Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - ST JOSEPH INCFinancial_Report.xls
EX-32.2 - EXHIBIT 32.2 - ST JOSEPH INCex32-2.htm
EX-31.1 - EXHIBIT 31.1 - ST JOSEPH INCex31-1.htm
EX-32.1 - EXHIBIT 32.1 - ST JOSEPH INCex32-1.htm
EX-31.2 - EXHIBIT 31.2 - ST JOSEPH INCex31-2.htm

 

 

 

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: March 31, 2014

 

Or

 

[  ] 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: 333-147193

 

ST. JOSEPH, INC.

(Exact name of registrant as specified in its charter)

 

Colorado   47-0844532
(State or other jurisdiction of incorporation)   (IRS Employer Identification No.)

 

4870 S. Lewis, Suite 250, Tulsa, Oklahoma 74105

(Address of principal executive offices)

 

(918) 742-1888

(Registrant’s telephone number, including area code)

 

Indicate by check mark 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 past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] 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. Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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 [  ]   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 [  ] No [X]

 

As of May 14, 2014, there were 12,755,351 shares of $0.01 par value common stock issued and outstanding.

 

 

 

 
 

 

ST. JOSEPH, INC.

TABLE OF CONTENTS

 

      Page No.
PART I. FINANCIAL INFORMATION    
       
Item 1. Condensed Consolidated Financial Statements (unaudited):   F-1
  Condensed Consolidated Balance Sheets   F-1
  Condensed Consolidated Statements of Operations   F-2
  Condensed Consolidated Statements of Shareholders’ Deficit   F-3
  Condensed Consolidated Statements of Cash Flows   F-4
  Notes to Condensed Consolidated Financial Statements   F-5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   3
Item 3. Quantitative and Qualitative Disclosures About Market Risk   7
Item 4. Controls and Procedures   7
       
PART II. OTHER INFORMATION    
       
Item 1. Legal Proceedings   8
Item 1A. Risk Factors   8
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   8
Item 3. Defaults Upon Senior Securities   8
Item 4. Mine Safety Disclosures   8
Item 5. Other Information   8
Item 6. Exhibits   8

  

2
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. Financial Statement

 

ST. JOSEPH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31, 2014   December 31, 2013 
   (Unaudited)   (Audited) 
ASSETS          
           
CURRENT ASSETS:          
Cash  $2,644   $527 
Accounts receivable, net of allowance for doubtful accounts of $2,208 (unaudited) and $2,208, respectively   1,092    1,092 
Prepaid expense   60,000    60,000 
Total current assets   63,736    61,619 
           
Property and equipment, net of accumulated depreciation of $154,126 (unaudited) and $154,126, respectively   -    - 
Deposits   1,230    1,230 
           
Total Assets  $64,966   $62,849 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES:          
Accounts payable  $411,597   $404,700 
Accrued liabilities   181,529    167,121 
Accrued preferred dividend   42,047    42,047 
Bank loan and notes payable:          
Bank loan   118,202    118,202 
Advance from officer   29,700    29,700 
Loan from officer   45,000    49,800 
Notes payable, other   -    140,000 
Total current liabilities   828,075    951,570 
           
STOCKHOLDERS’ DEFICIT:          
Stock subscription receivable   (25,000)   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, 12,755,341 (unaudited) and 12,219,802 issued and outstanding, Respectively   12,755    12,220 
Additional paid-in capital   3,681,473    3,414,239 
Retained deficit   (4,432,343)   (4,315,186)
Total stockholders’ deficit   (763,109)   (888,721)
           
Total Liabilities and Stockholders’ Deficit  $64,966   $62,849 

 

See accompanying notes to condensed consolidated financial statements.

 

F-1
 

 

ST. JOSEPH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three Months Ended 
   March 31, 
   2014   2013 
REVENUES:          
Contract  $3,276   $95,282 
COST OF REVENUES   2,728    61,992 
           
Gross Margin   548    33,290 
           
COSTS AND EXPENSES:          
General and Administrative Expenses   90,551    119,981 
Depreciation and Amortization   -    - 
Total Costs and Expenses   90,551    119,981 
           
Operating Income (Loss)   (90,003)   (86,691)
OTHER INCOME AND (EXPENSE):          
Other Income (Expense)   275    - 
Interest Expense   (27,429)   (14,557)
Net Other Expense   (27,154)   (14,557)
Loss before provision for income taxes   (117,157)   (101,248)
           
Provision for income taxes   -    - 
Net Loss  $(117,157)  $(101,248)
           
Loss applicable to common stockholders  $(117,157)  $(101,248)
           
Basic and diluted loss per common share  $(0.01)  $(0.01)
           
Weighted average common shares outstanding   12,405,760    11,927,709 

  

See accompanying footnotes to the condensed consolidated financial statements

 

F-2
 

 

ST. JOSEPH, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

 

                   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, 2013   5,708   $6    12,219,802   $12,220   $3,414,239   $(4,315,186)  $-   $(888,721)
                                         
Stock subscription receivable   -    -    -    -    -    -    (25,000)   (25,000)
Sale of common stock @ $0.50 per share   -    -    250,000    250    124,750    -    -    125,000 
Issuance of common stock in exchange for debt @ $0.50 per share   -    -    285,539    285    142,484    -    -    142,769 
Net loss for the three months ended March 31, 2014   -    -    -    -    -    (117,157)   -    (117,157)
                                         
Balance March 31, 2014   5,708   $6    12,755,341   $12,755   $3,681,473   $(4,432,343)  $(25,000)  $(763,109)

 

See accompanying footnotes to the condensed consolidated financial statements

 

F-3
 

 

ST. JOSEPH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Three Months Ended 
   March 31, 
   2014   2013 
         
OPERATING ACTIVITIES          
           
Net loss  $(117,157)  $(101,248)
Adjustments to reconcile net loss to net cash  provided by (used in) operating activities:          
Changes in operating assets and liabilities:          
(Increase)/decrease in accounts receivable   -    (11,307)
Increase/(decrease) in accounts payable   6,897    32,732 
Increase/(decrease) in accrued liabilities   12,377    6,027 
Net cash provided by (used in) operating activities   (97,883)   (73,796)
           
INVESTING ACTIVITIES   -    - 
           
FINANCING ACTIVITIES          
Repayment on bank loan   -    (3,410)
Receipt of stock subscription receivable   -    25,000 
Proceeds from officer advance   -    5,500 
Proceeds from sale of common stock   100,000    50,500 
Net cash provided by (used in) financing activities   100,000    77,590 
           
INCREASE (DECREASE) IN CASH   2,117    3,794 
           
CASH AT BEGINNING OF PERIOD   527    6,615 
           
CASH AT END OF PERIOD  $2,644   $10,409 
           
 SUPPLEMENTAL INFORMATION:          
Cash paid for income taxes  $-   $- 
Cash paid for interest  $27,429   $14,557 

 

See accompanying footnotes to the condensed consolidated financial statements.

 

F-4
 

 

ST. JOSEPH, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(Unaudited)

 

NOTE 1 – Basis of Presentation

 

The condensed balance sheet at December 31, 2013 has been derived from financial statements included in the Form 10-K. The accompanying unaudited financial statements at March 31, 2014 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, 2013.

 

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 three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.

 

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 March 31, 2014 and December 31, 2013. 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.

 

NOTE 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 does not bear interest and matures on December 31, 2014.

 

In prior years, COLEMC advanced the Company a total of $45,000 for working capital in exchange for three promissory notes. The notes do not bear interest and mature on December 31, 2014.

 

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 year ended December 31, 2013, the officer advanced the Company an additional $5,500. The total balance of the notes is $29,700 and do not bear any interest. The notes mature on December 31, 2014.

 

F-5
 

 

ST. JOSEPH, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(Unaudited)

 

NOTE 3 – Notes Payable

 

Bank Loan

 

The Company originally had a $200,000 line of credit of with the 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; and 2) covenants to provide certain financial documents to the bank on a monthly and annual basis. On September 9, 2013, the Company received a default letter from the bank. Since that time, the bank has requested the Company bring the loan current by making monthly payments of $2,698 plus late fees of $50 per month for the nine months which the Company is delinquent, for the total amount as of March 31, 2014 of $24,732, which includes principal, interest and fees. At such time the Company is able to bring the loan current, the bank has stated the remaining balance will be refinanced, which terms are yet to be determined. The loan is in default at March 31, 2014 and the principal loan balance continues to bear 6.5% interest. In the event the Company is unable to bring the bank loan current, the bank may foreclose which would likely force the Company out of business.

 

As of March 31, 2014 and December 31, 2013, the Company owed the bank $124,200 (unaudited) and $118,202, respectively.

 

Interest expense on the Company’s bank borrowing was $1,921 (unaudited) and $2,107, during the three months ended March 31, 2014 and 2013, respectively.

 

Other Notes Payable

 

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. The note was converted into 50,000 shares of common stock ($0.50 per share) on January 31, 2014.

 

On October 1, 2013, two individuals loaned the Company $30,000 for working capital in exchange for promissory notes. The notes mature on October 1, 2014 and bear interest at seven percent. The note was converted into 60,000 shares of common stock ($0.50 per share) on January 31, 2014.

 

On November 15, 2013, an individual loaned the Company $50,000 for working capital in exchange for a promissory note. The note matures on November 15, 2014 and bears interest at seven percent. The note was converted into 100,000 shares of common stock ($0.50 per share) on January 31, 2014.

 

On November 18, 2013, an individual loaned the Company $25,000 for working capital in exchange for a promissory note. The note matures on November 18, 2014 and bears interest at seven percent. The note was converted into 50,000 shares of common stock ($0.50 per share) on January 31, 2014.

 

On December 13, 2013, an individual loaned the Company $10,000 for working capital in exchange for a promissory note. The note matures on December 13, 2014 and bears interest at seven percent. The note was converted into 20,000 shares of common stock ($0.50 per share) on January 31, 2014.

 

In connection with the above loan conversions, the Company also converted $2,770 of accrued interest into 5,539 shares of common stock on January 31, 2014.

 

F-6
 

 

ST. JOSEPH, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(Unaudited)

 

NOTE 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, 2013. During the year ended December 31, 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 (unaudited) and $42,047 as of March 31, 2014 and December 31, 2013, 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 three months ended March 31, 2014, the Company sold 250,000 (unaudited) shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $125,000 (unaudited); $25,000s (unaudited) of which was received in April 2014 and recorded as a stock subscription receivable.

 

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, 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.

 

Debt Conversion

 

Effective January 31, 2014, the Company converted loans and related accrued interest totaling $142,769 into 285,539 shares of common stock at a value of $0.50 per share.

 

F-7
 

 

ST. JOSEPH, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(Unaudited)

 

Equity Awards Granted to Employees

 

The following schedule summarizes the changes in the Company’s equity awards for the three months ended March 31, 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, 2014   502,500   $1.05   $1.05    1.00 yrs.    $- 
Granted   -   $-   $-           
Exercised   -   $-   $-           
Cancelled/Expired   -   $-   $-           
Outstanding and exercisable at March 31, 2014   502,500   $1.05   $1.05    0.75 yrs.    $- 

 

Deadlines for the exercise of all options were extended to December 31, 2014 subsequent to March 31, 2014 (see Note 10).

 

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 meeting on August 23, 2012; and most recently extended the deadline to June 30, 2013 in a board meeting on December 12, 2012. The extensions were considered a modification 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.

 

During the year ended December 31, 2012, a director of the Company exercised options for 7,500 shares of common stock at a strike price of $1.05 per share for total consideration of $7,875.

 

On May 2, 2013, the Company’s Board of Directors extended the deadline for the exercise of 452,500 options by six months from June 30, 2013 to December 31, 2013. The Company further extended the deadline to June 30, 2014 in a board meeting on December 21, 2013. The extensions are considered a modification of the original stock options. Accordingly, the Company revalued the stock options, which resulted in charges to share-based compensation totaling $193,997 for the year ended December 31, 2013.

 

On November 13, 2013, the Company granted options to one employee to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.05 per share. The options vested on the date of grant. The quoted market price of the Company’s common stock was $0.70 per share on the grant date. The weighted average exercise price and weighted average fair value of these options on the date of grant were $1.05 per share. Stock option compensation totaling $16,719 was recognized during the quarter ended December 31, 2013.

 

All stock options were fully vested as of March 31, 2014 and December 31, 2013. 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 March 31, 2014, and then multiplying that amount by the number of options. The exercise price exceeds the market value of the stock on March 31, 2014; 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.

 

F-8
 

 

ST. JOSEPH, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(Unaudited)

 

NOTE 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.

 

NOTE 6 – Concentration of Credit Risk

 

The Company conducts a significant portion of its operations with one customer. During the three months ended March 31, 2014 and 2013, approximately 100% and 81%, respectively, of the Company’s service revenues were conducted with this one customer.

 

NOTE 7 – Letter of Intent

 

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 8-K current report can be viewed at the SEC’s website found at www.sec.gov.

 

NOTE 8 – 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 a 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. In the event judgment is made against the Company and payment deemed appropriate, it may force the Company out of business.

 

NOTE 9 – Commitment

 

The Company leases office space in Tulsa, Oklahoma under operating lease which expired in April 2012. We are currently leasing the office space on a month-to-month basis.

 

Rent expense during the three months ended March 31, 2014 and 2013 totaled $8,999 (unaudited) and $8,999, respectively.

 

NOTE 10 – Subsequent Event

 

The Company has evaluated subsequent events through May 14, 2014. Other than those described below, there have been no subsequent events after March 31, 2014 for which disclosure is required.

 

On April 23, 2014, the Company’s Board of Directors extended the deadline for the exercise of the 502,500 options by six months from June 30, 2014 to December 31, 2014. Accordingly, the Company revalued the stock options, which will result in a charge to share-based compensation totaling $50,986 during the quarter ended June 30, 2014.

 

F-9
 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This quarterly report on Form 10-Q and other reports filed by St. Joseph, Inc. (the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Company Overview

 

St. Joseph, Inc. was organized under the laws of the State of Colorado on March 19, 1999 as Pottery Connection, Inc. Our Company was originally organized to produce and sell pottery of all forms, as well as arts and crafts through the Internet. On March 19, 2001, we changed our corporate name to St. Joseph Energy, Inc. in anticipation of changing our business purpose to the exploration and development of oil and gas properties. However, after unsuccessfully investing in two oil wells located in the State of Louisiana, we elected to abandon that endeavor and return to our original business purpose.

 

On November 6, 2003, we changed our corporate name to St. Joseph, Inc.

 

Staf*Tek was organized under the laws of the State of Oklahoma on January 2, 1997. On December 2, 2003, we acquired all of the issued and outstanding shares of common stock of Staf*Tek stock in exchange for (1) 380,500 shares of our Series A Preferred Shares (“Series A Shares”); (2) 219,500 shares of our common stock; and (3) $200,000 in cash. The acquisition closed on January 2, 2004, at which time Staf*Tek became a wholly owned subsidiary of St. Joseph.

 

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.

 

Staf*Tek Services, Inc.

 

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.

 

3
 

 

Staf*Tek was founded on the premise that there is an increasing demand for high quality outsourced professional services. Staf*Tek’s business premise combines client service orientation and commitment to quality. Staf*Tek is positioned to take advantage of what we believe are two converging trends in the outsourced professional services industry — increasing demand for outsourced professional services by corporate clients and increasing the supply of professionals interested in working on an outsourced basis. Staf*Tek believes that its business premise allows it to offer challenging yet flexible career opportunities, attract highly qualified, experienced professionals and, in turn, attract clients with varying professional needs.

 

Staf*Tek is primarily a regional professional service firm that provides experienced and highly qualified personnel who can demonstrate diversity, and flexibility in the work force. Staf*Tek has determined that its market is primarily in the Tulsa, Oklahoma area.

 

Proposed reverse acquisition of Zone USA, Inc.

 

On August 7, 2012, St. Joseph entered into a nonbinding Letter of Intent with Karavos Holdings Limited, a subsidiary of e-Kong Group, Ltd, which is a Bermuda company, headquartered in Hong Kong and traded on the Hong Kong Stock Exchange. The Letter of Intent provides for St. Joseph to acquire 100% of Zone USA, Inc., which has a 50% ownership position in ANZ Communications, LLC.

 

The Letter of Intent contemplates the transaction being structured as a reverse acquisition with St. Joseph 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 on a fully diluted and converted basis, or (ii) preferred stock convertible into such number of common stock. In addition, the Letter of Intent contemplates that the execution of a definitive agreement for the RTO is conditional on the involved parties being satisfied with their initial due diligence reviews, and the raising by St. Joseph of not less than $14 million in net proceeds. It is also contemplated that the definitive agreement will contain customary representations, warranties, covenants, undertakings and indemnities, including by the Company’s principal shareholders, together with non-competition agreements required by the Zone USA Investor (or its affiliates) relating to the existing Company’s business and restraints on the disposal by the Company’s principal shareholders’ shares in the Company post-closing for an agreed period.

 

Results of Operations for the Three Months Ended March 31, 2014 and 2013

 

The following table sets forth the summary income statement for the three months ended March 31, 2014 and 2013:

 

   Three Months Ended March 31            
   2014    2013            
   $    % of Revenue    $    % of Revenue    Change $    Change %  
REVENUES                              
Contract  $3,276    100.00%  $95,282    100.00%  $(92,006)   -96.56%
COST OF REVENUES   2,728    83.27%   61,992    65.06%   (59,264)   -95.60%
                               
Gross Profit   548    16.73%   33,290    34.94%   (32,742)   -98.35%
                               
COSTS AND EXPENSES                              
General and administrative expenses   90,551    2764.07%   119,981    125.92%   (29,430)   -24.53%
Depreciation and amortization   -    0.00%   -    0.00%   -    - 
Total costs and expenses   90,551    2764.07%   119,981    125.92%   (29,430)   -24.53%
                               
Operating income (loss)   (90,003)   -2747.34%   (86,691)   -90.98%   (3,312)   3.82%
                               
OTHER INCOME (EXPENSE)                              
Other income (expense)   275    8.39%   -    0.00%   275    275%
Interest Expense   (27,429)   -837.27%   (14,447)   -15.16%   (12,982)   89.86%
Net other expense   (27,154)   -828.88%   (14,557)   -15.28%   (12,597)   86.54%
Loss before provision for income taxes   (117,157)   -3576.22%   (101,248)   -106.26%   (15,909)   15.71%
                               
Provision for income taxes   -    0.00%   -    0.00%   -    0.00%
                               
Net loss  $(117,157)   -3576.22%  $(101,248)   -106.26%  $(15,909)   15.71%

 

4
 

 

Revenues

 

For the three months ended March 31, 2014, revenues declined 97% to $3,276 compared to $95,282 recorded for the same three months in the prior year. The decrease in revenues is attributable to a decline in the number of contractors working for us and a decrease in hiring due to economic conditions since the prior period. If the Company continues to show a decrease in revenues it may force the Company out of business.

 

Gross profit

 

Due to the decrease in our staffing business revenues, our gross profit on sales for the three months ended March 31, 2014 declined 98% to $548, compared to $33,290 for the three months ended March 31, 2013.

 

Total costs and expenses

 

Total costs and expenses for the three months ended March 31, 2014 were $90,551, which represented a 24% decrease from total costs and expenses of $119,981 recorded for the same three months in 2013.

 

Net other income (expense)

 

Net other expense for the three months ended March 31, 2014 increased 90% to $27,154 from $14,557 for the three months ended March 31, 2013. The increase was largely due to higher interest expense on our bank loan in the first quarter of 2014 modestly offset by other income of $275 stemming from the sale of old office equipment.

 

Net income (loss)

 

Due to the aforementioned reasons, our net loss increased 16% to $117,157 for the three months ended March 31, 2014, as compared to a net loss of $101,248 reported for the same three month period in 2013.

 

Liquidity and Capital Resources

 

As of March 31, 2014, we had a cash balance of $2,644.

 

We are currently seeking additional operating income opportunities through potential acquisitions or investments. Such acquisitions or investments may consume cash reserves or require additional cash or equity. Our working capital and additional funding requirements will depend upon numerous factors, including: (i) strategic acquisitions or investments; (ii) an increase to current company personnel; (iii) the level of resources that we devote to sales and marketing capabilities; (iv) technological advances; and (v) the activities of competitors.

 

In addition to developing new products, obtaining new customers and increasing sales to existing customers, management plans to achieve profitability through acquisitions of companies in the global Local Search and business listing management markets with solid revenue streams, established customer bases, complementary technology(ies) and positive cash flow.

 

The following table summarizes total current assets, liabilities and working capital at March 31, 2014 compared to December 31, 2013:

 

   Period Ended     
   March 31, 2014   December 31 ,2013   Increase/Decrease 
Current Assets  $63,736   $61,619    3.44%
Current Liabilities  $828,075   $951,570    -12.98%
Working Capital Deficit  $(764,339)  $(889,951)   -14.11%

 

Going concern

 

For the three months ended March 31, 2014, the funds generated from our operations was insufficient to fund our daily operations. 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. The ability of the Company to continue its operations is dependent on management’s plans, which include the raising of capital through the debt and/or equity markets, with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence. There can be no assurance that the Company will be able to raise any additional capital.

 

5
 

 

We may also require additional funding to finance the growth of our anticipated future operations as well as to achieve our strategic objectives. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In that event, the Company would be required to change its growth strategy and seek funding on that basis, if at all.

 

Our plan regarding these matters is to raise additional debt and/or equity financing to give us the ability to cover our current cash flow requirements and meet our obligations as they become due. There can be no assurances that financing will be available or, if available, that such financing will be available under favorable terms. In the event that we are unable to generate adequate revenues to cover expenses and cannot obtain additional financing in the near future, we may seek protection under bankruptcy laws. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Summary cash flows for the three months ended March 31, 2014 and 2013

 

   Three Months Ended March 31, 
   2014    2013 
Net cash provided by (used in) operating activities  $(97,883)  $(73,796)
Net cash provided by (used in) investing activities  $-   $- 
Net cash provided by (used in) financing activities  $100,000   $77,500 

 

Cash provided by (used in) operating activities

 

Net cash used in our operating activities in the first three months of 2014 totaled $97,883, which compared to net cash used in our operating activities of $73,796 for the same three months in the prior year.

 

Cash used in financing activities

 

In a private placement during the three months ended March 31, 2014, the Company sold 250,000 (unaudited) shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $125,000 (unaudited); $25,000 (unaudited) of which was received in April 2014 and recorded as a stock subscription receivable.

 

Inflation

 

There was no significant impact on the Company’s operations as a result of inflation for the three months ended March 31, 2014. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K to the SEC for the fiscal year ended December 31, 2013.

 

Recent Accounting Pronouncements

 

None

 

Critical Accounting Policies

 

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

 

6
 

 

Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

 

We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

 

Use of estimates and assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

 

The Company’s significant estimates and assumptions include the fair value of financial instruments; the carrying value, recoverability and impairment, if any, of long-lived assets; interest rate, income tax rate, income tax provision and valuation allowance of deferred tax assets; and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

 

Off Balance Sheet Arrangements

 

During the six months ended March 31, 2014, we did not engage in any material off-balance sheet activities nor have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4. Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures

 

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s PEO and PFO concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.

 

7
 

 

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.

 

(b) Changes in internal control over financial reporting

 

There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended March 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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. In the event judgment is made against the Company and payment deemed appropriate it may force the Company out of business.

 

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, 2013, filed with the US Securities and Exchange Commission on March 31, 2014.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

In a private placement during the three months ended March 31, 2014, the Company sold 250,000 (unaudited) shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $125,000 (unaudited); $25,000 (unaudited) of which was received in April 2014 and recorded as a stock subscription receivable.

 

ITEM 3. Defaults Upon Senior Securities

 

ITEM 4. Mine Safety Disclosures

 

Not Applicable.

 

ITEM 5. Other Information

 

There is no other information required to be disclosed under this item which has not been previously reported.

 

ITEM 6. Exhibits

 

31.1   Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
     
31.2 Certification by the Principal Accounting Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
     
32.1 Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     
32.2 Certification by the Principal Accounting Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     
101.INS   XBRL Instance Document**
101.SCH   XBRL Taxonomy Extension Schema**
101.CAL   XBRL Taxonomy Extension Calculation Linkbase**
101.DEF   XBRL Taxonomy Extension Definition Linkbase**
101.LAB   XBRL Taxonomy Extension Label Linkbase**
101.PRE   XBRL Taxonomy Extension Presentation Linkbase**

 

* 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”. 

 

8
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

  ST. JOSEPH, INC.
   
Dated: May 15, 2014 By: /s/ GERALD MCILHARGEY
    Gerald McIlhargey
    Chief Executive Officer (Principal Executive Officer)
     

 

9