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TMCNet:  ST JOSEPH INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[November 14, 2012]

ST JOSEPH INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) The following presentation of Management's Discussion and Analysis has been prepared by internal management and should be read in conjunction with the financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q. Except for the historical information contained herein, the discussion in this report contains certain forward-looking statements that involve risks and uncertainties, such as statements of our business plans, objectives, expectations and intentions as of the date of this filing. The cautionary statements about reliance on forward-looking statements made earlier in this document should be given serious consideration with respect to all forward-looking statements wherever they appear in this report, notwithstanding that the "safe harbor" protections available to some publicly reporting companies under applicable federal securities law do not apply to us as an issuer of penny stocks. Our actual results could differ materially from those discussed here.


General St. Joseph, Inc. ("us," "we," "our" or the "Company") currently conducts all of our business through our wholly-owned subsidiary, Staf*Tek Services, Inc. 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 growth opportunity for our existing shareholders.

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

Proposed Reverse Acquisition On August 7, 2012, we entered into a nonbinding Letter of Intent with Karavos Holdings Limited, for the arrangement of an acquisition of 100% of an affiliated holding company which owns 50% voting interest in a domestic telecommunications company that operates telecommunication services to retail customers and to the wholesale market, including to resellers, competitive local exchange carriers (CLECs) and facilities-based carriers.

3 The Letter of Intent contemplates the transaction being structured as a reverse acquisition with St. Joseph, Inc. purchasing the holding company that owns the 50% voting interest in the telecommunications company in return for the issuance to Karavos Holdings Limited of (i) such number of shares of common stock that will be equal to not less than 80% of the total issued and outstanding shares of St. Joseph, Inc. on a fully diluted and converted basis, or (ii) preferred stock convertible into such number of common stock.

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

The Letter of Intent is nonbinding as to the consummation of the proposed acquisition transaction, with any obligation to proceed with such a transaction to be included in a definitive agreement to be negotiated between the parties.

However, certain terms are binding on both parties, most notably, a requirement that we will not solicit other parties, or negotiate with other parties, regarding the entry into any merger, acquisition or business combination until the earlier to occur of (i) the mutual termination of negotiations under the Letter of Intent, (ii) the signing of a definitive agreement contemplated by the Letter of Intent, or (iii) the date 6 months from the date of acceptance of the Letter of Intent. Additionally, the Letter of Intent requires that without the prior written consent of Karavos Holdings we shall: not enter into or amend any existing agreements and contracts (otherwise than in the ordinary course of business) including but not limited to, agreements with our directors or officers or employees; enter into any new transaction or arrangement other than in the ordinary course of business; issue or agree to issue any shares, warrants or other securities or loan capital or grant or agree to grant any option over or right to acquire or convertible into any share or loan capital or otherwise take any action which may result in Karavos Holdings Limited acquiring a percentage interest in the Company (on a fully diluted basis) lower than that contemplated in this Letter of Intent or the Company reducing its interest in any subsidiary; declare, pay or make any dividends or other distributions; or become and remain as the sole legal and beneficial owner of all registrable and non-registrable intellectual and other intangible property rights (including but not limited to domain names) created, developed, used or adapted by the business or operation of the Company.

The execution of a definitive agreement is conditional on St. Joseph and Karavos Holdings Limited satisfactorily completing their respective due diligence reviews.

The Letter of Intent states that as a condition to the signing of a definitive agreement for the proposed acquisition, we are required to raise $14,000,000 in net proceeds through the sale of stock. Our management contemplates that these funds will be raised via a private placement to approved accredited investors.

The funds from this private placement are to be held in escrow pending the completion of the proposed acquisition. We can provide no assurance that we will be able to raise these funds, and in the event we are unable to raise the funds the acquisition may be abandoned.

The proposed transaction may be subject to the approval of our shareholders and the approval of Karavos Holdings Limited owners. The approvals needed will depend on the transaction structure contained in any definitive agreement that may be entered into. We cannot provide any assurance that the required approvals will be granted, and in the event they are not, we will not be able to proceed with the transaction.

4 Any consummation of the proposed transaction will need to be performed in compliance with applicable securities laws and regulations, and may require the filing of comprehensive disclosure documents which may add to the expense and time needed for the completion of the transaction. Depending on the final transaction structure we may need to register as an Investment Company under the Investment Company Act of 1940 or obtain an exemption from such registration. In such event, we may have to abandon the transaction of we not able to register as an Investment Company or not able to obtain an exemption.

Our management cautions investors against making investment decisions based on any expectation that the proposed transaction will be consummated, or that the proposed transaction will result in any increase in share value, because, in its view, such expectations are speculative.

Staf*Tek Services, Inc.

Staf*Tek Services, Inc. ("Staf*Tek") was organized as an Oklahoma corporation on January 2, 1997. On January 2, 2004, we closed our acquisition of Staf*Tek pursuant to an agreement by which we acquired 100% percent of the issued and outstanding shares of Staf*Tek's common stock in exchange for (i) 386,208 shares of our $0.001 par value Series A convertible preferred stock; (ii) 219,500 shares of our $0.001 par value common stock; and (ii) $200,000 in cash. Our Series A convertible preferred stock has a face value of $3.00 per share with a yield of 6.75% dividend per annum, payable on a quarterly basis out of funds legally available therefore, 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 and will commence dividend payments pursuant to the terms of a settlement agreement as funds are available. There is an accrued amount of Series A Convertible Preferred Stock dividends in the amount of $42,047 as of September 30, 2012 ($42,047 at December 31, 2011).

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

Staf*Tek specializes in the recruiting and placement of professional technical personnel, as well as finance and accounting personnel on a temporary and permanent basis. Staf*Tek provides its customers with employee candidates with information technology ("IT") skills in areas ranging from multiple platform systems integration to end-user support, including specialists in programming, networking, systems integration, database design, help desk support, including senior and entry level finance and accounting candidates. Staf*Tek's candidate databases contain information on the candidates experience, skills, and performance and are continually being updated to include information on new referrals and to update information on existing candidates. Staf*Tek responds to a broad range of assignments from technical one-person assignments to major projects including, without limitation, Internet/Intranet development, desktop applications development, project management, enterprise systems development, SAP implementation and legacy mainframe projects. Staf*Tek also provides employee candidates computer training, online assessments, certification and the opportunity to be tested and certified in over 50 skill sets.

5 Results of Operations for the Nine months ended Nine months ended September 30, 2012 2011 % of % of Change Change $ Revenue $ Revenue $ % REVENUES: Contract $ 343,273 100.00 % $ 310,520 100.00 % $ 32,753 9.54 % COST OF REVENUES 227,644 66.32 % 229,883 74.03 % (2,239 ) -0.98 % Gross Margin 115,629 33.68 % 80,637 25.97 % 34,992 30.26 % COSTS AND EXPENSES: General and Administrative Expenses 386,641 112.63 % 439,186 141.44 % (52,546 ) -13.59 %Depreciation and Amortization 862 0.25 % 862 0.28 % - -0.03 % Total Costs and Expenses 387,503 112.88 % 440,048 141.71 % (52,546 ) -13.56 % Operating Income (Loss) (271,874 ) -79.20 % (359,411 ) -115.74 % 87,538 -32.20 % OTHER INCOME AND (EXPENSE): Other Income (expense) - 0.00 % 75 0.02 % (75 ) -100.00 % Interest Expense (17,276 ) -5.03 % (17,581 ) -5.66 % 304 -1.76 % Net Other Expense (17,276 ) -5.03 % (17,506 ) -5.64 % 229 -1.33 % Loss before provision for income taxes (289,150 ) -84.23 % (376,917 ) -121.38 % 87,767 -30.35 % Provision for income taxes - 0.00 % - 0.00 % - 0.00 % Net Loss $ (289,150 ) -84.23 % $ (376,917 ) -121.38 % $ 87,767 -30.35 % Gross Profit For the nine months ended September 30, 2012, we had a gross profit of $115,629 compared to a gross profit of $80,637 for the nine months ended September 30, 2011. This increase in our gross profitability of $34,992, or approximately 30.3% over the prior period, is due primarily to a decrease in our cost of revenues.

Revenues for the nine months ended September 30, 2012 increased to $343,273 from $310,520 for the nine months ended September 30, 2011. This increase in net revenues of $32,753, or approximately 9.5%, over the prior period, is due primarily to a slight increase in the number of contractors working for us.

Cost of revenues for the nine months ended September 30, 2012 decreased to $227,644 from $229,883 for the nine months ended September 30, 2011. This decrease in cost of revenues of $2,239, or approximately 1.0%, over the prior period, is due primarily to an increase in margins we earned on the contractors working for us.

Total Costs and Expenses Total costs and expenses for the nine months ended September 30, 2012 decreased to $387,503 from $440,048 for the nine months ended September 30, 2011. This decrease in our total operating expenses of $52,545 is approximately 13.6% below that of the prior period resulting from a decrease in the charge for stock-based compensation in connection with the modification and revaluation of our outstanding common stock options.

General and administrative expenses for the nine months ended September 30, 2012 decreased to $386,641 from $439,186 for the nine months ended September 30, 2011. This decrease in general and administrative expenses of $52,545 is approximately 13.6% below that of the prior period resulting from a decrease in the charge for stock-based compensation in connection with the modification and revaluation of our outstanding common stock options.

6 Other Income/Expenses Interest expense for the nine months ended September 30, 2012 decreased to $17,276 from $17,581 for the nine months ended September 30, 2011. This decrease in interest expense of $305, or approximately 1.8% under the prior period, is due primarily to the decrease in interest due on legal fees and our bank borrowings.

Operating and Net Losses For the nine months ended September 30, 2012, we incurred an operating loss of $271,874 compared to an operating loss for the nine months ended September30, 2011 of $359,411.

Net loss for the nine months ended September 30, 2012 decreased to $289,150 from $376,917 for the nine months ended September 30, 2011. This decrease in net losses of $87,767 is approximately 30.4% over that of the prior period resulting from a decrease in the charge for stock-based compensation in connection with the modification and revaluation of our outstanding common stock options.

Three months results of operations Results of Operations for the Three Months Ended Three Months Ended September 30, 2012 2011 % of % of Change Change $ Revenue $ Revenue $ % REVENUES: Contract $ 121,047 100.00 % $ 90,559 100.00 % $ 30,488 25.19 %COST OF REVENUES 77,942 64.39 % 65,956 72.83 % 11,986 15.38 % Gross Margin 43,105 35.61 % 24,603 27.17 % 18,502 42.92 % COSTS AND EXPENSES: General and Administrative Expenses 174,939 144.52 % 240,914 266.03 % (65,975 ) -37.71 % Depreciation and Amortization 287 0.24 % 287 0.32 % - 0.09 % Total Costs and Expenses 175,226 144.76 % 241,201 266.35 % (65,975 ) -37.65 % Operating Income (Loss) (132,121 ) -109.15 % (216,598) -239.18 % 84,477 -63.94 % OTHER INCOME AND (EXPENSE): Other Income (expense) - 0.00 % - 0.00 % - 0.00 % Interest Expense (3,671 ) -3.03 % (5,906 ) -6.52 % 2,235 -60.90 % Net Other Expense (3,671 ) -3.03 % (5,906 ) -6.52 % 2,235 -60.90 % Loss before provision for income taxes (135,792 ) -112.18 % (222,504 ) -245.70 % 86,712 -63.86 % Provision for income taxes - 0.00 % - 0.00 % - 0.00 % Net Loss $ (135,792 ) -112.18 % $ (222,504 ) -245.70 % $ 86,712 -63.86 % 7 Gross Profit For the three months ended September 30, 2012, we had a gross profit of $43,105 compared to a gross profit of $24,603 for the three months ended September 30, 2011. This increase in our gross profitability of $18,502, or approximately 42.3% over the prior period, is due primarily to a decrease in our cost of revenues.

Revenues for the three months ended September 30, 2012 increased to $121,047 from $90,559 for the three months ended September 30, 2011. This increase in net revenues of $30,488, or approximately 25.2%, over the prior period, is due primarily to a slight increase in the number of contractors working for us.

Cost of revenues for the three months ended September 30, 2012 increased to $77,942 from $65,975 for the three months ended September 30, 2011. This increase in cost of revenues of $11,986, or approximately 15.4%, over the prior period, is due primarily to an increase in the number of contractors working for us.

Total Costs and Expenses Total costs and expenses for the three months ended September 30, 2012 decreased to $175,226 from $241,201 for the three months ended September 30, 2011. This decrease in our total operating expenses of $65,975 is approximately 37.7% over that of the prior period resulting from a decrease in the charge for stock-based compensation in connection with the modification and revaluation of our outstanding common stock options.

General and administrative expenses for the three months ended September 30, 2012 decreased to $174,939 from $240,914 for the three months ended September 30, 2011. This decrease in general and administrative expenses of $65,975 is approximately 37.7% over that of the prior period resulting from a decrease in the charge for stock-based compensation in connection with the modification and revaluation of our outstanding common stock options.

Other Income/Expenses Interest expense for the three months ended September 30, 2012 decreased to $3,671 from $5,906 for the three months ended September 30, 2011. This decrease in interest expense of $2,235, or approximately 60.9% over the prior period, is due primarily to the decrease in interest due on legal fees and our bank borrowings.

Operating and Net Losses For the three months ended September 30, 2012, we incurred an operating loss of $132,121 compared to an operating loss for the three months ended September30, 2011 of $222,504.

Net loss for the three months ended September 30, 2012 decreased to $135,792 from $222,504 for the three months ended September 30, 2011. This decrease in net losses of $86,712 is approximately 63.9% over that of the prior period resulting from a decrease in the charge for stock-based compensation in connection with the modification and revaluation of our outstanding commonstock options.

8 Liquidity and Capital Resources As of September 30, 2012, we had a cash balance of $4,531.

During the nine months ended September 30, 2012 and 2011, the Company's summarized cash flow activities were as follows: Cash flow activities Nine months ended September 30, 2012 2011 Net cash provided by (used in) operating activities $ (48,952 ) $ (141,572 ) Net cash provided by (used in) financing activities 50,674 135,535 INCREASE (DECREASE) IN CASH 1,722 (6,037 ) CASH AT BEGINNING OF PERIOD 2,809 8,406 CASH AT END OF PERIOD $ 4,531 $ 2,369 Net cash used in operating activities during the nine months ended September 30, 2012 decreased from $141,572 to $48,952, as compared to the prior year. During the nine months ended September 30, 2012 the company raised $37,875 of new funds from the sale of common stock. We also received funds from related party borrowings of $27,500, and paid down our bank loan by $14,701.

Internal Sources of Liquidity For the nine months ended September 30, 2012, the funds generated from our operations were insufficient to fund our daily operations. For the nine months ended September 30, 2012, we had a gross margin of $115,629, and we were thus unable to meet our operating expenses of $387,503 for the same period (which includes $100,001 of non-cash share-based compensation). After accounting for our net other expenses (interest expenses) of $17,276 for this period, we suffered a net loss of $289,150 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.

External Sources of Liquidity Because the funds generated from our operations have been not been sufficient to fully fund our operations, we have been on dependent on debt and equity financing to make up the shortfall. We actively pursue all potential financing options as we look to secure additional funds to both stabilize and grow our business operations. Our management will review any financing options at their disposal, and will judge each potential source of funds on 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, 2011 and 2010.

The Company originally had a $200,000 line of credit of with the bank. In August 2010, the Company converted its line of credit with the bank to a bank loan which is collateralized by all of assets of the Company's subsidiary company, Staf*Tek, including all receivables and property and equipment. The bank loan agreement included the following provisions 1) An agreement to provide insurance coverage for the collateralized assets in the amount of $180,000; 2) covenants to provide certain financial documents to the bank on a monthly and annual basis. The interest rate on the loan is 6.5 % and the monthly principal and interest payment is $2,698. A final balloon payment of shall be due on the maturity date of August 31, 2013 in the amount equal to the then unpaid principal and accrued and unpaid interest.

During the nine months ended September 30, 2012, we had a private offering in which we sold 60,000 shares of common stock to an accredited investor at a price of $0.50 per share for gross proceeds of $30,000.

9 During the three months ended September 30, 2012, a Director of the Company exercised 7,500 shares of its common stock at a strike price of $1.05 per share (see Note 7) for total consideration of $7,875.

We also borrowed $27,500 from related parties during the nine months ended September 30, 2012.

Off Balance Sheet Arrangements We do not have nor do we maintain any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

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

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