UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-K

 

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2015

 

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

 

Commission file number: 0-49936

 

ST. JOSEPH, INC.

(Exact name of registrant as specified in its charter)

 

COLORADO   CH 90-0197648
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

4205 Carmel Mountain Drive, McKinney, TX 75070

(Address of principal executive offices)

 

(469) 534-8088

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001

 

Indicate by checkmark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by checkmark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

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. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark 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 the 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. [  ]

 

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

 

Large Accelerated Filer [  ] Accelerated Filer [  ]
Non-Accelerated Filer [  ] Smaller reporting company [X]

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes [X] No [  ]

 

Based on the closing sale price of $0.32 of the registrant’s common stock on the last business day of our most recent third quarter, ended September 30, 2015, 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 $3,060,086.

 

As of March 27, 2017, there were 13,395,341 shares of the registrant’s common stock issued and outstanding.

 

 

 

 
 

 

ST. JOSEPH, INC.

Form 10-K

For the Fiscal Year Ended December 31, 2015

 

TABLE OF CONTENTS

 

      Page
PART I      
Item 1. Business   4
Item 1A. Risk Factors   6
Item 1B. Unresolved Staff Comments   9
Item 2. Description of Property   9
Item 3. Legal Proceedings   9
Item 4. Mine Safety Disclosures   9
       
PART II      
Item 5. Market for Common Equity and Related Stockholder Matters   10
Item 6. Selected Financial Data   11
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations   11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk   16
Item 8. Financial Statements   16
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   16
Item 9A. Controls and Procedures   16
Item 9B. Other Information   18
       
PART III      
Item 10. Directors, Executive Officers, and Corporate Governance   19
Item 11. Executive Compensation   24
Item 12. Security Ownership of Certain Beneficial Owners and Management   25
Item 13. Certain Relationships and Related Transactions; Director Independence   30
Item 14. Principal Accounting Fees and Services   30
Item 15. Exhibits, Financial Statement Schedules   31
       
  SIGNATURES   33

 

2
 

 

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 slowdowns 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.

 

3
 

 

PART I

 

Item 1. Business

 

Company Overview

 

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

 

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

 

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

 

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

 

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

 

4
 
 

Proposed Reverse Acquisition of Zone USA, Inc.

 

On June 15, 2016 the Company filed an 8K indicating that the Company was provided written notice of the termination of a nonbinding letter of intent (the “Letter of Intent”) with Zone USA, Inc. (“Zone USA”). The Letter of Intent was effected on August 7, 2012, and extended on February 26, 2015, and has been subsequently mutually terminated June 15, 2016.

 

Staf*Tek Services, Inc.

 

During the years Staf*Tek was in operation the Company specialized 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.

 

Due to economic conditions the Company has discontinued its temporary and permanent staffing services and may or may not restart operations.

 

5
 

 

Competition

 

During operation 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.

 

The Company has discontinued its temporary and permanent staffing services and may or may not restart operations depending on economics.

 

Employees

 

As of December 31, 2015, we had one full time employee.

 

Available Information

 

We file electronically with the U.S. Securities and Exchange Commission (SEC) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The public can obtain materials that we file with the SEC through the SEC’s website at http://www.sec.gov or at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room is available by calling the SEC at 800-SEC-0330.

 

Item 1A. Risk Factors

 

You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. The occurrence of any of the following risks could harm our business, financial condition or results of operations.

 

Risks Related to Our Business and Industry

 

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, 2014 and 2015 contains an explanatory paragraph indicating that we have incurred recurring losses, and as of December 31, 2015, 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.

 

Our revenues have declined precipitously over the last several years creating doubt as to our ability to continue our operations or achieve profitability.

 

During our 2015 fiscal year, we had revenues of $0, down from $6,656 in our 2014 fiscal year. We have been relying primarily on funds raised from the sale of our shares in private placements. However, our declining business operations may increase the difficulty of raising additional funds. If we are unable to reverse these trends, we may go out of business, and our stockholders may lose their entire investment.

 

6
 

 

We may engage in a “reverse merger” acquisition, resulting in severe dilution to existing stockholders.

 

In the event we engage in a merger or acquisition, it is likely that the transaction will be structured as a” reverse merger” that would result in severe dilution to existing stockholders. In connection with any such reverse merger, our stock may be subject to a reverse stock split, and the value of our stockholder’s shares may be negatively impacted. We can provide no assurance that we will engage in any reverse merger, or any other merger or acquisition transaction.

 

We will require substantial additional capital to pursue our business plan.

 

We have financed our operations largely through debt and the sale of equity securities. Our capital requirements will depend on many factors, including, among other things, the cost of developing our business and marketing activities, the efficacy and effectiveness of our proposed services, costs (whether or not foreseen), the length of time required to collect accounts receivable we may in the future generate. Changes in our proposed business or business plan could materially increase our capital requirements. We cannot assure you that our proposed plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than currently anticipated.

 

We will need to obtain substantial additional financing to, among other things, secure net proceeds of in connection with the, Inc. Any additional equity financing, if available, may be dilutive to stockholders and any such additional equity securities may have rights, preferences or privileges that are senior to those of the holders of shares of our Common Stock. Debt financing, if available, will require payment of interest and may involve our granting security interests on our assets and restrictive covenants that could impose limitations on our operating flexibility.

 

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.

 

The placement of temporary employees requires substantial additional capital to fund our working capital needs. If operations of Staf*Tek are started back up and 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.

 

If we are able to grow our business, 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.

 

7
 

 

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.

 

If operations of Staf*Tek are started back up 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.

 

Our inability to attract and retain qualified employees could have a material adverse effect on our business, financial condition and results of operations.

 

If operations of Staf*Tek are recommenced 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.

 

If the reverse acquisition of Zone USA, Inc. would have been consummated, the Company’s management, business and corporate structure would have been subject to substantial uncertainty. Pursuant to the Letter of Intent, as supplemented by prior negotiations, any consummation of the Planned Reverse Acquisition Transaction would have resulted in Zone USA owning no more than 80% of the Company’s common stock on a fully diluted basis, the business of Zone USA, Inc. would have become the business of the Company, and the Zone USA Investor would have appoint new officers and directors of the Company.

 

The reverse acquisition did not reach a definitive agreement; if it had there could have been no assurances as to what the final terms will be. It was expected that the Zone Investors would have discretion regarding the appointment of our officers and directors, and our board and management may therefore deviate, possibly substantially, from that of the current board and management of Zone USA, Inc.

 

Investors were cautioned that the Company could not provide assurance that the transaction would be consummated. The Company was not party to any binding agreement for the Planned Reverse Acquisition Transaction, nor could it provide any assurance that it will enter into one.

 

8
 

 

Our common stock is subject to the SEC’s Penny Stock Regulations which may affect the liquidity for our stock, the ability of our stockholders to resell their shares through a broker-dealer, and their ability to obtain accurate price quotations.

 

Our common stock is subject to the SEC’s “penny stock” rules. These regulations define a “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, these rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to the broker-dealer and the registered underwriter, current quotations for the securities, information on the limited market in penny stocks and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealers’ presumed control over the market. In addition, the broker-dealer must obtain a written statement from the customer that such disclosure information was provided and must retain such acknowledgment for at least three years. Further, monthly statements must be sent disclosing current price information for the penny stock held in the account. The penny stock rules also require that broker-dealers engaging in a transaction in a penny stock make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the purchase. The foregoing rules may materially and adversely affect the liquidity for the market of our common stock, if any such public market develops. Such rules may also affect the ability of broker-dealers to sell our common stock in any such public market, the ability of holders of such securities to obtain accurate price quotations and may therefore impede the ability of holders of our common stock to sell such securities in the secondary market.

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 2. Description of Property

 

We lease approximately 655 square feet of office space from a non-affiliated third party at 4205 Carmel Mountain Drive, McKinney, TX 75070. Our monthly lease payment is $500. We currently lease this office on a month-to-month basis.

 

Item 3. Legal Proceedings

 

The Company is not aware of any.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

9
 

 

PART II

 

Item 5. Market for Common Equity and Related Stockholder Matters

 

(a) Market Information

 

Our Class A common stock is quoted on the OTC Markets under the symbol “STJO”. The following table shows the high and low closing prices for the periods indicated.

 

Quarter ended   High     Low  
March 31, 2015   $ 0.54     $ 0.25  
June 30, 2015   $ 0.32     $ 0.25  
September 30, 2015   $ 0.21     $ 0.13  
December 31, 2015   $ 0.17     $ 0.15  

 

Quarter ended   High     Low  
March 31, 2014   $ 0.50     $ 0.39  
June 30, 2014   $ 0.50     $ 0.38  
September 30, 2014   $ 0.44     $ 0.31  
December 31, 2014   $ 0.40     $ 0.15  

   

The above information was obtained from Yahoo! Finance. 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.

 

(b) Holders of Common Equity.

 

As of February 15, 2017, there were approximately 290 holders of record of our common stock. This figure does not take into account those shareholders whose certificates are held in the name of broker-dealers or other nominees.

 

(c) Dividend Information.

 

We have never paid any cash dividends on our common shares, and we do not anticipate that we will pay any dividends with respect to those securities in the foreseeable 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.

 

(d) Sales of Unregistered Securities

 

In a private placement during the year ended December 31, 2015, the Company sold 310,000 shares of common stock to accredited investors at a price of $0.25 per share for gross proceeds totaling $77,500. No underwriters were used and no underwriting discounts or commissions were payable. The shares have been offered and sold by the Company in reliance upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The shares were offered and sold only to accredited investors; as such term is defined by Rule 501 of Regulation D. All of the shares sold in the private placement are restricted securities pursuant to Rule 144.

 

In a private placement during the year ended December 31, 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.

 

In a subsequent 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. No underwriters were used and no underwriting discounts or commissions were payable. The shares have been offered and sold by the Company in reliance upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The shares were offered and sold only to accredited investors; as such term is defined by Rule 501 of Regulation D. All of the shares sold in the private placement are restricted securities pursuant to Rule 144.

 

In a private placement during the year ended December 31, 2013, the Company sold 410,000 shares of common stock to accredited investors at a price of $0.50 per share for gross proceeds totaling $205,000. No underwriters were used and no underwriting discounts or commissions were payable. The shares have been offered and sold by the Company in reliance upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The shares were offered and sold only to accredited investors; as such term is defined by Rule 501 of Regulation D. All of the shares sold in the private placement are restricted securities pursuant to Rule 144.

 

10
 

 

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

 

The securities mentioned above were not registered under the Securities Act of 1933, as amended (the “ Securities Act ”), and qualified for exemption under Section 4(2) of the Securities Act because the issuance of the securities did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered.

 

Transfer Agent

 

Our transfer agent is Corporate Stock Transfer, Inc. at 3200 Cherry Creek South Drive, Suite 430, Denver, Colorado 80209.

 

Item 6. Selected Financial Data

 

Not applicable.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Annual Report on Form 10-K 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 this Annual Report on Form 10-K., 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.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

 

Business Description

 

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.

 

11
 

 

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.

 

During the years Staf*Tek was in operation the Company specialized 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.

 

Due to economic conditions the Company has discontinued its temporary and permanent staffing services and may or may not restart operations.

 

Proposed Reverse Acquisition of Zone USA, Inc.

 

On June 15, 2016 the Company filed an 8K indicating that the Company was provided written notice of the termination of a nonbinding letter of intent (the “Letter of Intent”) with Zone USA, Inc. (“Zone USA”). The Letter of Intent was effected on August 7, 2012 and extended on February 26, 2015, and has been subsequently mutually terminated June 15, 2016.

 

Results of Operations for the Twelve Months Ended December 31, 2015 and 2014

 

                            Change     Change  
    December 31, 2015     December 31, 2014     $     %  
                                     
Net Revenues   $ -       100.00 %   $ 6,656       100.0 %   $ (6,656 )     -100.00 %
Cost of Revenues     -       0.00 %     4,159       62.48 %     (4,159 )     -100.00 %
Gross Margin (loss)     -       100.00 %     2,497       37.52 %     (2,497 )     -100.00 %
                                                 
Operating Expenses:                                                
Selling, General and Administrative Expenses     240,766       240766.00 %     423,793       6367.08 %     (183,027 )     -43.19 %
Depreciation and Amortization     -       0.00 %     -       0.00 %     -       0.00 %
Total Operating Expenses     240,766       240766.00 %     423,793       6367.08 %     (183,027 )     -43.19 %
                                                 
Income (Loss) from Operations     (240,766 )     -240766.0 %     (423,793 )     -6329.57 %     (183,027 )     -43.19 %
                                                 
OTHER INCOME AND (EXPENSE):                                                
Other Income (expense)     -       0.00 %     4,075       61.22 %     (4,075 )     100.00 %
Gain on Extinguishment of Debt     127,902       157902.00 %     -       0.00 %     127,902       100.00 %
Interest Expense     (23,025 )     -23025.00 %     (39,359 )     -805.83 %     (16,334 )     -41.50 %
Net Other Expense     104,877       134877.00 %     (35,284 )     -744.61 %     140,161       397.24 %
Loss before provision for income taxes     (135,889 )     -135899.0 %     (456,580 )     -7074.17 %     (320,691 )     -70.24 %
Provision for Income Taxes     -       0.00 %     -       0.00 %     -       0.00 %
Net Income (Loss)     (135,889 )     -135899.0 %     (456,580 )     -7074.17 %     (320,691 )     -70.24 %
Benefit from tax loss carryforward     -       0.00 %     -       0.00 %     -       0.00 %
Net Income (Loss)   $ (135,889 )     -135899.0 %   $ (456,580 )     -7074.17 %   $ (320,691 )     -70.24 %

 

Net Revenues

 

Net revenues for the twelve months ended December 31, 2015 decreased to $0 from $6,656 for the twelve months ended December 31, 2014. The decrease in net revenues of $6,656 or 100% below the 2014 period is attributable to the company focusing on completing mergers and/or acquisitions opportunities.

 

Cost of Revenues

 

Cost of revenues for the twelve months ended December 31, 2015 decreased to $0 from $4,159 for the twelve months ended December 31, 2014. The overall decrease in cost of revenues of $4,159, or 100% below the 2014 period, is attributable to the company focusing on completing mergers and/or acquisitions opportunities.

 

Gross Margin

 

The overall gross margin for the twelve months ended December 31, 2015 decreased to $0 from $2,497 for the twelve months ended December 31, 2014. The overall decrease in gross margin of $2,497, or 100% below the 2014 period, is attributable to the company focusing on completing mergers and/or acquisitions opportunities.

 

12
 

 

Operating Expenses

 

Total operating expenses for the twelve months ended December 31, 2015 decreased to $240,766 from $423,793 for the twelve months ended December 31, 2014. Reasons for the overall decrease in operating expenses of $183,027, or approximately 43.19% below the 2014 period, is attributable to the company focusing on completing mergers and/or acquisitions opportunities.

 

General and Administrative Expenses

 

General and administrative expenses for the twelve months ended December 31, 2015 decreased to $240,766 from $423,793 for the twelve months ended December 31, 2014. Reasons for the overall increase in operating expenses of $183,027 or approximately 13.19%, below the 2014 period is attributable to the company focusing on completing mergers and/or acquisitions opportunities.

 

Stock-Based Compensation – Modification of Common Stock Options

 

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

 

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.

 

On December 31, 2015, St. Joseph’s 502,500 common stock options shares of common stock options with a strike price of $0.50 per share expired. The Board of Directors granted 417,500 of fully vested common stock options at a strike price of $0.25 per share to Officers, Directors and Key Personnel for a period of one year.

 

Total Operating Income and Losses

 

Total operating losses for the twelve months ended December 31, 2015 decreased to $240,766 from operating losses of $423,793 for the twelve months ended December 31, 2014. The overall decrease in operating losses of $183,027, or approximately 13.19% below the 2014 period, is attributable to the termination of the Company’s revenue-producing operations.

 

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Net Other Expenses

 

Net other expenses for the twelve months ended December 31, 2015 decreased to $104,877 from ($35,284) for the twelve months ended December 31, 2014. The overall decrease in our net other expenses of $140,161, or approximately 397.24% above the 2014 period is primarily due to a decrease in interest expense and relinquishment from debt obligations during the year ended December 31, 2015.

 

Interest Expense

 

Interest expense for the twelve months ended December 31, 2015 decreased to $23,025 from $39,359 for the twelve months ended December 31, 2014. The overall decrease in our interest expense of $16,334, or approximately 41.5% below the 2014 period, is primarily due to the conversions of debt instruments to common stock during the year ended December 31, 2015.

 

Net Loss

 

Net loss for the twelve months ended December 31, 2015 decreased to $135,889 from $456,580 for the twelve months ended December 31, 2014. This decreased in net loss of $320,691 or approximately 70.29% less than the 2014 net loss is attributable to the termination of the Company’s revenue-producing operations.

 

Liquidity and Capital Resources

 

    December 31, 2015     December 31, 2014  
Net cash used in operating activities   $ 37,681     $ (207,706 )
Net cash used in investing activities   $ -     $ -  
Net cash used in financing activities   $ (50,402 )   $ 219,900  

 

General

 

For the twelve months ended December 31, 2015, we had positive cash flows resulting from $37,681 of cash provided by our operating activities and ($50,402) of cash used in our financing activities. During the twelve months ended December 31, 2015, our funds from operations were not sufficient to cover our daily operations as further explained below.

 

Cash Flows from Operating Activities

 

Net cash provided by our operating activities of $37,681 for the twelve months ended December 31, 2015 was primarily attributable to the net loss and offset by stock-based compensation expenses and increases in accounts payable and in other assets.

 

Cash Flows from Investing Activities

 

Net cash used in our investing activities of $0 for the twelve months ended December 31, 2015.

 

Cash Flows from Financing Activities

 

Net cash used in our financing activities of ($50,402) for the twelve months ended December 31, 2015 primarily from proceeds of common stock sales and related party loans.

 

Internal Sources of Liquidity

 

For the year ended December 31, 2015, the funds generated from our operations were insufficient to fund our daily operations. For the year ended December 31, 2015, we had a gross margin of $0, and we were thus unable to meet our operating expenses of $240,766 for the same period. After accounting for our net other expenses (interest expense and relinquishment of debt) of $104,877 for this period, we suffered a net loss of $153,889 for the period. We can provide no assurance that funds from our operations will increase sufficiently to meet the requirements of our daily operations in the future. In the event that funds from our operations are insufficient to meet our expenses, we will need to seek other sources of financing to maintain liquidity.

 

14
 

 

External Sources of Liquidity

 

Because the funds generated from our operations have been not been sufficient to fully fund our operations, we have been dependent on debt and equity financing to make up the shortfall. We actively pursue all potential financing options as we look to secure additional funds to both stabilize and grow our business operations. Our management will review any financing options at their disposal, and will judge each potential source of funds on their individual merits. There can be no assurance that we will be able to secure additional funds from debt or equity financing, as and when we need to, or if we can, that the terms of such financing will be favorable to us or our existing stockholders. As a result, our independent registered public accounting firm has issued a “going concern” modification to its report on our audited financial statements for the years ended December 31, 2015 and 2014.

 

The Company originally had a $200,000 line of credit of with a bank. In August 2010, the Company converted its line of credit with the bank to a bank loan which is collateralized by all of assets of the Company’s subsidiary company, Staf*Tek, including all receivables and property and equipment. The bank loan agreement included the following provisions: 1) an agreement to provide insurance coverage for the collateralized assets in the amount of $180,000; 2) covenants to provide certain financial documents to the bank on a monthly and annual basis. The interest rate on the loan was 6.5 % and the monthly principal and interest payment was $2,698 with a final balloon payment in the amount of $117,937 due on the maturity date of August 31, 2013. On September 9, 2013, the Company received a default letter from the bank and since that time the bank requested information for consideration for an extension which terms have yet to be determined. The principal loan balance continues to bear 6.5% interest.

 

On April 9, 2015, the Company entered into a Settlement Agreement for repayment of its bank loan (see Note 3). Under the terms of the Settlement Agreement, the Company paid the bank $30,000 as follows: $7,500 on April 20, 2015, $7,500 on May 20, 2015, and a final payment of $15,000 on June 20, 2015. As a result of the settlement the Company recorded a gain of $85,402. In addition, the company settled vendor debt in 2015 in the net amount of $42,500.

 

In a private placement during the year ended December 31, 2015, the Company sold 310,000 shares of common stock to accredited investors at a price of $0.25 per share for gross proceeds totaling $77,500.

 

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 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 $44,359 and $42,047 as of December 31, 2015 and 2014, respectively. The Company will commence dividend payments pursuant to the terms of a settlement agreement as funds are available. 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.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to bad debts, inventory obsolescence, intangible assets, payroll tax obligations, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

 

We have identified below the accounting policies, revenue recognition and software costs, related to what we believe are most critical to our business operations and are discussed throughout Management’s Discussion and Analysis of Financial Condition or Plan of Operation where such policies affect our reported and expected financial results.

 

15
 

 

Off Balance Sheet Arrangements

 

During the year ended December 31, 2015, we did not engage in any material off-balance sheet activities or 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 7A. Quantitative and Qualitative Disclosures about Market Risk

 

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

 

Item 8. Financial Statements

 

Our financial statements are contained in pages F-1 through F-13 which appear at the end of this Annual Report.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures

 

(a) Evaluation of Disclosure and Control Procedures

 

The Company carried out an evaluation, under the supervision and with the participation of its management, including its chief executive officer and its principal accounting officer, of the effectiveness of its disclosure controls and procedures as of December 31, 2015 (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Company’s principal executive officer and principal financial officer have concluded that, as of the end of the period covered in this report, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

The Company, including its principal executive officer and principal financial officer, does not expect that its disclosure controls and procedures or its internal controls will prevent all error or fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of internal control is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management evaluated, under the supervision and with the participation of our Chief Executive Officer, the effectiveness of our internal control over financial reporting as of December 31, 2015.

 

Based on its evaluation under the framework in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, our management concluded that our internal control over financial reporting was not effective as of December 31, 2015 due to the existence of significant deficiencies constituting material weaknesses, as described in greater detail below. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

 

16
 

  

This annual report does not include an attestation report of our company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit our company to provide only management’s report in this annual report.

 

(c) Limitations on Effectiveness of Controls

 

Our Chief Executive Officer does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

In connection with the preparation of our financial statements for the year ended December 31, 2015, certain material weaknesses in internal control became evident to management, including:

 

(d) Material Weaknesses Identified

 

(i) Insufficient segregation of duties in our finance and accounting functions due to limited personnel. During the year ended December 31, 2015, we had limited staff that performed nearly all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. This creates certain incompatible duties and a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected;
   
(ii) There is a lack of sufficient supervision and review by our corporate management;
   
(iii) Insufficient corporate governance policies. Our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management; and
   
(iv) Our company’s accounting personnel does not have sufficient technical accounting knowledge relating to accounting for income taxes and complex US GAAP matters. Management corrected any errors prior to the release of our company’s December 31, 2015 financial statements.

 

(e) Plan for Remediation of Material Weaknesses

 

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies. We intend to consider the results of our remediation efforts and related testing as part of our year-end 2015 assessment of the effectiveness of our internal control over financial reporting.

 

17
 

   

We have implemented certain remediation measures and are in the process of designing and implementing additional remediation measures for the material weaknesses described in this annual report. Such remediation activities include the following:

 

(1) We will document a formal code of ethics
   
(2) We will revise processes to provide for a greater role of independent board members in the oversight and review until such time that we are adequately capitalized to permit hiring additional personnel to address segregation of duties issues.
   
(3) We will continue to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes.
   
(4) We will seek to establish a relationship with a firm of certified public accountants to assist in the preparation of financial statements and with whom to consult on complex US GAAP matters.

 

(f) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended December 31, 2015 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

18
 

 

PART III

 

Item 10. Directors, Executive Officers, and Corporate Governance

 

The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers:

 

Name   Age   Position   Officer and/or
Director Since
             
Gerald McIlhargey   68   President, Chief Executive Officer and Director   March 2004
             
Kenneth Johnson   56   Secretary, Treasurer and Director   April 2000
             
Bruce Schreiner   61   Director   October 2003
             
Donal Ford   60   Director   August 2006
             
Maureen O’Brien   67   Director   August 2006

 

Gerald McIlhargey – President, Chief Executive Officer and Director

 

Mr. McIlhargey has served as President and CEO of St. Joseph, Inc. since August 2006 and as a member of the Board since 2004. For nearly three decades, he has served in senior executive roles with both public and private companies, including International Corona Resources, Collingwood Energy, Sense Technologies and Maple Leaf Petroleum. Mr. McIlhargey received a Bachelor of Education degree from Simon Fraser University in British Columbia, Canada in 1972.

 

Kenneth Johnson – Secretary, Treasurer and Director

 

Mr. Johnson has been a Director and Secretary and Treasurer of the Company since April of 2000. He has served as 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. He 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 – Director

 

Mr. Schreiner, CPA, has been a Director of the Company since October of 2003. He has also served as 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. He 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.

 

19
 

 

Donal Kent Ford – Director

 

Mr. Ford has been a Director of the Company since August 24, 2006. For the past ten years, he has been President of Pinnacle Financial Services, Inc., a Third Party Administrator for Pension and Profit Sharing Plans located in Lantana, Florida. 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 – Director

 

Ms. O’Brien has been a Director of the Company since August 24, 2006. For the past seven 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 startup ventures with Real Applications, Inc. which included integrating an acquired programming services company.

 

Board of Directors’ Term of Office

 

Directors are elected at our annual meeting of shareholders and serve for one year until the next annual meeting of shareholders or until their successors are elected and qualified.

 

Family Relationships

 

There are no family relationships among the 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.

 

20
 

 

Involvement in Certain Legal Proceedings

 

During the last ten years, none of our Directors, persons nominated to become Directors, or executive officers 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;

 

21
 

 

  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

 

  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, 2015, the Board met four times, and no director attended fewer than 25% 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.

 

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, 2015, the Audit Committee met three time(s). 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.

 

22
 

 

AUDIT COMMITTEE REPORT

 

The following is the Audit Committee’s report submitted to the Board of Directors for the fiscal year ended December 31, 2015. The Audit Committee has:

 

reviewed and discussed the Company’s audited financial statements with BF Borgers CPA PC, the Company’s independent registered accounting firm;
   
discussed with BF Borgers CPA PC the matters required to be discussed by Statement on Auditing Standards No. 114, as may be modified or supplemented; and
   
received from BF Borgers CPA PC, the written disclosures and the letter regarding their independence as required by Independence Standards Board Standard No. 1, as may be modified or supplemented, and discussed the auditors’ independence with them.

 

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, for filing with the Securities and Exchange Commission.

 

AUDIT COMMITTEE

Bruce Schreiner

 

The Audit Committee report shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under these acts.

 

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, 2015, 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.

 

Compliance with Section 16(A) of the Exchange Act

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).

 

Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock during the fiscal year ended December 31, 2015, were timely.

 

23
 

 

Code of Ethics

 

The Company has adopted a Code of Ethics for adherence by its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller to ensure honest and ethical conduct; full, fair and proper disclosure of financial information in the Company’s periodic reports filed pursuant to the Securities Exchange Act of 1934; and compliance with applicable laws, rules, and regulations. Any person may obtain a copy of our Code of Ethics by mailing a request to the Company at the address appearing on the front page of this Annual Report on Form 10-K or by viewing it on our website found at www.stjosephinc.com .

 

Item 11. Executive Compensation

 

The following table sets forth compensation information for services rendered by certain of our executive officers in all capacities during the last two completed fiscal years. The following information includes the dollar value of base salaries and certain other compensation, if any, whether paid or deferred. The executive officers of the company did not receive any stock award, option award, non-equity incentive plan compensation, or nonqualified deferred compensation earnings during the last two completed years.

 

Summary Compensation Table

 

Name and Position(s)   Year     Salary($)     Bonus     Stock
Awards
    Option
Awards 1
    Total
Compensation
 
Gerald McIlhargey     2015                       0       0       0  
President, CEO and Director     2014                       0       0       0  
                                                 
Kenneth L. Johnson     2015                       0       0       0  
Secretary, Treasurer and Director     2014                       0       0       0  

 

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 had an exercise price of $1.05 per share and expired on December 31, 2015. On December 31, 2015, Mr. McIlhargey was granted 100,000 shares of our common stock for agreeing to serve as a Director on our Board. The options have an exercise price of $0.25 per share and expired on December 31, 2016.

 

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 expired on December 31, 2015. On December 31, 2015, Mr. Johnson was granted 25,000 shares of our common stock for agreeing to serve as a Director on our Board. The options have an exercise price of $0.25 per share and expired on December 31, 2016.

 

Outstanding Equity Awards at Fiscal Yearend

 

There were no equity awards during the year ended December 31, 2015.

 

Compensation of Directors

 

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. On December 31, 2015 the options expired and each member of the Board of Directors was granted a similar amount of shares for a period of one year, or December 31, 2016. The exercise price of $0.25 per share is above the thirty day moving market price of $0.15 per share.

 

24
 

 

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, 2015:

 

The following schedule summarizes the changes in the Company’s equity awards for the year ended December 31, 2015.

 

    Awards
Outstanding
and
Exercisable
    Exercise
Price Per
Share
    Weighted
Average
Exercise
Price Per
Share
    Weighted
Average
Remaining
Contractual
Life
    Aggregate
Intrinsic Value
 
Outstanding at January 1, 2015     502,500     $ 0.50     $ 0.50       1.00 yrs     $ -  
Granted                                        
Exercised                                        
Cancelled/Expired     85,000       0.50       0.50       -          
Outstanding and exercisable at December 31, 2015     417,500     $ 0.25     $ 0.25       1.00 yrs     $ -  

 

Item 12. Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth information as of December 31, 2015 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 five percent (5%) 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.

 

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, President, Chief Executive Officer and Director     889,923 (3)     6.23 %     0       0.00 %
                                 
Kenneth L. Johnson, Secretary, Treasurer and Director     150,000 (4)     1.11 %     0       0.00 %
                                 
Bruce Schreiner, Director     100,000 (3)     0.74 %     0       0.00 %
                                 
Maureen O’Brien, Director     75,000 (6)     0.56 %     0       0.00 %
                                 
Donal Ford, Director     75,000 (5)     0.56 %     0       0.00 %
                                 
All Executive Officers and Directors as a Group (Five Individuals)     1,289,923       9.20 %     0       0.00 %
                                 
Hong Kong Base, Ltd.     1,450,000 (7)     11.82 %     0       0.00 %
                                 
Desert Projects, Inc.     700,192 (8)     5.71 %     0       0.00 %
                                 
Camille Quinn     8,994 (9)     0.03 %     5,708       100.00 %

 

25
 

 

(1) The address for Messrs. McIlhargey, Johnson, Schreiner, Ford, and Ms. O’Brien is: c/o St. Joseph, Inc., 4205 Carmel Mountain Drive, McKinney, TX 75070. The address for Hong Kong Base, Ltd. is Unit C, 26th Floor, CNT Tower, 338 Hennessey Road, Wanchai, Hong Kong, China. The address for Ms. Quinn is 5800 E. Skelly Drive, Suite 1230, Tulsa, Oklahoma 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 13,085,341 shares of common stock and 5,702 shares of Series A Preferred Stock issued and outstanding on March 31, 2015. 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 $0.25 per share.
   
(4) Includes fully vested options to purchase 25,000 shares of our common stock at an exercise price of $0.25 per share.
   
(5) Includes fully vested options to purchase 50,000 shares of our common stock at an exercise price of $0.25 per share.
   
(6) Includes fully vested options to purchase 42,500 shares of our common stock at an exercise price of $0.25 per share.
   
(7) Hong Kong Base Ltd is a corporation organized under the laws of Hong Kong and is beneficially owned by Yvonne Chun Siu Fun.
   
(8) Desert Projects, Inc. is a corporation organized under the laws of the State of Nevada and is beneficially owned by James Ralph Houston.
   
(9) 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.

 

26
 

 

Equity Compensation Plans

 

The following table sets forth information as of December 31, 2015 with respect to compensation plans under which we are authorized to issue shares of our common stock, aggregated as follows:

 

  All compensation plans previously approved by security holders; and
     
  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 approved by security holders     417,500 (1)   $ 0.25       707,500  
                         
Equity compensation plans not approved by security holders     0     $ 0.00       0  
                         
Total     417,500     $ 0.25       707,500  

 

(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, 2012. On December 1, 2010, and November 13, 2013 there were 75,000 and 50,000 options granted respectively which expired on June 30, 2014. 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 at which time the options expired. 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 December 31, 2014 and 2013. Aggregate intrinsic value is calculated by determining the amount by which the market price of the stock exceeds the exercise price of the options on December 31, 2014, and then multiplying that amount by the number of options. The per share market value of the stock exceeds the exercise price on December 31, 2014 by $0.05, resulting in an aggregate intrinsic value of $25,125. On December 31, 2015, similar amounts of common stock options were granted to Officers, Directors and Key Employees at a strike price of $0.25 per share which is below the 30 day moving average stock price of $0.15 per share. Therefore, there is no intrinsic value.

 

27
 

 

Description of Securities

 

St. Joseph, Inc. has 100,000,000 Common Stock authorized for issuance, and 25,000,000 Preferred Stock authorized for issuance. As of December 31, 2016, there are 13,395,341 shares of Common Stock issued and outstanding. There are 5,708 shares of Series A Preferred Stock that are issued and outstanding; and zero shares of Series B Preferred Stock have been issued.

 

The holders of the outstanding series of Preferred Stock have the following rights:

 

Voting Rights. Holders of the Series A Preferred Stock have no voting rights.

 

Conversion Rights. Holders of the Series A Preferred Stock may convert their shares at any time into an equal number of shares of our Common Stock by delivering to the Corporation a completed and signed conversion notice. The Series A and Series B Preferred Stock are convertible into Common Stock on a one-for-one basis but only shares of Series A stock are issued and outstanding as of the date of this Memorandum.

 

Dividend Rights . 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 accrued balance due on Series A Convertible Preferred Stock dividends total $44,359 and $42,047 as of December 31, 2015 and 2014, respectively. The Series A dividend payments schedule was determined from a settlement agreement, as disclosed in a Form 8-K that was released on May 9, 2010.

 

28
 

 

Liquidation: In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the Series A and Series B Preferred Stock, shall be entitled to receive, prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Common Stock, an amount on such date equal to the stated value multiplied by the shares of Series A Preferred Stock or Series B Stock (as the case may be) owned of record by such holder plus an amount equal to any accrued and unpaid dividends as of such date, less the amount of any distributions previously made to the holder in respect of such shares of Series A Preferred Stock or Series B Preferred Stock (as the case may be). A payment to a Holder of Series A Preferred Stock or Series B Preferred Stock due to liquidation shall be made before any payment shall be made or any assets distributed to the holders of any junior stock. If upon any liquidation, the amounts payable with respect to the Series A Preferred Stock and Series B Preferred Stock are not paid in full, holders of the Series A and Series B Preferred Stock will share ratably in any distribution of the assets of the Corporation in proportion to the respective amounts that would be payable per share of Series A Preferred Stock and Series B Preferred Stock (as the case may be), if the assets of the Corporation were sufficient for all such amounts to be paid in full. Neither the consolidation nor merger of the Corporation into or with any other entity, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, shall be deemed to be a liquidation. Any assets to be delivered to the holders of the Series A Preferred Stock and/or to the Holders of Series B Preferred Stock pursuant to the foregoing as a consequence of a liquidation shall be valued at their fair market value as determined in good faith by the Board of Directors of the Corporation, whose determination shall be conclusive and binding absent manifest error. The Series A Preferred Stock shall rank pari passu with respect to liquidation with Series B Preferred Stock.

 

Redemption Provisions. The Series A Preferred 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 the date of this Memorandum, the stock has not traded at that amount. The Series B Preferred Stock, of which none are issued and outstanding as of the date of this Memorandum, may be redeemed by the Corporation, in whole or in part, at any time and from time to time beginning on the sixth (6th) month anniversary of the Issue Date for cash at a redemption price equal to the stated value plus the total of all accrued but unpaid Dividends on such Series B Preferred Stock.

 

Additionally, there are outstanding options for the purchase of 502,500 shares of Common Stock that are all fully vested. On August 24, 2006, St. Joseph adopted its 2006 Stock Option Plan, which reserved 1,125,000 shares of the Company’s common stock for issuance pursuant to the plan. On August 24, 2006, the Company’s 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 $0.50 per share, which were all deemed effective on August 24, 2006. 25,000 of these stock options were exercised. On December 1, 2010, a further 75,000 options were granted which expired on June 30, 2014.

 

29
 

 

Item 13. Certain Relationships and Related Transactions; DIRECTOR INDEPENDENCE

 

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 2015 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 yearend 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

 

COLEMC Investments, LTD., a Canadian company owned by Gerry McIlhargey, President and Director of the Company, advanced the Company a total of $45,000 for working capital in exchange for three promissory notes. The notes matured on December 31, 2011 and December 2010 and did not bear any interest. The notes have been extended until December 31, 2016.

During the years ended December 31, 2013 and 2012, our officer advanced the Company $10,300 and $7,500, respectively, for working capital in exchange for two promissory notes. The notes matured on December 31, 2013 and 2012, and did not bear any interest. The notes have been extended until December 31, 2016.

 

Additionally, the Company has a payable amount of $34,559 due to Gerry McIlhargey.

 

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.

 

Item 14. Principal Accountant Fees and Services

 

Our financial statements for the fiscal years ended December 31, 2015 and December 31, 2014, along with the related statements of operations, stockholders’ equity and cash flows have been audited by BF Borgers CPA PC, a CPA firm of Lakewood, Colorado, independent registered public accounting firms, to the extent and for the period set forth in their report, and are set forth in reliance upon such report given upon the authority of them as experts in auditing and accounting.

 

Audit Fees

 

Our independent auditor, BF Borgers CPA PC, billed an aggregate of $22,500 and $22,500 for the years ended December 31, 2015 and 2014 audits. Our independent auditor also billed an aggregate of $22,500 and $22,500 in connection with the reviews of the Company’s unaudited quarterly financial statements for the years ended December 31, 2015 and 2014.

 

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

 

2015     2014  
$ 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

 

2015     2014  
$ 0.00     $ 0.00  

 

30
 

 

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.
     
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.

 

31
 

 

* 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.

 

32
 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  ST. JOSEPH, INC.
     
Dated: March 27, 2017 By: /s/ Gerald McIlhargey
    Gerald McIlhargey
    President and Chief Executive Officer

 

Dated: March 27, 2017 By: /s/ Kenneth L. Johnson
    Kenneth L. Johnson
    Secretary and Treasurer

 

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/ Gerald McIlhargey   March 27, 2017
Gerald McIlhargey    
President, Chief Executive Officer and Director    
     
/s/ Kenneth L. Johnson   March 27, 2017
Kenneth L. Johnson    
Secretary, Treasurer and Director    
     
/s/ Bruce Schreiner   March 27, 2017
Bruce Schreiner    
Director    
     
/s/ Donal Ford   March 27, 2017
Donal Ford    
Director    
     
/s/ Maureen O’Brien   March 27, 2017
Maureen O’Brien    
Director    

 

33
 

 

ST. JOSEPH, INC.

Index to Consolidated Financial Statements

 

    Page
     
Report of Independent Registered Public Accounting Firm   F-1
     
Consolidated Balance Sheet at December 31, 2015 and 2014   F-2
     
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014   F-3
     
Consolidated Statements of Changes in Stockholder’s Deficit for the years ended December 31, 2015 and 2014   F-4
     
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014   F-5
     
Notes to Consolidated Financial Statements   F-6 to F-16

 

34
 

 

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. (“the Company”) as of December 31, 2015 and 2014 and the related statement of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statement referred to above present fairly, in all material respects, the financial position of St. Joseph, Inc., as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in the United States of America.

 

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 Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ B F Borgers CPA PC  
B F Borgers CPA PC  
Lakewood, CO
March 24, 2017  

 

F- 1
 

 

ST. JOSEPH, INC.

CONSOLIDATED BALANCE SHEETS

 

    December 31,
2015
    December 31,
2014
 
             
ASSETS                
CURRENT ASSETS:                
Cash   $ -     $ 12,721  
Accounts receivable, net of allowance for doubtful accountsof $2,208 and $2,208, respectively     -       -  
Total current assets     -       12,721  
                 
Property and equipment, net of accumulated depreciation of $1,000 and $1,000, respectively     -       -  
Prepaid expense     -       60,000  
                 
Total Assets   $ -     $ 72,721  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
CURRENT LIABILITIES:                
Accounts payable   $ 489,820     $ 458,634  
Bank balance in excess     1,574       -  
Accrued liabilities     202,353       187,635  
Accrued preferred dividend     44,359       42,047  
Bank loan and notes payable:                
Bank loan     -       115,402  
Advance from officer     29,700       29,700  
Loan from officer     45,000       45,000  
Total current liabilities     812,806       878,418  
Commitments and contingencies                
STOCKHOLDERS’ DEFICIT:                
Preferred stock, Series A; $0.001 par value, $3.00 face value; 25,000,000 shares authorized; 5,708 and 5,708 shares issued and outstanding, respectively     6       6  
Common stock, $0.001 par value; 100,000,000 shares authorized, 13,395,341 and 13,085,341 issued and outstanding, respectively     13,395       13,085  
Additional paid-in capital     4,081,449       3,952,979  
Retained deficit     (4,907,656 )     (4,771,767 )
Total stockholders’ deficit     (812,806 )     (805,697 )
                 
Total Liabilities and Stockholders’ Deficit   $ -     $ 72,721  

 

The accompanying footnotes are an integral part of these financial statements

 

F- 2
 

 

ST. JOSEPH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Years Ended  
    December 31,  
    2015     2014  
REVENUES:                
Contract   $ -     $ 6,656  
COST OF REVENUES     -       4,159  
                 
Gross Margin     -       2,497  
                 
COSTS AND EXPENSES:                
General and Administrative Expenses     203,763       254,457  
Stock Based Compensation     37,003       169,336  
Depreciation and Amortization     -       -  
Total Costs and Expenses     240,766       423,793  
                 
Operating Income (Loss)     (240,766 )     (421,296 )
OTHER INCOME AND (EXPENSE):                
Other Income (Expense)     -       4,075  
Gain on extinguishment of debt     127,902       -  
Interest Expense     (23,025 )     (39,359 )
Net Other Expense     104,877       (35,284 )
Loss before provision for income taxes     (135,889 )     (456,580 )
                 
Provision for income taxes     -       -  
Net Loss   $ (135,889 )   $ (456,580 )
                 
Loss applicable to common stockholders   $ (135,889 )   $ (456,580 )
                 
Basic and diluted loss per common share   $ (0.01 )   $ (0.04 )
                 
Weighted average common shares outstanding     13,257,644       12,323,378  

 

The accompanying footnotes are an integral part of these financial statements

 

F- 3
 

 

ST. JOSEPH, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

    Preferred
Stock-Series A
    Common Stock     Additional
Paid-in
    Retained     Subscription        
    Shares     Par value     Shares     Par value     Capital     Deficit     Receivable     Total  
                                                 
Balance December 31, 2013     5,708     $ 6       12,219,802     $ 12,220     $ 3,414,239     $ (4,315,187 )   $ -     $ (888,722 )
                                                                 
Sale of common stock @ $0.50 per share     -       -       330,000       330       164,670       -       -       165,000  
Issuance of common stock in exchange for debt @ $0.50 per share     -       -       285,539       285       142,484       -       -       142,769  
Modification of stock options     -       -       -       -       169,336       -       -       169,336  
Sale of common stock @ $0.25 per share     -       -       250,000       250       62,250       -       -       62,500  
Net loss for the year ended
December 31, 2014
    -       -       -       -       -       (456,580 )     -       (456,580 )
      5,708     $ 6       13,085,341     $ 13,085     $ 3,952,979     $ (4,771,767 )     -     $ (805,697 )
                                                                 
Sale of common stock @ $0.25 per share     -       -       310,000       310       77,190       -       -       77,500  
Loss on common stock exchanged for debt     -       -       -       -       14,277       -       -       14,277  
Modification of stock options     -       -       -       -       37,003       -       -       37,003  
Net loss for the year ended
December 31, 2015
    -       -       -       -       -       (135,889 )     -       (135,889 )
                                                                 
Balance December 31, 2015     5,708     $ 6       13,395,341     $ 13,395     $ 4,081,449     $ (4,907,656 )   $ -     $ (812,806 )

 

The accompanying footnotes are an integral part of these financial statements

 

F- 4
 

 

ST. JOSEPH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

 

    Years Ended  
    December 31,  
OPERATING ACTIVITIES   2015     2014  
             
Net loss   $ (135,889 )   $ (456,580 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Stock-based compensation     37,003       169,336  
Loss on common stock exchanged for debt     14,277       -  
Changes in operating assets and liabilities:                
(Increase)/decrease in accounts receivable     -       -  
(Increase)/decrease in other assets     60,000       1,230  
Increase/(decrease) in accounts payable     45,260       53,934  
Increase/(decrease) in accrued liabilities     17,030       24,650  
Net cash provided by (used in) operating activities     37,681       (207,706 )
                 
INVESTING ACTIVITIES     -       -  
                 
FINANCING ACTIVITIES                
Repayment on bank loan     -       (2,800 )
Extinguishment of debt     (127,902 )     -  
Proceeds from officer advance     -       -  
Repayment of officer loan and notes payable     -       (7,000 )
Proceeds from officer loan and notes payable     -       2,200  
Proceeds from sale of common stock     77,500       227,500  
Net cash provided by (used in) financing activities     (50,402 )     219,900  
                 
INCREASE (DECREASE) IN CASH     (12,721 )     12,194  
                 
CASH AT BEGINNING OF PERIOD     12,721       527  
                 
CASH AT END OF PERIOD   $ -     $ 12,721  
                 
SUPPLEMENTAL INFORMATION:                
Cash paid for income taxes   $ -     $ -  
Cash paid for interest   $ -     $ 22,158  
                 
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION:                
Debt principal and interest converted to common stock   $ -     $ 142,769  

 

The accompanying footnotes are an integral part of these financial statements

 

F- 5
 

 

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.

 

During operation the Company, through its wholly-owned subsidiary, Staf*Tek, specialized in the recruitment and placement of professional data processing and technical personnel for clients on both a permanent and contract basis. Due to economic conditions and in anticipation of reverse acquisition and in an effort to eliminate expenses management shutdown 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 temporary and 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.

 

Due to economic conditions the Company has discontinued its temporary and permanent staffing services and may or may not restart operations.

 

Proposed Reverse Acquisition of Zone USA, Inc.

 

On June 15, 2016 the Company filed an 8K indicating that the Company was provided written notice of the termination of a nonbinding letter of intent(the “Letter of Intent”) with Karavos Holdings Limited and its wholly owned subsidiary Zone USA, Inc. (“Zone USA”). The contemplated acquisition was to include 100% of Karavos Holdings Limited, a holding company which wholly owns Zone USA. The Letter of Intent was effected on August 7, 2012 and extended on February 26, 2015, and has been subsequently mutually terminated on June 15, 2016.

 

Principles of Consolidation

 

The consolidated financial statements for the years ended December 31, 2015 and 2014 include the activities of St. Joseph, Inc. and its wholly-owned subsidiary, Staf*Tek Services, Inc. (“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 stockholders’ deficiency at December 31, 2015 and 2014. In our financial statements for the fiscal years ended December 31, 2015 and 2014, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. These factors, among others, may indicate that the Company will be unable to continue as a going concern.

 

F- 6
 

 

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, 2015 and 2014.

 

The carrying amounts of cash, receivables and current liabilities approximate fair value due to the short-term maturity of the instruments.

 

The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:

 

  Level 1: Quoted prices in active markets for identical assets or liabilities.
     
  Level 2: Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
     
  Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuations of the majority of the assets are considered Level 1 fair value measures under ASC 820.

 

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

 

F- 7
 

 

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, 2015 and 2014.

 

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 $0 and $720 for the years ended December 31, 2015 and 2014, 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, 2015 were not included in the diluted loss per share as all 5,708 preferred shares and all 417,500 options were anti-dilutive as the Company incurred losses during the year. Preferred stock and common stock options outstanding at December 31, 2014 were not included in the diluted loss per share as all 5,708 preferred shares and all 502,500 options were anti-dilutive as the Company incurred losses during the year. Therefore, basic and diluted losses per share at December 31, 2015 and 2014 were equal.

 

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.

 

F- 8
 

 

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. The Company has modified its outstanding stock options several times over the prior three years resulting in recognition of additional expenses (see Note 4).

 

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.

 

Recently Adopted and Recently Enacted Accounting Pronouncements

 

In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805) (“ASU 2015-16”). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on the Company’s consolidated financial statements.

 

In August, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.

 

F- 9
 

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest–Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of ASU 2015-03 on its balance sheets.

 

On November 2014, The Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2014-16—Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update do not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. That is, an entity will continue to evaluate whether the economic characteristics and risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria. The amendments clarify how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. The effects of initially adopting the amendments in this Update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods.

 

On November 2014, The Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2014-17—Business Combinations (Topic 805): Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. However, if the financial statements for the period in which the most recent change-in-control event occurred already have been issued or made available to be issued, the application of this guidance would be a change in accounting principle.

 

On August 2014, The Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2014-15, Presentation of Financial Statements – Going Concerns (Subtopic 205-40): Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

 

In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities August apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.

 

F- 10
 

 

In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation , to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception August change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 is not expected to have a material impact on our financial position or results of operations.

 

NOTE 2 – Related Party Transactions

 

During the year ended December 31, 2014, Gerry McIlhargey, President and Director of the Company, advanced the Company $7,807 for working capital. There were no advances or repayments during the year ended December 31, 2015. The balance of the accounts payable to Gerry McIlhargey at December 31, 2015 was $34,559.

 

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 matures on December 31, 2016.

 

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

 

F- 11
 

 

NOTE 3 – Notes Payable and Accounts 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 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 and the Company settled the loan and the balance is zero.

 

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 $6,436 and $3,710, during the years ended December 31, 2015 and 2014, respectively.

 

Other Notes Payable

 

None

 

Accounts Payable

 

The Company confirmed no amount was owing to the Elite Financial and accordingly reported $42,500 in revenue from the reduction of the amount previously recorded as a payable to that vendor.

 

F- 12
 

 

NOTE 4 – Shareholders’ Deficit

 

Preferred Stock

 

The Board of Directors is authorized to issue shares of Series A Convertible Preferred Stock and to fix the number of shares in such series, as well as the designation, relative rights, powers, preferences, restrictions and limitations of all such series. In December 2003, the Company issued 386,208 shares of Series A Convertible Preferred Stock and 5,708 have not been converted to common stock at December 31, 2015.

 

During the years ended December 31, 2015 and 2014, the Company did not issue any Series A Convertible Preferred Stock. Series A Convertible Preferred Stock is convertible to one share of common stock and has a yield of 6.75% dividend per annum, which is paid quarterly on a calendar basis for a period of five years.

 

The Company is currently delinquent in making dividend payments pursuant to the terms of a settlement agreement, as disclosed in an 8-K released on May 9, 2009. The accrued balance due on Series A Convertible Preferred Stock dividends total $44,359 and $42,047 as of December 31, 2015 and 2014, respectively. The Company will commence dividend payments pursuant to the terms of a settlement agreement as funds are available.

 

Common Stock

 

In a private placement during the year ended December 31, 2015, the Company sold 310,000 shares of common stock to accredited investors at a price of $0.25 per share for gross proceeds totaling $77,500. No underwriters were used and no underwriting discounts or commissions were payable. The shares have been offered and sold by the Company in reliance upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The shares were offered and sold only to accredited investors; as such term is defined by Rule 501 of Regulation D. All of the shares sold in the private placement are restricted securities pursuant to Rule 144.

 

In a private placement during the year ended December 31, 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. No underwriters were used and no underwriting discounts or commissions were payable. The shares have been offered and sold by the Company in reliance upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The shares were offered and sold only to accredited investors; as such term is defined by Rule 501 of Regulation D. All of the shares sold in the private placement are restricted securities pursuant to Rule 144.

 

In a private placement during the year ended December 31, 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 which is equivalent to the private placement $0.50 per share price at the time of the conversion. 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.

 

F- 13
 

 

Equity Awards Granted to Employees

 

The following schedule summarizes the changes in the Company’s equity awards for the year ended December 31, 2015.

 

    Awards
Outstanding
and
Exercisable
    Exercise
Price Per
Share
    Weighted
Average
Exercise
Price Per
Share
    Weighted
Average
Remaining
Contractual
Life
    Aggregate
Intrinsic
Value
 
Outstanding at January 1, 2014     502,500     $ 0.50     $ 0.50       1.00 yrs     $ -  
Granted                                        
Exercised                                        
Cancelled/Expired     85,000     $ 0.50     $ 0.50       -          
Outstanding and exercisable at December 31, 2015     417,500     $ 0.25     $ 0.25       1.00 yrs     $ -  

 

Deadlines for the exercise of 502,500 options were extended to December 31, 2015, at which time the options expired. On December 31, 2015, a total of 417,500 common stock options were granted to Officers, Directors and Key Employees at a strike price of $0.25 per share which is below the 30 day moving average stock price of $0.15 per share. The Black-Scholes fair value calculation represents an intrinsic value of $37,003.

 

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

 

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.

 

F- 14
 

 

All stock options were fully vested as of December 31, 2014 and 2013. Aggregate intrinsic value is calculated by determining the amount by which the market price of the stock exceeds the exercise price of the options on December 31, 2014, and then multiplying that amount by the number of options. The per share market value of the stock exceeds the exercise price on December 31, 2014 by $0.05, resulting in an aggregate intrinsic value of $25,125.

 

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 5 – Income Taxes

 

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

 

The Company has unpaid obligations to the Internal Revenue Service for payroll taxes, including accrued penalties and interest, in the amount of $102,938 at December 31, 2014 and $128,782 at December 31, 2015.

 

NOTE 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 six months. The wording in his employment agreement that he identifies as guaranteeing his employment for six months was inserted at the request of Staf*Tek’s client.

 

F- 15
 

 

Staf*Tek’s client terminated Mr. McGowan for performance issues after one month of employment. Mr. McGowan filed a lawsuit against Staf*Tek and the client and subsequently filed a motion for default judgment, which was granted by the judge. On March 9, 2012, Stat*Tek filed a motion to vacate the default judgment and requested a new trial. Staf*Tek has engaged counsel and intends to vigorously defend this action. As of this date, the client that terminated Mr. McGowan has been dismissed from the lawsuit by the judge because they had not been served within six months of the original filing of the lawsuit by Mr. McGowan’s counsel. Mr. McGowan and his attorney were three weeks late responding to our request for discovery and we requested dismissal. However, the judge did not grant dismissal. Mr. McGowan 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.

 

The Company entered a settlement with the Oklahoma Employment Security Commission on January 14, 2015 regarding a proceeding brought by them against the Company. The Company and the Oklahoma Employment Security Commission settled the Company’s obligation of tax and accrued penalties and interest for a set monthly payment of $1,591. The balance of the remaining obligation at December 31, 2015 was $12,749.

 

NOTE 7 – Commitment

 

The Company leased office space in Tulsa, Oklahoma under an operating lease, which expired in April 2012. We leased the office space on a month-to-month basis through May 2014. As of December 31, 2014, the Company owed $5,000 as part of a settlement and has agreed to repay the balance owed at a rate of $1,000 per month. Rent expense during the years ended December 31, 2015 and 2014 totaled $6,000 and $15,048, respectively.

 

NOTE 8 – Subsequent Event

 

The Company has evaluated subsequent events through April 15, 2015. Other than those described below, there have been no subsequent events after December 31, 2014 for which disclosure is required.

 

On June 15, 2016, the Company filed an 8K indicating that the Company was provided written notice of the termination of a nonbinding letter of intent (the “Letter of Intent”) with Karavos Holdings Limited and its wholly owned subsidiary Zone USA, Inc. (“Zone USA”). The contemplated acquisition was to include 100% of Karavos Holdings Limited, a holding company which wholly owns Zone USA. The Letter of Intent was effected on August 7, 2012 and extended on February 26, 2015, and has been subsequently mutually terminated June 15, 2016.

 

F- 16
 

  

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