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.
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
|
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.
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.
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.
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.
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.
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.
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.
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.
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.