Attached files
file | filename |
---|---|
EX-32.1 - Corporate Resource Services, Inc. | v169913_ex32-1.htm |
EX-31.1 - Corporate Resource Services, Inc. | v169913_ex31-1.htm |
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.
16
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.
17
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.
18
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.
19
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.
20
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.
21
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.
22
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. Goldstein’s 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.
23
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 Trippiedi’s 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 | ||||||
Total current
liabilities
|
5,024,000 | 5,070,000 | ||||||
Long-term
debt, net of current portion
|
190,000 | 307,000 | ||||||
Related
party long-term debt, net of current portion
|
580,000 | 1,144,000 | ||||||
Total liabilities
|
5,794,000 | 6,521,000 | ||||||
Commitments
and contingencies (Note 14)
|
||||||||
Stockholders’
equity
|
||||||||
Preferred
stock, $0.0001 par value, 5,000,000 shares authorized; zero shares issued
and outstanding
|
- | - | ||||||
Common
stock, $0.0001 par value, 95,000,000 shares authorized; 23,689,000 and
23,792,000 shares issued and outstanding, respectively
|
2,000 | 2,000 | ||||||
Additional
paid-in capital
|
3,397,000 | 3,236,000 | ||||||
Accumulated
deficit
|
(2,848,000 | ) | (1,970,000 | ) | ||||
Total stockholders’
equity
|
551,000 | 1,268,000 | ||||||
Total liabilities and
stockholders’ equity
|
$ | 6,345,000 | $ | 7,789,000 |
The
accompanying notes are an integral part of these financial
statements.
F-4
ACCOUNTABILITIES,
INC.
STATEMENTS
OF OPERATIONS
Year Ended
|
||||||||||||
September 30,
|
September 30,
|
September 30,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
Revenue
|
$ | 56,989,000 | $ | 63,120,000 | $ | 54,657,000 | ||||||
Direct
cost of services
|
49,647,000 | 54,531,000 | 46,838,000 | |||||||||
Gross
profit
|
7,342,000 | 8,589,000 | 7,819,000 | |||||||||
Selling,
general and administrative expenses *
|
7,299,000 | 7,573,000 | 6,529,000 | |||||||||
Depreciation
and amortization
|
411,000 | 445,000 | 321,000 | |||||||||
(Loss)
income from continuing operations
|
(368,000 | ) | 571,000 | 969,000 | ||||||||
Interest
expense
|
429,000 | 834,000 | 895,000 | |||||||||
Loss
on impairment of fixed assets
|
95,000 | - | - | |||||||||
Loss
on goodwill impairment
|
- | 148,000 | - | |||||||||
Net
loss on debt extinguishments
|
- | 100,000 | - | |||||||||
Net
(loss) income from continuing operations
|
(892,000 | ) | (511,000 | ) | 74,000 | |||||||
Income
(loss) from discontinued operations
|
14,000 | (172,000 | ) | (258,000 | ) | |||||||
Net
loss
|
$ | (878,000 | ) | $ | (683,000 | ) | $ | (184,000 | ) | |||
Net
(loss) income per share from continuing operations:
|
||||||||||||
Basic
|
$ | (0.04 | ) | $ | (0.03 | ) | $ | 0.01 | ||||
Diluted
|
$ | (0.04 | ) | $ | (0.03 | ) | $ | 0.01 | ||||
Net
(loss) income per share from discontinued operations:
|
||||||||||||
Basic
|
$ | 0.00 | $ | (0.01 | ) | $ | (0.02 | ) | ||||
Diluted
|
$ | 0.00 | $ | (0.01 | ) | $ | (0.02 | ) | ||||
Total
net loss per share:
|
||||||||||||
Basic
|
$ | (0.04 | ) | $ | (0.03 | ) | $ | (0.01 | ) | |||
Diluted
|
$ | (0.04 | ) | $ | (0.03 | ) | $ | (0.01 | ) | |||
Weighted
average shares outstanding:
|
||||||||||||
Basic
|
22,511,000 | 19,903,000 | 15,515,000 | |||||||||
Diluted
|
22,511,000 | 19,903,000 | 15,515,000 |
*
Includes $161,000, $291,000 and $29,000 for the fiscal years ended September 30,
2009, 2008 and 2007, respectively in non-cash charges for stock-based
compensation.
The
accompanying notes are an integral part of these financial
statements.
F-5
ACCOUNTABILITIES,
INC.
STATEMENTS
OF CASH FLOWS
Year Ended
|
||||||||||||
September 30,
|
September 30,
|
September 30,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$ | (878,000 | ) | $ | (683,000 | ) | $ | (184,000 | ) | |||
Less:
net income (loss) from discontinued operations
|
14,000 | (172,000 | ) | (258,000 | ) | |||||||
Net
(loss) income from continuing operations
|
$ | (892,000 | ) | $ | (511,000 | ) | $ | 74,000 | ||||
Adjustments
to reconcile net loss to cash provided by operating
activities:
|
||||||||||||
Depreciation
and amortization
|
411,000 | 445,000 | 321,000 | |||||||||
Bad
debt expense
|
211,000 | 156,000 | 188,000 | |||||||||
Stock-based
compensation
|
161,000 | 291,000 | 29,000 | |||||||||
Loss
on impairment of fixed assets
|
95,000 | - | - | |||||||||
Net
loss on debt extinguishments
|
- | 100,000 | - | |||||||||
Loss
on goodwill impairment
|
- | 148,000 | - | |||||||||
Amortization
of discount on long-term debt
|
- | 18,000 | 7,000 | |||||||||
Changes
in operating assets and liabilities, net of effect of
acquisitions:
|
||||||||||||
Trade
accounts receivable including unbilled receivables
|
43,000 | (787,000 | ) | (339,000 | ) | |||||||
Due
from financial institution
|
55,000 | (79,000 | ) | 322,000 | ||||||||
Prepaid
expenses
|
24,000 | (58,000 | ) | 15,000 | ||||||||
Due
to/from related party
|
313,000 | (108,000 | ) | (37,000 | ) | |||||||
Other
assets
|
(11,000 | ) | 24,000 | (2,000 | ) | |||||||
Accounts
payable and accrued liabilities
|
28,000 | 1,000,000 | 320,000 | |||||||||
Net
cash provided by operating activities- continuing
operations
|
438,000 | 639,000 | 898,000 | |||||||||
Net
cash used in operating activities- discontinued operations
|
(36,000 | ) | (225,000 | ) | (280,000 | ) | ||||||
Net
cash provided by operating activities
|
402,000 | 414,000 | 618,000 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Purchase
of property and equipment
|
(11,000 | ) | (265,000 | ) | (69,000 | ) | ||||||
Acquisitions
|
- | - | (730,000 | ) | ||||||||
Net
cash used in investing activities- continuing operations
|
(11,000 | ) | (265,000 | ) | (799,000 | ) | ||||||
Net
cash used in investing activities- discontinued operations
|
- | - | - | |||||||||
Net
cash used in investing activities
|
(11,000 | ) | (265,000 | ) | (799,000 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from issuance of long-term debt
|
- | - | 275,000 | |||||||||
Principal
payments on long-term debt
|
(83,000 | ) | (217,000 | ) | (289,000 | ) | ||||||
Proceeds
from issuance of long-term debt – related parties
|
- | 62,000 | 384,000 | |||||||||
Principal
payments on long-term debt – related parties
|
(314,000 | ) | (560,000 | ) | (590,000 | ) | ||||||
Payments
on contingent acquisition related liability
|
- | (64,000 | ) | (191,000 | ) | |||||||
Proceeds
from issuance of common stock
|
- | 562,000 | 721,000 | |||||||||
Net
cash (used in) provided by financing activities-continuing
operations
|
(397,000 | ) | (217,000 | ) | 310,000 | |||||||
Net
cash provided by financing activities-discontinued
operations
|
- | - | - | |||||||||
Net
cash (used in) provided by financing activities
|
(397,000 | ) | (217,000 | ) | 310,000 | |||||||
Change
in cash
|
(6,000 | ) | (68,000 | ) | 129,000 | |||||||
Cash
at beginning of period
|
69,000 | 137,000 | 8,000 | |||||||||
Cash
at end of period
|
$ | 63,000 | $ | 69,000 | $ | 137,000 |
The accompanying notes are an integral
part of these financial statements.
F-6
ACCOUNTABILITIES,
INC.
Statement
of Stockholders’ Equity (Deficit)
Additional
|
Total
|
|||||||||||||||||||
Common Stock
|
Paid-In
|
Accumulated
|
Stockholders’
|
|||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Equity (Deficit)
|
||||||||||||||||
Balances
as of September 30, 2006
|
12,759,000 | $ | 1,000 | $ | 642,000 | $ | (1,103,000 | ) | $ | (460,000 | ) | |||||||||
Issuances
in satisfaction of Humana Businesses’ liabilities
|
950,000 | - | 89,000 | - | 89,000 | |||||||||||||||
Issuances
of unregistered common stock
|
1,445,000 | 1,000 | 602,000 | - | 603,000 | |||||||||||||||
Issuance
of unregistered common stock with loan for purchase of
ReStaff
|
600,000 | - | 119,000 | - | 119,000 | |||||||||||||||
Issuance
of unregistered common stock for ReStaff acquisition
|
830,000 | - | 188,000 | - | 188,000 | |||||||||||||||
Restricted
stock grants and stock-based compensation expense
|
585,000 | - | 29,000 | - | 29,000 | |||||||||||||||
Restricted
stock issued for future services
|
300,000 | - | 66,000 | - | 66,000 | |||||||||||||||
Net
loss for the year ended September 30, 2007
|
- | - | (184,000 | ) | (184,000 | ) | ||||||||||||||
Balances
as of September 30, 2007
|
17,469,000 | 2,000 | 1,735,000 | (1,287,000 | ) | 450,000 | ||||||||||||||
Note
conversions to unregistered common stock
|
2,194,000 | - | 622,000 | - | 622,000 | |||||||||||||||
Restricted
stock grants and stock-based compensation expense, net of
forfeitures
|
1,337,000 | - | 291,000 | - | 291,000 | |||||||||||||||
Issuance
of unregistered common stock to employees and directors for
cash
|
1,108,000 | - | 221,000 | - | 221,000 | |||||||||||||||
Issuance
of unregistered common stock to related party for cash and cancellation of
invoices
|
1,400,000 | - | 280,000 | - | 280,000 | |||||||||||||||
Private
placement to independent third parties
|
284,000 | - | 87,000 | - | 87,000 | |||||||||||||||
Net
loss for the year ended September 30, 2008
|
- | - | (683,000 | ) | (683,000 | ) | ||||||||||||||
Balances
as of September 30, 2008
|
23,792,000 | 2,000 | 3,236,000 | (1,970,000 | ) | 1,268,000 | ||||||||||||||
|
||||||||||||||||||||
Forfeitures
of restricted stock grants
|
(103,000 | ) | ||||||||||||||||||
Stock-based
compensation expense
|
161,000 | 161,000 | ||||||||||||||||||
Net
loss for the year ended September 30, 2009
|
(878,000 | ) | (878,000 | ) | ||||||||||||||||
Balances
as of September 30, 2009
|
23,689,000 | $ | 2,000 | $ | 3,397,000 | $ | (2,848,000 | ) | $ | 551,000 |
The
accompanying notes are an integral part of these financial
statements.
F-7
ACCOUNTABILITIES,
INC.
NOTES
TO FINANCIAL STATEMENTS
1.
|
Description
of the Company and its Business
|
Accountabilities,
Inc. (the “Company”) was incorporated in November 1994 under the laws of the
State of Delaware under the name Thermaltec International, Corp. On
May 18, 2001, the Company changed its name to TTI Holdings of America Corp.
(“TTI”). From its inception until July 2001, TTI was primarily
engaged in the thermal spray coating industry in the United States and Costa
Rica. In July 2001, TTI discontinued the operations of its thermal
spraying business. In August 2002, in anticipation of a merger which
did not occur, TTI merged with a newly formed wholly owned subsidiary, Steam
Cleaning USA Inc., and simultaneously changed its name to Steam Cleaning USA,
Inc. In July 2003, Steam Cleaning USA, Inc. acquired all of the outstanding
common stock of Humana Trans Services Holding Corp., in exchange for
substantially all of the outstanding shares of Steam Cleaning USA, Inc. and as a
result changed its name to Humana Trans Services Holding Corp.
(“Humana”). Humana’s primary business operations consisted of i)
providing employee leasing and benefits processing services to clients and ii)
temporary staffing solutions to the trucking industry. On or about
December 31, 2004 Humana sold its employee leasing and benefits processing
business to a third party. In July 2005, Humana sold the segment of
its business devoted to the trucking industry to an entity controlled by its
management team. On June 9, 2005 (the Date of Inception) the Company
formed a new subsidiary, Accountabilities Inc., for the purpose of acquiring a
business plan and concept related to the staffing and recruitment of
professional employees. Operations related to the business of
Accountabilities, Inc. began on September 1, 2005. In October 2005,
Accountabilities, Inc. was merged into Humana and the surviving corporation
changed its name to Accountabilities, Inc. All references to the
business of the Company prior to the Date of Inception are hereinafter referred
to as “the Humana Businesses”. In fiscal 2009, the Company became
57% beneficially owned
by TriState Employment Services, Inc. (“TSE”) and affiliated entities through a
series of purchases of the Company’s outstanding common stock. TSE is also the
professional employer organization from whom the Company leases the majority of
its employees.
The
Company is a national provider of temporary commercial staffing in areas such as
light industrial and clerical services. The Company conducts all of
its business in the United States through the operation of 13
offices.
Discontinued
Operations
In
addition to its light industrial and clerical service offerings the Company has
historically provided professional accounting and finance consulting and
staffing services through both its CPA Partner on Premise Program and directly
to clients.
In April
2009, the Company discontinued its 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. As a result, the CPA Partner on Premise Program is classified
as discontinued operations for all periods presented in the accompanying
financial statements. Also, subsequent to the Company’s 2009 fiscal
year end, during the first quarter of 2010, in an effort to focus management’s
efforts more directly on its light industrial and administrative service
offerings, the Company discontinued its remaining accounting and finance
operations.
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
(“GAAP”) and the rules of the Securities and Exchange Commission
(“SEC”).
Revenue
Recognition
Staffing
and consulting revenues are recognized when professionals deliver services.
Permanent placement revenue, which generated 1.6% in fiscal 2009 and 2.1% of
total revenue in both fiscal 2008 and 2007 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 the Company is obligated to
find a suitable replacement.
F-8
Cash
The
Company considers cash on hand, deposits in banks, and short-term investments
purchased with an original maturity date of three months or less to be cash and
cash equivalents.
Accounts
Receivable
The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from its clients failing to make required payments for services
rendered. Management estimates this allowance based upon knowledge of
the financial condition of its clients, review of historical receivable and
reserve trends and other pertinent information. If the financial
condition of the Company’s clients deteriorates or there is an unfavorable trend
in aggregate receivable collections, additional allowances may be
required. The Company sells its accounts receivable under a sale
agreement, as described in a later note to these financial
statements.
Property
and Equipment
Property
and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method
over the following estimated useful lives:
Furniture
and Fixtures
|
3
years
|
Office
Equipment
|
3
years
|
Computer
Equipment
|
5
years
|
Software
|
3
years
|
Leasehold
Improvements
|
Term
of lease
|
Assessments
of whether there has been a permanent impairment in the value of property and
equipment are periodically performed by considering factors such as expected
future operating income, trends and prospects, as well as the effects of demand,
competition and other economic factors. A loss on impairment of
fixed assets of $95,000 has been recorded during the fourth quarter of fiscal
2009 to reflect the loss of the leasehold improvements due to the relocation of
the Company’s corporate headquarters.
Intangible
Assets
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. The Company performed its latest 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 are tested for impairment when events and circumstances
indicate that an asset or asset group might be impaired.
Stock-Based
Compensation
The
Company calculates stock-based compensation expense including compensation
expense for all share-based payment awards made to employees and directors
including employee stock options, stock appreciation rights and restricted stock
awards based on estimated fair values. The value of the portion of
the award that is ultimately expected to vest is recognized as an expense on a
straight-line basis over any required service period.
Per
Share Information
Basic EPS
is calculated by dividing net income by the weighted average number of common
shares outstanding during the period. Diluted EPS is based upon the
weighted average number of common shares and common stock equivalent shares
outstanding during the period calculated using the treasury-stock method. Common
stock equivalent shares are excluded from the computation in periods in which
they have an anti-dilutive effect. The dilutive effect of common
stock that may be issued as compensation is reflected in the calculation to the
extent that any exercise price and compensation for future services is less than
the market value of the shares. The weighted average number of shares
for 2009, 2008 and 2007 does not include the anti-dilutive effect of 716,000,
1,004,000 and 946,000 common stock equivalents representing warrants,
convertible debt and the effect of non-vested shares since including them would
be anti-dilutive.
F-9
Income
Taxes
The
Company accounts for income taxes using the asset and liability
method. Under this method, 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.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles 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. Although management believes these estimates and assumptions
are adequate, actual results could differ from the estimates and assumptions
used.
Reclassification
Certain
prior period amounts were reclassified to conform to the current year
presentation.
3.
|
Acquisitions
|
ReStaff
Services, Inc. Offices Acquisition
On
February 26, 2007, the Company acquired the operations, including three offices
of ReStaff Services, Inc. (“ReStaff”), for a total original purchase price of
$4,710,000. Per the terms of the asset purchase agreement and
accompanying notes, outstanding debt issued by the Company as consideration for
the purchase of ReStaff is subject to reduction if ReStaff’s net income for the
year ending December 31, 2006 was less than $1,350,000, or if net income in
subsequent years was less than $1,000,000. On February 28, 2008, the
Company completed an analysis of ReStaff’s results and consequently reduced the
outstanding indebtedness to the former owner of Restaff by $1,398,000, through
the exchange of two notes with outstanding principal balances totaling
$3,090,000 and related accrued interest of $158,000, for two new notes totaling
$1,800,000 and 250,000 shares of stock with a fair value of
$50,000. The two new notes, issued February 28, 2008, included a
$1,700,000 note bearing an annual interest rate of 6% and payable in equal
monthly installments of $39,925 through May 2012, and a $100,000 note due March
2009 and bearing an annual interest rate of 6%.
During
the third fiscal quarter of 2009, the Company again recognized a reduction in
the outstanding indebtedness to the former owner of Restaff as a consequence of
the acquired operations generating less than $1,000,000 in net income in the
calendar year 2008. The total reduction in debt equaled
$459,000. As a result a new note dated March 1, 2009 was issued in
the amount of $1,201,000 in exchange for the two notes issued February 28, 2008
with outstanding balances of $1,560,000 and $100,000. The new
note bears an annual interest rate of 6% and is payable in equal monthly
installments of $36,540 through March 1, 2012. The former owner of
Restaff is currently disputing this reduction. Consequently the
Company has recognized an additional $75,000 in short term debt in recognition
of these claims.
These
debt reductions were considered an adjustment of the purchase price and were
recorded as an adjustment to the goodwill acquired in the
acquisition.
All
results of operations of ReStaff have been included in the accompanying
Statements of Operations since the date of acquisition.
The
following table summarizes the fair values of the assets acquired and the
liabilities assumed at the date of the acquisition after giving consideration to
the subsequent purchase price adjustments discussed above:
F-10
Property
and equipment
|
$
|
5,000
|
||
Non-competition
agreement
|
81,000
|
|||
Accounts
receivable
|
200,000
|
|||
Customer
lists and relationships
|
1,199,000
|
|||
Goodwill
|
1,505,000
|
|||
Total
assets acquired
|
2,990,000
|
|||
Accrued
liabilities
|
(62,000
|
)
|
||
Total
purchase price
|
$
|
2,928,000
|
Customer
lists and relationships, and the non-competition agreement are being
amortized over weighted average useful lives of seven years and three years,
respectively. For the year ended September 30, 2009, amortization of
$165,000 and $27,000 has been recognized related to the customer lists and
relationships and the non-competition agreement, respectively. For
the year ended September 30, 2008 amortization of $183,000 and $27,000 has been
recognized related to the customer lists and relationships and the
non-competition agreement, respectively. For the year ended September
30, 2007 amortization of $122,000 and $16,000 has been recognized related to the
customer lists and relationships and the non-competition agreement,
respectively.
Stratus
Services Group, Inc. Offices Acquisition
On
November 28, 2005, the Company acquired the operations of three offices from
Stratus Services Group, Inc. (“Stratus Acquisition”) in exchange for an earnout
consisting of (a) 2% of revenue for the first twelve months, (b) 1% of
revenue for the second twelve months, and (c) 1% of revenue for the third twelve
months (“Stratus Earnout”). All results of operations of the acquired offices
have been included in the accompanying Statements of Operations since the date
of acquisition. Because the purchase price included only the Stratus Earnout
which was based upon future revenues, the total fair value of the acquired
assets was greater than the purchase price as of the day of the acquisition,
which was zero as the Stratus Earnout had yet to be
earned. Consequently, the total fair value of the acquired assets of
$678,000 was recorded as a liability (“Acquisition related contingent
liability”) as of the day of the acquisition.
In
connection with this acquisition, in December, 2008, the Company received an
assessment from the California Employment Development Department
(“EDD”). Due to indemnification clauses in the asset purchase
agreement entered into for the Stratus Acquisition, the ultimate timing and
resolution of the “Acquisition related contingent liability” was dependent on
the resolution of the assessment from the EDD. On March 11,
2009, the Company received a notification from the EDD that it was granted full
relief from this assessment. The Company calculated the amount owed
for the earnout as of the end of the earnout period, November 28, 2008, to be
$109,000. As of November 28, 2008, the estimated liability of
$193,000 exceeded the amount of contingent consideration, and the $84,000
reduction of the liability was recorded as a reduction in the value of the
acquired intangible assets on the accompanying balance
sheets. In September, 2009, the estimated liability was settled
and partially offset against receivables from Stratus of $7,000 and the
remaining $102,000 reduction of the liability was recorded as a further
reduction in the value of the acquired intangible assets on the accompanying
balance sheets.
F-11
4. Intangible
Assets and Goodwill
The
following table presents detail of the Company’s intangible assets, estimated
lives, related accumulated amortization and goodwill at September 30, 2009 and
2008:
As of September 30, 2009
|
As of September 30, 2008
|
|||||||||||||||||||||||
Accumulated
|
Accumulated
|
|||||||||||||||||||||||
Gross
|
Amortization
|
Net
|
Gross
|
Amortization
|
Net
|
|||||||||||||||||||
Customer
lists and relationships (7 years)
|
$ | 1,821,000 | $ | (888,000 | ) | $ | 933,000 | $ | 2,007,000 | $ | (625,000 | ) | $ | 1,382,000 | ||||||||||
Non-competition
agreements (3 years)
|
111,000 | (100,000 | ) | 11,000 | 111,000 | (67,000 | ) | 44,000 | ||||||||||||||||
Total
|
$ | 1,932,000 | $ | (988,000 | ) | $ | 944,000 | $ | 2,118,000 | $ | (692,000 | ) | $ | 1,426,000 | ||||||||||
Goodwill
(indefinite life)
|
$ | 2,947,000 | $ | 2,947,000 | $ | 3,332,000 | $ | 3,332,000 |
The
Company recorded amortization expense for the years ended September 30, 2009,
2008, and 2007 of $297,000, $336,000 and $263,000,
respectively. Estimated intangible asset amortization expense (based
on existing intangible assets) for the years ending September 30, 2010, 2011,
2012, 2013 and 2014 is $238,000, $227,000, $227,000, $183,000, and $69,000
respectively.
As
previously discussed, the Company has recorded adjustments to goodwill and debt
related to the ReStaff acquisition as a consequence of the acquired operations
generating less than $1,000,000 in net income in the calendar year
2008. The resulting adjustments to goodwill are as
follows:
Goodwill
as of September 30, 2008
|
$ | 3,332,000 | ||
ReStaff
purchase price adjustment
|
(385,000 | ) | ||
Goodwill
as of September 30, 2009
|
$ | 2,947,000 |
5. Related
Parties
The
Company leases the majority of its workforce from TSE, a professional employer
organization that is also the beneficial owner, with its affiliates, of a
majority of the Company’s outstanding common stock. Accrued wages and
related obligations include the costs associated with employees leased from
TSE. Accrued leased employee costs payable to TSE were $1,830,000 and
$1,962,000 as of September 30, 2009 and 2008, respectively. The
Company leases employees associated with all of its operations, with the
exception of certain employees involved only in corporate
functions. TSE charges us its current market rate that it charges its
other customers. The Company pays an amount equal to the actual wages and
associated payroll taxes for the employee plus an agreed upon rate for workers’
compensation insurance. The total amount charged by TSE for the years
ended September 30, 2009, 2008, and 2007 was $52,538,000, $59,268,000, and
$50,979,000, respectively.
The
caption “Due from related party” on the accompanying Balance Sheets represents
outstanding amounts advanced to a company whose owners are major shareholders of
$7,500 and the former president of the Company of $14,000. The
Company received a promissory note dated March 24, 2006 in the principal amount
of $14,000 from the former president of the Company. The note is
payable upon demand and is not subject to interest.
The
Company also received advances from, and owes other amounts to TSE totaling
$285,000, and is included in Due to related party on the accompanying Balance
Sheet, along with $59,000 due a former officer of the Company for compensation
related to the discontinued accounting operations.
F-12
6. Property
and Equipment
At
September 30, 2009 and 2008 property and equipment consisted of the
following:
September 30,
|
September 30,
|
|||||||
2009
|
2008
|
|||||||
Furniture
and fixtures
|
$ | 162,000 | $ | 162,000 | ||||
Office
equipment
|
39,000 | 32,000 | ||||||
Computer
equipment
|
177,000 | 174,000 | ||||||
Software
|
5,000 | 5,000 | ||||||
Leasehold
improvements
|
8,000 | 159,000 | ||||||
391,000 | 532,000 | |||||||
Less
accumulated depreciation
|
250,000 | 192,000 | ||||||
$ | 141,000 | $ | 340,000 |
7. Long-Term
Debt
Long-term
debt at September 30, 2009 and 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 |
(i) A
$175,000 subordinated note was issued March 31, 2006, and was due January 30,
2007. The note originally had an annual interest rate of 8% with
principal and interest payable in equal monthly installments of
$18,150. The note is secured by office equipment and other fixed
assets. Due to the failure to make timely payments under the terms of
the note, the holder elected the option of declaring the note in technical
default and began assessing interest, beginning April 1, 2007, at the rate of
11.25% per annum, and imposed a 5% late charge on the overdue balance
outstanding. On October 31, 2007, the Company entered into a
forbearance agreement with the holder of the note wherein the holder agreed to
waive defaults and refrain from exercising its rights and remedies against the
Company until October 31, 2008, in exchange for an increase in the interest rate
to 16.25%. On October 31, 2008, the Company entered into another
forbearance agreement with the holder of the note effectively extending the
terms of the original forbearance agreement until October 31,
2009.
F-13
(ii) A
$675,000 convertible subordinated note was issued March 31, 2006, and is due
March 31, 2012. The note bears interest at an annual rate of 3%, and
is convertible in part or in whole into common shares at any time at the option
of the holder at the specified price of $1.50 per share. The note is
secured by office equipment and other fixed assets.
(iii) An
$80,000 unsecured non-interest bearing note was issued March 31, 2006, and was
due June 29, 2006. Due to the failure to make timely payments under
the terms of the note, on April 1, 2007, the holder elected the option of
declaring the note in technical default and began charging interest at a rate of
18% per annum. On October 31, 2007, the Company entered into a
forbearance agreement with the holder of the note wherein the holder agreed to
waive defaults and refrain from exercising its rights and remedies against the
Company until October 31, 2008, in exchange for an increase in the interest rate
to 18% per annum. On October 31, 2008, the Company entered into another
forbearance agreement with the holder of the note effectively extending the
terms of the original forbearance agreement until October 31, 2009.
(iv) A
$150,000 unsecured demand note was issued March 31, 2006, to a principal
shareholder of the Company. The note originally bore an annual
interest rate of 8%. On October 31, 2007, the Company entered into a
forbearance agreement with the holder of the note wherein the holder agreed to
waive defaults and refrain from exercising its rights and remedies against the
Company until October 31, 2008, in exchange for an increase in the interest rate
to 13% per annum. On October 31, 2008, the Company entered into another
forbearance agreement with the holder of the note effectively extending the
terms of the original forbearance agreement until October 31, 2009.
The
Company has entered into three long term consulting obligations which require
the Company to pay fixed recurring amounts but which do not require the other
party to provide any minimum level of services. Consequently, the
agreements have been treated as debt obligations in the accompanying financial
statements and capitalized, net of interest imputed at a rate of 8.75% per
year. The imputed interest was determined by reference to terms
associated with credit available to the Company at that time. All
three agreements expired on March 31, 2009.
(v) Two
of the agreements require annual payments of $60,000 in the first two years and
$30,000 in the final year, payable in fixed weekly amounts. These two
agreements in total were initially recognized at a fair value of $292,000 using
a discount rate of 8.75%.
(vi) The
third agreement is with a major shareholder of the Company and requires annual
payments of $30,000 in each of three years, payable in fixed weekly
amounts. The agreement was initially recorded at a fair value of
$84,000 using an interest rate of 5%.
18%
Unsecured Convertible Note
(vii) A
$100,000 unsecured convertible note and 600,000 shares of unregistered common
stock, having a fair value of $177,000, were issued on January 31, 2008, to a
shareholder and director of the Company in exchange for another note that had an
outstanding principal balance of $200,000. This $100,000 unsecured
convertible note was due October 31, 2008, and bore interest at an annual rate
of 12%. It is convertible at any time at the option of the holder at
a specified price of $0.40 per share. Due to the failure to pay the note at
maturity, the interest rate on the note has increased to 18% per
annum.
Demand
Loans
(viii) Demand
Loans consist of amounts due to three separate shareholders of the
company. The amounts are not subject to interest and are classified
as short-term loans. Included in the balance as of September 30, 2009
is the disputed claim amount asserted by the former owner of ReStaff of $75,000,
as discussed in Note 3 above.
F-14
ReStaff
Inc., Acquisition Notes
As
partial consideration associated with the ReStaff Acquisition the following
notes remain outstanding. The notes described in (ix) and (x) below
were issued to the then sole shareholder of ReStaff who was also issued 600,000
shares of unregistered common stock as partial consideration. The
note described in (x) below is 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. The debt described in (xi) below was issued to a
separate major shareholder of the Company.
(ix) In February 2008, a
$100,000 unsecured note was issued. The note was due March 5, 2009,
and bore an annual interest rate of 6%. During the third fiscal
quarter of 2009, the debt incurred in the ReStaff Acquisition was reduced and
restructured as previously described . This note was combined with
the note described in (x) below during the restructuring.
(x) In February 2008, a
$1,700,000 unsecured note was issued, as previously explained. The
note bore an annual interest rate of 6% with principal and interest payable in
equal monthly installments of $39,925 over four years beginning May 1,
2008. As mentioned above, the note was 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. The Company completed its
analysis of the net income calculation for the year ended December 31, 2008 and
as a result, the debt described above was reduced and restructured in accordance
with the calculation as set forth in the note. This restructuring
involved the exchange of the notes payable with outstanding principal balances
of $1,560,000 and $100,000 for a single new note in the amount of $1,201,000
bearing an annual interest rate of 6%. As of September 30, 2009 the
amount owed totals $1,056,000, which consists of $477,000 within short term
liabilities and $579,000 within non-current liabilities. 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.
(xi) In
February 2007, a $275,000 unsecured note was issued as partial finder’s fee
consideration, bore annual interest of 9%, with principal and interest payable
in equal monthly installments of $2,885 over 104 months.
Other
Debt
(xii) In
November, 2007, the Company entered into a capital lease agreement to purchase
computer equipment. The original principal of $33,000 is payable over
a lease term of 24 months in equal monthly installments of $1,843.
Reliance
on Related Parties
The
Company has historically relied on funding from related parties in order to meet
its liquidity needs, such as the debt described in (iv), (vi), (vii), (viii),
(ix), (x), and (xi) above. 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 the Company 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 the Company’s
business and prospects possessed by the related party, and the lack of agent or
broker compensation often deducted from gross proceeds available to the
Company. Management anticipates the Company will continue to have
significant working capital requirements in order to fund its growth and
operations, and to the extent the Company does not generate sufficient cash flow
from operations to meet these working capital requirements it will continue to
seek other sources of funding including the issuance of related party
debt.
The
aggregate amounts of long-term debt maturing after September 30, 2009 are as
follows:
2010
|
1,265,000 | |||
2011
|
534,000 | |||
2012
|
236,000 | |||
2013
|
- | |||
2014
|
- | |||
Thereafter
|
- | |||
$ | 2,035,000 |
F-15
The
Company must generate sufficient levels of positive net cash flows in order to
service its debt and to fund ongoing operations. As of September 30, 2009
current liabilities exceeded current assets by $2,732,000. Included in
this amount, is approximately $476,000, which represents the current portion of
the debt described in (x) above, the total of which is subject to reduction in
the event the acquired operations do not attain sufficient levels of
profitability. Also included in current liabilities, is $700,000 of
unremitted payroll taxes associated with a discontinued subsidiary as disclosed
in the following Note 14, which has been outstanding since fiscal 2004 and for
which the ultimate date of resolution is unknown. Additionally, subsequent
to September 30, 2009, the Company has been engaging in several activities to
further increase current assets and/or decrease current liabilities including
obtaining further forbearance agreements or favorable restructuring of its debt,
issuing unregistered common stock in exchange for debt, and seeking additional
reductions in operating expenditures and increases in operating
efficiencies.
8. Stock-Based
Compensation
In
September, 2007, the Company’s Board of Directors adopted the Accountabilities,
Inc. Equity Incentive Plan (“the Plan”). The 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 the Company. A total of 2,000,000 shares of common
stock have been reserved for issuance under the Plan, and as of September 30,
2009 grants with respect to 1,403,000 shares had been made.
During
April 2007, 585,000 shares of restricted common stock were granted to certain
employees prior to the adoption of the Plan as restricted stock
awards. Restricted stock award vesting is determined on an individual
grant basis. Of the shares granted, 500,000 vest over five years and
85,000 vest over three years.
A summary
of the status of the Company’s nonvested shares and the changes during the years
ended September 30, 2009, 2008 and 2007 is presented below:
Shares
|
Weighted-Average
Grant-Date Fair Value
|
|||||||
Nonvested
at October 1, 2006
|
- | - | ||||||
Granted
|
585,000 | $ | 0.34 | |||||
Nonvested
at September 30, 2007
|
585,000 | $ | 0.34 | |||||
Granted
|
1,403,000 | $ | 0.30 | |||||
Vested
|
(298,000 | ) | $ | 0.32 | ||||
Forfeited
|
(66,000 | ) | $ | 0.30 | ||||
Nonvested
at September 30, 2008
|
1,624,000 | $ | 0.31 | |||||
Vested
|
(567,000 | ) | $ | 0.31 | ||||
Forfeited
|
(84,000 | ) | $ | 0.25 | ||||
Nonvested
at September 30, 2009
|
973,000 | $ | 0.31 |
Compensation
expense is measured using the grant-date fair value of the shares granted and is
recognized on a straight-line basis over the required vesting
period. For shares vesting immediately, compensation expense is
recognized on the date of grant. Fair value 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. The shares granted during the 2008 and
2007 fiscal years had weighted-average grant date fair values of $0.30 and
$0.34, respectively representing discounts of 35% from market price for both
years.
For the
years ended September 30, 2009, 2008, and 2007, compensation expense relating to
restricted stock awards was $161,000, $174,000 and $29,000,
respectively. As of September 30, 2009, there was $182,000 of total
unrecognized compensation cost. That cost is expected to be
recognized as an expense over a weighted-average period of 1.9 years. The total
fair value on the vesting date of the shares that vested during the year ended
September 30, 2009 was $68,000.
F-16
In March,
2008, the Company issued 400,000 shares of unregistered common stock to TSE in
exchange for the cancellation of $26,000 of outstanding invoices payable and
$54,000 in cash. The shares had a fair value of $106,000 on the date
of issuance. The difference between the fair value of the
shares issued and the consideration received has been recorded as stock-based
compensation expense of $26,000.
During
the second quarter of fiscal 2008, the Company issued 1,108,000 shares of
restricted common stock to certain employees and directors at a price of $0.20
per share. The shares had a fair value of $312,000 on the date of
issuance. The difference between the fair value of the shares issued
and the cash received from the employees and directors has been recorded as
stock-based compensation expense of $91,000.
9. Concentrations
of Credit Risk
The
Company maintains cash accounts with high credit quality financial
institutions. At times, such accounts are in excess of federally
insured limits. To date, the Company has not experienced any losses
in such accounts. Financial instruments, which potentially subject
the Company to concentration of credit risk, consist primarily of trade
receivables. However, concentrations of credit risk are limited due
to the large number of customers comprising the Company’s customer base and
their dispersion across different business and geographic areas. The
Company monitors its exposure to credit losses and maintains an allowance for
anticipated losses. To reduce credit risk, the Company performs
credit checks on certain customers. No single customer accounted for
more than 10% of revenue for the years ended September 30, 2009, 2008, or
2007.
10. Stockholders’
Equity
As of the
Date of Inception, a stockholders’ deficit of $1,765,000 existed relating to
remaining liabilities associated with the discontinued Humana Businesses, and
was recognized in Additional paid-in capital with a corresponding amount in
Accounts payable and accrued liabilities. From the Date of Inception
through September 30, 2007 approximately 6,536,000 shares of unregistered common
stock of the Company were issued in satisfaction of these
liabilities. During fiscal 2009 and 2008, no additional shares were
issued relating to the Humana Businesses. As stock issuances to
settle these liabilities were completed, both the stockholders’ deficit and
Accounts payable and accrued liabilities were reduced. As of
September 30, 2009 and 2008 the total remaining amount of these liabilities
outstanding was $700,000 related to unremitted payroll tax withholdings of the
subsidiary conducting the discontinued employee leasing and benefit processing
business.
On
November 26, 2006, the Company completed the private placement of 1,000,000
shares of unregistered common stock to TSE in exchange for $200,000 in cash and
a non-interest bearing note with a principal amount of $200,000. The
note was subsequently collected in December, 2006.
In
February 2007, the Company commenced a private offering to sell up to $3,000,000
of convertible exchangeable notes bearing 8% annual interest and warrants to
purchase up to 799,800 shares of common stock. The notes were to be
convertible into unregistered common shares at a price of 75% of the average
closing price of the Company’s common stock over the preceding five days prior
to the election to convert, subject to a minimum conversion price of $.40 per
share. Each warrant is exercisable for one share of common stock at
an exercise price of $.75 per share at any time prior to the two year
anniversary date of its issuance. The offering was subsequently
terminated by the Company in April 2007. In total, $202,000 in net
proceeds pursuant to the private offering was received during fiscal
2007. All investors elected to immediately convert the notes into
shares of unregistered common stock, and consequently 445,000 unregistered
common shares and 55,986 warrants have been issued and are
outstanding. Due to the immediate election to convert, the
transactions have been accounted for as a sale of common stock.
In March
2007, an agent was issued 300,000 shares of restricted common stock valued at
$66,000 for future services to be provided in raising capital for the
Company.
Additional
paid-in capital was increased in March 2007 by $119,000, representing the
allocated relative fair value of the 600,000 shares of unregistered common stock
issued to TSE in conjunction with a $950,000 loan issued to the Company to
finance portions of the purchase price of ReStaff.
F-17
During
the second quarter of fiscal 2008 a convertible subordinated note having a face
value of $250,000, was converted, pursuant to the terms of the note, for 744,031
shares of unregistered common stock and a three-year warrant to purchase 100,000
shares of common stock at an exercise price of $0.50 per share. On
the date of the exchange there was $250,000 in principal and accrued interest of
$10,000 outstanding on the note. Upon the conversion the Company
recorded an increase to equity in the amount of $236,000, representing the fair
value of the shares and warrants issued.
In March,
2008, the Company issued 600,000 shares of unregistered common stock to TSE with
a fair value of $159,000 in exchange for the cancellation of the remaining
principal balance of a note outstanding and payable to TSE in the amount of
$120,000 as of the date of the exchange.
During
the second quarter of fiscal 2008, the Company completed a private placement to
independent third parties of 100,000 shares of unregistered common stock at a
price of $0.35 per share with warrants to purchase an aggregate 9,800 shares of
common stock at an exercise price of $0.50 per share.
During
the third quarter of fiscal 2008, the Company completed a private placement to
independent third parties of 184,000 unregistered shares of common stock at a
fair value of $0.28 per share for cash.
During
the third quarter of fiscal 2008, the Company entered into a stock purchase
agreement with a major shareholder to purchase 1,000,000 unregistered shares of
common stock at a fair value of $0.20 per share. The Company received
a non-interest bearing note from the shareholder for $200,000 to finance the
purchase. As of September 30, 2008 the note had been paid in full by
the stockholder.
11. Sales
of Receivables
On March
1, 2007, the Company entered into a receivable sale agreement with a new
financial institution, and terminated its former agreement. Under the
terms of the new agreement, the maximum amount of trade receivables that can be
sold is $8,000,000. As collections reduce previously sold
receivables, the Company may replenish these with new receivables. As
of September 30, 2009 and 2008, trade receivables of $5,102,000 and $5,753,000
had been sold and remain outstanding, for which amounts due from the financial
institution total $130,000 and $202,000, respectively. Sales of
receivables amounted to approximately $57,566,000 and $65,605,000 for the years
ended September 30, 2009 and 2008, respectively. 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 the Company bears from bad debt losses on trade
receivables sold is retained by the Company, 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 applies of 3% of the
maximum facility in year one of the agreement, 2% in year two, and 1%
thereafter. Under the terms of the agreement, the financial institution advances
90% of the assigned receivables’ value upon sale, and the remaining 10% upon
final collection. In addition, an overadvance of $500,000 was
received, is secured by outstanding receivables, and is being repaid in weekly
payments ranging from $7,500 to $8,500. Additional overadvance
amounts are occasionally extended to the Company at the election of the
financial institution. The outstanding overadvance amounted to
$203,000 and $373,000 as of September 30, 2009 and 2008. Net
discounts are included in interest expense in the accompanying Statements of
Operations and amounted to $271,000 and $490,000 for the years ended September
30, 2009 and 2008. The risk the Company bears from bad debt losses on
trade receivables sold is retained by the Company, and receivables sold for the
years ended September 30, 2009 and 2008 do not include $339,000 and $488,000,
respectively, of receivables sold, but charged back by the financial institution
because they were 90 days past due. The Company addresses its risk of
loss on trade receivables in its allowance for doubtful accounts which totaled
$188,000 and $445,000 as of September 30, 2009 and 2008.
F-18
12.
Income Taxes
Deferred
income tax assets and liabilities consist of the tax effects of temporary
differences related to the following:
September 30,
|
September 30,
|
|||||||
2009
|
2008
|
|||||||
Deferred
tax assets:
|
||||||||
Net
operating losses
|
$ | 832,000 | $ | 515,000 | ||||
Restricted
stock
|
39,000 | 44,000 | ||||||
Valuation
allowance
|
(798,000 | ) | (506,000 | ) | ||||
73,000 | 53,000 | |||||||
Deferred
tax liabilities:
|
||||||||
Goodwill,
customer lists and relationships and non-compete and solicit
agreements
|
(73,000 | ) | (53,000 | ) | ||||
$ | - | $ | - |
If it is
determined that it is more likely than not that future benefits from deferred
income tax assets will not be realized, a valuation allowance must be
established against the deferred income tax assets. The ultimate realization of
the assets is dependent on the generation of future taxable income during the
periods in which the associated temporary differences become deductible.
Management considers the scheduled reversal of deferred income tax liabilities,
projected future taxable income and tax planning strategies when making this
assessment.
Concluding
that a valuation allowance is not required is difficult when there is negative
evidence such as cumulative losses in recent years. As a result of the Company’s
cumulative losses, the Company concluded that a full valuation allowance was
required as of September 30, 2009 and 2008.
Since the
Date of Inception the Company has accumulated U.S. Federal and state net
operating loss carryforwards of approximately $2,081,000 that expire at various
dates through 2029.
The
provision (benefit) for income taxes differs from the amount that would result
from applying the federal statutory rate as follows:
Year Ended
|
||||||||||||
September 30,
|
September 30,
|
September 30,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
U.S.
Federal statutory rate
|
(35.0 | )% | (35.0 | )% | (35.0 | )% | ||||||
State
income taxes, net of federal benefit
|
(5.0 | )% | (5.0 | )% | (5.0 | )% | ||||||
Stock
based compensation valuation
|
6.7 | % | 45.1 | % | - | |||||||
Change
in valuation allowance
|
33.3 | % | (5.1 | )% | 40.0 | % | ||||||
Effective
tax rate
|
0.0 | % | 0.0 | % | 0.0 | % |
13. Supplemental
Disclosure of Cash Flow Information
Year Ended
|
||||||||||||
September 30,
|
September 30,
|
September 30,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
Cash
paid for interest
|
$ | 381,000 | $ | 712,000 | $ | 829,000 | ||||||
Non-
cash investing and financing activities:
|
||||||||||||
ReStaff
Acquisition purchase price adjustment and debt reduction
|
385,000 | 1,398,000 | - | |||||||||
Debt
converted to unregistered common stock at fair value
|
- | 622,000 | - | |||||||||
Stock-based
compensation
|
161,000 | 291,000 | 29,000 | |||||||||
Capital
lease obligation for computer equipment
|
- | 33,000 | - | |||||||||
Issuance
of shares for related party invoices
|
- | 26,000 | - | |||||||||
ReStaff
Acquisition:
|
||||||||||||
Issuance
of unregistered common stock
|
- | - | 307,000 | |||||||||
Restricted
common stock issued for future services
|
- | - | 66,000 | |||||||||
Unregistered
common stock issued to satisfy Humana Businesses’
liabilities
|
- | - | 89,000 |
F-19
14. Commitments
and Contingencies
Unremitted
Payroll Taxes Related to Humana Businesses
The
Company has received assessments related to Humana for unremitted
payroll taxes for calendar year 2004 from the IRS and certain state taxing
authorities totaling approximately $700,000. This amount is included
in Accounts Payable and accrued expenses in the accompanying financial
statements and represents the amount management believes will ultimately be
payable for this liability based upon its knowledge of 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, in excess of management’s current estimate.
Lease
Commitments
At
September 30, 2009 and 2008, the Company had operating leases, primarily for
office premises, expiring at various dates through September
2017. Future minimum rental commitments under operating leases
are as follows:
Years Ending September 30:
|
Operating Leases
|
|||
2010
|
508,000 | |||
2011
|
373,000 | |||
2012
|
300,000 | |||
2013
|
276,000 | |||
2014
|
282,000 | |||
Thereafter
|
230,000 | |||
$ | 1,969,000 |
Employment
Agreements
The
Company has employment agreements with certain key members of management,
requiring mutual termination notice periods of up to 30 days. These
agreements provide those employees with a specified severance amount in the
event the employee is terminated without good cause as defined in the applicable
agreement.
Legal
Proceedings
As
discussed earlier, in connection with the Stratus Acquisition, in December,
2008, the Company received an assessment from the California Employment
Development Department (“EDD”). Due to indemnification clauses in the
asset purchase agreement entered into for the Stratus Acquisition, the ultimate
timing and resolution of the “Acquisition related contingent liability” was
dependent on the resolution of the assessment from the EDD. On
March 11, 2009, the Company received a notification from the EDD that it was
granted full relief from this assessment.
In 2005,
the Company acquired the outstanding receivables of Nucon Engineering
Associates, Inc. (“Nucon”). During the third quarter of fiscal
2008, the Company was notified by the State of Connecticut that the Company may
be considered the predecessor employer associated with the accounts receivable
formerly owned by Nucon for State Unemployment Insurance (“SUI”) rate
purposes. Nucon’s SUI rate was higher than the Company’s at the time
of the acquisition. The State of Connecticut had
claimed additional SUI expense based on this higher rate and has assessed a
higher experience rate on wages for all periods subsequent to the acquisition
date which may be reduced upon audit. Management believes that it has
properly calculated its unemployment insurance tax and is in compliance with all
applicable laws and regulations. The Company appealed the ruling and
was 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.
F-20
From time
to time, the Company is involved in litigation incidental to its business
including employment practices claims. There is currently no
litigation that management believes will have a material impact on the financial
position of the Company.
F-21
15. Subsequent
Events
On
November 27, 2009, the Company vacated its corporate headquarters in Manalapan,
New Jersey and relocated to New York City, New York. The Company
leased its corporate headquarters under an operating lease that was set to
expire in December 2014. The Company has entered into a new operating
lease for its New York City location for 2,400 square feet of office space which
is set to expire on December 31, 2016. The landlord has alleged that
the Company is obligated to make payments under its lease for the New Jersey
location through December 2014.
Subsequent
events have been evaluated through December 21, 2009, the date the financial
statements were issued.
F-22