**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-KSB**





x
            Annual
                Report Pursuant to Section 13 or 15(D) of the Securities Exchange
                Act of
                1934 for the fiscal year ended December 31, 2006.





o
            Transition
                Report Under Section 13 or 15(D) of the Securities Exchange Act of
                1934
                for the transition period from _____ to _____




Commission
      file number: 0-49936





**ST.
      JOSEPH, INC.**




(Exact
                    name of Small Business Issuer as specified in its charter)
  COLORADO
              
              CH47-0844532(State
                  or other jurisdiction (IRS Employer Identification No.)
                of
                  incorporation or organization)
              
              (I.R.S.
                  Employer Identification Number)4870
                  S. Lewis, Suite 250, Tulsa,
                  OK
              
              74105(Address
                  of principal executive
                  offices)
              
              (Zip
                  Code)
  Issuer's
                  telephone number, including area code: (918) 742-1888Securities
                  registered under Section 12(b) of the Exchange Act:
                  NoneSecurities
                registered
                under Section 12(g) of the Exchange Act: Common Stock, par value
                $0.001
                per share





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or
      for such shorter period that the registrant was required to file such reports),
      and (2) has been subject to such filing requirements for the past 90 days.
x Yes o
      No





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o





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


oYes
x
      No





State
      issuer's revenues for its most recent fiscal year ended December 31, 2006,
      was
      $2,597,324.





Based
      on
      the closing sale price of $0.90 on December 29, 2006, the aggregate market
      value
      of the voting stock held by non-affiliates of the registrant was
      $3,891,460





As
      of
      March 9, 2007, there were 6,049,212  shares
      of
      the registrant’s Common Stock issued and outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes o No x








**ST.
      JOSEPH, INC.**


**Form
      10-KSB**


**For
      the Fiscal Year Ended December 31, 2006**





**TABLE
      OF CONTENTS**


**PART
                  I**
              
              1**ITEM
                  1. DESCRIPTION OF BUSINESS**
              
              2**ITEM
                  2. DESCRIPTION OF PROPERTY**
              
              4**ITEM
                  3. LEGAL PROCEEDINGS**
              
              4**ITEM
                  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS**
              
              4**PART
                  II**
              
              5**ITEM
                  5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS**
              
              5**ITEM
                  6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS
                  OF OPERATIONS**
              
              7**ITEM
                  7. FINANCIAL STATEMENTS**
              
              13**ITEM
                  8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND
                  FINANCIAL DISCLOSURE**
              
              13**ITEM
                  8A. CONTROLS AND PROCEDURES**
              
              13**ITEM
                  8B. OTHER INFORMATION**
              
              13**PART
                  III**
              
              14**ITEM
                  9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT**
              
              14**ITEM
                  10. EXECUTIVE COMPENSATION**
              
              17**ITEM
                  11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT**
              
              19**ITEM
                  12. CERTAIN RELATIONSHIPS AND RELATED
                  TRANSACTIONS**
              
              20**ITEM
                  13. EXHIBITS**
              
              21**ITEM
                  14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
              
              22


i


**PART
      I**





**FORWARD
      LOOKING STATEMENTS**





This
      Form
      10-KSB, the other reports, statements, and information that we have previously
      filed or that we may subsequently file with the Securities and Exchange
      Commission and public announcements that we have previously made or may
      subsequently make include, may include, incorporate by reference or may
      incorporate by reference certain statements that may be deemed to be
“forward-looking statements” within the meaning of the Private Securities
      Litigation Reform Act of 1995. These forward-looking statements relate to such
      matters as, among other things, our anticipated financial performance, business
      prospects, technological developments, new products, future distribution or
      license rights, international expansion, possible strategic alternatives, new
      business concepts, capital expenditures, consumer trends and similar matters.





Forward
      looking statements necessarily involve known and unknown risks, uncertainties
      and other factors that may cause our actual results, levels of activity,
      performance, or achievements to be materially different from any future results,
      levels of activity, performance, or achievement expressed or implied by such
      forward-looking statements. In some cases, you can identify forward-looking
      statements by terminology such as "may," "will," "should," "could," "intend,"
      “expect,” “anticipate,” “assume”, “hope”, “plan,” “believe,” “seek,” "estimate,"
      "predict," “approximate,” "potential," "continue", or the negative of such
      terms. Statements including these words and variations of such words, and other
      similar expressions, are forward-looking statements. Although we believe that
      the expectations reflected in the forward-looking statements are reasonable
      based upon our knowledge of our business, we cannot absolutely predict or
      guarantee our future results, levels of activity, performance, or achievements.
      Moreover, neither we nor any other person assumes responsibility for the
      accuracy and completeness of such statements.





We
      note
      that a variety of factors could cause our actual results and experience to
      differ materially from the anticipated results or other expectations expressed
      in our forward-looking statements. The risks and uncertainties that may affect
      the operations, performance, development and results of our business include,
      but are not limited to, the following: changes in consumer spending patterns;
      changes in consumer preferences and overall economic conditions; the impact
      of
      competition and pricing; the financial condition of the suppliers and
      manufacturers from whom we source our merchandise; economic and political
      instability in foreign countries or restrictive actions by the governments
      of
      foreign countries in which suppliers and manufacturers from whom we source
      products are located or in which we may actually conduct or intend to expand
      our
      business; changes in tax laws, or the laws and regulations governing direct
      or
      network marketing organizations; our ability to hire, train and retain a
      consistent supply of reliable and effective participants in our direct or
      network marketing operation; general economic, business and social conditions
      in
      the United States and in countries from which we may source products, supplies
      or customers; the costs of complying with changes in applicable labor laws
      or
      requirements, including without limitation with respect to health care; changes
      in the costs of interest rates, insurance, shipping and postage, energy, fuel
      and other business utilities; the reliability, longevity and performance of
      our
      licensors and others from whom we derive intellectual property or distribution
      rights in our business; the risk of non-payment by, and/or insolvency or
      bankruptcy of, customers and others owing indebtedness to us; threats or acts
      of
      terrorism or war; and strikes, work stoppages or slow downs by unions affecting
      businesses which have an impact on our ability to conduct our own business
      operations.





Forward-looking
      statements that we make, or that are made by others on our behalf with our
      knowledge and express permission, are based on knowledge of our business and
      the
      environment in which we operate, but because of the factors listed above, actual
      results may differ from those in the forward-looking statements. Consequently,
      these cautionary statements qualify all of the forward-looking statements we
      make herein. We cannot assure the reader that the results or developments
      anticipated by us will be realized or, even if substantially realized, that
      those results or developments will result in the expected consequences for
      us or
      affect us, our business or our operations in the way we expect. We caution
      readers not to place undue reliance on these forward-looking statements, which
      speak only as of their dates, or on any subsequent written and oral
      forward-looking statements attributable to us or persons acting on our behalf
      are expressly qualified in their entirety by these cautionary statements. We
      do
      not undertake any obligation to release publicly any revisions to such
      forward-looking statements to reflect events or circumstances after the date
      hereof or thereof or to reflect the occurrence of unanticipated events.




1


**ITEM
                1.**
            **DESCRIPTION
                OF BUSINESS**





**Our
      Background and Business Development**





St.
      Joseph, Inc. (“us,” “we,” “our” or the “Company”) was organized under the laws
      of the State of Colorado on March 19, 1999, as Pottery Connection, Inc. Our
      Company was originally organized to produce and sell pottery of all forms,
      as


well
      as,
      publish and sell, on both a wholesale and retail basis; (i) limited edition
      fine
      art lithographs, serigraphs, bas-reliefs, sculptures, aquatints and etchings;
      (ii) oil and acrylic paintings and other original works of art; and (iii)
      posters, and limited editions of other pottery artifacts. We had planned to
      establish ourselves in a niche market, by developing a gallery on the Internet
      ("gallery on the web"), which was to be a web site to facilitate online retail
      sales.





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 the unsuccessful investment in two
      oil
      wells located in the State of Louisiana, we elected to abandon that endeavor
      and
      return to our original business purpose.





On
      November 6, 2003, we changed our corporate name to St. Joseph, Inc. We acquired
      Staf*Tek Services, Inc. (“Staf*Tek”) as a wholly-owned subsidiary on January 2,
      2004. We presently conduct all of our business through Staf*Tek.





**Staf*Tek
      Services, Inc.**





Staf*Tek
      was organized under the laws of the State of Oklahoma on January 2, 1997. On
      December 2, 2003, we acquired all of the issued and outstanding shares of common
      stock of Staf*Tek stock in exchange for (1) 380,500 shares of our Series A
      Preferred Share (“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.





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. We paid $78,208 in Series A Stock dividends during the year ended
      December 31, 2006. There are no unpaid dividends as of December 31, 2006.





The
      convertible preferred A stock may be converted to the Company's common stock
      at
      the rate of one share of convertible 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. As of December 31, 2006, the
      Company had paid the $200,000 cash, which was owed under the terms of the
      Agreement.





Staf*Tek
      specializes in the recruiting and placement of professional technical 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
      and
      help desk support. Staf*Tek's candidate databases contain information on the
      candidates’ IT 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 and completion, 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 IT skill sets.





Staf*Tek
      was founded on the premise that there is an increasing demand for high quality
      outsourced professional services. Staf*Tek's business premise combines client
      service orientation and commitment to quality. Staf*Tek is positioned to take
      advantage of what we believe are two converging trends in the outsourced
      professional services industry -- increasing demand for outsourced professional
      services by corporate clients and increasing the supply of professionals
      interested in working on an outsourced basis. Staf*Tek believes that its
      business premise allows it to offer challenging
      yet flexible career opportunities, attract highly qualified, experienced
      professionals and, in turn, attract clients with varying professional
      needs.





2


As
      of
      December 31, 2006, Staf*Tek employed 15 professional service associates who
      are
      presently on assignment with six clients: Verizon, Bank of Oklahoma, SUNOCO
      Inc,
      Williams, McCloud, and Dentsply. While Staf*Tek has several clients, it is
      primarily dependent on its largest client, Verizon. In the past 12 months,
      Verizon accounted for approximately 81% of Staf*Tek's total revenues. The loss
      of this client, or, in the event that there is a decrease in business from
      Verizon, could have a material adverse effect on Staf*Tek's business. (See
      Risk
      Factor “Verizon is Staf*Tek’s largest client.”)





Staf*Tek
      is primarily a regional professional service firm that provides experienced
      and
      highly qualified IT personnel who can demonstrate diversity, and flexibility
      in
      the work force. Staf*Tek has determined that its market is primarily in the
      Tulsa, Oklahoma area. To help reach our goals John Blackmon was hired as
      Staf*Tek’s Vice President in June of 2004.





Before
      joining Staf*Tek, Mr. Blackmon was a Senior Manager of IT with MCI/WorldCom.
      Mr.
      Blackmon joined MCI/WorldCom, now Verizon, in 1997 in the Operations
      organization and was quickly moved to the IT organization where his
      responsibilities included operations management, management of both technical
      and support organizations, and progressing to lead the development and
      implementation of all E*Commerce application solutions for the Wholesale
      division of WorldCom.




Supply
      of Professionals





Concurrent
      with the growth in the demand for outsourced services, Staf*Tek is of the
      belief, based on discussions with its associates that the number of
      professionals seeking work on a project and non-project basis has increased
      due
      to a desire for:





·
            more
                flexible hours and work arrangements, coupled with competitive wages
                and
                benefits; and





·
            challenging
                engagements that advance careers, develop skills, and add to
                experience.





Staf*Tek
      maintains its own database of approximately 20,000 trained independent contract
      professionals. Once a professional is placed, he or she either becomes an
      employee of our Company or the client's employee.





Marketing
      and Recruiting





Staf*Tek
      markets its temporary and permanent staffing services to business clients as
      well as employment candidates. Marketing and recruiting directed to business
      clients and employment candidates consists primarily of yellow pages
      advertisements, classified advertisements, websites, trade shows and website
      promotion on the Internet.





We
      and
      our subsidiaries own several trademarks, service marks and trade names,
      including the getsmartonline.com, staftek.com, stafmedglobal.com,
      confidentialsearch.com and stjosephinc.com.





Management
      of the Staf*Tek’s temporary and permanent staffing operations is coordinated
      from our headquarters in Tulsa, Oklahoma. Our headquarters provides support
      and
      centralized services related to administrative, marketing, public relations,
      accounting and training.




3




Competition





Staf*Tek’s
      temporary and permanent staffing services face competition in attracting clients
      as well as high-quality specialized employment candidates. The temporary and
      permanent placement businesses are highly competitive, with a number of firms
      offering services similar to those provided by Staf*Tek on a national, regional
      or local basis. In many areas the local companies are the most successful
      competitors. The most significant competitive factors in the temporary and
      permanent placement businesses are price and the reliability of service, both
      of
      which are often a function of the availability and quality of professional
      personnel. We believes that Staf*Tek derives a competitive advantage from its
      extensive experience with 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
      the
      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.





Reports
      to Security Holders





We
      subject to the informational requirements of the Securities Exchange Act of
      1934, as amended (the "Exchange Act"), and in accordance with the Exchange
      Act
      we file reports, proxy statements and other information with the Securities
      and
      Exchange Commission (the "Commission"). Our security holders or any member
      of
      the public may inspect and copy the reports, proxy statements and other
      information filed by us with the Commission at the public reference facilities
      maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
      D.C. 20549, as well as the Commission's Regional Offices. Our security holder
      or
      any member of the public may also call the Commission at 1-800-SEC-0330 for
      more
      information about the public reference room, how to obtain copies of documents
      by mail or how to access documents electronically on the Commission's Web site
      at ( http://www.sec.gov ).




**ITEM **2.****
            **DESCRIPTION
                  OF PROPERTY**




We
      lease
      approximately 3400 square feet of office space from a non-affiliated third
      party
      at 4870 South Lewis, Suite 250, Tulsa, OK 74105. Our monthly lease payment
      is
      $3,870.




**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**





On
      July
      28, 2006, Zachary Karo, a former employee, filed a lawsuit against our company
      and our subsidiary Staf*Tek Services, Inc. in the district court in Tulsa
      County, Oklahoma, Case No. CJ 2006 04713, in connection with stock options
      allegedly granted to Mr. Karo. Mr. Karo alleges that he was granted an option
      to
      purchase up to 25,000 shares of our common stock at $0.10 per share but that
      our
      management refused to issue Mr. Karo such shares upon his exercise of the
      alleged option. Mr. Karo is seeking damages, actual and exemplary, against
      us in
      an amount in excess of $10,000. Our management denies that Mr. Karo was owed
      such stock options. We have engaged local counsel and intend to vigorously
      defend this action on the basis brought by the plaintiffs. We filed a motion
      to
      dismiss this action and the motion was heard and denied on December 15, 2006.
      The parties to this action are currently engaged in the discovery process.
      The
      costs of defending against the complaint could be substantial; however we are
      unable to predict an exact amount, or even a meaningful estimate, at this
      time.




**ITEM
              4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





No
      matter
      was submitted to a vote of our shareholders during the fourth quarter of the
      fiscal year covered by this report.




4


**PART
      II**





**ITEM
              5.**
            **MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS**





Our
      common stock is traded on the OTC Bulletin Board under the symbol STJO.OB.





The
      following table shows the high and low bid information for our common stock
      for
      each quarter during 2006.




QUARTER
            
            LOW
                BID
            
            HIGH BIDQuarter
              ending December 31,
              2006
            
            $
            0.75
            
            $
            1.55Quarter
              ending September 30, 2006
            
            $
            1.01
            
            $
            1.55Quarter
              ending June 30, 2006
            
            $
            1.15
            
            $
            2.70Quarter
              ending March 31, 2006
            
            $
            2.25
            
            $
            3.00Quarter
              ending December 31,
              2005
            
            $
            1.65
            
            $
            3.50Quarter
              ending September 30, 2005
            
            $
            2.25
            
            $
            3.99Quarter
              ending June 30, 2005
            
            $
            —
            
            $
            —Quarter
              ending March 31,
              2005
            
            $
            —
            
            $
            —





The
      above
      information was obtained from the NASD. Because these are over-the-counter
      market quotations, these quotations reflect inter-dealer prices, without retail
      mark-up, markdown or commissions and may not represent actual transactions.
      There is currently no public trading market for our preferred
      stock.





As
      of
      December 29, 2006, representing the last trading day of our most recently
      completed fiscal quarter, there were 6,049,212 shares of common stock issued
      and
      outstanding, held by approximately 210 shareholders of record. Within the
      holders of record of our common stock are depositories, such as Cede & Co.,
      that hold shares of stock for several brokerage firms which, in turn, hold
      shares of stock for a multitude of additional beneficial owners. Accordingly,
      it
      is impossible for us to determine exactly how many beneficial stockholders
      we
      actually have. As of December 31, 2006, there were 386,208 shares of our Series
      A Convertible Preferred Stock issued and outstanding, held by four shareholders
      of record, and 50,000 shares our Series B Convertible Preferred Stock issued
      and
      outstanding to one shareholder of record.





As
      of
      December 31, 2006, there were 760,000 outstanding options or warrants to
      purchase shares, and 436,208 securities convertible into, shares of the
      Company's Common Stock. The options may be converted into common shares at
      a
      weighted average exercise price of $0.61 per share and the preferred shares
      may
      be converted into common shares on a one for one basis.





**Dividend
      Policy**





We
      have
      never paid a cash dividend on our common stock nor do we anticipate paying
      cash
      dividends on our common stock in the near future. It is our present policy
      to
      not to pay cash dividends on our common stock but to retain earnings, if any,
      to
      fund growth and expansion. Any payment of cash dividends of the common stock
      in
      the future will be dependent upon our financial condition, results of
      operations, current and anticipated cash requirements, plans for expansion,
      as
      well as other factors the Board of Directors deems relevant.





**Equity
      Compensation Plan**





The
      following table sets forth information as of December 31, 2006 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.




5





Equity
                Compensation Plan InformationPlan
                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
            
            
            410,000
                (1
            )
            $
            1.05
            
            
            715,000Equity
                compensation plans not approved by security holders (2)
            
            
            350,000
                (3
            )
            $
            0.10
            
            
            0





(1)
            On
                August 24, 2006, our Board of Directors granted stock options to
                our
                officers, directors and employees to purchase 410,000 share of our
                common
                stock at an exercise price of $1.05 per share and a term that ends
                on
                August 24, 2011.





(2)
            As
                discussed below, on August 24, 2006, our Board of Directors ratified
                the
                issuance and grant of non-qualified stock options to purchase 700,000
                shares of our common stock with an exercise price of $0.10 per share and a
                term that ends on March 23, 2008 to various individuals who were
                board
                members at the time of the grant of the options and cancelled options
                to
                purchase 1,900,000 shares of our common stock.





(3)
            On
                October 28, 2003, our Board of Directors granted stock options to
                purchase
                200,000 shares of our common stock at an exercise price of $0.10
                per share
                and a term that ends on October 28, 2008; and on March 24, 2004,
                our Board
                of Directors granted stock options to purchase 150,000 shares of
                our
                common stock at an exercise price of $0.10 per share and a term that
                ends
                on March 23, 2009.





**Cancellation
      of Stock Options**





Between
      October 28, 2003 and March 23, 2004, our Board of Directors approved the grant
      of stock options to each of our then Directors, John H. Simmons, Bruce E.
      Schreiner, Kenneth L. Johnson, Dr. Milton Harbuck, Kimberly Samon, Gerald
      McIlhargey and Jerry Malone (each, an “Optionee”) in consideration for services
      provided to our Company as Directors. Each option was exercisable immediately
      at
      the exercise price of $0.10 per share and expires on the tenth day after an
      Optionee’s removal from our Board of Directors for reasons other than for a
      voluntary resignation.





As
      disclosed in the Current Report on Form 8-K filed by the Company on August
      30,
      2006, at the annual meeting of our Board of Directors on August 24, 2006, our
      Directors reviewed the options previously granted by our Board Directors to
      the
      Optionees in consideration for services provided to our Company as Directors.
      After careful and exhaustive deliberation, our Directors concluded that the
      options granted to Mr. Simmons as consideration for providing the same
      directorial services as the other Optionees was not fair and reasonable to
      our
      shareholders. Specifically, our Board of Directors concluded that the amount
      of
      options granted to Mr. Simmons, which was 2,000% more than the amount of options
      granted the other Optionees individually, and 333% more than the amount of
      options granted to the other Optionees in the aggregate was unduly excessive,
      unreasonable, and unfair to our shareholders. Therefore, our Board of Directors
      resolved to void 1,900,000 options previously granted to Mr.
      Simmons.




In
      connection with the cancellation of the options previously granted to Mr.
      Simmons, we cancelled 250,000 shares of our common stock that were previously
      issued to Mr. Simmons pursuant to the exercise of these now cancelled options.





6


On
      the
      other hand, our Directors concluded that the grant of 100,000 options to each
      Optionee was fair and reasonable, and accordingly ratified the issuance of
      100,000 options to each Optionee, including Mr. Simmons. To the extent that
      the
      issuance of the 1,900,000 options which have been voided by resolution of our
      Board of Directors is deemed fair, we may have contingent liability for
      cancelling Mr. Simmons’ options and shares.





**Recent
      Sale of Securities**





During
      the quarter ended in December 31, 2006, we did not engage in any sale of our
      securities or repurchase any of our securities.




**ITEM
              6.**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**





**GENERAL**





The
      following discussion should be read in conjunction with our audited Consolidated
      Financial Statements and accompanying Notes, included herein. Certain statements
      contained herein may constitute forward-looking statements, as discussed at
      the
      beginning of Part I of this Annual Report on Form 10-KSB. Our actual results
      could differ materially from the results anticipated in these statements as
      a
      result of a variety of factors, including those discussed in our filings with
      the Securities and Exchange Commission and as discussed in the sections under
      the heading "Risk Factors" in this Report.





Any
      reference to "we," "us" and "our" herein shall mean St. Joseph, Inc., together
      with its consolidated subsidiary, Staf*Tek Services, Inc.





**Overview**





The
      Company's ability to continue as a going concern is contingent upon the
      successful completion of additional financing arrangements, and the development
      of operational solutions to achieve and maintain profitable operations.
      Management plans to finance the operating and capital requirements of the
      Company through business alliances, such as strategic or financial transactions
      with third parties, the sale of securities or other financing arrangements.
      Amounts raised will be used for working capital purposes, to further develop
      the
      Company's services, and to provide financing for marketing and promotion of
      the
      Company's business. While the Company is expending its best efforts to achieve
      the above plans, there is no assurance that any such activity will generate
      funds that will be available for operations.





These
      conditions raise substantial doubt about the Company's ability to continue
      as a
      going concern. The Company's financial statements do not include any adjustments
      related to the recoverability and classification of recorded asset amounts
      or
      the amounts and classification of liabilities that may be necessary should
      the
      Company be unable to continue in existence. (See "Risk Factors" and "Financial
      Statements Footnote 1.")





For
      the
      year ended December 31, 2006, St. Joseph, Inc. had generated revenues of
      $2,597,324, which is up from $2,039,255 for the year ended December 31, 2005.
      The increase is primarily due to Staf*Tek expanding its potential client base
      and the addition of a more aggressive sales campaign. For the year ending
      December 31, 2006, Staf*Tek's total service revenues increased by $558,069
      when
      compared to the total service revenues for 2005.





Since
      inception Staf*Tek has been a leader in the recruiting and the placement of
      professional technical personnel on a temporary and permanent basis in the
      Tulsa, Oklahoma area. Staf*Tek assists their clients with projects that require
      specialized expertise ranging from multiple platform systems integration to
      end-user support, including specialists in programming, networking, systems
      integration, database design and help desk support.





In
      2004,
      Staf*Tek added two sales personnel in an effort to grow the Company's business.
      The focus of the newly hired personnel has been to re-establishing relationships
      with clients that have been inactive since the passing of Mr. Alan Bell, its
      former President and CEO, in 2001. Mr. Bell was an integral part of Staf*Tek's
      operation and his death had a material detrimental effect on Staf*Tek and its
      revenues.




7
 
 **Results
        of Operations for the Twelve Months Ended December 31, 2005 and 2006**


**For
        the Year Ended**
  **December
                  31, 2006**
              
              **December
                  31, 2005**
              
              Change
              
              Change%
                  of
              
              
              
              %
                  of$
              
              Revenue
              
              $
              
              Revenue
              
              $
              
              %Net
                  Revenues
              
              $
              2,597,324
              
              
              100.00
              %
              $
              2,039,255
              
              
              100.00
              %
              
              558,069
              
              
              27.37
              %Cost
                  of Revenues
              
              
              2,143,175
              
              
              82.51
              %
              
              1,522,511
              
              
              74.66
              %
              
              620,664
              
              
              40.77
              %Gross
                  Profit (Loss)
              
              
              454,149
              
              
              17.49
              %
              
              516,744
              
              
              25.34
              %
              
              (62,595
              )
              
              (12.11)
              %Operating
                  ExpensesSelling,
                  General and AdministrativeExpenses
              
              
              613,745
              
              
              23.63
              %
              
              746,947
              
              
              36.63
              %
              
              (133,202
              )
              
              (17.83)
              %Stock-based
                  compensation,common
                  stock options
              
              
              148,830
              
              
              5.73
              %
              
              0
              
              
              0.00
              %
              
              148,830
              
              
              —
              %Depreciation
              
              
              19,034
              
              
              0.73
              %
              
              20,842
              
              
              1.02
              %
              
              (1,808
              )
              
              (8.67)
              %Loss
                  on goodwill impairment
              
              
              0
              
              
              0.00
              %
              
              47,624
              
              
              2.34
              %
              
              (47,624
              )
              
              (100.00)
              %Total
                  Operating Expenses
              
              $
              781,609
              
              
              30.09
              %
              $
              815,413
              
              
              39.99
              %
              
              (33,804
              )
              
              (4.15)
              %Loss
                  from Operations
              
              $
              (327,460
              )
              
              (12.61)
              %
              $
              (298,669
              )
              
              (14.65)
              %
              
              (28,791
              )
              
              9.64
              %Other
                  Income (Expense)Interest
                  Income
              
              
              63
              
              
              0.00
              %
              
              10
              
              
              0.00
              %
              
              53
              
              
              530.00
              %Realized
                  gain (loss) frommarketable
                  securities
              
              
              (7,707
              )
              
              (0.30)
              %
              
              1,503
              
              
              0.07
              %
              
              (9,210
              )
              
              (612.75)
              %Interest
                  Expense
              
              
              (29,663
              )
              
              (1.14)
              %
              
              (28,585
              )
              
              (1.40)
              %
              
              (1,078
              )
              
              3.77
              %Net
                  Other Expense
              
              $
              (37,306
              )
              
              (1.44)
              %
              $
              (27,072
              )
              
              (1.33)
              %
              
              (10,234
              )
              
              37.80
              %Loss
                  before provision for incometax
              
              
              (364,767
              )
              
              (14.04)
              %
              
              (325,741
              )
              
              (15.97)
              %
              
              (39,026
              )
              
              11.98
              %Provision
                  for Income Taxes
              
              
              0
              
              
              
              
              
              0
              
              
              
              
              
              0Net
                  Income (Loss)
              
              $
              (364,767
              )
              
              (14.04)
              %
              $
              (325,741
              )
              
              (15.97)
              %
              
              (39,026
              )
              
              11.98
              %


Net
        Revenues


Net
      Revenues for the twelve months ended December 31, 2006 increased to $2,597,324
      from $2,039,255 for the twelve months ended December 31, 2005. The increase
      in
      net revenues of $558,069, or approximately 27.37%, over the 2005 period is
      due
      primarily to revenues generated by the addition of newly contracted employees
      since the prior period.




Cost
        of Revenues


Cost
      of
      Revenues for the twelve months ended December 31, 2006 increased to $2,143,175
      from $1,522,511 for the twelve months ended December 31, 2005. The overall
      increase in cost of revenues of $620,664, or approximately 40.77%, over the
      2005
      period is directly attributable to the cost associated with the increase in
      number of newly contracted employees described above.





Gross
      Profits





Overall
      gross profits for the twelve months ended December 31, 2006 decreased to
      $454,149 from $516,744 for the twelve months ended December 31, 2005. The
      overall decrease in gross profits of $62,595 or approximately 12.11% over the
      2005 period is directly attributable to reduced margins associated with and
      the
      cost of hiring and retaining our newly contracted employees.





8


Operating
      Expenses





Total
      operating expenses for the twelve months ended December 31, 2006 decreased
      to
      $781,609 from $815,413 for the twelve months ended December 31, 2005. The
      overall decrease in operating expenses of $33,804 or approximately 4.15%, over
      the 2005 period is covered below in our discussions of Selling, General and
      Administrative Expenses and Stock-Based Compensation.





Selling,
      General and Administrative Expenses





Selling,
      general and administrative expenses for the twelve months ended December 31,
      2006 decreased to $613,745 from $746,947 for the twelve months ended December
      31, 2005. The decrease in selling, general and administrative expenses of
      $113,202 or approximately 17.83%, over the 2005 period is due primarily to
      the
      reduction in administrative staff.





Stock-Based
      Compensation - Common Stock Options Granted





We
      granted common stock options with an aggregated value of $148,830 to our
      directors, officers and employees in the twelve months ended December 31, 2006
      while none were granted in the twelve months ended December 31, 2005.





Loss
      on Goodwill Impairment





We
      did
      not have impairment in the value of our goodwill for the twelve months ended
      December 31, 2006 but had a loss on goodwill impairment in the amount of $47,624
      for the twelve months ended December 31, 2005.





Total
      Operating Losses





Total
      operating losses for the twelve months ended December 31, 2006 increased to
      $327,460 from $298,669 for the twelve months ended December 31, 2005. The
      overall increase in operating losses of $28,791, or approximately 9.64% over
      the
      period is due primarily to the increases in interest, option expense, the cost
      of being a public company and increases in all types of corporate insurance.





Net
      Other Expenses





Net
      other
      expenses for the twelve months ended December 31, 2006 increased to $37,306
      from
      of $27,072 from for the twelve months ended December 31, 2005. The overall
      increase in our other expenses of $10,234, or approximately 37.80% over the
      2005
      period is covered below in our discussions of Interest Income, Interest Expense,
      Gain/Loss on Sale of Securities and Other Income/Loss.





Interest
      Income





Interest
      income for the twelve months ended December 31, 2006 increased to $63 from
      $10
      for the twelve months ended December 31, 2005.





Interest
      Expense





Interest
      expense for the twelve months ended December 31, 2006 increased to $29,663
      from
      $28,585 for the twelve months ended December 31, 2005. The overall increase
      in
      our interest expense of $1,078 or approximately 3.77% over the 2005 period
      is
      due primarily to the increase of interest bearing debts.





Gain/Loss
      on Sale of Securities





We
      have a
      loss of $7,707 from the sale of securities for the twelve months ended December
      31, 2006 compared to a gain of $1,503 for the twelve months ended December
      31,
      2005. The decrease of $9,210 or approximately 612.77% from our sale of
      securities over the 2005 period is due primarily to market conditions existing
      at the time such sales were made.





9


Net
      Loss





Net
      Loss
      for the twelve months ended December 31, 2006 increased to $364,767 from
      $325,741 for the twelve months ended December 31, 2005. This increase in net
      loss of $39,026 or approximately 11.98% over the 2005 period is due primarily
      to
      the grant of stock options to our officers, directors and employees.





**Liquidity
      and Capital Resources**


December
                  31, 2006
              
              December
                  31, 2005Net
                  cash used in operating activities
              
              $
              72,901
              
              $
              294,707Net
                  cash provided by investing activities
              
              
              11,092
              
              
              2,480Net
                  cash provided by financing activities
              
              
              20,578
              
              
              338,128





General





For
      the
      twelve months ended December 31, 2006, we had negative cash flows resulting
      from
      $72,901 of cash used in our operating activities, $11,092 of cash provided
      by
      our investing activities and $20,578 of cash provided by our financing
      activities. Accordingly, for the twelve months ended December 31, 2006, our
      funds from operations were insufficient to cover our daily operations as further
      explained below.





Cash
      Flows from Operating Activities





Net
      cash
      used in our operating activities of $72,901 for the twelve months ended December
      31, 2006 was primarily attributable to the net loss and offset by depreciation
      expense, stock based compensation, decreases in accounts receivable and
      increases in accounts payable.





Cash
      Flows from Investing Activities





Net
      cash
      provided by our investing activities of $11,092 for the twelve months ended
      December 31, 2006 was cash generated by the liquidation of stock
      investments.





Cash
      Flows from Financing Activities





Net
      cash
      provided by our financing activities of $20,578 for the twelve months ended
      December 31, 2006 was proceeds from exercised stock options, proceeds from
      sale
      of common stock and proceeds from sale of preferred stock.





Internal
      Sources of Liquidity





For
      the
      twelve months ended December 31, 2006, the revenues generated from our
      operations were insufficient to fund our daily operations. Gross profit for
      fiscal year 2006 was $454,149, which was insufficient to meet our operating
      expenses of $781,609 for the same period. There is no assurance that funds
      from
      our future operations will meet the requirements of our daily operations in
      the
      future. In the event that funds from our operations will be insufficient to
      meet
      our operating requirements, we will need to seek other sources of financing
      to
      maintain liquidity.





External
      Sources of Liquidity





We
      actively pursue all potential financing options as we look to secure additional
      funds to both stabilize and grow our business operations. Our management will
      review any financing options at their disposal, and will judge each potential
      source of funds on its individual merits. There can be no assurance that we
      will
      be able to secure additional funds from debt or equity financing, as and when
      we
      need to, or if we can, that the terms of such financing will be favorable to
      us
      or our existing stockholders.





At
      December 31, 2006, we have debt owing to related parties in the aggregate amount
      of $73,120 as summarized in Note 2 to the financial statements.





10


At
      December 31, 2006, we have debt owing to non-related parties (net of unamortized
      discount) aggregating $200,000 as summarized in Note 4 to the financial
      statements.





Our
      business plan involves, in part, increasing the number of employees placed
      both
      on a temporary and permanent basis. Such increased placement is expected to
      result in increased profit to us, although it also results in increased short
      term cash needs. We have utilized net revenues, the proceeds from a number
      of
      private sales of our equity securities, the exercise of options, the issuance
      of
      promissory notes and our line of credit to meet our working capital
      requirements. We are reluctant to incur further debt and intend to rely upon
      net
      revenues and private sales of equity securities to meet our liquidity needs
      for
      the next 12 months.





During
      2007, we expect to grow our revenues without significant increases in our
      selling, general and administrative expenses, which we expect will have a
      positive effect on our financial statements as compared to 2006. Our liquidity
      and capital resources, as well as business prospects, are all subject to the
      risks disclosed below, among others.




RISK
      FACTORS





Our
      business prospects are subject to various risks and uncertainties that impact
      our business. The most important of these risks and uncertainties are as
      follows:





***We
      have a limited operating history and may not be able to effectively manage
      our
      anticipated growth.***





We
      were
      incorporated in the State of Colorado on March 18, 1999. Until our acquisition
      of Staf*Tek, an Oklahoma corporation, we had not had any significant operations
      and were considered to be in development stage. Accordingly, we have a limited
      operating history and
      are
      subject to risks generally associated with a new business and specifically
      to
      the risks associated with our anticipated growth. Even
      though our wholly owned subsidiary Staf*Tek has generated positive revenues
      since its inception, January 2, 1997, there is no assurance that we, through
      the
      operation of our wholly owned subsidiary, will continue to achieve profitability
      in the future. Our performance will depend on our ability to manage this
      anticipated growth effectively by hiring key management personnel, implementing
      and maintaining operational, administrative, marketing and control systems
      on a
      timely basis, building and maintaining our network
      infrastructure, conducting successful marketing and sales programs, attracting
      and retaining qualified employees and having access to working capital to
      support the growth in inventory, receivables, capital requirements and operating
      costs necessitated by the assumed increased sales.





***We
      operate solely through our subsidiary, Staf*Tek Services, Inc.; our revenues
      are
      dependent on the performance of our subsidiary.***





We
      operate and generate revenues solely through our subsidiary, Staf*Tek. St.
      Joseph, Inc. has not generated any revenues since its inception and does not
      expect to generate any revenues in the future. Our success depends on the
      success of Staf*Tek and there is no assurance that we can continue to achieve
      profitability through Staf*Tek in the future.





***From
      time to time, we may need additional capital to meet the objectives of our
      business plan, and there is no assurance that we will be able to raise such
      capital or that such financing will be on terms that are favorable or acceptable
      to us.***





We
      have
      taken steps to increase the placement of employees. However, the placement
      of
      temporary employees requires substantial additional capital to fund our working
      capital needs. When an employee is placed on a temporary basis, an invoice
      is
      generated for the placement fee, which may not be paid for a number of weeks
      while the employment costs are immediately incurred. Thus, even though, in
      the
      long run, our success in placing temporary employees will enhance our revenues;
      in the short term, our increasing placement of temporary employees is decreasing
      our liquidity. Accordingly, to remain viable, we must substantially increase
      our
      revenues, raise additional capital, increase our credit facilities, and/or
      reduce our operations. In the event that our plans or assumptions change or
      prove to be inaccurate, or if delays increase the payment of our placement
      fees,
      we may be required to raise additional funds through the issuance of equity
      securities, in which case the percentage ownership of our current stockholders
      will be diluted. Such equity securities may also have rights, preferences or
      privileges senior to common stock. Furthermore, there can be no assurance that
      additional financing will be available when needed on terms favorable to us
      or
      at all. If
      we are
      unable to raise more money, our growth could be impeded ,
      and our
      business could be materially adversely affected.





11


***Our
      failure to effectively manage growth could have a material adverse effect on
      our
      business and operations*** **.**





We
      expect
      our business to grow, and such growth could occur rapidly at an uneven pace.
      Such growth will place a significant strain on our management systems and
      resources. We will need to continue to improve our operational and financial
      systems and managerial controls and procedures, and we will need to continue
      to
      expand, train and manage our workforce. We will have to maintain close
      coordination among our technical, accounting, finance, marketing and sales
      personnel.




***If
      we lose key personnel or fail to integrate replacement personnel successfully,
      our ability to manage our business could be impaired.***




Our
      future success depends upon the continued service of our key management and
      other critical personnel such
      as
      John Blackmon or Karen Williams .
      Whether
      we are able to execute our business strategy effectively will depend in large
      part on how well key management and other personnel perform in their positions
      and are integrated within our company. There is no assurance that we have will
      be able to retain these key management and personnel. The loss of any key
      employee could result in significant disruptions to our operations, the
      successful implementation and completion of company initiatives and the results
      of our operations. In addition, the integration of replacement personnel could
      be time consuming, may cause additional disruptions to our operations and may
      be
      unsuccessful.




***Factors
      outside of our control may adversely affect our operations and operating
      results.***





The
      demand for our temporary and permanent staffing services is highly dependent
      upon the state of the economy and upon the staffing needs of our clients. Any
      variation in the economic condition or unemployment levels in the United States
      or in the economic condition of the region where our clients are located, or
      in
      any specific industry may severely reduce the demand for our services and
      thereby significantly decrease the our revenues and profits. Furthermore, our
      temporary and permanent staffing services business consists of the placement
      of
      individuals seeking temporary and permanent employment. There can be no
      assurance that qualified candidates for employment will continue to seek
      employment through Staf*Tek. Qualified candidates generally seek temporary
      or
      permanent positions through multiple sources, including Staf*Tek and its
      competitors. Any shortage of qualified candidates could materially adversely
      affect our revenues.





***Our
      market is competitive*** ***,*** ***and our financial results and financial condition could be adversely affected
      if
      we are unable to anticipate or react to this
      competition.***





The
      market for temporary and permanent staffing services is highly competitive
      and,
      because it is a service business, the barriers to entry are quite low. There
      are
      many competitors, some of which have greater resources than us, and new
      competitors are constantly entering the market. In addition, long-term contracts
      form a negligible portion of our revenues. Therefore, there can be no assurance
      that we will be able to retain clients or market share in the future. Nor can
      there be any assurance that we will, in light of competitive pressures, be
      able
      to remain profitable or maintain our current profit margins. If we fail to
      compete successfully in this highly competitive market, our business, financial
      condition, and results of operations will be materially and adversely
      affected.





***We
      depend on attracting and retaining qualified candidates; during periods of
      economic growth, our costs to do so increase and it becomes more difficult
      to
      attract and retain people.***





The
      success of our staffing services depends on our ability to attract and retain
      qualified employees for placement with our customers. Our ability to attract
      and
      retain qualified personnel could be impaired by rapid improvement in economic
      conditions resulting in lower unemployment and increases in compensation. During
      periods of economic growth, we face growing competition for retaining and
      recruiting qualified personnel, which in turn leads to greater advertising
      and
      recruiting costs and increased salary expenses. If we cannot attract and retain
      qualified employees, the quality of our services may deteriorate and our
      reputation and results of operations could be adversely affected.





12
 
 ***Our
          inability to attract and retain qualified employees could have a material
          adverse effect on our business, financial condition and results of
          operations.***
 
 Our
          business involves the delivery of professional services and is very labor
          intensive. Our success depends in large part upon our ability to attract,
          develop, motivate and retain highly skilled technical employees. We can
          experience high turnover of our personnel and are often required to recruit
          and
          train replacement personnel as a result of a changing and expanding work
          force.
          Accordingly, we may experience increased compensation costs that may not
          be
          offset through either increased productivity or higher customer pricing.
          Furthermore, the market for IT services change rapidly because of technological
          innovation, new product introductions, changes in customer requirements,
          evolving industry standards and many other factors. New products and new
          technology often render existing information services or technology
          infrastructure obsolete, excessively costly or otherwise unmarketable.
          As a
          result, our success depends on our ability to attract and retain qualified
          employee candidates who are knowledgeable and familiar with these new products
          and technologies. We cannot guarantee that we will be successful in recruiting
          and retaining sufficient numbers of qualified employee candidates in the
          future,
          especially when we need to expand our services in a short time period.
          Our
          inability to attract and retain qualified personnel, or increases in wages
          or
          other costs of attracting, training or retaining qualified personnel, could
          have
          a material adverse effect on our business, financial condition and results
          of
          operations.
 
 ***Over
          80% of our revenues come from one client.***
 
 At
          the
          present time, Verizon is our largest client and makes up 81% of its revenues.
          The loss of this client or the decline in business from this client would
          have a
          material adverse effect on our revenues and profits. Accordingly, any events
          that create an adverse affect on Verizon’s operations or financial performance
          may also create a material adverse effect on our revenues and
          profits.
 
 ***Our
          revenues are generated by only six clients.***
  At
          the
          present time, our revenues come from only six clients. The loss of any
          of these
          clients or the decline in business from any of these clients will have
          a
          material adverse effect on our revenues and profits.
  **ITEM
          7. FINANCIAL STATEMENTS.**
 
 Our
          Financial Statements and supplementary data are included beginning immediately
          following the signature page to this Report. See Item 13 for a list of
          the
          Financial Statements and financial statement schedules included with this
          filing.
  **ITEM
          8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
          DISCLOSURE**
 
 None.
  **ITEM
          8A. CONTROLS AND PROCEDURES**
 
 Within
          the 90 days prior to the date of this report, Gerry McIlhargey, our Chief
          Executive Officer and Kenneth L. Johnson, our acting Chief Financial Officer,
          evaluated the effectiveness of the design and operation of our disclosure
          controls and procedures pursuant to Rule 13a-15b under the Securities Exchange
          Act of 1934. Based on their review of the our disclosure controls and
          procedures, they have concluded that our disclosure controls and procedures
          are
          effective in timely alerting them to material information relating to us
          that is
          required to be included in their periodic SEC filings. Further, there were
          no
          significant changes in the internal controls or in other factors that could
          significantly affect these controls after the evaluation date and the date
          of
          this report.
  **ITEM
          8B. OTHER INFORMATION.**
 
 None.
  13




**PART
      III**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(A) OF THE EXCHANGE ACT**





The
      following information sets forth the names of the directors, executive officers,
      promoters control persons of the Company, their present positions with the
      Company, and their biographical information.





Name
            
            Age
            
            Position(s)
                Held
            
            Date
                Service BeganGerald
                McIlhargey
            
            59
            
            President,
                Chief Executive Officer and Director
            
            March
                2004Kenneth
                L. Johnson
            
            47
            
            Secretary,
                Treasurer and Director
            
            April
                2000Bruce
                Schreiner
            
            51
            
            Director
            
            October
                2003Donal
                Ford
            
            51
            
            Director
            
            August
                2006Maureen
                O’Brien
            
            58
            
            Director
            
            August
                2006





Gerald
      McIlhargey - Mr. McIlhargey has been a Director of St. Joseph since March of
      2004. Mr. McIlhargey has spent over 25 years in management consulting for public
      companies. In his various management roles, Mr. McIlhargey has extensive
      experience in Marketing and Manufacturing as well as the Financing of Public
      Companies. Mr. McIlhargey has had a key role with several public companies,
      including International Corona Resources, Collingwood Energy, Sense Technologies
      Inc. and Male Leaf Petroleum. Mr. McIlhargey received a Bachelor of Education
      degree from Simon Fraser University in British Columbia, Canada in
      1972.





Kenneth
      L. Johnson - Mr. Johnson has been a Director and Secretary/Treasurer of the
      Company since April of 2000. Mr. Johnson has been the Secretary/Treasurer and
      Director of Staf*Tek from December of 2003, to the present. For the past nine
      years, Mr. Johnson has been employed as a senior support representative with
      College Bookstore Management Systems (CMBS), a division of Nebraska Book Co.,
      Inc. A provider of point of sale and inventory control computer software for
      the
      college bookstore industry. Mr. Johnson is involved in product development,
      customer support and training. Mr. Johnson graduated from Hastings College
      in
      1985, earning a Bachelor of Arts Degree in Business Administration.





Bruce
      E.
      Schreiner, CPA - Mr. Schreiner, CPA, has been a Director of the Company since
      October of 2003. Mr. Schreiner has also been a Director of Staf*Tek Services,
      Inc. since October, 2003, to the present. Mr. Schreiner is a partner in the
      accounting firm of Schroeder & Schreiner, P.C. He served as an Agent with
      the Internal Revenue Service for over five years, culminating in an appointment
      to the Technical and Review Staff of Omaha, Nebraska, for the Nebraska District.
      Mr. Schreiner is a member of the American Institute and Nebraska Society of
      Certified Public Accountants and the Grand Island Area Chamber of Commerce.
      Mr.
      Schreiner is currently on the Board of Directors of Sense Technologies, Inc.,
      a
      public company. Mr. Schreiner graduated magna cum laude from Hastings College
      in
      1975 earning a Bachelor of Arts Degree in both Economics and Business
      Administration with emphasis in accounting.





Donal
      Kent Ford - Mr. Ford has been a Director of the Company since August 24, 2006.
      For the past ten years Mr. Ford has been President of Pinnacle Financial
      Services, Inc., a Third Party Administrator for Pension and Profit Sharing
      Plans
      located in Lantana, FL. Mr. Ford is a Credentialed Member of the American
      Society of Pension Actuaries and is actively involved in the South Florida
      Benefits Council. Mr. Ford has a Bachelor of Science in Business Administration
      from the University of Florida and a Doctor of Chiropractic from Life
      University.  He is also a Certified Pension Consultant with the American
      Society of Pension Professionals and Actuaries.





Maureen
      O’Brien - Ms. O’Brien has been a Director of the Company since August 24, 2006.
      For the past two years Ms. O'Brien has worked as Executive Assistant to David
      Core, CEO of Pinnacle Financial Services, Inc. For seven years prior to that
      Ms.
      O'Brien specialized in start up ventures with Real Applications,
      Inc.





**Term
      of Office**





Our
      directors are elected for a one-year term to hold office until the next annual
      general meeting of our shareholders, or until removed from office in accordance
      with our bylaws and applicable law. Our officers are appointed by our Board
      of
      Directors and hold office until removed by the Board.





14


**Family
      Relationships**





There
      are
      no family relationships among the our officers and directors, nor are there
      any
      arrangements or understanding between any of the directors or officers of our
      Company or any other person pursuant to which any officer or director was or
      is
      to be selected as an officer or director.





**Involvement
      in Certain Legal Proceedings**





During
      the past five years, no present or former director, executive officer or person
      nominated to become a director or an executive officer of the
      Company:





(1)
              was
                  a general partner or executive officer of any business against
                  which any
                  bankruptcy petition was filed, either at the time of the bankruptcy
                  or two
                  years prior to that time;





(2)
              was
                  convicted in a criminal proceeding or named subject to a pending
                  criminal
                  proceeding (excluding traffic violations and other minor
                  offenses);





(3)
              was
                  subject to any order, judgment or decree, not subsequently reversed,
                  suspended or vacated, of any court of competent jurisdiction, permanently
                  or temporarily enjoining, barring, suspending or otherwise limiting
                  his
                  involvement in any type of business, securities or banking activities;
                  or





(4)
              was
                  found by a court of competent jurisdiction (in a civil action),
                  the
                  Securities and Exchange Commission or the Commodity Futures Trading
                  Commission to have violated a Federal or state securities or commodities
                  law, and the judgment has not been reversed, suspended or
                  vacated.





**Advisory
      Board**





In
      February of 2004, St. Joseph's Board of Directors elected to establish an
      Advisory Board to advise the Board of Directors on new business development,
      procedures, technologies, new business practices and effective businesses
      practices with respect to professional employer organization. The Advisory
      Board
      Member's biographies are as follows:





David
      Goler, 58, was appointed to the Advisory Board on February 3, 2004. For the
      past
      ten years Mr. Goler has worked for Pinnacle Financial Services, Inc. as National
      Marketing Director.





John
      Hershenberg, 44, was appointed to the Advisory Board on February 3, 2004. Mr.
      Hershenberg. For the past seven years, has worked for Inercore, a national
      marketing firm dedicated to the marketing support of Professional Employer
      Organizations.





Ted
      Key,
      29, was appointed to the Advisory Board on March 23, 2004. For the past seven
      years Mr. Key worked with Lincoln Financial Advisors focusing on investment
      planning and most recently Professional Employer Organization
      division.





John
      K.
      Lucas, 56, was appointed to the Advisory Board on February 3, 2004. In the
      past
      five years Mr. Lucas has been Regional Chief Executive Officer for Lincoln
      Financial Advisors Corporation.





Brian
      R.
      Smith, 41, was appointed to the Advisory Board on February 3, 2004. Mr. Smith
      is
      a retired Army Major, and, for the past seven years, has worked in the
      Professional Employers Organization Industry with Lincoln Financial Advisors
      Corporation.





Members
      of the Advisory board are appointed by our Board of the Directors and serve
      until removed by the Board of Directors.





15


**Committees
      of the Board of Directors; Meetings**





During
      the year ended December 31, 2006, the entire Board met four times and acted
      four
      times by unanimous written consent. During fiscal year 2006, no director
      attended fewer than 75% of the aggregate number of meetings of the Board and
      committees on which such director served.





The
      Board
      has two standing committees, the Audit Committee and the Compensation Committee.
      The Board does not have a separate Nominating Committee and performs all of
      the
      functions of that committee.





**The
      Audit Committee**





The
      Audit
      Committee has as its primary responsibilities the appointment of the independent
      auditor for the Company, the pre-approval of all audit and non-audit services,
      and assistance to the Board in monitoring the integrity of our financial
      statements, the independent auditor's qualifications, independence and
      performance and our compliance with legal requirements. The Audit Committee
      has
      adopted a written charter which was mailed to its shareholders in 2006. During
      the year ended December 31, 2006, the Audit Committee met one time. Bruce
      Schreiner, Donal Ford, and Maureen O’Brien are the current members of the Audit
      Committee.





The
      Securities and Exchange Commission ("SEC") has adopted rules to implement
      certain requirements of the Sarbanes-Oxley Act of 2002 pertaining to public
      company audit committees. One of the rules adopted by the SEC requires a company
      to disclose whether the members of its Audit Committee are "independent". Since
      we are not a "listed" company, we are not subject to rules requiring the members
      of our Audit Committee to be independent. The SEC also requires a company to
      disclose whether it has an "Audit Committee Financial Expert" serving on its
      audit committee.





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.





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, would be described as an Audit Committee Financial Expert. Each
      of the other current members have made significant contributions and provided
      valuable service to St. Joseph and its stockholders as members of the Audit
      Committee and the Board believes that each of them has demonstrated that he
      is
      capable of (i) understanding generally accepted accounting principles ("GAAP")
      and financial statements, (ii) assessing the general application of GAAP
      principles in connection with the accounting for estimates, accruals and
      reserves, (iii) analyzing and evaluating our financial statements, (iv)
      understanding internal controls and procedures for financial reporting, and
      (v)
      understanding audit committee functions, all of which are attributes of an
      Audit
      Committee Financial Expert under the rule adopted by the SEC. Given the business
      experience and acumen of these individuals and their service as members of
      the
      Audit Committee, the Board believes that each of them is qualified to carry
      out
      all duties and responsibilities of the Audit Committee.





**Compensation
      Committee**





The
      Compensation Committee recommends to the Board annual salaries for senior
      management and reviews all company benefit plans. During the year ended December
      31, 2006, 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 Securities Exchange Act of 1934**





Section
      16(a) of the Securities Exchange Act of 1934 (the "34 Act") requires our
      officers and directors and persons owning more than ten percent of our Common
      Stock to file initial reports of ownership and changes in ownership with the
      Securities and Exchange Commission ("SEC"). Additionally, Item 405 of Regulation
      S-B under the 34 Act requires us to identify in our Form 10-KSB and proxy
      statement those individuals for whom one of the above referenced reports was
      not
      filed on a timely basis during the most recent fiscal year or prior fiscal
      years. Given these requirements, we have the following report to make under
      this
      section: : Forms 3 and 5 were not filed for Maureen O’Brien and Donal Ford;
      Forms 4 and 5 were not filed for Gerald McIlhargey, Bruce Schreiner, Kenneth
      Johnson. Form 5 was not filed for Milton Harbuck.




16




**Code
      of Ethics**





We
      have
      adopted a code of ethics that applies to our principal executive officer,
      principal financial officer, principal accounting officer or controller, and
      persons performing similar functions. The code of ethics can be viewed on our
      website: www.stjosephinc.com .




**ITEM
      10. EXECUTIVE COMPENSATION**





**Summary
      Compensation Table**





The
      following table sets forth information concerning the compensation of our
      executive officers during 2006:




Long
                Term CompensationAnnual
                Compensation
            
            Awards
            
            Payouts(a)
            
            (b)
            
            (c)
            
            (d)
            
            (e)
            
            (f)
            
            (g)
            
            (h)
            
            (i)Name
                and Principal Position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Other
              Annual
                Compensation
              ($)
            
            Restricted
                Stock Award(s)
              ($)
            
            Securities
                Underlying Options/
              SARs
                (#)
            
            LTIP
              Payouts
              ($)
            
            All
              Other
                Compensation
              ($)Gerald
                McIlhargey,
              Acting
                President, Chief Executive Officer and Director
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            100,000
            
            
            0
            
            
            0John
                H. Simmons, Former President, Chief Executive Officer and
                Director
            
            
            2006
            
            $
            51,200
            
            
            0
            
            $
            3,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0Kenneth
                L. Johnson, Secretary, Treasurer and Director
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            50,000
            
            
            0
            
            
            0





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.





Mr.
      Simmons was appointed President, Chief Executive Officer and Director on October
      28, 2003. Mr. Simmons resigned as our President, Chief Executive Officer on
      May
      17, 2006 and resigned as our Director on May 30, 2006. Mr. Simmons earned an
      annual salary of $120,000 and was entitled to a car allowance of $600 per month.





**Option/SAR
      Grants Table**





The
      following table sets forth information with respect to stock options granted
      to
      each named executive officer during our most recent fiscal year ended December
      31, 2006. We have never granted any stock appreciation rights.




17





Option/SAR
                Grants in Last Fiscal YearIndividual
                Grants(a)
            
            (b)
            
            (c)
            
            (d)
            
            (e)Name
            
            Number
                of Securities Underlying Options/SARs Granted (#)
            
            %
                of Total Options/SARs granted to Employees in Fiscal Year
            
            Exercise
                or Base Price ($/Sh)
            
            Expiration
                DateGerald
                McIlhargey
            
            
            100,000
            
            
            24.39
            %
            $
            1.05
            
            
            August
                24, 2011John
                H. Simmons
            
            
            0
            
            
            —
            
            
            —
            
            
            --Kenneth
                L. Johnson
            
            
            50,000
            
            
            12.19
            %
            $
            1.05
            
            
            August
                24, 2011





**Director
      Compensation**





The
      Directors receive no annual compensation other than the options they received
      for serving on the board of directors of St. Joseph; however, they are
      reimbursed for out-of-pocket expenses incurred in connection with the Company's
      business.





**Employment
      Agreements**





We
      currently do not have any written employment agreements with any of our officers
      or directors.


18




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT**





The
      following table sets forth information as of the date hereof, based on
      information obtained from the persons named below, with respect to the
      beneficial ownership of the our common stock by (i) each person (including
      groups) known to us to be the beneficial owner of more than 5 percent of our
      common stock, and (ii) each Director and Officer, and (iii) all Directors and
      Officers of the Company, as a group. Except as otherwise indicated, all
      stockholders have sole voting and investment power with respect to the shares
      listed as beneficially owned by them, subject to the rights of spouses under
      applicable community property laws.





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
            
            Number
                of Shares
              of
                Series B
              Preferred
                Stock (2)
            
            Percent
                OutstandingGerald
                McIlhargey, President, Chief Executive Officer and
                Director
            
            
            200,000
                (3
            )
            
            3.25
            %
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %Kenneth
                L. Johnson, Secretary, Treasurer and Director
            
            
            150,000
                (4
            )
            
            2.46
            %
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %Bruce
                Schreiner, Director
            
            
            150,000
                (5
            )
            
            2.42
            %
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %Maureen
                O’Brien, Director
            
            
            75,000
                (4
            )
            
            1.23
            %
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %Donal
                Ford, Director
            
            
            75,000
                (4
            )
            
            1.23
            %
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %All
                Executive Officers and Directors as a Group
            
            
            650,000
            
            
            10.01
            %
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %David
                William Dean Core
            
            
            1,125,000
            
            
            18.60
            %
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %Phyllis
                L. Bell
            
            
            680,368
                (6
            )
            
            10.67
            %
            
            330,000
            
            
            85.45
            %
            
            0
            
            
            0
            %Wildwood
                Partners, LP
            
            
            75,000
                (7
            )
            
            0.83
            %
            
            0
            
            
            0
            %
            
            50,000
            
            
            100
            %





(1)
            The
                address for Messrs. McIlhargey, Johnson, Schreiner, Ford, and Ms.
                O’Brien
                is: c/o St. Joseph, Inc., 4870 S. Lewis, Suite 250, Tulsa, Oklahoma
                74105.
                The addresses for Mr. Core and Ms. Bell are 6965 N. Grande, Boca
                Raton,
                Florida 33433 and Route 1 Box 650, Haskell, Oklahoma 74436, respectively.
                The address for Wildwood Partners, LP is 3629 Greenbrier Drive, Dallas,
                Texas 75225-5106. 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)
            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.
                This
                percentage will be different than percentages reflected in Schedule
                13D.





(3)
            Includes
                options to purchase 100,000 shares of our common stock at an exercise
                price of $1.05 per share.





(4)
            Includes
                options to purchase 50,000 shares of our common stock at an exercise
                price
                of $1.05 per share.





(5)
            Includes
                options to purchase 50,000 share of our common stock at an exercise
                price
                of $1.05 per share and options to purchase 100,000 shares of our
                common
                stock at an exercise price of $0.10 per
                share.





(6)
            Includes
                330,000 share of common stock that may be acquired through conversion
                of
                330,000 shares of Series A Preferred Stock, 60,000 shares held by
                a trust
                controlled by Ms. Bell and 20,368 held in CEDE &
                Co.




(7)
            Includes
                50,000 shares of common stock that may be acquired through conversion
                of
                50,000 shares of Series B Preferred
                Stock.




19




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





On
      December 5, 2006, Gerald McIlhargey, President of our Company, advanced Staf*Tek
      $25,000 for working capital in exchange for a promissory note. The note carries
      a fixed interest of $2,000 and matures on June 30, 2007. We have not repaid
      the
      advance or any related interest through December 31, 2006.





On
      January 5, 2006, Phyllis Bell, a shareholder of our Company, advanced our
      subsidiary, Staf*Tek, $40,000 for working capital. We repaid the advance and
      $500 of related interest on January 31, 2006.





On
      June
      16, 2005, we issued John Simmons, our President at the time, a promissory note
      in the amount of $96,000. This note replaced and superseded a promissory note
      that we issued to Mr. Simmons in December of 2003. The note carries a ten
      percent interest rate, payable quarterly and matured on June 16, 2006. Mr.
      Simmons resigned as our President, Chief Executive Officer on May 17, 2006
      and
      as our Director on May 30, 2006. During the year ended December 31, 2006, we
      did
      not repay any balance under the note. As of December 31, 2006, we owed $48,120
      in principal and $2,406 in accrued interest on the note.





Under
      the
      terms of the note, we are currently in default of the note. In the event that
      Mr. Simmons decides to institute legal proceeding to collect this note and
      prevails, we will have to pay Mr. Simmons his court costs, including reasonable
      attorneys’ fees. However, we believe that the amount owed to Mr. Simmons on the
      note is fully or partially offset by sums owed to us in connection with expense
      reimbursements that were paid to Mr. Simmons while he was the President of
      our
      Company and to which we believe he may not have the rights. The parties have
      a
      tentative oral agreement that any sums owed by Mr. Simmons to the Company will
      offset amounts payable to him pursuant to the note. However, we have not yet
      determined the amount that we are entitled to from Mr. Simmons and amounts
      are
      presently under review by the audit committee.





On
      August
      17, 2005, Staf*Tek issued Ms. Bell a promissory note in the amount of $25,000.
      The note matured on August 31, 2005 and carried a fixed interest of $300.00.
      This note has been fully repaid.





On
      July
      25, 2005, Staf*Tek issued Ms. Bell a promissory note in the amount of $45,000.
      The note matured on July 29, 2005. The principal amount of the note and a fixed
      interest of $300 have been fully repaid.





On
      May
      19, 2005, Staf*Tek issued Ms. Bell a promissory note in the amount of $40,000.
      The note matured on May 31, 2005. The principal amount of the note and a fixed
      interest of $100 have been fully repaid.





On
      April
      19, 2005, Staf*Tek issued Ms. Bell a promissory note in the amount of $65,000.
      The note matured on April 25, 2005. The principal amount of the note and a
      fixed
      interest of $525 have been fully repaid.





On
      April
      1, 2005, Staf*Tek issued Ms. Bell a promissory note in the amount of $35,000.
      The note matured on April 8, 2005 and carried a fixed interest of $125. This
      note has been fully repaid.





On
      March
      17, 2005, Staf*Tek issued Ms. Bell a promissory note in the amount of $40,000.
      The note matured on April 1, 2005. The principal amount of the note and a fixed
      interest of $250 have been fully repaid.




On
      February 22, 2005, Staf*Tek issued Ms. Bell a promissory note in the amount
      of
      $35,000. The note matured on March 1, 2005. The principal amount of the note
      and
      a fixed interest of $100 have been fully repaid.





On
      January 6, 2005, Staf*Tek issued Ms. Bell a promissory note in the amount of
      $40,000. The note carried interest at 12.5% per annual and matured on January
      31, 2005. The principal amount of the note and $342.50 in interest have been
      fully repaid on January 24, 2005.





Other
      than disclosed above, none of the Directors or 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 date of the Company's incorporation or in any presently proposed transaction
      which, in either case, has or will materially affect the Company. The Company
      has not entered into transactions with any member of the immediate families
      of
      the foregoing persons, nor is any such transaction proposed.





20




**ITEM
      13. EXHIBITS**




EXHIBIT
                  NO.
              
              DESCRIPTION
                  OF DOCUMENT2.1
                  (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 onJanuary
                  19, 2001.3.3
                  (5)
              
              Articles
                  of Amendment to Articles of Incorporation as filed with the Colorado
                  Secretary of State onNovember
                  6, 20033.4
                  (6)
              
              Articles
                  of Amendment to Articles of Incorporation as filed with the Colorado
                  Secretary of State onSeptember
                  29, 20063.5
                  (3)
              
              Bylaws
                  of St. Joseph, Inc. (formerly known as Pottery Connection,
                  Inc.)4.0
                  (1)
              
              Specimen
                  form of St. Joseph’s stock certificate for shares of its common
                  stock.10.1
                  (3)
              
              Exclusive
                  Agreement between St. Joseph Energy, Inc. and David
                  Johnson10.2
                  (2)
              
              Form
                  of User Agreement for St. Joseph, Inc.10.3*
              
              Promissory
                  Note dated June 16, 2005 for $96,000 issued by St. Joseph, Inc.
                  to John H.
                  Simmons.10.4*
              
              Promissory
                  Note dated January 6, 2005 for $40,000 issued by Staf*Tek Services,
                  Inc.
                  to Phyllis L.Bell.10.5*
              
              Promissory
                  Note dated February 22, 2005 for $35,000 issued by Staf*Tek Services,
                  Inc.
                  to Phyllis L.Bell.10.6*
              
              Promissory
                  Note dated March 17, 2005 for $40,000 issued by Staf*Tek Services,
                  Inc. to
                  Phyllis L.Bell.10.7*
              
              Promissory
                  Note dated April 19, 2005 for $65,000 issued by Staf*Tek Services,
                  Inc. to
                  Phyllis L. Bell.10.8*
              
              Promissory
                  Note dated May 19, 2005 for $40,000 issued by Staf*Tek Services,
                  Inc. to
                  Phyllis L. Bell.10.9*
              
              Promissory
                  Note dated July 25, 2005 for $45,000 issued by Staf*Tek Services,
                  Inc. to
                  Phyllis L. Bell.10.10*
              
              Promissory
                  Note dated August 17, 2005 for $25,000 issued by Staf*Tek Services,
                  Inc.
                  to Phyllis L. Bell.10.11*
              
              Promissory
                  Note dated December 28, 2006 for $25,000 issued by Staf*Tek Services,
                  Inc.
                  to GerryMcIlhargey.10.12*
              
              Promissory
                  Note dated April 1, 2005 for $35,000 issued by Staf*Tek Services,
                  Inc. to
                  Phyllis L. Bell.




21




14.1*
              
              Code
                  of Ethics.21.1*
              
              Subsidiaries
                  of St. Joseph, Inc.31.1
              
              Principal
                  Executive Officer Certification under Section 302 of the Sarbanes-Oxley
                  Act of 200231.2
              
              Principal
                  Financial Officer Certification under Section 302 of the Sarbanes-Oxley
                  Act of 200232.1
              
              Principal
                  Executive Officer Certification under Section 906 of the Sarbanes-Oxley
                  Act of 200232.2
              
              Principal
                  Financial Officer Certification under Section 906 of the Sarbanes-Oxley
                  Act of 2002




*
      Filed
      herewith





(1)
            Filed
                on July 23, 2002 as an exhibit to St. Joseph’s registration statement on
                Form 10SB and incorporated herein by reference.





(2)
            Filed
                on April 15, 2003 as an exhibit to St. Joseph’s annual report on Form
                10-KSB for the fiscal year ended December 31, 2002 and incorporated
                herein
                by reference.





(3)
            Filed
                on June 3, 2003 as an exhibit to St. Joseph’s amendment to registration
                statement on Form 10SB12G/A and incorporated herein by reference.





(4)
            Filed
                on April 15, 2004 as an exhibit to St. Joseph’s annual report on Form
                10-KSB for the fiscal year ended December 31, 2003 and incorporated
                herein
                by reference.





(5)
            Filed
                on May 5, 2004 as an exhibit to St. Joseph’s report on Form 8-K dated
                April 30, 2004 and incorporated herein by reference.





(6)
            Filed
                on November 20, 2006 as an exhibit to St. Joseph’s quarterly report on
                Form 10-QSB for the quarterly period ended September 30, 2006 and
                incorporated herein by reference.




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




We
      appointed the accounting firm of Cordovano and Honeck, LLP, located at 88
      Inverness Circle East, Building M-103, Englewood, Colorado 80112, to serve
      as
      our independent auditors for the fis cal
      years
      ended December 31, 2006 and 2005. During our fiscal years 2006 and 2005, accrued
      fees owed to Madsen are as follows:





**Audit
      Fees**




2006
            
            2005$
            15,285.00
            
            $
            12,172.50




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**




2006
              
              2005$
              0.00
              
              $
              0.00




22




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**




2006
                
                2005$
                0.00
                
                $
                0.00




23




SIGNATURES





Pursuant
      to the requirements of Section 13 of the Securities Exchange Act of 1934, the
      Company has caused this Report to be signed on its behalf by the undersigned,
      thereunto duly authorized.





Dated:
      April 11, 2007


St.
                Joseph, Inc.By:
                /s/ Gerry McIlhargeyGerry
                McIlhargey, President and Chief Executive Officer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Report has
      been
      signed by the following persons on behalf of the Company in the capacities
      and
      on the dates indicated.




Signature
              and Title
            
            
            Date/s/
                Gerry McIlhargeyApril
                11, 2007
            
            
            April 11, 2007Gerry
                McIlhargey, President,
              Chief
                  Executive Officer and
                Director


/s/
                  Kenneth L. Johnson  April 11, 2007
              
              
              April 11, 2007Kenneth
                  L. Johnson,Secretary-Treasurer
                  and Director/s/ Bruce Schreiner
              
              
              April
                  11, 2007Bruce
                  Schreiner, Director/s/ Donal Ford
              
              
              April
                  11, 2007Donal
                  Ford, DirectorApril
                  11, 2007/s/
                  Maureen O’BrienMaureen
                  O’Brien, Director
  24


**ST.
      JOSEPH, INC.**


**Index
      to Consolidated Financial Statements**


PageReport
                of Independent Registered Public Accounting Firm
            
            F-2Consolidated
                Balance Sheet at December 31, 2006
            
            F-3Consolidated
                Statements of Operations for the years ended December 31, 2006 and
                2005
            
            F-4Consolidated
                Statement of Changes in Shareholders' Equity for the years ended
                December
                31, 2006 and 2005
            
            F-5Consolidated
                Statements of Cash Flows for the years ended December 31, 2005 and
                2005
            
            F-6Notes
                to Consolidated Financial Statements
            
            F-7




F-1




**Report
      of Independent Registered Public Accounting Firm**




To
      the
      Board of Directors and Shareholders:


St.
      Joseph, Inc.





We
      have
      audited the consolidated balance sheet of St. Joseph, Inc. as of December 31,
      2006, and the related consolidated statements of operations, changes in
      shareholders’ deficit, and cash flows for the years ended December 31, 2006 and
      2005. These consolidated financial statements are the responsibility of the
      Company’s management. Our responsibility is to express an opinion on these
      consolidated financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits 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. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of St. Joseph, Inc. as of
      December 31, 2006, and the results of their operations and their cash flows
      for
      the years ended December 31, 2006 and 2005, in conformity with accounting
      principles generally accepted in the United States of America.





The
      accompanying financial statements have been prepared assuming the Company will
      continue as a going concern. As discussed in Note 1 to the financial statements,
      the Company has incurred recurring losses and has negative working capital
      and a
      net capital deficiency at December 31, 2006. These conditions raise substantial
      doubt about the Company’s ability to continue as a going concern. Further
      information and management’s plans in regard to this uncertainty are also
      described in Note 1. The financial statements do not include any adjustments
      that might result from the outcome of this uncertainty.




Cordovano
      and Honeck LLP


Englewood,
      Colorado


April
      2,
      2007


F-2


**ST.
      JOSEPH, INC.**


**CONSOLIDATED
      BALANCE SHEET**


**DECEMBER
      31, 2006**




**ASSETS****CURRENT
                  ASSETS:**Cash
              
              $
              18,233Accounts
                  receivable:Trade
              
              
              228,830**Total
                  current assets**
              
              
              247,063**FIXED
                  ASSETS (Note 3):**Leasehold
                  improvements
              
              
              19,585Office
                  equipment
              
              
              158,897**Gross
                  fixed assets**
              
              
              178,482Accumulated
                  depreciation and amortization
              
              
              (175,383
              )**Net
                  Fixed Assets**
              
              
              3,099**OTHER
                  ASSETS:**Deposits
              
              
              1,230Goodwill
                  (Note 1)
              
              
              258,525**Total
                  other assets**
              
              
              259,755$
              509,917**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****CURRENT
                  LIABILITIES:**Accounts
                  payable
              
              $
              275,138Accrued
                  liabilities
              
              
              14,914Indebtedness
                  to former officer (Note 7)
              
              
              25,000Indebtedness
                  to shareholder (Note 2)
              
              
              2,000Note
                  payable:Bank
                  (Note 4)
              
              
              200,000Former
                  Officer (Note 2)
              
              
              48,120Officer
                  (Note 2)
              
              
              25,000**Total
                  current liabilities**
              
              
              590,172Commitment
                  (Note 8)
              
              
              -**STOCKHOLDERS'
                  DEFICIT (Note 7):**Preferred
                  stock, Series A, $.001 par value, $3.00 face value; 25,000,000
                  sharesauthorized,
                  386,208 shares issued and outstanding
              
              
              386Preferred
                  stock, Series B, $.001 par value, $1.20 face value; 150,000
                  sharesauthorized,50,000
                  shares issued and outstanding
              
              
              50Common
                  stock, $.001 par value; 100,000,000 shares authorized,6,049,212
                  shares issued and outstanding
              
              
              6,049Additional
                  paid-in capital
              
              
              1,562,565Retained
                  deficit
              
              
              (1,649,305
              )**Total
                  Stockholders' Deficit**
              
              
              (80,255
              )$
              509,917


See
      accompanying notes to consolidated financial statements


F-3


**ST.
      JOSEPH, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**Year
                  Ended****December
                  31,****2006**
              
              **2005****SERVICE
                  REVENUES**
              
              $
              2,597,324
              
              $
              2,039,255**DIRECT
                  COST OF REVENUES**
              
              
              2,143,175
              
              
              1,522,511**Gross
                  Profit**
              
              
              454,149
              
              
              516,744**COSTS
                  AND EXPENSES:**General
                  and Administrative Expenses
              
              
              613,745
              
              
              746,947Stock
                  Option Compensation (Note 7)
              
              
              148,830
              
              
              -Depreciation
                  and Amortization
              
              
              19,034
              
              
              20,842Loss
                  on goodwill impairment (Note 1)
              
              
              -
              
              
              47,624**Total
                  Costs and Expenses**
              
              
              781,609
              
              
              815,413**Operating
                  Loss**
              
              
              (327,460
              )
              
              (298,669
              )**OTHER
                  INCOME AND (EXPENSE):**Interest
                  Income
              
              
              63
              
              
              10Interest
                  Expense
              
              
              (29,663
              )
              
              (28,585
              )Gain
                  (loss) on sale of securities
              
              
              (7,707
              )
              
              1,503**Net
                  Other Expense**
              
              
              (37,307
              )
              
              (27,072
              )**Loss
                  before income taxes**
              
              
              (364,767
              )
              
              (325,741
              )Income
                  tax provision (Note 6)
              
              
              -
              
              
              -**Net
                  Loss**
              
              $
              (364,767
              )
              $
              (325,741
              )Preferred
                  stock dividend requirements
              
              
              (82,708
              )
              
              (78,206
              )**Loss
                  applicable to common stock**
              
              $
              (447,475
              )
              $
              (403,947
              )**Basic
                  and diluted loss per common share**
              
              $
              (0.07
              )
              $
              (0.08
              )**Weighted
                  average common shares outstanding**
              
              
              6,104,013
              
              
              5,277,353








See
      accompanying notes to consolidated financial statements


F-4


**ST.
        JOSEPH, INC.**
 **CONSOLIDATED
        STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT**
  **Preferred
                  Stock-Series A**
              
              **Preferred
                  Stock-Series B**
              
              **Common
                  Stock****Shares**
              
              **Par
                  value**
              
              **Shares**
              
              **Par
                  value**
              
              **Shares**
              
              **Par
                  value****Balance
                  December 31, 2004**
              
              
              386,208
              
              $
              386
              
              
              -
              
              $
              -
              
              
              5,021,712
              
              $
              5,022Sale
                  of common stock at $.50 per share (Note 7)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              684,000
              
              
              684Exercised
                  stock options (Note 7)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              125,000
              
              
              125Preferred
                  stock dividends (Note 7)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Comprehensive
                  income (loss):Unrealized
                  investment gains
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Comprehensive
                  income (loss)**Balance
                  December 31, 2005**
              
              
              386,208
              
              
              386
              
              
              -
              
              
              -
              
              
              5,830,712
              
              
              5,831Sale
                  of common stock at $2.per share (Note 7)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              28,500
              
              
              28Granted
                  common stock options (Note 7)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercised
                  stock options (Note 7)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              440,000
              
              
              440Sale
                  of preferred stock - series B (Note 7)
              
              
              -
              
              
              -
              
              
              50,000
              
              
              50
              
              
              -
              
              
              -Cancellation
                  of common stock (Note 7)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (250,000
              )
              
              (250
              )Preferred
                  stock dividends (Note 7)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Comprehensive
                  income (loss):Unrealized
                  investment gains
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Comprehensive
                  income (loss)**Balance
                December 31, 2006**
              
              
              386,208
              
              $
              386
              
              
              50,000
              
              $
              50
              
              
              6,049,212
              
              $
              6,049


**Additional**
              
              
              
              **Other****Paid-in**
              
              **Retained**
              
              **Comprehensive****Capital**
              
              **Deficit**
              
              **Income(Loss)**
              
              **Total****Balance
                  December 31, 2004**
              
              $
              924,312
              
              $
              (797,883
              )
              $
              1,292
              
              $
              133,129Sale
                of common stock at $.50 per share (Note 7)
              
              
              341,316
              
              
              -
              
              
              -
              
              
              342,000Exercised
                  stock options (Note 7)
              
              
              12,375
              
              
              -
              
              
              -
              
              
              12,500Preferred
                  stock dividends (Note 7)
              
              
              -
              
              
              (78,206
              )
              
              -
              
              
              (78,206
              )Comprehensive
                  income (loss):Unrealized
                  investment gains
              
              
              -
              
              
              -
              
              
              (2,893
              )
              
              (2,893
              )Net
                  loss
              
              
              -
              
              
              (325,741
              )
              
              -
              
              
              (325,741
              )Comprehensive
                  income (loss)
              
              
              
              
              
              
              
              
              
              
              
              (328,634
              )**Balance
                  December 31, 2005**
              
              
              1,278,003
              
              
              (1,201,830
              )
              
              (1,601
              )
              
              80,789Sale
                  of common stock at $2.per share (Note 7)
              
              
              56,972
              
              
              -
              
              
              -
              
              
              57,000Granted
                  common stock options (Note 7)
              
              
              148,830
              
              
              -
              
              
              -
              
              
              148,830Exercised
                  stock options (Note 7)
              
              
              43,560
              
              
              -
              
              
              -
              
              
              44,000Sale
                  of preferred stock - series B (Note 7)
              
              
              59,950
              
              
              -
              
              
              -
              
              
              60,000Cancellation
                  of common stock (Note 7)
              
              
              (24,750
              )
              
              -
              
              
              -
              
              
              (25,000
              )Preferred
                  stock dividends (Note 7)
              
              
              -
              
              
              (82,708
              )
              
              -
              
              
              (82,708
              )Comprehensive
                  income (loss):Unrealized
                  investment gains
              
              
              -
              
              
              -
              
              
              1,601
              
              
              1,601Net
                  loss
              
              
              -
              
              
              (364,767
              )
              
              -
              
              
              (364,767
              )Comprehensive
                  income (loss)
              
              
              
              
              
              
              
              
              
              
              
              (363,166
              )**Balance
                  December 31, 2006**
              
              $
              1,562,565
              
              $
              (1,649,305
              )
              $
              -
              
              $
              (80,255
              )




See
      accompanying notes to consolidated financial statements





F-5




**ST.
      JOSEPH, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOW**


**Year
                  Ended****December
                  31,****2006**
              
              **2005****OPERATING
                ACTIVITIES**Net
                  loss
              
              $
              (364,767
              )
              $
              (325,741
              )Adjustments
                  to reconcile net loss to net cashprovided
                  by operating activities:Depreciation
                  and amortization
              
              
              19,034
              
              
              20,842Stock
                  Option Compensation
              
              
              148,830
              
              
              -Gain
                  on marketable securities
              
              
              7,707
              
              
              (1,503
              )Loss
                  on goodwill impairment
              
              
              -
              
              
              47,624Changes
                  in operating assets and liabilities:Increase
                  (decrease) in accounts receivable:Trade
              
              
              78,565
              
              
              (171,637
              )Increase
                  in accounts payable andaccrued
                  liabilities
              
              
              37,730
              
              
              135,708**Net
                  cash used in operating activities**
              
              
              (72,901
              )
              
              (294,707
              )**INVESTING
                  ACTIVITIES**Sales
                  of marketable securities
              
              
              11,092
              
              
              2,480**Net
                  cash provided by investing activities**
              
              
              11,092
              
              
              2,480**FINANCING
                  ACTIVITIES**Proceeds
                  from line of credit
              
              
              -
              
              
              50,000Proceeds
                  from notes payable to related parties
              
              
              -
              
              
              381,400Payments
                  on notes payable to related parties (Note 2)
              
              
              (57,714
              )
              
              (369,566
              )Payments
                  on preferred stock dividends
              
              
              (82,708
              )
              
              (78,206
              )Proceeds
                  from exercised stock options
              
              
              44,000
              
              
              12,500Proceeds
                  from sale of common stock
              
              
              57,000
              
              
              342,000Proceeds
                  from sale of preferred stock
              
              
              60,000
              
              
              -**Net
                  cash provided by financing activities**
              
              
              20,578
              
              
              338,128Changes
                  on other comprehensive income
              
              
              1,601
              
              
              (2,893
              )**CHANGE
                  IN CASH**
              
              
              (39,630
              )
              
              43,008**CASH
                  AT BEGINNING OF YEAR**
              
              
              57,863
              
              
              14,855**CASH
                  AT END OF YEAR**
              
              $
              18,233
              
              $
              57,863**SUPPLEMENTAL
                  INFORMATION:**Cash
                  paid during the year for:Interest
              
              $
              29,663
              
              $
              28,585Income
                  tax
              
              $
              -
              
              $
              -




See
      accompanying notes to consolidated financial statements




F-6




**ST.
      JOSEPH, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
      the Years Ended December 31, 2006 and 2005**





**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.





Effective
      December 31, 2003, the Company entered into an Agreement of Exchange and
      Purchase and Sale with Staf*Tek Services, Inc. ("Staf*Tek"), an Oklahoma
      corporation. Staf*Tek specializes in the recruitment and placement of
      professional data processing and technical personnel for clients on both a
      permanent and contract basis.





Principles
      of Consolidation





The
      consolidated financial statements for the years ended December 31, 2006 and
      2005
      included in this report include the activities of St. Joseph, Inc. and its
      wholly-owned subsidiary, Staf*Tek. All significant intercompany balances and
      transactions have been eliminated in consolidation.





Going
      Concern





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and satisfaction of liabilities
      in
      the normal course of business. As shown in the accompanying financial
      statements, the Company has incurred recurring losses and has negative working
      capital and a net capital deficiency at December 31, 2006. 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,
      2006.





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


F-7


**ST.
      JOSEPH, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
      the Years Ended December 31, 2006 and 2005**





Securities
      Available-for-sale





The
      Company has evaluated its investments policies consistent with Statement of
      Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
      Investments in Debt and Equity Securities," and determined that all of its
      investment securities are to be classified as available-for-sale securities.
      Available-for-sale securities are carried at fair value, with unrealized gains
      and losses reported in shareholders' equity under the caption "Accumulated
      Other
      Comprehensive Income/(Loss)." Realized gains and losses and declines in value
      judged to be other-than-temporary on available-for-sale securities are included
      in operating expenses. The cost of securities sold is based on the specific
      identification method. Interest and dividends on securities classified as
      available-for-sale are included in investment income.





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. As of December 31, 2006, management believes no allowance for
      uncollectible accounts is necessary.





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
                yearsOffice equipment
            
            5
                yearsComputer equipment
            
            3
                years




Leasehold
      improvements are depreciated over the estimated useful lives of the improvements
      or the term of the lease, whichever is shorter.





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.





Goodwill
      and Impairment





Goodwill
      of $306,149 was recorded as part of the acquisition of Staf*Tek on December
      31,
      2003. In accordance with Statements of Financial Accounting Standard ("SFAS")
      No. 142, goodwill is not amortized but is tested for impairment. The Company
      tests its goodwill for impairment annually at the end of each accounting
      period.





The
      Company tested its goodwill for impairment using the two-step process prescribed
      in SFAS No. 142. The first step is a screen for potential impairment, while
      the
      second step measures the amount of the impairment, if any. The Company performed
      the impairment test at December 31, 2005 and determined that there was potential
      impairment of the goodwill. The Company performed the second step as of and
      determined that the goodwill balance of $306,149 was impaired. An impairment
      loss of $47,624 was recorded in the accompanying consolidated financial
      statements for the year ended December 31, 2005. The remaining goodwill balance
      at December 31, 2005 was $258,525.





The
      Company tested its goodwill for impairment as of December 31, 2006 using the
      two-step process and determined that the goodwill balance of $258,525 was not
      impaired.


F-8


**ST.
      JOSEPH, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
      the Years Ended December 31, 2006 and 2005**





Impairment
      and Disposal of Long-lived Assets





The
      Company evaluates the carrying value of its long-lived assets under the
      provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of
      Long-Lived Assets". Statement No. 144 requires impairment losses to be recorded
      on long-lived assets used in operations when indicators of impairment are
      present and 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. No SFAS NO. 144 impairments have been recorded for the years
      ended December 31, 2006 and 2005.





Revenue
      Recognition





Staffing
      service revenues are recognized when the services are rendered by the Company's
      contract employees and collection is probable. Permanent placement revenues
      are
      recognized when employment candidates accept offers of permanent
      employment.





Direct
      Costs of Services





Direct
      costs of staffing services consist of payroll, payroll taxes, contract labor,
      and insurance costs for the Company's contract employees. There are no direct
      costs associated with permanent placement staffing services.





Advertising
      Costs





The
      Company expenses all advertising as incurred. The Company incurred advertising
      costs totaling$3,413 and $8,895 for the years ended December 31, 2006 and 2005,
      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, 2006 were not included in the diluted loss per share as all 436,208
      preferred shares and all 760,000 options were anti-dilutive. Therefore, basic
      and diluted losses per share at December 31, 2006 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-9


**ST.
      JOSEPH, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
      the Years Ended December 31, 2006 and 2005**





Stock-Based
      Compensation:




On
      January 1, 2006, the Company adopted SFAS 123 (revised 2004), *Share-Based
      Payment* (“SFAS
      123(R)”), which requires the measurement and recognition of compensation expense
      for all share-based awards made to employees and directors, including employee
      stock options and shares issued through its employee stock purchase plan, based
      on estimated fair values. In March 2005, the Securities and Exchange Commission
      issued Staff Accounting Bulletin 107 (“SAB 107”) relating to SFAS 123(R). The
      Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
      The Company adopted SFAS 123(R) using the modified prospective transition
      method, which requires the application of the accounting standard as of the
      beginning in 2006. The Company’s financial statements as of and for the year
      ended December 31, 2006 reflect the impact of SFAS 123(R). In accordance
      with the modified prospective transition method, the Company’s financial
      statements for prior periods do not include the impact of SFAS
      123(R).




Stock
      compensation expense recognized during the period is based on the value of
      share-based awards that are expected to vest during the period. Stock
      compensation expense in 2006 includes compensation expense for the share-based
      awards granted subsequent to January 1, 2006 based on the grant date fair
      value estimated in accordance with the provisions of SFAS 123(R). 2006 stock
      compensation also includes expense for the share-based awards granted prior
      to
      January 1, 2006, but vested subsequent to January 1, 2006, based on the
      grant date fair value estimated in accordance with the provisions of SFAS
      123(R). As stock compensation expense recognized in the statement of operations
      is based on awards ultimately expected to vest, it has not been reduced for
      estimated forfeitures because they are estimated to be negligible. SFAS 123(R)
      requires forfeitures to be estimated at the time of grant and revised, if
      necessary, in subsequent periods if actual forfeitures differ from those
      estimates.




The
      Company’s determination of estimated fair value of share-based awards utilizes
      the Black-Scholes option-pricing model. The Black-Scholes model is affected
      by
      the Company’s stock price as well as assumptions regarding certain highly
      complex and subjective variables. These variables include, but are not limited
      to; the Company’s expected stock price volatility over the term of the awards
      and actual and projected employee stock option exercise behaviors.





Prior
      to
      the adoption of SFAS 123(R), The Company accounted for stock-based awards to
      employees and directors using the intrinsic value method in accordance with
      Accounting Principles Board Opinion 25, *Accounting
      for Stock Issued to Employees* (“APB
      25”). Under the intrinsic value method that was used to account for stock-based
      awards prior to January 1, 2006, which had been allowed under the original
      provisions of SFAS 123, compensation expense is recorded on the date of grant
      if
      the current market price of the underlying stock exceeded the exercise price.





Use
      of
      Estimates





The
      preparation of the consolidated financial statements in conformity with
      generally accepted accounting principals requires management to make estimates
      and assumptions that affect certain reported amounts of assets and liabilities;
      disclosure of contingent assets and liabilities at the date of the consolidated
      financial statements; and the reported amounts of revenues and expenses during
      the reporting period. Accordingly, actual results could differ from those
      estimates.





Recent
      Accounting Pronouncements





In
      February 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 155 (SFAS 155), Accounting for Certain
      Hybrid Financial Instruments- an amendment of FASB Statements No. 133 and No.
      140. This Statement resolves issues addressed in Statement 133 Implementation
      Issue No. D1, “Application of Statement 133 to Beneficial Interests in
      Securitized Financial Assets.” This Statement is effective for all financial
      instruments acquired or issued after the beginning of an entity’s first fiscal
      year that begins after September 15, 2006. The fair value election provided
      for
      in paragraph 4(c) of this Statement may also be applied upon adoption of this
      Statement for hybrid financial instruments that had been bifurcated under
      paragraph 12 of Statement 133 prior to the adoption of this Statement. The
      adoption of SFAS 155 is expected to affect the recording of future convertible
      debt. The Company has not revalued any previously issued financial
      instruments.




F-10




**ST.
      JOSEPH, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
      the Years Ended December 31, 2006 and 2005**





In
      March
      2006, the Financial Accounting Standards Board issued Statement of Financial
      Accounting Standards No. 156 (“SFAS 156”), Accounting for Servicing of
      Financial Assets—an amendment of FASB Statement No. 140, which requires an
      entity to recognize a servicing asset or servicing liability each time it
      undertakes an obligation to service a financial asset by entering into a
      servicing contract under certain circumstances. The Company does not expect
      the
      adoption of FIN 48 to materially impact its financial position or results of
      operations.





In
      July
      2006, the Financial Accounting Standards Board issued Interpretation No. 48
      (“FIN 48”), Accounting for Uncertainty in Income Taxes, which clarifies the
      accounting for uncertainty in income taxes recognized in an enterprise’s
      financial statements in accordance with FASB Statement No. 109, Accounting
      for Income Taxes. FIN 48 provides guidance on the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosures, and
      transition. FIN 48 is effective for fiscal years beginning after
      December 15, 2006. The Company does not expect the adoption of FIN 48 to
      materially impact its financial position or results of operations.





In
      September 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 157 (“SFAS 157”), Fair Value
      Measurements. SFAS 157 clarifies the principle that fair value should be based
      on the assumptions market participants would use when pricing an asset or
      liability and establishes a fair value hierarchy that prioritizes the
      information used to develop those assumptions. Under the standard, fair value
      measurements would be separately disclosed by level within the fair value
      hierarchy. SFAS 157 is effective for financial statements issued for fiscal
      years beginning after November 15, 2007 and interim periods within those
      fiscal years, with early adoption permitted. The Company does not expect the
      adoption of SFAS 157 to materially impact its financial position or results
      of
      operations.





In
      February 2007, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 159 (“SFAS 159”), The Fair Value Option
      for Financial Assets and Financial Liabilities—Including an amendment of FASB
      Statement No. 115. This Statement permits entities to choose to measure many
      financial instruments and certain other items at fair value. The objective
      is to
      improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions. This Statement is expected to expand the use of fair value
      measurement, which is consistent with the Board’s long-term measurement
      objectives for accounting for financial instruments. SFAS 157 is effective
      for
      financial statements issued for fiscal years beginning after November 15,
      2007. The Company has not determined the affect of adopting this
      standard.





**NOTE
      2 - RELATED PARTY TRANSACTIONS**





On
      December 28, 2006, an officer loaned the Company $25,000 for working capital
      in
      exchange for a promissory note. The note matures on June 30, 2007 and includes
      a
      $2,000 fixed interest payment at maturity.





On
      November 1, 2006, a shareholder advanced the Company $2,000 for working capital
      in exchange for a promissory note. The Company had not repaid the note prior
      to
      December 31, 2006. The note matures June 1, 2007 and has been paid off as of
      March 31, 2007.





In
      June
      of 2005, the Company issued a promissory note in the amount of $96,000 to an
      individual who was, at the time, an officer of the Company. This note replaced
      and superseded a promissory note that the Company issued to this individual
      in
      December of 2003 when the individual was an officer of the Company. The note
      carries a ten percent interest rate, payable quarterly and matured on June
      16,
      2006. During the year ended December 31, 2006, the principal balance was reduced
      for payments and expenses paid by the Company on behalf of this individual
      totaling $47,880, decreasing the principal balance to $48,120. Accrued interest
      expense on the note totaled $2,406 at December 31, 2006. Interest expense on
      the
      note totaled $4,806 and $9,400 for the years ended December 31, 2006 and 2005,
      respectively. Under the terms of the note, the Company is currently in default
      of the note. In the event that this individual decides to institute legal
      proceeding to collect this note and prevails, the Company will have to pay
      this
      individual his court costs, including reasonable attorneys’ fees. However, the
      Company believes that the amount owed to this individual on the note is fully
      or
      partially offset by sums owed to it in connection with expense reimbursements
      that were paid to this individual while he was an officer of the Company and
      to
      which management believes he may not have the rights.





F-11




**ST.
      JOSEPH, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
      the Years Ended December 31, 2006 and 2005**








The
      Company has not yet determined the amount that it is entitled to from this
      individual and amounts are presently under review by the audit
      committee.





On
      January 5, 2006, a shareholder advanced the Company $40,000 for working capital.
      The Company repaid the advance on January 31, 2006. During the year ended
      December 31, 2005, this shareholder also advanced the Company a total of
      $255,000 for working capital in exchange for various promissory notes. The
      Company repaid the notes and $1,918 of related interest expense prior to
      December 31, 2005.





In
      January of 2005, a shareholder advanced the Company $37,000 for working capital
      in exchange for a promissory note. The Company repaid the note prior to December
      31, 2005.





During
      the year ended December 31, 2005, an employee advanced the Company $51,900
      for
      working capital in exchange for promissory notes, of which $11,834 remained
      unpaid as of December 31, 2005. The Company repaid the $11,834 during 2006.





**NOTE
      3 - PROPERTY AND EQUIPMENT**





Property
      and equipment consisted of the following at December 31, 2006:


Furniture
                  and fixtures
              
              $
              35,447Office
                  equipment
              
              
              88,295Computer
                  equipment
              
              
              35,155Leasehold
                  improvements
              
              
              19,585Total
                  property and equipment
              
              
              178,482Less
                  accumulated depreciation
              
              
              (175,383
              )Property
                  and equipment, net
              
              $
              3,099





Depreciation
      expense totaled $19,034 and $20,842, respectively, for the years ended December
      31, 2006 and 2005.





**NOTE
      4 - LINE OF CREDIT**





The
      Company has a $200,000 line of credit and the entire balance was unpaid and
      outstanding at December 31, 2006. The interest rate on the credit line was
      8.25
      percent at December 31, 2006. Interest payments are due monthly. The note
      matures April 5, 2007.





**NOTE
      5 - CONCENTRATION OF CREDIT RISK**





The
      Company conducts a significant portion of its operations with one customer.
      During the year ended December 31, 2006, approximately 81 percent of the
      Company's service revenues were conducted with this one customer. During the
      year ended December 31, 2005, approximately 87 percent of the Company's service
      revenues were conducted with two customers.


F-12


**ST.
      JOSEPH, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
      the Years Ended December 31, 2006 and 2005**








**NOTE
      6 - INCOME TAXES**





A
      reconciliation of U.S. statutory federal income tax rate to the effective rate
      is as follows:


Years
                  EndedDecember
                  31,2006
              
              2005U.S.
                  Federal statutory rate
              
              
              33.93
              %
              
              33.36
              %State
                  income tax, net of federal benefit
              
              
              3.96
              %
              
              4.06
              %Permanent
                  book-to-tax differences
              
              
              -1.41
              %
              
              -1.15
              %Net
                  operating loss for which no taxbenefit
                  is currently available
              
              
              -36.48
              %
              
              -36.21
              %0.00
              %
              
              0.00
              %





At
      December 31, 2005, the Company's current tax benefit consisted of a net tax
      asset of $490,564, due to operating loss carryforwards of approximately
      $1,367,384, which was fully allowed for, in the valuation allowance of $490,564.
      The valuation allowance results in deferred tax expense, which offsets the
      net
      deferred tax asset for which there is no assurance of recovery. The changes
      in
      the valuation allowance for the years ended December 31, 2006 and 2005 were
      $133,058 and $117,945, respectively. Net operating loss carry forwards will
      expire through 2026.





The
      valuation allowance will be evaluated at the end of each year, considering
      positive and negative evidence about whether the asset will be realized. At
      that
      time, the allowance will either be increased or reduced; reduction could result
      in the complete elimination of the allowance if positive evidence indicates
      that
      the value of the deferred tax asset is no longer impaired and the allowance
      is
      no longer required.





Should
      the Company undergo an ownership change, as defined in Section 382 of the
      Internal Revenue Code, the Company's tax net operating loss carry forwards
      generated prior to the ownership change will be subject to an annual limitation,
      which could reduce or defer the utilization of those losses.





**NOTE
      7 - SHAREHOLDERS' EQUITY**




Preferred
      Stock





During
      the year ended December 31, 2006, the Company did not issue any Series A
      Convertible Preferred Stock. The Board of Directors is authorized to issue
      shares of Series A Convertible Preferred Stock and to fix the number of shares
      in such series as well as the designation, relative rights, powers, preferences,
      restrictions, and limitations of all such series. In December 2003, the Company
      issued 386,208 shares of Series A Convertible Preferred Stock that remain
      outstanding at December 31, 2006. Each share of Series A Convertible Preferred
      Stock is convertible to one share of common stock and has a yield of 6.75%
      dividend per annum, which is paid quarterly on a calendar basis for a period
      of
      5 years. The Company paid $78,207 ($0.20/share) in Series A Convertible
      Preferred Stock dividends during the year ended December 31, 2006.


F-13


**ST.
      JOSEPH, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
      the Years Ended December 31, 2006 and 2005**





During
      the year ended December 31, 2006, the Company authorized the issuance of up
      to
      150,000 shares of Series B Convertible Preferred Stock. During the year ended
      December 31, 2006, the Company sold 50,000 shares of Series B Convertible
      Preferred Stock that remains outstanding at December 31, 2006. Each share of
      Series B Convertible Preferred Stock is convertible to one share of common
      stock
      and has a yield of 15% dividend per annum, which is paid monthly on a calendar
      basis for a period of 18 months. The Company has paid $4,500 ($0.09/share)
      in
      preferred stock dividends during the years ended December 31, 2006.





Common
      Stock





During
      the year ended December 31, 2006, the Company sold 28,500 shares of its common
      stock at $2.00 per share pursuant to the exemptions afforded by Section 4(2)
      of
      the Securities Act of 1933, as amended. The Company received gross proceeds
      of
      $57,000 from such sales.





Equity
      Awards Granted to Employees





On
      August
      24, 2006, the Company granted options to ten employees and directors to purchase
      410,000 shares of the Company’s common stock at an exercise price of $1.05 per
      share. The options vested on the date of grant. The Company’s common stock had a
      traded market value of $1.05 on the grant date. The weighted average exercise
      price and weighted average fair value of these options on the date of grant
      were
      $1.05 and $.363, respectively. Stock option compensation totaling $148,830
      has
      been recognized in the accompanying consolidated financial statements related
      to
      these options.





On
      January 1, 2006, the Company adopted SFAS 123(R), which requires the
      measurement and recognition of compensation expense for all share-based awards
      made to employees and directors, including employee stock options, based on
      estimated fair values. The $148,830 of stock option compensation resulted from
      the implementation of SFAS 123(R).





The
      fair
      value for the options granted during the year ended December 31, 2006 was
      estimated at the date of grant using the Black-Scholes option-pricing model
      with
      the following assumptions:


Risk-free
                  interest rate
              
              
              
              
              
              4.78
              %Dividend
                  yield
              
              
              .
              
              
              0.00
              %Volatility
                  factor
              
              
              
              
              
              29.02
              %Weighted
                  average expected life
              
              
              
              
              
              5 years





The
      following schedule summarizes the changes in the Company’s equity awards for the
      years ended December 31, 2006 and 2005:


Weighted
              
              WeightedAwards
              
              
              
              Average
              
              AverageOutstanding
              
              Exercise
              
              Exercise
              
              Remaining
              
              Aggregateand
              
              Price
              
              Price
              
              Contractual
              
              IntrinsicExercisable
              
              Per
                  Share
              
              Per
                  Share
              
              Life
              
              ValueOutstanding
                at January 1, 2005
              
              
              2,625,000
              
              $
              0.10
              
              $
              0.10Granted
              
              
              -
              
              $
              0.10
              
              $
              0.10Exercised
              
              
              (125,000
              )
              $
              0.10
              
              $
              0.10Cancelled/Expired
              
              
              -
              
              $
              0.10
              
              $
              0.10Outstanding
                at December 31, 2005
              
              
              2,500,000
              
              $
              0.10
              
              $
              0.10Granted
              
              
              410,000
              
              $
              1.05
              
              $
              1.05Exercised
              
              
              (440,000
              )
              $
              0.10
              
              $
              0.10Cancelled/Expired
              
              
              (1,710,000
              )
              $
              0.10
              
              $
              0.10Outstanding
                at December 31, 2006
              
              
              760,000
              
              $
              0.10
                  - 1.05
              
              $
              0.61
              
              
              3.1
                  years
              
              $
              218,500


F-14





**ST.
      JOSEPH, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
      the Years Ended December 31, 2006 and 2005**





All
      equity awards were fully vested as of December 31, 2006.





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.





Had
      compensation expense been recorded based on the fair value at the grant date,
      and charged to expense over vesting periods, consistent with the provisions
      of
      SFAS 123, the Company's net loss and net loss per share would have increased
      to
      the pro forma amounts indicated below:


December
                  31,2006
              
              2005Net
                  loss-common shareholders, as reported
              
              $
              (447,475
              )
              $
              (403,947
              )Decrease
                  due to:Employee
                  stock options
              
              
              —
              
              
              —Pro
                  forma net loss
              
              $
              (447,475
              )
              $
              (403,947
              )As
                  reported:Net
                  loss per share - basic and diluted
              
              $
              (0.07
              )
              $
              (0.08
              )Pro
                  Forma:Net
                  loss per share - basic and diluted
              
              $
              (0.07
              )
              $
              (0.08
              )


Cancellation
      of Stock Options





Between
      October 28, 2003 and March 23, 2004, the Board of Directors approved the grant
      of stock options to seven individuals who were then directors of the Company
      (each, an “Optionee”) in consideration for services provided to the Company as
      directors. Each option was exercisable immediately at the exercise price of
      $0.10 per share and expires on the tenth day after an Optionee’s removal from
      the Board of Directors for reasons other than for a voluntary resignation.
      The
      Board of Directors approved the issuance of an aggregate of 2,600,000 options
      to
      the Company’s then directors, with each director receiving 100,000 options, with
      the sole exception of John Simmons, our former President and director, who
      received 2,000,000 options, or 2,000% more the other directors.




As
      disclosed in the Current Report on Form 8-K filed by the Company on August
      30,
      2006, at the annual meeting of the Board of Directors on August 24, 2006, the
      Company’s directors reviewed the above options previously granted by the Board
      of Directors between October 28, 2003 and March 23, 2004. After careful and
      exhaustive deliberation, the directors concluded that the options granted to
      Mr.
      Simmons as consideration for providing the same directorial services as the
      other Optionees was not fair and reasonable to the shareholders. Specifically,
      the Board of Directors concluded that the amount of options granted to Mr.
      Simmons was unduly excessive, unreasonable, and unfair to the shareholders.
      Therefore, the Board of Directors resolved to void 1,900,000 of the options
      previously granted to Mr. Simmons.


F-15


**ST.
      JOSEPH, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
      the Years Ended December 31, 2006 and 2005**





In
      connection with the cancellation of the options previously granted to Mr.
      Simmons, the Board of Directors cancelled 250,000 shares of common stock that
      were previously issued to Mr. Simmons pursuant to the exercise of these now
      cancelled options. As of December 31, 2006, the Company had not refunded the
      $25,000 received from Mr. Simmons to exercise the stock options. The $25,000
      liability is included in the accompanying consolidated financial statements
      as
      Due to former officer.





The
      Board
      of Directors concluded that the grant of 100,000 options to each Optionee was
      fair and reasonable, and accordingly ratified the issuance of 100,000 options
      to
      each Optionee, including Mr. Simmons. To the extent that the issuance of the
      1,900,000 options which have been voided by resolution of the Board of Directors
      is deemed fair, the Company may have a contingent liability for cancelling
      Mr.
      Simmons’ 1,900,000 options.





**NOTE
      8 - OFFICE LEASE**





The
      Company has entered into a noncancellable lease agreement for its corporate
      office space. The lease commenced May 1, 2004 and expires April 30, 2007. Future
      minimum lease payments under the leases are as follows:


December
                  31,2007
              
              $
              15,479


Rent
      expense for the years ended December 31, 2006 and 2005 totaled $50,082 and
      $50,353, respectively.





**NOTE
      9 - LEGAL PROCEEDINGS**





On
      July
      28, 2006, Zachary Karo, a former employee, filed a lawsuit against the Company
      and its subsidiary Staf*Tek Services, Inc. in the district court in Tulsa
      County, Oklahoma, Case No. CJ 2006 04713, in connection with stock options
      allegedly granted to Mr. Karo. Mr. Karo alleges that he was granted an option
      to
      purchase up to 25,000 shares of the Company’s common stock at $0.10 per share
      but that management refused to issue Mr. Karo such shares upon his exercise
      of
      the alleged option. Mr. Karo is seeking damages, actual and exemplary, against
      the Company in an amount in excess of $10,000. Management denies that Mr. Karo
      was owed such stock options. The Company has engaged local counsel and intends
      to vigorously defend this action on the basis brought by the plaintiffs. The
      Company filed a motion to dismiss this action and the motion was heard and
      denied on December 15, 2006. The parties to this action are currently engaged
      in
      the discovery process. The costs of defending against the complaint could be
      substantial; however management is unable to estimate an amount at this
      time.





F-16