UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2015

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____.

 

Commission file number: 0-49936

 

ST. JOSEPH, INC.

(Exact name of registrant as specified in its charter)

 

Colorado		47-0844532
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
4205 Carmel Mountain Drive McKinney, TX		75070
Address of Principal Executive Offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (402) 902-9226

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [  ] No

 

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

[X] Yes [  ] No

 

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

 

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

 

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

[  ] Yes [X] No

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of January 18, 2015, there were 13,395,341 shares issued and outstanding of the registrant’s common stock.

 

 

 

ST. JOSEPH, INC.

Table of Contents

 

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited):	F-1
	Condensed Consolidated Balance Sheets	F-1
	Condensed Consolidated Statements of Operations	F-2
	Condensed Consolidated Statements of Shareholders’ Deficit	F-3
	Condensed Consolidated Statements of Cash Flows	F-4
	Notes to Condensed Consolidated Financial Statements	F-5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	10
Item 4.	Controls and Procedures	10
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	11
Item 1A.	Risk Factors	11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3.	Defaults Upon Senior Securities	12
Item 4.	Mine Safety Disclosures	12
Item 5.	Other Information	12
Item 6.	Exhibits	12

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

 

ST. JOSEPH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30, 2015				Audited December 31, 2014
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	0			$	12,721
Total current assets			0				12,721
Prepaid expenses			-				60,000
Total Assets		$	0			$	72,721
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable		$	479,037			$	458,634
Accrued liabilities			221,094				187,635
Accrued preferred dividend			42,047				42,047
Bank loan and notes payable:
Bank loan			1,576				115,402
Advance from officer			29,700				29,700
Loan from officer			45,000				45,000
Total current liabilities			818,454				878,418
STOCKHOLDERS’ DEFICIT:
Preferred stock, Series A; $0.001 par value, $3.00 face value; 25,000,000 shares authorized; 5,708 and 5,708shares issued and outstanding, respectively			6				6
Common stock, $0.001 par value; 100,000,000 shares authorized,13,395,341 and 13,085,802 issued and outstanding, Respectively			13,395				13,085
Additional paid-in capital			4,044,446				3,967,256
Retained deficit			(4,876,301	)			(4,786,044	)
Total stockholders’ deficit			(818,454	)			(805,697	)
Total Liabilities and Stockholders’ Deficit		$	0			$	72,721

 

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

 

 

ST. JOSEPH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Three months ended								Nine Months Ended
		September 30,								September 30,
		2015				2014				2015				2014
REVENUES:
Contract		$	-			$	-			$	-			$	6,656
COST OF REVENUES			-				-				-				4,547
Gross Margin			-				-				-				2,109
COSTS AND EXPENSES:
General and Administrative Expenses			80,233				44,674				175,659				261,995
Depreciation and Amortization			-				-				-				-
Total Costs and Expenses			80,233				44,674				175,659				261,995
Operating Income (Loss)			(80,233	)			(44,674	)			(175,659	)			(259,886	)
OTHER INCOME AND (EXPENSE):
Other Income (Expense)			-				-				-				4,075
Gain on Debt Restructuring			-				-				85,402				-
Interest Expense			-				(3,607	)			-				(37,676	)
Net Other Income (Expense)			-				(3,607	)			85,402				(33,601	)
Income (Loss) before provision for income taxes			(80,233	)			(48,281	)			(90,257	)			(293,487	)
Provision for income taxes			-				-				-				-
Net Income (Loss)		$	(80,233	)		$	(48,281	)		$	(90,257	)		$	(293,487	)
Income (Loss) applicable to common stockholders		$	(80,233	)		$	(48,281	)		$	(90,257	)		$	(293,487	)
Basic and diluted earnings (loss) per common share		$	(0.007	)		$	(0.00	)		$	(0.007	)		$	(0.02	)
Weighted average common shares outstanding			13,203,090				12,818,674				13,203,090				12,533,085

 

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

  

 

ST. JOSEPH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

																		Additional
		Preferred Stock-Series A								Common Stock								Paid-in				Retained
		Shares				Par value				Shares				Par value				Capital				Deficit				Total
Balance December 31, 2014			5,708			$	6				13,085,341			$	13,085			$	3,967,256			$	(4,786,044	)		$	(805,697	)
Sale of common stock @ $0.25 per share			-				-				310,000				310				77,190				-				77,500
Net income for the nine months ended September 30, 2015			-				-				-				-				-				(90,257	)			(10,024	)
Balance September 30, 2015			5,708			$	6				13,395,341			$	13,395			$	4,044,446			$	(4,876,301	)		$	(818,454	)

 

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

 

 

ST. JOSEPH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

 

		Nine Months Ended
		September 30,
		2015				2014
OPERATING ACTIVITIES
Net income (loss)		$	(90,257	)		$	(293,487	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation			-				50,986
Gain on debt restructuring			(85,402	)			-
Changes in operating assets and liabilities:
(Increase)/decrease in other assets			60,000				1,230
Increase/(decrease) in bank overdraft			1,576				81
Increase/(decrease) in accounts payable			20,403				58,856
Increase/(decrease) in accrued liabilities			33,459				17,476
Net cash provided by (used in) operating activities			(60,221	)			(164,858	)
INVESTING ACTIVITIES			-				-
FINANCING ACTIVITIES
Proceeds from sale of common stock			77,500				165,000
Proceeds from officer advance			-				2,200
Repayment of bank loan			(30,000	)			(2,800	)
Net cash provided by (used in) financing activities			47,500				164,400
INCREASE (DECREASE) IN CASH			(12,721	)			(458	)
CASH AT BEGINNING OF PERIOD			12,721				527
CASH AT END OF PERIOD		$	0			$	69
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes		$	-			$	-
Cash paid for interest		$	-			$	22,158

 

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

 

 

ST. JOSEPH, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(1) Basis of Presentation

 

The condensed balance sheet at December 31, 2014 has been derived from financial statements included in the Form 10-K. The accompanying unaudited financial statements at September 30, 2015 presented herein have been prepared by St. Joseph, Inc. (the “Company”) in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2014.

 

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim periods presented. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The results of operations presented for the nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year ending December 31, 2015.

 

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

 

Financial data presented herein are unaudited.

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has incurred recurring losses and has negative working capital and a net capital deficiency at September 30, 2015 (unaudited) and December 31, 2014. 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.

 

 

ST. JOSEPH, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(2) Related Party Transactions

 

In prior years, COLEMC advanced the Company a total of $45,000 for working capital in exchange for three promissory notes. The notes do not bear interest and matured on December 31, 2015.

 

During the years ended December 31, 2012 and 2011, an officer advanced the Company $7,500 and $16,700, respectively, for working capital in exchange for two promissory notes. During the year ended December 31, 2013, the officer advanced the Company an additional $5,500. The total balance of the notes is $29,700 and do not bear any interest. The notes matured on December 31, 2014 and is in default.

 

(3) Notes Payable

 

Bank Loan

 

The Company originally had a $200,000 line of credit with the bank. In August 2010, the Company converted its line of credit with the bank to a bank loan, which is collateralized by all of assets of the Company’s subsidiary company, Staf*Tek, including all receivables and property and equipment. The bank loan agreement included the following provisions: 1) an agreement to provide insurance coverage for the collateralized assets in the amount of $180,000; and 2) covenants to provide certain financial documents to the bank on a monthly and annual basis. On September 9, 2013, the Company received a default letter from the bank. Since that time, the bank has requested the Company bring the loan current by making monthly payments of $2,698 plus late fees of $50 per month.

 

On April 9, 2015, the Company entered into a Settlement Agreement for repayment of the bank loan. Under terms of the Settlement Agreement, the Company was required to repay the bank $30,000 as follows: $7,500 on or before April 20, 2015, $7,500 on or before May 20, 2015, and a final payment of $15,000 on or before June 20, 2015. As of September 30, 2015 , the Company had repaid all $30,000 under the Settlement Agreement. As a result, the Company recorded a $85,402 gain on the debt restructuring for the nine months ended September 30, 2015.

 

Interest expense on the Company’s bank borrowing was $-0- (unaudited) and $3,710, during the nine months ended September 30, 2015 and 2014, respectively.

 

Other Notes Payable

 

The Company recognized a $14,277 loss in connection with the loan conversions based on the difference between the conversion rate of $0.50 and the market value of the Company’s stock on January 31, 2014 of $0.55.

 

(4) Shareholders’ Deficit

 

Preferred Stock

 

The Board of Directors is authorized to issue shares of Series A Convertible Preferred Stock and to fix the number of shares in such series, as well as the designation, relative rights, powers, preferences, restrictions and limitations of all such series. In December 2003, the Company issued 386,208 shares of Series A Convertible Preferred Stock and 5,708 have not been converted to common stock at September 30, 2015.

 

Series A Convertible Preferred Stock is convertible to one share of common stock and has a yield of 6.75% dividend per annum, which is paid quarterly on a calendar basis for a period of five years.

 

The Company is currently delinquent in making dividend payments pursuant to the terms of a settlement agreement, as disclosed in an 8-K released on May 9, 2009. The accrued balance due on Series A Convertible Preferred Stock dividends total $42,047 (unaudited) and $42,047 as of September 30, 2015 December 31, 2014, respectively. The Company will commence dividend payments pursuant to the terms of a settlement agreement as funds are available.

 

 

ST. JOSEPH, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Common Stock

 

In a private placement during the nine months ended September 30, 2015 , the Company sold 310,000 (unaudited) shares of common stock to accredited investors at a price of $0.25 per share for gross proceeds totaling $77,500 (unaudited).

 

In a private placement during the year ended December 31, 2014, the Company sold 250,000 shares of common stock to accredited investors at a price of $0.25 per share for gross proceeds totaling $62,500.

 

In a private placement during the year ended December 31, 2014, the Company sold 330,000 shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $165,000.

 

No underwriters were used and no underwriting discounts or commissions were payable. The shares have been offered and sold by the Company in reliance upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended.

 

The shares were offered and sold only to accredited investors; as such term is defined by Rule 501 of Regulation D. All of the shares sold in the private placement are restricted securities pursuant to Rule 144.

 

Debt Conversion

 

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

 

Equity Awards Granted to Employees

 

The following schedule summarizes the changes in the Company’s equity awards for the nine months ended September 30, 2015.

 

										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, 2015			502,500			$	1.05			$	1.05				1.00 yrs.			$	25,125
Granted			-			$	-			$	-
Exercised			-			$	-			$	-
Cancelled/Expired			-			$	-			$	-
Outstanding and exercisable at September 30, 2015			502,500			$	0.50			$	0.50				0.25 yrs.			$	-

 

Deadlines for the exercise of all options have been extended to December 31, 2015.

 

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

 

 

ST. JOSEPH, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

On September 9, 2014, the Company’s Board of Directors extended the deadline for the exercise of the 502,500 options by one year from December 31, 2014 to December 31, 2015. In addition, the Board reduced the exercise price of the options from $1.05 to $0.50. Accordingly, the Company revalued the stock options, which resulted in a charge to share-based compensation totaling $118,350 during the year ended December 31, 2014.

 

All stock options were fully vested as of September 30, 2015 and December 31, 2014. Aggregate intrinsic value is calculated by determining the amount by which the market price of the stock exceeds the exercise price of the options on September 30, 2015, and then multiplying that amount by the number of options. The per share market value of the stock was below the exercise price on September 30, 2015, resulting in no aggregate intrinsic value.

 

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

 

The Black-Scholes options valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

 

(5) Income Taxes

 

At September 30, 2015, the Company’s current tax benefit consisted of a net tax asset of $1,132,660 (unaudited) due to operating loss carryforwards of approximately $3,537,520 (unaudited) which have been fully provided against in the valuation allowance of $1,132,660 (unaudited). The valuation allowance results in deferred tax expense, which offsets the net deferred tax asset for which there is no assurance of recovery.

 

At December 31, 2014, the Company’s current tax benefit consisted of a net tax asset of $1,130,645 due to operating loss carryforwards of approximately $3,527,496 which have been fully provided against in the valuation allowance of $1,130,645. 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, 2014 and 2013 were $173,318 and $259,509, respectively. Net operating loss carry forwards will expire through 2034.

 

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 the Internal Revenue Code, the Company’s tax net operating loss carry forwards generated prior to the ownership change may be subject to an annual limitation, which could reduce or defer the utilization of those losses.

 

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

 

(6) Legal Proceedings

 

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

 

Staf*Tek’s client terminated Mr. McGowan for performance issues after one month of employment. Mr. McGowan filed a lawsuit against Staf*Tek and the client and subsequently filed a motion for default judgment, which was granted by the judge. On March 9, 2012, Stat*Tek filed a motion to vacate the default judgment and requested a new trial. Staf*Tek has engaged counsel and intends to vigorously defend this action. As of this date, the client that terminated Mr. McGowan has been dismissed from the lawsuit by the judge because they had not been served within a nine months of the original filing of the lawsuit by Mr. McGowan’s counsel. Mr. McGowan and his attorney were three weeks late responding to our request for discovery and we requested dismissal. However, the judge did not grant dismissal. Mr. McGowan filed a motion for partial summary judgment on June 12, 2014. The Company responded on June 27, 2014 and the motion for partial summary judgment was denied on July 29, 2014. Mr. McGowan is seeking damages against Staf*Tek in an amount in excess of $75,000. Management deems the suit to be without merit, however, the costs of defending against the complaint could be substantial. In the event judgment is made against the Company and payment deemed appropriate, it may force the Company out of business.

 

(7) Commitment

 

The Company leases office space in McKinney, Texas on a month-to-month basis. Rent expense for the nine months ended September 30, 2015 totaled $4,500 (unaudited).

 

(8) Subsequent Event

 

The Company has evaluated subsequent events through January 18, 2016. Other than those described below, there have been no subsequent events after September 30, 2015 for which disclosure is required.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This quarterly report on Form 10-Q and other reports filed by St. Joseph, Inc. (the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

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

 

Company Overview

 

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

 

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

 

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

 

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

 

 

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

 

Staf*Tek Services Inc.

 

In anticipation of the completion of our reverse acquisition and in an effort to reduce expenses management recently downsized the operational expense at Staf*Tek by reducing the number of recruiters specializing in placement of professional technical personnel, as well as finance and accounting personnel on a permanent basis. Staf*Tek is primarily a regional professional service firm located in the Tulsa, Oklahoma area. Over the course of the last several years the area has experienced a downturn in the demand for highly specialized and qualified personnel further identifying the need for the reduction in personnel and expense.

 

Proposed Reverse Acquisition of Zone USA, Inc.

 

On February 26, 2015, St. Joseph entered into a nonbinding Letter of Intent with Zone USA, Inc. The Letter of Intent provides for St. Joseph to acquire 100% of Zone USA, Inc., which has a 50% ownership position in ANZ Communications, LLC.

 

The Letter of Intent contemplates the transaction being structured as a reverse acquisition with St. Joseph purchasing Zone USA’s 50% ownership position in ANZ Communications in return for the issuance of (i) such number of shares of common stock that will be equal to not more than 80% of the total issued and outstanding shares of St. Joseph on a fully diluted and converted basis, or (ii) preferred stock convertible into such number of common stock. In addition, the Letter of Intent contemplates that the execution of a definitive agreement for the RTO is conditional on the involved parties being satisfied with their initial due diligence reviews, and the raising by St. Joseph of not less than $10 million in net proceeds. It is also contemplated that the definitive agreement will contain customary representations, warranties, covenants, undertakings and indemnities, including by the Company’s principal shareholders, together with non-competition agreements required by the Zone USA Investor (or its affiliates) relating to the existing Company’s business and restraints on the disposal by the Company’s principal shareholders’ shares in the Company post-closing for an agreed period.

 

The proposed transaction may be subject to the approval of our shareholders and the approval of Zone USA’s owners. The approvals necessary will depend on the transaction structure contained in any definitive agreement that may be entered into. We cannot provide any assurance that the required approvals will be granted, and in the event they are not, we will not be able to proceed with the transaction. Any consummation of the proposed transaction will need to be performed in compliance with applicable securities laws and regulations, and may require the filing of comprehensive disclosure documents which may add to the expense and time needed for the completion of the transaction. Depending on the final transaction structure we may need to register as an Investment Company under the Investment Company Act of 1940 or obtain an exemption from such registration. In such event, we may have to abandon the transaction if we not able to register as an Investment Company or not able to obtain an exemption. Our management cautions investors against making investment decisions based on any expectation that the proposed transaction will be consummated, or that the proposed transaction will result in any increase in share value, because, in its view, such expectations are speculative.

 

 

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

 

Results of Operations for the Three Months Ended September 30, 2015 and 2014

 

The following tables sets forth the summary income statement for the three months ended September 30, 2015 and 2014:

 

		Three Months Ended
		September 30,
		2015								2014
						% of								% of				Change				Change
		$				Revenue				$				Revenue				$				%
REVENUES:
Contract		$	-				0.00	%		$	-				0.00	%		$	-				0.00	%
COST OF REVENUES			-				0.00	%			-				0.00	%			-				0.00	%
Gross Margin			-				0.00	%			-				0.00	%			-				0.00	%
COSTS AND EXPENSES:
General and Administrative Expenses			80,233				100.00	%			44,674				100.00	%			35,559				100.00	%
Depreciation and Amortization			-				0.00	%			-				0.00	%			-				0.00	%
Total Costs and Expenses			80,233				100.00	%			44,674				100.00	%			35,559				100.00	%
Operating Income (Loss)			(80,233	)			-100.00	%			(44,674	)			-100.00	%			35,559				-44.32	%
OTHER INCOME AND (EXPENSE):
Other Income (expense)			-				0.00	%			-				0.00	%			-				0.00	%
Interest Expense			-				0.00	%			(3,607	)			-100.00	%			(3,607	)			-100.00	%
Net Other Expense			-				0.00	%			(3,607	)			-100.00	%			(3,607	)			-100.00	%
Loss before provision for income taxes			(80,233	)			-100.00	%			(48,281	)			-100.00	%			31,952				-100.00	%
Provision for income taxes			-				0.00	%			-				0.00	%			-				0.00	%
Net Loss		$	(80,233	)			-100.00	%		$	(48,281	)			-100.00	%		$	31,952				-100.00	%

 

Revenues

 

Revenues for the three months ended September 30, 2015 decreased to $-0- from $-0- for the three months ended September 30, 2014. There was no change in net revenues, from the prior period, and is attributable to the termination of the Company’s revenue-producing operations.

 

Gross Profit

 

For the three months ended September 30, 2015, we had no gross profit this period nor did we have any gross profit for the prior three months ended September 30, 2014. This is due to the termination of the Company’s revenue-producing operations.

 

 

Total Costs and Expenses

 

Total costs and expenses for the three months ended September 30, 2015 increased to $80,233 from $44,674 for the three months ended September 30, 2014. This increase in our total operating expenses of $35,559 is approximately 179.60% above that of the prior period is attributed to the termination of the Company’s revenue-producing operations and to a gain on debt restructuring and the settlement of a line of credit and other liability settlements.

 

Net Other Income (Expense)

 

Net other income/expense for the three months ended September 30, 2015 was unchanged for the three months ended September 30, 2014. The net other income/expense of $0, is attributed to the termination of the Company’s revenue-producing operations.

 

Net Income (Loss)

 

Due to the aforementioned reasons, our net loss for the three months ended September 30, 2015 increased to $80,233 as compared to a $48,281 loss for the three months ended September 30, 2014. This increase in net loss of $31,952 is approximately 166.18% above that of the prior period loss is attributed to the termination of the Company’s revenue-producing operations.

 

Results of Operations for the Nine Months Ended September 30, 2015 and 2014

 

The following tables sets forth the summary income statement for the nine months ended September 30, 2015 and 2014:

 

		Nine Months Ended
		September 30,
		2015								2014
						% of								% of				Change				Change
		$				Revenue				$				Revenue				$				%
REVENUES:
Contract		$	-				0.00	%		$	6,656				100.00	%		$	(6,656	)			-100.00	%
COST OF REVENUES			-				0.00	%			4,547				68.31	%			(4,547	)			-100.00	%
Gross Margin			-				0.00	%			2,109				31.69	%			(2,109	)			-100.00	%
COSTS AND EXPENSES:
General and Administrative Expenses			175,659				100.00	%			261,994				3936.21	%			(86,335	)			-12.97	%
Depreciation and Amortization			-				0.00	%			-				0.00	%			-				0.00	%
Total Costs and Expenses			175,659				100.00	%			261,994				3936.21	%			(86,335	)			-12.97	%
Operating Income (Loss)			(175,659	)			-100.00	%			(259,886	)			-3936.21	%			(84,227	)			-12.65	%
OTHER INCOME AND (EXPENSE):
Other Income (expense)			85,402				100.00	%			4,075				61.22	%			81,327				12.29	%
Interest Expense			-				0.00	%			(37,676	)			-511.85	%			(37,676	)			-5.66	%
Net Other Expense			85,402				0.00	%			(33,601	)			-566,05	%			51,801				778.26	%
Loss before provision for income taxes			(90,257	)			-100.00	%			(293,487	)			-566.05	%			203,230				3053.33	%
Provision for income taxes			-				0.00	%			-				0.00	%			-				0.00	%
Net Loss		$	(90,257	)			-100.00	%		$	(293,487	)			-4409.36	%		$	203,230				3053.33	%

 

 

Revenues

 

Revenues for the nine months ended September 30, 2015 decreased to $-0- from $6,656 for the nine months ended June 30, 2014. This decrease in net revenues of $6,656, or 100%, over the prior period, is attributable to the termination of the Company’s revenue-producing operations.

 

Gross Profit

 

For the nine months ended September 30, 2015 , we had no gross profit compared to a gross profit of $2,109 for the nine months ended June 30, 2014. This decrease in our gross profitability of $2,109, or 100% over the prior period, is due to the termination of the Company’s revenue-producing operations.

 

Total Costs and Expenses

 

Total costs and expenses for the nine months ended September 30, 2015 decreased to $175,659 from $261,994 for the nine months ended June 30, 2014. This decrease in our total operating expenses of $86,335 is approximately 67.04% below that of the prior period is attributed to the termination of the Company’s revenue-producing operations.

 

Net Other Income

 

Net other income for the nine months ended September 30, 2015 increased to $85,402 from $(33,601) for the nine months ended June 30, 2014. This is an increase in net other income/expense of $119,003, or approximately 215.05% over the prior period is attributed to the gain on debt restructuring and the settlement of a line of credit and other liability settlements.

 

Net Income (Loss)

 

Due to the aforementioned reasons, our net loss for the nine months ended September 30, 2015 decreased to $90,257 as compared to a $293,487 loss for the nine months ended June 30, 2014. This decrease in net loss of $208,085 is approximately 325.16% above that of the prior period loss is attributed to the $85,402 gain on debt restructuring and the termination of the Company’s revenue-producing operations.

 

Liquidity and Capital Resources

 

As of September 30, 2015, we had a cash balance of $ 0.

 

The following table summarizes total current assets, liabilities and working capital at September 30, 2015 compared to December 31, 2014:

 

		Period Ended
		September 30, 2015				December 31, 2014				Increase/Decrease
Current Assets		$	0			$	12,721			$	(12.721	)
Current Liabilities		$	818,464			$	878,418			$	(59,954	)
Working Capital Deficit		$	(818,454	)		$	(865,697	)		$	47,243

 

 

Going Concern

 

For the nine months ended September 30, 2015 , our funds are insufficient to fund our daily operations. We must to seek other sources of financing to maintain liquidity. The ability of the Company to continue is dependent on management’s plans, which include the raising of capital through the debt and/or equity markets, with some additional funding from other traditional financing sources, including term notes. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence. There can be no assurance that the Company will be able to raise any additional capital.

 

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

 

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

 

Summary Cash Flows for the nine months ended September 30, 2015 and 2014

 

		Nine months ended September 30,
		2015				2014
Net cash provided by (used in) operating activities		$	(61,797	)		$	(164,858	)
Net cash provided by (used in) investing activities		$	-			$	-
Net cash provided by (used in) financing activities		$	47,500			$	164,400

 

Cash Used In Operating Activities

 

Net cash used in our operating activities in nine months ended September 30, 2015 totaled $61,797, which compared to net cash used in our operating activities of $164,858 for the same nine months in the prior year. This decrease in cash used in operating activities of $97,454 is attributed to the $85,402 gain on debt restructuring, the write-off of a $60,000 prepaid expense and the significant decrease in net loss due to the termination of the Company’s revenue-producing operations.

 

Cash Provided By Financing Activities

 

In a private placement during the nine months ended September 30, 2015 , the Company sold 310,000 (unaudited) shares of common stock to accredited investors at a price of $0.25 per share for gross proceeds totaling $77,500 (unaudited). The Company also made debt repayments totaling $30,000, resulting in net cash provided by financing activities for the nine months ended September 30, 2015 of $47,500.

 

 

Recent Accounting Pronouncements

 

None.

 

Critical Accounting Policies

 

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

 

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

 

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

 

Use of Estimates and Assumptions

 

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

 

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

 

 

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

 

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

 

Off Balance Sheet Arrangements

 

During the nine months ended September 30, 2015, we did not engage in any material off-balance sheet activities, nor have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities, nor do we have any commitment or intent to provide additional funding to any such entities.

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

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

 

ITEM 4. Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures

 

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.

 

Based upon that evaluation, the Company’s PEO and PFO concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our periodic reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in internal control over financial reporting

 

There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended September 30, 2015 , that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

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

 

Staf*Tek’s client terminated Mr. McGowan for performance issues after one month of employment. Mr. McGowan filed a lawsuit against Staf*Tek and the client and subsequently filed a motion for default judgment, which was granted by the judge. On March 9, 2012, Stat*Tek filed a motion to vacate the default judgment and requested a new trial. Staf*Tek has engaged counsel and intends to vigorously defend this action. As of this date, the client that terminated Mr. McGowan has been dismissed from the lawsuit by the judge because they had not been served within a nine months of the original filing of the lawsuit by Mr. McGowan’s counsel. Mr. McGowan and his attorney were three weeks late responding to our request for discovery and we requested dismissal. However, the judge did not grant dismissal. Mr. McGowan filed a motion for partial summary judgment on June 12, 2014. The Company responded on June 27, 2014 and the motion for partial summary judgment was denied on July 29, 2014. Mr. McGowan is seeking damages against Staf*Tek in an amount in excess of $75,000. Management deems the suit to be without merit, however, the costs of defending against the complaint could be substantial. In the event a judgment is made against the Company and payment deemed appropriate, it may force the Company out of business.

 

ITEM 1A. RISK FACTORS

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the U.S. Securities and Exchange Commission.

 

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

 

In a private placement during the nine months ended September 30, 2015 , the Company sold 310,000 (unaudited) shares of common stock to accredited investors at a price of $0.25 per share for gross proceeds totaling $77,500 (unaudited).

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

The Company is currently delinquent in making dividend payments pursuant to the terms of a settlement agreement, as disclosed in an 8-K filed on May 9, 2009. The accrued balance due on Series A Convertible Preferred Stock dividends will commence dividend payments pursuant to the terms of a settlement agreement as funds are available. There is an accrued amount of Series A Convertible Preferred Stock dividends in the amount of $42,047 as of September 30, 2015. ($42,047 at December 31, 2014).

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

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

 

 

SIGNATURES

 

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

 

	Date: January 28, 2016
	ST. JOSEPH, INC.
	/s/ GERALD MCILHARGEY
	Gerald McIlhargey, Chief Executive Officer