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EX-31.1 - ST JOSEPH INCv166722_ex31-1.htm
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EX-32.1 - ST JOSEPH INCv166722_ex32-1.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 September 30, 2009

o           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
 
CH 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     o 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    o 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 o Accelerated filer o
   
Non-accelerated filer   o (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).          o    Yes  x No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
            o Yes    o No

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  10,787,302 shares as of October 20, 2009.

 
 

 


Form 10-Q

Table of Contents
 
PART I – FINANCIAL INFORMATION
2
ITEM 1.
FINANCIAL STATEMENTS
2
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
11
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
18
ITEM 4.
CONTROLS AND PROCEDURES
18
ITEM 4T.
CONTROLS AND PROCEDURES
19
PART II  - OTHER INFORMATION
19
ITEM 1.
LEGAL PROCEEDINGS
19
ITEM 1A.
RISK FACTORS
19
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
19
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
19
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
19
ITEM 5.
OTHER INFORMATION
20
ITEM 6.
EXHIBITS
20
 

 
- 2 -

 

PART I – FINANCIAL INFORMATION

ITEM 1. 
FINANCIAL STATEMENTS
 
ST. JOSEPH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
             
ASSETS
           
   
UNAUDITED
   
AUDITED
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
CURRENT ASSETS:
           
Cash
  $ 193,239     $ 221,992  
Accounts receivable, net of allowance
               
for doubtful accounts of $2,208
    69,084       212,821  
                 
Total current assets
    262,323       434,813  
                 
Property and equipment, net of accumulated depreciation of $150,468
               
and $179,606, respectively
    3,658       2,978  
Deposits
    1,230       1,230  
                 
    $ 267,211     $ 439,021  
                 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES:
               
Accounts payable
  $ 193,320     $ 264,206  
Accrued liabilities
    7,502       18,168  
Accrued preferred dividend
    90,431       117,311  
Loan from officer
    5,000       25,000  
Notes payable - related party (Note 4)
    15,000       5,000  
Line of Credit (Note 3)
    180,000       180,000  
Due from Former Officer (Note 2)
    -       48,120  
                 
Total current liabilities
    491,253       657,805  
                 
                 
STOCKHOLDERS' DEFICIT (Note 7):
               
Preferred stock, Series A, $.001 par value, $3.00 face value; 25,000,000 shares
         
authorized, 56,208 shares issued and outstanding
    56       386  
Common stock, $.001 par value; 100,000,000 shares authorized,
               
10,736,802 (9/30/09) and 7,406,802 (12/31/08) issued and outstanding
    10,737       7,407  
Additional paid-in capital
    2,097,201       1,950,201  
Retained deficit
    (2,332,036 )     (2,176,778 )
                 
Total Stockholders' Deficit
    (224,042 )     (218,784 )
                 
    $ 267,211     $ 439,021  
 
 
See accompanying notes to condensed consolidated financial statements
 
- 3 -

 


ST. JOSEPH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
 
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
         
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
REVENUES:
                       
Contract
  $ 135,092     $ 614,264     $ 685,343     $ 1,898,545  
                                 
COST OF REVENUES
    105,055       477,241       534,112       1,463,476  
                                 
Gross Margin
    30,037       137,023       151,231       435,069  
                                 
COSTS AND EXPENSES:
                               
General and Administrative Expenses
    89,757       134,641       315,978       397,258  
Depreciation and Amortization
    288       287       862       835  
Total Costs and Expenses
    90,045       134,928       316,840       398,093  
                                 
Operating Income (Loss)
    (60,008 )     2,095       (165,609 )     36,976  
                                 
OTHER INCOME AND (EXPENSE):
                               
Other Income (expense)
    -       -       25,926       (100 )
Interest Expense
    (3,646 )     (5,204 )     (15,575 )     (21,638 )
                                 
Net Other Expense
    (3,646 )     (5,204 )     10,351       (21,738 )
                                 
Loss before provision for income taxes
    (63,654 )     (3,109 )     (155,258 )     15,238  
                                 
PROVISION FOR INCOME TAXES:
                               
Provision for Federal income tax
    -       2,999       -       2,286  
Provision for State income tax
    -       1,200       -       914  
                                 
Total provision for income taxes
    -       4,199       -       3,200  
                                 
Loss before benefit from tax loss carryforward
    (63,654 )     (7,308 )     (155,258 )     12,038  
                                 
Benefit from tax loss carryforward
    -       4,199       -       3,200  
                                 
Net Loss
    (63,654 )     (3,109 )     (155,258 )     15,238  
                                 
Preferred stock dividend requirements
    -       (19,552 )     -       (58,656 )
                                 
Loss applicable to common stockholders
  $ (63,654 )   $ (22,661 )   $ (155,258 )   $ (43,418 )
                                 
Basic and diluted loss per common share
  $ (0.01 )   $ (0.00 )   $ (0.02 )   $ (0.01 )
                                 
Weighted average common shares outstanding
    10,156,802       7,406,802       9,573,469       7,406,802  


 
See accompanying notes to condensed consolidated financial statements
 
- 4 -

 


ST. JOSEPH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
UNAUDITED
 
                           
Additional
             
   
Preferred Stock-Series A
   
Common Stock
   
Paid-in
   
Retained
       
   
Shares
   
Par value
   
Shares
   
Par value
   
Capital
   
Deficit
   
Total
 
                                           
Balance December 31, 2008
    386,208     $ 386       7,406,802     $ 7,407     $ 1,950,201     $ (2,176,778 )   $ (218,784 )
                                                         
Sale of common stock @ $0.05 per share
    -       -       2,900,000       2,900       142,100       -       145,000  
                                                         
Conversion of notes payable @$0.05 per share
                                                 
to common stock
    -       -       100,000       100       4,900       -       5,000  
                                                         
Conversion of preferred to common
                                                       
@$0.001 per share
    (330,000 )     (330 )     330,000       330       -       -       -  
                                                         
Net loss for the nine months ended September 30, 2009
    -       -       -       -       -       (155,258 )     (155,258 )
                                                         
Balance September 30, 2009
    56,208       56       10,736,802       10,737       2,097,201       (2,332,036 )     (224,042 )


 
See accompanying notes to condensed consolidated financial statements
 
- 5 -

 


ST. JOSEPH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
UNDAUDITED
 
   
Nine Months Ended
 
   
September 30,
 
OPERATING ACTIVITIES
 
2009
   
2008
 
             
Net income (loss)
  $ (155,258 )   $ 15,238  
Adjustments to reconcile net loss to net cash
               
provided by (used in) operating activities:
               
Depreciation and amortization
    862       835  
Gain on settlement of note payable due to
               
related party and related accrued interest
    (25,526 )     -  
Changes in operating assets and liabilities:
               
(Increase)/decrease in accounts receivable
    143,737       (99,211 )
Increase/(decrease) in accounts payable
    (70,886 )     (18,317 )
Increase/(decrease) in accrued liabilities
    (19,012 )     32,051  
                 
Net cash provided by (used in) operating activities
    (126,083 )     (69,404 )
                 
INVESTING ACTIVITIES
               
Equipment acquisitions
    (1,542 )     (1,627 )
                 
Net cash used in investing activities
    (1,542 )     (1,627 )
                 
FINANCING ACTIVITIES
               
Payments on line of credit
    -       (12,500
)
Settlement of notes payable to related parties
    (50,000 )     -  
Proceeds from officer loan and notes payable
    20,000       -  
Payments on preferred stock dividends
    (16,128 )     -  
Proceeds from sale of common stock
    145,000       -  
Proceeds from sale of preferred stock
    -       -  
                 
Net cash provided by (used in) financing activities
    98,872       (12,500 )
                 
INCREASE (DECREASE) IN CASH
    (28,753 )     (83,531 )
                 
CASH AT BEGINNING OF PERIOD
    221,992       204,135  
                 
CASH AT END OF PERIOD
  $ 193,239     $ 120,604  
                 
                 
SUPPLEMENTAL NON-CASH INVESTING AND
               
FINANCING INFORMATION:
               
                 
Conversion of preferred stock into common stock
  $ 330     $ -  
Conversion of notes payable into common stock
  $ 5,000     $ -  
                 
                 
                 
SUPPLEMENTAL INFORMATION:
               
Cash paid during the period for:
               
Interest
  $ 15,575     $ 26,656  
Income taxes
  $ -     $ -  
 
See accompanying notes to condensed consolidated financial statements
 
- 6 -

 
 
ST. JOSEPH, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(1) 
Basis of Presentation

The condensed financial statements presented herein have been prepared by St. Joseph, Inc. (the “Company”) in accordance with the instructions for Form 10-Q and the accounting policies described in its Form 10-K for the year ended December 31, 2008, and should be read in conjunction with the notes thereto.

In the opinion of management, the accompanying condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim periods presented.  The results of operations presented for the nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the year.
 
ASC105 superseded FASB 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162” , which was issued in June 2009.  Statement 168 establishes the FASB Accounting Standards Codification TM (Codification) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. FASB Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  
 
The Codification will supersede all existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the bases for conclusions on the change(s) in the Codification. The Company does not expect the adoption of ASC105 to have a material impact on the Company’s financial statements.  
 
ASC 855 superseded FASB 165 “Subsequent Events,” which was issued in May 2009. ASC 855 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events. ASC 855 is effective for interim and annual reporting periods ending after September 15, 2009. We adopted the new disclosure requirements in our June 30, 2009 condensed financial statements. The adoption of ASC855 will not have a material effect on our September 30, 2009 financial statements or related disclosures.
 
Financial data presented herein are unaudited.

(2)
Related Party Transactions

During the quarter ended June 30, 2009, as disclosed in a 8-K released on May 9, 2009, we settled a lawsuit between the Company and a former President, CEO and director, John H. Simmons by executing a settlement agreement. In the agreement the Company and Mr. Simmons released all claims against each other. The settlement agreement required the Company to pay Mr. Simmons a sum of $50,000.  The Company booked a one-time credit in the amount of $48,120 in principal and $2,406 in accrued interest to its balance sheet for the cancellation of a note due to Mr. Simmons. The Company also booked an additional one-time credit in the amount of $25,000 to its balance sheet for the cancellation of a note which was due to Mr. Simmons for the cancellation of 250,000 options which had been previously exercised.
 
- 7 -


(3) 
Line of Credit

The Company has a $200,000 line of credit.  At September 30, 2009, the Company has an unpaid and outstanding balance of $180,000.  Interest payments are due monthly.  The Company paid $3,646 in interest payments during the nine months ended September 30, 2009.  The line matures on January 7, 2010. Discussions are ongoing regarding the future amount of the line of credit and there cannot be any assurance that the amount will not be reduced.

(4) 
Note Payable

During the quarter ended September 30, 2009, Kenneth Johnson, Officer and Director of the Company, advanced $15,000 for working capital in exchange for a non-interest bearing promissory note. The note matures on July 24, 2010.

During the quarter ended September 30, 2009, Gerry McIlhargey, President and Director of the Company, advanced $5,000 for working capital in exchange for a non-interest bearing promissory note. The note matures on September 17, 2010.

(5) 
Shareholders’ Equity

Preferred Stock

During the nine months ended September 30, 2009, the Company did not issue any Series A Convertible 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 a balance of 56,208 remains outstanding at September 30, 2009.  Each share of Series A Convertible Preferred Stock is convertible to one share of common stock and has a yield of 6.75% dividend per annum, payable on a quarterly basis out of funds legally available therefore, for a period of 5 years or until December 31, 2008.  There is an accrued amount of Series A Convertible Preferred Stock dividends in the amount of $90,431 as of September 30, 2009.  This amount was lowered by $10,752 in the three months ended September 30, 2009. The Company is currently making dividend payments pursuant to the terms of a settlement agreement, as disclosed in an 8-K released on May 9, 2009.

Common Stock

During the nine months ended September 30, 2009, the Company issued 3,230,000 shares of common stock, as further described below.

In a private placement completed in the quarter ended June 30, 2009, the Company sold 2,900,000 shares of common stock to 11 accredited investors at a price of $0.05 per share for gross proceeds of $145,000, of which $20,000 was received by the Company in the quarter ended June 30, 2009.  No underwriters were used and no underwriting discounts or commissions were payable.  

During the quarter ended June 30, 2009 a $5,000 note payable issued during fiscal year ended December 31, 2008 was converted to common stock at a rate of $0.05 per share resulting in a grant of 100,000 common shares.
 
- 8 -


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.

The Company's largest shareholder of series A convertible preferred stock converted their preferred shares to common shares. The Company issued 330,000 shares of common stock and retired 330,000 shares of Series A preferred stock. Accrued dividends on the Series A preferred stock will continue to be paid by the Company to the shareholder pursuant to the terms of the settlement agreement previously entered into by the parties.

Common Stock Options

The following schedule summarizes the changes in the Company’s equity awards for the nine months ended September 30, 2009:
 
               
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, 2009
    560,000     $ 0.10 - $1.05     $ 0.80    
2.6 years
      -  
Granted
    -     $ -     $ -       -       -  
Exercised
    -     $ -     $ -       -       -  
Cancelled/Expired
    (150,000 )   $ 0.10     $ -       -       -  
Outstanding at September 30, 2009
    410,000     $ 1.05     $ 1.05    
1.9 years
    $ -  
 
(6) 
Income Taxes

The Company records its income taxes in accordance with ASC 740, “Accounting for Income Taxes”.  The Company incurred net operating losses during all periods presented resulting in a deferred tax asset, which has been fully allowed for; therefore, the net benefit and expense resulted in no income taxes.
 
(7) 
Concentration of Credit Risk

The Company conducts a significant portion of its operations with one customer. During the nine months ended September 30, 2009, approximately 50% of the Company's service revenues were conducted with this one customer.

 
- 9 -

 

 
(8) 
Legal Proceedings

As disclosed in an 8-K released on May 9, 2009, we settled a lawsuit between us and a former President, CEO and director, John H. Simmons by executing a settlement agreement.

On October 11, 2007, the Company had filed a lawsuit against Mr. Simmons in the United States District Court, Northern District of Texas, Dallas Division, Civil Action No. 307CV1718-R alleging, among other things, that Mr. Simmons breached his fiduciary duties by diverting Company funds for personal and recreational use and acquiring shares of our common stock without adequate consideration. We sought damages against Mr. Simmons of not less than $75,000, attorneys’ fees, costs of litigation, interest and tremble damages

On October 3, 2007, Mr. Simmons filed a lawsuit in United States District Court, Dallas County, Civil Action No. DC-07-11801 against the Company, its officers, and other individuals.  The complaint alleged, among other things, that the Mr. Simmons 1,900,000 options were converted and that the Company failed to repay a $96,000 promissory note and breached a duty to indemnify Mr. Simmons in relation to previously filed litigation. The complaint also made a variety of accusations against Company’s officers and other individuals, including accusations that these individuals breached fiduciary duties with regard to Mr. Simmons, engaged in fraud and conspiracy to commit fraud, and converted shares and options owned by him. Mr. Simmons sought unspecified damages, both actual and exemplary, against the Company and the other defendants.  During the quarter ended March 31, 2008, Gerald McIlhargey, Maureen O’Brien, Donal Ford and Bruce Schreiner, and David Core were all released from the suit as defendants.

Pursuant to the settlement agreement, the Company and Mr. Simmons released all claims against each other. The settlement agreement required the Company to pay Mr. Simmons a sum of $50,000.  In addition, two shareholders of the Company agreed to effect the purchase of Mr. Simmons’s remaining 60,000 shares of Company common stock for an aggregate price of $30,000 ($0.50 per share).

In connection with the settlement, the Company booked a one-time credit in the amount of $48,120 in principal and $2,406 in accrued interest to its balance sheet for the cancellation of a note due to Mr. Simmons. The Company also booked an additional one-time credit in the amount of $25,000 to its balance sheet for the cancellation of a note, which was due to Mr. Simmons for the cancellation of 250,000 options which had been previously exercised.

As previously disclosed in a quarterly report on Form 10-QSB, filed with the SEC on November 20, 2006, on July 28, 2006, Zachary Karo, a former employee, filed a lawsuit against the Company and its subsidiary Staf*Tek Services, Inc. in the district court in Tulsa County, Oklahoma, Case No. CJ 2006 04713, in connection with stock options allegedly granted to Mr. Karo. Mr. Karo alleges that he was granted an option to purchase up to 25,000 shares of the Company’s common stock at $0.10 per share but that management refused to issue Mr. Karo such shares upon his attempt to exercise of the alleged option. A motion was made by the Company and granted with prejudice to dismiss the case.  Mr. Karo re-filed to vacate the dismissal, which was subsequently vacated; at this time there is a pretrial conference set for November 23, 2009. Mr. Karo is seeking damages, actual and exemplary, against the Company in an amount in excess of $10,000. Management denies that Mr. Karo was owed such stock options. The Company has engaged local counsel and intends to vigorously defend this action on the basis brought by the plaintiffs. The costs of defending against the complaint could be substantial; however management is unable to estimate an amount at this time.
  
As disclosed in a 8-K released on May 9, 2009, we settled a lawsuit against us by two holders of our Series A Preferred Convertible Stock (the “Preferred A”), Phyllis Bell and Paul Aelmore, by entering into a settlement agreement dated effective May 9, 2009 and which was signed by the Company May 5, 2009.  The settlement agreement provides for us to pay the holders of the Preferred A an aggregate of $2,700 per month, retroactive to January 1, 2009, until the balance of Series A dividends owed to them of $117,312 is fully paid.  If we make all required payments, we will have paid down this balance in August 2012.  Of the monthly amount to be paid to the Preferred A holders, Ms. Bell is to receive $2,295 per month and Mr. Aelmore is to receive $176 per month.
 
 
- 10 -


Because the monthly payments are retroactive to January 1, 2009, we made a one-time payment of $12,357 to Ms. Bell and Mr. Aelmore to cover the period of January through May 2009. The monthly payments commenced on June 1, 2009.

Ms. Bell and Mr. Aelmore filed a lawsuit in United States District Court, Northern District of Oklahoma, Case No. 08-CF-00470-TCK-SAJ against the Company, and officers and directors of the Company in September 2008.  Their complaint alleged, among other things, that the Company breached the Share Purchase Agreement by failing to pay dividends on the Series A Convertible Preferred Stock. The Company had been accruing the dividends following a determination by its management that the Company did not have funds legally available for distribution.

In consideration of the obligations undertaken by the Company in the settlement agreement, Ms. Bell and Mr. Aelmore released the Company and its officers and directors named as defendants from all claims made in the complaint and agreed to a dismissal of their legal action.  Further the settlement agreement provides that if the Company is barred by Colorado law from making the required dividend payments, the Company shall not be in default so long as it promptly remits payment at such time as it may legally do so.


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


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.
 
- 11 -



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) 380,500 shares of our $.001 par value Series A convertible preferred stock; (ii) 219,500 shares of our $.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 therefor, for a period of five years.  As the Company did not have funds legally available for distribution at times during this 5-year period, Series A Convertible Preferred Stock dividends in the amount of $90,431 as of September 30, 2009 have been accrued to be paid at such time as the Company may legally do so.

The Series A convertible preferred stock may be converted into our common stock at the rate of one share of convertible preferred stock for one share of common stock at any time by the shareholder. We may call the Series A convertible preferred stock for redemption no sooner than two years after the date of issuance, and only if our common stock is trading on a recognized United States stock exchange for a period of no less than thirty consecutive trading days at a market value of $5.00 or more per share. However, as of this date, our common stock has not traded at that 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.
 

 
- 12 -

 
 
Results of Operations for the Nine Months Ended September 30, 2009 and 2008
 
   
For the Nine Months Ended
             
   
September 30, 2009
   
September 30, 2008
   
Change
   
Change
 
     
$
   
% of Revenue
     
$
   
% of Revenue
     
$
   
%
 
                                           
Net Revenues
  $ 685,343       100.00 %   $ 1,898,545       100.00 %   $ (1,213,202 )     (63.90 ) %
Cost of Revenues
    534,112       77.93 %     1,463,476       77.08 %     (929,364 )     (63.50 ) %
                                                 
Gross Margin (Loss)
    151,231       22.07 %     435,069       22.92 %     (283,838 )     (65.24 ) %
                                                 
Operating Expenses
                                               
Selling, General and Administrative Expenses
    315,978       46.11 %     397,258       20.92 %     (81,280 )     (20.46 ) %
Depreciation and Amortization
    862       0.13 %     835       0.04 %     27       3.23 %
Total Operating Expenses
  $ 316,840       46.23 %   $ 398,093       20.97 %   $ (81,253 )     (20.41 ) %
                                                 
Income (Loss) from Operations
  $ (165,609 )     (24.16 ) %     36,976       1.95 %     (202,585 )     (547.88 ) %
                                                 
Other Income (Expense)
                                               
Interest Income
    -       0.00 %     -       0.00 %     -       0.00 %
Other Income (Expense)
    25,926       3.78 %     (100.00 )     (0.01 ) %     26,026       (26,026.00 ) %
Interest Expense
    (15,575 )     (2.27 ) %     (21,638 )     (1.14 ) %     6,063       (28.02 ) %
Net Other Expense
  $ 10,351       1.51 %   $ (21,738 )     (1.14 ) %   $ 32,089       (147.62 ) %
                                                 
Loss before provision for income tax
    (155,258 )     (22.65 ) %     15,238       0.80 %     (170,496 )     (1,118.89 ) %
Provision for Income Taxes
    -       0.00 %     3,200       0.17 %     (3,200 )     (100.00 ) %
                                                 
Net Income (Loss)
  $ (155,258 )     (22.65 ) %   $ 12,038       0.63 %   $ (167,296 )     (1,389.73 ) %
                                                 
Benefit from tax loss carryforward
    -       0.00 %     3,200       0.17 %     (3,200 )     (100.00 ) %
                                                 
Net Income (Loss)
  $ (155,258 )     (22.65 ) %   $ 15,238       0.80 %   $ (170,496 )     (1,118.89 ) %
                                                 
Gross Profit

For the nine-month period ended September 30, 2009, we had a gross margin of $151,231 compared to a gross margin of $435,069 for the nine-month period ended September, 30 2008.  This decrease in our gross profitability of $283,838 or approximately 65.24% over the prior period is due primarily to lower number of contractors and renegotiated bill rates as explained below.

Revenues for the nine-month period ended September 30, 2009 decreased to $685,343 from $1,898,545 for the nine-month period ended September, 30 2008.  This decrease in net revenues of $1,213,202, or approximately 63.90%, over the prior period, is due primarily to lower number of contractors and renegotiated bill rates.

Cost of revenues for the nine-month period ended September 30, 2009 decreased to $534,112 from $1,463,476 for the nine-month period ended September, 30 2008.  This decrease in cost of revenues of $929,364, or approximately 63.50% over the prior period, is due primarily to lower number of contractors and renegotiated bill rates.

 
- 13 -

 


Total Costs and Expenses

Total costs and expenses for the nine-month period ended September 30, 2009 decreased to $316,840 from $398,093 for the nine-month period ended September, 30 2008.  This decrease in our total operating expenses of $81,253 is approximately 20.41% less than that of the prior period.

General and administrative expenses for the nine-month period ended September 30, 2009 decreased to $315,978 from $397,258 for the nine-month period ended September, 30 2008.  This decrease in general and administrative expenses of $81,280 is approximately 20.46% under that of the prior period.

Other Income/Expenses

Interest expense for the nine-month period ended September 30, 2009 decreased to $15,575 from $21,638 for the nine-month period ended September, 30 2008.  This decrease in interest expense of $6,063, or approximately 28.02% over the prior period, is due primarily to the decrease in interest due on legal fees and our line of credit.

For the nine-month period ended September 30, 2009, we had other income of $25,926 compared to other expenses of $100 for the nine-month period ended September 30, 2008.  This decrease of other expenses of $26,026, or approximately 26,026% over the prior period, is due primarily to the gain on the settlement of liabilities due to related party.

For the nine-month period ended September 30, 2009, we had total other income in the amount of $10,351 compared to ($21,738) in total other income for the nine-month period ended September, 30 2008. This decrease of $32,089 is approximately 147.62% less than that of the prior period.

Profits

For the nine-month period ended September 30, 2009, we incurred an operating loss of $155,258 compared to an operating profit for the nine-month period ended September 30, 2008 of $15,238.  This decrease in operating profits is due primarily to lower margins and decreased number of revenue generating contractor placements.

Net loss for the nine-month period ended September 30, 2009 increased to $155,258 from $15,238 of net income for the nine-month period ended September 30, 2008. This increase in losses of $170,496 or 1,118.89% over the prior period, is due primarily to lower margins and decreased number of revenue generating contractor placements as discussed above.
 
- 14 -


Results of Operations for the Three months ended September 30, 2009 and 2008
 
 
For the Three Months Ended
             
 
September 30, 2009
   
September 30, 2008
   
Change
   
Change
 
     
$
     
$
     
$
   
%
 
                               
Net Revenues
  $ 135,092     $ 614,264     $ (479,172 )     (78.01 ) %
Cost of Revenues
    105,055       477,241       (372,186 )     (77.99 ) %
                                 
Gross Margin (Loss)
    30,037       137,023       (106,986 )     (78.08 ) %
                                 
Operating Expenses
                               
Selling, General and Administrative Expenses
    89,757       134,641       (44,884 )     (33.34 ) %
Depreciation and Amortization
    288       287       1       0.35 %
Total Operating Expenses
  $ 90,045     $ 134,928     $ (44,883 )     (33.26 ) %
                                 
Income (Loss) from Operations
  $ (60,008 )     2,095       (62,103 )     (2,964.34 ) %
                                 
Other Income (Expense)
                               
Interest Income
    -       -       -       0.00 %
Other Income (Expense)
    -       -       -       0.00 %
Interest Expense
    (3,646 )     (5,204 )     1,558       (29.94 ) %
Net Other Expense
  $ (3,646 )   $ (5,204 )   $ 1,558       (29.94 ) %
                                 
Loss before provision for income tax
    (63,654 )     (3,109 )     (60,545 )     1,947.41 %
Provision for Income Taxes
    -       4,199       (4,199 )     (100.00 ) %
                                 
Net Income (Loss)
  $ (63,654 )   $ (7,308 )   $ (56,346 )     771.02 %
                                 
Benefit forom tax loss carryforward
    -       4,199       (4,199 )     (100.00 ) %
                                 
Net Income (Loss)
  $ (63,654 )   $ (3,109 )   $ (60,545 )     1,947.41 %
                                 
Gross Profit

For the three-month period ended September 30, 2009, we had a gross margin of $30,037 compared to a gross margin of $137,023 for the three-month period ended September 30, 2008.  This decrease in our gross profitability of $106,986, or approximately 78.08 % over the prior period, is due primarily to a reduction in the number of contractor placements.

Revenues for the three-month period ended September 30, 2009 decreased to $135,092 from $614,264 for the three-month period ended September 30, 2008.  This decrease in net revenues of $479,172, or approximately 78.01 % over the prior period, is due primarily to a reduction in the number of contractor placements and contractor placements with lower margins.
 
- 15 -


Cost of revenues for the three-month period ended September 30, 2009 decreased to $105,055 from $477,241 for the three-month period ended September 30, 2008.  This decrease in cost of revenues of $372,186, or approximately 77.99% from that of the prior period, is due primarily to a decrease in the number of contractor placements.

Total Costs and Expenses

Total costs and expenses for the three-month period ended September 30, 2009 decreased to $90,045 from 134,928 for the three-month period ended September 30, 2008.  This decrease in our total operating expenses of $44,883 is approximately 33.26% over that of the prior period.

General and administrative expenses for the three-month period ended September 30, 2009 decreased to $89,757 from $134,641 for the three-month period ended September 30, 2008.  This decrease in general and administrative expenses of $44,884 is approximately 33.34% over that of the prior period.

Other Income/Expenses

For the three-month period ended September 30, 2009, we had no other income as well as none for the three-month period ended September 30, 2008.

For the three-month period ended September 30, 2009, we had net other expenses in the amount of $3,646 compared to $5,204 for the three-month period ended September 30, 2008. This decrease of $1,558 is approximately 29.94% less than that of the prior period.

Profits

For the three-month period ended September 30, 2009, we incurred an operating loss of $60,008 compared to operating income for the three-month period ended September 30, 2008 of $2,095.  This increase in operating loss is due primarily to a decrease number and lower margins with our contractor placements.

Net loss for the three-month period ended September 30, 2009 was $63,654 compared to net loss of $7,308 for the three-month period ended September 30, 2008. This increase in net loss is due primarily to a decrease number and lower margins with our contractor placements as discussed above.
 
Liquidity and Capital Resources

As of September 30, 2009, we had a cash reserve of $193,239.  During the nine months ended September 30, 2009, we used cash in the amount of $126,083 in our operating activities.  During this period $165,000 of new funds were raised.

During the nine months ended September 30, 2009 and 2008, the Company’s cash activities were as follows:

   
2009
   
2008
 
Cash used for operating activities
  $ (126,083 )   $ (69,404 )
Cash used in investing activities
  $ (1,542 )   $ (1,627 )
Cash provided by financing activities
  $ 98,872     $ (12,500 )

 
- 16 -

 

Internal Sources of Liquidity

For the nine months ended September 30, 2009, the funds generated from our operations were insufficient to fund our daily operations.  For the nine months ended September 30, 2009, we had a gross margin of $151,231 and we were thus unable to meet our operating expenses of $316,840 for the same period.  After accounting for our total other income of $10,351 for this period, we suffered a net loss of $155,258 for the period. We can provide no assurance that funds from our operations will continue 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 its individual merits. There can be no assurance that we will be able to secure additional funds from debt or equity financing, as and when we need to, or if we can, that the terms of such financing will be favorable to us or our existing stockholders. As a result, our independent registered public accounting firm has issued a “going concern” modification to its report on our audited financial statements for the year ended December 31, 2008.

We have been utilizing a $200,000 line of credit in order to meet our operating expenses. This line of credit is secured by most of our assets and expires January 7, 2009.  Interest is due on the line of credit at the rate of 6.79% per annum and interest payments are due monthly. As of September 30, 2009, the line of credit had an outstanding balance of $180,000.  There has been a temporary verbal extension on the line of credit. Discussions are ongoing regarding the future amount of the line of credit and there cannot be any assurance that the amount will not be reduced.

In our quarter ended June 30, 2009, we completed a private offering we commenced in October 2008. In the private placement we sold 2,900,000 shares of common stock to 11 accredited investors at a price of $0.05 per share for gross proceeds of $145,000.  Of these amounts, during the quarter ended June 30, 2009, we sold 400,000 shares of common stock to one accredited investor for projected gross proceeds of $20,000.

During the quarter ended September 30, 2009, we borrowed money from our management as follows:

·  
 On July 24, 2009 Kenneth Johnson, our Secretary, Treasurer and a member of our Board, advanced $15,000 to the Company for working capital in exchange for an unsecured promissory note which  matures on July 24, 2010 and does not bear any interest.

·  
On September 17, 2009, Gerry McIlhargey, our President and a member of our Board, advanced $5,000 for working capital in exchange for an unsecured promissory note which matures on September 17, 2010 and does not bear any interest.

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.
 
- 17 -


Risk Factors

Reference is made to “Risk Factors” included in our Annual Report on Form 10-KSB for the year ended December 31, 2008 for information concerning risk factors. There have been no material changes in the risk factors since the filing of this Annual Report with the SEC on September 30, 2009.


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, 2009.  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, 2009, 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, 2009. 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, 2009, 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.
 
- 18 -


ITEM 4T. 
CONTROLS AND PROCEDURES

Not Applicable
 
PART II  - OTHER INFORMATION

ITEM 1. 
LEGAL PROCEEDINGS

As previously disclosed in a quarterly report on Form 10-QSB, filed with the SEC on November 20, 2006, on July 28, 2006, Zachary Karo, a former employee, filed a lawsuit against the Company and its subsidiary Staf*Tek Services, Inc. in the district court in Tulsa County, Oklahoma, Case No. CJ 2006 04713, in connection with stock options allegedly granted to Mr. Karo. Mr. Karo alleges that he was granted an option to purchase up to 25,000 shares of the Company’s common stock at $0.10 per share but that management refused to issue Mr. Karo such shares upon his attempt to exercise of the alleged option. A motion was made by the Company and granted with prejudice to dismiss the case.  Mr. Karo re-filed to vacate the dismissal, which was subsequently vacated; at this time there is a pretrial conference set for November 23, 2009. Mr. Karo is seeking damages, actual and exemplary, against the Company in an amount in excess of $10,000. Management denies that Mr. Karo was owed such stock options. The Company has engaged local counsel and intends to vigorously defend this action on the basis brought by the plaintiffs. The costs of defending against the complaint could be substantial; however management is unable to estimate an amount at this time.

Material developments in legal proceedings during our first and second quarters for fiscal 2009 are disclosed in our Quarterly Reports on Form 10-Q filed for such periods.

ITEM 1A. 
RISK FACTORS

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

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

During our fiscal quarter ended September 30, 2009, we made the following sales of equity securities:  In September 2009, a shareholder exercised her right to convert 330,000 shares of Series A Convertible Preferred Shares into 330,000 shares of common stock.  These shares of common stock were issued as restricted stock pursuant to Rule 144. This  issuance of common stock was exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended.

ITEM 3. 
DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. 
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On August 30, 2009, shareholders holding a majority of the voting rights of our capital stock executed a written consent (the “Written Consent”) to effect (i) the election of five directors for a term of one year or until their successors are duly elected and qualified, and (ii) the ratification of the appointment of Cordovano & Honeck, LLP, as our independent public accountants.

Pursuant to the Written Consent, the Board of Directors, as described in our Annual Report on Form 10-KSB for fiscal 2008, was re-elected in its entirety. The Written Consent was executed to become effective 20 days following the mailing of a definitive information statement to our shareholders and accordingly became effective on approximately August 30, 2009. Shareholders holding 6,883,088 shares of common stock executed the Written Consent.
 
- 19 -


ITEM 5. 
OTHER INFORMATION

None.

ITEM 6. 
EXHIBITS


Exhibit No.
Description
   
31.1
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  (Filed herewith)
 
31.2
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  (Filed herewith)
 
32.1
Certification of Chief Executive Officer pursuant to pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act  of  2002 (Filed herewith)
 
32.2
Certification of Chief Financial Officer pursuant to pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act  of  2002 (Filed herewith)


SIGNATURES

Pursuant to the requirments of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Date:  November 17, 2009
 
ST. JOSEPH, INC.
 
 
/s/ GERALD MCILHARGEY                   
Gerald McIlhargey, Chief Executive Officer
 
 
 
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