UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

[ ] TRANSITION REPORT PURSUANT TO 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 registrant as specified in its charter)

 

Colorado		47-0844532
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
4870 S. Lewis, Suite 250 Tulsa, OK		74105
Address of Principal Executive Offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (918) 742-1888

 

Indicate by checkmark whether the registrant (1) has 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] Yes [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[  ] Yes [X] No

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

[  ] Yes [  ] No

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 11,672,302 shares as of August 13, 2012.

 

 

 

ST. JOSEPH, INC.

Form 10-Q

 

Table of Contents

 

PART I – FINANCIAL INFORMATION
ITEM 1.	CONDENSED FINANCIAL STATEMENTS
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4.	CONTROLS AND PROCEDURES
ITEM 4T.	CONTROLS AND PROCEDURES
PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS
ITEM 1A.	RISK FACTORS
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES
ITEM 4.	MINESAFETY DISCLOSURES
ITEM 5.	OTHER INFORMATION
ITEM 6.	EXHIBITS
	SIGNATURES

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

 

ST. JOSEPH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		June 30,				December 31,
		2012				2011
		(Unaudited)				(Derived from audited financial statements)
ASSETS
CURRENT ASSETS:
Cash		$	2,637			$	2,809
Accounts receivable, net of allowance for doubtful accounts of $2,208 (unaudited) and $2,208, respectively			48,072				81,441
Total current assets			50,709				84,250
Property and equipment, net of accumulated depreciation of $153,340 (unaudited) and $153,053, respectively			498				1,073
Deposits			1,230				1,230
Total Assets		$	52,437			$	86,553
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable		$	277,124			$	253,451
Accrued liabilities			66,603				17,418
Accrued preferred dividend			42,047				42,047
Bank loan and notes payable:
Bank loan, current maturities			23,733				25,908
Advance from officer			20,200				16,700
Loan from officer			45,000				21,000
Total current liabilities			474,707				376,524
LONG-TERM DEBT:			120,171				129,112
Bank loan, less current maturities
Total liabilities			594,878				505,636
STOCKHOLDERS’ DEFICIT:
Preferred stock, Series A; $0.001 par value, $3.00 face value; 25,000,000 shares authorized; 5,708 (unaudited) and 5,708 shares issued and outstanding, respectively			6				6
Common stock, $0.001 par value; 100,000,000 shares authorized, 11,672,302 (unaudited) and 11,672,302 issued and outstanding, respectively			11,672				11,612
Additional paid-in capital			2,711,633				2,681,693
Retained deficit			(3,265,752	)			(3,112,394	)
Total stockholders’ deficit			(542,441	)			(419,083	)
Total Liabilities and Stockholders’ Deficit		$	52,437			$	86,553

 

The accompanying footnotes are an integral part of these unaudited financial statements

 

 

ST. JOSEPH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2012				2011				2012				2011
REVENUES:
Contract		$	92,303			$	106,827			$	222,226			$	219,961
COST OF REVENUES			58,776				76,177				149,702				163,927
Gross Margin			33,527				30,650				72,524				56,034
COSTS AND EXPENSES:
General and Administrative Expenses			104,583				105,516				211,701				198,272
Depreciation and Amortization			288				288				575				575
Total Costs and Expenses			104,871				105,804				212,276				198,847
Operating Income (Loss)			(71,344	)			(75,154	)			(139,752	)			(142,813	)
OTHER INCOME AND (EXPENSE):
Other Income (Expense)			-				-				-				75
Interest Expense			(4.225	)			(5,290	)			(13,606	)			(11,675	)
Net Other Expense			(4,225	)			(5,290	)			(13,606	)			(11,600	)
Loss before provision for income taxes			(75,569	)			(80,444	)			(153,358	)			(154,413	)
Provision for income taxes			-				-				-				-
Net Loss		$	(75,569	)		$	(80,444	)		$	(153,358	)		$	(154,413	)
Loss applicable to common stockholders		$	(75,569	)		$	(80,444	)		$	(153,358	)		$	(154,413	)
Basic and diluted loss per common share		$	(0.01	)		$	(0.01	)		$	(0.01	)		$	(0.01	)
Weighted average common shares outstanding			11,638,969				11,279,775				11,623,552				11,235,617

 

The accompanying footnotes are an integral part of these unaudited financial statements

 

 

ST. JOSEPH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

																		Additional								Stock
		Preferred Stock-Series A								Common Stock								Paid-in				Retained				Subscription
		Shares				Par value				Shares				Par value				Capital				Deficit				Receivable				Total
Balance December 31, 2011			5,708			$	6				11,612,302			$	11,612			$	2,681,693			$	(3,112,394	)		$	-			$	(419,083	)
Sale of common stock @ $0.50 per share			-				-				60,000				60				29,940				-				-				30,000
Net loss for the six months ended June 30, 2012			-				-				-				-				-				(153,358	)			-				(153,358	)
Balance June 30, 2012			5,708			$	6				11,672,302			$	11,672			$	2,711,633			$	(3,265,752	)		$	-			$	(542,441	)

 

The accompanying footnotes are an integral part of these unaudited financial statements

 

 

ST. JOSEPH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

 

		Six Months Ended
		June 30,
OPERATING ACTIVITIES			2012				2011
Net loss		$	(153,358	)		$	(154,413	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			575				575
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable			33,369				21,174
Increase/(decrease) in accounts payable			23,673				45,734
Increase/(decrease) in accrued liabilities			49,185				(3,625	)
Net cash provided by (used in) operating activities			(46,556	)			(90,555	)
INVESTING ACTIVITIES			0				0
FINANCING ACTIVITIES
Repayment on bank loan			(11,116	)			(8,880	)
Receipt of stock subscription receivable			-				25,000
Proceeds from officer advance			3,500				5,800
Proceeds from officer loan			24,000				5,000
Payments on preferred stock dividends			-				(13,440	)
Proceeds from sale of common stock			30,000				75,000
Net cash provided by (used in) financing activities			46,384				88,560
INCREASE (DECREASE) IN CASH			(172	)			(1,995	)
CASH AT BEGINNING OF PERIOD			2,809				8,406
CASH AT END OF PERIOD		$	2,637			$	6,411
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes		$	-			$	-
Cash paid for interest		$	4,892			$	11,675

 

The accompanying footnotes are an integral part of these unaudited financial statements

 

  

ST. JOSEPH, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(1)          Basis of Presentation

 

The condensed balance sheet at December 31, 2011 has been derived from financial statements included in the Form 10-K. The accompanying unaudited financial statements at June 30, 2012 presented herein have been prepared by St. Joseph, Inc. (the “Company”) in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2011.

 

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying condensed consolidated 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 preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The results of operations presented for the six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.

 

There is no provision for dividends for the quarter to which this quarterly report relates.

 

Financial data presented herein are unaudited.

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has incurred recurring losses and has negative working capital and a net capital deficiency at June 30, 2012 and December 31, 2011. These factors, among others, may indicate that the Company will be unable to continue as a going concern.

 

The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. The Company plans to generate the necessary cash flows with increased sales revenue and a reduction of general and administrative expenses over the next 12 months. However, should the Company’s operations not provide sufficient cash flow; the Company has plans to raise additional working capital through debt and/or equity financings. Insiders have loaned working capital to the Company on an as-needed basis over the past two years; however, there are no formal committed financing arrangements to provide the Company with working capital. There is no assurance the Company will be successful in producing increased sales revenues, attaining profitability, or obtaining additional funding through debt and equity financings.

 

(2)          Related Party Transactions

 

COLEMC Investments, LTD., a Canadian company owned by Gerry McIlhargey, President and Director of the Company, advanced the Company a total of $45,000 for working capital in exchange for three promissory notes. The notes matured on December 31, 2011 and December 2010 and did not bear any interest. The notes have been extended until December 31, 2012.

 

 

During the six months ended June 30, 2012 and year ended December 31, 2011, an officer advanced the Company $3,500 and $16,700, respectively, for working capital in exchange for two promissory notes. The notes matured on December 31, 2011 and did not bear any interest. The notes have been extended until December 31, 2012.

 

On June 30, 2011, the Company borrowed $5,800 from an employee under the terms of a promissory note. The terms of the note required that the entire amount be repaid by July 30, 2011 with no interest. The note was subsequently repaid in full on July 5, 2011.

 

During the year ended December 31, 2011, the Company sold 20,000 shares of its common stock in a private placement for $0.50 per share to an officer of the Company’s subsidiary (see Note 7) for total consideration of $10,000.

 

(3)          Bank Loan

 

In August 2010, the Company converted its existing $200,000 line of credit with the bank to a bank loan which is collateralized by all of assets of the Company’s subsidiary company, Staf*Tek Services, Inc. (“Staf*Tek”), including all receivables and property and equipment. The bank loan agreement included the following provisions 1) an agreement to provide insurance coverage for the collateralized assets in the amount of $180,000; 2) covenants to provide certain financial documents to the bank on a monthly and annual basis. The interest rate on the loan is 6.5 % and the monthly principal and interest payment is $2,698. A final balloon payment of shall be due on the maturity date of August 31, 2013 in the amount equal to the then unpaid principal and accrued and unpaid interest.

 

As at June 30, 2012 and December 31, 2011, $143,904 and $155,020 respectively was owed to the bank, repayable as follows:

 

		June 30, 2012				December 31, 2011
2012		$	11,674			$	25,908
2013			132,230				129,112
		$	143,904			$	155,020

 

Interest expense on the Company’s bank borrowing was $4,905 and $5,575, during the six months ended June 30, 2012 and 2011, respectively.

 

(4)          Shareholders’ Deficit          

 

Preferred Stock

 

The Board of Directors is authorized to issue shares of Series A Convertible Preferred Stock 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 Series A Convertible Preferred Stock and 5,708 have not been converted to common stock at June 30, 2012. During the six months ended June 30, 2012, the Company did not issue any Series A Convertible Preferred Stock. Series A Convertible Preferred Stock is convertible to one share of common stock and has a yield of 6.75% dividend per annum, which is paid quarterly on a calendar basis for a period of 5 years and is no longer being accrued.

 

 

The Company is currently making dividend payments pursuant to the terms of a settlement agreement, as disclosed in an 8-K released on May 9, 2009 which states the Company shall not be in default so long as it promptly remits payment at such time as funds are legally available to do so. The accrued balance due on Series A Convertible Preferred Stock dividends total $42,047 and $42,047 as of June 30, 2012 and December 31, 2011, respectively.

 

Common Stock

 

In a private placement during the six months ended June 30, 2012, the Company sold 60,000 shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $30,000. No underwriters were used and no underwriting discounts or commissions were payable. The shares have been offered and sold by the Company in reliance upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The shares were offered and sold only to accredited investors; as such term is defined by Rule 501 of Regulation D. All of the shares sold in the private placement are restricted securities pursuant to Rule 144.

 

In a private placement during the year ended December 31, 2011, the Company sold 440,000 shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $220,000. No underwriters were used and no underwriting discounts or commissions were payable. The shares have been offered and sold by the Company in reliance upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The shares were offered and sold only to accredited investors; as such term is defined by Rule 501 of Regulation D. All of the shares sold in the private placement are restricted securities pursuant to Rule 144. Of these shares sold in 2011, a total of 30,000 were sold to an officer of the Company’s subsidiary.

 

Equity Awards Granted to Employees

 

The following schedule summarizes the changes in the Company’s equity awards for the six months ended June 30, 2012.

 

										Weighted				Weighted
		Awards								Average				Average
		Outstanding				Exercise				Exercise				Remaining				Aggregate
		and				Price				Price				Contractual				Intrinsic
		Exercisable				Per Share				Per Share				Life				Value
Outstanding at January 1, 2012			460,000			$	1.05			$	1.05				0.65 yrs			$	-
Granted			-			$	-			$	-
Exercised			-			$	-			$	-
Cancelled/Expired			-			$	-			$	-
Outstanding and exercisable at June 30 2012			460,000			$	1.05			$	1.05				0.13 yrs.			$	-

 

On August 10, 2011 the Company’s board of directors extended the deadline for the exercise of the 460,000 options by one year from August 24, 2011 to August 24, 2012. The extension was considered a modification of the original stock options. Accordingly, the Company re-valued the stock options, which resulted in a charge to stock-based compensation totaling $156,067.

 

All issued stock options were fully vested as of December 31, 2011 and 2010. Aggregate intrinsic value is calculated by determining the amount by which the market price of the stock exceeds the exercise price of the options on June 30, 2012, and then multiplying that amount by the number of options. The exercise price exceeds the market value of the stock on June 30, 2012; therefore the aggregate intrinsic value is zero.

 

Upon the exercise of stock options, the Company issues new shares that are authorized and not issued or outstanding. The Company does not plan to repurchase shares to meet stock option requirements.

 

 

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.

 

(5)          Income Taxes          

 

The Company records its income taxes in accordance with ASC 740 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 no income taxes.

 

The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes as income tax expense in the consolidated statements of operations. There has been $435 paid in interest or penalties during the six months ended June 30, 2012.

 

(6)          Concentration of Credit Risk

 

The Company conducts a significant portion of its operations with one customer. During the six months ended June 30, 2012 and 2011, approximately 83% and 89%, respectively of the Company’s service revenues were conducted with this one customer.

 

(7)           Legal Proceedings

 

On or about January 24, 2012, our subsidiary company, Staf*Tek was served notice that Danny McGowan, a former employee hired and assigned to work for a Staf*Tek’s client as a contractor, filed a lawsuit against Staf*Tek and it’s client in the district court in Tulsa County, Oklahoma, Case No. CJ-2011-7039, in connection with a wrongful termination complaint. Mr. McGowan alleges that he was terminated after one month of employment, but feels he had a guaranteed contract for six months. The wording in his employment agreement that he identifies as guaranteeing his employment for six months was inserted at the request of Staf*Tek’s client.

 

Staf*Tek’s client terminated Mr. McGowan for performance issues after one month of employment. Mr. McGowan filed a lawsuit against Staf*Tek and the client and subsequently filed a motion for default judgment, which was granted by the judge. On March 9, 2012, Stat*Tek filed a motion to vacate the default judgment and requested a new trial. Staf*Tek has engaged counsel and intends to vigorously defend this action. As of this date the client that terminated Mr. McGowan has been dismissed from the lawsuit by the judge because they had not been served within a 6 months of the original filing of the lawsuit by Mr. McGowan’s counsel. Mr. McGowan and his attorney were three weeks late responding to our request for discovery and we requested dismissal. However, the judge did not grant dismissal. Mr. McGowan is seeking damages against Staf*Tek in an amount in excess of $75,000. Management deems the suit to be without merit, however, the costs of defending against the complaint could be substantial.

 

(8)           Commitment

 

The Company leases office space in Tulsa, Oklahoma under operating lease which expired in April 2012, the Company is currently leasing the office space on a month to month basis. Rent expense during the six months ended June 30, 2012 and 2011 were $17,993 and $17,926, respectively.

 

(9)           Subsequent Events

 

On August 8, 2012, St. Joseph, Inc. filed an 8-K current report in connection with the signing of a nonbinding Letter of Intent with Karavos Holdings Limited, for the arrangement of an acquisition of 100% of a holding company which owns 50% interest in a domestic telecommunications operating company. The report can be viewed at the SEC’s website; http://www.sec.gov/Archives/edgar/data/1177135/000149315212000866/form8k.htm

 

  

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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-Q. 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”) currently conducts all of our business through our wholly-owned subsidiary, Staf*Tek Services, Inc. Management has previously stated that the Company also hopes to acquire other operating companies as subsidiaries and is pursuing suitable candidates for future acquisition that could potentially create value for our existing shareholders, including acquisition targets which may be in sectors other than our current sector of providing employment agency services. Management believes it has found a suitable candidate for a reverse acquisition and filed an 8-K current report August 8, 2012, in which the Company announced the signing of a nonbinding Letter of Intent with Karavos Holdings Limited, for the arrangement of an acquisition of 100% of a holding company which owns 50% interest in a domestic telecommunications operating company. The current report on Form 8-K provides additional information regarding the Letter of Intent. St. Joseph’s management advises that investors interested in the Company review the Current Report on Form 8-K on the SEC’s website; http://www.sec.gov/Archives/edgar/data/1177135/000149315212000866/form8k.htm.

 

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 (i) 386,208 shares of our $0.001 par value Series A convertible preferred stock; (ii) 219,500 shares of our $0.001 par value common stock; and (ii) $200,000 in cash. Our Series A convertible preferred stock has a face value of $3.00 per share with a yield of 6.75% dividend per annum, payable on a quarterly basis out of funds legally available therefore, for a period of five years. The Company is currently making dividend payments pursuant to the terms of a settlement agreement, as disclosed in an 8-K released on May 9, 2009, which states the Company shall not be in default so long as it promptly remits payment at such time as funds are legally available to do so. The Company agreed to repay the dividends at a rate of $2,700 per month. There is an accrued amount of Series A Convertible Preferred Stock dividends in the amount of $42,047 as of June 30, 2012 ($42,047 at December 31, 2011).

 

 

The Series A 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 Series A convertible preferred stock for redemption no sooner than two 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, our common stock has not traded at that amount.

 

Staf*Tek specializes in the recruiting and placement of professional technical personnel, as well as finance and accounting personnel on a temporary and permanent basis. Staf*Tek provides its customers with employee candidates with information technology (“IT”) skills in areas ranging from multiple platform systems integration to end-user support, including specialists in programming, networking, systems integration, database design, help desk support, including senior and entry level finance and accounting candidates. Staf*Tek’s candidate databases contain information on the candidates experience, skills, and performance and are continually being updated to include information on new referrals and to update information on existing candidates. Staf*Tek responds to a broad range of assignments from technical one-person assignments to major projects including, without limitation, Internet/Intranet development, desktop applications development, project management, enterprise systems development, SAP implementation and legacy mainframe projects. Staf*Tek also provides employee candidates computer training, online assessments, certification and the opportunity to be tested and certified in over 50 skill sets.

 

Six months results of operations

 

Results of Operations for the Six Months Ended

 

		Six Months Ended
		June 30,
		2012								2011
						% of								% of				Change				Change
			$				Revenue				$				Revenue				$				%
REVENUES:
Contract		$	222,226				100.00	%		$	219,961				100.00	%		$	2,265				1.02	%
COST OF REVENUES			149,702				67.36	%			163,927				74.53	%			(14,225	)			-9.50	%
Gross Margin			72,524				32.64	%			56,034				25.47	%			16,490				22.74	%
COSTS AND EXPENSES:
General and Administrative Expenses			211,701				95.26	%			198,272				90.14	%			13,429				6.34	%
Depreciation and Amortization			575				0.26	%			575				0.26	%			-				0.00	%
Total Costs and Expenses			212,276				95.52	%			198,847				90.40	%			13,429				6.33	%
Operating Income (Loss)			(139,752	)			-62.89	%			(142,813	)			-64.93	%			3,061				-2.19	%
OTHER INCOME AND (EXPENSE):
Other Income (expense)			-				0.00	%			75				0.03	%			(75	)			-100.00	%
Interest Expense			(13,606	)			-6.12	%			(11,675	)			-5.31	%			(1,931	)			14.19	%
Net Other Expense			(13,606	)			-6.12	%			(11,600	)			-5.27	%			(2,006	)			14.74	%
Loss before provision for income taxes			(153,358	)			-69.01	%			(154,413	)			-70.20	%			1,005				-0.69	%
Provision for income taxes			-				0.00	%			-				0.00	%			-				0.00	%
Net Loss		$	(153,358	)			-69.01	%		$	(154,413	)			-70.20	%		$	1,005				-0.69	%

 

Gross Profit

 

For the six months ended June 30, 2012, we had a gross profit of $72,524 compared to a gross profit of $56,034 for the six months ended June 30, 2011. This increase in our gross profitability of $16,490, or approximately 29.4% over the prior period, is due primarily to a decrease in our cost of revenues.

 

 

Revenues for the six months ended June 30, 2012 increased to $222,226 from $219,961 for the six months ended June 30, 2011. This increase in net revenues of $2,265, or approximately 1.0%, over the prior period, is due primarily to a slight increase in the number of contractors working for us.

 

Cost of revenues for the six months ended June 30, 2012 decreased to $149,702 from $163,927 for the six months ended June 30, 2011. This decrease in cost of revenues of $14,225, or approximately 8.7%, over the prior period, is due primarily to an increase in margins we earned on the contractors working for us.

 

Total Costs and Expenses

 

Total costs and expenses for the six months ended June 30, 2012 increased to $212,276 from $198,847 for the six months ended June 30, 2011. This increase in our total operating expenses of $13,429 is approximately 6.8% over that of the prior period.

 

General and administrative expenses for the six months ended June 30, 2012 increased to $211,701 from $198,272 for the six months ended June 30, 2011. This increase in general and administrative expenses of $13,429 is approximately 6.8% over that of the prior period.

 

Other Income/Expenses

 

Interest expense for the six months ended June 30, 2012 increased to $13,606 from $11,675 for the six months ended June 30, 2011. This increase in interest expense of $1,931, or approximately 16.5% over the prior period, is due primarily to the increase in interest due on legal fees and our bank borrowings.

 

Operating and Net Losses

 

For the six months ended June 30, 2012, we incurred an operating loss of $139,752 compared to an operating loss for the six months ended June 30, 2011 of $142,813.

 

Net loss for the six months ended June 30, 2012 decreased to $153,358 from $154,413 for the six months ended June 30, 2011. This decrease in net losses of $1,055 is approximately 0.7% over that of the prior period.

 

Three months results of operations

 

 Results of Operations for the Three Months Ended

 

		Three Months Ended
		June 30,
		2012								2011
						% of								% of				Change				Change
			$				Revenue				$				Revenue				$				%
REVENUES:
Contract		$	92,303				100.00	%		$	106,827				100.00	%		$	(14,524	)			-15.74	%
COST OF REVENUES			58,776				63.68	%			76,177				71.31	%			(17,401	)			-29.61	%
Gross Margin			33,527				36.32	%			30,650				28.69	%			2,877				8.58	%
COSTS AND EXPENSES:
General and Administrative Expenses			104,583				113.30	%			105,516				98.77	%			(933	)			-0.89	%
Depreciation and Amortization			288				0.31	%			288				0.27	%			-				0.00	%
Total Costs and Expenses			104,871				113.62	%			105,804				99.04	%			(933	)			-0.89	%
Operating Income (Loss)			(71,344	)			-77.29	%			(75,154	)			-70.35	%			3,810				-5.34	%
OTHER INCOME AND (EXPENSE):
Other Income (expense)			-				0.00	%			-				0.00	%			-				0.00	%
Interest Expense			(4,225	)			-4.58	%			(5,290	)			-4.95	%			1,065				-25.21	%
Net Other Expense			(4,225	)			-4.58	%			(5,290	)			-4.95	%			1,065				-25.21	%
Loss before provision for income taxes			(75,569	)			-81.87	%			(80,444	)			-75.30	%			4,875				-6.45	%
Provision for income taxes			-				0.00	%			-				0.00	%			-				0.00	%
Net Loss		$	(75,569	)			-81.87	%		$	(80,444	)			-75.30	%		$	4,875				-6.45	%

 

 

Gross Profit

 

For the three months ended June 30, 2012, we had a gross profit of $33,527 compared to a gross profit of $30,650 for the three months ended June 30, 2011. This increase in our gross profitability of $2,877, or approximately 9.4% over the prior period, is due primarily to a decrease in our cost of revenues.

 

Revenues for the three months ended June 30, 2012 decreased to $92,303 from $106,827 for the three months ended June 30, 2011. This decrease in net revenues of $14,524, or approximately 13.6%, over the prior period, is due primarily to a slight decrease in the number of contractors working for us.

 

Cost of revenues for the three months ended June 30, 2012 decreased to $58,776 from $76,177 for the three months ended June 30, 2011. This decrease in cost of revenues of $17,401, or approximately 22.8%, over the prior period, is due primarily to an increase in margins we earned on the contractors working for us.

 

Total Costs and Expenses

 

Total costs and expenses for the three months ended June 30, 2012 decreased to $104,871 from $105,804 for the three months ended June 30, 2011. This decrease in our total operating expenses of $933 is approximately 0.9% over that of the prior period.

 

General and administrative expenses for the three months ended June 30, 2012 decreased to $104,583 from $105,516 for the three months ended June 30, 2011. This decrease in general and administrative expenses of $933 is approximately 0.9% over that of the prior period.

 

Other Income/Expenses

 

Interest expense for the three months ended June 30, 2012 decreased to $4,225 from $5,290 for the three months ended June 30, 2011. This decrease in interest expense of $1,065, or approximately 20.1% over the prior period, is due primarily to the decrease in interest due on legal fees and our bank borrowings.

 

Operating and Net Losses

 

For the three months ended June 30, 2012, we incurred an operating loss of $71,344 compared to an operating loss for the three months ended June 30, 2011 of $75,154.

 

Net loss for the three months ended June 30, 2012 decreased to $75,569 from $80,444 for the three months ended June 30, 2011. This decrease in net losses of $4,875 is approximately 6.1% over that of the prior period.

 

 

Liquidity and Capital Resources

 

As of June 30, 2012, we had a cash balance of $2,637.

 

During the six months ended June 30, 2012 and 2011, the Company’s summarized cash flow activities were as follows:

 

Cash flow activities 

 

		Six Months Ended
		June 30,
		2012				2011
Net cash provided by (used in) operating activities		$	(46,556	)		$	(90,555	)
Net cash provided by (used in) investing activities			0				0
Net cash provided by (used in) financing activities			46,484				88,560
INCREASE (DECREASE) IN CASH			(172	)			(1,995	)
CASH AT BEGINNING OF PERIOD			2,809				8,406
CASH AT END OF PERIOD		$	2,637			$	6,411

 

Net cash used in operating activities during the six months ended June 30, 2012 decreased from $90,555 to $46,556, as compared to the prior year. During the six months ended June 30, 2012 the Company raised $30,000 of new funds from the sale of common stock. We also received funds from related party borrowings of $27,500, and paid down our bank loan by $11,116.

 

Internal Sources of Liquidity

 

For the six months ended June 30, 2012, the funds generated from our operations were insufficient to fund our daily operations. For the six months ended June 30, 2012, we had a gross margin of $72,524, and we were thus unable to meet our operating expenses of $212,276 for the same period. After accounting for our net other expenses (interest expenses) of $13,606 for this period, we suffered a net loss of $153,358 for the period. We can provide no assurance that funds from our operations will increase sufficiently to meet the requirements of our daily operations in the future. In the event that funds from our operations are insufficient to meet our expenses, we will need to seek other sources of financing to maintain liquidity.

 

External Sources of Liquidity

 

Because the funds generated from our operations have been not been sufficient to fully fund our operations, we have been on dependent on debt and equity financing to make up the shortfall. 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 their 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 years ended December 31, 2011 and 2010.

 

In August 2010, the Company converted its existing $200,000 line of credit with the bank to a bank loan which is collateralized by all of assets of the Company’s subsidiary company, Staf*Tek, including all receivables and property and equipment. The bank loan agreement included the following provisions 1) An agreement to provide insurance coverage for the collateralized assets in the amount of $180,000; 2) covenants to provide certain financial documents to the bank on a monthly and annual basis. The interest rate on the loan is 6.5 % and the monthly principal and interest payment is $2,698. A final balloon payment of shall be due on the maturity date of August 31, 2013 in the amount equal to the then unpaid principal and accrued and unpaid interest.

 

 

During the six months ended June 30, 2012, we had a private offering in which we sold 60,000 shares of common stock to two accredited investors at a price of $0.50 per share for gross proceeds of $30,000.

 

We also borrowed $27,500 from related parties during the six months ended June 30, 2012.

 

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.

 

Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Reference is made to “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2011 for information concerning risk factors. There have been no material changes in the risk factors since the filing of this Annual Report with the SEC on June 30, 2012.

 

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 4.           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, 2012. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Mr. Gerald McIlhargey, and our Treasurer, 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, 2012, 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, 2012. 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, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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.

 

ITEM 4T.           CONTROLS AND PROCEDURES

 

Not Applicable.

 

PART II - OTHER INFORMATION

 

ITEM 1.          LEGAL PROCEEDINGS

 

On or about January 24, 2012, our subsidiary company, Staf*Tek was served notice that Danny McGowan, a former employee hired and assigned to work for a Staf*Tek’s client as a contractor, filed a lawsuit against Staf*Tek and it’s client in the district court in Tulsa County, Oklahoma, Case No. CJ-2011-7039, in connection with a wrongful termination complaint. Mr. McGowan alleges that he was terminated after one month of employment, but feels he had a guaranteed contract for six months. The wording in his employment agreement that he identifies as guaranteeing his employment for six months was inserted at the request of Staf*Tek’s client.

 

Staf*Tek’s client terminated Mr. McGowan for performance issues after one month of employment. Mr. McGowan filed a lawsuit against Staf*Tek and the client and subsequently filed a motion for default judgment, which was granted by the judge. On March 9, 2012, Stat*Tek filed a motion to vacate the default judgment and requested a new trial. Staf*Tek has engaged counsel and intends to vigorously defend this action. As of this date the client that terminated Mr. McGowan has been dismissed from the lawsuit by the judge because they had not been served within a 6 months of the original filing of the lawsuit by Mr. McGowan’s counsel. Mr. McGowan and his attorney were three weeks late responding to our request for discovery and we requested dismissal. However, the judge did not grant dismissal. Mr. McGowan is seeking damages against Staf*Tek in an amount in excess of $75,000. Management deems the suit to be without merit, however, the costs of defending against the complaint could be substantial.

 

 

ITEM 1A.           RISK FACTORS

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Reference is made to “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2011 for information concerning risk factors. There have been no material changes in the risk factors since the filing of this Annual Report with the SEC on June 30, 2012.

 

ITEM 2.           UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In a private placement during the six months ended June 30, 2012, the Company sold 60,000 shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $30,000. No underwriters were used and no underwriting discounts or commissions were payable. The shares have been offered and sold by the Company in reliance upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The shares were offered and sold only to accredited investors; as such term is defined by Rule 501 of Regulation D. All of the shares sold in the private placement are restricted securities pursuant to Rule 144.

 

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.           MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.           OTHER INFORMATION

 

None.

 

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)

 

 

SIGNATURES

 

Pursuant to the requirments of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	Date: August 13, 2012
	ST. JOSEPH, INC.
	/s/ GERALD MCILHARGEY
	Gerald McIlhargey, Chief Executive Officer