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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
|_| 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
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
Former name, former address and former fiscal year if changed since last report
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 |_|
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date:
Outstanding at June 30, 2005
5,336,712
$.001 par value common stock
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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ST. JOSEPH, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements 2
ITEM 2. Management Discussion and Analysis or Plan of Operation 8
ITEM 3. Controls and Procedures
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings 9
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 9
ITEM 3. Defaults Upon Senior Securities 9
ITEM 4. Submission of Matters to a Vote of Security Holders 9
ITEM 5. Other Information 9
ITEM 6. Exhibits and Reports on Form 8-K 10
ii
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
ST. JOSEPH, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
INDEX
Unaudited Condensed Consolidated Balance Sheet 2
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended
June 30, 2005 and 2004 3
Unaudited Condensed Consolidated Statement of Changes in Shareholders' Equity 4
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2005
and 2004 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
1
ST. JOSEPH, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
June 30, 2005
Assets
Current assets:
Cash ................................................................ $ 1,149
Marketable securities ............................................... 15,651
Employee advances ................................................... 2,000
Accounts receivable ................................................. 221,377
-----------
Total current assets .................................. 240,177
Property and equipment, net ............................................. 33,496
Deposit ................................................................. 1,230
Goodwill ................................................................ 306,149
-----------
$ 581,052
===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable .................................................... $ 148,723
Accrued liabilities ................................................. 31,527
Line of credit (Note 3) ............................................. 150,000
Notes payable:
Related parties (Note 2) ......................................... 133,000
Other (Note 4) ................................................... 12,000
-----------
Total current liabilities ............................. 475,250
-----------
Shareholders' equity (Note 5):
Preferred stock, $.001 par value, $3.00 face value; 25,000,000 shares
authorized, 386,208 shares issued and outstanding ................ 386
Common stock, $.001 par value; 100,000,000 shares authorized,
5,336,712 shares issued and outstanding .......................... 5,337
Additional paid-in capital .......................................... 1,071,497
Retained deficit .................................................... (972,710)
Other comprehensive income .......................................... 1,292
-----------
Total shareholders' equity ............................ 105,802
-----------
$ 581,052
===========
See accompanying notes to condensed consolidated financial statements
2
ST. JOSEPH, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Service revenues, net ..................... $ 466,748 $ 402,462 $ 877,201 $ 849,221
Direct costs of services .................. 351,060 282,761 667,488 589,967
----------- ----------- ----------- -----------
Gross profit ........... 115,688 119,701 209,713 259,254
Selling, general and administrative ....... 153,569 129,950 324,867 276,072
Depreciation .............................. 4,020 3,770 9,480 10,203
Stock-based compensation .................. -- -- -- 242,800
----------- ----------- ----------- -----------
Loss from operations ... (41,901) (14,019) (124,634) (269,821)
Non-operating income:
Interest income ....................... 3 107 6 312
Realized loss on marketable securities -- -- 2,535 --
Interest expense .......................... (7,394) (5,862) (13,631) (11,381)
----------- ----------- ----------- -----------
Loss before income taxes (49,292) (19,774) (135,724) (280,890)
Income tax provision (Note 6) ............. -- -- -- --
----------- ----------- ----------- -----------
Net loss ............... (49,292) (19,774) (135,724) (280,890)
Preferred stock dividend requirements ..... (19,552) (19,552) (39,104) (39,196)
----------- ----------- ----------- -----------
Loss applicable to common stock ........... $ (68,844) $ (39,326) $ (174,828) $ (320,086)
=========== =========== =========== ===========
Basic and diluted loss per common share ... $ (0.01) $ (0.01) $ (0.03) $ (0.07)
=========== =========== =========== ===========
Weighted average common
shares outstanding .................... 5,271,712 4,631,712 5,131,712 4,600,045
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements
3
ST. JOSEPH, INC.
Condensed Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)
Other
Comprehensive
Income
----------
Preferred Stock Common Stock Additional Unrealized
-------------------- --------------------- Paid-in Retained Investment
Shares Par Value Shares Par Value Capital Deficit Gains Total
--------- --------- ---------- --------- ---------- ---------- ---------- ----------
Balance, January 1, 2005 ....... 386,208 $ 386 5,021,712 $ 5,022 $ 924,312 $ (797,882) $ 1,292 $ 133,130
Sale of common stock at $.50 per
share (Note 5) ............. -- -- 290,000 290 144,710 -- -- 145,000
Exercised common stock options
(Note 5) ................... -- -- 25,000 25 2,475 -- -- 2,500
Preferred stock dividends ...... -- -- -- -- -- (39,104) -- (39,104)
Comprehensive income (loss):
Net loss ................... -- -- -- -- -- (135,724) -- (135,724)
----------
Comprehensive income (loss) .... -- -- -- -- -- -- -- (135,724)
--------- -------- ---------- -------- ---------- ---------- ---------- ----------
Balance, June 30, 2005 ......... 386,208 $ 386 5,336,712 $ 5,337 $1,071,497 $ (972,710) $ 1,292 $ 105,802
========= ======== ========== ======== ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements
4
ST. JOSEPH, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
-----------------------------
2005 2004
----------- -----------
Net cash used in
operating activities ............... $ (170,055) $ (30,191)
----------- -----------
Cash flows from investing activities:
Purhcase marketable securities .......................... (1,047) --
Payment to acquire subsidiary ........................... -- (80,000)
----------- -----------
Net cash used in
investing activities ............... (1,047) (80,000)
----------- -----------
Cash flows from financing activities:
Proceeds from officers' notes payable (Note 2) .......... 37,000 --
Principal payment on officer's note payable (Note 2) .... (37,000) --
Principal payment on shareholders' notes payable (Note 2) (77,000) (15,000)
Proceeds from shareholders' notes payable (Note 2) ...... 114,000 --
Proceeds from note payable (Note 4) ..................... 12,000 --
Payments for preferred stock dividends (Note 5) ......... (39,104) (39,196)
Proceeds from the sale of common stock (Note 5) ......... 145,000 70,000
Proceeds from exercised common stock options (Note 5) ... 2,500 --
----------- -----------
Net cash provided by (used in)
financing activities ............... 157,396 15,804
----------- -----------
Net change in cash ................. (13,706) (94,387)
Cash, beginning of period ................................... 14,855 194,519
----------- -----------
Cash, end of period ......................................... $ 1,149 $ 100,132
=========== ===========
Supplemental disclosure of cash flow information:
Income taxes ............................................ $ -- $ --
=========== ===========
Interest ................................................ $ 13,631 $ 6,506
=========== ===========
See accompanying notes to condensed consolidated financial statements
5
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, 2004 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 six
months ended June 30, 2005 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. As of December 31, 2004, the Company
owed the officer $96,000 on the note. The note carries a ten percent interest
rate, payable quarterly, and matures on June 16, 2006. During the six months
ended June 30, 2005, the officer advanced the Company an additional $37,000,
which the Company repaid prior to June 30, 2005. As of June 30, 2005, the
Company owed $96,000 in principal and $-0- in accrued interest on the note.
During March 2005, a shareholder advanced the Company $37,000 for working
capital in exchange for a promissory note. The Company repaid the note prior to
June 30, 2005.
During March 2005, a shareholder advanced the Company $40,000 for working
capital in exchange for a promissory note. The Company repaid the note and $250
of interest prior to June 30, 2005. The same shareholder loaned the Company an
additional $25,000 during on June 10, 2005. The Company subsequently repaid the
note and $200 of interest on July 26, 2005.
During June 2005, an employee advanced the Company $12,000 for working capital
in exchange for a promissory note. The note carries no interest rate and matures
on July 15, 2005.
(3) Line of Credit
The Company has a $150,000 line of credit and the entire balance was unpaid and
outstanding at June 30, 2005. The interest rate on the credit line was seven
percent at June 30, 2005. Interest payments are due monthly. The line matures on
August 30, 2005.
(4) Note Payable
On June 9, 2005, the Company received proceeds of $12,000 in exchange for a
promissory note from a financial institution. The note carries a 7.5% interest
rate, matures on July 10, 2005, and is collateralized by the Company's accounts
receivable and property. The Company subsequently repaid in the note in July
2005.
6
ST. JOSEPH, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(5) 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 June 30, 2005. 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 $39,104 in preferred stock dividends
during the six months ended June 30, 2005.
Common Stock
During the six months ended June 30, 2005, the Company sold 290,000 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 $145,000.
Common Stock Options
The following schedule summarizes the changes in the Company's stock options for
the six months ended June 30, 2005:
Options Outstanding and Exercisable Weighted Average
-------------------------------------- ----------------
Number of Exercise Price Exercise Price
Shares Per Share Per Share
---------------- ---------------- ----------------
Balance at December 31, 2004 2,625,000 $ 0.10 $ 0.10
Options granted ......... -- N/A N/A
Options exercised ....... (25,000) $ 0.10 $ 0.10
Options expired ......... -- N/A N/A
---------------- ---------------- ----------------
Balance at June 30, 2005 ... 2,600,000 $ 0.10 $ 0.10
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(6) 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.
(7) Concentration of Credit Risk
The Company conducts a significant portion of its operations with one customer.
During the six months ended June 30, 2005, approximately 60% of the Company's
service revenues were conducted with one customer.
7
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations:
Service revenues increased by 8% from $849,221 for the six months ended June 30,
2004 to $877,201 for the six months ended June 30, 2005. However, our gross
profit percentage decreased to 24% for six months ended June 30, 2005, as
compared to 30% for the six months ended June 30, 2004. The increase in revenues
and drop in gross profit was a result of hiring three additional contractors as
compared to the same periond in 2004 (increasing revenues), and profits
decreased due to hiring two additional sales people in the corporate office as
well as the continued expenses associated with its public reporting obligations.
Our loss of $135,724 for the six months ended June 30, 2005, was an improvement
over our $280,890 loss incurred for the six months ended June 30, 2004, largely
due to $242,800 of stock-based compensation incurred in 2004 related to the
issuance of common stock options.
Liquidity and Financial Resources:
We had a working capital deficit of $235,073 at June 30, 2005. Our working
capital decreased from a working capital deficit of $217,226 at December 31,
2004, largely due to $25,000 and $12,000 promissory notes issued to a
shareholder and an employee, respectively, for working capital.
During the six months ended June 30, 2005, we used $170,055 through our
operating activities. Our investing activities used $1,047 for marketable
securities purchases. Our financing activities provided cash totaling $157,396
consisting of $145,000 from the sale of 290,000 shares of our common stock and
$163,000 in proceeds from note payable issuances and $2,500 from the exercise of
stock options; less $39,104 paid for preferred stock dividends and 114,000
repaid against the notes payable.
Our business plan involves, in part, increasing the number of employees placed
both on a temporary and permanent basis. Such increased placement is expected to
result in increased profit to us, although it also results in increased short
term cash needs. We have utilized net revenues, the proceeds from a number of
private sales of our equity securities, the issuance of debt instruments, the
exercise of options, and our line of credit to meet our working capital
requirements. We are reluctant to incur further debt and intend to rely upon net
revenues and private sales of equity securities to meet our liquidity needs for
the next 12 months.
8
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings We have no pending legal proceedings.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the second quarter of 2005, the Company sold 200,000 shares of its common
stock to several existing shareholders. All such shares were sold at a price of
$.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 $100,000 and used the proceeds for working capital.
Each transaction was 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 distribution was made only to insiders, accredited investors or
investors who were sophisticated enough to evaluate the risks of the
investment. The 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.
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.
9
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
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended June 30, 2005.
On August 10, 2005, the Registrant reported that its common stock began trading
Monday, August 8, 2005 on the OTC Bulletin Board under the symbol "STJO." The
Form 8-K was accompanied by a press release.
- ----------
* Incorporated by reference to a previously filed exhibit or report.
10
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: August 15, 2005
11