UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549




FORM
10-K




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




For
the fiscal year ended September 30, 2010




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




Commission
file number 000-30734




CORPORATE
RESOURCE SERVICES, INC.


(Exact
name of Registrant as specified in its charter)





Delaware
              
              80-0551965(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)





160
Broadway, 11th
Floor


New
York, New York 10038


(Address
of principal executive offices)





(646)
443-2380


(Registrant’s
telephone number, including area code)





Securities
registered under Section 12(b) of the Exchange Act:Not
Applicable





Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock, $.0001 par value


(Title of
class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  ̈  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  ̈  No
x.




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




Indicate by check mark if disclosure of
delinquent filers in response to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):




Large accelerated filer ̈
              Accelerated filer ̈Non-accelerated filer ̈
              Smaller Reporting Companyx





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  Yes  ̈  No
x.




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates, computed by reference to the last sale price of such stock on
March 31, 2010, was $5,179,000 based upon 8,632,000 shares held by
non-affiliates.




The
number of shares of Common Stock, $.0001 par value, outstanding as of December
15, 2010 was 38,029,000.










This
Annual Report on Form 10-K contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.  These
statements relate to future economic performance, plans and objectives of
management for future operations and projections of revenue and other financial
items that are based on the beliefs of our management, as well as assumptions
made by, and information currently available to, our management.  The
words “expect”, “estimate”, “anticipate”, “believe”, “intend”, and similar
expressions are intended to identify forward-looking statements.  Such
statements involve assumptions, uncertainties and risks.  If one or
more of these risks or uncertainties materialize or underlying assumptions prove
incorrect, actual outcomes may vary materially from those anticipated, estimated
or expected.  Among the key factors that may have a direct bearing on
our expected operating results, performance or financial condition are our
ability to satisfy our working capital requirements; our ability to identify
suitable acquisition candidates or investment opportunities; our ability to
integrate any acquisitions made and fully realize the anticipated benefits of
these acquisitions; successor liabilities that we may be subject to as a result
of acquisitions; material employment related claims and costs as a result of the
nature of our business; our ability to retain key management personnel; the
financial difficulty of our clients, which may result in nonpayment of amounts
owed to us; significant economic downturns resulting in reduced demand for our
services; our ability to attract and retain qualified temporary personnel, who
possess the skills and experience necessary to satisfy our clients; our ability
to raise additional capital; our ability to achieve and manage growth; our
ability to develop new services; our ability to open new offices; the continued
cooperation of our creditors; our ability to diversify our client base; and
other factors discussed in Item 1A of this Annual Report under the caption “Risk
Factors” and from time to time in our filings with the Securities and Exchange
Commission.  These factors are not intended to represent a complete
list of all risks and uncertainties inherent in our business.  The
following discussion and analysis should be read in conjunction with the
Financial Statements and notes appearing elsewhere in this Annual Report. In
this Annual Report on Form 10-K, references to “the Company”, “we”, “us” and
“our” refer, for periods prior to February 23, 2010, to Accountabilities, Inc.
and, for periods after February 23, 2010, to Corporate Resource Services, Inc.,
in each case including consolidated subsidiaries, unless otherwise indicated or
the context otherwise requires.







Table
of Contents




PART
      I
                                                                              
                                                                              
                                                                              
                                                                              1ITEM
      1.
                                                                              
                                                                              BUSINESS
                                                                              
                                                                              1ITEM
      1A.
                                                                              
                                                                              RISK
      FACTORS
                                                                              
                                                                              4ITEM
      2.
                                                                              
                                                                              PROPERTIES
                                                                              
                                                                              8ITEM
      3.
                                                                              
                                                                              LEGAL
      PROCEEDINGS
                                                                              
                                                                              8ITEM
      4.
                                                                              
                                                                              [REMOVED
      AND RESERVED]
                                                                              
                                                                              9PART
      II
                                                                              
                                                                              
                                                                              
                                                                              10ITEM
      5.
                                                                              
                                                                              MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF
      EQUITY SECURITIES
                                                                              
                                                                              10ITEM
      6.
                                                                              
                                                                              SELECTED
      FINANCIAL DATA
                                                                              
                                                                              10ITEM
      7.
                                                                              
                                                                              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                                                                              
                                                                              10ITEM
      7A.
                                                                              
                                                                              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                                                              
                                                                              20ITEM
      8.
                                                                              
                                                                              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                                                                              
                                                                              20ITEM
      9.
                                                                              
                                                                              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                                                                              
                                                                              20ITEM
      9A.
                                                                              
                                                                              CONTROLS
      AND PROCEDURES
                                                                              
                                                                              20ITEM
      9B.
                                                                              
                                                                              OTHER
      INFORMATION.
                                                                              
                                                                              21PART III
                                                                              
                                                                              
                                                                              
                                                                              22ITEM
      10.
                                                                              
                                                                              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                                                                              
                                                                              22ITEM
      11.
                                                                              
                                                                              EXECUTIVE
      COMPENSATION
                                                                              
                                                                              23ITEM
      12.
                                                                              
                                                                              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                                                                              
                                                                              25ITEM
      13.
                                                                              
                                                                              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE
                                                                              
                                                                              26ITEM
      14.
                                                                              
                                                                              PRINCIPAL
      ACCOUNTING FEES AND SERVICES
                                                                              
                                                                              28PART IV
                                                                              
                                                                              
                                                                              
                                                                              29ITEM
      15.
                                                                              
                                                                              EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES
                                                                              
                                                                              29INDEX
      TO FINANCIAL STATEMENTS
                                                                              
                                                                              F-1





PART
I




ITEM
      1.
            BUSINESS




Holding
Company Reorganization




Corporate
Resource Services, Inc. was formed on December 15, 2009 for the purpose of
acting as a holding company with operating subsidiaries in the staffing business
and other related businesses.  On February 23, 2010, we completed a
holding company reorganization, pursuant to which Accountabilities, Inc., a
Delaware corporation (“Accountabilities”), which immediately prior to the
reorganization was our parent company, became our wholly-owned
subsidiary.




As a
result of the reorganization, the former holders of Accountabilities common
stock became owners of shares of our common stock, par value $0.0001 per share,
and each restricted share of Accountabilities’ common stock issued and
outstanding under the Accountabilities Equity Incentive Plan immediately prior
to the effective time of the reorganization was automatically converted into a
similarly restricted share of our common stock.  Our equity
capitalization and consolidated assets, liabilities and stockholders’ equity
immediately following the reorganization remained the same as the equity
capitalization and consolidated assets, liabilities and stockholders’ equity of
Accountabilities immediately prior to the reorganization.




Overview




Through
our wholly-owned subsidiaries, Accountabilities, Corporate Resource Development
Inc. (“CRD”) and Insurance Overload Services, Inc. (“Insurance Overload”), we
are a national provider of diversified staffing, recruiting and consulting
services, including temporary staffing services, with a focus on light
industrial services, clerical and administrative support and insurance related
staffing.  We provide our services across a variety of industries and
to a diverse range of clients ranging from sole proprietorships to Fortune 1000
companies.  We conduct all of our business in the United States
through our New York City headquarters and the operation of 42 staffing and
recruiting offices.




Light
industrial services include assignments for warehouse work (such as general
laborers, stock clerks, material handlers, order pickers, forklift operators and
shipping/receiving clerks), manufacturing work (including production, assembly
and support workers, merchandise packers and machine operators), general
services (such as maintenance and repair personnel, janitors and food service
workers) and distribution.




Administrative
support services include placements satisfying a range of general business
needs, including data entry processors, customer service representatives,
receptionists and general office personnel.




Insurance
related staffing principally focuses on supporting insurance companies’
temporary and permanent staffing needs.




In
addition to light industrial, administrative and insurance staffing services we
also provide engineers, lab technicians and scientists to companies such as
pharmaceutical companies and utilities.




These
service offerings have grown largely through the acquisition of established
offices from general staffing companies, which acquisitions are explained in
more detail elsewhere in this Annual Report on Form 10-K.




Discontinued
Operations




In
addition to our light industrial and clerical service offerings, we historically
have provided professional accounting and finance consulting and staffing
services through both our CPA Partner on Premise Program and directly to
clients.




In April
2009, we discontinued our CPA Partner on Premise Program service offering. We
determined to exit this service offering after reviewing the historical
operating performance and future prospects of these services and the likely need
for continued capital to support ongoing losses. As a result, the CPA Partner on
Premise Program is classified as discontinued operations for all periods
presented in the accompanying financial statements.




In the
first quarter of fiscal 2010, in an effort to focus management’s efforts on our
core business, as well as use  our capital more directly on our light
industrial and administrative service offerings, we discontinued our Direct
Professional Accounting Service Offerings, which was our remaining accounting
and finance operations. Accordingly, the operations associated with the direct
provision of accounting and finance services are reported as discontinued
operations for all periods presented in the accompanying financial
statements.


1


We
maintain our headquarters at 160 Broadway, New York, New York 10038 and our
phone number is (646)
443-2380.




Competition




Our
professional staffing services face competition in attracting clients as well as
skilled specialized employment candidates. In providing professional staffing
services, we operate in a competitive, fragmented market and compete for clients
and associates with a variety of organizations that offer similar services. Our
principal competitors include:




·
            traditional
      and Internet-based staffing firms and their specialized
      divisions;





·
            the
      in-house resources of our clients;
and





·
            independent
      contractors.





We
compete for clients on the basis of the quality of professionals, the timely
availability of professionals with requisite skills, the scope and price of
services, and the geographic reach of services. Although we believe we compete
favorably with our competitors, many of our competitors have significantly
greater financial resources, generate greater revenues and have greater name
recognition than we do.




The
general temporary staffing industry is highly competitive with few barriers to
entry. We believe that the majority of companies offering these services are
local, full-service or specialized operations with less than five offices.
Within local markets, typically no single company has a dominant share of the
market. We also compete for qualified candidates and customers with larger,
national full-service and specialized competitors in local, regional, national
and international markets. Competitors offering general temporary staffing
services nationally, similar to ours include companies such as Adecco SA,
Spherion Corporation (commercial staffing segment), Kelly Services, Inc.,
Manpower Inc., Remedy Intelligent Staffing, Express Personnel Services, Inc.,
and Randstad North America. Many of our principal competitors have greater
financial, marketing and other resources than we do. In addition, there are a
number of medium-sized firms which compete with us in certain markets where they
may have a stronger presence, such as regional or specialized
markets.




We
believe that the competitive factors in obtaining and retaining customers
include understanding customers’ specific job requirements, providing qualified
temporary personnel and permanent placement candidates in a timely manner,
monitoring quality of job performance and pricing of services. We believe that
the primary competitive factors in obtaining qualified candidates for temporary
employment assignments are wages, benefits and flexibility and responsiveness of
work schedules.




Employees




We have
approximately 280 full-time staff employees. We placed approximately 18,000
employees on temporary assignments with clients during the fiscal year ended
September 30, 2010.




Company
History




The
following summarizes certain recent developments with respect to our corporate
history:




·
            In
      February 2007, Accountabilities acquired substantially all of the business
      and assets of ReStaff Services, Inc., a staffing company (“ReStaff”), for
      a total adjusted purchase price of
$2,928,000.





·
            In
      fiscal 2009, Tri-State Employment Services, Inc. (“TSE”), together with
      its affiliates, obtained control of us through beneficial ownership of in
      excess of a majority of our outstanding shares of common stock through a
      series of stock purchases.  As of the date hereof, TSE and its
      affiliated entities and persons own approximately 74.3% of our outstanding
      shares of common stock.





·
            In
      the third quarter of 2009 and first quarter of 2010, we discontinued our
      CPA Partner on Premise Program and Direct Professional Accounting Service
      Offerings, respectively, both of which related to the provision of
      accounting related services. We made these decisions in order to focus
      more extensively on our light industrial related service offerings and
      after reviewing the historical operating losses of these
      operations.


2


·
            As
      indicated above under the heading “Holding Company Reorganization,” on
      February 23 2010, we completed a holding company reorganization by merging
      Accountabilities, formerly our parent company, into our wholly-owned
      subsidiary.  As a result of the reorganization, the former
      holders of Accountabilities’ common stock now own shares of our common
      stock, and immediately following the reorganization, our capitalization
      and consolidated assets, liabilities and stockholders’ equity were the
      same as the capitalization and consolidated assets, liabilities and
      stockholders’ equity of Accountabilities immediately prior to the
      reorganization.





·
            In
      April 2010, CRD, our newly formed, wholly owned subsidiary, acquired a
      portion of the assets of GT Systems, Inc. (“GT Systems”) related to the
      temporary and permanent placement of employees (the “GT Systems
      Acquisition”).  The purchase price for this acquisition was
      $3,000,000 (the “GT Purchase Price”), which is being paid over a
      three-year period by CRD.  CRD’s obligation to make the required
      payments is guaranteed by us, and is secured by a pledge of 4,257,332
      shares of our common stock to the payee.  These shares are not
      treated as outstanding for our financial statements, and are not included
      in the number of our shares of common stock outstanding on the cover page
      of this Annual Report on Form I0-K.  TSE is also a guarantor of
      CRD’s obligation to pay the GT Purchase Price.  In connection
      with the acquisition, CRD entered into a consulting agreement with the
      former owner of GT Systems, which agreement was amended and restated as
      part of the ICG Acquisition (as defined below).  The consulting
      agreement and its amendment and restatement are more fully described in
      Notes 3 and 14 to the Consolidated Financial
    Statements.





·
            In
      August 2010, we acquired Tri-Overload Staffing Inc. (“Tri-Overload”)
      (renamed Insurance Overload Services, Inc. as part of the acquisition), an
      entity engaged in the business of providing temporary and permanent
      employment services and related support services to the insurance industry
      (the “Tri-Overload Acquisition”).  The purchase price for this
      entity was $6,200,000, which was paid through the issuance of 8,589,637
      shares of our common stock to a related party.  The number of
      shares issued was based upon a negotiated $0.7218 price per share for our
      common stock that was determined using historical market
      prices.





In
addition, after the completion of our 2010 fiscal year, our newly formed
wholly-owned subsidiary, Integrated Consulting Group, Inc. (“ICG Inc.”) acquired
a portion of the assets of Integrated Consulting Group of NY LLC (“ICG Seller”)
related to the temporary and permanent placement of employees in the light
industrial industry and translation and interpreting services (the “ICG
Acquisition”).  The consideration for these assets included (i) the
repayment of ICG Seller’s outstanding obligations on the Closing Date under its
credit facility, which amounted to approximately $3.2 million, (ii) payment of
up to $380,000 for outstanding accounts payable of ICG Seller as of the Closing
Date, (iii) payments to various taxing authorities in the aggregate amount of
approximately $646,000 for certain taxes owed by ICG Seller on the Closing Date,
and (iv) payment of approximately $171,000 (subject to final confirmation,
reconciliation and adjustments) to Rosenthal & Rosenthal, Inc.
(“Rosenthal”), for amounts owed to it by ICG Seller on the Closing Date, which
amount is to be paid in installments commencing in January 2011.  ICG
Inc. also entered into a commission agreement with Rosenthal to replace a
similar agreement that Rosenthal had to with ICG Seller and its members,
pursuant to which ICG Inc. is obligated to pay to Rosenthal 3% of its net sales
for the next two years, and 2% of its net sales for the three year period
thereafter. In
addition, ICG Inc. entered into a non-competition agreement with the principal
of ICG Seller, Eric Goldstein, pursuant to which, Mr. Goldstein agreed not to
compete with ICG Inc. or solicit its employees or customers for a five-year
period commencing December 14, 2010, in exchange for payment by ICG Inc. of 1%
of ICG Inc.’s sales revenue earned during the two year period commencing
December 14, 2010.  ICG Inc.’s payment obligations under the
commission agreement and the non-competition agreement are guaranteed by
TSE.




Simultaneously
with the ICG acquisition, ICG Inc. entered into a $4.2 million loan and security
agreement, the proceeds of which are being used to pay for the obligations
related to this acquisition.




Also, on
January 10, 2011, we entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with our wholly-owned subsidiary Diamond Staffing Services, Inc.
(“Merger Sub”), TS Staffing Corp. (“TS Staffing”), Tri-Diamond Staffing Inc., a
wholly-owned subsidiary of TS Staffing (“Tri-Diamond”), and Diamond Staffing, a
wholly-owned subsidiary of Tri-Diamond (“Diamond Staffing”).  Pursuant
to the terms and conditions of the Merger Agreement, we will acquire Tri-Diamond
pursuant to a merger (the “Merger”) of Tri-Diamond with and into Merger Sub,
with Merger Sub continuing as the surviving entity (the “Surviving
Company”).
  At the
effective time of the Merger, which we expect to occur by the end of
January 2011, Tri-Diamond’s outstanding shares of common stock will be
cancelled.  In exchange for the cancellation of such shares, the
Merger Agreement provides that we will pay a purchase price of $25,000,000,
which will be paid by the issuance of 29,411,765 shares of our common
stock.  The number of shares to be issued to TS Staffing is based upon
a negotiated $0.85 price per share for our common stock that was determined
using historical market prices.
  The
Merger Agreement contains a purchase price adjustment, pursuant to which, TS
Staffing will pay to the Surviving Company the amount of net income, if any,
earned by Tri-Diamond between January 1, 2010 and the date of consummation of
the Merger.  Additionally, if the net working capital of Tri-Diamond
is below zero at the effective time of the Merger, then TS Staffing shall repay
to us an amount equal to such deficit.  Finally, the Merger Agreement
provides that immediately prior to the consummation of the transactions
contemplated thereby, Tri-Diamond shall declare a dividend to TS Staffing in an
amount equal to collected reserve under Tri-Diamond’s accounts receivable sales
agreement immediately prior to the effective time of the Merger, provided that
such dividend amount shall not exceed $2,700,000.  Such dividend will
be paid by the Surviving Company to TS Staffing in monthly installments
following the consummation of the transactions contemplated by the Merger
Agreement.
 Consummation
of the Merger is subject to customary closing conditions, including that
Tri-Diamond shall have received a release for liability for any indebtedness
owed to the lender under Tri-Diamond’s accounts receivable sales agreement, and
that the Merger Sub shall have entered into an acceptable financing
arrangement.  Under certain circumstances, the Company or Tri-Diamond
may terminate the Merger Agreement.
  TS
Staffing is an affiliate of TSE and is wholly-owned by Robert Cassera, a
director of the Company.  TSE, together with its affiliated entities
(including TS Staffing) and persons, is the beneficial owner of approximately
74.3% of the Company's outstanding shares of common stock.
  3




ITEM
      1A.
            RISK
      FACTORS




We
have significant working capital requirements and have historically been heavily
reliant upon the issuance of debt, including debt from related parties, to meet
these working capital requirements. Historically, we have experienced negative
working capital.




Historically,
we have experienced negative working capital balances, and as of September 30,
2010 and September 30, 2009, we had negative working capital of ($6,774,000) and
($4,725,000), respectively.




We
require significant amounts of working capital to operate our business and to
pay expenses relating to employment of temporary employees. Temporary personnel
are generally paid on a weekly basis while payments from customers are generally
received 30 to 60 days after billing. As a result, we must maintain sufficient
cash availability to pay temporary personnel prior to receiving payment from
customers. We finance our operations primarily through sales of our receivables
to a financial institution with recourse, issuance of debt, including debt
issued to related parties, and through cash generated by operating
activities.




Three of
our operating subsidiaries are parties to account purchase agreements with Wells
Fargo Bank, National Association (“Wells Fargo”), pursuant to which, the maximum
amount of accounts receivable that can be sold to Wells Fargo in the aggregate
is $28 million, with each subsidiary subject to a limit on the amount of trade
receivables that it may individually sell to Wells Fargo.  Subject to
exception, the purchaser advances 90% of the assigned receivables’ value upon
sale, and 10% upon final collection. As collections reduce previously sold
receivables, we may replenish these with new receivables. The risk of bad debt
losses on accounts receivables sold is retained by us and receivables sold which
become greater than 90 days old can be charged back to us by Wells Fargo. Any
such increase in accounts receivables older than 90 days and charged back would
decrease amounts available for working capital purposes and could have an
adverse effect on our liquidity and financial condition.




As of
September 30, 2010, we owed $260,000 under promissory notes that are past due or
which are due upon demand, $100,000 of which is due to a related party. As of
the filing date of this report we have been unable to secure forbearance
agreements.  Two holders of such promissory notes issued demand
notices for us with respect to notes with outstanding amounts due of
approximately $150,000.  We have no assurance that other debt holders
will not declare the remaining instruments in default and exercise their rights
and remedies, including declaring all unpaid amounts, including interest,
immediately due and payable on their notes.




We have,
in the past, been required to manage our cash aggressively to ensure adequate
funds to meet working capital requirements and to service debt. Such steps
included working to improve collections and adjusting the timing of cash
expenditures, reducing operating expenses where feasible and seeking to generate
cash from a variety of other sources.




We have
historically experienced periods of negative cash flow from operations and
investment activities. Any such increase or sustained negative cash flows would
decrease amounts available for working capital purposes and could have an
adverse effect on our liquidity and financial condition.




There is
no assurance that we will generate the necessary net income or operating cash
flows to pay our debt as it becomes due or meet the funding needs of our
business in the future due to a variety of factors, including the cyclical
nature of the staffing industry and the other factors discussed below in the
“Risk Factors” section of this Annual Report on Form 10-K. If we are unable to
do so, our liquidity would be adversely affected and we would consider taking a
variety of actions, including: attempting to reduce fixed costs (for example,
further reducing the size of our administrative work force), curtailing or
reducing planned capital additions, raising additional equity, borrowing
additional funds, refinancing existing indebtedness or taking other actions.
There can be no assurance, however, that we will be able to successfully take
any of these actions, including adjusting expenses sufficiently or in a timely
manner, or raising additional equity, increasing borrowings or completing a
refinancing on any terms or on terms that are acceptable to us. Our inability to
take these actions as and when necessary would materially adversely affect our
liquidity, results of operations and financial condition.




If
our accounts receivable sale agreements are terminated, we may be unable to
secure alternate arrangements on comparable terms and our business could
suffer.




Our
accounts receivable sale agreements may be terminated by Wells Fargo upon the
occurrence of certain events of default, and, in the case of the agreement with
Accountabilities, at any time in the broad discretion of Wells Fargo. In the
event of any such termination, we may be unable to finance our operations and
our operations and working capital would be negatively impacted.  As a
result of a continuing guarantee by each of CRD, Insurance Overload, and
ourselves, a default under one accounts receivable sale agreement by one of our
operating subsidiaries could create financial difficulty for us and the
non-defaulting operating subsidiaries. In addition, we may be unable to secure
alternative arrangements, or any such alternative arrangements may include terms
and conditions less favorable to us than under our current accounts receivable
sale agreements.  Finding such alternative arrangements may be
difficult given the current economic climate and the reduction in the number of
entities willing to provide this type of financing. This could adversely affect
our ability to secure sufficient working capital to operate our business and to
pay expenses.


4


Our
principal stockholder, whose affiliated entities are engaged in multiple
transactions with us, beneficially owns, together with its affiliated entities
and persons, approximately 74.3% of our outstanding common stock, and its
interests may conflict with our interests and those of our other
shareholders.




TSE, its
affiliated entity TS Staffing and affiliated persons, own approximately 74.3% of
our outstanding common stock.  Each of TSE and TS Staffing is
wholly-owned by Robert Cassera, a director of the
Company.  Transactions between us and affiliates of TSE include the
guarantee of our subsidiaries’ obligations under the accounts receivable
agreements with Wells Fargo, the provision of professional employer services to
our subsidiaries, the exchange of our indebtedness for shares of our Common
Stock and the sale of Tri-Overload to us.  On January 10, 2011, we
also entered into an agreement to acquire another affiliate of TSE,
Tri-Diamond.  As a result of such ownership, TSE and its affiliates
have the ability to cause the election of all of the members of our board of
directors, the appointment of new management and the approval of actions
requiring the approval of our shareholders, including amendments to our
certificate of incorporation and mergers or sales of substantially all of our
assets. The directors elected by TSE and affiliates will be able to make
decisions affecting our capital structure, including decisions to issue
additional capital stock, implement stock repurchase programs and declare
dividends. Additionally, certain employees of TSE hold management positions in
our company, including Jay Schecter, our Chief Executive Officer and John
Messina, our President, both of whom are also compensated by TSE and receive no
salary or bonus compensation directly from us.  The interests of TSE
and its affiliates could conflict with our interests and the interests of our
other shareholders.  In addition, TSE beneficially owns several other
companies that compete in the light industrial and administrative staffing
market.  Decisions made by TSE and its affiliates regarding us and
those companies could benefit them at our expense.  In addition, TSE
and certain of its affiliates have the ability to divert resources from us to
those companies, which would also diminish our competitive
position.




Should
the guarantee of our accounts receivable sale agreements by the TSE affiliate be
terminated, these financing agreements may also be
terminated.  Additionally, if TSE’s affiliates, TS Employment, Inc.
(“TS Employment”) and TSE-PEO, Inc. (“TSE-PEO”), were to cease providing us with
professional employer services (which include payroll related administrative
services), we may not be able to secure a comparable provider of such services
at agreeable rates. Should we be unsuccessful at finding a comparable provider,
we may not be able to secure required workers compensation insurance on
affordable terms. The failure to obtain a comparable provider of workers
compensation insurance at affordable rates would possibly require significant
capital requirements that are not currently available. In addition, we may not
be able to pass these increased costs to our clients, and this would reduce our
profit margins.




We
have historically been, and may continue to be, heavily reliant upon financing
from related parties which presents potential conflicts of
interest.




We have
historically obtained financing from related parties including major
shareholders, directors and officers, in the form of debt, debt guarantees and
the issuance of equity securities, to finance working capital growth and
acquisitions. These related parties have the ability to exercise significant
control over our financing decisions, which may present conflicts of interest
regarding the choice of parties from whom we obtain financing, as well as the
terms of financing.  No assurance can be given that the terms of
financing transactions with related parties are or will be as favorable as those
that could be obtained in arm’s length negotiations with third
parties.




If
we fail to execute our acquisitions or investments strategy, our business could
suffer.




We have
supplemented our internal growth through acquisitions, including the GT Systems
Acquisition in April 2010, the Tri-Overload Acquisition in August 2010 and the
ICG Acquisition in December 2010.  In the future, we expect to
continue to grow through additional acquisitions, investments or joint ventures.
We evaluate potential acquisitions, investments and joint ventures on an ongoing
basis. Our acquisitions, investments and joint ventures pose many risks,
including:




·
            Our
      inability to identify suitable acquisition
  candidates;





·
            We
      may not be able to compete successfully for available acquisition
      candidates, complete future acquisitions or investments or accurately
      estimate their financial effect on our
business;


5


·
            Future
      acquisitions, investments or joint ventures may require us to issue
      additional common stock or debt, spend significant cash amounts and could
      have a material adverse effect on our operating
  results;





·
            We
      may have trouble integrating acquired businesses and retaining its
      personnel, including in connection with our more recent acquisitions,
      which could have a material adverse effect on our operating
      results;





·
            Acquisitions,
      investments or joint ventures may disrupt business and distract management
      from its other responsibilities;





·
            If
      our acquisitions or investments fail, our business could be
      harmed.




Completing
future acquisitions may be limited by our ability to negotiate purchase terms
and/or obtain financing on terms acceptable to us, given our current working
capital deficit, as discussed above, and our current inability to finance such
acquisitions through current cash flows. There can be no assurance that we will
be able to negotiate such acceptable purchase or financing terms.




We
may acquire additional companies, which may result in adverse effects on our
earnings.




We may,
at times, become involved in discussions with potential acquisition candidates.
Any acquisition that we may consummate may have an adverse effect on our
liquidity and earnings and may be dilutive to our earnings. In the event that we
consummate an acquisition or obtain additional capital through the sale of debt
or equity to finance an acquisition, shareholders may experience dilution in
their equity.




We
may be subject to successor liability as a result of acquisitions we have
made.




The
growth of our business has been partially a result of acquisitions we have made,
including the GT Systems Acquisition and the Tri-Overload Acquisition, each
completed during fiscal 2010, and the ICG Acquisition, which was completed in
December 2010.  Although we have endeavored to structure these
transactions to minimize exposure to unassumed liabilities, it is possible that
under common law and certain statutes, creditors of the entities that sold us
these operations could attempt to assert that we have successor liability for
obligations of the sellers. Even if any such claim was unsuccessful, it could be
costly to defend and have an adverse effect on our financial condition and
results of operations.




Our
ultimate liability for unremitted payroll taxes may materially exceed our
currently recorded estimated liability.




We
have been notified by the IRS and certain state taxing authorities that a
subsidiary, which ceased operating at the end of 2004, had accumulated
liabilities for unremitted payroll taxes related to the calendar year 2004.
Although we believe that the subsidiary’s prior owner settled this matter with
the IRS during fiscal 2010, we have maintained a reserve of $700,000
representing the amount management believes may ultimately be payable based upon
our knowledge of current events and circumstances. However, there can be no
assurance that future events and circumstances will not result in an ultimate
liability, including penalties and interest, materially in excess of our current
estimate.




We
may be exposed to employment-related claims and costs that could materially
adversely affect our business.




Due to
the nature of our business of placing workers in the workplace of other
businesses on a temporary or permanent basis, we are subject to a large number
of laws and regulations relating to employment. The risks related to engaging in
such business include but are not limited to:




·
            claims
      of discrimination and harassment (including sexual harassment
      claims);





·
            violations
      of wage and hour laws;





·
            criminal
      activity;





·
            claims
      relating to actions by customers including property damage and personal
      injury, misuse of proprietary information and misappropriation of assets;
      and


6


·
            immigration
      related claims.




In
addition, some or all of these claims may give rise to litigation, which could
be time-consuming to our management and could have a material negative effect on
our business. In some instances, we have agreed to indemnify our customers
against some or all of these types of liabilities. We have policies and
guidelines in place to help reduce our exposure to these risks and have
purchased insurance policies against certain risks in amounts that we currently
believe to be adequate, but our insurance may not be sufficient in amount or
scope to cover these types of liabilities, and we may not be able to secure
insurance coverage for such risks on affordable terms. Should some or all of
these claims arise, they may have a material adverse effect on our
business.




We
have experienced significant management turnover.




During
our past two fiscal years, we have experienced a significant turnover in our
senior management. In fiscal 2009, we experienced changes in our President and
Chief Executive Officer positions, and in fiscal 2010, our Chief Financial
Officer and Vice President of Finance resigned. This lack of management
continuity, and the resulting lack of long-term history with us, could result in
operational and administrative inefficiencies and added costs which could
adversely impact our results of operations, our stock price and our customer
relationships and may make recruiting for future management positions more
difficult. In addition, we must successfully integrate any new management
personnel that we hire within our organization or who join us through
acquisitions in order to achieve our operating objectives, and changes in other
key management positions may temporarily affect our financial performance and
results of operations as new management becomes familiar with our business.
Accordingly, our future financial performance will depend to a significant
extent on our ability to motivate and retain key management
personnel.




We
bear the risk of nonpayment from our clients and the possible effects of
bankruptcy filings by clients.




If a
client experiences financial difficulty, or is otherwise unable to meet its
obligations as they become due, our financial condition and results of
operations could be adversely affected. For work performed prior to the
termination of a client agreement, we are obligated to pay the agreed-upon fees
to our professional employment services providers, TS Employment and TSE-PEO,
whether or not our client pays us on a timely basis, or at all. Given the
current continuing difficult economic environment, there is an increased risk of
clients failing to pay or delaying payment, although currently, we have not
experienced significant levels of these occurrences. A significant increase in
uncollected accounts receivables or customer defaults would have a material
adverse effect on our earnings and financial condition.




We
operate in a highly competitive industry with low barriers to entry, and may be
unable to compete successfully against existing or new competitors.




Our
business is highly competitive, with low barriers to entry. We compete with
larger companies that have greater name recognition, financial resources and
larger staff. We also compete with smaller, more specialized entities that are
able to concentrate their resources on particular areas. We expect that the
level of competition will remain high.  To remain competitive, we must
provide superior service and performance on a cost-effective basis to customers.
Any failure to do so could have a material adverse effect on our existing
business and future prospects.




Any
further significant economic downturn could result in our customers using fewer
staffing services, which could materially adversely affect our
business.




The
economic downturn has negatively affected our business and financial results.
Demand for staffing services is significantly affected by the general level of
economic activity. As economic activity slows, many customers reduce their
utilization of temporary employees before undertaking layoffs of their regular
full-time employees. Demand for permanent placement services also slows as the
labor pool directly available to our customers increases, making it easier for
them to identify new employees directly. Typically, we may experience increased
pricing pressures from competitors during periods of economic downturn, which
could have a material adverse effect on our financial condition. Additionally,
in geographic areas where we derive a significant amount of business, a further
regional or localized economic downturn could adversely affect our operating
results and financial position.


7


Our
success depends in large part on our ability to attract and retain qualified
temporary and permanent personnel.




The
failure to identify, recruit, train and place candidates, as well as retain
qualified temporary employees over a long period of time, could materially
adversely affect our business. Our success depends on our ability to provide
clients with highly qualified and experienced personnel who possess the skills
and experience necessary to satisfy their needs. Such individuals are in great
demand, particularly in certain geographic areas, and are likely to remain a
limited resource for the foreseeable future. Consequently, we must continuously
evaluate and upgrade our base of available qualified personnel to keep pace with
changing customer needs and emerging technologies. Furthermore, a substantial
number of our temporary employees during any given year will terminate their
employment with us and accept regular staff employment with our customers. There
can be no assurance that qualified candidates will continue to be available to
us in sufficient numbers and on acceptable terms. Additionally, we may not be
able to develop training programs to respond to our clients’ changing needs or
retain temporary and permanent personnel who we have trained.




Our
common stock is thinly traded on the Over-the-Counter Bulletin Board, and we
cannot give assurance that our common stock will become more liquid or that it
will be listed on a securities exchange.




Our
common stock is currently quoted on the Over-the-Counter Bulletin Board (the
“OTCBB”), which provides significantly less liquidity than a securities exchange
(such as the American Stock Exchange, NASDAQ, or New York Stock Exchange). We
may not be able to meet the listing standards of any stock exchange or that we
will be able to maintain any such listing. Such exchanges require companies to
meet certain initial listing criteria including certain minimum bid prices per
share. We may not be able to achieve or maintain such minimum bid prices or may
be required to effect a reverse stock split to achieve such minimum bid prices.
Because our shares are quoted on the OTC, an investor may find it difficult to
obtain accurate quotations of our common stock and may experience a lack of
buyers to purchase such stock or a lack of market makers to support the stock
price. In addition, if we fail to meet the criteria set forth in Securities and
Exchange Commission (“SEC”) regulations, various requirements would be imposed
by law on broker-dealers who sell our common stock to persons other than
established customers and accredited investors. Consequently, such regulations
may deter broker-dealers from recommending or selling our common stock, which
may further affect its liquidity. This would make it more difficult for us to
raise additional capital and for investors to dispose of their shares of our
common stock.




Stockholders
may experience future dilution in ownership due to possible future equity
issuances, the payment of the purchase price in stock for future acquisitions,
the exercise of outstanding warrants, the conversion of existing convertible
debt securities, and the conversion of existing debt to equity in connection
with certain restructuring activities.




As of
September 30, 2010, we have outstanding convertible debt securities that may be
converted into 250,000 shares, and outstanding warrants to acquire 166,000
shares of our common stock. We are also in discussions to obtain further
financing, which may include the issuance of additional equity. During fiscal
2010, we issued 8,589,637 shares of common stock to a related party as payment
of the purchase price to acquire Tri-Overload, and 6,000,000 shares of common
stock to a related party in exchange for the cancellation of outstanding debt
and the assumption of a payment obligation.  We may issue additional
shares of common stock to finance acquisitions.




Additional
issuances of common stock could subject our stockholders to dilution, depending
on the prices at which the shares are issued.




ITEM
      2.
            PROPERTIES




Our
headquarters are located in New York, New York, under a lease for 2,452 square
feet of office space which expires in December 2016. CRD, our wholly-owned
subsidiary, is based in New York, New York and leases approximately 30,000
square feet of office space for its headquarters and main staffing and
recruiting location.  CRD’s lease expires in May 2015.  As
of September 30, 2010, placement activities were conducted through more than 43
staffing and recruiting offices located in the United States, for which all of
the locations are leased with terms expiring at various times through
2017.  We believe that our existing facilities are adequate and
suitable for our current operations; however, we may add additional facilities
from time to time in the future as the need arises.




ITEM
      3.
            LEGAL
      PROCEEDINGS




In 2005,
we acquired the outstanding receivables of Nucon Engineering Associates, Inc.
(“Nucon”). During the third quarter of fiscal 2008, we were notified by the
State of Connecticut that we may be considered the predecessor employer
associated with the accounts receivable formerly owned by Nucon for State
Unemployment Insurance rate purposes. Nucon’s state unemployment rate was higher
than ours at the time of the acquisition. The State of Connecticut had been
claiming additional state unemployment charges based on this higher rate and had
assessed a higher experience rate on wages for all periods subsequent to the
acquisition date. Our management believed that it had properly calculated its
unemployment insurance tax and was in compliance with all applicable laws and
regulations. We appealed the ruling and we were successful in receiving $139,000
in October 2009, representing refunds of previous charges, $73,000 of which is
payable to TSE for payments made to the State of Connecticut on our
behalf.


8


In the
ordinary course of business, we are, from time to time, threatened with
litigation or named as a defendant in other lawsuits. We are not aware of any
other pending legal proceedings that are likely to have a material adverse
impact on us.




ITEM
      4.
            [REMOVED
      AND RESERVED]




9


PART
II




ITEM
      5.
            MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF
      EQUITY SECURITIES




Price
Range of Common Stock




Our
common stock is traded on the OTCBB under the symbol “CRRS”. Prior to April 21,
2010, our common stock traded on the OTCBB under the symbol
“ACBT.”  The following table shows the reported high and low bid
prices for shares of our common stock for the periods indicated, as reported in
the OTCBB.  The quotations listed below reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.




Low
                      
                      
                      HighFiscal Year Ended September 30,
      2010First
      Quarter
                      
                      $
                      0.24
                      
                      
                      $
                      0.50Second
      Quarter
                      
                      
                      0.30
                      
                      
                      
                      0.75Third
      Quarter
                      
                      
                      0.62
                      
                      
                      
                      1.50Fourth
      Quarter
                      
                      
                      0.63
                      
                      
                      
                      1.24Fiscal Year Ended September 30,
      2009First
      Quarter
                      
                      $
                      0.06
                      
                      
                      $
                      0.25Second
      Quarter
                      
                      
                      0.06
                      
                      
                      
                      0.20Third
      Quarter
                      
                      
                      0.15
                      
                      
                      
                      0.20Fourth
      Quarter
                      
                      
                      0.12
                      
                      
                      
                      0.52




As of
November 22, 2010, there were approximately 272 record holders of our common
stock.





Dividend
Policy




We have
not declared or paid any cash dividends on our common stock during the periods
presented, and we do not anticipate doing so in the foreseeable
future.  We currently intend to retain future earnings, if any, to
operate our business and finance future growth strategies.




EQUITY
COMPENSATION PLAN INFORMATION




Effective
October 22, 2009, our Board of Directors terminated the Accountabilities Equity
Incentive Plan, and as a result, there will be no further stock
grants.  However, any unvested stock grants outstanding at the time of
the Plan's termination, will continue to vest in accordance with the terms of
the plan.  As of September 30, 2010, there were 297,000 shares of
restricted stock that remained unvested.




Issuances
of Unregistered Securities




On
November 22, 2010, NGA, Inc., which is owned by Norman Goldstein, one of our
directors, provided us with notice that it desired to convert $40,000 in
outstanding interest under the $100,000 convertible promissory note issued to it
by the Company on January 31, 2008.  Pursuant to the terms of the
note, we issued 100,000 unregistered shares of common stock to NGA, Inc., at the
conversion price of $0.40 per share.   This issuance is exempt
from registration pursuant to Section 3(a)(9) under the Securities Act of 1933,
as amended.




ITEM
      6.
            SELECTED
      FINANCIAL DATA




Disclosure
not required by smaller reporting companies.




ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




You
should read the following discussion in conjunction with our financial
statements and related notes. In addition to historical financial information,
the following discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results could differ materially.
Factors that could cause or contribute to these differences include those
discussed below and elsewhere in this Annual Report on Form 10-K, particularly
in Item 1A. “Risk Factors.”


10


As a
result of our acquisition of Tri-Overload Staffing, Inc. (“Tri-Overload”) that
is required to be accounted for as a pooling of interest from a related party,
all previously reported information has been restated to include this
acquisition as if it occurred on July 20, 2009.  See Note 1 to the
Consolidated Financial Statements.




Holding
Company Reorganization





Corporate
Resource Services, Inc. was formed on December 15, 2009 for the purpose of
acting as a holding company with operating subsidiaries in the staffing business
and other related businesses.  On February 23, 2010, we completed a
holding company reorganization, pursuant to which Accountabilities, Inc., a
Delaware corporation (“Accountabilities”), which immediately prior to the
reorganization was our parent company, became our wholly-owned
subsidiary.




References  to
the “Company”, “we”, “us” and “our” refer, for periods prior to February 23,
2010, to Accountabilities and, for periods after February 23, 2010, to Corporate
Resource Services, Inc., in each case including consolidated subsidiaries,
unless otherwise indicated or the context otherwise requires.





As a
result of the reorganization, the former holders of Accountabilities’ common
stock became owners of shares of our common stock, par value $0.0001 per share,
and each restricted share of Accountabilities’ common stock issued and
outstanding under the Accountabilities Equity Incentive Plan immediately prior
to the effective time of the reorganization was automatically converted into a
similarly restricted share of our common stock.  Our capitalization
and consolidated assets, liabilities and stockholders’ equity immediately
following the reorganization remained the same as the capitalization and
consolidated assets, liabilities and stockholders’ equity of Accountabilities
immediately prior to the reorganization.





Overview





Through
our wholly-owned subsidiaries, Accountabilities, Corporate Resource Development
Inc. (“CRD”), Insurance Overload Services, Inc. and Integrated Consulting Group,
Inc. (“ICG Inc.”), we are a national provider of diversified staffing,
recruiting and consulting services, including temporary staffing services, with
a focus on light clerical and administrative support and insurance related
staffing.  We provide our services across a variety of industries and
to a diverse range of clients ranging from sole proprietorships to Fortune 1000
companies.  We conduct all of our business in the United States from
our New York City headquarters and the operation of 43 staffing and recruiting
offices.





Our
future profitability and rate of growth, if any, will be directly affected by
our ability to continue to expand our service offerings at acceptable gross
margins, and to achieve economies of scale, through the continued introduction
of differentiated marketing and sales channels, and through the successful
completion and integration of acquisitions. Our ability to be profitable will
also be affected by the extent to which we must incur additional expenses to
expand our sales, marketing, and general and administrative capabilities to
expand our business.  The largest component of our operating expenses
is personnel costs. Personnel costs consist of salaries, employment taxes,
benefits and incentive compensation (including bonuses and stock-based
compensation) for our employees. Our management expects our operating expenses
will continue to grow in absolute dollars as our business continues to grow. As
a percentage of revenue, we expect our operating expenses to decrease as our
revenues increase.





We have
financed our growth largely through the issuance of debt and have incurred
negative working capital. As of September 30, 2010, we had negative working
capital of ($6,774,000), for which the component constituting the current
portion of long-term debt was approximately $2,500,000. The negative working
capital includes liabilities of $1,994,000, which is due and payable to
Tri-State Employment Services, Inc. (“TSE”) and affiliates for costs charged by
TSE for professional employment organization services provided by TSE to us,
which arise and are paid in the ordinary course of business, normally on a
weekly basis. Additionally, there is approximately $3.3 million of accrued
payroll and related costs for September 2010, which was invoiced by TSE in
October 2010. Total outstanding debt as of September 30, 2010 was $3,487,000,
$260,000 of which is past due or due upon demand.  In order to service
our debt and maintain our current level of operations, as well as fund the costs
of being a reporting company, we must be able to generate sufficient amounts of
cash flow and working capital. Our management is engaged in several activities,
as explained further in “Working Capital” below, to effectively accomplish these
objectives.


11


Discontinued
Operations




In
addition to our light industrial and administrative service offerings, we
previously had provided professional accounting and finance consulting and
staffing services through both our CPA Partner on Premise Program and directly
to clients.




In April
2009, we discontinued our CPA Partner on Premise Program service offering, which
provided finance and accounting staffing and recruiting services through sales
and marketing agreements with regional public accounting firms. We reached our
conclusion to exit this service offering after reviewing the historical
operating performance and future prospects of these services and the likely need
for additional capital to support ongoing losses. As a result, the CPA Partner
on Premise Program is classified as discontinued operations for all periods
presented in the accompanying financial statements.




In the
first quarter of 2010, in an effort to focus management’s efforts on our core
business and use our capital more directly on our light industrial and
administrative service offerings, we discontinued our Direct Professional
Accounting Service Offerings, which was our remaining accounting and finance
operations. During the fiscal years ended September 30, 2010 and 2009, these
operations generated revenues of $51,000 and $416,000, respectively, and losses
from operations of $0 and ($87,000), respectively. Accordingly, the operations
associated with the direct provision of accounting and finance services are also
reported as discontinued operations for all periods presented.




Mergers
and Acquisitions




One of
our key strategies is to focus on mergers and acquisitions of companies that
grow or complement our existing service offerings, expand our geographic
presence and/or further expand and strengthen our existing
infrastructure.




On August
27, 2010, we acquired Tri-Overload Staffing, Inc. (“Tri-Overload”) from TS
Staffing Corp (“TS Staffing”), a related party (the “Tri-Overload
Acquisition”).  Tri-Overload was merged into a wholly-owned subsidiary
of the Company and its name was changed to Insurance Overload Services, Inc.
(“Insurance Overload”).  TS Staffing is wholly owned by Robert
Cassera, who is a director of the Company.  The acquisition was paid
through the issuance of 8,589,637 shares of the Company’s common
stock.  This stock issuance increased the holdings of our outstanding
shares of common stock by Mr. Cassera and TS Staffing, and their affiliated
entities and persons, to approximately 74.3%.  Insurance Overload is
in the business of providing temporary and permanent employment services
principally to the insurance industry.




Tri-Overload
was purchased by TS Staffing on July 20, 2009.  Because the Company
and TS Staffing and its affiliates are all under common control, the acquisition
was recorded using the pooling of interests method as required under United
States generally accepted accounting principles.  Accordingly, all
financial statements and financial information have been restated to reflect the
combined companies as if the acquisition occurred on July 20,
2009.  See Note 1 to the consolidated financial statements included in
this Annual Report on Form 10-K.




On March
24, 2010, our newly formed, wholly-owned subsidiary CRD entered into a
foreclosure and asset purchase agreement (the “GT Acquisition Agreement”) to
acquire a portion of the assets of GT Systems, Inc. (“GT Systems”), a staffing
company, and certain of its affiliates (collectively referred to as the “GT
Entities”), through a private sale by Rosenthal & Rosenthal, Inc.
(“Rosenthal”).  The transaction closed on April 5,
2010.  The acquisition was made to expand the Company’s penetration of
the New York Tri-State region, diversify the Company’s product offerings, and
take advantage of the expected economies of scale.




Pursuant
to the GT Acquisition Agreement, Rosenthal foreclosed on certain assets of the
GT Entities related to the temporary and permanent placement of employees, and
sold the assets to CRD (the “GT Systems Acquisition”) in a secured creditor’s
private sale under Article 9 of the Uniform Commercial Code for $3,000,000 (the
“GT Purchase Price”), which is to be paid in installments over three
years.  In connection with our guarantee of the obligation of CRD to
pay the GT Purchase Price, the Company issued 4,257,332 shares of the Company’s
common stock to Rosenthal.  These shares are held in escrow and are
subject to a stock repurchase agreement between Rosenthal and us, pursuant to
which we have the right to repurchase for a nominal price some or all of such
shares as the GT Purchase Price is paid.  These shares are not treated
as outstanding for our financial statements, and are not included in the number
of our shares of common stock outstanding on the cover page of this Annual
Report on Form I0-K.  TSE is also a guarantor of CRD’s obligation to
pay the GT Purchase Price.  In connection with the acquisition, CRD
entered into a consulting agreement with the former owner of GT Systems, which
agreement was amended and restated as part of the ICG Acquisition (as defined
below)  The consulting agreement and its amendment and restatement are
more fully described in Notes 3 and 14 to the Consolidated Financial
Statements.


We have
accounted for this purchase using the acquisition method of accounting and the
results of operations of CRD are included in our results from April 5,
2010.


12


After the
completion of our 2010 fiscal year, our newly formed wholly-owned subsidiary ICG
Inc. acquired a portion of the assets of Integrated Consulting Group of NY LLC
(“ICG Seller”) related to the temporary and permanent placement of employees in
the light industrial industry and translation and interpreting services (the
“ICG Acquisition”).  The consideration for these assets included (i)
the repayment of ICG Seller’s outstanding obligations on the Closing Date under
its credit facility, which amounted to approximately $3.2 million, (ii) payment
of up to $380,000 for outstanding accounts payable of ICG Seller as of the
closing date, (iii) payments to various taxing authorities in the aggregate
amount of approximately $646,000 for certain taxes owed by ICG Seller on the
Closing Date, and (iv) payment of approximately $171,000 (subject to final
confirmation, reconciliation and adjustments) to Rosenthal, for amounts owed to
it by ICG Seller on the Closing Date, which amount is to be paid in installments
commencing in January 2011.  ICG Inc. also entered into a commission
agreement with Rosenthal to replace a similar agreement that Rosenthal was a
party to with ICG Seller and its affiliates, pursuant to which ICG Inc. is
obligated to pay to Rosenthal 3% of its net sales for the next two years, and 2%
of its net sales for the three-year period thereafter.  In addition,
ICG Inc. entered into a non-competition agreement with the principal of ICG
Seller, Eric Goldstein, pursuant to which, Mr. Goldstein agreed not to compete
with ICG Inc. or solicit its employees or customers for a five-year period
commencing December 14, 2010, in exchange for payment by ICG Inc. of 1% of ICG
Inc.’s sales revenue earned during the two year period commencing December 14,
2010.
  ICG
Inc.’s payment obligations under the commission agreement and the
non-competition agreement are guaranteed by TSE.
  Also, on
January 10, 2011, we entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with our wholly-owned subsidiary Diamond Staffing Services, Inc.
(“Merger Sub”), TS Staffing, Tri-Diamond Staffing, Inc., a wholly-owned
subsidiary of TS Staffing (“Tri-Diamond”), and Diamond Staffing, Inc., a
wholly-owned subsidiary of Tri-Diamond (“Diamond Staffing”).  Pursuant
to the terms and conditions of the Merger Agreement, we will acquire Tri-Diamond
pursuant to a merger (the “Merger”) of Tri-Diamond with and into Merger Sub,
with Merger Sub continuing as the surviving entity (the “Surviving
Company”).
  At the
effective time of the Merger, which we expect to occur by the end of
January 2011, Tri-Diamond’s outstanding shares of common stock will be
cancelled.  In exchange for the cancellation of such shares, the
Merger Agreement provides that we will pay a purchase price of $25,000,000,
which will be paid by the issuance of 29,411,765 shares of our common
stock.  The number of shares to be issued to TS Staffing is based upon
a negotiated $0.85 price per share for our common stock that was determined
using historical market prices.
  The
Merger Agreement contains a purchase price adjustment, pursuant to which, TS
Staffing will pay to the Surviving Company the amount of net income, if any,
earned by Tri-Diamond between January 1, 2010 and the date of consummation of
the Merger.  Additionally, if the net working capital of Tri-Diamond
is below zero at the effective time of the Merger, then TS Staffing shall repay
to us an amount equal to such deficit.  Finally, the Merger Agreement
provides that immediately prior to the consummation of the transactions
contemplated thereby, Tri-Diamond shall declare a dividend to TS Staffing in an
amount equal to collected reserve under Tri-Diamond’s accounts receivable sales
agreement immediately prior to the effective time of the Merger, provided that
such dividend amount shall not exceed $2,700,000.  Such dividend will
be paid by the Surviving Company to TS Staffing in monthly installments
following the consummation of the transactions contemplated by the Merger
Agreement.
  Consummation
of the Merger is subject to customary closing conditions, including that
Tri-Diamond shall have received a release for liability for any indebtedness
owed to the lender under Tri-Diamond’s accounts receivable sales agreement, and
that the Merger Sub shall have entered into an acceptable financing
arrangement.  Under certain circumstances, the Company or Tri-Diamond
may terminate the Merger Agreement.
  TS
Staffing is an affiliate of TSE and is wholly-owned by Robert Cassera, a
director of the Company.  TSE, together with its affiliated entities
(including TS Staffing) and persons, is the beneficial owner of approximately
74.3% of the Company's outstanding shares of common stock.




Management
continues to seek to complete and integrate acquisitions that may grow or
enhance our current service offerings, expand our geographical market presence,
and effectively implement our marketing and sales strategies. Currently,
management expects acquisitions to continue to constitute a significant portion
of any future growth. Completing such acquisitions with third parties, however,
will likely be limited by our ability to negotiate purchase terms and obtain
financing on terms acceptable to us, given our current financial position as
discussed below.




Results
of Operations




Fiscal
year ended September 30, 2010 compared to fiscal year ended September 30,
2009




The
Company’s subsidiary, CRD, acquired certain assets of GT Systems on April 5,
2010 and another subsidiary, Insurance Overload, acquired Tri-Overload on August
27, 2010.  As a result, the results of operations of CRD are included
in the results of operations for fiscal year 2010 beginning on April 5,
2010.  The acquisition of Insurance Overload has been accounted for as
a pooling of interests by a related party, and as a result, the Company’s fiscal
year 2009 results of operations were restated to include the results of
Tri-Overload commencing on July 20, 2009, the date it was acquired by the
related party.




Revenues




For
fiscal 2010, revenue increased $57,147,000 to $120,891,000 as compared to
$63,744,000 in fiscal 2009 which was restated to include $6,755,000 in revenue
from Insurance Overload. Of the increase in fiscal 2010, $36,456,000 and
$20,122,000 was attributable to CRD and Insurance Overload, respectively.
Revenue at Accountabilities increased by $569,000, or 1%, to $57,558,000 in
fiscal 2010, as compared to $56,989,000 in fiscal 2009. The current year
revenue increase was due to the acquisition of new accounts and business
generated by new offices opened in June 2009.  These offices
contributed approximately $2,400,000 in revenues in the current fiscal year, as
compared to approximately $200,000 in fiscal 2009.  This increase was
partially offset by losses of accounts and lower billings for several larger
customers that were impacted by the recession that began in December
2007.


13


During
the fiscal 2009, the Company decided to focus more of its efforts on providing
temporary commercial staffing and decrease its activities in the permanent
placement of personnel. Consequently, there was no permanent placement revenue
and gross profit for the Company in fiscal 2010 from its traditional line of
business as compared to $449,000 in fiscal 2009. However, a portion of the
acquired business of GT Systems focuses on permanent placement of personnel. The
Company recognized approximately $3 million in revenue in fiscal 2010 from this
business.




Direct
cost of services




TSE
affiliates provide professional employer services to the
Company.  Professional employer services rendered include the
provision of payroll services, benefits and workers compensation insurance
coverage.  These arrangements allow us to mitigate certain insurance
risks and obtain employee benefits at more advantageous rates.  The
cost of the professional employer services are included in direct cost of
services.




For
fiscal 2010, direct cost of services increased $43,591,000 to $98,996,000 as
compared to $55,405,000 in fiscal 2009, which was restated to include $5,758,000
in direct cost of services from Insurance Overload. Of the increase in fiscal
2010, $26,696,000 and $14,868,000 was attributable to CRD and Insurance
Overload, respectively. The remaining $2,027,00 represents a
4%  increase in the direct cost of services at Accountabilities to
$51,674,000 as compared to $49,647,000 in fiscal 2009. This increase is
primarily due to a combination of lower bill rate pricing to retain or gain new
clients through the recessionary period, and increases in certain state
unemployment and workers’ compensation insurance rates that could not be passed
along to clients.




Gross
profit




For
fiscal 2010, gross profit increased $13,556,000 to $21,895,000 as compared to
$8,339,000 in fiscal 2009, which was restated to include $997,000 in direct cost
of services from Insurance Overload. Of the increase in fiscal 2010, $9,760,000
and $5,254,000 was attributable to CRD and Insurance Overload,
respectively.  Gross profit at Accountabilities decreased $1,458,000
or 19.8%, to $5,884,000, as compared to $7,342,000 in fiscal 2009.  As
a percentage of revenue, gross profit for fiscal 2010 decreased to 10.2% at
Accountabilities, as compared to 12.9% in the prior year and is due to increased
competition through the recession, and increased costs associated with
performing services, such as unemployment and worker’s compensation
insurance.




Selling,
general and administrative expenses




For
fiscal 2010, selling, general and administrative expenses increased $13,360,000
to $21,481,000 as compared to $8,121,000 in fiscal 2009, which was restated to
include $822,000 in selling, general and administrative expenses from Insurance
Overload. Of the increase in fiscal 2010, $9,658,000 and $4,217,000 was
attributable to CRD and Insurance Overload, respectively. The remaining decrease
at Accountabilities was $515,000, or 7%, to $6,784,000, as compared to
$7,299,000 in fiscal 2009.  Selling, general and administrative
expenses include non-cash charges for stock based compensation expense of
$129,000 for fiscal 2010 compared to $161,000 for fiscal 2009.  The
overall decrease at Accountabilities in selling, general and administrative
expenses in the current year is attributable to management’s cost control
initiatives, including a decrease in advertising expense of $102,000, and
continued headcount reduction.  As a percentage of revenue, selling,
general and administrative expenses at Accountabilities was 11.8% during fiscal
2010 compared to 12.8% during fiscal 2009, as revenue increased but expenses
were reduced, as described above.




Depreciation
and amortization




For
fiscal 2010, depreciation and amortization increased $296,000 to $756,000 as
compared to $460,000 in fiscal 2009, which was restated to include $49,000 in
depreciation and amortization from Insurance Overload. Of the increase in fiscal
2010, $254,000 was attributable to CRD, $153,000 was attributable to Insurance
Overload, with a decrease at Accountabilities of $111,000, or 27.3%, to
$299,000, as compared to $411,000 in fiscal 2009.  The current year’s
decrease at Accountabilities is primarily attributable to certain intangible
assets that have been fully amortized during the first quarter of this fiscal
year, and the elimination of certain leasehold improvements for the prior
year.




Other
income




For
fiscal 2010, other income of $556,000 was attributable to CRD only. This income
consists of fees earned pursuant to a services agreement with an affiliate of GT
Systems, which expired in June 2010, and amounts earned under a Service and
Collections agreement with the seller whereby the Company provides services to
assist the seller in collecting the outstanding receivables of GT Systems prior
to its acquisition.  There was no other income in fiscal
2009.


14


Income
(Loss) from operations




Income
from operations increased $456,000 from $214,000 for fiscal 2010 as compared to
a loss from operations of ($242,000), which was restated to include income of
$126,000 from Insurance Overload in fiscal 2009. Of this income, $404,000 and
$884,000 was attributable to CRD and Insurance Overload respectively. Loss from
the operations at Accountabilities increased ($832,000) to ($1,200,000) for
fiscal 2010 as compared to a loss from operations of ($368,000) in fiscal 2009,
representing a increase of 226%. The increased loss is due to the factors
described above.




Interest
expense




Interest
expense includes the net discounts associated with the sales of accounts
receivable, as well as interest on debt associated with acquired companies and
financing our operations. For fiscal 2010, interest expense increased
$197,000 to $661,000 as compared to $464,000 in fiscal 2009, which was restated
to include $35,000 of interest expense from Insurance Overload. Of this
increase, $243,000 was attributable to CRD, $96,000 was attributable to
Insurance Overload, and interest expense at Accountabilities declined by
$142,000, or 33%, to 287,000 in fiscal 2010.  The decrease in interest
expense at Accountabilities is attributable to a negotiated reduction in debt
with a note holder of approximately $550,000, and the assumption of
approximately $1,200,000 of debt by TSE in exchange for 6,000,000 shares of our
common stock in the first two quarters of the current fiscal year.
  In addition, substantial efforts were made to reduce outstanding
balances on our sold accounts receivable, which in effect, reduces the interest
charged on those balances.




Acquisitions
related expense




For
fiscal 2010, acquisitions related expense was $691,000.  Of this
amount, $482,000 was attributable to the acquisition through CRD, of certain
assets of GT Systems, Inc. on April 5, 2010, and $209,000 was attributable to
the acquisition through Insurance Overload, of Tri-Overload on August 27, 2010.
These expenses consisted primarily of legal and accounting fees.




Loss
on debt extinguishments





On
February 22, 2010, TSE agreed to assume our obligation to make a series of
payments totaling $545,000 to the former owner of ReStaff which was owed
pursuant to a settlement and release agreement dated February 5,
2010.  In exchange for the assumption of this payment obligation and
TSE’s lead in negotiating the disputed amount, we agreed to issue 3,666,667
shares of our common stock to TSE.  We recorded a loss of $922,000 on
the extinguishment of debt, representing the difference between the fair value
of the shares issued on the date of the exchange and $545,000.  The
fair value of the shares issued on the date of the exchange was determined by
reference to the per share closing price of our common stock on the date of the
exchange, which was $0.40.





On
December 29, 2009, we entered into an exchange agreement with TSE, whereby all
amounts due to TSE under the terms of notes recently acquired by TSE from a
third party were settled in full, in exchange for the issuance to TSE of shares
of our common stock.  On the date of the exchange, there was $590,000
in principal and accrued interest of $52,000 outstanding on the notes, for which
we issued 2,333,333 shares of our common stock.  Loss on debt
extinguishment of $501,000 was measured as the difference between the fair value
of the common stock we issued and the remaining outstanding principal and
accrued interest on the notes that were exchanged during the first quarter of
fiscal 2010.





Net
loss




The
factors described above resulted in a loss from operations of ($2,561,000) for
fiscal 2010 as compared to a loss from operations of ($1,265,000) in fiscal
2009, restated to include a loss of ($386,000) from Insurance Overload in fiscal
2009. Of this loss, ($321,000) was attributable to CRD, income of $670,000 was
attributable to Insurance Overload, with a remaining loss from Accountabilities
of ($2,910,000) as compared to a loss of ($878,000) for the same period in the
prior year.


15


Liquidity
and Capital Resources




Cash
Flows




We have
historically relied on cash flows from operations, borrowings under debt
facilities, loans from related parties and proceeds from sales of stock to
satisfy our working capital requirements as well as to fund acquisitions. In the
future, we may need to raise additional funds through public and/or additional
private debt or equity financings to fund our operations or to take advantage of
business opportunities, including business growth and mergers and acquisitions.
To the extent that funds are not available to meet our operating needs, we may
have to further reduce operating expenses or eliminate portions of our
operations.




At
September 30, 2010, cash was $254,000, an increase of $224,000 from $30,000 as
of September 30, 2009.




Net cash
provided by operating activities from continuing operations during the year
ended September 30, 2010 was  $836,000, as compared with $837,000
provided by operating activities during the year ended September 30, 2009. While
the change in cash flow from operations is insignificant, we achieved the same
level of cash flow while integrating our 2 acquisitions. The Company’s net loss
increased by $1.6 million to approximately $2.6 million, with much of this
difference attributable to an increase in non-cash expenses, particularly the
loss on debt extinguishment of $1.4 million in the year ended September 30,
2010.  Additionally, the Company incurred and charged to expense
approximately $700,000 related to the acquisition of the assets of GT Systems,
and the acquisition of Tri-Overload by a merger.




Net cash
used by operating activities from discontinued operations during the year ended
September 30, 2010 was ($17,000), as compared with ($393,000) during the year
ended September 30, 2009. The difference was due to the wind-down of operations
early in fiscal 2010.




Net cash
used in investing activities during the year ended September 30, 2010 increased
($6,000) to ($17,000), from ($11,000) during the year ended September 30, 2009,
primarily due to additional fixed asset purchases for our expanded
operations.




Net
cash  used in financing activities during the year ended September 30,
2010 increased $106,000 to $(578,000), from a use of ($472,000) during the year
ended September 30, 2009, as we  made payments on acquisition related
debt.




Working
Capital




We have
financed our growth largely through the issuance of debt and borrowings from
related parties. As a result of these sources of capital and continued operating
losses, we have had negative working capital. As part of funding this growth, as
of September 30, 2010 we had negative working capital of ($6,774,000), for which
the component constituting the current portion of long-term and related party
debt was $2,487,000. Within the current portion of long-term debt, $260,000 is
past due or due upon demand as explained further below. Of the negative working
capital, $1,994,000 is due and payable to TSE and related entities principally
relating to leasing costs charged by TSE for professional employment
organization services provided by TSE to us, which arise and are paid in the
ordinary course of business and as part of funds advanced for our acquisitions.
Additionally, there is approximately $3.3 million of accrued payroll and related
costs for September 2010, which was invoiced by TSE in October
2010.  Total outstanding debt as of September 30, 2010 was
$3,487,000.





In order
to service our debt, maintain our current level of operations, as well as fund
the increased costs of being a reporting company and our growth initiatives, we
must be able to generate or obtain sufficient amounts of cash flow and working
capital. Our management has engaged, and continues to engage, in the following
activities to effectively accomplish these objectives:





a)
            On
      December 29, 2009, we entered into an exchange agreement with TSE, whereby
      all amounts due to TSE under the terms of notes acquired by TSE from a
      third party were settled in full, in exchange for the issuance of shares
      of our common stock.  On the date of the exchange, there was
      $590,000 in principal and accrued interest of $52,000 outstanding on the
      notes for which we issued 2,333,333 shares of our common
      stock.





b)
            In
      the first quarter of fiscal 2010, we discontinued the operations
      associated with the direct provision of accounting and finance services in
      order to focus management’s efforts, as well as our capital, more directly
      on our light industrial, and clerical and administrative service
      offerings.  This discontinued segment of our operations
      generated (losses) from its operations of $0 and ($311,000) for the years
      ended September 30, 2010 and 2009, respectively.  This segment
      has been reported as discontinued operations in the accompanying financial
      statements.


16


c)
            On
      February 5, 2010, we entered into a settlement and release agreement with
      the former owner of ReStaff Services, Inc. (“ReStaff”), whereby all
      obligations owed to ReStaff were released in exchange for a series of
      payments totaling $545,000.  These obligations included the
      remaining principal of $1,056,000 outstanding on a note, $75,000
      outstanding in demand loans and $34,000 in accrued interest
      payable.





d)
            On
      February 22, 2010, TSE agreed to assume our obligation to make the
      $545,000 series of payments to the former owner of ReStaff under our
      February 5, 2010 settlement and release agreement.  In exchange
      for the assumption of this payment obligation and TSE’s lead in
      negotiating the disputed amount, we agreed to issue 3,666,667 shares of
      our common stock to TSE.  We recorded a loss of $922,000 on the
      extinguishment of debt, representing the difference between the fair value
      of the shares issued on the date of the exchange and
      $545,000.  The fair value of the shares issued on the date of
      the exchange was determined by reference to the per share closing price of
      our common stock on the date of the exchange, which was
    $0.40.





e)
            On
      March 24, 2010, CRD entered into the GT Acquisition Agreement to acquire a
      portion of the assets of the GT Entities, through a private sale by
      Rosenthal. The transaction closed on April 5, 2010.  Pursuant to
      the GT Acquisition Agreement, Rosenthal foreclosed on certain assets of
      the GT Entities, related to the temporary and permanent placement of
      employees, and sold the assets to CRD in a secured creditor’s private sale
      under Article 9 of the Uniform Commercial Code for $3,000,000 in cash to
      be paid in installments over three years.  In connection with
      our guarantee of the obligation of CRD to pay the 3,000,000 purchase price
      in installments over a period of three years, the Company issued 4,257,332
      shares of the Company’s common stock to Rosenthal on April 5,
      2010.  These shares are held in escrow and are subject to a
      stock repurchase agreement, dated April 5, 2010, between Rosenthal and us,
      pursuant to which we have the right to repurchase some or all of such
      shares as the GT purchase price is
paid.





f)
            On
      May 3, 2010, CRD entered into an account purchase agreement with
      TSE.  Under the terms of the account purchase agreement, CRD
      sold its accounts receivables to TSE.  The maximum amount of
      accounts receivables that may be sold under the agreement was $45,000,000,
      for which TSE advanced 90% of the assigned accounts receivables’ value
      upon sale, and 10% upon final collection, subject to certain
      offsets.  The risk CRD bears from bad debt losses on accounts
      receivables sold is retained by CRD, and accounts receivables sold which
      became greater than 90 days were eligible to be charged back to CRD by
      TSE.  TSE obtained the funds necessary under this agreement from
      its lender, and passed through the financing costs associated with these
      funds to CRD. This arrangement was terminated on November 2,
      2010.





g)
            In
      connection with the GT Systems Acquisition, TSE provided the initial down
      payment of $750,000. In July and October 2010, CRD made the first 2
      installment payments of $250,000 each on the acquisition
    debt.





h)
            TSE
      and affiliates have provided further financial accommodations to us by
      allowing us to delay from time to time amounts due under our professional
      services arrangement.





i)
            We
      are aggressively managing cash and expenses with activities such as
      seeking additional efficiencies in our operating offices and corporate
      functions (including headcount reductions, if appropriate), improving our
      accounts receivable collection efforts, obtaining more favorable vendor
      terms, and using our finance and accounting consultants when available to
      aid in the necessary obligations associated with being a public reporting
      company.





Because
our revenue depends primarily on billable labor hours, most of our charges are
invoiced weekly, bi-weekly or monthly depending on the associated payment of
labor costs, and are due currently, with collection times typically ranging from
30 to 60 days. Each of our subsidiaries (other than ICG Inc.) is a party to an
accounts receivable sales agreement pursuant to which it sells its accounts
receivables to Wells Fargo Bank, National Association (“Wells Fargo”) as a means
of managing its working capital.  Under the agreements, the maximum
amount of trade receivables that can be sold by our subsidiaries in the
aggregate is $28,000,000, with each subsidiary subject to limits on the amount
of trade receivables that it may individually sell to Wells Fargo.  As
collections reduce previously sold receivables, our subsidiaries may replenish
these with new receivables.  As of September 30, 2010 and 2009, trade
receivables of $19,831,000 and $7,746,000 had been sold and remain outstanding,
for which amounts due from Wells Fargo total $1,556,000 and $380,000,
respectively.  Sales of accounts receivables amounted to approximately
$119,822,000 and $66,401,000 for the years ended September 30, 2010 and 2009,
respectively.  Interest charged on the amount of receivables sold
prior to collection is charged at an annual rate of prime plus 1.5% or
2.5%.  Receivables sold may not include amounts over 90 days past
due.  Under the terms of the agreements, with the exception of CRD’s
permanent placement receivables, the financial institution advances 90% of the
assigned receivables’ value upon sale, and the remaining 10% upon final
collection.  Under the terms of CRD’s agreement, the financial
institution advances 65% of the assigned CRD permanent placement receivables’
value upon sale, and the remaining 35% upon final collection.  The
aggregate amount of trade receivables from the permanent placement business that
CRD may sell to Wells Fargo at one time is $1,250,000.  The risk the
Company’s subsidiaries bear from bad debt losses on trade receivables sold is
retained by them.
  17


TSE and
Robert Cassera, which together with affiliated entities and persons owns
approximately 74.3% of our outstanding shares of common stock, have guaranteed
our obligations to Wells Fargo.
  We
believe, based on the above activities and our current expectations, that we
have adequate resources for liquidity to meet our operating needs through
September 30, 2011.
 
 Debt
  Long-term
debt at September 30, 2010 and 2009 is summarized as follows:
  September 30,
                                    
                                    
                                    September 30,2010
                                    
                                    
                                    2009Long-term
      debt16.25%
      subordinated note (i)
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    102,0003%
      convertible subordinated note (ii)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    408,00018%
      unsecured note (iii)
                                    
                                    
                                    
                                    
                                    
                                    
                                    80,000CRD
      Acquisition (v)
                                    
                                    
                                    2,000,000
                                    
                                    
                                    
                                    -Long
      term capitalized lease obligation (iv)
                                    
                                    
                                    
                                    
                                    
                                    
                                    4,000Tri-Overload
      Acquisition (xi)
                                    
                                    
                                    427,000
                                    
                                    
                                    
                                    726,000Other
      debt
                                    
                                    
                                    50,000
                                    
                                    
                                    
                                    50,000Total
                                    
                                    
                                    2,478,000
                                    
                                    
                                    
                                    1,370,000Less
      current maturities
                                    
                                    
                                    1,478,000
                                    
                                    
                                    
                                    777,000Non-current
      portion
                                    
                                    
                                    1,000,000
                                    
                                    
                                    
                                    593,000Related
      party long-term debt13%
      unsecured demand note (vi)
                                    
                                    
                                    104,000
                                    
                                    
                                    
                                    104,00018%
      unsecured convertible note (vii)
                                    
                                    
                                    100,000
                                    
                                    
                                    
                                    100,000CRD
      Acquisition (x)
                                    
                                    
                                    750,000
                                    
                                    
                                    
                                    -Demand
      loans (viii)
                                    
                                    
                                    55,000
                                    
                                    
                                    
                                    131,0006%
      unsecured note (ix)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,056,000Total
                                    
                                    
                                    1,009,000
                                    
                                    
                                    
                                    1,391,000Less
      current maturities
                                    
                                    
                                    1009,000
                                    
                                    
                                    
                                    811,000Non-current
      portion
                                    
                                    
                                    -
                                    
                                    
                                    
                                    580,000Total
      long-term debt
                                    
                                    
                                    3,487,000
                                    
                                    
                                    
                                    2,761,000Less
      current maturities
                                    
                                    
                                    2,487,000
                                    
                                    
                                    
                                    1,588,000Total
      non-current portion
                                    
                                    $
                                    1,000,000
                                    
                                    
                                    $
                                    1,173,000
  For
further explanation of footnotes (i) through (xi) above, please see Note 7
to our financial statements beginning on page F-1 of this Annual Report on Form
10-K.
  18
  Reliance
on Related Parties
  We have
historically relied on funding from related parties in order to meet our
liquidity needs, such as the debt described in footnotes (iv), (v), (vii),
(viii), and (ix) in Note 7 to our financial statements.  Management
believes that the terms associated with these instruments would not differ
materially from those that might have been negotiated with independent parties,
but that we derived advantages from obtaining funding from related parties,
including a shortened length of time to identify and obtain funding sources due
to the often pre-existing knowledge of our business and prospects possessed by
the related party, and the lack of agent or broker compensation, which is often
deducted from gross proceeds that would be available to us.  Our
management anticipates we should be able to generate sufficient working capital
to fund our growth and operations, and to the extent we do not generate
sufficient cash flow from operations to meet these working capital requirements
we will continue to seek other sources of funding including the issuance of
related party debt.  There can be no assurance that any related party
will provide us with funding or that the terms of any such financing will not
differ materially from funding available from independent parties.
  Sales
of Common Stock
  In
December 2009, we issued 2,333,333 shares of unregistered common stock to TSE in
exchange for the cancellation of three notes with a principal balance of
$590,000 plus accrued interest of $52,000.  Based upon the closing
share price on the date of exchange, the Company recorded a loss on
extinguishment of debt of $501,000.
  In
February 2010, we issued 3,666,667 shares of unregistered common stock to TSE
for assuming our obligations to make a series of payments totaling $545,000 to
the former owner of ReStaff and for TSE’s lead in negotiating the disputed
amount owed to ReStaff.  Based upon the closing share price on the
date this debt was assumed, the Company recorded a loss on the extinguishment of
debt of $922,000.
  In August
2010, we issued 8,589,687 shares of unregistered common stock to TS Staffing in
connection with the acquisition of Tri-Overload.
  Critical
Accounting Policies
  The
preceding discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
and the rules of the Securities and Exchange Commission (the “SEC”).  
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  The following represents a summary of
the critical accounting policies, which management believes are the most
important to the portrayal of the financial condition and results of operations
of the Company and involve inherently uncertain issues that require management’s
most difficult, subjective or complex judgments.
  Revenue
Recognition.  We recognize revenues when professionals deliver
services.  Permanent placement revenue is recognized when the
candidate commences employment, net of an allowance for those not expected to
remain with clients through a 90-day guarantee period, wherein we are obligated
to find a suitable replacement.
  Allowance for Doubtful
Accounts.  We maintain an allowance for doubtful accounts for
estimated losses resulting from our clients’ failure to make required payments
for services rendered.  Our management estimates this allowance based
upon knowledge of the financial condition of our clients, review of our
historical receivable and reserve trends and other pertinent
information.  If the financial condition of any of our clients
deteriorates or there is an unfavorable trend in aggregate receivable
collections, additional allowances may be required.
  Stock-Based
Compensation.We measure and recognize compensation expense
for all share-based payment awards made to employees and directors including
employee stock options, stock appreciation rights and restricted stock awards
based on estimated fair values.  Fair value for restricted stock is
determined at a discount from the current market price quote to reflect a) a
lack of liquidity resulting from the restricted status and low trading volume
and b) recent private placement valuations.  The value of the portion
of the award that is ultimately expected to vest is recognized as an expense, as
earned, over the requisite service periods generally on a straight-line
basis.
  Income Taxes.  We
account for income taxes using the liability method.  Under the
liability method, deferred income taxes are recognized for the estimated tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory rates applicable to the periods in which the
differences are expected to affect taxable income.  Valuation
allowances are established to reduce deferred tax assets to the amount expected
to be realized when, in management’s opinion, it is more likely than not that
some portion of the deferred tax assets will not be realized.  The
estimated provision for income taxes represents current taxes payable and the
current tax effect of temporary differences between the financial reporting
basis and the tax basis of our assets and liabilities and expected future
benefits of net operating loss carry-forwards.
  19
  Intangible
Assets.  Goodwill and other intangible assets with indefinite
lives are not subject to amortization but are tested for impairment annually or
whenever events or changes in circumstances indicate that the asset might be
impaired.   Intangible assets with finite lives are amortized over
their estimated useful life and impairment reviews are performed whenever events
or changes in circumstances indicate that an asset or asset group might be
impaired.
  Recent
Accounting Pronouncements
  In
December 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) No. 2010-28, Intangibles—Goodwill and Other
(Topic 350) (“ASU 2010-28”).  This ASU amends the Accounting
Standards Codification (“ASC”) Topic 350.  ASU 2010-28 clarifies the
requirement to test for impairment of goodwill.  ASC Topic 350 has
required that goodwill be tested for impairment if the carrying amount of a
reporting unit exceeds its fair value.  Under ASU 2010-28, when the
carrying amount of a reporting unit is zero or negative an entity must assume
that it is more likely than not that a goodwill impairment exists, perform an
additional test to determine whether goodwill has been impaired and calculate
the amount of that impairment.  The modifications to ASC Topic 350
resulting from the issuance of ASU 2010-28 are effective for fiscal years
beginning after December 15, 2010 and interim periods within those years,. Early
adoption is not permitted.  The Company cannot determine what effect,
if any, the application of the amendments in ASU 2010-28 may have on its
financial statements.
  ITEM
      7A.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
  Disclosure
not required by smaller reporting companies.
  ITEM
      8.
              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
  The
response to this item is submitted in a separate section of this Annual Report
on Form 10-K commencing on page F-1.
  ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
  None.
  ITEM
      9A.
              CONTROLS
      AND PROCEDURES
  Evaluation
of Disclosure Controls and Procedures
  As of
September 30, 2010, under the supervision and with the participation of our
management, including our Chief Executive Officer, who is also acting in the
capacity as the principal financial officer, we carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the
Securities Exchange Act of 1934, as amended).  Based on this
evaluation, our Chief Executive Officer and acting principal financial officer
concluded that our disclosure controls and procedures were not effective and
that certain changes to the design of such controls and procedures had not been
made that were necessary to reflect significant changes that occurred in our
senior management and board of directors.
  Management’s
Report on Internal Control Over Financial Reporting
  Management
is responsible for establishing and maintaining adequate internal control over
financial reporting.  A company’s internal control over financial
reporting includes policies and procedures that: (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the company's assets, (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of a
company's financial statements in accordance with accounting principles
generally accepted in the United States, and that receipts and expenditures are
being made only in accordance with authorizations of the company's management
and directors, and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of a 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.
  20
  A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
  Our
management, including our Chief Executive Officer and acting principal financial
officer, assessed the effectiveness of our internal control over financial
reporting as of September 30, 2010 using the criteria established by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated
Framework.  Based upon this assessment, management has
concluded that there was a material weakness in internal control over financial
reporting. The material weakness resulted from a lack of sufficient and
effective supervisory review over the preparation and reconciliation of certain
general ledger account balances to their underlying source documents at one of
our subsidiaries.
  This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting.  The Company is not required to provide an attestation by
our independent registered public accounting firm pursuant to rules of the SEC
for smaller reporting companies.
  Remediation
of Material Weaknesses in Disclosure Controls and Procedures and Internal
Control Over Financial Reporting
  The
Company’s plans to remediate the material weaknesses over its disclosure
controls and procedures and its Internal Control Over Financial Reporting
(“ICFR”) identified above by taking remedial actions, including the
following:
  1.
              Hire
      experienced personnel to staff the accounting and finance department at
      the Company.
  2.
              Develop
      or revise, depending on the circumstances, detailed accounting procedural
      manuals that define the roles and responsibilities of all personnel
      involved in the accounting process.
  3.
              Develop
      or address, depending on the circumstances, detailed financial reporting
      procedures to ensure that each subsidiary provides timely, complete and
      accurate information to the Company’s headquarters for the preparation of
      financial reports which include all necessary
  disclosures.
  4.
              Provide
      sufficient training to accounting and financial reporting personnel so
      that each person understands his or her role in the accounting and
      financial reporting process.  Such training will include
      explanations about the reasons for each accounting and financial reporting
      procedure to provide an understanding of the need for the
      procedure(s).
  5.
              Develop
      or improve, depending on the circumstances, processes and procedures used
      to evaluate the competency of accounting and financial reporting
      personnel.  Such evaluation processes and procedures are to
      include supervisory and management
personnel.
  Although
we believe the execution of these plans will improve our systems of disclosure
controls and ICFR, the effectiveness of these plans, once executed, will be
subject to testing by us and there can be no assurance at this time that these
plans will effectively remediate the material weaknesses described above. In
addition, while our intention is to implement all improvements as soon as
possible, we are not able to predict how long all such improvements will take to
put in place.  As a part of the process of implementing improvements,
the Company will monitor the progress made and identify the need to address
additional matters.
  Changes
in Internal Control Over Financial Reporting
  In
connection with management’s prior reviews of its ICFR, we have made the
following changes during fiscal 2010 to address previously identified material
weaknesses, which are reasonably likely to materially improve our ICFR: a)
we updated certain of our documentation of accounting procedures for significant
accounting processes such as billings, cash receipts, payroll, accounts payable,
cash disbursements, equity accounting, debt accounting, and general ledger
transactions, b) we have instituted additional review and approval procedures
for general ledger account reconciliations and journal entries, and c) we have
instituted additional review and approval procedures for cash
disbursements.
  ITEM
      9B.
              OTHER
      INFORMATION.
  None.
  21
  PART
III
  ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
  The
Board of Directors and Officers
  The name
and age of each of our directors and the executive officers of the Company
and their respective positions with us are set forth
below.  Additional biographical information concerning each of the
directors and the executive officers follows the table.
  Name
                  
                  Age
                  
                  TitleJay
      H. Schecter
                  
                  57
                  
                  Chief
      Executive Officer, Secretary and DirectorJohn
      Messina
                  
                  43
                  
                  President,
      Treasurer and DirectorMark
      S. Levine
                  
                  49
                  
                  Chief
      Operating Officer (Accountabilities)Norman
      Goldstein
                  
                  69
                  
                  DirectorRobert
      Cassera
                  
                  48
                  
                  DirectorJoseph
      Cassera
                  
                  51
                  
                  Director
  Jay H. Schecterwas appointed
Chief Executive Officer in March 2009.  Mr. Schecter has served as a
Director of the Company since December 2006 and as an officer with TSE since
1999, overseeing the areas of corporate strategic planning, credit and finance
and legal.  From 1984 until joining TSE, Mr. Schecter served as Senior
Vice President of Kaufman Astoria Studios, a motion picture studio formerly
located in Queens, New York.  Mr. Schecter
brings extensive experience in the services industry, acquisitions, as well as
executive management experience to the Company.
  John Messina was appointed
President in March 2009.  Mr. Messina joined the Company’s Board of
Directors in April 2007 and has served as Executive Vice President of TSE since
January 1998.  Mr. Messina has been employed by TSE since
1997.  Prior to joining TSE, Mr. Messina worked in the transportation
industry and has been an entrepreneur in several small
businesses.  Mr. Messina brings extensive experience in temporary
staffing services, as well as executive management and entrepreneurial
experience to the Company.
  Norman Goldstein has served as
a Director of the Company since December 2006.  He has served as the
President and CEO of NGA, Inc., an export/import company primarily dealing in
the importation, sale and distribution of all types of flat glass products
throughout the USA since 2000.  Prior to his association with NGA,
Inc., Mr. Goldstein formed Norwell International, which acquired a small glove
company and engaged in the business of latex gloves and other related
medical/dental products.  In the year 2000, Mr. Goldstein sold Norwell
International to one of the largest glove manufacturers in Malaysia (Asia
Pacific Ltd.).  Mr. Goldstein served as a director of Stratus Services
Group Inc. (“Stratus”) from September 2006 through December
2008.  During Mr. Goldstein’s tenure as a director, Stratus was a
shell company until it began to engage in the technology asset disposition
business in August 2007.  Mr. Goldstein brings extensive
entrepreneurial and management experience to the Company.
  Robert Casserahas served as a
Director of the Company since February 2009.  Mr. Cassera is the
founder, sole owner, and has been the president and director of TSE since
1993.  TSE itself and through several wholly-owned subsidiaries,
including TSE-PEO and TS Staffing Corp, primarily offers temporary staffing and
related services to municipalities and privately-held and public companies, as
well as to professional employer organizations, and ancillary services to
privately-held and public companies.  Mr. Cassera is the brother of
Joseph Cassera.  Mr. Cassera brings extensive entrepreneurial,
temporary staffing and management experience to the Company.
  Joseph Cassera has served as a
Director of the Company since September 2009.  Mr. Cassera has served
as Vice President of Operations of TSE since January 2001, and has been employed
by TSE since 2001.  Prior to joining TSE, Mr. Cassera served as the
Senior Network Administrator overseeing information technology operations and
other wide area network activities for Siemens AG from 1986 to September
2001.  Mr. Cassera is the brother of Robert Cassera.  Mr.
Cassera brings extensive experience in temporary staffing and information
technology to the Company.
  22
  Mark S. Levine has served as
Chief Operating Officer of Accountabilities since February 2007.  From
2001 until joining the Company, he served as Executive Vice President of
Accretive Solutions, Inc., a professional staffing services
firm.  From 1997 until 2001, he was Chief Marketing Officer of Stratus
Services Group, Inc., a national staffing firm.  From 1995 until 1997,
Mr. Levine was Regional Vice President of CoReStaff Services, Inc., a staffing
services provider.  From 1993 until 1995, Mr. Levine was employed in
various capacities by Norrell Services, including Regional Vice
President.
  Code
of Ethics and Business Conduct
  We intend
to adopt a Code of Ethics and Business Conduct that will apply to all of our
directors, officers and employees, including our Chief Executive Officer, our
Chief Financial Officer and other senior financial officers, in connection with
the remediation of our disclosure controls and procedures as described in Item
9A of this Annual Report on Form 10-K, as well as the development of other
corporate governance policies.  Upon adoption, we intend to post the
Code of Ethics and Business Conduct on our website, and we intend to disclose on
our website any amendment to, or waiver of, a provision of the Code of Ethics
and Business Conduct that applies to our Chief Executive Officer, our Chief
Financial Officer or our other senior financial officers.
  Audit
Committee and Audit Committee Financial Expert
  In May
2008, the Board of Directors assumed the responsibilities of the Audit Committee
after the departure of other independent directors that served on the Board of
Directors and the Audit Committee. Our Board of Directors has designated Norman
Goldstein as an Audit Committee Financial Expert as defined in Item 407(d) of
Regulation S-K and Mr. Goldstein is considered “independent” under Rule
5605 of the NASDAQ Listed Company Manual.  Stockholders should
understand that this designation is a disclosure requirement of the SEC related
to Mr. Goldstein’s experience and understanding with respect to certain
accounting and auditing matters.  The designation does not impose upon
Mr. Goldstein any duties, obligations or liabilities that are greater than are
generally imposed on him as a member of the Board of Directors, and his
designation as an Audit Committee Financial Expert does not affect the duties,
obligations or liabilities of any other member of our Board of
Directors.
  Section
16(a) Beneficial Ownership Reporting Compliance
  Section
16(a) of the Exchange Act requires our executive officers and directors, and
persons who own more than ten percent of our common shares, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the
SEC.
  Based on
our review of the copies of such forms we have received, we believe that all of
our executive officers, directors and greater than ten percent stockholders
complied with all filing requirements applicable to them with respect to events
or transactions during fiscal 2010, except that Paul and Linda Capozio, Jason
Scheff, Robert Cassera, and TS Staffing Corp. did not file Forms 3 as required.
Additionally, Paul and Linda Capozio, Thomas Cassera, TSE and Robert Cassera did
not file Forms 4 as required.
  ITEM
      11.
              EXECUTIVE
      COMPENSATION
  Employment
Arrangements
  We
entered into an employment agreement in January 2007 with Mark Levine,
Accountabilities’ Chief Operating Officer, which provides for an annual base
salary of $230,000 per annum and entitles Mr. Levine to an annual bonus of
$25,000 or 2% of Accountabilities earnings before interest, taxes and
amortization, whichever is greater, and options to acquire 500,000 shares of our
common stock at a purchase price of $.005 per share which vest at a rate of
100,000 shares per year.  In April 2007, we issued 500,000 shares of
restricted stock to Mr. Levine and cancelled options that had been granted to
him. In the event that Mr. Levine’s employment terminates for any reason,
he would forfeit any shares which had not vested as of the date of
termination. The agreement has an indefinite term and provides that Mr.
Levine is entitled to three months severance pay, payable over a three month
period if he is terminated without cause.  As of September 30, 2010,
the amount of severance compensation that would be payable to Mr. Levine in the
event of a termination without cause would be $57,500.
  For a
description of the compensation paid to Messrs. Schecter and Messina, our Chief
Executive Officer and President, respectively, please see Item 13 – Certain
Relationships and Related Transactions and Director
Independence.
  23
  Summary
Compensation Table
  The
following table sets forth information concerning the total compensation awarded
to, earned by or paid during the fiscal years ended September 30, 2010 and 2009
to our Chief Executive Officer and our only executive officer who earned in
excess of $100,000 during fiscal 2010, whom we sometimes refer to herein as the
“Named Officers”.
  Name and
                            Principal Position
                          
                          Fiscal
                            Year
                          
                          Salary ($)
                          
                          
                          Bonus
                            ($)
                          
                          
                          Stock
                            Awards
                            ($)
                          
                          
                          Option
                            Awards
                            ($)
                          
                          
                          Non-Equity
                            Incentive Plan
                            Compensation
                            ($)
                          
                          
                          Nonqualified
                            Deferred
                            Compensation
                            Earnings ($)
                          
                          
                          All Other
                            Compensation
                            ($)
                          
                          
                          Total
                            ($)Jay
      Schecter,
                          
                          2010
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Chief
      Executive Officer (1)
                          
                          2009
                          
                          $
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          -
                          
                          
                          $Mark
      S. Levine
                          
                          2010
                          
                          $
                          187,523
                          
                          
                          
                          -
                          
                          
                          $
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          9,600
                          
                          
                          $
                          197,123Chief
      Operating Officer of Accountabilities
                          
                          2009
                          
                          $
                          176,881
                          
                          
                          
                          -
                          
                          
                          $
                          52,390
                          (2)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          9,600
                          
                          
                          $
                          238,871
 
 
 (1)
              Mr.
      Schecter was appointed Chief Executive Officer in March
      2009.   Mr. Schecter does not receive a salary from us, but
      is instead compensated by TSE as part of his responsibilities to
      it.
  (2)
              Represents
      the grant date fair value computed in accordance with FASB ASC Topic
      718.  The determination of this value assumes stock vests over
      the full vesting period and which is based upon the market price of the
      stock awarded as discounted by 35% to reflect (a) certain sale
      restrictions and lack of liquidity and (b) recent private placement
      valuations of similarly restricted
securities.
  (3)
              Represents
      automobile lease payments.
  Outstanding
Equity Awards at Fiscal Year-End
  The
following table provides information about all equity compensation awards held
by the Named Executive Officers as of September 30, 2010:
  OUTSTANDING
EQUITY AWARDS
  Option
      Awards
                
                
                Stock
      AwardsName
                
                Date
      of
                  Grant
                
                Number
      of
                  Securities
                  Underlying
                  Unexercised
                  Options
                  (#)
                  Exercisable
                
                
                Number
      of
                  Securities
                  Underlying
                  Unexercised
                  Options
                  (#)
                  Unexercisable
                
                
                Equity
      Incentive
                  Plan
      Awards:
                  Number
      of
                  Securities
                  Underlying
                  Unexercised
                  Unearned
                  Options
                  (#)
                
                
                Option
                  Exercise
                  Price
                  ($)
                
                
                Option
                  Expiration
                  Date
                
                
                Number
      of
                  Shares
      or
                  Units
      of
                  Stock
      That
                  Have
      Not
                  Vested
                  (#)
                
                
                Market
      Value of
                  Shares
      or Units of
                  Stock
      That Have Not
                  Vested
                  ($)
      (3)
                
                
                Equity
                  Incentive
                  Plan
                  Awards:
                  Number
      of
                  Unearned
                  Shares,
      Units
                  or
      Other
                  Rights
      That
                  Have
      Not
                  Vested
                  (#)
                
                
                Equity
                  Incentive
                  Plan
                  Awards:
                  Market
      or
                  Payout
                  Value
      of
                  Unearned
                  Shares,
                  Units
      or
                  Other
      Rights
                  That
      Have
                  Not
      Vested
                  ($)Jay
      Schecter
                
                1/31/08
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,667
                (1)
                
                $
                5,667
                
                
                
                -
                
                
                
                —Mark
      Levine
                
                01/30/07
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                200,000
                (2)
                
                $
                170,000
                
                
                
                -
                
                
                
                -1/31/08
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                66,667
                (1)
                
                $
                56,667
 
 (1)
                Represents
      an award of restricted stock that vests in equal annual installments, with
      the final installment to vest on January 31, 2011.(2)
                Represents
      an award of restricted stock that vests in equal annual installments on
      January 30, 2011 and 2012.(3)
                Value
      determined by multiplying the number of shares that had not vested as of
      such date by the closing price per share as reported by the
      Over-the-Counter quotation system on September 30,
  2010.
 24
 Compensation
of Our Board of Directors
 
 The
members of our Board of Directors did not receive any compensation for such
service during fiscal 2010.
  ITEM
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
  The
following table sets forth certain information as of December 15, 2010 with
respect to our common shares beneficially owned by (i) each director and
executive officer, (ii) each person known to us to beneficially own more than
five percent of its common shares, and (iii) all executive officers and
directors as a group.  Except as otherwise indicated, the mailing
address for each person listed in the table is 160 Broadway, 11th Floor,
New York, NY 10038.
  Amount and
                                      
                                      
                                      PercentageNature of
                                      
                                      
                                      OfBeneficial
                                      
                                      
                                      OutstandingName
                                      
                                      Ownership
                                      
                                      
                                      Shares(1)Norman
      Goldstein
                                      
                                      
                                      970,000
                                      (2)
                                      
                                      
                                      2.5Jay
      Schecter
                                      
                                      
                                      20,000
                                      
                                      
                                      
                                      *John
      Messina
                                      
                                      
                                      220,000
                                      
                                      
                                      
                                      *Mark
      Levine
                                      
                                      
                                      762,500
                                      
                                      
                                      
                                      2Joseph
      Cassera
                                      
                                      
                                      0
                                      
                                      
                                      
                                      -Robert
      Cassera
                                      
                                      
                                      27,221,404
                                      (3)
                                      
                                      
                                      71.6All
      Executive Officers and Directors as a Group (6 persons)
                                      
                                      
                                      29,193,904
                                      
                                      
                                      
                                      76.3Tri-State
      Employment Services, Inc. and related entities and persons
                                      
                                      
                                      28,271,932
                                      (4)
                                      
                                      
                                      74.3Kathy
      Raymond
                                      
                                      
                                      2,633,334
                                      (5)
                                      
                                      
                                      6.9
 
 *
              Less
      than 1%
 
 (1)
              Percentages
      are based on the 38,029,000 shares outstanding as of December 15, 2010,
      but exclude the 4,257,332 shares held in escrow to secure CRD's payment
      obligations to Rosenthal in connection with the GT
      Acquisition.  The 4,257,332 shares are neither treated as
      outstanding for our financial statements, nor included in the number of
      our shares of common stock outstanding on the cover page of this Annual
      Report on Form I0-K.  Additionally, with respect to the
      determination of the percentage of outstanding shares owned by Norman
      Goldstein and all of our executive officers and directors as a group, the
      250,000 shares of stock issuable upon the conversion of Mr. Goldstein's
      convertible note are deemed
outstanding.
 
 (2)
              Includes
      250,000 shares issuable upon conversion of convertible
      note.  The remaining 720,000 shares are owned by NGA, Inc. a
      corporation of which Mr. Goldstein is the sole
  shareholder.
 
 (3)
              Shares
      are owned through Tri-State Employment Services, Inc. and TS Staffing
      Corp., which amounts are included in the ownership reflected in the amount
      of shares owned by Tri-State Employment Services, Inc.
    below.
 
 (4)
              Based
      upon Amendment No. 3 to the Schedule 13D filed with the SEC on October 14,
      2010 by Robert Cassera, an individual, John P. Messina, Sr., an individual
      (“Messina”), Thomas Cassera, an individual (“TC”), Peter Ursino and his
      wife, Maria Ursino, individuals (collectively “Ursino”), John Trippiedi
      and his wife, Yolanda Trippiedi, individuals (collectively “Trippiedi”),
      Jay Schecter (“Schecter”), an individual, Jason Scheff (“Scheff”), an
      individual, Paul Capozio and his wife, Linda Capozio, individuals
      (collectively, “Capozio”), TSE and TS Staffing.  Includes
      18,631,767 shares beneficially owned by TSE and 8,589,637 shares owned by
      TS Staffing.  Robert Cassera has sole voting and dispositive
      power of the shares owned by TSE and TS Staffing by reason of his direct
      ownership and control of such entities, and these shares represent the
      number of shares reported as owned by Robert Cassera in the table
      above.  Includes 220,000 shares beneficially owned by Messina,
      over which Messina has sole voting and dispositive power, and such shares
      represent the number of shares reported as owned by Messina in the table
      above.  Includes 490,600 shares beneficially owned by TC, over
      which TC has sole voting and dispositive power.  Includes 30,000
      shares beneficially owned by Ursino, over which Maria Ursino and
      Peter Ursino each share voting and dispositive power.  Includes
      12,000 shares beneficially owned by Trippiedi, over which John and Yolanda
      Trippiedi each share voting and dispositive power.  8,000 of the
      shares beneficially owned by Trippiedi are owned of record by two accounts
      of which Trippiedi is custodian created pursuant to the Uniform Gift to
      Minors Act for the benefit of Trippiedi’s two
      children.  Includes 20,000 shares beneficially owned by
      Schecter, over which Schecter has sole voting and dispositive power, and
      such shares represent the number of shares reported as beneficially owned
      by Schecter in the table above.  Includes 88,317 shares
      beneficially owned by Scheff, over which Scheff has sole voting and
      dispositive power.  Includes 189,611 shares beneficially owned
      by Capozio, over which Paul Capozio and Linda Capozio each share voting
      and dispositive power.  The business address of each of the
      reporting persons is 160 Broadway, 15th Floor, New York, New York
      10038.
  25
  (5)
              Represents
      2,423,334 shares owned by Pylon Management, Inc., 150,000 shares owned by
      Washington Capital, LLC, 50,000 shares owned by Kathy Raymond, and 10,000
      shares owned by Thomas Dietz.  Pylon Management, Inc. and
      Washington Capital, LLC are owned by Ms. Raymond, and Thomas Dietz is the
      son of Kathy Raymond. The address of Pylon Management, Inc. is 800 West
      Main Street, Suite 204, Freehold, NJ 07728.  The address of
      Washington Capital, LLC is P.O. Box 110, Marlboro, NJ
    07746.
  ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE
  During
the fiscal year ended September 30, 2007, we issued Pylon Management, Inc. a
$274,000 note bearing interest at 9% which was payable in 104 equal weekly
installments of $2,885.  During fiscal 2010 and fiscal 2009, payments
under the note aggregated $0 and $75,000 respectively.  In addition,
during the fiscal years ended September 30, 2010 and September 30 2009, we paid
$0 and $99,933 to Pylon Management, Inc. in consideration of consulting services
rendered. Kathy Raymond owns Pylon Management, Inc., which together with its
affiliates owns approximately 6.9% of our outstanding common stock.
  Mr.
Goldstein, a director of the Company, is the holder of an unsecured convertible
note in the principal amount of $100,000, which was issued on January 31, 2008
and was due October 31, 2008.  The note originally bore interest at an
annual rate of 12%, but because it was not paid at its maturity, the note now
accrues interest at 18%.  The note is convertible in whole or in part
for all outstanding principal and accrued interest at the option of Mr.
Goldstein, at a price of $0.40 per share.  On November 22, 2010, Mr.
Goldstein sent a notice to the Company to convert $40,000 in outstanding accrued
interest into 100,000 shares of our common stock.  Following this
conversion, the principal outstanding on this note is $100,000 in the
aggregate.
  Pursuant
to a Client Service Agreement, effective January 9, 2006, TSE-PEO provided
professional employer services with respect to the employees of
Accountabilities, and for a brief period, CRD.  The Client Service
Agreement was replaced when we entered into a Master Service Agreement with each
of TS Employment and TSE-PEO on August 27, 2010 which agreements provided for
the provision of professional employer services for Accountabilities, CRD and
Insurance Overload and other subsidiaries that may be identified from time to
time.   TS Employment and TSE-PEO are affiliates of TSE, which is
wholly-owned by Robert Cassera, a director of the
Company.  Additionally, TSE and its affiliate TS Staffing are the
beneficial owner of approximately 71.6% of our outstanding common
stock.  The professional employer services rendered include the
provision of payroll services, benefits and workers compensation insurance
coverage.  These arrangements allow us to mitigate certain insurance
risks and obtain employee benefits at more advantageous rates.  The
aggregate amount of costs charged by TSE-PEO and TS Employment under the Master
Services Agreements, and TSE-PEO under the Client Service Agreement during the
fiscal year ended September 30, 2010 was $95,343,000, inclusive of payroll,
withholding taxes and workers compensation costs.  The total amount
charged by TSE-PEO under the Client Services Agreement during the fiscal year
ended September 30, 2009 inclusive of the above items was
$52,538,000.  TS Employment and TSE-PEO charge us the current market
rate that each such entity charges its other customers.  While Mr.
Schecter and Mr. Messina do not receive compensation directly from us and we do
not reimburse TSE for Mr. Schecter or Mr. Messina’s services, Mr. Schecter and
Mr. Messina do receive, pursuant to TSE’s standard commission policies,
commission based payments from TSE, equaling 0.1% (for Mr. Schecter) and 0.15%
(for Mr. Messina) of the gross payroll portion of the costs we pay to TS
Employment and TSE-PEO.
  In the
second fiscal quarter of 2009, we received advances totaling $212,000 from
TSE.
  On
December 29, 2009, we entered into an Exchange Agreement with TSE pursuant to
which we agreed to exchange 2,333,333 shares of our common stock for debt held
by TSE of approximately $642,000, which equaled a per share exchange price of
$0.30 per share.  TSE had previously acquired the debt from a third
party.
  26
  On
February 22, 2010, TSE agreed to assume the obligation to make a series of
payments totaling $545,000 pursuant to a settlement and release agreement that
we had entered into with the former owner of ReStaff Services,
Inc.  In exchange for this assumption of debt, we issued TSE 3,666,667
shares of the Company’s common stock.  The effective per share price
for the shares issued was $0.30 based upon the accrued liability of
approximately $1,100,000 that was carried on our books and eliminated as a
result of the transaction.
  On April
5, 2010, we completed our acquisition of certain assets of GT Systems and its
operating affiliates pursuant to a Foreclosure and Asset Purchase
Agreement.  The purchase price for these assets was $3,000,000,
payable by CRD to Rosenthal in increments as follows: (i) $750,000 on the
closing date, (ii) $1,000,000 in four installments of $250,000 payable three,
six, nine and twelve months after the closing date, and (iii) thereafter,
monthly payments of 0.75% of the gross sales of the business related to the
acquired assets, until the earlier to occur of the $3,000,000 purchase price
being paid in full or the third anniversary of the closing date, upon which any
balance of the purchase price will be payable.  Each of TSE and the
Company guaranteed the payment obligations of CRD to
Rosenthal.  Additionally, TSE made the initial payment of $750,000 on
behalf of CRD.
  On May 3,
2010, CRD entered into an account purchase agreement (the “Account Purchase
Agreement”) with TSE in order to provide financing to CRD.  Under the
terms of the Account Purchase Agreement, CRD sold its receivables to TSE, up to
a maximum amount at any one time of $45,000,000.  TSE obtained the
funds necessary under the Account Purchase Agreement from its current lender on
comparable terms, and passed through all of its financing costs to CRD without
markup.  This arrangement was terminated on November 2,
2010.
  On August
27, 2010, we acquired Tri-Overload (renamed Insurance Overload Services, Inc.),
an entity engaged in the business of providing temporary and permanent
employment services and related support services from TS Staffing, an affiliate
of TSE, for a purchase price of $6,200,000 which was paid through the issuance
of 8,589,637 shares of our common stock.  The number of shares issued
was based upon a negotiated $0.7218 price per share for our common stock that
was determined using historical market prices.
  In
connection with the Tri-Overload acquisition, we assumed a $400,000 note payable
to the party that had previously sold Tri-Overload to TS Staffing on July 29,
2009.  This note bears interest at 6% per annum and is payable in
installments until its maturity on September 1, 2011.  Payment of this
note is guaranteed by TS Staffing.
  Also on
August 27, 2010, in connection with Insurance Overload's entry into an account
sale agreement with Wells Fargo, Robert Cassera and TSE, executed a Continuing
Guaranty in favor of Wells Fargo.  The Continuing Guaranty provides
that Mr. Cassera unconditionally guarantees the past, present or future
obligations of Company owed to Wells Fargo.  The maximum amount of
receivables that may be sold by the Company to Wells Fargo pursuant to the
account sale agreements is $28,000,000.
  On
January 10, 2011, we entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with our wholly-owned subsidiary Diamond Staffing Services, Inc.
(“Merger Sub”), TS Staffing, Tri-Diamond, a wholly-owned subsidiary of TS
Staffing (“Tri-Diamond”), and Diamond Staffing, a wholly-owned subsidiary of
Tri-Diamond (“Diamond Staffing”).  Pursuant to the terms and
conditions of the Merger Agreement, we will acquire Tri-Diamond pursuant to a
merger (the “Merger”) of Tri-Diamond with and into Merger Sub, with Merger Sub
continuing as the surviving entity (the “Surviving Company”).
 At the
effective time of the Merger, which we expect to occur by the end of
January 2011, Tri-Diamond’s outstanding shares of common stock will be
cancelled.  In exchange for the cancellation of such shares, the
Merger Agreement provides that we will pay a purchase price of $25,000,000,
which will be paid by the issuance of 29,411,765 shares of our common
stock.  The number of shares to be issued to TS Staffing is based upon
a negotiated $0.85 price per share for our common stock that was determined
using historical market prices.
  The
Merger Agreement contains a purchase price adjustment, pursuant to which, TS
Staffing will pay to the Surviving Company the amount of net income, if any,
earned by Tri-Diamond between January 1, 2010 and the date of consummation of
the Merger.  Additionally, if the net working capital of Tri-Diamond
is below zero at the effective time of the Merger, then TS Staffing shall repay
to us an amount equal to such deficit.  Finally, the Merger Agreement
provides that immediately prior to the consummation of the transactions
contemplated thereby, Tri-Diamond shall declare a dividend to TS Staffing in an
amount equal to collected reserve under Tri-Diamond’s accounts receivable sales
agreement immediately prior to the effective time of the Merger, provided that
such dividend amount shall not exceed $2,700,000.  Such dividend will
be paid by the Surviving Company to TS Staffing in monthly installments
following the consummation of the transactions contemplated by the Merger
Agreement.
  Consummation
of the Merger is subject to customary closing conditions, including that
Tri-Diamond shall have received a release for liability for any indebtedness
owed to the lender under Tri-Diamond’s accounts receivable sales agreement, and
that the Merger Sub shall have entered into an acceptable financing
arrangement.  Under certain circumstances, the Company or Tri-Diamond
may terminate the Merger Agreement.
 In
addition to the above transactions, we are currently engaged in discussions with
TSE, for the potential acquisition of certain other staffing assets of
affiliates of TSE.  It is expected that any consideration paid to TSE
under such an acquisition is likely to consist of our equity
securities.  However, there is no assurance that any such acquisition
will be completed.  We are also engaged in discussions with TSE
regarding further extensions of credit to the Company
  On
December 14, 2010, we completed the acquisition of certain assets of ICG Seller
pursuant to a Foreclosure and Asset Purchase Agreement, dated November 12, 2010,
as amended.  As part of
the obligations assumed in this acquisition, ICG Inc. (i) agreed to pay on a
weekly basis to Rosenthal 3% of net sales of ICG Inc. during the two year period
following the closing of the transaction, and 2% for the three years thereafter,
pursuant to an Amended and Restated Commission Agreement, and (ii) entered into
a non-competition agreement with the principal of ICG Seller (who was also the
principal of GT Systems), dated December 14, 2010 pursuant to which it would pay
1% sales revenues generated by the business for a two year
period.  Additionally, CRD entered into an Amended and Restated
Consulting Agreement, dated December 14, 2010, with the principal of ICG Seller,
pursuant to which, he would be paid annual base compensation of $200,000, 0.4%
of the first $80,000,000 in gross sales of CRD, and 0.6% of the portion that
gross sales exceeds $80,000,000 during the 12 month period commencing March 24,
2010, which is the date of the original agreement, and the subsequent 12 month
period thereafter.  TSE agreed to guarantee each of  the
payments to be made by ICG Inc. and CRD set forth in the preceding two
sentences.
  27
  Robert
Cassera, a director of the Company, owns all of the outstanding stock of TSE and
TS Staffing.  TSE, together with its affiliated entities (including TS
Staffing) and persons, is the beneficial owner of approximately 74.3% of the
Company's outstanding shares of common stock.
  Director
Independence
  The Board
has affirmatively determined that Mr. Goldstein is an “independent director,” as
that term is defined under the rules of the NASDAQ Stock Market.  The
non-independent directors are Messrs. Robert Cassera, Joseph Cassera, Messina
and Schecter.
  ITEM
      14.
              PRINCIPAL
      ACCOUNTING FEES AND SERVICES
  In May
2008, the Board of Directors assumed the responsibilities of the Audit Committee
after the departure of other independent directors that served on the Board of
Directors and the Audit Committee.
  Our
financial statements have been audited Rosen, Seymour Shapss Martin and Company
LLP, an independent registered public accounting firm, for the fiscal years
ended September 30, 2010 and 2009.  The following table sets forth the
aggregate fees billed to us for the years ended September 30, 2010 and September
30, 2009 by our independent auditors for such fiscal years:
  2010
                      
                      
                      2009Audit
      Fees
                      
                      $
                      183,500
                      
                      
                      $
                      123,000Audit-Related
      Fees
                      
                      
                      40,000
                      
                      
                      
                      -0-Tax
      Fees
                      
                      
                      59,000
                      
                      
                      
                      39,000All
      Other Fees
                      
                      
                      -0-
                      
                      
                      
                      -0-Totals
                      
                      $
                      282,500
                      
                      
                      $
                      162,000
 
 Audit
fees represent amounts billed for professional services rendered for the audit
of our annual financial statements and the reviews of the financial statements
included in our Forms 10-Q for the fiscal year.  Audit-Related Fees
include amounts billed for professional services rendered in connection with our
SEC filings.
  The Board
of Directors has considered whether provision of the non-audit services
described above is compatible with maintaining the independent auditors’
independence and has determined that such services did not adversely affect
their independence.
  28
  PART
IV
  ITEM
      15.
              EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES
  (a)           Financial
Statements.
  The index
of the financial statements filed herewith is presented on pages
F-1.
  (b)           Exhibit
Index.
  Number
                        
                        Description2.1
                        
                        Asset
      Purchase Agreement between Accountabilities, Inc. and Stratus Services
      Group, Inc. (1)2.2
                        
                        Asset
      Purchase Agreement between Accountabilities, Inc. and US Temp Services,
      Inc. (2)2.3
                        
                        Asset
      Purchase Agreement between Accountabilities, Inc. and ReStaff Services,
      Inc. (2)2.4
                        
                        Agreement
      and Plan of Merger dated as of February 23, 2010 by and among
      Accountabilities, Inc. Corporate Resource Services, Inc. and ACBT Merger
      Co., Inc. (3)2.5
                        
                        Agreement
      and Plan of Merger dated as of August 27, 2010 by and among TS Staffing
      Corp., Tri-Overload Staffing Inc., Corporate Resource Services, Inc. and
      Insurance Overload Acquisition Corp. (4)2.6
                        
                        Foreclosure
      and Asset Purchase Agreement dated as of March 24, 2010 by and among
      Rosenthal and Rosenthal, Inc., GT Systems Inc., certain operating
      affiliates of GT Systems Inc., Eric Goldstein, Corporate Resource
      Development Inc., Corporate Resource Services, Inc. and Tri-State
      Employment Services, Inc. (5)3.1
                        
                        Amended
      and Restated Certificate of Incorporation of the
      Registrant. (6)3.2
                        
                        Amended
      and Restated By-Laws of the Registrant. (6)10.1
                        
                        Convertible
      Note issued by Accountabilities, Inc. to North Atlantic Resources LTD in
      principal amount of $250,000. (1)10.2
                        
                        Form
      of Warrant issued to purchase shares of Accountabilities, Inc. common
      stock. (1)10.3
                        
                        Employment
      Agreement between Humana Trans Services Holding Corp.
                          and
      Allan Hartley. (1)*10.4
                        
                        Employment
      Agreement between Accountabilities, Inc. and Mark Levine. (1)
      *10.5
                        
                        Employment
      Agreement between Accountabilities, Inc. and Stephen DelVecchia.
      (1)*10.6
                        
                        Convertible
      Subordinated Note dated March 31, 2006 issued by Accountabilities, Inc. to
      Bernard Freedman and Alice Freedman Living Trust in principal amount of
      $675,000. (1)10.7
                        
                        Demand
      Note dated March 31, 2006 issued by Accountabilities, Inc. to Washington
      Capital, LLC in the principal amount of $150,000. (1)10.8
                        
                        Subordinated
      Note dated March 31, 2006 issued by Accountabilities, Inc. to Bernard
      Freedman and Alice Freedman Living Trust in the principal amount of
      $175,000. (1)10.9
                        
                        Promissory
      Note dated March 31, 2006 issued by Accountabilities, Inc. to Stratus
      Services Group, Inc. in the principal amount of $80,000.
    (1)10.10
                        
                        Consulting
      Agreement dated March 31, 2006 between Accountabilities, Inc. and William
      Thomas. (1)10.11
                        
                        Consulting
      Agreement dated March 31, 2006 between Accountabilities, Inc. and Jerry
      Schumacher. (1)10.12
                        
                        Consulting
      Agreement dated March 31, 2006 between Accountabilities, Inc. and
      Washington Capital, LLC. (1)10.13
                        
                        Convertible
      Note dated April 1, 2006 issued by Accountabilities, Inc. to NGA, Inc. in
      the principal amount of $300,000. (1)10.14
                        
                        Promissory
      Note dated February 26, 2007 issued by Accountabilities, Inc. to ReStaff
      Services, Inc. in the principal amount of $300,000. (1)10.15
                        
                        Promissory
      Note dated February 26, 2007 issued by Accountabilities, Inc. to ReStaff
      Services, Inc. in the principal amount of $2,900,000. (1)10.16
                        
                        Interim
      Financing Agreement dated February 23, 2007 between Accountabilities, Inc.
      and TSE-PEO, Inc. (1)10.17
                        
                        Stock
      Purchase Agreement dated November 27, 2006 between Accountabilities, Inc.
      and Tri-State Employment Services, Inc. (1)10.18
                        
                        Agreement
      dated August 1, 2006 between Accountabilities, inc. and Tri-State
      Employment Services, Inc. (1)10.19
                        
                        Account
      Transfer Agreement dated as of March 1, 2007 between Accountabilities,
      Inc. and Wells Fargo. (1)
  29
 
 10.20
                
                Finder’s
      Fee Agreement dated February 26, 2007 between Accountabilities, Inc. and
      Pylon Management, Inc. (1)10.21
                
                Accountabilities,
      Inc. Equity Incentive Plan. (6) **10.22
                
                Temporary
      Forbearance Agreement dated October 31, 2007 between Accountabilities,
      Inc. and Washington Capital, LLC. (7)10.23
                
                Temporary
      Forbearance Agreement dated October 31, 2007 between Accountabilities,
      Inc. and Bernard Freedman. (7)10.24
                
                Temporary
      Forbearance Agreement dated October 31, 2007 between Accountabilities,
      Inc. and Bernard Freedman. (7)10.25
                
                Temporary
      Forbearance Agreement dated October 31, 2007 between Accountabilities,
      Inc. and NGA, Inc. (7)10.26
                
                Exchange
      Agreement dated January 22, 2008 between Accountabilities, Inc. and North
      Atlantic Resources LTD. (7)10.27
                
                Warrant
      dated January 22, 2008 issued to North Atlantic Resources LTD. (7)10.28
                
                Form
      of Warrant issued in connection with January 2008 private placement. (7)10.29
                
                Stock
      Purchase Agreement dated March 5, 2008 between Accountabilities, Inc. and
      Tri-State Employment, Inc. (8)10.30
                
                Exchange
      Agreement dated January 31, 2008 between Accountabilities, Inc. and NGA,
      Inc. (8)10.31
                
                Convertible
      Note dated January 31, 2008 issued to NGA, Inc. in the principal amount of
      $100,000. (8)10.32
                
                Stock
      Purchase Agreement dated March 5, 2008 between Accountabilities, Inc. and
      Keystone Capital Resources, LLC. (8)10.33
                
                Form
      of Stock Purchase Agreement executed in conjunction with sale of 1,107,500
      shares of Accountabilities, Inc. common stock for $0.20 per share. (8)10.34
                
                Form
      of Stock Purchase Agreement executed in conjunction with sale of 100,540
      shares of Accountabilities, Inc. common stock for $0.35 per share and
      warrants to purchase up to 9,800 shares of Accountabilities, Inc. common
      stock at an exercise price of $0.50 per share. (8)10.35
                
                Form
      of warrant issued in connection with private placement of 100,540 shares
      of Accountabilities, Inc. common stock. (8)10.36
                
                Convertible
      Note Purchase Agreement between Accountabilities, Inc. and North Atlantic
      Resources LTD, Inc. dated August 6, 2007. (9)10.37
                
                Exchange
      Agreement dated February 28, 2008 between Accountabilities, Inc. and
      ReStaff Services, Inc. (10)10.38
                
                Promissory
      Note dated February 28, 2008 issued by Accountabilities, Inc. to ReStaff
      Services, Inc. in principal amount of $100,000. (10)10.39
                
                Promissory
      Note dated February 28, 2008 issued by Accountabilities, Inc. to ReStaff
      Services, Inc. in principal amount of $1,700,000. (10)10.40
                
                Clarification
      Addendum to the Asset Purchase Agreement between Accountabilities, Inc.
      and ReStaff Services, Inc. (10)10.41
                
                Termination
      of Asset Purchase Agreement; Transfer of Hyperion Energy Common Stock.
      (10)10.42
                
                Promissory
      Note dated May 15, 2008 issued by Tri-State Employment Services, Inc. to
      Accountabilities, Inc. in the principal amount of $200,000. (11)10.43
                
                Stock
      Purchase Agreement dated May 15, 2008 between Accountabilities, Inc. and
      Tri-State Employment Services, Inc. (11)10.44
                
                Form
      of Stock Purchase Agreement utilized in connection with May, 2008 private
      placement. (11)10.45
                
                Temporary
      Forbearance Agreement dated October 31, 2008 between Accountabilities,
      Inc. and Bernard Freedman. (12)10.46
                
                Temporary
      Forbearance Agreement dated October 31, 2008 between Accountabilities,
      Inc. and Bernard Freedman. (12)10.47
                
                Temporary
      Forbearance Agreement dated October 31, 2008 between Accountabilities,
      Inc. and Washington Capital, LLC. (12)10.48
                
                Promissory
      Note dated March 1, 2009 issued by Accountabilities, Inc. to ReStaff
      Services, Inc. in  the principal amount of $1,201,097. (13)10.49
                
                Debt
      Assumption Agreement entered into as of February 22, 2010 by and between
      Accountabilities, Inc. and Tri-State Employment Services, Inc.
      (14)10.50
                
                Exchange
      Agreement dated as of December 29, 2009 between Accountabilities, Inc. and
      Tri-State Employment Services, Inc. (15)10.51
                
                Settlement
      and Release Agreement dated as of February 5, 2010 between
      Accountabilities, Inc. and Rhonda Faria. (16)10.52
                
                Consulting
      Agreement dated March 24, 2010 by and between Corporate Resource
      Development Inc. and Eric Goldstein.
(17)
  30
 
 10.53
                                      
                                      Services
      Agreement dated March 29, 2010 by and between Corporate Resource
      Development Inc. and Noor Associates, Inc. (18)10.54
                                      
                                      Employment
      Agreement dated March 29, 2010 between Corporate Resource Development Inc.
      and Habib Noor.* (19)10.55
                                      
                                      Registration
      Rights Agreement dated as of August 27, 2010 by and between Corporate
      Resource Services, Inc. and TS Staffing Corp. (20)10.56
                                      
                                      Account
      Purchase Agreement dated as of August 27, 2010 between Wells Fargo Bank,
      National Association and Insurance Overload Acquisition Corp.
      (21)10.57
                                      
                                      Form
      of Continuing Guaranty made by Corporate Resource Services, Inc. and its
      affiliates in favor of Wells Fargo Bank, National Association.
      (22)10.58
                                      
                                      Master
      Services Agreement (PEO Services) dated August 27, 2010 by and between
      Corporate Resource Services, Inc. and TSE-PEO, Inc.
(23)10.59
                                      
                                      Master
      Services Agreement (PEO Services) dated August 27, 2010 by and between
      Corporate Resource Services, Inc. and TS Employment, Inc.
    (24)Account
      Purchase Agreement dated as of November 2, 2010, between Wells Fargo Bank,
      National Association and Corporate Resource Development Inc.
      (25)21.1
                                      
                                      Subsidiaries
      of Corporate Resource Services, Inc. (filed herewith)31.1
                                      
                                      Certification
      of Principal Executive Officer and Principal Financial
      Officer  pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
      (filed herewith)32.1
                                      
                                      Certification
      of Principal Executive Officer and Principal Financial
      Officer  pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
      (filed herewith)*
                                      
                                      Constitutes
      a management contract required to be filed pursuant to Item 14(c) of Form
      10-K.**
                                      
                                      Constitutes
      a compensation plan required to be filed pursuant to Item 14(c) of Form
      10-K.Footnote 1
                                      
                                      Incorporated
      by reference to similarly numbered Exhibit filed with Amendment No. 2 to
      the Registration Statement on Form S-4 of Hyperion Energy Inc. as filed
      with the Securities and Exchange Commission on November 27,
      2007.Footnote 2
                                      
                                      Incorporated
      by reference to similarly numbered Exhibit to the Form 10-12G of the
      Registrant filed with the Securities and Exchange Commission on January
      22, 2008.Footnote 3
                                      
                                      Incorporated
      by reference to Exhibit 2.1 to the Form 8-K12G3 of the Registrant filed
      with the Securities and Exchange Commission on February 24,
      2010.Footnote
      4
                                      
                                      Incorporated
      by reference to Exhibit 2.1 to the Form 8-K of the Registrant filed with
      the Securities and Exchange Commission on September 1,
    2010.Footnote
      5
                                      
                                      Incorporated
      by reference to Exhibit 10.3 of the Form 10-Q of the Registrant filed with
      the Securities and Exchange Commission on May 18, 2010.Footnote
      6
                                      
                                      Incorporated
      by reference to similarly numbered Exhibit to the Form 8-K12G3 of the
      Registrant filed with the Securities and Exchange Commission on February
      24, 2010.Footnote 7
                                      
                                      Incorporated
      by reference to similarly numbered Exhibit to the Form 10-12G/A of the
      Registrant filed with the Securities and Exchange Commission on March 5,
      2008.Footnote 8
                                      
                                      Incorporated
      by reference to similarly numbered Exhibit to the Form 10-12G/A of the
      Registrant filed with the Securities and Exchange Commission on March 27,
      2008.Footnote 9
                                      
                                      Incorporated
      by reference to similarly numbered Exhibit to the Form 10-12G/A of the
      Registrant filed with the Securities and Exchange Commission on April 15,
      2008.Footnote 10
                                      
                                      Incorporated
      by reference to similarly numbered Exhibit to the Form 10-Q of the
      Registrant filed with the Securities and Exchange Commission on May 15,
      2008.Footnote 11
                                      
                                      Incorporated
      by reference to similarly numbered Exhibit to the Form 10-Q of the
      Registrant filed with the Securities and Exchange Commission on August 14,
      2008.
  31
 
 Footnote 12
                
                Incorporated
      by reference to similarly numbered Exhibit to the Form 10-Q of the
      Registrant filed with the Securities and Exchange Commission on February
      17, 2009.Footnote 13
                
                Incorporated
      by reference to similarly numbered Exhibit to the Form 10-Q of the
      Registrant filed with the Securities and Exchange Commission on August 19,
      2009.Footnote
      14
                
                Incorporated
      by reference to Exhibit 10.1 of the Form 8-K12G3 of the Registrant filed
      with the Securities and Exchange Commission on February 24,
      2010.Footnote
      15
                
                Incorporated
      by reference to Exhibit 10.1 of the Form 8-K of the Registrant filed with
      the Securities and Exchange Commission on January 5,
  2010.Footnote
      16
                
                Incorporated
      by reference to similarly numbered Exhibit to the Form 10-Q of the
      Registrant filed with the Securities and Exchange Commission on February
      12, 2010.Footnote
      17
                
                Incorporated
      by reference to Exhibit 10.4 of the Form 10-Q of the Registrant filed with
      the Securities and Exchange Commission on May 18, 2010.Footnote
      18
                
                Incorporated
      by reference to Exhibit 10.5 of the Form 10-Q of the Registrant filed with
      the Securities and Exchange Commission on May 18, 2010.Footnote
      19
                
                Incorporated
      by reference to Exhibit 10.6 of the Form 10-Q of the Registrant filed with
      the Securities and Exchange Commission on May 18, 2010.Footnote 20
                
                Incorporated
      by reference to Exhibit 10.1 of the Form 8-K of the Registrant filed with
      the Securities and Exchange Commission on September 1,
    2010.Footnote 21
                
                Incorporated
      by reference to Exhibit 10.2 of the Form 8-K of the Registrant filed with
      the Securities and Exchange Commission on September 1,
    2010.Footnote 22
                
                Incorporated
      by reference to Exhibit 10.3 of the Form 8-K of the Registrant filed with
      the Securities and Exchange Commission on September 1,
    2010.Footnote 23
                
                Incorporated
      by reference to Exhibit 10.1 of the Form 8-K of the Registrant filed with
      the Securities and Exchange Commission on September 2,
    2010.Footnote 24
                
                Incorporated
      by reference to Exhibit 10.2 of the Form 8-K of the Registrant filed with
      the Securities and Exchange Commission on September 2,
    2010.Footnote 25
                
                Incorporated
      by reference to Exhibit 10.1 of the Form 8-K of the Registrant filed with
      the Securities and Exchange Commission on November 5,
  2010.
  32
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on behalf of the
undersigned, thereunto duly authorized.
 
 ACCOUNTABILITIES,
      INC.By:
                    /s/ Jay H.
    SchecterJay
      H. SchecterChief
      Executive Officer
                      (Principal
      Executive and Principal Financial Officer)Date:  January
      11, 2011
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 Signature
                
                Title
                
                Date/s/ Jay H. Schecter
                
                Chief
      Executive Officer and Director
                
                January
      11, 2011Jay
      H. Schecter
                
                (Principal
      Executive Officer and PrincipalFinancial Officer)/s/ John Messina
                
                President,
      Treasurer and Director
                
                January
      11, 2011John
      Messina/s/ Norman Goldstein
                
                Director
                
                January
      11, 2011Norman
      Goldstein/s/ Robert Cassera
                
                Director
                
                January
      11, 2011Robert
      Cassera/s/ Joseph Cassera
                
                Director
                
                January
      11, 2011Joseph
      Cassera
  33
  INDEX
TO FINANCIAL STATEMENTS
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
 
 PageReport
      of Independent Registered Public Accounting Firm
                  
                  F-2Consolidated
      Balance Sheets as of September 30, 2010 and 2009
                  
                  F-3Consolidated
      Statements of Operations for the Years Ended September 30, 2010 and
      2009
                  
                  F-4Consolidated
      Statements of Cash Flows for the for the Years Ended September 30, 2010
      and 2009
                  
                  F-5Consolidated
      Statement of Stockholders’ Equity for the Years Ended September 30, 2010
      and 2009
                  
                  F-6Notes
      to Consolidated Financial Statements
                  
                  F-7
  F-1
  REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
  Board of
Directors and Stockholders of
 Corporate
Resource Services, Inc.
  We have
audited the accompanying consolidated balance sheets of Corporate Resource
Services, Inc. and Subsidiaries (the “Company”), as of September 30, 2010 and
2009 and the related consolidated statements of operations, cash flows and
stockholders’ equity for each of the years then ended.  These
consolidated financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.   We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States).  Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement.  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 purposes 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 audits provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Corporate Resource Services,
Inc. and subsidiaries as of September 30, 2010 and 2009 and the results of their
operations and their cash flows  for each of the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
  /s/ Rosen
Seymour Shapss Martin & Company LLP
 CERTIFIED
PUBLIC ACCOUNTANTS
  New York,
New York
 January
10, 2010
  F-2
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
BALANCE SHEETS
 
 September 30,2010
                            
                            
                            2009ASSETSCurrent
      assetsCash
                            
                            $
                            254,000
                            
                            
                            $
                            30,000Accounts
      receivable
                            
                            
                            269,000
                            
                            
                            
                            1,123,000Due
      from financial institution, net of allowance for charge
    backsof
      $468,000 and $200,000, respectively
                            
                            
                            1,556,000
                            
                            
                            
                            379,000Unbilled
      receivables
                            
                            
                            2,767,000
                            
                            
                            
                            1,122,000Prepaid
      expenses
                            
                            
                            169,000
                            
                            
                            
                            373,000Total
      current assets
                            
                            
                            5,015,000
                            
                            
                            
                            3,027,000Property
      and equipment, net
                            
                            
                            1,078,000
                            
                            
                            
                            503,000Other
      assets
                            
                            
                            567,000
                            
                            
                            
                            57,000Intangible
      assets, net
                            
                            
                            2,946,000
                            
                            
                            
                            1,260,000Goodwill
                            
                            
                            3,623,000
                            
                            
                            
                            4,243,000Total
      assets
                            
                            $
                            13,229,000
                            
                            
                            $
                            9,090,000LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                            
                            $
                            3,968,000
                            
                            
                            $
                            3,491,000Accrued
      wages and related obligations - due to related party
                            
                            
                            3,340,000
                            
                            
                            
                            1,868,000Current
      portion of long-term debt
                            
                            
                            1,478,000
                            
                            
                            
                            777,000Current
      portion of related party long-term debt
                            
                            
                            1,009,000
                            
                            
                            
                            811,000Due
      to related party
                            
                            
                            1,994,000
                            
                            
                            
                            805,000Total
      current liabilities
                            
                            
                            11,789,000
                            
                            
                            
                            7,752,000Long-term
      debt, net of current portion
                            
                            
                            1,000,000
                            
                            
                            
                            593,000Deferred
      rent
                            
                            
                            97,000
                            
                            
                            
                            -Related
      party long-term debt, net of current portion
                            
                            
                            -
                            
                            
                            
                            580,000Total
      liabilities
                            
                            
                            12,886,000
                            
                            
                            
                            8,925,000Commitments
      and contingenciesStockholders’
      equityPreferred
      stock, $0.0001 par value, 5,000,000 shares authorized;zero
      shares issued and outstanding
                            
                            
                            -
                            
                            
                            
                            -Common
      stock, $0.0001 par value, 95,000,000 shares authorized;42,186,000
      and 23,689,000 shares issued; 37,929,000 and 23,689,000shares
      outstanding, respectively
                            
                            
                            4,000
                            
                            
                            
                            3,000Additional
      paid-in capital
                            
                            
                            6,134,000
                            
                            
                            
                            3,396,000Accumulated
      deficit
                            
                            
                            (5,795,000
                            )
                            
                            
                            (3,234,000
                            )Total
      stockholders’ equity
                            
                            
                            343,000
                            
                            
                            
                            165,000Total
      liabilities and stockholders’ equity
                            
                            $
                            13,229,000
                            
                            
                            $
                            9,090,000
  F-3
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 Years EndedSeptember 30,
                  
                  
                  September 30,2010
                  
                  
                  2009Revenue
                  
                  $
                  120,891,000
                  
                  
                  $
                  63,744,000Direct
      cost of producing revenues
                  
                  
                  18,338,000
                  
                  
                  
                  5,740,000Direct
      cost of producing revenues purchased from related parties
                  
                  
                  80,658,000
                  
                  
                  
                  49,665,000Gross
      profit
                  
                  
                  21,895,000
                  
                  
                  
                  8,339,000Selling,
      general and administrative expenses *
                  
                  
                  6,796,000
                  
                  
                  
                  4,102,000Selling,
      general and administrative expenses - related parties
                  
                  
                  14,685,000
                  
                  
                  
                  4,020,000Depreciation
      and amortization
                  
                  
                  756,000
                  
                  
                  
                  460,000Other
      (income)
                  
                  
                  (556,000
                  )
                  
                  
                  -Income
      (Loss) from continuing operations
                  
                  
                  214,000
                  
                  
                  
                  (243,000
                  )Lease
      termination expense
                  
                  
                  -
                  
                  
                  
                  477,000Interest
      expense
                  
                  
                  661,000
                  
                  
                  
                  464,000Loss
      on impairment of fixed assets
                  
                  
                  -
                  
                  
                  
                  95,000Acquisition
      expenses
                  
                  
                  691,000
                  
                  
                  
                  -Loss
      on debt extinguishments – Related Party
                  
                  
                  1,423,000
                  
                  
                  
                  -Net
      loss from continuing operations
                  
                  
                  (2,561,000
                  )
                  
                  
                  (1,279,000
                  )Income
      from discontinued operations
                  
                  
                  -
                  
                  
                  
                  14,000Net
      loss
                  
                  $
                  (2,561,000
                  )
                  
                  $
                  (1,265,000
                  )Net
      loss per share from continuing operations:Basic
      and diluted
                  
                  $
                  (0.08
                  )
                  
                  $
                  (0.05
                  )Net
      loss per share from discontinued operations:Basic
      and diluted
                  
                  $
                  -
                  
                  
                  $
                  -Total
      net loss per share:Basic
      and diluted
                  
                  $
                  (0.08
                  )
                  
                  $
                  (0.05
                  )Weighted
      average shares outstanding:Basic
      and diluted
                  
                  
                  32,286,000
                  
                  
                  
                  24,229,000
 
 *
Includes $129,000 and $161,000 for the fiscal years ended September 30, 2010 and
2009, respectively in non-cash charges for stock-based
compensation.
 
 The
accompanying notes are an integral part of these financial
statements.
  F-4
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 Years EndedSeptember 30,
                              
                              
                              September 30,2010
                              
                              
                              2009Cash
      flows from operating activities:Net
      loss
                              
                              $
                              (2,561,000
                              )
                              
                              $
                              (1,265,000
                              )Less:
      net income from discontinued operations
                              
                              
                              -
                              
                              
                              
                              14,000Net
      loss from continuing operations
                              
                              
                              (2,561,000
                              )
                              
                              
                              (1,279,000
                              )Adjustments
      to reconcile net loss to cash (used in) provided by operating
      activities:Depreciation
      and amortization
                              
                              
                              756,000
                              
                              
                              
                              459,000Bad
      debt expense
                              
                              
                              555,000
                              
                              
                              
                              211,000Stock-based
      compensation
                              
                              
                              129,000
                              
                              
                              
                              161,000Loss
      on impairment of fixed assets
                              
                              
                              -
                              
                              
                              
                              95,000Loss
      on debt extinguishments
                              
                              
                              1,423,000
                              
                              
                              
                              -Changes
      in operating assets and liabilities, net of effect of
      acquisitions:Trade
      accounts receivable including unbilled receivables
                              
                              
                              (791,000
                              )
                              
                              
                              113,000Due
      from financial institution
                              
                              
                              (1,732,000
                              )
                              
                              
                              (193,000
                              )Prepaid
      expenses
                              
                              
                              204,000
                              
                              
                              
                              (50,000
                              )Due
      to/from related party
                              
                              
                              1,188,000
                              
                              
                              
                              138,000Other
      assets
                              
                              
                              (510,000
                              )
                              
                              
                              (39,000
                              )Accounts
      payable and accrued liabilities – related parties
                              
                              
                              1,472,000
                              
                              
                              
                              (27,000
                              )Accounts
      payable and accrued liabilities – third parties
                              
                              
                              606,000
                              
                              
                              
                              841,000Deferred
      rent
                              
                              
                              97,000
                              
                              
                              
                              -Net
      cash provided by operating activities-continuing
operations
                              
                              
                              836,000
                              
                              
                              
                              430,000Net
      cash (used in) provided by operating activities- discontinued
      operations
                              
                              
                              (17,000
                              )
                              
                              
                              14,000Net
      cash provided by operating activities
                              
                              
                              819,000
                              
                              
                              
                              444,000Cash
      flows from investing activities:Purchase
      of property and equipment
                              
                              
                              (17,000
                              )
                              
                              
                              (11,000
                              )Net
      cash used in investing activities
                              
                              
                              (17,000
                              )
                              
                              
                              (11,000
                              )Cash
      flows from financing activities:Principal
      payments on long-term debt
                              
                              
                              (578,000
                              )
                              
                              
                              (83,000
                              )Principal
      payments on long-term debt – related parties
                              
                              
                              -
                              
                              
                              
                              (313,000
                              )Payments
      on Insurance Overload Services, Inc. credit facilities
                              
                              
                              -
                              
                              
                              
                              (76,000
                              )Net
      cash (used in) provided by financing activities-continuing
      operations
                              
                              
                              (578,000
                              )
                              
                              
                              (472,000
                              )Change
      in cash
                              
                              
                              224,000
                              
                              
                              
                              (39,000
                              )Cash
      at beginning of period
                              
                              
                              30,000
                              
                              
                              
                              69,000Cash
      at end of period
                              
                              $
                              254,000
                              
                              
                              $
                              30,000
 
 The
accompanying notes are an integral part of these financial
statements.
  F-5
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
 
 STATEMENT
OF STOCKHOLDERS' EQUITY
 
 AdditionalCommon Stock
                                  
                                  
                                  Paid-In
                                  
                                  
                                  Accumulated
                                  
                                  
                                  Stockholders'Shares
                                  
                                  
                                  Amount
                                  
                                  
                                  Capital
                                  
                                  
                                  Deficit
                                  
                                  
                                  EquityBalances
      as of September 30, 2008
                                  
                                  
                                  23,792,000
                                  
                                  
                                  $
                                  2,000
                                  
                                  
                                  $
                                  3,236,000
                                  
                                  
                                  $
                                  (1,969,000
                                  )
                                  
                                  $
                                  1,269,000Forfeitures
      of restricted stock grants
                                  
                                  
                                  (103,000
                                  )Stock-based
      compensation expense
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  161,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  161,000Issuance
      of unregistered common stock forTri-Overload
      acquisition
                                  
                                  
                                  8,590,000
                                  
                                  
                                  
                                  1,000
                                  
                                  
                                  
                                  (1,000
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Net
      loss for the year ended September 30, 2009
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (1,265,000
                                  )
                                  
                                  
                                  (1,265,000
                                  )Balances
      as of September 30, 2009
                                  
                                  
                                  32,279,000
                                  
                                  
                                  
                                  3,000
                                  
                                  
                                  
                                  3,396,000
                                  
                                  
                                  
                                  (3,234,000
                                  )
                                  
                                  
                                  165,000Stock
      based compensation expense
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  129,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  129,000Note
      conversion to unregistered common stock
                                  
                                  
                                  2,333,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,143,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,143,000Issuance
      of unregistered common stock forassumption of note - related
      party
                                  
                                  
                                  3,667,000
                                  
                                  
                                  
                                  1,000
                                  
                                  
                                  
                                  1,466,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,467,000Issuance
      of unregistered shares as collateral
                                  
                                  
                                  4,257,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Forfeiture
      of restricted stock grants
                                  
                                  
                                  (350,000
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Net
      loss for the year ended September 30, 2010
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (2,561,000
                                  )
                                  
                                  
                                  (2,561,000
                                  )Balances
      as of September 30, 2010
                                  
                                  
                                  42,186,000
                                  
                                  
                                  $
                                  4,000
                                  
                                  
                                  $
                                  6,134,000
                                  
                                  
                                  $
                                  (5,795,000
                                  )
                                  
                                  $
                                  343,000
 
 The
accompanying notes are an integral part of these financial
statements.
  F-6
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 1.
              Description
      of the Company and its Business
  The
Company
  Corporate
Resource Services, Inc., a Delaware corporation (the “Company”), was formed on
December 15, 2009 for the purpose of acting as a holding company with operating
subsidiaries in the staffing business and other related
businesses.  On February 23, 2010, the Company completed a holding
company reorganization, pursuant to which Accountabilities, Inc., a Delaware
corporation (“Accountabilities”), which immediately prior to the reorganization
was the Company’s parent company, became a wholly-owned subsidiary of the
Company.
  As a
result of the reorganization, the former holders of Accountabilities common
stock became owners of shares of the Company’s common stock, par value $0.0001
per share, and each restricted share of Accountabilities’ common stock issued
and outstanding under the Accountabilities, Inc. Equity Incentive Plan
immediately prior to the effective time of the reorganization was automatically
converted into a similarly restricted share of the Company’s common stock. The
equity capitalization and consolidated assets, liabilities and stockholders’
equity of the Company immediately following the reorganization remained the same
as the equity capitalization and consolidated assets, liabilities and
stockholders’ equity of Accountabilities immediately prior to the
reorganization.
  References
in these Notes to Condensed Consolidated Financial Statements to the “Company”
refer, for periods prior to February 23, 2010, to Accountabilities, and, for the
periods after the reorganization, to Corporate Resource Services, Inc., in each
case including its consolidated subsidiaries, Accountabilities, Corporate
Resource Development Inc. (“CRD”), formed on March 23, 2010 as a wholly-owned
subsidiary of the Company, and Insurance Overload Services, Inc., formed on July
22, 2010 as a wholly-owned subsidiary of the Company, unless otherwise indicated
or the context otherwise requires.
  On August
27, 2010, we closed our acquisition of Tri-Overload Staffing Inc.
(“Tri-Overload”) pursuant to a merger between a wholly-owned subsidiary of the
Company and such entity.  The consideration for the acquisition
consisted of an aggregate of 8,589,637 shares of our common stock to TS Staffing
Corp. (“TS Staffing”), an entity wholly-owned by Robert Cassera, a director of
the Company. Mr. Cassera owns Tri-State Employment Services, Inc. (“Tri-State”),
which together with TS Staffing and their affiliated persons is the beneficial
owner of approximately 74.3% of the Company’s outstanding shares of common
stock, including the shares issued to TS Staffing in connection with the
Company’s acquisition of Tri-Overload. Based on these facts, the Company and
Tri-Overload were deemed under the common control of Tri-State. As the entities
were deemed under common control, the acquisition was recorded using the
pooling-of-interest method and the financial information for all periods
presented reflects the financial statements of the combined companies in
accordance with generally accepted accounting principles in the United States of
America (“GAAP”) for business combinations for entities under common control.
All amounts have been restated as if this transaction occurred on July 20, 2009,
the date that TS Staffing acquired Tri-Overload. See also Note 3.
  Nature
of Operations
  Through
its three wholly-owned subsidiaries, Accountabilities, CRD and Insurance
Overload Services, Inc., (“Insurance Overload”), the Company is a national
provider of diversified staffing, recruiting and consulting services, including
temporary staffing services, with a focus on light industrial services, clerical
and administrative support and insurance related staffing.  The
Company provides its services across a variety of industries and to a diverse
range of clients ranging from sole proprietorships to Fortune 1000
companies.  The Company conducts all of its business in the United
States through its New York City headquarters and the operation of 43 staffing
and recruiting offices.
  Discontinued
Operations
  In
addition to its light industrial and clerical service offerings the Company had
historically provided professional accounting and finance consulting and
staffing services through both its CPA Partner on Premise Program and directly
to clients.
  F-7
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  In April
2009, the Company discontinued its CPA Partner on Premise Program service
offering, which provided finance and accounting staffing and recruiting services
through sales and marketing agreements with regional public accounting
firms.  As a result, the CPA Partner on Premise Program is classified
as discontinued operations for all periods presented in the accompanying
financial statements.  Also, during the first quarter of 2010, in an
effort to focus management’s efforts more directly on the Company’s core
business, as well as use the Company’s capital more directly on the Company’s
light industrial and administrative service offerings, the Company discontinued
its Direct Professional Accounting Service Offerings, which were the Company’s
remaining accounting and finance operations.
  2.
              Summary
      of Significant Accounting Policies
  Basis
of Presentation
  The
consolidated financial statements have been prepared in accordance with GAAP and
the rules of the Securities and Exchange Commission (“SEC”).
  Revenue
Recognition
  Staffing
and consulting revenues are recognized when professionals deliver
services.  Permanent placement revenue, which generated 2.5% of total
revenue in fiscal 2010 and 1.6% of total revenue in fiscal 2009, is recognized
when the candidate commences employment, net of an allowance for those not
expected to remain with clients through a 90-day guarantee period, wherein the
Company is obligated to find a suitable replacement.
  Cash
  The
Company considers cash on hand, deposits in banks, and short-term investments
purchased with an original maturity date of three months or less to be cash and
cash equivalents.
  Accounts
Receivable
  The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from its clients failing to make required payments for services
rendered.  Management estimates this allowance based upon knowledge of
the financial condition of its clients, review of historical receivables and
reserve trends and other pertinent information.  If the financial
condition of the Company’s clients deteriorates or there is an unfavorable trend
in aggregate receivable collections, additional allowances may be
required.  The Company sells its accounts receivable under a sale
agreement, as described in a later note to these financial
statements.
  Property
and Equipment
  Property
and equipment is stated at cost, less accumulated depreciation and
amortization.  Depreciation is computed using the straight-line method
over the following estimated useful lives:
  Furniture
      and Fixtures
                            
                            3
      yearsOffice
      Equipment
                            
                            3
      yearsComputer
      Equipment
                            
                            5
      yearsSoftware
                            
                            3
      yearsLeasehold
      Improvements
                            
                            Term
      of
lease
 
 Assessments
of whether there has been a permanent impairment in the value of property and
equipment are periodically performed by considering factors such as expected
future operating income, trends and prospects, as well as the effects of demand,
competition and other economic factors.   A loss on impairment of
fixed assets of $95,000 was recorded during the fourth quarter of fiscal 2009 to
reflect the abandonment of the leasehold improvements due to the relocation of
the Company’s corporate headquarters.
  Intangible
Assets
  Goodwill
and other intangible assets with indefinite lives are not subject to
amortization but are tested for impairment annually or whenever events or
changes in circumstances indicate that the asset might be
impaired.  The Company performed its latest annual impairment analysis
as of June 30, 2010 and will continue to test for impairment
annually.  No impairment was indicated as of June 30,
2010.  Other intangible assets with finite lives are subject to
amortization, and are tested for impairment when events and circumstances
indicate that an asset or asset group might be impaired.
  F-8
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Stock-Based
Compensation
  The
Company calculates stock-based compensation expense including compensation
expense for all share-based payment awards made to employees and directors
including employee stock options, stock appreciation rights and restricted stock
awards based on estimated fair values.  The value of the portion of the
award that is ultimately expected to vest is recognized as an expense on a
straight-line basis over any required service period.
  Per
Share Information
  Basic
earnings per share (“EPS”) is calculated by dividing net income by the weighted
average number of common shares outstanding during the
period.  Diluted EPS is based upon the weighted average number of
common shares and common stock equivalent shares outstanding during the period
calculated using the treasury-stock method. Common stock equivalent shares are
excluded from the computation in periods in which they have an anti-dilutive
effect since any potential additional common shares would reduce the reported
loss per share.  The dilutive effect of common stock that may be
issued as compensation is reflected in the calculation to the extent that any
exercise price and compensation for future services is less than the market
value of the shares.  The weighted average number of shares for 2010
and 2009 does not include the anti-dilutive effect of common stock equivalents
representing warrants, convertible debt and the effect of non-vested shares as
summarized below.
  2010
                    
                    
                    2009Warrants
                    
                    
                    166,000
                    
                    
                    
                    166,000Convertible
      debt
                    
                    
                    250,000
                    
                    
                    
                    522,000Non-vested
      shares
                    
                    
                    297,000
                    
                    
                    
                    973,000713,000
                    
                    
                    
                    1,661,000
  Income
Taxes
  The
Company accounts for income taxes using the asset and liability
method.  Under this method, deferred income taxes are recognized for
the estimated tax consequences in future years of differences between the tax
basis of assets and liabilities and their financial reporting amounts at each
year-end, based on enacted tax laws and statutory rates applicable to the
periods in which the differences are expected to affect taxable
income.  Valuation allowances are established to reduce deferred tax
assets to the amount expected to be realized when, in management’s opinion, it
is more likely than not that the future tax benefits from some portion of the
deferred tax assets will not be realized.
  GAAP
requires that, in applying the liability method, the financial statement effects
of an uncertain tax position be recognized based on the outcome that is more
likely than not to occur.  Under this criterion the most likely
resolution of an uncertain tax position should be analyzed based on technical
merits and on the outcome that will likely be sustained under
examination.  These requirements became effective for annual financial
statements beginning after December 15, 2008 and the Company adopted them as of
January 1, 2009.
  Use
of Estimates
  The
preparation of 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.  Although management believes these
estimates and assumptions are adequate, actual results could differ from the
estimates and assumptions used.
  Reclassification
  Certain
prior period amounts were reclassified to conform to the current year
presentation.
  F-9
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 3.
              Acquisitions
  GT
Systems, Inc. Acquisition
  On April
5, 2010 the Company, through its wholly-owned subsidiary, CRD, acquired certain
of the operations of GT Systems, Inc. and its operating affiliates (“GT
Systems”), for $3,000,000 (the “GT Purchase Price”) of which $750,000 was paid
at the closing with the balance payable in installments of $250,000 per quarter
for one year, and thereafter, 0.75% of revenue on a monthly basis until the
earlier of payment of the full purchase price, or April 5, 2013. If, on April 5,
2013, the full purchase price has not been paid, then any remaining balance is
due and payable by CRD at that time. CRD’s obligation to make the required
payments is guaranteed by the Company, and is secured by a pledge of 4,257,332
shares of the Company’s common stock to the payee.  These shares are
not treated as outstanding for these financial statements, and are not included
in the number of the Company’s shares of common stock outstanding on the cover
page of this Annual Report on Form I0-K.  Tri-State is also a
guarantor of CRD’s obligation to pay the GT Purchase Price.
  The
following table presents the allocation of the purchase price which has been
accounted for at the fair values of the assets acquired and liabilities assumed
under the acquisition method of accounting:
  Backlog
                    
                    $
                    195,000Sales
      representative network
                    
                    
                    2,055,000PP&E
                    
                    
                    750,000Total
      Purchase Price
                    
                    $
                    3,000,000
  In
addition, CRD has entered into a three year consulting agreement with GT
Systems’ former owner for his assistance with the administration of the business
and maintenance of customer and client relationships. Compensation to be paid
under the agreement includes an annual payment of $200,000, 0.4% of the gross
sale of each pay period, and an additional 0.6% of the annual gross sales in
excess of $80,000,000 on an annual basis. The Company has incurred $281,681 of
consulting expenses from April 5, 2010 to September 30, 2010, which is reflected
in selling general and administrative expenses on the Statements of
Operations.
  As a
result of the acquisition, the Company earned $556,000, which has been reported
as other income. This income consists of fees earned pursuant to a services
agreement with an affiliate of GT Systems which expired in June 2010, and
amounts earned under a Service and Collections agreement with the seller,
whereby the Company provides services to assist the seller in collecting the
outstanding receivables of GT Systems prior to its acquisition.
  The
Company also incurred $482,000 in acquisitions-related costs, which include a
finder's fee of $52,000, legal fees of $360,000 and accounting fees of
$70,000.
  The
following table shows certain unaudited pro forma results of the Company,
assuming the Company had acquired the assets of GT Systems on October 1,
2009:
  Included in the
                    Financial Statements
                    Presented
                    CRD's Acquisition
                    of Certain Systems
                    Assets of
                    GT Systems
                    April 5, 2010 -
                    September 30, 2010
                  
                  
                  Supplemental
                    Pro forma
                    Consolidated
                    October 1, 2009 -
                    September 30, 2010Revenue
                  
                  $
                  36,456,000
                  
                  
                  $
                  156,955,000Net
      (loss) income from continuing operations
                  
                  $
                  (321,000
                  )
                  
                  $
                  196,000
  F-10
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Tri-Overload
Staffing Acquisition
  On August
27, 2010, the Company acquired Tri-Overload through a merger of Tri-Overload
into a wholly-owned subsidiary of the Company.  The Company issued
8,589,637 shares of its common stock, with a fair value of $6,200,000, as
consideration for the acquisition of Tri-Overload.  Tri-Overload
operates an insurance-specific staffing business in major cities throughout the
United States.  Tri-Overload furnishes temporary personnel and makes
direct hire placements in both the property/casualty/worker's compensation
insurance industry and the health insurance industry.
  Prior to
the Company’s acquisition of Tri-Overload, it was purchased on July 20, 2009 by
TS Staffing, an entity wholly-owned by Robert Cassera, a director of the
Company.  Mr. Cassera owns Tri-State, which together with its
affiliates is the beneficial owner of approximately 74.3% of the Company's
outstanding shares of common stock, including the shares issued to TS Staffing,
Inc., the seller of Tri-Overload, in connection with the Company's acquisition
of such entity.  Because the Company and Tri-Overload were both
controlled by Tri-State and its affiliates the acquisition was recorded using
the pooling-of-interest method as required under GAAP for business combinations
of entities under common control and the financial information for all periods
presented reflects the financial statements of the combined companies as if the
acquisition had occurred on July 20, 2009.
  The
Company incurred $209,000 in acquisition related costs, which include $41,000 of
legal fees, accounting fees of $153,000 and $15,000 for a fairness
opinion.
  F-11
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 A
condensed combined summary of operations for the years ended September 30, 2010
and 2009 and condensed combined balance sheets as of September 30, 2010 and 2009
are presented below.
  For the year ended September 30, 2010Corporate
                                
                                
                                Tri-Resource
                                
                                
                                OverloadServices
                                
                                
                                Staffing Inc
                                
                                
                                CombinedTotal
      Revenues
                                
                                $
                                94,014,000
                                
                                
                                $
                                26,877,000
                                
                                
                                $
                                120,891,000Direct
      Cost of Services
                                
                                
                                78,371,000
                                
                                
                                
                                20,625,000
                                
                                
                                
                                98,996,000Gross
      Profit
                                
                                
                                15,643,000
                                
                                
                                
                                6,252,000
                                
                                
                                
                                21,895,000Operating
      Expenses
                                
                                
                                16,440,000
                                
                                
                                
                                5,241,000
                                
                                
                                
                                21,681,000(Loss)
      income from operations
                                
                                
                                (797,000
                                )
                                
                                
                                1,011,000
                                
                                
                                
                                214,000Interest
      and other expenses
                                
                                
                                2,435,000
                                
                                
                                
                                340,000
                                
                                
                                
                                2,775,000Net
      (loss) income - continuing operations
                                
                                $
                                (3,232,000
                                )
                                
                                $
                                671,000
                                
                                
                                $
                                (2,561,000
                                )Net
      (loss) income
                                
                                $
                                (3,232,000
                                )
                                
                                $
                                671,000
                                
                                
                                $
                                (2,561,000
                                )Basic
      and diluted loss per common share - continuing operations
                                
                                $
                                (0.10
                                )
                                
                                
                                
                                
                                
                                $
                                (0.08
                                )Total
      net loss per share
                                
                                $
                                (0.10
                                )
                                
                                
                                
                                
                                
                                $
                                (0.08
                                )Weighted
      average basic and diluted common shares outstanding
                                
                                
                                32,286,000
                                
                                
                                
                                
                                
                                
                                
                                32,286,000
  F-12
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 For the year ended September 30, 2009Corporate
                        
                        
                        Tri-Resource
                        
                        
                        OverloadServices
                        
                        
                        Staffing Inc
                        
                        
                        CombinedTotal
      Revenues
                        
                        $
                        57,923,000
                        
                        
                        $
                        5,821,000
                        
                        
                        $
                        63,744,000Direct
      Cost of Services
                        
                        
                        50,451,000
                        
                        
                        
                        4,954,000
                        
                        
                        
                        55,405,000Gross
      Profit
                        
                        
                        7,472,000
                        
                        
                        
                        867,000
                        
                        
                        
                        8,339,000Operating
      Expenses
                        
                        
                        7,813,000
                        
                        
                        
                        741,000
                        
                        
                        
                        8,554,000(Loss)
      income from operations
                        
                        
                        (341,000
                        )
                        
                        
                        126,000
                        
                        
                        
                        (215,000
                        )Interest
      and other expenses
                        
                        
                        524,000
                        
                        
                        
                        512,000
                        
                        
                        
                        1,036,000Net
      loss - continuing operations
                        
                        $
                        (865,000
                        )
                        
                        $
                        (386,000
                        )
                        
                        $
                        (1,251,000
                        )Net
      loss
                        
                        $
                        (879,000
                        )
                        
                        $
                        (386,000
                        )
                        
                        $
                        (1,265,000
                        )Basic
      and diluted loss per common share - continuing operations
                        
                        $
                        (.04
                        )
                        
                        
                        
                        
                        
                        $
                        (.05
                        )Total
      net loss per share
                        
                        $
                        (.04
                        )
                        
                        
                        
                        
                        
                        $
                        (.05
                        )Weighted
      average basic and diluted common shares outstanding
                        
                        
                        22,511,000
                        
                        
                        
                        
                        
                        
                        
                        24,253,000
  F-13




CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 The
following is a summary balance sheet at September 30, 2010:
 
 Corporate Resource
                                            Services
                                          
                                          
                                          Tri-Overload
                                            Staffing Inc.
                                          
                                          
                                          CombinedCurrent
      assets
                                          
                                          $
                                          3,971,000
                                          
                                          
                                          $
                                          1,044,000
                                          
                                          
                                          $
                                          5,015,000Total
      assets
                                          
                                          $
                                          10,377,000
                                          
                                          
                                          $
                                          2,852,000
                                          
                                          
                                          $
                                          13,229,000Current
      liabilities
                                          
                                          $
                                          9,222,000
                                          
                                          
                                          $
                                          2,567,000
                                          
                                          
                                          $
                                          11,789,000Long-term
      debt
                                          
                                          $
                                          1,097,000
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          1,097,000Stockholders’
      equity
                                          
                                          $
                                          58,000
                                          
                                          
                                          $
                                          285,000
                                          
                                          
                                          $
                                          343,000
 
 The
following is a summary balance sheet at September 30, 2009:
 
 Corporate Resource
                                              Services
                                            
                                            
                                            Tri-Overload
                                              Staffing Inc.
                                            
                                            
                                            CombinedCurrent
      assets
                                            
                                            $
                                            2,292,000
                                            
                                            
                                            $
                                            735,000
                                            
                                            
                                            $
                                            3,027,000Total
      assets
                                            
                                            $
                                            6,344,000
                                            
                                            
                                            $
                                            2,746,000
                                            
                                            
                                            $
                                            9,090,000Current
      liabilities
                                            
                                            $
                                            5,024,000
                                            
                                            
                                            $
                                            2,728,000
                                            
                                            
                                            $
                                            7,752,000Long-term
      debt
                                            
                                            $
                                            770,000
                                            
                                            
                                            $
                                            403,000
                                            
                                            
                                            $
                                            1,173,000Stockholders’
      equity (deficit)
                                            
                                            $
                                            551,000
                                            
                                            
                                            $
                                            (386,000
                                            )
                                            
                                            $
                                            165,000
 
 ReStaff
Services, Inc. Offices Acquisition
  On
February 26, 2007, the Company acquired the operations, including three offices,
of ReStaff Services, Inc. (“ReStaff”), for a total original purchase price of
$4,710,000.  Under the terms of the asset purchase agreement and
accompanying notes, outstanding debt issued by the Company as consideration for
the purchase of ReStaff is subject to reduction if ReStaff’s net income for the
year ending December 31, 2006 was less than $1,350,000, or if net income in
subsequent years was less than $1,000,000.  On February 28, 2008, the
Company completed an analysis of ReStaff’s results and consequently reduced the
outstanding indebtedness to the former owner of ReStaff by $1,398,000, through
the exchange of two notes with outstanding principal balances totaling
$3,090,000 and related accrued interest of $158,000, for two new notes totaling
$1,800,000 and 250,000 shares of stock with a fair value of
$50,000.  The two new notes, issued February 28, 2008, included a
$1,700,000 note bearing an annual interest rate of 6% and payable in equal
monthly installments of $39,925 through May 2012, and a $100,000 note due March
2009 and bearing an annual interest rate of 6% payable.
  During
the third fiscal quarter of 2009, the Company again recognized a reduction in
the outstanding indebtedness to the former owner of ReStaff as a consequence of
the acquired operations generating less than $1,000,000 in net income in the
calendar year 2008.  The total reduction in debt equaled
$459,000.  As a result, a new note dated March 1, 2009 was issued in
the amount of $1,201,000 in exchange for the two notes issued February 28, 2008
with outstanding balances of $1,560,000 and $100,000.   The new
note bears an annual interest rate of 6% and is payable in equal monthly
installments of $36,540 through March 1, 2012.  The former owner of
ReStaff is currently disputing this reduction.  Consequently the
Company has recognized an additional $75,000 in short term debt in recognition
of these claims.
  F-14
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  On
February 5, 2010, the Company recognized a third reduction in the outstanding
indebtedness to the former owner of ReStaff as a consequence of the acquired
operations generating less than $1,000,000 in net income in the calendar year
2009.  The total reduction in debt equaled $620,000.  With
the former owner disputing the reduction, the Company reduced the indebtedness
while keeping the same interest rate. On February 22, 2010, TSE agreed to assume
the Company’s obligation by making the series of payments totaling $545,000 to
the former owner of ReStaff.
  These
debt reductions were considered an adjustment of the purchase price and the
Company recorded an adjustment to reduce the goodwill acquired in the
acquisition.
  The
following table summarizes the fair values of the assets acquired and the
liabilities assumed at the date of the acquisition after giving consideration to
the subsequent purchase price adjustments discussed above:
 
 Property
      and equipment
                    
                    $
                    5,000Non-competition
      agreement
                    
                    
                    81,000Accounts
      receivable
                    
                    
                    200,000Customer
      lists and relationships
                    
                    
                    1,199,000Goodwill
                    
                    
                    885,000Total
      assets acquired
                    
                    
                    2,370,000Accrued
      liabilities
                    
                    
                    (62,000
                    )Total
      purchase price
                    
                    $
                    2,308,000
  Customer
lists and relationships, and the non-competition agreement are being
amortized over weighted average useful lives of seven years and three years,
respectively.  For the year ended September 30, 2010 amortization of
$165,000 and $11,000 has been recognized related to the customer lists and
relationships and the non-competition agreement, respectively.  For
the year ended September 30, 2009, amortization of $165,000 and $27,000 has been
recognized related to the customer lists and relationships and the
non-competition agreement, respectively.
  4.
              Intangible
      Assets and Goodwill
  The
following table presents details of the Company’s intangible assets, estimated
lives, related accumulated amortization and goodwill at September 30, 2010 and
2009:
 
 As of September 30, 2010
                    
                    
                    As of September 30, 2009Accumulated
                    
                    
                    
                    
                    
                    
                    
                    
                    AccumulatedGross
                    
                    
                    Amortization
                    
                    
                    Net
                    
                    
                    Gross
                    
                    
                    Amortization
                    
                    
                    NetCustomer
      lists and relationships (7 years)
                    
                    $
                    4,318,000
                    
                    
                    $
                    1,467,000
                    
                    
                    $
                    2,851,000
                    
                    
                    $
                    2,068,000
                    
                    
                    $
                    919,000
                    
                    
                    $
                    1,149,000Non-competition
      agreements (3 years)
                    
                    
                    111,000
                    
                    
                    
                    111,000
                    
                    
                    
                    -
                    
                    
                    
                    111,000
                    
                    
                    
                    100,000
                    
                    
                    
                    11,000Trade
      Name (20 years)
                    
                    
                    101,000
                    
                    
                    
                    6,000
                    
                    
                    
                    95,000
                    
                    
                    
                    101,000
                    
                    
                    
                    1,000
                    
                    
                    
                    100,000Total
                    
                    $
                    4,530,000
                    
                    
                    $
                    1,584,000
                    
                    
                    $
                    2,946,000
                    
                    
                    $
                    2,280,000
                    
                    
                    $
                    1,020,000
                    
                    
                    $
                    1,260,000Goodwill
      (indefinite life)
                    
                    $
                    3,623,000
                    
                    
                    
                    
                    
                    
                    $
                    3,623,000
                    
                    
                    $
                    4,243,000
                    
                    
                    
                    
                    
                    
                    $
                    4,243,000
 
 The
Company recorded amortization expense for the years ended September 30, 2010,
and 2009 of $566,000 and $324,000, respectively.  Estimated intangible
asset amortization expense (based on existing intangible assets) for the years
ending September 30, 2011, 2012, 2013, 2014 and 2015 is $544,000, $446,000,
$403,000, $288,000, and $220,000 respectively.
  F-15
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  As
previously discussed, the Company has recorded adjustments to goodwill and debt
related to the ReStaff acquisition as a consequence of the acquired operations
generating less than $1,000,000 in net income in the calendar year
2008.  The resulting roll-forward of goodwill to reflect the ReStaff
adjustments and the Tri-Overload acquisition are as follows:
  Goodwill
      as of September 30, 2008
                      
                      $
                      3,332,000Goodwill
      acquired through Tri-Overload  Acquisition
                      
                      
                      1,296,000ReStaff
      purchase price adjustment
                      
                      
                      (385,000
                      )Goodwill
      as of September 30, 2009
                      
                      
                      4,243,000Additional
      ReStaff purchase price adjustment
                      
                      
                      (620,000
                      )Goodwill
      as of September 30, 2010
                      
                      $
                      3,623,000
 
 5.
              Related
      Parties
  Commencing
January 2006, TSE-PEO, Inc., (“TSE-PEO”) provides professional employer services
to the Company, and beginning in August 2010, TS Employment, Inc. (“TS
Employment”), also commenced providing such services.  Professional
employer services rendered include the provision of payroll services, benefits
and workers compensation insurance coverage.  These arrangements allow
us to mitigate certain insurance risks and obtain employee benefits at more
advantageous rates.  TSE-PEO and TS Employment are affiliates of TSE,
which is wholly-owned by Robert Cassera.  The aggregate amount payable
to TSE-PEO and TS Employment were $3,340,000 and $1,868,000 as of September 30,
2010 and 2009, respectively.   The Company pays an amount equal to the
actual wages and associated payroll taxes for the employee plus an agreed upon
rate for workers’ compensation insurance.  The total amount charged by
TSE-PEO and TS Employment  for the years ended September 30, 2010 and
2009 was $95,343,000 and $53,685,000, respectively, which amounts are inclusive
of payroll, withholding taxes and workers compensation costs. Each of TSE-PEO
and TS Employment charges the Company its current market rate that it charges
its other customers.
 The
Company also received advances from, and owes other amounts to TSE totaling
$1,261,000, which is included in due to related party on the accompanying
Balance Sheet, along with $47,000 due a former officer of the Company for
compensation related to the discontinued accounting operations.  In
addition to working capital advances there is $686,000 of net open balances for
intercompany transactions.
  6.
              Property
      and Equipment
  At
September 30, 2010 and 2009 property and equipment consisted of the
following:
  September 30,
                      
                      
                      September 30,2010
                      
                      
                      2009Furniture
      and fixtures
                      
                      $
                      1,291,000
                      
                      
                      $
                      162,000Office
      equipment
                      
                      
                      39,000
                      
                      
                      
                      417,000Computer
      equipment
                      
                      
                      177,000
                      
                      
                      
                      177,000Software
                      
                      
                      5,000
                      
                      
                      
                      5,000Leasehold
      improvements
                      
                      
                      22,000
                      
                      
                      
                      8,0001,534,000
                      
                      
                      
                      769,000Less
      accumulated depreciation and amortization
                      
                      
                      456,000
                      
                      
                      
                      266,000$
                      1,078,000
                      
                      
                      $
                      503,000
  The
Company recorded depreciation and amortization expense for the years ended
September 30, 2010 and 2009 of $190,000 and $131,000,
respectively.
  F-16
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  7.
              Long-Term
      Debt
  Long-term
debt at September 30, 2010 and 2009 is summarized as follows:
  September 30,
                              
                              
                              September 30,2010
                              
                              
                              2009Long-term
      debt16.25%
      subordinated note (i)
                              
                              $
                              -
                              
                              
                              $
                              102,0003%
      convertible subordinated note (ii)
                              
                              
                              -
                              
                              
                              
                              408,00018%
      unsecured note (iii)
                              
                              
                              
                              
                              
                              
                              80,000CRD
      Acquisition (v)
                              
                              
                              2,000,000
                              
                              
                              
                              -Long
      term capitalized lease obligation (iv)
                              
                              
                              
                              
                              
                              
                              4,000Tri-Overload
      Acquisition (xi)
                              
                              
                              427,000
                              
                              
                              
                              726,000Other
      debt
                              
                              
                              50,000
                              
                              
                              
                              50,000Total
                              
                              
                              2,478,000
                              
                              
                              
                              1,370,000Less
      current maturities
                              
                              
                              1,478,000
                              
                              
                              
                              777,000Non-current
      portion
                              
                              $
                              1,000,000
                              
                              
                              $
                              593,000Related
      party long-term debt13%
      unsecured demand note (vi)
                              
                              $
                              104,000
                              
                              
                              $
                              104,00018%
      unsecured convertible note (vii)
                              
                              
                              100,000
                              
                              
                              
                              100,000CRD
      Acquisition (x)
                              
                              
                              750,000
                              
                              
                              
                              -Demand
      loans (viii)
                              
                              
                              55,000
                              
                              
                              
                              131,0006%
      unsecured note (ix)
                              
                              
                              -
                              
                              
                              
                              1,056,000Total
                              
                              
                              1,009,000
                              
                              
                              
                              1,391,000Less
      current maturities
                              
                              
                              1,009,000
                              
                              
                              
                              811,000Non-current
      portion
                              
                              $
                              -
                              
                              
                              $
                              580,000Total
      long-term debt
                              
                              
                              3,487,000
                              
                              
                              
                              2,761,000Less
      current maturities
                              
                              
                              2,487,000
                              
                              
                              
                              1,588,000Total
      non-current portion
                              
                              $
                              1,000,000
                              
                              
                              $
                              1,173,000
  (i)  
         A $175,000 subordinated
note was issued March 31, 2006, originally due January 30, 2007, with an annual
interest rate of 8% with principal and interest payable in equal monthly
installments of $18,150.  The note is secured by office equipment and
other fixed assets.  Due to the failure to make timely payments under
the terms of the note, the holder declaring the note in technical default, began
assessing interest at a higher rate and imposed late charges.  The
holder later entered into forbearance agreements with the Company under which
defaults were waived and forbearance granted.  On December 29, 2009,
the obligations under this note were transferred by the holder to TSE and then
settled in full in exchange for shares of the Company’s common stock, as further
described below.
  (ii)           A
$675,000 convertible subordinated note was issued March 31, 2006, bearing
interest at an annual rate of 3% and originally due on March 31,
2012.  The note was secured by office equipment and other fixed
assets.  On December 29, 2009, the obligations under this note were
transferred by the holder to TSE and then settled in full in exchange for shares
of the Company’s common stock, as further described below.
  (iii)           An
$80,000 unsecured non-interest bearing note was issued March 31, 2006, and was
originally due June 29, 2006.  Due to the Company’s failure to make
timely payments under the terms of the note, on April 1, 2007, the holder
declared the note in technical default and began charging interest at a rate of
18% per annum.  The holder entered into forbearance agreements with
the Company under which the defaults were waived and forbearance
granted.  On December 29, 2009, the obligations under this note were
transferred by the holder to TSE and then settled in full in exchange for shares
of the Company’s common stock, as further described below.
  F-17
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Concurrent
with the acquisition of the debt described in (i), (ii) and (iii) above, TSE
entered into an exchange agreement with the Company whereby all obligations
associated with the debt, including the outstanding principal and accrued
interest at that date, were satisfied through the issuance of 2,333,333 shares
of the Company’s common stock.  On the date of the exchange, there was
$590,000 in principal and accrued interest of $52,000 outstanding on the
notes.  The Company recorded a loss of $501,000 on the extinguishment
of the debt representing the difference between the fair value of the shares
issued on the date of the exchange and the remaining principal and accrued
interest payable on the notes.  The fair value of the shares issued in
the exchange was determined by reference to the per share closing price of the
Company’s common stock on the date of the exchange, which was
$0.49.  A special committee of independent directors of the Company
approved entering into this exchange agreement.
  (iv)          In
November 2007, the Company entered into a capital lease agreement to purchase
computer equipment.  The original principal of $33,000 was payable
over a lease term of 24 months in equal monthly installments of
$1,843.
  (v)          In connection with the
acquisition of certain assets of GT Systems for $3,000,000, consummated on April
5, 2010, the Company paid $750,000 at closing, with the balance of the purchase
price to be paid in installments.  This balance is to be
paid  at $250,000 per quarter for one year, and thereafter 0.75% of
revenue on a monthly basis until the earlier of payment of the full purchase
price, or April 5, 2013.  If, on April 5, 2013, the full purchase
price has not been paid, then any remaining balance is due and payable by CRD at
that time.  This debt is secured by 4,257,000 shares of the Company’s
common stock being held in escrow.
  (vi)         
An unsecured demand note was issued March 31, 2006 to an affiliate of a former
director and officer of the Company, having an original principal amount of
$150,000 and bearing annual interest at 8%.  The Company has entered
into various forbearance agreements, under which the holder agreed to waive
defaults, refrain from exercising its rights and remedies against the Company,
and effectively grant forbearance until October 31, 2008, in exchange for an
increase in the interest rate to 13% per annum.  On October 31, 2008,
the Company entered into another forbearance agreement with the holder of the
note effectively extending the terms of the original forbearance agreement until
October 31, 2009.  The Company received a demand for payment of
outstanding principal and interest under the note in November 2010.
  (vii)        A
$100,000 unsecured convertible note and 600,000 shares of common stock were
issued on January 31, 2008 to an affiliate of a director of the Company in
exchange for another note that had an outstanding principal balance of
$200,000.  This $100,000 unsecured convertible note was due October
31, 2008, and bore interest at an annual rate of 12%.  It is
convertible at any time at the option of the holder at a specified price of
$0.40 per share. Due to the failure to pay the note at maturity, the interest
rate on the note has increased to 18% per annum.
  (viii)        Demand
Loans consist of amounts due to an affiliate of a former director and officer of
the Company, as well as a former director of the Company.  The amounts
are not subject to interest and are classified as short-term loans and are due
and payable upon demand by the shareholders.  The Company received a
demand for payment of outstanding principal under this demand loan in November
2010.
  (ix)           On
February 5, 2010, the Company entered into a Settlement and Release Agreement
with the former owner of ReStaff, an employee of Accountabilities, whereby all
obligations owed by the Company to ReStaff were released in exchange for a
series of payments totaling $545,000.  These obligations included the
remaining principal of $1,056,000 outstanding on this note, $75,000 previously
included in demand loans and $34,000 in accrued interest
payable.  This debt restructuring was accounted for as a reduction in
the purchase price of ReStaff, with a corresponding adjustment to
goodwill.
  On
February 22, 2010, TSE agreed to assume the obligation to make the series of
payments totaling $545,000 to the former owner of ReStaff from the
Company.  In exchange for the assumption of this payment obligation
and TSE’s lead in negotiating the disputed amount, the Company agreed to issue
3,666,667 shares of its common stock.  The Company recorded a loss of
$922,000 on the extinguishment of debt, representing the difference between the
fair value of the shares issued on the date of the exchange and
$545,000.  The fair value of the shares issued on the date of the
exchange was determined by reference to the per share closing price of the
Company’s common stock on the date of the exchange, which was
$0.40.  A special committee of independent director of the Company
approved the above exchange.
  F-18
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  (x)
           In connection
with the acquisition of certain assets of GT System, TSE made the initial
payment of $750,000 on behalf of the Company.  Payment of this amount
to TSE is due on demand, with no interest due.  It is classified as
short term debt.
  (xi)           In
connection with the acquisition of Tri-Overload on August 27, 2010, the Company
assumed a $400,000 note payable to the party that had previously sold
Tri-Overload to TS Staffing on July 20, 2009.  The note bears interest
at 6% per annum. Monthly principal and interest payments of $34,427 commence on
October 1, 2010 until maturity of the note on September 1, 2011. The note is
guaranteed by a related party.
  Reliance
on Related Parties
  The
Company has historically relied on funding from related parties in order to meet
its liquidity needs, such as the debt described in (iv), (vii), (viii), and (x)
above.  Management believes that the advantages the Company derived
from obtaining funding from related parties include a shortened length of time
to identify and obtain funding sources due to the often pre-existing knowledge
of our business and prospects possessed by the related party, and the lack of
agent or broker compensation, which is often deducted from gross proceeds that
would be available to the Company.  Management anticipates the Company
will continue to seek other sources of funding, including through the issuance
of related party debt.
  The
aggregate amounts of long-term debt maturing after September 30, 2010 are as
follows:
  2011
                    
                    $
                    2,487,0002012
                    
                    
                    773,0002013
                    
                    
                    227,0002014
                    
                    
                    -2015
                    
                    
                    -$
                    3,487,000
 
 The
Company has estimated its debt repayments under the GT Systems acquisition
agreement based on estimated future revenues.  The $773,000 in
payments represents 0.75% of such revenue.  The remaining debt balance
of $227,000 is to be paid in 2013.
 
 The
Company must generate sufficient levels of positive net cash flows in order to
service its debt and to fund ongoing operations.  As of September 30, 2010
current liabilities exceeded current assets by $6,774,000.  Additionally,
subsequent to September 30, 2010, the Company has been engaging in several
activities to further increase current assets and/or decrease current
liabilities including obtaining further forbearance agreements or favorable
restructuring of its debt, issuing unregistered common stock in exchange for
debt, and seeking additional reductions in operating expenditures and increases
in operating efficiencies.
  8.
              Stock-Based
      Compensation
  In
September 2007, the Company’s Board of Directors adopted the Accountabilities
Equity Incentive Plan (“the Plan”).  The Plan provides for the grant
of stock options, stock appreciation rights and restricted stock awards to
employees, directors and other persons in a position to contribute to the growth
and success of the Company.  A total of 2,000,000 shares of common
stock were authorized for issuance under the Plan, and as of September 30, 2010
grants with respect to 1,488,000 shares had been made.
  During
April 2007, 585,000 shares of restricted common stock were granted to certain
employees prior to the adoption of the Plan as restricted stock
awards.  Restricted stock award vesting is determined on an individual
grant basis.  Of the shares granted, 500,000 vest over five years and
85,000 vest over three years.
  Effective
October 22, 2009, the Company's Board of Directors terminated the Plan,
underwhich, there will be no further stock grants.  However, any
unvested stock grants outstanding at the time of the Plan's termination, will
continue to vest in accordance with the terms of the Plan.
  F-19
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  A summary
of the status of the Company’s nonvested shares and the changes during the years
ended September 30, 2010 and 2009 is presented below:
  Shares
                                      
                                      
                                      Weighted-Average
                                        Grant-Date Fair ValueNonvested
      at September 30, 2008
                                      
                                      
                                      1,624,000
                                      
                                      
                                      $
                                      0.31Vested
                                      
                                      
                                      (567,000
                                      )
                                      
                                      $
                                      0.31Forfeited
                                      
                                      
                                      (84,000
                                      )
                                      
                                      $
                                      0.25Nonvested
      at September 30, 2009
                                      
                                      
                                      973,000
                                      
                                      
                                      $
                                      0.31Vested
                                      
                                      
                                      (326,000
                                      )
                                      
                                      $
                                      0.32Forfeited
                                      
                                      
                                      (350,000
                                      )
                                      
                                      $
                                      0.30Nonvested
      at September 30, 2010
                                      
                                      
                                      297,000
                                      
                                      
                                      $
                                      0.33
 
 Compensation
expense is measured using the grant-date fair value of the shares granted and is
recognized on a straight-line basis over the required vesting
period.  For shares vesting immediately, compensation expense is
recognized on the date of grant.  Fair value is determined at a
discount from the current market price quote to reflect a) lack of liquidity
resulting from the restricted status and low trading volume and, b) recent
private placement valuations.  The shares granted during the 2008 and
2007 fiscal years had weighted-average grant date fair values of $0.30 and
$0.34, respectively representing discounts of 35% from market price for both
years.
  For the
years ended September 30, 2010 and 2009, compensation expense relating to
restricted stock awards was $129,000 and $161,000, respectively.  As
of September 30, 2010, there was $98,000 of total unrecognized compensation
cost.  That cost is expected to be recognized as an expense over a
weighted-average period of 9 years. The total fair value on the vesting date of
the shares that vested during the year ended September 30, 2010 was
$103,000.
  9.
              Concentrations
      of Credit Risk
  The
Company maintains cash accounts with stable, high credit quality financial
institutions.  At times, such accounts are in excess of federally
insured limits.  To date, the Company has not experienced any losses
in such accounts and management believes that the risk of loss is
negligible.  Financial instruments, which potentially subject the
Company to concentration of credit risk, consist primarily of trade
accounts  receivable.  However, concentrations of credit
risk are limited due to the large number of customers comprising the Company’s
customer base and their dispersion across different business and geographic
areas.  The Company monitors its exposure to credit losses and
maintains an allowance for anticipated losses.  To reduce credit risk,
the Company performs credit checks on certain customers.  No single
customer accounted for more than 10% of revenue for the years ended September
30, 2010 or 2009.
  10.
              Sales
      of Receivables
  The
Company’s subsidiaries have entered into trade account receivable purchase
agreements with Wells Fargo Bank, National Association (“Wells
Fargo”).  Under the agreements, the maximum amount of trade
receivables that can be sold by the subsidiaries in the aggregate is
$28,000,000, with each subsidiary subject to a limit on the amount of trade
receivables that it may individually sell to Wells Fargo.  As
collections reduce previously sold receivables, the subsidiaries may replenish
these with new receivables.  As of September 30, 2010 and 2009, trade
receivables of $19,831,000 and $7,746,000 had been sold and remain outstanding,
for which amounts due from Wells Fargo total $1,556,000 and $380,000,
respectively.  Sales of account receivables amounted to approximately
$119,822,000 and $66,401,000 for the years ended September 30, 2010 and 2009,
respectively.  Interest charged on the amount of receivables sold
prior to collection is charged at an annual rate of prime plus 1.5% or
2.5%.  Receivables sold may not include amounts over 90 days past
due. Under the terms of the agreements, with the exception of CRD permanent
placement receivables, the financial institution advances 90% of the assigned
receivables’ value upon sale, and the remaining 10% upon final
collection.  Under the terms of the CRD’s agreement, the financial
institution advances 65% of the assigned CRD permanent placement receivables’
value upon sale, and the remaining 35% upon final collection.  The
aggregate amount of trade receivables from the permanent placement business that
CRD may sell to Wells Fargo at any one time is $1,250,000.  Under the
terms of Accountabilities’ agreement, additional over advance amounts are
occasionally extended to it at the election of the financial
institution.  The outstanding over advance amounted to $0 and $203,000
as of September 30, 2010 and 2009.  Interest expense charged under the
trade account receivable purchase agreements are included in interest expense in
the accompanying Statements of Operations and amounted to $600,000 and $223,000
for the years ended September 30, 2010 and 2009.  The risk the
Company’s subsidiaries bear from bad debt losses on trade receivables sold is
retained by them, and receivables sold for the years ended September 30, 2010
and 2009 do not include $136,000 and $188,000, respectively, of receivables
sold, but charged back by the financial institution because they were 90 days
past due.  The Company addresses the risk of loss on subsidiaries’
trade receivables in its allowance which totaled $685,000 and $200,000 as of
September 30, 2010 and 2009.
  F-20
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Tri-State
Employment Services and Robert Cassera, which together with affiliated entities
and persons own approximately 74.3% of the company’s outstanding shares of
common stock, have guaranteed our obligations to Wells Fargo.
  CRD had
previously entered into certain trade account purchase agreements to sells its
receivables to TSE on a full recourse basis.  This arrangement was
intended to be temporary and subject to the Company obtaining its own direct
arrangement with a financing source. TSE had obtained the funds necessary from
its lender on comparable terms, and passed through its financing costs to the
Company without markup.   TSE had advanced 90% of the assigned
receivables’ value upon sale, and 10% upon final collection, and were subject to
certain offsets, with interest charged at 2.5% plus prime.  For the
years ended September 30, 2010 and 2009, the total amount financed with TSE was
$33,194,000 and $0, respectively. At September 30, 2010 and 2009, there were no
amounts sold and outstanding under this arrangement.
  11.
              Income
      Taxes
  Deferred
income tax assets and liabilities consist of the tax effects of temporary
differences related to the following:
  September 30,
                  
                  
                  September 30,2010
                  
                  
                  2009Deferred
      tax assets:Net
      operating losses
                  
                  $
                  1,759,000
                  
                  
                  $
                  832,000Accounts
      receivable
                  
                  
                  189,000
                  
                  
                  
                  -Restricted
      stock
                  
                  
                  52,000
                  
                  
                  
                  39,000Goodwill,
      customer lists and relationships and non-compete and solicit
      agreements
                  
                  
                  174,000
                  
                  
                  
                  -Valuation
      allowance
                  
                  
                  (2,174,000
                  )
                  
                  
                  (798,000
                  )-
                  
                  
                  
                  73,000Deferred
      tax liabilities:Goodwill,
      customer lists and relationships and non-compete and solicit
      agreements
                  
                  
                  -
                  
                  
                  
                  (73,000
                  )$
                  -
                  
                  
                  $
                  -
 
 If it is
determined that it is more likely than not that future benefits from deferred
income tax assets will not be realized, a valuation allowance must be
established against the deferred income tax assets. The ultimate realization of
the assets is dependent on the generation of future taxable income during the
periods in which the associated temporary differences become deductible.
Management considers the scheduled reversal of deferred income tax liabilities,
projected future taxable income and tax planning strategies when making this
assessment.
  Concluding
that a valuation allowance is not required is difficult when there is negative
evidence such as cumulative losses in recent years. As a result of the Company’s
cumulative losses, the Company concluded that a full valuation allowance was
required as of September 30, 2010 and 2009.
  F-21
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Since the
Date of Inception the Company has accumulated U.S. Federal and state net
operating loss carryforwards of approximately $4,398,000 that expire at various
dates through 2030.
  The
provision (benefit) for income taxes differs from the amount that would result
from applying the federal statutory rate as follows:
  Years EndedSeptember 30,
                                          
                                          
                                          September 30,2010
                                          
                                          
                                          2009U.S.
      Federal statutory rate
                                          
                                          
                                          (34.0
                                          )%
                                          
                                          
                                          (35.0
                                          )%State
      income taxes, net of federal benefit
                                          
                                          
                                          (6.0
                                          )%
                                          
                                          
                                          (5.0
                                          )%Stock
      based compensation valuation
                                          
                                          
                                          6.7
                                          %
                                          
                                          
                                          6.7
                                          %Change
      in valuation allowance
                                          
                                          
                                          33.3
                                          %
                                          
                                          
                                          33.3
                                          %Effective
      tax rate
                                          
                                          
                                          0.0
                                          %
                                          
                                          
                                          0.0
                                          %
 
 12.
              Supplemental
      Disclosure of Cash Flow Information
  Years EndedSeptember 30,
                                
                                
                                September 30,2010
                                
                                
                                2009Cash
      paid for interest
                                
                                $
                                608,000
                                
                                
                                $
                                381,000Non-
      cash investing and financing activities:ReStaff
      Acquisition purchase price adjustment and debt reduction
                                
                                
                                -
                                
                                
                                
                                385,000Debt
      converted to unregistered common stock at fair value
                                
                                
                                2,520,000
                                
                                
                                
                                -Stock-based
      compensation
                                
                                
                                129,000
                                
                                
                                
                                161,000Shares
      issued for IOS acquisition at fair value
                                
                                
                                6,200,000
                                
                                
                                
                                -Assets
      acquired for issuance of debt - CRD
                                
                                
                                3,000,000
                                
                                
                                
                                -Assets
      acquired for issuance of debt - IOS
                                
                                
                                -
                                
                                
                                
                                1,410,000
 
 13.
              Commitments
      and Contingencies
  Unremitted
Payroll Taxes Related to Humana Businesses
  Prior to
the holding company reorganization Accountabilities was notified by the IRS and
certain state taxing authorities that a business which was operated though the
Accountabilities Corporation had ceased operations at the end of 2004 and had
accumulated liabilities for unremitted payroll taxes for calendar year
2004.  Consequently we have recorded a liability of $700,000
representing the amount management believes will ultimately be payable for this
liability based upon our knowledge of current events and
circumstances.  This amount is included in accounts payable and
accrued liabilities in the accompanying financial
statements.  However, there can be no assurance that future events and
circumstances will not result in an ultimate liability, including penalties and
interest, in excess of management’s current estimate.
  F-22
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Lease
Commitments
  At
September 30, 2010 and 2009, the Company had operating leases, primarily for
office premises, expiring at various dates through September
2017.   Future minimum rental commitments under operating leases
are as follows:
  Years Ending September 30:
                    
                    Operating Leases2011
                    
                    $
                    1,513,0002012
                    
                    
                    1,322,0002013
                    
                    
                    1,395,0002014
                    
                    
                    1,409,0002015
                    
                    
                    739,000Thereafter
                    
                    
                    96,000$
                    6,474,000
 
 Employment
Agreements
  The
Company has employment agreements with certain key members of management,
requiring mutual termination notice periods of up to 30 days.  These
agreements provide those employees with a specified severance amount in the
event the employee is terminated without good cause as defined in the applicable
agreement.
  Legal
Proceedings
  From time
to time, the Company is involved in litigation incidental to its business
including employment practices claims.  There is currently no
litigation that management believes will have a material impact on the financial
position of the Company.
  14.
              Subsequent
      Events
  The
Company has evaluated subsequent events from the balance sheet date through the
date the financial statements were filed.  The following are material
subsequent events:
 
 On
December 14, 2010, the Company's newly formed wholly-owned subsidiary Integrated
Consulting Group, Inc. (“ICG Inc.”) acquired a portion of the assets of
Integrated Consulting Group of NY LLC (“ICG Seller”) related to the temporary
and permanent placement of employees in the light industrial industry and
translation and interpreting services (the “ICG Acquisition”).  The
consideration for these assets included (i) the repayment of ICG Seller’s
outstanding obligations on the closing date under its credit facility, which
amounted to approximately $3.2 million,(ii)
payment of up to $380,000 for outstanding accounts payable of ICG Seller as of
the closing date, (iii) payments to various taxing authorities in the aggregate
amount of approximately $646,000 for certain taxes owed by ICG Seller on the
closing date, and (iv) payment of approximately $171,000 (subject to final
confirmation, reconciliation and adjustments) to Rosenthal & Rosenthal, Inc.
(“Rosenthal”), for amounts owed to it by ICG Seller on the closing date, which
amount is to be paid in installments commencing in January 2011.  ICG
Inc. also entered into a commission agreement with Rosenthal to replace a
similar agreement that Rosenthal was a party to with ICG Seller and its four
members, which agreement is described in the following paragraph.
  In
connection with the consummation of the acquisition, and as a condition to its
closing, ICG Inc. entered into several material agreements, each dated December
14, 2010.  ICG Inc. entered into an Amended and Restated Commission
Agreement (the “Commission Agreement”) with Rosenthal and the four members of
ICG Seller.  Pursuant to the Commission Agreement, ICG Inc. is
obligated to pay to Rosenthal 3% of net sales of ICG Inc. for the next two
years, and 2% of net sales for the three-year period thereafter.
  ICG Inc.
also entered into a Non-Competition Agreement (the “Non-Competition Agreement”)
with Eric Goldstein, pursuant to which, Mr. Goldstein has agreed not to compete
with ICG Inc. or solicit its employees or customers for a five-year period
commencing December 14, 2010 in exchange for the payment by ICG Inc. of 1% of
ICG Inc.’s sales revenue earned during the two -year period commencing December
14, 2010.
  F-23
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Additionally
CRD entered into an Amended and Restated Consulting Agreement (the “Consulting
Agreement”) with Mr. Goldstein, pursuant to which Mr. Goldstein will receive
annual compensation in the amount of $200,000, periodic sales-based compensation
in the amount of 0.4% of gross sales of CRD, and annual sales-based compensation
in the amount of 0.6% in the amount if any, that gross sales of CRD exceeds $80
million during the twelve-month period commencing March 24, 2010, and the
subsequent twelve-month period thereafter.  This agreement commenced
on March 24, 2010, the date of the original agreement, and ends on April 5,
2013, subject to earlier termination in accordance with its terms.
  Each of
ICG Inc.’s payment obligations under the Commission Agreement and the
Non-Competition Agreement, and CRD’s payment obligations under the Consulting
Agreement, are guaranteed by Tri-State, which, together with persons and
entities affiliated with it, owns approximately 74.3% of the outstanding shares
of common stock of the Company.
  ICG Inc.
also entered into a Loan and Security Agreement (the “Financing Agreement”) with
North Mill Capital LLC (the “North Mill”).  Under the Financing
Agreement, a term loan was made at closing to ICG Inc. in the amount of
$120,000, which amount is required to be repaid by ICG Inc. in four consecutive
monthly installments of $30,000 commencing in January 2011, and a two year $4.2
million revolving credit facility, with a 1 year renewal option, was made
available to ICG Inc., provided that borrowings under the revolving credit
facility are in North Mill’s discretion and are limited to the lesser of $4.2
million and the amount that is 85% of ICG Inc.’s eligible accounts receivables,
as defined.  Each of the term loan and the revolving credit facility
are secured by substantially all of ICG Inc.’s assets.  Amounts
outstanding under the Financing Agreement that are less than or equal to
$3,500,000 shall bear interest at prime plus 7% but not less than 10.25%, and
for all outstanding amounts exceeding $3,500,000, the interest rate shall be
prime plus 8.50%.
  The
Financing Agreement requires payment of an annual facility fee in the amount of
$73,000, payable in ten equal annual monthly installments, the first of which
was paid on December 14, 2010.  The Financing Agreement also provides
for an early termination fee in the amount of 3% of the advance limit if
terminated prior to the first anniversary, and 2% of the advance limit if
terminated after the first anniversary and prior to the second anniversary. The
Company made a capital contribution of $200,000 to ICG Inc. in connection with
the closing of the Financing Agreement.
  The
Financing Agreement contains customary covenants for an agreement of this type,
including prohibitions on extraordinary transactions and disposals of assets by
ICG Inc., guarantying third party obligations, prepaying third party
indebtedness, and a limitation on the Company’s capital
expenditures.  The Financing Agreement also contains customary events
of default for a transaction of this type, including if the Company shall cease
to be the sole shareholder of ICG Inc. Upon the occurrence of an event of
default, North Mill may declare all amounts outstanding under the Financing
Agreement due and payable, and among other things, sell the
collateral.  The initial term of the agreement is from December 14,
2010 through December 14, 2012, and for one year thereafter if ICG Inc. shall
request such extension and North Mill agrees to it.  The Financing
Agreement may also be terminated earlier in accordance with its
terms.
  Robert
Cassera, the beneficial owner of approximately 71.6% of the Company’s
outstanding shares of common stock, and a director of the Company, entered into
an Individual Guaranty in favor of North Mill pursuant to which Mr. Cassera
granted North Mill a full and unconditional guaranty of payment of all of the
obligations under the Financing by ICG Inc.
  On
November 22, 2010, NGA, Inc. provided the Company with notice that it desired to
convert $40,000 in outstanding interest under the $100,000 convertible
promissory note issued to it by the Company on January 31,
2008.  Pursuant to the terms of the note, the Company issued 100,000
unregistered shares of common stock to NGA, Inc., at the conversion price of
$0.40 per share.   NGA, Inc. is owned by our director, Norman
Goldstein.  This issuance is exempt from registration pursuant to
Section 3(a)(9) under the Securities Act of 1933, as amended.
  F-24
  CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  On
January 10, 2011, the Company and its wholly-owned subsidiary Diamond Staffing
Services, Inc. (“Merger Sub”) entered into an Agreement and Plan of Merger (the
“Merger Agreement”) with TS Staffing, Tri-Diamond Staffing, Inc, a wholly-owned
subsidiary of TS Staffing (“Tri-Diamond”), and Diamond Staffing, Inc., a
wholly-owned subsidiary of Tri-Diamond (“Diamond Staffing”).  Pursuant
to the terms and conditions of the Merger Agreement, the Company will acquire
Tri-Diamond pursuant to a merger (the “Merger”) of Tri-Diamond with and into
Merger Sub, with Merger Sub continuing as the surviving entity (the “Surviving
Company”).
  At the
effective time of the Merger, Tri-Diamond’s shares of common stock will be
cancelled.  In exchange for the cancellation of such shares, the
Merger Agreement provides that the Company will pay a purchase price of
$25,000,000, which will be paid by the issuance of 29,411,765 shares of the
Company’s common stock.  The number of shares to be issued to TS
Staffing is based upon a negotiated $0.85 price per share for the Company's
common stock that was determined using historical market prices.
  The
Merger Agreement contains a purchase price adjustment, pursuant to which, TS
Staffing will pay to the Surviving Company the amount of net income, if any,
earned by Tri-Diamond between January 1, 2010 and the date of consummation of
the Merger.  Additionally, if the net working capital of Tri-Diamond
is below zero at the effective time of the Merger, then TS Staffing shall repay
to the Company an amount equal to such deficit.  Finally, the Merger
Agreement provides that immediately prior to the consummation of the
transactions contemplated thereby, Tri-Diamond shall declare a dividend to TS
Staffing in an amount equal to collected reserve under Tri-Diamond’s accounts
receivable sales agreement immediately prior to the effective time of the
Merger, provided that such dividend amount shall not exceed
$2,700,000.  Such dividend will be paid by the Surviving Company to TS
Staffing in monthly installments following the consummation of the transactions
contemplated by the Merger Agreement.
  Consummation
of the Merger is subject to customary closing conditions, including that
Tri-Diamond shall have received a release for liability for any indebtedness
owed to the lender under Tri-Diamond’s accounts receivable sales agreement, and
that the Merger Sub shall have entered into an acceptable financing
arrangement.  Under certain circumstances, the Company or Tri-Diamond
may terminate the Merger Agreement.
  TS
Staffing is an affiliate of Tri-State and is wholly-owned by Robert Cassera, a
director of the Company.  Tri-State, together with its affiliated
entities (including TS Staffing) and persons, is the beneficial owner of
approximately 74.3% of the Company's outstanding shares of common
stock.
  F-25