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EX-32.1 - Corporate Resource Services, Inc.v169913_ex32-1.htm
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EX-32.2 - Corporate Resource Services, Inc.v169913_ex32-2.htm
EX-31.2 - Corporate Resource Services, Inc.v169913_ex31-2.htm
EX-10.49 - Corporate Resource Services, Inc.v169913_ex10-49.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-K

x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the fiscal year ended September 30, 2009
   
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-30734

ACCOUNTABILITIES, INC.
(Exact name of Registrant as specified in its charter)

Delaware
 
11-3255619
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
160 Broadway, 11th Floor
New York, New York 10038
(Address of principal executive offices)
     
(646) 443-2380
(Registrant’s telephone number, including area code)
     
Securities registered under Section 12(b) of the Exchange Act:   Not Applicable
     
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.0001 par value
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o  No x.
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o  No x.
 
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o
 
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
Accelerated filer ¨
 
Non-accelerated filer ¨
Smaller Reporting Company x
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No x.
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the last sale price of such stock as reported by the “OTC Bulletin Board” as of March 31, 2009, was $1,243,000 based upon 6,544,000 shares held by non-affiliates.
 
The number of shares of Common Stock, $.0001 par value, outstanding as of December 14, 2009 was 23,663,000.
 


 
 

 

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.  These statements relate to future economic performance, plans and objectives of management for future operations and projections of revenue and other financial items that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management.  The words “expect”, “estimate”, “anticipate”, “believe”, “intend”, and similar expressions are intended to identify forward-looking statements.  Such statements involve assumptions, uncertainties and risks.  If one or more of these risks or uncertainties materialize or underlying assumptions prove incorrect, actual outcomes may vary materially from those anticipated, estimated or expected.  Among the key factors that may have a direct bearing on our expected operating results, performance or financial condition are economic conditions facing the staffing industry generally; uncertainties related to the job market and our ability to attract qualified candidates; uncertainties associated with our brief operating history; our ability to raise additional capital; our ability to achieve and manage growth; our ability to attract and retain qualified personnel; our ability to develop new services; our ability to open new offices; general economic conditions; the continued cooperation of our creditors; our ability to diversify our client base; and other factors discussed in Item 1A of this Annual Report under the caption “Risk Factors” and from time to time in our filings with the Securities and Exchange Commission.  These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business.  The following discussion and analysis should be read in conjunction with the Financial Statements and notes appearing elsewhere in this Annual Report. In this Annual Report on Form 10-K, references to “Accountabilities”, “the Company”, “we”, “us” and “our” refer to Accountabilities, Inc. and its subsidiaries.
 
 
 

 

ACCOUNTABILITIES, INC.
FORM 10-K
 
Table of Contents
 
PART I
   
ITEM 1.
BUSINESS
1
ITEM 1A.
RISK FACTORS
3
ITEM 1B.
UNRESOLVED STAFF COMMENTS
7
ITEM 2.
PROPERTIES
7
ITEM 3.
LEGAL PROCEEDINGS
7
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
8
     
PART II
   
ITEM 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
9
ITEM 6.
SELECTED FINANCIAL DATA
10
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
11
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
20
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
20
ITEM 9A(T).
CONTROLS AND PROCEDURES
20
ITEM 9B.
OTHER INFORMATION
21
     
PART III
   
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
22
ITEM 11.
EXECUTIVE COMPENSATION
23
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
29
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
30
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
31
     
PART IV
   
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
32
     
INDEX TO FINANCIAL STATEMENTS
F-1

 
 

 

PART I
 
ITEM 1.
BUSINESS
 
Overview
 
We are a national provider of diversified staffing, recruiting and consulting services, including temporary staffing services, with a focus on light industrial services and administrative support. We provide our services across a variety of industries and to a diverse range of clients ranging from sole proprietorships to Fortune 1000 companies.
 
Light industrial services include assignments for warehouse work (such as general laborers, stock clerks, material handlers, order pickers, forklift operators and shipping/receiving clerks), manufacturing work (including production, assembly and support workers, merchandise packers and machine operators), general services (such as maintenance and repair personnel, janitors and food service workers) and distribution.
 
Administrative support services include placements satisfying a range of general business needs including data entry processors, customer service representatives, receptionists and general office personnel.
 
In addition to light industrial and administrative staffing services we also provide engineers, lab technicians and scientists to companies such as pharmaceutical companies and utilities.
 
These service offerings have grown largely through the acquisition of established offices from general staffing companies, such as that of ReStaff Services, Inc. (“ReStaff”) as explained in more detail elsewhere in this document.
 
Discontinued Operations
 
In addition to our light industrial and clerical service offerings, we historically have provided professional accounting and finance consulting and staffing services through both our CPA Partner on Premise Program and directly to clients.
 
In April 2009, we discontinued our CPA Partner on Premise Program service offering, which provided finance and accounting staffing and recruiting services through sales and marketing agreements with regional public accounting firms. The Company reached its conclusion to exit this service offering after reviewing the historical operating performance and future prospects of these services and the likely need for continued capital to support ongoing losses. As a result, the CPA Partner on Premise Program is classified as discontinued operations for all periods presented in the accompanying financial statements.
 
Also during fiscal 2009, we considered alternatives to continuing the operations associated with the provision of accounting services offered directly to clients and restructured these operations through the elimination of non-profitable offices and reorganizing leadership. In the first quarter of fiscal 2010, in an effort to focus management’s efforts, as well as the company’s capital more directly on our light industrial and administrative service offerings, we discontinued these remaining accounting and finance operations. Accordingly, beginning with the financial statements issued for the first quarter of fiscal 2010, ending December 31, 2010, the operations associated with the direct provision of accounting and finance services will be reported as discontinued operations for all prior periods presented.
 
We maintain our headquarters at 160 Broadway, New York, New York 10038 and our phone number is (646) 443-2380.
 
Organization
 
Management of our staffing and consulting services operations is coordinated from our headquarters in New York, New York, which provides support and centralized services to our offices in the administrative, marketing, public relations, accounting and training areas. As of September 30, 2009, we conducted our operations through 13 offices in 6 states: New Jersey, Connecticut, Florida, Colorado, Virginia and California.
 
Competition
 
Our professional staffing services face competition in attracting clients as well as skilled specialized employment candidates. In providing professional staffing services, we operate in a competitive, fragmented market and compete for clients and associates with a variety of organizations that offer similar services. Our principal competitors include:
 
·
traditional and Internet-based staffing firms and their specialized divisions;
 
 
1

 
 
·
the in-house resources of our clients; and
 
·
independent contractors.
 
We compete for clients on the basis of the quality of professionals, the timely availability of professionals with requisite skills, the scope and price of services, and the geographic reach of services. Although we believe we compete favorably with our competitors, many of our competitors have significantly greater financial resources, generate greater revenues and have greater name recognition than we do.
 
The general temporary staffing industry is highly competitive with few barriers to entry. We believe that the majority of companies offering these services are local, full-service or specialized operations with less than five offices. Within local markets, typically no single company has a dominant share of the market. We also compete for qualified candidates and customers with larger, national full-service and specialized competitors in local, regional, national and international markets. Competitors offering general temporary staffing services nationally, similar to ours, include companies such as Adecco SA, Spherion Corporation (commercial staffing segment), Kelly Services, Inc., Manpower Inc., Remedy Intelligent Staffing, Express Personnel Services, Inc., and Randstad North America. Many of our principal competitors have greater financial, marketing and other resources than us. In addition, there are a number of medium-sized firms which compete with us in certain markets where they may have a stronger presence, such as regional or specialized markets.
 
We believe that the competitive factors in obtaining and retaining customers include understanding customers’ specific job requirements, providing qualified temporary personnel and permanent placement candidates in a timely manner, monitoring quality of job performance and pricing of services. We believe that the primary competitive factors in obtaining qualified candidates for temporary employment assignments are wages, benefits and flexibility and responsiveness of work schedules.
 
Employees
 
We have approximately 62 full-time staff employees. We placed approximately 9,575 employees on temporary assignments with clients during the fiscal year ended September 30, 2009. All but approximately one employee on temporary assignment and all but approximately 13 full time employees are provided to us under an employee leasing arrangement with Tri-State Employment Services, Inc. (“TSE”) which is the statutory employer and which arranges for workers compensation insurance coverage for the employees. This arrangement allows us to mitigate certain insurance risks and obtain employee benefits at more advantageous rates. Employees are leased from TSE at agreed upon rates which are dependent upon the individual employee’s compensation structure. Our agreement had an initial term of one year which expired in January, 2007. Under the agreement, we are responsible for the hiring, termination, compensation structure, management, supervision and otherwise overall performance and day-to-day duties of the leased employees. We have continued the arrangement with TSE on the same terms contained in the original agreement. Either party may terminate the arrangement at any time. As of September 30, 2009, TSE was the beneficial owner with its affiliates of approximately 57% of our outstanding common stock.
 
Company History
 
The following summarizes certain recent developments with respect to our corporate history:
 
 
·
In February 2007, Accountabilities acquired substantially all of the business and assets of ReStaff, a staffing company, for a total adjusted purchase price of $2,928,000.
 
 
·
In fiscal 2009, TSE obtained control through beneficial ownership with its affiliates of approximately 57% of the outstanding shares of Accountabilities through a series of stock purchases.
 
 
·
In the third quarter of 2009, and first quarter of 2010, we discontinued our CPA Partner on Premise Program and Direct Professional Accounting Service Offerings, respectively, both of which related to the provision of accounting related services. We made these decisions in order to focus more extensively on our light industrial related service offerings and after reviewing the historical operating losses of these operations.
 
 
·
In addition, in December 2009, the Board of Directors approved a reorganization of the Company into a holding company structure, whereby the Company will become a wholly-owned subsidiary of a holding company. As of the date of this Annual Report on Form 10-K, this reorganization has not occurred. Stockholders of the Company will receive shares of the holding company and will not be affected by this reorganization.
 
 
2

 
 
ITEM 1A.
RISK FACTORS
 
We have significant working capital requirements and have historically been heavily reliant upon the issuance of debt, including debt from related parties, to meet these working capital requirements. Historically, we have experienced negative working capital.
 
Historically, we have experienced negative working capital balances, and as of September 30, 2009 and September 30, 2008 we had negative working capital of ($2,732,000) and ($2,389,000), respectively.
 
We require significant amounts of working capital to operate our business and to pay expenses relating to employment of temporary employees. Temporary personnel are generally paid on a weekly basis while payments from customers are generally received 30 to 60 days after billing. As a result, we must maintain sufficient cash availability to pay temporary personnel prior to receiving payment from customers. We finance our operations primarily through sales of our receivables to a financial institution, issuance of debt, including debt issued to related parties, and through cash generated by operating activities.
 
Under the terms of our receivable sale agreement the maximum amount of trade receivables that can be sold is $8,000,000, for which the purchaser advances 90% of the assigned receivables’ value upon sale, and 10% upon final collection. As collections reduce previously sold receivables, we may replenish these with new receivables. The risk we bear from bad debt losses on trade receivables sold is retained by us and receivables sold which become greater than 90 days old can be charged back to us by the purchaser. Any such increase in trade receivables older than 90 days and charged back would decrease amounts available for working capital purposes and could have an adverse effect on our liquidity and financial condition.
 
As of September 30, 2009, we owed $705,000 under promissory notes that are past due or which are due upon demand, $421,000 of which is due to related parties. As of the filing date of this report we have been unable to secure forbearance agreements and have no assurance that these debt holders will not declare these instruments in default and exercise their rights and remedies, including declaring all unpaid amounts, including interest, immediately due and payable.
 
We have, in the past, been required to aggressively manage our cash to ensure adequate funds to meet working capital requirements and to service debt. Such steps included working to improve collections and adjusting the timing of cash expenditures, reducing operating expenses where feasible and working to generate cash from a variety of other sources.
 
We have historically experienced periods of negative cash flow from operations and investment activities. Any such increase or sustained negative cash flows would decrease amounts available for working capital purposes and could have an adverse effect on our liquidity and financial condition.
 
There is no assurance that we will generate the necessary net income or operating cash flows to pay our debt as it becomes due or meet the funding needs of our business in the future due to a variety of factors, including the cyclical nature of the staffing industry and the other factors discussed in this “Risk Factors” section of this Annual Report on Form 10-K. If we are unable to do so, our liquidity would be adversely affected and we would consider taking a variety of actions, including: attempting to reduce fixed costs (for example, further reducing the size of our administrative work force), curtailing or reducing planned capital additions, raising additional equity, borrowing additional funds, refinancing existing indebtedness or taking other actions. There can be no assurance, however, that we will be able to successfully take any of these actions, including adjusting expenses sufficiently or in a timely manner, or raising additional equity, increasing borrowings or completing refinancing on any terms or on terms that are acceptable to us. Our inability to take these actions as and when necessary would materially adversely affect our liquidity, results of operations and financial condition.
 
If our receivables sale agreement is terminated, we may be unable to secure an alternate arrangement on comparable terms and our business could suffer.
 
Our receivable sale agreement may be terminated by the financial institution at any time in the discretion of the financial institution, which has broad latitude in determining to so terminate. In the event of such termination, our operations and working capital would be negatively impacted. In addition, we may be unable to secure an alternative arrangement, or any alternative arrangement we may be able to secure could include terms and conditions less favorable to us than under our current receivable sale agreement. Finding such an alternative arrangement may be difficult given the current economic climate and the reduction in the number of entities willing to enter into such an arrangement. This could adversely affect our ability to secure sufficient working capital to operate our business and to pay expenses relating to employment of temporary employees.
 
 
3

 
 
If we fail to execute our acquisitions or investments, our business could suffer.
 
Historically, we have supplemented our internal growth through acquisitions. In the future, we may do so through acquisitions, investments or joint ventures. We evaluate potential acquisitions, investments and joint ventures on an ongoing basis. Our acquisitions, investments and joint ventures pose many risks, including:
 
 
·
We may not be able to compete successfully for available acquisition candidates, complete future acquisitions or investments or accurately estimate their financial effect on our business;
 
 
·
Future acquisitions, investments or joint ventures may require us to issue additional common stock or debt, spend significant cash amounts or decrease our operating income;
 
 
·
We may have trouble integrating the acquired business and retaining its personnel;
 
 
·
Acquisitions, investments or joint ventures may disrupt business and distract management from other responsibilities; and
 
 
·
If our acquisitions or investments fail, our business could be harmed.
 
Completing such acquisitions will be limited by our ability to negotiate purchase terms and/or obtain third party financing on terms acceptable to us, given our current working capital deficit, as discussed above, and our current inability to finance such acquisitions through current cash flows. There can be no assurance that we will be able to negotiate such acceptable purchase terms or third party financing.
 
We may acquire additional companies, which may result in adverse effects on our earnings.
 
We may, at times, become involved in discussions with potential acquisition candidates. Any acquisition that we may consummate may have an adverse effect on our liquidity and earnings and may be dilutive to our earnings. In the event that we consummate an acquisition or obtain additional capital through the sale of debt or equity to finance an acquisition, shareholders may experience dilution in their equity. We previously obtained growth through acquisitions of other companies and businesses. Under Statements of Financial Accounting Standards No. 141, Business Combinations (SFAS No. 141), as codified in FASB ASC Topic 805 “Business Combinations” (ASC 805) and No. 142 Goodwill and Other Intangible Assets (SFAS No. 142), as codified in FASB ASC Topic 350 “Intangibles – Goodwill and Other” (ASC 350), we are required to periodically review goodwill and indefinite life intangible assets for possible impairment. In the event that we are required to write down the value of any assets under these pronouncements, it may materially and adversely affect our earnings.
 
Our management may be unable to effectively integrate acquisitions and to manage growth, and may be unable to fully realize any anticipated benefits of these acquisitions.
 
Our business strategy includes growth through both acquisitions and internal development. We are subject to various risks associated with our growth strategy, including the risk that we will be unable to identify and recruit suitable acquisition candidates in the future or to integrate and manage the acquired companies. Acquired companies’ histories, geographical locations, business models and business cultures can be different from ours in many respects. Senior management may face significant challenges in our efforts to integrate our businesses and the business of the acquired companies or assets, and to effectively manage continued growth. There can be no assurance that efforts to integrate the operations of any acquired assets or companies acquired in the future will be successful, that we can manage its growth or that the anticipated benefits of these proposed acquisitions will be fully realized. The dedication of management resources to these efforts may detract attention from day-to-day business. There can be no assurance that there will not be substantial costs associated with these activities or of the success of the integration efforts, either of which could have a material adverse effect on our operating results.
 
We may be subject to successor liability as a result of acquisitions we have made.
 
The growth of our business has been partially a result of acquisitions we made in fiscal 2006 and 2007, including our acquisition of three general staffing offices from Stratus Services Group, Inc. (the “Stratus Acquisition”), five general staffing offices from US Temp Services, Inc. (the “US Temp Acquisition”) and three general staffing offices of ReStaff (the “ReStaff Acquisition”). Although we have endeavored to structure these transactions to minimize exposure to unassumed liabilities, it is possible that under common law and certain statutes that creditors of the entities that sold us these operations could attempt to assert that we have successor liability for obligations of the sellers. Even if any such claim was unsuccessful, it could be costly to defend and have an adverse effect on our financial condition and results of operations.
 
 
4

 
 
Our ultimate liability for unremitted payroll taxes may materially exceed our currently recorded estimated liability.
 
We have been notified by the IRS and certain state taxing authorities that a subsidiary which ceased operating at the end of 2004 has accumulated liabilities for unremitted payroll taxes related to the calendar year 2004. Consequently we have recorded a liability of $700,000 representing the amount management believes will ultimately be payable for this liability based upon our knowledge of current events and circumstances. However, there can be no assurance that future events and circumstances will not result in an ultimate liability, including penalties and interest, materially in excess of our current estimate.
 
We may be exposed to employment-related claims and costs that could materially adversely affect our business.
 
Due to the nature of our business of placing workers in the workplace of other businesses on a temporary or permanent basis we are subject to a large number of laws and regulations relating to employment. The risks related to engaging in such business include but are not limited to:
 
 
·
claims of discrimination and harassment,
 
 
·
violations of wage and hour laws,
 
 
·
criminal activity,
 
 
·
claims relating to actions by customers including property damage and personal injury, misuse of proprietary information and misappropriation of assets, and
 
 
·
immigration related claims.
 
In addition, some or all of these claims may give rise to litigation, which could be time-consuming to our management, and could have a negative effect on our business. In some instances, we have agreed to indemnify our customers against some or all of these types of liabilities. We have policies and guidelines in place to help reduce our exposure to these risks and have purchased insurance policies against certain risks in amounts that we currently believe to be adequate. However, there can be no assurance that our insurance will be sufficient in amount or scope to cover these types of liabilities or that we will be able to secure insurance coverage for such risks on affordable terms. Furthermore, there can be no assurance that we will not experience these issues in the future or that they will not have a material adverse effect on our business.
 
TSE, from whom we lease the majority of our workforce, beneficially owns approximately 57% of our outstanding common stock, and its interests may conflict with the interests of Accountabilities and our other shareholders.
 
We lease the majority of our workers from TSE, a staffing services and employee leasing provider and major shareholder of our company. TSE beneficially owns approximately 57% of our outstanding common stock. As a result of such ownership, TSE has the ability to cause the election of all of the members of our board of directors, the appointment of new management and the approval of actions requiring the approval of our shareholders, including amendments to our certificate of incorporation and mergers or sales of substantially all of our assets. The directors elected by TSE will be able to make decisions affecting our capital structure, including decisions to issue additional capital stock, implement stock repurchase programs and declare dividends. Additionally, certain employees of TSE hold management positions in our company, including Jay Schecter, our Chief Executive Officer and John Messina our President, both of whom are also compensated by TSE and receive no compensation directly from us. The interests of TSE could conflict with our interests and the interests of our other shareholders. In addition, TSE beneficially owns 100% of two subsidiaries that compete in the light industrial and administrative staffing market. Decisions made by TSE regarding us and their wholly owned subsidiaries could benefit their wholly owned subsidiaries at our expense and TSE has the ability to divert resources from us to their wholly owned subsidiaries, both of which could cause our competitive position to be diminished.
 
Through our employee leasing agreement with TSE, TSE is the statutory employer, whereas we are responsible for the hiring, termination, compensation structure, management, supervision and otherwise overall performance and day to day duties of all employees. We lease employees in order to mitigate certain insurance risks and obtain greater employee benefits at more advantages rates via TSE’s much larger scale. Employees are leased from TSE based upon agreed upon rates which are dependent upon the individual employee’s compensation structure, as agreed to between us and the employee. Should our arrangement with TSE terminate we cannot be assured that we would be able to secure a comparable leasing provider at agreeable rates. Should we be unsuccessful at finding a comparable employee leasing provider we cannot be assured that we would be able to secure required workers compensation insurance on affordable terms. The failure to obtain a comparable employee leasing provider or workers compensation insurance at affordable rates would possibly require significant working capital requirements which are not currently necessary. In addition, there can be no assurance that we will be successful at passing these increased costs to our clients which may reduce our profit margins.
 
 
5

 
 
We have experienced significant management turnover.
 
In the past three quarters, we have experienced a significant turnover in our senior management. In fiscal 2009, we experienced changes in our President and Chief Executive Officer positions, and most recently, in December 2009 our Chief Financial Officer and Vice President of Finance positions. This lack of management continuity, and the resulting lack of long-term history with us, could result in operational and administrative inefficiencies and added costs, could adversely impact our stock price and our customer relationships and may make recruiting for future management positions more difficult. In addition, we must successfully integrate any new management personnel that we hire within our organization in order to achieve our operating objectives, and changes in other key management positions may temporarily affect our financial performance and results of operations as new management becomes familiar with our business. Accordingly, our future financial performance will depend to a significant extent on our ability to motivate and retain key management personnel.
 
We bear the risk of nonpayment from our clients and the possible effects of bankruptcy filings by clients.
 
To the extent that any particular client experiences financial difficulty, or is otherwise unable to meet its obligations as they become due, our financial condition and results of operations could be adversely affected. For work performed prior to the termination of a client agreement, we are obligated to pay the agreed upon fees to our employees leasing provider TSE, whether or not our client pays us on a timely basis, or at all. Given the current continuing economic recession there is an increased risk of clients failing to pay or delaying payment, although currently, we have not experienced significant levels of these occurrences. However, a significant increase in uncollected account receivables would have a material adverse effect on our earnings and financial condition.
 
Our failure to remain competitive could harm our business.
 
Our business is highly competitive. We compete with larger companies that have greater name recognition, financial resources and larger staffs. We also compete with smaller, more specialized entities that are able to concentrate their resources on particular areas. To remain competitive, we must provide superior service and performance on a cost-effective basis to customers. Any failure to do so could have a material adverse effect on our business.
 
Any further significant economic downturn could result in our customers using fewer staffing services, which could materially adversely affect our business.
 
The current economic downturn has negatively affected our business and financial results. Demand for staffing services is significantly affected by the general level of economic activity. As economic activity slows, many customers reduce their utilization of temporary employees before undertaking layoffs of their regular full-time employees. Further, demand for permanent placement services also slows as the labor pool directly available to our customers increases, making it easier for them to identify new employees directly. Typically, we may experience increased pricing pressures from competitors during periods of economic downturn, which could have a material adverse effect on our financial condition. Additionally, in geographic areas where we derive a significant amount of business, a further regional or localized economic downturn could adversely affect our operating results and financial position.
 
Our success depends in large part on our ability to attract and retain qualified temporary and permanent personnel.
 
Our success depends on our ability to provide clients with highly qualified and experienced personnel who possess the skills and experience necessary to satisfy their needs. Such individuals are in great demand, particularly in certain geographic areas, and are likely to remain a limited resource for the foreseeable future. Consequently, we must continuously evaluate and upgrade our base of available qualified personnel to keep pace with changing customer needs and emerging technologies. Furthermore, a substantial number of our temporary employees during any given year will terminate their employment with us and accept regular staff employment with our customers. There can be no assurance that qualified candidates will continue to be available to us in sufficient numbers and on acceptable terms. The failure to identify, recruit, train and place candidates as well as retain qualified temporary employees over a long period of time could materially adversely affect our business.
 
Our common stock is thinly traded on the OTC Bulletin Board, and we cannot give assurance that our common stock will become liquid or that it will be listed on a securities exchange.
 
Our common stock is currently quoted on the OTC Bulletin Board, which provides significantly less liquidity than a securities exchange (such as the American, NASDAQ, or New York Stock Exchange). We cannot give assurance that we will be able to meet the listing standards of any stock exchange or that we will be able to maintain any such listing. Such exchanges require companies to meet certain initial listing criteria including certain minimum bid prices per share. We may not be able to achieve or maintain such minimum bid prices or may be required to effect a reverse stock split to achieve such minimum bid prices. Because our shares are quoted on the OTC, an investor may find it difficult to obtain accurate quotations of our common stock and may experience a lack of buyers to purchase such stock or a lack of market makers to support the stock price. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our common stock to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect its liquidity. This would make it more difficult for us to raise additional capital and for investors to dispose of their shares of our common stock.
 
 
6

 
 
We have historically been, and may continue to be, heavily reliant upon financing from related parties which presents potential conflicts of interest.
 
We have historically obtained financing from related parties including major shareholders, directors and officers, in the form of both debt and equity securities issued to finance working capital growth and acquisitions. These related parties have the ability to exercise significant control over our financing decisions, which may present conflicts of interest regarding the choice of parties to obtain financing from, as well as the terms of financing instruments that we enter into with them, and as a result, no assurance can be given that the terms of financing transactions with related parties are or will be as favorable as those that could be obtained in arms-length negotiations with third parties.
 
Stockholders may experience future dilution in ownership due to possible future equity issuances, the exercise of outstanding warrants, the conversion of existing convertible debt securities, and the conversion of existing debt to equity in connection with certain restructuring activities.
 
As of September 30, 2009, we have outstanding convertible debt securities that may be converted into 522,000 shares, and outstanding warrants to acquire 166,000 shares of common stock. We are also in negotiations to further reduce our debt through restructurings which may include further conversions of outstanding debt to equity, and are also in discussions to obtain further financing, which may include the issuance of additional equity. Additional issuances of common stock will subject our stockholders to dilution and reduce their percentage interest in our company.
 
ITEM 1B.
UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 2.
PROPERTIES

Our headquarters are located in New York, New York, under a lease for 2,452 square feet of office space which expires in December 2016. As of September 30, 2009, placement activities were conducted through more than 13 offices located in the United States, for which all of the locations are leased with terms expiring at various times through 2012. We believe that our existing facilities are adequate and suitable for our current operations; however, we may add additional facilities from time to time in the future as the need arises.
 
ITEM 3.
LEGAL PROCEEDINGS
 
In 2005, we acquired the outstanding receivables of Nucon Engineering Associates, Inc. (“Nucon”). During the third quarter of fiscal 2008, we were notified by the State of Connecticut that we may be considered the predecessor employer associated with the accounts receivable formerly owned by Nucon for State Unemployment Insurance rate purposes. Nucon’s state unemployment rate was higher than ours at the time of the acquisition. The State of Connecticut had been claiming additional state unemployment charges based on this higher rate and had assessed a higher experience rate on wages for all periods subsequent to the acquisition date. Our management believed that it had properly calculated its unemployment insurance tax and was in compliance with all applicable laws and regulations. We appealed the ruling and we were successful in receiving $139,000 in October 2009, representing refunds of previous charges, $73,000 of which is payable to TSE for payments made to the State of Connecticut on our behalf.
 
ALS, LLC (“ALS”) instituted an action against us, US Temps, Inc. and a major shareholder of our company in the United States District Court, District of New Jersey in May 2007 in which it alleged that we tortiously interfered with ALS’ business relationship with US Temps, Inc. by causing US Temps, Inc. to terminate its relationship with ALS under an agreement pursuant to which ALS provided employee outsourcing services to US Temps, Inc. prior to our acquisition of certain assets from US Temps, Inc.. ALS also alleged that we had liability as a successor to US Temps, Inc. for US Temps Inc.’s alleged breach of the outsourcing agreement. In October 2008, a settlement was reached with ALS whereby we have agreed to pay $60,000 in twelve equal monthly installments of $5,000 beginning on October 1, 2008.
 
In the ordinary course of business, we are, from time to time, threatened with litigation or named as a defendant in other lawsuits. We are not aware of any other pending legal proceedings that are likely to have a material adverse impact on us.
 
 
7

 
 
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
During the fourth quarter of fiscal 2009, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.
 
 
8

 
 
PART II
 
ITEM 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Price Range of Common Stock
 
Our common stock has traded on the Over-the-Counter (“OTC”) Bulletin Board under the symbol “ACBT” since June 12, 2008. Prior to that date, our common stock was traded on the “Pink Sheets”. The following table shows, for the periods indicated, the reported high and low sale prices for shares of our common stock as reported in the OTC or “Pink Sheets”, as applicable, for the fiscal quarters indicated. As of November 16, 2009, there were approximately 319 record holders of our common stock.
 
   
Low
   
High
 
Fiscal Year Ending September 30, 2008
           
First Quarter
  $ 0.31     $ 0.35  
Second Quarter
    0.32       0.50  
Third Quarter
    0.22       0.48  
Fourth Quarter
    0.18       0.52  
Fiscal Year Ending September 30, 2009
               
First Quarter
  $ 0.06     $ 0.25  
Second Quarter
    0.06       0.20  
Third Quarter
    0.15       0.20  
Fourth Quarter
    0.12       0.52  
 
Dividend Policy
 
We have not declared or paid any cash dividends on our common stock during the periods presented, and we do not anticipate doing so in the foreseeable future.  We currently intend to retain future earnings, if any, to operate our business and finance future growth strategies.
 
EQUITY COMPENSATION PLAN INFORMATION
 
The following provides information concerning compensation plans under which equity our securities were authorized for issuance as of September 30, 2009:
 
 
 
 
 
Plan Category
 
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
   
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
(b)
   
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)
 
Equity compensation plans approved by security holders
    -       -       597,000  
Equity compensation plans not approved by security holders
    -       -       -  
Total
    -       -       597,000  
 
Issuances of Unregistered Securities
 
None during the fourth fiscal quarter of 2009.
 
9

 
ITEM 6.
SELECTED FINANCIAL DATA
 
We are providing the following selected financial data, which has been derived from financial statements which have been audited by Miller, Ellin & Company, LLP (Miller Ellin), an independent registered public accounting firm, for the fiscal years ended September 30, 2006 through 2008, and after its acquisition of Miller Ellin in January 2009 by Rosen, Seymour Shapss Martin and Company LLP, an independent registered public accounting firm, for the fiscal year ended September 30, 2009. The statement of operations data for the fiscal year ended September 30, 2006 and the period from June 9, 2005 (Date of Inception) to September 30, 2005 and the balance sheet data at September 30, 2007, 2006 and 2005 were derived from our audited financial statements that are not included in this Annual Report on Form 10-K. The statements of operations data for the years ended September 30, 2009, 2008 and 2007 and the balance sheet data at September 30, 2009 and 2008 were derived from our audited financial statements that are included elsewhere in this Annual Report on Form 10-K. The following information should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
 
Statements of Operations Data (1)
 
   
Year Ended September 30,
   
For the period from June 9, 2005 (Date of Inception) to September 30,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
                               
Revenues
  $ 56,989,000     $ 63,120,000     $ 54,657,000     $ 32,836,000        
(Loss) income from continuing operations
  $ (892,000 )   $ ( 511,000 )   $ 74,000     $ (1,226,000 )   $ (91,000 )
Net loss
  $ (878,000 )   $ (683,000 )   $ (184,000 )   $ (1,012,000 )   $ (91,000 )
                                         
Basic net (loss) income from continuing operations per share
  $ (0.04 )   $ (0.03 )   $ 0.01     $ (0.14 )   $ (0.03 )
Diluted net (loss) income from continuing operations per share
  $ (0.04 )   $ (0.03 )   $ 0.01     $ (0.14 )        
Shares used in basic per share calculations
    22,511,000       19,903,000       15,515,000       8,792,000       2,960,000  
Shares used in diluted per share calculations
    22,511,000       19,903,000       15,515,000       8,792,000       2,960,000  
 
Balance Sheet Data (1)

   
As of September 30,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
                               
Total assets
  $ 6,345,000     $ 7,789,000     $ 8,819,000     $ 4,073,000     $ 2,000  
Long-term debt, including current portion
  $ 2,035,000     $ 2,817,000     $ 5,228,000     $ 1,614,000     $  
Total stockholders’ equity (deficit)
  $ 551,000     $ 1,268,000     $ 450,000     $ (460,000 )   $ (1,856,000 )

(1)  See Note 1 to our financial statements included elsewhere in this report for a description of our discontinued operations.

 
10

 
 
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion in conjunction with our financial statements and related notes. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors.
 
Our future profitability and rate of growth, if any, will be directly affected by our ability to continue to expand our service offerings at acceptable gross margins, and to achieve economies of scale, through the continued introduction of differentiated marketing and sales channels, and through the successful completion and integration of acquisitions. Our ability to sustain profitability will also be affected by the extent to which we must incur additional expenses to expand our sales, marketing, and general and administrative capabilities to expand our business. The largest component of our operating expenses is personnel costs. Personnel costs consist of salaries, benefits and incentive compensation, including bonuses and stock-based compensation, for our employees. Our management expects our operating expenses will continue to grow in absolute dollars, assuming our revenues continue to grow. As a percentage of revenue, we expect these expenses to decrease as our revenues increase, although we have no assurance that either will.
 
The following are material trends that are creating opportunities and risks to our business, and a discussion of how management is responding.
 
 
·
We have financed our growth largely through the issuance of debt and have incurred negative working capital. As of September 30, 2009, we had negative working capital of ($2,732,000), for which the component constituting the current portion of long-term debt was $1,265,000. Of the negative working capital, $1,830,000 is due and payable to TSE relating to leasing costs charged by TSE for professional employment organization services provided by TSE to us, which arise and are paid in the ordinary course of business, normally on a weekly basis. Total outstanding debt as of September 30, 2009 was $2,035,000, $705,000 of which is past due or due upon demand. Of our total outstanding debt, $1,056,000 is subject to proportionate reduction in the event the associated acquired businesses for which the debt was issued do not produce agreed upon levels of profitability. In order to service our debt and maintain our current level of operations, as well as fund the costs of being a reporting company, we must be able to generate sufficient amounts of cash flow and working capital. Our management is engaged in several activities, as explained further in “Working Capital” below, to effectively accomplish these objectives.
 
 
·
Any further significant economic downturn could result in less demand from customers and lower revenues. Because demand for staffing services is sensitive to changes in the level of economic activity, our business suffers during economic downturns as it did in 2009. As economic activity slows, companies tend to reduce their use of temporary employees and recruitment services before undertaking layoffs of their regular employees, resulting in decreased demand for our personnel.
 
 
·
A significant component of our growth to date has come through acquisitions. Our management continues to invest resources in activities to seek, complete and integrate acquisitions that grow or enhance our current service offerings. Additionally, management seeks acquisitions in desired geographical markets and which have minimal costs and risks associated with integration. Our management believes that effectively acquiring businesses with these attributes will be critical to carrying out our strategy.
 
Discontinued Operations
 
In addition to our light industrial and administrative service offerings, we historically have provided professional accounting and finance consulting and staffing services through both our CPA Partner on Premise Program and directly to clients.
 
In April 2009, we discontinued our CPA Partner on Premise Program service offering, which provided finance and accounting staffing and recruiting services through sales and marketing agreements with regional public accounting firms. We reached our conclusion to exit this service offering after reviewing the historical operating performance and future prospects of these services and the likely need for continued capital to support ongoing losses. As a result, the CPA Partner on Premise Program is classified as discontinued operations for all periods presented in the accompanying financial statements.
 
Also during fiscal 2009 we considered alternatives to continuing the operations associated with the provision of accounting services offered directly to clients and restructured these operations through the elimination of non-profitable offices and reorganizing leadership. In the first quarter of 2010, in an effort to focus management’s efforts, and use our capital more directly on our light industrial and administrative service offerings, we discontinued these remaining accounting and finance operations. During the fiscal years ended September 30, 2009 and 2008, these operations generated revenues of $416,000 and $568,000, respectively, and losses from operations of ($87,000) in fiscal 2009 and income from operations of $60,000 in fiscal 2008. Accordingly, beginning with the financial statements issued for the first quarter of fiscal 2010, ending December 31, 2009, the operations associated with the direct provision of accounting and finance services will be reported as discontinued operations for all prior periods presented.
 
 
11

 
 
Mergers and Acquisitions
 
One of our key strategies is to focus on mergers and acquisitions of companies that grow or complement our existing service offerings, expand our geographic presence and/or further expand and strengthen our existing infrastructure.
 
Our most recent material acquisition occurred on February 26, 2007 when we acquired assets including three offices from ReStaff in the ReStaff Acquisition, in exchange for cash, notes and shares of our common stock.
 
We account for acquisitions as purchases and the results of operations of acquired operations have been included in our results since the dates of acquisition.
 
As mentioned above, management continues to invest resources in activities to seek, complete and integrate acquisitions that may grow or enhance our current service offerings, expand our geographical market presence, and effectively assimilate into our marketing and sales strategies. Currently, management expects acquisitions to continue to constitute a significant portion of any future growth. Completing such acquisitions, however, will likely be limited by our ability to negotiate purchase terms and/or obtain third party financing on terms acceptable to us, given our current working capital deficit, as discussed below.
 
Liquidity and Capital Resources
 
Cash Flows
 
We have historically relied on cash flows from operations, borrowings under debt facilities, loans from related parties and proceeds from sales of stock to satisfy our working capital requirements as well as to fund acquisitions. In the future, we may need to raise additional funds through public and/or additional private debt or equity financings to fund our operations or to take advantage of business opportunities, including existing business growth and mergers and acquisitions. To the extent that funds are not available to meet our operating needs, we may have to further reduce operating expenses or eliminate portions of our operations.
 
At September 30, 2009, cash was $63,000, a decrease of ($6,000) from $69,000 as of September 30, 2008.
 
Net cash provided by operating activities from continuing operations during the year ended September 30, 2009 decreased ($201,000) to $438,000, from $639,000 during the year ended September 30, 2008. This reflects the increase in Net loss from continuing operations in 2009, which, after adding back certain non-cash expenses to both fiscal 2009 and 2008, such as Depreciation and amortization, Stock based compensation expense, Net loss on debt extinguishment, Loss on goodwill impairment and Bad debt expense, resulted in a revised decrease of ($661,000). Offsetting this was an increase in the change in Due from related party of $391,000.
 
Net cash provided by operating activities from continuing operations during the year ended September 30, 2008 decreased ($259,000) to $639,000, from $898,000 during the year ended September 30, 2007. This was primarily due to increases in outstanding receivables as of September 30, 2008 compared with September 30, 2007 of $849,000, offset by increases in accounts payable and accrued expenses of $680,000 and a decrease in Due to related party of $108,000.
 
Net cash used in investing activities during the year ended September 30, 2009 decreased ($254,000) to ($11,000) from ($265,000) during the year ended September 30, 2008, primarily because in the year ended September 30, 2009, we did not incur expenditures associated with the relocation of our corporate headquarters and additional purchases of computer equipment which we incurred in the year ended September 30, 2008.
 
Net cash used in investing activities during the year ended September 30, 2008 decreased ($534,000) to ($265,000) from ($799,000) during the year ended September 30, 2007, primarily as a result of cash paid for the ReStaff Acquisition in fiscal 2007.
 
Net cash used in financing activities during the year ended September 30, 2009 increased $180,000 to ($397,000) from ($217,000) during the year ended September 30, 2008, as we did not raise proceeds from the issuance of common stock and debt in fiscal 2009, whereas in fiscal 2008 we received $624,000 in such proceeds offsetting $841,000 in debt payments.
 
Net cash used in financing activities during the year ended September 30, 2008 increased $527,000 to ($217,000) from $310,000 provided by financing activities during the year ended September 30, 2007, primarily as a result of increased principal payments on long-term debt in fiscal 2008, and a decrease in fiscal 2008 proceeds from issuance of common stock and long-term debt.
 
 
12

 
 
Working Capital
 
We have financed our growth largely through the issuance of debt and have incurred negative working capital. As part of funding this growth, as of September 30, 2009 we had negative working capital of ($2,732,000), for which the component constituting the current portion of long- term debt was $1,265,000. Within the current portion of long-term debt $705,000 is past due or due upon demand as explained further below. Of the negative working capital, $1,830,000 is due and payable to TSE relating to leasing costs charged by TSE for professional employment organization services provided by TSE to us, which arise and are paid in the ordinary course of business, normally on a weekly basis. Total outstanding debt as of September 30, 2009 was $2,035,000. The working capital deficit of ($2,732,000) as of September 30, 2009, represents an increase in the deficit of $343,000 as compared to a working capital deficit of ($2,389,000) as of September 30, 2008.
 
In order to service our debt, maintain our current level of operations, as well as fund the increased costs of being a reporting company and our growth initiatives, we must be able to generate sufficient amounts of cash flow and working capital. Our management has engaged, and continues to engage, in the following activities to effectively accomplish these objectives:
 
 
a)
In October 2008, we extended the terms of three forbearance agreements with respect to $286,000 of the $705,000 past due or due upon demand debt. These short term debt holders have agreed to waive defaults and refrain from exercising their rights and remedies against us until October 31, 2009. We are currently in discussions with these debt holders to restructure their debt.
 
b)
In the second fiscal quarter of 2009, we received advances totaling $212,000 from TSE.
 
c)
In May 2009, the financial institution to which we sell our trade receivables agreed to extend the payment terms of and increase the amount of funds available to us under the existing overadvance by an additional $293,000 up to a maximum of $500,000. The overadvance was repayable in $8,500 weekly payments with the balance, if any, due by May 28, 2010. As a condition to the additional overadvance, our largest shareholder has agreed to provide up to $250,000 in short-term cash advances to us and also agreed to fully guarantee the incremental increase in the overadvance, which at that time was $292,950. As of September 30, 2009, the total amount outstanding under the overadvance was $203,000. All new advances will be subject to a fee of 2%.
 
d)
In December 2009, the terms of the existing overadvance with the financial institution to which we sell our trade receivables were further modified. In connection with such modification, the amount outstanding under the overadvance has increased to $266,496 as of December 11, 2009, and the weekly payments have been increased from $8,500 per week to $9,500 per week. Additional payments of $5,000 are to be made in January, February, March and April of 2010, with a payment of $43,735 due in May 2010. TSE continues to guarantee the full amount outstanding under the overadvance.
 
e)
We restructured the $1,700,000 note disclosed in Note 8(x) to our financial statements after reviewing the net income calculation performed by management for the ReStaff operations for the year ended December 31, 2008. This restructuring involved the exchange of notes payable with outstanding principal balances of $1,560,000 and $100,000 for a new note. A $1,201,000 note was issued bearing an annual interest rate of 6%. The note is due March 1, 2012 and is payable in equal monthly installments of $36,540. This note is also subject to proportionate reduction in principal in the event the acquired operations generate less than $1,000,000 in net income (as defined in the asset purchase agreement) in any calendar year during the term of the note.
 
f)
In April 2009, we discontinued our CPA Partner on Premise strategy. The CPA Partner on Premise segment of our operations generated losses from its operations of ($69,000) and ($172,000) for fiscal 2009 and 2008, respectively. This segment has been reported as discontinued operations in the accompanying financial statements.
 
g)
In November 2009, in an effort to focus our efforts and utilize our capital more directly on light industrial and administrative service offerings, we discontinued our remaining accounting and finance operations that were part of our Direct Professional Services Offering. This segment will be reported as discontinued operations in the first quarter of fiscal 2010.
 
h)
We are aggressively managing cash and expenses, including the increased costs of being a reporting company, with activities such as seeking additional efficiencies in our operating offices and corporate functions including headcount reductions, if appropriate, improving our accounts receivable collection efforts, and obtaining more favorable vendor terms.
 
i)
We have historically generated positive cash flows from operations, and believe that this will continue.
 
We believe that, based on the above activities and our current expectations, that we have adequate resources for liquidity to meet our operating needs through the end of the current fiscal year.
 
Because our revenue depends primarily on billable labor hours, most of our charges are invoiced weekly, bi-weekly or monthly depending on the associated payment of labor costs, and are due currently, with collection times typically ranging from 30 to 60 days. We sell our accounts receivable to a financial institution as a means of managing our working capital. Under the terms of our receivable sale agreement the maximum amount of trade receivables that can be sold is $8,000,000. As collections reduce previously sold receivables, we may replenish these with new receivables. Net discounts per the agreement are represented by an interest charge at an annual rate of prime plus 1.5% (“Discount Rate”) applied against outstanding uncollected receivables sold.  The risk we bear from bad debt losses on trade receivables sold is retained by us, and receivables sold may not include amounts over 90 days past due.  The agreement is subject to a minimum discount computed as minimum sales per month of $3,000,000 multiplied by the then effective Discount Rate, and a termination fee of 3% applies to the maximum facility in year one of the agreement, 2% in year two, and 1% thereafter.  In addition, as discussed in c) and d) above, an overadvance of $500,000 was received, is secured by outstanding receivables, and is currently being repaid in weekly payments of $9,500.  As of September 30, 2009, the amount of advances against sold receivables outstanding was $3,979,000, which includes $266,496 of the overadvance.
 
 
13

 
Debt
 
Long-term debt at September 30, 2009 and September 30, 2008 is summarized as follows:
 
   
September 30,
   
September 30,
 
   
2009
   
2008
 
             
Long-term debt
           
16.25% subordinated note (i)
  $ 102,000     $ 102,000  
3% convertible subordinated note (ii)
    408,000       436,000  
18% unsecured note (iii)
    80,000       80,000  
Long term capitalized consulting obligations (v)
    -       38,000  
Long term capitalized lease obligation (xii)
    4,000       21,000  
Other debt
    50,000       50,000  
Total
    644,000       727,000  
Less current maturities
    454,000       420,000  
Non-current portion
    190,000       307,000  
                 
Related party long-term debt
               
13% unsecured demand note (iv)
    104,000       104,000  
Long term capitalized consulting obligations (vi)
    -       17,000  
12% unsecured convertible note (vii)
    100,000       100,000  
Demand loans (viii)
    131,000       65,000  
6% unsecured note (ix)
    -       100,000  
6% unsecured note (x)
    1,056,000       1,631,000  
9% unsecured note (xi)
    -       73,000  
Total
    1,391,000       2,090,000  
Less current maturities
    811,000       946,000  
Non-current portion
    580,000       1,144,000  
                 
Total long-term debt
    2,035,000       2,817,000  
Less current maturities
    1,265,000       1,366,000  
Total non-current portion
  $ 770,000     $ 1,451,000  
 
For further explanation of footnotes (i) through (xii) above, please see Note 7 to our financial statements beginning on page F-1 of this Annual Report on Form 10-K.
 
Reliance on Related Parties
 
We have historically relied on funding from related parties in order to meet our liquidity needs, such as the debt described in footnotes (iv), (vi), (vii), (viii), (ix), (x), and (xi) above.  Our management believes that the terms associated with these instruments would not differ materially from those that might have been negotiated with independent parties.  However, management believes that the advantages we derived from obtaining funding from related parties include a shortened length of time to identify and obtain funding sources due to the often pre-existing knowledge of our business and prospects possessed by the related party, and the lack of agent or broker compensation, which is often deducted from gross proceeds available to us.  Our management anticipates we will continue to have sufficient working capital to fund our growth and operations, and to the extent we do not generate sufficient cash flow from operations to meet these working capital requirements we will continue to seek other sources of funding including the issuance of related party debt.  There can be no assurance that any related party will provide us with funding or that the terms of any such financing will not differ materially from funding available from independent parties.
 
Sales of Common Stock
 
In January 2008, the holder of the $250,000 convertible subordinated note issued on August 6, 2007, exchanged the note for 744,031 shares of unregistered common stock and a three-year warrant to purchase 100,000 shares of our common stock at an exercise price of $0.50 per share.  The number of unregistered common shares issued was determined by dividing the unpaid principal and accrued interest by $0.35 per share.

 
14

 

In January 2008, the related party that held the $280,000 12% unsecured convertible note dated April 1, 2006, with an outstanding principal balance of $200,000, exchanged the note for 600,000 shares of our common stock and a new unsecured note in the principal amount of $100,000 due October 31, 2008 and bearing an annual interest rate of 12%.
 
In February 2008 we issued 250,000 shares to the former owner of ReStaff in connection with the restructuring of outstanding indebtedness incurred during the acquisition in exchange for a decrease in indebtedness of $50,000.
 
During the second quarter of 2008 we issued 1,107,500 shares of restricted common stock to certain employees and directors at a price of $0.20 per share.
 
During the second quarter of 2008 we completed a private placement to independent third parties of 100,540 shares of our unregistered common stock at a price of $0.35 per share with warrants to purchase an aggregate 9,800 shares of our common stock at an exercise price of $0.50 per share.
 
In March 2008, we issued 1,000,000 shares of our unregistered common stock to TSE in exchange for consideration of $200,000 which consisted of the cancellation of the remaining outstanding principal balance of a note of $120,000, the cancellation of $26,000 of outstanding invoices payable and $54,000 in cash.
 
In May 2008, we issued 184,000 shares of unregistered common stock in a private placement offering to independent third parties at a price of $0.28 per share, raising gross proceeds of $51,500.
 
In May 2008, we sold 1,000,000 shares of unregistered common stock to TSE for a $200,000 non-interest bearing note.  The $0.20 offering price represented a 25% discount from the market price. As of September 30, 2008, the note had been paid in full.
 
Critical Accounting Policies
 
The following discussion and analysis of the financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States and the rules of the Securities and Exchange Commission (the “SEC”).  Prior to June 2005, we conducted operations which consisted of i) providing employee leasing and benefits processing services to clients, and ii) temporary staffing solutions to the trucking industry (the “Humana Businesses”).  As a result of the dispositions of all operations associated with the Humana Businesses, which were conducted in separate subsidiaries, and the subsequent formation and startup of Accountabilities, Inc., the financial statements have been prepared based upon a change in reporting entity wherein only the accounts and related activity beginning with the Date of Inception have been included, and all accounts and related operating activity of the discontinued Humana Businesses have been excluded, in order to reflect this reorganization of the Company.  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
 
The following represents a summary of the critical accounting policies, which management believes are the most important to the portrayal of the financial condition and results of operations and involve inherently uncertain issues that require management’s most difficult, subjective or complex judgments.
 
Revenue Recognition.  We recognize revenues when professionals deliver services.  Permanent placement revenue is recognized when the candidate commences employment, net of an allowance for those not expected to remain with clients through a 90-day guarantee period, wherein we are obligated to find a suitable replacement.
 
Allowance for Doubtful Accounts.  We maintain an allowance for doubtful accounts for estimated losses resulting from our clients failing to make required payments for services rendered.  Our management estimates this allowance based upon knowledge of the financial condition of our clients, review of historical receivable and reserve trends and other pertinent information.  If the financial condition of any of our clients deteriorates or there is an unfavorable trend in aggregate receivable collections, additional allowances may be required.
 
Stock-Based Compensation.  We calculate stock-based compensation expense in accordance with SFAS No. 123 Revised, “Share-Based Payment” (“SFAS 123(R)”), as codified in FASB ASC Topic 718, “Compensation-Stock Compensation” (ASC 718).  This pronouncement requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, stock appreciation rights and restricted stock awards to be based on estimated fair values.  Fair value for restricted stock is determined as a discount from the current market price quote to reflect a) lack of liquidity resulting from the restricted status and low trading volume and b) recent private placement valuations.  Under ASC 718, the value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods.  We recognize stock-based compensation expense as earned, generally on a straight-line basis.

 
15

 

Income Taxes.  We account for income taxes in accordance with SFAS 109, “Accounting for Income Taxes”, as codified in FASB ASC Topic 740, “Income Taxes” (ASC 740).  Under ASC 740, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income.  If necessary, valuation allowances are established to reduce deferred tax assets to the amount expected to be realized when, in management’s opinion, it is more likely than not that some portion of the deferred tax assets will not be realized.  The estimated provision for income taxes represents current taxes payable and the current tax effect of temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected future benefits of net operating loss carryforward.
 
Intangible Assets.  In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” as codified in FASB ASC Topic 350, “Intangibles-Goodwill and Other” (ASC 350), goodwill and other intangible assets with indefinite lives are not subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired.  We performed our annual impairment analysis as of May 31, 2009 and will continue to test for impairment annually.  No impairment was indicated as of May 31, 2009.  Other intangible assets with finite lives are subject to amortization, and impairment reviews are performed in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” as codified in FASB ASC Topic 360, “Property, Plant & Equipment” (ASC 360).
 
Recent Accounting Pronouncements
 
In April, 2009, the FASB issued FSP No. FAS 141(R) – 1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies,” as codified in FASB ASC Topic 805, “Business Combinations” (ASC 805).  ASC 805 requires that the acquiring entity recognize assets or liabilities that arise from contingencies if the acquisition date fair value of that asset or liability can be determined during the measurement period.  If it cannot be determined during the measurement period, then the asset or liability should be recognized at the acquisition date, consistent with SFAS No. 5, “Accounting for Contingencies,” as codified in FASB ASC Topic 450, “Contingencies” (ASC 450), if the following criteria are met: (1) information available before the end of the measurement period indicates that it is probable that an asset existed or that a liability had been incurred at the acquisition date, and (2) the amount of the asset or liability can be reasonably estimated.  We will conform with ASC 805 for any acquisitions consummated after September 30, 2009.
 
In December 2007, the FASB issued SFAS 141(revised 2007), “Business Combinations,” as codified in FASB ASC Topic 805, “Business Combinations” (ASC 805).  ASC 805 significantly changes how business combinations are accounted for and is effective for all future business combinations consummated.  Under ASC 805, an acquiring entity is required to recognize, with limited exceptions, all the assets acquired and liabilities assumed in a transaction at their fair value on the acquisition date.  ASC 805 changes the accounting treatment for certain specific acquisition-related items including, among other items: (1) expensing acquisition-related costs as incurred, (2) valuing noncontrolling interests at fair value at the acquisition date, (3) expensing restructuring costs associated with an acquired business and (4) goodwill.  ASC 805 also includes a substantial number of new disclosure requirements to enhance the evaluation of the nature and financial effects of the business combination.  The standard is effective for us beginning October 1, 2009 and is applicable only to transactions occurring after the effective date.
 
Results of Operations
 
Fiscal year ended September 30, 2009 compared to fiscal year ended September 30, 2008
 
Revenues
 
For fiscal 2009, revenue decreased $6,131,000, or 10%, to $56,989,000, as compared to $63,120,000 in fiscal 2008.  This decrease in revenue was primarily attributable to the overall decline in economic activity since the beginning of the recession that began in December 2007.  We began experiencing declines in revenue versus the prior year most significantly in the second quarter of the current year.  According to the US Bureau of Labor Statistics temporary help in the US has declined 25.4% during the last nine months ended September 30, 2009.   During this same nine month period, our revenues have declined 13%.  Our current year revenue decline encompassed declines in billable hours at current clients, losses of accounts and lower billings for several larger customers, which were not fully offset by the acquisition of new accounts in existing offices.  The revenue associated with our new offices in California and Virginia, which opened in April 2008 and November 2008, respectively, increased by approximately $3,151,000 compared to the prior year, which helped offset the current years decline.

 
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Direct cost of services
 
We lease the majority of our workers from TSE, a professional employment organization and majority owner of our outstanding common shares, for which TSE charges us its current market rate that it charges its other customers.  We lease employees in order to mitigate certain insurance risks and obtain greater employee benefits at more advantageous rates via TSE’s much larger scale.  Through this agreement with TSE, TSE is the statutory employer, whereas we are responsible for the hiring, termination, compensation structure, management, supervision and otherwise overall performance and day to day duties of all employees.  Employees are leased from TSE at agreed upon rates which are dependent upon the individual employee’s compensation structure, as agreed to between us and the employee.  Direct cost of services consists mainly of leased employee direct labor costs, as well as costs of non-leased employees where we are the statutory employer, and other labor related costs.
 
For fiscal 2009, direct cost of services decreased $4,884,000, or 9%, to $49,647,000 as compared to $54,531,000 in fiscal 2008. This decrease is primarily due to the decrease in revenues for fiscal 2009.
 
Gross profit
 
For fiscal 2009, gross profit decreased $1,247,000 or 15%, to $7,342,000, as compared to $8,589,000 in fiscal 2008.  As a percentage of revenue, gross profit for fiscal 2009 decreased to 12.9% as compared to 13.6% in the prior year, reflecting a combination of lower bill rate pricing to retain or gain new clients in the current recession, changes in the client mix and increases in certain state unemployment insurance rates that could not be passed along to clients.
 
Selling, general and administrative expenses
 
Selling, general and administrative expenses includes the labor, marketing, corporate overhead and other costs not directly associated with generating revenue such as costs associated with the acquisition and retention of clients and fees, occupancy, administrative labor, benefit plan administration, professional fees and other operating expenses.
 
For fiscal 2009, selling, general and administrative expenses decreased $274,000, or 4%, to $7,299,000, as compared to $7,573,000 in fiscal 2008.  Selling, general and administrative expenses include non-cash charges for stock based compensation expense of $161,000 for fiscal 2009 compared to $291,000 for fiscal 2008.  The overall decrease in selling, general and administrative expenses in the current year period reflects the general decrease in business activity, lower stock based compensation expense, as well as continued head count reductions.  As a percentage of revenue, selling, general and administrative expenses were higher at 12.8% during fiscal 2009 compared to 12.0% during fiscal 2008, as some less variable expenses such as occupancy costs, certain professional services and corporate compensation did not decrease in direct relation to sales.
 
Depreciation and amortization
 
For fiscal 2009, depreciation and amortization decreased $34,000, or 8%, to $411,000, as compared to $445,000 in fiscal 2008.  The current year’s decrease is primarily attributable to lower amortization expense recorded on customer lists and relationships acquired in the Stratus Acquisition after the value of the assets were reduced during the first and fourth quarters of 2009.
 
(Loss) income from continuing operations
 
As a result of the above, loss from continuing operations was ($368,000) for fiscal 2009 versus income from continuing operations of $571,000 in fiscal 2008, representing a decrease of 164%.
 
Interest expense
 
Interest expense includes the net discounts associated with the sales of accounts receivable, as well as interest on debt associated with acquired companies and financing our operations.  Interest expense for fiscal 2009 was $429,000, as compared to $834,000 in fiscal 2008, representing a decrease of 49%.  This decrease is attributable to a reduction in the amount of debt outstanding that occurred during the second quarters of fiscal 2008 and 2009.  We reduced the outstanding indebtedness incurred in the ReStaff Acquisition by $1,448,000 during the second quarter of fiscal 2008 and further reduced this indebtedness by $358,000 during the second quarter of fiscal 2009 pursuant to the calculations set forth in the original note agreement, and also reduced other indebtedness during the second quarter of fiscal 2008 by $470,000 through the exchange of common stock.  In addition, the reduction in the federal prime lending rate from 5.00% in effect at the beginning of our fiscal year to 3.25% by the end of our fiscal year resulted in lowered interest expense on our sold accounts receivable.
 
Loss on impairment of fixed assets
 
Loss on impairment of fixed assets of $95,000 relates to the impairment of leasehold improvements existing at our New Jersey corporate headquarters which occurred as the result of our decision in the fourth quarter of fiscal 2009 to relocate our corporate headquarters to New York.

 
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Net loss from continuing operations
 
The factors described above resulted in a loss from continuing operations for fiscal 2009 of ($892,000) as compared to a loss of ($511,000) for the same period in the prior year.
 
Income (loss) from discontinued operations
 
Income from discontinued operations for fiscal 2009 relates to our discontinued CPA Partner on Premise Program and includes the settlement of outstanding commission’s payable of $204,000 due to CPA Partner on Premise clients for $121,000, resulting in a gain of $83,000, which was offset by losses from operations of ($69,000).
 
Net loss
 
The factors described above resulted in a net loss for fiscal 2009 of ($878,000), as compared to a net loss of ($683,000) in fiscal 2008.
 
Fiscal year ended September 30, 2008 compared to fiscal year ended September 30, 2007
 
Revenues
 
For fiscal 2008, revenue increased $8,463,000, or 15%, to $63,120,000 as compared to $54,657,000 in fiscal 2007.  This increase in revenue is attributable to a full year of operations of the ReStaff Acquisition as opposed to seven months in the prior year, which accounted for approximately $4,867,000 of the increase.   Excluding the ReStaff Acquisition, revenue increased $3,596,000.  This remaining increase was primarily attributable to an increase in revenues provided by the offices acquired in the Stratus and US Temps Acquisitions of $2,110,000 and $78,000, respectively, and an increase in revenues from our engineering, scientists and lab technicians services of $1,462,000.
 
During fiscal 2008, the operations acquired from Stratus Services Group, Inc. in November 2005 (the “Stratus Acquisition”), as well as those acquired in the US Temp Acquisition and ReStaff Acquisition provided revenues of approximately $19,953,000, $17,991,000 and $15,157,000, respectively.  During fiscal 2007, the operations acquired pursuant to the Stratus Acquisition, US Temp Acquisition and ReStaff Acquisition provided revenues of approximately $17,843,000, $17,913,000 and $10,290,000, respectively.
 
Direct cost of services
 
Direct cost of services consists mainly of leased employee direct labor costs, as well as costs of non-leased employees where we are the statutory employer, and other labor related costs.
 
For fiscal 2008, direct cost of services increased $7,693,000, or 16%, to $54,531,000 as compared to $46,838,000 in fiscal 2007. This increase is attributable to a full year of operations of the ReStaff Acquisition as opposed to seven months in the prior year, which accounted for approximately $4,369,000 of the increase.  Excluding the ReStaff Acquisition, direct cost of services increased $3,324,000.  This remaining increase was primarily attributable to the increase in business provided by the offices acquired in the Stratus and US Temps Acquisitions of $2,052,000 and $26,000, respectively and an increase in costs of our engineering, scientists and lab technician services as well.
 
Gross profit
 
For fiscal 2008, gross profit increased $770,000 or 10%, to $8,589,000, as compared to $7,819,000 in fiscal 2007.  As a percentage of revenue, gross profit for fiscal 2008 decreased to 13.6% as compared to 14.3% in the prior year, primarily as a result of changes in the client mix resulting in lower average gross margins and increases in state unemployment insurance rates that could not be passed along to clients.
 
Selling, general and administrative expenses
 
Selling, general and administrative expenses includes the labor, marketing, corporate overhead and other costs not directly associated with generating revenue such as costs associated with the acquisition and retention of clients, occupancy, administrative labor, benefit plan administration, professional fees and other operating expenses.
 
For fiscal 2008, selling, general and administrative expenses increased $1,044,000, or 16%, to $7,573,000, as compared to $6,529,000 in fiscal 2007.  Selling, general and administrative expenses include non-cash charges for stock based compensation expense of $291,000 for fiscal 2008 compared with $29,000 in fiscal 2007.  As a percentage of revenue, selling, general and administrative expenses were comparable at 12.0% during fiscal 2008 compared to 11.9% during fiscal 2007.  The overall increase in selling, general and administrative expenses in fiscal 2008 reflected the overall increase in business activity, higher stock based compensation expense, as well as investments throughout the organization to support strategic initiatives.

 
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Depreciation and amortization
 
For fiscal 2008, depreciation and amortization increased $124,000, or 39%, to $445,000, as compared to $321,000 in fiscal 2007.  The current year’s increase is primarily attributable to a full year of operations of the ReStaff Acquisition as opposed to seven months in the prior year.
 
Income from operations
 
As a result of the above, income from operations was $571,000 for fiscal 2008 versus $969,000 in fiscal 2007, representing a decrease of 41%.
 
Interest expense
 
Interest expense includes the net discounts associated with the sales of accounts receivable, as well as interest on debt associated with acquired companies and financing our operations.  We have historically issued debt as a primary means of funding our growth.  Consequently, interest expense for fiscal 2008 was $834,000, as compared to $895,000 in fiscal 2007, representing a decrease of 7%.  This decrease is attributable to a reduction in the amount of debt outstanding that occurred during the second quarter of fiscal 2008.  We reduced outstanding indebtedness incurred in the ReStaff Acquisition by $1,448,000 as well as issuing unregistered common stock in exchange for $470,000 of other outstanding notes payable.  In addition, the reduction in the federal prime lending rate from 7.75% in effect at the beginning of fiscal 2008 to 5.00% at the end of fiscal 2008 resulted in lowered interest expense on our sold accounts receivable.
 
Loss on goodwill impairment
 
Loss on goodwill impairment of $148,000 relates to the write off of costs capitalized in connection with a planned reverse merger with Hyperion Energy, Inc. which did not occur.
 
Net loss on debt extinguishments
 
Net loss on debt extinguishments of $100,000 was measured as the difference between the fair value of unregistered common stock issued and the remaining outstanding principal and accrued interest on the debt that was converted during the second quarter of fiscal 2008.
 
Net (loss) income from continuing operations
 
The factors described above resulted in a net loss from continuing operations for fiscal 2008 of ($511,000), as compared to a net income from continuing operations of $74,000 in fiscal 2007.
 
Loss from discontinued operations
 
Loss from discontinued operations for fiscal 2008 of ($172,000) and fiscal 2007 of ($258,000) relates to the results of the discontinued CPA Partner on Premise Program.
 
Net loss
 
The factors described above resulted in a net loss for fiscal 2008 of ($683,000), as compared to a net loss of ($184,000) in fiscal 2007.

 
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Contractual Obligations
 
The following summarizes our contractual obligations and commercial commitments as of September 30, 2009:
 
Contractual
Obligations and
Commitments
 
Total
   
Less than
1 year
   
1-3 years
   
3-5 years
   
More than
5 years
 
                               
Long-term debt, including interest
  $ 2,188,000     $ 1,386,000     $ 802,000     $ -     $ -  
Operating leases
    1,969,000       508,000       673,000       558,000       230,000  
                                         
Total contractual obligations and commitments
  $ 4,157,000     $ 1,894,000     $ 1,475,000     $ 558,000     $ 230,000  
 
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted in a separate section of this report commencing on Page F-1.
 
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.
 
ITEM 9A(T).
CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
 
As required by SEC Rule 13a-15(b) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report.  Based on this evaluation, we noted that certain changes to the design of our disclosure controls and procedures had not been made that were necessary to reflect significant changes that occurred in our senior management and board of directors.  Due to this, our Chief Executive Officer and Chief Financial Officer each concluded that our disclosure controls and procedures were not effective as of September 30, 2009.
 
Management’s Report on Internal Control Over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act.  This system is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
A company’s internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 
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A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
 
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2009.  In making its assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.  Based upon this assessment, management has concluded that there was a material weakness in internal control over financial reporting related to accounting procedures for customer billings and accounts receivable balances at the “reasonable assurance” level as of September 30, 2009.
 
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
 
Remediation of Material Weaknesses in Disclosure Controls and Internal Control Over Financial Reporting.
 
Our plans to remediate the material weaknesses and deficiency in the design of our disclosure controls and procedures identified above include the following:
 
 
1.
Implement additional required billing and accounts receivable procedures.   Additional procedures have been put in place, subsequent to September 30, 2009, to proactively identify and track customer contracts and to compare newly issued customer invoices to the terms of these customer contracts.  We will also require that material customer accounts receivable balances are periodically compared to accounts payable statements received from customers.
 
 
2.
Define the roles and responsibilities of new senior management as they relate to proper disclosure controls and procedures.  We are currently in the process of defining and documenting the roles and responsibilities of new senior management as they relate to proper disclosure controls and procedures.
 
Although we believe the execution of these plans will improve our systems of disclosure controls and internal controls over financial reporting, the effectiveness of these plans, once executed, will be subject to testing by us and our independent registered public accounting firm and there can be no assurance at this time that these plans will effectively remediate the material weaknesses described above.
 
Changes in Internal Control Over Financial Reporting
 
In connection with management’s review of its internal control over financial reporting, we made the following changes during the fourth quarter of fiscal 2009, which are reasonably likely to materially affect our internal control over financial reporting:  a) we updated our documentation of accounting procedures for significant accounting processes such as billings, cash receipts, payroll, accounts payable, cash disbursements, equity accounting, debt accounting, and general ledger transactions, b) we have instituted additional review and approval procedures for general ledger account reconciliations and journal entries, and c) we have instituted additional review and approval procedures for cash disbursements.
 
ITEM 9B.
OTHER INFORMATION.
 
None.

 
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PART III
 
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
The Board of Directors and Officers
 
The name and age of each of our  directors and the executive officers of the Company and their respective positions with us are set forth below.  Additional biographical information concerning each of the directors and the executive officers follows the table.
 
Name
 
Age
 
Title
         
Jay H. Schecter
 
56
 
Chief Executive Officer and Director
John Messina
 
42
 
President and Director
Stephen DelVecchia
 
40
 
Chief Financial Officer
Mark S. Levine
 
48
 
Chief Operating Officer
Norman Goldstein
 
68
 
Director
Robert Cassera
 
47
 
Director
Joseph Cassera
 
50
 
Director
 
Jay H. Schecter was appointed Chief Executive Officer in March 2009.  Mr. Schecter has served as a Director of Accountabilities since December 2006 and as an officer with TSE since 1999, overseeing the areas of corporate strategic planning, credit and finance and legal.  From 1984 until joining TSE, Mr. Schecter served as Senior Vice President of Kaufman Astoria.
 
John Messina was appointed President in March 2009.  Mr. Messina joined the Accountabilities’ Board of Directors in April 2007 and is currently Executive Vice President of TSE, and has been with TSE since 1997.  Prior to joining TSE, Mr. Messina worked in the transportation industry and has been an entrepreneur in several small businesses.
 
Stephen DelVecchia joined Accountabilities as Chief Financial Officer in March, 2007.  Prior thereto, he was employed by Geller and Company LLC, where he functioned as the Chief Financial Officer of the firm as well as Co-Chief Operating Officer of the private equity services division.  From 2000 to 2003 he was with Corbis Motion LLC, a media licensing and services company, where he also functioned as Chief Financial Officer as well as Chief Operating Officer of the research subsidiary.  From 1999 to 2000, Mr. DelVecchia was CFO for GSV Inc., a publicly traded company where he was responsible for all SEC compliance and capital market placements.  From 1996 to 1999, Mr. DelVecchia led the financial reporting and compliance group for Barnes and Noble, Inc., a book retailer where he led all SEC compliance, reporting and audit functions.  Mr. DelVecchia earned his CPA license while an auditor with Grant Thornton LLP.
 
Mark S. Levine joined Accountabilities as Chief Operating Officer in February, 2007.  From 2001 until joining Accountabilities, he served as Executive Vice President of Accretive Solutions, Inc., a professional staffing services firm.  From 1997 until 2001, he was Chief Marketing Officer of Stratus Services Group, Inc., a national staffing firm.  From 1995 until 1997, Mr. Levine was Regional Vice President of Corestaff Services, Inc., a staffing services provider.  From 1993 until 1995, Mr. Levine was employed in various capacities by Norrell Services, including Regional Vice President.
 
Norman Goldstein has served as a Director of Accountabilities since December 2006.  He has served as the President and CEO of NGA Inc., an export/import company primarily dealing in the importation, sale and distribution of all types of flat glass products throughout the USA since 2000.  Prior to his association with NGA Inc., Mr. Goldstein formed Norwell International, which acquired a small glove company and engaged in the business of latex gloves and other related medical/dental products.  In the year 2000, Mr. Goldstein sold Norwell International to one of the largest glove manufacturers in Malaysia (Asia Pacific Ltd.).
 
Robert Cassera has served as a Director of Accountabilities since February 2009.  Mr. Cassera is the founder, sole owner, and has been the president and director of TSE since 1993.  TSE itself and through several wholly-owned subsidiaries, including Tri-State Employment Service, Inc. and TS Staffing Corp, primarily offers temporary staffing and related services to municipalities and privately-held and public companies as well as Professional Employer Organization and ancillary services to privately-held and public companies.
 
Joseph Cassera has served as a Director of Accountabilities since September 2009.  Mr. Cassera is currently Vice President of Operations of TSE, and has been with TSE since 2001.  Prior to joining TSE, Mr. Cassera served as the Senior Network Administration overseeing information technology operations and other wide area network activities for Siemens AG from 1986 to September 2001.

 
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Code of Ethics and Business Conduct
 
We are in the process of developing a Code of Ethics and Business Conduct that will apply to all of our directors, officers and employees, including our Chief Executive Officer, our Chief Financial Officer and other senior financial officers.  Upon adoption, we intend to post the Code of Ethics and Business Conduct on our website, and we intend to disclose on our website any amendment to, or waiver of, a provision of the Code of Ethics and Business Conduct that applies to our Chief Executive Officer, our Chief Financial Officer or our other senior financial officers.
 
Audit Committee Financial Expert
 
Our Board of Directors has designated Norman Goldstein as the Audit Committee’s financial expert.  Mr. Goldstein is considered “independent” under NASD Rule 4200(a) (15).  Stockholders should understand that this designation is a disclosure requirement of the SEC related to Mr. Goldsteins experience and understanding with respect to certain accounting and auditing matters.  The designation does not impose upon Mr. Goldstein any duties, obligations or liabilities that are greater than are generally imposed on him as a member of the Audit Committee and the Board of Directors, and his designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liabilities of any other member of our Audit Committee or the Board of Directors.
 
Compliance with Section 16(a) of the Exchange Act
 
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.  Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Forms 3, 4 and 5 they file.
 
Based solely on our review of the copies of such forms we have received, we believe that all of our executive officers, directors and greater than ten percent stockholders complied with all filing requirements applicable to them with respect to events or transactions during fiscal 2009, except that Thomas Cassera, Elliot Cole, Norman Goldstein, John Messina, Kathy Raymond, Jeff Raymond, Jay Schecter, John Trippiedi, TSE and Peter Ursino were late in filing Forms 3 required to be filed and to our knowledge Ronald Shapss has not filed a Form 3 as required.
 
ITEM 11.
EXECUTIVE COMPENSATION
 
Overview of Our Compensation Policy
 
Until September 2007, our Board of Directors reviewed and approved the annual compensation for our executive officers.  In September 2007, the Board of Directors appointed a Compensation Committee, consisting of Elliot Cole and Norman Goldstein, which pursuant to its charter has the responsibility of evaluating and approving compensation of directors and officers and formulating our compensation policy in the future.  In May, 2008 we were advised of the resignation of Elliot Cole from the Board of Directors and consequently, as a member of the Compensation Committee, leaving Norman Goldstein as the sole remaining member of the committee.  Our charter requires us to have a minimum of two members on the Compensation Committee; and therefore, as of the date of Mr. Cole’s resignation, the responsibilities of the Compensation Committee have been assumed by the Board of Directors.  To date, the primary objective of the compensation policy, including the executive compensation policy, as administered by the Board of Directors, has been to help attract and retain experienced, talented leaders who have the intelligence, drive and vision to guide us through the challenge of managing our existing business, and to develop new business initiatives.  This policy has been designed to reward the achievement of annual and long-term strategic goals aligning executive performance with company growth and shareholder value.  As a result of limited resources and a lack of profitability to date, the administration of our policy has not yet included the award of any significant cash bonuses.  The Board of Directors has endeavored to promote an ownership mentality among key management and the Board of Directors, and thus rewards to members of management and other key employees to date have been primarily in the form of restricted stock grants.
 
The compensation policy administered by the Board of Directors has been designed to reward performance.  In measuring executive officers’ contribution to us, the Board of Directors has considered numerous factors, including our growth and financial performance as measured by revenue, gross margin and net income before taxes among key performance indicators; however, compensation to our executive officers in 2009 consisted, for the most part, of base salaries that were determined pursuant to employment agreements or other arrangements in place with such officers.

 
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Regarding most compensation matters, including executive and director compensation, management provides recommendations to the Board of Directors.  In addition, inasmuch as certain executive officers have been members of the Board, their views as to their own compensation have been taken into account by the Board.  Until September 2007 when it established the Compensation Committee, the Board of Directors did not delegate any of its functions to others in setting compensation; however, in September 2007, the Board authorized the grant of restricted stock awards with respect to 1,500,000 shares of our common stock to key employees and others who contribute to our success , and authorized Allan Hartley, our President at that time, and Stephen DelVecchia, our Chief Financial Officer, to designate the recipients of such awards after consultation with an outside consultant.  These awards, which were designated to reward contributions in fiscal 2007 and promote continued contributions to our growth and success in the future, were made in January 2008.  Prior to September 2007, the Board of Directors did not engage any consultant related to executive and/or director compensation matters.
 
Stock price performance has not been a factor in determining annual compensation because the price of our common stock is subject to a variety of factors outside of management’s control.  The Board of Directors does not subscribe to an exact formula for allocating cash and non-cash compensation, and no equity based compensation was awarded during fiscal 2009 whereas awards were made to existing employees and new hires during fiscal year 2008.  Neither the Board of Directors nor the Compensation Committee has developed formal guidelines to use for allocating compensation between cash and non-cash compensation; however, the Board of Directors believes that long-term performance can be enhanced through an ownership culture that encourages long-term participation by executive officers in equity based awards, and it is anticipated that the Compensation Committee (or Board of Directors, as applicable) will take into account the liquidity and market price of equity to be awarded, publicly available data for other comparable companies, the number of shares and options held by members of management and our cash position in determining the appropriate allocation.  It is anticipated that in making such allocations, the Compensation Committee (or Board of Directors, as applicable) will balance our need to limit cash expenditures with the expectations of those individuals that it hopes to recruit and retain as employees, and that incentive compensation will be split between cash and equity in a ratio designed to best motivate the executives after taking into account available resources.
 
Elements of Our Compensation Plan
 
The principal components of compensation for our executive officers are:
 
 
·
base salary;
 
·
performance-based incentive cash compensation;
 
·
stock awards; and
 
·
retirement and other benefits.
 
Base salary, performance based awards and stock awards may be tailored to best fit an executive officer’s specific circumstances or if required by competitive market conditions for attracting and retaining skilled personnel.  Factors considered include the individual’s particular background and circumstances, including training and prior relevant work experience, and comparison to other executives within our company having similar levels of experience.  Compensation paid in fiscal 2009, 2008 and  2007 to executive officers was primarily determined by reference to the initial compensation arrangement agreed to when each executive officer joined us and for certain executive officers, including Mr. DelVecchia and Mr. Levine, the employment agreements between them and us.
 
Base Salary
 
We provide certain of our named executive officers and other employees with base salary to compensate them for services rendered during the fiscal year.  Base salary ranges for named executive officers are determined for each executive based on his or her position and responsibility.
 
Base salaries of our most highly compensated executives during fiscal 2009 and 2008 were primarily established by the terms of employment agreements with these executives.  During its review of base salaries for executives, the Board primarily considered:
 
 
·
market data, which generally consisted of publicly available filings of other professional staffing and workforce solutions companies, including Spherion Corp., Westaff Inc., Resources Connection, Inc. and Kforce, Inc.;
 
·
internal review of the executives’ compensation, both individually and relative to other officers; and
 
·
individual performance of the executive.
 
Salary levels are typically evaluated annually as part of our performance review process as well as upon a promotion or other change in job responsibility.  We have not established specific quantitative performance goals for individual executives.  In as much as we have only a limited operating history with respect to our current business, and the level of compensation which could be paid to our executive officers has been limited by available resources, annual performance reviews have not been a material element of determining compensation.  It is anticipated that the Board of Directors, or the Compensation Committee that may be formed, will develop more formal review procedures and criteria as our business matures and resources become more available.

 
24

 
 
Performance-Based Incentive Compensation
 
The Board has made awards of our common stock to officers and other employees to promote high performance and achievement of corporate goals, encourage the growth of stockholder value and allow key employees to participate in our long-term growth and profitability.  In March 2008, Mr. DelVecchia and Mr. Levine were granted restricted stock awards with respect to 450,000 and 200,000 shares of common stock, respectively, which more closely aligned the equity based component of Mr. DelVecchia’s compensation to date with that of Mr. Levine.  The award of stock assists us in:
 
 
·
enhancing the link between the creation of stockholder value and long-term executive incentive compensation;
 
·
providing an opportunity for increased equity ownership by executives; and
 
·
maintaining competitive levels of total compensation.
 
Stock award levels vary among participants based on their positions within our company.
 
We have paid only nominal cash bonuses during the past two fiscal years and have not established any specific individual or corporate quantitative and qualitative performance goals for determining future performance based incentive compensation, except to the extent that executive officers are entitled to such compensation pursuant to employment agreements.  Incentive compensation payable under employment agreements is based upon a percentage of earnings before income taxes, depreciation and amortization or net profit.  Other than nominal bonuses awarded to a limited number of employees, no bonuses were paid with respect to fiscal 2009 or 2008 because we did not achieve profitability.  The Board of Directors or Compensation Committee has not yet developed a policy with respect to how incentive cash compensation will fit within its overall compensation philosophy but it is anticipated that any such policy will be influenced by competitive market conditions for attracting and retaining skilled personnel.
 
Stock Plans
 
We did not have an established employee stock purchase plan, option plan or equity award plan in place until the Board adopted the Accountabilities, Inc. Equity Incentive Plan in September 2007.  The Equity Incentive Plan provides for the grant of stock options, stock appreciation rights and restricted stock awards to employees, directors and other persons in a position to contribute to the growth and success of our company.  A total of 2,000,000 shares of our common stock have been reserved for issuance under the Equity Incentive Plan. During fiscal 2008, restricted stock awards with respect to 1,403,000 shares were made to eligible participants.
 
Perquisites and Other Personal Benefits
 
We provide some executive officers with perquisites and other personal benefits that the Board believes are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions.  The Board periodically reviews the levels of perquisites and other personal benefits provided to named executive employees.
 
Each of our employees is entitled to receive medical and dental benefits and part of the cost is funded by the employee.

 
25

 
 
Summary Compensation Table
 
The following table sets forth information concerning the total compensation awarded to, earned by or paid during the fiscal years ended September 30, 2009 and 2008 to our Chief Executive Officer and two most highly compensated executive officers who earned in excess of $100,000 during fiscal 2009, whom we sometimes refer to herein as the “Named Officers”.
 
Name and
Principal Position
 
Fiscal
Year
 
Salary ($)
   
Bonus
($)
   
Stock
Awards ($)
   
Option
Awards
($)
   
Non-Equity
Incentive Plan
Compensation
($)
   
Nonqualified
Deferred
Compensation
Earnings ($)
   
All Other
Compensation
($) (4)
   
Total
($)
 
Jay Schecter,
 
2009
    -       -       -       -       -       -       -       -  
CEO (1)
 
2008
    -       -     $ 1,196 (3)     -       -       -       -     $ 1,196  
                                                                     
Jeffrey J. Raymond
 
2009
  $ 55,677       -       -       -       -       -     $ 4,354     $ 60,031  
Former CEO (2)
 
2008
  $ 21,600       -       -       -       -       -       -     $ 21,600  
                                                                     
Stephen DelVecchia
 
2009
  $ 176,726       -     $ 45,485 (3)     -       -       -     $ 6,000     $ 228,212  
Chief Financial Officer
 
2008
  $ 155,631     $ 793     $ 77,470 (3)     -       -       -     $ 6,000     $ 239,894  
                                                                     
Mark S. Levine
 
2009
  $ 176,881       -     $ 52,390 (3)     -       -       -     $ 9,600     $ 238,871  
Chief Operating Officer
 
2008
  $ 212,029       -     $ 46,410 (3)     -       -       -     $ 9,600     $ 268,039  
 

 
 
(1)
Mr. Schecter was appointed Chief Executive Officer in March 2009.   Mr. Schecter does not receive a salary from us.  In January 2008, each member of the Board of Directors, including Mr. Schecter was granted 20,000 shares of restricted common stock.
 
(2)
Mr. Raymond served as Chief Executive Officer from May 2008 until March 2009.  The table presented above does not reflect compensation paid to a consulting firm through which Mr. Raymond provided services to us in fiscal 2008 prior to his becoming an executive officer.  Beginning in November 2009, Mr. Raymond began providing consulting services to us.
 
(3)
Represents compensation expense recorded with respect to a grant of restricted stock which assumes stock vests over the full vesting period and which is based upon the market price of the stock awarded as discounted by 35% to reflect (a) certain sale restrictions and lack of liquidity and (b) recent private placement valuations of similarly restricted securities.
 
(4)
Represents automobile lease payments.

 
26

 
 
Outstanding Equity Awards at Fiscal Year-End
 
The following table provides information about all equity compensation awards held by the Named Executive Officers as of
September 30, 2009:
 
OUTSTANDING EQUITY AWARDS

   
Option Awards
   
Stock Awards
 
Name
 
Date of
Grant
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
   
Equity Incentive
Plan Awards: 
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
   
Option
Exercise
Price
($)
   
Option
Expiration
Date
   
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
   
Market Value of
Shares or Units of
Stock That Have Not
Vested
($) (4)
   
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
   
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)
 
Jay Schecter,
 
1/31/08
    -       -       -       -       -       13,333 (1)   $ 5,467       -        
Chief Executive Officer
                                                                           
                                                                             
Stephen DelVecchia,
 
03/5/07
    -       -       -       -       -       20,000 (2)   $ 8,200       -        
Chief Financial Officer
 
1/31/08
    -       -       -       -       -       150,000 (2)   $ 61,500                  
                                                                             
Mark Levine,
 
01/30/07
    -       -       -       -       -       300,000 (3)   $ 123,000       -       -  
Chief Operating Officer
 
1/31/08
    -       -       -       -       -       133,333 (1)   $ 54,667                  
 
(1)
Represents an award of restricted stock that vests in equal annual installments on January 31, 2010 and 2011.
(2)
Represents an award of restricted stock that vests in equal annual installments, with the final installment to vest on March 5, 2010.
(3)
Represents an award of restricted stock that vests in equal annual installments on January 30, 2010, 2011 and 2012.
(4)
Represents closing price per share as reported by the Over-the-Counter quotation system on September 30, 2009 multiplied by the number of shares that had not vested as of such date.
 
Compensation of Our Board of Directors
 
Each member of the Board of Directors was granted 20,000 shares of restricted common stock in January 2008.  These shares vest in three equal installments on January 31, 2009, 2010 and 2011.
 
Name
 
Fees Earned
or Paid in
Cash
   
Stock
Awards (1)
   
Option
Awards
   
Non-Equity
Incentive Plan
Compensation
   
Nonqualified
Deferred
Compensation
Earnings
   
All Other
Compensation
   
Total
 
                                           
Norman Goldstein
    -     $ 1,794       -       -       -       -     $ 1,794  
                                                         
John Messina
    -     $ 1,794       -       -       -       -     $ 1,794  
                                                         
Alan Hartley (former Director)
    -     $ 1,794       -       -       -       -     $ 1,794  

(1)
Represents compensation expense recorded with respect to a grant of restricted stock in 2008 which assumes stock vests over the full vesting period and which is based upon the market price of the stock awarded as discounted by 35% to reflect (a) certain sale restrictions and lack of liquidity and (b) then recent private placement valuations of similarly restricted securities.

 
27

 
 
Potential Payments Upon Termination of Employment or Change of Control; Employment Agreements
 
We entered into an employment agreement in January 2007 with Mark Levine, our Chief Operating Officer, which provides for an annual base salary of $230,000 per annum and entitles Mr. Levine to an annual bonus of $25,000 or 2% of our earnings before interest, taxes and amortization, whichever is greater, and options to acquire 500,000 shares of our common stock at a purchase price of $.005 per share which vest at a rate of 100,000 shares per year.  We subsequently issued 500,000 shares of restricted stock to Mr. Levine in lieu of such options.  The agreement, which has an indefinite term, provides that Mr. Levine is entitled to three months severance pay, payable over a three month period if he is terminated without cause.  The Board of Directors approved this severance package based upon the caliber of services Mr. Levine brings to us and the competition we faced in filling this position.  As of September 30, 2009, the amount of severance compensation that would be payable to Mr. Levine in the event of a termination without cause would be $57,500. In the event that Mr. Levine’s employment terminates for any reason, he would forfeit any shares which had not vested as of the date of termination.
 
In March 2007, we entered into an employment agreement with Stephen DelVecchia, our Chief Financial Officer, which provides for an annual base salary of $150,000 for the first 90 days of employment, and $165,000 thereafter, and a profit sharing bonus of 1.5% of our net profit, but not in excess of 100% of base salary.  Mr. DelVecchia was issued 60,000 restricted shares of our common stock pursuant to the agreement, which vest at a rate of 20,000 shares per annum over a three year period.  The agreement, which has an indefinite term, provides for one month of severance pay if the agreement is terminated by us for any reason other than cause (as defined in the agreement), death or disability, or if the agreement is terminated by Mr. DelVecchia for good reason.  The Board of Directors approved this severance package based upon the caliber of services Mr. DelVecchia brings to us and the competition we faced in filling this position.  As of September 30, 2009, the amount of severance compensation that would be owed to Mr. DelVecchia in the event of a termination by us without cause or by Mr. DelVecchia for good reason would be $13,750, payable over a one month period.  If there is any material change in the ownership of our company, whether by purchase, merger, consolidation or otherwise, we are required to use our best efforts to secure the assumption of the agreement by successor ownership.  Failure of our company to obtain such assumption shall entitle Mr. DelVecchia to one month’s severance pay.  In the event that Mr. DelVecchia’s employment terminates for any reason, he would forfeit any shares which had not vested as of the date of termination.  In addition, Mr. DelVecchia was awarded a nominal bonus of $793 in fiscal 2008 to award his contributions to the financial management and reporting functions of our company.
 
In agreeing to the severance provisions with Mr. Levine and Mr. DelVecchia, our Board of Directors believed that these provisions were necessary to induce them to accept employment with our company, and that such provisions are relatively common for chief operating officers and chief financial officers.  Differences between the severance arrangements with Mr. Levine and Mr. DelVecchia are primarily a result of the negotiations that took place between our company and such officers.

 
28

 
 
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as of December 14, 2009 with respect to our common shares beneficially owned by (i) each director and executive officer, (ii) each person known to us to beneficially own more than five percent of its common shares, and (iii) all executive officers and directors as a group.  Except as otherwise indicated, the mailing address for each person listed in the table is 160 Broadway – 11th Floor, New York, NY 10038.
 
   
Amount and
   
Percentage
 
   
Nature of
   
Of
 
   
Beneficial
   
Outstanding
 
Name
 
Ownership
   
Shares
 
Norman Goldstein
    870,000 (1)     3.6  
Jay Schecter
    20,000       *  
John Messina
    220,000       *  
Mark Levine
    762,500       3.2  
Stephen DelVecchia
    545,000       2.3  
Jeffrey J. Raymond
    2,633,334 (2)     11.1  
Robert Cassera
    13,532,874 (3)     57.2  
All Executive Officers and Directors as a Group (7 persons)
    18,583,708       78.5  
                 
Tri-State Employment Services, Inc.
    13,532,874 (3)     57.2  
Kathy Raymond
    2,633,334 (2)     11.1  
 
*
Less than 1%
 
(1)
Includes 250,000 shares issuable upon conversion of convertible note.  The remaining 620,000 shares are owned by NGA, Inc. a corporation of which Mr. Goldstein is the sole shareholder.
 
(2)
Represents 2,423,334 shares owned by Pylon Management, Inc.150,000 shares owned by Washington Capital, LLC, 50,000 shares owned by Kathy Raymond, and 10,000 shares owned by Thomas Dietz.  Pylon Management, Inc. and Washington Capital, LLC are owned by Kathy Raymond who is the spouse of Jeffrey J. Raymond, and Thomas Dietz is the son of Kathy Raymond.
 
(3)
Based in part upon the Schedule 13D filed with the SEC on March 16, 2009 by Robert Cassera, an individual (“Cassera”), John P. Messina, Sr., an individual (“Messina”), Thomas Cassera, an individual (“TC”), Peter Ursino and his wife, Maria Ursino, individuals (collectively “Ursino”), John Trippiedi and his wife, Yolanda Trippiedi, individuals (collectively “Trippiedi”), and Tri-State Employment Services, Inc., a Nevada corporation (“TSE”), and Amendment No. 1 thereto filed with the SEC on August 25, 2009 by Cassera, Messina, TC, Ursino, Trippiedi, TSE, and Jay H. Schecter (“Schecter”).  Includes 12,795,274 shares beneficially owned by TSE.  Cassera has sole voting and dispositive power of the shares owned by TSE by reason of his direct ownership and control of TSE.  Includes 220,000 shares beneficially owned by Messina.  Messina has sole voting and dispositive power of all of the shares owned by Messina.  Includes 455,600 shares beneficially owned by TC.  TC has sole voting and dispositive power of all of the shares owned by TC.  Includes 30,000 shares beneficially owned by Ursino.  Maria Ursino and Peter Ursino each share voting and dispositive power of all of the shares owned by Ursino.  Includes 12,000 shares beneficially owned by Trippiedi.  John and Yolanda Trippiedi each share voting and dispositive power of all of the shares owned by Trippiedi.  4,000 of the shares beneficially owned by Trippiedi are owned of record by two accounts of which Trippiedi is custodian created pursuant to the Uniform Gift to Minors Act for the benefit of Trippiedis two children.  Includes 20,000 shares beneficially owned by Schecter.  Schecter has sole voting and dispositive power of all of the shares owned by Schecter.  The business address of each of the reporting persons is 160 Broadway, 15th Floor, New York, New York 10038.
 
(4)
Mr. Raymond ceased serving as an executive officer on March 30, 2009.
 
29

ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
During the fiscal year ended September 30, 2007, as payment of a finder’s fee in connection with an acquisition transaction, we issued Pylon Management, Inc. 300,000 shares of our unregistered common stock and a $274,000 note bearing interest at 9% and payable in 104 equal weekly installments of $2,885.  During fiscal 2009 and 2008, payments under the note aggregated $75,000 and $150,000.  In addition, during the fiscal years ended September 30, 2009 and 2008, we paid $99,933 and $129,514, respectively, to Pylon Management, Inc. in consideration of consulting services rendered.  Pylon Management, Inc. and Washington Capital LLC are owned by Kathy Raymond, the spouse of our former Chief Executive Officer, Jeffrey J. Raymond. In addition, TSE paid $1,500 per week to Pylon Management, Inc. during 2008 and 2009 for consulting services provided by Mr. Raymond to TSE.
 
In April 2006, Norman Goldstein, who was appointed as our director in December 2006, loaned us $280,000, which was evidenced by an unsecured convertible note bearing interest at a rate of 1% per month.  On October 31, 2007, we entered into a forbearance agreement with Mr. Goldstein wherein Mr. Goldstein agreed to waive defaults and refrain from exercising his rights and remedies against us until October 31, 2008 in exchange for an increase in the interest rate to 18%.  On January 31, 2008, Mr. Goldstein exchanged the note, which had an outstanding balance of $200,000, for 600,000 unregistered shares of our common stock and a new unsecured convertible note in the principal amount of $100,000 due October 31, 2008.  The new note bears interest at an annual rate of 12% and is convertible at any time at the option of Mr. Goldstein, at a specified price of $0.40 per share.  The $100,000 is now past due and payable on demand, and bears interest at a rate of 18% per year.
 
We lease the majority of our workers from TSE, a professional employment organization and beneficial owner with its affiliates of approximately 57% of our common stock.  We lease employees in order to mitigate certain insurance risks and obtain greater employee benefits at more advantageous rates via TSE’s much larger scale.  Employees are leased from TSE based upon agreed upon rates which are dependent upon the individual employee’s compensation structure, as agreed to between us and the employee.  The total amount of leasing costs charged by TSE during the fiscal years ended September 30, 2009 and 2008 was $52,538,000 and $59,268,000, respectively.  TSE charges us its current market rate that it charges its other customers.  While Mr. Schecter and Mr. Messina do not receive compensation directly from us and we do not reimburse TSE for Mr. Schecter or Mr. Messina’s services, Mr. Schecter and Mr. Messina do receive, pursuant to TSE’s standard commission policies, commission based payments from TSE, equaling 0.1% (for Mr. Schecter) and 0.15% (for Mr. Messina) of the gross payroll portion of the leasing costs we pay to TSE.
 
In addition, in the second fiscal quarter of 2009, we received advances totaling $212,000 from TSE.  Also, in connection with certain amendments to the receivable sale agreement with the financial institution to which we sell our receivables, TSE has agreed to provide $250,000 in short term cash advances to us if necessary.  As of the date of this Annual Report on Form 10-K, no payments have been made on this commitment.  TSE has also agreed to fully guarantee the incremental increase in the overadvance under the receivable sale agreement, the balance of which was $266,496 as of December 11, 2009, as well as the weekly payments of $9,500 related to such overadvance.
 
In order to finance portions of the purchase price of an acquisition, we entered into a borrowing arrangement with TSE in 2007 pursuant to which up to $950,000 was eligible to be borrowed without interest.  As consideration for the loan, TSE was granted 600,000 unregistered shares of our common stock.  We borrowed and subsequently repaid $450,000 in March 2007, and borrowed the balance of $500,000 in June 2007 which was payable in equal weekly installments of $10,000.  During fiscal 2008, payments under the arrangement aggregated $228,000.  In March 2008, we issued 1,000,000 unregistered shares of our common stock to TSE in exchange for consideration of $200,000, which consisted of the cancellation of the remaining outstanding balance of the loan of $120,000, the cancellation of $26,000 of outstanding invoices payable and $54,000 in cash.
 
During the second quarter of 2008, we sold 1,107,500 unregistered shares of our common stock to certain employees, directors and existing shareholders, including Mark Levine (62,000 shares); Stephen DelVecchia (35,000 shares); John Messina (100,000 shares); and Kathy Raymond (50,000 shares) at a price of $0.20 per share.
 
During the third quarter of 2008, we entered into a stock purchase agreement with TSE pursuant to which TSE purchased 1,000,000 unregistered shares of common stock at a fair value of $0.20 per share.  We received a non-interest bearing note from TSE for $200,000 to finance the purchase.  As of September 30, 2008, the note had been paid in full by TSE.
 
In September 2007, the Board appointed an Audit Committee consisting of Mr. Cole and Mr. Goldstein.  In accordance with the Audit Committee Charter, any proposed transactions between our company and related parties were to be subject to the review and approval of the Audit Committee. In May 2008, we were advised of the resignation of Mr. Cole from the Board of Directors and consequently, as a member of the Audit Committee, leaving Mr. Goldstein as the sole remaining member of the committee.  Our charter requires us to have a minimum of two members on the Audit Committee and; therefore, as of the date of Mr. Cole’s resignation the responsibilities of the Audit Committee have been assumed by the Board of Directors.
 
We are currently engaged in discussions with TSE regarding potential transactions to improve our balance sheet and our financial condition.  There can be no assurance that these discussions will result in a transaction or that any transaction entered into would improve our balance sheet or financial condition.

 
30

 
 
Director Independence
 
The Board has affirmatively determined that Mr. Goldstein is an “independent director,” as that term is defined under the rules of the NASDAQ Stock Market.  The non-independent directors are Messrs. Cassera, Messina and Schecter.
 
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
 
Selection of our independent registered public accounting firm is made by the Board of Directors.  Our Board of Directors did not have an Audit Committee until an Audit Committee was established in September 2007.  In May 2008, the Board of Directors again assumed the responsibilities of the Audit Committee as described further in Item 13 of this report.
 
Our financial statements have been audited by Miller, Ellin & Company, LLP , an independent registered public accounting firm, for the fiscal years ended September 30, 2006 through 2008, and, after its acquisition of Miller Ellin in January 2009, by Rosen, Seymour Shapss Martin and Company LLP, an independent registered public accounting firm, for the fiscal year ended September 30, 2009.
 
The following table sets forth the aggregate fees billed to us for the years ended September 30, 2009 and September 30, 2008 by our independent auditors for the fiscal years ended September 30, 2009 and 2008:

   
2009
   
2008
 
             
Audit Fees
  $ 123,000     $ 64,000  
Audit-Related Fees
    -0-       48,000  
Tax Fees
    39,000       9,000  
All Other Fees
    -0-       -0-  
Totals
  $ 162,000     $ 121,000  
 
Audit fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the reviews of the financial statements included in our Forms 10-Q for the fiscal year.  Audit-Related Fees include amounts billed for professional services rendered in connection with our SEC filings and discussions with the SEC that occurred during fiscal 2008 in connection with us becoming a reporting public company.  Our Board of Directors is of the opinion that the Audit-Related Fees charged were consistent with our independent auditors maintaining their independence from us.
 
The Board of Directors has considered whether provision of the non-audit services described above is compatible with maintaining the independent auditors’ independence and has determined that such services did not adversely affect their independence.

 
31

 
 
PART IV
 
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a)           Financial Statements.
 
The index of the financial statements filed herewith is presented on pages F-1.
 
(b)           Exhibit Index.
 
Number
 
Description
2.1
 
Asset Purchase Agreement between Accountabilities, Inc. and Stratus Services Group, Inc. (1)
2.2
 
Asset Purchase Agreement between Accountabilities, Inc. and US Temp Services, Inc. (2)
2.3
 
Asset Purchase Agreement between Accountabilities, Inc. and Restaff Services, Inc. (2)
3.1
 
Amended and Restated Certificate of Incorporation of the Registrant.  (2)
3.2
 
By-Laws of the Registrant.  (3)
10.1 
 
Convertible Note issued by Accountabilities, Inc. to North Atlantic Resources LTD in principal amount of $250,000 (1).
10.2 
 
Form of Warrant issued with respect to 55,986 shares of Accountabilities, Inc. Common Stock. (1)
10.3 
 
Employment Agreement between Accountabilities, Inc. and Allan Hartley. (1) *
10.4 
 
Employment Agreement between Accountabilities, Inc. and Mark Levine. (1) *
10.5 
 
Employment Agreement between Accountabilities, Inc. and Stephen DelVecchia. (1) *
10.6 
 
Convertible Subordinated Note dated March 31, 2006 issued by Accountabilities, Inc. to Bernard Freedman and Alice Freedman Living Trust in principal amount of $675,000. (1)
10.7 
 
Demand Note dated March 31, 2006 issued by Accountabilities, Inc. to Washington Capital in the principal amount of $150,000. (1)
10.8 
 
Subordinated Note dated March 31, 2006 issued by Accountabilities, Inc. to Bernard Freedman and Alice Freedman Living Trust in principal amount of $175,000. (1)
10.9 
 
Promissory Note dated March 31, 2006 issued by Accountabilities, Inc. to Stratus Services Group, Inc. in the principal amount of $80,000. (1)
10.10
 
Consulting Agreement dated March 31, 2006 between Accountabilities, Inc. and William Thomas. (1)
10.11
 
Consulting Agreement dated March 31, 2006 between Accountabilities, Inc. and Jerry Schumacher. (1)
10.12
 
Consulting Agreement dated March 31, 2006 between Accountabilities, Inc. and Washington Capital, LLC. (1)
10.13
 
Convertible Note dated April 1, 2006 to NGA, Inc. in principal amount of $300,000. (1)
10.14
 
Promissory Note dated February 26, 2007 issued by Accountabilities, Inc. to ReStaff Services, Inc. in principal amount of $300,000. (1)
10.15
 
Promissory Note dated February 26, 2007 issued by Accountabilities, Inc. to ReStaff Services, Inc. in principal amount of $2,900,000. (1)
10.16
 
Interim Financing Agreement dated February 23, 2007 between Accountabilities, Inc. and Tri-State Employment Services, Inc. (1)
10.17
 
Stock Purchase Agreement dated November 27, 2006 between Accountabilities, Inc. and Tri-State Employment Services, Inc. (1)
10.18
 
Agreement dated August 1, 2006 between Accountabilities, inc. and Tri-State Employment Services , Inc. (1)
10.19
 
Account Transfer Agreement dated as of March 1, 2007 between Accountabilities, Inc. and Wells Fargo. (1)
10.20
 
Finder’s Fee Agreement dated February 26, 2007 between Accountabilities, Inc. and Pylon Management, Inc. (1)
10.21
 
Accountabilities, Inc. Equity Incentive Plan. (4) **
10.22
 
Temporary Forebearance Agreement dated October 31, 2007 between Accountabilities, Inc. and Washington Capital LLC (4)
10.23
 
Temporary Forebearance Agreement dated October 31, 2007 between Accountabilities, Inc. and Bernard Freedman. (4)
10.24
 
Temporary Forebearance Agreement dated October 31, 2007 between Accountabilities, Inc. and Bernard Freedman. (4)
10.25
 
Temporary Forebearance Agreement dated October 31, 2007 between Accountabilities, Inc. and NGA, Inc. (4)
10.26
 
Exchange Agreement dated January 22, 2008 between Accountabilities, Inc. and North Atlantic Resources, Ltd. (4)
10.27
 
Warrant dated January 22, 2008 issued to North Atlantic Resources, Ltd. (4)
10.28
 
Form of Warrant issued in connection with January 2008 Private Placement. (4)
10.29
  
Stock Purchase Agreement dated March 5, 2008 between Accountabilities, Inc. and Tri-State Employment, Inc. (5)

 
32

 

10.30
 
Exchange Agreement dated January 31, 2008 between Accountabilities, Inc. and NGA, Inc. (5)
10.31
 
Convertible Note dated January 31, 2008 issued to NGA, Inc. in principal amount of $100,000. (5)
10.32
 
Stock Purchase Agreement dated March 5, 2008 between Accountabilities, Inc. and Keystone Capital Resources, LLC. (5)
10.33
 
Form of Stock Purchase Agreement executed in conjunction with sale of 1,107,500 shares of Accountabilities, Inc. common stock for $0.20 per share. (5)
10.34
 
Form of Stock Purchase Agreement executed in conjunction with sale of 100,540 shares of Accountabilities, Inc. common stock for $0.35 per share and warrants to purchase up to 9,800 shares of the Company’s common stock at an exercise price of $0.50 per share. (5)
10.35
 
Form of warrant issued in connection with private placement of 100,540 shares of Accountabilities, Inc. common stock. (5)
10.36
 
Convertible Note Purchase Agreement between Accountabilities, Inc. and North Atlantic Resources LTD, Inc. dated August 6, 2007. (8)
10.37
 
Exchange Agreement dated February 28, 2008 between Accountabilities, Inc. and ReStaff Services, Inc. (6)
10.38
 
Promissory Note dated February 28, 2008 issued by Accountabilities, Inc. to ReStaff Services, Inc. in principal amount of $100,000. (6)
10.39
 
Promissory Note dated February 28, 2008 issued by Accountabilities, Inc. to ReStaff Services, Inc. in principal amount of $1,700,000. (6)
10.40
 
Clarification Addendum to the Asset Purchase Agreement between Accountabilities, Inc. and ReStaff Services, Inc. (6)
10.41
 
Termination of Asset Purchase Agreement; Transfer of Hyperion Energy Common Stock. (6)
10.42
 
Promissory Note dated May 15, 2008 issued by Tri-State Employment Services, Inc. to Accountabilities, Inc. in the principal amount of $200,000. (7)
10.43
 
Stock Purchase Agreement dated May 15, 2008 between Accountabilities, Inc. and Tri-State Employment Services, Inc. (7)
10.44
 
Form of Stock Purchase Agreement utilized in connection with May, 2008 Private Placement. (7)
10.45
 
Temporary Forbearance Agreement dated October 31, 2008 between Accountabilities, Inc. and Bernard Freedman (9)
10.46
 
Temporary Forbearance Agreement dated October 31, 2008 between Accountabilities, Inc. and Bernard Freedman (9)
10.47
 
Temporary Forbearance Agreement dated October 31, 2008 between Accountabilities, Inc. and Washington Capital LLC (9)
10.48
 
Promissory Note dated March 1, 2009 issued by Accountabilities, Inc. to ReStaff Services, Inc. in principal amount of $1,201,097  (10)
10.49
 
Lease dated September 17, 2009 between Accountabilities, Inc. and Braun Management, Inc. as agent for Daror Associates LLC (filed herewith)
24
 
Power of Attorney (located on signature page of this filing).
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
32.1
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith)
32.2
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith)
     
*
 
Constitutes a management contract required to be filed pursuant to Item 14(c) of Form 10-K.
**
 
Constitutes a compensation plan required to be filed pursuant to Item 14 (c) of Form 10-K.
     
Footnote 1
 
Incorporated by reference to similarly numbered Exhibits filed with Amendment No. 2 to the Registration Statement on Form S-4 of Hyperion Energy Inc. as filed with the Securities and Exchange Commission on November 27, 2007.
     
Footnote 2
 
Incorporated by reference to similarly numbered exhibit to the Form 10-12G of the Registrant filed with the Securities and Exchange Commission on January 22, 2008.
     
Footnote 3
 
Incorporated by reference to Exhibit 3.4 to the Form 10SB of Registrant filed with the Securities and Exchange Commission on November 21, 2000.
     
Footnote 4
  
Incorporated by reference to similarly numbered Exhibit to the Form 10-12G/A of the Registrant filed with the Securities and Exchange Commission on March 5, 2008.

 
33

 

Footnote 5
 
Incorporated by reference to similarly numbered Exhibit to the Form 10-12G/A of the Registrant filed with the Securities and Exchange Commission on March 27, 2008.
     
Footnote 6
 
Incorporated by reference to similarly numbered Exhibit to the Form 10-Q of the Registrant filed with the Securities and Exchange Commission on May 15, 2008.
     
Footnote 7
 
Incorporated by reference to similarly numbered Exhibit to the Form 10-Q of the Registrant filed with the Securities and Exchange Commission on August 14, 2008.
     
Footnote 8
 
Incorporated by reference to similarly numbered Exhibit to the Form 10-12G/A of the Registrant filed with the Securities and Exchange Commission on April 15, 2008.
     
Footnote 9
 
Incorporated by reference to similarly numbered Exhibit to the Form 10-Q of the Registrant filed with the Securities and Exchange Commission on February 17, 2009.
     
Footnote 10
 
Incorporated by reference to similarly numbered Exhibit to the Form 10-Q of the Registrant filed with the Securities and Exchange Commission on August 19, 2009.

 
34

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned, thereunto duly authorized.

 
ACCOUNTABILITIES, INC.
     
 
By:  
 Jay H. Schecter
   
Jay H. Schecter
   
Chief Executive Officer
     
 
Date:  December 28, 2009

POWER OF ATTORNEY
 
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Jay H. Schecter and Stephen DelVecchia and each of them, as his true lawful attorney-in-fact and agent, with full power of substitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, together with all the exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and being requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, of his or her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

Signature
 
Title
 
Date
         
/s/ Jay H. Schecter
 
Chief Executive Officer and Director
 
December 28, 2009
Jay H. Schecter
 
(Principal Executive Officer)
   
         
/s/ Stephen DelVecchia
 
Chief Financial Officer
 
December 28, 2009
Stephen DelVecchia
 
(Principal Financial and Accounting Officer)
   
         
/s/ John Messina
 
President and Director
 
December 28, 2009
John Messina
       
         
/s/ Norman Goldstein
 
Director
 
December 28, 2009
Norman Goldstein
       
         
/s/ Robert Cassera
 
Director
 
December 28, 2009
Robert Cassera
       
         
/s/ Joseph Cassera
 
Director
 
December 28, 2009
Joseph Cassera
   
  
 

 
35

 
 
 
INDEX TO FINANCIAL STATEMENTS

ACCOUNTABILITIES, Inc.

   
Page
Report of Independent Registered Public Accounting Firm- 2009
 
F-2
Report of Independent Registered Public Accounting Firm – 2008 and 2007
 
F-3
Balance Sheets as of September 30, 2009 and 2008
 
F-4
Statements of Operations for the Years Ended September 30,2009, 2008 and 2007
 
F-5
Statements of Cash Flows for the for the Years Ended September 30, 2009, 2008 and 2007
 
F-6
Statement of Stockholders Equity for the Years Ended September 30, 2009, 2008 and 2007
 
F-7
Notes to Financial Statements
  
F-8

 
F-1

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Stockholders of
Accountabilities, Inc.

We have audited the accompanying balance sheet of Accountabilities, Inc. (the “Company”), as of September 30, 2009 and the related statements of operations, cash flows and stockholders’ equity (deficit) for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.  The September 30, 2008 and 2007 financial statements were audited by Miller, Ellin & Company, LLP, who merged with Rosen Seymour Shapss Martin & Company LLP as of January 1, 2009, and whose report dated November 14, 2008 expressed an unqualified opinion on those statements.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Accountabilities, Inc. as of September 30, 2009 and the related statements of operations, cash flows and stockholders’ equity (deficit) for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Rosen Seymour Shapss Martin & Company LLP
CERTIFIED PUBLIC ACCOUNTANTS

New York, New York
December 21, 2009

 
F-2

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Stockholders of
Accountabilities, Inc.

We have audited the accompanying balance sheet of Accountabilities, Inc. (the “Company”), as of September 30, 2008  and the related statements of operations, cash flows and stockholders’ equity (deficit) for the years ended September 30, 2008 and 2007.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also 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 financial statements referred to above present fairly, in all material respects, the financial position of Accountabilities, Inc. as of September 30, 2008 and the related statements of operations, cash flows and stockholders’ equity (deficit) for the years ended September 30, 2008 and 2007 in conformity with accounting principles generally accepted in the United States of America.

/s/ Miller, Ellin & Company, LLP
CERTIFIED PUBLIC ACCOUNTANTS

New York, New York
November 14, 2008

 
F-3

 

ACCOUNTABILITIES, INC.
BALANCE SHEETS

   
September 30,
   
September 30,
 
   
2009
   
2008
 
             
ASSETS
           
             
Current assets
           
Cash
  $ 63,000     $ 69,000  
Accounts receivable – less allowance for doubtful accounts of $188,000 and $445,000, respectively
     996,000        1,362,000  
Due from financial institution
    130,000       202,000  
Unbilled receivables
    783,000       671,000  
Prepaid expenses
    299,000       326,000  
Due from related party
    21,000       51,000  
Total current assets
    2,292,000       2,681,000  
                 
Property and equipment, net
    141,000       340,000  
Other assets
    21,000       10,000  
Intangible assets, net
    944,000       1,426,000  
Goodwill
    2,947,000       3,332,000  
Total assets
  $ 6,345,000     $ 7,789,000  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
Current liabilities
               
Accounts payable and accrued liabilities
  $ 1,579,000     $ 1,441,000  
Accrued wages and related obligations
    1,836,000       2,009,000  
Current portion of long-term debt
    454,000       420,000  
Current portion of related party long-term debt
    811,000       946,000  
Acquisition related contingent liability
    -       193,000  
Due to related party
    344,000       61,000