................................. 5.years
The Black-Scholes options valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
F-6
ST. JOSEPH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Had compensation expense been recorded based on the fair value at the grant
date, and charged to expense over vesting periods, consistent with the
provisions of SFAS 123, the Company's net loss and net loss per share would have
increased to the pro forma amounts indicated below:
MARCH 31,
2004
-------------
Net loss-common shareholders, as reported....................... $ (280,730)
Decrease due to:
Employee stock options..................................... (5,600)
-------------
Pro forma net loss.............................................. $ (286,330)
=============
As reported:
Net loss per share - basic and diluted...................... $ (0.06)
=============
Pro Forma:
Net loss per share - basic and diluted...................... $ (0.06)
=============
OPTIONS GRANTED TO NON-EMPLOYEES
During the three months ended March 31, 2004, the Company granted options to
eight members of its Advisory Board to purchase 200,000 shares of the Company's
common stock at an exercise price of $.10 per share. The options vested on the
date of grant. The Advisory Board options are not considered employee options
and are accounted for SFAS 123. Stock-based compensation totaling $82,800 has
been recognized in the accompanying condensed consolidated financial statements
related to these options.
(5) INCOME TAXES
The Company records its income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The Company
incurred net operating losses during all periods presented resulting in a
deferred tax asset, which has been fully allowed for; therefore, the net benefit
and expense resulted in $-0- income taxes.
(6) CONCENTRATION OF CREDIT RISK
The Company conducts a significant portion of its operations with one customer.
During the three months ended March 31, 2004, approximately 73 percent of the
Company's service revenues were conducted with one customer.
F-7
ITEM 2. MANAGEMENT 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-QSB. 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.
Material Accounting Policies
The discussion and analysis of St. Joseph's condition and result of operations
are based on the condensed 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.
General
At our year ended December 31, 2003, we had not generated any revenues since our
inception, however, in December of 2003, we elected to pursue a new business
purpose and on December 2, 2003, we entered into an Agreement of Share Exchange
and Purchase and Sale with Staf*Tek Services, Inc. ("Staf*Tek"), an Oklahoma
corporation. On January 2, 2004, we completed the acquisition of Staf*Tek by
acquiring all of the issued and outstanding common shares of Staf*Tek. Since its
inception, Staf*Tek has been a leader in the recruiting and the placement of
professional technical personnel on a temporary and permanent basis in the
Tulsa, Oklahoma area. Staf*Tek assists their clients with projects that require
specialized expertise 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 is our only subsidiary by which we generate operating revenues.
Staf*Tek generates revenue primarily by providing its clients with IT
professionals either on a permanent or contractual basis.
Results of Operations:
As a direct result of our acquisition of Staf*Tek, there was a substantial
increase our revenues and gross profit for the three month period ended March
31, 2004 as compared to the same period ended March 31, 2003. Our wholly owned
subsidiary, Staf*Tek, generated approximately $446,000 in net service revenues
and gross profits of approximately $139,000 for the three month period ended
March 31, 2004. We did not generated any revenues or profits prior to our
acquisition of Staf*Tek.
Our loss of approximately $280,000 for the three month period ended March 31,
2004, was largely caused by $242,800 of stock-based compensation related to the
issuance of common stock options. We issued options to three (3) members of our
Board of Directors to purchase 300,000 shares of our common stock, with a
recognized value of $120,000; the issuance of common stock options to eight (8)
members of our Advisory Board to purchase an aggregate amount of 200,000 shares
of our common stock, with a recognized value of $82,800, in addition to our
issuance of common stock options to four (4) employees, to purchase 100,000
shares of our common stock carrying a recognized value of $40,000. We also
incurred preferred stock dividends, which increased the loss applicable to
common stockholders by over $19,000.
We did not acquire Staf*Tek until December 2003; however, in an attempt to
provide a better understanding of our operating results, we have included an
analysis that compares Staf*Tek's operating results for the three month period
ended March 31, 2004 and 2003:
2
Three Months Ended
March 31,
------------------------
Account 2004 2003 Variance
- ------------------------------------- ----------- ---------- ----------
Service revenues $ 446,759 $ 172,007 $ 274,752
Cost of services (307,206) (103,064) (204,142)
--------- --------- ---------
Gross profit 139,553 68,943 70,610
- --------------------------------------------------------------------------------
Gross profit percentage 31.24% 40.08% -8.84%
- --------------------------------------------------------------------------------
Selling, general and administrative (65,524) (85,143) 19,619
Depreciation (4,620) (2,082) (2,538)
Interest expense (644) (887) 243
Interest income 205 9 196
--------- --------- ---------
Net income $ 68,970 $ (19,160) $ 88,130
========= ========= =========
Staf*Tek's service revenues and related costs of services increased during the
three month period ended March 31, 2004 as compared to the three month period
ended March 31, 2003 largely due to its new contract with MCI, which commenced
in May 2003. MCI is Staf*Tek's largest customer and the new contract resulted in
an increase in operations.
Liquidity and Financial Resources
We had working capital of $163,883 at March 31, 2004. Our working capital
increased from a working capital balance of $128,695 at December 31, 2003,
largely due to $70,000 in proceeds received from the sale of common stock and
because the final $80,000 payment was made toward the Staf*Tek acquisition.
During the three month period ended March 31, 2004, our investing activities
consisted of the $80,000 payment to acquire Staf*Tek. Our financing activities
resulted in net cash proceeds of $50,645 consisting of $70,000 in proceeds from
the sale of 140,000 shares of our common stock, less $19,355 paid for preferred
stock dividends.
For the next 12 months, we propose to satisfy our cash requirements by realizing
profits from operations and the sale of the Company's common stock of up to
$500,000 pursuant to a private placement made in reliance upon the exemption
provided by Section 4(2) of the Securities Act of 1933, as amended.
Income Taxes
We record our income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". We incurred net operating
losses during the three months ended March 31, 2004 resulting in a deferred tax
asset, which has been fully allowed for; therefore, the net benefit and expense
resulted in $-0- income taxes.
ITEM 3. Controls and Procedures
(a) Evaluation of Disclosure Controls & Procedures.
Based on their evaluation as of the end of the period covered by this Form
10-QSB, the Company's president, as its principal executive officer, and
secretary/treasurer, its principal financial officer, have carried out an
evaluation of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). Based upon this evaluation, the principal executive
officer and principal financial officer have concluded the Company's disclosure
controls and procedures are effective in timely informing them of material
information relating to the Company required to be disclosed in its reports
under the Securities Exchange Act of 1934.
3
(b) Changes in Internal Control over Financial Reporting.
There was no change in the Company's internal control over financial reporting
during the Company's fiscal quarter covered by this Form 10-QSB that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings
We have no legal proceedings in effect.
ITEM 2. Changes in Securities and Use of Proceeds
We sold 140,000 shares of our common stock at $.50 per share pursuant to the
exemptions afforded by Section 4(2) of the Securities Act of 1933 (the "Act"),
as amended and received gross proceeds of $70,000, as follows: In February 2004,
the Company sold 60,000 shares of its Common Stock to Phyllis Bell for $30,000,
or $0.50 per share.
Additionally, in February 2004, the Company sold 30,000 shares of its Common
Stock to the Phyllis Bell Trust for $15,000, or $0.50 per share.
In March 2004, the Company sold 50,000 shares of its Common Stock to an advisory
board member John Hershenberg for $25,000, or $0.50 per share.
All of these transactions were exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of the exemptions provided under
section 4(2) was available because:
o The transfer or issuance did not involve underwriters, underwriting
discounts or commissions;
o A restriction on transfer legend was placed on all certificates issued;
o The distributions did not involve general solicitation or advertising;
and,
o The distributions were made only to insiders, accredited investors or
investors who were sophisticated enough to evaluate the risks of the
investment. Each shareholder was given access to all information about our
business and the opportunity to ask questions and receive answers about
our business from our management prior to making any investment decision.
4
ITEM 3. Defaults Upon Senior Securities
We incurred no defaults upon senior securities during this reporting period.
ITEM 4. Submission of Matters to a Vote of Security Holders None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 Principal Executive Officer Certification under Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Principal Financial Officer Certification under Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Principal Executive Officer Certification under Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Principal Financial Officer Certification under Section 906 of the
Sarbanes-Oxley Act of 2002
- ----------
* Incorporated by reference to a previously filed exhibit or report.
b. Form 8-K
Subsequent to this reporting period, St. Joseph filed one (1) report on Form
8-K, dated April 30, 2004, regarding Item 1-Changes in Control of Registrant,
Item 2-Acquisition or Disposition of Assets and Item 5-Other Events: Name
change.
5
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ST. JOSEPH, INC.
(Registrant)
/s/John H. Simmons
----------------------------
John H. Simmons
President
Date: January 4, 2005
6