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 September 30, 2013

 

[  ]	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 CORPORATE ISSUERS

 

As of November 14, 2013, there were 12,219,802 shares issued and outstanding of the registrant’s common stock.

 

  

 

ST. JOSEPH, INC.

Form 10-Q

 

Table of Contents

 

PART I – FINANCIAL INFORMATION
ITEM 1.		CONDENSED FINANCIAL STATEMENTS		F-1
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		3
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		8
ITEM 4.		CONTROLS AND PROCEDURES		8
ITEM 4T.		CONTROLS AND PROCEDURES		9
PART II - OTHER INFORMATION
ITEM 1.		LEGAL PROCEEDINGS		10
ITEM 1A.		RISK FACTORS		10
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		10
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES		10
ITEM 4.		MINE SAFETY DISCLOSURES		10
ITEM 5.		OTHER INFORMATION		10
ITEM 6.		EXHIBITS		10
		SIGNATURES		11

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

 

ST. JOSEPH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30, 2013				December 31, 2012
			(Unaudited)				(Derived from audited financial statements)
ASSETS
CURRENT ASSETS:
Cash		$	3,402			$	6,615
Accounts receivable, net of allowance for doubtful accounts of $2,208 (unaudited) and $2,208, respectively			15,728				29,700
Prepaid expenses			10,000				-
Total current assets			29,130				36,315
Property and equipment, net of accumulated depreciation of $154,126 (unaudited) and $154,126, respectively			-				-
Deposits			1,230				1,230
Total Assets		$	30,360			$	37,545
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable		$	362,156			$	310,291
Accrued liabilities			151,604				129,808
Accrued preferred dividend			42,047				42,047
Bank loan and notes payable:
Bank loan			118,202				131,997
Advance from officer			29,700				24,200
Loan from officer			49,800				45,000
Note payable			25,000				-
Total current liabilities			778,509				683,343
STOCKHOLDERS’ DEFICIT:
Stock subscription receivable			-				25,000
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, 12,219,802 (unaudited) and 11,809,802 issued and outstanding, Respectively			12,220				11,810
Additional paid-in capital			3,323,864				2,998,993
Retained deficit			(4,084,239	)			(3,631,547	)
Total stockholders’ deficit			(748,149	)			(645,798	)
Total Liabilities and Stockholders’ Deficit		$	30,360			$	37,545

 

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

 

 

ST. JOSEPH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2013				2012				2013				2012
REVENUES:
Contract		$	43,532			$	121,047			$	211,420			$	343,273
COST OF REVENUES			33,126				77,942				147,430				227,644
Gross Margin			10,406				43,105				63,990				115,629
COSTS AND EXPENSES:
General and Administrative Expenses			100,409				174,940				489,801				386,641
Depreciation and Amortization			-				287				-				862
Total Costs and Expenses			100,409				175,227				489,801				387,503
Operating Loss			(90,003	)			(132,122	)			(425,811	)			(271,874	)
OTHER INCOME AND (EXPENSE):
Other Income (Expense)			-				-				-				-
Interest Expense			(4,723	)			(3,670	)			(26,881	)			(17,276	)
Net Other Expense			(4,723	)			(3,670	)			(26,881	)			(17,276	)
Loss before provision for income taxes			(94,726	)			(135,792	)			(452,692	)			(289,150	)
Provision for income taxes			-				-				-				-
Net Loss		$	(94,726	)		$	(135,792	)		$	(452,692	)		$	(289,150	)
Loss applicable to common stockholders		$	(94,726	)		$	(135,792	)		$	(452,692	)		$	(289,150	)
Basic and diluted loss per common share		$	(0.01	)		$	(0.01	)		$	(0.04	)		$	(0.02	)
Weighted average common shares outstanding			12,219,802				11,674,802				12,000,415				11,632,135

 

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

 

 

ST. JOSEPH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

 

		Preferred Stock-Series A								Common Stock								Additional Paid-in				Retained				Stock Subscription
		Shares				Par value				Shares				Par value				Capital				Deficit				Receivable				Total
Balance December 31, 2012			5,708			$	6				11,809,802			$	11,810			$	2,998,933			$	(3,631,547	)		$	(25,000	)		$	(645,798	)
Collection of stock subscription receivable			-				-				-				-				-				-				25,000				25,000
Sale of common stock @ $0.50 per share			-				-				410,000				410				204,590				-				-				205,000
Modification of stock options			-				-				-				-				120,341				-				-				120,341
Net loss for the six months ended September 30, 2013			-				-				-				-				-				(452,692	)			-				(452,692	)
Balance September 30, 2013			5,708			$	6				12,219,802			$	12,220			$	3,323,864			$	(4,084,239	)		$	-			$	(748,149	)

 

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

 

 

ST. JOSEPH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)

 

		Nine Months Ended
		September 30,
			2013				2012
OPERATING ACTIVITIES
Net loss		$	(452,692	)		$	(289,150	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			-				862
Stock-based compensation			120,341				100,001
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable			13,972				31,865
(Increase)/decrease in prepaid expenses			(10,000	)			-
Increase/(decrease) in accounts payable			51,865				26,187
Increase/(decrease) in accrued liabilities			21,796				81,283
Net cash provided by (used in) operating activities			(254,718	)			(48,952	)
INVESTING ACTIVITIES			-				-
FINANCING ACTIVITIES
Repayment on bank loan			(13,795	)			(14,701	)
Receipt of stock subscription receivable			25,000				-
Proceeds from officer advance			5,500				3,500
Proceeds from officer loan			4,800				24,000
Proceeds from note payable			25,000				-
Proceeds from sale of common stock			205,000				37,875
Net cash provided by (used in) financing activities			251,505				50,674
INCREASE (DECREASE) IN CASH			(3,213	)			1,722
CASH AT BEGINNING OF PERIOD			6,615				2,809
CASH AT END OF PERIOD		$	3,402			$	4,531
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes		$	-			$	-
Cash paid for interest		$	26,589			$	17,271

 

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, 2012 has been derived from financial statements included in the Form 10-K. The accompanying unaudited financial statements at September 30, 2013 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, 2012.

 

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 nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

 

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 September 30, 2013 and December 31, 2012. 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

 

On September 6, 2013, COLEMC Investments, LTD. (COLEMC), a Canadian company owned by Gerry McIlhargey, President and Director of the Company, advanced the Company $4,800 for working capital in exchange for a promissory note. The note matures on December 31, 2013 and does not bear interest.

 

In prior years, COLEMC 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, 2013.

 

On July 31, 2013, an individual loaned the Company $25,000 for working capital in exchange for a promissory note. The note matures on July 31, 2014 and bears interest at seven percent. Accrued interest on the note totaled $292 at September 30, 2013.

 

During the years ended December 31, 2012 and 2011, an officer advanced the Company $7,500 and $16,700, respectively, for working capital in exchange for two promissory notes. During the nine months ended September 30, 2013, the officer advanced the Company an additional $5,500. The total balance of the notes, $29,700, does not bear any interest and the notes mature on December 31, 2013.

 

During the nine months ended September 30, 2013, a Director of the Company exercised options to purchase 7,500 shares of the Company’s common stock at a strike price of $1.05 per share (see Note 7) for total consideration of $7,875.

 

(3) Bank Loan

 

The Company originally had a $200,000 line of credit of with a bank. In August 2010, the Company converted its 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 was 6.5 % and the monthly principal and interest payment was $2,698 with a final balloon payment in the amount of $118,202 due on the maturity date of August 31, 2013. On September 9, 2013, the Company received a default letter from the bank and since that time the bank requested information for consideration for an extension which terms have yet to be determined. The principal loan balance continues to bear 6.5% interest.

 

As of September 30, 2013 and December 31, 2012, the Company owed the bank $118,202 and $131,997, respectively.

 

Interest expense on the Company’s bank borrowing was $6,113 and $7,265, during the nine months ended September 30, 2013 and 2012, 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 December 31, 2012. During the nine months ended September 30, 2013, 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 five years.

 

 

The Company is currently delinquent in making dividend payments pursuant to the terms of a settlement agreement, as disclosed in an 8-K released on May 9, 2009. The accrued balance due on Series A Convertible Preferred Stock dividends total $42,047 and $42,047 as of September 30, 2013 and December 31, 2012, respectively. The Company will commence dividend payments pursuant to the terms of a settlement agreement as funds are available.

 

Common Stock

 

In a private placement during the nine months ended September 30, 2013, the Company sold 410,000 shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $205,000. 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, 2012, the Company sold 190,000 shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $95,000. 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.

 

During the year ended December 31, 2012, a Director of the Company exercised 7,500 shares of its common stock at a strike price of $1.05 per share (see Note 7) for total consideration of $7,875.

 

Equity Awards Granted to Employees

 

The following schedule summarizes the changes in the Company’s equity awards for the nine months ended September 30, 2013.

 

										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, 2013			452,500			$	1.05			$	1.05				1.00 yrs.			$	-
Granted			-			$	-			$	-
Exercised			-			$	-			$	-
Cancelled/Expired			-			$	-			$	-
Outstanding and exercisable at September 30, 2013			452,500			$	1.05			$	1.05				0.25 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 Company further extended the deadline to December 31, 2012 in a Board of Directors meeting held on August 23, 2012; and most recently extended the deadline to September 30, 2013 in a Board meeting on December 12, 2012. The extensions were considered a modification to the terms of the original stock options. Accordingly, the Company revalued the stock options, which resulted in a charge to share-based compensation totaling $214,563 for the year ended December 31, 2012.

 

On May 2, 2013, the Company’s Board of Directors extended the deadline for the exercise of the 452,500 options by six months from September 30, 2013 to December 31, 2013. The extension is considered a modification to the terms of the original stock options. Accordingly, the Company revalued the stock options, which resulted in a charge to share-based compensation totaling $120,341 for the quarter ended September 30, 2013.

 

 

All remaining stock options were fully vested as of September 30, 2013 and December 31, 2012. 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 September 30, 2013, and then multiplying that amount by the number of options. The exercise price exceeded the market value of the stock on September 30, 2013; 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.

 

(6) Concentration of Credit Risk

 

The Company conducts a significant portion of its operations with one customer. During the nine months ended September 30, 2013 and 2012, approximately 85% and 86%, respectively of the Company’s service revenues were conducted with this one customer.

 

(7)  Legal Proceedings

 

On or about January 24, 2012, our subsidiary, Staf*Tek Services, Inc. was served notice that Danny McGowan, a former employee hired and assigned to work for Staf*Tek’s client as a contractor, filed a lawsuit against Staf*Tek Services, Inc. and its 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, Staf*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 six 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 an 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 nine months ended September 30, 2013 and 2012 were $27,298 and $26,992, respectively.

 

(9) Subsequent Events

 

The Company has evaluated subsequent events through November 14, 2013. There have been no subsequent events after September 30, 2013 for which disclosure is required.

 

 

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. We also hope to acquire other operating companies as subsidiaries and are pursuing suitable candidates for future acquisition that could potentially create value for our existing shareholders. Acquisition targets may be in sectors other than our current sector of providing employment agency services. Although it is not our goal, we would also consider a reverse merger opportunity, if it were seen to be a value creation opportunity for our existing shareholders.

 

To date, we have not consummated any acquisition and cannot provide any assurance that we will be successful in this endeavor. Any acquisition may be structured as a share exchange and may result in significant dilution to our existing shareholders.

 

Proposed Reverse Acquisition

 

On August 7, 2012, we entered into a nonbinding Letter of Intent with Karavos Holdings Limited, for the arrangement of an acquisition of 100% of Zone USA, Inc., which has a 50% ownership position in ANZ Communications, LLC. St. Joseph has completed an in-depth due diligence which confirmed ANZ Communications had 2012 annual revenue of $122.3 million with an EBITDA of $7 million and no long-term debt. ANZ is based in Springfield, IL, with a network office in Frisco, Texas, and regional operations, sales and support offices in Los Angeles, CA, Cherry Hill, NJ, and Mount Pleasant, UT.

 

The Letter of Intent contemplates the transaction being structured as a reverse acquisition with St. Joseph, Inc. purchasing Zone USA’s 50% ownership position in ANZ Communications in return for the issuance to Karavos Holdings Limited of (i) such number of shares of common stock that will be equal to not less than 80% of the total issued and outstanding shares of St. Joseph, Inc. on a fully diluted and converted basis, or (ii) preferred stock convertible into such number of common stock.

 

The Letter of Intent contemplates that if the parties proceed with the transaction, on its consummation, St Joseph’s board of directors and executive officers will be replaced by nominees to be named by the existing equity holders of Zone USA.

 

 

The Letter of Intent is nonbinding as to the consummation of the proposed acquisition transaction, with any obligation to proceed with such a transaction to be included in a definitive agreement to be negotiated between the parties.

 

However, certain terms are binding on both parties, most notably, a requirement that we will not solicit other parties, or negotiate with other parties, regarding the entry into any merger, acquisition or business combination until the earlier to occur of (i) the mutual termination of negotiations under the Letter of Intent, (ii) the signing of a definitive agreement contemplated by the Letter of Intent, or (iii) the date 6 months from the date of acceptance of the Letter of Intent. Additionally, the Letter of Intent requires that without the prior written consent of Karavos Holdings we shall:

 

	●	not enter into or amend any existing agreements and contracts (otherwise than in the ordinary course of business) including but not limited to, agreements with our directors or officers or employees;
	●	enter into any new transaction or arrangement other than in the ordinary course of business;
	●	issue or agree to issue any shares, warrants or other securities or loan capital or grant or agree to grant any option over or right to acquire or convertible into any share or loan capital or otherwise take any action which may result in Karavos Holdings Limited acquiring a percentage interest in the Company (on a fully diluted basis) lower than that contemplated in this Letter of Intent or the Company reducing its interest in any subsidiary;
	●	declare, pay or make any dividends or other distributions; or
	●	become and remain as the sole legal and beneficial owner of all registrable and non-registrable intellectual and other intangible property rights (including but not limited to domain names) created, developed, used or adapted by the business or operation of the Company.

 

The execution of a definitive agreement is conditional on St. Joseph and Karavos Holdings Limited satisfactorily completing their respective due diligence reviews.

 

The Letter of Intent states that as a condition to the signing of a definitive agreement for the proposed acquisition, we are required to raise $14,000,000 in net proceeds through the sale of stock. Our management contemplates that these funds will be raised via a private placement to approved accredited investors. The funds from this private placement are to be held in escrow pending the completion of the proposed acquisition. We can provide no assurance that we will be able to raise these funds, and in the event we are unable to raise the funds the acquisition may be abandoned.

 

The proposed transaction may be subject to the approval of our shareholders and the approval of Karavos Holdings Limited owners. The approvals needed will depend on the transaction structure contained in any definitive agreement that may be entered into. We cannot provide any assurance that the required approvals will be granted, and in the event they are not, we will not be able to proceed with the transaction.

 

Any consummation of the proposed transaction will need to be performed in compliance with applicable securities laws and regulations, and may require the filing of comprehensive disclosure documents which may add to the expense and time needed for the completion of the transaction. Depending on the final transaction structure we may need to register as an Investment Company under the Investment Company Act of 1940 or obtain an exemption from such registration. In such event, we may have to abandon the transaction of we not able to register as an Investment Company or not able to obtain an exemption.

 

Our management cautions investors against making investment decisions based on any expectation that the proposed transaction will be consummated, or that the proposed transaction will result in any increase in share value, because, in its view, such expectations are speculative.

 

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 delinquent in making dividend payments pursuant to the terms of a settlement agreement, as disclosed in an 8-K released on May 9, 2009. The accrued balance due on Series A Convertible Preferred Stock dividends will commence dividend payments pursuant to the terms of a settlement agreement as funds are available. There is an accrued amount of Series A Convertible Preferred Stock dividends in the amount of $42,047 as of September 30, 2013 ($42,047 at December 31, 2012).

 

 

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 30 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 share price.

 

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.

 

Results of Operations for the Nine Months Ended
		Nine Months Ended
		September 30,
		2013								2012
						% of								% of				Change				Change
			$				Revenue				$				Revenue				$				%
REVENUES:
Contract		$	211,420				100.00	%		$	343,273				100.00	%		$	(131,853	)			-38.41	%
COST OF REVENUES			147,430				69.73	%			227,644				66.32	%			(80,214	)			-35.24	%
Gross Margin			63,990				30.27	%			115,629				33.68	%			(51,639	)			-44.66	%
COSTS AND EXPENSES:
General and Administrative Expenses			489,801				231.67	%			386,641				112.63	%			103,160				26.68	%
Depreciation and Amortization			-				0.00	%			862				0.25	%			(862	)			-100.00	%
Total Costs and Expenses			489,801				231.67	%			387,503				112.88	%			102,298				26.40	%
Operating Income (Loss)			(425,811	)			-201.41	%			(271,874	)			-79.20	%			(153,937	)			56.62	%
OTHER INCOME AND (EXPENSE):
Other Income (expense)			-				0.00	%			-				0.00	%			-				0.00	%
Interest Expense			(26,881	)			-12.71	%			(17,276	)			-5.03	%			(9,605	)			55.60	%
Net Other Expense			(26,881	)			-12.71	%			(17,276	)			-5.03	%			(9,605	)			55.60	%
Loss before provision for income taxes			(452,692	)			-214.12	%			(289,150	)			-84.23	%			(163,542	)			56.56	%
Provision for income taxes			-				0.00	%			-				0.00	%			-				0.00	%
Net Loss		$	(452,692	)			-214.12	%		$	(289,150	)			-84.23	%		$	(163,542	)			56.56	%

 

Gross Profit

 

For the nine months ended September 30, 2013, we had a gross profit of $63,990 compared to a gross profit of $115,629 for the nine months ended September 30, 2012. This decrease in our gross profitability of $51,639, or approximately 44.7% over the prior period, is due primarily to a decrease in our operations.

 

Revenues for the nine months ended September 30, 2013 decreased to $211,420 from $343,273 for the nine months ended September 30, 2012. This decrease in net revenues of $131,853, or approximately 38.4%, over the prior period, is due primarily to a decrease in the number of contractors working for us.

 

Cost of revenues for the nine months ended September 30, 2013 decreased to $147,430 from $227,644 for the nine months ended September 30, 2012. This decrease in cost of revenues of $80,214, or approximately 35.2%, over the prior period, is due primarily to a decrease in the number of contractors working for us.

 

Total Costs and Expenses

 

Total costs and expenses for the nine months ended September 30, 2013 increased to $489,801 from $387,503 for the nine months ended September 30, 2012. This increase in our total operating expenses of $102,298 is approximately 26.4% over that of the prior period largely due to stock-based compensation expenses of $120,341 resulting from the modification of stock options.

 

General and administrative expenses for the nine months ended September 30, 2013 increased to $489,801 from $386,641 for the nine months ended September 30, 2012. This increase in general and administrative expenses of $103,160 is approximately 26.7% over that of the prior period largely due to stock-based compensation expenses of $120,341 resulting from the modification to the terms of stock options.

 

Other Income/Expenses

 

Interest expense for the nine months ended September 30, 2013 increased to $26,881 from $17,276 for the nine months ended September 30, 2012. This increase in interest expense of $9,605, or approximately 55.6% over the prior period, is due primarily to the increase in interest due on legal fees and our borrowings.

 

 

Operating and Net Losses

 

For the nine months ended September 30, 2013, we incurred an operating loss of $425,811 compared to an operating loss for the nine months ended September 30, 2012 of $271,874.

 

Net loss for the nine months ended September 30, 2013 increased to $452,692 from $289,150 for the nine months ended September 30, 2012. This increase in net losses of $163,542 is approximately 56.6% over that of the prior period largely due to stock-based compensation expenses of $120,341 resulting from the modification to the terms of stock options.

 

Results of Operations for the Three Months Ended
		Three Months Ended
		September 30,
		2013								2012
						% of								% of				Change				Change
			$				Revenue				$				Revenue				$				%
REVENUES:
Contract		$	43,532				100.00	%		$	121,047				100.00	%		$	(77,515	)			-178.06	%
COST OF REVENUES			33,126				76.10	%			77,942				64.39	%			(44,816	)			-135.29	%
Gross Margin			10,406				23.90	%			43,105				35.61	%			(32,699	)			-314.24	%
COSTS AND EXPENSES:
General and Administrative Expenses			100,409				230.66	%			174,940				144.52	%			(74,531	)			-74.23	%
Depreciation and Amortization			-				0.00	%			287				0.24	%			(287	)			-100.00	%
Total Costs and Expenses			100,409				230.66	%			175,227				144.76	%			(74,818	)			-74.51	%
Operating Income (Loss)			(90,003	)			-206.75	%			(132,122	)			-109.15	%			42,119				-46.80	%
OTHER INCOME AND (EXPENSE):
Other Income (expense)			-				0.00	%			-				0.00	%			-				0.00	%
Interest Expense			(4,723	)			-10.85	%			(3,670	)			-3.03	%			(1,053	)			22.30	%
Net Other Expense			(4,723	)			-10.85	%			(3,670	)			-3.03	%			(1,053	)			22.30	%
Loss before provision for income taxes			(94,726	)			-217.60	%			(135,792	)			-112.18	%			41,066				-43.35	%
Provision for income taxes			-				0.00	%			-				0.00	%			-				0.00	%
Net Loss		$	(94,726	)			-217.60	%		$	(135,792	)			-112.18	%		$	41,066				-43.35	%

 

Gross Profit

 

For the three months ended September 30, 2013, we had a gross profit of $10,406 compared to a gross profit of $43,105 for the three months ended September 30, 2012. This decrease in our gross profitability of $32,699, or approximately 314.2% over the prior period, is due primarily to a decrease in our operations.

 

Revenues for the three months ended September 30, 2013 decreased to $43,532 from $121,047 for the three months ended September 30, 2012. This decrease in net revenues of $77,515, or approximately 178.1%, over the prior period, is due primarily to a decrease in the number of contractors working for us.

 

Cost of revenues for the three months ended September 30, 2013 decreased to $33,126 from $77,942 for the three months ended September 30, 2012. This decrease in cost of revenues of $44,816, or approximately 135.3%, over the prior period, is due primarily to a decrease in the number of contractors working for us.

 

Total Costs and Expenses

 

Total costs and expenses for the three months ended September 30, 2013 decreased to $100,409 from $175,227 for the three months ended September 30, 2012. This decrease in our total operating expenses of $74,818 is approximately 74.5% over that of the prior period largely due to a decrease in our operations.

 

General and administrative expenses for the three months ended September 30, 2013 decreased to $100,409 from $174,940 for the three months ended September 30, 2012. This decrease in general and administrative expenses of $74,531 is approximately 74.2% over that of the prior period largely due to a decrease in our operations.

 

 

Other Income/Expenses

 

Interest expense for the three months ended September 30, 2013 increased to $4,723 from $3,670 for the three months ended September 30, 2012. This increase in interest expense of $1,053, or approximately 22.3% over the prior period, is due primarily to the increase in interest due on legal fees and our borrowings.

 

Operating and Net Losses

 

For the three months ended September 30, 2013, we incurred an operating loss of $90,003 compared to an operating loss for the three months ended September 30, 2012 of $132,122.

 

Net loss for the three months ended September 30, 2013 decreased to $94,726 from $135,792 for the three months ended September 30, 2012. This decrease in net losses of $41,066 is approximately 43.4% over that of the prior period largely due to a decrease in our operations.

 

Liquidity and Capital Resources

 

As of September 30, 2013, we had a cash balance of $3,402.

 

During the nine months ended September 30, 2013 and 2012, the Company’s summarized cash flow activities were as follows:

 

Cash flow activities
		Nine months ended
		September 30,
		2013				2012
Net cash provided by (used in) operating activities		$	(254,718	)		$	(48,952	)
Net cash provided by (used in) financing activities			251,505				50,674
INCREASE (DECREASE) IN CASH			(3,213	)			(1,722	)
CASH AT BEGINNING OF PERIOD			6,615				2,809
CASH AT END OF PERIOD		$	3,402			$	4,531

 

Net cash used in operating activities during the nine months ended September 30, 2013 increased from $48,952 to $254,718, as compared to the prior year. During the nine months ended September 30, 2013, the Company raised $205,000 of new funds from the sale of common stock and collected $25,000 on a stock subscription receivable. We also received a $25,000 note payable and related party borrowings of $10,300, and paid down our bank loan by $13,795.

 

Internal Sources of Liquidity

 

For the nine months ended September 30, 2013, the funds generated from our operations were insufficient to fund our daily operations. For the nine months ended September 30, 2013, we had a gross margin of $63,990, and we were thus unable to meet our operating expenses of $489,801 for the same period. After accounting for our net other expenses (interest expense) of $28,339 for this period, we suffered a net loss of $454,150 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, 2012 and 2011.

 

The Company originally had a $200,000 line of credit of with a bank. In August 2010, the Company converted its 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 was 6.5 % and the monthly principal and interest payment was $2,698 with a final balloon payment in the amount of $118,202 due on the maturity date of August 31, 2013. On September 9, 2013, the Company received a default letter from the bank and since that time the bank requested information for consideration for an extension which terms have yet to be determined. The principal loan balance continues to bear 6.5% interest.

 

During the nine months ended September 30, 2013, we had a private offering in which we sold 410,000 shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds of $205,000.

 

We also borrowed $35,300 from related parties during the nine months ended September 30, 2013.

 

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.

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, September 30, 2013. 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, September 30, 2013, 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 September 30, 2013. 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 September 30, 2013, 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, Staf*Tek Services, Inc. was served notice that Danny McGowan, a former employee hired and assigned to work for Staf*Tek’s client as a contractor, filed a lawsuit against Staf*Tek Services, Inc. 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 six 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

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the U.S. Securities and Exchange Commission on April 1, 2013.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In a private placement during the nine months ended September 30, 2013, the Company sold 101,000 shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $205,000. 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

 

The Company is currently delinquent in making dividend payments pursuant to the terms of a settlement agreement, as disclosed in an 8-K filed on May 9, 2009. The accrued balance due on Series A Convertible Preferred Stock dividends will commence dividend payments pursuant to the terms of a settlement agreement as funds are available. There is an accrued amount of Series A Convertible Preferred Stock dividends in the amount of $42,047 as of September 30, 2013 ($42,047 at December 31, 2012).

 

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)*

 

101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema Document**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB	XBRL Taxonomy Extension Label Linkbase Document**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document**

 

* Filed herewith.

** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

 

 

SIGNATURES

 

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

 

Date: November 14, 2013
	ST. JOSEPH, INC.
	/s/ GERALD MCILHARGEY
	Gerald McIlhargey, Chief Executive Officer