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EX-31.1 - ST JOSEPH INC | v179298_ex31-1.htm |
EX-32.2 - ST JOSEPH INC | v179298_ex32-2.htm |
EX-32.1 - ST JOSEPH INC | v179298_ex32-1.htm |
EX-31.2 - ST JOSEPH INC | v179298_ex31-2.htm |
FORM 10-K
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2009
OR
o
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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 Small Business Issuer as specified in its charter)
COLORADO
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CH90-0197648
|
|
(State
or other jurisdiction
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(IRS
Employer Identification No.)
|
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of
incorporation or organization)
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||
4870 S. Lewis, Suite 250, Tulsa,
OK
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74105
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (918) 742-1888
Securities
registered under Section 12(b) of the Exchange
Act: None
Securities
registered under Section 12(g) of the Exchange Act: Common Stock, par value
$0.001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
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 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. Yes þ
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
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. (Check
one):
Large
accelerated filer
o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company
þ
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No þ
Based
on the closing sale price of $0.71 of the registrant’s common stock on the last
business day of our most recently second fiscal quarter, June 30, 2009, the
aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant computed by reference to the price at which the
common stock was last sold was $3,582,576.
As
of March 6, 2010 there were 10,812,302 shares of the registrant’s Common Stock
issued and outstanding.
ST.
JOSEPH, INC.
Form
10-K
For
the Fiscal Year Ended December 31, 2009
TABLE
OF CONTENTS
PART
I
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2
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ITEM
1. BUSINESS
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3
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ITEM
1A. RISK FACTORS
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5
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ITEM
1B. UNRESOLVED STAFF
COMMENT
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7
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ITEM
2. PROPERTIES
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7
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ITEM
3. LEGAL PROCEEDINGS
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7
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ITEM
4. REMOVED AND RESERVED
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7
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PART
II
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7
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ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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7
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ITEM
6. SELECTED FINANCIAL DATA
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9
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ITEM
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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9
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ITEM
7A. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET
RISK
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14
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ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTRY DATA
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14
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ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
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14
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ITEM
9A. CONTROLS AND PROCEDURES
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14
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ITEM
9B. OTHER INFORMATION.
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15
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PART
III
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15
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ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
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15
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ITEM
11. EXECUTIVE COMPENSATION
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19
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ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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22
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ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
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24
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ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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26
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ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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26
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i
PART
I
FORWARD
LOOKING STATEMENTS
This Form
10-K, the other reports, statements, and information that we have previously
filed or that we may subsequently file with the Securities and Exchange
Commission and public announcements that we have previously made or may
subsequently make include, may include, incorporate by reference or may
incorporate by reference certain statements that may be deemed to be
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements
relate to such matters as, among other things, our anticipated financial
performance, business prospects, technological developments, new products,
future distribution or license rights, international expansion, possible
strategic alternatives, new business concepts, capital expenditures, consumer
trends and similar matters.
Forward
looking statements necessarily involve known and unknown risks, uncertainties
and other factors that may cause our actual results, levels of activity,
performance, or achievements to be materially different from any future results,
levels of activity, performance, or achievement expressed or implied by such
forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"could," "intend," “expect,” “anticipate,” “assume”, “hope”, “plan,” “believe,”
“seek,” "estimate," "predict," “approximate,” "potential," "continue", or the
negative of such terms. Statements including these words and
variations of such words, and other similar expressions, are forward-looking
statements. Although we believe that the expectations reflected in
the forward-looking statements are reasonable based upon our knowledge of our
business, we cannot absolutely predict or guarantee our future results, levels
of activity, performance, or achievements. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness of
such statements.
We note
that a variety of factors could cause our actual results and experience to
differ materially from the anticipated results or other expectations expressed
in our forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of our business
include, but are not limited to, the following: changes in consumer spending
patterns; changes in consumer preferences and overall economic conditions; the
impact of competition and pricing; the financial condition of the suppliers and
manufacturers from whom we source our merchandise; economic and political
instability in foreign countries or restrictive actions by the governments of
foreign countries in which suppliers and manufacturers from whom we source
products are located or in which we may actually conduct or intend to expand our
business; changes in tax laws, or the laws and regulations governing direct or
network marketing organizations; our ability to hire, train and retain a
consistent supply of reliable and effective participants in our direct or
network marketing operation; general economic, business and social conditions in
the United States and in countries from which we may source products, supplies
or customers; the costs of complying with changes in applicable labor laws or
requirements, including without limitation with respect to health care; changes
in the costs of interest rates, insurance, shipping and postage, energy, fuel
and other business utilities; the reliability, longevity and
performance of our licensors and others from whom we derive intellectual
property or distribution rights in our business; the risk of non-payment by,
and/or insolvency or bankruptcy of, customers and others owing indebtedness to
us; threats or acts of terrorism or war; and strikes, work stoppages or slow
downs by unions affecting businesses which have an impact on our ability to
conduct our own business operations.
Forward-looking
statements that we make, or that are made by others on our behalf with our
knowledge and express permission, are based on knowledge of our business and the
environment in which we operate, but because of the factors listed above, actual
results may differ from those in the forward-looking
statements. Consequently, these cautionary statements qualify all of
the forward-looking statements we make herein. We cannot assure the
reader that the results or developments anticipated by us will be realized or,
even if substantially realized, that those results or developments will result
in the expected consequences for us or affect us, our business or our operations
in the way we expect. We caution readers not to place undue reliance
on these forward-looking statements, which speak only as of their dates, or on
any subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
cautionary statements. We do not undertake any obligation to release
publicly any revisions to such forward-looking statements to reflect events or
circumstances after the date hereof or thereof or to reflect the occurrence of
unanticipated events.
2
ITEM
1. BUSINESS
Our
Background and Business Development
St.
Joseph, Inc. (“us,” “we,” “our” or the “Company”) 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.
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 unsuccessful 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. We acquired Staf*Tek Services, Inc. (“Staf*Tek”) as a wholly
owned subsidiary on January 2, 2004. We presently conduct all of our
business through Staf*Tek.
Staf*Tek
Services, 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.
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.
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.
Supply of
Professionals
Concurrent
with the growth in the demand for outsourced services, Staf*Tek is of the
belief, based on discussions with its associates that the number of
professionals seeking work on a project and non-project basis has increased due
to a desire for:
|
o
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More
flexible hours and work arrangements, coupled with competitive wages and
benefits; and
|
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o
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Challenging
engagements that advance careers, develop skills, and add to
experience.
|
3
Staf*Tek
maintains its own database of approximately 20,000 trained independent contract
professionals. Once a professional is placed, he or she either becomes an
employee of our Company or the client's employee.
Marketing and
Recruiting
Staf*Tek
markets its temporary and permanent staffing services to business clients as
well as employment candidates. Marketing and recruiting directed to business
clients and employment candidates consists primarily of yellow pages
advertisements, classified advertisements, websites, internet job
sites, trade shows and website promotion on the Internet.
We and
our subsidiaries have registered the following domain names: getsmartonline.com,
staftek.com, stafmedglobal.com, confidentialsearch.com and
stjosephinc.com.
Management
of the Staf*Tek’s temporary and permanent staffing operations is coordinated
from our headquarters in Tulsa, Oklahoma. Our headquarters provides support and
centralized services related to administrative, marketing, public relations,
accounting and training.
Competition
Staf*Tek’s
temporary and permanent staffing services face competition in attracting clients
as well as high-quality specialized employment candidates. The temporary
and permanent placement businesses are highly competitive, with a number of
firms offering services similar to those provided by Staf*Tek on a national,
regional or local basis. In many areas the local companies are the most
successful competitors. The most significant competitive factors in the
temporary and permanent placement businesses are price and the reliability of
service, both of which are often a function of the availability and quality of
professional personnel. We believe that Staf*Tek derives a competitive
advantage from its extensive experience and
commitment to the specialized employment market, temporary employees placed by
it are, in fact, Staf*Tek’s employees for all purposes while they are working on
assignments. Once a professional is permanently placed, he or she either
becomes an employee of Staf*Tek or of Staf*Tek’s client. During the
temporary phase, Staf*Tek pays the related costs of employment, such as workers'
compensation insurance, state and federal unemployment taxes, social security
and certain fringe benefits. Staf*Tek provides access to voluntary health
insurance coverage to interested employees.
Major
Clients
We are
dependent on a small number of clients for a majority of our revenues. During
our year ended December 31, 2009, approximately 45% of our revenues were derived
from our largest client and all of our revenues were derived from a total of
nine clients.
Employees and Revenue
Generating
We
currently have four paid employees, and no part-time employees.
Acquisition
Strategy
The
Company has decided to pursue suitable candidates for future acquisition that
potentially create value for our existing shareholders. The Company hopes to
acquire other operating companies as subsidiaries. Acquisition
targets may be in sectors other then the Company’s current sector of providing
employment agency services. Although not the Company’s goal,
the Company would also consider a reverse merger, if it were seen to be a growth
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.
4
Reports to Security
Holders
We are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance with the Exchange Act
we file reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Our security holders or any
member of the public may inspect and copy the reports, proxy statements and
other information filed by us with the Commission at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the Commission's Regional
Offices. Our security holder or any member of the public may also
call the Commission at 1-800-SEC-0330 for more information about the public
reference room, how to obtain copies of documents by mail or how to access
documents electronically on the Commission's Web site at (http://www.sec.gov).
ITEM
1A. RISK FACTORS
Our
business prospects are subject to various risks and uncertainties that impact
our business. The most important of these risks and uncertainties are as
follows:
Our auditor has expressed substantial
doubt as to our ability to continue as a going concern. An inability to continue
as a going concern would likely lead to a loss of your entire
investment.
Our
independent certified public accountant's report on our financial statements for
the fiscal years ended December 31, 2009 and 2008 contains an explanatory
paragraph indicating that we have incurred recurring losses, and as of December
31, 2009, had negative working capital and a net capital
deficiency. These factors raise substantial doubt about our ability
to continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
We
operate solely through our subsidiary, Staf*Tek Services, Inc.; our revenues are
dependent on the performance of our subsidiary.
We
operate and generate revenues solely through our subsidiary,
Staf*Tek. St. Joseph, Inc. has not generated any revenues since its
inception and does not expect to generate any revenues in the future. Our
success depends on the success of Staf*Tek and there is no assurance that we can
achieve profitability through Staf*Tek in the future. Our performance
will depend on our ability to manage this anticipated growth effectively by
hiring key management personnel, implementing and maintaining operational,
administrative, marketing and control systems on a timely basis, building and
maintaining our network infrastructure, conducting successful marketing and
sales programs, attracting and retaining qualified employees and having access
to working capital to support the growth in inventory, receivables, capital
requirements and operating costs necessitated by the assumed increased
sales.
From
time to time, we may need additional capital to meet the objectives of our
business plan, and there is no assurance that we will be able to raise such
capital or that such financing will be on terms that are favorable or acceptable
to us.
We have
taken steps to increase the placement of employees. However, the
placement of temporary employees requires substantial additional capital to fund
our working capital needs. When an employee is placed on a temporary basis, an
invoice is generated for the placement fee, which may not be paid for a number
of weeks while the employment costs are immediately incurred. Thus, even though,
in the long run, our success in placing temporary employees will enhance our
revenues; in the short term, our increasing placement of temporary employees is
decreasing our liquidity. Accordingly, to remain viable, we must substantially
increase our revenues, raise additional capital, increase our credit facilities,
and/or reduce our operations. In the event that our plans or assumptions change
or prove to be inaccurate, or if delays increase the payment of our placement
fees, we may be required to raise additional funds through the issuance of
equity securities, in which case the percentage ownership of our current
stockholders will be diluted. Such equity securities may also have
rights, preferences or privileges senior to common
stock. Furthermore, there can be no assurance that additional
financing will be available when needed on terms favorable to us or at all. If
we are unable to raise more money, our growth could be impeded, and our business
could be materially adversely affected.
Our failure to effectively manage
growth could have a material adverse effect on our business and
operations.
We expect
our business to grow, and such growth could occur rapidly at an uneven
pace. Such growth will place a significant strain on our management
systems and resources. We will need to continue to improve our
operational and financial systems and managerial controls and procedures, and we
will need to continue to expand, train and manage our workforce. We
will have to maintain close coordination among our technical, accounting,
finance, marketing and sales personnel.
5
If we lose key
personnel or fail to integrate replacement personnel successfully, our ability
to manage our business could be impaired.
Our
future success depends upon the continued service of our key management and
other critical personnel such as John Blackmon. Whether we are able to execute
our business strategy effectively will depend in large part on how well key
management and other personnel perform in their positions and are integrated
within our company. There is no assurance that we have will be able
to retain these key management and personnel. The loss of any key
employee could result in significant disruptions to our operations, the
successful implementation and completion of company initiatives and the results
of our operations. In addition, the integration of replacement
personnel could be time consuming, may cause additional disruptions to our
operations and may be unsuccessful.
Factors
outside of our control may adversely affect our operations and operating
results.
The
demand for our temporary and permanent staffing services is highly dependent
upon the state of the economy and upon the staffing needs of our clients. Any
variation in the economic condition or unemployment levels in the United States
or in the economic condition of the region where our clients are located, or in
any specific industry may severely reduce the demand for our services and
thereby significantly decrease the our revenues and
profits. Furthermore, our temporary and permanent staffing services
business consists of the placement of individuals seeking temporary and
permanent employment. There can be no assurance that qualified candidates for
employment will continue to seek employment through Staf*Tek. Qualified
candidates generally seek temporary or permanent positions through multiple
sources, including Staf*Tek and its competitors. Any shortage of
qualified candidates could materially adversely affect our
revenues.
Our market is
competitive, and our financial results and financial condition could be
adversely affected if we are unable to anticipate or react to this
competition.
The
market for temporary and permanent staffing services is highly competitive and,
because it is a service business, the barriers to entry are quite
low. There are many competitors, some of which have greater resources
than us, and new competitors are constantly entering the market. In
addition, long-term contracts form a negligible portion of our
revenues. Therefore, there can be no assurance that we will be able
to retain clients or market share in the future. Nor can there be any
assurance that we will, in light of competitive pressures, be able to remain
profitable or maintain our current profit margins. If we fail to compete
successfully in this highly competitive market, our business, financial
condition, and results of operations will be materially and adversely
affected.
We
depend on attracting and retaining qualified candidates; during periods of
economic growth, our costs to do so increases and it becomes more difficult to
attract and retain people.
The
success of our staffing services depends on our ability to attract and retain
qualified employees for placement with our customers. Our ability to attract and
retain qualified personnel could be impaired by rapid improvement in economic
conditions resulting in lower unemployment and increases in compensation. During
periods of economic growth, we face growing competition for retaining and
recruiting qualified personnel, which in turn leads to greater advertising and
recruiting costs and increased salary expenses. If we cannot attract and retain
qualified employees, the quality of our services may deteriorate and our
reputation and results of operations could be adversely affected.
Our
inability to attract and retain qualified employees could have a material
adverse effect on our business, financial condition and results of
operations.
Our
business involves the delivery of professional services and is very labor
intensive. Our success depends in large part upon our ability to
attract, develop, motivate and retain highly skilled technical employees. We can
experience high turnover of our personnel and are often required to recruit and
train replacement personnel as a result of a changing and expanding work
force. Accordingly, we may experience increased compensation
costs that may not be offset through either increased productivity or higher
customer pricing. Furthermore, the market for IT services change
rapidly because of technological innovation, new product introductions, changes
in customer requirements, evolving industry standards and many other
factors. New products and new technology often render existing
information services or technology infrastructure obsolete, excessively costly
or otherwise unmarketable. As a result, our success depends on our
ability to attract and retain qualified employee candidates who are
knowledgeable and familiar with these new products and
technologies. We cannot guarantee that we will be successful in
recruiting and retaining sufficient numbers of qualified employee candidates in
the future, especially when we need to expand our services in a short time
period. Our inability to attract and retain qualified personnel, or
increases in wages or other costs of attracting, training or retaining qualified
personnel, could have a material adverse effect on our business, financial
condition and results of operations.
6
45%
of our revenues come from one client.
During
our year ended December 31, 2009, approximately 45% of our revenues were derived
from our largest client. The loss of this client or the decline in business from
this client would have a material adverse effect on our revenues and
profits. Accordingly, any events that create an adverse affect on
this clients operations or financial performance may also create a material
adverse effect on our revenues and profits.
Our
revenues are generated by only nine clients.
At the
present time, our revenues come from only nine clients. The loss of
any of these clients or the decline in business from any of these clients will
have a material adverse effect on our revenues and profits.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
Applicable.
ITEM
2. PROPERTIES
We lease
approximately 2286 square feet of office space from a non-affiliated third party
at 4870 South Lewis, Suite 250, Tulsa, OK 74105. Our monthly lease
payment is $2667. The lease commenced May 1, 2004 and expires April
30, 2012
ITEM
3. 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 of StafTek
Services, Inc. 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 set for June 7, 2010. 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.
ITEM
4. (REMOVED AND RESERVED)
Not
applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our
common stock is traded on the OTC Bulletin Board under the symbol
STJO.OB.
7
The
following table shows the high and low bid information for our common stock for
each quarter during 2008 - 2009.
QUARTER
|
LOW
BID
|
HIGH
BID
|
||||||
Quarter
ending December 31, 2009
|
$ | 0.56 | $ | 0.80 | ||||
Quarter
ending September 30, 2009
|
$ | 0.26 | $ | 1.01 | ||||
Quarter
ending June 30, 2009
|
$ | 0.07 | $ | 0.80 | ||||
Quarter
ending March 31, 2009
|
$ | 0.10 | $ | 0.16 | ||||
Quarter
ending December 31, 2008
|
$ | 0.10 | $ | 0.15 | ||||
Quarter
ending September 30, 2008
|
$ | 0.10 | $ | 0.22 | ||||
Quarter
ending June 30, 2008
|
$ | 0.10 | $ | 0.20 | ||||
Quarter
ending March 31, 2008
|
$ | 0.20 | $ | 0.55 |
The above
information was obtained from the NASD. Because these are over-the-counter
market quotations, these quotations reflect inter-dealer prices, without retail
mark-up, markdown or commissions and may not represent actual
transactions. There is currently no public trading market for our
preferred stock.
As of
December 31, 2009, representing the last trading day of our most recently
completed fiscal quarter, there were 10,812,302 shares of common stock issued
and outstanding, held by approximately 210 shareholders of
record. Within the holders of record of our common stock are
depositories, such as Cede & Co., that hold shares of stock for several
brokerage firms which, in turn, hold shares of stock for a multitude of
additional beneficial owners. Accordingly, it is impossible for us to
determine exactly how many beneficial stockholders we actually
have. As of December 31, 2009, there were 5,708 shares of our Series
A Convertible Preferred Stock issued and outstanding, held by one shareholders
of record.
As of
December 31, 2009, there were 385,000 outstanding options or warrants to
purchase shares of common stock and 5,708 outstanding shares of Series A
Preferred Stock convertible into shares of the Company's Common
Stock. The options may be converted into common shares at a weighted
average exercise price of $1.05 per share and the preferred shares may be
converted into common shares on a one for one basis.
Dividend
Policy
We have
never paid a cash dividend on our common stock nor do we anticipate paying cash
dividends on our common stock in the near future. It is our present
policy to not to pay cash dividends on our common stock but to retain earnings,
if any, to fund growth and expansion. Any payment of cash dividends
of the common stock in the future will be dependent upon our financial
condition, results of operations, current and anticipated cash requirements,
plans for expansion, as well as other factors the Board of Directors deems
relevant.
Penny
Stock
Our
common stock is subject to the provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
referred to as the "penny stock rule." Section 15(g) sets forth certain
requirements for transactions in penny stocks, and Rule 15g-9(d) (1)
incorporates the definition of "penny stock" that is found in Rule 3a51-1 of the
Exchange Act. The Securities and Exchange Commission ("SEC") generally defines
"penny stock" to be any equity security that has a market price less than $5.00
per share, subject to certain exceptions. If our Common Stock is deemed to be a
penny stock, trading in the shares will be subject to additional sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. "Accredited investors" are
persons with assets in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 together with their spouse. For transactions covered by these rules,
broker-dealers must make a special suitability determination for the purchase of
such security and must have the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the first
transaction, of a risk disclosure document, prepared by the SEC, relating to the
penny stock market. A broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative, and current
quotations for the securities. Finally, monthly statements must be sent
disclosing recent price information for the penny stocks held in an account and
information on the limited market in penny stocks. Consequently, these rules may
restrict the ability of broker-dealers to trade and/or maintain a market in our
Common Stock and may affect the ability of our shareholders to sell their
shares.
8
Recent
Sales of Unregistered Securities
Set forth
below is information regarding the sale of equity securities during the year
ended December 31, 2009 that were not registered under the Securities Act of
1933, as amended (the "Securities Act"), and which were not previously disclosed
either in a quarterly report on Form 10-Q or on a current report on Form
8-K:
In
December, 2009, two shareholders exercised the right to convert a total of
50,500 shares of Series A Convertible Preferred Shares into 50,050 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.
On
December 4, 2009, Kenneth Johnston, one of our Directors received 25,000 shares
of our common stock through the exercise of vested stock options. Mr. Johnston
paid the exercise option price of $1.05 per share through the conversion of
$26,250 of debt owed to him by the Company. The issuance was exempt from
registration pursuant to Rule 701 and Section 4(2) of the Securities Act of
1933, as amended.
ITEM
6. SELECTED FINANCIAL DATA
As a
smaller reporting company, we are not required to provide the information
required by this Item.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The
following discussion should be read in conjunction with our audited Consolidated
Financial Statements and accompanying Notes, included herein. 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 the
results anticipated in these statements as a result of a variety of factors,
including those discussed in our filings with the Securities and Exchange
Commission and as discussed in the sections under the heading "Risk Factors" in
this Report.
Any
reference to "we," "us" and "our" herein shall mean St. Joseph, Inc., together
with its consolidated subsidiary, Staf*Tek Services, Inc.
Overview
For the
year ended December 31, 2009, we generated revenues of $836,955, which is
significantly down from $2,432,778 for the year ended December 31,
2008. The decrease is primarily due to the decrease in revenues from
the loss in Staf*Tek’s contracted employees whom either fulfilled their
contracts or were laid off. For the year ending December 31, 2009,
Staf*Tek's total service revenues decreased by $1,595,823, when compared to the
total service revenues for 2008.
Our
ability to continue as a going concern is contingent upon the successful
completion of additional financing arrangements, and the development of
operational solutions to achieve and maintain profitable
operations. We currently do not have adequate resources to fund our
operations and we will need to raise funds and/or increase our revenues in order
to sustain our operations. Management plans to finance our operating
and capital requirements through business alliances, such as strategic or
financial transactions with third parties, the sale of securities, or other
financing arrangements. Amounts raised will be used for working capital
purposes, to further develop our services, and to provide financing for
marketing and promotion of our business. While our Management is expending its
best efforts to achieve the above plans, there is no assurance that any such
activity will generate funds that will be available for
operations.
9
These
conditions raise substantial doubt about our ability to continue as a going
concern. Our financial statements do not include any adjustments related to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that may be necessary should the Company be unable
to continue in existence. (See "Risk Factors" and "Financial Statements Footnote
1.")
Since
inception Staf*Tek business has been the recruiting and the placement of
professional technical personnel on a temporary and permanent basis in the
Tulsa, Oklahoma area. Staf*Tek assists their clients with projects that require
specialized expertise ranging from multiple platform systems integration to
end-user support, including specialists in programming, networking, systems
integration, database design and help desk support, as well as providing
qualified candidates in senior and entry level finance and
accounting.
10
Results
of Operations for the Twelve Months Ended December 31, 2009 and
2008
December 31, 2009
|
December 31, 2008
|
Change
|
Change
|
|||||||||||||||||||||
% of
|
% of
|
|||||||||||||||||||||||
$
|
Revenue
|
$
|
Revenue
|
$
|
%
|
|||||||||||||||||||
Net
Revenues
|
$ | 836,955 | 100.00 | % | $ | 2,432,778 | 100.00 | % | $ | (1,595,823 | ) | (65.60 | )% | |||||||||||
Cost
of Revenues
|
648,846 | 77.52 | % | 1,870,063 | 76.87 | % | (1,221,217 | ) | (65.30 | )% | ||||||||||||||
Gross
Margin (Loss)
|
188,109 | 22.48 | % | 562,715 | 23.13 | % | (374,606 | ) | (66.57 | )% | ||||||||||||||
Operating
Expenses
|
||||||||||||||||||||||||
Selling,
General and Administrative Expenses
|
395,373 | 47.24 | % | 535,469 | 22.01 | % | (140,096 | ) | (26.16 | )% | ||||||||||||||
Depreciation
and Amortization
|
1,149 | 0.14 | % | 1,123 | 0.05 | % | 26 | 2.32 | % | |||||||||||||||
Total
Operating Expenses
|
$ | 396,522 | 47.38 | % | $ | 536,592 | 22.06 | % | $ | (140,070 | ) | (26.10 | )% | |||||||||||
Income
(Loss) from Operations
|
$ | (208,413 | ) | (24.90 | )% | 26,123 | 1.07 | % | (234,536 | ) | (897.81 | )% | ||||||||||||
Other
Income (Expense)
|
||||||||||||||||||||||||
Interest
Income
|
- | 0.00 | % | (1.00 | ) | (0.00 | )% | 1 | (100.00 | )% | ||||||||||||||
Other
Income (Expense)
|
25,926 | 3.10 | % | - | 0.00 | % | 25,926 | 0.00 | % | |||||||||||||||
Interest
Expense
|
(23,477 | ) | (2.81 | )% | (29,295 | ) | (1.20 | )% | 5,818 | (19.86 | )% | |||||||||||||
Net
Other Expense
|
$ | 2,449 | 0.29 | % | $ | (29,296 | ) | (1.20 | )% | $ | 31,745 | (108.36 | )% | |||||||||||
Loss
before provision for income tax
|
(205,964 | ) | (24.61 | )% | (3,173 | ) | (0.13 | )% | (202,791 | ) | 6,391.14 | % | ||||||||||||
Provision
for Income Taxes
|
- | 0.00 | % | - | 0.00 | % | 0 | 0.00 | % | |||||||||||||||
Net
Income (Loss)
|
$ | (205,964 | ) | (24.61 | )% | $ | (3,173 | ) | (0.13 | )% | $ | (202,791 | ) | 6,391.14 | % | |||||||||
Benefit
from tax loss carryforward
|
- | 0.00 | % | - | 0.00 | % | 0 | 0.00 | % | |||||||||||||||
Net
Income (Loss)
|
$ | (205,964 | ) | (24.61 | )% | $ | (3,173 | ) | (0.13 | )% | $ | (202,791 | ) | 6,391.14 | % |
Net
Revenues
Net Revenues for the twelve months
ended December 31, 2009 decreased to $836,955 from $2,432,778 for the twelve
months ended December 31, 2008. The decrease in net revenues of $1,595,823 or
approximately 65.60%, over the 2009 period is due primarily to decreased
revenues generated by the loss of contracted employees and a decrease in hiring
due to economic conditions since the prior period.
Cost of
Revenues
Cost of
Revenues for the twelve months ended December 31, 2009 decreased to $648,846
from $1,870,063 for the twelve months ended December 31, 2008. The overall
decrease in cost of revenues of $1,221,217, or approximately 65.30%, over the
2009 period is directly attributable to the cost associated with the decrease in
number of newly contracted employees described above.
Gross
Margin
The
overall gross margin for the twelve months ended December 31, 2009 decreased to
$188,109 from $562,715 for the twelve months ended December 31, 2008. The
overall decrease in gross margin of $374,606 or approximately 66.57% over the
2008 period is directly attributable to reduced costs in hiring and retaining
our newly contracted employees.
Operating
Expenses
Total
operating expenses for the twelve months ended December 31, 2009 decreased to
$396,522 from $536,592 for the twelve months ended December 31,
2008. Reasons for the overall decrease in operating expenses of
$140,070 or approximately 26.10%, over the 2009 period is covered below in our
discussions of General and Administrative Expenses and Stock-Based
Compensation.
11
General and Administrative
Expenses
General
and administrative expenses for the twelve months ended December 31, 2009
decreased to $395,373 from $535,469 for the twelve months ended December 31,
2008. The decrease in general and administrative expenses of $140,096 or
approximately 26.16%, over the 2009 period is due primarily to the reduction in
administrative staff salaries.
Stock-Based Compensation –
Common Stock Options Granted
We did
not grant any common stock options in the twelve months ended December 31,
2009.
Loss on Goodwill
Impairment
The
Company recorded a non-cash goodwill impairment charge of $0 in the accompanying
consolidated financial statements for the year ended December 31, 2009.
Following the impairment charge, there is no goodwill balance remaining at
December 31, 2009.
Total Operating Income and
Losses
Total
operating losses for the twelve months ended December 31, 2009 increased to
$208,413 from operating income of $26,123 for the twelve months ended December
31, 2008. The overall decrease in operating income of $234,536 or approximately
897.81% over the 2009 period is due to reduction in gross margin.
Net Other
Expenses
Net other
expenses for the twelve months ended December 31, 2009 decreased to $2,449 net
income from $29,296 net expense for the twelve months ended December 31,
2008. The overall decrease in our other expenses of $31,745, or
approximately 108.36% over the 2008 period is primarily due to the gain for
settlement of a law suit with John H. Simmons.
Interest
Income
Interest
income for the twelve months ended December 31, 2009 decreased to $0 from ($1)
for the twelve months ended December 31, 2008.
Interest
Expense
Interest
expense for the twelve months ended December 31, 2009 decreased to $23,477 from
$29,295 for the twelve months ended December 31, 2008. The overall decrease in
our interest expense of $5,818 or approximately 19.86% over the 2009 period is
due primarily to the decrease of interest bearing debts.
Net Loss
Net Loss
for the twelve months ended December 31, 2009 increased to $205,964 from $3,173
for the twelve months ended December 31, 2008. This increase in net loss of
$202,791 or approximately 6,391.14% over the 2009 period is due primarily to the
reduction of gross margin.
Liquidity
and Capital Resources
December 31, 2009
|
December 31, 2008
|
|||||||
Net
cash (used in) provided by operating activities
|
$ | (166,775 | ) | $ | 29,485 | |||
Net
cash (used in) provided by investing activities
|
$ | (1,542 | ) | $ | (1,628 | ) | ||
Net
cash (used in) provided by financing activities
|
$ | 96,306 | $ | (10,000 | ) |
General
For the
twelve months ended December 31, 2009, we had negative cash flows resulting from
$166,775 of cash used in our operating activities, $1,542 of cash used in our
investing activities and $96,306 of cash provided by our financing
activities. Accordingly, for the twelve months ended December 31,
2009, our funds from operations were not sufficient to cover our daily
operations as further explained below.
12
Cash Flows from Operating
Activities
Net cash
used in our operating activities of $166,775 for the twelve months ended
December 31, 2009 was primarily attributable to the net loss and offset by
depreciation expense, decreases in accounts receivable and increases in accrued
liabilities.
Cash Flows from Investing
Activities
Net cash
used in our investing activities of $1,542 for the twelve months ended December
31, 2009.
Cash Flows from Financing
Activities
Net cash
provided by our financing activities of $96,306 for the twelve months ended
December 31, 2009 primarily from proceeds of common stock sales.
Internal Sources of
Liquidity
For the
twelve months ended December 31, 2009, the revenues generated from our
operations were insufficient to fund our daily operations. Gross
profit for fiscal year 2009 was $188,109, which was insufficient to meet our
operating expenses of $396,522 for the same period. There is no assurance that
funds from our future operations will meet the requirements of our daily
operations in the future. In the event that funds from our operations will be
insufficient to meet our operating requirements, we will need to seek other
sources of financing to maintain liquidity.
External Sources of
Liquidity
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 of
December 31, 2009, we have debt in the total aggregate amount of $190,000, as
summarized in Notes 2 and 4 to the financial statements. This debt was incurred
to pay our operating costs, compliance costs and legal fees for our pending
litigation. As of March 20, 2010, we had an outstanding balance of
$180,000 on our $200,000 line of credit. This line of credit matures on April 7,
2010. At, or prior to maturity we will be required to repay the
outstanding balance. We plan to renew this line of credit, but cannot provide
any assurance that we will be able to do so.
From
October 2008 through February 2009 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.
From
March 5, 2010 to March 15, 2010 we sold 200,000 shares of our common stock to 4
accredited investors at a price of $0.50 per share for gross proceeds of
$100,000. As of the date of this report, the 200,000 shares sold in this private
placement have not been issued.
Our
business plan involves, in part, increasing the number of employees placed both
on a temporary and permanent basis. Such increased placement is expected to
result in increased profit to us, although it also results in increased
short- term cash needs. We have
utilized net revenues, the proceeds from a number of private sales of our equity
securities, the exercise of options, the issuance of promissory notes and our
line of credit to meet our working capital requirements. We are reluctant to
incur further debt and intend to rely upon net revenues and private sales of
equity securities to meet our liquidity needs for the next 12
months.
Our
liquidity and capital resources, as well as business prospects, are all subject
to the risks disclosed in Item 1A, among others.
13
Preferred A Stock
Dividends
Our
Series A Shares have a stated value of $3.00 per share. Each holder of
Series A Shares is entitled to receive a dividend equal 6.75% of the stated
value of the Series A Shares payable on each anniversary of the date of issuance
of such shares. The Company paid $34,944 in Series A dividends during
the year ending December 31, 2009 leaving an accrued balance in the amount of
$82,367. 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.
The
preferred A stock may be converted to the Company's common stock at the rate of
one share of e preferred A stock for one share of common stock at any time by
the shareholder. The convertible preferred A stock can be called for redemption
by the Company no sooner than two (2) years after the date of issuance, and only
if the Company's common stock is trading on a recognized United States stock
exchange for a period of no less than thirty consecutive trading days at a
market value of $5.00 or more per share. However, as of this date, the stock has
not traded at that amount. In September 2009, the three largest holders of the
Series A shares converted 380,500 shares of Series A shares to common stock on a
one-to-one basis. Following this conversion, only 5,708 shares of Series A stock
remain outstanding.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not
applicable.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our
Financial Statements and supplementary data are included beginning immediately
following the signature page to this Report.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Not
applicable.
ITEM
9A(T). CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures.
The
Company’s Chief Executive Officer and the Company’s Chief Financial Officer
evaluated the effectiveness of the Company’s disclosure controls and procedures
as of December 31, 2009 and had concluded that the Company’s disclosure
controls and procedures are effective. There have been no changes in our
internal control over financial reporting during the year ended
December 31, 2009, that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
The term
disclosure controls and
procedures means controls and other procedures that are designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is accumulated and
communicated to the Company’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.
14
Changes
in Internal Control over Financial Reporting.
There
have been no changes in our internal control over financial reporting during the
year ended December 31, 2009, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Management’s
Evaluation of Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act. This system is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
consolidated financial statements for external purposes in accordance with
generally accepted accounting principles. Our internal control over financial
reporting includes those policies and procedures that: (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
our transactions and disposition of our assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
consolidated 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
(3) 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 consolidated financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. The scope of management’s
assessment of the effectiveness of internal control over financial reporting
includes all of our Company’s subsidiaries.
Our
management performed an assessment as of December 31, 2009 of the
effectiveness of our internal controls over financial reporting based upon the
framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and concluded that
our internal control over financial reporting was effective as of
December 31, 2009
This
Annual Report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to
attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.
ITEM
9B. OTHER INFORMATION.
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
The
following information sets forth the names of the directors, executive officers,
promoters control persons of the Company, their present positions with the
Company, and their biographical information.
Name
|
Age
|
Position(s) Held
|
Date Service Began
|
|||
Gerald
McIlhargey
|
62
|
President,
Chief Executive Officer and Director
|
March
2004
|
|||
Kenneth
L. Johnson
|
50
|
Secretary,
Treasurer and Director
|
April
2000
|
|||
Bruce
Schreiner
|
55
|
Director
|
October
2003
|
|||
Donal
Ford
|
54
|
Director
|
August
2006
|
|||
Maureen
O’Brien
|
61
|
Director
|
August
2006
|
|||
John
Blackmon
|
54
|
President
of Staf*Tek Services Inc.
|
June
2004
|
15
Gerald McIlhargey – Mr.
McIlhargey has been a Director of St. Joseph since March of 2004. Mr. McIlhargey
has spent over 26 years in management consulting for public companies. In his
various management roles, Mr. McIlhargey has extensive experience in Marketing
and Manufacturing as well as the Financing of Public Companies. Mr. McIlhargey
has had a key role with several public companies, including International Corona
Resources, Collingwood Energy, Sense Technologies Inc. and Maple Leaf
Petroleum. Mr. McIlhargey received a Bachelor of Education degree
from Simon Fraser University in British Columbia, Canada in 1972.
Kenneth L. Johnson – Mr.
Johnson has been a Director and Secretary/Treasurer of the Company since April
of 2000. Mr. Johnson has been the Secretary/Treasurer and Director of
Staf*Tek from December of 2003, to the present. For the past nine
years, Mr. Johnson has been employed as a senior support representative with
College Bookstore Management Systems (CMBS), a division of Nebraska Book Co.,
Inc. A provider of point of sale and inventory control computer
software for the college bookstore industry. Mr. Johnson is involved
in product development, customer support and training. Mr. Johnson
graduated from Hastings College in 1985, earning a Bachelor of Arts Degree in
Business Administration.
Bruce E. Schreiner, CPA – Mr.
Schreiner, CPA, has been a Director of the Company since October of 2003. Mr.
Schreiner has also been a Director of Staf*Tek Services, Inc. since October,
2003, to the present. Mr. Schreiner is a partner in the accounting firm of
Schroeder & Schreiner, P.C. He served as an Agent with the Internal Revenue
Service for over five years, culminating in an appointment to the Technical and
Review Staff of Omaha, Nebraska, for the Nebraska District. Mr.
Schreiner is a member of the American Institute and Nebraska Society of
Certified Public Accountants and the Grand Island Area Chamber of Commerce. Mr.
Schreiner is currently on the Board of Directors of Sense Technologies, Inc., a
public company. Mr. Schreiner graduated magna cum laude from Hastings
College in 1975 earning a Bachelor of Arts Degree in both Economics and Business
Administration with emphasis in accounting.
Donal Kent Ford – Mr. Ford
has been a Director of the Company since August 24, 2006. For the
past ten years Mr. Ford has been President of Pinnacle Financial Services, Inc.,
a Third Party Administrator for Pension and Profit Sharing Plans located in
Lantana, FL. Mr. Ford is a Credentialed Member of the American Society of
Pension Actuaries and is actively involved in the South Florida Benefits
Council. Mr. Ford has a Bachelor of Science in Business Administration from the
University of Florida and a Doctor of Chiropractic from Life University.
He is also a Certified Pension Consultant with the American Society of
Pension Professionals and Actuaries.
Maureen O’Brien – Ms. O’Brien has been a
Director of the Company since August 24, 2006. For the past six years Ms.
O'Brien has worked as Executive Assistant to David Core, CEO of Pinnacle
Financial Services, Inc. For seven years prior to that Ms. O'Brien specialized
in start up ventures with Real Applications, Inc. which included integrating an
acquired programming services company.
John Blackmon – Mr. Blackmon
has been Staf*Tek’s President since August 24, 2006. Recently he has
expanded staffing services to include senior and entry-level finance and
accounting services. Before joining Staf*Tek, Mr. Blackmon was a Senior
Manager of IT with MCI/WorldCom. Mr. Blackmon joined MCI/WorldCom, now
Verizon, in 1997 in the Operations organization and was quickly moved to the IT
organization where his responsibilities included operations management,
management of both technical and support organizations, and progressing to lead
the development and implementation of all E*Commerce application solutions for
the Wholesale division of WorldCom.
Term
of Office
Our
directors are elected for a one-year term to hold office until the next annual
general meeting of our shareholders, or until removed from office in accordance
with our bylaws and applicable law. Our officers are appointed by our
Board of Directors and hold office until removed by the Board.
Family
Relationships
There are
no family relationships among the our officers and directors, nor are there any
arrangements or understanding between any of the directors or officers of our
Company or any other person pursuant to which any Officer or Director was or is
to be selected as an officer or director.
16
Involvement
in Certain Legal Proceedings
During
the last ten years, none of our Directors, persons nominated to become
Directors, or executive officer were subject to any of the following events
material to an evaluation of the ability or integrity of any such
person:
|
·
|
A
petition under the Federal bankruptcy laws or any state insolvency law was
filed by or against, or a receiver, fiscal agent or similar officer was
appointed by a court for the business or property of such person, or any
partnership in which he was a general partner at or within two years
before the time of such filing, or any corporation or business association
of which he was an executive officer at or within two years before the
time of such filing;
|
|
·
|
Such
person was convicted in a criminal proceeding or is a named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
|
|
·
|
Such
person was the subject of any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from, or otherwise limiting, the
following activities:
|
·
|
Acting
as a futures commission merchant, introducing broker, commodity trading
advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank,
savings and loan association or insurance company, or engaging in or
continuing any conduct or practice in connection with such
activity;
|
|
·
|
Engaging
in any type of business practice;
or
|
|
·
|
Engaging
in any activity in connection with the purchase or sale of any security or
commodity or in connection with any violation of Federal or State
securities laws or Federal commodities
laws;
|
|
·
|
Such
person was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any Federal or State authority barring,
suspending or otherwise limiting for more than 60 days the right of such
person to engage in any activity described in paragraph (f)(3)(i) Item 401
of Regulation S-K, or to be associated with persons engaged in any such
activity;
|
|
·
|
Such
person was found by a court of competent jurisdiction in a civil action or
by the Securities and Exchange Commission (the “Commission”) to
have violated any Federal or State securities law, and the judgment in
such civil action or finding by the Commission has not been subsequently
reversed, suspended, or vacated;
|
|
·
|
Such
person was found by a court of competent jurisdiction in a civil action or
by the Commodity Futures Trading Commission to have violated any Federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated;
|
|
·
|
Such
person was the subject of, or a party to, any Federal or State judicial or
administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation
of:
|
|
·
|
Any
Federal or State securities or commodities law or regulation;
or
|
|
·
|
Any
law or regulation respecting financial institutions or insurance companies
including, but not limited to, a temporary or permanent injunction, order
of disgorgement or restitution, civil money penalty or temporary or
permanent cease-and-desist order, or removal or prohibition order;
or
|
|
·
|
Any
law or regulation prohibiting mail or wire fraud or fraud in connection
with any business entity; or
|
17
|
·
|
Such
person was the subject of, or a party to, any sanction or order, not
subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act (15
U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29)
of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent
exchange, association, entity or organization that has disciplinary
authority over its members or persons associated with a
member.
|
Committees
of the Board of Directors; Meetings
During
the year ended December 31, 2009, the Board met five times and acted one
time by unanimous
written consent. During fiscal year 2009, no director attended fewer than 75% of
the aggregate number of meetings of the Board and committees on which such
director served.
The Board
has two standing committees, the Audit Committee and the Compensation Committee.
The Board does not have a separate Nominating Committee and performs all of the
functions of that committee.
The
Audit Committee
The Audit
Committee has as its primary responsibilities the appointment of the independent
auditor for the Company, the pre-approval of all audit and non-audit services,
and assistance to the Board in monitoring the integrity of our financial
statements, the independent auditor's qualifications, independence and
performance and our compliance with legal requirements. The Audit Committee has
adopted a written charter, which was mailed to its
shareholders in 2006. During the year ended December 31, 2009, the Audit
Committee met two times. Bruce Schreiner, Donal Ford, and Maureen O’Brien are
the current members of the Audit Committee.
Since we
are not a "listed" company, we are not subject to rules requiring the members of
our Audit Committee to be independent; however we use the rules of The NASDAQ
Stock Market in determining whether directors are independent for disclosure
purposes. Based on its review of the applicable rules of The NASDAQ
Stock Market governing audit committee membership, the Board believes that all
members of the Audit Committee are "independent" within the meaning of such
rules.
The
Securities and Exchange Commission (“SEC”) requires a company to disclose
whether it has an "Audit Committee Financial Expert" serving on its audit
committee. Based on its review of the criteria of an Audit Committee
Financial Expert under the rule adopted by the SEC, the Board believes that one
member of the Audit Committee, Mr. Schreiner, qualifies as an Audit Committee
Financial Expert. Each of the other current members have made significant
contributions and provided valuable service to St. Joseph and its stockholders
as members of the Audit Committee and the Board believes that each of them has
demonstrated that he is capable of (i) understanding generally accepted
accounting principles ("GAAP") and financial statements, (ii) assessing the
general application of GAAP principles in connection with the accounting for
estimates, accruals and reserves, (iii) analyzing and evaluating our financial
statements, (iv) understanding internal controls and procedures for financial
reporting, and (v) understanding audit committee functions, all of which are
attributes of an Audit Committee Financial Expert under the rule adopted by the
SEC. Given the business experience and acumen of these individuals and their
service as members of the Audit Committee, the Board believes that each of them
is qualified to carry out all duties and responsibilities of the Audit
Committee.
Compensation
Committee
The
Compensation Committee recommends to the Board annual salaries for senior
management and reviews all company benefit plans. During the year
ended December 31, 2009, the Compensation Committee met one time and reviewed
the compensation of all St. Joseph employees. The current members of the
Compensation Committee are Bruce Schreiner, Kenneth Johnson, and Donal
Ford.
18
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934 (the "34 Act") requires our
officers and directors and persons owning more than ten percent of our Common
Stock to file initial reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and persons who
are the beneficial owners of more than 10% of the common stock of the Company
are required by SEC regulation to furnish us with copies of all Section 16(a)
forms they file. Based solely upon review of the copies of such reports
furnished to us during, and with respect to, the fiscal year ended December 31,
2009 or any written representations we received from a director, officer, or
beneficial owner of more than 10% of our common stock that no other reports were
required during that period, we believe that, for the fiscal year ended December
31, 2009, all Section 16(a) filing requirements applicable to our reporting
persons were met except that the following persons each failed once to file a
Form 4 on a timely basis: Hong Kong Base Ltd., Yvonne Chun Siu Fun, Gerald
McIlhargey, Desert Projects, Inc., James R. Houston. All such Form
4’s were filed during the fiscal year ended December 31, 2009.
Code
of Ethics
We have
adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, and
persons performing similar functions. The code of ethics can be
viewed on our website: www.stjosephinc.com.
ITEM
11. EXECUTIVE COMPENSATION
Summary
Compensation Table
The
following table sets forth information concerning the compensation of our named
executive officers during 2007, 2008 and 2009:
19
Summary Compensation
Table
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Com-
pensation
($)
|
Non-
Qualified
Deferred
Compen-
sation
Earnings
($)
|
All other
Compen-
sation
($)
|
Total
($)
|
|||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||
Gerald
McIlhargey
|
2007
|
- | - | - | - | - | - | - | - | |||||||||||||||||||||||||
President,
CEO and
|
2008
|
- | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Director
|
2009
|
- | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Kenneth
L. Johnson,
|
2007
|
- | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Secretary,
Treasurer and
|
2008
|
- | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Director
|
2009
|
- | - | - | - | - | - | - | - | |||||||||||||||||||||||||
John
Blackmon,
|
2007
|
$ | 72,000 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
President
of Staf*Tek
|
2008
|
$ | 92,000 | - | - | - | - | - | - | $ | 92,000 | |||||||||||||||||||||||
Services,
Inc.
|
2009
|
$ | 81,000 | - | - | - | - | - | - | $ | 81,000 |
Compensation
Summary
Gerald McIlhargey. Mr.
McIlhargey was appointed President and Chief Executive Officer of our Company on
May 17, 2006. Mr. McIlhargey has served as a Director of our Company since March
of 2004. We do not have an employment agreement with Mr. McIlhargey and he is
not receiving any compensation for serving as our Acting President. On August
24, 2006, he received options to purchase 100,000 shares of our common stock for
agreeing to serve as a Director on our Board. The options have an exercise price
of $1.05 per share and expire on August 24, 2011.
Kenneth L. Johnson. We do not
have an employment agreement with Mr. Johnson and he is not receiving any
compensation for serving as our Secretary and Treasurer. On August 24, 2006, he
received options to purchase 50,000 shares of our common stock for agreeing to
serve as a Director on our Board. In December 2009 Mr. Johnson exercised 25,000
options. His remaining 25,000 options have an exercise price of $1.05
per share and expire on August 24, 2011.
John Blackmon. Mr.
Blackmon is the President of our wholly-owned subsidiary, Staf*Tek Services,
Inc. We do not have an employment agreement with Mr. Blackmon. He
receives an annual salary of $81,000 as compensation for serving as Staf*Tek
Services, Inc.’s President. On August 24, 2006, he received options
to purchase 50,000 shares of our common stock for agreeing to serve as President
of Staf*Tek Services, Inc. The options have an exercise price of $1.05 per share
and expire on August 24, 2011.
20
OUTSTANDING
EQUITY AWARDS AT FISCAL-END
The
following table provides information concerning equity awards as of our 2009
fiscal year end, December 31, 2009, held by each of our named executive
officers.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
|||||||||||||||||||||||||||||||||
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexer-
cised
Unearned
Options
(#)
|
Option
Exercise
Price ($)
|
Option
Expira-
tion
Date
|
Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
|
Market
Value of
Shares
of Units
of Stock
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)
|
||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||||||||
Gerry
McIlhargey
|
100,000 | - | - | $ | 1.05 |
August
24, 2011
|
- | - | - | - | |||||||||||||||||||||||
Kenneth
L. Johnson
|
25,000 | - | - | $ | 1.05 |
August
24, 2011
|
- | - | - | - | |||||||||||||||||||||||
John
Blackmon
|
50,000 | - | - | $ | 1.05 |
August
24, 2011
|
- | - | - | - |
Director
Compensation
The
directors receive no annual compensation other than the options they received
for serving on the board of directors of St. Joseph; however, they are
reimbursed for out-of-pocket expenses incurred in connection with the Company's
business.
On August
24, 2006 each of the directors listed below received fully vested options to
purchase up to 50,000 shares of our common stock for agreeing to serve as our
Directors. The options have an exercise price of $1.05 and expire on
August 24, 2011. All of these options were still outstanding and
unexercised as of December 31, 2009.
As shown
by the following table, none of our directors who are not executive officers
received any compensation during our fiscal year ended December 31,
2009:
21
Name
|
Fees
earned
or paid
in cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-equity
incentive plan
compensation
($)
|
Nonqualified
deferred
compensation
earnings
($)
|
All other
compensation
($)
|
Total
($)
|
|||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
|||||||||||||||||||||
Bruce
Schreiner
|
- | - | - | - | - | - | - | |||||||||||||||||||||
Donal
Ford
|
- | - | - | - | - | - | - | |||||||||||||||||||||
Maureen
O’Brien
|
- | - | - | - | - | - | - |
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
Equity
Compensation Plans
Information
regarding securities authorized for issuance under equity compensation plans is
disclosed in Item 5 under “Equity Compensation Plans.”
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information as of March 19, 2010 based on information
obtained from the persons named below, with respect to the beneficial ownership
of our common and preferred stock by (i) each person (including groups) known to
us to be the beneficial owner of more than 5 percent of our common stock, and
(ii) each Director and Officer, and (iii) all Directors and Officers of the
Company, as a group. Except as otherwise indicated, all stockholders
have sole voting and investment power with respect to the shares listed as
beneficially owned by them, subject to the rights of spouses under applicable
community property laws.
22
Name of
Beneficial Owner (1)
|
Number of
Shares of
Common
Stock (2)
|
Percent
Outstanding
|
Number of
Shares
of Series A
Preferred
Stock (2)
|
Percent
Outstanding
|
||||||||||||
Gerald
McIlhargey,
|
889,923 | (3) | 7.80 | % | 0 | 0 | % | |||||||||
President,
Chief Executive
|
||||||||||||||||
Officer
and Director
|
||||||||||||||||
Kenneth
L. Johnson,
|
150,000 | (4) | 1.38 | % | 0 | 0 | % | |||||||||
Secretary,
Treasurer and
|
||||||||||||||||
Director
|
||||||||||||||||
Bruce
Schreiner, Director
|
50,000 | (5) | 0.46 | % | 0 | 0 | % | |||||||||
Maureen
O’Brien, Director
|
75,000 | (5) | 0.69 | % | 0 | 0 | % | |||||||||
Donal
Ford, Director
|
75,000 | (5) | 0.69 | % | 0 | 0 | % | |||||||||
John
Blackmon,
President of Staf*Tek Services, Inc.
|
79,954 | (5) | 0.74 | % | 0 | 0 | % | |||||||||
All
Executive Officers and
|
1,319,877 | 11.34 | % | 0 | 0 | % | ||||||||||
Directors
as a Group
|
||||||||||||||||
(5
individuals)
|
||||||||||||||||
Hong
Kong Base, Ltd. (6)
|
1,450,000 | 13.41 | % | 0 | 0 | |||||||||||
Desert
Projects, Inc. (7)
|
1,116,667 | 10.33 | % | 0 | 0 | |||||||||||
Phyllis
L. Bell
|
560,000 | 5.18 | % | 0 | 0 | |||||||||||
Camille
Quinn
|
8,994 | (8) | 0.03 | % | 5,708 | 100 | % |
(1)
|
The
address for Messrs. McIlhargey, Johnson, Schreiner, Ford, and Ms. O’Brien
is: c/o St. Joseph, Inc., 4870 S. Lewis, Suite 250, Tulsa, Oklahoma
74105. The address for Hong Kong Base, Ltd. is Unit C, 26th
Floor, CNT Tower, 338 Hennessey Road, Wanchai, Hong Kong,
China. The address for Desert Projects, Inc. is 73-185, Suite
D, Highway 111, Palm Desert, California, 92260. The address for Ms. Bell
is Route 1 Box 650, Haskell, Oklahoma 74436. The address for
Ms. Quinn is 5800 E. Skelly Drive, Suite 1230, Tulsa, OK 7413. Except as
indicated by footnote, and subject to applicable community property laws,
the persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by
them.
|
(2)
|
Based
upon 10,812,302 shares
of common stock and 5,702 shares of Series A Preferred Stock issued and
outstanding on March 19, 2010. Percentages are rounded to the nearest one
hundredth of a percent. As required by Item 403 of Regulation S-B,
calculated on the basis of the amount of outstanding securities plus, for
each person or group, any securities that person or group has the right to
acquire within 60 days pursuant to options, warrants, conversion
privileges or other rights. The percentage of the person
holding such option or warrant but are not deemed outstanding for
computing the percentage of any other
person.
|
(3)
|
Includes
fully vested options to purchase 100,000 shares of our common stock at an
exercise price of $1.05 per share.
|
(4)
|
Includes
fully vested options to purchase 25,000 shares of our common stock at an
exercise price of $1.05 per share.
|
(5)
|
Includes
fully vested options to purchase 50,000 shares of our common stock at an
exercise price of $1.05 per share.
|
(6)
|
Hong
Kong Base Ltd is a corporation organized under the laws of Hong Kong and
is beneficially owned by Yvonne Chun Siu
Fun.
|
(7)
|
Desert
Projects, Inc. is a corporation organized under the laws of the State of
Nevada and is beneficially owned by James Ralph
Houston.
|
(8)
|
Includes
5,708 shares of common stock, which would be issuable on conversion of the
5,702 shares of Series A Preferred Stock held by Ms.
Quinn.
|
Equity
Compensation Plans
The
following table sets forth information as of December 31, 2009 with respect to
compensation plans under which we are authorized to issue shares of our common
stock, aggregated as follows:
o all
compensation plans previously approved by security holders; and
o all
compensation plans not previously approved by security holders.
Equity Compensation Plan Information
|
||||||||||||
Plan category
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
Weighted-average exercise
price of outstanding
options, warrants and rights
|
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
|
|||||||||
(a)
|
(b)
|
(c)
|
||||||||||
Equity
compensation plans
|
385,000 | (1) | $ | 1.05 | 715,000 | |||||||
approved
by security holders
|
||||||||||||
Equity
compensation plans not approved by security holders
|
0 | 0 | 0 | |||||||||
Total
|
385,000 | $ | 1.05 | 715,000 |
23
(1)
|
On
August 24, 2006, we adopted our 2006 Stock Option Plan, which reserved
1,125,000 shares of our common stock for issuance pursuant to the plan. On
August 24, 2006, our Board of Directors granted stock options to our
officers, directors and employees pursuant to the plan to purchase 410,000
share of our common stock at an exercise price of $1.05 per share and a
term that ends on August 24, 2011.
|
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Other
than disclosed below, none of the directors or executive officers of the Company
nor any person who beneficially owns, directly or indirectly, shares carrying
more than 10% of the voting rights attached to all outstanding shares of the
Company, nor any promoter of the Company, nor any relative or spouse of any of
the foregoing persons has any material interest, direct or indirect, in any
transaction since the beginning of the Company’s 2009 fiscal year or in any
presently proposed transaction which, in either case, has or will exceed one
percent of the average of the Company’s total assets at year end for the last
two completed fiscal years. The Company has not entered into transactions with
any member of the immediate families of the foregoing persons, nor is any such
transaction proposed
Gerald
McIlhargey
On
January 5, 2009, COLEMC Investments, Ltd., a Canadian company owned by Gerald
McIlhargey, President and a Director of our Company, purchased 500,000 shares of
our common stock in a private placement for $0.05 per share. These shares are
deemed to be beneficially owned by Mr. McIlhargey.
During
the quarter ended September 30, 2009, Mr. McIlhargey, advanced $5,000 for
working capital in exchange for a promissory note. The note matures on September
17, 2010 and does not bear any interest.
During
the quarter ended December 31, 2009, Gerry McIlhargey, President and Director of
the Company, advanced $5,000 for working capital in exchange for a promissory
note. The note matures on November 4, 2010 and does not bear any
interest.
Kenneth
L Johnson
On
December 4, 2009, one of our directors, Mr. Johnson, exercised 25,000 stock
options by applying $26,250 in debt owed to him by the Company towards payment
of the exercise price.
Desert
Projects Inc. and James Ralph Houston
On
January 3, 2009, Desert Projects, Inc., a 10%+ shareholder of the Company,
purchased 400,000 shares of our common stock in a private placement for $0.05
per share. Desert Projects, Inc. is a Nevada corporation beneficially
owned by James Ralph Houston.
Hong
Kong Base, Ltd.
On
February 16, 2009, Hong Kong Base, Ltd., a 10%+ shareholder of the Company,
purchased 500,000 shares of our common stock in a private placement for $0.05
per share. Hong Kong Base, Ltd. is a Hong Kong company beneficially
owned by Yvonne Chun Siu Fun.
24
DIRECTOR
INDEPENDENCE
Although
we are not “listed” by any exchange with established criteria for determining
director independence, we use the criteria established by The NASDAQ Stock
Market governing audit committee membership for making such determination for
disclosure purposes. Based on its review of the applicable rules of
The NASDAQ Stock Market governing audit committee membership, the Board believes
that Bruce Schreiner, Donal Ford, and Maureen O’Brien would be deemed
"independent" within the meaning of such rules.
As Bruce
Schreiner, Donal Ford, and Maureen O’Brien are the only directors on our audit
and compensation committees, such committees have no directors who are not
independent.
Because
we do not have a nominating committee, our entire Board acts in such capacity,
including our two directors who are not independent, Gerald McIlhargey and
Kenneth L. Johnson.
25
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
We
appointed the accounting firm of Cordovano and Honeck, LLP, located at 88
Inverness Circle East, Building M-103, Englewood, Colorado 80112, to serve as
our independent auditors for the fiscal years ended December 31, 2009 and
2008. During our fiscal years 2009 and 2008, accrued fees owed to
Cordovano and Honeck, LLP are as follows:
Audit
Fees
2009
|
2008
|
|||||
$ | 30,588.00 | $ | 26,585.00 |
Audit
Fees and Audit Related Fees consist of fees billed for professional services
rendered for auditing our Financial Statements, reviews of interim Financial
Statements included in quarterly reports, services performed in connection with
other filings with the Securities & Exchange Commission and related comfort
letters and other services that are normally provided by our independent
auditors in connection with statutory and regulatory filings or
engagements.
Tax
Fees
2009
|
2008
|
|||||
$ | 0.00 | $ | 0.00 |
Tax Fees
consists of fees billed for professional services for tax compliance, tax advice
and tax planning. These services include assistance regarding
federal, state and local tax compliance and consultation in connection with
various transactions and acquisitions.
All
Other Fees
2009
|
2008
|
|||||
$ | 0.00 | $ | 0.00 |
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
EXHIBIT NO.
|
DESCRIPTION OF DOCUMENT
|
|
2.1 (5)
|
Agreement
of Share Exchange and Purchase and Sale dated January 2, 2004 between St.
Joseph, Inc. and Phyllis L. Bell, and Paul D. Aelmore and Staf-Tek
Services, Inc.
|
|
3.1
(1)
|
Articles
of Incorporation of Pottery Connection, Inc.
|
|
3.2
(1)
|
Articles
of Amendment to Articles of Incorporation as filed with the Colorado
Secretary of State on January 19, 2001.
|
|
3.3
(5)
|
Articles
of Amendment to Articles of Incorporation as filed with the Colorado
Secretary of State on November 6, 2003.
|
|
3.4
(6)
|
Articles
of Amendment to Articles of Incorporation as filed with the Colorado
Secretary of State on September 29, 2006.
|
|
3.5
(7)
|
Articles
of Amendment to the Articles of Incorporation filed with the Colorado
Secretary of State on May 18, 2007.
|
|
3.6
(7)
|
Articles
of Amendment to the Articles of Incorporation filed with the Colorado
Secretary of State on May 23, 2007.
|
|
3.5
(3)
|
Bylaws
of St. Joseph, Inc. (formerly known as Pottery Connection,
Inc.)
|
|
4.1
(1)
|
Specimen
form of St. Joseph’s stock certificate for shares of its common
stock.
|
26
4.2
(10)
|
2006
Stock Option Plan.
|
|
10.1
(3)
|
Exclusive
Agreement between St. Joseph Energy, Inc. and David
Johnson.
|
|
10.2
(2)
|
Form
of User Agreement for St. Joseph, Inc.
|
|
10.3
(9)
|
Promissory
Note dated June 16, 2005 for $96,000 issued by St. Joseph, Inc. to John H.
Simmons.
|
|
10.4
(9)
|
Promissory
Note dated December 28, 2006 for $25,000 issued by Staf*Tek Services, Inc.
to Gerry McIlhargey.
|
|
10.5
(8)
|
Form
of Letter Agreement for conversion of Series B Stock to common stock on
December 31, 2007.
|
|
10.6
(8)
|
Form
of Letter Agreement for conversion of promissory notes to common stock on
December 31, 2007.
|
|
14.1
(9)
|
Code
of Ethics.
|
|
21.1
(9)
|
Subsidiaries
of St. Joseph, Inc.
|
|
31.1*
|
Principal
Executive Officer Certification under Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
31.2*
|
Principal
Financial Officer Certification under Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32.1*
|
Principal
Executive Officer Certification under Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
32.2*
|
Principal
Financial Officer Certification under Section 906 of the Sarbanes-Oxley
Act of 2002.
|
* Filed
herewith
(1)
|
Filed
on July 23, 2002 as an exhibit to St. Joseph’s registration statement on
Form 10SB and incorporated herein by
reference.
|
(2)
|
Filed
on April 15, 2003 as an exhibit to St. Joseph’s annual report on Form
10-KSB for the fiscal year ended December 31, 2002 and incorporated herein
by reference.
|
(3)
|
Filed
on June 3, 2003 as an exhibit to St. Joseph’s amendment to registration
statement on Form 10SB12G/A and incorporated herein by
reference.
|
(4)
|
Filed
on April 15, 2004 as an exhibit to St. Joseph’s annual report on Form
10-KSB for the fiscal year ended December 31, 2003 and incorporated herein
by reference.
|
(5)
|
Filed
on May 5, 2004 as an exhibit to St. Joseph’s report on Form 8-K dated
April 30, 2004 and incorporated herein by
reference.
|
(6)
|
Filed
on November 20, 2006 as an exhibit to St. Joseph’s quarterly report on
Form 10-QSB for the quarterly period ended September 30, 2006 and
incorporated herein by reference.
|
(7)
|
Filed
on May 23, 2007 as an exhibit to St. Joseph’s report on Form 8-K dated May
18, 2007 and incorporated herein by
reference.
|
(8)
|
Filed
on January 28, 2008 as an exhibit to St. Joseph’s report on Form 8-K dated
December 31, 2007 and incorporated herein by
reference.
|
(9)
|
Filed
on April 20, 2007 as an exhibit to St. Joseph’s amendment 1 to annual
report on Form 10-KSB for the fiscal year ended December 31, 2006 and
incorporated herein by reference.
|
(10)
|
Filed
on August 3, 2006 as an exhibit to St. Joseph’s proxy statement on
Schedule and incorporated herein by
reference.
|
27
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 to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: March
30, 2010
St.
Joseph, Inc.
By: /s/ Gerry
McIlhargey
|
Gerry
McIlhargey, President and Chief Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature and Title
|
Date
|
|
/s/ Gerry McIlhargey
|
March
30, 2010
|
|
Gerry
McIlhargey, President,
|
||
Chief
Executive Officer and
|
||
Director
|
||
/s/Kenneth
L. Johnson
|
March
30, 2010
|
|
Kenneth
L. Johnson,
|
||
Secretary-Treasurer
and Director
|
||
/s/Bruce
Schreiner
|
March
30, 2010
|
|
Bruce
Schreiner, Director
|
||
/s/
Donal Ford
|
March
30, 2010
|
|
Donal
Ford, Director
|
||
/s/
Maureen O’Brien
|
March
30, 2010
|
|
Maureen
O’Brien, Director
|
28
ST.
JOSEPH, INC.
Index
to Consolidated Financial Statements
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
2
|
Consolidated
Balance Sheet at December 31, 2009 and 2008
|
3
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and
2008
|
4
|
Consolidated
Statement of Changes in Stockholders' Deficit for the years ended December
31, 2009 and 2008
|
5
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008
|
6
|
Notes
to Consolidated Financial Statements
|
7-14
|
1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of St. Joseph, Inc.
We have
audited the accompanying consolidated balance sheets of St. Joseph, Inc. as of
December 31, 2009 and 2008, and the related consolidated statements of income
and stockholders’ deficit, and cash flows for each of the years in the two-year
period ended December 31, 2009. St. Joseph, Inc.’s management is responsible for
these consolidated financial statements. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of St. Joseph, Inc. as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 2009 in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company incurred recurring losses and
has a negative working capital and net capital deficiency. These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. Further information and management’s plans in regard
to this uncertainty are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Cordovano
and Honeck LLP
Englewood,
Colorado
March 26,
2010
2
ST.
JOSEPH, INC.
CONSOLIDATED
BALANCE SHEETS
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
|
$ | 149,981 | $ | 221,992 | ||||
Accounts
receivable, net of allowance for doubtful accounts of
$2,208
|
70,574 | 212,821 | ||||||
Total
Current Assets
|
220,555 | 434,813 | ||||||
Property
and equipment, net of Accum Dep of $150,755 and $149,606,
respectively
|
3,371 | 2,978 | ||||||
Deposits
|
1,230 | 1,230 | ||||||
Total
Assets
|
$ | 225,156 | $ | 439,021 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable
|
$ | 190,207 | $ | 264,206 | ||||
Accrued
liabilities
|
11,080 | 18,168 | ||||||
Accrued
preferred dividend
|
82,367 | 117,311 | ||||||
Due
to former officer
|
- | 25,000 | ||||||
Notes
Payable:
|
||||||||
Notes
payable - related party (Note 2)
|
- | 5,000 | ||||||
Line
of Credit (Note 4)
|
180,000 | 180,000 | ||||||
Loan
from Officer
|
10,000 | 48,120 | ||||||
Total
Current Liabilities
|
473,654 | 657,805 | ||||||
STOCKHOLDERS'
DEFICIT (Note 7):
|
||||||||
Preferred
stock, Series A, $.001 par value, $3.00 face value; 25,000,000 shares
authorized, 5,708 shares issued and outstanding
|
6 | 386 | ||||||
Common
stock, $.001 par value; 100,000,000 shares authorized, 10,812,302 issued
and outstanding
|
10,812 | 7,407 | ||||||
Additional
paid-in capital
|
2,123,426 | 1,950,201 | ||||||
Retained
deficit
|
(2,382,742 | ) | (2,176,778 | ) | ||||
Total
Stockholders' Deficit
|
(248,498 | ) | (218,784 | ) | ||||
Total
Liabilities and Stockholders' Deficit
|
$ | 225,156 | $ | 439,021 |
3
ST.
JOSEPH, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Twelve
Months Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
REVENUES:
|
||||||||
Contract
|
$ | 836,955 | $ | 2,432,778 | ||||
COST
OF REVENUES
|
648,846 | 1,870,063 | ||||||
Gross
Margin
|
188,109 | 562,715 | ||||||
COSTS
AND EXPENSES:
|
||||||||
General
and Administrative Expenses
|
395,373 | 535,469 | ||||||
Depreciation
and Amortization
|
1,149 | 1,123 | ||||||
Total
Costs and Expenses
|
396,522 | 536,592 | ||||||
Operating
Income (Loss)
|
(208,413 | ) | 26,123 | |||||
OTHER
INCOME AND (EXPENSE):
|
||||||||
Interest
Income
|
- | (1 | ) | |||||
Other
Income (expense)
|
25,926 | - | ||||||
Interest
Expense
|
(23,477 | ) | (29,295 | ) | ||||
Net
Other Expense
|
2,449 | (29,296 | ) | |||||
Loss
before provision for income taxes
|
(205,964 | ) | (3,173 | ) | ||||
PROVISION
FOR INCOME TAXES:
|
||||||||
Provision
for Federal income tax
|
- | - | ||||||
Provision
for State income tax
|
- | - | ||||||
Total
provision for income taxes
|
- | - | ||||||
Loss
before benefit from tax loss carryforward
|
(205,964 | ) | (3,173 | ) | ||||
Benefit
from tax loss carryforward
|
- | |||||||
Net
Loss
|
(205,964 | ) | (3,173 | ) | ||||
Preferred
stock dividend requirements
|
- | (78,208 | ) | |||||
Loss
applicable to common stockholders
|
$ | (205,964 | ) | $ | (81,381 | ) | ||
Basic
and diluted loss per common share
|
$ | (0.02 | ) | $ | (0.01 | ) | ||
Weighted
average common shares outstanding
|
10,032,642 | 7,406,802 |
4
ST.
JOSEPH, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Additional
|
||||||||||||||||||||||||||||
Preferred Stock-Series A
|
Common Stock
|
Paid-in
|
Retained
|
|||||||||||||||||||||||||
Shares
|
Par value
|
Shares
|
Par value
|
Capital
|
Deficit
|
Total
|
||||||||||||||||||||||
Balance
December 31, 2007
|
386,208 | $ | 386 | 7,406,802 | $ | 7,407 | $ | 1,950,201 | $ | (2,095,398 | ) | $ | (137,404 | ) | ||||||||||||||
Preferred
stock dividends (Note 4)
|
- | - | - | - | - | (78,207 | ) | (78,207 | ) | |||||||||||||||||||
Net
loss for the year ended December 31, 2008
|
- | - | - | - | - | (3,173 | ) | (3,173 | ) | |||||||||||||||||||
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
|
(380,500 | ) | (380 | ) | 380,500 | 380 | - | |||||||||||||||||||||
Common
stock options exercised
|
25,000 | 25 | 26,225 | 26,250 | ||||||||||||||||||||||||
Net
loss for the year ended December 31, 2009
|
(205,964 | ) | (205,964 | ) | ||||||||||||||||||||||||
Balance
December 31, 2009
|
5,708 | $ | 6 | 10,812,302 | $ | 10,812 | $ | 2,123,426 | $ | (2,382,742 | ) | $ | (248,498 | ) |
5
ST.
JOSEPH, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOW
Twelve
Months Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (205,964 | ) | $ | (3,173 | ) | ||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
1,149 | 1,123 | ||||||
Gain
on settlement of note payable due to former officer
|
(25,526 | ) | - - | |||||
Changes
in operating assets and liabilities:
|
||||||||
Increase/decrease
in accounts receivable
|
142,247 | 33,254 | ||||||
Increase/decrease
in accounts payable
|
(73,999 | ) | (8,431 | ) | ||||
Increase/decrease
in accrued liabilities
|
(4,682 | ) | 6,712 | |||||
Net
cash provided by (used in) operating activities
|
(166,775 | ) | 29,485 | |||||
INVESTING ACTIVITIES
|
||||||||
Equipment
acquisitions
|
(1,542 | ) | (1,628 | ) | ||||
Net
cash used in investing activities
|
(1,542 | ) | (1,628 | ) | ||||
FINANCING ACTIVITIES
|
||||||||
Payments
on line of credit
|
- | (15,000 | ) | |||||
Settlement
of notes payable to former officer
|
(50,000 | ) | - | |||||
Proceeds
from related party
|
26,250 | 5,000 | ||||||
Proceeds
from officer loan
|
10,000 | - | ||||||
Payments
on preferred stock dividends
|
(34,944 | ) | - | |||||
Proceeds
from sale of common stock
|
145,000 | - | ||||||
Net
cash provided by (used in) financing activities
|
96,306 | (10,000 | ) | |||||
INCREASE
(DECREASE) IN CASH
|
(72,011 | ) | 17,857 | |||||
CASH
AT BEGINNING OF PERIOD
|
221,992 | 204,135 | ||||||
CASH
AT END OF PERIOD
|
$ | 149,981 | $ | 221,992 | ||||
SUPPLEMENTAL NON-CASH INVESTING
AND FINANCING
INFORMATION:
|
||||||||
Conversion
of preferred stock into common stock
|
$ | 380 | $ | - | ||||
Conversion
of note payable into common stock
|
$ | 5,000 | $ | - | ||||
Advances
for excercising stock options
|
$ | 26,250 | $ | - | ||||
SUPPLEMENTAL
INFORMATION:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ | 23,477 | $ | 29,295 | ||||
Income
taxes
|
$ | - | $ | - |
6
ST.
JOSEPH, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization and Basis of
Presentation
St.
Joseph, Inc. (the "Company") was incorporated in Colorado on March 19, 1999 as
Pottery Connection, Inc. On March 19, 2001, the Company changed its name to St.
Joseph Energy, Inc. and on November 6, 2003, the Company changed its name to St.
Joseph, Inc.
The
Company, through its wholly-owned subsidiary, specializes in the recruitment and
placement of professional data processing and technical personnel for clients on
both a permanent and contract basis.
Principles of
Consolidation
The
consolidated financial statements for the years ended December 31, 2009 and 2008
included in this report include the activities of St. Joseph, Inc. and its
wholly-owned subsidiary, Staf*Tek. All significant intercompany balances and
transactions have been eliminated in consolidation.
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 December 31, 2009 and 2008. 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.
Cash Equivalents and Fair
Value of Financial Instruments
For the
purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. The Company had no cash equivalents at December 31,
2009 and 2008.
The
carrying amounts of cash, receivables and current liabilities approximate fair
value due to the short-term maturity of the instruments.
7
ST.
JOSEPH, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts
Receivable
Accounts
receivable consists of amounts due from customers related to the Company's
employee placement services. The Company considers accounts more than 30 days
old to be past due. The Company uses the allowance method for recognizing bad
debts. When an account is deemed uncollectible, it is written off against the
allowance. The Company generally does not require collateral for its accounts
receivable.
Property, Equipment and
Depreciation
Property
and equipment are stated at cost. Property and equipment are depreciated using
the straight-line method over the estimated useful lives of the assets as
follows:
Furniture
and fixtures
|
7
years
|
Office
equipment
|
5
years
|
Computer
equipment
|
3
years
|
Upon
retirement or disposition of an asset, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in
operations. Repairs and maintenance are charged to expense as incurred and
expenditures for additions and improvements are capitalized.
Impairment and Disposal of
Long-lived Assets
The
Company evaluates the carrying value of its long-lived assets when indicators of
impairment are present. Impairment is assessed when the undiscounted
future cash flows estimated to be generated by those assets are less than the
assets' carrying amount. If such assets are impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying value or fair value, less costs to sell. There were no
impairments recognized for the years ended December 31, 2009 and
2008.
Revenue
Recognition
Staffing
service revenues are recognized when the services are rendered by the Company's
contract employees and collection is probable. Permanent placement revenues are
recognized when employment candidates accept offers of permanent
employment.
Direct Costs of
Services
Direct
costs of staffing services consist of payroll, payroll taxes, contract labor,
and insurance costs for the Company's contract employees. There are no direct
costs associated with permanent placement staffing services.
Advertising
Costs
The
Company expenses all advertising as incurred. The Company incurred advertising
costs totaling $3,592 and $5,295 for the years ended December 31, 2009 and 2008,
respectively.
Loss Per Common
Share
The
Company reports earnings (loss) per share using a dual presentation of basic and
diluted earnings per share. Basic loss per share excludes the impact of common
stock equivalents. Diluted loss per share utilizes the average market price per
share when applying the treasury stock method in determining common stock
equivalents. Preferred stock and common stock options outstanding at December
31, 2008 were not included in the diluted loss per share as all 386,208
preferred shares and all 560,000 options were anti-dilutive. Preferred stock and
common stock options outstanding at December 31, 2009 were not included in the
diluted loss per share as all 5,708 preferred shares and all 385,000 options
were anti-dilutive. Therefore, basic and diluted losses per share at December
31, 2009 were equal.
8
ST.
JOSEPH, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Income
Taxes
Income
taxes are provided for the tax effects of transactions reported in the
consolidated financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the recorded book basis
and the tax basis of assets and liabilities for financial and income tax
reporting. The deferred tax assets and liabilities represent the deductible when
the assets and liabilities are recovered or settled. Deferred taxes are also
recognized for operating losses that are available to offset future taxable
income and tax credits that are available to offset future federal income
taxes.
The
Company has analyzed filing positions in all of the federal and state
jurisdictions where it is required to file income tax returns, as well as all
open tax years in these jurisdictions. The Company has identified its federal
tax return and its state tax return in Oklahoma as “major” tax jurisdictions, as
defined. The Company believes that its income tax filings positions and
deductions will be sustained on audit and does not anticipate any adjustments
that will result in a material adverse effect on the Company’s financial
conditions, results of operations, or cash flow. Therefore, no reserves for
uncertain income tax positions have been recorded pursuant to ASC
740
Stock-Based
Compensation:
The
Company recognizes share-based compensation based on the options’ fair value,
net of estimated forfeitures on a straight line basis over the requisite service
periods, which is generally over the awards’ respective vesting period, or on an
accelerated basis over the estimated performance periods for options with
performance conditions. The stock option fair value is estimated on
the grant date using the Black-Scholes option pricing model based on the
underlying common stock closing price as of the date of grant, the expected
term, stock price volatility, and risk-free interest rates. There were no
compensation costs as the Company did not grant options or similar instruments
during the years ended December 31, 2009 and 2008.
Use of
Estimates
The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts of assets and liabilities;
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements; and the reported amounts of revenues and expenses during
the reporting period. Accordingly, actual results could differ from those
estimates.
Recent Accounting
Pronouncements
On July
1, 2009, we adopted the Financial Accounting Standards Board (“FASB”),
Accounting Standards Codification (“ASC”). The ASC does not alter current
generally accepted accounting principles in the United States of America (“U.S.
GAAP”), but rather integrated existing accounting standards with other
authoritative guidance. The ASC provides a single source of authoritative U.S.
GAAP for nongovernmental entities and supersedes all other previously issued
non-SEC accounting and reporting guidance. The adoption of the ASC did not have
any effect on our results of operations or financial position. All prior
references to U.S. GAAP have been revised to conform to the ASC. Updates to the
ASC are issued in the form of Accounting Standards Updates (“ASU”).
In April
2009, we adopted the revisions to U.S. GAAP accounting standards included in ASC
Topic 825, Financial Instruments (“ASC 825”), which requires public
companies to include disclosures required for all financial instruments within
the scope of ASC 825 in their interim financial statements. In addition,
this guidance requires disclosure about the method and significant assumptions
to estimate fair value of financial instruments and disclosure of changes in the
methods or significant assumptions, if any, during the period. The adoption of
the revised guidance related to financial statement disclosure only and did not
have any effect on our results of operations or financial position.
We
adopted the revisions to U.S. GAAP accounting standards included in ASC
Topic 855 (“ASC 855”), Subsequent Events, and the FASB amendment ASU
2010-09, which establish the accounting and disclosure of events that occur
after the balance sheet date but before financial statements are issued. This
guidance did not have any impact on the Company’s financial position, results of
operations, or cash flows.
9
ST.
JOSEPH, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
January 2010, the FASB amended ASC 820 to require new disclosures for fair value
measurements and provides clarification for existing disclosures requirements.
More specifically, this update will require (a) an entity to disclose
separately the amounts of significant transfers in and out of Levels 1 and
2 fair value measurements and to describe the reasons for the transfers; and
(b) information about purchases, sales, issuances and settlements to be
presented separately (i.e., present the activity on a gross basis rather than
net) in the reconciliation for fair value measurements using significant
unobservable inputs (Level 3 inputs). This update clarifies existing
disclosure requirements for the level of disaggregation used for classes of
assets and liabilities measured at fair value and requires disclosures about the
valuation techniques and inputs used to measure fair value for both recurring
and nonrecurring fair value measurements using Level 2 and Level 3
inputs. ASU 2010-6 is effective for interim and annual fiscal years beginning
after December 15, 2009. The Company does not anticipate that the adoption
of this statement will materially expand its financial statement footnote
disclosures.
NOTE 2 – RELATED PARTY
TRANSACTIONS
On
January 5, 2009, COLEMC Investments, Ltd., a Canadian company owned by Gerald
McIlhargey, President and a Director of our Company, purchased 500,000 shares of
our common stock in a private placement for $0.05 per share. These shares are
deemed to be beneficially owned by Mr. McIlhargey.
On
January 3, 2009, Desert Projects, Inc., a 10%+ shareholder of the Company,
purchased 400,000 shares of our common stock in a private placement for $0.05
per share. Desert Projects, Inc. is a Nevada corporation beneficially
owned by James Ralph Houston.
On
February 16, 2009, Hong Kong Base, Ltd., a 10%+ shareholder of the Company,
purchased 500,000 shares of our common stock in a private placement for $0.05
per share. Hong Kong Base, Ltd. is a Hong Kong company beneficially
owned by Miss Yvonne Chun Siu Fun.
On
December 4, 2009, Kenneth L. Johnson, a Director of the Company, exercised
25,000 stock options by applying $26,250 in debt owed to him by the Company
towards payment of the exercise price.
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 promissory
note. The note matures on September 17, 2010 and does not bear any
interest.
During
the quarter ended December 31, 2009, Gerry McIlhargey, President and Director of
the Company, advanced $5,000 for working capital in exchange for a promissory
note. The note matures on November 4, 2010 and does not bear any
interest.
NOTE 3 – PROPERTY AND
EQUIPMENT
Property
and equipment consisted of the following at December 31, 2009 and
2008:
2009
|
2008
|
|||||||
Furniture
and fixtures
|
$ | 35,447 | $ | 35,447 | ||||
Office
equipment
|
61,465 | 59,923 | ||||||
Computer
equipment
|
37,629 | 37,629 | ||||||
Leasehold
improvements
|
19,585 | 19,585 | ||||||
Total
property and equipment
|
154,126 | 152,584 | ||||||
Less
accumulated depreciation
|
(150,755 | ) | (149,606 | ) | ||||
Property
and equipment, net
|
$ | 3,371 | $ | 2,978 |
Depreciation
expense totaled $1,149 and $1,123, respectively, for the years ended December
31, 2009 and 2008.
10
ST.
JOSEPH, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – LINE OF
CREDIT
The
Company has a $200,000 line of credit of which $180,000 was unpaid and
outstanding at December 31, 2009 and 2008. The interest rate on the credit line
was 6.79 percent at December 31, 2008 and 2009. Interest payments are
due monthly. The line of credit maturity was extended through April
7, 2010.
NOTE 5 – CONCENTRATION OF
CREDIT RISK
The
Company conducts a significant portion of its operations with one customer.
During the year ended December 31, 2009, approximately 45 percent of the
Company's service revenues were conducted with this one customer. During the
year ended December 31, 2008, approximately 73 percent of the Company's service
revenues were conducted with one customer.
NOTE 6 – INCOME
TAXES
A
reconciliation of U.S. statutory federal income tax rate to the effective rate
is as follows:
Years
Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
U.S.
Federal statutory rate
|
28.02 | % | 15.73 | % | ||||
State
income tax, net of federal benefit
|
3.33 | % | 3.90 | % | ||||
Permanent
book-to-tax differences
|
0.00 | % | 0.00 | % | ||||
Timing
Differences
|
-0.00 | % | -0.00 | % | ||||
Net
operating loss for which no tax benefit is currently
available
|
-31.35 | % | -19.63 | % | ||||
0.00 | % | 0.00 | % |
At
December 31, 2009, the Company's current tax benefit consisted of a net tax
asset of $290,834 due to operating loss carryforwards of approximately
$1,138,437 which was fully allowed for, in the valuation allowance of $290,834.
The valuation allowance results in deferred tax expense, which offsets the net
deferred tax asset for which there is no assurance of recovery. The changes in
the valuation allowance for the years ended December 31, 2009 and 2008
were $57,707
and $623, respectively. Net operating loss carry forwards will expire through
2028.
The
valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
Should
the Company undergo an ownership change, as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carry forwards
generated prior to the ownership change will be subject to an annual limitation,
which could reduce or defer the utilization of those losses.
11
ST.
JOSEPH, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – SHAREHOLDERS'
EQUITY
Preferred
Stock
During
the year ended December 31, 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 5,708 have not been converted to common stock at December
31, 2009. Series A Convertible Preferred Stock is convertible to one
share of common stock and has a yield of 6.75% dividend per annum, which is paid
quarterly on a calendar basis for a period of 5 years.
Common
Stock
As of
March 25, 2009, the Company sold 1,500,000 shares of common stock to 8
accredited investors at a price of $0.05 per share for gross proceeds of
$75,000. 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 to 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 May
2009, the Company issued 100,000 shares of common stock to an investor in
exchange for settlement of a promissory note in the amount of
$5,000.
During
the year ended December 31, 2009, the Company issued 380,500 shares of common
stock upon conversion of 380,500 shares of Series A Convertible Preferred
Stock.
Equity Awards Granted to
Employees
On August
24, 2006, the Company granted options to ten employees and directors to purchase
410,000 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 $1.05 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 and $.363 per
share, respectively. Stock option compensation totaling $148,830 was
been recognized during the year ended December 31, 2006 in the accompanying
consolidated financial statements related to these options.
The fair
value for the options granted was estimated at the date of grant using the
Black-Scholes option-pricing model with the following:
Risk-free
interest rate
|
4.78 | % | ||
Dividend
yield
|
0.00 | % | ||
Volatility
factor
|
29.02 | % | ||
Weighted
average expected life
|
5 years |
12
ST.
JOSEPH, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following schedule summarizes the changes in the Company’s equity awards for the
years ended December 31, 2009 and 2008.
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, 2008
|
760,000 | $ | 0.10 | $ | 0.10 | |||||||||||||||
Granted
|
- | $ | - | $ | - | |||||||||||||||
Exercised
|
- | $ | - | $ | - | |||||||||||||||
Cancelled/Expired
|
200,000 | $ | 0.10 | $ | 0.10 | |||||||||||||||
Outstanding
at December 31, 2008
|
560,000 | $ | 0.10 - $1.05 | $ | 0.80 | |||||||||||||||
Granted
|
- | $ | - | $ | - | |||||||||||||||
Exercised
|
(25,000 | ) | $ | - | $ | - | ||||||||||||||
Cancelled/Expired
|
(150,000 | ) | $ | - | $ | - | ||||||||||||||
Outstanding
at December 31, 2009
|
385,000 | $ | 1.05 | $ | 1.05 |
1.66
years
|
$ | - |
All
equity awards were fully vested as of December 31, 2009. 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 December 31,
2009, and then multiplying that amount by the number of options. The
exercise price exceeds the market value of the stock on December 31, 2009;
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.
NOTE 8 – 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 of Staf*Tek
Services, Inc. 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 set for June 7, 2010. 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 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.
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
connection with the settlement, the Company booked a one-time credit in the
amount of $25,526 after applying the settlement amount of $50,000 to a note
payable of $48,120, accrued interest of $2,406 and amount of $25,000 for the
cancellation of a note, which was due to Mr. Simmons for the cancellation of
250,000 options which had been previously exercised.
13
ST.
JOSEPH, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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. At December 31, 2009, the balance in accrued dividends was
$82,367 after we made payments totaling $34,944.
NOTE 9 –
COMMITMENT
The
Company leases office space in Tulsa, Oklahoma under operating lease expiring in
2012. Future minimum payments due under the non-cancelable lease are
as follows:
2010
|
$ | 32,347 | ||
2011
|
32,347 | |||
2012
|
10,782 | |||
$ | 75,476 |
NOTE 10 - SUBSEQUENT
EVENT
In
conjunction with the preparation of these financial statements, an evaluation of
subsequent events was performed though March 25, 2010, which is the date
financial statements were issued. No reportable subsequent events
were noted other than those described below
From
March 5, 2010 to March 15, 2010, the Company sold 200,000 shares of common stock
to 4 accredited investors at a price of $0.50 per share for gross proceeds of
$100,000. No underwriters were used and no underwriting discounts or commissions
were payable. As of March 19, 2010, the 200,000 shares sold in the private
placement had not been issued.
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 to 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 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 to 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.
14