UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K


(Mark
One)





x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
fiscal year ended December 31, 2008


or


 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
transition period from __________________to__________________




Commission
file number 000-51200





ClearPoint
Business Resources, Inc.


(Exact
name of registrant as specified in its charter)





Delaware
              
              98-0434371State
      or other jurisdiction of incorporation or
                organization
              
              (I.R.S.
      Employer Identification No.)




1600
Manor Drive, Suite 110, Chalfont, Pennsylvania 18914





(Address
of principal executive offices) (Zip Code)




Registrant’s
telephone number, including area code:  (215) 997-7710





Securities
registered pursuant to Section 12(b) of the Act:  None





Securities
registered pursuant to section 12(g) of the Act:




Common
      Stock, $0.0001 par value(Title
      of class)Units(Title
      of class)Warrants(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   ̈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 ̈Nox





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.YesxNo ̈




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 pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) 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.   ̈





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 the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.




Large accelerated
      filer ̈
                    Accelerated
      filer ̈Non-accelerated
      filer ̈
                    Smaller reporting
      companyx(Do not check if a smaller
      reporting company)





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





As of
June 30, 2008, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was approximately $2,710,904 based on the
closing sale price as reported on The NASDAQ Stock Market, LLC.  For
the purposes of determining this amount only, the registrant has defined
affiliates of the registrant to include the executive officers and directors of
the registrant and holders of more than 10% of the registrant’s common stock on
June 30, 2008.




The
number of shares outstanding of the registrant’s common stock as of March 23,
2009 was 14,251,964 shares.




DOCUMENTS
INCORPORATED BY REFERENCE





None.


2


CLEARPOINT
BUSINESS RESOURCES, INC.


TABLE
OF CONTENTS


PageFORWARD-LOOKING
      STATEMENTS
                    4PRESENTATION
      OF INFORMATION
                    4PART
      I
                    5Item
      1.  Business.
                    5Item
      1A.  Risk Factors.
                    10Item
      1B.  Unresolved Staff Comments.
                    25Item
      2.  Properties.
                    25Item
      3.  Legal Proceedings.
                    25Item
      4.  Submission of Matters to a Vote of Security
      Holders.
                    29PART
      II
                    30Item
      5.  Market for Registrant’s Common Equity, Related Stockholder
      Matters and
      Issuer Purchases of Equity Securities.
                    30Item
      6.  Selected Financial Data.
                    31Item
      7.  Management’s Discussion and Analysis of Financial Condition
      and Results of Operation.
                    33Item
      7A.  Quantitative and Qualitative Disclosures About Market
      Risk.
                    67Item
      8.  Financial Statements and Supplementary Data.
                    67Item
      9.  Changes in and Disagreements With Accountants on Accounting
      and Financial Disclosure.
                    122Item
      9A(T).  Controls and Procedures.
                    122Item
      9B.  Other Information.
                    123PART
      III
                    124Item
      10.  Directors, Executive Officers and Corporate
      Governance.
                    124Item
      11.  Executive Compensation.
                    129Item
      12.  Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters.
                    142Item
      13.  Certain Relationships and Related Transactions, and
      Director Independence.
                    145Item
      14.  Principal Accounting Fees and Services.
                    150PART
      IV
                    151Item
      15.  Exhibits and Financial Statement Schedules.
                    151SIGNATURES
                    152EXHIBIT
      INDEX
                    E-1


3


FORWARD-LOOKING
STATEMENTS




This
Annual Report on Form 10-K includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, referred to as
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, referred to as the Exchange Act.  Our forward-looking
statements include, but are not limited to, statements regarding our
expectations, hopes, beliefs, intentions or strategies regarding the
future.  In addition, any statements that refer to projections,
forecasts or other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking
statements.  The words “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,”
“predict,” “project,” “should,” “would” and similar expressions may identify
forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking.




The
forward-looking statements contained in this Annual Report on Form 10-K are not
guarantees of future performance and are based on our current assumptions,
estimates, forecasts, expectations and beliefs concerning our business and their
potential effects on us and speak only as of the date of such statement. There
can be no assurance that future developments affecting us will be those that we
have anticipated. These forward-looking statements involve a number of risks and
uncertainties (some of which are beyond our control) that may cause actual
results or performance to be materially different from those expressed or
implied by these forward-looking statements. These risks and uncertainties
include, but are not limited to, the following factors:




·
            our
      ability to continue as a going concern and obtain adequate
      financing;




·
            our
      ability to service and repay our outstanding debt
    obligations;




·
            limitations
      that our outstanding debt obligations impose on our cash flow available
      for our operations;




·
            our
      ability to facilitate the market acceptance of our iLabor Network and
      increase revenues;




·
            the
      effect of the current economic downturn;
and




·
            other
      risk factors set forth in this Annual Report on Form
  10-K.




The
foregoing risks are not exhaustive.  The “Risk Factors” set forth in
Part I, Item 1A. of this Annual Report on Form 10-K include additional risk
factors which could impact our business and financial
performance.  Should one or more of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, actual results
may vary in material respects from those projected in these forward-looking
statements. You should not place undue reliance on forward-looking statements as
a prediction of actual results.  We undertake no obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.




PRESENTATION
OF INFORMATION




Financial information contained in Part
I and Items 6 and 7 of Part II of this Annual Report on Form 10-K expressed in
U.S. dollars is presented in thousands (000’s) unless otherwise
noted.  Percentages contained in this report were calculated, where
possible, using the information from our consolidated financial statements, and
not the rounded information contained in this report.  As a result,
these percentages may differ slightly from calculations based upon the rounded
figures provided in this report and totals contained in this report may be
affected by rounding.




4


Unless
the context indicates otherwise, references to “ClearPoint Business Resources,
Inc.,” “ClearPoint,” the “Company,” “we,” “us” and “our” in this Annual Report
on Form 10-K refer to ClearPoint Business Resources, Inc. and its
subsidiaries.





PART
I




Item
1.  Business.




Company
Overview




ClearPoint
is a workplace management solutions provider.  Prior to fiscal year
2008, ClearPoint provided various temporary staffing services as both a direct
provider and as a franchisor. During the year ended December 31, 2008,
ClearPoint transitioned its business model from a temporary staffing provider
through a network of branch-based offices or franchises to a provider that
manages clients’ temporary staffing needs through its open Internet portal-based
iLabor Network, referred to as the iLabor Network or iLabor. Under the new
business model, ClearPoint acts as a broker for its clients and network of
temporary staffing suppliers using iLabor.




ClearPoint’s
services focus on assisting clients in managing their contingent labor needs.
iLabor creates a dynamic, competitive open marketplace for suppliers of
temporary labor to bid on and fulfill orders for temporary labor placed by
ClearPoint’s clients. iLabor Network provides services to clients ranging from
small businesses to Fortune 500 companies. The iLabor Network specializes in the
highly transactional “go to work” or “on-demand” segment of the temporary labor
market. Historically, this portion of the market has been underserved by
technology solutions. ClearPoint considers hospitality, distribution, warehouse,
manufacturing, logistics, transportation, convention services, hotel chains,
retail, and administrative sectors among the segments best able to be served by
the iLabor Network.




iLabor is
an on-demand e-procurement solution which eliminates the need for clients to
install and maintain costly hardware and software applications. A client can
access iLabor through standard Internet connections and web browsers, which also
eliminates the need for time consuming and costly systems integrations.
Regardless of size, number of locations, or number of temporary staffing
companies utilized, ClearPoint’s clients receive one bill, centralized
reporting, company wide metrics, and standardized quality control from one point
of entry, iLabor. The iLabor platform provides real time feedback on all posted
positions and provides a centralized reporting mechanism for clients to review
and monitor their spending on temporary labor.




Many of
these same benefits of ClearPoint’s product offering are realized by
ClearPoint’s suppliers as well. They incur no software or implementation fees
and can access the application through a standard Internet browser. They also
have the opportunity to access more clients via the portal and benefit from
ClearPoint’s consolidated invoicing and payments, thereby reducing their
internal overhead costs.




ClearPoint
believes that its iLabor technology has allowed ClearPoint to better position
itself in the human capital industry. The iLabor Network is a technology-based
procurement method that provides a low cost and easy alternative for
ClearPoint’s clients, as well as traditional staffing companies in the industry,
to procure temporary labor through a ClearPoint-approved staffing supplier
network that has national coverage. It is the strength of ClearPoint’s base of
temporary labor suppliers that enables ClearPoint to effectively and efficiently
meet the stringent demands of iLabor clients, often within very tight time
constraints. The iLabor platform is a fully scalable product offering that can
accommodate significant growth in transaction volumes for ClearPoint without
significant increases to ClearPoint’s existing cost structure.




5




ClearPoint’s
vendor management services, or VMS, system provides human resource outsourcing,
customized managed services programs, and workforce optimization embedded within
the clients’ internal technology infrastructure. ClearPoint’s VMS system is a
management software program that encompasses every facet of coordinating,
ordering, planning and tracking of all contract/temporary personnel, including
contract employees from various staffing companies.




Business
Strategy




Temporary
staffing and outsourcing have become an integral way for companies to increase
scale and focus on core competencies while controlling employment costs and
mitigating certain employment-related risks. The temporary staffing industry
provides flexible, efficient and cost-effective staffing solutions to help
companies meet a variety of human resource needs. Companies rely on staffing
providers to meet personnel needs during periods of peak workloads caused by
factors such as seasonality, special projects, vacation, illness, emergency and
rapidly changing economic conditions. In addition, companies realize cost
savings from using flexible staffing services by outsourcing the process and
expense of advertising, screening, interviewing, testing and training job
candidates to outsourced staffing providers.




ClearPoint
believes that iLabor is a tool for companies that take advantage of the
temporary labor workforce. iLabor is a virtual marketplace for such companies to
e-procure temporary labor from a national network of ClearPoint-approved
suppliers that compete for each position. The strength of ClearPoint’s supplier
base ensures that posted positions are filled on a timely basis, and iLabor
provides clients with the ability to monitor their total spends on temporary
labor with real-time feedback. ClearPoint has made it simple and inexpensive for
its clients to access a pool of temporary labor by avoiding time consuming
systems integrations and costly hardware and software application purchases and
installations.




ClearPoint
intends to grow its supplier network and facilitate the market acceptance of the
iLabor Network. ClearPoint is constantly expanding its supplier network to
increase its coverage through both recruitment of new suppliers and by the
addition of new clients who have existing relationships for sourcing contingent
labor and would like to use them through the portal. In addition, ClearPoint
designs and implements performance based solutions for its iLabor clients and
provides value-added consulting services tailored to the client’s
business.




ClearPoint
also intends to continue to offer VMS whereby ClearPoint provides dedicated
onsite personnel to coordinate the contingent labor resources, working in
conjunction with ClearPoint’s clients to determine their needs and requirements
relating to the sourcing and management of the labor.




Technology
and Services




ClearPoint
is a technology based service provider in the procurement of temporary
labor.  ClearPoint provides the following services:




Management of Temporary
Workforce




iLabor. ClearPoint’s iLabor
Network is a proprietary technology-based platform which provides clients a
comprehensive web-based portal to streamline the process involved in procurement
and management of contingent workforces through a network of ClearPoint-approved
staffing suppliers. The iLabor platform provides a virtual marketplace for the
e-procurement of temporary labor and provides clients with one contract and one
contact point to order temporary staff on a national scale, without the
requirement to implement costly systems integration.




6




VMS.ClearPoint’s VMS program
provides a system for human resource outsourcing, customized managed services
programs, and workforce optimization embedded within the clients’ internal
technology infrastructure. ClearPoint’s human resource outsourcing service
becomes an extension of its client’s human resource department as a sole source
provider of staffing services for both contract and direct positions. ClearPoint
will also design and implement performance based solutions for its clients and
provide value-added consulting services tailored to the client’s business.
ClearPoint’s VMS system is a management program that encompasses every facet of
coordinating, ordering, planning and tracking of all contract/temporary
personnel from various staffing companies and utilizes ClearPoint’s personnel
onsite with its clients to help them optimize their workforce and reduce
expenses.




Business
Services




ClearPoint,
through its approved partners, provides business process outsourcing, support
services and benefits solutions and administration for clients. ClearPoint
designs its business services and outsourcing programs to be client-specific
business service solutions tailored to meet the needs of the particular client,
which are easier and more cost effective for the client than building the
necessary in-house recruiting and credentialing infrastructure. The goal of each
outsourced program is to improve the client’s process and outcomes for the
particular division that will be operated by ClearPoint. ClearPoint’s
outsourcing offering can also include managing other functions for the client,
such as payroll administration, training and retention programs, risk management
and call centers.




Project-Based Staff
Augmentation




Primarily
from ClearPoint’s approved supplier network, ClearPoint provides full service
project solutions, executive search and temporary and permanent placement,
contract recruiting services and short- and long-term hourly-based assignments
for clients in both commercial services and professional services. ClearPoint’s
Project-Based Staff Augmentation for commercial services specializes in the
transportation, logistics and distribution industry.




Clients
and Suppliers




ClearPoint’s clients range in size from
small businesses to Fortune 500 companies located throughout the United States.
ClearPoint’s clients operate primarily in the transportation, logistics,
engineering, scientific, aerospace, allied health, information technology,
manufacturing, distribution, call center, financial, hospitality, food service,
retail, data processing, legal and administration industries. With the
introduction of iLabor, ClearPoint’s client base now includes other providers of
temporary labor which use iLabor to fill open positions they are not able to
fill themselves due to resource constraints or limitations in geographic
coverage, providing them with incremental revenues and earnings.




Historically, ClearPoint has sought to
maintain a diverse client base in an effort to reduce the impact of client
turnover. ClearPoint has traditionally had a larger concentration in the
transportation and retail industries, but has recently expanded in the
hospitality sector as well.  No single client accounted for more than
5% of ClearPoint’s revenues for the year ended December 31, 2008.




ClearPoint currently works with one
client utilizing its VMS system, which accounted for 1% of ClearPoint’s revenues
for the fiscal year ended December 31, 2008. ClearPoint maintains onsite
personnel managing the client’s contingent labor needs sourcing, assessing, and
screening candidates for temporary positions within the company.




ClearPoint’s supplier network ranges
from small one-location offices to national firms with office locations across
the United States. Suppliers are afforded many of the same benefits of using
iLabor available to ClearPoint’s clients and can access the system through a
standard Internet connection without any cost for software or implementation.
They also receive consolidated billing and check processing and have the
potential to service more clients in their geographic region with reduced
overhead expenses.




7




Sales
and Marketing




ClearPoint sells its technology
services through both direct and indirect channels. A direct approach is used to
target specific large accounts within the light industrial market segment and is
augmented by indirect channel partners with specific temporary labor expertise.
ClearPoint uses a solutions sales approach whereby ClearPoint’s products and
services are presented to improve processes, increase efficiency, provide
reporting tools and reduce expenses within an organization. This is typically
done through lead qualification and follow up presentations to involved
constituents of a prospective client.




Research
and Development




ClearPoint focuses its research and
development efforts primarily on the development of software upgrades to the
iLabor system. ClearPoint’s research and development expenditures totaled $446
and $1,472 for the fiscal years ended December 31, 2008 and 2007,
respectively.




Regulation




ClearPoint’s services are subject to
various federal, state and local regulations. In addition, ClearPoint’s services
may be subject to various state and local tax regulations. Some or all of
ClearPoint’s services are subject to federal and state consumer protection laws
and regulations prohibiting unfair and deceptive trade practices.




ClearPoint also is subject to
regulations applicable to businesses conducting online commerce. Presently,
there are relatively few laws specifically directed toward online services.
However, due to the increasing popularity and use of the Internet and online
services, it is possible that laws and regulations will be adopted with respect
to the Internet or online services. These laws and regulations could cover
issues such as online contracts, user privacy, freedom of expression, pricing,
fraud, content and quality of services, taxation, advertising, intellectual
property rights and information security.




Intellectual
Property




ClearPoint’s intellectual property
assets take various forms, including know-how and related trade secrets,
trademarks, trade names and copyrights, and related licensing. In terms of
trademarks and brand equity, ClearPoint currently maintains five pending
applications for federal registration with the U.S. Patent & Trademark
Office, including four applications to protect variations on the “iLabor” and
“ClearPoint iLabor” brand of web-based software and services, as well as issued
registrations for ClearPoint’s slogan, “We Get To The Point”, and two other
marks.  ClearPoint is actively prosecuting the above-mentioned pending
applications in the effort to secure registration. With respect to copyrights,
while ClearPoint has not secured U.S. Copyright Office registration, it is
preparing one or more applications for registration, and it intends to
vigorously protect and enforce its proprietary rights in the original
programming embodied in the iLabor software suite. In connection with its
proprietary know-how and trade secrets, ClearPoint implements safeguards to
limit access to sensitive information and to secure employee cooperation in
protecting company assets. The technology which ClearPoint deploys through its
iLabor Network will be its core product offering as it moves forward. As a
result, continuous enhancements and evaluation of safeguards of intellectual
property constitute an important part of ClearPoint’s business
strategy.




8




Competition




ClearPoint competes with e-procurement
technology providers in the temporary staffing industry such as IQNavigator and
Fieldglass, Inc., which focus on higher-end services and on-site vendor
management, as well as other traditional temporary staffing firms offering
similar services on a national, regional or local basis. The staffing business
is very competitive and highly fragmented, with limited barriers to entry into
the market, and no company has a dominant market share in the United States.
ClearPoint is not aware of any competitors that compete directly with its iLabor
platform in the light industrial market segment.




In the temporary staffing industry,
historically, ClearPoint’s strongest competitors, for both iLabor and VMS,
included national staffing companies that have close existing relationships with
clients, greater financial resources and larger marketing presence, as well as
specialty providers in certain verticals. In addition, such organizations could
also discount their services to a point which would make it difficult for
ClearPoint to compete effectively and maintain or gain a market share. iLabor
differentiates itself from the traditional temporary staffing providers and
e-procurement vendors by leveraging a network of staffing suppliers branching
through locations across the United States and focusing on the underserved light
industrial market segment. With the introduction of iLabor, ClearPoint operates
as a clearing house for clients’ temporary staffing requirements, where many of
the national staffing companies have now signed on to the iLabor Network,
thereby becoming the fulfillment arm of ClearPoint’s iLabor ordering system.
Small, local providers are also signing on to the iLabor Network. ClearPoint’s
future success will depend on the adoption rate of the iLabor procurement system
by corporate buyers of temporary staffing as well as by larger staffing
companies looking to generate incremental revenues and earnings.




Seasonality




ClearPoint experiences fluctuation in
revenue and operating results based on a number of factors, including the
personnel demands of its clients. Historically, ClearPoint has experienced a
rise in demand from its transportation and retail clients in the fourth quarter
due to the increase in the shipment of products for the holiday season. The
first quarter has been traditionally the slowest quarter from a revenue
perspective due to national holidays and client planning cycles. Inclement
weather can cause a slowdown in ClearPoint’s business due to business shutdowns
by its clients.




Employees




As of March 23, 2009, ClearPoint
employed 16 full-time staff employees.




Business
Combinations




ClearPoint was incorporated in Delaware
on July 21, 2004. ClearPoint Resources, Inc., ClearPoint’s wholly-owned
subsidiary (f/k/a Mercer Staffing, Inc. and ClearPoint Business Resources,
Inc.), referred to as CPR, was formed in Delaware on January 1, 2005, as a
holding company of its wholly owned subsidiaries consisting of, among others,
Mercer Ventures, Inc., referred to as MVI, and Allied Contract Services, LLC. On
February 12, 2007, CPR consummated a merger with Terra Nova Acquisition
Corporation, referred to as Terra Nova. As a result of the merger, CPR
stockholders were issued an aggregate of 6,051,549 shares of Terra Nova common
stock. Upon the closing of the merger, Terra Nova changed its name to ClearPoint
Business Resources, Inc.




On February 23, 2007, ClearPoint
acquired certain assets and liabilities of ALS, LLC and its subsidiaries, also
known as ASG, LLC and referred to as ALS. The purchase price of $24,400
consisted of cash of $19,000, a promissory note in the amount of $2,500,
referred to as the ALS Note, shares of common stock with a value of $2,500
(439,367 shares) and the assumption of approximately $400 of current
liabilities. The principal and interest balance of the ALS Note at December 31,
2008 was $2,214 and was not repaid due to the pending litigation with Temporary
Services Insurance Ltd., referred to as TSIL.  For additional
information regarding the litigation with TSIL, see Part I, Item 3 “Legal
Proceedings” of this Annual Report on Form 10-K.  For additional
information regarding the transaction with ALS, see Part II, Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources” of this Annual Report on Form
10-K.


9


Item
1A.  Risk Factors.





You
should carefully consider the risks and uncertainties described below, as well
as the other information included in this report, before making your investment
decisions with respect to our securities. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. If any of these risks or uncertainties actually occur, our
business, financial condition and results of operations could be materially and
adversely affected. In that case, the value of our securities could decline
substantially.





Risks
Related to Our Business




Our revenue is
highly susceptible to changes in general economic conditions, and a recession or
other downturn in the U.S. economy,may adversely
affect the industries in which our clients operate as well as our business,
financial position and results of operations.




The
global economy is currently undergoing a period of unprecedented volatility, and
the future economic environment may continue to be less favorable than that of
recent years. It is uncertain how long the recession that the U.S. economy has
entered will last.  We have exposure to many different industries in
which our clients operate that may be unstable or may become unstable in the
current economic environment.  Any such instability affects our
clients’ ability to fulfill their respective contractual obligations to us or
causes them to limit or place burdensome conditions upon future transactions
with us.  Demand for our staffing services has been adversely affected
by the general level of economic activity and rising unemployment in the United
States.  During the current economic downturn, some of our clients
have been reducing their temporary labor spending as part of a general cost
reduction strategy.  In addition, some of our clients have limited
their utilization of temporary employees before laying off regular full-time
employees.  Generally, we have experienced less demand for our
services and more competitive pricing pressure during this period of economic
downturn, which has adversely affected our business, financial condition and
results of operations.




In
addition, we are dependent on our approved staffing supplier base to fill open
positions posted by our clients.  If due to the economic downturn,
some of our suppliers curtail their operations or are otherwise unable to fill
sufficient open positions posted by our clients, we may be unable to compete
effectively and it could materially adversely affect our business, financial
condition and results of operations.




Our
independent auditors included an explanatory paragraph in its audit report on
our financial statements for the year ended December 31, 2008 regarding our
ability to continue as a going concern, which may require us to scale back or
cease operations.




At
December 31, 2008, we had cash and cash equivalents of $960, an accumulated
deficit of $54,491 and working capital deficiency of $11,937.  For the
year ended December 31, 2008, we incurred a net loss of $38,786. Due to such
financial position and results of operations as well as the absence of firm
commitments for any additional financing, our independent registered public
accounting firm included an explanatory paragraph in its audit report on our
financial statements for the year ended December 31, 2008 regarding our ability
to continue as a going concern.




If we are
unable to generate sufficient cash from operations, obtain additional funding or
restructure existing debt, we may not be able to continue operations as
proposed, requiring us to modify our business plan, curtail various aspects of
our operations or cease operations. In such event, you may lose a portion or all
of your investment. In addition, the going concern explanatory paragraph in the
report of our independent auditors may cause concern to one or more of our
constituencies of debt holders, clients, suppliers, or trade creditors. If any
debt holder’s, client’s or trade creditor’s concern results in adverse changes
in their respective business relations with us, these changes may materially
adversely affect our cash flows and results of operations.




10




We
may be unable to obtain additional financing or restructure existing debt to
implement our business plan, which will have a material adverse impact on our
liquidity and ability to continue operations.




Our
ability to obtain financing or restructure existing debt depends, in part, upon
prevailing capital market conditions as well as our operating results, which may
negatively impact our efforts to arrange financing on satisfactory
terms.




The going
concern explanatory paragraph in the report of our independent auditors
indicates an absence of obvious or reasonably assured sources of future funding
necessary to maintain our ongoing operations. There is no assurance that our
capital raising efforts will be able to attract the additional capital or other
funds we need to sustain our operations. The going concern explanatory paragraph
in the report of our independent auditors may make it more difficult for us to
raise capital or restructure existing debt. In addition, the current economic
crisis, which involves, among other things, significant reductions in available
capital from banks and other providers of credit, may further restrict our
access to financing in the capital markets. If adequate funds are not available,
or are not available on acceptable terms, we may not be able to implement our
business plan or repay our existing debt obligations. The failure to obtain
additional capital or restructure existing debt on acceptable terms will also
have a material adverse effect on our liquidity and ability to continue
operations.




We
incurred losses for the last two fiscal years, and continued losses may
negatively impact our business, ability to repay debt, financial condition and
results of operations.




We
incurred net losses of $38,786 and $12,391 for the fiscal years ended December
31, 2008 and 2007, respectively.  At December 31, 2008, we had an
accumulated deficit of $54,491. If we continue to experience losses, it may
negatively impact our business, ability to repay debt, financial condition and
results of operations.




Our
indebtedness may limit cash flow available for our operations.




On June
20, 2008, we consolidated and deferred payment on our obligations to
Manufacturers and Traders Trust Company, referred to as M&T, and entered
into a $3,000 revolving credit facility with ComVest and a $9,000 term note with
ComVest.  Such debt restructuring effectively replaced M&T with
ComVest as our senior lender.  We use royalty payments received
primarily from StaffChex Inc., referred to as StaffChex, and Koosharem Corp
doing business as Select Staffing, referred to as Select, for the repayment of
the ComVest term note. To the extent that royalty receipts from these sources do
not meet the minimum threshold of $200 per month, we must make up the difference
from our operating cash. In the event that royalty receipts from these sources
exceed $450 in a given month, we may utilize the excess for operations or offset
amounts owed on the revolving credit facility at our discretion. At December 31,
2008, we remitted approximately $1,730 of principal and interest payments, in
the aggregate, to ComVest, of which $1,607 was derived from our royalty receipts
and $123 was derived from our other operations.




In
addition, as part of restructuring our debt obligations to M&T, of which
approximately $5,000 was outstanding at December 31, 2008, we agreed to pay
M&T up to $3,000 in cash proceeds arising out of our accounts receivable. At
December 31, 2008, we remitted approximately $1,166 to M&T against the
$3,000 receivable target. We also agreed to pay M&T our federal and state
income tax refunds, which we anticipated to be not less than $1,000. We remitted
approximately $974 of federal tax refunds, approximately $25 of state tax
refunds and approximately $25 of other tax refunds to M&T.




11




Because
we are obligated to dedicate a portion of our cash flow to service our debt
obligations, our cash flow available for operations has been
reduced.  The amount of indebtedness we have could limit our
flexibility in planning for, or reacting to, changes in the markets in which we
compete and require us to dedicate more cash flow to service our debt than we
desire. Subject to limitations in the ComVest loan agreement, we may incur
additional debt in the future to finance our operations or otherwise and
servicing this debt could further limit our cash flow.




If
we continue to experience liquidity issues, we may be unable to repay our
outstanding debt obligations when due and may seek, or be forced to seek,
protection under the federal bankruptcy laws.




We are
highly leveraged and we have very limited financial resources. At December 31,
2008, we had cash and cash equivalents of approximately $960 and approximately
$27,000 of total liabilities. Our ability to borrow under the ComVest revolving
credit facility and term loan would be compromised in the event of
non-compliance with applicable covenants under the ComVest loan agreement. Such
non-compliance would constitute an event of default and would permit the lender
to exercise its remedies under the ComVest loan agreement, including declaring
all amounts owing under the revolving credit facility and the term loan, which
constituted, in the aggregate, approximately $8,600 at December 31, 2008, to be
immediately due and payable. Also listed as an event of default under the
ComVest loan agreement is a default with respect to any other of our
indebtedness exceeding $100, if the effect of such default would permit the
lender to accelerate the maturity of such indebtedness.  As of
December 31, 2008, we were current in all interest and principal payments, as
applicable, with respect to all of our outstanding indebtedness. An event of
default under the ComVest loan agreement would also require us to pay higher
rates of interest on the amounts we owe to ComVest and, pursuant to a cross
default provision, may trigger an agreement termination event under the M&T
loan agreement, which would, among other remedies available to M&T, result
in the deferred obligations under such agreement, which constituted, in the
aggregate, approximately $5,000 at December 31, 2008, becoming accelerated and
immediately due and payable.




We may
not have the resources to satisfy these obligations. If we are unable to repay
our debt obligations when due, we may seek protection under the federal
bankruptcy laws or be forced into an involuntary bankruptcy filing.




If
the remedial policies and procedures we have implemented are insufficient to
address the identified material weaknesses in our internal control over
financial reporting, we may fail to meet our future reporting obligations and
our financial statements may contain material misstatements.




Our
management performs assessments of the effectiveness of our internal control
over financial reporting.  In connection with such evaluation, our
management determined that our internal control over financial reporting was not
effective as of December 31, 2007, based on the criteria in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission, and identified certain material weaknesses in our
internal control over financial reporting.




Although
we believe that we addressed our material weaknesses in internal control over
financial reporting and our internal control over financial reporting was
effective as of December 31, 2008, we cannot guarantee that any additional
material weaknesses or significant deficiencies will not arise in the future due
to a failure to maintain adequate internal control over financial reporting. In
such case, we may fail to meet our future reporting obligations, our financial
statements may contain material misstatements and our operating results may be
adversely affected. Any such failure could also adversely affect the results of
the periodic future management evaluations and annual auditor attestation
reports regarding the effectiveness of our internal control over financial
reporting. Internal control weaknesses could also cause investors, as well as
our clients and staffing suppliers, to lose confidence in our reported financial
information.




12




Royalty
payments received primarily from StaffChex and Select constitute a significant
portion of our revenues, and an adverse effect on our relationship with these
companies could cause our revenues to decrease.




The
majority of our revenues are generated from royalty payments made pursuant to
agreements with StaffChex and Select. An adverse effect on our relationship with
any of these companies could cause our revenues to decrease, which may
negatively impact our business, financial condition and results of
operations.  For example, see Part II, Item 7 “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Contingencies and
Litigation” and “—Liquidity and Capital Resources” in this Annual Report on Form
10-K for a description of our dispute with Select and the amendment of our
iLabor agreement with StaffChex, respectively.




If
iLabor does not gain market acceptance, it may negatively impact our business,
financial condition and results of operations.




iLabor
constitutes the major component of our business model and business plan. In
2008, we transitioned from the temporary staffing model to our iLabor technology
platform to enable our clients to procure temporary labor through a ClearPoint
approved staffing supplier network. Due to the transition of our business from
the temporary staffing model to the iLabor Network, for the year ended December
31, 2008, revenues from the iLabor Network constituted less than 1% of our
revenue. Because it has been recently introduced, our iLabor model has not been
proven in the market and there is no assurance that it will result in
sustainable revenues for us. If iLabor does not gain market acceptance, it may
negatively impact our business, financial condition and results of
operations.




Possible
contingent liabilities related to the liabilities and assets of workers’
compensation insurance policies sold pursuant to certain transactions we entered
into in connection with our transition to the new business model could result in
a material adverse effect on our liquidity, financial condition and results of
operations if those contingent liabilities were realized.




We
believe that the transfer of the liabilities and assets of the workers’
compensation policies pursuant to agreements with the parties that acquired MVI
and ClearPoint HRO, LLC, referred to as HRO, would eliminate the liability
associated with workers’ compensation claims resulting from our previous
staffing agency operations. Additionally, no claims for these workers’
compensation claims have yet been asserted against us. However, there may be
potential contingent liabilities resulting from such claims and such
liabilities, if realized, could result in a material adverse effect on our
liquidity, financial condition and results of operations because we no longer
maintain any reserves for liabilities and assets related to the transferred
workers’ compensation claims.




Financial
and operating covenants in our loan agreements with ComVest and M&T may
reduce our operating flexibility, which may have an adverse effect on our
business and financial condition.




The loan
agreement with ComVest related to our revolving credit facility and term note
and/or the loan modification and restructure agreement with M&T contain
various financial covenants as well as covenants that restrict our ability to,
among other matters:




·
            incur
      other indebtedness;




13




·
            create
      liens or other encumbrances on our
assets;




·
            enter
      into any merger or consolidation
transaction;




·
            sell,
      lease, assign or otherwise dispose of all or substantially all of our
      property, business or assets;




·
            sell
      or assign our accounts receivable, promissory notes or trade
      acceptances;




·
            utilize
      the cash proceeds arising from our accounts
  receivable;




·
            make
      any investment in, or otherwise acquire or hold securities, or make loans
      or advances, or enter into any arrangement for the purpose of providing
      funds or credit;




·
            make
      acquisitions or investments;




·
            amend
      our organizational documents; and




·
            pay
      dividends or make other distributions on our capital
  stock.




These
restrictions may limit our ability to obtain future financing, make capital
expenditures or otherwise take advantage of business opportunities that may
arise from time to time. Our ability to meet the financial covenants can be
affected by events beyond our control, such as general economic
conditions.




Pursuant
to the terms of the loan agreements with ComVest and M&T, the failure to
comply with covenants constitutes an event of default, including as a result of
cross default provisions, and entitles the lenders to, among other remedies,
declare the loans due and payable. If our lenders accelerate the repayment of
borrowings or exercise other remedies available to them in the event of default,
it will have a material adverse effect on our business, financial condition and
results of operations.




We
are subject to various lawsuits, the impact of which on our financial position
and results of operations is uncertain. The inherent uncertainty related to
litigation and the preliminary stage of some of these matters makes it difficult
to predict the ultimate outcome or potential liability that we may incur as a
result.




On
November 18, 2008, AICCO, Inc., referred to as AICCO, filed a complaint the
Court of Common Pleas of Bucks County, Pennsylvania against us alleging that
AICCO agreed to finance premiums of certain insurance policies we procured
pursuant to a certain premium finance agreement among AICCO and us. AICCO claims
that we breached the terms of such agreement by failing to make certain
installment payments and seeks damages in excess of approximately $600, together
with interest and attorney’s fees and costs. On December 23, 2008, we filed an
answer in this matter and joined two additional defendants on January 23,
2009.  The joined defendants filed their answer to our complaint on
March 27, 2009.  We contend that the joined defendants are liable for
the installment payments pursuant to an agreement governing the sale of
HRO.  We alleged breach of contract against the joined defendants and
seek contribution and indemnification from such parties in this
matter.




On
November 10, 2008, XL Specialty Insurance Company, referred to as XL, filed a
complaint in the Supreme Court of the State of New York (New York County), and,
on December 9, 2008, XL filed an amended complaint, referred to as the XL
Complaint, alleging that, among other things, XL issued workers’ compensation
insurance policies to ClearPoint Advantage, LLC, our wholly-owned subsidiary and
referred to as CP Advantage, during 2007 and CP Advantage failed to make certain
payments with regard to claims made against CP Advantage under the policies and
maintain collateral required by the insurance policy documents. XL seeks to
recover from us, as a guarantor of CP Advantage’s obligations under the
insurance policies, $746, in the aggregate, in connection with certain claims
against and pursuant to the collateral obligations of, CP
Advantage.  XL, in addition to damages, seeks pre-judgment interest,
attorneys’ fees, costs and expenses and such other relief deemed proper by the
court.  We filed our answer in this matter on February 17, 2009 and
contend that a third party is liable for the payments under the insurance
policies pursuant to an agreement governing the sale of HRO.  This
litigation is currently moving into the discovery phase.




14




On or
about June 25, 2008, Sunz Insurance Company, referred to as Sunz, filed a
complaint in the Circuit Court of the 9th Judicial Circuit (Orange County,
Florida) against ALS d/b/a ClearPoint HR, LLC and CP Advantage. Sunz claims to
have provided workers compensation insurance to ALS and CP Advantage and that
such policy was cancelled on February 22, 2008, for alleged nonpayment of funds
due under the insurance contract. Sunz claims that ALS and CP Advantage owe in
excess of $500 under the policy. Sunz, in addition to damages, seeks
pre-judgment interest, court costs, attorneys’ fees and such other relief deemed
proper by the court.  On February 9, 2009, the court ordered Sunz to
conduct an audit of ALS and CP Advantage and set this matter for mandatory
mediation.  On March 3, 2009, ALS and CP Advantage answered Sunz’s
allegations and denied any liability.




On April
25, 2008, Alliance Consulting Group Associates, Inc., referred to as Alliance,
filed a complaint in the Court of Common Pleas (Montgomery County, Pennsylvania)
against CPR alleging that CPR failed to honor certain of its contractual
obligations to pay Alliance for services rendered under a Professional Services
Master Agreement, dated June 18, 2007. Namely, Alliance alleged that CPR failed
to pay approximately $600. Alliance seeks damages in the amount of approximately
$600, plus interest, costs and attorneys’ fees and such other relief deemed
proper by the court. CPR filed an answer and counterclaim on June 16, 2008. In
its counterclaim, CPR alleged in a breach of contract claim that Alliance had
failed to deliver certain computer programming and consulting services according
to specifications and that CPR had to expend certain monies to fix the resulting
problems.  On or about July 2, 2008, Alliance answered CPR’s
counterclaim denying the allegations. This litigation is currently in the
discovery phase.




On
September 21, 2007, TSIL, which claims to be a captive reinsurance company
offering workers’ compensation insurance to its shareholders through an
insurance program, filed a complaint in the U.S. District Court in Florida
against ALS and certain other related parties alleging that it was owed at least
$2,161 in unpaid insurance assessments, as well as other requested damages. We
are also named as a defendant because we acquired certain assets from ALS in
February 2007, for which we paid a portion of the purchase price at closing to
the named defendants, through ALS. It is alleged that this transfer rendered
Advantage Services Group II, LLC, one of the named insureds on the TSIL policy,
insolvent and unable to pay the insurance assessments and damages owed to TSIL.
TSIL requested in its complaint that its damages be satisfied from the assets
transferred to us. Agreements related to our acquisition of certain assets and
liabilities of ALS in February 2007 contain provisions under which we may seek
indemnification from ALS in connection with the foregoing. On January 11, 2008,
we filed an answer denying all claims and filed a crossclaim against ALS making
claims for contractual and common law indemnity. ALS filed its answer to our
crossclaim, denying all claims, and filed a counterclaim asking for a
declaratory judgment that it does not have to indemnify us and asserting a
breach of contract claim based on an alleged failure to pay ALS certain amounts
due under a promissory note arising out of the acquisition of certain assets and
liabilities of ALS in February 2007. The court entered an order, dated February
22, 2008, requiring us not to make any payments to ALS pursuant to the purchase
agreement without first seeking leave of court. On or about June 20, 2008, we
entered into a letter agreement with ALS whereby the parties agreed that ALS may
defend and would indemnify us in connection with the litigation involving TSIL
and that the parties will take all appropriate actions to dismiss their claims
against each other with respect to the TSIL litigation. ALS did not elect to
provide a defense to us, and we remain represented by our own counsel. Pursuant
to the letter agreement, ALS is obligated to indemnify us against TSIL’s claims,
and reimburse us for legal fees up to $300. On November 21, 2008, a joint
stipulation for voluntary dismissal was filed with the court pursuant to which
we and ALS jointly dismissed such claims with prejudice. On December 8, 2008,
the court entered an order dismissing all claims between us and ALS with
prejudice.  The litigation among TSIL and ALS is currently concluding
its fact discovery phase and commencing its expert discovery phase.




15




We
believe that we have several defenses to the claims raised in these matters and
intend to vigorously defend them. Due to the inherent uncertainties in
litigation and because the ultimate resolution of these proceedings is
influenced by factors outside of our control, we are currently unable to predict
the ultimate outcome of these matters or their impact on our financial position
or results of operations. Although we accrued for certain of the liability
exposures for these matters on our balance sheet, an adverse decision in these
matters may result in a material adverse effect on our liquidity, capital
resources and results of operations. In addition, to the extent that our
management has been required to participate in or otherwise devote substantial
amounts of time to the defense of these matters, such activities would result in
the diversion of our management resources from our business operations and the
implementation of our business strategy, which may negatively impact our
financial position and results of operations. For additional information
regarding these matters, see Part I, Item 3 “Legal Proceedings” of this Annual
Report on Form 10-K.




Seasonality
causes fluctuations in our revenue and operating results.




Our
clients are concentrated in the transportation and retail
industries.  Accordingly, our liquidity and results of operations
depend on the trends affecting such industries and the business cycles of these
clients that impact their continued demand for temporary staffing. Historically,
we have experienced a rise in demand from our transportation and retail clients
in the third and fourth quarter due to the increase in the shipment of products
for the holiday season. The first quarter has been traditionally the slowest
quarter from a revenue perspective due to national holidays and client planning
cycles. Inclement weather can cause a slowdown in our business due to business
shutdowns by our clients. Lower demand for temporary staffing related to
seasonal or other trends affecting our clients could have a material adverse
effect on our revenue and operating results.




We
may be unable to protect our proprietary technology and intellectual property
rights or keep up with that of our competitors.




Our
success depends to a significant degree upon the protection of our intellectual
property rights in our e-procurement platforms, including our software and other
proprietary information and material, and our ability to develop technologies
that are as good as or better than our competitors. We may be unable to deter
infringement or misappropriation of our software and other proprietary
information and material, detect unauthorized use or take appropriate steps to
enforce our intellectual property rights. Additionally, the laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. Our competitors could, without violating our
intellectual property rights, develop technologies that are as good as or better
than our technology. Protecting our intellectual property and other proprietary
rights can be expensive. Any increase in the unauthorized use of our
intellectual property could make it more expensive to do business and
consequently harm our operating results. Our failure to protect our intellectual
property rights in our software and other information and material or to develop
technologies that are as good as or better than our competitors’ could put us at
a disadvantage to our competitors. These failures could have a material adverse
effect on our business.




16




The
success of our iLabor Network depends on the continued growth in the use of the
Internet and the adequacy of the Internet infrastructure.




The
success of our iLabor Network is substantially dependent upon continued growth
in the use of the Internet. The number of clients using the Internet for
temporary staffing purposes may not increase for a number of reasons,
including:




·
            actual
      or perceived lack of security of information or privacy
      protection;




·
            possible
      disruptions, computer viruses or other damage to Internet servers or to
      users’ computers;




·
            governmental
      regulation;




·
            lack
      of access to high-speed communications equipment;
  and




·
            increases
      in the cost of accessing the
Internet.




As
currently configured, the Internet may not support an increase in the number or
requirements of users. In addition, there have been outages and delays on the
Internet as a result of damage to the current infrastructure. The amount of
traffic on our e-procurement platforms could decline materially if there are
outages or delays in the future. The use of the Internet may also decline if
there are delays in the development or adoption of modifications by third
parties that are required to support increased levels of activity on the
Internet. If any of the foregoing occurs, the number of clients using the iLabor
Network could decrease. In addition, we may be required to spend significant
capital to adapt our operations to any new or emerging technologies relating to
the Internet.




If
we do not respond to rapid technological changes, our services, proprietary
technology and systems may become noncompetitive or obsolete.




We
currently provide software and technology platforms for the procurement of
temporary labor by our clients. We utilize our proprietary software and
technology solutions, including iLabor and VMS, to provide temporary staffing
solutions to our clients. For the fiscal year ended December 31, 2008, we spent
approximately $446 on software development activities related to our iLabor and
VMS solutions. If we do not invest a significant portion of our capital to
continuously develop, upgrade and customize our iLabor and VMS platforms, we may
be unable to compete effectively.




Due to
the costs and management time required to introduce new services and
enhancements, we may be unable to respond to rapid technological changes in a
timely manner. If competitors introduce new services using new technologies or
if new industry standards and practices emerge, our services and proprietary
technology and systems may become noncompetitive and our ability to attract and
retain clients and new suppliers may be at risk.




In
addition, developing our proprietary technology entails significant
technological and business risks. We may use new technologies ineffectively or
fail to adapt our technology to meet the requirements of clients and suppliers
or emerging industry standards. Finally, the new technologies may be challenging
to develop and implement and may cause us to incur substantial
costs.




We
are subject to various regulations of government authorities. Our failure to
comply with such regulations or changes in existing regulations could have a
material adverse effect on our business.




Our
services are subject to various federal, state and local regulations. For
example, our services may be subject to various state and local tax regulations.
Some or all of our services are subject to federal and state consumer protection
laws and regulations prohibiting unfair and deceptive trade
practices.




17




We are
also subject to regulations applicable to businesses conducting online commerce.
Presently, there are relatively few laws specifically directed toward online
services. However, due to the increasing popularity and use of the Internet and
online services, it is possible that laws and regulations will be adopted with
respect to the Internet or online services. These laws and regulations could
cover issues such as online contracts, user privacy, freedom of expression,
pricing, fraud, content and quality of services, taxation, advertising,
intellectual property rights and information security. Our failure to comply
with existing legislation or any new legislation affecting our services could
have a material adverse effect on our business.




We
operate in a highly competitive industry and may be unable to compete
effectively, which may adversely impact our business, financial condition and
results of operations.




We
operate in a highly competitive industry in which barriers to entry are low. We
will need to maintain and update our product offering to remain competitive in
the industry. Although we are not aware of any other products similar to ours
currently in the market, other companies are able to develop and introduce
products which would compete directly with us. To the extent that other
companies have broader financial resources available to them, they may be able
to bring a product to market and maintain it with more resources than we have
available. We also run the risk of large suppliers working directly with
potential clients and establishing relationships that would preclude the use of
our iLabor Network.




Interruptions
or delays in service from our iLabor and VMS platforms could materially
adversely affect our business, financial condition and results of
operations.




We
provide much of our services, including iLabor and VMS, through computer
hardware and software that is hosted at a remote third-party site located in New
Jersey. All web-hosting and other technology distribution facilities are
vulnerable to damage or interruption from earthquakes, floods, fires, power
loss, telecommunications failures and similar events. These facilities are also
subject to break-ins, sabotage, intentional acts of terrorism, vandalism and
similar misconduct. Despite precautions that we take, the occurrence of a
natural disaster, act of terrorism or other unanticipated problem at the
facility where our technology is hosted could result in lengthy interruptions in
our service, which could materially adversely affect our business, financial
condition and results of operations.




We
are highly dependent on our senior management and the continued performance and
productivity of our approved supplier base; the loss of their services could
have a material adverse impact on our business, financial condition and results
of operations.




We are
highly dependent on the continued efforts of the members of our senior
management as well as the performance and productivity of our supplier base. The
loss of any of the members of our senior management may cause a significant
disruption in our business. In addition, the loss of any staffing suppliers in
our supplier base may jeopardize existing client relationships with businesses
that use our services based on relationships with these suppliers. The loss of
the services of members of our senior management or suppliers in our supplier
base could have a material adverse effect on our business, financial condition
and results of operations.




If
our staffing suppliers fail to attract and retain qualified personnel, it may
negatively impact our business, financial condition and results of
operations.




Our
success depends upon our staffing suppliers’ ability to attract and retain
qualified temporary and full-time personnel who possess the skills and
experience necessary to meet the staffing requirements of our clients. Our
suppliers must continually evaluate and upgrade their base of available
qualified personnel to keep pace with changing client needs and emerging
technologies. Furthermore, a substantial number of their temporary employees
during any given year may terminate their employment with them and accept
regular staff employment with our clients. Competition for individuals,
especially qualified transportation personnel, with proven skills remains
intense, and demand for these individuals is expected to remain strong for the
foreseeable future. There can be no assurance that qualified personnel will
continue to be available to our suppliers in sufficient numbers. If our
suppliers are unable to attract the necessary qualified personnel for our
clients, it may have a negative impact on our business, financial condition and
results of operations.




18




Our
staffing suppliers may be exposed to employment-related claims and costs that
could materially adversely affect our business, financial condition and results
of operations.




Our
staffing suppliers are in the business of employing people and placing them in
the workplace of our clients. Attendant risks of these activities include, but
are not limited to:




·
            possible
      claims by clients of employee misconduct or
  negligence;




·
            claims
      by employees of discrimination or harassment (including claims relating to
      actions of our clients);




·
            fines
      and costs related to the inadvertent employment of illegal
      aliens;




·
            payment
      of workers’ compensation claims and other similar
  claims;




·
            violations
      of wage and hour requirements;




·
            errors
      and omissions of temporary employees (this would include claims of
      negligence due to a temporary employee’s lack of intimate familiarity with
      a client’s operations); and




·
            claims
      by clients relating to employees’ misuse of client proprietary
      information, misappropriation of funds, other criminal activity or torts
      or similar claims.




Some or
all of these claims may give rise to litigation which could include us as a
named party, which could be time-consuming to our management team as well as
costly to us. Such claims could also materially negatively affect our suppliers’
business and financial position, which could adversely impact the viability of
our supplier network. Therefore, such claims could have a material adverse
effect on our business, financial condition and results of operations. In
addition, there may also be negative publicity with respect to these problems
that could have a material adverse effect on our business.




Risks
Related to Investment in Our Common Stock




Voting
control by our directors and other affiliates may limit your ability to
influence the outcome of director elections and other matters requiring
stockholder approval.




As of
March 23, 2009, Vahan Kololian, our lead director, Michael D. Traina, our
Chairman of the board of directors and Chief Executive Officer, and Optos
Capital, LLC, controlled by Christopher Ferguson and referred to as Optos,
beneficially owned 24.2%, 23.0% and 16.6% of our common stock,
respectively.  Accordingly, such stockholders may be able to control
the election of directors and, therefore, our policies and
direction.  In addition, this concentration of ownership could have
the effect of delaying or preventing a change in our control or discouraging a
potential acquirer from attempting to obtain control of us, which in turn could
have a material adverse effect on the market price of our common stock or
prevent our stockholders from realizing a premium over the market price for
their shares of common stock.  See “—Anti-takeover provisions to which
we may be subject may make it more difficult for a third party to acquire
control of us, even if the change in control would be beneficial to our
stockholders.”




19




Quotation
of our securities on The OTC Bulletin Board may adversely affect the liquidity
of our common stock and limit our ability to raise capital.




Trading
in our securities on The Nasdaq Capital Market, referred to as Nasdaq, was
suspended in September, 2008. Our securities were delisted from Nasdaq effective
at the opening of the trading session on November 24, 2008. We currently have
our securities quoted on The OTC Bulletin Board. This market is generally
considered to be less efficient than, and not as liquid as, Nasdaq. You may find
it more difficult to dispose of, or to obtain accurate quotations for the price
of, our securities quoted on The OTC Bulletin Board. Certain institutional
investors may no longer be able to retain their interests in and/or make further
investments in our securities because of their internal rules and protocols.
Broker-dealers may be less willing or able to sell and/or make a market in our
common stock.




Although
shares of our common stock are quoted on The OTC Bulletin Board, there is not
presently an active market for shares of our common stock and, therefore, you
may be unable to sell any shares of common stock in the event that you need a
source of liquidity. The trading in our common stock has substantially less
liquidity than the trading in the securities of many other companies quoted on
The OTC Bulletin Board. A public trading market in our common stock having the
desired characteristics of depth, liquidity and orderliness depends on the
presence in the market of willing buyers and sellers of our common stock at any
time. This presence depends on the individual decisions of investors and general
economic and market conditions over which we have no control. In the event an
active market for the shares of our common stock does not develop, you may be
unable to resell your shares of common stock at or above the price you paid for
them or at any price.




In
addition, offerings of our securities are subject to state securities laws. The
National Securities Markets Improvement Act of 1996, referred to as the NSMIA,
which is a federal statute, prevents or preempts the states from regulating the
sale of certain securities, which are referred to as covered securities. Because
our common stock is not listed on any exchange, our securities may not be deemed
covered securities under certain provisions of the NSMIA and we may be subject
to regulation in each state in which we offer securities. Compliance with such
regulations may require significant resources and materially adversely affect
our ability to raise capital through sales of our securities.




Our
common stock may be subject to the “penny stock” rules of the Securities and
Exchange Commission, which make transactions in our stock cumbersome and may
reduce the value of an investment in our common stock.




Under the
rules of the Securities and Exchange Commission, referred to as the SEC, “penny
stock” means, for the purposes relevant to us, any equity security that has a
market price of less than $5.00 per share, subject to certain exceptions. As of
March 23, 2009, the last reported sale price per share of our common stock was
$0.24 and trading in shares of our common stock may be subject to “penny stock”
rules.




Subject
to certain exemptions, the penny stock rules established by the SEC impose
additional sales practices on broker-dealers and require that a broker or
dealer:




·
            approve
      an investor’s account for transactions in penny stocks;
  and




·
            receive
      from the investor a written agreement to the
  transaction.




In order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must:




·
            obtain
      information regarding the investor’s financial situation, investment
      experience and objectives; and




20




·
            make
      a reasonable determination that the transactions in penny stock are
      suitable for that investor and that the investor has sufficient knowledge
      and experience in financial matters to be capable of evaluating the risks
      of transactions in penny stocks.




The
broker or dealer must also deliver to the investor, prior to any transactions in
penny stock, a written statement which sets forth the basis on which the broker
or dealer made the suitability determination described above.




Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. In addition, the mark-ups or commissions charged by the
broker-dealers may be greater than any profit a seller may make and investors
may be unable to reap any profit from any sale of the stock, if they can sell it
at all.




Failure
to remain eligible for quotation on The OTC Bulletin Board may require us to
transfer our securities to the Pink Sheets®, which would adversely affect the
liquidity, trading market and price of our common stock and our ability to raise
capital.




If we
fail to remain eligible for quotation on The OTC Bulletin Board, our securities
will be removed from The OTC Bulletin Board following a certain grace period.
Although we are currently eligible for quotation, there is no assurance that we
will always satisfy The OTC Bulletin Board’s quotation
requirements.




If our
securities are removed from The OTC Bulletin Board and we fail to meet the
listing standards of a national securities exchange, we would try to have our
securities quoted on the Pink Sheets® operated by Pink OTC Markets Inc. The
quotation of our common stock on the Pink Sheets® may reduce the price of our
common stock and the liquidity of our securities. In addition, the quotation of
our common stock on the Pink Sheets® may materially adversely affect our ability
to raise capital on terms acceptable to us or at all.




Our
stock price may be subject to significant volatility and could suffer a decline
in value.




The stock
market in general and the market for technology-related stocks in particular has
been highly volatile. As a result, the market price of our common stock is
likely to be similarly volatile, and investors in our common stock may
experience a decrease in the value of their stock, including decreases unrelated
to our operating performance or prospects. During 2007, our common stock was
particularly volatile as the price of our common stock ranged from a high of
$6.47 to a low of $1.60. During 2008, the price of our common stock ranged from
a high of $2.94 to a low of $0.02. We believe that many factors, including
several which are beyond our control, have a significant effect on the market
price of our common stock and could cause the market price of our common stock
to decline. These factors include, but are not limited to, those listed in this
“Risk Factors” section and the following:




·
            changes
      in general economic conditions and the overall performance of the equity
      markets;




·
            announcements
      of new technologies or services by us or our
  competitors;




·
            announcements
      relating to strategic relationships or
  acquisitions;




·
            developments
      with respect to intellectual property
rights;




·
            publication
      of unfavorable research reports about us or our
  industry;




·
            coverage
      or lack of coverage by securities
analysts;




·
            significant
      volatility in the market price and trading volume of software companies in
      general, and human resources software companies in
    particular;




21




·
            actual
      or anticipated changes in laws and government
  regulations;




·
            changes
      in industry trends or conditions;




·
            departures
      of key personnel; and




·
            sales
      of a significant number of shares of our common stock or other securities
      in the market.




In
addition, the stock market in general and the market for technology-related
stocks in particular has experienced significant price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of individual companies. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our operating
performance.




Our
quarterly operating results may fluctuate significantly, and these fluctuations
may cause our stock price to fall.




As a
result of fluctuations in our revenue and operating expenses, our quarterly
operating results may vary significantly. We may not be able to curtail our
spending quickly enough if our revenue falls short of our expectations. We
expect that our operating expenses will increase substantially in the future as
we expand our selling and marketing activities, increase our new product
development efforts and hire additional personnel. Our operating results may
fluctuate in the future as a result of factors including, but not limited to,
the following:




·
            our
      ability to increase services sold to existing clients, attract new clients
      and suppliers, cross-sell our solutions and satisfy our clients’
      requirements;




·
            changes
      in our pricing policies;




·
            the
      introduction of new features to our
solutions;




·
            the
      rate of expansion and effectiveness of our sales
  force;




·
            new
      product and service introductions by our
  competitors;




·
            concentration
      of marketing expenses for activities, such as trade shows and advertising
      campaigns;




·
            concentration
      of research and development costs;
and




·
            concentration
      of expenses associated with commissions earned on
  sales.




We
believe that period-to-period comparisons of our results of operations are not
necessarily meaningful as our future revenue and results of operations may vary
substantially. It is also possible that in future quarters our results of
operations will be below the expectations of securities market analysts and
investors. In either case, the price of our common stock could decline
materially.




22




Issuance
of shares of our common stock upon the exercise of our options, warrants and
units may cause significant dilution of equity interests of existing holders of
common stock, reduce the proportionate voting power of existing holders of
common stock and could potentially reduce the market value of our common
stock.




As of
March 23, 2009, 14,251,964 shares of our common stock were outstanding. We have
reserved 2,750,000 shares of common stock in connection with our 2006 Long Term
Incentive Plan, referred to as our 2006 plan, under which options to purchase
1,002,008 shares of common stock were outstanding as of March 23, 2009. We have
also reserved approximately 15,635,825 shares of common stock for issuance in
connection with previously issued options and warrants that are exercisable into
common stock, including: 240,000 shares included as part of the units in the
unit purchase option granted to the representative of the underwriters in
connection with our initial public offering in April 2005, referred to as our
2005 public offering; 480,000 shares issuable upon the exercise of the warrants
included as part of the unit purchase option granted to the underwriters’
representative; 11,040,000 shares underlying the warrants issued in our 2005
public offering; 165,000 shares issuable upon the exercise of the warrants we
issued to certain note holders; 2,210,825 shares issuable upon the exercise of a
warrant issued to ComVest, referred to as the ComVest warrant; and 1,500,000
shares issuable upon the exercise of warrants issued to M&T. In addition, we
reserved 900,000 shares for issuance to Blue Lake Rancheria, referred to as Blue
Lake, under our escrow agreement with Blue Lake, and in 2009, 100,000
shares for issuance upon exercise of a warrant to be issued to XRoads Solutions
Group, LLC, referred to as XRoads.




Should
existing holders of options, warrants or units exercisable into shares of our
common stock exercise such securities into shares of our common stock, it may
cause significant dilution of equity interests of existing holders of common
stock, reduce the proportionate voting power of existing holders of common stock
and reduce the value of our common stock and outstanding warrants. Under our
Amended and Restated Certificate of Incorporation, referred to as our
certificate of incorporation, as of March 23, 2009, we had approximately
24,360,211 shares of our common stock available for future issuances, which
issuances would cause further dilution to our stockholders and further reduce
the value of our common stock.




A
substantial number of our outstanding shares of common stock or shares issuable
upon the exercise of options, warrants and units are eligible for future sale,
and the sale of our shares of common stock into the market may depress our stock
price.




Our stock
price may be depressed by future sales of our shares of common stock or the
perception that future sales may occur. As of March 23, 2009, 20,030,000 shares
of our common stock have previously been registered with the SEC, including
2,750,000 shares reserved under our 2006 plan, 240,000 shares included as part
of the units in the unit purchase option granted to the underwriters’
representative, 480,000 shares issuable upon the exercise of the warrants
included as part of the unit purchase option granted to the underwriters’
representative, 5,520,000 shares included as part of the units issued in our
2005 public offering and 11,040,000 shares underlying the warrants issued in our
2005 public offering. In addition, we have registered for resale 2,210,825
shares issuable upon the exercise of the ComVest warrant and 1,500,000 shares
issuable upon the exercise of the warrants issued to M&T. Further, there are
currently additional unregistered shares of common stock that may be sold under
Rule 144 promulgated under the Securities Act. We are unable to estimate the
amount, timing or nature of future sales of common stock. Sales of substantial
additional amounts of common stock in the public market, or the perception that
these sales may occur, may lower the common stock’s market price.




Anti-takeover
provisions to which we may be subject may make it more difficult for a third
party to acquire control of us, even if the change in control would be
beneficial to our stockholders.




Anti-takeover
provisions in the General Corporation Law of the State of Delaware, or GCL, our
certificate of incorporation, and our Amended and Restated Bylaws, referred to
as our bylaws, could hinder or delay a change in control of our company,
including transactions in which holders of common stock might otherwise receive
a premium over the market price of their shares at the time of the transaction.
For example, our certificate of incorporation establishes a classified or
“staggered” board of directors, which means that only approximately one third of
our directors is required to stand for election at each annual meeting of our
stockholders. Our certificate of incorporation authorizes us to issue 60,000,000
shares of common stock and 1,000,000 shares of “blank check” preferred stock. No
shares of preferred stock were outstanding as of March 23, 2009. As of March 23,
2009, 14,251,964 shares of common stock were outstanding and 19,385,825 shares
of common stock were reserved for issuance upon the exercise of our options,
warrants and units, and under our 2006 plan, in connection with our obligations
under the escrow agreement with Blue Lake and the warrant issued to XRoads.
Therefore, under our certificate of incorporation, our board of directors may
issue up to 26,460,211 additional shares of common stock or issue preferred
stock convertible into shares of common stock, which could significantly dilute
the ownership of a potential acquirer. Also, pursuant to our bylaws, it may be
difficult for the potential acquirer to call a special meeting of our
stockholders because only a majority of the board of directors, our Chief
Executive Officer, Chairman, or Secretary acting at the request of the
stockholders owning a majority of our capital stock entitled to vote may call a
special meeting of stockholders.  For a discussion of the
anti-takeover effect of the voting control by our directors and other
affiliates, see “—Voting control by our directors and other affiliates may limit
your ability to influence the outcome of director elections and other matters
requiring stockholder approval.”




23




We
may issue shares of preferred stock that could be entitled to dividends,
liquidation preferences and other special rights and preferences not shared by
holders of our common stock.




We are
authorized to issue up to 1,000,000 shares of “blank check” preferred stock. We
may issue shares of preferred stock in one or more series as our board of
directors may from time to time determine without stockholder approval. The
voting powers, preferences and other special rights and the qualifications,
limitations or restrictions of each such series of preferred stock may differ
from each other. The issuance of any such series of preferred stock could
materially adversely affect the rights of holders of our common stock and could
reduce the value of our common stock.




We
do not pay cash dividends on our common stock and do not anticipate doing so in
the foreseeable future.




We are
subject to contractual limitations on the payment of dividends under our loan
agreement with ComVest, our loan modification and restructure agreement with
M&T, and the GCL. As a Delaware corporation, we may not declare and pay
dividends on our capital stock if the amount paid exceeds an amount equal to the
surplus, which represents the excess of our net assets over paid-in-capital or,
if there is no surplus, our net profits for the current and/or immediately
preceding fiscal year. Under applicable Delaware case law, dividends may not be
paid on our common stock if we become insolvent or the payment of dividends will
render us insolvent. We do not pay, and we do not anticipate paying, any cash
dividends on the common stock in the foreseeable future. Therefore, any gains on
your investment in our common stock will depend on increases in the stock price,
which may or may not occur.


24


Item
1B.  Unresolved Staff Comments.





Not
applicable.





Item
2.  Properties.





The
headquarters of ClearPoint are located at 1600 Manor Drive, Suite 110, Chalfont,
PA 18914.  ClearPoint leases approximately 5,500 square feet and pays
a monthly fee of $12, with its lease expiring on May 31, 2010.





Item
3.  Legal Proceedings.





Temporary
Services Insurance Ltd.




On
September 21, 2007, TSIL, which claims to be a captive reinsurance company
offering workers’ compensation insurance to its shareholders through an
insurance program, filed a complaint (the “TSIL Litigation”) in the U.S.
District Court in Florida against ALS, Advantage Services Group, LLC (“Advantage
Services”), certain officers and shareholders of ALS and Advantage Services as
well as certain other third party companies (collectively, the “ALS
Defendants”), alleging that it was owed at least $2,161 in unpaid insurance
assessments, as well as other requested damages, from the ALS
Defendants.  Kevin O’Donnell, a former officer of the ALS companies
and a named defendant in the TSIL Litigation, controls KOR Capital, LLC (“KOR”),
a former franchisee of ClearPoint.




ClearPoint
is also named as a defendant because it acquired certain assets from ALS and its
wholly owned subsidiaries, including Advantage Services Group II, LLC (“ASG
II”), in February 2007, for which it paid a portion of the purchase price at
closing to the ALS Defendants, through ALS. It is alleged that this transfer
rendered ASG II, one of the named insureds on the TSIL policy, insolvent and
unable to pay the insurance assessments and damages owed to TSIL. TSIL requested
in its complaint that its damages be satisfied from the assets transferred to
ClearPoint. Agreements related to the acquisition of certain assets and
liabilities of ALS in February 2007 contain provisions under which ClearPoint
may seek indemnification from ALS in connection with the foregoing. ClearPoint
intends to pursue all appropriate claims for such indemnification and cannot
estimate the potential liability, if any.




On
January 11, 2008, ClearPoint filed its Answer denying all claims in the TSIL
Litigation and also filed a Crossclaim against ALS making claims for contractual
and common law indemnity. ALS filed its Answer to ClearPoint’s Crossclaim,
denying all claims, and filed a Counterclaim asking for a declaratory judgment
that it does not have to indemnify ClearPoint and asserting a breach of contract
claim based on an alleged failure to pay ALS certain amounts due under the ALS
Note arising out of the acquisition of certain assets and liabilities of ALS in
February 2007. The court in the TSIL Litigation entered an order dated February
22, 2008 (the “TSIL Order”), requiring ClearPoint not to make any payments to
ALS pursuant to the purchase agreement without first seeking leave of court. On
or about June 20, 2008, in connection with ALS’ agreement to subordinate the ALS
Note to ComVest and M&T, ALS and certain other individuals (the “ALS
Parties”) entered into a Letter Agreement (the “ALS Agreement”). In the ALS
Agreement, the ALS Parties and ClearPoint agreed, among other things, as
follows:




·
            That
      the ALS Parties acknowledge their obligation to indemnify ClearPoint in
      connection with the TSIL Litigation, subject to certain sections of the
      ALS purchase agreement;




25




·
            That
      the ALS Parties shall be responsible for ClearPoint’s attorney’s fees
      incurred in the TSIL Litigation from June 20, 2008, not to exceed
      $300;




·
            That
      the ALS Parties and ClearPoint shall take all appropriate actions to
      dismiss all of their respective claims against one another in the TSIL
      Litigation, and that following such dismissal, ClearPoint shall cooperate
      as reasonably requested by the ALS Parties in connection with the TSIL
      Litigation including consenting in connection with a request to lift the
      TSIL Order, or otherwise permit payment to the ALS Parties in accordance
      with the terms of the ALS purchase agreement and the ALS Note;
      and




In
addition, ClearPoint agreed not to assert its right to set off from the ALS Note
any other amounts in connection with the TSIL Litigation until such time (if at
all) as a final judgment is entered against ClearPoint in the TSIL Litigation,
or the amount of TSIL’s claims against ClearPoint are liquidated by settlement
or otherwise.




ALS did
not elect to provide a defense to ClearPoint, and ClearPoint remains represented
by its own counsel. On November 21, 2008, a joint stipulation for voluntary
dismissal was filed with the court pursuant to which ClearPoint and ALS jointly
dismissed such claims with prejudice. On December 8, 2008, the court entered an
order dismissing all claims between ClearPoint and ALS with
prejudice.  The litigation between TSIL and ALS is currently
concluding its fact discovery phase and commencing its expert discovery
phase.




James
W. Brown et al.




On or
about October 29, 2007, ClearPoint received a copy of a letter sent by a law
firm to the California Labor & Workforce Development Agency, pursuant to
which such law firm sought permission under the California Labor Code Private
Attorney General Act of 2004 to file a complaint against ClearPoint, a wholly
owned subsidiary of ClearPoint and ALS and one of its subsidiaries, on behalf of
a class of employees currently and formerly employed by the defendants in
California (the employees had not been named). On January 30, 2008, James W.
Brown (“Brown”), on behalf of himself and all others similarly situated, on
behalf of the general public and as an “aggrieved employee” under the California
Labor Code Private Attorneys General Act, filed a complaint in the Superior
Court of the State of California (Alameda County) (the “Brown Litigation”)
against CP Advantage, a wholly owned subsidiary of CPR. Agreements related to
the acquisition of certain assets and liabilities of ALS in February 2007
contain provisions under which ClearPoint may seek indemnification from ALS in
connection with the foregoing. ClearPoint intends to pursue all appropriate
claims for such indemnification.




The
complaint in the Brown Litigation alleges that CP Advantage has (i) failed to
pay overtime compensation to employees who worked a 4/10 schedule but did not
work a 4 day week (Calif. Labor Code Section 1194 and 2699(f)) to him and to all
California employees similarly situated, (ii) failed to pay wages at the end of
the assignment (Calif. Labor Code Sections 201, 202 and 203 and 2699(f)) to him
and to all California employees similarly situated, (iii) failed to pay all
wages due on termination (Calif. Labor Code Sections 204 and/or 204b and
2699(f)) to him and to all California employees similarly situated, (iv) failed
to provide proper itemized wage statements (Calif. Labor Code Section 226(a)) to
him and to all California employees similarly situated, and (v) issued checks
with no in-state address for presentation that could not be cashed on demand and
without a fee (Calif. Labor Code Section 212 and 2699(f)) to him and to all
California employees similarly situated. On March 25, 2008, CP Advantage filed
its Answer and denied all claims. In addition, on March 26, 2008, CP Advantage
filed a Notice of Removal to remove the Brown Litigation to the United States
District Court of the Northern District of California. Brown seeks unspecified
penalties, damages, interest, attorneys’ fees, costs of suit and, in relation to
the claim regarding the alleged issuance of checks drawn on out-of-state banks
with no in-state address for presentation, an injunction to preclude such
alleged conduct.




26




On
November 17, 2008, a settlement was reached and as part of such settlement the
lawsuit was dismissed. With respect to the claim relating to the issuance of
paychecks to Brown and other similarly situated California employees with no
in-state address listed on the checks, and which could not be cashed without fee
and on demand, the parties agreed to toll the statute of limitations until June
30, 2010, so that if any action is later brought based on those same claims, the
statute of limitations on those claims will relate back to January 30,
2008.




Select




On July
29, 2008, Select and Real Time Staffing Services, Inc. (“Real Time”), filed a
complaint against ClearPoint and, on August 1, 2008, Select filed an amended
complaint (the “Select Litigation”) in the Superior Court of California (Santa
Barbara County), against ClearPoint. In the amended complaint, Select alleged
that ClearPoint had entered into an agreement with Select whereby Select would
supply services and personnel for temporary employment through ClearPoint to its
clients. Select claimed that ClearPoint owed it $1,033 for services performed.
Select sought, in addition to the monies claimed, interest, attorneys’ fees and
punitive damages of $1,000 as well as court costs and other just and proper
relief.




On August
22, 2008, CPR, Real Time and Select entered into a Settlement Agreement and
Release (the “Select Settlement Agreement”) pursuant to which each party
released the others from all prior, existing and future claims including,
without limitation, the parties’ claims with respect to the Select Litigation, a
License Agreement dated April 8, 2008 (the “Select License Agreement”) among CPR
and Select and a Temporary Help Services Subcontract dated April 8, 2008 (the
“Select Subcontract”) among CPR and Select effective March 30,
2008.  Pursuant to the Select Settlement Agreement, the parties also
agreed (i) that CPR would retain $900 paid to it under the Select License
Agreement; (ii) to allocate between them amounts paid or payable with respect to
certain client accounts; (iii) to execute an amendment to the Select
Subcontract; and (iv) that Select would file the required documents to dismiss
the Select Litigation with prejudice. In addition, the parties agreed not to
commence any future action arising from the claims released under the Select
Settlement Agreement and to terminate the Select License Agreement effective
August 22, 2008. On August 28, 2008, this lawsuit was dismissed with
prejudice.  For additional information regarding the Select License
Agreement and Select Subcontract, see Part II, Item 7 “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources—Transactions Related to Transition from Temporary Staffing
Business Model to iLabor Network Model” of this Annual Report on Form
10-K.




Alliance
Consulting Group Associates, Inc.




On April
25, 2008, Alliance filed a complaint (the “Alliance Litigation”) in the Court of
Common Pleas (Montgomery County, Pennsylvania), against CPR alleging that CPR
had failed to honor certain of its contractual obligations to pay Alliance for
services rendered under a Professional Services Master Agreement, dated June 18,
2007. Namely, Alliance alleged that CPR had failed to pay approximately $600.
Alliance seeks damages in the amount of approximately $600, plus interest, costs
and attorneys’ fees and such other relief deemed proper by the
court.




CPR filed
an answer and counterclaim on June 16, 2008. In its counterclaim, CPR alleged in
a breach of contract claim that Alliance had failed to deliver certain computer
programming and consulting services according to specifications and that CPR had
to expend certain monies to fix the resulting problems.  On or about
July 2, 2008, Alliance answered CPR’s counterclaim denying the allegations. This
litigation is currently in the discovery phase.




27




Sunz
Insurance




On or
about June 25, 2008, Sunz filed a complaint (the “Sunz Litigation”) in the
Circuit Court of the 9th Judicial Circuit (Orange County, Florida), against ALS
d/b/a ClearPoint HR and CP Advantage. Sunz claims to have provided workers
compensation insurance to ALS and CP Advantage and that such policy was
cancelled on February 22, 2008, for alleged nonpayment of funds due under the
insurance contract. Sunz claims that ALS and CP Advantage owe in excess of $500
under the policy. Sunz, in addition to damages, seeks pre-judgment interest,
court costs, attorneys’ fees and such other relief deemed proper by the
court.  On February 9, 2009, the court ordered Sunz to conduct an
audit of ALS and CP Advantage and set this matter for mandatory
mediation.  On March 3, 2009, ALS and CP Advantage answered Sunz’s
allegations and denied any liability.




Leon
R. Cobaugh




On or
about October 20, 2008, Leon R. Cobaugh (“Cobaugh”) filed a complaint in the
Circuit Court for Chesterfield County of the Commonwealth of Virginia against
ClearPoint and Quantum Resources Corporation, ClearPoint’s wholly-owned
subsidiary (“Quantum”). The complaint alleges that, pursuant to a stock purchase
agreement dated December 30, 1986 (the “SPA”), Cobaugh retired from his
positions as an officer, director and employee of AIDE Management Resources
Corporation, the prior name of Quantum, and sold his stock in such entity to the
remaining stockholders in exchange for lump sum payments and monthly payments
from Quantum for the rest of Cobaugh’s life. ClearPoint acquired all of the
outstanding stock of Quantum on July 29, 2005. Upon its acquisition of Quantum,
ClearPoint assumed Quantum’s obligations under the SPA. Cobaugh alleged that
ClearPoint had failed to make the required monthly payments due under the SPA
beginning June 1, 2008 and sought to recover a minimum of $200 as may be
adjusted based on the Consumer Price Index under the SPA.  This
dispute was settled on January 22, 2009.  Pursuant to the settlement
agreement among the parties, past due amounts to Cobaugh were paid and
ClearPoint agreed to continue making future payments as required by the
SPA.




XL
Specialty Insurance Company




On
November 10, 2008, XL filed a complaint in the Supreme Court of the State of New
York (New York County), and, on December 9, 2008, XL filed an amended complaint
alleging that, among other things, XL issued workers’ compensation insurance
policies to CP Advantage, during 2007 and CP Advantage failed to make certain
payments with regard to claims made against CP Advantage under the policies and
maintain collateral required by the insurance policy documents. XL seeks to
recover from ClearPoint, as a guarantor of CP Advantage’s obligations under the
insurance policies, $746, in the aggregate, in connection with certain claims
against and pursuant to the collateral obligations of, CP Advantage. XL, in
addition to damages, seeks pre-judgment interest, attorneys’ fees, costs and
expenses and such other relief deemed proper by the court.  ClearPoint
filed its answer in this matter on February 17, 2009 and contends that a third
party is liable for the payments under the insurance policies pursuant to an
agreement governing the sale of HRO.  This litigation is currently
moving into the discovery phase.




AICCO,
Inc.




On
November 18, 2008, AICCO filed a complaint the Court of Common Pleas of Bucks
County, Pennsylvania against ClearPoint alleging that AICCO agreed to finance
premiums of certain insurance policies procured by ClearPoint pursuant to a
certain premium finance agreement among AICCO and ClearPoint. AICCO claims that
ClearPoint breached the terms of such agreement by failing to make certain
installment payments and seeks damages in excess of approximately $600, together
with interest and attorney’s fees and costs.  On December 23, 2008,
ClearPoint filed an answer in this matter and joined two additional defendants
on January 23, 2009.  The joined defendants filed their answer to
ClearPoint’s complaint on March 27, 2009.  ClearPoint contends that
the joined defendants are liable for the installment payments pursuant to an
agreement governing the sale of HRO.  ClearPoint alleged breach of
contract against the joined defendants and seeks contribution and
indemnification from such parties in this matter.




28




Although
ClearPoint accrued for certain of the liability exposures for these matters on
its balance sheet, an adverse decision in these matters may result in a material
adverse effect on its liquidity, capital resources and results of operations. In
addition, to the extent that ClearPoint’s management has been required to
participate in or otherwise devote substantial amounts of time to the defense of
these matters, such activities would result in the diversion of management
resources from business operations and the implementation of ClearPoint’s
business strategy, which may negatively impact ClearPoint’s financial position
and results of operations.




The
principal risks that ClearPoint insures against are general liability,
automobile liability, property damage, alternative staffing errors and
omissions, fiduciary liability and fidelity losses. If a potential loss arising
from these lawsuits, claims and actions is probable, reasonably estimable, and
is not an insured risk, ClearPoint records the estimated liability based on
circumstances and assumptions existing at the time. Whereas management believes
the recorded liabilities are adequate, there are inherent limitations in the
estimation process whereby future actual losses may exceed projected losses,
which could materially adversely affect the financial condition of
ClearPoint.




Generally,
ClearPoint may be engaged in various other litigation matters from time to time
in the normal course of business. Management does not believe that the ultimate
outcome of such matters, either individually or in the aggregate, will have a
material adverse impact on the financial condition or results of operations of
ClearPoint.





Item
4.  Submission of Matters to a Vote of Security Holders.





None.


29


PART
II





Item
5.  Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.





Market
Information




Prior to
February 13, 2007, our units, common stock and warrants were quoted on The OTC
Bulletin Board under the symbols “TNVAU.OB,” “TNVA.OB” and “TNVAW.OB,”
respectively. Our units, common stock and warrants were listed on Nasdaq under
the symbols “CPBRU,” “CPBR” and “CPBRW,” respectively, starting February 13,
2007. Our securities were suspended from trading on Nasdaq on September 11, 2008
as a result of our failure to comply with certain Nasdaq listing requirements,
and our securities were delisted from Nasdaq effective at the opening of the
trading session on November 24, 2008. Effective September 11, 2008, our common
stock was quoted on The OTC Bulletin Board under the symbol “CBPR.OB.” Effective
September 15, 2008, our units and warrants were quoted on The OTC Bulletin Board
under the symbols “CBPRU.OB” and “CPBRW.OB,” respectively.




The
following table sets forth the high and low sales prices per share of our common
stock on The OTC Bulletin Board and Nasdaq, as applicable, for the periods
indicated. The over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily reflect
actual transactions.




(in
      dollars)
                  
                  Units
                  
                  
                  Common
      Stock
                  
                  
                  WarrantsHigh
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  Low2008:Fourth
      Quarter
                  
                  
                  0.12
                  
                  
                  
                  0.10
                  
                  
                  
                  0.24
                  
                  
                  
                  0.02
                  
                  
                  
                  0.01
                  
                  
                  
                  0.001Third
      Quarter
                    (beginning
      September 11,
                    2008)
                  
                  
                  N/A
                  (1)
                  
                  
                  N/A
                  (1)
                  
                  
                  0.25
                  
                  
                  
                  0.05
                  
                  
                  
                  0.02
                  
                  
                  
                  0.001Third
      Quarter
                    (through
      September 10,
                    2008)
                  
                  
                  0.50
                  
                  
                  
                  0.25
                  
                  
                  
                  0.52
                  
                  
                  
                  0.09
                  
                  
                  
                  0.04
                  
                  
                  
                  0.001Second
      Quarter
                  
                  
                  1.35
                  
                  
                  
                  0.06
                  
                  
                  
                  1.54
                  
                  
                  
                  0.15
                  
                  
                  
                  0.06
                  
                  
                  
                  0.01First
      Quarter
                  
                  
                  2.60
                  
                  
                  
                  2.10
                  
                  
                  
                  2.94
                  
                  
                  
                  1.27
                  
                  
                  
                  0.30
                  
                  
                  
                  0.042007:Fourth
      Quarter
                  
                  
                  6.09
                  
                  
                  
                  2.05
                  
                  
                  
                  4.50
                  
                  
                  
                  1.60
                  
                  
                  
                  0.55
                  
                  
                  
                  0.05Third
      Quarter
                  
                  
                  6.51
                  
                  
                  
                  5.45
                  
                  
                  
                  5.13
                  
                  
                  
                  3.17
                  
                  
                  
                  0.86
                  
                  
                  
                  0.22Second
      Quarter
                  
                  
                  8.75
                  
                  
                  
                  6.40
                  
                  
                  
                  6.40
                  
                  
                  
                  4.80
                  
                  
                  
                  1.40
                  
                  
                  
                  0.65First
      Quarter
                    (beginning
      February 13, 2007)
                  
                  
                  9.24
                  
                  
                  
                  8.30
                  
                  
                  
                  6.47
                  
                  
                  
                  4.90
                  
                  
                  
                  1.65
                  
                  
                  
                  1.10First
      Quarter
                    (through
      February 12, 2007)
                  
                  
                  8.45
                  
                  
                  
                  7.25
                  
                  
                  
                  5.95
                  
                  
                  
                  5.48
                  
                  
                  
                  1.30
                  
                  
                  
                  0.82







(1)           There
were no reported sales of our units during this period.


30


Recent
Sales of Unregistered Securities




There
have been no unregistered sales of equity securities during the period covered
by this report that were not previously reported on a Quarterly Report on Form
10-Q or a Current Report on Form 8-K.




Dividend
Policy




We have
not paid any cash dividends on our common stock to date. We do not anticipate
declaring any dividends in the foreseeable future.




We are
subject to contractual limitations on the payment of dividends under our loan
agreement with ComVest and our loan modification and restructure agreement with
M&T. For additional information regarding such contractual limitations, see
Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources” and Note 11 to our
Consolidated Financial Statements in Part II, Item 8 “Financial Statements and
Supplementary Data” of this Annual Report on Form 10-K. In addition, as a
Delaware corporation, we may not declare and pay dividends on our capital stock
if the amount paid exceeds an amount equal to the surplus, which represents the
excess of our net assets over paid-in-capital or, if there is no surplus, our
net profits for the current and/or immediately preceding fiscal
year.




Holders




As of
March 23, 2009, there were 21 record holders of our common stock, 1 record
holder of our units and 2 record holders of our warrants quoted on The OTC
Bulletin Board, solely based upon the count our transfer agent provided us as of
that date and such numbers do not include:




·
            any
      beneficial owners of securities whose shares are held in the names of
      various dealers, clearing agencies, banks, brokers or other fiduciaries;
      and




·
            broker-dealers
      or other participants who hold or clear shares directly or indirectly
      through the Depository Trust Company, or its nominee, Cede &
      Co.




Item
6.  Selected Financial Data.





The
following selected financial data should be read together with our consolidated
financial statements contained in Part II, Item 8 “Financial Statements and
Supplementary Data” and accompanying notes and Part II, Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
contained in this Annual Report on Form 10-K. The selected consolidated
financial data in this section are not intended to replace our consolidated
financial statements and the accompanying notes. Our historical results are not
necessarily indicative of our future results.




The
selected consolidated financial data set forth below are derived from our
consolidated financial statements. The consolidated statement of operations data
for the fiscal years ended December 31, 2008, 2007, 2006, 2005 and 2004 and the
consolidated balance sheet data as of December 31, 2008, 2007, 2006, 2005 and
2004 are derived from our audited consolidated financial statements and related
notes of which the financial statements and notes for the fiscal years ended
December 31, 2008 and 2007 are included in this Annual Report on Form
10-K.


31




Fiscal Year
      Ended
                  December 31,
                  (in
      thousands, except per share data)2008
              
              
              2007(a)
              
              
              2006
              
              
              2005
              
              
              2004Statementof OperationsData:Revenue
              
              $
              33,496
              
              
              $
              191,685
              
              
              $
              113,942
              
              
              $
              84,200
              
              
              $
              28,670Cost of
      services
              
              
              29,108
              
              
              
              166,631
              
              
              
              93,337
              
              
              
              68,789
              
              
              
              22,596Gross
profit
              
              
              4,388
              
              
              
              25,054
              
              
              
              20,605
              
              
              
              15,411
              
              
              
              6,074SG&A
      expense
              
              
              15,559
              
              
              
              26,705
              
              
              
              13,550
              
              
              
              11,025
              
              
              
              5,344Restructuring
      expense
              
              
              1,350
              
              
              
              2,201
              
              
              
              —
              
              
              
              —
              
              
              
              —Impairment of
      goodwill
              
              
              16,822
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Fixed assets impairment expense,
      net
              
              
              1,022
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Depreciation and amortization
      expense
              
              
              723
              
              
              
              10,313
              
              
              
              2,489
              
              
              
              2,013
              
              
              
              743Income (loss) from
      operations
              
              
              (31,088
              )
              
              
              (14,165
              )
              
              
              4,566
              
              
              
              2,373
              
              
              
              (13
              )Other
      income(expense)
              
              
              (86
              )
              
              
              (1,608
              )
              
              
              26
              
              
              
              (1
              )
              
              
              77Interest
    Income
              
              
              7
              
              
              
              134
              
              
              
              —
              
              
              
              —
              
              
              
              —Interest, OID and warrant
      liability (expense)
              
              
              (2,025
              )
              
              
              (1,872
              )
              
              
              (5,072
              )
              
              
              (3,648
              )
              
              
              (429
              )Derivative
      Income
              
              
              34
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Gain on restructuring of
      debt
              
              
              687
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —(Loss) on sale of
      subsidiary
              
              
              (1,294
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Prepayment penalty on early
      retirement of debt
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Net (loss) before income
      tax
              
              
              (33,765
              )
              
              
              (17,511
              )
              
              
              (480
              )
              
              
              (1,276
              )
              
              
              (365
              )Income tax expense
      (benefit)
              
              
              5,021
              
              
              
              (5,121
              )
              
              
              945
              
              
              
              (77
              )
              
              
              21Net (loss)
              
              $
              (38,786
              )
              
              $
              (12,390
              )
              
              $
              (1,425
              )
              
              $
              (1,199
              )
              
              $
              (386
              )Net (loss) per common share –
      basic and diluted
              
              $
              (2.84
              )
              
              $
              (1.00
              )
              
              $
              (0.24
              )
              
              $
              (0.20
              )
              
              $
              (0.06
              )December
      31,2008
              
              
              2007(a)
              
              
              2006
              
              
              2005
              
              
              2004(in
      thousands, except per share data)Balance Sheet
      Data:Working capital
      (deficit)  (current assets less current
      liabilities)
              
              $
              (11,937
              )
              
              $
              (3,188
              )
              
              $
              9,070
              
              
              $
              8,601
              
              
              $
              (13
              )Total
assets
              
              
              5,081
              
              
              
              55,277
              
              
              
              22,253
              
              
              
              22,388
              
              
              
              6,742Total long-term debt, net of
      current
              
              
              10,306
              
              
              
              8,523
              
              
              
              14,965
              
              
              
              13,927
              
              
              
              415Stockholders’equity(deficit)
              
              
              (21,913
              )
              
              
              15,646
              
              
              
              (2,714
              )
              
              
              (1,883
              )
              
              
              (684
              )




(a)
            Selected
      financial data for the fiscal year ended December 31, 2007 were impacted
      by the acquisition of certain assets and assumption of certain liabilities
      of ALS in February, 2007.  See Part II, Item 7 “Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations—Liquidity and Capital Resources—ALS” included in this Annual
      Report on Form 10-K.




Our
consolidated financial statements have been prepared assuming that we will
continue as a going concern.  However, we had a net loss of $38,786
and utilized cash of $4,615 in operating activities during the year ended
December 31, 2008, and had a stockholders’ deficit of
$(21,913).  These factors raise substantial doubt about our ability to
continue as a going concern.  Our consolidated financial statements do
not include any adjustments that might result from this
uncertainty.


32


Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations.





You
should read the following discussion and analysis of ClearPoint’s financial
condition and results of operations in conjunction with its consolidated
financial statements and the notes to such consolidated financial statements
included elsewhere in this Annual Report on Form 10-K. This discussion contains
forward-looking statements reflecting ClearPoint’s current expectations, which
involve risks and uncertainties. See Part I, Item 1A “Risk Factors” for a
discussion of important factors that could cause actual results to differ
materially from those described or implied by the forward-looking statements
contained in this discussion.  Please refer to “Forward-Looking
Statements” included in this Annual Report on Form 10-K.




Overview




ClearPoint
is a workplace management solutions company. ClearPoint focuses its services on
helping companies manage their contingent labor needs. Through the iLabor
Network, ClearPoint provides services to clients ranging from small businesses
to Fortune 500 companies. The iLabor Network specializes in the highly
transactional “go to work” or “on-demand” segment of the temporary labor market.
ClearPoint considers the hospitality, distribution, warehouse, manufacturing,
logistics, transportation, convention services, hotel chains, retail and
administrative sectors among the segments best able to be served by the iLabor
Network.




During
the fiscal year ended December 31, 2007, ClearPoint provided various temporary
staffing services as both a direct provider and as a franchisor. During the
fiscal year ended December 31, 2008, ClearPoint began to transition its business
model from a temporary staffing provider through a network of branch-based
offices or franchises to a provider that manages clients’ temporary staffing
needs through its open Internet portal-based iLabor Network. Under its new
business model, ClearPoint acts as a broker for its clients and network of
temporary staffing suppliers.




ClearPoint
derives its revenues from the following sources: (i) royalty payments related to
client contracts which ClearPoint subcontracted or sold to other providers of
temporary staffing services; (ii) revenues generated by the iLabor Network; and
(iii) revenues related to VMS.




Historically,
ClearPoint has funded its cash and liquidity needs through cash generated from
operations and debt financing. ClearPoint incurred net losses of approximately
$38,786 and $12,391 for the fiscal years ended December 31, 2008 and 2007,
respectively. ClearPoint is highly leveraged and has very limited financial
resources.  At December 31, 2008, ClearPoint had cash and cash
equivalents of $960, $26,994 of total liabilities and accumulated deficit of
approximately $54,491.




In 2008,
ClearPoint defaulted on its debt obligations to M&T and had to restructure
its outstanding debt obligations. Effective June 20, 2008, ClearPoint replaced
M&T with ComVest as its senior lender and entered into subordination
agreements with its other lenders.




As a
result of its liquidity problems as well as the absence of firm commitments for
any additional financing, ClearPoint’s independent registered public accounting
firm included an explanatory paragraph in its report on ClearPoint’s financial
statements for the fiscal year ended December 31, 2008 included in this Annual
Report on Form 10-K regarding ClearPoint’s ability to continue as a going
concern. In addition, ClearPoint included a “going concern” note in its
consolidated financial statements for the fiscal year ended December 31, 2008
(see Note 1 of the Notes to the Consolidated Financial Statements included in
this Annual Report on Form 10-K).




33




As of
December 31, 2008, cash projected to be generated from operations will not be
sufficient to fund operations and meet debt repayment obligations. In order to
meet its cash and liquidity needs, ClearPoint will be required to raise
additional financing or restructure existing debt. There is no assurance that
ClearPoint will be successful in obtaining additional financing or restructuring
existing debt obligations on terms which are satisfactory to ClearPoint, if at
all. If ClearPoint cannot generate sufficient cash from operations, raise
additional financing or restructure existing debt, there is substantial doubt
about the ability of ClearPoint to continue as a going concern for the next
twelve months.




Demand
for ClearPoint’s staffing services has been adversely affected by the general
level of economic activity and rising unemployment in the United
States.  During the current economic downturn, some of ClearPoint’s
clients have been reducing their temporary labor spending as part of a general
cost reduction strategy.  In addition, some of ClearPoint’s clients
have limited their utilization of temporary employees before laying off regular
full-time employees.  Generally, ClearPoint has experienced less
demand for its services and more competitive pricing pressure during this period
of economic downturn, which has adversely affected its business, financial
condition and results of operations.  ClearPoint is dependent on its
approved staffing supplier base to fill open positions posted by its
clients.  If due to the economic downturn, some of ClearPoint’s
suppliers curtail their operations or are otherwise unable to fill sufficient
open positions posted by its clients, ClearPoint may be unable to compete
effectively and it could materially adversely affect its business, financial
condition and results of operations.  See Part I, Item 1A “Risk
Factors—Our revenue is
highly susceptible to changes in general economic conditions, and a recession or
other downturn in the U.S. economy, may adversely affect the industries in which
our clients operate as well as our business, financial position and results of
operations.”




In
addition, ClearPoint continues to face significant business challenges related
to:




·
            its
      ability to service and repay its outstanding debt
    obligations;




·
            limitations
      imposed by the outstanding debt obligations on the cash flow available for
      its operations; and




·
            its
      ability to facilitate the market acceptance of the iLabor
      Network.




For a
more detailed discussion of these matters, see Part I, Item 1A “Risk
Factors.”




In the
face of these challenges, ClearPoint expects to focus on:




·
            evaluating
      additional sources of financing or restructuring its existing debt
      obligations in the event that iLabor penetration and adoption does not
      meet ClearPoint’s operating cash
requirements;




·
            maintaining
      and enhancing the functionality of its iLabor Network for current and
      prospective clients;




·
            continuing
      to expand its supplier base to provide more extensive market coverage;
      and




·
            increasing
      sales and marketing efforts through direct and indirect
      channels.




ClearPoint
failed to comply with certain listing standards of Nasdaq relating to
stockholder’s equity, market value and net income and, effective September 11,
2008, trading in its securities on Nasdaq was suspended. ClearPoint’s securities
were delisted from Nasdaq effective at the opening of the trading session on
November 24, 2008. ClearPoint’s securities are currently quoted on The OTC
Bulletin Board.




Application
of Critical Accounting Policies and Estimates




ClearPoint’s
discussion and analysis of its financial condition and results of operations are
based on ClearPoint’s consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of financial statements in
conformity with these principles in the United States of America requires
ClearPoint to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
as of the date of the financial statements and also affect the amounts of
revenues and expenses reported for each period.




34




On an
ongoing basis, management evaluates its estimates, including those related to
revenue recognition, workers’ compensation reserves, collectibility of accounts
receivable, impairment of goodwill, income taxes and litigation contingencies.
Management bases its estimates and judgments on historical experiences and on
various other factors believed to be reasonable under the circumstances. Actual
results under circumstances and conditions different than those assumed could
result in differences from the estimated amounts in the financial
statements.




Management
believes the following critical accounting policies reflect the more significant
judgments and estimates used in the preparation of ClearPoint’s consolidated
financial statements, and actual results could differ materially from the
amounts reported based on these policies.




Revenue
Recognition




ClearPoint
recognizes revenue in accordance with SEC Staff Accounting Bulletin (“SAB”) No.
104, “Revenue Recognition” (“SAB 104”). Under SAB 104, revenue is recognized
when there is persuasive evidence of an arrangement, delivery has occurred or
services have been rendered, the sales price is determinable, and collectibility
is reasonably assured. Revenue earned but not billed is recorded and accrued as
unbilled revenue. ClearPoint has transitioned from a short and long term
temporary staffing provider through a network of branch based offices to a
provider that manages clients’ temporary staffing spend through its open
Internet portal based iLabor Network, as well as its closed client embedded VMS
system.




ClearPoint
evaluated the criteria outlined in EITF Issue No. 99-19, Reporting Revenue Gross
as a Principal Versus Net as an Agent, in determining that it was appropriate to
record the revenue from its iLabor technology platform on a net basis after
deducting costs related to suppliers for sourcing labor, which represent the
direct costs of the contingent labor supplied, for its clients. Generally,
ClearPoint is not the primarily obligated party in iLabor transactions and the
amounts earned are determined using a fixed percentage, a fixed-payment
schedule, or a combination of the two.




Prior to
January 1, 2008, ClearPoint’s only major source of revenue was the temporary
placement of workers which was recognized when earned and realizable and
therefore when the following criteria had been met: (a) persuasive evidence of
an arrangement exists; (b) services have been rendered; (c) the fee is fixed or
determinable; and (d) collectibility is reasonably assured. Revenue is
recognized in the period in which services are provided based on hours worked by
the workers. Prior to July 1, 2008, ClearPoint recorded revenue from its
temporary staffing operations, permanent placement fees, and temp-to-hire fees
by formerly ClearPoint-owned and franchised operations. Temporary staffing
revenue and the related labor costs and payroll taxes were recorded in the
period in which the services were performed. Temp-to-hire fees were generally
recorded when the temporary employee was hired directly by the client.
ClearPoint reserved for billing adjustments, principally related to overbillings
and client disputes, made after year end that related to services performed
during the fiscal year. The reserve was estimated based on historical adjustment
data as percent of sales. Permanent placement fees were recorded when the
candidate commenced full-time employment and, if necessary, sales allowances
were established to estimate losses due to placed candidates not remaining
employed for the permanent placement guarantee period, which was typically 30-60
days. As a result of changes in ClearPoint’s business model in 2008 (see
“—Liquidity and Capital Resources—Transactions Related to Transition from
Temporary Staffing Business Model to iLabor Network Model”), for the year ended
December 31, 2008, ClearPoint recognized revenue from three major
sources:




35




·
            ClearPoint
      recorded royalty revenues when earned primarily under the terms of the
      royalty agreements with StaffChex and Select (see Note 4 to Consolidated
      Financial Statements included elsewhere in this Annual Report on Form
      10-K);




·
            Under
      the new iLabor technology platform, ClearPoint recorded revenue on net fee
      basis after deducting costs paid to suppliers for sourcing labor for
      ClearPoint’s clients. ClearPoint acts as a broker for its clients and
      ClearPoint’s temporary staffing suppliers. Revenue from ClearPoint’s
      iLabor Network where it electronically procures and consolidates buying of
      temporary staffing for clients is reported on a net
  basis.




·
            ClearPoint
      recorded VMS revenue consisting of management fees, which were reported on
      the net basis, and were recorded as revenue as the temporary staffing
      service was rendered to the client.




Workers’
Compensation Reserves




ClearPoint
self-insured the deductible amount related to domestic workers’ compensation
claims, which were either $250 or $500 per claim, depending upon which policy,
for policy years 2007 and 2006. ClearPoint accrued the estimated costs of
workers’ compensation claims based upon the expected loss rates within the
various temporary employment categories provided by ClearPoint. At least
annually, ClearPoint obtained an independent actuarial valuation of the
estimated costs of claims reported but not settled, and claims incurred but not
reported, and adjusted the accruals based on the results of the valuations. As
the result of the estimated costs, ClearPoint estimated that the insurance
carriers will issue rebates based on its findings. For the years ended December
31, 2007 and 2006, ClearPoint estimated it would receive refunds of $2,880 and
$1,506 of rebates, respectively. All potential refunds as well as any
liabilities that were recorded as of December 31, 2007 were assumed by the
purchasers of MVI and HRO and, therefore, no longer recorded on ClearPoint’s
books beginning in the quarter ended March 31, 2008.




Collectibility
of Accounts Receivable




ClearPoint
provides an allowance for uncollectible accounts receivable based on an
estimation of losses which could occur if clients are unable to make required
payments. ClearPoint evaluates this allowance on a regular basis throughout the
year and makes adjustments as the evaluation warrants. These allowances were
$5,775 at December 31, 2008 and $3,179 at December 31, 2007. ClearPoint’s
estimates are influenced by numerous factors including its large, diverse client
base, which is disbursed across a wide geographical area. No single client
accounted for more than 10% of accounts receivable for fiscal year
2008.  If customers’ creditworthiness deteriorates, or if actual
defaults are higher than our historical experience or if other circumstances
arise, ClearPoint’s estimates of the collectibility of amounts due to ClearPoint
could be overstated, and additional allowances could be required, which would
have an adverse impact on ClearPoint’s consolidated financial
statements.




Goodwill




Statement
of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other
Intangible Assets” (“SFAS No. 142”), requires that goodwill and certain
intangible assets with indefinite useful lives no longer be amortized but
instead be subject to an impairment test performed on an annual basis or
whenever events or circumstances indicate that impairment may have occurred.
Intangible assets with finite useful lives continue to be amortized over their
useful lives. The valuation methodologies considered include analyses of
estimated future discounted cash flows at the reporting unit level, publicly
traded companies multiples within the temporary staffing industry and historical
control premiums paid by acquirers purchasing companies similar to ClearPoint’s.
As part of the assessment, management relied on a number of factors to discount
anticipated future cash flows including operating results, business plans and
present value techniques. Rates used to discount cash flows are dependent upon
market interest rates and the cost of capital at the valuation date. There are
inherent uncertainties related to these factors and management’s judgment in
applying them to the analysis of goodwill impairment. ClearPoint recorded an
impairment of goodwill at March 31, 2008 of $16,822 based upon management’s
determination that the carrying amount of the goodwill was less than its fair
value. This impairment related to the assignment of contracts previously
serviced by ClearPoint but no longer in its control. It was therefore determined
that the previously recorded goodwill could no longer be substantiated. As a
result of the goodwill impairment during the quarter ended March 31, 2008, no
goodwill is recognized in the consolidated balance sheet at December 31,
2008.




36




Income
Taxes




ClearPoint
accounts for income taxes by utilizing an asset and liability approach that
requires recording deferred tax assets and liabilities for the future year
consequences of events that have been recognized in its financial statements or
tax returns. As required under SFAS No. 109, “Accounting for Income Taxes”,
ClearPoint measures these expected future tax consequences based upon provisions
of tax law as currently enacted. Significant judgment is required in determining
any valuation allowance against deferred tax assets. In assessing the need for a
valuation allowance, ClearPoint considers all available evidence, including
historical operating results and estimates of future taxable income.
ClearPoint’s assessment at December 31, 2008 has resulted in a full valuation
allowance being recorded against the deferred tax assets. In the event
ClearPoint changes its determination as to the amount of deferred tax assets
that can be realized, an adjustment to the valuation allowance with a
corresponding effect to the provision for income taxes in the period in which
such determination is made could have an adverse impact on ClearPoint’s
consolidated financial statements. The effects of future changes in tax laws are
not anticipated. Variations in the actual outcome of these future tax
consequences could materially impact ClearPoint’s financial position or its
results of operations. ClearPoint also provides a reserve for tax contingencies
when it believes a probable and estimatable exposure exists.




Litigation
Contingencies




ClearPoint
is subject to various litigation matters which may have an adverse impact on its
consolidated financial statements. An estimated settlement contingency is
required when it is probable and the amount or range of amounts can be
reasonably estimated. ClearPoint regularly evaluates current information
available to determine whether such accruals should be adjusted or whether new
accruals are required. ClearPoint believes that as of December 31, 2008, it had
adequate reserves recorded for asserted claims. Should settlements be materially
different from those reserves, it could have an adverse impact on ClearPoint’s
consolidated financial statements.




Seasonality




ClearPoint
experiences fluctuation in revenue and operating results based on a number of
factors, including, but not limited to, competition in its markets, availability
of qualified personnel and the personnel demands of its clients. Historically,
ClearPoint has experienced a rise in demand from its transportation and retail
clients in the third and fourth quarter due to the increase in the shipment of
products for the holiday season. The first quarter has been traditionally the
slowest quarter from a revenue perspective due to national holidays and client
planning cycles. Inclement weather can cause a slowdown in ClearPoint’s business
due to business shutdowns by its clients. This revenue seasonality will also
typically impact ClearPoint’s profitability as most operating expenses are
spread evenly throughout the year.




37




Results
of Operations




Summary
Financial Results (000’s)




The
following table summarizes select items of ClearPoint’s consolidated statement
of operations for the fiscal years ended December 31, 2008 and 2007,
respectively.




Fiscal
      Year Ended
                  December
      31,
              
              
              Percentage
                  Change$
      (000’s)
              
              2008
              
              
              2007
              
              
              
              ‘08/’07Net
      revenues
              
              $
              33,496
              
              
              $
              191,685
              
              
              
              (83
              )%Cost
      of services
              
              
              29,108
              
              
              
              166,631
              
              
              
              (83
              )%Gross
      profit
              
              
              4,388
              
              
              
              25,054
              
              
              
              (82
              )%SG&A
      expenses
              
              
              15,559
              
              
              
              26,705
              
              
              
              (42
              )%Restructuring
      expense
              
              
              1,350
              
              
              
              2,201
              
              
              
              (39
              )%Impairment
      of goodwill
              
              
              16,822
              
              
              
              3⁄4
              
              
              
              N/AFixed
      assets impairment expense, net
              
              
              1,022
              
              
              
              3⁄4
              
              
              
              N/ADepreciation
      and amortization expense
              
              
              723
              
              
              
              10,313
              
              
              
              (93
              )%(Loss)
      from operations
              
              
              (31,088
              )
              
              
              (14,165
              )
              
              
              119
              %Other
      (expense)
              
              
              (86
              )
              
              
              (1,608
              )
              
              
              (95
              )%Interest
      Income
              
              
              7
              
              
              
              134
              
              
              
              (95
              )%Interest,
      OID and warrant liability (expense)
              
              
              (2,025
              )
              
              
              (1,872
              )
              
              
              8
              %Derivative
      Income
              
              
              34
              
              
              
              3⁄4
              
              
              
              N/AGain
      on restructuring of debt
              
              
              687
              
              
              
              3⁄4
              
              
              
              N/A(Loss)
      on sale of subsidiary
              
              
              (1,294
              )
              
              
              3⁄4
              
              
              
              N/APrepayment
      penalty on early retirement of debt
              
              
              3⁄4
              
              
              
              3⁄4
              
              
              
              N/ANet
      (loss) before income taxes
              
              
              (33,765
              )
              
              
              (17,511
              )
              
              
              93
              %Income
      tax expense (benefit)
              
              
              5,021
              
              
              
              (5,121
              )
              
              
              N/ANet
      (loss)
              
              $
              (38,786
              )
              
              $
              (12,390
              )
              
              
              213
              %




Fiscal
Year Ended December 31, 2008 Compared to Fiscal Year Ended December 31,
2007




The
following table summarizes select items of ClearPoint’s consolidated statement
of operations for the fiscal years ended December 31, 2008 and December 31,
2007:




$
      (000’s)
                    
                    2008
                    
                    
                    % of
                      Revenue
                    
                    
                    2007
                    
                    
                    % of
                      RevenueNet
      revenues
                    
                    $
                    33,496
                    
                    
                    
                    100.0
                    %
                    
                    $
                    191,685
                    
                    
                    
                    100.0
                    %Cost
      of services
                    
                    
                    29,108
                    
                    
                    
                    86.9
                    %
                    
                    
                    166,631
                    
                    
                    
                    86.9
                    %Gross
      profit
                    
                    
                    4,388
                    
                    
                    
                    13.1
                    %
                    
                    
                    25,074
                    
                    
                    
                    13.1
                    %Selling,
      general and administrative expenses
                    
                    
                    15,559
                    
                    
                    
                    46.4
                    %
                    
                    
                    26,705
                    
                    
                    
                    13.9
                    %Restructuring
      expense
                    
                    
                    1,350
                    
                    
                    
                    4.0
                    %
                    
                    
                    2,201
                    
                    
                    
                    1.1
                    %Depreciation
      and amortization expense
                    
                    
                    18,567
                    
                    
                    
                    55.4
                    %
                    
                    
                    10,313
                    
                    
                    
                    5.4
                    %(Loss)
      from operations
                    
                    
                    (31,088
                    )
                    
                    
                    (92.8
                    )%
                    
                    
                    (14,165
                    )
                    
                    
                    (7.4
                    )%Interest
      (Expense)
                    
                    
                    (2,025
                    )
                    
                    
                    (6.0
                    )%
                    
                    
                    (1,872
                    )
                    
                    
                    (1.0
                    )%Other
      income (expense)
                    
                    
                    (652
                    )
                    
                    
                    (1.9
                    )%
                    
                    
                    (1,474
                    )
                    
                    
                    (0.8
                    )%Net
      loss before income taxes
                    
                    
                    (33,765
                    )
                    
                    
                    (100.8
                    )%
                    
                    
                    (17,511
                    )
                    
                    
                    (9.1
                    )%Income
      tax expense (benefit)
                    
                    
                    5,021
                    
                    
                    
                    15.0
                    %
                    
                    
                    (5,121
                    )
                    
                    
                    (2.7
                    )%Net
      loss
                    
                    $
                    (38,786
                    )
                    
                    
                    (115.8
                    )%
                    
                    $
                    (12,390
                    )
                    
                    
                    (6.5
                    )%




38




Net
Revenues




ClearPoint’s
revenues for the years ended December 31, 2008 and 2007 were $33,496 and
$191,685, respectively, which represented a decrease of $158,189 or
83%.  This decrease was primarily due to the changes in ClearPoint’s
business model.  During the year ended December 31, 2007, ClearPoint
provided various temporary staffing services as both a direct provider and as a
franchisor. During the year ended December 31, 2008, ClearPoint began to
transition its business model from a temporary staffing provider to a provider
that manages clients’ temporary staffing needs through its open Internet
portal-based iLabor Network. Under its new business model, ClearPoint acts as a
broker for its clients and network of temporary staffing
suppliers.  ClearPoint records the broker fees related to these
transactions.  ClearPoint’s former contracts related to temporary
staffing services were sold or subcontracted.  During 2008, ClearPoint
recognized revenue from the sale or subcontracting of the former temporary
staffing business as royalty fees from KOR, StaffChex, Townsend Careers, LLC and
TZG Enterprises, LLC (“TZG”) and licensing fees from Optos.  See
“—Liquidity and Capital Resources—Transactions Related to Transition from
Temporary Staffing Business Model to iLabor Network Model” for a description of
ClearPoint’s agreements with StaffChex and Select.  ClearPoint
recorded $3,868 of royalty and license fees in net revenue during the year ended
December 31, 2008 and $0 during the year ended December 31, 2007.




Cost
of Services and Gross Profit




Cost of services consists of direct
labor expenses for time charged directly to a client and related payroll taxes,
unemployment and workers’ compensation insurance expenses, employee benefits,
and other out-of-pocket expenses directly associated with the performance of the
services to the client.  ClearPoint’s cost of services for the years
ended December 31, 2008 and 2007 were $29,108 and $166,631, respectively, which
represented a decrease of $137,523 or 83%.  This decrease was due
primarily to the changes in ClearPoint’s business model, as described in the
Overview section above, which resulted in the majority of revenues, such as
royalty and license fees with limited cost of services, being recognized on a
net fee basis.  Under the new business model, all revenues are
recorded on a net fee basis with no cost of sales being
recorded.  Under the prior business model, revenues were recorded on a
gross basis with associated cost of sales being recorded
separately.  As a percentage of revenues for the years ended December
31, 2008 and 2007, ClearPoint’s gross profit was 13.1% for both
periods.




Selling,
General, Administrative and Restructuring Expenses




ClearPoint’s
selling, general and administrative (“SG&A”) expenses for the years ended
December 31, 2008 and 2007 were $15,559 and $26,705, respectively, which
represented a decrease of $11,146 or 42%.  The decrease in SG&A
expenses was a direct result of ClearPoint’s additional restructuring of its
branches during the year ended December 31, 2008.  ClearPoint incurred
substantially less SG&A expenses in 2008 because the costs associated with
its branch based operations during the year ended December 31, 2008 related to
additional severenced employees salaries, benefits and closures of offices were
allocated to the restructuring expense in 2008.  ClearPointincurred $1,350and $2,201in restructuring expenses related to
these closures and positions for the years ended December 31, 2008
and 2007, respectively.ClearPoint initiated a restructuring program of its field and administrative
operations in order to further reduce its ongoing SG&A expenses.As part of the2008restructuring program,ClearPointclosed its remaining branch and
administrative office in Florida and eliminated approximately 20
positions.




39




The
increase in the provision for doubtful accounts partially offset the reduction
in SG&A expenses.  During the year ended December 31, 2008,
ClearPoint recorded $1,656 as a provision for amounts due from former
franchisees that are no longer in operation and allowances for doubtful accounts
totaling $3,026.  As a percentage of revenues for the years ended
December 31, 2008 and 2007, SG&A expenses were 46.4% and 13.9%,
respectively, largely as a result of reduced revenue recorded due to the
recording of royalty payments on a net basis.




Impairment
of Goodwill and Depreciation and Amortization Expense




ClearPoint’s depreciation and
amortization expenses for the years ended December 31, 2008 and 2007 were $723
and $10,313, respectively, which represented a decrease of $9,590 or
93%.  For the year ended December 31, 2008, ClearPoint recorded an
impairment charge of $1,022 related to fixed assets as a result of the
termination of franchise agreements described in Note 15 of the Notes to the
Consolidated Financial Statements included in this Annual Report on Form
10-K.  ClearPoint removed $1,838 of fixed assets and $816 of
accumulated depreciation as a result of this impairment.  ClearPoint
also recorded an impairment of goodwill for the year ended December 31, 2008 of
$16,822 based upon management’s determination that the carrying amount of the
goodwill was less than its fair value.




Interest
Expense




ClearPoint’s interest expense for the
years ended December 31, 2008 and 2007 was $2,025 and $1,872, respectively,
which represented an increase of $153 or 8%, primarily due to interest expense
related to the original issue discount and warrants associated with the
refinancing transaction with ComVest and partially offset by reduced interest on
ClearPoint’s overall debt.




Other
Income or Expense




For the
years ended December 31, 2008 and 2007, total Other Income or Expense were
expenses of $652 and $1,474, respectively.  In 2008, the expense was
primarily due to the recording of a loss on sale of subsidiary due to the sale
of HRO for a net loss of approximately $1,294 offset by a gain on restructuring
of debt of $687 as a result of the loan modification and restructure agreement
with M&T.  In 2007, the expense was primarily due to an expense of
$1,950 due to the early extinguishment of debt owed to Bridge Healthcare
Finance, LLC and Bridge Opportunity Finance, LLC (collectively, “Bridge”) and
$912 of tax penalties, partially offset by the gain on the sale of MVI of
$1,206.  For additional information regarding these transactions, see
“—Liquidity and Capital Resources.”




Net
Loss




ClearPoint’s
net loss for the years ended December 31, 2008 and 2007 was $38,786 and $12,391,
respectively, which represented an increase in the loss of $26,396 or
213%.  The change in net loss was primarily due to reduced gross
profit offset by reduced SG&A expenses, and partially offset by an
additional allowance for doubtful accounts recorded and interest expense as a
result of the factors discussed above.  The change in net loss was
also a result of a number of non-cash items during the year ended December 31,
2008 relating to ClearPoint’s debt restructuring transactions of $1,350, an
impairment charge of goodwill of $16,822, an impairment charge of fixed assets
of $1,022 and a recording of deferred tax assets valuation allowance of $5,007
to the provision for income taxes for deferred tax benefits recognized in prior
periods.




40




Liquidity
and Capital Resources




General




Historically,
ClearPoint has funded its cash and liquidity needs through cash generated by
operating activities and through various forms of debt and equity financing. As
of December 31, 2008, cash projected to be generated from operations may not be
sufficient to fund operations and meet debt repayment obligations. Based on
ClearPoint’s cash position and working capital deficiency, it may need to raise
additional financing or restructure existing debt in order to support its
business operations. The amount of financing required will be determined by many
factors, some of which are beyond ClearPoint’s control, and may require
financing sooner than currently anticipated. ClearPoint has no commitment for
any additional financing or debt restructuring and can provide no assurance that
such additional financing or debt restructuring will be negotiated on terms
acceptable to ClearPoint, if at all. If ClearPoint is unable to generate
sufficient cash from operations, obtain additional financing or restructure
existing debt or if such funds cannot be negotiated on terms favorable to
ClearPoint, there is substantial doubt about the ability of ClearPoint to
continue as a going concern (see also Note 1 of the Notes to the Consolidated
Financial Statements included in this Annual Report on Form 10-K).




ClearPoint’s
traditional use of cash flow was for funding payroll in advance of collecting
revenue, particularly during periods of economic upswings and growth and during
periods in which sales are seasonally high throughout the year. Temporary
personnel were generally paid on a weekly basis while payments from clients were
generally received 30 to 60 days after billing. ClearPoint’s new iLabor-focused
business model has essentially eliminated these funding requirements since
ClearPoint’s main focus is no longer to act as the employer for the temporary
personnel, but rather to be the facilitator, bringing together clients and
suppliers of temporary labor, via ClearPoint’s iLabor Network. Revenue from
ClearPoint’s iLabor Network where it electronically procures and consolidates
buying of temporary staffing for clients nationally is recognized on a net
basis. ClearPoint contracts directly with clients seeking to procure temporary
staffing services through its iLabor portal. ClearPoint also contracts directly
with, and purchases from, temporary staffing suppliers, the temporary placement
of workers which is then subsequently resold to its clients. There is no
specific fee or other payment charged to ClearPoint’s clients or suppliers in
connection with their respective use of the iLabor Network.




ClearPoint’s
primary cash requirements include the payment of interest and principal on its
debt obligations, payments to suppliers providing temporary staffing services to
ClearPoint’s clients and general working capital of the business.




Cash
and Cash Equivalents and Cash Flows




The table
below sets forth, for the periods indicated, ClearPoint’s beginning balance of
cash and cash equivalents, net cash flows from operating, investing and
financing activities and ClearPoint’s ending balance of cash and cash
equivalents:




Fiscal
      Year Ended
                  December
      31,$(000’s)
              
              2008
              
              
              2007Cash
      and cash equivalents at beginning of period
              
              $
              1,994
              
              
              $
              500Cash
      provided by (used in) operating activities
              
              
              4,614
              
              
              
              (7,556
              )Cash
      (used in) investing activities
              
              
              (571
              )
              
              
              (20,294
              )Cash
      provided by (used in) financing activities
              
              
              (5,077
              )
              
              
              29,344Cash
      and cash equivalents at end of period
              
              $
              960
              
              
              $
              1,994





41




Fiscal
Years Ended December 31, 2008 and 2007




Net
cash provided (used) by operating activities was $4,615 and $(7,556) for the
years ended December 31, 2008 and 2007, respectively. The primary change in the
year ended December 31, 2008 that resulted in $4,614 of net cash provided was
due to (i) a book net loss of $38,786; (ii) non cash items of a deferred tax of
$5,007, refundable federal income tax of $1,024, depreciation and amortization
expense of $18,567 largely due to the write down of goodwill and fixed assets, a
loss on sale of subsidiary  $1,294, an increase in the provision for
doubtful accounts of $2,596, an increase in the provision for franchise
receivables of $1,639, an increase in issuance of warrants of $58, an increase
on M&T restructure forgiveness of debt of $866, the issuance of stock of
$387, interest expense converted to note payable of $92, interest expense on
original issue discount and warrant liability of $510, a gain on derivative of
$34, and non-cash stock based compensation of $49; and (iii) cash items of a
decrease in accounts receivable of $13,701 due to the change in business model
and an decrease in unbilled revenue of $2,037, a decrease in prepaid expenses
and other current assets of $107, an increase in other assets of $626, a
decrease in accounts payable of $155, a decrease in accrued expenses and other
accrued liabilities of $1,105, a decrease in accrued restructuring costs of
$582, a decrease in accrued payroll and related taxes of $2,236, an increase in
deferred revenue $1,992 and a decrease in retirement benefits due of
$56.




The
primary change in the year ended December 31, 2007 that resulted in $(7,556) of
net cash used was due to: (i) a book net loss of $12,391; (ii) non cash items of
a deferred tax benefit of $4,278, depreciation and amortization expense of
$10,313 largely due to the acquisition and subsequent write down of contract
rights, an increase in the provision for doubtful accounts of $2,774, and
non-cash stock based compensation of $1,004; and (iii) cash items of an increase
in accounts receivable of $8,946 due to the acquisition of ALS and the related
increase in revenue, an increase in unbilled revenue of $109, an increase in
prepaid expenses and other current assets of $2,711, an increase in other assets
of $2,751, an increase in accounts payable of $775, an increase in accrued
expenses and other accrued liabilities of $3,058, an increase in the accrued
restructuring costs of $1,025, an increase in accrued payroll and related taxes
of $5,901 and a decrease in retirement benefits due of $14.




Net cash
used in investing activities was $(571) and $(20,294) for the years ended
December 31, 2008 and 2007, respectively.  The primary uses of cash
for investing activities for the year ended December 31, 2008 were the purchase
of equipment, furniture and fixtures of $571.  The primary uses of
cash for investing activities for the year ended December 31, 2007 were the
purchase of equipment, furniture and fixtures of $1,294 and the cash portion
paid for the acquisition of certain assets of ALS for $19,000.




Net cash
provided by financing activities was $5,077 and $29,344 for the years ended
December 31, 2008 and 2007, respectively. The primary activities in the year
ended December 31, 2008 were the net borrowings from ComVest on the revolving
credit facility of $1,530 with repayment of $530 and the borrowing from the
ComVest term loan of $8,000 with repayments of $1,346, the repayment of the
M&T term loan of $2,641, the repayment to M&T on the revolving credit
facility of $8,747, repayment of Blue Lake in the amount of $600, fees incurred
due to the refinancing transaction with ComVest of $693, proceeds from the
issuance of common stock to TerraNova Partners L.P. (“TerraNova Partners”) of
$100 and repayments of other notes payable of $150.  The primary
activities in the year ended December 31, 2007 were the net proceeds from
issuance of common stock in connection with the merger with Terra Nova of
$27,258, repayment of borrowings and fees from Bridge for $12,465, redemption
and retirement of warrants for $3,292, net borrowings from M&T on the
revolving credit facility of $14,813 and the borrowing from the M&T term
loan of $5,000 with repayments of $717 and repayments of other notes payable of
$383.




42




Debt
Restructuring – M&T and ComVest




M&T




On
February 23, 2007, pursuant to a Credit Agreement (the “M&T Credit
Agreement”), ClearPoint entered into credit facilities with M&T consisting
of a $20,000 revolving credit facility (“M&T Revolver”) expiring in February
2010 and a $3,000 term loan (“M&T Term Loan”) expiring in February 2012. In
July 2007, ClearPoint amended the M&T Credit Agreement to increase the
M&T Term Loan to $5,000 in the First Amendment to the M&T Credit
Agreement. These credit facilities carried an interest rate of LIBOR plus
between 1.50% and 2.25%, depending on ClearPoint’s ratio of debt to earnings
before interest, tax, depreciation and amortization. The available amount to be
borrowed from the M&T Revolver was limited based upon ratios of accounts
receivable and unbilled revenue. The M&T Revolver and M&T Term Loan
contained certain financial covenants including leverage ratios and a fixed
charge coverage ratio. On March 21, 2008, ClearPoint entered into the Second
Amendment to M&T Credit Agreement, dated as of March 21, 2008, among
ClearPoint and M&T. Pursuant to the Second Amendment, the M&T Credit
Agreement was amended, among other matters, as follows: (i) the aggregate amount
of the revolving credit commitments was gradually reduced from $20,000 to
$15,000 at March 21, 2008 and $4,000 at June 30, 2008; (ii) the applicable
margin, which is a component of the interest rate calculations, was increased to
(a) 3.5% and 1.25% for any revolving credit loan that is a “Eurodollar Loan” and
a “Base Rate Loan”, respectively (as defined in the M&T Credit Agreement),
and (b) 4.5% and 2.25% for any M&T Term Loan that is a Eurodollar Loan and a
Base Rate Loan, respectively; (iii) the applicable commitment fee percentage,
which is included in the calculations of commitment fees payable by ClearPoint
on the amount of the unused revolving credit commitments, was increased to
0.25%; and (iv) the covenants related to the ratios of total debt or senior
debt, as applicable, to modified EBITDA were amended to lower the ratios as of
September 30, 2008.




On April
14, 2008, ClearPoint entered into a Waiver (the “M&T Waiver”) to the M&T
Credit Agreement. Pursuant to the M&T Waiver, the required lenders under the
M&T Credit Agreement waived compliance with certain financial covenants set
forth in the M&T Credit Agreement for the period ended December 31, 2007. In
connection with the M&T Waiver, ClearPoint paid a $100 fee to M&T.
ClearPoint was not in compliance with the financial and reporting covenants at
March 31, 2008. ClearPoint did not receive a waiver for such non-compliance from
M&T. On May 9, 2008, ClearPoint received a letter from M&T indicating,
among other matters, that the principal amount of revolving credit loans
outstanding under the M&T Credit Agreement shall be limited to a maximum
amount of $7,300 for the period ended May 16, 2008.




On May
21, 2008, ClearPoint received a notice of default from M&T in connection
with the M&T Credit Agreement. ClearPoint defaulted on its obligations under
the M&T Credit Agreement as a result of its failure to comply with financial
covenants contained in the M&T Credit Agreement, including obligations to
maintain certain leverage and fixed charge coverage ratios. As a consequence of
the default, M&T exercised its right to declare all outstanding obligations
under the credit facilities to be immediately due and payable and demanded the
immediate payment of approximately $12,800, consisting of approximately (i)
$7,400 under the M&T Revolver; (ii) $3,900 under the M&T Term Loan; and
(iii) $1,500 under a letter of credit. Also pursuant to the notice of default,
M&T exercised its right to terminate the M&T Revolver and the M&T
Term Loan and to terminate its obligation to make any additional loans or issue
additional letters of credit to ClearPoint.




43




ClearPoint
and M&T entered into a Loan Modification and Restructure Agreement dated
June 20, 2008 (the “M&T Restructure Agreement”) pursuant to which the
parties agreed to: (i) consolidate the certain obligations owing to M&T (the
“M&T Obligations”), (ii) reduce the carrying amount of the consolidated
obligations from $10,900, which consisted of the M&T Revolver and Term Loan
of approximately $7,000 and $3,900, respectively (net of additional cash
payments made during negotiations), to $8,600, (iii) subordinate the M&T
Obligations to the obligations owning to ComVest (the “ComVest Obligations”) and
(iv) permit ClearPoint to repay the M&T Obligations on a deferred term
basis. The M&T Restructure Agreement provides that on the earlier of the
first day of the calendar month following ClearPoint’s full satisfaction of the
ComVest Obligations or January 1, 2011 (the “Obligations Amortization Date”),
ClearPoint shall repay a total of $3,000 in principal amount (initially the
“M&T Deferred Obligations”) to M&T in 36 equal monthly payments plus
interest on the outstanding balance of such amount at a rate of 5% per annum,
subject to increase to 12% per annum upon occurrence of certain agreement
termination events and Spring Back Events, as defined below. In the event of a
sale of substantially all of ClearPoint’s or any subsidiary’s assets, a capital
infusion or an infusion of subordinated indebtedness, ClearPoint must prepay the
M&T Deferred Obligations by an amount equal to 25% of such proceeds as are
payable to ComVest under such circumstances.




The
$8,600 being paid to M&T is comprised of the following components: $3,000
note payable; guarantee of $3,000 of accounts receivable; pledging a minimum of
a $1,000 tax refund; $1,000 cash payment made at the time of closing of the
ComVest transactions described below; and $600 of the $1,500 certificate of
deposit held by M&T.




ClearPoint
issued to M&T warrants to purchase its common stock of which warrants to
purchase 1,200,000 shares of common stock have an exercise price of $0.01 per
share and warrants to purchase 300,000 shares of common stock have an exercise
price of $1.00 per share (collectively, the “M&T Warrants”).  In
accordance with SFAS No. 150, the fair value of the warrants has been classified
as a liability since M&T has the right to put the M&T Warrants back to
ClearPoint in exchange for a cash settlement of $1.00 per share. At December 31,
2008, the balance sheet included a warrant liability of $1,213 related to the
fair value of M&T Warrants (see Note 11 of the Notes to the Consolidated
Financial Statements included in this Annual Report on Form 10-K). The gain on
restructuring of debt of $687 recorded in the year ended December 31, 2008
reflected the reduction in principal carrying balance offset by the fair value
of the M&T Warrants and other direct costs. ClearPoint entered into a
registration rights agreement dated June 20, 2008 to register the shares of
common stock underlying the M&T Warrants.




In
addition, prior to the Obligations Amortization Date, ClearPoint must pay
M&T: (i) cash proceeds arising out of certain of its and its subsidiaries’
accounts receivable in an amount not less than $3,000 and (ii) existing and
future federal and state income tax refunds of not less than $1,000 due or which
become due to ClearPoint for any period prior to January 1, 2008.  At
December 31, 2008, ClearPoint remitted approximately $2,064 to M&T against
the $3,000 accounts receivable target. In the event such payments by ClearPoint
are less than the stated minimum amounts, such shortfall will be added to the
M&T Deferred Obligations. Excesses of such amounts paid by ClearPoint will
be remitted to ClearPoint and/or applied to the M&T Deferred Obligations in
accordance with the M&T Restructure Agreement. ClearPoint filed all
applicable federal and state income tax returns to enable it to receive the
minimum amount required under the M&T Restructure Agreement.  As
of December 31, 2008, ClearPoint remitted approximately $974 of federal tax
refunds, approximately $25 of state tax refunds and approximately $25 of other
tax refunds to M&T.




M&T
issued (i) a certain certificate of deposit to ClearPoint in the amount of
$1,500 (the “COD”) and (ii) a certain standby letter of credit for the account
of ClearPoint in favor of Ace Risk Management (the “Ace Letter of Credit”). On
June 27, 2008, M&T liquidated the COD and applied $600 to ClearPoint’s
outstanding obligations. To the extent M&T is required to make payments
under the Ace Letter of Credit in excess of $900 at any time, such excess shall
be added to the M&T Deferred Obligations. Excesses of such amount paid will
be remitted to ClearPoint and/or applied to the M&T Deferred Obligations in
accordance with the M&T Restructure Agreement.




44




Pursuant
to the M&T Restructure Agreement, ClearPoint must comply with various
covenants while the M&T Deferred Obligations are outstanding and provided
that (i) no bankruptcy or insolvency event has taken place and (ii) ClearPoint
and/or its subsidiaries have not terminated operation of their business without
the prior written consent of M&T (each being a “Spring Back Event”). Such
covenants include, but are not limited to: delivery to M&T of financial and
other information delivered to ComVest; restrictions on the aggregate
compensation which may be paid to the Chief Executive Officer and Chief
Financial Officer of ClearPoint; limitations on dividends and distributions of
cash or property to equity security holders of ClearPoint and/or redemptions or
purchases of capital stock or equity securities of other entities; and
restrictions on collateralizing subordinated indebtedness. At December 31, 2008,
ClearPoint was in compliance with all applicable covenants set forth in the
M&T Restructure Agreement.




The
M&T Restructure Agreement provides that ClearPoint may continue to pay
regularly scheduled payments (but not prepayments or accelerated payments) on
(i) existing subordinated indebtedness, except to the extent prohibited by the
ComVest transaction documents and (ii) the amended and restated note issued to
Blue Lake dated April 14, 2008. For each $50 paid on account of the note issued
to Blue Lake, Michael Traina, ClearPoint’s Chairman of the board of directors
and Chief Executive Officer, and Christopher Ferguson, ClearPoint’s former
director, President and Secretary, shall, on a several basis, be liable as
sureties for the M&T Deferred Obligations, each in the amount of $10,
subject to an aggregate amount of each surety’s liability of $150.




The
M&T Restructure Agreement lists various agreement termination events
including, but not limited to: default in payment of principal or interest or
any other obligations when due and payable under the M&T Restructure
Agreement; default in the observance of any covenant which is not cured within
30 days; and occurrence of an event of default under the ComVest Loan Agreement,
as defined below, which is not cured pursuant to the applicable grace or notice
period. Upon the occurrence of an agreement termination event, and at all times
during the continuance thereof, the M&T Deferred Obligations are accelerated
and become immediately due and payable. In addition, upon the occurrence of any
Spring Back Event, the amount equal to (a) all outstanding principal balance of
the M&T Obligations, together with accrued and unpaid interest thereon and
costs and expenses reimbursable pursuant to the M&T Credit Agreement less
(b) any amount received by M&T pursuant to the M&T Restructure Agreement
on account of the M&T Deferred Obligations or the M&T Obligations (the
“Spring Back Amount”) is automatically accelerated and becomes immediately due
and payable. Pursuant to one of the conditions to closing the transaction with
M&T, as set forth in the M&T Restructure Agreement, ClearPoint paid
$1,000 to M&T for application to the M&T Obligations.




The
M&T Restructure Agreement does not terminate or extinguish any of the liens
or security interests granted to M&T pursuant to the M&T Credit
Agreement and related documents.




ComVest




On June
20, 2008, ClearPoint entered into a Revolving Credit and Term Loan Agreement
(the “ComVest Loan Agreement”) with ComVest. Pursuant to the ComVest Loan
Agreement, ComVest extended to ClearPoint: (i) a secured revolving credit
facility for up to $3,000 (the “ComVest Revolver”) and (ii) a term loan (the
“ComVest Term Loan” and, together with the ComVest Revolver, the “ComVest
Loans”) in the principal amount of $9,000, of which $1,000 is treated as an
original issue discount, and ClearPoint received $8,000 in respect of the
ComVest Term Loan. ClearPoint also issued to ComVest a warrant to purchase
2,210,825 shares of common stock at an exercise price of $0.01 per warrant (the
“ComVest Warrant”). The ComVest Warrant was valued at $634 and treated as a
discount to the long term portion of the debt and will be amortized over the
life of the long term debt. ClearPoint entered into a registration rights
agreement dated June 20, 2008 to register the shares of common stock underlying
the ComVest Warrant.




45




The
maximum amount that may be outstanding under the ComVest Revolver is initially
$3,000 (the “ComVest Revolver maximum”). Effective as of the first day of each
calendar month beginning January 1, 2010, the ComVest Revolver maximum will be
reduced by an amount equal to 5.5% of the ComVest Revolver maximum in effect for
the previous month. To the extent the amounts outstanding under the ComVest
Revolver exceed the ComVest Revolver maximum, ClearPoint must make a payment to
ComVest sufficient to reduce the amount outstanding to an amount less than or
equal to the ComVest Revolver maximum. ClearPoint may borrow under the ComVest
Revolver from time to time, up to the then applicable ComVest Revolver maximum.
The amounts due under the ComVest Revolver bear interest at a rate per annum
equal to the greater of: (i) the prime rate of interest announced by Citibank,
N.A. plus 2.25% or (ii) 7.25%. At December 31, 2008, the interest rate on the
$1,000 outstanding under the ComVest Revolver was 7.25% and the interest rate on
$7,654 outstanding under the ComVest Term Loan was 10% per annum. The ComVest
Loans provide that the stated interest rates are subject to increase by 500
basis points during the continuance of an event of default under the ComVest
Loan Agreement.




Amounts
due under the ComVest Loans are payable monthly, beginning July 1, 2008. The
outstanding principal amount of the ComVest Term Loan is payable as follows:
$150 on July 1, 2008 and subsequent monthly payments are to be in an amount
equal to the greater of (i) $200 less the amount of interest accrued during the
preceding month or (ii) the amount equal to (a) the lesser of $450 or certain
royalties, fees and/or other such payments collected by ClearPoint during the
preceding month less (b) the amount of interest accrued during the preceding
month (but not greater than the principal balance of the ComVest Term Loan). The
installments under (ii) above are payable monthly starting August 1, 2008,
including December 1, 2010. The final installment due and payable on December
31, 2010 will be in an amount equal to the entire remaining principal balance,
if any, of the ComVest Term Loan.




On
January 13, 2009, ClearPoint entered into a letter agreement (the “XRoads
Agreement”) with XRoads.  Pursuant to the XRoads Agreement, among
other matters, XRoads agreed to provide the services of Brian Delle Donne to
serve as ClearPoint’s Interim Chief Operating Officer, and ClearPoint agreed to
pay XRoads $50 per month for each of the first four months of Mr. Delle Donne’s
services. On January 29, 2009, in order to assist ClearPoint in making the
foregoing payments under the XRoads Agreement, ComVest and ClearPoint entered
into Amendment No. 1 to the ComVest Term Loan, pursuant to which the
installments due and payable under the ComVest Term Loan on each of February 1,
2009, March 1, 2009, April 1, 2009 and May 1, 2009, respectively, shall be
reduced by an amount equal to the positive difference (if any) of (i) the lesser
of (a) $50 or (b) the amount paid or payable by ClearPoint to XRoads during the
immediately preceding calendar month pursuant to the XRoads Agreement, minus
(ii) the amount (if any) by which the aggregate Royalties collected during the
immediately preceding calendar month exceeded $450. After the effective date of
any termination of the XRoads Agreement, no reduction in any subsequent
installments shall be permitted and, notwithstanding any extension of the
services of Mr. Delle Donne beyond the initial four month term of the XRoads
Agreement, ComVest shall not be obligated to reduce any further
installments.  For additional information regarding the XRoads
Agreement, see “—Agreement with XRoads Solutions.”  The Amendment No.
1 to the ComVest Term Loan also contains ComVest’s acknowledgement and consent
to ClearPoint’s amendment of the payment terms and payment schedule of the note
payable to the former shareholders of StaffBridge, Inc. as set forth in the Debt
Extension Agreement dated December 31, 2008.  For additional
information regarding such note, see “—StaffBridge.”




46




As
provided by the ComVest Loan Agreement and the ComVest Loans, ComVest may
collect amounts due under the ComVest Loans from a “lockbox” account of
ClearPoint and/or charge the ComVest Revolver for such amounts. Royalty payments
received primarily from StaffChex and Select are segregated and solely used for
the repayment of the ComVest Term Loan. To the extent that royalty receipts from
these sources do not meet the minimum threshold of $200 per month, ClearPoint
must make up the difference from its operating cash. In the event that royalty
receipts from these sources exceed $450 in a given month, ClearPoint may utilize
the excess for operations or offset amounts owed on the ComVest Revolver at its
discretion. At December 31, 2008, ClearPoint remitted approximately $1,730 of
principal and interest payments, in the aggregate, to ComVest, of which $1,607
was derived from its royalty receipts and $123 was derived from its other
operations.




The
ComVest Loans mature on December 31, 2010 subject to certain prepayment
requirements related to the ComVest Term Loan. The ComVest Loan Agreement
provides that, subject to certain exceptions, ClearPoint must prepay the ComVest
Term Loan (i) in full upon certain transactions involving the sale or issuance
of the majority of the outstanding stock of ClearPoint, change of control of
ClearPoint or the sale of all or a material portion of ClearPoint’s assets or
(ii) in part to the extent of 30% of proceeds received from sales of certain
securities of ClearPoint. The outstanding borrowings under the ComVest Loan
Agreement are secured by all the assets of ClearPoint.




Beginning
with the fiscal quarter ending December 31, 2009, ClearPoint must maintain
certain fixed charge coverage ratios and must make all necessary adjustments to
its system of internal control over financial reporting and disclosure controls
and procedures no later than December 31, 2009. Until the ComVest Obligations
have been paid in full and the ComVest Revolver has been terminated, ClearPoint
must comply with various notice and other reporting covenants including, but not
limited to, providing notice to ComVest upon the occurrence of certain events,
periodically furnishing certain financial statements and other information to
ComVest, maintaining its books and records and permitting inspection of such
materials by ComVest upon reasonable request. The ComVest Loan Agreement also
provides that until the ComVest Obligations have been satisfied in full,
ClearPoint must provide written notice to ComVest of all meetings of the board
of directors and actions proposed to be taken by written consent and must permit
a representative of ComVest to attend or participate in any such meeting as a
non-voting observer. At December 31, 2008, ClearPoint was in compliance with the
applicable notice and reporting requirements required under the ComVest Loan
Agreement.




The
ComVest Loan Agreement also requires ClearPoint to obtain ComVest’s written
consent, until the ComVest Obligations have been satisfied in full, in
connection with certain transactions including, but not limited to, incurrence
of additional indebtedness or liens on ClearPoint’s assets; sales of assets;
making investments in securities or extension of credit to third parties;
purchase of property or business combination transactions; declaration or
payment of dividends or redemption of ClearPoint’s equity securities; payment of
certain compensation to ClearPoint’s executive officers; changing ClearPoint’s
business model or ceasing substantially all of its operations for a period
exceeding 10 days; sale of accounts receivable; amendment of ClearPoint’s
organizational documents; certain transactions with ClearPoint’s affiliates; and
making certain capital expenditures.




The
ComVest Loan Agreement lists various events of default including, but not
limited to: default in the payment of principal or interest under the ComVest
Obligations or in the observance or performance of any covenant set forth in the
ComVest Loan Agreement; default of ClearPoint or any of its subsidiaries under
any indebtedness exceeding $100; occurrence of certain bankruptcy or insolvency
events; and common stock of ClearPoint ceasing to be listed on a national
securities exchange or quoted on The OTC Bulletin Board for more than 30
consecutive days. Upon occurrence of an event of default, and at all times
during the continuance of an event of default, (i) the ComVest Obligations
become immediately due and payable, both as to principal, interest and other
charges, without any requirement for demand or notice by ComVest, and bear
interest at the default rates of interest as described above; (ii) ComVest may
file suit against ClearPoint and its subsidiaries under the ComVest Loan
Agreement and/or seek specific performance thereunder; (iii) ComVest may
exercise its rights under a collateral agreement against the assets of
ClearPoint and its subsidiaries; and (iv) the ComVest Revolver may be
immediately terminated or reduced, at ComVest’s option.




47




In
connection with the ComVest Loan Agreement described above, ComVest entered into
a Subordination and Intercreditor Agreement (the “ComVest-M&T Agreement”)
dated June 20, 2008 with M&T. The ComVest Loans issued to ClearPoint
pursuant to the ComVest Loan Agreement have effectively replaced M&T with
ComVest as a senior lender of ClearPoint. Pursuant to the ComVest-M&T
Agreement, the parties confirmed their agreements and understandings with
respect to the relative priorities of their respective claims and liens against
ClearPoint. The ComVest-M&T Agreement provides that, subject to certain
exceptions, M&T may not receive payment on certain of the M&T
Obligations, as described in the ComVest-M&T Agreement, or seek enforcement
against the collateral securing the M&T Obligations from ClearPoint or any
other person, other than from Messrs. Traina and/or Christopher Ferguson
pursuant to personal guarantees, until the ComVest Obligations have been
satisfied in full. In addition, the ComVest-M&T Agreement provides for
priorities with respect to the various components of collateral securing
ClearPoint’s obligations to the parties and sets forth certain restrictions on
the parties with respect to collection of such obligations.




ClearPoint
paid to ComVest non-refundable closing fees in the amount of $530, charged to
the ComVest Revolver, simultaneously with funding of the amounts payable to
ClearPoint under the ComVest Loan Agreement. In addition, ClearPoint must pay to
ComVest a monthly collateral monitoring, availability and administrative fee
equal to 0.15% of the average daily principal amount outstanding under the
ComVest Revolver during the preceding calendar month, up to $4.50 per
month.




ClearPoint
utilized the proceeds of the ComVest Loans to repay approximately $1,050
pursuant to the M&T Restructure Agreement owed to M&T and approximately
$530 in closing costs and expenses.




Merger




On
February 12, 2007, ClearPoint consummated the merger with Terra Nova. As a
result, CPBR Acquisition, Inc. (“CPBR”), a Delaware corporation and wholly-owned
subsidiary of Terra Nova, merged with and into ClearPoint. At the closing of the
merger, ClearPoint stockholders were issued an aggregate of 6,051,549 shares of
Terra Nova common stock. Ten percent (10%) of the Terra Nova common stock being
issued to ClearPoint stockholders at the time of the merger was released from
escrow subsequent to the indemnity rights provision of the merger agreement
being met.  A further ten percent (10%) of the Terra Nova common stock
being issued to ClearPoint stockholders at the time of the merger was released
from escrow subsequent to certain closing conditions pursuant to the merger
agreement being met.  Upon the closing of the merger, Terra Nova
changed its name to ClearPoint Business Resources, Inc.




Upon
consummation of the merger, $30,600 was released from a trust fund to be used by
the combined company. After payments totaling approximately $3,300 for
professional fees and other direct and indirect costs related to the merger, the
net proceeds amounted to $27,300. The merger was accounted for under the
purchase method of accounting as a reverse acquisition in accordance with
accounting principles generally accepted in the United States of America for
accounting and financial reporting purposes. Under this method of accounting,
Terra Nova was treated as the “acquired” company for financial reporting
purposes. In accordance with guidance applicable to these circumstances, this
merger was considered to be a capital transaction in substance. Accordingly, for
accounting purposes, the merger was treated as the equivalent of ClearPoint
issuing stock for the net monetary assets of Terra Nova, accompanied by a
recapitalization. All historical share and per share amounts have been
retroactively adjusted to give effect to the reverse acquisition of Terra Nova
and related recapitalization.




48




Effective
February 28, 2005, ClearPoint entered into a revolving loan agreement with
Bridge, its prior lender. As a result of the merger with Terra Nova, ClearPoint
retired all outstanding debt with Bridge in the amount of $12,453 and paid an
early debt retirement penalty in the amount of $1,950. In addition, ClearPoint
redeemed all outstanding warrants related to its credit facility with Bridge for
a cash payment of $3,292.




ALS




On
February 23, 2007, ClearPoint acquired certain assets and liabilities of ALS
(see Note 4 of the Notes to the Consolidated Financial Statements included in
this Annual Report on Form 10-K). The purchase price of $24,000 consisted of
cash of $19,000, the ALS Note of $2,500 at an interest rate of 7%, shares of
common stock with a value of $2,500 (439,367 shares) and the assumption of
approximately $400 of current liabilities. ALS’ stockholders may also receive up
to two additional $1,000 payments in shares of common stock based on financial
and integration performance metrics of ClearPoint in calendar years 2007 and
2008. No such payments have been made to date. The balance of this note payable
at December 31, 2008 was not repaid due to the pending litigation with TSIL (see
Part I, Item 3 “Legal Proceedings” of this Annual Report on Form 10-K). In
connection with the transaction with ComVest described above, on June 20, 2008,
ClearPoint entered into the ALS Agreement with ALS and certain other parties
whereby the parties agreed, among other things: (i) to execute the ALS
Subordination Letter dated June 20, 2008 (defined below); (ii) to amend the ALS
Note to provide for an outstanding principal amount of $2,156 (remaining
principal balance of $2,022 plus accrued interest of $133), which balance was
$2,214 at December 31, 2008, bearing interest at a rate of 5% per annum payable
in 24 equal monthly installments, payable as permitted pursuant to the ALS
Subordination Letter; (iii) that ClearPoint would issue 350,000 shares of common
stock to ALS (the “ALS Shares”) in accordance with the acquisition of ALS; (iv)
that ALS may defend and indemnify ClearPoint in connection with the TSIL
Litigation and (v) that the parties will take all appropriate actions to dismiss
their claims against each other in connection with the TSIL Litigation. On
November 21, 2008, a joint stipulation for voluntary dismissal was filed with
the court pursuant to which ClearPoint and ALS jointly dismissed such claims
with prejudice. On December 8, 2008, the court entered an order dismissing all
claims between ClearPoint and ALS with prejudice. ClearPoint valued the shares
issued at their fair market value as of the date of issuance of $103 and
recorded that amount as expense.  ClearPoint has no future obligation
to issue any additional shares of common stock to ALS.




Pursuant
to a Subordination Letter sent by ALS to ComVest, M&T and ClearPoint dated
June 20, 2008 (the “ALS Subordination Letter”), ALS agreed that ClearPoint may
not make and ALS may not receive payments on the ALS Note, provided however,
that (i) upon payment in full of all obligations under the ComVest Term Loan so
long as ClearPoint is otherwise permitted to make such payments, ClearPoint
shall make monthly interest payments on the outstanding principal balance of the
ALS Note and (ii) upon payment in full of the M&T Obligations, ClearPoint
shall make 24 equal monthly installments on the ALS Note, as amended pursuant to
the ALS Agreement described above.  The transaction did not classify
as a restructuring of debt.




49




StaffBridge




On August
14, 2006, ClearPoint acquired 100% of the common stock of StaffBridge for $233
in cash and the StaffBridge Note payable of $450 due December 31, 2007. The
StaffBridge Note, due to the StaffBridge Shareholders, bears interest at 6% per
annum and is payable quarterly. On December 31, 2007, the StaffBridge Note was
amended to extend the maturity date to June 30, 2008. In addition, the amount of
StaffBridge Note was increased to $487 to include accrued interest and the
interest rate was increased to 8% per annum payable in monthly installments
starting January 15, 2008. ClearPoint incurred an origination fee equal to 4% of
the principal amount payable in the form of 9,496 shares of common stock. As of
June 30, 2008, ClearPoint did not pay any monthly interest installments pursuant
to the amended StaffBridge Note. The failure to pay such interest installments
would permit noteholders to declare all amounts owing under the StaffBridge Note
due and payable. On August 13, 2008, the outstanding accrued interest of $24 was
paid and ComVest waived any default related thereto effective June 30, 2008. The
balance of the StaffBridge Note payable at December 31, 2008 was $337 and, as of
December 31, 2008, ClearPoint paid all monthly interest installments pursuant to
the amended StaffBridge Note, amounting to $33.




In
addition, in connection with the financing transaction with ComVest, on June 30,
2008, the StaffBridge Shareholders executed a certain Debt Extension Agreement
(the “Debt Extension Agreement”) and entered into a Subordination Agreement (the
“StaffBridge Subordination Agreement”) with ComVest and CPR.




Pursuant
to the Debt Extension Agreement, the StaffBridge Shareholders agreed that, in
connection with the receipt from ClearPoint of $150 payable for work performed
by TSP, the StaffBridge Note was amended, effective June 30, 2008, to extend the
maturity date to December 31, 2008 and to reduce the outstanding principal
amount to approximately $337. Upon ClearPoint’s payment of an additional $150
and any additional amounts then outstanding for work performed by TSP, the
StaffBridge Shareholders agreed to amend the StaffBridge Note to further extend
the maturity date to June 30, 2009.




Pursuant
to the StaffBridge Subordination Agreement, the StaffBridge Shareholders agreed
to subordinate ClearPoint’s obligations to them under the StaffBridge Note to
the ComVest Obligations. So long as no event of default under the ComVest Loan
Agreement has occurred, ClearPoint may continue to make scheduled payments of
principal and accrued interest when due in accordance with the StaffBridge Note.
In the case of an event of default under the ComVest Loan Agreement, ClearPoint
may not pay and the StaffBridge Shareholders may not seek payment on the
StaffBridge Note until the ComVest Obligations have been satisfied in full. The
StaffBridge Subordination Agreement also sets forth priorities among the parties
with respect to distributions of ClearPoint’s assets made for the benefit of
ClearPoint’s creditors.




Effective
December 31, 2008, the StaffBridge Note was further amended pursuant to a second
Debt Extension Agreement dated December 31, 2008 to provide that the outstanding
amount due under the StaffBridge Note will be paid as follows: $100 was paid on
or about December 31, 2008 and the remaining balance shall be paid in four equal
quarterly payments of $59, beginning on March 31, 2009 and ending on December
31, 2009.




Promissory
Notes Issued to Blue Lake and Sub Noteholders




Blue
Lake




On March
1, 2005, CPR issued a promissory note to Blue Lake in the amount of $1,290 which
was due March 31, 2008 (the “Blue Lake Note”). Interest of 6% per annum was
payable quarterly. This note has been guaranteed by Michael Traina and
Christopher Ferguson and was primarily used to assist ClearPoint in funding its
workers’ compensation insurance policy. The Blue Lake Note matured on March 31,
2008. Effective March 31, 2008, CPR amended and restated the Blue Lake Note and
extended its maturity date under an agreement dated as of March 31, 2008, by and
between CPR and Blue Lake (the “Blue Lake Agreement”). Pursuant to the Blue Lake
Agreement, on April 14, 2008, CPR and Blue Lake entered into an Amended and
Restated Promissory Note (the “Amended Blue Lake Note”), with a principal amount
of $1,290, which is due and payable as follows: (i) $200 was paid on April 8,
2008, (ii) $50 is payable on the first business day of each calendar month for
12 consecutive months (totaling $600 in the aggregate), the first payment to
occur on May 1, 2008 and the last to occur on April 1, 2009, and (iii) on April
30, 2009, CPR is obligated to pay to Blue Lake the balance of the principal
amount, equal to $490, plus accrued interest. The interest rate was increased
from 6% to 10% per annum. ClearPoint agreed to issue 900,000 shares (“Escrow
Shares”) of common stock in the name of Blue Lake to be held in escrow, pursuant
to an escrow agreement, as security for the payment of the principal amount and
interest under the Amended Blue Lake Note. At December 31, 2008, the balance due
on the Amended Blue Lake Note was $690 and ClearPoint was current in all
payments.




50




Sub
Noteholders




On March
1, 2005, ClearPoint issued a 9% Amended and Restated Note for $250 due February
28, 2008 and a 12% Amended and Restated Note in the original principal amount of
$300 due March 31, 2008 to Optos, which is wholly-owned by Christopher Ferguson.
These notes were repaid during the year ended December 31, 2007.




On March
1, 2005, ClearPoint issued a 12% Note in the original principal amount of $100
due March 31, 2008 to Richard Traina and Margaret Traina, the parents of Michael
Traina. This note was repaid during the year ended December 31,
2007.




On March
1, 2005, ClearPoint issued a 12% Amended and Restated Note in the original
principal amount of $300 due March 31, 2008 to Fergco Bros. LLC (“Fergco”), a
New Jersey limited liability company of which Christopher Ferguson owns a
twenty-five percent (25%) ownership interest. The balance of this note payable
at December 31, 2008 was $300 (“$300 Note”).




On March
1, 2005, ClearPoint issued 12% Amended and Restated Notes in the aggregate
original principal amount of $310 due March 31, 2008 to several ClearPoint
stockholders who do not individually own 5% or more of the outstanding
securities of ClearPoint and who are not members of the immediate family of any
ClearPoint director or executive officer, except of $100 owed to Alyson Drew,
the spouse of Parker Drew, a director of ClearPoint. The balance of these notes
payable at December 31, 2008 was $250 (“$250 Notes”). In 2008 and 2007,
ClearPoint repaid $60, in the aggregate, of the outstanding principal amount of
the Amended and Restated Notes. The holders of the $300 Note and the $250 Notes
are collectively referred to as the Sub Noteholders.




Effective
March 31, 2008, ClearPoint amended and restated the $300 Note and the $250 Notes
(collectively “Sub Notes”), and extended their maturity dates under the amended
sub notes, dated March 31, 2008 and issued by CPR to each Sub Noteholder
(collectively, the “Amended Sub Notes”). All sums outstanding from time to time
under each Amended Sub Note bear the same interest of 12% per annum as under the
Sub Note. CPR’s failure to make any payment of principal or interest under the
Amended Sub Note when such payment is due constitutes an event of default, if
such default remains uncured for 5 business days after written notice of such
failure is given to CPR by the Sub Noteholder. Upon an event of default and at
the election of the Sub Noteholder, the Sub Note, both as to principal and
accrued but unpaid interest, will become immediately due and payable. As of
December 31, 2008, ClearPoint made the required interest payments on the Amended
Sub Notes.




In
consideration of each Sub Noteholder agreeing to extend the maturity date of the
Sub Note, ClearPoint issued warrants (“Initial Sub Note Warrants”) to the Sub
Noteholders to purchase, in the aggregate, 82,500 shares of common stock (the
“Sub Note Warrant Shares”) at an exercise price of $1.55 per share. The Initial
Sub Note Warrant is immediately exercisable during the period commencing on
March 31, 2008 and ending on March 31, 2010. CPR had the right in its sole
discretion, to extend the maturity date of the Amended Sub Notes to March 31,
2010, and in connection with such extension, the Sub Noteholders had the right
to receive additional Sub Note Warrants (the “Additional Sub Note Warrants”) to
purchase, in the aggregate, an additional 82,500 shares of common
stock.




51




On June
20, 2008, CPR exercised its right to extend the maturity date of the Amended Sub
Notes to March 31, 2010 and, in connection with such extension, issued a notice
dated June 25, 2008 (the “Sub Noteholder Notices”) to each Sub Noteholder. The
Sub Noteholder Notices notified the Sub Noteholders that ClearPoint extended the
maturity date of the Sub Notes in connection with its transaction with ComVest,
as described above. In connection with the Sub Noteholder Notices, the Sub
Noteholders received Additional Sub Note Warrants to purchase 82,500 Sub Note
Warrant Shares at an exercise price of $1.55 per share. The Additional Sub Note
Warrant is immediately exercisable during the period commencing on June 20, 2008
and ending on March 31, 2011. The exercise price and the number of Sub Note
Warrant Shares are subject to adjustment in certain events, including a stock
split and reverse stock split.




In
connection with the transaction with ComVest described above, ComVest entered
into a Subordination Agreement dated June 20, 2008 (the “Noteholder
Subordination Agreement”) with each of the Sub Noteholders and CPR. Pursuant to
the Noteholder Subordination Agreement, the Sub Noteholders agreed to
subordinate ClearPoint’s obligations to them under the Amended Sub Notes to the
ComVest Obligations. So long as no event of default under the ComVest Loan
Agreement has occurred, ClearPoint may continue to make scheduled payments of
principal and accrued interest when due in accordance with the Sub Notes, as
amended. In the case of an event of default under the ComVest Loan Agreement,
ClearPoint may not pay and the Sub Noteholders may not seek payment on the Sub
Notes, as amended, until the ComVest Obligations have been satisfied in full.
The Noteholder Subordination Agreement also sets forth priorities among the
parties with respect to distributions of ClearPoint’s assets made for the
benefit of ClearPoint’s creditors.




On
February 22, 2008, CPR issued promissory notes (the “Promissory Notes”), in the
aggregate principal amount of $800, with $400 to each of Michael Traina and
Christopher Ferguson in consideration for loans totaling $800 made to CPR. The
terms of the Promissory Notes issued to Messrs. Traina and Ferguson are
identical. The principal amount of each Promissory Note is $400, they bear
interest at the rate of 6% per annum, which will be paid quarterly, and they are
due on February 22, 2009.  The Promissory Notes are subordinate and
junior in right of payment to the prior payment of any and all amounts due to
M&T pursuant to the M&T Credit Agreement.




On
February 28, 2008, ClearPoint Workforce, LLC (“CPW”) advanced $800, on behalf of
Optos, to the provider of Optos’ outsourced employee leasing program. The
advanced funds were utilized for Optos’ payroll. In consideration of making the
advance on its behalf, Optos assumed the Promissory Notes, and the underlying
payment obligations, issued by CPR on February 22, 2008 which were payable to
Michael Traina and Christopher Ferguson in the aggregate amount of
$800.




On June
6, 2008, ClearPoint issued notes (the “Bridge Notes”) to each of Michael Traina,
Parker Drew and TerraNova Partners (collectively, the “Bridge Lenders”) in the
principal amounts of $104, $50 and $100, respectively. During the course of
negotiations with ComVest, Mr. Traina agreed to loan an additional $5 to
ClearPoint. TerraNova Partners, ClearPoint’s principal stockholder, is 100%
owned by Vahan Kololian, ClearPoint’s lead director and principal stockholder.
Mr. Kololian also controls 100% of the voting interest and 55% of the non-voting
equity interest in the general partner of TerraNova Partners.




52




The
Bridge Notes contained identical terms. The Bridge Notes were unsecured and
payable on demand. No interest accrued on the unpaid principal balance of the
Bridge Notes until demand. After demand, the Bridge Notes would bear interest at
an annual rate of 5%.




On June
26, 2008, ClearPoint issued amended and restated Bridge Loans (the “Amended
Bridge Notes”) to each Bridge Lender. The Amended Bridge Notes contain identical
terms and provide that (i) the principal amount of the Amended Bridge Notes will
bear interest at a rate of 8% per annum, payable quarterly and (ii) ClearPoint
shall have the right to repay the Amended Bridge Notes in shares of common stock
at a price equal to the closing price of the common stock on June 26, 2008. The
Amended Bridge Notes do not contain the provision stating that the principal
balance will bear interest only upon demand for payment by the Bridge Lender, as
provided in the Bridge Note. Mr. Drew’s Amended Bridge Note was repaid in full
and Mr. Traina was repaid $5 during the quarter ended June 30, 2008. The balance
of Mr. Traina’s loan was repaid in July 2008. On August 12, 2008, ClearPoint’s
board of directors approved the payment of the Amended Bridge Note issued to
TerraNova in 204,082 shares of common stock.




Transactions
Related to Transition from Temporary Staffing Business Model to iLabor Network
Model




MVI and
HRO




On
December 31, 2007, CPR entered into a purchase agreement (the “MVI Purchase
Agreement”) effective as of December 31, 2007 with CPR’s wholly owned
subsidiary, MVI, and TradeShow Products, Inc. (“Tradeshow”). Pursuant to the MVI
Purchase Agreement, CPR sold all of the issued and outstanding securities of MVI
to TradeShow for the aggregate purchase price equal to the liabilities assumed
of $1,206. In addition, CPR was entitled to a perpetual commission equal to
1.75% of the weekly revenue generated by a specified list of MVI clients.
TradeShow was obligated to pay such fee in arrears on the first business day of
every month. Unpaid fees were subject to interest at a rate of 1.5% per month.
As of December 31, 2008, TradeShow did not pay to CPR the commissions required
under the MVI Purchase Agreement.




On
February 7, 2008, CPR entered into a Purchase Agreement effective as of February
7, 2008 (the “HRO Purchase Agreement”) with HRO, CPR’s wholly owned subsidiary,
and AMS Outsourcing, Inc. (“AMS”). Pursuant to the HRO Purchase Agreement, CPR
sold all of the issued and outstanding securities of HRO to AMS for an aggregate
purchase price payable in the form of an earnout payment equal to 20% of the
earnings before interest, taxes, depreciation and amortization of the operations
of HRO for a period of twenty four (24) months following February 7, 2008. AMS
was obligated to pay such fee in arrears on the first business day of every
month. Unpaid fees were subject to interest at a rate of 1.5% per month. As of
December 31, 2008, AMS did not pay to CPR the earnout payments required under
the HRO Purchase Agreement.




ClearPoint
ceased recording revenues related to the MVI Purchase Agreement and the HRO
Purchase Agreement during the year ended December 31, 2008.




KOR and
StaffChex




On August
30, 2007, ClearPoint entered into an agreement (the “KOR Agreement”) with KOR, a
Florida limited liability company controlled by Kevin O’Donnell, a former
officer of ClearPoint, pursuant to which ClearPoint granted to KOR an exclusive
right and license (i) to set up and operate, in parts of northern California and
Florida, a franchise of ClearPoint’s system and procedures for the operation of
light industrial and clerical temporary staffing services and (ii) to use in
connection with the operation certain of ClearPoint’s proprietary intellectual
property. The KOR Agreement replaced the agreement between ClearPoint and KOR
entered on July 9, 2007. In consideration for the grant and license, KOR was
required to pay to ClearPoint, on a weekly basis, a royalty equal to 4.5% of all
gross revenues earned by KOR from its operations. KOR also agreed to pay
ClearPoint, on a weekly basis, a royalty equal to 50% of the net income from
KOR’s operations. Through this relationship KOR operated and managed up to
twelve of ClearPoint’s former branches. The KOR Agreement was terminated on
March 5, 2008 as described below.




53




On
February 28, 2008, CPR entered into a Purchase Agreement (the “StaffChex
Purchase Agreement”) with StaffChex subject to certain conditions for the
completion of the transaction. Under the StaffChex Purchase Agreement, StaffChex
assumed certain liabilities of CPR and acquired from CPR all of the Customer
Account Property, as defined in the StaffChex Purchase Agreement, related to the
temporary staffing services serviced by (i) KOR, pursuant to the KOR Agreement,
dated August 30, 2007, and (ii) StaffChex Servicing, LLC (“StaffChex Servicing”)
pursuant to an Exclusive Supplier Agreement, dated September 2, 2007. In
consideration for the Customer Account Property acquired from CPR, StaffChex
issued to CPR 15,444 shares of common stock of StaffChex and is obligated to
issue 15,521 shares of StaffChex’ common stock, based on the earnout provisions
set forth in the StaffChex Purchase Agreement. In addition, CPR entered into an
iLabor agreement with StaffChex (the “StaffChex iLabor Agreement”) whereby
StaffChex agreed to process its temporary labor requests through iLabor and to
pay to CPR a percentage (the “Royalty”) (as of December 31, 2008, the percentage
was 2.25% but such percentage is subject to reduction based on meeting certain
volume targets) of StaffChex’s total collections from its total billings for
temporary staffing services provided to ClearPoint’s clients through the iLabor
Network or otherwise. On March 5, 2008, CPR completed the disposition of all of
the Customer Account Property related to the temporary staffing services
formerly provided by StaffChex Servicing and KOR, agreements with whom were
terminated on February 28, 2008 and March 5, 2008, respectively. ClearPoint did
not incur any early termination penalties in connection with such
terminations.




On March
16, 2009, CPR and StaffChex entered into Amendment No. 1 to the StaffChex iLabor
Agreement pursuant to which the payment terms of the StaffChex iLabor Agreement
were restated as follows: for weekly collections of less than $1,400, the
Royalty is one and one-quarter percent (1.25%) and for weekly collections of
$1,400 or more, the Royalty is two percent (2%).  If collections for a
calendar year exceed $110,000, the Royalty will be one and one-half percent
(1.5%) for each dollar exceeding $110,000 and if such collections exceed
$150,000, the Royalty will be one and one-quarter percent (1.25%) for each
dollar exceeding $150,000.  Unpaid Royalties shall bear interest at
the rate of one and one-half percent (1.5%) per month.  Weekly
payments commenced on March 18, 2009.  In addition, StaffChex agreed
to make 104 weekly payments of $4 followed by 52 weekly payments of $3 for
past-due Royalties owed through February 28, 2009.  Such additional
payments will commence on June 3, 2009.




TZG, Optos and
Select




On August
13, 2007, ClearPoint entered into an Agreement with TZG, a Delaware limited
liability company controlled by J. Todd Warner, a former officer of ClearPoint,
pursuant to which ClearPoint granted to TZG an exclusive right and license (i)
to set up and operate a franchise of ClearPoint’s system and procedures for the
operation of transportation and light industrial temporary staffing services and
(ii) to use in connection with the operation certain of ClearPoint’s proprietary
intellectual property. In consideration for the grant and license, TZG was
required to pay to ClearPoint, on a weekly basis, a royalty equal to 6% of all
gross revenues earned by TZG from the operation. Through this relationship TZG
operated and managed up to twenty-five of ClearPoint’s branches. This TZG
Agreement was terminated on February 28, 2008 as described
below.


54


On
February 28, 2008, CPR and its subsidiary, CPW, entered into a Licensing
Agreement (the “Optos Licensing Agreement”) with Optos, of which Christopher
Ferguson is the sole member. Pursuant to the Optos Licensing Agreement,
ClearPoint (i) granted to Optos a non-exclusive license to use the ClearPoint
Property and the Program, both as defined in the Optos Licensing Agreement,
which include certain intellectual property of CPR, and (ii) licensed and
subcontracted to Optos the client list previously serviced by TZG, pursuant to
the TZG Agreement, dated August 13, 2007 and all contracts and contract rights
for the clients included on such list. In consideration of the licensing of the
Program, which is part of the ClearPoint Property, CPR was entitled to receive a
fee equal to 5.2% of total cash receipts of Optos related to temporary staffing
services. With CPR’s consent, Optos granted, as additional security under
certain of its credit agreements, conditional assignment of Optos’ interest in
the Optos Licensing Agreement to its lender under such credit agreements. The
foregoing agreement with TZG was terminated on February 28, 2008 in connection
with the Optos Licensing Agreement. ClearPoint did not incur any early
termination penalties in connection with such termination.




On April
8, 2008, the Optos Licensing Agreement was terminated. In consideration for
terminating the Optos Licensing Agreement, CPR and Optos have agreed that there
will be a net termination fee for any reasonable net costs or profit incurred,
if any, when winding up the operations associated with termination. This fee is
estimated to be $500 and has been recorded as an expense. The payment of the net
termination fee will be in the form of cash and shares of common stock of
ClearPoint.




On April
8, 2008, CPR entered into the Select License Agreement dated April 8, 2008 with
Select. The initial term of the Select License Agreement was for a period of six
years. Pursuant to the Select License Agreement, CPR granted to Select a
non-exclusive, non-transferable right and license to use the iLabor Network as a
hosted front-office tool. CPR exclusively retains all right, title and interest
in and to the iLabor Network. In addition, Select agreed to become a supplier of
temporary personnel to third party clients through the iLabor Network and to
fulfill agreed-upon orders for such personnel accepted by Select through the
iLabor Network. CPR also agreed to permit Select to use the iLabor Network to
find and select third-party, temporary personnel suppliers to fulfill orders for
Select’s end-user client. In consideration of the license granted, Select agreed
to pay a non-refundable fee equal to $1,200, of which $900 was paid on April 8,
2008 and $300 was due on July 1, 2008, but was not paid. The July payment was
waived and incorporated into the Select Settlement Agreement described below.
Under the License Agreement, if Select used the iLabor Network to find and
select third-party, temporary personnel suppliers to fulfill orders for Select’s
end-user clients, then the parties would split the net amount billed to the
end-user clients less the amount paid to such vendors.




Effective
March 30, 2008, CPR entered into the Select Subcontract with Select. The Select
Subcontract expires April 7, 2013. Pursuant to the Select Subcontract, CPR
subcontracts to Select the client contracts and contract rights previously
serviced on behalf of CPR by other entities (the “Customers”). Pursuant to the
Select Subcontract, the parties agree that Select will directly interface with
the Customers, but at no time will CPR relinquish its ownership, right, title or
interest in or to its contracts with the Customers (the “Contracts”). Subject to
certain exceptions, upon expiration of the Select Subcontract, CPR will abandon
such rights in the Contracts and Select may solicit the Customers serviced under
the Select Subcontract. Select is responsible for invoicing the Customers and
for collection of payment with regard to services provided to Customers by
Select. During each one year period of the term of the Select Subcontract,
Select was obligated to pay CPR 10% of such year’s annual gross sales, not
exceeding $36,000 annually in gross sales, generated by the client contracts as
well as certain other revenue generated by location (the “Subcontract
Fee”).


55




On July
29, 2008, Select, together with Real Time, initiated the Select Litigation
claiming that ClearPoint owed it $1,033 for services performed.  For
additional information regarding the Select Litigation, see “—Contingencies and
Litigation.”




On August
22, 2008, CPR, Real Time and Select entered into the Select Settlement Agreement
pursuant to which each party released the others from all prior, existing and
future claims including, without limitation, the parties’ claims with respect to
the Select Litigation, the Select License Agreement and the Select Subcontract.
Pursuant to the Select Settlement Agreement, the parties also agreed (i) that
CPR would retain $900 paid to it under the Select License Agreement; (ii) to
allocate between them amounts paid or payable with respect to certain client
accounts; (iii) to execute an amendment to the Select Subcontract, as described
below; and (iv) that Select would file the required documents to dismiss the
Select Litigation with prejudice. In addition, the parties agreed not to
commence any future action arising from the claims released under the Select
Settlement Agreement, and on August 28, 2008 this lawsuit was
dismissed.




Also,
pursuant to the Select Settlement Agreement, the parties terminated the Select
License Agreement effective August 22, 2008. There were no termination penalties
incurred in connection with the termination of the Select License
Agreement.




In
connection with the Select Settlement Agreement, on August 22, 2008, CPR and
Select entered into the First Amendment to the Select Subcontract (the
“Subcontract Amendment”). Pursuant to the Subcontract Amendment, the following
changes were made to the Select Subcontract:




·
            The
      Subcontract Fee was amended to provide that Select would pay CPR, for
      twenty-eight consecutive months, 25% of each month’s gross sales generated
      by the Customers and Contracts as well as, without duplication, sales
      generated by certain locations in accordance with the Select Subcontract,
      subject to a maximum fee of $250 per month. The payments are subject to
      acceleration upon occurrence of certain breaches of the Select Subcontract
      or bankruptcy filings by Select.




·
            The
      term of the Select Subcontract was amended to provide that the term will
      expire upon the payment of all fees owed under the Select Subcontract, as
      amended.




Advisory
Services Agreement




TerraNova
Management Corp., an affiliate of Mr. Kololian and the manager of TerraNova
Partners (“TNMC”), was retained to provide certain advisory services to
ClearPoint, effective upon the closing of the merger with Terra Nova, pursuant
to the Advisory Services Agreement between TNMC and us, dated February 12, 2007
(the “Initial Agreement”). Pursuant to the Initial Agreement, TNMC provided
services to ClearPoint including: advice and assistance in analysis and
consideration of various financial and strategic alternatives, as well as
assisting with transition services. During the fiscal year ended December 31,
2007, TNMC received a fixed advisory fee of $175 (prorated for a partial year)
for such services. Additionally, ClearPoint recorded approximately $2 for
reimbursement of expenses incurred by TNMC in connection with the Initial
Agreement for the fiscal year ended December 31, 2007. Pursuant to the terms of
the Initial Agreement, it was terminated effective February 11, 2008, however
TNMC continued to provide substantially similar services under substantially
similar terms to ClearPoint on a monthly basis. No payments were accrued or paid
to TNMC for January, 2008.


56




On June
26, 2008, ClearPoint entered into a new Advisory Services Agreement (the
“Advisory Services Agreement”) with TNMC in order to: (i) provide compensation
to TNMC for its services since the expiration of the Initial Agreement and (ii)
engage TNMC to provide future advisory services. Pursuant to the Advisory
Services Agreement, TNMC is obligated to provide advice and assistance to
ClearPoint in its analysis and consideration of various financial and strategic
alternatives (the “Advisory Services”), however the Advisory Services will not
include advice with respect to investments in securities or transactions
involving the trading of securities or exchange contracts. The Advisory Services
Agreement is effective as of June 26, 2008, continues for a one year term and is
automatically renewed for successive one-year terms unless terminated by either
party by written notice not less than 30 days prior the expiration of the
then-current term.




ClearPoint
agreed to compensate TNMC for services rendered since expiration of the Initial
Agreement and for Advisory Services going forward in accordance with the rates
set forth in the Advisory Services Agreement and to reimburse TNMC for
reasonable travel, lodging and meal expenses relating to the provision of the
Advisory Services. Monthly fees payable to TNMC pursuant to the Advisory
Services Agreement are capped at $50 per month. Fees payable to TNMC may be paid
100% in shares of common stock, at ClearPoint’s option. At ClearPoint’s option,
75% of the fees payable to TNMC beginning in the month of June, 2008 may be paid
in shares of common stock and, with the agreement of TNMC, the remaining 25% may
also be paid in shares of common stock. Shares of common stock made as payments
under the Advisory Services Agreement are priced at the month-end closing price
for each month of services rendered. We incurred approximately $293 in fees
owing to TNMC for its services in the fiscal year ended December 31, 2008.
ClearPoint’s board of directors approved payment of $266 for the Advisory
Services in the form of an aggregate of 479,470 shares of common stock for the
months of February through August, 2008 as follows: on August 12, 2008, the
board of directors approved payment for the months of February, March, April,
May and June, 2008 in 417,008 shares of common stock and, on November 7, 2008,
the board of directors approved payment for the months of July and August, 2008
in 62,462 shares of common stock. ClearPoint recorded approximately $99 for
reimbursement of expenses incurred by TNMC in connection with the Advisory
Services provided from February, 2008 through December, 2008.




Agreements
with Christopher Ferguson, Kurt Braun and John Phillips




On
February 28, 2008, Christopher Ferguson resigned as ClearPoint’s and CPR’s
director, President and Secretary in connection with the Optos Licensing
Agreement described above. ClearPoint and Mr. Ferguson entered into the
Separation of Employment Agreement and General Release (the “Ferguson Separation
Agreement”). In consideration for Mr. Ferguson’s agreement to be legally bound
by the terms of the Ferguson Separation Agreement and his release of his claims,
if any, under the Ferguson Separation Agreement, Mr. Ferguson is entitled to be
reimbursed for any health insurance payments for Mr. Ferguson for a period equal
to 52 weeks. Pursuant to the Ferguson Separation Agreement, ClearPoint entered
into a consulting agreement with Mr. Ferguson pursuant to which he will be paid
$25 per month for twelve (12) months. In return, Mr. Ferguson agreed to assist
ClearPoint with any matters relating to the performance of his former duties and
work with ClearPoint to effectively transition his responsibilities. As of
December 31, 2008, ClearPoint paid Mr. Ferguson approximately $58 pursuant to
the consulting agreement and recorded a related party liability of $257 as of
December 31, 2008 pursuant to the consulting agreement.


57




On June
20, 2008, Kurt Braun, ClearPoint’s former Chief Financial Officer, resigned
effective June 20, 2008. In connection with Mr. Braun’s resignation as
ClearPoint’s Chief Financial Officer, ClearPoint and Mr. Braun entered into a
Separation of Employment Agreement and General Release (the “Braun Separation
Agreement”). In consideration of Mr. Braun’s agreement to be legally bound by
the terms of the Braun Separation Agreement, his release of his claims, if any,
under the Braun Separation Agreement, and his agreement to provide the
transitional services to ClearPoint, ClearPoint has agreed to, among other
things: (i) pay Mr. Braun $75, minus all payroll deductions required by law or
authorized by Mr. Braun, to be paid as salary continuation over 26 weeks
beginning within a reasonable time after the seven day revocation period
following execution of the Braun Separation Agreement; (ii) continue to pay all
existing insurance premiums for Mr. Braun and his immediate family through the
26 week period, and thereafter permit Mr. Braun, at his own expense, to continue
to receive such coverage in accordance with COBRA regulations; (iii) pay Mr.
Braun the balance of any accrued but unused vacation or paid time off hours,
minus all payroll deductions required by law or authorized by Mr. Braun; and
(iv) amend Mr. Braun’s Nonqualified Stock Option Agreement, dated March 30,
2007, to permit Mr. Braun to exercise 90,000 of the 140,000 stock options
granted until March 30, 2010. The balance of the Braun Stock Options expired on
June 20, 2008 in accordance with ClearPoint’s 2006 plan. As of December 31,
2008, ClearPoint paid Mr. Braun approximately $75 pursuant to the Braun
Separation Agreement.




On June
20, 2008, John Phillips and ClearPoint entered into an Employment Agreement (the
“Phillips Employment Agreement”). Pursuant to the Phillips Employment Agreement,
Mr. Phillips’ current base salary is $175 per year, which may be increased in
accordance with ClearPoint’s normal compensation review practices. On November
7, 2008, ClearPoint’s board of directors increased Mr. Phillips’ base salary to
$195 effective November 10, 2008. Mr. Phillips is also entitled to participate
in any benefit plan of ClearPoint currently available to executive officers to
the extent he is eligible under the provisions thereof, and ClearPoint will pay
health, dental and life insurance premiums for Mr. Phillips and members of his
immediate family. Mr. Phillips is entitled to receive short- and long-term
disability insurance, and is entitled to three weeks of paid time off per year.
Mr. Phillips may be entitled to discretionary bonuses as determined by
ClearPoint’s Chief Executive Officer, the board of directors and the
Compensation Committee of the board of directors. On August 20, 2008, Mr.
Phillips was granted a stock option to purchase 50,000 shares of common stock.
The option vests in three equal annual installments beginning August 20, 2009
and expires August 20, 2018. The exercise price of the option is $0.30 per
share.




Agreement
with XRoads Solutions




On
January 13, 2009, ClearPoint entered into the XRoads Agreement with XRoads.
Pursuant to the XRoads Agreement, among other matters, XRoads agreed to provide
the services of Brian Delle Donne to serve as ClearPoint’s Interim Chief
Operating Officer (the “XRoads Engagement”). In such capacity, Mr. Delle Donne
will have direct responsibility over ClearPoint’s day to day operations and will
report to Michael D. Traina, ClearPoint’s Chief Executive Officer. XRoads will
submit bi-weekly oral or written progress reports to ClearPoint’s board of
directors. The term of the Engagement commenced on January 13, 2008 and will
continue for 4 months.




ClearPoint
agreed to pay XRoads $50 per month for each of the first four months of Mr.
Delle Donne’s services and the parties will mutually agree to a new fee
structure in the event Mr. Delle Donne serves beyond that period. ClearPoint
also agreed to pay XRoads a monthly fee based upon achievement of certain
increases in ClearPoint’s earnings before interest, taxes, depreciation and
amortization, calculated pursuant to the XRoads Agreement (“EBITDA”). Such fee
will be equal to 10% of increases in ClearPoint’s monthly EBITDA during the term
of the Engagement over ClearPoint’s EBITDA for the month ended January 31, 2009,
capped at $50 per month. ClearPoint agreed to pay reasonable expenses incurred
by XRoads for services related to the Engagement and remitted a retainer in the
amount of $10 to XRoads for such purpose. As of March 23, 2009, ClearPoint paid
approximately $150 in fees to XRoads pursuant to the XRoads
Agreement.  Any amounts not paid by ClearPoint when due pursuant to
the XRoads Agreement will bear interest at an annual rate of 12% or the maximum
rate allowed by law, whichever is less.




58


In
addition, ClearPoint agreed to issue XRoads a warrant to purchase up to 100,000
shares of ClearPoint’s common stock at the exercise price of $0.12 per share.
Such warrant will be held in escrow, to be released within 120 days of the date
of the XRoads Agreement, and will be exercisable upon such release through
December 31, 2010. In the event the Engagement is extended, ClearPoint agreed to
issue an additional warrant to purchase 75,000 shares of ClearPoint’s common
stock with an expiration date of April 30, 2011.




In the
event ClearPoint elects to pursue a financing (either in the form of debt or
equity) within one year of the date of the XRoads Agreement, XRoads shall serve
as ClearPoint’s non-exclusive financial advisor for such financing in accordance
with the terms of the XRoads Agreement. If such financing is consummated
pursuant to the terms set forth in the XRoads Agreement, ClearPoint agreed to
pay XRoads a transaction fee based on the type and value of the transaction. The
transaction fee will be prorated accordingly in the event ClearPoint retains an
additional financial advisor in connection with the transaction, but such fee
shall not be less than $75 if XRoads’ efforts result in an bona fide financing
alternative for ClearPoint.




Either
ClearPoint or XRoads may terminate the XRoads Agreement at any time with at
least thirty days prior written notice. In the event of a material breach of the
XRoads Agreement by either party, including, but not limited to, ClearPoint’s
failure to promptly pay amounts due for services rendered or for reimbursement
of expenses, the non-breaching party may terminate the Engagement at any time
thereafter upon 5 days advance notice.




Warrants




In
connection with the $10,000 term loan at February 28, 2005, ClearPoint
simultaneously issued three detachable warrants to Bridge to purchase an
aggregate of 9% of ClearPoint’s outstanding stock, on a fully diluted basis, at
the exercise price of $0.001 per share. The warrants vested immediately upon
issuance and could be exercised until February 28, 2015. ClearPoint has
accounted for the warrants as a liability under the provisions of FAS 150. The
warrants were initially valued at $396 by an independent valuation company. This
initial value was recorded as debt discount and were amortized over the three
year life of the loan by the interest method. Amortization of $0 and $132 (the
balance of the debt discount) was recorded by ClearPoint as interest expense for
the three months ended March 31, 2008 and 2007 respectively. The warrants were
fair valued each reporting period and the increase/decrease reflected as
interest expense/income in the consolidated statement of
operations.




As a
result of the merger with Terra Nova, on February 12, 2007, ClearPoint retired
all outstanding debt with Bridge in the amount of $12,453 and paid an early debt
retirement penalty in the amount of $1,950. In addition, ClearPoint redeemed all
outstanding warrants related to its credit facility with Bridge for a cash
payment of $3,292 on February 12, 2007 from proceeds received as a result of the
merger with Terra Nova. These warrants were no longer outstanding on December
31, 2008.




As a
result of the 2005 public offering, there were 11,040,000 common stock purchase
warrants issued and outstanding at December 31, 2008, which include warrants
that are part of the outstanding units. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $5.00 per share
commencing on February 12, 2007 (the completion of the merger with Terra Nova)
and expiring on April 17, 2009 (four years from the effective date of the 2005
public offering). In connection with the 2005 public offering, an option was
issued for $100 to the representative of the underwriters to purchase 240,000
units at an exercise price of $9.90 per unit with each unit consisting of one
share of common stock and two common stock purchase warrants. In addition, the
warrants underlying such units are exercisable at $6.65 per share and expire on
April 17, 2009.


59


In
connection with the Amended Sub Notes, ClearPoint issued to the Sub Noteholders
the Initial Sub Note Warrants to purchase an aggregate of 82,500 shares of
ClearPoint common stock. In connection with an additional amendment to extend
the maturity date of such promissory notes, on June 20, 2008, ClearPoint issued
to the Sub Noteholders the Additional Sub Note Warrants to purchase an
additional 82,500 shares of common stock. The Initial Sub Note Warrants are
immediately exercisable during the period commencing on March 31, 2008 and
ending on March 31, 2010 at an exercise price of $1.55 per share. The Additional
Sub Note Warrants are immediately exercisable during the period commencing on
June 20, 2008 and ending on March 31, 2011 at an exercise price of $1.55 per
share. The exercise price and the number of shares issuable upon the exercise of
such warrants are subject to adjustment in certain events, including a stock
split and reverse stock split. (See Note 11 to the Notes of the Consolidated
Financial Statements included in this Annual Report on Form 10-K).




In
connection with the transaction with ComVest described above, ClearPoint issued
the ComVest Warrant. The ComVest Warrant is exercisable until June 30, 2014 and
the exercise price and number of shares issuable upon exercise of the ComVest
Warrant are subject to adjustment following certain events.  For a
description of the terms of the ComVest Warrant, see “—Debt Restructuring –
M&T and ComVest.”




In
connection with the M&T Restructure Agreement described above, ClearPoint
issued the M&T Warrants. The M&T Warrants are exercisable until June 20,
2012 and may be exercised by reducing the cash amount of certain obligations
owed to M&T. The M&T Warrants also contain provisions related to the
adjustment of the respective exercise prices and number of shares issuable upon
exercise of the M&T Warrants.  For a description of the terms of
the M&T Warrants, see “—Debt Restructuring – M&T and
ComVest.”




In
connection with the XRoads Agreement described above, ClearPoint agreed to issue
XRoads a warrant to purchase up to 100,000 shares of ClearPoint’s common stock
at the exercise price of $0.12 per share. Such warrant will be held in escrow,
to be released within 120 days of the date of the XRoads Agreement, and will be
exercisable upon such release through December 31, 2010. In the event the
Engagement is extended, ClearPoint agreed to issue an additional warrant to
purchase 75,000 shares of ClearPoint’s common stock with an expiration date of
April 30, 2011.




Income
Taxes




As of
December 31, 2008, ClearPoint had a current and long term deferred tax asset of
$0. Deferred tax assets and liabilities are determined based on temporary
differences between income and expenses reported for financial reporting and tax
reporting. ClearPoint is required to record a valuation allowance to reduce its
net deferred tax assets to the amount that it believes is more likely than not
to be realized. In assessing the need for a valuation allowance, ClearPoint
historically had considered all positive and negative evidence, including
scheduled reversals of deferred tax liabilities, prudent and feasible tax
planning strategies and recent financial performance. ClearPoint determined that
the negative evidence, including historic and current losses, as well as
uncertainties related to the ability to utilize federal and state net loss
carry-forwards, outweighed any objectively verifiable positive factors, and as
such, concluded that a full valuation allowance against the deferred tax assets
was necessary


60




Contingencies
and Litigation




Westaff,
Inc.




In
February of 2007, ClearPoint entered into a three party settlement agreement
between ClearPoint, Westaff, Inc. (“Westaff”) and 26 employees hired by
ClearPoint who formerly worked for Westaff. The settlement arose out of lawsuits
filed by Westaff against certain of those employees. The terms of the settlement
required ClearPoint to make a one time cash payment of $266 to Westaff, plus
legal fees of $56, and in return for such consideration Westaff agreed to
release all 26 former employees of Westaff and now employed by ClearPoint from
their non-compete and non-solicitation agreements that the employees had signed
while employed by Westaff. As an additional term of the settlement agreement,
ClearPoint agreed to cease the solicitation of Westaff employees. The total cost
to ClearPoint including legal expenses was $322.




ClearPoint
also hired a high level transportation sales executive.  The former
partner of the high level executive, threatened litigation against ClearPoint
based on covenants not to compete related to clients that ClearPoint was
soliciting. To settle the potential claim, ClearPoint made a one-time cash
payment of $80 in the first quarter of fiscal 2007 to the former partner of the
transportation executive in exchange for the settlement and release of all
potential claims against ClearPoint and the executive.




Temporary
Services Insurance Ltd.




On
September 21, 2007, TSIL, which claims to be a captive reinsurance company
offering workers’ compensation insurance to its shareholders through an
insurance program, initiated the TSIL Litigation in the U.S. District Court in
Florida against the ALS Defendants, alleging that it was owed at least $2,161 in
unpaid insurance assessments, as well as other requested damages, from the ALS
Defendants. Kevin O’Donnell, a former officer of the ALS companies and a named
defendant in the TSIL Litigation, controls KOR, a former franchisee of
ClearPoint.




ClearPoint
is also named as a defendant because it acquired certain assets from ALS and its
wholly owned subsidiaries, including ASG II, in February 2007, for which it paid
a portion of the purchase price at closing to the ALS Defendants, through ALS.
It is alleged that this transfer rendered ASG II, one of the named insureds on
the TSIL policy, insolvent and unable to pay the insurance assessments and
damages owed to TSIL. TSIL requested in its complaint that its damages be
satisfied from the assets transferred to ClearPoint. Agreements related to the
acquisition of certain assets and liabilities of ALS in February 2007 contain
provisions under which ClearPoint may seek indemnification from ALS in
connection with the foregoing.  ClearPoint intends to pursue all
appropriate claims for such indemnification and cannot estimate the potential
liability, if any.




On
January 11, 2008, ClearPoint filed its Answer denying all claims in the TSIL
Litigation and also filed a Crossclaim against ALS making claims for contractual
and common law indemnity. ALS filed its Answer to ClearPoint’s Crossclaim,
denying all claims, and filed a Counterclaim asking for a declaratory judgment
that it does not have to indemnify ClearPoint and asserting a breach of contract
claim based on an alleged failure to pay ALS certain amounts due under the ALS
Note arising out of the acquisition of certain assets and liabilities of ALS in
February 2007. The court in the TSIL Litigation entered the TSIL Order dated
February 22, 2008, requiring ClearPoint not to make any payments to ALS pursuant
to the purchase agreement without first seeking leave of court.




On or
about June 20, 2008, in connection with ALS’ agreement to subordinate the ALS
Note to ComVest and M&T, the ALS Parties entered into the ALS Agreement.
Pursuant to the ALS Agreement, the ALS Parties and ClearPoint agreed, among
other things, as follows:




·
            That
      the ALS Parties acknowledge their obligation to indemnify ClearPoint in
      connection with the TSIL Litigation, subject to certain sections of the
      ALS purchase agreement;




61




·
            That
      the ALS Parties shall be responsible for ClearPoint’s attorney’s fees
      incurred in the TSIL Litigation from June 20, 2008, not to exceed
      $300;




·
            That
      the ALS Parties and ClearPoint shall take all appropriate actions to
      dismiss all of their respective claims against one another in the TSIL
      Litigation, and that following such dismissal, ClearPoint shall cooperate
      as reasonably requested by the ALS Parties in connection with the TSIL
      Litigation including consenting in connection with a request to lift the
      TSIL Order, or otherwise permit payment to the ALS Parties in accordance
      with the terms of the ALS purchase agreement and Note;
  and




In
addition, ClearPoint agreed not to assert its right to set off from the Note any
other amounts in connection with the TSIL Litigation until such time (if at all)
as a final judgment is entered against ClearPoint in the TSIL Litigation, or the
amount of TSIL’s claims against ClearPoint are liquidated by settlement or
otherwise.




ALS did
not elect to provide a defense to ClearPoint, and it remains represented by its
own counsel. On November 21, 2008, a joint stipulation for voluntary dismissal
was filed with the court pursuant to which ClearPoint and ALS jointly dismissed
such claims with prejudice. On December 8, 2008, the court entered an order
dismissing all claims between ClearPoint and ALS with prejudice. The litigation
between TSIL and ALS is currently concluding its fact discovery phase and
commencing its expert discovery phase.




James
W. Brown et al.




On or
about October 29, 2007, ClearPoint received a copy of a letter sent by a law
firm to the California Labor & Workforce Development Agency, pursuant to
which such law firm sought permission under the California Labor Code Private
Attorney General Act of 2004 to file a complaint against ClearPoint, a wholly
owned subsidiary of ClearPoint and ALS and one of its subsidiaries, on behalf of
a class of employees currently and formerly employed by the defendants in
California (the employees had not been named). On January 30, 2008, James W.
Brown (“Brown”), on behalf of himself and all others similarly situated, on
behalf of the general public and as an “aggrieved employee” under the California
Labor Code Private Attorneys General Act, filed a complaint in the Superior
Court of the State of California (Alameda County) (the “Brown Litigation”)
against CP Advantage, a wholly owned subsidiary of CPR. On November 17, 2008, a
settlement was reached and as part of such settlement the lawsuit was dismissed.
Agreements related to the acquisition of certain assets and liabilities of ALS
in February 2007 contain provisions under which ClearPoint may seek
indemnification from ALS in connection with the foregoing. ClearPoint intends to
pursue all appropriate claims for such indemnification.




With
respect to the claim relating to the issuance of paychecks to Brown and other
similarly situated California employees with no in-state address listed on the
checks, and which could not be cashed without fee and on demand, the parties
agreed to toll the statute of limitations until June 30, 2010, so that if any
action is later brought based on those same claims, the statute of limitations
on those claims will relate back to January 30, 2008.




APX
Holdings, LLC




On or
about March 4, 2008, Richard K. Diamond, Chapter 7 Trustee (“Trustee”) for In Re
APX Holdings, LLC et al., filed a complaint (the “APX Litigation”) in the United
States Bankruptcy Court in California against ASG Northern California, Advantage
Services Group, ClearPoint and MVI, alleging, among other things, that APX
Holdings, LLC and other related parties (collectively, the “Debtors”) made
transfers to the defendants within ninety (90) days prior to March 16, 2006
(Debtors’ petition date).  Plaintiff filed a First Amended Complaint
on March 14, 2008. Plaintiff alleged that those transfers had been made to or
for the benefit of the defendants as creditors of the Debtors and that the
transfers had been made for or on account of an antecedent debt owed by one or
more of the Debtors before the transfers had been made. Plaintiff also alleged
that the transfers had been made while the Debtors were insolvent. Plaintiff
made similar claims alleging that the transfers constituted the receipt of an
interest of the Debtors in property and that the Debtors had received less than
a reasonably equivalent value from the defendants in exchange for the transfers.
Plaintiff claimed that the defendants owed plaintiff at least $506, plus
interest and costs and such other relief deemed proper by the
court.


62


ClearPoint
was named as a defendant in the APX Litigation because it had acquired certain
assets from ALS and its wholly owned subsidiaries in February 2007. All of the
transfers alleged in the APX Litigation took place almost a year prior to the
time that ClearPoint consummated the asset acquisition with ALS.  On
June 27, 2008, the Trustee filed a Stipulation dismissing ClearPoint and MVI
from the APX Litigation.




Alliance
Consulting Group Associates, Inc.




On April
25, 2008, Alliance initiated the Alliance Litigation in the Court of Common
Pleas (Montgomery County, Pennsylvania), against CPR alleging that CPR had
failed to honor certain of its contractual obligations to pay Alliance for
services rendered under a Professional Services Master Agreement, dated June 18,
2007.




Namely,
Alliance alleged that CPR had failed to pay approximately $600. Alliance seeks
damages in the amount of approximately $600, plus interest, costs and attorneys’
fees and such other relief deemed proper by the court.  CPR filed an
answer and counterclaim on June 16, 2008. In its counterclaim, CPR alleged in a
breach of contract claim that Alliance had failed to deliver certain computer
programming and consulting services according to specifications and that CPR had
to expend certain monies to fix the resulting problems.  On or about
July 2, 2008, Alliance answered CPR’s counterclaim denying the allegations. This
litigation is currently in the discovery phase.




Sunz
Insurance




On or
about June 25, 2008, Sunz initiated the Sunz Litigation in the Circuit Court of
the 9th Judicial Circuit (Orange County, Florida), against ALS d/b/a ClearPoint
HR and CP Advantage. Sunz claims to have provided workers compensation insurance
to ALS and CP Advantage and that such policy was cancelled on February 22, 2008,
for alleged nonpayment of funds due under the insurance contract. Sunz claims
that ALS and CP Advantage owe in excess of $500 under the policy. Sunz, in
addition to damages, seeks pre-judgment interest, court costs, attorneys’ fees
and such other relief deemed proper by the court.  On February 9,
2009, the court ordered Sunz to conduct an audit of ALS and CP Advantage and set
this matter for mandatory mediation.  On March 3, 2009, ALS and CP
Advantage answered Sunz’s allegations and denied any liability.




Select




On July
29, 2008, Select and Real Time, initiated the Select Litigation in the Superior
Court of California (Santa Barbara County), against ClearPoint and, on August 1,
2008, Select filed an amended complaint. In the amended complaint, Select
alleged that ClearPoint had entered into an agreement with Select whereby Select
would supply services and personnel for temporary employment through ClearPoint
to its clients. Select claimed that ClearPoint owed it $1,033 for services
performed. Select sought, in addition to the monies claimed, interest,
attorneys’ fees and punitive damages of $1,000 as well as court costs and other
just and proper relief.


63




On August
22, 2008, CPR, Real Time and Select entered into the Select Settlement Agreement
pursuant to which each party released the others from all prior, existing and
future claims including, without limitation, the parties’ claims with respect to
the Select Litigation, the Select License Agreement and the Select Subcontract.
Pursuant to the Select Settlement Agreement, the parties also agreed (i) that
CPR would retain $900 paid to it under the Select License Agreement; (ii) to
allocate between them amounts paid or payable with respect to certain client
accounts; (iii) to execute an amendment to the Select Subcontract; and (iv) that
Select would file the required documents to dismiss the Select Litigation with
prejudice. In addition, the parties agreed not to commence any future action
arising from the claims released under the Select Settlement Agreement and to
terminate the Select License Agreement effective August 22, 2008. On August 28,
2008, this lawsuit was dismissed with prejudice.




Leon
R. Cobaugh




On or
about October 20, 2008, Cobaugh filed a complaint in the Circuit Court for
Chesterfield County of the Commonwealth of Virginia against ClearPoint and
Quantum. The complaint alleges that, pursuant to the SPA dated December 30,
1986, Cobaugh retired from his positions as an officer, director and employee of
AIDE Management Resources Corporation, the prior name of Quantum, and sold his
stock in such entity to the remaining stockholders in exchange for lump sum
payments and monthly payments from Quantum for the rest of Cobaugh’s life.
ClearPoint acquired all of the outstanding stock of Quantum on July 29, 2005.
Upon its acquisition of Quantum, ClearPoint assumed Quantum’s obligations under
the SPA. Cobaugh alleged that ClearPoint had failed to make the required monthly
payments due under the SPA beginning June 1, 2008 and sought to recover a
minimum of $200 as may be adjusted based on the Consumer Price Index under the
SPA.  This dispute was settled on January 22,
2009.  Pursuant to the settlement agreement among the parties, past
due amounts to Cobaugh were paid and ClearPoint agreed to continue making future
payments as required by the SPA.




XL
Specialty Insurance Company




On
November 10, 2008, XL filed a complaint in the Supreme Court of the State of New
York (New York County), and, on December 9, 2008, XL filed the XL Complaint
alleging that, among other things, XL issued workers’ compensation insurance
policies to CP Advantage during 2007 and CP Advantage failed to make certain
payments with regard to claims made against CP Advantage under the policies and
maintain collateral required by the insurance policy documents. XL seeks to
recover from ClearPoint, as a guarantor of CP Advantage’s obligations under the
insurance policies, $746, in the aggregate, in connection with certain claims
against and pursuant to the collateral obligations of, CP Advantage. XL, in
addition to damages, seeks pre-judgment interest, attorneys’ fees, costs and
expenses and such other relief deemed proper by the court.  ClearPoint
filed its answer in this matter on February 17, 2009 and contends that a third
party is liable for the payments under the insurance policies pursuant to an
agreement governing the sale of HRO.  This litigation is currently
moving into the discovery phase.




AICCO,
Inc.




On
November 18, 2008, AICCO filed a complaint the Court of Common Pleas of Bucks
County, Pennsylvania against ClearPoint alleging that AICCO agreed to finance
premiums of certain insurance policies procured by ClearPoint pursuant to a
certain premium finance agreement among AICCO and ClearPoint. AICCO claims that
ClearPoint breached the terms of such agreement by failing to make certain
installment payments and seeks damages in excess of approximately $600, together
with interest and attorney’s fees and costs.  On December 23, 2008,
ClearPoint filed an answer in this matter and joined two additional defendants
on January 23, 2009.  The joined defendants filed their answer to
ClearPoint’s complaint on March 27, 2009.  ClearPoint contends that
the joined defendants are liable for the installment payments pursuant to an
agreement governing the sale of HRO.  ClearPoint alleged breach of
contract against the joined defendants and seeks contribution and
indemnification from such parties in this matter.


64


Although
ClearPoint accrued for certain of the liability exposures for these matters on
its balance sheet, an adverse decision in these matters may result in a material
adverse effect on its liquidity, capital resources and results of operations. In
addition, to the extent that ClearPoint’s management has been required to
participate in or otherwise devote substantial amounts of time to the defense of
these matters, such activities result in the diversion of management resources
from business operations and the implementation of ClearPoint’s business
strategy, which may negatively impact ClearPoint’s financial position and
results of operations.




The
principal risks that ClearPoint insures against are general liability,
automobile liability, property damage, alternative staffing errors and
omissions, fiduciary liability and fidelity losses. If a potential loss arising
from these lawsuits, claims and actions is probable, reasonably estimable, and
is not an insured risk, ClearPoint records the estimated liability based on
circumstances and assumptions existing at the time. Whereas management believes
the recorded liabilities are adequate, there are inherent limitations in the
estimation process whereby future actual losses may exceed projected losses,
which could materially adversely affect the financial condition of
ClearPoint.




Generally,
ClearPoint is engaged in various other litigation matters from time to time in
the normal course of business. Management does not believe that the ultimate
outcome of such matters, either individually or in the aggregate, will have a
material adverse impact on the financial condition or results of operations of
ClearPoint.




Listing
on Nasdaq




Pursuant
to the Marketplace Rules of Nasdaq, whenever the staff of the Nasdaq Listing
Qualifications Department (the “Staff”) determines that a company, the
securities of which are listed on Nasdaq, does not meet a Nasdaq continued
listing standard, including, but not limited to, the requirements set forth in
Nasdaq Marketplace Rule 4310(c)(3) (“Rule 4310(c)(3)”), the Staff notifies the
company of such non-compliance. On May 22, 2008, ClearPoint received a
deficiency letter from Nasdaq indicating that ClearPoint was not in compliance
with Rule 4310(c)(3) which requires ClearPoint to maintain either (i) $2,500 of
stockholders’ equity, (ii) $35,000 market value of listed securities or (iii)
$500 of net income from continuing operations for the most recently completed
fiscal year or two of the last three most recently completed fiscal
years.




On June
9, 2008, ClearPoint received a deficiency letter from Nasdaq indicating that
ClearPoint was not in compliance with Rule 4310(c)(4) because, for the previous
30 consecutive business days, the bid price of ClearPoint’s common stock had
closed below the minimum requirement of $1.00 per share. The letter stated that
in accordance with the Nasdaq Marketplace Rules, ClearPoint would be provided
180 calendar days, or until December 8, 2008, to regain compliance with Rule
4310(c)(4).




On June
13, 2008, ClearPoint provided to Nasdaq a plan to achieve and sustain compliance
with the stockholder’s equity, market value and net income listing requirements,
including the time frame for completion of the plan. On July 16, 2008, the Staff
notified ClearPoint that it had reviewed ClearPoint’s plan and determined to
delist ClearPoint’s securities from The Nasdaq Capital Market. On July 23, 2008,
ClearPoint requested an appeal of this determination. On September 9, 2008, the
Staff notified ClearPoint that its appeal had been denied and that trading in
ClearPoint’s securities would be suspended on September 11, 2008. ClearPoint’s
securities were delisted from Nasdaq effective at the opening of the trading
session on November 24, 2008. Effective September 11, 2008, ClearPoint’s common
stock was quoted on The OTC Bulletin Board under the symbol “CBPR.OB.” Effective
September 15, 2008, ClearPoint’s units and warrants were quoted on The OTC
Bulletin Board under the symbols “CBPRU.OB” and “CPBRW.OB,”
respectively.


65




Recent
Accounting Pronouncements




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
This statement does not require any new fair value measurements, but provides
guidance on how to measure fair value by providing a fair value hierarchy used
to classify the source of the information. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007, and all interim periods within those
fiscal years. In February 2008, the FASB released FASB Staff Position (FSP FAS
157-2 – Effective Date of FASB Statement No. 157) which delays the effective
date of SFAS No. 157 for all non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), to fiscal years beginning
after November 15, 2008 and interim periods within those fiscal years. The
implementation of SFAS No. 157 for financial assets and liabilities, effective
January 1, 2008, did not have an impact on the Company’s financial position and
results of operations. ClearPoint is currently evaluating the impact of adoption
of this statement on its non-financial assets and liabilities in the first
quarter of fiscal 2009.




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are
required to be reported in earnings at each reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007, the provisions of
which are required to be applied prospectively. ClearPoint expects to adopt SFAS
No. 159 in the first quarter of fiscal 2008 and is still evaluating the effect,
if any, on its financial position or results of operations.




In
December 2007, FASB issued SFAS No. 141 (revised 2007), “Business Combinations”
(“SFAS No. 141R”), which replaces SFAS No. 141. The statement retains the
purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
ClearPoint is currently evaluating the impact, if any, that the adoption of SFAS
No. 141R will have on its consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements”, “an amendment of ARB 51” (“SFAS No. 160”),
which changes the accounting and reporting for minority interests. Minority
interests will be recharacterized as non-controlling interests and will be
reported as a component of equity separate from the parent’s equity, and
purchases or sales of equity interests that do not result in a change in control
will be accounted for as equity transactions. In addition, net income
attributable to the non-controlling interest will be included in consolidated
net income on the face of the income statement and, upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value
with any gain or loss recognized in earnings. SFAS No. 160 is effective for
annual periods beginning after December 15, 2008. ClearPoint is currently
evaluating the impact, if any, that the adoption of SFAS No. 160 will have on
its consolidated financial statements.


66


Effective
January 1, 2008, ClearPoint adopted SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159
provides companies an option to report certain financial assets and liabilities
at fair value and established presentation and disclosure
requirements.  The intent of SFAS 159 is to reduce the complexity in
accounting for financial instruments and the volatility of earnings caused by
measuring related assets and liabilities differently.  ClearPoint
chose not to elect the fair value option for its financial assets and
liabilities exiting at January 1, 2008, and did not elect the fair value option
on financial assets and liabilities transacted during the year ended December
31, 2008.  Therefore, the adoption of SFAS 159 had no impact on
ClearPoint’s financial statements.  Effective January 1, 2008,
ClearPoint adopted SFAS No. 157, with the exception of the application of the
statement to non-recurring nonfinancial assets and nonfinancial liabilities. The
adoption of SFAS No. 157 did not impact ClearPoint’s financial position or
results of operations.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”). The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. ClearPoint is currently evaluating what the impact will be, if any,
of adopting SFAS. No. 161 on its consolidated financial statements.




Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk.





Not
applicable.





Item
8.  Financial Statements and Supplementary Data.





The
following is a summary of the unaudited quarterly financial information for the
fiscal years ended December 31, 2008 and 2007:




2008
      – Quarter Ended (unaudited)($
      in thousands, except per share data)December
      31,
              
              
              September
      30,
              
              
              June
      30,
              
              
              March
      31,Revenue
              
              $
              2,764
              
              
              $
              3,221
              
              
              $
              3,292
              
              
              $
              24,220Cost
      of Services
              
              
              1,371
              
              
              
              2,084
              
              
              
              2,910
              
              
              
              22,744Gross
      Profit
              
              
              1,393
              
              
              
              1,137
              
              
              
              382
              
              
              
              1,476Selling,
      general and administrative expenses
              
              
              1,623
              
              
              
              1,986
              
              
              
              6,392
              
              
              
              5,558Restructuring
      expense (reductions)
              
              
              (750
              )
              
              
              —
              
              
              
              —
              
              
              
              2,100Impairment
      of goodwill
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              16,822Fixed
      assets impairment expense, net
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,022Depreciation
      and amortization expense
              
              
              219
              
              
              
              219
              
              
              
              163
              
              
              
              122Income
      (loss) before income taxes
              
              
              301
              
              
              
              (1,068
              )
              
              
              (6,173
              )
              
              
              (24,148
              )Other
      income (expense)
              
              
              (284
              )
              
              
              (1
              )
              
              
              300
              
              
              
              (101
              )Interest
      Income ( expense)
              
              
              (5
              )
              
              
              12
              
              
              
              —
              
              
              
              —Interest,
      OID and warrant liability (expense)
              
              
              (578
              )
              
              
              (541
              )
              
              
              (358
              )
              
              
              (548
              )Derivative
      Income
              
              
              8
              
              
              
              26
              
              
              
              —
              
              
              
              —Gain
      on restructuring of debt
              
              
              —
              
              
              
              —
              
              
              
              687
              
              
              
              —Gain
      (loss) on sale of subsidiary
              
              
              —
              
              
              
              —
              
              
              
              600
              
              
              
              (1,894
              )(2)Net
      loss before income taxes
              
              
              (558
              )
              
              
              (1,572
              )
              
              
              (4,944
              )
              
              
              (26,691
              )Income
      tax expense (benefit)
              
              
              14
              
              
              
              —
              
              
              
              —
              
              
              
              5,007Net
      (loss)
              
              $
              (572
              )
              
              $
              (1,572
              )
              
              $
              (4,944
              )(2)
              
              $
              (31,698
              )Net
      (loss) per share
              
              $
              (0.04
              )
              
              $
              (0.11
              )
              
              $
              (0.37
              )
              
              $
              (2.40
              )


67





2007
      – Quarter Ended (unaudited)($
      in thousands, except per share data)December
      31,
              
              
              September
      30,
              
              
              June
      30,
              
              
              March
      31,Revenue
              
              $
              52,015
              
              
              $
              52,427
              
              
              $
              54,394
              
              
              $
              32,849Cost
      of Services
              
              
              46,616
              
              
              
              46,548
              
              
              
              46,525
              
              
              
              26,942Gross
      Profit
              
              
              5,399
              
              
              
              5,879
              
              
              
              7,869
              
              
              
              5,907Selling,
      general and administrative expenses
              
              
              6,795
              
              
              
              4,719
              
              
              
              8,086
              
              
              
              7,105Restructuring
      expense
              
              
              —
              
              
              
              (651
              )
              
              
              2,852
              
              
              
              —Depreciation
      and amortization expense
              
              
              6,387
              
              
              
              1,401
              
              
              
              1,387
              
              
              
              1,139Income
      (loss) before income taxes
              
              
              (7,783
              )
              
              
              410
              
              
              
              (4,456
              )
              
              
              (2,337
              )Interest
      (expense)
              
              
              (245
              )
              
              
              (529
              )
              
              
              (537
              )
              
              
              (561
              )Other
      income (expense)
              
              
              260
              
              
              
              —
              
              
              
              90
              
              
              
              (1,823
              )(5)Net
      loss before income taxes
              
              
              (7,768
              )
              
              
              (119
              )
              
              
              (4,903
              )
              
              
              (4,721
              )Income
      tax expense (benefit)
              
              
              (1,767
              )
              
              
              39
              
              
              
              (2,918
              )
              
              
              (474
              )Net
      loss
              
              $
              (6,001
              )(3)
              
              $
              (158
              )
              
              $
              (1,985
              )(4)
              
              $
              (4,247
              )Net
      loss per share
              
              $
              (0.45
              )
              
              $
              (0.01
              )
              
              $
              (0.15
              )
              
              $
              (0.43
              )




(1)
            Includes
      gain of restructuring of debt and gain on sale of
    subsidiary.




(2)
            Includes
      the loss on the sale of subsidiary.




(3)
            The
      net loss in the forth quarter of 2007 includes a writedown in the carrying
      value of contract rights and increased provision for doubtful
      accounts.




(4)
            The
      net loss in the second quarter of 2007 includes the impact of a
      restructuring charge.




(5)
            Includes
      prepayment penalty on early retirement of Bridge
  debt.




Net
income (loss) per share is computed independently for each quarter presented.
Therefore, the sum of the quarterly net income (loss) per share figures in 2008
and 2007 does not necessarily equal to the total computed for the entire
year.




68


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Stockholders of


ClearPoint
Business Resources, Inc. and Subsidiaries


Chalfont,
Pennsylvania




We
have audited the accompanying consolidated balance sheet of ClearPoint Business
Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2008 and the
related consolidated statements of operations, stockholders’ equity (deficit),
and cash flows 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.




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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included 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, 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 consolidated financial statements referred to above present fairly,
in all material respects, the financial position of ClearPoint Business
Resources, Inc. and Subsidiaries as of December 31, 2008, and the results of
their operations and their cash flows for year then ended in conformity with
accounting principles generally accepted in the United States of
America.




The
accompanying consolidated financial statements for the year ended December 31,
2008, have been prepared assuming that the Company will continue as a going
concern.  As disclosed in Note 1 to the consolidated financial
statements, the Company’s recurring losses from operations, accumulated deficit,
and inability to generate sufficient cash flow to meet its obligations and
sustain its operations raise substantial doubt about its ability to continue as
a going concern.  Management’s plans concerning these matters are also
disclosed in Note 1 to the consolidated financial statements.  The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.




As
disclosed in Note 13 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements,” effective January 1, 2008.




/s/Parente Randolph,
    LLCParente
      Randolph, LLCMorristown,
      New JerseyApril
      13, 2009


69


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Stockholders of


ClearPoint
Business Resources, Inc. and Subsidiaries


Chalfont,
Pennsylvania




We
have audited the accompanying consolidated balance sheet of ClearPoint Business
Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2007, and
the related consolidated statements of operations, stockholders’ equity
(deficit), and cash flows for the year then ended. In connection with our audits
of the aforementioned financial statements, we also audited the related
financial statement schedule (as listed in Part IV, Item 15). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.




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
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included 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, assessing the accounting principles
uses 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 consolidated financial statements referred to above present fairly,
in all material respects, the financial position of ClearPoint Business
Resources, Inc. and Subsidiaries as of December 31, 2007, and the results of
their operations and their cash flows for the year then in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule, presents fairly, in
all material respects, the information set forth therein.




/s/Lazar Levine & Felix
      LLPLazar
      Levine & Felix LLPMorristown,
      New JerseyApril
      15, 2008


70


CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES




CONSOLIDATED
BALANCE SHEETS


-ASSETS-





December
      31,2008
                    
                    
                    2007CURRENT
      ASSETSCash
      and cash equivalents
                    
                    $
                    960,145
                    
                    
                    $
                    1,993,641Accounts
      receivable, net of allowance for doubtful accounts of $5,774,921 and
      $3,178,891 at December 31, 2008 and 2007,
      respectively
                    
                    
                    736,750
                    
                    
                    
                    17,370,806Accounts
      receivable – related party
                    
                    
                    336,670
                    
                    
                    
                    —Unbilled
      revenue
                    
                    
                    127,685
                    
                    
                    
                    2,164,332Prepaid
      expenses and other current assets
                    
                    
                    217,882
                    
                    
                    
                    3,245,757Refundable
      federal income tax
                    
                    
                    26,128
                    
                    
                    
                    1,050,000Deferred
      tax asset
                    
                    
                    —
                    
                    
                    
                    1,631,318TOTAL
      CURRENT ASSETS
                    
                    
                    2,405,260
                    
                    
                    
                    27,455,854EQUIPMENT,
      FURNITURE AND FIXTURES, net
                    
                    
                    1,296,689
                    
                    
                    
                    2,162,260INTANGIBLE
      ASSETS, net
                    
                    
                    133,333
                    
                    
                    
                    183,333GOODWILL
                    
                    
                    —
                    
                    
                    
                    16,821,586DEFERRED
      TAX ASSET
                    
                    
                    —
                    
                    
                    
                    3,375,862DEFERRED
      FINANCING COSTS, net
                    
                    
                    536,444
                    
                    
                    
                    102,198OTHER
      ASSETS
                    
                    
                    709,404
                    
                    
                    
                    5,175,519TOTAL
      ASSETS
                    
                    $
                    5,081,130
                    
                    
                    $
                    55,276,612





See notes
to consolidated financial statements.


71


CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES




CONSOLIDATED
BALANCE SHEETS—(Continued)


-LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)-





December
      31,2008
                        
                        
                        2007CURRENT
      LIABILITIESCurrent
      portion of long-term debt
                        
                        $
                        5,950,209
                        
                        
                        $
                        14,922,662Accounts
      payable
                        
                        
                        2,725,659
                        
                        
                        
                        2,880,523Accrued
      expenses and other current liabilities
                        
                        
                        3,336,117
                        
                        
                        
                        5,122,251Accrued
      payroll and related taxes
                        
                        
                        744,758
                        
                        
                        
                        6,819,496Current
      portion of retirement benefit payable
                        
                        
                        146,900
                        
                        
                        
                        77,257Current
      portion of deferred revenue
                        
                        
                        996,104
                        
                        
                        
                        —Current
      portion of accrued restructuring costs – related party
                        
                        
                        256,709
                        
                        
                        
                        —Current
      portion of accrued restructuring costs
                        
                        
                        186,055
                        
                        
                        
                        821,178TOTAL
      CURRENT LIABILITIES
                        
                        
                        14,342,511
                        
                        
                        
                        30,643,367ACCRUED
      RESTRUCTURING COSTS, net of current
                        
                        
                        —
                        
                        
                        
                        203,424LONG-TERM
      DEBT, net of current
                        
                        
                        10,306,054
                        
                        
                        
                        8,523,333LIABILITY
      FOR WARRANTS ISSUED
                        
                        
                        1,213,433
                        
                        
                        
                        —DEFERRED
      REVENUE, net of current
                        
                        
                        996,104
                        
                        
                        
                        —RETIREMENT
      BENEFIT PAYABLE, net of current
                        
                        
                        135,646
                        
                        
                        
                        260,793TOTAL
      LIABILITIES
                        
                        
                        26,993,748
                        
                        
                        
                        39,630,917Commitments
      and contingenciesSTOCKHOLDERS’
      EQUITY (DEFICIT)Preferred
      stock, $.0001 par value, authorized 1,000,000 shares; none
      issued
                        
                        
                        —
                        
                        
                        
                        —Common
      stock, $.0001 par value (60,000,000 shares authorized December 31, 2008
      and 2007; 14,251,964 shares issued and outstanding,  December
      31, 2008; 13,208,916 shares issued and outstanding, December 31,
      2007.)
                        
                        
                        1,425
                        
                        
                        
                        1,321Additional
      paid in capital
                        
                        
                        32,576,500
                        
                        
                        
                        31,349,176Accumulated
      deficit
                        
                        
                        (54,490,543
                        )
                        
                        
                        (15,704,802
                        )TOTAL
      STOCKHOLDERS’ EQUITY (DEFICIT)
                        
                        
                        (21,912,618
                        )
                        
                        
                        15,645,695TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
                        
                        $
                        5,081,130
                        
                        
                        $
                        55,276,612





See notes
to consolidated financial statements.


72


CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS





Years
      ended December 31,2008
                
                
                2007REVENUE
                
                $
                33,496,240
                
                
                $
                191,684,483COST
      OF SERVICES
                
                
                29,107,840
                
                
                
                166,630,534GROSS PROFIT
                
                
                4,388,400
                
                
                
                25,053,949SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                
                
                15,559,077
                
                
                
                26,705,051RESTRUCTURING
      EXPENSE
                
                
                1,349,944
                
                
                
                2,201,116DEPRECIATION
      AND AMORTIZATION
                
                
                723,275
                
                
                
                5,284,265IMPAIRMENT
      OF GOODWILL
                
                
                16,821,586
                
                
                
                —LONG
      LIVED ASSETS IMPAIRMENT AND ABANDONMENT
                
                
                1,022,210
                
                
                
                5,029,020(LOSS) FROM
      OPERATIONS
                
                
                (31,087,692
                )
                
                
                (14,165,503
                )OTHER
      INCOME (EXPENSE)Other income
                
                
                10,670
                
                
                
                181,688Interest expense and factoring
      fees
                
                
                (1,515,010
                )
                
                
                (1,871,614
                )Interest expense of
      amortization of OID and warrant liability
                
                
                (509,532
                )
                
                
                —Mark to market gain on
      Derivative Instruments
                
                
                33,813
                
                
                
                —Gain on restructuring of
      debt
                
                
                686,797
                
                
                
                —Other expense
                
                
                (89,375
                )
                
                
                (911,795
                )Gain (loss) on sale of
      subsidiary
                
                
                (1,294,220
                )
                
                
                1,205,983Prepayment penalty on early
      retirement of debt
                
                
                —
                
                
                
                (1,949,928
                )TOTAL OTHER INCOME
      (EXPENSE)
                
                
                (2,676,857
                )
                
                
                (3,345,666
                )LOSS BEFORE INCOME TAX
      (BENEFIT) EXPENSE
                
                
                (33,764,549
                )
                
                
                (17,511,169
                )INCOME
      TAX (BENEFIT) EXPENSE
                
                
                5,021,192
                
                
                
                (5,120,564
                )NET LOSS
                
                $
                (38,785,741
                )
                
                $
                (12,390,605
                )NET
      LOSS PER COMMON SHAREBasic and
    Diluted
                
                $
                (2.84
                )
                
                $
                (1.00
                )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING
                  Basic and
    Diluted
                
                
                13,644,900
                
                
                
                12,372,170





See notes
to consolidated financial statements.




73


CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)





Common
      Stock
              
              
              Additional
              
              
              Accumulated
              
              
              Total
                Stockholders’
                EquityShares
              
              
              Amount
              
              
              Paid
      in Capital
              
              
              (Deficit)
              
              
              (Deficit)Balance
      as of January 1, 2007
              
              
              6,051,549
              
              
              $
              605
              
              
              $
              599,461
              
              
              $
              (3,314,197
              )
              
              $
              (2,714,131
              )Issuance
      of common stock inconnection
      with reverse acquisition of Terra Nova Acquisition Corp., net of
      acquisition costs
              
              
              6,720,000
              
              
              
              672
              
              
              
              27,256,857
              
              
              
              —
              
              
              
              27,257,529Shares
      converted on vote against merger
              
              
              (2,000
              )
              
              
              —
              
              
              
              (11,076
              )
              
              
              —
              
              
              
              (11,076
              )Issuance
      of common stock in connection with the acquisition of certain assets and
      liabilities of ALS, LLC
              
              
              439,367
              
              
              
              44
              
              
              
              2,499,956
              
              
              
              —
              
              
              
              2,500,000Issuance
      of stock options
              
              
              —
              
              
              
              —
              
              
              
              1,003,978
              
              
              
              —
              
              
              
              1,003,978Net
      loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (12,390,605
              )
              
              
              (12,390,605
              )Balance
      as of December 31, 2007
              
              
              13,208,916
              
              
              $
              1,321
              
              
              $
              31,349,176
              
              
              $
              (15,704,802
              )
              
              $
              15,645,695Issuance of common
      stock in connection with the amendment  of the ALS
      Note
              
              
              350,000
              
              
              
              35
              
              
              
              101,465
              
              
              
              
              
              
              
              101,500Issuance
      of common stock in connection with the amendment  of the
      Staffbridge note
              
              
              9,496
              
              
              
              1
              
              
              
              19,469
              
              
              
              
              
              
              
              19,470Issuance
      of warrants to ComVest related to the restructuring of
debt
              
              
              
              
              
              
              
              
              
              
              634,000
              
              
              
              
              
              
              
              634,000Issuance
      of warrants to sub debt holders in connection with amending the maturity
      dates of the sub debt
              
              
              
              
              
              
              
              
              
              
              50,000
              
              
              
              
              
              
              
              50,000Issuance
      of warrants to sub debt holders in connection with an additional amendment
      extension of the due dates of  maturity dates of the sub
      debt
              
              
              
              
              
              
              
              
              
              
              7,616
              
              
              
              
              
              
              
              7,616Issuance
      of common stock in exchange for payment of advisory services and repayment
      of bridge loan to TNMC
              
              
              683,552
              
              
              
              68
              
              
              
              365,931
              
              
              
              
              
              
              
              365,999Issuance
      of stock options
              
              
              —
              
              
              
              —
              
              
              
              48,843
              
              
              
              —
              
              
              
              48,843Net
      loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (38,785,741
              )
              
              
              (38,785,741
              )Balance
      as of December 31, 2008
              
              
              14,251,964
              
              
              $
              1,425
              
              
              $
              32,576,500
              
              
              $
              (54,490,543
              )
              
              $
              (21,912,618
              )




See notes
to consolidated financial statements.




74




CLEARPOINT BUSINESS RESOURCES, INC. AND
SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF CASH FLOWS





Years
      ended December 31,2008
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss)
                
                $
                (38,785,741
                )
                
                $
                (12,390,605
                )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Deferred
      income taxes (benefit)
                
                
                5,007,180
                
                
                
                (4,278,434
                )Depreciation
      and amortization
                
                
                723,275
                
                
                
                5,284,265Long
      lived assets impairment and abandonment
                
                
                1,022,210
                
                
                
                5,029,020Impairment
      of goodwill
                
                
                16,821,586
                
                
                
                —Provision
      for doubtful accounts
                
                
                2,596,030
                
                
                
                2,773,891Provision
      for franchise receivables
                
                
                1,638,879
                
                
                
                —Loss
      (gain) on sale of subsidiary
                
                
                1,294,220
                
                
                
                (1,205,983
                )Issuance
      of warrants – Sub-Debt Shareholders
                
                
                57,616
                
                
                
                —Stock
      based compensation
                
                
                48,843
                
                
                
                1,003,978Gain
      on M&T restructuring forgiveness of debt
                
                
                (866,480
                )
                
                
                —Issuance
      of stock
                
                
                120,970
                
                
                
                —Issuance
      of stock to related party
                
                
                266,000
                
                
                
                —Interest
      expense converted to note payable
                
                
                92,248
                
                
                
                —Interest
      expense – Original Issue Discount and Warrant Liability
                
                
                509,532
                
                
                
                —Mark
      to market (gain) on Derivative Instruments
                
                
                (33,813
                )
                
                
                —Changes
      in operating assets and liabilities:(Increase) decrease in accounts
      receivable
                
                
                14,038,026
                
                
                
                (8,946,338
                )(Increase) decrease in accounts
      receivable – related party
                
                
                (336,670
                )
                
                
                —(Increase) decrease in unbilled
      revenue
                
                
                2,036,647
                
                
                
                (108,821
                )Decrease in prepaid expenses and
      other current assets
                
                
                106,864
                
                
                
                (2,711,087
                )Refundable federal income
      taxes
                
                
                1,023,872
                
                
                
                —(Increase) in other
      assets
                
                
                (625,743
                )
                
                
                (2,750,569
                )Increase (decrease) in accounts
      payable
                
                
                (154,866
                )
                
                
                774,827Increase (decrease) in accrued
      expense and othercurrent liabilities
                
                
                (1,104,564
                )
                
                
                3,057,869Increase (decrease) in accrued
      payroll and related taxes
                
                
                (2,236,125
                )
                
                
                5,901,471Increase in deferred
      revenue
                
                
                1,992,210
                
                
                
                —Increase (decrease) in accrued
      restructuring costs
                
                
                (838,547
                )
                
                
                1,024,602Increase in accrued restructuring
      costs – related party
                
                
                256,709
                
                
                
                —(Decrease) in retirement benefits
      payable
                
                
                (55,504
                )
                
                
                (13,926
                )Total adjustments to net
      loss
                
                
                43,400,605
                
                
                
                4,834,765Net cash
      provided by (used in) operating activities
                
                
                4,614,864
                
                
                
                (7,555,840
                )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase of equipment, furniture
      and fixtures
                
                
                (571,078
                )
                
                
                (1,294,086
                )Acquisition of business (net of
      cash acquired)
                
                
                —
                
                
                
                (19,000,000
                )Net cash (used in) investing
      activities
                
                
                (571,078
                )
                
                
                (20,294,086
                )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common
      stock in merger,net
      of acquisition costs
                
                
                —
                
                
                
                27,257,529Repayment of long-term
      debt—Bridge
                
                
                —
                
                
                
                (12,465,255
                )Proceeds from issuance of ComVest
      debt
                
                
                8,000,000
                
                
                
                —  75
  Years
      ended December 31,2008
                                      
                                      
                                      2007(Repayments) of ComVest
      debt
                                      
                                      
                                      (1,345,991
                                      )
                                      
                                      
                                      —Gross borrowings on revolving
      credit facility – ComVest
                                      
                                      
                                      1,530,000
                                      
                                      
                                      
                                      —Repayment on revolving credit
      facility - ComVest
                                      
                                      
                                      (530,000
                                      )
                                      
                                      
                                      —Net borrowing (repayments) on
      long-term debt – M & T
                                      
                                      
                                      (2,641,037
                                      )
                                      
                                      
                                      4,283,333Fees incurred in
      refinancing
                                      
                                      
                                      (693,082
                                      )
                                      
                                      
                                      (141,505
                                      )Net borrowings (repayments) on
      revolving credit facility – M & T
                                      
                                      
                                      (8,747,172
                                      )
                                      
                                      
                                      14,812,981(Repayment) of Blue Lake
      Debt
                                      
                                      
                                      (600,000
                                      )
                                      
                                      
                                      —Net (repayments) on notes payable
      — stockholders
                                      
                                      
                                      (150,000
                                      )
                                      
                                      
                                      (660,000
                                      )Proceeds from issuance of common
      stock
                                      
                                      
                                      100,000
                                      
                                      
                                      
                                      —Net (repayments) on notes payable
      — other
                                      
                                      
                                      —
                                      
                                      
                                      
                                      (440,319
                                      )Retirement of warranty
      liability
                                      
                                      
                                      —
                                      
                                      
                                      
                                      (3,291,775
                                      )Conversion of shares voted
      against Merger
                                      
                                      
                                      —
                                      
                                      
                                      
                                      (11,076
                                      )Net cash provided by (used in)
      financing activities
                                      
                                      
                                      (5,077,282
                                      )
                                      
                                      
                                      29,343,913Net increase (decrease) in cash
      and cash equivalents
                                      
                                      
                                      (1,033,496
                                      )
                                      
                                      
                                      1,493,987CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
                                      
                                      
                                      1,993,641
                                      
                                      
                                      
                                      499,654CASH
      AND CASH EQUIVALENTS AT END OF YEAR
                                      
                                      $
                                      960,145
                                      
                                      
                                      $
                                      1,993,641





See notes
to consolidated financial statements.


76







CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS—(Continued)


SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION





Years
      ended December 31,2008
                  
                  
                  2007Cash
      paid during the year for:Interest
                  
                  $
                  1,460,508
                  
                  
                  $
                  1,690,388Income
      taxes
                  
                  $
                  —
                  
                  
                  $
                  1,141,578Cash
      received during the year for:Income
      taxes
                  
                  $
                  1,023,872
                  
                  
                  $
                  —





SUPPLEMENTAL
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:




Years
      ended December 31,2008
                  
                  
                  2007Non
      cash transactions:ComVest
      Warrants issued and amortizable Original Issue Discount
                  
                  $
                  634,000
                  
                  
                  $
                  —ComVest
      financing and amortizable Original Issue Discount Income
    taxes
                  
                  $
                  1,000,000
                  
                  
                  $
                  —ALS
      accrued interest converted to note payable
                  
                  $
                  40,413
                  
                  
                  $
                  —




On
December 31, 2007, ClearPoint Business Resources, Inc. sold all of the issued
and outstanding securities of its wholly-owned subsidiary, Mercer Ventures, Inc.
(“MVI”) for the aggregate purchase price equal to the liabilities assumed of
$1,205,983.




On
February 23, 2007, the Company acquired certain assets and liabilities of ALS,
LLC and its subsidiaries (“ALS”) for $19,000,000 in cash, a note payable of
$2,500,000, shares of common stock with a value of $2,500,000 and the assumption
of approximately $400,000 of current liabilities (see Note 4 – Business and
Asset Acquisitions and Dispositions and Licensing Agreements).


77


CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1 — GOING CONCERN:




Historically,
ClearPoint Business Resources, Inc. (“ClearPoint” or the “Company”) has funded
its cash and liquidity needs through cash generated from operations and debt
financing. At December 31, 2008, the Company had an accumulated deficit of
$54,490,543 and working capital deficiency of $11,937,251. For the year ended
December 31, 2008, the Company incurred a net loss of $38,785,741. Although the
Company restructured its debt and obtained new financing in the second quarter
of 2008, cash projected to be generated from operations may not be sufficient to
fund operations and meet debt repayment obligations during the next twelve
months. In order to meet its future cash and liquidity needs, the Company may be
required to raise additional financing or restructuring of existing debt. There
is no assurance that the Company will be successful in obtaining additional
financing or restructuring of its existing debt. If the Company does not
generate sufficient cash from operations, raise additional financing or
restructure existing debt, there is substantial doubt about the ability of the
Company to continue as a going concern. The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern, which contemplates, among other things, the realization of assets and
satisfaction of liabilities in the normal course of business.  The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.




NOTE
2 — ORGANIZATION AND BASIS OF PRESENTATION:




The
accompanying consolidated financial statements of the Company and its wholly
owned subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules and regulations
of the Securities and Exchange Commission (“SEC”).




ClearPoint
provides comprehensive workforce management technology solutions throughout the
United States, including its iLabor technology platform (“iLabor” or the “iLabor
Network”), vendor management services (“VMS”) and staff augmentation programs.
Since its inception, the Company has enhanced its platform through organic
growth and the integration of acquisitions.  Prior to fiscal year
2008, ClearPoint provided various temporary staffing services as both a direct
provider and as a franchisor. During the year ended December 31, 2008,
ClearPoint transitioned its business model from a temporary staffing provider
through a network of branch-based offices or franchises to a provider that
manages clients’ temporary staffing needs through its open Internet portal-based
iLabor Network. Under the new business model, ClearPoint acts as a broker for
its clients and network of temporary staffing suppliers using iLabor. The
Company now derives its revenues from fees related to iLabor technology, royalty
fees related to contracts entered into under the previous business model and VMS
fees. All core operations are centralized at its offices in Chalfont,
Pennsylvania.




On
February 12, 2007, ClearPoint Resources, Inc., ClearPoint’s wholly-owned
subsidiary (“CPR”), consummated a merger (the “Merger”) with Terra Nova
Acquisition Corporation (“Terra Nova”), a blank check company. As a result, CPBR
Acquisition, Inc. (“CPBR”), a Delaware corporation and wholly-owned subsidiary
of Terra Nova, merged with CPR.  At the closing of the Merger, CPR
stockholders were issued an aggregate of 6,051,549 shares of Terra Nova common
stock. Ten percent (10%) of the Terra Nova common stock being issued to CPR
stockholders at the time of the Merger was released from escrow subsequent to
the indemnity rights provision of the Merger agreement being met.  A
further ten percent (10%) of the Terra Nova common stock being issued to CPR
stockholders at the time of the Merger was released from escrow subsequent to
certain closing conditions pursuant to the Merger agreement being
met.


78


The
merger agreement also provides for CPR’s original stockholders to receive
additional performance payments, in the form of cash and/or shares, contingent
upon the future performance of the combined company’s share price. The
performance payments are payable in a combination of cash and shares. No such
payments have been made to date and none are yet due. Upon the closing, Terra
Nova changed its name to ClearPoint Business Resources, Inc.




Upon
consummation of the Merger, $30.6 million was released from the Terra NovaTrust
Fund to be used by the combined company. After payments totaling approximately
$3.3 million for professional fees and other direct and indirect costs related
to the Merger, the net proceeds amounted to $27.3 million, all of which were
used by ClearPoint as follows: (i) to retire the outstanding debt to Bridge
Healthcare Finance, LLC and Bridge Opportunity Finance, LLC (collectively,
“Bridge”) (see Note 11 – Debt Obligations), of $12.45 million, (ii) to pay an
early debt retirement penalty in the amount of $1.95 million to Bridge, (iii) to
pay for the redemption of warrants related to its credit facility with Bridge in
the amount of $3.29 million and (iv) to partially fund the acquisition of ALS,
LLC (see Note 4 – Business and Asset Acquisitions and Dispositions and Licensing
Agreements), and certain other related transaction costs.




The
Merger was accounted for under the purchase method of accounting as a reverse
acquisition in accordance with accounting principles generally accepted in the
United States of America for accounting and financial reporting purposes. Under
this method of accounting, Terra Nova was treated as the “acquired” company for
financial reporting purposes. In accordance with guidance applicable to these
circumstances, this Merger was considered to be a capital transaction in
substance. Accordingly, for accounting purposes, the Merger was treated as the
equivalent of ClearPoint issuing stock for the net monetary assets of Terra
Nova, accompanied by a recapitalization.




NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:




The
Company’s accounting policies are in accordance with accounting principles
generally accepted in the United States of America. Outlined below are those
policies considered particularly significant.




(a)
Basis of Presentation:




The
accompanying consolidated financial statements include the accounts of
ClearPoint and its wholly owned subsidiaries.  All significant
inter-company transactions and balances have been eliminated.




(b)
Use of Estimates:




The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America 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. Actual results could differ from those
estimates.




(c)
Revenue Recognition:




The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No.
104, “Revenue Recognition” (“SAB 104”). Under SAB 104, revenue is recognized
when there is persuasive evidence of an arrangement, delivery has occurred or
services have been rendered, the sales price is determinable, and collectibility
is reasonably assured. Revenue earned but not billed is recorded and accrued as
unbilled revenue. In 2008, the Company transitioned from a short and long term
temporary staffing provider through a network of branch based offices to a
provider that manages clients’ temporary staffing spend through its open
Internet portal based iLabor network, as well as its closed client embedded VMS
system.


79


The
Company evaluated the criteria outlined in EITF Issue No. 99-19, Reporting
Revenue Gross as a Principal Versus Net as an Agent, in determining that it was
appropriate to record the revenue from the iLabor technology platform on a net
basis after deducting costs related to suppliers for sourcing labor, which
represent the direct costs of the contingent labor supplied, for clients.
Generally, the Company is not the primarily obligated party in iLabor
transactions and the amounts earned are determined using a fixed percentage, a
fixed-payment schedule, or a combination of the two.




Prior to
January 1, 2008, the Company’s primary major source of revenue was the temporary
placement of workers. This revenue was recognized when earned and realizable and
therefore when the following criteria had been met: (a) persuasive evidence of
an arrangement exists; (b) services have been rendered; (c) the fee is fixed or
determinable; and (d) collectibility is reasonably assured. Revenue is
recognized in the period in which services are provided based on hours worked by
the workers. As a result of changes in the Company’s business model, in 2008,
the Company recognized revenue from four major sources:




·
            For
      the fiscal year ended December 31, 2007 and the three months ended March
      31, 2008, the Company recorded revenue from its temporary staffing
      operations, permanent placement fees, and temp-to-hire fees by formerly
      Company-owned and franchised operations. Temporary staffing revenue and
      the related labor costs and payroll taxes were recorded in the period in
      which the services were performed. Temp-to-hire fees were generally
      recorded when the temporary employee was hired directly by the customer.
      ClearPoint reserved for billing adjustments, principally related to
      overbillings and client disputes, made after year end that related to
      services performed during the fiscal year. The reserve was estimated based
      on historical adjustment data as percent of sales. Permanent placement
      fees were recorded when the candidate commenced full-time employment and,
      if necessary, sales allowances were established to estimate losses due to
      placed candidates not remaining employed for the permanent placement
      guarantee period, which was typically 30-60
  days;




·
            During
      the quarter ended June 30, 2008, the Company started transitioning from
      the temporary staffing provider model to its iLabor technology platform.
      Under this new model, the Company records revenue on net fee basis after
      deducting costs paid to suppliers for sourcing labor for the Company’s
      clients. The Company acts as a broker for its clients and the Company’s
      temporary staffing suppliers. Revenue from the Company’s iLabor network
      where it electronically procures and consolidates buying of temporary
      staffing for clients is recognized on a net
  basis;




·
            The
      Company records royalty revenues when earned based upon the terms of the
      agreements with Select, StaffChex and Townsend Careers, as defined below
      (see Note 4 – Business and Asset Acquisitions and Dispositions and
      Licensing Agreements); and




·
            VMS
      revenue, which consists of management fees recognized on the net method
      and recorded as the temporary staffing service is rendered to the
      client.




The
Company also has recorded deferred revenue on the balance sheet as of December
31, 2008.  This amount of deferred revenue is being recognized ratably
over the term of the agreement reached with Select (see Note 4 – Business and
Asset Acquisitions and Dispositions and Licensing Agreements).


80


(d)
Accounts Receivable:




The
Company’s trade accounts receivable are generally uncollateralized. Management
closely monitors outstanding accounts receivable and provides an allowance for
doubtful accounts equal to the estimated collection losses that will be incurred
in collection of all receivables.  Receivables are written off when
deemed uncollectible.




(e)
Vendor Managed Services Receivables and Payables:




The
Company manages networks of temporary service providers (“vendors”) on behalf of
clients and receives a fee for this service. The Company’s obligation to pay the
vendor is conditioned upon receiving payment from the client for services
rendered by the vendor’s personnel. As the right of offset between client and
vendor does not exist, the receivable from the client which is included in
accounts receivable, and payable to the vendor, which is included as a
liability, are not offset and are recorded on a gross basis. Included in the
Company’s accounts receivable at December 31, 2008 and 2007 was VMS
receivables of $1,154,716 and $2,049,205, respectively. Included in the
Company’s accounts payable at December 31, 2008 and 2007 was VMS payables
of $ 291,153 and $2,247,723, respectively.




(f)
Workers’ Compensation:




Prior to
February 29, 2008, the Company was responsible for the workers’ compensation
costs for its temporary and regular employees and was self-insured for the
deductible amount related to domestic workers’ compensation claims ($250,000 or
$500,000 per claim, depending on the policy.). The Company accrued the estimated
costs of workers’ compensation claims based upon the expected loss rates within
the various temporary employment categories provided by the Company and obtained
an independent actuarial valuation of the estimated costs of claims reported but
not settled, and claims incurred but not reported, and adjusted the accruals
based on the results of the valuations. As a result of the estimated costs, the
Company estimated that the insurance carriers will issue rebates based on its
findings. During 2008, the Company sold all of its ownership interest of HRO, as
defined below (see Note 4 – Business and Asset Acquisitions and Dispositions and
Licensing Agreements).




(g)
Equipment, Furniture and Fixtures:




Equipment,
furniture, and fixtures are stated at cost. Depreciation and amortization is
provided using the straight-line method over the estimated useful asset lives of
three (3) to seven (7) years. The Company also provides for
amortization of leasehold improvements over the lives of the respective lease
term or the service life of the improvement, whichever is shorter.




(h)
Intangible Assets:




In
accordance with the Statement of Financial Accounting Standards (“SFAS”)
No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”),
definite lived intangible assets are amortized over their expected lives of two
(2) to five (5) years. The Company’s identifiable intangible assets
with definitive lives are comprised of contract rights and a covenant not to
compete. Based upon management’s assessment of the future cash flows related to
the contract rights, the Company determined that an impairment of contract
rights existed as at December 31, 2007 and recognized an impairment charge
of $5,029,020 in amortization expense for 2007.




(i)
Goodwill:




In
accordance with SFAS No. 142, goodwill was not amortized and was assigned
to specific reporting units and reviewed for possible impairment at least
annually or more frequently upon the occurrence of an event or when
circumstances indicate that the reporting unit’s carrying amount of goodwill is
greater than its fair value. As a result of the change in the Company’s business
model in 2008 and the loss of cash flows related to the prior business model,
the Company determined that an impairment of goodwill existed during 2008 and
recognized an impairment charge of $16,821,586.


81


The
following table shows the change to goodwill during the fiscal year ended
December 31, 2008:




TotalBalance
      at December 31, 2007
                  
                  $
                  16,821,586Impairment
      of goodwill
                  
                  
                  (16,821,586
                  )Balance
      at December 31, 2008
                  
                  $
                  —







(j)
Advertising Expense:




The
Company expenses advertising costs in the period in which they are incurred.
Advertising expenses for the years ended December 31, 2008 and 2007 were
$127,980 and $520,350, respectively.




(k)
Deferred Financing Costs:




Deferred
financing costs consist of legal, banking, and other related fees that were
capitalized in connection with obtaining various loans and are being amortized
over the life of the related loan. Deferred financing costs of $536,444 at
December 31, 2008 and $102,198 at December 31, 2007 were net of
accumulated amortization of $197,002 and $1,043,509, respectively.




Amortization
of financing costs for the years ended December 31, 2008 and 2007 was
$211,510 and $438,769, respectively.




(l)
Income Taxes:




The
Company accounts for income taxes in accordance with SFAS No. 109,
“Accounting for Income Taxes” (“SFAS No. 109”). Under SFAS No. 109,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Deferred tax assets are reflected on the balance sheet when it is
determined that it is more likely than not that the asset will be
realized.




(m)
Stock-based Employee Compensation




Effective
with the adoption of the Company’s stock-based employee compensation plan in
February 2007, the Company accounts for stock-based employee compensation in
accordance with the recognition and measurement provisions of Statement of
Financial Accounting Standards (“FAS”) No. 123 (revised 2004), Share-Based
Payment (“FAS” 123(R)”), which replaces FAS No. 123, Accounting for Stock-Based
Compensation, and supersedes Accounting Principles Board Opinion (“APB”) No. 25,
Accounting for Stock related to share-based payment transactions, including
employee stock options, to be recognized in the financial
statements.  In addition, the Company adheres to the guidance set
forth within the Securities and Exchange Commission (“SEC”) Staff Accounting
Bulletin No. 107 (“SAB” 107), which certain SEC rules and regulations and
provides interpretations with respect to the valuation of share-based payments
for public companies.




(n)
Loss Per Share:




The
Company accounts for earnings per share pursuant to SFAS No. 128, “Earnings per
Share,” which requires disclosure on the financial statements of “basic” and
“diluted” earnings (loss) per share.  Basic earnings (loss) per share
is computed by dividing net income (loss) by the weighted average number of
common shares outstanding for the year.  Diluted earnings (loss) per
share is computed by dividing net income (loss) by the weighted average number
of common shares outstanding plus potentially dilutive securities outstanding
for each year.  Potentially dilutive securities include stock options
and warrants and shares of common stock issuable upon conversion of the
Company's convertible notes.


82


Diluted
loss per share for the years ended December 31, 2008 and 2007 is the same as
basic loss per share, since the effects of the calculation were anti-dilutive
due to the fact that the Company incurred losses for all periods
presented.  The following securities, presented on a common share
equivalent basis, have been excluded from the per share
computations:




For
      the years endedDecember
      31, 2008
                  
                  
                  December
      31, 2007Stock
      Options
                  
                  
                  1,002,008
                  
                  
                  
                  816,000Warrants
                  
                  
                  11,505,000
                  
                  
                  
                  11,040,00012,705,800
                  
                  
                  
                  11,856,000




(o)
Impairment of Long Lived Assets:




In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long Lived Assets”, long-lived assets such as equipment, furniture and fixtures,
and amortizable intangible assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset many not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair value of
the asset.




(p)
Concentration of Credit Risk:




Financial
instruments that potentially subject the Company to concentrations of credit
risk as defined by SFAS No. 105, “Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk”, consist principally of cash and cash equivalents
and accounts receivable and unbilled revenues.




(i)
Cash and Cash Equivalents:




The
Company places its cash and cash equivalents with financial institutions. It is
the Company’s policy to monitor the financial strength of these institutions on
a regular basis and perform periodic reviews of the relative credit rating of
these institutions to lower its risk. At times, during 2008 and 2007, the
Company’s cash and cash equivalent balances exceeded the Federal Deposit
Insurance Corporation (“FDIC”) insurance limit of $100,000 which was
subsequently increased to $250,000 on interest bearing accounts of/in financial
institution.  The FDIC also removed its $100,000 limit on non-interest
bearing accounts all together.  The Company has not experienced any
losses in such accounts, and it believes it is not exposed to any significant
credit risk on cash and cash equivalents.  The balance in interest
bearing accounts at December 31, 2008 was more than the FDIC limit of
$250,000.  The uninsured cash and cash equivalents totaled $0 at
December 31, 2008.




(ii)
Accounts Receivable and Unbilled Revenues:




The
Company does not require collateral or other security to support customer
receivables or unbilled revenues. One (1) customer account accounted for
11% of the accounts receivable balance as of December 31, 2008. The Company
believes that credit risk is dispersed and low due to large number of customers
in different regions and different industries.


83


(q)
Reclassifications:




Certain
reclassifications have been made to the 2007 amounts to conform with the 2008
presentation.




(r)
Recent Accounting Pronouncements:




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
This statement does not require any new fair value measurements, but provides
guidance on how to measure fair value by providing a fair value hierarchy used
to classify the source of the information. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007, and all interim periods within those
fiscal years. In February 2008, the FASB released FASB Staff Position (FSP FAS
157-2 – Effective Date of FASB Statement No. 157) which delays the effective
date of SFAS No. 157 for all non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), to fiscal years beginning
after November 15, 2008 and interim periods within those fiscal years. The
implementation of SFAS No. 157 for financial assets and liabilities, effective
January 1, 2008, did not have an impact on the Company’s financial position and
results of operations. The Company is currently evaluating the impact of
adoption of this statement on its non-financial assets and liabilities in the
first quarter of fiscal 2009.




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are
required to be reported in earnings at each reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007, the provisions of
which are required to be applied prospectively. The Company expects to adopt
SFAS No. 159 in the first quarter of fiscal 2008 and is still evaluating the
effect, if any, on its financial position or results of operations.




In
December 2007, FASB issued SFAS No. 141 (revised 2007), “Business Combinations”
(“SFAS No. 141R”), which replaces SFAS No. 141. The statement retains the
purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
Company is currently evaluating the impact, if any, that the adoption of SFAS
No. 141R will have on its consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements”, “an amendment of ARB 51” (“SFAS No. 160”),
which changes the accounting and reporting for minority interests. Minority
interests will be recharacterized as non-controlling interests and will be
reported as a component of equity separate from the parent’s equity, and
purchases or sales of equity interests that do not result in a change in control
will be accounted for as equity transactions. In addition, net income
attributable to the non-controlling interest will be included in consolidated
net income on the face of the income statement and, upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value
with any gain or loss recognized in earnings. SFAS No. 160 is effective for
annual periods beginning after December 15, 2008. The Company is currently
evaluating the impact, if any, that the adoption of SFAS No. 160 will have on
its consolidated financial statements.


84


Effective
January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159
provides companies an option to report certain financial assets and liabilities
at fair value and established presentation and disclosure
requirements.  The intent of SFAS 159 is to reduce the complexity in
accounting for financial instruments and the volatility of earnings caused by
measuring related assets and liabilities differently.  The Company
chose not to elect the fair value option for its financial assets and
liabilities exiting at January 1, 2008, and did not elect the fair value option
on financial assets and liabilities transacted during the year ended December
31, 2008.  Therefore, the adoption of SFAS 159 had no impact on the
Company’s financial statements.  Effective January 1, 2008, the
Company adopted SFAS No. 157, with the exception of the application of the
statement to non-recurring nonfinancial assets and nonfinancial liabilities. The
adoption of SFAS No. 157 did not impact the Company’s financial position or
results of operations




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”). The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Company is currently evaluating what the impact will be, if any,
of adopting SFAS. No. 161 on its consolidated financial statements.




NOTE
4 — BUSINESS AND ASSET ACQUISITIONS AND DISPOSITIONS AND LICENSING
AGREEMENTS:




(a)           Acquisition
of ALS




On
February 23, 2007, the Company acquired certain assets and liabilities of ALS,
LLC and its subsidiaries, doing business as Advantage Services Group based in
Florida that expanded the Company’s operations to clients in California and
Florida. The purchase price of $24.4 million consisted of cash of $19 million, a
note of $2.5 million (the “ALS Note”), shares of the Company’s common stock with
a value of $2.5 million (439,367 shares) and the assumption of $0.4 million of
current liabilities. ALS’s stockholders may also receive up to two additional $1
million payments in shares of the Company’s common stock based on financial and
integration performance metrics of the Company in calendar years 2007 and 2008.
No such payments have been earned to date. The Company has allocated the
purchase price to the assets acquired and the liabilities assumed at their
estimated values as of the acquisition date as stated in the table
below.  The Company determined that an impairment of goodwill existed
during 2008 and recognized an impairment charge of $16,821,586.




The
following table represents the net assets acquired.




Equipment,
      furniture and fixtures
                
                $
                630,000Contract
      rights
                
                
                7,190,000Goodwill
                
                
                16,566,00024,386,000Liabilities
      assumed
                
                
                (386,000
                )Net
      assets acquired
                
                $
                24,000,000


85


The
following unaudited pro forma information presents a summary of consolidated
financial results for the year ended December 31, 2007 of the operations of the
Company and ALS as if the acquisition had occurred on January 1, 2007, the
beginning of the earliest period presented. The unaudited pro forma amounts
below reflect interest on the debt incurred as a result of the acquisition of
ALS, with interest calculated at the Company’s borrowing rate under its credit
facilities. The unaudited pro forma financial information in the schedule below
does not purport to be indicative of the results of operations that would have
occurred had the acquisition taken place at the beginning of the periods
presented or of future results of operations.  The results of
operations for ALS have been included in the Company’s Consolidated Statement of
Operations since February 23, 2007.





2007(Unaudited)Revenue
              
              $
              204,140,935Net
      ( loss )
              
              
              (12,637,198
              )(Loss)
      per weighted average basic and diluted common share
              
              
              (1.02
              )




(b)           Sale
of MVI




On
December 31, 2007, CPR entered into a purchase agreement (the “MVI Purchase
Agreement”) effective as of December 31, 2007 with CPR’s wholly owned
subsidiary, Mercer Ventures, Inc. (“MVI”), and TradeShow Products Inc.
(“TradeShow”). Pursuant to the MVI Purchase Agreement, CPR sold all of the
issued and outstanding securities of MVI to TradeShow for the aggregate purchase
price equal to the liabilities assumed of $1,205,983. In addition, CPR will earn
a perpetual commission equal to 1.75% of the weekly revenue generated by a
specified list of MVI clients. TradeShow is obligated to pay such fee in arrears
on the first business day of every month. Unpaid fees will be subject to
interest at a rate of 1.5% per month.  The Company recorded
$44,193 for such fees during the year ended December 31, 2008, which were not
paid by TradeShow.




The
Company considered the guidance in EITF 03-13 “Applying the Conditions in
Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report
Discontinued Operations” and concluded that the operations of MVI should not be
reported as discontinued operations. The Company conclusion included an
assessment of the qualitative and quantitative impact of the direct cash flows
to be received from the ongoing operations of MVI through the commission
structure as well as the Company’s involvement in the management of the ongoing
MVI business.




(c)           Asset
Purchase Agreement with StaffChex




On
February 28, 2008, ClearPoint entered into an Asset Purchase Agreement (the
“StaffChex Purchase Agreement”) with StaffChex, Inc. (“StaffChex”), a privately
owned company. Under the StaffChex Purchase Agreement, StaffChex acquired all of
the rights to customer accounts, as defined in the StaffChex Purchase Agreement,
related to the temporary staffing services serviced by (i) KOR Capital, LLC
(“KOR”) pursuant to the Franchise Agreement – Management Agreement, dated August
30, 2007, and (ii) StaffChex Servicing, LLC (“StaffChex Servicing”), an
affiliate of StaffChex, pursuant to the Exclusive Supplier Agreement, dated
September 2, 2007. The prior agreements with StaffChex Servicing and KOR were
terminated on February 28, 2008 and March 5, 2008, respectively. The Company did
not incur any early termination penalties in connection with such terminations.
In consideration for the customer accounts acquired from ClearPoint, StaffChex
issued to ClearPoint 15,444 shares of common stock of StaffChex, and ClearPoint
is entitled to receive an additional 15,568 shares of StaffChex common stock,
pursuant to the earnout provisions set forth in the StaffChex Purchase
Agreement, which have been met. As a result, the Company is entitled to
31,012 shares (16.4%) of StaffChex’s outstanding stock, of
which 15,568 shares have not yet been issued to the
Company.


86


ClearPoint
is using the cost accounting method to record earnings from this investment in
StaffChex. In addition, ClearPoint entered into an iLabor agreement with
StaffChex whereby StaffChex agreed to process its temporary labor requests
through iLabor and to pay to ClearPoint 2.25% (such percentage subject to
reduction based on meeting certain volume targets) of StaffChex’s total
collections from its total billings under the acquired customer accounts for
temporary staffing services. On March 5, 2008, ClearPoint completed the
disposition and transfer of all of the customer accounts.  For a
description of the amendment to the iLabor agreement, see Note 21 – Subsequent
Events.




(d)           Sale
of ClearPoint HRO




On March
5, 2008, ClearPoint completed the disposition and transfer of the balances of
customer accounts related to its temporary staffing business. On February 7,
2008, CPR and ClearPoint HRO, LLC (“HRO”), a wholly owned subsidiary of CPR,
entered into a Purchase Agreement (the “HRO Purchase Agreement”) with AMS
Outsourcing, Inc. (“AMS”). Pursuant to the HRO Purchase Agreement, CPR sold all
of its ownership interest of HRO to AMS for an aggregate purchase price payable
in the form of an earnout payment equal to 20% of the earnings before interest,
taxes, depreciation and amortization of the operations of HRO for a period of
twenty four (24) months following February 7, 2008. To date, no such earnout has
been earned or received.





Subsequent
to the original estimated loss of $1,894,220 recorded on the sale of HRO, CPR
recorded a $600,000 reversal of the originally estimated loss in the second
quarter of 2008 in conjunction with the refinancing of debt owed to
Manufacturers and Traders Trust Company (“M&T”) reducing the certificate of
deposit sold.




The
Company recorded a loss of $1,294,220 on the transaction as
follows:




Assets
      sold:Prepaid
      expenses
                
                $
                153,861Certificate
      of deposit
                
                
                900,000Other
      current assets
                
                
                1,128,271Expected
      Workers’ Compensation  Collateral Refunds
                
                
                5,091,8587,273,990Liabilities
      assumedAccrued
      payroll and related taxes
                
                
                (3,838,611
                )Letter
      of credit – Workers compensation insurance policy
                
                
                (1,500,000
                )Accrued
      expenses and other liabilities
                
                
                (641,159
                )(5,979,770
                )Loss
      on sale
                
                $
                (1,294,220
                )




(e)           License
Agreement




On April
8, 2008, the Licensing Agreement (the “Optos Licensing Agreement”) with Optos
Capital, LLC (“Optos”) was terminated. A new license agreement and a new
temporary help services subcontract agreement was entered into with Koosharem
Corp. d/b/a Select Staffing (“Select”), where CPR, ClearPoint’s wholly owned
subsidiary, was entitled to receive annually the first 10% of all gross billings
of the subcontracted contracts up to $36 million of gross billings ($3.6 million
per year to CPR) and whereby Select licensed use of the iLabor network in
exchange for a $1.2 million payment ($900,000 paid on April 8, 2008 and $300,000
was payable on July 1, 2008, but was not paid). On August 22, 2008, CPR, Select
and Real Time Staffing Services, Inc. (“Real Time”) entered into a Settlement
Agreement and Release (the “Select Settlement Agreement”) pursuant to which each
party released the others from all prior, existing and future claims including,
without limitation, the parties’ claims with respect to the Select Litigation,
as defined below, the License Agreement dated April 8, 2008 (the “Select License
Agreement”) and the Temporary Help Services Subcontract dated April 8, 2008 (the
“Select Subcontract”). Pursuant to the Select Settlement Agreement, the parties
also agreed (i) that CPR would retain the $900,000 paid to it under the Select
License Agreement; (ii) to allocate between Select and CPR amounts paid or
payable with respect to certain client accounts; (iii) to execute an amendment
to the Select Subcontract, as described below; and (iv) that Select would file
the required documents to dismiss the Select Litigation with prejudice. In
addition, Select and CPR agreed not to commence any future action arising from
the claims released under the Select Settlement Agreement, and on August 28,
2008 this lawsuit was dismissed.  The monthly revenue fees are split
between the parties as provided in the Select License Agreement. Licensing fees
related to this contract consist of amortizing deferred revenue of $83,000 plus
an additional $250,000 of cash paid by Select over the life of the contract,
which is 28 months.


87


The
deferred revenue as of December 31, 2008 was comprised of the remaining balance
of the original $900,000 payment, cash received on behalf of Select and relief
of certain accounts payable owed to Select as of the settlement date (see Note
20 – Litigation for further detail).  In consideration for terminating
the Optos Licensing Agreement, CPR and Optos have agreed that there will be a
net termination fee for any reasonable net costs or profit incurred, if any,
when winding up the operations associated with termination. As of December 31,
2008, the net termination fee was estimated at $500,000 and was accrued in
selling, general and administrative expenses. The payment of the net termination
fee will be in the form of cash and shares of common stock of the
Company.  Such payment has not yet been made.




On May
22, 2008, ClearPoint entered into an amendment to a Managed Services Agreement
with Townsend Careers, LLC (“Townsend Careers”) to take over certain contracts
that were being serviced out of ClearPoint’s former Baltimore, MD office. Under
the terms of the agreement, Townsend Careers agreed to pay ClearPoint a royalty
fee of 6% of billings.




NOTE
5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS:




December
      31,
                  2008
              
              
              December
      31,
                  2007Prepaid
      insurance
              
              $
              125,410
              
              
              $
              1,752,711Security
      deposit – workers’ compensation policy
              
              
              —
              
              
              
              1,128,271Other
      current assets
              
              
              92,472
              
              
              
              364,775$
              217,882
              
              
              $
              3,245,757




NOTE
6 — EQUIPMENT, FURNITURE AND FIXTURES:




December
      31,
                  2008
              
              
              December
      31,
                  2007Furniture
      and fixtures
              
              $
              29,150
              
              
              $
              691,519Computer
      software and equipment
              
              
              1,740,180
              
              
              
              2,069,765Leasehold
      improvements
              
              
              9,201
              
              
              
              183,6481,778,531
              
              
              
              2,944,932Less,
      accumulated depreciation
              
              
              (481,842
              )
              
              
              (782,672
              )Equipment,
      furniture and fixtures, net
              
              $
              1,296,689
              
              
              $
              2,162,260


88


Depreciation
expense for the years ended December 31, 2008 and 2007 was $427,706 and
$412,394, respectively. In March 2008, the Company recorded a loss of $1,022,210
as a result of the abandonment of leasehold improvements, furniture and fixtures
and computer equipment resulting from termination of franchise agreements
described in Note 15 – Franchise Agreements. The Company removed $1,837,918 of
fixed assets and $815,708 of accumulated depreciation as a result of this
impairment.




NOTE
7 — INTANGIBLE ASSETS:




December
      31,
                  2008
              
              
              December
      31,
                  2007Covenant
      not to compete
              
              $
              250,000
              
              
              $
              250,000Less,
      accumulated amortization
              
              
              (116,667
              )
              
              
              (66,667
              )Intangibles,
      net
              
              $
              133,333
              
              
              $
              183,333




The
covenant not to compete is being amortized over its five (5) year life.
Amortization expense of intangible assets for the years ended December 31 2008
and 2007 was $50,000 for both years respectively. Amortization expense expected
to be incurred for the fiscal years ending December 31, 2009, 2010 and 2011 is
$50,000, $50,000 and $33,333, respectively. Historically, the Company had
contract rights that were amortized over their estimated asset lives of two (2)
to three (3) years. The Company determined that an impairment in contract rights
existed as at December 31, 2007 and recognized an impairment charge of
$5,029,020 (see Note 3 – Summary of Significant Accounting Policies—Intangible
Assets).




NOTE
8 — OTHER ASSETS




December
      31,
                  2008
              
              
              December
      31,
                  2007Refundable
      insurance premium
              
              $
              —
              
              
              $
              4,351,242Due
      from ALS
              
              
              500,667
              
              
              
              —Long
      term portion of StaffChex receivable
              
              
              181,400
              
              
              
              —Security
      deposits and other assets
              
              
              27,337
              
              
              
              824,277$
              709,404
              
              
              $
              5,175,519




NOTE
9 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:




December
      31,
                  2008
              
              
              December
      31,
                  2007Other
      accrued expenses
              
              $
              1,873,437
              
              
              $
              1,345,379Insurance
      premiums payable
              
              
              962,680
              
              
              
              2,276,872Letter
      of credit - workers’ compensation policy
              
              
              —
              
              
              
              1,500,000Accrued
      termination fee - Optos
              
              
              500,000
              
              
              
              —$
              3,336,117
              
              
              $
              5,122,251




NOTE
10 — ACCRUED RESTRUCTURING COSTS:




Effective
June 29, 2007, the Company’s management approved a restructuring program to
consolidate operations and reduce costs of its field and administrative
operations. As part of the restructuring program, the Company closed 24 branch
and administrative offices and eliminated approximately 75 positions. The
Company initially recorded $1,902,000 of restructuring charges for costs of
severance, related benefits and outplacement services related to the termination
of these employees and $950,000 of charges relating to the early termination of
office spaces leases for a total of $2,852,000 in 2007. The Company subsequently
reduced the initial expense recorded in 2007 by $650,884 due to decreases in
anticipated severance costs resulting in a net charge of
$2,210,116.  These expenses were present valued and accrued and will
be paid out over a one year period.  During the year ended December
31, 2008, the Company paid out $678,865 related to the 2007 restructuring
reserve and recognized a reduction of initially estimated restructuring costs of
$196,994 due to severance and related benefits for which the Company believes it
is no longer liable as a result of a breach of contract as well as $95,913
related to early termination settlements of office spaces.


89




As a
result of the sale of certain entities and the transition to the Company’s new
business model, effective March 12, 2008, the Company’s management approved an
additional restructuring program of its field and administrative operations. As
part of the restructuring program, the Company closed its remaining branch and
administrative office in Florida and eliminated approximately 20 positions. The
Company initially recorded $496,784 of restructuring charges for costs of
severance, related benefits and outplacement services related to the termination
of these employees and $1,603,638 of charges relating to the early termination
of office spaces leases for a total of $2,100,422. These expenses were present
valued and accrued on a one time basis and were scheduled to be paid out over a
three year period. During the year ended December 31, 2008, the Company paid out
$1,252,917 and recognized a reduction of the initial recorded restructuring
costs of $457,571 related to early termination settlements of office spaces
related to the 2008 restructuring reserve. The Company calculated the
restructuring costs as follows:





2007
      Restructuring Reserve
              
              Employee
                  Separation
                  Costs
              
              
              Lease
                  Termination
                  Obligation
              
              
              TotalAccrued
      restructuring costs at inception
              
              $
              1,902,000
              
              
              $
              950,000
              
              
              $
              2,852,000Payments
              
              
              (548,253
              )
              
              
              (628,261
              )
              
              
              (1,176,514
              )Reductions
      in costs previously accrued
              
              
              (650,884
              )
              
              
              —
              
              
              
              (650,884
              )Accrued
      restructuring costs at December 31, 2007
              
              
              702,863
              
              
              
              321,739
              
              
              
              1,024,602Payments
              
              
              (505,869
              )
              
              
              (172,996
              )
              
              
              (678,865
              )Reductions
      in costs previously accrued
              
              
              (196,994
              )
              
              
              (95,913
              )
              
              
              (292,907
              )Total
      accrued restructuring costs at December 31,2008
              
              
              —
              
              
              
              52,830
              
              
              
              52,830Less:  current
      portion
              
              
              —
              
              
              
              (52,830
              )
              
              
              (52,830
              )Total
      accrued restructuring costs – long-term
              
              $
              —
              
              
              $
              —
              
              
              $
              —





2008
      Restructuring Reserve
              
              Employee
                  Separation
                  Costs
              
              
              Lease
                  Termination
                  Obligation
              
              
              TotalAccrued
      restructuring costs at inception
              
              $
              182,075
              
              
              $
              1,603,638
              
              
              $
              2,100,422Accrued
      restructuring costs at inception – related party
              
              
              314,709
              
              
              
              1,603,638
              
              
              
              2,100,422Payments
              
              
              (182,075
              )
              
              
              (1,012,842
              )
              
              
              (1,252,917
              )Payments
      – related party
              
              
              (58,000
              )
              
              
              —
              
              
              
              —Reductions
      in costs previously accrued
              
              
              —
              
              
              
              (457,571
              )
              
              
              (457,571
              )Total
      accrued restructuring costs at December 31,2008
              
              
              —
              
              
              
              133,225
              
              
              
              389,934Total
      accrued restructuring costs at December 31,2008 – related
      party
              
              
              256,709
              
              
              
              —
              
              
              
              —Less:  current
      portion
              
              
              (256,709
              )
              
              
              (133,225
              )
              
              
              (389,934
              )Total
      accrued restructuring costs – long-term
              
              $
              —
              
              
              $
              —
              
              
              $
              —


90


NOTE
11 — DEBT OBLIGATIONS:




A summary
of all debt is as follows:




December
      31,2008
                
                
                2007Term
      loan with ComVest due December 31, 2010. Principal and interest payments
      payable monthly bearing interest of 10% per annum (net of $1,124,468
      OID)
                
                $
                6,529,542
                
                
                $
                —M&T
      Loan modification and restructure agreement dated June 20,2008. Principal
      payments begin January 1, 2011 in equal amounts over 36 months plus
      interest at 5% per annum
                
                
                4,994,379
                
                
                
                —M&T
      Term Loan, which was restructured in 2008
                
                
                —
                
                
                
                4,283,333Note
      payable monthly to Blue Lake Rancheria with a final, balloon payment due
      April 30, 2009. Interest of 10% per annum is payable quarterly. This note
      has been guaranteed by two of the principal stockholders of the
      Company
                
                
                690,000
                
                
                
                1,290,000Revolving
      Credit Facility with ComVest due December 31, 2010. Interest payments
      payable monthly bearing interest of 7.250% per annum
                
                
                1,000,000
                
                
                
                —M&T
      Revolver, which was restructured in 2008
                
                
                —
                
                
                
                14,812,981Subordinated
      notes payable due March 31, 2010.  The notes have an interest
      rate of 12%
                
                
                550,000
                
                
                
                550,000Note
      payable to ALS, LLC. This note has an interest rate of 5%
                
                
                2,155,652
                
                
                
                2,022,991Note
      payable to unrelated individuals for purchase of the common stock of
      StaffBridge, Inc. due and payable December 31, 2009.  Interest
      is calculated at 8% per annum
                
                
                336,690
                
                
                
                486,69016,256,263
                
                
                
                23,445,995Add
      Original Issue Discount (OID)
                
                
                1,124,468
                
                
                
                —Total
      principal payments of long term debt
                
                
                17,380,731
                
                
                
                23,445,995Less:
      Current portion
                
                
                5,950,209
                
                
                
                14,922,66211,430,522
                
                
                
                8,523,333Less
      OID
                
                
                (1,124,468
                )
                
                
                —Long
      term debt, net of current and OID
                
                $
                10,306,054
                
                
                $
                8,523,333




91




Principal
payments of long-term debt for each of the next five years and thereafter are as
follows:




Year
      ended December 31,2009
              
              $
              5,950,2092010
              
              
              4,969,3452011
              
              
              1,891,4622012
              
              
              1,072,9162013
              
              
              1,072,916Thereafter
              
              
              2,423,883$
              17,380,731




Revolving Credit and Term
Loan Agreement with ComVest




On June
20, 2008, the Company entered into a Revolving Credit and Term Loan Agreement
(the “Loan Agreement”) with ComVest Capital, LLC (“ComVest”). Pursuant to the
Loan Agreement, ComVest extended to the Company: (i) a secured revolving credit
facility for up to $3 million (the “Revolver”) and (ii) a term loan (the “Term
Loan” and, together with the Revolver, the “Loans”) in the principal amount of
$9 million, of which $1 million was treated as an original issue discount, and
the Company received $8 million in respect of the Term Loan. The Company also
issued a warrant to purchase 2,210,825 shares of common stock at an exercise
price of $0.01 per share, immediately exercisable during the period commencing
June 20, 2008 and ending on June 30, 2014. This warrant was valued at $634,000
and treated as a discount to the long term portion of the debt and will be
amortized over the life of the long term debt. Amortization related to the
warrants amounted to $198,000 for the year ended December 31, 2008. Amortization
related to the original issue discount of $1,000,000 amounted to $311,831 for
the year ended December 31, 2008. The maximum amount that may be outstanding
under the Revolver was initially $3 million (the “Revolver Maximum”). Effective
as of the first day of each calendar month beginning January 1, 2010, the
Revolver Maximum will be reduced by an amount equal to 5.5% of the Revolver
Maximum in effect for the previous month. To the extent the amounts outstanding
under the Revolver exceed the Revolver Maximum, the Company must make a payment
to ComVest sufficient to reduce the amount outstanding to an amount less than or
equal to the Revolver Maximum. The Company may borrow under the Revolver from
time to time, up to the then applicable Revolver Maximum. The amounts due under
the Revolver bear interest at a rate per annum equal to the greater of: (i) the
prime rate of interest announced by Citibank, N.A. plus 2.25% or (ii) 7.25%. At
December 31, 2008, the interest rate on the Revolver was 7.25% and during 2008
averaged 7.25%. The Term Loan bears interest at a rate of 10% per annum. The
Loans provide that the stated interest rates are subject to increase by 500
basis points during the continuance of an event of default under the Loan
Agreement. Amounts due under the Loans are payable monthly, beginning July 1,
2008. The outstanding principal amount of the Term Loan is payable as follows:
$150,000 on July 1, 2008 and subsequent payments are to be in an amount equal to
the greater of (i) $200,000 less the amount of interest accrued during the
preceding month or (ii) the amount equal to (a) the lesser of $450,000 or
certain license fees, royalties, use fees and/or other such payments collected
by the Company during the preceding month less (“Royalties”) (b) the amount of
interest accrued during the preceding month (but not greater than the principal
balance of the Term Loan). The installments under (ii) above are payable monthly
starting August 1, 2008, including December 1, 2010. The final installment due
and payable on December 31, 2010 will be in an amount equal to the entire
remaining principal balance, if any, of the Term Loan.  For a
discussion of Amendment No. 1 to the Term Loan, see Note 21 – Subsequent
Events.


92


The Loans
mature on December 31, 2010 subject to certain prepayment requirements related
to the Term Loan. The Loan Agreement provides that, subject to certain
exceptions, the Company must prepay the Term Loan (i) in full upon certain
transactions involving the sale or issuance of the majority of the outstanding
stock of the Company, change of control of the Company or the sale of all or a
material portion of the Company’s assets or (ii) in part to the extent of 30% of
proceeds received from sales of certain securities of the
Company.  Royalty payments received primarily from StaffChex and
Select are segregated and solely used for the repayment of the Term Loan. To the
extent that royalty receipts from these sources do not meet the minimum
threshold of $200,000 per month, the Company must make up the difference from
its operating cash.  In the event that royalty receipts from these
sources exceeds $450,000 in a given month, the Company may utilize the excess
for operations or offset amounts owed on the ComVest Revolver at its discretion.
The outstanding borrowings under the Loan Agreement are secured by all the
assets of the Company.




Beginning
with fiscal quarter ending December 31, 2009, the Company must maintain certain
fixed charge coverage ratios and must make all necessary adjustments to its
system of internal control over financial reporting and disclosure controls and
procedures no later than December 31, 2009. Until all obligations owing to
ComVest have been paid in full and the Revolver has been terminated, the Company
must comply with various notice and other reporting covenants including, but not
limited to, providing notice to ComVest upon the occurrence of certain events,
periodically furnishing certain financial statements and other information to
ComVest, maintaining its books and records and permitting inspection of such
materials by ComVest upon reasonable request. The Company is currently in
compliance with the applicable notice and reporting requirements required under
the ComVest Loan Agreement.




The
Company paid to ComVest non-refundable closing fees in the amount of $530,000,
charged to the Revolver, simultaneously with funding of the amounts payable to
the Company under the Loan Agreement. In addition, the Company must pay to
ComVest a monthly collateral monitoring, availability and administrative fee
equal to 0.15% of the average daily principal amount outstanding under the
Revolver during the preceding calendar month, up to $4,500 per
month.




As of
December 31, 2008, the outstanding balance on the Revolver was
$1,000,000.




The
Company utilized the proceeds of the Loans to repay approximately $1,050,000
pursuant to the M&T Restructure Agreement, as defined below, owed to
M&T, a creditor of the Company and approximately $530,000 in closing costs
and expenses.


93


Loan Modification and
Restructure Agreement with M&T




On
February 23, 2007, pursuant to a Credit Agreement (the “M&T Credit
Agreement”), the Company entered into credit facilities with M&T consisting
of a $20 million revolving credit facility (“M&T Revolver”) expiring in
February 2010 and a $3 million term loan (“M&T Term Loan”) expiring in
February 2012.  In July 2007, the Company amended the M&T Credit
Agreement to increase the M&T Term Loan to $5 million in the First Amendment
to the M&T Credit Agreement. These credit facilities carried an interest
rate of LIBOR plus between 1.50% and 2.25%, depending on the Company’s ratio of
debt to earnings before interest, tax, depreciation and amortization. The
available amount to be borrowed from the M&T Revolver was limited based upon
ratios of accounts receivable and unbilled revenue. The M&T Revolver and
M&T Term Loan contained certain financial covenants including leverage
ratios and a fixed charge coverage ratio. On March 21, 2008, ClearPoint entered
into the Second Amendment to M&T Credit Agreement, dated as of March 21,
2008, among ClearPoint and M&T. Pursuant to the Second Amendment, the
M&T Credit Agreement was amended, among other matters, as follows: (i) the
aggregate amount of the revolving credit commitments was gradually reduced from
$20 million to $15 million at March 21, 2008 and $4 million at June 30, 2008;
(ii) the applicable margin, which is a component of the interest rate
calculations, was increased to (a) 3.5% and 1.25% for any revolving credit loan
that is a “Eurodollar Loan” and a “Base Rate Loan”, respectively (as defined in
the M&T Credit Agreement), and (b) 4.5% and 2.25% for any M&T Term Loan
that is a Eurodollar Loan and a Base Rate Loan, respectively; (iii) the
applicable commitment fee percentage, which is included in the calculations of
commitment fees payable by the Company on the amount of the unused revolving
credit commitments, was increased to 0.25%; and (iv) the covenants related to
the ratios of total debt or senior debt, as applicable, to modified EBITDA were
amended to lower the ratios as of September 30, 2008.




On April
14, 2008, the Company entered into a Waiver (the “M&T Waiver”) to the
M&T Credit Agreement. Pursuant to the M&T Waiver, the required lenders
under the M&T Credit Agreement waived compliance with certain financial
covenants set forth in the M&T Credit Agreement for the period ended
December 31, 2007. In connection with the M&T Waiver, the Company paid a
$100,000 fee to M&T. The Company was not in compliance with the financial
and reporting covenants at March 31, 2008. The Company did not receive a waiver
for such non-compliance from M&T. On May 9, 2008, the Company received a
letter from M&T indicating, among other matters, that the principal amount
of revolving credit loans outstanding under the M&T Credit Agreement shall
be limited to a maximum amount of $7.3 million for the period ended May 16,
2008.




On May
21, 2008, the Company received a notice of default from M&T in connection
with the M&T Credit Agreement. The Company defaulted on its obligations
under the M&T Credit Agreement as a result of its failure to comply with
financial covenants contained in the M&T Credit Agreement, including
obligations to maintain certain leverage and fixed charge coverage ratios. As a
consequence of the default, M&T exercised its right to declare all
outstanding obligations under the credit facilities to be immediately due and
payable and demanded the immediate payment of approximately $12.8 million,
consisting of approximately (i) $7.4 million under the M&T Revolver; (ii)
$3.9 million under the M&T Term Loan; and (iii) $1.5 million under a letter
of credit. Also pursuant to the notice of default, M&T exercised its right
to terminate the M&T Revolver and the M&T Term Loan and to terminate its
obligation to make any additional loans or issue additional letters of credit to
the Company.




In
connection with the Loan Agreement with ComVest described above, the Company and
M&T entered into a Loan Modification and Restructure Agreement dated June
20, 2008 (the “M&T Restructure Agreement”) pursuant to which the parties
agreed to: (i) consolidate the M&T revolving credit loan of $7,065,809 and
the M&T term loan of $3,866,667 (the “M&T Obligations”), (ii) reduce the
carrying amount of the consolidated obligations from $10,932,476 to $8,600,000,
net of cash payments made during the negotiations, (iii) subordinate the M&T
Obligations to the Company’s obligations to ComVest (the “ComVest Obligations”)
and (iv) permit the Company to repay the M&T Obligations on a deferred term
basis. The M&T Restructure Agreement provides that on the earlier of the
first day of the calendar month following the Company’s full satisfaction of the
ComVest Obligations or January 1, 2011 (the “Obligations Amortization Date”),
the Company shall repay a total of $3 million in principal amount (the “M&T
Deferred Obligations”) to M&T in 36 equal monthly payments plus interest on
the outstanding balance of such amount at a rate of 5% per annum, subject to
increase to 12% per annum upon occurrence of certain agreement termination
events and spring back events, as set forth in the agreement. In the event of a
sale of substantially all of the Company’s or any subsidiary’s assets, a capital
infusion or an infusion of subordinated indebtedness, the Company must prepay
the M&T Deferred Obligations by an amount equal to 25% of such proceeds as
are payable to ComVest under such circumstances.


94


In
addition, prior to the Obligations Amortization Date, the Company must pay
M&T: (i) cash proceeds arising out of certain of its and its subsidiaries’
accounts receivable in an amount not less than $3 million and (ii) existing and
future federal and state income tax refunds of not less than $1 million due or
which become due to the Company for any period prior to January 1,
2008.  At December 31, 2008, the Company remitted approximately
$1,033,000 to M&T against the $3 million accounts
receivable  target. In the event such payments by the Company are less
than the stated minimum amounts, such shortfall will be added to the M&T
Deferred Obligations.  Excesses of such amounts paid by the Company
will be remitted to the Company and/or applied to the M&T Deferred
Obligations in accordance with the M&T Restructure Agreement.  The
Company filed all applicable federal and state income tax returns to enable it
to receive the minimum amount required under the M&T Restructure
Agreement.  As of December 31, 2008, income tax refunds of $1,024,000
resulting from net operating loss carry-backs and $34,000 refunds of
overpayments were received by the Company and remitted to M&T.  In
the event such payments by the Company are less than the stated minimum amounts,
such shortfall will be added to the M&T Deferred
Obligations.  Excesses of such amounts paid by the Company will be
remitted to the Company and/or applied to the M&T Deferred Obligations in
accordance with the M&T Restructure Agreement.




The
Company issued to M&T warrants to purchase, in the aggregate, 1,500,000
shares of its common stock, of which warrants to purchase 1,200,000 shares have
an exercise price of $0.01 and warrants to purchase 300,000 shares have an
exercise price of $1.00. In accordance with SFAS 150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity”
(“SFAS 150”), the fair value of all of the warrants has been classified as a
liability since M&T has the right to put the warrants back to the Company in
exchange for a cash settlement of $1.00 per share. The Company valued the
warrants at $1,247,246 using the Black-Scholes valuation model and the value was
offset against the gain on restructuring of debt.  At December 31,
2008, the balance sheet included a warrant liability of $1,213,413 related to
the fair value of warrants issued to M&T in connection with the M&T
Restructure Agreement.




The
Company accounted for the M&T Restructure Agreement pursuant to SFAS No. 15,
“Accounting by Debtors and Creditors for Troubled Debt Restructurings” (“SFAS
No. 15”), which required the Company to reduce the carrying amount of the old
debt (M&T Obligations of $10,932,476) by the minimum cash value of the put
option of the warrants issued ($1,200,000) and the warrant liability of $47,246,
determine whether the carrying value of the remaining debt exceeded the future
cash payments of the new debt (M&T Loan Modification of $8,600,000 and
future interest payment of $218,750 (SFAS No. 15 also requires that the new debt
be recorded as the total of future cash payments), the excess of the carrying of
the remaining debt over the future cash payments of the new debt was $866,480,
which was reduced by the unamortized deferred financed cost and current
refinancing cost of $179,683. As a result of the application of SFAS No. 15, the
Company recorded a gain of $686,797 ($0.05 per share), which is reflected in the
consolidated statement of operations for the year ended December 31,
2008.


95


M&T
had issued (i) a certain certificate of deposit to the Company in the amount of
$1.5 million (the “COD”) and (ii) a certain standby letter of credit for the
account of the Company in favor of Ace Risk Management (the “Ace Letter of
Credit”). M&T liquidated the COD and applied $600,000 of the COD to the
M&T Obligations. To the extent M&T is required to make payments under
the Ace Letter of Credit in excess of $900,000 at any time, such excess shall be
added to the M&T Deferred Obligations. Excesses of such amount paid will be
remitted to the Company and/or applied to the M&T Deferred Obligations in
accordance with the M&T Restructure Agreement.




Pursuant
to the M&T Restructure Agreement, the Company must comply with various
covenants while the M&T Deferred Obligations are outstanding and provided
that (i) no bankruptcy or insolvency event has taken place and (ii) the Company
and/or its subsidiaries have not terminated operation of their business without
the prior written consent of M&T (each being a “Spring Back Event”). Such
covenants include, but are not limited to: delivery to M&T of financial and
other information delivered to ComVest; restrictions on the aggregate
compensation which may be paid to the Chief Executive Officer and Chief
Financial Officer of the Company; limitations on dividends and distributions of
cash or property to equity security holders of the Company and/or redemptions or
purchases of capital stock or equity securities of other entities; restrictions
on collateralizing subordinated indebtedness. At December 31, 2008, the Company
was in compliance with all applicable covenants set forth in the M&T
Restructure Agreement.




The
M&T Restructure Agreement provides that the Company may continue to pay
regularly scheduled payments (but not prepayments or accelerated payments) on
(i) existing subordinated indebtedness, except to the extent prohibited by the
ComVest transaction documents and (ii) the Blue Lake Note as defined below. For
each $50,000 paid on account of the Blue Lake Note, Michael D. Traina, the
Company’s Chairman of the board of directors and Chief Executive Officer, and
Christopher Ferguson, a principal stockholder and the former director, President
and Secretary of the Company, shall, on a several basis, be liable as sureties
for the M&T Deferred Obligations, each in the amount of $10,000, subject to
an aggregate amount of each surety’s liability of $150,000.




The
M&T Restructure Agreement does not terminate or extinguish any of the liens
or security interests granted to M&T pursuant to the M&T Credit
Agreement and related documents.




Note Payable to Blue Lake
Rancheria




On March
1, 2005, CPR issued a Promissory Note (“Blue Lake Note”) to Blue Lake Rancheria,
a fully recognized Indian tribe (“Blue Lake”), for $1,290,000 in principal
amount guaranteed by Messrs. Traina and Ferguson. The Blue Lake Note matured on
March 31, 2008. Effective March 31, 2008, CPR amended and restated the Blue Lake
Note and extended its maturity date under the Agreement, dated as of March 31,
2008, by and between CPR and Blue Lake (the “Blue Lake Agreement”). Pursuant to
the Blue Lake Agreement, on April 14, 2008, CPR and Blue Lake entered into an
Amended and Restated Promissory Note (“Amended Blue Lake Note”) with a principal
amount of $1,290,000, which is due and payable as follows: (i) $200,000 was paid
on April 8, 2008; (ii) $50,000 is payable on the first business day of each
calendar month for 12 consecutive months (totaling $600,000 in the aggregate),
the first payment to occur on May 1, 2008, and the last to occur on April 1,
2009; and (iii) on April 30, 2009, CPR is obligated to pay to Blue Lake the
balance of the principal amount, equal to $490,000, plus accrued interest. The
interest rate in the Amended Blue Lake Note was increased from 6% to 10% per
annum. ClearPoint agreed to issue 900,000 shares (“Escrow Shares”) of
ClearPoint’s common stock in the name of Blue Lake to be held in escrow,
pursuant to an escrow agreement, as security for the payment of the principal
amount and interest under the Amended Blue Lake Note. At December 31, 2008, the
balance due on the Amended Blue Lake Note was $690,000 and the Company was
current in all payments.




96


Deferred Financing
Costs




Amortization
of deferred financing costs for the years ended December 31, 2008 and 2007 was
$157,696 and $426,979 respectively. The balance of the deferred financing costs
related to the M&T financing of $78,614 was offset against the gain on the
restructuring of debt.  Amortization of deferred finance related to
ComVest for the year ended December 31, 2008 was $111,759.




On
February 28, 2005, CPR and certain of its subsidiaries entered into a Loan and
Security Agreement with Bridge Healthcare Finance, LLC and Bridge Opportunity
Finance, LLC (collectively, “Bridge”). The revolving loan and term loan from
Bridge were completely paid off on February 12, 2007 from the proceeds received
as a result of the Merger. This resulted in a pre-payment penalty of $1,949,928
which was expensed in the three months ended March 31, 2007. In addition, the
unamortized deferred finance costs related to the Bridge debt amounted to
$370,712 at the time of pre-payment. This amount was expensed as part of the
amortization of deferred financing costs in the year ended December 31,
2007.  Amortization of deferred finance related to M&T for year
ended December 31, 2007 was $45,937.




Warrants –
Bridge




In
connection with Bridge’s $10,000,000 term loan at February 28, 2005, the Company
simultaneously issued three detachable warrants to purchase an aggregate of 9%
of the Company’s outstanding stock, on a fully diluted basis, at the exercise
price of $0.001 per share. The warrants vested immediately upon issuance and
could be exercised until February 28, 2015. The Company accounted for the
warrants issued to the investors as a liability under the provisions of SFAS
150. The warrants were initially valued at $396,000 by an independent valuation
company. This initial value was recorded as debt discount and was amortized over
the three year life of the loan by the interest method. Amortization of $0 and
$132,057 was recorded by the Company as interest expense for the years ended
December 31, 2008 and 2007, respectively. The warrants were fair valued each
reporting period and the increase/decrease reflected as interest expense/income
in the consolidated statement of operations. The warrant holders were paid
$3,291,775 to redeem the warrants on February 12, 2007 from proceeds received as
a result of the Merger.




Sub
Notes




On March
1, 2005, CPR issued Amended and Restated Notes (collectively, the “Sub Notes”)
to each of Matthew Kingfield, B&N Associates, LLC, Alyson P. Drew and Fergco
Bros. LLC (collectively, the “Sub Noteholders”) for $50,000, $100,000, $100,000
and $300,000, respectively. Ms. Drew is the spouse of ClearPoint’s director
Parker Drew. Fergco Bros. LLC (“Fergco”) is twenty-five percent (25%) owned by
Mr. Ferguson.




Effective
March 31, 2008, the Company amended and restated the Sub Notes and extended
their maturity dates under the amended sub notes, dated March 31, 2008 and
issued by CPR to each Sub Noteholder (collectively, the “Amended Sub
Notes”).  All sums outstanding from time to time under each Amended
Sub Note bear the same interest of 12% per annum as under the Sub Note. CPR’s
failure to make any payment of principal or interest under the Amended Sub Note
when such payment is due constitutes an event of default, if such default
remains uncured for 5 business days after written notice of such failure is
given to CPR by the Sub Noteholder.  Upon an event of default and at
the election of the Sub Noteholder, the Sub Note, both as to principal and
accrued but unpaid interest, will become immediately due and
payable.  As of December 31, 2008, ClearPoint made all required
payments on the Amended Sub Notes.


97


In
consideration of each Sub Noteholder agreeing to extend the maturity date of the
Sub Note, ClearPoint issued warrants (“Initial Sub Note Warrants”) to the Sub
Noteholders to purchase, in the aggregate, 82,500 shares of common stock (the
“Sub Note Warrant Shares”) at an exercise price of $1.55 per share. The Initial
Sub Note Warrant is immediately exercisable during the period commencing on
March 31, 2008 and ending on March 31, 2010. CPR had the right in its sole
discretion, to extend the maturity date of the Amended Sub Notes to March 31,
2010, and in connection with such extension, the Sub Noteholders had the right
to receive additional Sub Note Warrants (the “Additional Sub Note Warrants”) to
purchase, in the aggregate, an additional 82,500 shares of common
stock




On June
20, 2008, CPR exercised its right to extend the maturity date of the Amended Sub
Notes to March 31, 2010 and, in connection with such extension, issued a notice
dated June 25, 2008 (the “Sub Noteholder Notices”) to each Sub Noteholder. The
Sub Noteholder Notices notified the Sub Noteholders that ClearPoint extended the
maturity date of the Sub Notes in connection with its transaction with ComVest,
as described above. In connection with the Sub Noteholder Notices, the Sub
Noteholders received Additional Sub Note Warrants to purchase 82,500 Sub Note
Warrant Shares at an exercise price of $1.55 per share. The Additional Sub Note
Warrant is immediately exercisable during the period commencing on June 20, 2008
and ending on March 31, 2011.  The Company valued the warrants at
$7,619 using the Black-Scholes valuation model and they were expensed under
selling, general and administrative expenses.  The exercise price and
the number of Sub Note Warrant Shares are subject to adjustment in certain
events, including a stock split and reverse stock split.




In
connection with the Loan Agreement with ComVest described above, ComVest entered
into a Subordination Agreement dated June 20, 2008 (the “Noteholder
Subordination Agreement”) with each of the Sub Noteholders and CPR. Pursuant to
the Noteholder Subordination Agreement, the Sub Noteholders agreed to
subordinate the Company’s obligations to them under the Amended Sub Notes to the
ComVest Obligations. So long as no event of default under the ComVest Loan
Agreement has occurred, the Company may continue to make scheduled payments of
principal and accrued interest when due in accordance with the Sub Notes, as
amended. In the case of an event of default under the Loan Agreement with
ComVest, the Company may not pay and the Sub Noteholders may not seek payment on
the Sub Notes, as amended, until the ComVest Obligations have been satisfied in
full. The Noteholder Subordination Agreement also sets forth priorities among
the parties with respect to distributions of the Company’s assets made for the
benefit of the Company’s creditors.




Bridge
Notes




On June
12, 2008, the Company issued notes (the “Original Bridge Notes”) to each of
Messrs. Traina, Drew and TerraNova Partners, L.P. (“TerraNova Partners” and,
together with Messrs. Traina and Drew, the “Bridge Lenders”) in the principal
amounts of $104,449, $50,000 and $100,000, respectively. Mr. Drew is a member of
the Company’s board of directors and TerraNova Partners, a principal stockholder
of the Company, is 100% beneficially owned by Mr. Kololian, the Company’s lead
director. Mr. Kololian also controls 100% of the voting interest and 55% of the
non-voting equity interest in the general partner of TerraNova Partners. During
the course of negotiations with ComVest, Mr. Traina agreed to loan an additional
$5,000 to the Company. On June 26, 2008, the Company issued amended and restated
Original Bridge Notes (the “Amended Bridge Notes”) to each Bridge Lender. The
Amended Bridge Notes contain identical terms and provide that (i) the principal
amount of the Amended Bridge Notes will bear interest at a rate of 8% per annum,
payable quarterly and (ii) the Company shall have the right to repay the Amended
Bridge Notes in shares of Common Stock at a price equal to the closing price of
the Common Stock on June 26, 2008. The Amended Bridge Notes do not contain the
provision stating that the principal balance will bear interest only upon demand
for payment by the Bridge Lender, as provided in the Original Bridge
Note.


98


On June
25, 2008 Mr. Drew’s Amended Bridge Note was repaid in full and Mr. Traina was
repaid $5,000 in connection with his Amended Bridge Note. The balance of Mr.
Traina’s Amended Bridge Note was repaid on July 16, 2008.




On August
12, 2008, the Company’s board of directors approved the payment of the Amended
Bridge Note issued to TerraNova Partners in 204,082 shares of common stock,
based on a valuation at the June 26, 2008 closing price in accordance with the
terms of the Amended Bridge Note.  On March 6, 2009, these shares were
issued to TerraNova Partners.




Promissory
Notes




CPR
issued promissory notes (the “Promissory Notes”), dated February 22, 2008, in
the aggregate principal amount of $800,000, to each of Messrs. Traina and
Ferguson, in consideration for loans of $800,000 made to CPR.




On
February 28, 2008, ClearPoint Workforce, LLC (“CPW”), a wholly owned subsidiary
of CPR, advanced $800,000, on behalf of Optos, to the provider of Optos’s
outsourced employee leasing program. The advanced funds were utilized for Optos’
payroll. In consideration of making the advance on its behalf, Optos assumed the
Promissory Notes, and the underlying payment obligations, issued by CPR on
February 22, 2008 which were payable to Messrs. Traina and Ferguson in the
aggregate amount of $800,000.




The terms
of the Promissory Notes were identical. The principal amount of each Promissory
Note was $400,000, and each bore interest at the rate of 6% per annum, which was
to be paid quarterly, and each were due on February 22, 2009. The Promissory
Notes were subordinate and junior in right of payment to the prior payment of
any and all amounts due to M&T pursuant to the M&T Credit Agreement, as
amended.




Note Payable  to
ALS, LLC




In
connection with the transaction with ComVest described above, on June 20, 2008,
the Company entered into a Letter Agreement dated June 20, 2008 (the “ALS
Agreement”) with ALS, LLC and its subsidiaries whereby the parties agreed, among
other things: (i) to execute the ALS Subordination Letter dated June 20, 2008,
as defined below; (ii) to amend the ALS Note to provide for an outstanding
principal amount of $2,155,562 (remaining principal balance of $2,022,900 plus
accrued interest of $132,662) bearing interest at a rate of 5% per annum (a
reduction from 7%) payable in 24 equal monthly installments, commencing January
2014, payable as permitted pursuant to the ALS Subordination Letter; (iii) that
the Company would issue 350,000 shares of common stock to ALS (the “ALS Shares”)
in accordance with the ALS Acquisition; (iv) that ALS may defend and indemnify
the Company in connection with the TSIL Litigation, as defined in Note 20 –
Litigation, and (v) that the parties will take all appropriate actions to
dismiss their claims against each other in connection with the TSIL
Litigation.




The
transaction was not classified as a restructuring of debt. The Company valued
the ALS Shares at their fair market value as of the date of issuance of $101,500
and recorded that amount as an expense during the year ended December 31,
2008.




Pursuant
to a Subordination Letter sent by ALS to ComVest, M&T and the Company dated
June 20, 2008 (the “ALS Subordination Letter”), ALS agreed that the Company may
not make and ALS may not receive payments on the ALS Note, provided however,
that (i) upon payment in full of all obligations under the Term Loan owing to
ComVest and so long as the Company is permitted to make such payments, the
Company shall make monthly interest payments on the outstanding principal
balance of the ALS Note and (ii) upon payment in full of the M&T
Obligations, the Company shall make 24 equal monthly installments on the ALS
Note, as amended pursuant to the ALS Agreement described above.


99


Notes Payable to
StaffBridge




On
December 31, 2007, the note payable to former shareholders of StaffBridge, Inc.
for purchase of the common stock of StaffBridge, Inc. (“Staffbridge Note”) dated
August 14, 2006 was amended from an original maturity date of December 31, 2007
to a new maturity date of June 30, 2008. In addition, the amount of the
Staffbridge Note was increased to $486,690 for accrued interest and the interest
rate was increased to eight percent from six percent per annum payable in
monthly installments starting January 15, 2008. The Company incurred an
origination fee in the amount of $19,467, which equaled four percent of the
principal amount in the form of 9,496 shares of common stock of the Company.
This fee was charged to interest expense.




In
addition, in connection with the financing transaction with ComVest, on June 30,
2008, the former shareholders of StaffBridge, Inc. (the “StaffBridge
Shareholders”), executed a Debt Extension Agreement (the “Debt Extension
Agreement”) and entered into a Subordination Agreement (the “StaffBridge
Subordination Agreement”) with ComVest and CPR.




Pursuant
to the Debt Extension Agreement, the StaffBridge Shareholders agreed that, in
connection with the receipt from the Company of $150,000 payable for work
performed by TSP 2, Inc., an entity controlled by certain StaffBridge
Shareholders and a contractor for the Company (“TSP”), the StaffBridge Note was
amended, effective June 30, 2008, to extend the maturity date to December 31,
2008 and to reduce the outstanding principal amount to $336,690. Upon the
Company’s payment of an additional $150,000 and any additional amounts then
outstanding for work performed by TSP, the StaffBridge Shareholders agreed to
amend the StaffBridge Note to further extend the maturity date to June 30,
2009.




Effective
December 31, 2008, the StaffBridge Note was further amended pursuant to a second
Debt Extension Agreement dated December 31, 2008 to provide that the outstanding
amount due under the StaffBridge Note will be paid as follows: $100,000 was paid
on or about December 31, 2008 and the remaining balance shall be paid in four
equal quarterly payments of $59,172, beginning on March
31, 2009, which was made, and ending on December 31, 2009.




Pursuant
to the StaffBridge Subordination Agreement, the StaffBridge Shareholders agreed
to subordinate the Company’s obligations to them under the StaffBridge Note to
the ComVest Obligations. So long as no event of default under the Loan Agreement
with ComVest has occurred, the Company may continue to make scheduled payments
of principal and accrued interest when due in accordance with the StaffBridge
Note. In the case of an event of default under the Loan Agreement, the Company
may not pay and the StaffBridge Shareholders may not seek payment on the
StaffBridge Note until the ComVest Obligations have been satisfied in full. The
Subordination Agreement also sets forth priorities among the parties with
respect to distributions of the Company’s assets made for the benefit of the
Company’s creditors.




NOTE
12 — STOCK-BASED COMPENSATION:




On
February 12, 2007, the Company adopted the 2006 Long-Term Incentive Plan (the
“Plan”) which was approved by stockholders.  Under the Plan, the
Company grants stock options to key employees, directors and consultants of the
Company.  All grants prior to March 31, 2007 are 100%
vested.  Options granted to two employees on September 11, 2007 are
100% vested.  Options granted on September 11, 2007 to all other
employees of the Company are one-third vested as of September 11, 2007, an
additional one-third vested as of September 17, 2008 with the remaining
one-third vesting September 11, 2009.  With respect to the options
granted August 20, 2008, the vesting period is one-third on August 20, 2009, an
additional one-third on August 20, 2010 with the remaining one-third on August
20, 2011.  Options expire between 3 and 10 years from the date of
grant or earlier at the determination of the board of
directors.


100


For
grants to non-employee directors after March 31, 2007, the vesting period is 3
years from the grant date, subject to continuing service on in the board
capacity.  Options authorized for issuance under the Plan total
2,750,000.  The number of shares covered by stock options that may be
exercised by any participant during any calendar year cannot have an aggregate
fair market value in excess of $100,000 measured at the date of the
grant.  The exercise price for options cannot be less that the fair
market value of the Company’s common stock on the date of the
grant.  At December 31, 2008, 1,747,992 options were available for
issuance.




Accounting
for Employee Awards




Effective February 12, 2007, the Plan
is accounted for in accordance with the recognition and measurement provisions
of FAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), and the
guidance provided by the SEC Staff Accounting Bulletin No. 107 (“SAB 107”),
which established the accounting for stock-based compensation awards exchanged
for employee services and requires companies to expense the estimated fair value
of these awards over the requisite employee service period.




The
Company’s results of operations for the years ended December 31, 2008 and 2007
include share based employee compensation expense totaling $42,356 and $575,868,
respectively.  Such amounts have been included in the Statements of
Operations in selling, general and administrative Expense.  No income
tax benefit has been recognized in the Statements of Operations for share-based
compensation arrangements as the Company has provided for a 100% valuation
allowance on its deferred tax assets.  Employee stock option
compensation expense in 2008 is the estimated fair value of options using the
Black-Scholes valuation model.




Accounting
for Non-Employee Awards




Stock compensation expenses related to
non-employee options were $6,487 and $428,110 for the years ended December 31,
2008 and 2007, respectively.  Such amounts have been included in the
Statements of Operations in selling, general and administrative
expense.




Total stock-based compensation
recognized by the Company in the years ended December 31, 2008 and 2007, all of
which relates to stock options and warrants, is as follows:




Years
      EndedDecember 31,
                  2008
              
              
              December 31,
                  2007Statement
      of Operations line item:  General and
    administrativeOther
      compensation – general admin
              
              $
              48,843
              
              
              $
              1,003,978Total
              
              $
              48,843
              
              
              $
              1,003,978




During
the year ended December 31, 2008 and 2007, 515,000 and 766,000 stock options
were granted with fair values of $146,260 and $1,126,042
respectively.  The fair value of options at the date of grant was
estimated using the Black-Scholes option pricing model.  The Company
took into consideration guidance under FAS No. 123(R) and SAB No. 107 when
reviewing and updating assumptions. The expected volatility is based upon
historical volatility of the Company's stock. The expected term is based upon
the simplified method as allowed under SAB 110.


101


The
assumptions made in calculating the fair values of options are as
follows:




Year
      ended
                    December 31,2008
                
                
                Year
      Ended
                    December 31,2007Volatility
                
                
                133
                %
                
                
                23.5
                %Expected
      term in years
                
                6
      years
                
                
                3.8
      yearsRisk-free
      interest rate
                
                
                3.17
                %
                
                
                4.6
                %Expected
      dividend yield
                
                
                0
                %
                
                
                0
                %




The
following information relates to the stock option activity under the Plan for
the two years ended December 31, 2008:




2008
                
                
                2007Shares
      subject
                    to
      Options
                
                
                Weighted
                    Average
      Option
                    Prices
                
                
                Shares
      subject
                    to
      Options
                
                
                Weighted
                    Average
      Option
                    PricesOutstanding
      at January 1
                
                
                766,000
                
                
                $
                5.68
                
                
                
                —
                
                
                
                —Granted
                
                
                605,000
                
                
                
                1.13
                
                
                
                816,000
                
                
                
                5.65Exercised
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Cancelled
                
                
                (368,992
                )
                
                
                1.33
                
                
                
                (50,000
                )
                
                
                6.10Outstanding
      at December 31
                
                
                1,002,008
                
                
                
                1.01
                
                
                
                766,000
                
                
                
                5.68Exercisable
      at December 31
                
                
                815,792
                
                
                
                0.92
                
                
                
                705,303
                
                
                
                5.78Weighted
      Average Remaining Contractual Terms (Years)Outstanding
                
                
                5.81
                
                
                
                
                
                
                
                3.2Exercisable
                
                
                3.42
                
                
                
                
                
                
                
                2.6




Shares
                  
                  
                  Weighted
                      Average
                      Exercise
      Price
                  
                  
                  Weighted
                      Average
                      Remaining
                      Contractual
                      LifeGranted
      March, 2007
                  
                  
                  645,000
                  
                  
                  $
                  6.10
                  
                  
                  3.39
      yearsGranted
      September, 2007
                  
                  
                  171,000
                  
                  
                  $
                  4.10
                  
                  
                  3.39
      yearsGranted
                  
                  
                  605,000
                  
                  
                  $
                  0.30
                  
                  
                  10
      yearsExercised
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Cancelled
                  
                  
                  (418,992
                  )
                  
                  
                  —
                  
                  
                  
                  —Outstanding
      and exercisable at December 31, 2008
                  
                  
                  1,002,008
                  
                  
                  $
                  2.99
                  
                  
                  6.69
      years




The aggregate intrinsic value for
the options in the table above was zero at December 31, 2008 based on the
closing common share price of $0.05 as at December 31, 2008. The aggregate
intrinsic value represents the total pre-intrinsic value (the difference between
the Company’s closing stock price on the last trading day of the fourth quarter
of 2008 and the exercise price, multiplied by the number of in-the-money
options) that would have been received by the option holders had all option
holders exercised their options on December 31, 2008. This amount changes based
on the fair market value of the Company’s common
stock.


102


As of
December 31, 2008 and December 31, 2007, there was $129,324 and $123,612
respectively of unrecognized compensation cost related to all unvested stock
options. The fair value of these options was estimated using the Black-Scholes
valuation model with the following weighted-average assumptions and fair
values:




Warrants
and Options




As at
December 31, 2008, warrants to purchase 14,915,825 shares were outstanding,
having an exercise price of $3.80 per share with an average remaining
contractual life of 2.7 years.




2008
                
                
                2007Number
      of
                    Warrants
                
                
                Weighted
                    Average
                    Exercise
      Price
                
                
                Number
      of
                    Warrants
                
                
                Weighted
                    Average
                    Exercise
      PriceBalance,
      January 1
                
                
                11,040,000
                
                
                $
                5.00
                
                
                
                —
                
                
                $
                —Issued
      during the period
                
                
                3,875,825
                
                
                
                0.08
                
                
                
                11,040,000
                
                
                
                5.00Exercised
      during the period
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Balance,
      December 31
                
                
                14,915,825
                
                
                
                3.80
                
                
                
                11,040,000
                
                
                
                5.00




As at
December 31, 2008 the range of exercise prices of the outstanding warrants was
as follows:




Range
      of exercise prices
                  
                  Number
      of warrants
                  
                  
                  Average
      remaining
                      contractual
      life
                  
                  
                  Weighed
      average
                      exercise
      price$
                  0.01
      - 5.00
                  
                  
                  14,915,825
                  
                  
                  
                  2.7
                  
                  
                  $
                  3.80




Warrants
were valued using the Black-Scholes model, using the weighted average key
assumptions of volatility of 106%, a risk-free interest rate of 3%, a term
equivalent to the life of the warrant and reinvestment of all dividends in the
Company of zero percent.




NOTE
13— FAIR VALUE MEASUREMENTS:




Effective
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements
(“SFAS No. 157”).  SFAS No. 157 clarifies the definition of fair
value, prescribes methods for measuring fair value, and establishes a fair value
hierarchy to classify the inputs used in measuring fair value as
follows:




Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.




Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other then quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.




Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.




The
adoption of SFAS No. 157 did not have a material impact on the Company’s fair
value measurements.




The
following tables present the Company’s assets and liabilities that are measured
at fair value on a recurring basis and are categorized using the fair value
hierarchy. The fair value hierarchy has three levels based on the reliability of
the inputs used to determine fair value.


103




Fair
      Value Measurements Reporting DateDescription
                
                December
      31,
                    2008
                
                
                Quoted
      Prices in
                    Active
      Markets for
                    Identical
      Assets
                    (Level
      1)
                
                
                Significant
      Other
                    Observable
      Inputs
                    (Level
      2)
                
                
                Significant
                    Unobservable
                    Inputs
                    (Level
      3)Liabilities:Warrant
      Liability
                
                $
                1,213,433
                
                
                $
                —
                
                
                $
                —
                
                
                $
                1,213,433




Fair
      Value Measurements Using
                        Significant
      Unobservable Inputs
                        (Level
      3)Beginning
      Balance
                    
                    $
                    —Total
      gains or (losses) (realized/unrealized)Included
      in earnings
                    
                    
                    (33,813
                    )Included
      in other comprehensive income
                    
                    
                    —Purchases,
      issuances and settlements
                    
                    
                    1,247,246Transfer
      in and/or out of Level 3
                    
                    
                    —Ending
      Balance
                    
                    $
                    1,213,433The
      amount of total gains or (losses) for the period included in earnings
      attributable to the change in unrealized gains or losses relating to
      assets still held at the reporting date
                    
                    $
                    —




NOTE
14 — COMMITMENTS AND CONTINGENCIES:




Leases:




The
Company typically leases offices and equipment under operating leases that
expire over one to four years. Future minimum rental payments required under
operating leases that have remaining lease terms in excess of one year as of
December 31, 2008 were as follows:




Fiscal
      2009
                      
                      $
                      197,940Fiscal
      2010
                      
                      
                      84,076Fiscal
      2011
                      
                      
                      25,631Fiscal
      2012
                      
                      
                      3,424Thereafter
                      
                      
                      —Total
                      
                      $
                      311,071




The above
lease commitments do not include future minimum rental payments that have been
accrued for in restructuring costs (see Note 10 – Accrued Restructuring
Costs).  Rent expense for 2008 and 2007 was $190,383 and $1,413,487,
respectively.




Employee
Benefit Plan:




In 1991,
Quantum Resources Corporation (“Quantum”) established a savings and profit
sharing (IRC Section 401(k)) plan (“Plan”). The Company acquired all of the
outstanding stock of Quantum on July 29, 2005 and, as a result, assumed the
Plan.  As of January 1, 2006, the Plan was amended to include
additional employees of Quantum and to meet IRS safe harbor provisions.
Employees are eligible to participate upon their date of hire. Participants may
elect to defer a percentage of their compensation subject to the Internal
Revenue Service limit on elective deferrals. The Plan also allows for a
discretionary Company match of elective deferrals that will vest on a three-year
cliff vesting schedule. There was no Company match for the Plan year ended
September 30, 2005. Effective October 1, 2005, the Company elected to
change the Plan’s fiscal year ending date to December 31. There was no
Company match for the years ended December 31, 2008 and
2007.


104


Retirement
Benefit Liability:




Upon its
acquisition of Quantum, the Company assumed a stock purchase agreement dated
December 30, 1986 with a former owner. The agreement called for the payment
of retirement benefits in equal monthly payments, adjusted for the cost of
living increases equal to the Consumer Price Index. The former owner is entitled
to these benefits until his death.




The
Company recorded an estimated liability of $282,546 based upon the expected
remaining life of the former owner, and made payments of $33,057 and $78,126 in
the years ended December 31, 2008 and 2007, respectively. Estimated future
payments to the former owner are as follows:




Year
      Ending December 31,2009
                
                $
                145,9642010
                
                
                83,4842011
                
                
                84,4202012
                
                
                84,420Total
      minimum payments
                
                
                398,288Present
      value (at 12.25% discount rate) net minimum retirement
      payments
                
                
                282,546Less,
      current portion
                
                
                (146,900
                )$
                135,646





NOTE
15 — FRANCHISE AGREEMENTS:




On
August 30, 2007, the Company entered into the agreement with KOR Capital,
LLC (“KOR”), a Florida limited liability company controlled by Kevin O’Donnell,
a former officer of the Company, pursuant to which the Company granted to KOR an
exclusive right and license (i) to set up and operate, in parts of Northern
California and Florida, a franchise of the Company’s system and procedures for
the operation of light industrial and clerical temporary staffing services and
(ii) to use in connection with the operation certain of the Company’s
proprietary intellectual property. The Agreement with KOR replaced the agreement
between the Company and KOR entered on July 9, 2007. In consideration for
the grant and license, KOR was required to pay to the Company, on a weekly
basis, a royalty equal to 4.5% of all gross revenues earned by KOR from its
operations. KOR also agreed to pay the Company, on a weekly basis, a royalty
equal to 50% of its net income from its operations. Through this relationship
KOR operated and managed up to twelve of the Company’s former
branches.  Under the Agreement, the Company processed the weekly
payroll for all temporary and contract staff placed on assignment by KOR and
KOR’s weekly invoices. The Agreement had a term of 99 years, but was subject to
earlier termination upon certain material breaches or defaults and it could only
be assigned by KOR if the assignee satisfied certain financial, business
experience and character criteria acceptable to the Company.  The KOR
agreement was terminated February 28, 2008.




On
August 13, 2007, the Company entered into an Agreement (the “TZG
Agreement”) with TZG Enterprises, LLC (“TZG”), a Delaware limited liability
company controlled by J. Todd Warner, a former officer of the Company, pursuant
to which the Company granted to TZG an exclusive right and license (i) to
set up and operate a franchise of the Company’s system and procedures for the
operation of transportation and light industrial temporary staffing services and
(ii) to use in connection with the operation certain of the Company’s
proprietary intellectual property. In consideration for the grant and license,
TZG was required to pay to the Company, on a weekly basis, a royalty equal to 6%
of all gross revenues earned by TZG from the operation. Through this
relationship TZG operated and managed up to twenty-five of the Company’s former
branches.  Under the Agreement, the Company processed the weekly
payroll for all temporary and contract staff placed on assignment by TZG and
TZG’s weekly invoices. The Agreement had a term of 99 years, but was subject to
earlier termination upon certain material breaches or defaults and it could only
be assigned by TZG if the assignee satisfied certain financial, business
experience and character criteria acceptable to the Company.  The TZG
agreement was terminated February 28, 2008.




105


For
additional information related to the termination of the KOR and TZG agreements,
see Note 4 – Business and Asset Acquisitions and Dispositions and Licensing
Agreements.




NOTE
16 — INCOME TAXES:




Deferred
tax assets and liabilities are determined based on temporary differences between
income and expenses reported for financial reporting and tax reporting. The
Company is required to record a valuation allowance to reduce its net deferred
tax assets to the amount that it believes is more likely than not to be
realized. In assessing the need for a valuation allowance, the Company
historically had considered all positive and negative evidence, including
scheduled reversals of deferred tax liabilities, prudent and feasible tax
planning strategies and recent financial performance. The Company determined
that the negative evidence, including historic and current losses, as well as
uncertainties related to the ability to utilize Federal and state net loss
carry-forwards, outweighed any objectively verifiable positive factors, and as
such, concluded that a full valuation allowance against the deferred tax assets
was necessary. In the first quarter of fiscal 2008, the deferred tax asset
balance was offset by $5,007,180 valuation allowance. In addition, the Company
established a 100% valuation allowance against the income tax benefit resulting
from operations during the year ended December 31, 2008. The establishment of
the deferred tax asset allowance does not preclude the Company from reversing a
portion or all of the allowance in future periods if the Company believes the
positive evidence is sufficient enough to utilize at least a portion of the
deferred tax assets, nor does it limit the ability to utilize losses for tax
purposes, subject to loss carry-forward limitations and periods permitted by tax
law.




The
Company filed all applicable federal and state income tax returns to enable it
to receive the minimum amount required under the M&T Restructure Agreement
and believes that these funds will be received prior to December 31, 2008. To
the extent they are received, these funds will be remitted directly to M&T
in satisfaction of that portion of the Company’s obligation. During the year
ended December 31, 2008, the Company received and remitted approximately
$1,058,000 in federal and state tax refunds to M&T.




An
analysis of the Company’s deferred tax asset is as follows:




December
      312008
              
              
              2007Deferred
      tax (liabilities) assets:Current:Allowance
      for doubtful accounts
              
              $
              2,898,090
              
              
              $
              1,239,767Accrued
      termination fee
              
              
              195,000
              
              
              
              —Stock
      options
              
              
              410,600
              
              
              
              391,5513,503,690
              
              
              
              1,631,318Valuation
      allowance
              
              
              (3,503,690
              )
              
              
              —Current
              
              
              —
              
              
              
              1,631,318Non-current:Book
      to tax depreciation difference
              
              
              (11,319
              )
              
              
              (89,042
              )Financing
      cost, principally due to difference in amortization
              
              
              8,174,032
              
              
              
              3,041,977Accrued
      restructuring costs
              
              
              172,678
              
              
              
              399,595Accrued
      retirement benefits
              
              
              131,840
              
              
              
              131,840Charitable
      contribution carryover
              
              
              9,514
              
              
              
              5,502Net
      operating loss carryforward
              
              
              5,420,069
              
              
              
              1,582,974Workers’
      compensation insurance premium
              
              
              —
              
              
              
              (1,696,984
              )13,896,814
              
              
              
              3,375,862Valuation
      allowance
              
              
              (13,896,814
              )
              
              
              —Non-current
              
              
              —
              
              
              
              3,375,862Deferred
      income tax asset
              
              $
              —
              
              
              $
              5,007,180




106


The net
deferred tax asset was presented in the Company’s consolidated balance sheets as
follows:




December
      312008
              
              
              2007Current
      deferred tax asset
              
              $
              3,503,690
              
              
              $
              1,631,318Non-current
      deferred tax asset
              
              
              13,896,814
              
              
              
              3,375,862Deferred
      Tax Asset before valuation allowance
              
              
              17,400,504
              
              
              
              5,007,180Valuation
      allowance
              
              
              (17,400,504
              )
              
              
              —Deferred
      Tax Asset
              
              $
              —
              
              
              $
              5,007,180




Current
federal and state income taxes payable of $208,000 and $145,300 are included in
other current liabilities as of December 31, 2008 and 2007, respectively.
The Company has net operating loss carryforwards for federal purposes of
$ 13,652,000 and for state purposes of $ 19,405,000 which expire in
various years through 2028 .




The
components of the income tax expense (benefit) are summarized as
follows:




December
      312008
              
              
              2007Current:Federal
      income tax expense (benefit)
              
              $
              (3,532,501
              )
              
              $
              (1,050,000
              )State
      tax expense
              
              
              208,000
              
              
              
              207,870Total
      current tax expense (benefit)
              
              
              (3,324,501
              )
              
              
              (842,130
              )Deferred:Federal
      tax (benefit)
              
              
              (7,465,923
              )
              
              
              (3,729,961
              )State
      tax (benefit)
              
              
              (1,588,888
              )
              
              
              (548,473
              )Total
      deferred tax (benefit)
              
              
              ( 9,054,811
              )
              
              
              ( 4,278,434
              )Valuation
      allowance
              
              
              17,400,504
              
              
              
              —Total
      income tax expense (benefit)
              
              $
              5,021,192
              
              
              $
              (5,120,564
              )




On
January 1, 2007, the Company adopted FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109” (“FIN 48”). There was no impact on the Company’s consolidated
financial position, results of operations or cash flows at December 31,
2007 and for the year then ended as a result of implementing FIN 48. At the
adoption date of January 1, 2007 and at December 31, 2007, the Company
did not have any unrecognized tax benefits. The Company’s practice is to
recognize interest and/or penalties related to income tax matters in income tax
expense. As of December 31, 2008, the Company had no accrued interest or
penalties. The Company currently has no federal or state tax audits in progress
although years 2005 through 2007 are open and subject to a federal or state
audit.


107


The
differences between the statutory federal income tax rate and the effective
income tax rate as reflected in the accompanying consolidated statements of
operations are:




December
      312008
              
              
              2007Statutory
      federal income tax
              
              $
              (11,480,000
              )
              
              $
              (5,919,841
              )State
      income tax
              
              
              (1,114,000
              )
              
              
              (574,573
              )Non-deductible
      intangible asset amortization and other permanent
      differences
              
              
              25,000
              
              
              
              1,168,037Other
              
              
              189,688
              
              
              
              205,813Valuation
      allowance
              
              
              17,400,504$
              5,021,192
              
              
              $
              (5,120,564
              )




In the
fiscal years ended December 31, 2008 and 2007, non-deductible intangible asset
amortization included non-deductible contracts rights of $50,000 and $2,305,933,
respectively, and non-deductible interest expense related to warrant liability
of $509,531 and $0, respectively.




NOTE
17 — LOSS PER SHARE CALCULATION:




The
following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31, 2008 and 2007:




Year
      Ended
                  December
      31, 2008
              
              
              Year Ended
                  December
      31, 2007NumeratorNet
      (loss)
              
              $
              (38,785,741
              )
              
              $
              (12,390,605
              )DenominatorBasic
      and diluted weighted average shares
              
              
              13,334,900
              
              
              
              12,372,170Basic
      and diluted earnings per share
              
              $
              (2.84
              )
              
              $
              (1.00
              )




NOTE
18 — MANAGEMENT AND EMPLOYMENT AGREEMENTS:




On
February 12, 2007, the Company entered into an employment agreement with Mr.
Traina, Chief Executive Officer (“CEO”) of the Company, whereby the Company
agreed to pay the CEO $25,000 per month, plus benefits, with the term of the
agreement being 3 years.




On
February 28, 2008, Mr. Ferguson resigned from the Company in connection with the
Optos Licensing Agreement. In connection with Mr. Ferguson’s resignation as the
Company’s and CPR’s director, President and Secretary, the Company and Mr.
Ferguson entered into the Separation of Employment Agreement and General Release
(the “Ferguson Separation Agreement”). In consideration for Mr. Ferguson’s
agreement to be legally bound by the terms of the Ferguson Separation Agreement
and his release of his claims, if any, under the Ferguson Separation Agreement,
Mr. Ferguson is entitled to be reimbursed for any health insurance payments for
Mr. Ferguson for a period equal to 52 weeks. Pursuant to the Ferguson Separation
Agreement, except for the parties’ continuing obligations under the Employment
Agreement between the Company and Mr. Ferguson, dated as of February 12, 2007,
such employment agreement is of no further force and effect. Pursuant to the
Ferguson Separation Agreement, Mr. Ferguson agreed not to stand for election as
a director of the Company, and, for as long as Mr. Ferguson beneficially owns at
least 5% of the Company’s outstanding shares of common stock, Mr. Ferguson will
be entitled to be an observer at each meeting of the Company’s board of
directors. Under the Ferguson Separation Agreement, the Company entered into a
consulting agreement (the “Ferguson Consulting Agreement”) with Mr. Ferguson
pursuant to which he will be paid $25,000 per month for twelve (12) months. In
return, Mr. Ferguson shall assist the Company with any matters relating to the
performance of his former duties and will work with the Company to effectively
transition his responsibilities. As of December 31, 2008, the Company paid Mr.
Ferguson $57,692 pursuant to the Ferguson Consulting Agreement and recorded a
related party liability of $256,709 as of December 31, 2008 pursuant to the
Ferguson Consulting Agreement.


108


On June
20, 2008, Kurt Braun, the Company’s former Chief Financial Officer, resigned
effective June 20, 2008. In connection with Mr. Braun’s resignation as the
Company’s Chief Financial Officer, the Company and Mr. Braun entered into a
Separation of Employment Agreement and General Release (the “Braun Separation
Agreement”).




In
consideration of Mr. Braun’s agreement to be legally bound by the terms of the
Braun Separation Agreement, his release of his claims, if any, under the Braun
Separation Agreement, and his agreement to provide the transitional services to
the Company, the Company agreed to, among other things: (i) pay Mr. Braun
$75,000, minus all payroll deductions required by law or authorized by Mr.
Braun, to be paid as salary continuation over 26 weeks beginning within a
reasonable time after the seven day revocation period following execution of the
Braun Separation Agreement; (ii) continue to pay all existing insurance premiums
for Mr. Braun and his immediate family through the 26 week period, and
thereafter permit Mr. Braun, at his own expense, to continue to receive such
coverage in accordance with COBRA regulations; (iii) pay Mr. Braun the balance
of any accrued but unused vacation or paid time off hours, minus all payroll
deductions required by law or authorized by Mr. Braun; and (iv) amend Mr.
Braun’s Nonqualified Stock Option Agreement, dated March 30, 2007, to permit Mr.
Braun to exercise 90,000 of the 140,000 stock options granted until March 30,
2010. The balance of the Braun Stock Options expired on June 20, 2008 in
accordance with the Company’s 2006 Plan. As of December 31, 2008, the Company
paid Mr. Braun approximately $75,000 pursuant to the Braun Separation
Agreement.




On June
20, 2008, John Phillips and the Company entered into an Employment Agreement
(the “Phillips Employment Agreement”). Pursuant to the Phillips Employment
Agreement, Mr. Phillips’ current base salary is $175,000 per year, which may be
increased in accordance with the Company’s normal compensation review practices.
On November 7, 2008, the Company’s board of directors increased Mr. Phillips’
base salary to $195,000 effective November 10, 2008. Mr. Phillips is also
entitled to participate in any benefit plan of the Company currently available
to executive officers to the extent he is eligible under the provisions thereof,
and the Company will pay health, dental and life insurance premiums for Mr.
Phillips and members of his immediate family. Mr. Phillips is entitled to
receive short- and long-term disability insurance, and is entitled to three
weeks of paid time off per year. Mr. Phillips may be entitled to discretionary
bonuses as determined by the Company’s CEO, the board of the directors and the
Compensation Committee. On August 20, 2008, Mr. Phillips was granted stock
options to purchase 50,000 shares of the Company’s common stock. The options
vest in three equal annual installments beginning August 20, 2009 and expire
August 20, 2018. The exercise price of the options is $0.30 per
share.




NOTE
19 — RELATED PARTY TRANSACTIONS




Notes
Issued to Related Parties




Alyson
Drew and Fergco




On
March 1, 2005, the Company issued a 12% Amended and Restated Subordinated
Note in the original principal amount of $100,000 due 2008 to Alyson Drew (the
“Drew Note”), the spouse of the Company’s director Parker Drew.




109


On
March 1, 2005, the Company issued a 12% Amended and Restated Note in the
original principal amount of $300,000 due March 31, 2008 (the “Fergco
Note”) to Fergco, a New Jersey limited liability company of which Mr. Ferguson
owns a 25% ownership interest and his brothers own the remaining 75%
interest.




On
March 31, 2008, the Company amended the Drew Note and the Fergco Note by
issuing Second Amended and Restated Notes in the original principal amounts of
$100,000 and $300,000 to Alyson Drew and Fergco, respectively. The amended notes
extended the maturity date from March 31, 2008 until March 31, 2009.
In consideration of agreeing to amend the Drew Note and the Fergco Note, the
Company agreed to issue a warrant to each of Alyson Drew and Fergco giving them
the right to purchase 15,000 shares and 45,000 shares of common stock,
respectively, at an exercise price per share equal to $1.55. The warrants are
immediately exercisable during the period commencing on March 31, 2008 and
ending on March 31, 2010. On June 20, 2008, the Company exercised its
right to extend the maturity date of the Drew Note and the Fergco Note to
March 31, 2010. In connection with such extension, each of Alyson Drew and
Fergco received an additional warrant to purchase 15,000 shares and 45,000
shares of common stock, respectively, at an exercise price of $1.55 per share.
The additional warrants are immediately exercisable during the period commending
on June 20, 2008 and ending on March 31, 2011.




In
connection with the financing transaction with ComVest, ComVest entered into the
Subordination Agreement dated June 20, 2008 with Alyson Drew, Fergco,
certain other noteholders, and CPR. Pursuant to the Noteholder Subordination
Agreement, Alyson Drew and Fergco agreed to subordinate to ComVest the Company’s
obligations to them under the Drew Note and the Fergco Note.




The
proceeds of these notes were used to fund acquisitions. Pursuant to the terms of
these notes, ClearPoint has made interest only payments until the repayment of
the notes, as applicable. During 2007, ClearPoint made interest payments of
$15,000 and $45,000 to Alyson Drew and Fergco, respectively.  During
the fiscal year ended December 31, 2008, the Company made interest payments of
$15,000 and $45,000 to Alyson Drew and Fergco pursuant to the Drew Note and
Fergco Note, respectively.




Michael
Traina and Christopher Ferguson




CPR
issued promissory notes, dated February 22, 2008, in the aggregate principal
amount of $800,000, to each of Michael Traina and Christopher Ferguson in
consideration for loans of $800,000 made to CPR. The terms of the promissory
notes issued to Messrs. Traina and Ferguson are identical. The principal amount
of each promissory note is $400,000, it bears interest at the rate of 6% per
annum, which will be paid quarterly, and it is due on February 22, 2009. On
February 28, 2008, CPW, a wholly owned subsidiary of CPR, advanced $800,000, on
behalf of Optos, to the provider of its outsourced employee leasing program. The
advanced funds were utilized for Optos’s payroll. In consideration of making the
advance on its behalf, Optos assumed the foregoing promissory notes, and the
underlying payment obligations.


110


Bridge
Notes




On June
6, 2008, the Company issued the Original Bridge Notes, to each of Michael
Traina, Parker Drew and TerraNova Partners in the principal amounts of $104,449,
$50,000 and $100,000, respectively.  During the course of negotiations
with ComVest, Mr. Traina agreed to loan an additional $5,000 to the
Company.  TerraNova Partners, the Company’s principal stockholder, is
100% owned by Mr. Kololian, the Company’s lead director and principal
stockholder. Mr. Kololian also controls 100% of the voting interest in the
general partner and 55% of the non-voting equity interest in the general partner
of TerraNova Partners. The Original Bridge Notes contained identical terms and
were unsecured and payable on demand.  No interest accrued on the
unpaid principal balance of the Original Bridge Notes until
demand.  After demand, the Original Bridge Notes bore interest at an
annual rate of 5%.  On June 26, 2008, the Company issued the Amended
Bridge Notes. The Amended Bridge Notes contain identical terms and provide that
(i) the principal amount of the Amended Bridge Notes will bear interest at a
rate of 8% per annum, payable quarterly and (ii) the Company will have the right
to repay the Amended Bridge Notes in shares of r common stock at a price equal
to the closing price of common stock on June 26, 2008. The Amended Bridge Notes
do not contain the provision stating that the principal balance will bear
interest only upon demand, as provided in the Original Bridge Note. Mr. Drew’s
amended bridge note was repaid in full and Mr. Traina was repaid $5,000 during
the quarter ended June 30, 2008. The balance of Mr. Traina’s loan was repaid in
July 2008. On August 12, 2008, the Company’s board of directors approved the
payment of the Amended Bridge Note issued to TerraNova Partners in 204,082
shares of common stock in accordance with the terms of the Amended Bridge Note.
On March 6, 2009, these shares were issued to TerraNova Partners.




Agreements
with Related Parties




Separation
Agreement and Consulting Agreement with Christopher Ferguson




On
February 28, 2008, Mr. Ferguson resigned effective February 28, 2008. In
connection with Mr. Ferguson’s resignation, the Company entered into the
Ferguson Separation Agreement. In consideration for Mr. Ferguson’s agreement to
be legally bound by the terms of the separation agreement and his release of his
claims, if any, under the separation agreement, Mr. Ferguson is entitled to be
reimbursed for any health insurance payments for Mr. Ferguson for a period equal
to 52 weeks..  Pursuant to the Ferguson Separation Agreement, on April
18, 2008, CPR entered into the Ferguson Consulting Agreement with Mr. Ferguson
pursuant to which he will be paid $25,000 per month for twelve (12)
months.  As of December 31, 2008, the Company paid Mr. Ferguson
$57,692 pursuant to the Ferguson Consulting Agreement and recorded a liability
of $256,709 as of December 31, 2008 pursuant to the Ferguson Consulting
Agreement.




Separation
Agreement with Kurt Braun




On July
20, 2008, Kurt Braun, the Company’s former Chief Financial Officer, resigned
effective June 20, 2008. In connection with Mr. Braun’s resignation, the Company
entered into the Braun Separation Agreement. In consideration of Mr. Braun’s
agreement to be legally bound by the terms of the separation agreement, the
Company agreed to, among other things: (i) pay Mr. Braun $75,000, minus all
payroll deductions required by law or authorized by Mr. Braun, to be paid as
salary continuation over 26 weeks beginning within a reasonable time after the
seven day revocation period following execution of the Braun Separation
Agreement; (ii) continue to pay all existing insurance premiums for Mr. Braun
and his immediate family through the 26 week period, and thereafter permit Mr.
Braun, at his own expense, to continue to receive such coverage in accordance
with COBRA regulations; and (iii) pay Mr. Braun the balance of any accrued but
unused vacation or PTO hours, minus all payroll deductions required by law or
authorized by Mr. Braun. During the fiscal year ended December 31, 2008, the
Company paid approximately $75,000 to Mr. Braun pursuant to the foregoing
agreement.




Agreements
with TerraNova Management




Terra
Nova Management Corporation (“TNMC”), an affiliate of Mr. Kololian, was retained
to provide certain advisory services to the Company, effective upon the closing
of the merger with Terra Nova, pursuant to the Advisory Services Agreement
between TNMC and the Company, dated February 12, 2007 (the “Advisory Services
Agreement”).  Mr. Kololian controls 100% of the voting interest and
55% of the non-voting equity interest of TNMC.  Pursuant to the
Advisory Services Agreement, TNMC provided services to the Company including:
advice and assistance to the Company in its analysis and consideration of
various financial and strategic alternatives, as well as assisting with
transition services. During the fiscal year ended December 31, 2007, TNMC
received a fixed advisory fee of $175,000 (prorated for a partial year) for such
services.  Pursuant to the terms of the Advisory Services Agreement,
it was terminated effective February 11, 2008, however TNMC continued to provide
substantially similar services under substantially similar terms to the Company
on a monthly basis.


111


On June
26, 2008, the Company entered into a new Advisory Services Agreement (the “New
Advisory Services Agreement”) with TNMC. Pursuant to the New Advisory Services
Agreement, the Company agreed to provide compensation to TNMC for its services
since the expiration of the former Advisory Services Agreement and to engage
TNMC to provide future advisory services. The New Advisory Services Agreement is
effective as of June 26, 2008, continues for a one year term and is
automatically renewed for successive one-year terms unless terminated by either
party by written notice not less than 30 days prior the expiration of the
then-current term.  The Company will compensate TNMC for services
rendered since expiration of the former Advisory Services Agreement and for
advisory services similar to those performed under the former Advisory Services
Agreement. Monthly fees payable to TNMC under the New Advisory Services
Agreement are capped at $50,000 per month. Fees payable to TNMC may be paid 100%
in shares of common stock, at the Company’s option. Beginning in the month of
June, 2008, 75% of the fees payable to TNMC may also be paid in shares of common
stock and, with the agreement of TNMC, the remaining 25% may also be paid in
shares of common stock. Shares of common stock made as payments under the New
Advisory Services Agreement will be priced at the month-end closing price for
each month of services rendered. During the fiscal year ended December 31, 2008,
the Company incurred approximately $292,665 in fees owing to TNMC for such
services.




The
Company’s board of directors approved payment of $266,000 for the services
performed by TNMC pursuant to the New Advisory Services Agreement in the form of
an aggregate of 479,470 shares of common stock for the months of February
through August, 2008 as follows: on August 12, 2008, the board of directors
approved payment for the months of February, March, April, May and June, 2008 in
417,008 shares of common stock and on November 7, 2008, the board of directors
approved payment for the months of July and August, 2008 in 62,462 shares of
common stock.




Additionally,
the Company recorded approximately $ 1,573 and $99,202 for reimbursement
of expenses incurred by TNMC in connection with the former Advisory Services
Agreement and the New Advisory Services Agreement for the fiscal years ended
December 31, 2007 and 2008, respectively.




Prior to
the merger, the Company incurred a fee from TNMC of $7,500 per month for
providing Terra Nova with office space and certain general and administrative
services, which amounted to $7,500 in the 2007 fiscal year.




Agreements
with ALS, LLC




On
February 23, 2007, the Company acquired certain assets and liabilities of ALS.
The purchase price of $24.4 million consisted of cash of $19 million, the ALS
Note, shares of common stock with a value of $2.5 million (439,367 shares) and
the assumption of approximately $400,000 of current liabilities. ALS’s
stockholders may also receive up to two additional $1 million payments in shares
of common stock based on the Company’s financial and integration performance
metrics in calendar years 2007 and 2008. No such payments have been made to
date.


112


In
connection with the financing transaction with ComVest, on June 20, 2008, the
Company entered into the ALS Agreement with ALS and its subsidiaries whereby the
parties agreed, among other things, to: (i) amend the ALS Note to provide for an
outstanding principal amount of approximately $2,156,000 bearing interest at a
rate of 5% per annum payable in 24 equal monthly installments, payable as
permitted pursuant to the subordination letter and (ii) issue 350,000 shares of
common stock to ALS. In addition, the parties agreed that ALS may defend and
indemnify the Company in connection with certain litigation involving the
parties.




Pursuant
to a subordination letter sent by ALS to ComVest, M&T and the Company dated
June 20, 2008, ALS agreed that the Company may not make and ALS may not receive
payments on the ALS Note, provided however, that (i) upon payment in full of all
obligations owing to ComVest and so long as the Company is permitted to make
such payments, the Company will make monthly interest payments on the
outstanding principal balance of the ALS Note and (ii) upon payment in full of
its obligations owing to M&T, the Company will make 24 equal monthly
installments on the ALS Note, as amended pursuant to the ALS Agreement described
above.  As of December 31, 2008, approximately $2,156,000 was
outstanding under the ALS Note.




Transactions
with Dennis Cook, The Cameron Company, LLC  and WES Health
System




Dennis
Cook, a member of the Company’s board of directors, served as an advisor to the
board of directors since 2007. In such capacity, Mr. Cook provided ad hoc
recommendations regarding general business strategy to the board of directors
upon request. In connection with such services, the Company paid Mr. Cook
approximately $12,000 and $4,000 during the years ended December 31, 2007
and 2008, respectively. During the fiscal year ended December 31, 2008, the
Company leased office space from WES Health System (“WES”) for which it
paid a total of $1,875. In addition, on March 29, 2007, Mr. Cook was
granted options to purchase 20,000 shares of common stock at an exercise price
of $6.10. The options vested immediately.  Mr. Cook serves as the
President and Chief Executive Officer of WES and as President and Chief
Executive Officer of The Cameron Company, LLC.  The Cameron Company,
LLC was issued 30,258 shares of common stock in connection with the merger of
Terra Nova in 2007.  During the fiscal years ended December 31, 2007
and 2008, the Company provided certain temporary employees and payroll services
to WES for approximately $2,861,000, and $1,156,000,
respectively.




Transactions
with KOR, TZG and Optos




On August
30, 2007, the Company entered into an agreement (the “KOR Agreement”) with KOR,
a Florida limited liability company controlled by Kevin O’Donnell, a former
officer of the Company, pursuant to which the Company granted to KOR an
exclusive right and license (i) to set up and operate, in parts of northern
California and Florida, a franchise of the Company’s system and procedures for
the operation of light industrial and clerical temporary staffing services and
(ii) to use in connection with the operation certain of the Company’s
proprietary intellectual property. The KOR Agreement replaced the agreement
between the Company and KOR entered on July 9, 2007. In consideration for the
grant and license, KOR was required to pay to the Company , on a weekly basis, a
royalty equal to 4.5% of all gross revenues earned by KOR from its operations.
KOR also agreed to pay the Company, on a weekly basis, a royalty equal to 50% of
the net income from KOR’s operations. Through this relationship KOR operated and
managed up to twelve of the Company’s former branches. The KOR Agreement was
terminated on March 5, 2008 as described in Note 15 – Franchise
Agreements.




On
February 28, 2008, CPR and its subsidiary, CPW, entered into the Optos Licensing
Agreement with Optos, of which Christopher Ferguson is the sole member. Pursuant
to the Optos Licensing Agreement, the Company (i) granted to Optos a
non-exclusive license to use the ClearPoint Property and the Program, both as
defined in the Optos Licensing Agreement, which include certain intellectual
property of CPR, and (ii) licensed and subcontracted to Optos the client list
previously serviced by TZG, pursuant to the TZG Agreement, dated August 13, 2007
and all contracts and contract rights for the clients included on such
list.  In consideration of the licensing of the Program, which is part
of the ClearPoint Property, CPR was entitled to receive a fee equal to 5.2% of
total cash receipts of Optos related to temporary staffing services. With CPR’s
consent, Optos granted, as additional security under certain of its credit
agreements, conditional assignment of Optos’ interest in the Optos Licensing
Agreement to its lender under such credit agreements. The foregoing agreement
with TZG was terminated on February 28, 2008 in connection with the Optos
Licensing Agreement as described in Note 15 – Franchise
Agreements.


113


On April
8, 2008, the Optos Licensing Agreement was terminated. In consideration for
terminating the Optos Licensing Agreement, CPR and Optos have agreed that there
will be a net termination fee for any reasonable net costs or profit incurred,
if any, when winding up the operations associated with termination. This fee is
estimated to be $500 and has been recorded as an expense. The payment of the net
termination fee will be in the form of cash and shares of common stock of the
Company.  As of December 31, 2008, the following balances concerning
the Optos Licensing Agreement have been recorded:




Accounts
      receivable – related party
                  
                  $
                  336,670Accrued
      termination fee
                  
                  
                  (500,000
                  )Vendor
      managed services payable and other liabilities
                  
                  
                  (201,799
                  )Net
      (due) Optos
                  
                  $
                  (365,129
                  )


Merger
with Terra Nova




On
February 12, 2007, CPR merged with a wholly-owned subsidiary of Terra Nova
whereby as a result of the merger, stockholders of CPR received an aggregate of
6,051,549 shares of Terra Nova common stock. Of such shares, Michael Traina,
Optos, Fergco, Brendan Calder, the Company’s director, Alyson Drew and Richard
and Margaret Traina, the parents of Michael Traina, received 3,260,573;
2,361,313; 181,547; 90,000; 60,516 and 60,516 shares of Terra Nova common stock,
respectively.




NOTE
20 — LITIGATION:




Westaff,
Inc.




In
February of 2007, the Company entered into a three party settlement agreement
between the Company, Westaff, Inc. (“Westaff”) and 26 employees hired by the
Company who formerly worked for Westaff. The settlement arose out of lawsuits
filed by Westaff against certain of those employees. The terms of the settlement
required the Company to make a one time cash payment of $266,000 to Westaff,
plus legal fees of $56,000, and in return for such consideration Westaff agreed
to release all 26 former employees of Westaff and now employed by the Company
from their non-compete and non-solicitation agreements that the employees had
signed while employed by Westaff. As an additional term of the settlement
agreement, the Company agreed to cease the solicitation of Westaff employees.
The total cost to the Company including legal expenses of $322,000 was expensed
in the fiscal year 2007.




The
Company also hired a high level transportation sales executive. The former
partner of the high level executive, threatened litigation against the Company
based on covenants not to compete related to clients that the Company was
soliciting. To settle the potential claim, the Company made a one-time cash
payment of $80,000 in the first quarter of fiscal 2007 to the former partner of
the transportation executive in exchange for the settlement and release of all
potential claims against the Company and the executive.


114


Temporary
Services Insurance Ltd.




On
September 21, 2007, Temporary Services Insurance Ltd. (“TSIL”), which claims to
be a captive reinsurance company offering workers’ compensation insurance to its
shareholders through an insurance program, filed a complaint (the “TSIL
Litigation”) in the U.S. District Court in Florida against ALS, Advantage
Services Group, LLC (“Advantage Services”), certain officers and shareholders of
ALS and Advantage Services as well as certain other third party companies
(collectively, the “ALS Defendants”) alleging that it was owed at least
$2,161,172 in unpaid insurance assessments, as well as other requested damages,
from the ALS Defendants. Kevin O’Donnell, a former officer of the ALS companies
and a named defendant in the TSIL Litigation, controls KOR, a former franchisee
of the Company.




The
Company is also named as a defendant because it acquired certain assets from ALS
and its wholly owned subsidiaries, including Advantage Services Group II, LLC
(“ASG II”), in February 2007, for which it paid a portion of the purchase price
at closing to the ALS Defendants, through ALS. It is alleged that this transfer
rendered ASG II, one of the named insureds on the TSIL policy, insolvent and
unable to pay the insurance assessments and damages owed to TSIL. TSIL requested
in its complaint that its damages be satisfied from the assets transferred to
the Company.  Agreements related to the acquisition of certain assets
and liabilities of ALS in February 2007 contain provisions under which the
Company may seek indemnification from ALS in connection with the foregoing. the
Company intends to pursue all appropriate claims for such indemnification and
cannot estimate the potential liability, if any.




On
January 11, 2008, the Company filed its Answer denying all claims in the TSIL
Litigation and also filed a Crossclaim against ALS making claims for contractual
and common law indemnity. ALS filed its Answer to the Company’s Crossclaim,
denying all claims, and filed a Counterclaim asking for a declaratory judgment
that it does not have to indemnify the Company and asserting a breach of
contract claim based on an alleged failure to pay ALS certain amounts due under
the ALS Note arising out of the acquisition of certain assets and liabilities of
ALS in February 2007. The court in the TSIL Litigation entered an order dated
February 22, 2008 (the “TSIL Order”), requiring the Company not to make any
payments to ALS pursuant to the purchase agreement without first seeking leave
of court.




On or
about June 20, 2008, in connection with ALS’ agreement to subordinate the ALS
Note to ComVest and M&T, ALS and its subsidiaries and certain other
individuals (the “ALS Parties”) entered into a letter agreement with the Company
(the “ALS Agreement”). Pursuant to the ALS Agreement, the ALS Parties and the
Company agreed, among other things, as follows:




·
            That
      the ALS Parties acknowledge their obligation to indemnify the Company in
      connection with the TSIL Litigation, subject to certain sections of the
      ALS purchase agreement;




·
            That
      the ALS Parties shall be responsible for the Company’s attorney’s fees
      incurred in the TSIL Litigation from June 20, 2008, not to exceed
      $300,000;




·
            That
      the ALS Parties and the Company shall take all appropriate actions to
      dismiss all of their respective claims against one another in the TSIL
      Litigation, and that following such dismissal, the Company shall cooperate
      as reasonably requested by the ALS Parties in connection with the TSIL
      Litigation including consenting in connection with a request to lift the
      TSIL Order, or otherwise permit payment to the ALS Parties in accordance
      with the terms of the ALS purchase agreement and the ALS Note;
      and




In
addition, the Company agreed not to assert its right to set off from the Note
any other amounts in connection with the TSIL Litigation until such time (if at
all) as a final judgment is entered against the Company in the TSIL Litigation,
or the amount of TSIL’s claims against the Company are liquidated by settlement
or otherwise.


115


ALS did
not elect to provide a defense to the Company, and the Company remains
represented by its own counsel. On November 21, 2008, a joint stipulation for
voluntary dismissal was filed with the court pursuant to which the Company and
ALS jointly dismissed such claims with prejudice. On December 8, 2008, the court
entered an order dismissing all claims between the Company and ALS with
prejudice. The litigation between TSIL and ALS is currently concluding its fact
discovery phase and commencing its expert discovery phase.




James
W. Brown et al.




On or
about October 29, 2007, the Company received a copy of a letter sent by a law
firm to the California Labor & Workforce Development Agency, pursuant to
which such law firm sought permission under the California Labor Code Private
Attorney General Act of 2004 to file a complaint against the Company, a wholly
owned subsidiary of the Company and ALS and one of its subsidiaries, on behalf
of a class of employees currently and formerly employed by the defendants in
California (the employees had not been named). On January 30, 2008, James W.
Brown (“Brown”), on behalf of himself and all others similarly situated, on
behalf of the general public and as an “aggrieved employee” under the California
Labor Code Private Attorneys General Act, filed a complaint in the Superior
Court of the State of California (Alameda County) (the “Brown Litigation”)
against ClearPoint Advantage, LLC, a wholly owned subsidiary of CPR (“CP
Advantage”). Agreements related to the acquisition of certain assets and
liabilities of ALS in February 2007 contain provisions under which the Company
may seek indemnification from ALS in connection with the foregoing. the Company
intends to pursue all appropriate claims for such indemnification.




The
complaint in the Brown Litigation alleges that CP Advantage (i) failed to pay
overtime compensation to employees who worked a 4/10 schedule but did not work a
4 day week (Calif. Labor Code Section 1194 and 2699(f)) to him and to all
California employees similarly situated, (ii) failed to pay wages at the end of
the assignment (Calif. Labor Code Sections 201, 202 and 203 and 2699(f)) to him
and to all California employees similarly situated, (iii) failed to pay all
wages due on termination (Calif. Labor Code Sections 204 and/or 204b and
2699(f)) to him and to all California employees similarly situated, (iv) failed
to provide proper itemized wage statements (Calif. Labor Code Section 226(a)) to
him and to all California employees similarly situated, and (v) issued checks
with no in-state address for presentation that could not be cashed on demand and
without a fee (Calif. Labor Code Section 212 and 2699(f)) to him and to all
California employees similarly situated. On March 25, 2008, CP Advantage filed
its Answer and denied all claims. In addition, on March 26, 2008, CP Advantage
filed a Notice of Removal to remove the Brown Litigation to the United States
District Court of the Northern District of California. Brown sought unspecified
penalties, damages, interest, attorneys’ fees, costs of suit and, in relation to
the claim regarding the alleged issuance of checks drawn on out-of-state banks
with no in-state address for presentation, an injunction to preclude such
alleged conduct.




On
November 17, 2008, a settlement was reached and as part of such settlement the
lawsuit was dismissed. With respect to the claim relating to the issuance of
paychecks to Brown and other similarly situated California employees with no
in-state address listed on the checks, and which could not be cashed without fee
and on demand, the parties agreed to toll the statute of limitations until June
30, 2010, so that if any action is later brought based on those same claims, the
statute of limitations on those claims will relate back to January 30,
2008.


116


APX
Holdings, LLC




On or
about March 4, 2008, Richard K. Diamond, Chapter 7 Trustee (“Trustee”) for In Re
APX Holdings, LLC et al., filed a complaint (the “APX Litigation”) in the United
States Bankruptcy Court in California against ASG Northern California, Advantage
Services Group, the Company and MVI, alleging, among other things, that APX
Holdings, LLC and other related parties (collectively, the “Debtors”) made
transfers to the defendants within ninety (90) days prior to March 16, 2006
(Debtors’ petition date).  Plaintiff filed a First Amended Complaint
on March 14, 2008. Plaintiff alleged that those transfers had been made to or
for the benefit of the defendants as creditors of the Debtors and that the
transfers had been made for or on account of an antecedent debt owed by one or
more of the Debtors before the transfers had been made. Plaintiff also alleged
that the transfers had been made while the Debtors were insolvent. Plaintiff
made similar claims alleging that the transfers constituted the receipt of an
interest of the Debtors in property and that the Debtors had received less than
a reasonably equivalent value from the defendants in exchange for the transfers.
Plaintiff claimed that the defendants owed plaintiff at least $506,000 plus
interest and costs and such other relief deemed proper by the
court.




The
Company was named as a defendant in the APX Litigation because it had acquired
certain assets from ALS and its wholly owned subsidiaries, which referred to
themselves collectively as Advantage Services Group, in February 2007. All of
the transfers alleged in the APX Litigation took place almost a year prior to
the time that the Company consummated the asset acquisition with
ALS.




On June
27, 2008, the Trustee filed a Stipulation dismissing the Company and MVI from
the APX Litigation.




Alliance
Consulting Group Associates, Inc.




On April
25, 2008, Alliance Consulting Group Associates, Inc. (“Alliance”) filed a
complaint (the “Alliance Litigation”) in the Court of Common Pleas (Montgomery
County, Pennsylvania), against CPR alleging that CPR failed to honor certain of
its contractual obligations to pay Alliance for services rendered under a
Professional Services Master Agreement, dated June 18, 2007.




Namely,
Alliance alleged that CPR failed to pay approximately $600,000. Alliance seeks
damages in the amount of approximately $600,000, plus interest, costs and
attorneys’ fees and such other relief deemed proper by the court.  CPR
filed an answer and counterclaim on June 16, 2008. In its counterclaim, CPR
alleged in a breach of contract claim that Alliance had failed to deliver
certain computer programming and consulting services according to specifications
and that CPR had to expend certain monies to fix the resulting
problems.  On or about July 2, 2008, Alliance answered CPR’s
counterclaim denying the allegations.  This litigation is currently in
the discovery phase.




Sunz
Insurance




On or
about June 25, 2008, Sunz Insurance Company (“Sunz”) filed a complaint (the
“Sunz Litigation”) in the Circuit Court of the 9th Judicial Circuit (Orange
County, Florida), against ASG, LLC d/b/a ClearPoint HR (“ALS”) and CP Advantage.
Sunz claims to have provided workers compensation insurance to ALS and CP
Advantage and that such policy was cancelled on February 22, 2008, for alleged
nonpayment of funds due under the insurance contract. Sunz claims that ALS and
CP Advantage owe in excess of $500,000 under the policy. Sunz, in addition to
damages, seeks pre-judgment interest, court costs, attorneys’ fees and such
other relief deemed proper by the court.  On February 9, 2009, the
court ordered Sunz to conduct an audit of ALS and CP Advantage and set this
matter for mandatory mediation.  On March 3, 2009, ALS and CP
Advantage answered Sunz’s allegations and denied any liability.




Select




On July
29, 2008, Select and Real Time, filed a complaint (the “Select Litigation”) in
the Superior Court of California (Santa Barbara County), against the Company
and, on August 1, 2008, Select filed an amended complaint. In the amended
complaint, Select alleged that the Company had entered into an agreement with
Select whereby Select would supply services and personnel for temporary
employment through the Company to its clients. Select claimed that the Company
owed it $1,033,210 for services performed. Select sought, in addition to the
monies claimed, interest, attorneys’ fees and punitive damages of $1,000,000 as
well as court costs and other just and proper relief.


117


On August
22, 2008, CPR, Real Time and Select entered into the Select Settlement Agreement
pursuant to which each party released the others from all prior, existing and
future claims including, without limitation, the parties’ claims with respect to
the Select Litigation, the Select License Agreement and the Select Subcontract.
Pursuant to the Select Settlement Agreement, the parties also agreed (i) that
CPR would retain $900,000 paid to it under the Select License Agreement; (ii) to
allocate between them amounts paid or payable with respect to certain client
accounts; (iii) to execute an amendment to the Select Subcontract; and (iv) that
Select would file the required documents to dismiss the Select Litigation with
prejudice. In addition, the parties agreed not to commence any future action
arising from the claims released under the Select Settlement Agreement and to
terminate the Select License Agreement effective August 22, 2008. On August 28,
2008, this lawsuit was dismissed with prejudice.




Leon
R. Cobaugh




On or
about October 20, 2008, Leon R. Cobaugh (“Cobaugh”) filed a complaint in the
Circuit Court for Chesterfield County of the Commonwealth of Virginia against
the Company and Quantum. The complaint alleges that, pursuant to the Stock
Purchase Agreement dated December 30, 1986 (“SPA”), Cobaugh retired from his
positions as an officer, director and employee of AIDE Management Resources
Corporation, the prior name of Quantum, and sold his stock in such entity to the
remaining stockholders in exchange for lump sum payments and monthly payments
from Quantum for the rest of Cobaugh’s life. The Company acquired all of the
outstanding stock of Quantum on July 29, 2005. Upon its acquisition of Quantum,
the Company assumed Quantum’s obligations under the SPA. Cobaugh alleged that
the Company had failed to make the required monthly payments due under the SPA
beginning June 1, 2008 and sought to recover a minimum of $200,000 as may be
adjusted based on the Consumer Price Index under the SPA.  This
dispute was settled on January 22, 2009.  Pursuant to the settlement
agreement among the parties, past due amounts to Cobaugh were paid, and the
Company agreed to continue making future payments as required by the
SPA.




XL
Specialty Insurance Company




On
November 10, 2008, XL Specialty Insurance Company (“XL”) filed a complaint in
the Supreme Court of the State of New York (New York County), and, on December
9, 2008, XL filed an amended complaint (the “XL Complaint”) alleging that, among
other things, XL issued workers’ compensation insurance policies to CP Advantage
during 2007 and CP Advantage failed to make certain payments with regard to
claims made against CP Advantage under the policies and maintain collateral
required by the insurance policy documents. XL seeks to recover from the
Company, as a guarantor of CP Advantage’s obligations under the insurance
policies, $745,548, in the aggregate, in connection with certain claims against
and pursuant to the collateral obligations of, CP Advantage. XL, in addition to
damages, seeks pre-judgment interest, attorneys’ fees, costs and expenses and
such other relief deemed proper by the court.  The Company filed its
answer in this matter on February 17, 2009 and contends that a third party is
liable for the payments under the insurance policies pursuant to an agreement
governing the sale of HRO.  This litigation is currently moving into
the discovery phase.


118


AICCO,
Inc.




On
November 18, 2008, AICCO, Inc. (“AICCO”) filed a complaint the Court of Common
Pleas of Bucks County, Pennsylvania against the Company alleging that AICCO
agreed to finance premiums of certain insurance policies procured by the Company
pursuant to a certain premium finance agreement among AICCO and the Company.
AICCO claims that the Company breached the terms of such agreement by failing to
make certain installment payments and seeks damages in excess of approximately
$600,000, together with interest and attorney’s fees and costs.  On
December 23, 2008, the Company filed an answer in this matter and joined two
additional defendants on January 23, 2009.  The joined defendants
filed their answer to the Company’s complaint on March 27, 2009.  The
Company contends that the joined defendants are liable for the installment
payments pursuant to an agreement governing the sale of HRO.  The
Company alleged breach of contract against the joined defendants and seeks
contribution and indemnification from such parties in this matter.




The
Company has accrued for some, but not all, of these matters. An adverse decision
in a matter for which the Company has no reserve may result in a material
adverse effect on its liquidity, capital resources and results of operations. In
addition, to the extent that the Company’s management has been required to
participate in or otherwise devote substantial amounts of time to the defense of
these matters, such activities would result in the diversion of management
resources from business operations and the implementation of the Company’s
business strategy, which may negatively impact the Company’s financial position
and results of operations.




The
principal risks that the Company insures against are general liability,
automobile liability, property damage, alternative staffing errors and
omissions, fiduciary liability and fidelity losses. If a potential loss arising
from these lawsuits, claims and actions is probable, reasonably estimable, and
is not an insured risk, the Company records the estimated liability based on
circumstances and assumptions existing at the time. Whereas management believes
the recorded liabilities are adequate, there are inherent limitations in the
estimation process whereby future actual losses may exceed projected losses,
which could materially adversely affect the financial condition of the
Company.




Generally,
the Company is engaged in various other litigation matters from time to time in
the normal course of business. Management does not believe that the ultimate
outcome of such matters, including the matters above, either individually or in
the aggregate, will have a material adverse impact on the financial condition or
results of operations of the Company.




NOTE
21 — SUBSEQUENT EVENTS:




Agreement
with XRoads Solutions




On
January 13, 2009, the Company entered into the XRoads Agreement. Pursuant to the
XRoads Agreement, among other matters, XRoads agreed to provide the services of
Brian Delle Donne to serve as the Company’s Interim Chief Operating
Officer.  The term of the XRoads Agreement commenced on January 13,
2008 and will continue for 4 months.




The
Company agreed to pay XRoads $50,000 per month for each of the first four months
of Mr. Delle Donne’s services and the parties will mutually agree to a new fee
structure in the event Mr. Delle Donne serves beyond that period. The Company
also agreed to pay XRoads a monthly fee based upon achievement of certain
increases in earnings before interest, taxes, depreciation and amortization,
calculated pursuant to the XRoads Agreement (“EBITDA”). Such fee will be equal
to 10% of increases in monthly EBITDA during the term of the XRoads Agreement
over EBITDA for the month ended January 31, 2009, capped at $50,000 per month.
The Company also agreed to pay reasonable expenses incurred by XRoads for
services related to its services and remitted a retainer in the amount of
$10,000 to XRoads for such purpose.  As of March 23, 2009, pursuant to
the XRoads Agreement, the Company paid XRoads a total of $150,000 and the
$10,000 retainer for reimbursement of expenses. Any amounts not paid by when due
pursuant to the XRoads Agreement will bear interest at an annual rate of 12% or
the maximum rate allowed by law, whichever is less.


119


In
addition, the Company issued XRoads a warrant to purchase up to 100,000 shares
of common stock at the exercise price of $0.12 per share.  Such
warrant is held in escrow, to be released within 120 days of the date of the
XRoads Agreement, and will be exercisable upon such release through December 31,
2010.  In the event the XRoads Agreement is extended, the Company
agreed to issue an additional warrant to purchase 75,000 shares of common stock
with an expiration date of April 30, 2011.




In the
event the Company elects  to pursue a financing (either in the form of
debt or equity) within one year of the date of the XRoads Agreement, XRoads
shall serve as its non-exclusive financial advisor for such financing in
accordance with the terms of the XRoads Agreement. If such financing is
consummated pursuant to the terms set forth in the XRoads Agreement, the Company
agreed to pay XRoads a transaction fee based on the type and value of the
transaction. The transaction fee will be prorated accordingly in the event the
Company retains an additional financial advisor in connection with the
transaction, but such fee shall not be less than $75,000 if XRoads’ efforts
result in an bona fide financing alternative.




The
Company or XRoads may terminate the XRoads Agreement at any time with at least
thirty days prior written notice.  In the event of a material breach
of the XRoads Agreement by either party, including, but not limited to, the
Company’s failure to promptly pay amounts due for services rendered or for
reimbursement of expenses, the non-breaching party may terminate the XRoads
Agreement at any time thereafter upon 5 days advance notice.




On
January 29, 2009, in order to assist the Company in making the payments under
the XRoads agreement, the Company and ComVest entered into Amendment No. 1
(“Amendment No. 1”) to the Term Note issued by to ComVest discussed in Note 11 –
Debt Obligations.  Pursuant to Amendment No. 1, the Term Note
installments due and payable on each of February 1, 2009, March 1, 2009, April
1, 2009 and May 1, 2009, respectively, will be reduced by an amount equal to the
positive difference (if any) of (i) the lesser of (a) $50,000 or (b) the amount
paid or payable to XRoads during the immediately preceding calendar month
pursuant to the XRoads agreement, minus (ii) the amount (if any) by which the
aggregate Royalties collected during the immediately preceding calendar month
exceeded $450,000. After the effective date of any termination of the XRoads
agreement, no reduction in any subsequent Term Note installments will be
permitted and, notwithstanding any extension of the services of Mr. Delle Donne
beyond the initial four month term of the XRoads agreement, ComVest will not be
obligated to reduce any further Term Note installments.  Amendment No.
1 also contains ComVest’s acknowledgment and consent to the Company’s amendment
of the payment terms and payment schedule of the StaffBridge Note pursuant to
the second Debt Extension Agreement described in Note 11 – Debt
Obligations.




On March
16, 2009, the Company and StaffChex entered into Amendment No. 1 to the iLabor
Agreement (the “Amendment”) pursuant to which the payment terms of the iLabor
Agreement were restated.  The Amendment provides that the Company will
pay StaffChex for client-approved billable work hours at the agreed-upon hourly
rate with respect to such client.  Royalties payable to the Company
shall be calculated based on weekly collections.  For weekly
collections of less than $1.4 million, the Royalty is one and one-quarter
percent (1.25%) and for weekly collections of more than $1.4 million, the
Royalty is two percent (2%).  These weekly payments commenced on March
18, 2009.  In addition, StaffChex agreed to make 104 weekly payments
of $4,096 followed by 52 weekly payments of $3,105 for past-due Royalties owed
through February 28, 2009.  Such additional payments will commence on
June 3, 2009.  The failure of StaffChex to make payments due pursuant
to the iLabor Agreement constitutes a material breach.  In the event
of nonpayment, StaffChex will have a ten (10) day cure period to make any
delinquent payments.  If such payments remain outstanding following
the cure period, StaffChex agreed to direct its affiliated receivables factoring
company to make the required payment to the Company.


120


In
addition, the Amendment provides that StaffChex may not assign, convey, sell,
transfer or lease the Customer Account Property or the underlying customer
agreements transferred to StaffChex without the prior written consent of the
Company.  Such consent will not be required in connection with a
transaction occurring after February 28, 2012 and is part of a sale of 100% of
the stock of StaffChex or all or substantially all of its
assets.


121


Item
9.  Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.




Not
applicable.





Item
9A(T).  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures




As of the
end of the period covered by this report, our management, under the supervision
and with the participation of the principal executive officer and principal
financial officer, evaluated the effectiveness of the design and operation of
our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange
Act).  Based on this evaluation, our principal executive officer and
principal financial officer have concluded that the disclosure controls and
procedures were effective as of the end of the period covered by this report to
provide reasonable assurance that information required to be disclosed in
reports that we file or submit under the Exchange Act is (i) recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms and (ii)  accumulated and communicated to our
management, including the principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.




Management’s
Report on Internal Control Over Financial Reporting


Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Internal control over financial
reporting is a process designed 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 those policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; provide reasonable
assurance that transactions are recorded as necessary to permit the preparation
of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
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.




As
previously disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2007 and our Quarterly Reports on Form 10-Q for the first,
second and third fiscal quarters of 2008, management identified “material
weaknesses” in our internal control over financial reporting as of December 31,
2007.  A “material weakness” is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely
basis.  The weaknesses in our internal controls over financial
reporting were cited in: not maintaining an effective control environment due to
the lack of documented, formal policies and procedures; not maintaining
effective control over accounts payable, accounts receivable and payroll
processing; not maintaining effective internal controls over the financial
closing and reporting process; and not maintaining effective controls over
information technology systems.  These material weaknesses could have
resulted in a misstatement of the aforementioned accounts or disclosures that
would result in a material misstatement the annual or interim consolidated
financial statements that would not be prevented or detected.  These
matters did not, in fact, have any impact on our financial statements as these
issues were identified and properly accounted for within our unaudited interim
consolidated financial statements for the first, second and third quarters of,
or the annual consolidated financial statements for, the fiscal year ended
December 31, 2008.




In
response to the identified material weaknesses, our management, with oversight
from our Audit Committee, undertook a remediation plan and dedicated resources
to support our efforts to improve internal control over financial reporting in
the affected areas. Our remediation efforts included (i) implementing new
policies, procedures and documentation, and related controls in the affected
areas, (ii) consolidation of personnel and reporting functions within our
corporate office as relates to accounts payable and accounts receivable, as well
as outsourcing of the payroll function, (iii) implementation of a regular
financial closing and reporting process and (iv) enhanced controls and
usage of information technology systems. We believe that these remediation
efforts have improved our internal control over financial reporting, as well as
our disclosure controls and procedures, and that the material weaknesses were
remediated as of December 31, 2008.




Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008.  In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated
Framework (COSO).  Based its assessment, management has concluded
that, as of December 31, 2008, our internal control over financial reporting was
effective based on those criteria.


122


Changes
in Internal Control Over Financial Reporting




There
were no changes in our internal control over financial reporting during the
fourth quarter of fiscal 2008, other than changes described under “Management’s
Report on Internal Control Over Financial Reporting” above that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.




This
Annual Report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management’s report in this Annual Report on Form
10-K.





Item
9B.  Other Information.





Not
applicable.




123




PART
III





Item
10.  Directors, Executive Officers and Corporate
Governance.




DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




Directors
and Executive Officers




The
following table sets forth certain information regarding our directors and
executive officers as of March 23, 2009:




Name
            
            Age
            
            Position
            
            Class
            
            Director Since
            
            Term as Director
                ExpiresMichael
      D. Traina
            
            38
            
            Chairman of the Board and Chief
      Executive Officer
            
            A
            
            2007
            
            2008(4)John
      G. Phillips
            
            49
            
            Chief Financial Officer, Secretary
      and Treasurer
            
            —
            
            —
            
            —Brian
      A. Delle Donne
            
            52
            
            Interim Chief Operating
      Officer
            
            —
            
            —
            
            —Vahan
      Kololian
            
            55
            
            Lead
    Director
            
            A
            
            2004
            
            2008(4)Brendan
      Calder (1)
            
            62
            
            Director
            
            C
            
            2004
            
            2010Dennis
      Cook
            
            50
            
            Director
            
            A
            
            2008
            
            2008(4)Parker
      Drew (2)(3)
            
            40
            
            Director
            
            B
            
            2007
            
            2009Harry
      Glasspiegel (1)(2)(3)
            
            58
            
            Director
            
            C
            
            2007
            
            2010Michael
      Perrucci (1)(2)(3)
            
            55
            
            Director
            
            B
            
            2007
            
            2009







(1)
            Member of the Audit
      Committee


(2)
            Member of the Compensation
      Committee


(3)
            Member
      of the Nominating Committee


(4)
            The
      terms expired in 2008 for Messrs. Traina, Kololian and Cook. No
      stockholder meeting was held in 2008 to reelect directors with expiring
      terms or elect new directors. Until the next stockholder meeting is held
      and their respective successors are elected and qualified, Messrs. Traina,
      Kololian and Cook will continue serving as
  directors.




The
following information about the business experience of our directors and
executive officers is based, in part, upon information supplied by such persons.
Unless otherwise indicated, each individual has had the same principal
occupation for more than five years.




Michael D. Traina has served
as our Chairman of the board of directors and the Chief Executive Officer since
February 2007 and as the Chairman of the board of directors and the Chief
Executive Officer of CPR since its founding in October 2001. Previously, from
January 1999 to October 2000, Mr. Traina was Chief Executive Officer for
Correctional Healthcare Solutions, Inc., a portfolio company of the Lomax
Companies involved in the privatization of health care in correctional
facilities. From 1997 to May 2001, Mr. Traina was President and Chief
Executive Officer of Foster America, Inc., a portfolio company of the Lomax
Companies that provided privately managed foster care services. Mr. Traina
was the Director of New Business Development for The Lomax Companies from 1996
to October 2000, where he was responsible for evaluating venture capital
investment opportunities, raising capital for transactions, and advising the
Lomax portfolio companies in the areas of marketing and finance. Prior to
joining the Lomax team, Mr. Traina ran VICEN, Inc., a privately held direct
marketing firm, from 1995 to 1996 and worked for Salomon Brothers as a corporate
bond trader from 1994 to 1995. Mr. Traina holds a B.A. from Brown
University and an M.B.A. from the Darden School at the University of
Virginia.


124


John G. Phillips has served
as our Chief Financial Officer since May 2008. From July 2007 to May 2008, Mr.
Phillips was the Chief Financial Officer of MSL Sports & Entertainment, LLC,
a sports media company. From December 2004 through December 2006, Mr. Phillips
was the Chief Financial Officer of Zoologic, Inc., a software company, and was
the Chief Financial Officer of Direct Data Corporation, a hardware and software
company, from January 2002 through August 2004. From October 2000 until December
2001, Mr. Phillips served as the Chief Financial Officer of eSchoolMall
Corporation, a company with a similar business model to our Company, that
developed and supplied e-procurement proprietary software specifically targeted
toward the K-12 education market. Mr. Phillips holds a B.S. in Accounting
from Saint Joseph’s University.




Brian A. Delle Donne has
served as our Chief Operating Officer since January 13, 2009. Mr. Donne has
served as a Principal at XRoads Solutions Group, LLC, referred to as XRoads, an
operational and performance improvement advisory firm, since June of 2008. Mr.
Delle Donne also has served as a director of UMS Group, Inc., a global
management consulting firm, since 1999. Mr. Delle Donne served as the Executive
Vice President and Chief Operating Officer of Computer Horizons Corporation, an
information technology staffing and solutions provider, from 2005 through 2007.
Mr. Delle Donne worked as a private consultant following his service with
Computer Horizons Corporation until joining XRoads. He also served as Executive
Vice President and Chief Operating Officer of RCM Technologies, Inc., a staffing
services provider for various markets, from 1998 through 2005. He served as
Director and Member of the Executive Committee of RCM Technologies, Inc. from
2000 through 2004. Mr. Delle Donne is a graduate of Brown
University.




Vahan Kololian has served as our
lead director since February 2007. Previously, Mr. Kololian was ClearPoint’s
(Terra Nova’s) Chairman of the board of directors and Chief Executive Officer
from its inception in July 2004 until February 2007. Mr. Kololian has been the
Chairman of the board of directors of Precinda Corporation, a private industrial
holding company based in Toronto, since its formation in March 2000. He is
founder and Managing Partner of TerraNova Partners, a private investment
partnership and an affiliate of Precinda Corporation and TNMC, since September
2004, and President of TNMC since September 2004. TerraNova Partners and TNMC
are affiliates of ClearPoint. Mr. Kololian is a director of Manicouagan Minerals
Inc., Consolidated Puma Minerals Corp. (Chairman), Western Goldfields Inc. and
Midlake Oil & Gas Limited. He is also Co-Founder and Chairman of The Mosaic
Institute, a Canadian not for profit entity working in the area of cross-border
conflict resolution. Mr. Kololian holds a B.A. from the University of Western
Ontario and an LL.B. from the University of
Ottawa.




Brendan Calder has served as
a member of our board of directors since inception in July 2004. Since April
2001, Mr. Calder has been an adjunct professor of strategic management at the
Rotman School of Management of the University of Toronto. From January 1996
until March 2000, Mr. Calder was the Chairman of the board of directors,
President and Chief Executive Officer of CIBC Mortgages in Toronto Ontario and
was president and a director of Firstline Trust Company from April 1988 to
January 1996, both mortgage banking companies. Mr. Calder is a director of
FirstService Corporation, EllisDon Construction, Coventree Capital, Inc. and The
Toronto International Film Festival Group. Mr. Calder holds a Bachelor of
Mathematics degree from the University of Waterloo and attended the Advanced
Management Program at Harvard University.


125


Parker Drew has served as a
member of our board of directors since February 2007. Mr. Drew was a Managing
Director at JP Morgan Chase from April 2005 until December 2006, and was the
Global Head of Trading for Natural Gas and Crude Oil. Prior to joining JP Morgan
Chase, Mr. Drew was a Managing Partner at Drew Advisors, an energy focused hedge
fund, where he was also a founder, from June 2004 to April 2005. From 1996 to
June 2004, Mr. Drew was an Executive Director of Commodity Trading at Morgan
Stanley, where he managed a large, predominantly proprietary derivatives
portfolio. From 1994 to 1996, Mr. Drew was an Assistant Vice President of
Natural Gas at Merrill Lynch, where he facilitated customer flow and managed a
proprietary portfolio. From 1991 to 1994, Mr. Drew held various positions at
Cooper Neff and Associates, Kevis Bender Investment Group, and Mabon Securities.
Mr. Drew received a Finance M.B.A. from NYU Stern School of Business and an A.B.
Economics and History degree from Brown University.




Harry Glasspiegel has served
as a member of our board of directors since February 2007. Mr. Glasspiegel has
been Chairman of Glasspiegel Ventures, LLC, which advises and invests in various
outsourcing businesses since May 1999. Prior to founding the firm in 1999, Mr.
Glasspiegel was Chief Executive Officer of a venture and advisory unit of CNA, a
commercial and property and casualty insurer from 1997-1999. He previously
served as a partner in the law firm of Pillsbury Winthrop Shaw Pittman, from
April 2005 through June 2006, and as an associate and partner in its predecessor
firm, Shaw Pittman Potts & Trowbridge, from 1979 to 1997, where he
co-founded the firm’s global sourcing advisory practice. Since 2000, Mr.
Glasspiegel has also been active in the funding, startup and oversight of
CRAIG/is, Ltd., a business processing outsourcing services firm serving the
insurance industry, headquartered in Jacksonville, Florida. From 1991-2008, Mr.
Glasspiegel served as a Founding Advisor to the Sourcing Interests Group (SIG),
an international outsourcing organization. Mr. Glasspiegel holds a B.A. from
Wesleyan University and a J.D. from Wisconsin Law School.




Michael Perrucci has served
as a member of our board of directors since February 2007. Mr. Perrucci is
currently a Partner of Florio Perrucci Steinhardt & Fader, LLC, a law firm
which he founded in April 2004. Previously Mr. Perrucci was a Partner at the law
firm Fischbein-Badillo-Wagner-Harding, from 1999 to April 2004. From 1995 to
1999, Mr. Perrucci was a founder and Partner with the law firm of Florio &
Perrucci. From 1990 to 1995, Mr. Perrucci was a Partner at the law offices of
Mudge, Rose, Guthrie, Alexander & Ferdon. From 1979 to 1990, Mr. Perrucci
had his own private law firm. From 1978 to 1979, Mr. Perrucci was a law clerk.
Mr. Perrucci is both director and founder of Peron Construction Co., Inc. and a
director at both Team Capital Bank and Phoenix Container Corp. Mr. Perrucci
holds a B.A. from Moravian College and a J.D. from Seton Hall Law
School.




Dennis Cook has served as a
member of our board since December, 2008.  Mr. Cook served as an
advisor to the board since 2007. In such capacity, Mr. Cook provided ad hoc
recommendations regarding general business strategy to the board upon request.
Mr. Cook served as the President and Chief Executive Officer of WES Health
System, a managed behavioral health provider, since 1996 and as President and
Chief Executive Officer of The Cameron Company, LLC, a professional services
firm that provides financial marketing and management consulting services, since
2000.




Independence
of Directors




We are
not a “listed issuer” within the meaning of the SEC rules and regulations. We
use the definition of independence of Nasdaq to determine whether our directors
are independent. After review of all relevant transactions or relationships
between each director, or any of his family members, and our company, senior
management and independent auditors, our board has affirmatively determined that
the following four directors are independent directors within the meaning of the
applicable Nasdaq listing standards: Messrs. Drew, Calder, Glasspiegel and
Perrucci. In making this determination, our board found that none of these
directors had a material or other disqualifying relationship with our
company.


126


Committees
of the Board of Directors




Our board
of directors established an audit committee, a compensation committee and a
nominating committee.




Audit
Committee.




Messrs.
Calder, Glasspiegel and Perrucci, each an independent director under Nasdaq
listing standards, are members of our audit committee. Mr. Calder is the
chairman of the audit committee. The purpose of the audit committee is to assist
our board of directors in monitoring (i) the integrity of our annual,
quarterly and other financial statements, (ii) the independent auditor’s
qualifications and independence, (iii) the performance of our internal
audit function and independent auditor, and (iv) our compliance with legal
and regulatory requirements. The audit committee also reviews and approves all
related-party transactions. The audit committee also prepares the report
required by the SEC rules to be included in our annual proxy statement. Our
board of directors has determined that Brendan Calder qualifies as an “audit
committee financial expert” as such term is defined in the SEC
regulations.




Compensation
Committee.




Messrs.
Drew, Glasspiegel and Perrucci, each an independent director under Nasdaq
listing standards, are members of our compensation committee. Mr. Drew is
the chairman of the compensation committee. The purpose of the compensation
committee is to review and approve compensation paid to our officers and
directors and to administer ClearPoint’s 2006 Long-Term Incentive Plan, referred
to as the 2006 plan, including authority to make and modify awards under such
plan.




Nominating
Committee.




Messrs.
Drew, Glasspiegel and Perrucci, each an independent director under Nasdaq
listing standards, are members of our nominating committee. Mr. Drew is
chairman of the nominating committee. The nominating committee is responsible
for overseeing the appropriate size, functioning and needs of our board of
directors including, but not limited to, recruitment and retention of high
quality board members and committee composition and structure. The nominating
committee will identify, evaluate and recommend candidates to become members of
the board of directors with the goal of creating a balance of knowledge and
experience. Candidates will be reviewed in the context of current composition of
the board, our operating requirements and the long-term interests of our
stockholders. In conducting its assessment, the nominating committee considers
and evaluates each director-candidate based upon its assessment of the criteria
contained in its board of director candidate guidelines.




Section
16(a) Beneficial Ownership Reporting Compliance




Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our directors
and executive officers, and persons who own more than ten percent of a
registered class of our equity securities (collectively referred to as the
“reporting persons”), to file with the SEC initial reports of ownership and
reports of changes in ownership of common stock and our other equity securities.
Reporting persons are required by SEC regulations to furnish us with copies of
all Section 16(a) reports they file.




To our
knowledge, based solely on a review of the copies of such reports furnished to
us and written representations that no other reports were required, during the
fiscal year ended December 31, 2008, all Section 16(a) filing requirements
applicable to the reporting persons were complied with, except
that:




·
              one
      report was filed late by Vahan Kololian, a member of our board of
      directors and a ten percent stockholder, covering an aggregate of eight
      acquisitions of common stock as payment for certain services performed by
      TerraNova Partners;


127




·
            one
      report was filed late by Mr. Kololian covering a purchase of common
      stock;




·
            one
      report was filed late by each of Mr. Kololian; Brendan Calder; Parker
      Drew; Harry Glasspiegel and Michael Perrucci, each a member of our board
      of directors; Michael D. Traina, our Chief Executive Officer, chairman of
      our board of directors and a ten percent stockholder; and John G.
      Phillips, our Chief Financial Officer, Treasurer and Secretary, each
      covering a grant of stock options;




·
            two
      reports were filed late by each of Mr. Drew and Christopher Ferguson, a
      ten percent stockholder, each covering an acquisition of
      warrants;




·
            one
      report was filed late by Jack Silver, a ten percent stockholder, covering
      a purchase of warrants;




·
            one
      report was filed late by Jack Silver covering a purchase of common stock
      and a purchase of warrants;




·
            one
      report was filed late by Optos Capital, LLC, a ten percent stockholder,
      relating to the initial statement of beneficial ownership of our
      securities; and




·
            one
      report was not filed by Terra Nova Partners, a ten percent stockholder,
      relating to the initial statement of beneficial ownership of our
      securities.




Code
of Ethics




We
adopted a code of ethics which applies to our directors, officers and employees
as well as those of our subsidiaries. A copy of our Code of Ethics may be
obtained free of charge by submitting a request in writing to ClearPoint
Business Resources, Inc., 1600 Manor Drive, Suite 110, Chalfont, Pennsylvania,
18914.


128


Item
11.  Executive Compensation.




Summary
Compensation Table




The
following table sets forth the compensation awarded to, earned by or paid to our
Chief Executive Officer and our other most highly compensated executive
officers, referred to as named executive officers, for all services rendered in
all capacities to us and our subsidiaries during 2007 and 2008:




Name
      and Principal Position
                
                Year
                
                Salary
      ($)
                
                
                Option
                    Awards
      ($) (1)
                
                
                All
      Other
                    Compensation
      ($) (2)
                
                
                Total
      ($)Michael D.
      Traina
                
                2008
                
                
                300,000
                
                
                
                9,372
                
                
                
                28,079
                
                
                
                337,451Chief Executive
      Officer(principal executive
      officer)
                
                2007
                
                
                286,152
                (3)
                
                
                41,430
                
                
                
                27,609
                
                
                
                355,191John G.
      PhillipsChief Financial
      Officer,Treasurer and
      Secretary(4)
                
                2008
                
                
                101,923
                
                
                
                4,729
                
                
                
                6,010
                
                
                
                112,662Christopher Ferguson(5)
                
                2008
                
                
                57,692
                
                
                
                (41,430
                )
                
                
                328,281
                
                
                
                344,543Former President and
      Secretary
                
                2007
                
                
                279,229
                (3)
                
                
                41,430
                
                
                
                26,752
                
                
                
                347,411Kurt A. Braun(6)
                
                2008
                
                
                77,895
                
                
                
                (69,050
                )
                
                
                90,020
                
                
                
                98,865Former Chief Financial
      Officerand
      Treasurer
                
                2007
                
                
                158,524
                (3)
                
                
                69,050
                (7)
                
                
                148,760
                (7)
                
                
                376,334




(1)
            The amount reflected in this
      column is the compensation cost recognized by us during the fiscal yearended December 31,
      2007 or2008, as applicable,under Financial Accounting
      Standards Board Statement of Financial Accounting Standard No. 123
      (revised 2004), Share-BasedPayment, as modified or supplemented,
      referred to as SFAS 123(R), for grants made in the applicable fiscal year
      and prior years, if any, and does not reflect cash compensation received
      by the executive.In addition,
      the amounts showndisregardthe estimateofforfeitures related to
      service-based vesting conditions.Adiscussion of the assumptions
      used in calculating these values may be found in Note12of the Notes to the Consolidated
      Financial Statements included in thisAnnual Report on Form
      10-K.




On March 29, 2007, we granted
      an option to each of
      Messrs. Trainaand
      Ferguson to purchase 30,000 shares of our common stock, immediately
      exercisable, at an exercise price of $6.10 per share
      with an expiration date of March 29, 2010. On March 29, 2007, we
      granted an option to Mr. Braun to purchase 140,000 shares of our
      common stock, immediately exercisable, at an exercise price of $6.10 per
      share. Mr. Ferguson’s option to purchase 30,000 shares of our common
      stock expired in connection withhis resignation.A portion ofMr.Braun’s option to purchase140,000 shares of our common stock
      expired in connection withhis resignation.Mr. Braun’s Nonqualified Stock
      Option Agreement datedMarch 30, 2007 was amendedto permit Mr. Braun
      to exercisean option
      to purchase90,000 of
      140,000shares of
      common stockuntil
      March 30, 2010.On
      August 20, 2008, we granted options to Mr. Traina and Mr. Phillips to
      purchase 100,000 and 50,000 shares of our common stock, respectively, at
      an exercise price of $0.30.  The options vest in three equal
      annual installments beginning on August 20, 2009 and expire on August 20,
      2018.


129




( 2)
              Infiscal years2007 and 2008, respectively, we
      paid the following amounts for Mr. Traina: $6,498 and $8,622 (auto
      allowance); $17,352 and $12,020 (health insurance premiums); $2,641 and $0
      (life insurance premiums); and$1,118 and $0 (disability
      insurance premiums).In the fiscal year ended December
      31, 2008, we also paid for certain personal travel and entertainment
      expenses of Mr. Traina of
  $7,437.


In fiscal year 2008, we paid the
following amounts for Mr. Phillips: $6,010 (health insurance premiums).




In fiscal years 2007 and 2008,
respectively, we paid the following amounts for Mr. Ferguson: $8,282 and
$1,860 (auto allowance); $17,352 and $12,020 (health insurance
premiums); $1,118 and $0
(disability insurance premiums);and $0 and $57,692
(consultingagreement).In the fiscal year ended December 31,
2008, we accrued $256,709 related to consulting fees and benefits pursuant to
Mr. Ferguson’s consulting agreement.




In fiscal years 2007 and 2008,
respectively, we paid the followingamounts for Mr. Braun: $6,000and $3,000 (auto
allowance); $17,352 and $12,020(health insurance premiums); $1,118 and $0 (disability
insurance premiums); and$0
and $75,000 (severance pay).




(3)
            This amount represents the named
      executive officer’s salary prior to and after the
      merger.




(4)
            Mr. Phillips began serving as our
      Chief Financial Officer andTreasureron May 28, 2008 and was appointed
      Secretary on November 17,
2008.




(5)
            Mr. Ferguson resignedeffectiveFebruary 28,
      2008.




(6)
            Mr. Braun resignedeffectiveJune 20,
      2008.




(7)
            Ninety thousand of
      Mr. Braun’s 140,000 option shares were granted in lieu of the
      $124,290 payment due to him in connection with the merger. Compensation
      cost recognized by us during the fiscal year 2007 under SFAS 123(R) in
      connection with an option to purchase 90,000 shares of our common stock
      granted to Mr. Braun in lieu of the $124,290 paymentwasexcluded from the “Option Awards”
      column and the $124,290 paymentwasincluded in the “All Other
      Compensation” column.


130


Outstanding
Equity Awards at Fiscal Year-End for 2008




The
following table includes certain information with respect to the unexercised
options awarded to our named executive officers under the 2006
plan.




Option AwardsName
              
              Number of
                  Securities
                  Underlying
                  Unexercised
                  Options (#)
                  Exercisable
              
              
              Number of
                  Securities
                  Underlying
                  Unexercised
                  Options (#)
                  Unexercisable
              
              
              Option Exercise
                  Price ($)
              
              
              Option Expiration
                  DateMichael
      D. Traina
              
              
              30,000
              (1)
              
              
              —
              
              
              
              6.10
              
              
              3/29/2010Michael
      D. Traina
              
              
              —
              
              
              
              100,000
              (2)
              
              
              0.30
              
              
              8/20/2018John
      G. Phillips
              
              
              —
              
              
              
              50,000
              (2)
              
              
              0.30
              
              
              8/20/2018Christopher
      Ferguson(3)
              
              
              —
              
              
              
              —
              
              
              
              N/A
              
              
              
              N/AKurt
      A. Braun
              
              
              90,000
              (1)(4)
              
              
              —
              
              
              
              6.10
              
              
              3/29/2010




(1)
            All options were immediately
      exercisable upon grant onMarch 29,
      2007.




(2)
            The
      options vest in three equal annual installments beginning August 20,
      2009.




(3)
            Mr. Ferguson’s option to
      purchase 30,000 shares of common stock expired in connection withhis
      resignation.




(4)
            In
      connection with his resignation, Mr. Braun’s Nonqualified Stock Option
      Agreement, dated March 30, 2007, was amended to permit Mr. Braun to
      exercise an option to purchase 90,000 of 140,000 shares of common stock
      until March 30, 2010. The balance of such option expired on June 20, 2008
      in accordance with the 2006 plan.  See “—Agreements with
      Executive Officers—Kurt A. Braun.”




Agreements
with Executive Officers




Michael D. Traina
and Christopher Ferguson. In connection with the merger with Terra Nova,
Michael Traina and Christopher Ferguson, each referred to as executive, entered
into employment agreements with us on February 12, 2007. Pursuant to the
employment agreements, Michael Traina serves as our Chief Executive Officer and
Christopher Ferguson served as our President until his resignation on February
28, 2008, as discussed below. The terms of the employment agreements are
substantially similar and the following summary of certain material terms of the
employment agreement is applicable to both Messrs. Traina and
Ferguson.




The
employment agreement is for a three-year term, subject to earlier termination in
certain circumstances, and is automatically extended for one year unless the
executive or we elect to terminate the automatic extension upon written notice
to the other of at least six months. The employment agreement provides for an
initial annual base salary of $300,000, which is periodically reviewed by our
board of directors. The executive is entitled to a bonus as determined by our
board of directors and our compensation committee. The agreement also provides
that the executive is entitled to participate in any benefit plan of ClearPoint
available to executive officers. In addition, we reimburse the executive for
ordinary, necessary and reasonable expenses incurred in the course of our
business including: cellular phone expenses; lease of an automobile (up to
$1,000 per month) and all related expenses; and supplemental health, life or
disability related expenses. We also provide the executive with health insurance
that covers the executive and his immediate family, term life insurance and
long-term disability insurance.


131


In the
event of termination of employment upon the death of an executive, the
executive’s heirs, personal representatives or estate are entitled to any unpaid
portion of salary and benefits up to the date of termination and any approved
but unpaid bonus for the fiscal year in which termination occurs. In the event
the executive becomes disabled, the executive is entitled to receive all
compensation and benefits due to him reduced dollar-for-dollar by amounts
received under a disability insurance policy or plan provided by us. If the
executive becomes fully disabled, as defined in the employment agreement, we
have the right to terminate the executive’s employment by a vote of at least 60%
of our board of directors, excluding the executive. In such event, the executive
is entitled to any earned but unpaid portion of salary and benefits up to the
date of termination and any approved but unpaid bonus for the then current
fiscal year.




We may
terminate the executive’s employment with or without cause, as defined in the
employment agreement, upon a vote of at least 60% of our board of directors,
excluding the executive. In the event of termination by us for cause, the
executive is entitled to any earned but unpaid portion of salary and benefits up
to the date of termination. In addition, the executive may terminate his
employment for good reason, which is defined generally as a change in office
location resulting in increased commute by 60 miles or more; an assignment of
duties or limitation of power not contemplated by the employment agreement; any
removal or failure to re-elect the executive; or a reduction in compensation or
fringe benefits. In the event of the termination of the executive’s employment
by us without cause or by the executive for good reason, the executive is
entitled to receive: (i) the executive’s then current base salary for the
greater of the period of time remaining under the term of the agreement or two
years and (ii) any approved but unpaid bonus, if any, with respect to the then
current fiscal year.




The
employment agreement also contains a general non-competition and
non-solicitation covenant which applies to the executive during the employment
term and for two years after the date of termination of the executive’s
employment agreement. The provision prohibits the executive from competing with,
soliciting employees from or interfering with our business relationships. The
non-competition provision also prohibits the executive from engaging in any
business competing with us.




On
February 28, 2008, Christopher Ferguson, the director, President and Secretary
of ClearPoint and CPR, resigned effective February 28, 2008. In connection with
Mr. Ferguson’s resignation, we entered into a Separation of Employment Agreement
and General Release, referred to as the separation agreement, with Mr. Ferguson.
In consideration for Mr. Ferguson’s agreement to be legally bound by the terms
of the separation agreement and his release of his claims, if any, under the
separation agreement, Mr. Ferguson is entitled to be reimbursed for any COBRA
payments for Mr. Ferguson for a period equal to 52 weeks.




Pursuant
to the separation agreement, except for the parties’ continuing obligations
under Mr. Ferguson’s employment agreement with us, the employment agreement is
of no further force and effect. Under the separation agreement, Mr. Ferguson
agreed not to stand for election as our director, and, for as long as Mr.
Ferguson beneficially owns at least 5% of our outstanding shares of common
stock, Mr. Ferguson will be entitled to be an observer at each meeting of our
board of directors.




Pursuant
to the separation agreement, we entered into a consulting agreement with Mr.
Ferguson pursuant to which he will be paid $25,000 per month for twelve (12)
months. In return, Mr. Ferguson agreed to assist us with any matters relating to
the performance of his former duties and will work with us to effectively
transition his current responsibilities.


132


Kurt A.
Braun. CPR entered into an employment agreement with Kurt A. Braun dated
April 18, 2005. Pursuant to the employment agreement, Mr. Braun served as CPR’s
Chief Financial Officer until his resignation on June 20, 2008, as discussed
below. The employment agreement also provided for an initial annual base salary
of $125,000, which was subsequently increased to $150,000. In addition, Mr.
Braun could receive an initial discretionary bonus of up to $30,000 per year
based on CPR’s achievement of certain EBITDA targets. Mr. Braun was eligible to
participate in our health and dental benefits programs, and we contributed 100%
of the cost of such coverage for his family. Mr. Braun was entitled to a monthly
car allowance of $400, which was increased to $500.




In
addition, Mr. Braun was entitled to receive certain payments upon an initial
public offering of at least a portion of our stock, a partial sale of ClearPoint
or a sale of substantially all of our assets. Upon the occurrence of such
events, Mr. Braun was entitled to a payment of up to $100,000 provided he
remained employed with us for a period of at least three months. The
consummation of the merger entitled Mr. Braun to receive such payments in
accordance with his employment agreement.




The
employment agreement provided that Mr. Braun was terminable at will. Pursuant to
Mr. Braun’s employment agreement, upon termination by us for any reason other
than for cause, as defined in the employment agreement, Mr. Braun was entitled
to a severance payment in the amount of $65,000, paid over a six month period.
If Mr. Braun’s employment were terminated by us for cause, Mr. Braun would not
be entitled to any severance payment.




The
employment agreement also contained restrictive covenants relating to
confidentiality, non-competition and non-solicitation. The confidentiality
provisions protect our confidential information and work product. In addition,
Mr. Braun may not compete with, solicit employees from or interfere with our
business relationships. The non-competition provision prohibits him from
engaging in any business competing with our business within twenty-five miles of
any ClearPoint office for a period of one year following termination of his
employment agreement.




On
June 20, 2008, Mr. Braun resigned effective June 20, 2008. In
connection with Mr. Braun’s resignation as our Chief Financial Officer, we
entered into a Separation of Employment Agreement and General Release with
Mr. Braun, referred to as the separation agreement. Pursuant to the
separation agreement, we agreed to pay Mr. Braun salary continuation over
26 weeks and continue to pay all existing insurance premiums for Mr. Braun
and his immediate family through the 26 week period. In addition,
Mr. Braun’s Nonqualified Stock Option Agreement, dated March 30, 2007,
was amended to permit Mr. Braun to exercise certain stock options granted
to him until March 30, 2010. The balance of his stock options expired on
June 20, 2008 in accordance with our 2006 plan.




We
acknowledged in the separation agreement Mr. Braun’s right to have a
temporary staffing company offer Mr. Braun’s services as a temporary
financial consultant to other third-party companies within 25 miles of our
office, and that such arrangement would not constitute a violation of
Mr. Braun’s continuing obligations to us under his employment agreement, so
long as such third-party companies do not compete with us and Mr. Braun’s
work does not otherwise violate his continuing obligations under his employment
agreement.




John G.
Phillips. On June 20, 2008, we entered into an employment agreement
with Mr. Phillips pursuant to which he became our Chief Financial Officer.
Pursuant to the employment agreement, Mr. Phillips’ current base salary is
$175,000 per year, which may be increased in accordance with our normal
compensation review practices. On November 7, 2008, the Company’s board of
directors increased Mr. Phillips’ base salary to $195,000 effective
November 10, 2008. Mr. Phillips is also entitled to participate in any
benefit plan currently available to our executive officers to the extent he is
eligible under the provisions thereof, and is entitled to receive health, dental
and life insurance for himself and his immediate family. Mr. Phillips is
entitled to receive short- and long-term disability insurance, and is entitled
to three weeks of paid time off per year. Mr. Phillips may be entitled to
discretionary bonuses as determined by our Chief Executive Officer or the board
of directors.


133


Under his
employment agreement, Mr. Phillips’ employment may be terminated as
follows:




(i)
            Upon Mr. Phillips’ death,
      provided that Mr. Phillips’ heirs, personal representatives or estate
      will be entitled to any unpaid portion of his salary, any approved but
      unpaid bonus payments, and continued benefits for a period of three
      months;




(ii)
            By us upon Mr. Phillips’
      illness, physical or mental disability or other incapacity which renders
      him unable to perform the duties required of his position or under the
      employment agreement for a period of 30 consecutive calendar days or 90
      calendar days within any 12 month period, provided that Mr. Phillips
      will be entitled to any unpaid portion of his salary and any approved but
      unpaid bonus payments;




(iii)
            By
      us for cause, provided that Mr. Phillips will be entitled to all earned
      but unpaid salary. “Cause” is defined in the employment agreement as: (a)
      breach of the employment agreement or the non-disclosure and assignment of
      inventions agreement between Mr. Phillips and us, dated June 20, 2008; (b)
      conviction of a felony or any crime involving fraud, theft, moral
      turpitude, larceny or embezzlement; (c) an act of dishonesty, fraud,
      larceny, embezzlement or theft, whether by commission or omission, in
      connection with Mr. Phillips’ duties or in the course of Mr. Phillips’
      employment with us; (d) unethical or unprofessional acts that are harmful
      to us or materially and adversely affect Mr. Phillips’ responsibilities to
      us; (e) controlled substance abuse, alcoholism or drug addiction which
      interferes with Mr. Phillips’ responsibilities to us or reflects
      negatively on our integrity or reputation; (f) gross insubordination; or
      (g) failure to perform duties and responsibilities which has remained
      uncured for 10 days after written notice of such failure was provided to
      Mr. Phillips;




(iv)
            By
      us without cause, provided that:




a.
            if
      such termination occurs on or prior to the first anniversary of May 28,
      2008, Mr. Phillips will be entitled to any earned but unpaid portion of
      his salary, one month of salary continuation, and one month of
      continuation of benefits and




b.
            if
      such termination occurs after the first anniversary of May 28, 2008, Mr.
      Phillips will be entitled to any earned but unpaid portion of his salary,
      six months of salary continuation, any approved but unpaid bonus, and six
      months of continuation of benefits. As a condition precedent to receipt of
      any severance payments upon termination without cause, Mr. Phillips is
      required to execute a separation and general release agreement with
      us.




(v)
            By
      Mr. Phillips upon his resignation, provided that Mr. Phillips will be
      entitled only to any earned but unpaid salary upon such resignation, and
      Mr. Phillips must provide us 60 days written notice before resigning,
      which notice may be waived by us. During the 60 day notice period, we will
      continue to provide Mr. Phillips his salary and existing
      benefits.


134


The
employment agreement also contains noncompetition and nonsolicitation covenants
pursuant to which Mr. Phillips may not take away any person or entity that
has within the past year been a customer, prospective customer, agent or vendor
of our company, or interfere with our relationship with any customer,
prospective customer, agent or vendor of our company. Mr. Phillips is
further restricted from soliciting the employment of any employee, consultant or
independent contractor of our company, and may not participate in the ownership,
management or control of any business related to temporary staffing and
workforce management.




Agreement
with XRoads Solutions




On
January 13, 2009, we entered into the XRoads Agreement with XRoads. Pursuant to
the XRoads Agreement, among other matters, XRoads agreed to provide the services
of Brian Delle Donne to serve as our Interim Chief Operating Officer, referred
to as the Engagement. In such capacity, Mr. Delle Donne will have direct
responsibility over our day to day operations and will report to Michael D.
Traina, our Chief Executive Officer.  XRoads will submit bi-weekly
oral or written progress reports to our board of directors. The term of the
Engagement commenced on January 13, 2008 and will continue for 4
months.




We agreed
to pay XRoads $50,000 per month for each of the first four months of Mr. Delle
Donne’s services and the parties will mutually agree to a new fee structure in
the event Mr. Delle Donne serves beyond that period.  We also agreed
to pay XRoads a monthly fee based upon achievement of certain increases in our
earnings before interest, taxes, depreciation and amortization, calculated
pursuant to the XRoads Agreement, referred to as EBITDA. Such fee will be equal
to 10% of increases in our monthly EBITDA during the term of the Engagement over
our EBITDA for the month ended January 31, 2009, capped at $50 per
month.  We agreed to pay reasonable expenses incurred by XRoads for
services related to the Engagement and remitted a retainer in the amount of
$10,000 to XRoads for such purpose.  As of March 23, 2009, we paid
approximately $150,000 in fees to XRoads pursuant to the XRoads
Agreement.  Any amounts not paid by us when due pursuant to the XRoads
Agreement will bear interest at an annual rate of 12% or the maximum rate
allowed by law, whichever is less.




In
addition, we issued XRoads a warrant to purchase up to 100,000 shares of our
common stock at the exercise price of $0.12 per share.  Such warrant
will be held in escrow, to be released within 120 days of the date of the XRoads
Agreement, and will be exercisable upon such release through December 31, 2010.
In the event the Engagement is extended, we agreed to issue an additional
warrant to purchase 75,000 shares of our common stock with an expiration date of
April 30, 2011.




In the
event we elect to pursue a financing (either in the form of debt or equity)
within one year of the date of the XRoads Agreement, XRoads shall serve as our
non-exclusive financial advisor for such financing in accordance with the terms
of the XRoads Agreement. If such financing is consummated pursuant to the terms
set forth in the XRoads Agreement, we agreed to pay XRoads a transaction fee
based on the type and value of the transaction. The transaction fee will be
prorated accordingly in the event we retain an additional financial advisor in
connection with the transaction, but such fee shall not be less than $75,000 if
XRoads’ efforts result in an bona fide financing alternative for
us.




Either
party may terminate the XRoads Agreement at any time with at least thirty days
prior written notice. In the event of a material breach of the XRoads Agreement
by either party, including, but not limited to, our failure to promptly pay
amounts due for services rendered or for reimbursement of expenses, the
non-breaching party may terminate the Engagement at any time thereafter upon 5
days advance notice.


135


2006
Long-Term Incentive Plan




Background




The 2006
plan reserves 2,750,000 shares of common stock for issuance in accordance with
its terms. The purpose of the 2006 plan is to enable us to offer our employees,
officers, directors and consultants whose past, present and/or potential
contributions to ClearPoint have been, are or will be important to our success,
an opportunity to acquire a proprietary interest in us. The various types of
incentive awards that may be provided under the 2006 plan will enable us to
respond to changes in compensation practices, tax laws, accounting regulations
and the size and diversity of our business.




Administration




The 2006
plan may be administered by our board or our compensation committee, or any
other committee designated by our board for this purpose. Subject to the
provisions of the 2006 plan, the board or committee determines, among other
things, the persons to whom from time to time awards may be granted, the
specific type of awards to be granted, the number of shares subject to each
award, share prices, any restrictions or limitations on the, and any vesting,
exchange, deferral, surrender, cancellation, acceleration, termination, exercise
or forfeiture provisions related to the awards.




Stock
Subject to the 2006 plan




At no
time shall the aggregate number of shares of common stock subject to awards
granted and outstanding under the 2006 plan exceed 10% of the number of shares
of common stock then outstanding; and provided further, that no reduction in the
number of shares of common stock outstanding shall cause a reduction in the
number of shares of common stock subject to awards then granted and outstanding
under the 2006 plan. Shares of stock subject to other awards that are forfeited
or terminated will be available for future award grants under the 2006 plan. If
a holder pays the exercise price of a stock option by surrendering any
previously owned shares of common stock or arranges to have the appropriate
number of shares otherwise issuable upon exercise withheld to cover the
withholding tax liability associated with the stock option exercise, then in our
board’s or our committee’s discretion, the number of shares available under the
2006 plan may be increased by the lesser of the number of such surrendered
shares and shares used to pay taxes and the number of shares purchased under the
stock option.




Under the
2006 plan, on a change in the number of shares of common stock as a result of a
dividend on shares of common stock payable in shares of common stock, common
stock split or reverse split or other extraordinary or unusual event that
results in a change in the shares of common stock as a whole, our board or
committee may determine whether the change requires equitably adjusting the
terms of the award or the aggregate number of shares reserved for issuance under
the 2006 plan.




Types
of Awards:




Options. The 2006 plan
provides both for “incentive” stock options as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, referred to as the Code, and for
options not qualifying as incentive options, both of which may be granted with
any other stock-based award under the 2006 plan. Our board or committee
determines the exercise price per share of common stock purchasable under an
incentive or non-qualified stock option, which may not be less than 100% of the
fair market value on the day of the grant or, if greater, the par value of a
share of common stock. However, the exercise price of an incentive stock option
granted to a person possessing more than 10% of the total combined voting power
of all classes of our stock may not be less than 110% of the fair market value
on the date of grant. The number of shares covered by incentive stock options
that may be exercised by any participant during any calendar year cannot have an
aggregate fair market value in excess of $100,000, measured at the date of
grant.


136


An
incentive stock option may only be granted within a ten-year period from the
date of the consummation of merger and may only be exercised within ten years
from the date of the grant, or within five years in the case of an incentive
stock option granted to a person who, at the time of the grant, owns common
stock possessing more than 10% of the total combined voting power of all classes
of our stock. Subject to any limitations or conditions the board or committee
may impose, stock options may be exercised, in whole or in part, at any time
during the term of the stock option by giving written notice of exercise to us
specifying the number of shares of common stock to be purchased. The notice must
be accompanied by payment in full of the purchase price, either in cash or, if
provided in the agreement, in our securities or in combination of the
two.




Generally,
stock options granted under the 2006 plan may not be transferred other than by
will or by the laws of descent and distribution and all stock options are
exercisable during the holder’s lifetime, or in the event of legal incapacity or
incompetency, the holder’s guardian or legal representative. However, a holder,
with the approval of the board or committee, may transfer a non-qualified stock
option by gift to a family member of the holder, by domestic relations order to
a family member of the holder or by transfer to an entity in which more than
fifty percent of the voting interests are owned by family members of the holder
or the holder, in exchange for an interest in that entity.




Generally,
if the holder is an employee, no stock options granted under the 2006 plan may
be exercised by the holder unless he or she is employed by us or a subsidiary of
ours at the time of the exercise and has been so employed continuously from the
time the stock options were granted. However, in the event the holder’s
employment is terminated due to disability, the holder may still exercise his or
her vested stock options for a period of 12 months or such other greater or
lesser period as the board or committee may determine, from the date of
termination or until the expiration of the stated term of the stock option,
whichever period is shorter. Similarly, should a holder die while employed by us
or a subsidiary, his or her legal representative or legatee under his or her
will may exercise the decedent holder’s vested stock options for a period of 12
months from the date of his or her death, or such other greater or lesser period
as the board or committee may determine or until the expiration of the stated
term of the stock option, whichever period is shorter. If the holder’s
employment is terminated due to normal retirement, the holder may still exercise
his or her vested stock options for a period of one year from the date of
termination or until the expiration of the stated term of the stock option,
whichever period is shorter. If the holder’s employment is terminated for any
reason other than death, disability or normal retirement, the stock option will
automatically terminate, except that if the holder’s employment is terminated by
us without cause, then the portion of any stock option that has vested on the
date of termination may be exercised for the lesser of three months after
termination of employment, or such other greater or lesser period as the board
or committee may determine but not beyond the balance of the stock option’s
term.




Stock Reload Options. Under
the 2006 plan, we may grant stock reload options to a holder who tenders shares
of common stock to pay the exercise price of a stock option or arranges to have
a portion of the shares otherwise issuable upon exercise withheld to pay the
applicable withholding taxes. A stock reload option permits a holder who
exercises a stock option by delivering stock owned by the holder for a minimum
of six months to receive a new stock option at the current market price for the
same number of shares delivered to exercise the option. The board or committee
determines the terms, conditions, restrictions and limitations of the stock
reload options. The exercise price of stock reload options shall be the fair
market value as of the date of exercise of the underlying option. Unless
otherwise determined, a stock reload option may be exercised commencing one year
after it is granted and expires on the expiration date of the underlying
option.


137


Stock Appreciation Rights.
Under the 2006 plan, we may grant stock appreciation rights to participants who
have been, or are being, granted stock options under the 2006 plan as a means of
allowing the participants to exercise their stock options without the need to
pay the exercise price in cash. In conjunction with non-qualified stock options,
stock appreciation rights may be granted either at or after the time of the
grant of the non-qualified stock options. In conjunction with incentive stock
options, stock appreciation rights may be granted only at the time of the grant
of the incentive stock options. A stock appreciation right entitles the holder
to receive a number of shares of common stock having a fair market value equal
to the excess fair market value of one share of common stock over the exercise
price of the related stock option, multiplied by the number of shares subject to
the stock appreciation rights. The granting of a stock appreciation right will
not affect the number of shares of common stock available for awards under the
2006 plan. The number of shares available for awards under the 2006 plan will,
however, be reduced by the number of shares of common stock acquirable upon
exercise of the stock option to which the stock appreciation right
relates.




Restricted Stock. Under the
2006 plan, we may award shares of restricted stock either alone or in addition
to other awards granted under the 2006 plan. The board or committee determines
the persons to whom grants of restricted stock are made, the number of shares to
be awarded, the price if any to be paid for the restricted stock by the person
receiving the stock from us, the time or times within which awards of restricted
stock may be subject to forfeiture, the vesting schedule and rights to
acceleration thereof, and all other terms and conditions of the restricted stock
awards.




Restricted
stock awarded under the 2006 plan may not be sold, exchanged, assigned,
transferred, pledged, encumbered or otherwise disposed of, other than to us,
during the applicable restriction period. In order to enforce these
restrictions, the 2006 plan requires that all shares of restricted stock awarded
to the holder remain in our physical custody until the restrictions have
terminated and all vesting requirements with respect to the restricted stock
have been fulfilled. Other than regular cash dividends and other cash equivalent
distributions as we may designate, pay or distribute, we will retain custody of
all distributions made or declared with respect to the restricted stock during
the restriction period. A breach of any restriction regarding the restricted
stock will cause a forfeiture of the restricted stock and any retained
distributions. Except for the foregoing restrictions, the holder will, even
during the restriction period, have all of the rights of a stockholder,
including the right to receive and retain all regular cash dividends and other
cash equivalent distributions as we may designate, pay or distribute on the
restricted stock and the right to vote the shares.




Deferred Stock. Under the
2006 plan, we may award shares of deferred stock either alone or in addition to
other awards granted under the 2006 plan. The board or committee determines the
eligible persons to whom, and the time or times at which, deferred stock will be
awarded, the number of shares of deferred stock to be awarded to any person, the
duration of the period during which, and the conditions under which, receipt of
the stock will be deferred, and all the other terms and conditions of deferred
stock awards.




Deferred
stock awards granted under the 2006 plan may not be sold, exchanged, assigned,
transferred, pledged, encumbered or otherwise disposed of other than to us
during the applicable deferral period. The holder shall not have any rights of a
stockholder until the expiration of the applicable deferral period and the
issuance and delivery of the certificates representing the common stock. The
holder may request to defer the receipt of a deferred stock award for an
additional specified period or until a specified event. This request must
generally be made at least one year prior to the expiration of the deferral
period for the deferred stock award.


138


Other Stock-Based Awards.
Under the 2006 plan, we may grant other stock-based awards, subject to
limitations under applicable law, that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, shares
of common stock, as deemed consistent with the purposes of the 2006 plan. These
other stock-based awards may be in the form of purchase rights, shares of common
stock awarded that are not subject to any restrictions or conditions,
convertible or exchangeable debentures or other rights convertible into shares
of common stock and awards valued by reference to the value of securities of, or
the performance of, one of our subsidiaries. These other stock-based awards may
be awarded either alone, in addition to, or in tandem with any other awards
under the 2006 plan or any of our other plans.




Accelerated Vesting and
Exercisability. Unless otherwise provided in the grant of an award, if
any “person,” as defined in Sections 13(d) and 14(d) of the Exchange Act is or
becomes the “beneficial owner,” as referred in Rule 13d-3 under the Exchange
Act, directly or indirectly, of our securities representing 50% or more of the
combined voting power of our then outstanding voting securities in one or more
transactions, and our board of directors does not authorize or approve the
acquisition, then the vesting periods with respect to options and awards granted
and outstanding under the 2006 plan will be accelerated and will immediately
vest, and each participant of an option and award will have the immediate right
to purchase and receive all shares of common stock subject to the option and
award in accordance with the terms set forth in the 2006 plan and in the
corresponding award agreements.




Unless
otherwise provided in the grant of an award, the compensation committee may, in
the event of an acquisition of substantially all of our assets or at least 50%
of the combined voting power of our then outstanding securities in one or more
transactions, including by way of merger or reorganization, which has been
approved by our board of directors, accelerate the vesting of any and all stock
options and other awards granted and outstanding under the 2006 plan. No
acceleration may occur with respect to any award if such acceleration would
cause the 2006 plan or any award to fail to comply with Code Section
409A.




Repurchases. Unless otherwise
provided in the grant of an award, the compensation committee may, in the event
of an acquisition of substantially all of our assets or at least 50% of the
combined voting power of our then outstanding securities in one or more
transactions, including by way of merger or reorganization, which has been
approved by our board of directors, require a holder of any award granted under
the 2006 plan to relinquish the award to us upon payment by us to the holder of
cash in an amount equal to the fair market value of the award.




Award Limitation. No
participant may be granted awards for more than 500,000 shares in any calendar
year.




Competition;
Solicitation of Customers and Employees; Disclosure of Confidential
Information.




If a
holder’s employment with us or a subsidiary of ours is terminated for any reason
whatsoever, and within 12 months after the date of termination, the holder
either:




·
            accepts
      employment with any competitor of, or otherwise engages in competition
      with, us,




·
            solicits
      any of our customers or employees to do business with or render services
      to the holder or any business with which the holder becomes affiliated or
      to which the holder renders services,
or




·
            uses
      or discloses to anyone outside our company any of our confidential
      information or material in violation of our policies or any agreement
      between us and the holder,


139


Our board
or the committee may require the holder to return to us the economic value of
any award that was realized or obtained by the holder at any time during the
period beginning on the date that is 12 months prior to the date the holder’s
employment with us is terminated.




Term
and Amendments.




Unless
terminated by the board, the 2006 plan shall continue to remain effective until
no further awards may be granted and all awards granted under the 2006 plan are
no longer outstanding. Notwithstanding the foregoing, grants of incentive stock
options may be made only until ten years from the date of the consummation of
the merger. Our board may at any time, and from time to time, amend the 2006
plan, provided that no amendment will be made that would impair the rights of a
holder under any agreement entered into pursuant to the 2006 plan without the
holder’s consent.




Director
Compensation for 2008




The
following table sets forth certain information with respect to the compensation
of our non-employee directors during 2008. For information regarding the
compensation of Mr. Traina, our Chief Executive Officer, and Mr. Ferguson, our
former President and Secretary, see the “Summary Compensation Table”
above.




Name
              
              Fees Earned or
                  Paid in Cash
              
              
              Option Awards (1)
              
              
              TotalBrendan
      Calder
              
              $
              15,000
              
              
              $
              1,424
              
              
              $
              16,424Dennis
      Cook (2)
              
              $
              —
              
              
              $
              —
              
              
              $
              —Parker
      Drew
              
              $
              15,000
              
              
              $
              1,424
              
              
              $
              16,424Harry
      Glasspiegel
              
              $
              15,000
              
              
              $
              1,107
              
              
              $
              16,107Vahan
      Kololian
              
              $
              15,000
              
              
              $
              1,424
              
              
              $
              16,424Michael
      Perrucci
              
              $
              15,000
              
              
              $
              1,107
              
              
              $
              16,107




(1)
            The amount reflected in this
      column is the compensation cost recognized by us during the fiscal yearended December 31,2008under SFAS 123(R) for grants made
      in the applicable fiscal year and prior years, if any, and does not
      reflect cash compensation received by the director. A discussion of the
      assumptions used in calculating these values may be found in Note12to theConsolidatedFinancialStatements includedin thisAnnual Report on
      Form 10-K.However,the amounts showndisregardthe estimateofforfeitures related to
      service-based vesting conditions.As of December 31,
      2008, each of Messrs. Glasspiegel and
      Perrucci held optionsto purchase65,000 shares of our common
      stock; each of
      Messrs. Calder, Drew and Kololian held options to purchase 75,000 shares
      of our common stock; and Mr. Cook held an option to purchase 20,000 shares
      of our common stock.




(2)
            No compensation was paid to Mr.
      Cook as a director during 2008 because he was elected as our director
      effective December 31,
2008.







140


Following
the consummation of the merger with Terra Nova, each of our directors has been
compensated $15,000 per year, payable quarterly.  In the year December
31, 2008, we granted an option to each of Messrs. Glasspiegel and Perrucci to
purchase 35,000 shares of our common stock; and to each of Messrs. Calder, Drew
and Kololian to purchase 45,000 shares of our common stock.  All of
such options vest in three equal annual installments beginning August 20, 2009
with an expiration date of August 20, 2018 and have an exercise price of $0.30
per share.  In the year December 31, 2007, we granted an option to Mr.
Cook to purchase 20,000 shares of our common stock; and to each of Messrs.
Calder, Drew, Glasspiegel, Perrucci and Kololian to purchase 30,000 shares of
our common stock, immediately exercisable, at an exercise price of $6.10 per
share. These options expire on March 29, 2010.




See
Part III, Item 13 “Certain Relationships and Related Transactions, and Director
Independence” for a description of our transactions involving TNMC, an affiliate
of Mr. Kololian, and WES Health System and The Cameron Company, LLC, affiliates
of Mr. Cook. Such description is incorporated herein by
reference.


141


Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.





SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT




The
following table sets forth information regarding the beneficial ownership of our
common stock as of March 23, 2009 by:




·
            each
      of our named executive officers and
directors;




·
            all
      our current executive officers and directors as a group;
    and




·
            each
      person known by us to be the beneficial owner of more than 5% of our
      outstanding shares of common stock.




The
information about the beneficial owners contained in the table below is based on
information supplied by such persons or SEC filings. Beneficial ownership of
shares of common stock is determined in accordance with the rules of the SEC and
includes voting or investment power with respect to common stock. Shares of
common stock issuable upon the exercise of securities currently exercisable or
exercisable within 60 days of March 23, 2009 are deemed outstanding for
computing the share ownership and percentage ownership of the person holding
such securities, but are not deemed outstanding for computing the percentage
ownership of any other person.




Except as
otherwise indicated, to the knowledge of ClearPoint, the beneficial owners of
common stock listed below have sole investment and voting power with respect to
such shares.




As of
March 23, 2009, 14,251,964 shares of our common stock were outstanding.




Name and Address of Beneficial Owner (1)
                
                Amount and Nature of
                    Beneficial Ownership
                
                
                Percent of ClassMichael
      Traina
                
                
                3,290,573
                (2)
                
                
                23.0
                %Vahan
      Kololian
                
                
                3,835,886
                (3)
                
                
                24.2
                %Brendan
      Calder
                
                
                145,500
                (4)
                
                
                1.0
                %Dennis
      Cook
                
                
                50,528
                (5)
                
                
                *Parker
      Drew
                
                
                120,516
                (6)
                
                
                *Harry
      Glasspiegel
                
                
                30,000
                (7)
                
                
                *Michael
      Perrucci
                
                
                40,000
                (8)
                
                
                *John
      G. Phillips
                
                
                —
                (9)
                
                
                *Kurt
      A. Braun
                
                
                90,000
                (10)
                
                
                *Christopher
      Ferguson
                
                
                2,361,313
                (11)
                
                
                16.6
                %All
      current directors and executive officers as a group (9
      persons)
                
                
                7,512,733
                (12)
                
                
                46.5
                %TerraNova
      Partners L.P.
                
                
                3,735,886
                (13)
                
                
                23.7
                %Jack
      SilverSherleigh
      Assocs Inc. Profit Sharing Plan
                
                
                2,733,771
                (14)
                
                
                17.1
                %ComVest
      Capital, LLCComVest
      Capital Management LLCComVest
      Group Holdings, LLCMichael
      S. Falk
                
                
                2,210,825
                (15)
                
                
                13.4
                %Roynat
      Merchant Capital Inc.
                
                
                840,000
                (16)
                
                
                5.7
                %ALS,
      LLC
                
                
                789,637
                (17)
                
                
                5.5
                %





*           Denotes
less than 1%.


142


(1)
            Unless
      otherwise noted, the business address of each of the following beneficial
      owners is c/o ClearPoint Business Resources, Inc., 1600 Manor Drive, Suite
      110, Chalfont, PA 18914.




(2)
            Represents:
      (i) 3,260,573 shares of common stock held by Mr. Traina and
      (ii) 30,000 shares of common stock issuable upon exercise of an
      option.




(3)
            Represents:
      (i) 2,235,886 shares of common stock held by TerraNova Partners and 20,000
      shares of common stock held by The Kololian Foundation (Mr. Kololian
      beneficially owns 100% of the limited partnership interest of TerraNova
      Partners; he also controls 100% of the voting interest in the general
      partner and 55% of the non-voting equity interest in the general partner
      of TerraNova Partners. Mr. Kololian is President and Director of The
      Kololian Foundation.); (ii) 30,000 shares of common stock issuable
      upon exercise of an option; (iii) 1,500,000 shares of common stock
      issuable upon exercise of warrants held by TerraNova Partners; and
      (iv) 50,000 shares of common stock issuable upon exercise of warrants
      held by Cartesian Investments Inc., of which Mr. Kololian
      beneficially owns 50% of the outstanding common
  stock.




(4)
            Represents
      (i) 90,000 shares of common stock held by Mr. Calder;
      (ii) 8,500 shares of common stock held by the Calbren Trust, a trust
      established for the benefit of Mr. Calder; (iii) 17,000 shares
      of common stock issuable upon exercise of warrants held by the Calbren
      Trust; and (iv) 30,000 shares of common stock issuable upon exercise
      of an option.




(5)
            Represents
      30,528 shares of common stock held by The Cameron Company, LLC and 20,000
      shares of common stock issuable upon the exercise of an
      option.  Mr. Cook owns 100% of the limited liability company
      interest of The Cameron Company,
LLC.




(6)
            Represents
      (i) 60,516 shares of common stock held by Mr. Drew’s spouse;
      (ii) 30,000 shares of common stock issuable upon the exercise of
      warrants held by Mr. Drew’s spouse; and (iii) 30,000 shares of
      common stock issuable upon exercise of an
  option.




(7)
            Represents
      30,000 shares of common stock issuable upon exercise of an
      option.




(8)
            Represents
      10,000 shares of common stock held by Mr. Perrucci and 30,000 shares
      of common stock issuable upon exercise of an
  option.




(9)
            No
      securities beneficially owned.




(10)
            Represents
      90,000 shares of common stock issuable upon exercise of an option.
      Mr. Braun resigned as ClearPoint’s Chief Financial Officer on
      June 20, 2008. Options to purchase 50,000 shares expired in
      connection with his resignation.




(11)
            Represents
      2,361,313 shares of common stock held by Optos, an entity controlled by
      Mr. Ferguson. Excludes securities held by Fergco Bros. LLC, of which
      Mr. Ferguson holds a 25% ownership interest, because Mr. Ferguson
      does not have voting or investment power over such
    securities.




(12)
            Includes
      200,000 shares of common stock issuable upon exercise of options and
      1,597,000 shares of common stock issuable upon exercise of
      warrants.  Excludes securities held by XRoads because Mr. Delle
      Donne does not have voting or dispositive power over such
      securities.




(13)
            Represents
      (i) 2,235,886 shares of common stock held by TerraNova Partners and
      (ii) 1,500,000 shares of common stock issuable upon exercise of
      warrants held by TerraNova Partners. Mr. Kololian beneficially owns
      100% of the limited partnership interest of TerraNova Partners; he also
      controls 100% of the voting interest in the general partner and 55% of the
      non-voting equity interest in the general partner of TerraNova
      Partners.


143


(14)
            Based
      on a Schedule 13G/A filed with the SEC on December 16, 2008 for Jack
      Silver, Sherleigh Associates Inc. Profit Sharing Plan and Sherleigh
      Associates Inc. Defined Benefit Pension Plan and a Form 4 filed with the
      SEC on December 15, 2008 for Jack Silver. Represents (i) 986,310
      shares of common stock held by Sherleigh Associates Inc. Profit Sharing
      Plan, a trust of which Mr. Silver is the trustee and
      (ii) 1,747,461 shares of common stock issuable upon exercise of
      warrants held by Sherleigh Associates Inc. Profit Sharing Plan. The
      filings indicate that Mr. Silver has the sole voting and dispositive
      power with respect to all 2,733,771 shares of common stock beneficially
      owned by him. The address of the principal business office of Jack Silver
      is SIAR Capital LLC, 660 Madison Avenue, New York, NY
    10021.




(15)
            Based
      on a Schedule 13G filed with the SEC on June 30, 2008 for ComVest,
      ComVest Capital Management LLC, ComVest Group Holdings, LLC and Michael S.
      Falk. Represents 2,210,825 shares of common stock issuable upon the
      exercise of warrants held by ComVest. The Schedule 13G indicates
      (i) that each reporting person has shared power to vote or direct the
      vote and to dispose or direct the disposition of all 2,210,825 shares of
      common stock beneficially owned as a group; (ii) ComVest is a private
      investment company and (iii) the managing member of ComVest is
      ComVest Capital Management LLC, the managing member of which is ComVest
      Group Holdings, LLC, referred to as CGH. Michael Falk is the Chairman and
      principal member of CGH. The address of the principal business office of
      the reporting persons is One North Clematis, Suite 300, West Palm Beach,
      Florida 33401.




(16)
            Based
      solely on a Schedule 13G/A filed with the SEC on February 21, 2007 by
      Roynat Merchant Capital Inc. Represents 340,000 shares of common stock and
      500,000 shares of common stock issuable upon the exercise of warrants. The
      filing indicates that Roynat Merchant Capital Inc. has sole voting and
      dispositive power over the securities. The principal business address of
      Roynat Merchant Capital Inc. is Bank of America Corporate Ctr., 100 North
      Tryon St., Suite 3720, Charlotte, NC
28202.




(17)
            Represents
      (i) 439,637 shares of common stock issued in connection with
      ClearPoint’s purchase of certain assets and liabilities from ALS and
      (ii) 350,000 shares of common stock issued in connection with an
      amendment to a note issued by ClearPoint to
ALS.


144


EQUITY
COMPENSATION PLAN INFORMATION




The
following table sets forth information regarding the 2006 Plan as of December
31, 2008.




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
                  
                  
                  1,002,008
                  
                  
                  $
                  2.99
                  
                  
                  
                  1,747,992Equity
      compensation plans not approved by security holders
                  
                  
                  0
                  
                  
                  
                  —
                  
                  
                  
                  0Total
                  
                  
                  1,002,008
                  
                  
                  $
                  2.99
                  
                  
                  
                  1,747,992




Item
13.  Certain Relationships and Related Transactions, and Director
Independence.




Notes
Issued to Related Parties




Optos
and Richard and Margaret Traina




On
March 1, 2005, we issued a 12% Amended and Restated Subordinated Note in
the original principal amount of $300,000 due 2008 and a 9% Amended and Restated
Subordinated Note in the original principal amount of $250,000 due 2008 to
Optos, a Pennsylvania limited liability company wholly-owned by Christopher
Ferguson, our principal stockholder and the former President, Secretary and
director of ClearPoint and CPR. On July 20, 2007, we repaid the $300,000
note and $250,000 note due to Optos.




On
March 1, 2005, we issued a 12% Subordinated Note in the original principal
amount of $100,000 due 2008 to Richard Traina and Margaret Traina, the parents
of Michael Traina, our Chairman of the board of directors, Chief Executive
Officer and principal stockholder. On September 18, 2007, we repaid the
$100,000 note due to Richard Traina and Margaret Traina.




Alyson
Drew and Fergco




On
March 1, 2005, we issued a 12% Amended and Restated Subordinated Note in
the original principal amount of $100,000 due 2008 to Alyson Drew, the spouse of
our director Parker Drew.




On
March 1, 2005, we issued a 12% Amended and Restated Note in the original
principal amount of $300,000 due March 31, 2008 to Fergco Bros LLC, a New
Jersey limited liability company of which Christopher Ferguson owns a 25%
ownership interest and his brothers own the remaining 75% interest.




On
March 31, 2008, we amended the Drew Note and the Fergco Note by extending
the maturity date from March 31, 2008 until March 31, 2009. In
consideration of agreeing to amend the Drew Note and the Fergco Note, we issued
a warrant to each of Alyson Drew and Fergco giving them the right to purchase
15,000 shares and 45,000 shares of our common stock, respectively, at an
exercise price per share equal to $1.55. The warrants are immediately
exercisable during the period commencing on March 31, 2008 and ending on
March 31, 2010. On June 20, 2008, we exercised our right to extend the
maturity date of the Drew Note and the Fergco Note to March 31, 2010. In
connection with such extension, each of Alyson Drew and Fergco received an
additional warrant to purchase 15,000 shares and 45,000 shares of our common
stock, respectively, at an exercise price of $1.55 per share. The additional
warrants are immediately exercisable during the period commending on
June 20, 2008 and ending on March 31, 2011.


145


The
proceeds of these notes issued to Optos, Alyson Drew, Fergco and Richard Traina
and Margaret Traina were used to fund acquisitions. Pursuant to the terms of
these notes, ClearPoint has made interest only payments until the repayment of
the notes, as applicable. During 2007, ClearPoint made interest payments of
$32,250, $15,000, $45,000 and $14,000 to Optos, Alyson Drew, Fergco and Richard
Traina and Margaret Traina, respectively.  During 2008, ClearPoint
made interest payments of $15,000, and $45,000 to Alyson Drew and Fergco,
respectively.  Between January 1, 2009 and March 31, 2009, ClearPoint
made interest payments to Alyson Drew and Fergco in the amounts of $3,000 and
$9,000, respectively.  As of March 23, 2008, $100,000 and $300,000
were outstanding under the notes issued to Alyson Drew and Fergco,
respectively.




Michael
Traina and Christopher Ferguson




CPR
issued promissory notes, dated February 22, 2008, in the aggregate principal
amount of $800,000, to each of Michael Traina and Christopher Ferguson in
consideration for loans of $800,000 made to CPR. The terms of the promissory
notes issued to Messrs. Traina and Ferguson were identical. The principal amount
of each promissory note was $400,000, it bore interest at the rate of 6% per
annum, which was to be paid quarterly, and it was due on February 22, 2009. On
February 28, 2008, CPW, a wholly owned subsidiary of CPR, advanced $800,000, on
behalf of Optos, to the provider of its outsourced employee leasing program. The
advanced funds were utilized for Optos’s payroll. In consideration of making the
advance on its behalf, Optos assumed the foregoing promissory notes, and the
underlying payment obligations.




Bridge
Notes




On June
6, 2008, we issued notes referred to as the original bridge notes, to each of
Michael Traina, Parker Drew and TerraNova Partners in the principal amount of
$104,449, $50,000 and $100,000, respectively. During the course of negotiations
with ComVest, Mr. Traina agreed to loan an additional $5,000 to us. TerraNova
Partners, our principal stockholder, is 100% owned by Mr. Kololian, our lead
director and principal stockholder. Mr. Kololian also controls 100% of the
voting interest in the general partner and 55% of the non-voting equity interest
in the general partner of TerraNova Partners. The original bridge notes
contained identical terms and were unsecured and payable on demand. No interest
accrued on the unpaid principal balance of the original bridge notes until
demand. After demand, the original bridge notes bore interest at an annual rate
of 5%. On June 26, 2008, we issued amended and restated notes, referred to as
the amended bridge notes, to each holder of the original bridge notes. The
amended bridge notes contained identical terms and provided that (i) the
principal amount of the amended bridge notes bore interest at a rate of 8% per
annum, payable quarterly and (ii) we had the right to repay the amended bridge
notes in shares of our common stock at a price equal to the closing price of our
common stock on June 26, 2008. The amended bridge notes did not contain the
provision stating that the principal balance will bear interest only upon
demand, as provided in the original bridge note. Mr. Drew’s amended bridge note
was repaid in full and Mr. Traina was repaid $5,000 during the quarter ended
June 30, 2008. The balance of Mr. Traina’s loan was repaid in July 2008. On
August 12, 2008, our board of directors approved the payment of the amended
bridge note issued to TerraNova Partners in 204,082 shares of common stock in
accordance with the terms of the amended bridge note.  On March 6,
2009, such shares were issued to TerraNova Partners.


146


Agreements
with Related Parties




Separation
Agreement and Consulting Agreement with Christopher Ferguson




On
February 28, 2008, Christopher Ferguson, our former director, President and
Secretary resigned effective February 28, 2008. In connection with Mr.
Ferguson’s resignation, we entered into a Separation of Employment Agreement and
General Release with Mr. Ferguson referred to as the separation agreement. In
consideration for Mr. Ferguson’s agreement to be legally bound by the terms of
the separation agreement and his release of his claims, if any, under the
separation agreement, Mr. Ferguson is entitled to be reimbursed for any health
insurance payments for Mr. Ferguson for a period equal to 52 weeks. Pursuant to
the separation agreement, on April 18, 2008, CPR entered into a consulting
agreement, referred to as the consulting agreement, with Mr. Ferguson pursuant
to which he will be paid $25,000 per month for twelve (12) months. During 2008,
we paid $57,692 to Mr. Ferguson pursuant to the consulting
agreement.  The balance of $256,709 due to Mr. Ferguson pursuant to
the consulting agreement was accrued.




Separation
Agreement with Kurt Braun




On July
20, 2008, Kurt Braun, our former Chief Financial Officer, resigned effective
June 20, 2008. In connection with Mr. Braun’s resignation, we entered into a
Separation of Employment Agreement and General Release with Mr. Braun, referred
to as the separation agreement. In consideration of Mr. Braun’s agreement to be
legally bound by the terms of the separation agreement, we have agreed to, among
other things: (i) pay Mr. Braun $75,000, minus all payroll deductions required
by law or authorized by Mr. Braun, to be paid as salary continuation over 26
weeks beginning within a reasonable time after the seven day revocation period
following execution of the Separation Agreement; (ii) continue to pay all
existing insurance premiums for Mr. Braun and his immediate family through the
26 week period, and thereafter permit Mr. Braun, at his own expense, to continue
to receive such coverage in accordance with COBRA regulations; and (iii) pay Mr.
Braun the balance of any accrued but unused vacation or PTO hours, minus all
payroll deductions required by law or authorized by Mr. Braun. During 2008, we
paid approximately $75,000 to Mr. Braun pursuant to the foregoing
agreement.  In 2009, we are not obligated to make any payments to Mr.
Braun pursuant to the foregoing agreement.




Agreements
with TerraNova Management




TNMC, an
affiliate of Mr. Kololian was retained to provide certain advisory services to
us, effective upon the closing of the merger with Terra Nova, pursuant to the
Advisory Services Agreement between TNMC and us, dated February 12, 2007,
referred to as the advisory agreement. Mr. Kololian controls 100% of the voting
interest and 55% of the non-voting equity interest of TNMC. Pursuant to the
advisory agreement, TNMC provided services to us including: advice and
assistance to us in our analysis and consideration of various financial and
strategic alternatives, as well as assisting with transition services. During
the fiscal year ended December 31, 2007, TNMC received a fixed advisory fee of
$175,000 (prorated for a partial year) for such services. Pursuant to the terms
of the advisory agreement, it was terminated effective February 11, 2008,
however TNMC continued to provide substantially similar services under
substantially similar terms to us on a monthly basis.




On
June 26, 2008, we entered into a new Advisory Services Agreement, referred to as
the new advisory agreement, with TNMC. Pursuant to the new advisory agreement,
we agreed to provide compensation to TNMC for its services since the expiration
of the former advisory agreement and to engage TNMC to provide future advisory
services. The new advisory agreement is effective as of June 26, 2008, continues
for a one year term and is automatically renewed for successive one-year terms
unless terminated by either party by written notice not less than 30 days prior
the expiration of the then-current term. We will compensate TNMC for services
rendered since expiration of the former advisory agreement and for advisory
services similar to those performed under the former advisory agreement. Monthly
fees payable to TNMC under the new advisory agreement are capped at $50,000 per
month. Fees payable to TNMC may be paid 100% in shares of our common stock, at
our option. Beginning in the month of June, 2008, 75% of the fees payable to
TNMC may also be paid in shares of our common stock and, with the agreement of
TNMC, the remaining 25% may also be paid in shares of common stock. Shares of
our common stock made as payments under the new advisory agreement will be
priced at the month-end closing price for each month of services rendered.
During the fiscal year ended December 31, 2008 and between January 1, 2009 and
March 23, 2009, we incurred approximately $292,665 and $0, respectively in fees
owing to TNMC for such services.


147


Our board
of directors approved payment of $266,000 for the services performed by TNMC
pursuant to the new advisory agreement in the form of an aggregate of 479,470
shares of common stock for the months of February through August, 2008 as
follows: on August 12, 2008, the board of directors approved payment for the
months of February, March, April, May and June, 2008 in 417,008 shares of common
stock and on November 7, 2008, the board of directors approved payment for the
months of July and August, 2008 in 62,462 shares of common stock.




Additionally,
we recorded approximately $99,202 and $1,573 for reimbursement of expenses
incurred by TNMC in connection with the advisory services agreement during the
years ended December 31, 2008 and 2007, respectively.




Prior to
the merger, we incurred a fee from TNMC of $7,500 per month for providing Terra
Nova with office space and certain general and administrative services, which
amounted to $7,500 in the 2007 fiscal year.




Agreements
with ALS, LLC




On
February 23, 2007, we acquired certain assets and liabilities of ALS. The
purchase price of $24.4 million consisted of cash of $19 million, the ALS Note,
shares of our common stock with a value of $2.5 million (439,367 shares) and the
assumption of approximately $400,000 of current liabilities. ALS’s stockholders
may also receive up to two additional $1 million payments in shares of our
common stock based on our financial and integration performance metrics in
calendar years 2007 and 2008. No such payments have been made to
date.




In
connection with the financing transaction with ComVest, on June 20, 2008, we
entered into the ALS Agreement with ALS and its subsidiaries whereby the parties
agreed, among other things, to: (i) amend the ALS Note to provide for an
outstanding principal amount of $2,156,000 bearing interest at a rate of 5% per
annum payable in 24 equal monthly installments, payable as permitted pursuant to
the subordination letter and (ii) issue 350,000 shares of our common stock to
ALS. In addition, the parties agreed that ALS may defend and indemnify us in
connection with certain litigation involving the parties.




Pursuant
to a subordination letter sent by ALS to ComVest, M&T and us dated June 20,
2008, ALS agreed that we may not make and ALS may not receive payments on the
ALS Note, provided however, that (i) upon payment in full of all obligations
owing to ComVest and so long as we are permitted to make such payments, we will
make monthly interest payments on the outstanding principal balance of the ALS
Note and (ii) upon payment in full of our obligations owing to M&T, we will
make 24 equal monthly installments on the ALS Note, as amended pursuant to the
ALS Agreement described above.  As of March 23, 2009, approximately
$2,156,000 was outstanding under the ALS Note.  During the years ended
December 31, 2008 and 2007, we paid $0 and $57,534, respectively, in
interest to ALS pursuant to the ALS Note. We have accrued $58,098 in interest
payable to ALS pursuant to the ALS Note since the ALS Note was amended on June
20, 2008.


148


Transactions
with Dennis Cook, The Cameron Company, LLC  and WES Health
System




Dennis
Cook, a member of our board of directors, served as an advisor to the board of
directors since 2007. In such capacity, Mr. Cook provided ad hoc recommendations
regarding general business strategy to our board of directors upon request. In
connection with such services, we paid Mr. Cook approximately $12,000 and
$4,000 during the fiscal years ended December 31, 2007 and 2008,
respectively. During the fiscal year ended December 31, 2008, we leased office
space from WES for which we paid a total of $1,875. In addition, on March 29,
2007, Mr. Cook was granted an option to purchase 20,000 shares of our common
stock at an exercise price of $6.10. The option vested
immediately.  Mr. Cook serves as the President and Chief Executive
Officer of WES Health System, referred to as WES.  During the fiscal
years ended December 31, 2007 and 2008 and between January 1, 2009 and March 23,
2009, we provided certain temporary employees and payroll services to WES for
approximately $2,861,000, $1,156,000 and $0, respectively.




Merger
with Terra Nova




On
February 12, 2007, CPR merged with a wholly-owned subsidiary of Terra Nova
whereby as a result of the merger, stockholders of CPR received an aggregate of
6,051,549 shares of Terra Nova common stock. Of such shares, Michael Traina,
Optos, Fergco, Brendan Calder, our director, Alyson Drew, Richard and Margaret
Traina and The Cameron Company, LLC, which is controlled by Mr. Cook, our
director, received 3,260,573; 2,361,313; 181,547; 90,000; 60,516; 60,516 and
30,528 shares of Terra Nova common stock, respectively.




Independence
of Directors




See
Part III, Item 10 “Directors, Executive Officers and Corporate
Governance—Independence of Directors,” which is incorporated herein by
reference.


149


Item
14.  Principal Accounting Fees and Services.




Principal
Accounting Fees




The
following table presents fees for professional audit and other services rendered
by Parente Randolph, LLC and Lazar Levine & Felix LLP for fiscal 2008 and
2007, respectively:




2008
              
              
              2007Audit
      Fees
              
              $
              405,755
              
              
              $
              400,291Audit-Related
      Fees
              
              
              —
              
              
              
              137,399Tax
      Fees
              
              
              45,000
              
              
              
              98,938All
      Other Fees
              
              
              —
              
              
              
              —Total
              
              $
              450,755
              
              
              $
              636,628




Audit fees.  Audit
fees include fees for the audit of our consolidated financials statements for
the years ended December 31, 2008 and 2007, reviews of our quarterly financial
statements for each of the quarters in the years ended December 31, 2008 and
2007 and in 2008, fees in connection with the filing of registration statements
and consultation on accounting standards and transactions and in 2007, fees for
SEC registration statements in connection with the merger, the acquisition of
ALS and other transactions, consents and consultation on accounting standards or
transactions.




Audit-related
fees.  Audit related fees for 2007 primarily relate to services
rendered in connection with the issuance of agreed-upon procedures reports and
comfort letters in connection with the merger.




Tax fees.  Tax fees
consist of tax compliance, preparation, filing and consultation
services.




All other fees.No
other fees were incurred.




Audit
Committee Pre-Approval




Prior to
the merger with Terra Nova, ClearPoint had no designated audit committee; the
board of directors, however, pre-approved all audit services and permitted
non-audit services provided by the independent auditors, and the compensation,
fees and terms for such services. Since its formation, the audit committee has
determined not to adopt any blanket pre-approval policy but instead to require
that the audit committee pre-approve the compensation and terms of service for
audit services provided by the independent auditors and any changes in terms and
compensation resulting from changes in audit scope, company structure or other
matters. The audit committee has also determined to require pre-approval by the
audit committee or its chairman of the compensation and terms of service for any
permitted non-audit services provided by the independent auditors. Any proposed
non-audit services exceeding any pre-approval fee levels require further
pre-approval by the audit committee or its chairman. The chief financial officer
reports regularly to the audit committee on the services performed and fees
charged by the independent auditors for audit and permitted non-audit services
during the prior quarter.


150


PART
IV





Item
15.  Exhibits and Financial Statement Schedules.





The
following documents are filed as a part of this Annual Report on Form
10-K:





(a)(1)
Financial Statements





The
consolidated financial statements of the Registrant are set forth in Item 8 of
Part II of this Annual Report on Form 10-K.




Consolidated
Balance Sheets as of December 31, 2008 and 2007.




Consolidated
Statements of Operations for the Years Ended December 31, 2008 and
2007.




Consolidated
Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31,
2008 and 2007.




Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008 and
2007.




(a)(2)
Financial Statement Schedule





CLEARPOINT
BUSINESS RESOURCES, INC.




SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS




Description
              
              Balance at
                  Beginning of
                  Period
              
              
              Additions
              
              
              Deductions
              
              
              Balance at
                  End of PeriodYear
      ended December 31, 2007Allowance
      for doubtful accounts
              
              $
              405
              
              
              $
              2,774
              
              
              $
              0
              
              
              $
              3,179





(a)(3)
Listing of Exhibits




The
Exhibits are listed in the Exhibit Index beginning on page E-1, which is
incorporated herein by reference.


151


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 its behalf by
the undersigned hereunto duly authorized.




Dated:
April 15, 2009





CLEARPOINT BUSINESS RESOURCES,
      INC.By:
                      
                      /s/
      Michael D. TrainaName:
                      
                      Michael
      D. TrainaTitle:
                      
                      Chief
      Executive
Officer





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 April 15, 2009.





Signature
            
            Title/s/ Michael D. Traina
            
            Chief Executive Officer and
      Chairman of theBoard ofMichael D.
      Traina
            
            Directors (principal executive
      officer)/s/ John G. Phillips
            
            Chief Financial Officer and
      Treasurer (principal financialJohn G.
      Phillips
            
            and accounting
      officer)/s/ Vahan Kololian
            
            LeadDirectorVahan
    Kololian/s/ Brendan Calder
            
            DirectorBrendan
    Calder/s/ Dennis Cook
            
            DirectorDennis Cook/s/ Michael Perrucci
            
            DirectorMichael Perrucci/s/ Parker Drew
            
            DirectorParker Drew/s/ Harry Glasspiegel
            
            DirectorHarry
      Glasspiegel


152


EXHIBIT
INDEX





Exhibit
                      No.
                    
                    Description2.1
                    
                    
                    Agreement and Plan of Merger dated
      August 9, 2006, by and among Terra Nova Acquisition Corporation, CPBR
      Acquisition, Inc., ClearPoint Business Resources, Inc. and the
      stockholders of ClearPoint Business Resources, Inc. (incorporated by
      reference from Annex A to the Definitive Proxy Statement filed
      January 22, 2007).2.2.1
                    
                    
                    Asset Sale and Purchase Agreement
      dated as of February 23, 2007, by and among ALS, LLC, Advantage
      Services Group II, LLC, ALSC, LLC, ALSC II, LLC, ALSC III, LLC, ALSC IV,
      LLC, ASG, LLC, Joseph Raymond, Michael J. O’Donnell, Kevin O’Donnell,
      Michael W. O’Donnell and ClearPoint Business Resources, Inc. (incorporated
      by reference from Exhibit 2.1 to Form 8-K filed February 28,
      2007).2.2.2
                    
                    
                    Agreement to Reform Asset Purchase
      Agreement effective as of February 23, 2007 by and among ALS, LLC,
      Advantage Services Group II, LLC, ALSC, LLC, ALSC II, LLC, ALSC III, LLC,
      ALSC IV, LLC, ASG, LLC, Joseph Raymond, Michael J. O’Donnell, Kevin
      O’Donnell, Michael W. O’Donnell and ClearPoint Business Resources, Inc.
      (incorporated by reference from Exhibit 2.1 to Form 10-Q filed November
      14, 2008).3.1
                    
                    
                    Amended and Restated Certificate
      of Incorporation (incorporated by reference from Annex B of the Definitive
      Proxy Statement filed January 22, 2007).3.2
                    
                    
                    Amended and Restated Bylaws
      (incorporated by reference from Exhibit 3.2 to Form 8-K filed
      January 7, 2008).4.1
                    
                    
                    Specimen Common Stock Certificate
      (incorporated by reference from Exhibit 4.2 to Form 8-K filed
      February 12, 2007).4.2.1
                    
                    
                    Form of Warrant Agreement
      (incorporated by reference from Exhibit 4.5 to the Registration Statement
      on Form S-1 (File No. 333-122439) filed January 31,
      2005).4.2.2
                    
                    
                    Warrant Clarification Agreement
      between Continental Stock Transfer and Trust Company and Terra Nova
      Acquisition Corporation (incorporated by reference from Exhibit 4.1 to
      Form 8-K filed on September 12, 2006).4.2.3
                    
                    
                    Specimen Warrant Certificate
      (incorporated by reference from Exhibit 4.3 to Form 8-K filed
      February 12, 2007).4.3.1
                    
                    
                    Form of Unit Purchase Option
      (incorporated by reference from Exhibit 4.4 to Amendment No. 2 to the
      Registration Statement on Form S-1 (File No. 333-122439) filed
      April 4, 2005).4.3.2
                    
                    
                    Amendment to Unit Purchase Options
      between Terra Nova Acquisition Corporation and the holders thereof
      (incorporated by reference from Exhibit 4.2 to Form 8-K filed on
      September 12, 2006).4.3.3
                    
                    
                    Specimen Unit Certificate
      (incorporated by reference from Exhibit 4.1 to Form 8-K filed
      February 12, 2007).4.4
                    
                    
                    Form of Registration Rights
      Agreement among Terra Nova Acquisition Corporation and the undersigned
      parties listed under the signature page (incorporated by reference from
      Exhibit 10.17 to the Registration Statement on Form S-1 (File No.
      333-122439) filed January 31, 2005).4.5
                    
                    
                    ClearPoint Business Resources,
      Inc. 9% Subordinated Note Due 2008, dated March 1, 2005, in the
      original principal amount of $250,000 to Optos Capital, LLC, a
      Pennsylvania limited liability company that is wholly-owned by Christopher
      B. Ferguson (incorporated by reference from Exhibit 10.12 to Form 8-K
      filed February 12, 2007).4.6
                    
                    
                    Form of ClearPoint Business
      Resources, Inc. 12% Subordinated Note Due 2008, dated March 1, 2005
      (incorporated by reference from Exhibit 10.11 to Form 8-K filed
      February 12, 2007).4.7.1
                    
                    
                    6% Note due 2007 issued to
      shareholders of StaffBridge, Inc. dated August 14, 2006 (incorporated by
      reference from Exhibit 4.1 to Form 8-K filed January 7,
      2008).4.7.2
                    
                    
                    Amendment to Note payable to the
      shareholders of StaffBridge, Inc. dated December 31, 2007
      (incorporated by reference from Exhibit 4.1 to Form 8-K filed
      January 7, 2008).4.8
                    
                    
                    Form of 7% Subordinated Promissory
      Note due 2008 issued to ALS, LLC. (incorporated by reference from Exhibit
      4.9 to Form 10-Q filed May 21,
  2007).


E-1





4.9
                
                
                Registration Rights Agreement
      dated as of February 23, 2007 by and between ClearPoint Business
      Resources, Inc. and ALS, LLC (incorporated by reference from Exhibit 4.1
      to Form 8-K filed February 28, 2007).4.10.1
                
                
                6% Subordinated Note due 2008
      issued to Blue Lake Rancheria (incorporated by reference from Exhibit 10.1
      to Form 8-K/A filed May 14, 2007).4.10.2
                
                
                10% Amended and Restated
      Promissory Note issued to Blue Lake Rancheria, dated April 14, 2008
      (incorporated by reference from Exhibit 10.19 to Form 10-Q filed May 20,
      2008).4.11.1
                
                
                12% Second Amended and Restated
      Promissory Note due 2009 issued to Alyson P. Drew, dated March 31,
      2008 (incorporated by reference from Exhibit 10.11 to Form 10-Q filed May
      20, 2008).4.11.2
                
                
                Warrant issued to Alyson P. Drew,
      dated March 31, 2008 (incorporated by reference from Exhibit 4.1 to
      Form 10-Q filed May 20, 2008).4.11.3
                
                
                Form
      of Warrant issued to Alyson P. Drew dated June 20, 2008 (incorporated by
      reference from Exhibit 4.7 to Form 8-K/A filed July 7,
    2008).4.12.1
                
                
                12% Second Amended and Restated
      Promissory Note due 2009 issued to B&N Associates, LLC, dated
      March 31, 2008 (incorporated by reference from Exhibit 10.12 to Form
      10-Q filed May 20, 2008).4.12.2
                
                
                Warrant issued to B&N
      Associates, LLC, dated March 31, 2008 (incorporated by reference from
      Exhibit 4.2 to Form 10-Q filed May 20, 2008).4.12.3
                
                
                Form
      of Warrant issued to B&N Associates, LLC dated June 20, 2008
      (incorporated by reference from Exhibit 4.8 to Form 8-K/A filed July 7,
      2008).4.13.1
                
                
                12% Second Amended and Restated
      Promissory Note due 2009 issued to Fergco Bros Partnership, dated
      March 31, 2008 (incorporated by reference from Exhibit 10.13 to Form
      10-Q filed May 20, 2008).4.13.2
                
                
                Warrant issued to Fergco Bros
      Partnership, dated March 31, 2008 (incorporated by reference from
      Exhibit 4.3 to Form 10-Q filed May 20, 2008).4.13.3
                
                
                Form
      of Warrant issued to Fergco Bros Partnership dated June 20, 2008
      (incorporated by reference from Exhibit 4.9 to Form 8-K/A filed July 7,
      2008).4.14.1
                
                
                12% Second Amended and Restated
      Promissory Note due 2009 issued to Matthew Kingfield, dated March 31,
      2008 (incorporated by reference from Exhibit 10.14 to Form 10-Q filed May
      20, 2008).4.14.2
                
                
                Warrant issued to Matthew
      Kingfield, dated March 31, 2008 (incorporated by reference from
      Exhibit 4.4 to Form 10-Q filed May 20, 2008).4.14.3
                
                
                Form
      of Warrant issued to Matthew Kingfield dated June 20, 2008 (incorporated
      by reference from Exhibit 4.10 to Form 8-K/A filed July 7,
      2008).4.15.1
                
                
                Form
      of Demand Promissory Note issued to Michael Traina dated June 6, 2008
      (incorporated by reference from Exhibit 4.1 to Form 8-K/A filed July 7,
      2008).4.15.2
                
                
                Form
      of 8% Amended and Restated Demand Promissory Note issued to Michael Traina
      dated June 26, 2008 (incorporated by reference from Exhibit 4.13 to Form
      8-K/A filed July 7, 2008).4.16.1
                
                
                Form
      of Demand Promissory Note issued to Parker Drew dated June 6, 2008
      (incorporated by reference from Exhibit 4.2 to Form 8-K/A filed July 7,
      2008).4.16.2
                
                
                Form
      of 8% Amended and Restated Demand Promissory Note issued to Parker Drew
      dated June 26, 2008 (incorporated by reference from Exhibit 4.14 to Form
      8-K/A filed July 7, 2008).4.17.1
                
                
                Form
      of Demand Promissory Note issued to Terra Nova Partners, L.P. dated June
      6, 2008 (incorporated by reference from Exhibit 4.3 to Form 8-K/A filed
      July 7, 2008).4.17.2
                
                
                Form
      of 8% Amended and Restated Demand Promissory Note issued to Terra Nova
      Partners, L.P. dated June 26, 2008 (incorporated by reference from Exhibit
      4.15 to Form 8-K/A filed July 7, 2008).4.18
                
                
                Form
      of Warrant issued to ComVest Capital, LLC dated June 20, 2008
      (incorporated by reference from Exhibit 4.4 to Form 8-K/A filed July 7,
      2008).


E-2





4.19
              
              
              Form
      of Warrant issued to Manufacturers and Traders Trust Company to purchase
      1,200,000 shares of common stock dated June 20, 2008 (incorporated by
      reference from Exhibit 4.5 to Form 8-K/A filed July 7,
    2008).4.20
              
              
              Form
      of Warrant issued to Manufacturers and Traders Trust Company to purchase
      300,000 shares of common stock dated June 20, 2008 (incorporated by
      reference from Exhibit 4.6 to Form 8-K/A filed July 7,
    2008).4.21
              
              
              Registration
      Rights Agreement by ClearPoint Business Resources for the benefit of
      ComVest and M&T dated June 20, 2008 (incorporated by reference from
      Exhibit 4.16 to Form 8-K/A filed July 7, 2008).10.1
              
              
              New Staff, Inc. Asset Sale and
      Purchase Agreement with Allied Contract Services, LLC dated June 18,
      2004 (incorporated by reference from Exhibit 10.13 to Form 8-K filed
      February 12, 2007).10.2
              
              
              Quantum Resources Corporation
      Stock Purchase Agreement with Mercer Staffing, Inc. and Aramark Services,
      Inc. dated July 29, 2005 (incorporated by reference from Exhibit
      10.10 to Form 8-K filed February 12, 2007).10.3
              
              
              Form of Voting Agreement
      (incorporated by reference from Annex D of the Definitive Proxy Statement
      filed January 22, 2007).10.4
              
              
              Form of Escrow Agreement
      (incorporated by reference from Annex E of the Definitive Proxy Statement
      filed January 22, 2007).10.5
              
              
              Purchase Agreement, effective as
      of December 31, 2007, by and among ClearPoint Business Resources,
      Inc., Mercer Ventures, Inc. and TradeShow Products Inc. (incorporated by
      reference from Exhibit 10.2 to Form 8-K filed January 7,
      2008).10.6
              
              
              Purchase Agreement by and among
      ClearPoint Resources, Inc., ClearPoint HRO, LLC and AMS Outsourcing, Inc.,
      effective as of February 7, 2008 (incorporated by reference from
      Exhibit 10.1 to Form 8-K filed February 13,
    2008).10.7.1
              
              
              Asset Purchase Agreement by and
      between ClearPoint Resources, Inc. and StaffChex, Inc., dated as of
      February 28, 2008 (incorporated by reference from Exhibit 10.1 to
      Form 8-K filed March 5, 2008).10.7.2
              
              
              iLabor Network Supplier Agreement
      among ClearPoint Resources, Inc., StaffChex, Inc. and StaffChex Servicing,
      LLC dated February 28, 2008 (incorporated by reference from Exhibit 10.2
      to Form 8-K filed March 20, 2009).10.7.3
              
              
              Amendment No. 1 to iLabor Network
      Supplier Agreement among ClearPoint Resources, Inc., StaffChex, Inc. and
      StaffChex Servicing, LLC dated March 16, 2009 (incorporated by reference
      from Exhibit 10.1 to Form 8-K filed March 20,
  2009).10.8*
              
              
              Form of Michael D. Traina
      Employment Agreement (incorporated by reference from Annex H of the
      Definitive Proxy Statement filed January 22,
      2007).10.9.1*
              
              
              Form of Christopher Ferguson
      Employment Agreement (incorporated by reference from Annex I of the
      Definitive Proxy Statement filed January 22,
      2007).10.9.2*
              
              
              Separation of Employment Agreement
      and General Release between Christopher Ferguson and ClearPoint Business
      Resources, Inc., dated February 28, 2008 (incorporated by reference
      from Exhibit 10.8 to Form 10-Q filed May 20,
  2008).10.9.3
              
              
              Consulting Agreement by and
      between ClearPoint Resources, Inc. and Chris Ferguson, dated
      April 18, 2008 (incorporated by reference from Exhibit 10.22 to Form
      10-Q filed May 20, 2008).10.10.1*
              
              
              Kurt Braun Employment Agreement
      dated April 4, 2005 (incorporated by reference from Exhibit 10.8 to
      Form 8-K filed February 12, 2007).10.10.2*
              
              
              Separation
      of Employment Agreement and General Release among ClearPoint Business
      Resources, Inc. and Kurt Braun dated June 20, 2008 (incorporated by
      reference from Exhibit 10.13 to Form 8-K/A filed July 7,
      2008).10.11*
              
              
              Todd Warner Employment Agreement
      dated February 16, 2005 (incorporated by reference from Exhibit 10.9
      to Form 8-K filed February 12, 2007).10.12*
              
              
              Employment
      Agreement among ClearPoint Business Resources, Inc. and John G. Phillips
      dated June 20, 2008 (incorporated by reference from Exhibit 10.12 to Form
      8-K/A filed July 7, 2008).10.13*
              
              
              Director Compensation
      (incorporated by reference from Exhibit 10.8 to Form 10-Q filed
      May 21, 2007).


E-3





10.14.1*
                
                
                2006 Long-Term Incentive Plan
      (incorporated by reference from Annex C of the Definitive Proxy Statement
      filed January 22, 2007).10.14.2*
                
                
                Form of Non-qualified Stock Option
      Agreement under ClearPoint Business Resources, Inc. 2006 Long-Term
      Incentive Plan (incorporated by reference from Exhibit 10.1 to the
      Registration Statement on Form S-8 (File No. 333-144209) filed on
      June 29, 2007).10.15.1
                
                
                Credit Agreement dated as of
      February 23, 2007 among ClearPoint Business Resources, Inc., the
      several banks and other financial institutions from time to time parties
      thereto and Manufacturers and Traders Trust Company (incorporated by
      reference from Exhibit 10.1 to Form 8-K filed February 28,
      2007).10.15.2
                
                
                First Amendment to Credit
      Agreement dated July 13, 2007, by and between ClearPoint Business
      Resources, Inc. and Manufacturers and Traders Trust Company (incorporated
      by reference from Exhibit 10.3 to Form 10-Q filed November 13,
      2007).10.15.3
                
                
                Joinder and Assumption Agreement,
      dated as of December 31, 2007 among Emgate Solutions Group, LLC,
      ClearPoint WorkForce, LLC, ASG, LLC, ClearPoint HRO, LLC, ClearPoint HR,
      LLC, ASG, LLC, and Mercer Ventures, Inc., in favor of Manufacturers and
      Traders Trust Company, as Administrative Agent for the lenders and
      financial institutions from time to time parties to a certain Credit
      Agreement (incorporated by reference from Exhibit 10.1 to Form 8-K filed
      January 7, 2008).10.15.4
                
                
                Second Amendment to Credit
      Agreement among ClearPoint Business Resources, Inc., several banks and
      other financial institutions parties to the Credit Agreement and
      Manufacturers and Traders Trust Company, dated as of March 21, 2008
      (incorporated by reference from Exhibit 10.1 to Form 8-K filed
      March 28, 2008).10.15.5
                
                
                Amended and Restated Term Note,
      dated July 13, 2007, payable to Manufacturers and Traders Trust
      Company in the original principal amount of $5,000,000 (incorporated by
      reference from Exhibit 4.1 to Form 10-Q filed November 13,
      2007).10.15.6
                
                
                Waiver among ClearPoint Business
      Resources, Inc., the several banks and other financial institutions
      parties to the Credit Agreement dated as of February 23, 2007
      (collectively, the “Lenders”) and Manufacturers and Traders Trust Company,
      as Administrative Agent for the Lenders, dated April 14, 2008
      (incorporated by reference from Exhibit 10.21 to Form 10-Q filed May 20,
      2008).10.15.7
                
                
                Loan
      Modification and Restructure Agreement among ClearPoint Business
      Resources, Inc., its subsidiaries listed on the signature page thereto,
      and Manufacturers and Traders Trust Company dated June 20, 2008
      (incorporated by reference from Exhibit 10.8 to Form 8-K/A filed July 7,
      2008).10.15.8
                
                
                Subordination
      and Intercreditor Agreement by and between ComVest Capital, LLC and
      Manufacturers and Traders Trust Company dated June 20, 2008 (incorporated
      by reference from Exhibit 10.7 to Form 8-K/A filed July 7,
      2008).10.16.1
                
                
                Waiver and Consent by and among
      ClearPoint Business Resources, Inc. and Manufacturers and Traders Trust
      Company dated November 12, 2008 (incorporated by reference from Exhibit
      10.4 to Form 10-Q filed November 14, 2008).10.16.2
                
                
                Waiver and Consent by and among
      ClearPoint Business Resources, Inc. and Manufacturers and Traders Trust
      Company dated December 19, 2008 (incorporated by reference from Exhibit
      10.2 to Form 8-K/A filed December 22, 2008).10.17
                
                
                6% Promissory Note due 2009 issued
      to Chris Ferguson, dated February 22, 2008 (incorporated by reference
      from Exhibit 10.2 to Form 10-Q filed May 20,
  2008).10.18
                
                
                6% Promissory Note due 2009 issued
      to Michael Traina, dated February 22, 2008 (incorporated by reference
      from Exhibit 10.3 to Form 10-Q filed May 20,
  2008).10.19
                
                
                Notice
      of Extension of Maturity Date of 12% Amended and Restated Note issued to
      Alyson P. Drew, dated June 25, 2008 (incorporated by reference from
      Exhibit 10.14 to Form 8-K/A filed July 7, 2008).10.20
                
                
                Notice
      of Extension of Maturity Date of 12% Amended and Restated Note issued to
      Fergco Bros Partnership, dated June 25, 2008 (incorporated by reference
      from Exhibit 10.15 to Form 8-K/A filed July 7, 2008).10.21
                
                
                Notice
      of Extension of Maturity Date of 12% Amended and Restated Note issued to
      B&N Associates, LLC, dated June 25, 2008 (incorporated by reference
      from Exhibit 10.16 to Form 8-K/A filed July 7, 2008).10.22
                
                
                Notice
      of Extension of Maturity Date of 12% Amended and Restated Note issued to
      Matthew Kingfield, dated June 25, 2008 (incorporated by reference from
      Exhibit 10.17 to Form 8-K/A filed July 7,
2008).




E-4





10.23
                
                
                Subordination
      Agreement by and among ComVest Capital, LLC; B&N Associates, LLC;
      Alyson P. Drew; Fergco Bros Partnership; Matthew Kingfield; and ClearPoint
      Business Resources, Inc. dated June 20, 2008 (incorporated by reference
      from Exhibit 10.6 to Form 8-K/A filed July 7, 2008).10.24.1
                
                
                Revolving
      Credit and Term Loan Agreement by and between ComVest Capital, LLC and
      ClearPoint Business Resources, Inc. dated as of June 20, 2008
      (incorporated by reference from Exhibit 10.1 to Form 8-K/A filed July 7,
      2008).10.24.2
                
                
                Form
      of Term Note issued to ComVest Capital, LLC dated June 20, 2008
      (incorporated by reference from Exhibit 4.12 to Form 8-K/A filed July 7,
      2008).10.24.3
                
                
                Amendment
      No. 1 dated January 29, 2009 to Term Note dated June 20, 2008 issued by
      ClearPoint Business Resources, Inc. to ComVest Capital, LLC (incorporated
      by reference from Exhibit 10.3 to Form 8-K filed February 4,
      2009).10.24.4
                
                
                Form
      of Revolving Credit Note issued to ComVest Capital, LLC dated June 20,
      2008 (incorporated by reference from Exhibit 4.11 to Form 8-K/A filed July
      7, 2008).10.25
                
                
                Collateral
      Agreement by and among ClearPoint Business Resources, Inc., those
      subsidiaries set forth on the signature page and ComVest Capital, LLC
      dated June 20, 2008 (incorporated by reference from Exhibit 10.3 to Form
      8-K/A filed July 7, 2008).10.26
                
                
                Guaranty
      Agreement in favor of ComVest Capital, LLC made by each of the entities
      set forth on the signature page, dated June 20, 2008 (incorporated by
      reference from Exhibit 10.2 to Form 8-K/A filed July 7,
    2008).10.27
                
                
                Validity
      Guaranty by and among ComVest Capital, LLC, ClearPoint Business Resources,
      Inc. and Michael D. Traina dated June 20, 2008 (incorporated by reference
      from Exhibit 10.4 to Form 8-K/A filed July 7, 2008).10.28
                
                
                Validity
      Guaranty by and among ComVest Capital, LLC, ClearPoint Business Resources,
      Inc. and John Phillips dated June 20, 2008 (incorporated by reference from
      Exhibit 10.5 to Form 8-K/A filed July 7, 2008).10.29
                
                
                Voting
      Agreement and Irrevocable Proxy among Michael Traina, Christopher Ferguson
      and Vahan Kololian dated June 20, 2008 (incorporated by reference from
      Exhibit 10.9 to Form 8-K/A filed July 7, 2008).10.30.1
                
                
                Waiver and Consent by and among
      ClearPoint Business Resources, Inc. and ComVest Capital, LLC dated
      November 7, 2008.  (incorporated by reference from Exhibit 10.3
      to Form 10-Q filed November 14, 2008).10.30.2
                
                
                Waiver
      and Consent by and among ClearPoint Business Resources, Inc. and ComVest
      Capital, LLC dated December 19, 2008 (incorporated by reference from
      Exhibit 10.1 to Form 8-K/A filed December 22, 2008).10.31
                
                
                Letter
      Agreement among ClearPoint Business Resources, Inc., ALS, LLC and its
      subsidiaries dated June 20, 2008 (incorporated by reference from Exhibit
      10.10 to Form 8-K/A filed July 7, 2008).10.32
                
                
                Subordination
      Agreement issued by ALS to ComVest Capital, LLC, ClearPoint Business
      Resources, Inc. and Manufacturers and Traders Trust Company dated June 20,
      2008 (incorporated by reference from Exhibit 10.11 to Form 8-K/A filed
      July 7, 2008).10.33.1
                
                
                Form
      of Debt Extension Agreement issued by the former shareholders of
      StaffBridge, Inc. dated June 30, 2008 (incorporated by reference from
      Exhibit 10.26 to Form 10-Q filed August 14, 2008).10.33.2
                
                
                Debt
      Extension Agreement issued by the former shareholders of StaffBridge, Inc.
      dated December 31, 2008 (incorporated by reference from Exhibit 10.1 to
      Form 8-K filed February 4, 2009).10.34
                
                
                Form
      of Subordination Agreement issued by the former shareholders of
      StaffBridge, Inc. to ComVest Capital, LLC and ClearPoint Resources, Inc.
      dated June 30, 2008 (incorporated by reference from Exhibit 10.27 to Form
      10-Q filed August 14, 2008).10.35
                
                
                Office Space Lease for New Britain
      Corporate Center by and between New Britain Land Limited Partnership (as
      Landlord) and Mercer Staffing, Inc. (as Tenant) dated April 14, 2005
      (incorporated by reference from Exhibit 10.35 to the Registration
      Statement on Form S-1 (File No. 333-156450) filed December 24,
      2008).10.36.1
                
                
                Form of Advisory Services
      Agreement with TerraNova Management Corp. (incorporated by reference from
      Exhibit 10.7 to Form 8-K filed on August 15,
      2006).


E-5





10.36.2
                  
                  
                  Advisory
      Services Agreement by and between ClearPoint Business Resources, Inc. and
      TerraNova Management Corp. dated June 26, 2008 (incorporated by reference
      from Exhibit 10.18 to Form 8-K/A filed July 7, 2008).10.37.1
                  
                  
                  Franchise Agreement, dated
      August 13, 2007, by and between ClearPoint Business Resources, Inc.
      and TZG Enterprises, LLC (incorporated by reference from Exhibit 10.1 to
      Form 10-Q filed November 13, 2007).10.37.2
                  
                  
                  Termination Agreement by and
      between ClearPoint Business Resources, Inc. and TZG Enterprises, LLC,
      dated February 28, 2008 (incorporated by reference from Exhibit 10.3
      to Form 8-K filed March 5, 2008).10.38.1
                  
                  
                  Franchise Agreement, dated
      August 30, 2007, by and between ClearPoint Business Resources, Inc.
      and KOR Capital, LLC (incorporated by reference from Exhibit 10.2 to Form
      10-Q filed November 13, 2007).10.38.2
                  
                  
                  Termination Agreement by and
      between ClearPoint Business Resources, Inc. and KOR Capital, LLC, dated
      March 5, 2008 (incorporated by reference from Exhibit 10.1 to Form
      8-K filed March 11, 2008).10.39.1
                  
                  
                  Licensing Agreement by and between
      ClearPoint Resources, Inc., ClearPoint Workforce, LLC and Optos Capital,
      LLC, dated February 28, 2008 (incorporated by reference from Exhibit
      10.2 to Form 8-K filed March 5, 2008).10.39.2
                  
                  
                  Assignment and Assumption
      Agreement and Bill of Sale by and between Optos Capital, LLC and
      ClearPoint Resources, Inc., dated February 28, 2008 (incorporated by
      reference from Exhibit 10.7 to Form 10-Q filed May 20,
      2008).10.39.3
                  
                  
                  Termination Agreement by and
      between ClearPoint Resources, Inc. and Optos Capital, LLC, dated
      April 8, 2008 (incorporated by reference from Exhibit 10.16 to Form
      10-Q filed May 20, 2008).10.40.1
                  
                  
                  Agreement by and between
      ClearPoint Resources, Inc. and Blue Lake Rancheria dated March 31,
      2008 (incorporated by reference from Exhibit 10.15 to Form 10-Q filed May
      20, 2008).10.40.2
                  
                  
                  Escrow Agreement by and among
      ClearPoint Business Resources, Inc., ClearPoint Resources, Inc., Blue Lake
      Rancheria and Archer & Archer, P.C., dated April 14, 2008
      (incorporated by reference from Exhibit 10.20 to Form 10-Q filed May 20,
      2008).10.41.1**
                  
                  
                  License Agreement by and between
      Koosharem Corp. d/b/a Select Staffing and ClearPoint Resources, Inc.,
      dated April 8, 2008 (incorporated by reference from Exhibit 10.17 to
      Form 10-Q filed May 20, 2008).10.41.2
                  
                  
                  Temporary Help Services
      Subcontract by and between ClearPoint Resources, Inc. and Koosharem Corp.,
      d/b/a Select Staffing, dated April 8, 2008 (incorporated by reference
      from Exhibit 10.18 to Form 10-Q filed May 20,
  2008).10.41.3
                  
                  
                  Settlement Agreement and Release
      dated August 22, 2008 by and between Koosharem Corp. d/b/a Select
      Staffing; Real Time Staffing Services, Inc. d/b/a Select Staffing; and
      ClearPoint Resources, Inc.  (incorporated by reference from
      Exhibit 10.1 to Form 10-Q filed November 14,
  2008).10.41.4
                  
                  
                  First Amendment to Temporary Help
      Services Subcontract dated August 22, 2008 by and between Koosharem Corp.
      d/b/a Select Staffing and ClearPoint Resources,
      Inc.  (incorporated by reference from Exhibit 10.2 to Form 10-Q
      filed November 14, 2008).10.42
                  
                  
                  Letter Agreement dated January 13,
      2009 among ClearPoint Business Resources, Inc. and XRoads Solutions Group,
      LLC (incorporated by reference from Exhibit 10.2 to Form 8-K filed
      February 4, 2009).11.1
                  
                  
                  Statement Regarding Computation of
      Per Share Earnings (incorporated by reference Note 17 to the Notes to the
      Consolidated Financial Statements).21.1
                  
                  
                  List of
      Subsidiaries.23.1
                  
                  
                  Consent of Parente
      Randolph LLP.23.2
                  
                  
                  Consent of Lazar Levine &
      Felix LLP.31.1
                  
                  
                  Certification of Chief
      Executive Officer pursuant to Rule 13a-14(a) promulgated under the
      Securities Exchange Act of 1934, as amended.31.2
                  
                  
                  Certification of Chief
      Financial Officer pursuant to Rule 13a-14(a) promulgated under the
      Securities Exchange Act of 1934, as
  amended.


E-6





32.1
                
                
                Certification of ClearPoint’s
      Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
                
                
                Certification of ClearPoint’s
      Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.


E-7