FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 19345
For the quarterly period ended June 30, 2006
|_| 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.
(Exact name of Small Business Issuer as specified in its charter)
Colorado CH 47-0844532
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
4870 S. Lewis, Suite 250 Tulsa, OK 74105
Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (918) 742-1888
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. |X| Yes |_| No
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes |_| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,249,212 shares as of July 24, 2006.
Transitional Small Business Disclosure Format (check one); Yes |_| No |X|
ST. JOSEPH, INC.
Form 10-QSB
Table of Contents
PART I - FINANCIAL INFORMATION ............................................. 3
ITEM 1. FINANCIAL STATEMENTS ............................................. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ........ 9
ITEM 3. CONTROLS AND PROCEDURES .......................................... 14
PART II - OTHER INFORMATION ............................................... 15
ITEM 1. LEGAL PROCEEDINGS ................................................ 15
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ...... 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES .................................. 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............. 16
ITEM 5. OTHER INFORMATION ................................................ 17
ITEM 6. EXHIBITS ......................................................... 17
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ST. JOSEPH, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2006
(UNAUDITED)
Assets
Current assets:
Cash ........................................................... $ 22,446
Accounts receivable ............................................ 356,653
Employee advances .............................................. 2,200
-----------
Total current assets ....................................... 381,299
Property and equipment, net ...................................... 14,096
Deposit .......................................................... 1,230
Goodwill ......................................................... 258,525
-----------
$ 655,150
===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ............................................... $ 301,585
Accrued liabilities ............................................ 36,722
Line of credit (Note 3) ........................................ 200,000
Notes payable to related party (Note 2) ........................ 48,120
Accrud interest payable (Note 2) ............................... 1,203
-----------
Total current liabilities .................................. 587,630
-----------
Shareholders' equity (Note 4):
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,
6,199,212 shares issued and outstanding ...................... 6,199
Additional paid-in capital ..................................... 1,368,635
Retained deficit ............................................... (1,307,700)
-----------
Total shareholders' equity ................................. 67,520
-----------
$ 655,150
-----------
See accompanying notes to condensed consolidated financial statements
3
ST. JOSEPH, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Service revenues, net .............................. $ 745,656 $ 466,748 $ 1,558,843 $ 877,201
Direct costs of services ........................... 615,788 351,060 1,245,701 667,488
----------- ----------- ----------- -----------
Gross profit ................................... 129,868 115,688 313,142 209,713
Selling, general and administrative ................ 175,806 153,569 367,905 324,867
Depreciation ....................................... 4,020 4,020 8,039 9,480
----------- ----------- ----------- -----------
Loss from operations ........................... (49,958) (41,901) (62,802) (124,634)
Non-operating income:
Interest income .................................. 9 3 43 6
Realized gain/(loss) on marketable securities .... (5,033) -- (7,707) 2,535
Other income ..................................... 19,593 -- 19,593 --
Interest expense ................................... (7,172) (7,394) (15,893) (13,631)
----------- ----------- ----------- -----------
Loss before income taxes ....................... (42,561) (49,292) (66,766) (135,724)
Income tax provision (Note 5) ...................... -- -- -- --
----------- ----------- ----------- -----------
Net loss ....................................... (42,561) (49,292) (66,766) (135,724)
Preferred stock dividend requirements .............. (19,552) (19,552) (39,104) (39,104)
----------- ----------- ----------- -----------
Loss applicable to common stock .................... $ (62,113) $ (68,844) $ (105,870) $ (174,828)
=========== =========== =========== ===========
Basic and diluted loss per common share ............ $ (0.01) $ (0.01) $ (0.02) $ (0.03)
=========== =========== =========== ===========
Weighted average common shares outstanding ......... 6,199,212 5,271,712 6,091,426 5,131,712
----------- ----------- ----------- -----------
See accompanying notes to condensed consolidated financial statements
4
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, 2006 ....... 386,208 $386 5,830,712 $5,831 $1,278,003 $(1,201,830) $(1,601) $ 80,789
Sale of common stock at
$2.00 per share (Note 4) ..... -- -- 28,500 28 56,972 -- -- 57,000
Exercised stock options
(Note 4) ..................... -- -- 340,000 340 33,660 -- -- 34,000
Preferred stock dividends ...... -- -- -- -- -- (39,104) -- (39,104)
Comprehensive income (loss):
Unrealized investment gains .. -- -- -- -- -- -- 1,601 1,601
Net loss ..................... -- -- -- -- -- (66,766) -- (66,766)
--------
Comprehensive income (loss) .... -- -- -- -- -- -- -- (65,165)
------- ---- --------- ------ ---------- ----------- ----- --------
Balance, June 30, 2006 ......... 386,208 $386 6,199,212 $6,199 $1,368,635 $(1,307,700) $ -- $ 67,520
------- ---- --------- ------ ---------- ----------- ----- --------
See accompanying notes to condensed consolidated financial statements
5
ST. JOSEPH, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(UNAUDITED)
Six Months Ended
June 30,
----------------------
2006 2005
--------- ---------
Net cash used in operating activities .......................... $ (44,419) $ 170,055)
--------- ---------
Cash flows from investing activities:
Purhcase marketable securities ................................... -- (1,047)
Proceeds from sale of marketable securities ...................... 4,986 --
--------- ---------
Net cash provided by (used in) investing activities ............ 4,986 (1,047)
--------- ---------
Cash flows from financing activities:
Proceeds from officer's note payable ............................. -- 37,000
Principal payment on officer's note payable (Note 2) ............. (47,880) (37,000)
Proceeds from note payable ....................................... -- 12,000
Proceeds from shareholders' notes payable (Note 2) ............... 40,000 114,000
Principal payment on shareholder's note payable (Note 2) ......... (40,000) (77,000)
Payments for preferred stock dividends (Note 4) .................. (39,104) (39,104)
Proceeds from the sale of common stock (Note 4) .................. 57,000 145,000
Proceeds from exercise of stock options (Note 4) ................. 34,000 2,500
--------- ---------
Net cash provided by financing activities ...................... 4,016 157,396
--------- ---------
Net change in cash ........................................... (35,417) (13,706)
Cash, beginning of period .......................................... 57,863 14,855
--------- ---------
Cash, end of period ................................................ $ 22,446 $ 1,149
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes ................................................... $ -- $ --
========= =========
Interest ....................................................... $ 14,690 $ 13,631
--------- ---------
See accompanying notes to condensed consolidated financial statements
6
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, 2005 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 and
six months ended June 30, 2006 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 individual who was then an officer advanced the Company
$195,000 for working capital in exchange for a promissory note, of which $96,000
remained unpaid as of December 31, 2005. The note carries a ten percent interest
rate, payable quarterly, and matures on June 15, 2005. The Company repaid
$99,000 in principal and $15,562 in interest. The remaining balance of the note
was satisfied by issuing a new promissory note on June 16, 2005, as discussed
below.
On June 16, 2005, the Company issued the above-referenced individual a
promissory note in the amount of $96,000. This note replaced and superseded the
promissory note dated December 2003. The note carries a ten percent interest
rate, payable quarterly and matured on June 16, 2006. During the six months
ended June 30, 2006, the Company repaid $47,880 of principal and $2,400 of
interest. As of June 30, 2006, the Company owed $48,120 in principal and $1,203
in accrued interest on the note. Interest expense on the note totaled $3,603 for
the six months ended June 30, 2006.
Under the terms of the note, the Company is currently in default of the note. In
the event that the above-referenced individual decides to institute legal
proceeding to collect this note and prevails, the Company will have to pay him
his court costs, including reasonable attorneys' fees. However, the Company
believes that the amount owed to this individual on the note is fully or
partially offset by sums owed to the Company in connection with expense
reimbursements that were paid to this individual while he was an officer of the
Company and to which the Company believes he may not have the rights. The
Company's management is currently discussing with this individual regarding a
resolution of the note and the expense reimbursements that are at issue. The
parties have a tentative oral agreement that any sums owed by this individual to
the Company will offset amounts payable to him pursuant to the note. However,
the parties have not yet determined the amount that the Company is entitled to
from this individual.
On January 5, 2006, a shareholder advanced the Company $40,000 for working
capital. The Company repaid the advance on January 31, 2006.
During the year ended December 31, 2005, an employee advanced the Company
$51,900 for working capital in exchange for promissory notes, of which $11,834
remained unpaid as of December 31, 2005. The Company repaid the $11,834 in 2006.
(3) Line of Credit
The Company has a $200,000 line of credit and the entire balance was unpaid and
outstanding at June 30, 2006. Interest payments are due monthly. The line
matures on August 1, 2006. The line is collateralized by most all of the
Company's assets and is guaranteed by the Company's former president.
7
(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 June 30, 2006. 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, 2006.
Common Stock
During the six months ended June 30, 2006, the Company sold 28,500 shares of its
common stock at $2.00 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 $57,000.
Common Stock Options
The following schedule summarizes the changes in the Company's stock options for
the six months ended June 30, 2006:
Options Outstanding
and Exercisable
-------------------------- Weighted Average
Number of Exercise Price Exercise Price
Shares Per Share Per Share
--------- -------------- ---------------
Balance at December 31, 2005.. 2,500,000 $0.10 $0.10
Options granted............. -- N/A N/A
Options exercised........... (340,000) $0.10 $0.10
Options expired............. -- N/A N/A
--------- ----- -----
Balance at June 30, 2006...... 2,160,000 $0.10 $0.10
========= ===== =====
(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 two customers.
During the six months ended June 30, 2006, approximately 82% of the Company's
service revenues were conducted with these customers.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following presentation of Management's Discussion and Analysis has been
prepared by internal management and should be read in conjunction with the
financial statements and notes thereto included in Item 1 of this Quarterly
Report on Form 10-QSB. Except for the historical information contained herein,
the discussion in this report contains certain forward-looking statements that
involve risks and uncertainties, such as statements of our business plans,
objectives, expectations and intentions as of the date of this filing. The
cautionary statements about reliance on forward-looking statements made earlier
in this document should be given serious consideration with respect to all
forward-looking statements wherever they appear in this report, notwithstanding
that the "safe harbor" protections available to some publicly reporting
companies under applicable federal securities law do not apply to us as an
issuer of penny stocks. Our actual results could differ materially from those
discussed here.
General
St. Joseph, Inc. ("us," "we," "our" or the "Company") conducts all of our
business through our wholly-owned subsidiaries, Staf*Tek Services, Inc. and
Staf*Med Global, Inc.
Staf*Tek Services, Inc.
Staf*Tek Services, Inc. ("Staf*Tek") was organized as an Oklahoma corporation on
January 2, 1997. On January 2, 2004, we closed our acquisition of Staf*Tek
pursuant to an agreement by which we acquired 100% percent of the issued and
outstanding shares of Staf*Tek's common stock in exchange for (1) 380,500 shares
of our $.001 par value convertible preferred stock; (2) 219,500 shares of our
$.001 par value common stock; and (3) $200,000 in cash. Our convertible
preferred stock has a face value of $3.00 per share with a yield of 6.75%
dividend per annum, which will be paid quarterly on a calendar basis for a
period of five (5) years. The convertible preferred stock may be converted into
our common stock at the rate of one share of convertible preferred stock for one
share of common stock at any time by the shareholder. We may call the
convertible preferred stock for redemption no sooner than two (2) years after
the date of issuance, and only if our 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, as of this
date, the stock has not traded at that amount.
During the six month period ended June 30, 2006, we paid $39,104 in dividends on
our convertible preferred stock. There were no accrued and unpaid dividends on
our convertible preferred stock as at June 30, 2006.
As a result of the acquisition, Staf*Tek currently operates as our wholly-owned
subisidary, specializing in the recruiting and placement of professional
technical personnel on a temporary and permanent basis. 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 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 50 Information Technology skill sets.
9
Staf*Med Global, Inc.
We formed Staf*Med Global, Inc., a Texas corporation ("Staf*Med"), on September
8, 2005 as our wholly-owned subsidiary to service the staffing needs of the
rapidly growing healthcare industry with the same values we represent at
Staf*Tek Services, Inc. Staf*Med offers opportunities and services to virtually
every sector of the healthcare industry. As of June 30, 2006, Staf*Med is still
in the process of acquiring a database of qualified staff and has not yet
received any income from operations.
Staf*Tek and Staf*Med currently utilize one office located in Tulsa, Oklahoma.
Results of Operations For The Three Monthds Ended June 30, 2006 and 2005
Gross Profit
Three months ended Three months ended Increase (Decrease) from
June 30, 2006 June 30, 2005 prior year
------------------ ------------------ --------------------------
Service revenues, net $745,656 $466,748 $278,908
Direct costs of services 615,788 351,060 264,728
Gross Profit 129,868 115,688 14,180
For the three-month period ended June 30, 2006, we had a gross profit of
$129,868, compared to a gross profit of $115,688 for the three-month period
ended June 30, 2005. This increase in our gross profitability of $14,180, or
approximately 12.26% over the prior period, is due primarily to the increase in
our net service revnues, as discussed below.
Net service revenues for the three-month period ended June 30, 2006 increased to
$745,656 from $466,748 for the three month period ended June 30, 2005. This
increase in net service revenues of $278,908, or approximately 59.76% over the
prior period, is due primarily to the revenues generated by the addition of
approximately eighteen new contracted employees since the prior period.
Direct costs of our services for the three-month period ended June 30, 2006
increased to $615,788 from $351,060 for the three-month period ended June 30,
2005. This increase in our direct costs of services of $264,728, or
approximately 75.41% over the prior period, is due primarily to the cost of the
increased number of new contracted employees described above.
Total Operating Expenses
Three months ended Three months ended Increase (Decrease) from
June 30, 2006 June 30, 2005 prior year
------------------ ------------------ ------------------------
Selling, General and Administrative
Expenses $175,806 $153,569 $22,237
Depreciation 4,020 4,020 0
Total Operating Expenses 179,826 157,579 22,237
Total operating expenses for the three-month period ended June 30, 2006
increased to $179,826 from $157,579 for the three-month period ended June 30,
2005. This increase in our total operating expenses of $22,237, or approximately
14.11%, is covered below in our discussion of Selling, General and
Administrative Expenses.
Selling, general and administrative expenses for the three-month period ended
June 30, 2006 increased to $175,806 from $153,569 for the three-month period
ended June 30, 2005. This increase in selling, general and administrative
expenses of $22,237, or approximately 14.48% over the prior period, is due
primarily to the cost of adding sales staff to assist in candidate searches and
placement.
10
Non-Operating Income/Expenses
Three months ended Three months ended Increase (Decrease) from
June 30, 2006 June 30, 2005 prior year
------------------ ------------------ ------------------------
Interest income $ 9 $ 3 $ 6
Realized gain/(loss) on marketable
securities (5,033) -- (5033)
Other income 19,593 -- 19,593
Interest expense (7,172) (7,394) 222
For the three-month period ended June 30, 2006, we had interest income of $9
compared to interest income of $3 for the six-month period ended June 30, 2005.
For the three-month period ended June 30, 2006, we had a realized loss on
marketable securities aggregating $5,033. This is due primarily to market
conditions existing at the time the positions were closed.
Interest expense for the three-month period ended June 30, 2006 decreased to
$7,172 from $7,394 for the three-month period ended June 30, 2005. This decrease
in interest expense of $222, or approximately 3.00% over the prior period, is
due primarily to interest rate changes.
Losses
Three months ended Three months ended Increase (Decrease) from
June 30, 2006 June 30, 2005 prior year
------------------ ------------------ ------------------------
Loss from operations ($49,958) ($41,901) $8,057
Net loss ($42,561) ($49,292) ($6,731)
For the three-month period ended June 30, 2006, we incurred a loss from
operations in the amount of $49,958 compared to a loss from operations for the
three-month period ended June 30, 2005 of $41,901. This increase in loss from
operations of $8,057, or approximately 19.23% over the prior period, is due to
the increase in our selling, general and administrative expenses, as discussed
above.
Net loss for the three-month period ended June 30, 2006 decreased to $42,561
from $49,292 for the three-month period ended June 30, 2005. This reduction in
losses of $6,731, or 13.66% over the prior period, is due primarily to the
increase in our net service revenues.
Results of Operations For The Six Months Ended June 30, 2006 and 2005
Gross Profit
Six months ended Six months ended Increase (Decrease) from
June 30, 2006 June 30, 2005 prior year
---------------- ---------------- ------------------------
Service revenues, net $1,558,843 $877,201 $681,642
Direct costs of services 1,245,701 667,488 578,213
Gross Profit 313,142 209,713 103,429
For the six-month period ended June 30, 2006, we had a gross profit of $313,142,
compared to a gross profit of $209,713 for the six-month period ended June 30,
2005. This increase in our gross profitability of $103,429, or approximately
49.32% over the prior period, is due primarily to the increase in net service
revenues, as discussed below.
11
Net service revenues for the six-month period ended June 30, 2006 increased to
$1,558,843 from $877,201 for the six month period ended June 30, 2005. This
increase in net service revenues of $681,642, or approximately 77.71% over the
prior period, is due primarily to the revenues generated by the addition of
approximately eighteen new contracted employees since the prior period.
Direct costs of our services for the six-month period ended June 30, 2006
increased to $1,245,701 from $667,488 for the six-month period ended June 30,
2005. This increase in our direct costs of services of $578,213, or
approximately 86.63% over the prior period, is due primarily to the cost of the
increased number of new contracted employees described above.
Total Operating Expenses
Six months ended Six months ended Increase (Decrease) from
June 30, 2006 June 30, 2005 prior year
---------------- ---------------- ------------------------
Selling, General and Administrative
Expenses $367,905 $324,867 $43,038
Depreciation 8,039 9,480 1,441
Total Operating Expenses 375,944 334,347 41,597
Total operating expenses for the six-month period ended June 30, 2006 increased
to $375,944 from $334,347 for the Six month period ended June 30, 2005. This
increase in our total operating expenses of $41,597, or approximately 12.44%, is
covered below in our discussion of Selling, General and Administrative Expenses
and Depreciation Expenses.
Selling, general and administrative expenses for the six-month period ended June
30, 2006 increased to $367,905 from $324,867 for the six-month period ended June
30, 2005. This increase in selling, general and administrative expenses of
$43,038, or approximately 13.25% over the prior period, is due primarily to the
cost of adding two new job boards to assist in candidate searches and a new
employee in the sales function department.
Depreciation expense for the six-month period ended June 30, 2006 decreased to
$8,039 from $9,480 for the six-month period ended June 30, 2005. This decrease
in the depreciation expense of $1,441 or approximately 15.20% over the prior
period is due primarily to normal decline in depreciation expense for aging
assets based on the company's depreciation method and asset lives utilized.
Non-Operating Income/Expenses
Six months ended Six months ended Increase (Decrease) from
June 30, 2006 June 30, 2005 prior year
---------------- ---------------- ------------------------
Interest income $ 43 $ 6 $ 37
Realized gain/(loss) on marketable
securities (7,707) 2,535 (10,242)
Other income 19,593 -- 19,593
Interest expense (7,172) (7,394) 222
For the six-month period ended June 30, 2006, we had interest income of $43
compared to interest income of $6 for the six-month period ended June 30, 2005.
12
For the six-month period ended June 30, 2006, we had a realized loss on
marketable securities aggregating $7,707, compared to a realized gain on
marketable securities aggregating $2,535 for the six month period ended June 30,
2005. This difference of $10,242, or approximately 404.02%, is due primarily to
market conditions existing at the time the positions were closed.
Interest expense for the six-month period ended June 30, 2006 increased to
$15,893 from $13,631 for the six-month period ended June 30, 2005. This increase
in interest expense of $2,262, or approximately 16.59% over the prior period, is
due primarily to interest rate changes.
Losses
Six months ended Six months ended Increase (Decrease) from
June 30, 2006 June 30, 2005 prior year
---------------- ---------------- ------------------------
Loss from operations ($62,802) ($124,634) $61,832
Net loss ($66,766) ($135,724) $68,958
For the six-month period ended June 30, 2006, we incurred a loss from operations
in the amount of $62,802 compared to a loss from operations for the six-month
period ended June 30, 2005 of $124,634. This reduction in loss from operations
of $61,832, or approximately 49.61% over the prior period, is due to the
increase in our net service revenues.
Net loss for the six-month period ended June 30, 2006 decreased to $66,766 from
$135,724 for the six-month period ended June 30, 2005. This reduction in losses
of $68,958, or 50.81% over the prior period, is due primarily to the increase in
our net service revenues.
Liquidity and Capital Resources
For the six-months ended June 30, 2006, we had a cash reserve of $22,446. During
the six-months ended June 20, 2006, we used cash in the amount of $44,419 in our
operating activities and received cash of $4,016 from our financing activities.
Net cash provided by our financing activities for the six months ended June 30,
2006 were from principal payment on officer's note payable in the amount of
$47,880, proceeds from shareholders' notes payable aggregating $40,000,
principal payment on shareholder's note payable aggregating $40,000, payments
for preferred stock dividends aggregating $39,104, proceeds from the sale of
common stock aggregating $57,000, and proceeds from the exercise of stock
options aggregating $34,000. We also received $4,986 from investing activities
through the sale of marketable securities.
During the six months ended June 30, 2005 and 2004, the Company's cash
activities were as follows:
2006 2005
-------- ---------
Cash used for operating activities ($44,419) ($170,055)
Cash provided by/used for investing activities 4,986 (1,047)
Cash provided by financing activities 4,016 157,396
During the six months ended June 30, 2005, cash provided by financing activities
was primarily from options being execised and the sale of common stock through
subscription agreement.
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Internal Sources of Liquidity
For the six months ended June 30, 2006, the funds generated from our operations
were insufficient to fund our daily operations. For the six months ended June
30, 2006, we had a gross profit of $313,142, and we were thus unable to meet our
operating expenses of $375,944 for the same period. There is no assurance that
funds from our operations will meet the requirements of our daily operations in
the future. In the event that funds from our operations will be insufficient to
meet our operating requirements, we will need to seek other sources of financing
to maintain liquidity.
External Sources of Liquidity
At June 30, 2006, we have debt owing to a related party aggregating $48,120 as
summarized in Note 2 to the financial statements.
We actively pursue all potential financing options as we look to secure
additional funds to both stabilize and grow our business operations. Our
management will review any financing options at their disposal, and will judge
each potential source of funds on its individual merits. There can be no
assurance that we will be able to secure additional funds from debt or equity
financing, as and when we need to, or if we can, that the terms of such
financing will be favorable to us or our existing stockholders. As a result, our
independent registered public accounting firm has issued a "going concern"
modification to its report on our audited financial statements for the year
ended December 31, 2005.
Off Balance Sheet Arrangements
We do not have nor do we maintain any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to our investors.
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls as of the end of the period covered by
this report, June 30, 2006. This evaluation was carried out under the
supervision and with the participation of our acting President, Mr. Gerald
McIlhargey, and our acting Chief Financial Officer, Mr. Kenneth L. Johnson
(collectively, the "Certifying Officers"). Based upon that evaluation, our
Certifying Officers concluded that as of the end of the period covered by this
report, June 30, 2006, our disclosure controls and procedures are effective in
timely alerting management to material information relating to us and required
to be included in our periodic filings with the Securities and Exchange
Commission (the "Commission").
Disclosure controls and procedures are controls and procedures that are designed
to ensure that information required to be disclosed in our periodic reports
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commission's rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in our periodic
reports that we file under the Exchange Act is accumulated and communicated to
our management, including our principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Further, as required by Rule 13a-15(d) of the Exchange Act and under the
supervision and with the participation of our Certifying Officers, we carried
out an evaluation as to whether there has been any change in our internal
control over financial reporting during our fiscal quarter ended June 30, 2006.
Based upon this evaluation, our Certifying Officers have concluded that there
has not been any change in our internal control over financial reporting during
our fiscal quarter ended June 30, 2006, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
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Internal control over financial reporting is a process designed by, or under the
supervision of, our principal executive and principal financial officers, or
persons performing similar functions, and effected by our board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Internal control over financial reporting includes those policies
and procedures that: (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of our
management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we may become involved in legal proceedings relating to claims
arising out of our operations in the normal course of business, as well as
claims arising from our status as an issuer of securities and/or a publicly
reporting company. As of the date of this Report, we are not a party to any
pending legal proceeding and our Management is not aware of any threatened
litigation, claims or assessments.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the six months ended June 30, 2006, we issued and/or sold the securities
set forth below without registration under the Securities Act of 1933.
No underwriters were involved in these transactions. Selling prices for the
shares may have been discounted from then prevailing market prices to reflect
the restricted status of the shares or the urgency of our need for capital. When
shares were issued for property or services, in each instance the valuation of
the property or services was based on the board of director's determination of
the value received for the shares, unless otherwise specified below.
In the case of sales of our securities, such securities were sold by our
officers without the use of an underwriter. In effecting the sales, we relied on
the exemption authority provided by Section 4(2) of the Securities Act of 1933,
as amended, relating to sales not involving any public offering, and Regulation
S, relating to securities sold in bona fide offshore transactions. We believe
that all such sales were made by our executive officers in private, negotiated
transactions without any advertising, public announcements or general
solicitation. The purchasers of the shares represented themselves in writing to
be, and we believe them to be, members of one or more of the following classes
of purchaser:
a. Officers, directors, promoters or control persons of the issuer;
b. Accredited investors, as defined in Rule 501 under Regulation D of
the Securities Act;
c. Individuals who:
a. Are knowledgeable and sophisticated in investment matters;
ii. Are able to assess the risks of an investment such as in our
securities;
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iii. Are financially able to bear the risk of a loss of their
entire investment; and
iv. Have access to pertinent information regarding the issuer and
its operations.
The shares are subject to the resale provisions of Rule 144 under the Securities
Act of 1933, as amended, and may not be sold or transferred without registration
except in accordance with that rule. Certificates representing the securities
bear a legend to that effect.
Sale of Common Stock
On February 3, 2006, we entered into a Subscription Agreement (the "Agreement")
with select accredited investors for the sale of our common stock, par value
$0.001 per share. As of July 7, 2006, these investors subscribed a total of
$57,000 of the offering, and we have issued 28,500 shares of our common stock.
Less commission and financing expenses, we have received a total of $57,000 in
net proceeds.
The sale of our common stock is a part of an offering to sell up to $1,000,000
of our common stock to accredited investors only. The shares of our common stock
have been offered and sold to the investors in a private placement transaction
made in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933, as amended (the "Securities Act"). Each of the
investors is an accredited investor as defined in Rule 501 of Regulation D.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Other than discussed below, during the six month period ended June 30, 2006,
there have been no material defaults in the payment of principal, interest, a
sinking or purchase fund installment, or any other material default not cured
within 30 days, with respect to any of our indebtedness exceeding 5% of our
total assets.
On June 16, 2005, we issued John Simmons, our former President, a promissory
note in the amount of $96,000. This note replaced and superseded a promissory
note that we issued to Mr. Simmons in December of 2003. The note carries a ten
percent interest rate, payable quarterly and matured on June 16, 2006. During
the six months ended June 30, 2006, we repaid $47,880 of principal and $2,400 of
interest. As of June 30, 2006, we owed $48,120 in principal and $1,203 in
accrued interest on the note. Interest expense on the note totaled $3,603 for
the six months ended June 30, 2006.
Under the terms of the note, we are currently in default of the note. In the
event that Mr. Simmons decides to institute legal proceeding to collect this
note and prevails, we will have to pay Mr. Simmons his court costs, including
reasonable attorneys' fees. However, we believe that the amount owed to Mr.
Simmons on the note is fully or partially offset by sums owed to us in
connection with expense reimbursements that were paid to Mr. Simmons while he
was the President of our Company and to which we believe he may not have the
rights. Our management is currently discussing with Mr. Simmons regarding a
resolution of the note and the expense reimbursements that are at issue. The
parties have a tentative oral agreement that any sums owed by Mr. Simmons to the
Company will offset amounts payable to him pursuant to the note. However, we
have not yet determined the amount that we are entitled to from Mr. Simmons.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the six month
period ended June 30, 2006.
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ITEM 5. OTHER INFORMATION
Reports on Form 8-K
Item 5.02(a) Departure of Pincipal Officers; Appointment of Principal Officers
On August 14, 2006, Kimberly A. Samon resigned as a Director of our Company's.
Ms. Samon's resignation did not reference that she had any disagreement with our
Company on any matter relating to our operations, policies, or practices.
ITEM 6. EXHIBITS
Exhibit
No. Description
- ------- -----------
31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Filed herewith)
31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Filed herewith)
32.1 Certification of Chief Executive Officer pursuant to pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Filed herewith)
32.2 Certification of Chief Financial Officer pursuant to pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Filed herewith)
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SIGNATURES
In accordance with the requirments of the Exchange Act, the registrant cause
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ST. JOSEPH, INC.
Date: August 18,, 2006
/s/ GERALD MCILHARGEY
------------------------------------------------
Gerald McIlhargey, Acting President and Director
Date: August 18, 2006
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