UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-K
 
 ý
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended September 30, 2008o
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 Commission
file number 000-30734
 
 ACCOUNTABILITIES,
INC.
 (Exact
name of Registrant as specified in its charter)
 
 Delaware
            
            11-3255619(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)195
      Route 9 South, Suite 109Manalapan,
      New Jersey 07726(Address
      of principal executive offices)(732)
      333-3622(Registrant’s
      telephone number, including area code)Securities
      registered under Section 12(b) of the Exchange Act:Not
      ApplicableSecurities
      registered under Section 12(g) of the Exchange Act:Common
      Stock, $.0001 par value(Title
      of class)
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes o  No ý.
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes o  No ý.
  Indicate
by check mark whether the registrant has (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.  Yes ý  No o
  Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
  Large
      accelerated filer  ̈
            Accelerated
      filer  ̈
            Non-accelerated
      filer  ̈
            Smaller
      Reporting Company ý
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  Yes o  No ý.
  The
aggregate market value of the voting and non-voting common equity held by
non-affiliates, computed by reference to the last sale price of such stock as
reported by the “Pink Sheets” as of March 31, 2008, was $2,352,000 based upon
6,919,000 shares held by non-affiliates.
  The
number of shares of Common Stock, $.0001 par value, outstanding as of December
22, 2008 was 23,765,791.
 
 
 
  
  
 This
Annual Report on Form 10-K contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended.  These statements
relate to future economic performance, plans and objectives of management for
future operations and projections of revenue and other financial items that are
based on the beliefs of our management, as well as assumptions made by, and
information currently available to, our management.  The words
“expect”, “estimate”, “anticipate”, “believe”, “intend”, and similar expressions
are intended to identify forward-looking statements.  Such statements
involve assumptions, uncertainties and risks.  If one or more of these
risks or uncertainties materialize or underlying assumptions prove incorrect,
actual outcomes may vary materially from those anticipated, estimated or
expected.  Among the key factors that may have a direct bearing on our
expected operating results, performance or financial condition are economic
conditions facing the staffing industry generally; uncertainties related to the
job market and our ability to attract qualified candidates; uncertainties
associated with our brief operating history; our ability to raise additional
capital; our ability to achieve and manage growth; our ability to attract and
retain qualified personnel; our ability to develop new services; our ability to
open new offices; general economic conditions; the continued cooperation of our
creditors; our ability to diversify our client base; and other factors discussed
in Item 1A of this Annual Report under the caption “Risk Factors” and from time
to time in our filings with the Securities and Exchange
Commission.  These factors are not intended to represent a complete
list of all risks and uncertainties inherent in our business.  The
following discussion and analysis should be read in conjunction with the
Financial Statements and notes appearing elsewhere in this Annual Report. In
this Annual Report on Form 10-K, references to “Accountabilities”, “the
Company”, “we”, “us” and “our” refer to Accountabilities, Inc. and its
subsidiaries.
 
  
  
 ACCOUNTABILITIES,
INC.
 FORM
10-K
  Table
of Contents
 
 PART
    IITEM
      1.
            BUSINESS
            1ITEM
    1A.
            RISK
      FACTOR
            4ITEM
    1B.
            UNRESOLVED
      STAFF COMMENTS
            8ITEM
      2.
            PROPERTIES
            8ITEM
      3.
            LEGAL
      PROCEEDINGS
            9ITEM
      4.
            SUBMISSION OF MATTERS TO A
      VOTE OF SECURITY HOLDERS
            9PART
      IIITEM
      5.
            MARKET FOR COMMON EQUITY,
      RELATED STOCKHOLDER MATTERSAND
      ISSUER PURCHASES OF EQUITY SECURITIES
            10ITEM
      6.
            SELECTED FINANCIAL
      DATA
            11ITEM
    7.
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            12ITEM
      7A.
            QUANTITATIVE AND
      QUALITATIVE DISCLOSURE ABOUT MARKET RISK
            22ITEM
      8.
            FINANCIAL STATEMENTS AND
      SUPPLEMENTARY DATA
            22ITEM
      9.
            CHANGES IN AND DISAGREEMENTS
      WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
            22ITEM
    9A.
            CONTROLS
      AND PROCEDURES
            23PART
      IIIITEM
      10.
            DIRECTORS, EXECUTIVE
      OFFICERS, AND CORPORATE GOVERNANCE
            24ITEM
      11.
            EXECUTIVE
      COMPENSATION
            25ITEM
      12.
            SECURITY OWNERSHIP OF CERTAIN
      BENEFICIAL OWNERS AND MANAGEMENTAND
      RELATED STOCKHOLDER MATTERS
            31ITEM
      13.
            CERTAIN RELATIONSHIPS AND
      RELATED TRANSACTIONSAND
      DIRECTOR INDEPENDENCE
            32ITEM
      14.
            PRINCIPAL
      ACCOUNTING FEES AND SERVICES
            33PART
      IVITEM
      15.
            EXHIBITS, FINANCIAL STATEMENT
      SCHEDULES
            34INDEX TO FINANCIAL
      STATEMENTS
            F-1
 
  
  
 PART I
 
 ITEM 1.
            BUSINESS
 
 Overview
  We are a
national provider of diversified staffing, recruiting and consulting services
across a variety of industries and sizes of business.  The following
summarizes our corporate history and general development:
  ●
            Accountabilities,
      Inc., was originally incorporated as a Delaware corporation named
      Thermaltec International Corp. in November 1994 and its primary business
      from inception through July 2001 was the establishment and support of
      thermal spray coating shops in Latin
America.
  ●
            In
      June 2000, Thermaltec acquired Tranventures Industries, Inc., a New York
      corporation formed to exploit various business opportunities in the
      transportation and logistics industries in exchange for shares of
      Thermaltec common stock.
  ●
            In
      May 2001, Thermaltec changed its name to TTI Holdings of America
      Corp.
  ●
            In
      July 2001, TTI Holdings of America divested the thermal spray coating
      business by way of a spin-off of a wholly owned subsidiary to its
      shareholders.
  ●
            In
      August 2002, TTI Holdings of America acquired Steam Cleaning USA, Inc., a
      corporation formed to acquire and expand a steam cleaning business in a
      reverse acquisition transaction pursuant to which Steam Cleaning USA, Inc.
      was merged into TTI Holdings of America, and TTI Holdings of America
      changed its name to Steam Cleaning USA,
Inc.
  ●
            On
      July 1, 2003, Steam Cleaning USA, Inc. acquired all of the outstanding
      capital stock of Humana Trans Services Holding Corp., a Delaware
      corporation which, through its subsidiaries, provided employee leasing and
      benefits processing services and temporary staffing placement solutions to
      the trucking industry.
  ●
            In
      August 2003, Steam Cleaning USA, Inc. changed its name to Humana Trans
      Services Holding Corp.
  ●
            In
      December 2004, Humana sold its employee leasing and benefits processing
      business to a third party.
  ●
            In
      June 2005, Humana acquired a business plan concept from Allan Hartley
      related to the staffing and recruitment of professional employees and, at
      the same time formed a new subsidiary named Accountabilities Inc. to
      develop the new business plan and named Mr. Hartley as president of the
      subsidiary.
  ●
            In
      July 2005, Humana sold the segment of its staffing business devoted to the
      trucking industry to an entity controlled by its management team
      (excluding Mr. Hartley).
  ●
            In
      October 2005, Accountabilities Inc., the subsidiary of Humana, was merged
      into Humana and the surviving corporation changed its name to
      Accountabilities, Inc.
  ●
            In
      November 2005, Accountabilities acquired the operations of three offices
      from Stratus Services Group, Inc., a staffing company, in exchange for its
      agreement to pay to Stratus a percentage of revenues of the acquired
      business for a period of 36 months.
  ●
            In
      March 2006, Accountabilities acquired the operations of five offices from
      US Temp Services, Inc., a staffing company, for a purchase price of
      $1,723,000.
  ●
            In
      February 2007, Accountabilities acquired substantially all of the business
      and assets of ReStaff Services, Inc., a staffing company, for a total
      adjusted purchase price of
$3,312,000.
  We
maintain our headquarters at 195 Route 9 South, Manalapan, New Jersey 07726 and
our phone number is (732) 333-3622.
   1
  Services
Offerings and Markets
 
 Our
service offerings are as follows:
 
 ●
            CPA Partner on Premise
      Program
 
 Through
our Partner on Premise Program, we have agreements with leading regional public
accounting firms to function as our sales and marketing presence in pre-defined
markets.  These public accounting firms offer to provide our
non-attest related finance and accounting services to their current client base
as well as any other client in the pre-defined market area.  This
relationship provides us with the ability to provide our professional accounting
and finance services immediately to an established client base in that market,
and to co-brand, utilizing the recognized name of the public accounting firm as
well as ours in the solicitation of new clients, while the public accounting
firm derives both an additional source of revenue as well as the ability to
provide these additional services to their clients.  As of September
30, 2008 we have agreements with nine different regional public accounting
firms, which to date through September 30, 2008 have historically generated less
than 10% of our total revenues.  While the CPA Firm acts as a
marketing and sales arm for us and provides access to their client base, we
retain control of the clients, employees, systems and processes.  We
provide, among other things, industry expertise, business plans, market
analysis, management and technical services, back office support, including
enterprise-wide financial, accounting and human resources systems, personnel and
assistance in training to our CPA Partners.  As compensation, the CPA
firm receives a commission equal to the profits calculated by us, less 10% of
the revenues which is retained by us.
 
 ● Direct Professional
Services
 Our
Direct Professional Services include Staff Augmentation and Consulting
Services.  Staff Augmentation services include executive search,
interim contract and project management in the areas of Accounting and Finance,
IT/Technology, Engineering, Biotechnology and
Biopharmaceutical.  Consulting services include accounting and finance
consulting services in the areas of Sarbanes-Oxley compliance, mergers and
acquisitions, corporate reorganizations, information systems and tax related
matters.  We provide these services directly through the operations of
our two wholly owned offices and national network of consultants. Management’s
intention is to continue to expand on the provision of direct professional
services which typically produce gross margins averaging between 30% to 50% at
the job level versus those of general temporary staffing, such as in our
Staffing Abilities service offering, which typically average between 10% to 20%
at the job level.  Direct professional services being emphasized
include those in the fields of accounting and information technology, which we
have begun marketing through our CPA Partner on Premise Program affiliated CPA
firms, as well as marketing directly to clients.  Additionally,
management intends to explore cross-selling opportunities with our Staffing
Abilities clients.  Through September 30, 2008 direct professional
services have historically constituted less than 20% of our
revenues.
 
 ●
            Staffing
      Abilities
 We
provide general temporary staffing in the areas of light industrial services and
administrative support to a diverse range of clients ranging from sole
proprietorships to Fortune 500 companies.  Light industrial includes
assignments for warehouse work, manufacturing work, general factory 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.  The Staffing Abilities business has grown largely through
the acquisition of established offices from general staffing companies, such as
those from Stratus Services Group, Inc., US Temp Services, Inc and ReStaff
Services, Inc. as explained in more detail elsewhere in this
document.  Through September 30, 2008, the Staffing Abilities service
offering has historically constituted approximately 80% of our
revenues.  The Staffing Abilities service offerings have provided us
with a predictable source of revenues to aid in supporting the growth of our CPA
Partner on Premises Program and Direct Professional Service offerings, and
functions as a potential client base from which to cross-sell higher margin
professional services.  Although management currently intends to
emphasize the growth of higher margin direct professional services, management
currently intends to continue to provide our Staffing Abilities services for the
foreseeable future, and to continue to explore ways to profitably grow our
Staffing Abilities business.
 
 We also
augment revenues from the above lines of business with the
following:
 
 ●
            National
      Recruiting Center – Through our national recruiting center, we receive and
      complete job orders for candidates for any market in the
      U.S.  Through this center, we also obtain overflow orders from
      our CPA firm affiliates and orders outside of their designated area, with
      a targeted split fee of 50/50, thereby further capitalizing on our CPA
      firm relationships, but at higher margins than those derived through our
      Partner on Premise agreements.
 
 ●
            Job
      Board – Through our job board AccountingEmployees.com, we are able to
      capitalize on one of the fastest growing segments of the staffing
      industry.  CPA members post jobs for free while all other
      postings are fee based.
 
 
  2
  Organization
 
 Management
of our staffing and consulting services operations is coordinated from our
headquarters in Manalapan, New Jersey, which provides support and centralized
services to our offices in the administrative, marketing, public relations,
accounting and training areas.  As of September 30, 2008, we conducted
our operations in 11 states, including, New Jersey, New York, Massachusetts,
Connecticut, Pennsylvania, Maryland, Georgia, Florida, Mississippi, Colorado and
California through 14 offices and nine different Partner on Premise
Agreements.
 
 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:
 
 ●
            consulting
      firms;
 
 ●
            local,
      regional and national accounting
firms;
 
 ●
            independent
      contractors;
 
 ●
            traditional
      and Internet-based staffing firms and their specialized divisions;
      and
 
 ●
            the
      in-house resources of our clients.
 
 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 and professional services industries, including the
services offered through our CPA Partner on Premise Program, are 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 our Staffing Abilities services 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.  Competitors
offering professional services on a national level similar to our Direct
Professional Services include Resources Connection, Inc., Robert Half
International, Inc., KForce, Inc. and MPS Group, Inc.  Many of our
principal competitors have greater financial, marketing and other resources than
us.  In addition, there are a number of medium-sized firms which
compete with us in certain markets where they may have a stronger presence, such
as regional or specialized markets.
 
 We
believe that the competitive factors in obtaining and retaining customers
include understanding customers’ specific job requirements, providing qualified
temporary personnel and permanent placement candidates in a timely manner,
monitoring quality of job performance and pricing of services.  We
believe that the primary competitive factors in obtaining qualified candidates
for temporary employment assignments are wages, benefits and flexibility and
responsiveness of work schedules.
 
 Employees
 
 We have
approximately 71 full-time staff employees.  We placed approximately
11,339 employees on temporary assignments with clients during fiscal year ended
September 30, 2008.  All but approximately 7 of the employees on
temporary assignments and all but approximately 20 full time employees are
provided to us under an employee leasing arrangement with Tri-State Employment
Services, Inc., which is the statutory employer and which arranges for workers
compensation insurance coverage for the employees.  This arrangement
allows us to mitigate certain insurance risks and obtain employee benefits at
more advantageous rates.  Employees are leased from Tri-State based
upon agreed upon rates which are dependent upon the individual employee’s
compensation structure.  The agreement had an initial term of one year
which expired in January, 2007.  We are responsible for the hiring,
termination, compensation structure, management, supervision and otherwise
overall performance and day-to-day duties of the leased
employees.   We have continued the arrangement with Tri-State on
the same terms contained in the original agreement.  Either party may
terminate the arrangement at any time.   As of September 30,
2008, Tri-State owned approximately 31% of our outstanding common
stock.
  3
  
 ITEM 1A.
            RISK
      FACTORS
 
 Our
business has a limited operating history, which limits the availability of
information to evaluate the business.
 
 We
commenced our professional staffing and workforce solutions business in June
2005.  As a result, shareholders and prospective investors will have
limited operating and financial information to evaluate our historical
performance and future prospects.  We face the risks and difficulties
of an early-stage company, including uncertainties of market acceptance,
competition, cost increases and delays in achieving business
objectives.  There can be no assurance that we will succeed in
addressing any or all of these risks, and the failure to do so would have a
material adverse effect on our business, financial condition and operating
results.
  If
we fail to execute our acquisitions or investments, our business could
suffer.
  We have
supplemented our internal growth through acquisitions and may do so in the
future through acquisitions, investments or joint ventures.  We
evaluate potential acquisitions, investments and joint ventures on an ongoing
basis.  Our acquisitions and investments pose many risks,
including:
  ●
            We
      may not be able to compete successfully for available acquisition
      candidates, complete future acquisitions or investments or accurately
      estimate their financial effect on our
business;
  ●
            Future
      acquisitions, investments or joint ventures may require us to issue
      additional common stock, spend significant cash amounts or decrease our
      operating income;
  ●
            We
      may have trouble integrating the acquired business and retaining its
      personnel;
  ●
            Acquisitions,
      investments or joint ventures may disrupt business and distract management
      from other responsibilities; and
  ●
            If
      our acquisitions or investments fail, our business could be
      harmed.
  ●
            Completing
      such acquisitions will be limited by our ability to negotiate purchase
      terms and/or obtain third party financing on terms acceptable to us, given
      our current working capital deficit, as discussed below, and our current
      inability to finance such acquisitions through current cash
      flows.  There can be no assurance that we will be able to
      negotiate such acceptable purchase terms or third party
      financing.
  We
may acquire additional companies, which may result in adverse effects on our
earnings.
  We may at
times become involved in discussions with potential acquisition
candidates.  Any acquisition that we may consummate may have an
adverse effect on our liquidity and earnings and may be dilutive to our
earnings.  In the event that we consummate an acquisition or obtain
additional capital through the sale of debt or equity to finance an acquisition,
shareholders may experience dilution in their equity.  We previously
obtained growth through acquisitions of other companies and
businesses.  Under Statements of Financial Accounting Standards
No.141, Business Combinations (SFAS No.141) and No. 142 Goodwill and Other
Intangible Assets (SFAS No. 142) implemented in June 2001, we are required to
periodically review goodwill and indefinite life intangible assets for possible
impairment.  In the event that we are required to write down the value
of any assets under these pronouncements, it may materially and adversely affect
our earnings.
  Our
management may be unable to effectively integrate acquisitions and to manage
growth, and may be unable to fully realize any anticipated benefits of these
acquisitions.
  Our
business strategy includes growth through both acquisitions and internal
development.  We are subject to various risks associated with our
growth strategy, including the risk that we will be unable to identify and
recruit suitable acquisition candidates in the future or to integrate and manage
the acquired companies.  Acquired companies’ histories, geographical
locations, business models and business cultures can be different from ours in
many respects.  Senior management may face significant challenges in
our efforts to integrate our businesses and the business of the acquired
companies or assets, and to effectively manage continued
growth.  There can be no assurance that efforts to integrate the
operations of any acquired assets or companies acquired in the future will be
successful, that we can manage its growth or that the anticipated benefits of
these proposed acquisitions will be fully realized.  The dedication of
management resources to these efforts may detract attention from day-to-day
business.  There can be no assurance that there will not be
substantial costs associated with these activities or of the success of the
integration efforts, either of which could have a material adverse effect on our
operating results.
   4
  We
may be subject to successor liability as a result of acquisitions we have
made.
  The
growth of our business has been partially a result of acquisitions we made in
fiscal 2006 and 2007, including our acquisition of three general staffing
offices from Stratus Services Group, Inc., five general staffing offices from
U.S. Temp Services, Inc. and three general staffing offices of ReStaff Services,
Inc.  Although we have endeavored to structure these transactions to
minimize exposure to unassumed liabilities, it is possible that under common law
and certain statutes that creditors of the entities that sold us these
operations could attempt to assert that we have successor liability for
obligations of the sellers.  Even if any such claim was unsuccessful,
it could be costly to defend and have an adverse effect on our financial
condition and results of operations.
  Our
ultimate liability for unremitted payroll taxes may materially exceed our
currently recorded estimated liability.
  We have
been notified by the IRS and certain state taxing authorities that a subsidiary
which ceased operating at the end of 2004 has accumulated liabilities for
unremitted payroll taxes related to the calendar year
2004.  Consequently we have recorded a liability of $700,000
representing the amount management believes will ultimately be payable for this
liability based upon our knowledge of current events and
circumstances.  However, there can be no assurance that future events
and circumstances will not result in an ultimate liability, including penalties
and interest, materially in excess of our current estimate.
  We
may be exposed to employment-related claims and costs that could materially
adversely affect our business.
  Due to
the nature of our business of placing workers in the workplace of other
businesses on a temporary or permanent basis we are subject to a large number of
laws and regulations relating to employment.  The risks related to
engaging in such business include but are not limited to:
  ●
            claims
      of discrimination and harassment,
  ●
            violations
      of wage and hour laws,
  ●
            criminal
      activity,
  ●
            claims
      relating to actions by customers including property damage and personal
      injury, misuse of proprietary information and misappropriation of assets,
      and
  ●
            immigration
      related claims.
  In
addition, some or all of these claims may give rise to litigation, which could
be time-consuming to our management, and therefore, could have a negative effect
on our business.  In some instances, we have agreed to indemnify our
customers against some or all of these types of liabilities.  We have
policies and guidelines in place to help reduce our exposure to these risks and
have purchased insurance policies against certain risks in amounts that we
currently believe to be adequate.  However, there can be no assurance
that our insurance will be sufficient in amount or scope to cover these types of
liabilities or that we will be able to secure insurance coverage for such risks
on affordable terms.  Furthermore, there can be no assurance that we
will not experience these issues in the future or that they will not have a
material adverse effect on our business.
  Should
our arrangement with Tri-State terminate we cannot be assured that we would be
able to secure a comparable employee leasing provider or workers compensation
insurance on affordable terms.
  We lease
the majority of our workers from Tri-State Employment Services, Inc., a
professional employment organization and major shareholder of our
company.  We lease employees in order to mitigate certain insurance
risks and obtain greater employee benefits at more advantages rates via
Tri-State’s much larger scale.  Through this agreement with Tri-State,
Tri-State is the statutory employer, whereas we are responsible for the hiring,
termination, compensation structure, management, supervision and otherwise
overall performance and day to day duties of all employees.  Employees
are leased from Tri-State based upon agreed upon rates which are dependent upon
the individual employee’s compensation structure, as agreed to between us and
the employee.  Should our arrangement with Tri-State terminate we
cannot be assured that we would be able to secure a comparable leasing provider
at agreeable rates.  Should we be unsuccessful at finding a comparable
employee leasing provider we cannot be assured that we would be able to secure
required workers compensation insurance on affordable terms.  The
failure to obtain a comparable employee leasing provider or workers compensation
insurance at affordable rates would possibly require significant working capital
requirements which are not currently necessary.  In addition, there
can be no assurance that we will be successful at passing these increased costs
to our clients which may reduce our profit margins.
   5
  We
bear the risk of nonpayment from our clients and the possible effects of
bankruptcy filings by clients.
  To the
extent that any particular client experiences financial difficulty, or is
otherwise unable to meet its obligations as they become due, our financial
condition and results of operations could be adversely affected.  For
work performed prior to the termination of a client agreement, we are obligated
to pay the agreed upon fees to our employees leasing provider Tri-State, whether
or not our client pays us on a timely basis, or at all.  A significant
increase in uncollected account receivables may have a material adverse effect
on our earnings and financial condition.
  Our
failure to remain competitive could harm our business.
  Our
business is highly competitive.  We compete with larger companies that
have greater name recognition, financial resources and larger
staffs.  We also compete with smaller, more specialized entities that
are able to concentrate their resources on particular areas. To remain
competitive, we must provide superior service and performance on a
cost-effective basis to customers.  Any failure to do so could have a
material adverse effect on our business.
   Any
significant economic downturn could result in our customers using fewer staffing
and consulting services, which could materially adversely affect our
business.
  Demand
for staffing and consulting services is significantly affected by the general
level of economic activity.  As economic activity slows, many
customers reduce their utilization of temporary employees before undertaking
layoffs of their regular full-time employees.  Further, demand for
permanent placement services also slows as the labor pool directly available to
our customers increases, making it easier for them to identify new employees
directly.  Typically, we may experience increased pricing pressures
from competitors during periods of economic downturn, which could have a
material adverse effect on our financial condition.  Additionally, in
geographic areas where we derive a significant amount of business, a regional or
localized economic downturn could adversely affect our operating results and
financial position.
   The
loss of any key personnel could harm our business.
  Our
future financial performance is significantly impacted by our ability to
attract, motivate and retain key management personnel.  Competition
for qualified management personnel is very competitive and in the event that we
experience turnover in senior management positions, we cannot assure you that we
will be able to recruit suitable replacements on a timely basis.  We
must also successfully integrate all new management and other key positions
within our organization to achieve our operating objectives.  Even if
we are successful, turnover in key management positions could temporarily harm
financial performance and results of operations until the new management becomes
familiar with our business.
   Our
success depends in large part on our ability to attract and retain qualified
temporary and permanent personnel.
  Our
success depends on our ability to provide clients with highly qualified and
experienced personnel who possess the skills and experience necessary to satisfy
their needs.  Such individuals are in great demand, particularly in
certain geographic areas, and are likely to remain a limited resource for the
foreseeable future.  Consequently, we must continuously evaluate and
upgrade our base of available qualified personnel to keep pace with changing
customer needs and emerging technologies.  Furthermore, a substantial
number of our temporary employees during any given year will terminate their
employment with us and accept regular staff employment with our
customers.   There can be no assurance that qualified candidates
will continue to be available to us in sufficient numbers and on acceptable
terms. The failure to identify, recruit, train and place candidates as well as
retain qualified temporary employees over a long period of time could materially
adversely affect our business.
   Operating
as a public company has increased costs, and our management will be required to
devote substantial time to new compliance initiatives.
  As a
result of operating as a public company, we incur significant legal, accounting
and other expenses that we did not incur as a non-reporting
company.  In addition, the Sarbanes-Oxley Act of 2002, or
Sarbanes-Oxley, as well as rules subsequently implemented by the Securities and
Exchange Commission, or the SEC, have imposed various new requirements on public
companies, including requiring changes in corporate governance
practices.  Our management and other personnel will need to devote a
substantial amount of time to these new compliance
initiatives.  Moreover, these rules and regulations will increase
legal and financial compliance costs and will make some activities more
time-consuming and costly.  For example, our management expects these
new rules and regulations to make it more difficult and more expensive to obtain
director and officer liability insurance, and our management may be required to
accept reduced policy limits and coverage.  These rules and
regulations could also make it more difficult for us to attract and retain
qualified persons to serve on our board of directors, board committees or as
executive officers.
   6
  In
addition, Sarbanes-Oxley requires, among other things, that we maintain
effective internal control over financial reporting and disclosure controls and
procedures.  In particular, beginning with our Annual Report for the
fiscal year ended September 30, 2009, we expect to be required to furnish a
report by our management on our internal control over financial
reporting.  Further, we expect that our external auditors will be
required to audit our internal control over financial reporting report and
include their attestation on that report in our annual report on Form 10-K
starting with the annual report for the 2010 fiscal year.  The process
of fully documenting and testing internal control procedures in order to satisfy
these requirements will result in increased general and administrative expenses
and may shift management time and attention from profit-generating activities to
compliance activities.  Furthermore, during the course of our internal
control testing, we may identify deficiencies which we may not be able to
remediate in time to meet the reporting deadline under Section 404.
  In order
to respond to additional regulations applicable to public companies, such as
Section 404, our management anticipates hiring additional finance and accounting
personnel in the future.  Some of these positions require candidates
with public company experience, and we may be unable to locate and hire such
individuals as quickly as needed, if at all.  In addition, new
employees will require time and training to learn a new business and operating
processes and procedures.  If the finance and accounting organization
is unable for any reason to respond adequately to the increased demands that
will result from being a public company, the quality and timeliness of financial
reporting may suffer, which could result in identification of internal control
weaknesses.  Any consequences resulting from inaccuracies or delays in
our reported financial statements could have an adverse effect on the trading
price of our common stock as well as an adverse effect on our business,
operating results, and financial condition.
  Moreover,
if we are not able to comply with the requirements of Section 404 in a timely
manner, or if we or our independent registered public accounting firm identifies
deficiencies in our internal control over financial reporting that are deemed to
be material weaknesses, the market price of our stock could decline and we could
be subject to sanctions or investigations by the NASD, the SEC or other
regulatory authorities, which would require additional financial and management
resources.
   Our
common stock is thinly traded on the OTC Bulletin Board, and we cannot give
assurance that our common stock will become liquid or that it will be listed on
a securities exchange.
  Our
common stock is quoted on the OTC Bulletin Board, which provides significantly
less liquidity than a securities exchange (such as the American or New York
Stock Exchange) or an automated quotation system (such as the NASDAQ National
Market or NASDAQ Capital Market). We cannot give assurance that we will be able
to meet the listing standards of any stock exchange, such as the American Stock
Exchange or the Nasdaq National Market, 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 affect a
reverse stock split to achieve such minimum bid prices. Our common stock is
currently quoted on the OTC Bulletin Board. Until our common stock is listed on
an exchange, we expect that it will continue to be quoted on the OTC Bulletin
Board. In this venue, however, an investor may find it difficult to obtain
accurate quotations of our common stock and may experience a lack of buyers to
purchase such stock or a lack of market makers to support the stock price. In
addition, if we fail to meet the criteria set forth in SEC regulations, various
requirements would be imposed by law on broker-dealers who sell our common stock
to persons other than established customers and accredited
investors.  Consequently, such regulations may deter broker-dealers
from recommending or selling our common stock, which may further affect its
liquidity. This would make it more difficult for us to raise additional
capital.
 
  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 balances and as of September 30,
2008 and September 30, 2007 had negative working capital of ($2,196,000) and
($3,226,000), respectively.
  We
require significant amounts of working capital to operate our business and to
pay expenses relating to employment of temporary employees.  Temporary
personnel are generally paid on a weekly basis while payments from customers are
generally received 30 to 60 days after billing.  As a result, we must
maintain sufficient cash availability to pay temporary personnel prior to
receiving payment from customers.  We finance our operations primarily
through sales of our receivables to a financial institution, issuance of debt,
including debt issued to related parties, and also through cash generated by
operating activities.
  Under the
terms of our receivable sale agreement the maximum amount of trade receivables
that can be sold is $8,000,000, for which the purchaser advances 90% of the
assigned receivables’ value upon sale, and 10% upon final
collection.  As collections reduce previously sold receivables, we may
replenish these with new receivables.  The risk we bear from bad debt
losses on trade receivables sold is retained by us and receivables sold which
become greater than 90 days old can be charged back to us by the
purchaser.  Any such increase in trade receivables older than 90 days
and charged back would decrease amounts available for working capital purposes
and could have an adverse effect on liquidity and financial
condition.
   7
  As of
September 30, 2008, we owed $458,000 under promissory notes that are past due or
which are due upon demand, $258,000 of which is due to related
parties.
  We have,
in the past, been required to aggressively manage our cash to ensure adequate
funds to meet working capital requirements and to service debt. Such steps
included working to improve collections and adjusting the timing of cash
expenditures, reducing operating expenses where feasible and working to generate
cash from a variety of other sources.
  We have
historically experienced periods of negative cash flow from operations and
investment activities.  Any such increase or sustained negative cash
flows would decrease amounts available for working capital purposes and could
have an adverse effect on our liquidity and financial condition.
  There is
no assurance that we will generate the necessary net income or operating cash
flows to meet the funding needs of our business in the future due to a variety
of factors, including the cyclical nature of the staffing and professional
services industry and the other factors discussed in this “Risk Factors”
section.  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, reducing the size of our
administrative work force), curtailing or reducing planned capital additions,
raising additional equity, borrowing additional funds, refinancing existing
indebtedness or taking other actions.   There can be no
assurance, however, that we will be able to successfully take any of these
actions, including adjusting expenses sufficiently or in a timely manner, or
raising additional equity, increasing borrowings or completing refinancing on
any terms or on terms that are acceptable to us.  Our inability to
take these actions as and when necessary would materially adversely affect our
liquidity, results of operations and financial condition.
  We
have historically been, and may continue to be, heavily reliant upon financing
from related parties which presents potential conflicts of
interest.
  We have
historically obtained financing from related parties including major
shareholders, directors and officers, in the form of both debt and equity
securities issued to finance working capital growth and
acquisitions.  These related parties have the ability to exercise
significant control over the financing decisions of the Company, which may
present conflicts of interest regarding the choice of parties to obtain
financing from, as well as the terms of financing instruments that we enter into
with them, and as a result, no assurance can be given that the terms of
financing transactions with related parties are or will be as favorable as those
that could be obtained in arms-length negotiations with third
parties.
  Stockholders
may experience future dilution in ownership due to possible future equity
issuances, the exercise of outstanding warrants, the conversion of existing
convertible debt securities, and the conversion of existing debt to equity in
connection with certain restructuring activities.
  As of
September 30, 2008, we have outstanding convertible debt securities representing
a maximum number of common shares issuable upon conversion of 541,000, and
outstanding warrants to acquire 166,000 shares of common stock.  We
are also in negotiations to further reduce our debt through restructurings which
may include further conversions of outstanding debt to equity, and are also in
discussions to obtain further financing, which may include the issuance of
additional equity.  Additional issuances of common stock will subject
our stockholders to dilution and reduce their percentage interest in our
company.
  ITEM 1B.
            UNRESOLVED
      STAFF COMMENTS
 
 Not
Applicable
 
 ITEM 2.
            PROPERTIES
 
 Our
headquarters are located in Manalapan, New Jersey, under a lease for 8,080
square feet of office space which expires in December 2014.  As of
September 30, 2008, placement activities were conducted through more than 13
offices located in the United States.  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.
  8
  
 ITEM 3.
            LEGAL
      PROCEEDINGS
 
 In 2005,
we acquired the outstanding receivables and customer lists 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 (“SUI”) rate
purposes.  Nucon’s SUI rate was higher than ours at the time of the
acquisition.  The State of Connecticut is claiming additional SUI
expense based on this higher rate and has assessed a higher experience rate on
current wages, which may be reduced upon audit.  Management believes
that it has properly calculated its unemployment insurance tax and is in
compliance with all applicable laws and regulations.  We have appealed
the ruling and are awaiting a determination, but intend to vigorously defend our
position that the Company is not the predecessor employer.  Management
estimates the range of possible loss between $0 and $103,000.
 
 ALS, LLC
(“ALS”) instituted an action against us, US Temps, Inc. and a major shareholder
of our company in the United States District Court, District of New Jersey in
May 2007 in which it alleged that we tortiously interfered with ALS’ business
relationship with US Temps by causing US Temps to terminate its relationship
with ALS under an agreement pursuant to which ALS provided employee outsourcing
services to US Temps prior to our acquisition of certain assets from US
Temps.  ALS also alleged that we had liability as a successor to US
Temps for US Temps’ alleged breach of the outsourcing agreement.  In
October 2008, a settlement was reached with ALS whereby we have agreed to
pay $60,000 in twelve equal monthly installments of $5,000 beginning on October
1, 2008.
 
 In the
ordinary course of business, we are, from time to time, threatened with
litigation or named as a defendant in other lawsuits.  We are not
aware of any other pending legal proceedings that are likely to have a material
adverse impact on us.
 
 ITEM 4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  During
the fourth quarter of fiscal 2008, no matter was submitted to a vote of security
holders through the solicitation of proxies or otherwise.
 
  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 has traded on the Over-the-Counter (“OTC”) Bulletin Board under the
symbol “ACBT” since June 12, 2008.  Prior to that date, our common
stock was traded on the “Pink Sheets”.  The following table shows, for
the periods indicated, the reported high and low sale prices for shares of our
common stock as reported in the OTC or “Pink Sheets”, as applicable, for the
fiscal quarters indicated.  As of December 9, 2008, there were
approximately 313 record holders of our common stock.
 
 Low
            
            
            HighFiscal Year Ended
      September 30, 2007First
      Quarter
            
            $
            .20
            
            
            $
            .45Second
      Quarter
            
            
            .30
            
            
            
            .78Third
      Quarter
            
            
            .41
            
            
            
            .70Fourth
      Quarter
            
            
            .32
            
            
            
            .70Fiscal Year Ending
      September 30, 2008First
      Quarter
            
            
            .31
            
            
            
            .35Second
      Quarter
            
            
            .32
            
            
            
            .50Third
      Quarter
            
            
            .22
            
            
            
            .48Fourth
      Quarter
            
            
            .18
            
            
            
            .52
 
 Dividend
Policy
 
 We have
not declared or paid any cash dividends on our common stock during the periods
presented, and we do not anticipate doing so in the foreseeable
future.  We currently intend to retain future earnings, if any, to
operate our business and finance future growth strategies.
 
 Issuances
of Unregistered Securities
 
 None
during the fourth fiscal quarter of 2008.
  10
  
 ITEM 6.
            SELECTED
      FINANCIAL DATA.
 
 We are
providing the following selected financial data, which as been derived from
financial statements which have been audited by Miller, Ellin & Company,
LLP, independent public accountants.  The statement of operations data
for the period from June 9, 2005 (Date of Inception) to September 30, 2005 and
the balance sheet data at September 30, 2006 and 2005 were derived from our
audited financial statements that are not included in this Report on Form
10-K.  The statements of operations data for the  years
ended September 30, 2008, 2007 and 2006 and the balance sheet data at September
30, 2008 and 2007 were derived from our audited financial statements that are
included elsewhere in this Report on Form 10-K.   The following
information should be read in conjunction with our “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our financial
statements and related notes included elsewhere in this Form 10-K.
 
 Statements
of Operations Data
 
 Year
      Ended September 30,
            
            
            For
      the period from June 9, 2005 (Date of Inception) to September
      30,2008
            
            
            2007
            
            
            2006
            
            
            2005Revenues
            
            $
            66,608,000
            
            
            $
            57,581,000
            
            
            $
            34,088,000
            
            
            
            --Income
      (loss) from operations
            
            $
            399,000
            
            
            $
            711,000
            
            
            $
            (514,000
            )
            
            $
            (91,000
            )Net
      loss
            
            $
            (683,000
            )
            
            $
            (184,000
            )
            
            $
            (1,012,000
            )
            
            $
            (91,000
            )Basic
      and diluted net loss per share
            
            $
            (0.03
            )
            
            $
            (0.01
            )
            
            $
            (0.12
            )
            
            $
            (0.03
            )Shares
      used in basic per share calculations
            
            
            19,903,000
            
            
            
            15,515,000
            
            
            
            8,792,000
            
            
            
            2,960,000Shares
      used in diluted per share calculations
            
            
            19,903,000
            
            
            
            15,515,000
            
            
            
            8,792,000
            
            
            
            2,960,000
 
 
 Balance
Sheet Data
 
 As
      of September 30,2008
            
            
            2007
            
            
            2006
            
            
            2005Total
      assets
            
            $
            7,789,000
            
            
            $
            8,819,000
            
            
            $
            4,073,000
            
            
            $
            2,000Long-term
      debt, including current portion
            
            $
            2,817,000
            
            
            $
            5,228,000
            
            
            $
            1,614,000
            
            
            $
            --Total
      stockholders’ equity (deficit)
            
            $
            1,268,000
            
            
            $
            450,000
            
            
            $
            (460,000
            )
            
            $
            (1,856,000
            )
 
  11
  
 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 Report on Form
10-K, particularly in “Risk Factors”.
 
 Description
of the Company
 
 Our
objective is to provide both niche professional services as well as general
staffing services to the business community.  Niche professional
services include project management, interim contract, consulting and executive
search, in the areas of accounting, information technology, engineering,
biotechnology and biopharmaceutical.  General temporary staffing
services are provided to a variety of clientele in the areas of clerical and
light industrial services.  As of September 30, 2008, we provide these
services in key markets across the United States, through the operation of 14
offices in 11 states and through cooperative sales and marketing arrangements
with nine different regional public accounting firms through our Partner on
Premise Program.  A more detailed description of our service offerings
is as follows:
 
 ●
            CPA Partner on Premise
      Program
 Through
our Partner on Premise Program, we have agreements with leading regional public
accounting firms to function as our sales and marketing presence in pre-defined
markets.  These public accounting firms offer to provide our
non-attest related finance and accounting services to their current client base
as well as any other client in the pre-defined market area.  This
relationship provides us with the ability to provide our professional accounting
and finance services immediately to an established client base in that market,
and to co-brand, utilizing the recognized name of the public accounting firm as
well as ours in the solicitation of new clients, while the public accounting
firm derives both an additional source of revenue as well as the ability to
provide these additional services to their clients.  As of September
30, 2008 we have agreements with nine different regional public accounting
firms, which to date through September 30, 2008 have historically generated less
than 10% of our total revenues.  While the CPA Firm acts as a
marketing and sales arm for us and provides access to their client base, we
retain control of the clients, employees, systems and processes.  We
provide, among other things, industry expertise, business plans, market
analysis, management and technical services, back office support, including
enterprise-wide financial, accounting and human resources systems, personnel and
assistance in training to our CPA Partners.  As compensation, the CPA
firm receives a commission equal to the profits calculated by us, less 10% of
the revenues which is retained by us.
  ●
            Direct Professional
      Services
 Our
Direct Professional Services include Staff Augmentation and Consulting
Services.  Staff Augmentation services include executive search,
interim contract and project management in the areas of Accounting and Finance,
IT/Technology, Engineering, Biotechnology and
Biopharmaceutical.  Consulting services include accounting and finance
consulting services in the areas of Sarbanes-Oxley compliance, mergers and
acquisitions, corporate reorganizations, information systems and tax related
matters.  We provide these services directly through the operations of
our two wholly-owned offices and national network of
consultants.  Management’s intention is to continue to expand on the
provision of direct professional services which typically produce gross margins
averaging between 30% to 50% at the job level versus those of general temporary
staffing, such as in our Staffing Abilities service offering, which typically
average between 10% to 20% at the job level.  Direct professional
services to be emphasized include those in the fields of accounting and
information technology, which we have begun marketing through our CPA Partner on
Premise Program affiliated CPA firms, as well as marketing directly to
clients.  Additionally, management intends to explore cross-selling
opportunities with our Staffing Abilities clients.  Through September
30, 2008 direct professional services have historically constituted less than
20% of our revenues.
 
 ●
            Staffing
      Abilities
 We
provide general temporary staffing in the areas of light industrial services and
administrative support to a diverse range of clients ranging from sole
proprietorships to Fortune 500 companies.  Light industrial includes
assignments for warehouse work, manufacturing work, general factory 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.  The Staffing Abilities business has grown largely through
the acquisition of established offices from general staffing companies, such as
those from Stratus Services Group, Inc., US Temp Services, Inc and ReStaff
Services, Inc. as explained in more detail elsewhere in this
document.  Through September 30, 2008, the Staffing Abilities service
offering has historically constituted approximately 80% of our
revenues.  The Staffing Abilities service offerings have provided us
with a predictable source of revenues to aid in supporting the growth of our CPA
Partner on Premises Program and Direct Professional Service offerings, and
functions as a potential client base from which to cross-sell higher margin
professional services.  Although management currently intends to
emphasize the growth of higher margin direct professional services,
management currently intends to continue to provide our Staffing Abilities
services for the foreseeable future, and to continue to explore ways to
profitably grow our Staffing Abilities business.
  12
  We also augment revenues from the above lines of business with the
following:
 
 ●
            National
      Recruiting Center – Through our national recruiting center, we receive and
      complete job orders for candidates for any market in the
      U.S.  Through this center, we also obtain overflow orders from
      our CPA firm affiliates and orders outside of their designated area,
      splitting the fees 50/50, thereby further capitalizing on our CPA
      relationships, but at higher margins than those derived through our
      Partner on Premise agreements.
 
 ●
            Job
      Board – Through our job board AccountingEmployees.com, we are able to
      capitalize on one of the fastest growing segments of the staffing
      industry.  CPA members post jobs for free while all other
      postings are fee based.
 
 The
contribution of each service offering to net income is primarily dependent on
the respective gross margin provided by each offering, which is described
above.  The Staffing Abilities Service offerings, although producing
lower margins, currently comprise the largest component of our revenue at
approximately 80%, and consequently the largest component of our gross
profit.  Additionally, these service offerings are more mature and we
are not currently incurring significant amounts of up front expenses or capital
expenditure towards future growth as we are to develop our other service
offerings.  In our CPA Partner on Premise and Direct Professional
Services offerings, which together comprise approximately 20% of our revenue, we
have incurred and expect to continue to incur for the foreseeable future, up
front expenditures in senior management, consultants and other client service
associates, development of processes and procedures, and marketing expenditures
in order to build the necessary infrastructure and brand awareness in
anticipation of future revenue growth from these service offerings.
 
 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, such as our CPA Partner on
Premise Program, and through the successful completion and integration of
acquisitions.  Our ability to sustain profitability will also be
affected by the extent to which we must incur additional expenses to expand our
sales, marketing, and general and administrative capabilities to expand our
business.  The largest component of our operating expenses is
personnel costs.  Personnel costs consist of salaries, benefits and
incentive compensation, including bonuses and stock-based compensation, for our
employees.  Management expects our operating expenses will continue to
grow in absolute dollars, assuming our revenues continue to grow.  As
a percentage of revenue, we expect these expenses to decrease, although we have
no assurance that they will.
 
 The
following are material trends that are creating opportunities and risks to our
business, and a discussion of how management is responding.
 
 ●
            Management
      believes that the CPA Partner on Premise sales and marketing agreements
      represent a significant marketing differentiator to our current and
      potential clients in that the services are associated with the trusted
      name of known regional public accounting firms, and represent an important
      part of our strategy of growing our Direct Professional Services
      offering.  In recognition of this, we are continuing to invest
      in efforts to support the identification and procurement of additional CPA
      firm affiliates nationwide, as well as investing in the continued
      improvement and refinement of our operations and general and
      administrative activities to support our current relationships going
      forward.
 
 ●
            A
      significant component of our growth to date has come through
      acquisitions.  Management continues to invest resources in
      activities to seek, complete and integrate acquisitions that enhance
      current service offerings and effectively assimilate into our CPA Partner
      on Premise marketing and sales strategy.  Additionally,
      management seeks acquisitions in desired geographical markets and which
      have minimal costs and risks associated with
      integration.  Management believes that effectively acquiring
      businesses with these attributes will be critical to carrying out our
      strategy of capitalizing on the CPA Partner on Premise Program and other
      sales and marketing initiatives.
 
 ●
            Our
      success depends on our ability to provide our 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.  Management is
      responding to this demand through proactive recruiting efforts, targeted
      marketing, the use of our job board, AccountingEmployees.com, and the
      continued expansion of the CPA Partner on Premise Program which management
      believes is also an attractive differentiator to prospective
      candidates.
 
 ●
            We
      have financed our growth largely through the issuance of debt and have
      incurred negative working capital.  As of September 30, 2008 we
      had negative working capital of ($2,196,000), for which the component
      constituting the current portion of long-term debt was
      $1,366,000.  Total outstanding debt as of September 30, 2008 was
      $2,817,000, $458,000 of
      which is past due or due upon demand, whereas $1,631,000 of which is
      subject to proportionate reduction in the event the associated acquired
      businesses for which the debt was issued do not produce agreed upon levels
      of profitability.  In order to service our debt, maintain our
      current level of operations, as well as fund the increased costs of
      becoming a reporting company and our growth initiatives, we must be able
      to generate sufficient amounts of cash flow and working
      capital.  Management is engaged in several activities, as
      explained further in “Working Capital” below, to effectively accomplish
      these objectives.
  13
  
 ●
            As
      a result of becoming a fully reporting public company, we will experience
      increases in certain general and administrative expenses to comply with
      the laws and regulations applicable to public companies. These laws and
      regulations include the provisions of the Sarbanes-Oxley Act of 2002 and
      the rules of the Securities and Exchange Commission and the Nasdaq Stock
      Market.  To comply with the corporate governance and operating
      requirements of being a public company, we will incur increases in such
      items as personnel costs, professional services fees, and fees for
      independent directors.
 
 Mergers
and Acquisitions
 
 One of
our key strategies is to focus on mergers and acquisitions of companies that
either complement our existing service offerings, expand our geographic presence
and/or further expand and strengthen our existing infrastructure.
 
 In fiscal
2006 we consummated the following two material acquisitions:
 
 ●
            Stratus Services Group, Inc.
      Offices Acquisition (“Stratus Acquisition”).In November
      2005, we acquired the operations of three general staffing offices from
      Stratus Services Group, Inc. in exchange for certain future earn-out
      payments.
 
 ●
            US Temp Services, Inc. Offices
      Acquisition (“US Temp Acquisition”).On March 31, 2006,
      we acquired the operations, including five general staffing offices, of US
      Temp Services, Inc. in exchange for cash, notes and shares of our common
      stock.
 
 In fiscal
2007 we consummated the following material acquisition:
 
 ●
            ReStaff Services, Inc. Offices
      Acquisition (“ReStaff Acquisition”).On February 26,
      2007, we acquired the operations, including three general staffing
      offices, of ReStaff Services, Inc. in exchange for, cash, notes and shares
      of our common stock.
 
 All of
our acquisitions have been accounted for as purchases and the results of
operations of the acquired operations have been included in our results since
the dates of acquisition.
 
 As
mentioned above, management continues to invest resources in activities to seek,
complete and integrate acquisitions that enhance our current service offerings
and effectively assimilate into our marketing and sales
strategies.  Completing such acquisitions, however, will likely be
limited by our ability to negotiate purchase terms and/or obtain third party
financing on terms acceptable to us, given our current working capital deficit,
as discussed below.  Given these limitations, management is currently
focusing on acquisitions for which the purchase price can be structured with
emphasis on equity consideration and earnings based contingent
payments.  Currently, management expects acquisitions to continue to
constitute a significant portion of our future growth, if any, and is
emphasizing acquisitions in the areas of professional accounting temporary and
consulting services, with a secondary emphasis on information technology
temporary consulting services.  Management believes that acquisitions
of these types of businesses will experience greater growth potential when
combined with our CPA Partner on Premise Program and existing infrastructure,
than when operated independently.  Should we be successful at
acquiring businesses with the appropriate characteristics, upon terms acceptable
to us, and successfully integrate such acquired businesses into our operations,
management expects acquisitions to contribute significantly toward the growth in
our professional service offerings resulting in a greater proportion of our
revenue over time compared to our Staffing Abilities general staffing service
offerings.
 
 Critical
Accounting Policies
 
 The
following discussion and analysis of the financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States
and the rules of the Securities and Exchange Commission.  As a result
of the dispositions of all operations associated with the Humana Businesses,
which were conducted in separate subsidiaries, and the subsequent formation and
startup of Accountabilities, Inc., the financial statements have been prepared
based upon a change in reporting entity wherein only the accounts and related
activity beginning with the Date of Inception have been included, and all
accounts and related operating activity of the discontinued Humana Businesses
have been excluded, in order to reflect this reorganization of the
Company.  The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.
  14
   The
following represents a summary of the critical accounting policies, which
management believes are the most important to the portrayal of the financial
condition and results of operations and involve inherently uncertain issues that
require management’s most difficult, subjective or complex
judgments.
 
 Revenue
Recognition.  We recognize staffing and consulting revenues
when professionals deliver services.  Permanent placement revenue is
recognized when the candidate commences employment, net of an allowance for
those not expected to remain with clients through a 90-day guarantee period,
wherein we are obligated to find a suitable replacement.
 
 Allowance for Doubtful
Accounts.  We maintain an allowance for doubtful accounts for
estimated losses resulting from our clients failing to make required payments
for services rendered.  Management estimates this allowance based upon
knowledge of the financial condition of our clients, review of historical
receivable and reserve trends and other pertinent information.  If the
financial condition of any of our clients deteriorates or there is an
unfavorable trend in aggregate receivable collections, additional allowances may
be required.
 
 Stock-Based
Compensation.We calculate stock-based compensation expense in
accordance with SFAS No. 123 Revised, “Share-Based Payment” (“SFAS
123(R)”).  This pronouncement requires the measurement and recognition
of compensation expense for all share-based payment awards made to employees and
directors including employee stock options, stock appreciation rights and
restricted stock awards to be based on estimated fair values.  Fair
value for restricted stock is determined as a discount from the current market
price quote to reflect a) lack of liquidity resulting from the restricted status
and low trading volume and b) recent private placement
valuations.  Under SFAS 123(R), the value of the portion of the award
that is ultimately expected to vest is recognized as an expense over the
requisite service periods.  We recognize stock-based compensation
expense on a straight-line basis.
 
 Income Taxes.  We
account for income taxes in accordance with SFAS 109, “Accounting for Income
Taxes”.  Under SFAS 109, deferred income taxes are recognized for the
estimated tax consequences in future years of differences between the tax basis
of assets and liabilities and their financial reporting amounts at each year-end
based on enacted tax laws and statutory rates applicable to the periods in which
the differences are expected to affect taxable income.  If necessary,
valuation allowances are established to reduce deferred tax assets to the amount
expected to be realized when, in management’s opinion; it is more likely than
not that some portion of the deferred tax assets will not be
realized.  The estimated provision for income taxes represents current
taxes that would be payable net of the change during the period in deferred tax
assets and liabilities.
 
 Intangible
Assets.  In accordance with SFAS No. 142, “Goodwill and Other
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.  We performed our annual impairment analysis as of June 30,
2008 and will continue to test for impairment annually.  No impairment
was indicated as of June 30, 2008.  Other intangible assets with
finite lives are subject to amortization, and impairment reviews are performed
in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets.”
 
 Recent
Accounting Pronouncements
 
 In June,
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position No. EITF 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities” (“FSP EITF
03-6-1”).  FSP EITF 03-6-1 establishes that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities as defined in
Emerging Issues Task Force (“EITF”) Issue No. 03-6, “Participating Securities
and the Two-Class Method under FASB Statement No. 128”, and should be included
in the computation of earnings per share pursuant to the two-class method as
described in Statement of Financial Accounting Standards No. 128, Earnings per
Share”.  FSP EITF 03-6-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those years.  All prior-period earnings per share data presented shall
be adjusted retrospectively to conform to the provisions of FSP EITF
03-6-1.  Early application is not permitted.  We do not
expect the adoption of FSP EITF 03-6-1 to have a material impact on our
consolidated financial position or results of operations.
  In June
2008 the FASB issued EITF 07-5, “Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entity’s Own Stock”.  EITF 07-5 provides guidance
in assessing whether an equity-linked financial instrument (or embedded feature)
is indexed to an entity’s own stock for purposes of determining whether the
appropriate accounting treatment falls under the scope of SFAS 133, “Accounting
For Derivative Instruments and Hedging Activities” and/or EITF 00-19,
“Accounting For Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock”.  EITF 07-05 is effective as of the
beginning of our 2010 fiscal year.  We do not expect the adoption of EITF
07-05 to have a material impact on our consolidated financial position or
results of operations.
  In
December 2007, the FASB issued SFAS 141(revised 2007), “Business Combinations”
(“SFAS 141(R)”). This standard significantly changes the accounting and
reporting of business combinations in consolidated financial
statements.  Among other things,
SFAS 141R requires the acquiring entity in a business combination to recognize
the full fair value of assets acquired and liabilities assumed at the
acquisition date and requires the expensing of most transaction and
restructuring costs.  The standard is effective for us beginning
October 1, 2009 and is applicable only to transactions occurring after the
effective date.
  15
   In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities-Including an Amendment of FAS 115”
(“SFAS 159”), which permits companies to measure certain financial assets and
financial liabilities at fair value.  Under SFAS 159, companies that
elect the fair value option will report unrealized gains and losses in earnings
at each subsequent reporting date.  The fair value option may be
elected on an instrument-by-instrument basis.  SFAS 159 establishes
presentation and disclosure requirements to clarify the effect of a company’s
election on its earnings but does not eliminate disclosure requirements of other
accounting standards.  Assets and liabilities that are measured at
fair value must be displayed on the face of the balance sheet.  SFAS
159 is effective as of the beginning of our 2009 fiscal year.  We do
not expect the adoption of SFAS 159 to have a material impact on our
consolidated financial position or results of operations.
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements” (“SFAS 157”). This new standard provides guidance
for using fair value to measure assets and liabilities and information about the
extent to which companies’ measure assets and liabilities at fair value, the
information used to measure fair value, and the effect of fair value
measurements on earnings. This framework is intended to provide increased
consistency in how fair value determinations are made under various existing
accounting standards which permit, or in some cases require, estimates of fair
market value. SFAS 157 also expands financial statement disclosure requirements
about a company’s use of fair value measurements, including the effect of such
measures on earnings. SFAS 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. However, the
FASB staff has approved a one year deferral for the implementation of SFAS 157
for non-financial assets and liabilities, except for items that are recognized
or disclosed at fair value in the financial statements on a recurring basis.
Non-financial assets and liabilities for which we have not applied the
provisions of SFAS 157 include those measured at fair value in goodwill
impairment testing and asset impairments under SFAS 144. We have adopted this
statement for financial assets and liabilities effective October 1, 2008 and
will adopt this statement for non-financial assets and liabilities effective
October 1, 2009.  The Company does not expect there will be a material
impact from adoption of this standard on our consolidated financial statements,
although we may need to include additional disclosures in the financial
statement footnotes.
 
 Results
of Operations
 
 Fiscal
year ended September 30, 2008 compared to fiscal year ended September 30,
2007
 
 Revenues
 
 For
fiscal 2008, revenue increased $9,027,000, or 16%, to $66,608,000 as compared to
$57,581,000 in fiscal 2007.  This increase in revenue is attributable
to a full year of operations of the ReStaff Acquisition as opposed to seven
months in the prior year, which accounted for approximately $4,867,000 of the
increase.   Excluding the ReStaff Acquisition, revenue increased
$4,160,000.  This increase was primarily attributable to an increase
in revenues provided by the offices acquired in the Stratus and US Temps
Acquisitions of $2,110,000 and $78,000, respectively, an increase in revenues
from our Direct Professional Services offering of $1,140,000 as well as a growth
in revenues from the Partner on Premise program of $564,000 as compared to
fiscal 2007.
 
 For
fiscal 2008, our professional service offerings provided revenues of
approximately $9,656,000 or 14% of total revenues versus approximately
$8,500,000 or 15% of total revenues in fiscal 2007, with the 2008 decrease as a
percentage of revenues being due to the February 2007 ReStaff Acquisition’s
relatively larger contribution to both total 2008 revenues and Staffing
Abilities revenues.
 
 For
fiscal 2008 the CPA Partner on Premise Program provided revenues of
approximately $3,488,000 or 5% of total revenues, versus approximately
$2,900,000, or 5% of total revenues in fiscal 2007.
 
 During
fiscal 2008, the operations acquired pursuant to the Stratus Acquisition, US
Temp Acquisition and ReStaff Acquisition provided revenues of approximately
$19,953,000, $17,991,000 and $15,157,000, respectively.  During fiscal
2007, the operations acquired pursuant to the Stratus Acquisition, US Temp
Acquisition and ReStaff Acquisition provided revenues of approximately
$17,843,000, $17,913,000 and $10,290,000, respectively.
 
 Direct
cost of services
 
 We lease
the majority of our workers from Tri-State Employment Services, Inc.
(“Tri-State”), a professional employment organization and major
shareholder.  We lease employees in order to mitigate certain
insurance risks and obtain greater employee benefits at more advantageous rates
via Tri-State’s much larger scale.  Through this agreement with
Tri-State, Tri-State is the statutory employer, whereas we are responsible for
the hiring, termination, compensation structure, management, supervision and
otherwise overall performance and day to day duties of all
employees.  Employees are leased from Tri-State based upon agreed upon
rates which are dependent
upon the individual employee’s compensation structure, as agreed to between us
and the employee.  Direct cost of services consists mainly of leased
employee direct labor costs, as well as costs of non-leased employees where we
are the statutory employer, and other labor related costs.
  16
   For
fiscal 2008, direct cost of services increased $8,000,000, or 17%, to
$56,061,000 as compared to $48,061,000 in fiscal 2007. This increase is
attributable to a full year of operations of the ReStaff Acquisition as opposed
to seven months in the prior year, which accounted for approximately $4,369,000
of the increase.  Excluding the ReStaff Acquisition, direct cost of
services increased $3,631,000.  This increase was primarily
attributable to the increase in business provided by the offices acquired in the
Stratus and US Temps Acquisitions of $2,052,000 and $26,000, respectively,
growth of our Direct Professional Services offering of $1,272,000 and growth of
the Partner on Premise program of $306,000 as compared to fiscal
2007.
 
 Gross
profit
 
 For
fiscal 2008 gross profit increased $1,027,000 or 11%, to $10,547,000, as
compared to $9,520,000 in fiscal 2007.  As a percentage of revenue,
gross profit for fiscal 2008 decreased to 15.8% as compared to 16.5% in the
prior year, primarily as a result of changes in the client mix resulting in
lower average gross margins and increases in state unemployment insurance rates
that could not be passed along to clients.
 
 Selling,
general and administrative expenses
 
 Selling,
general and administrative expenses includes the labor, marketing, corporate
overhead and other costs not directly associated with generating revenue such as
costs associated with the acquisition and retention of clients and the fees paid
to public accounting firms pursuant to our Partner on Premise cooperative sales
and marketing agreements, occupancy, administrative labor, benefit plan
administration, professional fees and other operating expenses.
 
 For
fiscal 2008, selling, general and administrative expenses increased $1,215,000,
or 14%, to $9,703,000, as compared to $8,488,000 in fiscal
2007.  Selling, general and administrative expenses include non-cash
charges for stock based compensation expense of $291,000 for fiscal 2008
compared with $29,000 in fiscal 2007.  As a percentage of revenue,
selling, general and administrative expenses were comparable at 14.6% during
fiscal 2008 compared to 14.7% during fiscal 2007.  The overall
increase in selling, general and administrative expenses in the current year
period reflects the overall increase in business activity, higher stock based
compensation expense, as well as continued investments throughout the
organization to support strategic initiatives.
 
 Depreciation
and amortization
 
 For
fiscal 2008, depreciation and amortization increased $124,000, or 39%, to
$445,000, as compared to $321,000 in fiscal 2007.  The current year’s
increase is primarily attributable to a full year of operations of the ReStaff
Acquisition as opposed to seven months in the prior year.
 
 Income
from operations
 
 As a
result of the above, income from operations was $399,000 for fiscal 2008 versus
$711,000 in fiscal 2007, representing a decrease of 44%.
 
 Interest
expense
 
 Interest
expense includes the net discounts associated with the sales of accounts
receivable, as well as interest on debt associated with acquired companies and
financing our operations.  We have historically issued debt as a
primary means of funding our growth.  Consequently, interest expense
for fiscal 2008 was $834,000, as compared to $895,000 in fiscal 2007,
representing a decrease of 7%.  This decrease is attributable to a
reduction in the amount of debt outstanding that occurred during the second
quarter of fiscal 2008.  We reduced outstanding indebtedness incurred
in the ReStaff Acquisition by $1,448,000 as well as issuing common stock in
exchange for $470,000 of other outstanding notes payable.  In
addition, the reduction in the federal prime lending rate from 7.75% in effect
at the beginning of our fiscal year to 5.00% at the end of our fiscal year
resulted in lowered interest expense on our sold accounts
receivable.
 
 Loss
on goodwill impairment
 
 Loss on
goodwill impairment of $148,000 relates to the write off of costs capitalized in
connection with a planned reverse merger with Hyperion Energy, Inc. which did
not occur.
 
  17
  Net
loss on debt extinguishments
 
 Net loss
on debt extinguishments of $100,000 was measured as the difference between the
fair value of restricted common stock issued and the remaining outstanding
principal and accrued interest on the debt that was converted during the second
quarter of fiscal 2008.
 
 Net
loss
 
 The
factors described above resulted in a net loss for fiscal 2008 of ($683,000), as
compared to a net loss of ($184,000) in fiscal 2007.
 
 Fiscal
year ended September 30, 2007 compared to fiscal year ended September 30,
2006
 
 Revenues
 
 For
fiscal 2007, revenue increased $23,493,000, or 69%, to $57,581,000, as compared
to $34,088,000 in fiscal 2006.  Of this increase, $10,290,000 was
provided by the ReStaff Acquisition, which occurred on February 26,
2007.  Excluding the ReStaff Acquisition, revenue increased
$13,203,000.  This increase was primarily attributable to the growth
in our professional service offerings and Partner on Premise program, a full
year of operations of the Stratus Acquisition as opposed to ten months in the
prior year, which accounted for approximately $2,125,000 of the increase, and a
full year of operations of the US Temp Acquisition as opposed to six months in
the prior year which accounted for approximately $7,127,000 of the
increase.
 
 For
fiscal 2007, our professional service offerings provided revenues of
approximately $8,500,000, or 15% of total revenues, versus approximately
$6,200,000 or 18% in fiscal 2006, with the 2007 decrease as a percentage of
revenues being due to the February 2007 ReStaff Acquisition’s relatively larger
contribution to both total 2007 revenues and Staffing Abilities
revenues.
 
 For
fiscal 2007 the CPA Partner on Premise Program provided revenues of
approximately $2,900,000, or 5% of total revenues, versus approximately
$1,250,000, or 3.7% of revenues in fiscal 2006.
 
 During
fiscal 2007, the Stratus Acquisition, US Temp Acquisition and ReStaff
Acquisition provided revenues of approximately $17,843,000, $17,913,000 and
$10,290,000, respectively.  During fiscal 2006, the Stratus
Acquisition, US Temp Acquisition and ReStaff Acquisition provided revenues of
approximately $15,718,00, $10,786,000 and $0, respectively.
 
 Direct
cost of services
 
 For
fiscal 2007, direct cost of services increased $19,333,000, or 67%, to
$48,061,000, as compared to $28,728,000 in fiscal 2006.  Of this
increase, $8,701,000 was attributed to the ReStaff
Acquisition.  Excluding the ReStaff Acquisition, direct cost of
services increased $10,632,000.  This increase was primarily
attributable to the growth in our professional service offerings and Partner on
Premise program, a full year of operations of the Stratus Acquisition as opposed
to ten months in the prior year which accounted for approximately $1,822,000 of
the increase, and a full year of operations of the US Temp Acquisition as
opposed to six months in the prior year which accounted for approximately
$6,214,000 of the increase.
 
 Gross
profit
 
 For
fiscal 2007 gross profit increased $4,160,000, or 78%, to $9,520,000, as
compared to $5,360,000 in fiscal 2006.  Of this increase, $1,589,000
was provided by the ReStaff Acquisition.  Excluding the ReStaff
Acquisition, gross profit increased $2,571,000.  This increase was
primarily attributable to the growth in our professional service offerings and
Partner on Premise program, a full year of operations of the Stratus Acquisition
as opposed to ten months in fiscal 2006 which accounted for approximately
$303,000 of the increase, and a full year of operations of the US Temp
Acquisition as opposed to six months in the prior year which accounted for
approximately $913,000 of the increase.  As a percentage of revenue
gross profit for fiscal 2007 increased to 16.5% as compared to 15.7% in fiscal
2006, reflecting growth in both our higher margin professional services and the
Partner on Premise program.
 
 Selling,
general and administrative expenses
 
 For
fiscal 2007, selling, general and administrative expenses increased $2,732,000,
or 48%, to $8,488,000, as compared to $5,756,000 in fiscal 2006.  As a
percentage of revenue, selling, general and administrative expenses were 14.7%
during fiscal 2007 compared to 16.9% during fiscal 2006.  The decrease
as a percentage of revenues in 2007 is due to lower stock based compensation
expense in 2007, which was $29,000 versus $1,151,000 in
2006.  Otherwise, the overall increase in selling, general and
administrative expenses in the current year period reflects the overall increase
in business activity, as well as continued investments throughout the
organization to support strategic initiatives.
 
  18
  Depreciation
and amortization
 
 For
fiscal 2007, depreciation and amortization increased $203,000, or 172%, to
$321,000, as compared to $118,000 in fiscal 2006.  The current year’s
increase is attributable to amortization associated with acquired assets from
the ReStaff Acquisition, acquired in February 2007, and a full year of
amortization associated with intangible assets acquired from the US Temp
Acquisition, as opposed to six months in the prior year, and a full year of
amortization associated with intangible assets acquired from the Stratus
Acquisition as opposed to ten months in the prior year.
 
 Income
from operations
 
 As a
result of the above, income from operations was $711,000 for fiscal 2007 versus
a loss of ($514,000) in fiscal 2006.
 
 Interest
expense
 
 Interest
expense includes the net discounts associated with the sales of accounts
receivable, as well as interest on debt associated with acquired companies and
financing our operations.  We have historically issued debt as a
primary means of funding our growth.  Consequently, interest expense
for fiscal 2007 was $895,000, as compared to $498,000 in fiscal 2006, primarily
reflecting an overall increase in the volume of our business and consequently
net discounts associated with sales of our receivables, as well as debt
issued for acquisitions.
 
 Net
loss
 
 The
factors described above resulted in a net loss for fiscal 2007 of ($184,000), as
compared to a net loss of ($1,012,000) in fiscal 2006.
 
 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 take
advantage of business opportunities, including existing business growth and
mergers and acquisitions.
 
 At
September 30, 2008, cash was $69,000, a decrease of ($68,000) from $137,000 as
of September 30, 2007.
 
 Net cash
provided by operating activities during the year ended September 30, 2008
decreased ($204,000) to $414,000, from $618,000 during the year ended September
30, 2007.  This was primarily due to increases in outstanding
receivables as of September 30, 2008 compared with September 30, 2007 of
$805,000, offset by increases in accounts payable and accrued expenses of
$605,000.
 
 Net cash
provided by operating activities during the year ended September 30, 2007
increased $350,000 to $618,000, from $268,000 during the year ended September
30, 2006.  This was primarily due to an increase in net cash provided
by changes in operating assets and liabilities of $386,000.
 
 Net cash
used in investing activities during the year ended September 30, 2008 decreased
($534,000) to ($265,000) from ($799,000) during the year ended September 30,
2007, primarily as a result of cash paid for the ReStaff Acquisition in the
prior year.
 
 Net cash
used in investing activities during the year ended September 30, 2007 increased
$458,000 to ($799,000) from ($341,000) during the same period of the prior year,
primarily as a result of an increase in the cash amounts paid for
acquisitions.  During the year ended September 30, 2007 cash paid for
acquisitions totaled $730,000 primarily reflecting the ReStaff
Acquisition.  During the year ended September 30, 2006, cash paid for
acquisitions totaled $247,000, primarily reflecting the US Temp
Acquisition.
 
 Net cash
used in financing activities during the year ended September 30, 2008 increased
$527,000 to ($217,000) from $310,000 provided by financing activities during the
year ended September 30, 2007, primarily as a result of increased principal
payments on long-term debt in the current period, and a decrease in the current
period in proceeds from issuance of common stock and long-term
debt.
 
 Net cash
provided by financing activities during the year ended September 30, 2007
increased $229,000 to $310,000 from $81,000 during the year ended September 30,
2006.  Net cash provided by financing activities during the year ended
September 30, 2007 was primarily the result of private placement sales of our
common stock and debt to finance our operations, totaling $721,000 and $659,000,
respectively, offset by repayments of debt and the Stratus Acquisition related
contingent liability together totaling ($1,070,000).
  19
  Working
Capital
 
 We have
financed our growth largely through the issuance of debt and have incurred
negative working capital.  As part of funding this growth, as of
September 30, 2008 we had negative working capital of ($2,196,000), for which
the component constituting the current portion of long- term debt was
$1,366,000.  Within the current portion of long-term debt $458,000 is
past due or due upon demand as explained further below.  Total
outstanding debt as of September 30, 2008 was $2,817,000.  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 sufficient amounts of cash flow and working
capital.  Management is engaging in the following activities to
effectively accomplish these objectives:
 
 a)
            In
      October 2007, we entered into forbearance agreements with respect to
      $286,000 of the $458,000 past due.  These short term debt
      holders have agreed to waive defaults and refrain from exercising their
      rights and remedies against us until October 31, 2008, in exchange for an
      increased interest rate.  We are currently in discussions with
      these parties to extend the term of these forebearance
      agreements.
 b)
            As
      explained further below, pursuant to the agreement with the former owner
      of ReStaff, we have successfully negotiated a reduction of $1,398,000 in
      the purchase price of ReStaff. The reduction in the purchase price was
      accomplished through the restructuring of the remaining indebtedness to
      the former owner of ReStaff and the issuance of 250,000 shares of
      restricted common stock valued at $50,000 on the restructuring
      date.  Notes payable with outstanding principal balances of
      $3,090,000 and related accrued interest of $158,000 were exchanged for two
      new notes.  One of the new notes issued is subject to
      proportionate reduction in principal in the event the acquired operations
      generate less than $1,000,000 in net income (as defined in the asset
      purchase agreement) in any year during the term of the
    note.
 c)
            During
      2008, holders of notes with outstanding principal balances totaling
      $470,000 agreed to exchange their notes for 1,944,031 shares of restricted
      common stock and warrants to purchase 100,000 shares of restricted common
      stock at a price of $0.50 per
share.
 d)
            During
      2008, we issued 2,391,500 shares and warrants to purchase 9,800 shares of
      common stock at a price of $0.50 per share for proceeds totaling
      $508,000.
 e)
            In
      December 2007 we retained an outside financial advisory and investment
      banking firm to advise and assist us in raising
  capital.
 f)
            We
      are aggressively managing cash and expenses, including the increased costs
      of being a reporting company, with activities such as seeking additional
      efficiencies in our operating offices and corporate functions including
      headcount reductions if appropriate, improving our accounts receivable
      collection efforts, obtaining more favorable vendor terms, and using our
      finance and accounting consultants when available to aid in the necessary
      obligations associated with being a reporting company,
  and
 g)
            We
      are continuing our efforts at expanding our higher margin professional
      services.
 
 The
working capital deficit of ($2,196,000) as of September 30, 2008, represents a
decrease of ($1,030,000) as compared to a working capital deficit of
($3,226,000) as of September 30, 2007.  This improvement was primarily
the result of a significant effort on the part of management to reduce the level
of debt outstanding through the conversion and restructuring of outstanding
balances.
 
 Because
our revenue depends primarily on billable labor hours, most of our charges are
invoiced weekly, bi-weekly or monthly depending on the associated payment of
labor costs, and are due currently, with collection times typically ranging from
30 to 60 days.  We sell our accounts receivable to a financial
institution as a means of managing our working capital.  Under the
terms of our receivable sale agreement the maximum amount of trade receivables
that can be sold is $8,000,000.  As collections reduce previously sold
receivables, we may replenish these with new receivables.  Net
discounts per the agreement are represented by an interest charge at an annual
rate of prime plus 1.5% (“Discount Rate”) applied against outstanding
uncollected receivables sold.  The risk we bear from bad debt losses
on trade receivables sold is retained by us, and receivables sold may not
include amounts over 90 days past due.  The agreement is subject to a
minimum discount computed as minimum sales per month of $3,000,000 multiplied by
the then effective Discount Rate, and a termination fee applies of 3% of the
maximum facility in year one of the agreement, 2% in year two, and 1%
thereafter.  In addition, an overadvance of $500,000 was received, is
secured by outstanding receivables, and is being repaid in weekly payments of
$7,500.  As of September 30, 2008, the amount of sold receivables
outstanding was $5,106,000, which includes $373,275 of the
overadvance.
  20
  Debt
 
 Long-term
debt at September 30, 2008 and September 30, 2007 is summarized as
follows:
 
 September
      30,
            
            
            September
      30,2008
            
            
            2007Long-term
      debt16.25%
      subordinated note (i)
            
            $
            102,000
            
            
            $
            93,0003%
      convertible subordinated note (ii)
            
            
            436,000
            
            
            
            527,00018%
      unsecured note (iii)
            
            
            80,000
            
            
            
            80,000Long
      term capitalized consulting obligations (v)
            
            
            38,000
            
            
            
            159,000Long
      term capitalized lease obligation (xiv)
            
            
            21,000
            
            
            
            -10%
      convertible subordinated note (xiii)
            
            
            -
            
            
            
            232,000Other
      debt
            
            
            50,000
            
            
            
            50,000Total
            
            
            727,000
            
            
            
            1,141,000Less
      current maturities
            
            
            420,000
            
            
            
            691,000Non-current
      portion
            
            
            307,000
            
            
            
            450,000Related
      party long-term debt13%
      unsecured demand note (iv)
            
            
            104,000
            
            
            
            101,000Long
      term capitalized consulting obligations (vi)
            
            
            17,000
            
            
            
            46,00012%
      unsecured convertible note (vii)
            
            
            100,000
            
            
            
            270,000Demand
      loans (viii)
            
            
            65,000
            
            
            
            30,0006%
      unsecured note (ix)
            
            
            100,000
            
            
            
            300,0006%
      unsecured note (x)
            
            
            1,631,000
            
            
            
            2,846,0009%
      unsecured note (xi)
            
            
            73,000
            
            
            
            210,000Unsecured
      loan (xii)
            
            
            -
            
            
            
            284,000Total
            
            
            2,090,000
            
            
            
            4,087,000Less
      current maturities
            
            
            946,000
            
            
            
            1,647,000Non-current
      portion
            
            
            1,144,000
            
            
            
            2,440,000Total
      long-term debt
            
            
            2,817,000
            
            
            
            5,228,000Less
      current maturities
            
            
            1,366,000
            
            
            
            2,338,000Total
      non-current portion
            
            $
            1,451,000
            
            
            $
            2,890,000
 
 For
further explanation of (i) through (xiv), please see Note 8 to our financial
statements beginning on page F-1 of this report on Form 10-K.
 
 Reliance
on Related Parties
 
 We have
historically relied on funding from related parties in order to meet our
liquidity needs, such as the debt described in (iv), (vi), (vii), (viii), (ix),
(x), (xi) and (xii) above.  Management believes that the terms
associated with these instruments would not differ materially from those that
might have been negotiated with independent parties.  However,
management believes that the advantages we derived from obtaining funding from
related parties include a shortened length of time to identify and obtain
funding sources due to the often pre-existing knowledge of our business and
prospects possessed by the related party, and the lack of agent or broker
compensation often deducted from gross proceeds available to
us.  Management anticipates we will continue to have significant
working capital requirements in order 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.
 
 Sales
of Common Stock
 
 In
January, 2008, the holder of the $250,000 convertible subordinated note issued
on August 6, 2007, exchanged the note for 744,031 shares of restricted common
stock and a three-year warrant to purchase 100,000 shares of our common stock at
an exercise price of $0.50 per share.  The number of restricted common
shares issued was determined by dividing the unpaid principal and accrued
interest by $0.35 per share.
  21
  In
January, 2008, the related party that held the $280,000 12% unsecured
convertible note dated April 1, 2006, with an outstanding principal balance of
$200,000, exchanged the note for 600,000 shares of our common stock and a new
unsecured note in the principal amount of $100,000 due October 31, 2008 and
bearing an annual interest rate of 12%.
 
 In
February, 2008 we issued 250,000 shares to the former owner of ReStaff in
connection with the restructuring of outstanding indebtedness incurred during
the acquisition in exchange for a decrease in indebtedness of
$50,000.
 
 During
the second quarter of 2008 we issued 1,107,500 shares of restricted common stock
to certain employees and directors at a price of $0.20 per share.
 
 During
the second quarter of 2008 we completed a private placement to independent third
parties of 100,540 shares of our common stock at a price of $0.35 per share with
warrants to purchase an aggregate 9,800 shares of our common stock at an
exercise price of $0.50 per share.
 
 In March,
2008, we issued 1,000,000 shares of the Company’s common stock to the related
party that had made the $950,000 unsecured loan in March 2007 as described in
(xii) of Note 8 to our Financial Statements beginning on Page F-1 of this Report
on Form 10-K, in exchange for consideration of $200,000 which consisted of the
cancellation of the remaining outstanding principal balance of the loan of
$120,000, the cancellation of $26,000 of outstanding invoices payable and
$54,000 in cash.
 
 In May
2008 we issued 184,000 shares of restricted common stock in a private placement
offering to independent third parties at a price of $0.28 per share, raising
gross proceeds of $51,500.
 
 In May
2008 we sold 1,000,000 shares of restricted common stock for a $200,000
non-interest bearing note with the related party described in (xii) of Note 8 to
our Financial Statements beginning on Page F-1 of this Report on Form
10-K.  The $0.20 offering price represented a 25% discount from the
market price. As of September 30, 2008, the note had been paid in
full.
 
 Contractual
Obligations
 
 The
following summarizes our contractual obligations and commercial commitments as
of September 30, 2008:
 
 Less
      than
            
            
            
            
            
            
            
            
            More
      thanContractual
      Obligations and Commitments
            
            Total
            
            
            1
      year
            
            
            1-3
      years
            
            
            3-5
      years
            
            
            5
      yearsLong-term
      debt, including interest
            
            $
            3,116,000
            
            
            $
            1,554,000
            
            
            $
            1,211,000
            
            
            $
            351,000
            
            
            $
            -Operating
      leases
            
            
            1,803,000
            
            
            
            442,000
            
            
            
            605,000
            
            
            
            504,000
            
            
            
            252,000Total
      contractual obligations and commitments
            
            $
            4,919,000
            
            
            $
            1,996,000
            
            
            $
            1,816,000
            
            
            $
            855,000
            
            
            $
            252,000
 
 
 ITEM 7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISKS
 
 Our
receivable sale agreement is subject to variable rate interest which could be
adversely affected by an increase in interest rates.  As of September
30, 2008 outstanding uncollected receivables sold were
$5,106,000.  Our weighted average outstanding uncollected receivables
sold for the year ending September 30, 2008 was
$5,504,000.  Management estimates that had the average interest rate
increased by two percentage points during the year ending September 30, 2008,
interest expense would have increased by approximately $110,000.
 
 We
believe that our business operations are not exposed to market risk relating to
foreign currency exchange risk or commodity price risk.
 
 ITEM 8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA.
 
 The
response to this item is submitted in a separate section of this report
commencing on Page F-1.
 
 ITEM 9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.
 
 None.
  22
  
 ITEM 9A.
            CONTROLS
      AND PROCEDURES
 
 Under the
supervision and with the participation of management, including our Chief
Executive Officer and our Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures.  Disclosure controls and procedures are controls and
procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the 1934 Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms.  Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this annual
report.  There were no changes in our internal controls during the
quarter ended September 30, 2008 that have materially affected, or are
reasonably likely to have materially affected our internal controls over
financial reporting.
 
 Our
management, including the Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent all error and all
fraud.  A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met.  Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the company have been
detected.
 
 This
annual report does not include a report of management’s assessment regarding
internal control over financial reporting or an attestation report of our
registered public accounting firm due to a transition period established by
rules of the Securities and Exchange Commission for newly public
companies.
 
  23
  PART
III
 
 ITEM 10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
 
 The
Board of Directors and Officers
 
 The name
and age of each the directors and the executive officers of the Company and
their respective positions with the Company are set forth
below.  Additional biographical information concerning each of the
directors and the executive officers follows the table.
 
 Name
            Age
            TitleJeffrey
      J. Raymond
            50
            Chief
      Executive OfficerAllan
      Hartley
            57
            President
      and DirectorMark
      S. Levine
            47
            Chief
      Operating OfficerStephen
      DelVecchia
            39
            Chief
      Financial OfficerNorman
      Goldstein
            67
            DirectorJay
      H. Schecter
            55
            DirectorJohn
      Messina
            41
            Director
 
 Jeffrey J. Raymondwas
appointed Chief Executive Officer in May, 2008.  Prior thereto, he provided
consulting services to us through Pylon Management, Inc., a mergers and
acquisition/financial consulting firm that works with staffing and related
public and private firms where he also served as President.  From
August 1997 through June 2005, Mr. Raymond served as a turnaround consultant and
a consultant to staffing companies.  He served as the President of
RoyalPar Industries, a national technical staffing company from April 1994
through August 1997.
  Allan Hartley was appointed
President of Accountabilities in June 2005.  Prior thereto, he managed
the professional staffing group of Norrell Corporation.  In 1994, he
founded Creative Financial Staffing, Inc. which partnered with 29 CPA firms to
provide staffing services.  From 1989 through 1994, he was Vice
President of Contract Services of Romac International.  From 1983
through 1989, Mr. Hartley was employed by Robert Half International, including
Manager of the Contracts Division.
  Mark S. Levine joined
Accountabilities as Chief Operating Officer in February, 2007.  From
2001 until joining Accountabilities, he served as Executive Vice President of
Accretive Solutions, Inc., a professional staffing services
firm.  From 1997 until 2001, he was Chief Marketing Officer of Stratus
Services Group, Inc., a national staffing firm.  From 1995 until 1997,
Mr. Levine was Regional Vice President of Corestaff Services, Inc., a staffing
services provider.  From 1993 until 1995, Mr. Levine was employed in
various capacities by Norrell Services, including Regional Vice
President.
 
 Stephen DelVecchia joined
Accountabilities as Chief Financial Officer in March, 2007.  Prior
thereto, he was employed by Geller and Company LLC, where he functioned as the
Chief Financial Officer of the firm as well as Co-Chief Operating Officer of the
private equity services division.  From 2000 to 2003 he was with
Corbis Motion LLC, a media licensing and services company, where he also
functioned as Chief Financial Officer as well as Chief Operating Officer of the
research subsidiary.  From 1999 to 2000, Mr. DelVecchia was CFO for
GSV Inc., a publicly traded company where he was responsible for all SEC
compliance and capital market placements.  From 1996 to 1999, Mr.
DelVecchia led the financial reporting and compliance group for Barnes and
Noble, Inc., a book retailer where he led all SEC compliance, reporting and
audit functions.  Mr. DelVecchia earned his CPA license while an
auditor with Grant Thornton LLP.
 
 Norman Goldstein has served as
a Director of Accountabilities since December 2006.  He has served as
the President and CEO of NGA Inc., an export/import company primarily dealing in
the importation, sale and distribution of all types of flat glass products
throughout the USA since 2000.  Prior to his association with NGA
Inc., Mr. Goldstein formed Norwell International, which acquired a small glove
company and engaged in the business of latex gloves and other related
medical/dental products.  In the year 2000, Mr. Goldstein sold Norwell
International to one of the largest glove manufacturers in Malaysia (Asia
Pacific Ltd.).
 
 Jay H. Schecterhas served as
a Director of Accountabilities since December 2006 and as an officer with
Tri-State Employment Services, Inc. since 1999, overseeing the areas of
corporate strategic planning, credit and finance and legal.  From 1984
until joining Tri-State, Mr. Schecter served as Senior Vice President of Kaufman
Astoria.
 
 John Messina joined the
Accountabilities’ Board of Directors in April 2007 and is currently Executive
Vice President of Tri-State Employment Services, Inc., and has been with
Tri-State since 1997.  Prior to joining Tri-State, Mr. Messina worked
in the transportation industry and has been an entrepreneur in several small
businesses.
 
  24
  Code
of Ethics and Business Conduct
 
 We are in
the process of developing a Code of Ethics and Business Conduct that will apply
to all of our directors, officers and employees, including our Chief Executive
Officer, our Chief Financial Officer and other senior financial
officers.
 
 Upon
adoption, we intend to post the Code of Ethics and Business Conduct on our
website, and we intend to disclose on our website any amendment to, or waiver
of, a provision of the Code of Ethics and Business Conduct that applies to our
Chief Executive Officer, our Chief Financial Officer or our other senior
financial officers.
 
 Audit
Committee Financial Expert
 
 Our Board
of Directors has designated Norman Goldstein as the Audit Committee’s financial
expert.  Mr. Goldstein is considered “independent” under NASD Rule
4200(a) (15).
 
 Compliance
with Section 16(a) of the Exchange Act
 
 Section
16(a) of the Exchange Act requires our executive officers and directors, and
persons who own more than ten percent of a registered class of our equity
securities, to file reports of ownership and changes in ownership on Forms 3, 4
and 5 with the Securities and Exchange Commission (the
“SEC”).  Officers, directors and greater than ten percent stockholders
are required by SEC regulation to furnish the Company with copies of all Forms
3, 4 and 5 they file.
 
 Based
solely on our review of the copies of such forms we have received, we believe
that all of our executive officers, directors and greater than ten percent
stockholders complied with all filing requirements applicable to them with
respect to events or transactions during fiscal 2008, except that Elliot Cole,
Norman Goldstein, John Messina, Kathy Raymond and Jeff Raymond were late in
filing Forms 3 required to be filed and to our knowledge, neither Jay Schecter,
Ronald Shapss nor Tri-State Employment Services have filed Forms 3 as
required.
 
 
 ITEM 11.
            EXECUTIVE
      COMPENSATION
 
 Overview
of Our Compensation Policy
 
 Until
September 2007, our Board of Directors reviewed and approved the annual
compensation for our executive officers.  In September 2007, the Board
of Directors appointed a Compensation Committee, consisting of Elliot Cole and
Norman Goldstein, which pursuant to its charter has the responsibility of
evaluating and approving compensation of directors and officers and formulating
our compensation policy in the future.  In May, 2008 we were advised
of the resignation of Elliot Cole from the Board of Directors and consequently,
as a member of the Compensation Committee, leaving Norman Goldstein as the sole
remaining member of the committee.  Our charter requires us to have a
minimum of two members on the Compensation Committee; and therefore, as of the
date of Mr. Cole’s resignation, the responsibilities of the Compensation
Committee have been assumed by the Board of Directors.  To date, the
primary objective of the compensation policy, including the executive
compensation policy, as administered by the Board of Directors, has been to help
attract and retain experienced, talented leaders who have the intelligence,
drive and vision to guide the company through the challenge of managing its
existing business, and to develop new business initiatives.  This
policy has been designed to reward the achievement of annual and long-term
strategic goals aligning executive performance with company growth and
shareholder value.  As a result of limited resources and a lack of
profitability to date, the administration of our policy has not yet included the
award of any significant cash bonuses.  The Board of Directors has
endeavored to promote an ownership mentality among key management and the Board
of Directors, and thus rewards to members of management and other key employees
to date have been primarily in the form of restricted stock grants.
 
 The
compensation policy administered by the Board of Directors has been designed to
reward performance.  In measuring executive officers’ contribution to
the Company, the Board of Directors has considered numerous factors, including
our growth and financial performance as measured by revenue, gross margin and
net income before taxes among key performance indicators; however, compensation
to our executive officers in 2008 consisted, for the most part, of base salary
and stock awards that were determined pursuant to employment agreements or other
arrangements in place with such officers.
 
 Regarding
most compensation matters, including executive and director compensation,
management provides recommendations to the Board of Directors.  In
addition, inasmuch as certain executive officers have been members of the Board,
their views as to their own compensation have been taken into account by the
Board.  Until September 2007 when it established the Compensation
Committee, the Board of Directors did not delegate any of its functions to
others in setting compensation; however, in September 2007, the Board authorized
the grant of restricted stock awards with respect to1,500,000 shares of our
common stock to key employees and others who contribute to the success of the
company, and authorized Allan Hartley, our President, and Stephen DelVecchia,
our Chief Financial Officer, to designate the recipients of such awards after
consultation with an outside consultant.  These awards, which were
designated to reward
contributions in fiscal 2007 and promote continued contributions to our growth
and success in the future, were made in January, 2008.  Prior to
September 2007, the Board of Directors did not engage any consultant related to
executive and/or director compensation matters.
  25
  Stock
price performance has not been a factor in determining annual compensation
because the price of our common stock is subject to a variety of factors
outside of management’s control.  The Board of Directors does not
subscribe to an exact formula for allocating cash and non-cash compensation, and
equity based compensation was awarded only to new hires during the two most
recently completed fiscal years.  However, a portion of total
executive compensation is expected to be performance-based in fiscal 2009 and
future years, in order to better align the goals of executives with the goals of
stockholders.  Neither the Board of Directors nor the Compensation
Committee has developed formal guidelines to use for allocating compensation
between cash and non-cash compensation; however, the Board of Directors believes
that long-term performance can be enhanced through an ownership culture that
encourages long-term participation by executive officers in equity based awards,
and it is anticipated that the Compensation Committee (or Board of Directors, as
applicable) will take into account the liquidity and market price of equity to
be awarded, publicly available data for other comparable companies, the number
of shares and options held by members of management and our cash position in
determining the appropriate allocation.  It is anticipated that in
making such allocations, the Compensation Committee (or Board of Directors, as
applicable) will balance our need to limit cash expenditures with the
expectations of those individuals that it hopes to recruit and retain as
employees, and that incentive compensation will be split between cash and equity
in a ratio designed to best motivate the executives after taking into account
available resources.
 
 Elements
of Our Compensation Plan
 
 The
principal components of compensation for our executive officers
are:
 
 ●
            base
      salary;
 ●
            performance-based
      incentive cash compensation;
 ●
            stock
      awards; and
 ●
            retirement
      and other benefits.
 
 Base
salary, performance based awards and stock awards may be tailored to best fit an
executive officer’s specific circumstances or if required by competitive market
conditions for attracting and retaining skilled personnel.  Factors
considered include the individual’s particular background and circumstances,
including training and prior relevant work experience, and comparison to other
executives within our company having similar levels of
experience.  Compensation paid in fiscal 2008 and  2007 to
executive officers was primarily determined by reference to the initial
compensation arrangement agreed to when each executive officer joined us and for
certain executive officers, including Mr. Hartley, Mr. DelVecchia and Mr.
Levine, the employment agreements between them and us.
 
 Base
Salary
 
 We
provide named executive officers and other employees with base salary to
compensate them for services rendered during the fiscal year.  Base
salary ranges for named executive officers are determined for each executive
based on his or her position and responsibility.
 
 Base
salaries of our most highly compensated executives during fiscal 2008 and 2007
were primarily established by the terms of employment agreements with these
executives.  During its review of base salaries for executives, the
Board primarily considered:
 
 ●
            market
      data, which generally consisted of publicly available filings of other
      professional staffing and workforce solutions companies, including
      Westaff, Resources Connection and Kforce,
Inc.;
 ●
            internal
      review of the executives’ compensation, both individually and relative to
      other officers; and
 ●
            individual
      performance of the executive.
 
 Salary
levels are typically evaluated annually as part of our performance review
process as well as upon a promotion or other change in job
responsibility.  We have not established specific quantitative
performance goals for individual executives.  In as much as we have
only a limited operating history with respect to our current business, and the
level of compensation which could be paid to our executive officers has been
limited by available resources, annual performance reviews have not been a
material element of determining compensation.  It is anticipated that
the Compensation Committee will develop more formal review procedures and
criteria as our business matures and resources become more
available.
 
 Performance-Based
Incentive Compensation
 
 The Board
has made awards of our common stock to officers and other employees to promote
high performance and achievement of corporate goals, encourage the growth of
stockholder value and allow key employees to participate in our long-term growth
and profitability.  During fiscal 2006 and 2007, a total of 2,795,000
shares of common stock were issued to directors, officers and
other
  26
  key
employees.  A total of 560,000 shares of common stock were issued in
fiscal 2007 to the officers named in the table presented below under “Summary
Compensation Table,” including 500,000 shares issued to Mr. Levine and 60,000
shares issued to Mr. DelVecchia pursuant to their respective employment
agreements.  The disparity in these awards was, for the most part, a
function of the negotiations that took place when these officers agreed to join
our company.  In March 2008, Mr. DelVecchia and Mr. Levine were
granted restricted stock awards with respect to 450,000 and 200,000 shares of
common stock, respectively, which more closely aligned the equity based
component of Mr. DelVecchia’s compensation to date with that of Mr.
Levine.  The award of stock assists us in:
 
 ●
            enhancing
      the link between the creation of stockholder value and long-term executive
      incentive compensation;
 ●
            providing
      an opportunity for increased equity ownership by executives;
      and
 ●
            maintaining
      competitive levels of total
compensation.
 
 Stock
award levels vary among participants based on their positions within our
company.
 
 We have
paid only nominal cash bonuses during the past three fiscal years and have not
established any specific individual or corporate quantitative and qualitative
performance goals for determining future performance based incentive
compensation, except to the extent that executive officers are entitled to such
compensation pursuant to employment agreements.  Incentive
compensation payable under employment agreements is based upon a percentage of
earnings before income taxes, depreciation and amortization or net
profit.  Other than nominal bonuses awarded to a limited number of
employees, no bonuses were paid with respect to fiscal 2008 or 2007 because we
did not achieve profitability.  The Compensation Committee has not yet
developed a policy with respect to how incentive cash compensation will fit
within its overall compensation philosophy but it is anticipated that any such
policy will be influenced by competitive market conditions for attracting and
retaining skilled personnel.
 
 Stock
Plans
 
 We did
not have an established employee stock purchase plan, option plan or equity
award plan in place until the Board adopted the Accountabilities, Inc. Equity
Incentive Plan in September 2007.  The Equity Incentive Plan provides
for the grant of stock options, stock appreciation rights and restricted stock
awards to employees, directors and other persons in a position to contribute to
the growth and success of our company.  A total of 2,000,000 shares of
our common stock have been reserved for issuance under the Equity Incentive
Plan. During fiscal 2008, restricted stock awards with respect to 1,403,000
shares were made to eligible participants.
 
 Perquisites
and Other Personal Benefits
 
 We
provide some executive officers with perquisites and other personal benefits
that the Board believes are reasonable and consistent with our overall
compensation program to better enable us to attract and retain superior
employees for key positions.  The Board periodically reviews the
levels of perquisites and other personal benefits provided to named executive
employees.
 
 Each of
our employees is entitled to receive medical and dental benefits and part of the
cost is funded by the employee.
 
  27
  Summary
Compensation Table
 
 The
following table sets forth information concerning the total compensation awarded
to, earned by or paid to our Chief Executive Officer and Principal Financial
Officer during the fiscal years ended September 30, 2008 and 2007 and each other
executive officer who earned in excess of $100,000 in fiscal 2008, whom we
sometimes refer to herein as the “Named Officers”.
 
 Name
      and Principal Position
            Fiscal
      Year Ended
            
            Salary
      ($)
            
            
            Bonus
      ($)
            
            
            Stock
      Awards ($)
            
            
            Option
      Awards ($)
            
            
            Non-Equity
      Incentive Plan Compensation ($)
            
            
            Nonqualified
      Deferred Compensation Earnings ($)
            
            
            All
      Other Compensation ($) (3)
            
            
            Total
              ($)Jeffrey
      J. Raymond
            09/30/08
            
            $
            21,600
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            21,600CEO
      (1)
            09/30/07
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Allan
      Hartley,
            09/30/08
            
            $
            191,117
            
            
            $
            -
            
            
            $
            1,196
            (2)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            192,313President
            09/30/07
            
            $
            162,659
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            12,000
            
            
            $
            174,659Stephen
      DelVecchia
            09/30/08
            
            $
            155,631
            
            
            $
            793
            
            
            $
            77,470
            (2)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            6,000
            
            
            $
            239,894Chief
      Financial Officer
            09/30/07
            
            $
            85,096
            
            
            $
            -
            
            
            $
            4,019
            (2)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            3,500
            
            
            $
            92,615Mark
      S. Levine
            09/30/08
            
            $
            212,029
            
            
            $
            -
            
            
            $
            46,410
            (2)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            9,600
            
            
            $
            268,039Chief
      Operating Officer
            09/30/07
            
            $
            145,962
            
            
            $
            -
            
            
            $
            22,967
            (2)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            6,400
            
            
            $
            175,329
  ____________________
 
 (1)
            Mr.
      Raymond became an officer in May, 2008.  The table presented
      above does not reflect compensation paid to a consulting firm through
      which Mr. Raymond provided services to us in fiscal 2008 and
      2007.
 (2)
            Represents
      compensation expense recorded with respect to a grant of restricted stock
      which assumes stock vests over the full vesting period and which is based
      upon the market price of the stock awarded as discounted by 35% for 2008
      and 2007 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.
  28
  
 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, 2008:
  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
                ($)
      (4)
              
              
              Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      That Have Not Vested
                (#)
              
              
              Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights That Have Not Vested
                ($)Stephen
      DelVecchia
              03/05/07
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              40,000
              (1)
              
              $
              9,600
              
              
              
              -
              
              
              
              -CFO
              01/31/08
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              300,000
              (1)
              
              $
              72,000Mark
      Levine
              01/30/07
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              400,000
              (2)
              
              $
              96,000
              
              
              
              -
              
              
              
              -COO
              01/31/08
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              200,000
              (3)
              
              $
              48,000Allan
      Hartley
              01/31/08
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              20,000
              (3)
              
              $
              4,800
 (1)
            Represents
      an award of restricted stock that vests in equal annual installments on
      March 5, 2009 and 2010.
 (2)
            Represents
      an award of restricted stock that vests in equal annual installments on
      January 30, 2009, 2010, 2011 and
2012.
 (3)
            Represents
      an award of restricted stock that vests in equal annual installments on
      January 31, 2009, 2010 and 2011.
 (4)
            Represents
      closing price per share as reported by the Over-the-Counter quotation
      system on September 30, 2008 multiplied by the number of shares that had
      not vested as of such date.
 
  29
  Compensation
of Our Board of Directors
 
 Each
member of the Board of Directors was granted 20,000 shares of restricted common
stock in January, 2008.  These shares vest in three equal
installments commencing in January 31, 2009.
 
 Name
            
            Fees
      Earned or Paid in Cash
            
            
            Stock
      Awards (1)
            
            
            Option
      Awards
            
            
            Non-Equity
      Incentive Plan Compensation
            
            
            Change
      in Pension Value and Nonqualified Deferred Compensation
      Earnings
            
            
            All
      Other Compensation
            
            
            TotalAlan
      Hartley
            
            
            -
            
            
            $
            1,196
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            1,196Norman
      Goldstein
            
            
            -
            
            
            $
            1,196
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            1,196Jay
      Schecter
            
            
            -
            
            
            $
            1,196
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            1,196John
      Messina
            
            
            -
            
            
            $
            1,196
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            1,196Elliot
      Cole (former Director)
            
            
            -
            
            
            $
            1,196
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            1,196
  (1)    Represents
compensation expense recorded with respect to a grant of restricted stock which
assumes stock vests over the full vesting period and which is based upon the
market price of the stock awarded as discounted by 35% to reflect (a) certain
sale restrictions and lack of liquidity and (b) then recent private placement
valuations of similarly restricted securities.
 
 Potential
Payments Upon Termination of Employment or Change of Control; Employment
Agreements
 
 We
entered into an employment agreement with Allan Hartley, our President, in May
2005, which provided for an annual salary of $120,000 per year for the first six
months of the agreement and $150,000 thereafter.  Mr. Hartley was
issued 250,000 shares of our common stock pursuant to the agreement, which
entitles Mr. Hartley to participate in any special incentive plan approved by
the Board of Directors.  The agreement had an original term of six
months and is renewable annually for additional one year terms unless either
party sends a notice of non-renewal at least 30 days prior to the end of the
applicable term.  We may terminate the agreement for cause (as defined
in the agreement).
 
 We
entered into an employment agreement in January 2007 with Mark Levine, our Chief
Operating Officer, which provides for an annual base salary of $230,000 per
annum and entitles Mr. Levine to an annual bonus of $25,000 or 2% of our
earnings before interest, taxes and amortization, whichever is greater, and
options to acquire 500,000 shares of our common stock at a purchase price of
$.005 per share which vest at a rate of 100,000 shares per year.  We
subsequently issued 500,000 shares of restricted stock to Mr. Levine in lieu of
such options.  The agreement, which has an indefinite term, provides
that Mr. Levine is entitled to three months severance pay, payable over a three
month period if he is terminated without cause.  The Board of
Directors approved this severance package based upon the caliber of services Mr.
Levine brings to the company and the competition it faced in filling this
position.  As of September 30, 2008, the amount of severance
compensation that would be payable to Mr. Levine in the event of a termination
without cause would be $57,500. In the event that Mr. Levine’s employment
terminates for any reason, he would forfeit any shares which had not vested as
of the date of termination.
 
 In March
2007, we entered into an employment agreement with Stephen DelVecchia, our Chief
Financial Officer, which provides for an annual base salary of $150,000 for the
first 90 days of employment, and $165,000 thereafter, and a profit sharing bonus
of 1.5% of our net profit, but not in excess of 100% of base
salary.  Mr. DelVecchia was issued 60,000 shares of our common stock
pursuant to the agreement, which vest at a rate of 20,000 shares per annum over
a three year period.  The agreement, which has an indefinite term,
provides for one months severance pay if the agreement is terminated by us for
any reason other than cause (as defined in the agreement), death or disability,
or if the agreement is terminated by Mr. DelVecchia for good
reason.  The Board of Directors approved this severance package based
upon the caliber of services Mr. DelVecchia brings to the company and the
competition it faced in filling this position.  As of September 30,
2008, the amount of severance compensation that would be owed to Mr. DelVecchia
in the event of a termination by us without cause or by Mr. DelVecchia for good
reason would be $13,750, payable over a one month period.  If there is
any material change in the ownership of our company, whether by purchase,
merger, consolidation or otherwise, we are required to use our best efforts to
secure the assumption of the agreement by successor
ownership.  Failure of our company to obtain such assumption shall
entitle Mr. DelVecchia to one month’s severance pay.  In the event
that Mr. DelVecchia’s employment
terminates for any reason, he would forfeit any shares which had not vested as
of the date of termination.  In addition, Mr. DelVecchia was awarded a
nominal bonus of $793 in fiscal 2008 to award his contributions to the financial
management and reporting functions of our company.
  30
  In
agreeing to the severance provisions with Mr. Levine and Mr. DelVecchia, our
Board of Directors believed that these provisions were necessary to induce them
to accept employment with our company, and that such provisions are relatively
common for chief operating officers and chief financial
officers.  Differences between the severance arrangements with Mr.
Levine and Mr. DelVecchia are primarily a result of the negotiations that took
place between our company and such officers.
 
 
 ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
 
 The
following table sets forth certain information as of December 9, 2008 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 195 Route 9 South, Suite 109,
Manalapan, New Jersey 07726.
 
 Amount
      and
            
            
            PercentageNature
      of
            
            
            OfBeneficial
            
            
            OutstandingName
            
            Ownership
            
            
            SharesAllan
      Hartley
            
            
            910,000
            
            
            
            3.8Norman
      Goldstein
            
            
            870,000
            (1)
            
            
            3.6Jay
      Schecter
            
            
            20,000
            
            
            
            (2
            )John
      Messina
            
            
            220,000
            
            
            
            (2
            )Mark
      Levine
            
            
            762,500
            
            
            
            3.2Stephen
      DelVecchia
            
            
            545,000
            
            
            
            2.3Jeffrey
      J. Raymond
            
            
            2,633,334
            (3)
            
            
            11.1All
      Executive Officers and Directors as a Group (7 persons)
            
            
            5,960,834
            
            
            
            24.8Tri-State
      Employment Services, Inc. (4)
            
            
            7,631,700
            
            
            
            32.1Kathy
      Raymond
            
            
            2,633,334
            (3)
            
            
            11.1Ronald
      Shapss (5)
            
            
            1,168,000
            
            
            
            4.9James
      Zimbler (6)
            
            
            1,385,000
            (7)
            
            
            5.8
   (1)
            Includes
      250,000 shares issuable upon conversion of convertible
      note.  The remaining 620,000 shares are owned by NGA, Inc. a
      corporation of which Mr. Goldstein is the sole
  shareholder.
 (2)           Less
than 1%.
 (3)
            Represents
      2,423,334 shares owned by Pylon Management, Inc., 150,000 shares owned by
      Washington Capital, LLC, 50,000 shares owned by Kathy Raymond, and 10,000
      shares owned by Thomas Dietz.  Pylon Management, Inc. and
      Washington Capital, LLC are owned by Kathy Raymond who is the spouse of
      Jeffrey J. Raymond, and Thomas Dietz is the son of Kathy
      Raymond.
 (4)
            The
      address of this shareholder is 160 Broadway, 15th
      Floor, New York, New York 10038.  Robert Cassera, President of
      Tri-State Employment Services, Inc. exercises investment and dispositive
      power of the shares owned by Tri-State Employment Services,
      Inc.
 (5)
            The
      address of this shareholder is 75 Montebello Road, Suffern, New York
      10901.
 (6)
            The
      address of this shareholder is 1323 Zion Road, Bellefonte, Pennsylvania
      16823.
 (7)
            Includes
      675,000 shares owned by entities of which Mr. Zimbler is the majority
      owner.
  31
  
 ITEM 13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE.
 
 During
the fiscal year ended September 30, 2007, as payment of a finder’s fee in
connection with an acquisition transaction, we issued Pylon Management, Inc.
300,000 shares of our common stock and a $274,000 note bearing interest at 9%
and payable in 104 equal weekly installments of $2,885.  In addition,
during the fiscal years ended September 30, 2008 and 2007, we paid $129,514
and $104,000, respectively, to Pylon Management, Inc. in consideration of
consulting services rendered.  Pylon Management, Inc. and Washington
Capital LLC are owned by Kathy Raymond, the spouse of our Chief Executive
Officer, Jeffrey J. Raymond.
 
 In March
2006, we advanced $14,000 to our President, Allan Hartley, which is evidenced by
a non-interest bearing note payable upon demand.  In 2007, we advanced
$25,000 to Washington Capital LLC and $13,000 to a company whose owners are
major shareholders of the Company. The entire principal amounts were outstanding
at September 30, 2008.
 
 During
the fiscal year ended September 30, 2006, we, as payment of a finders fee and in
consideration of consulting services rendered in connection with an acquisition
transaction, issued Washington Capital, LLC 150,000 shares of our common stock
and a demand note in the principal amount of $150,000 and bearing interest at
the rate of 8% per annum and agreed to pay $90,000 to Washington Capital, LLC in
monthly installments over a three year period.  On October 31, 2007,
we entered into a forbearance agreement with Washington Capital LLC, wherein
Washington Capital LLC agreed to waive defaults and refrain from exercising its
rights and remedies against the Company until October 31, 2008 in exchange for
an increase in the interest rate to 13%.  Washington Capital, LLC, is
owned by Kathy Raymond who is the spouse of our Chief Executive Officer, Jeffrey
J. Raymond.  During the fiscal years ended September 30, 2008 and
2007, we made aggregate payments of $28,000 and $34,000, respectively, to
Washington Capital, LLC under the installment agreement, and as of September 30,
2008, $104,000 was outstanding under the demand note.
 
 In April
2006, Norman Goldstein, who was appointed as our director in December 2006,
loaned us $280,000, which was evidenced by an unsecured convertible note bearing
interest at an annual rate of 12%.  On October 31, 2007, we entered
into a forbearance agreement with Mr. Goldstein wherein Mr. Goldstein agreed to
waive defaults and refrain from exercising his rights and remedies against us
until October 31, 2008 in exchange for an increase in the interest rate to
18%.  On January 31, 2008, Mr. Goldstein exchanged the note, which had
an outstanding balance of $200,000, for 600,000 shares of our restricted common
stock and a new unsecured convertible note in the principal amount of $100,000
due October 31, 2008.  The new note bears interest at an annual rate
of 12% and is convertible at any time at the option of Mr. Goldstein, at a
specified price of $0.40 per share.
 
 In
October 2005, Pylon Management, Inc., loaned us $30,000.  During
fiscal 2008, Pylon Management, Inc. advanced us an additional
$18,000.   All of such amounts, which are due upon demand, were
outstanding at September 30, 2008.
 
 We lease
the majority of our workers from Tri-State Employment Services, Inc.
(“Tri-State”), a professional employment organization and beneficial owner of
approximately 31% of our common stock.  We lease employees in order to
mitigate certain insurance risks and obtain greater employee benefits at more
advantages rates via Tri-State’s much larger scale.  Employees are
leased from Tri-State based upon agreed upon rates which are dependent upon the
individual employee’s compensation structure, as agreed to between us and the
employee.  The total amount of leasing costs charged by Tri-State
during the fiscal years ended September 30, 2008 and 2007 was $59,268,000 and
$50,979,000, respectively.
 
 In order
to finance portions of the purchase price of an acquisition, we entered into a
borrowing arrangement with Tri-State in 2007 pursuant to which up to $950,000
was eligible to be borrowed without interest.  As consideration for
the loan, Tri-State was granted 600,000 shares of restricted common
stock.  We borrowed and subsequently repaid $450,000 within March
2007, and borrowed the balance of $500,000 in June 2007 which was payable in
equal monthly installments of $10,000.  In March 2008, we issued
1,000,000 shares of restricted common stock to Tri-State in exchange for
consideration of $200,000, which consisted of the cancellation of the remaining
outstanding balance of the loan of $120,000, the cancellation of $26,000 of
outstanding invoices payable and $54,000 in cash.
 
 During
the second quarter of 2008, we sold 1,107,500 shares of restricted common stock
to certain employees, directors and existing shareholders, including Ronald
Shapss (250,000 shares); Keystone Capital Resources, LLC, a company owned by
James Zimbler (500,000 shares); Mark Levine (62,000 shares); Stephen DelVecchia
(35,000 shares); John Messina (100,000 shares); and Kathy Raymond (50,000
shares) at a price of $0.20 per share.
 
 During
the third quarter of 2008, we entered into a stock purchase agreement with
Tri-State pursuant to which Tri-State purchased 1,000,000 shares of restricted
common stock at a fair value of $0.20 per share.  We received a
non-interest bearing note from Tri-State for $200,000 to finance the
purchase.  As of September 30, 2008, the note had been paid in full by
the stockholder.
 
 Historically,
although no written policy existed with respect to the review and approval of
related party transactions, related party transactions have been submitted for
approval and ratification to disinterested members of the Board of
Directors.  In September 2007, the Board appointed an Audit Committee
consisting of Mr. Cole and Mr. Goldstein.  In accordance with the
Audit Committee Charter, any
proposed transactions between our company and related parties will be subject to
the review and approval of the Audit Committee. In May 2008, we were advised of
the resignation of Mr. Cole from the Board of Directors and consequently, as a
member of the Audit Committee, leaving Mr. Goldstein as the sole remaining
member of the committee.  Our charter requires us to have a minimum of
two members on the Audit Committee and; therefore, as of the date of Mr. Cole’s
resignation the responsibilities of the Audit Committee have been assumed by the
Board of Directors.
  32
  
 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. Hartley, Messina and
Schecter.
 
 ITEM 14.
            PRINCIPAL
      ACCOUNTING FEES AND SERVICES
 
 Selection
of the independent public accountants for the Company is made by the Board of
Directors.  The Company’s Board of Directors did not have an Audit
Committee until an Audit Committee was established in September
2007.
 
 The
following table sets forth the aggregate fees billed to us for the years ended
September 30, 2008 and September 30, 2007 by Miller Ellin Company, LLP, our
independent auditors for the fiscal years ended September 30, 2008 and
2007:
 
 2008
            
            
            2007Audit
      Fees
            
            $
            64,000
            
            
            $
            130,000Audit-Related
      Fees
            
            
            48,000
            
            
            
            2,000Tax
      Fees
            
            
            9,000
            
            
            
            16,000All
      Other Fees
            
            
            -0-
            
            
            
            -0-Totals
            
            $
            121,000
            
            
            $
            148,000
 
 Audit
fees represent amounts billed for professional services rendered for the audit
of our annual financial statements and the reviews of the financial statements
included in our Forms 10-Q for the fiscal year.  Audit-Related Fees
include amounts billed for professional services rendered in connection with our
SEC filings and discussions with the SEC that occurred during fiscal 2008 for us
to become a fully reporting public company.  Our Board of Directors is
of the opinion that the Audit-Related Fees charged by Miller Ellin Company, LLP
were consistent with Miller Ellin Company, LLP maintaining its independence from
us.
 
 The Board
of Directors has considered whether provision of the non-audit services
described above is compatible with maintaining the independent accountant’s
independence and has determined that such services did not adversely affect
Miller Ellin Company LLP’s independence.
 
  33
  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)3.1
            Amended
      and Restated Certificate of Incorporation of the
      Registrant.  (2)3.2
            By-Laws
      of the Registrant.  (3)10.1
            Convertible
      Note issued by Accountabilities, Inc. to North Atlantic Resources LTD in
      principal amount of $250,000 (1).10.2
            Form
      of Warrant issued with respect to 55,986 shares of Accountabilities, Inc.
      Common Stock. (1)10.3
            Employment
      Agreement between Accountabilities, Inc. and Allan Hartley. (1)
      *10.4
            Employment
      Agreement between Accountabilities, Inc. and Mark Levine. (1)
      *10.5
            Employment
      Agreement between Accountabilities, Inc. and Stephen DelVecchia. (1)
      *10.6
            Convertible
      Subordinated Note dated March 31, 2006 issued by Accountabilities, Inc. to
      Bernard Freedman and Alice Freedman Living Trust in principal amount of
      $675,000. (1)10.7
            Demand
      Note dated March 31, 2006 issued by Accountabilities, Inc. to Washington
      Capital in the principal amount of $150,000. (1)10.8
            Subordinated
      Note dated March 31, 2006 issued by Accountabilities, Inc. to Bernard
      Freedman and Alice Freedman Living Trust in principal amount of $175,000.
      (1)10.9
            Promissory
      Note dated March 31, 2006 issued by Accountabilities, Inc. to Stratus
      Services Group, Inc. in the principal amount of $80,000.
    (1)10.10
            Consulting
      Agreement dated March 31, 2006 between Accountabilities, Inc. and William
      Thomas. (1)10.11
            Consulting
      Agreement dated March 31, 2006 between Accountabilities, Inc. and Jerry
      Schumacher. (1)10.12
            Consulting
      Agreement dated March 31, 2006 between Accountabilities, Inc. and
      Washington Capital, LLC. (1)10.13
            Convertible
      Note dated April 1, 2006 to NGA, Inc. in principal amount of $300,000.
      (1)10.14
            Promissory
      Note dated February 26, 2007 issued by Accountabilities, Inc. to ReStaff
      Services, Inc. in principal amount of $300,000. (1)10.15
            Promissory
      Note dated February 26, 2007 issued by Accountabilities, Inc. to ReStaff
      Services, Inc. in principal amount of $2,900,000. (1)10.16
            Interim
      Financing Agreement dated February 23, 2007 between Accountabilities, Inc.
      and Tri-State Employment Services, Inc. (1)10.17
            Stock
      Purchase Agreement dated November 27, 2006 between Accountabilities, Inc.
      and Tri-State Employment Services, Inc. (1)10.18
            Agreement
      dated August 1, 2006 between Accountabilities, inc. and Tri-State
      Employment Services , Inc. (1)10.19
            Account
      Transfer Agreement dated as of March 1, 2007 between Accountabilities,
      Inc. and Wells Fargo. (1)10.20
            Finder’s
      Fee Agreement dated February 26, 2007 between Accountabilities, Inc. and
      Pylon Management, Inc. (1)10.21
            Accountabilities,
      Inc. Equity Incentive Plan. (4) **10.22
            Temporary
      Forebearance Agreement dated October 31, 2007 between Accountabilities,
      Inc. and Washington Capital LLC (4)10.23
            Temporary
      Forebearance Agreement dated October 31, 2007 between Accountabilities,
      Inc. and Bernard Freedman. (4)10.24
            Temporary
      Forebearance Agreement dated October 31, 2007 between Accountabilities,
      Inc. and Bernard Freedman. (4)10.25
            Temporary
      Forebearance Agreement dated October 31, 2007 between Accountabilities,
      Inc. and NGA, Inc. (4)10.26
            Exchange
      Agreement dated January 22, 2008 between Accountabilities, Inc. and North
      Atlantic Resources, Ltd. (4)10.27
            Warrant
      dated January 22, 2008 issued to North Atlantic Resources, Ltd.
      (4)10.28
            Form
      of Warrant issued in connection with January 2008 Private Placement.
      (4)10.29
            Stock
      Purchase Agreement dated March 5, 2008 between Accountabilities, Inc. and
      Tri-State Employment, Inc. (5)
 
  34
  
 10.30
            Exchange
      Agreement dated January 31, 2008 between Accountabilities, Inc. and NGA,
      Inc. (5)10.31
            Convertible
      Note dated January 31, 2008 issued to NGA, Inc. in principal amount of
      $100,000. (5)10.32
            Stock
      Purchase Agreement dated March 5, 2008 between Accountabilities, Inc. and
      Keystone Capital Resources, LLC. (5)10.33
            Form
      of Stock Purchase Agreement executed in conjunction with sale of 1,107,500
      shares of Accountabilities, Inc. common stock for $0.20 per share.
      (5)10.34
            Form
      of Stock Purchase Agreement executed in conjunction with sale of 100,540
      shares of Accountabilities, Inc. common stock for $0.35 per share and
      warrants to purchase up to 9,800 shares of the Company’s common stock at
      an exercise price of $0.50 per share. (5)10.35
            Form
      of warrant issued in connection with private placement of 100,540 shares
      of Accountabilities, Inc. common stock. (5)10.36
            Convertible
      Note Purchase Agreement between Accountabilities, Inc. and North Atlantic
      Resources LTD, Inc. dated August 6, 2007. (8)10.37
            Exchange
      Agreement dated February 28, 2008 between Accountabilities, Inc. and
      ReStaff Services, Inc. (6)10.38
            Promissory
      Note dated February 28, 2008 issued by Accountabilities, Inc. to ReStaff
      Services, Inc. in principal amount of $100,000. (6)10.39
            Promissory
      Note dated February 28, 2008 issued by Accountabilities, Inc. to ReStaff
      Services, Inc. in principal amount of $1,700,000. (6)10.40
            Clarification
      Addendum to the Asset Purchase Agreement between Accountabilities, Inc.
      and ReStaff Services, Inc. (6)10.41
            Termination
      of Asset Purchase Agreement; Transfer of Hyperion Energy Common Stock.
      (6)10.42
            Promissory
      Note dated May 15, 2008 issued by Tri-State Employment Services, Inc. to
      Accountabilities, Inc. in the principal amount of $200,000.
      (7)10.43
            Stock
      Purchase Agreement dated May 15, 2008 between Accountabilities, Inc. and
      Tri-State Employment Services, Inc. (7)10.44
            Form
      of Stock Purchase Agreement utilized in connection with May, 2008 Private
      Placement. (7)21
            Subsidiaries
      (1)24
            Power
      of Attorney (located on signature page of this filing).31.1
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002. (filed herewith)31.2
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002. (filed herewith)32.1
            Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002. (filed herewith)32.2
            Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002. (filed herewith)*
            Constitutes
      a management contract required to be filed pursuant to Item 14© of Form
      10-K.**
            Constitutes
      a compensation plan required to be filed pursuant to Item 14 © of Form
      10-K.Footnote
      1
            Incorporated
      by reference to similarly numbered Exhibits filed with Amendment No. 2 to
      the Registration Statement on Form S-4 of Hyperion Energy Inc. as filed
      with the Securities and Exchange Commission on November 27,
      2007.Footnote
      2
            Incorporated
      by reference to similarly numbered exhibit to the Form 10-12G of the
      Registrant filed with the Securities and Exchange Commission on January
      22, 2008.Footnote
      3
            Incorporated
      by reference to Exhibit 3.4 to the Form 10SB of Registrant filed with the
      Securities and Exchange Commission on November 21,
2000.Footnote
      4
            Incorporated
      by reference to similarly numbered Exhibit to the Form 10-12G/A of the
      Registrant filed with the Securities and Exchange Commission on March 5,
      2008.Footnote
      5
            Incorporated
      by reference to similarly numbered Exhibit to the Form 10-12G/A of the
      Registrant filed with the Securities and Exchange Commission on March 27,
      2008.Footnote
      6
            Incorporated
      by reference to similarly numbered Exhibit to the Form 10-Q of the
      Registrant filed with the Securities and Exchange Commission on May 15,
      2008.Footnote
      7
            Incorporated
      by reference to similarly numbered Exhibit to the Form 10-Q of the
      Registrant filed with the Securities and Exchange Commission on August 14,
      2008.Footnote
      8
            Incorporated
      by reference to similarly numbered Exhibit to the Form 10-12G/A of the
      Registrant filed with the Securities and Exhchange Commission on April 15,
      2008.
    35
  
 
 
 
 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.Date: 
      December 23, 2008
              By:
              /s/ Jeffrey
      J. RaymondName: 
      Jeffrey J. RaymondTitle: 
      Chief Executive Officer
 
 
 POWER
OF ATTORNEY
  KNOW ALL
PERSONS BY THESE PRESENTS that each individual whose signature appears below
constitutes and appoints Jeffrey J. Raymond and Stephen DelVecchia and each of
them, as his true lawful attorney-in-fact and agent, with full power of
substitution for him or her and in his or her name, place and stead, in any and
all capacities, to sign any and all amendments to this Form 10-K, and to file
the same, together with all the exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and being requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, of his or her or their substitute
or substitutes, may lawfully do or cause to be done by virtue
hereof.
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
  Signature
              Title
              Date/s/
      Jeffrey J. Raymond
              Chief
      Executive Officer
              December 23,
      2008Jeffrey
      J. Raymond
              (Principal
      Executive Officer)/s/
      Stephen DelVecchia
              Chief
      Financial Officer
              December 23,
      2008Stephen
      DelVecchia
              (Principal
      Financial and Accounting Officer)/s/
      Allan Hartley
              President
      and Director
              December 23,
      2008Allan
      Hartley/s/
      John Messina
              Director
              December 23,
      2008John
      Messina/s/
      Norman Goldstein
              Director
              December 23,
      2008Norman
      Goldstein
  36
 INDEX
TO FINANCIAL STATEMENTS
 
 ACCOUNTABILITIES,
Inc.
 
 PageReport
      of Independent Registered Public Accounting Firm
            F-2Balance
      Sheets as of September 30, 2008 and 2007
            F-3Statements
      of Operations for the Years Ended September 30,2008, 2007 and
      2006
            F-4Statements
      of Cash Flows for the for the Years Ended September 30, 2008, 2007 and
      2006
            F-5Statement
      of Stockholders Equity for the Years Ended September 30, 2008, 2007 and
      2006
            F-6Notes
      to Financial Statements
            F-7
 
   F-1
  
  
  REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
   Board of
Directors and Stockholders of
 Accountabilities,
Inc.
 
 We have
audited the accompanying balance sheets of Accountabilities, Inc. (the
“Company”), as of September 30, 2008 and 2007 and the related statements of
operations, cash flows and stockholders’ equity (deficit) for the years ended
September 30, 2008, 2007 and 2006.  These financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.  Accordingly, we
express no such opinion.  An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Accountabilities, Inc. as of
September 30, 2008 and 2007 and the related statements of operations, cash flows
and stockholders’ equity (deficit) for the years ended September 30, 2008, 2007
and 2006 in conformity with accounting principles generally accepted in the
United States of America.
 
 /s/
Miller, Ellin & Company, LLP
 CERTIFIED
PUBLIC ACCOUNTANTS
 
 
 New York,
New York
 November
14, 2008
 
  F-2
  ACCOUNTABILITIES,
INC.
 BALANCE SHEETS
 
 September
      30,
            
            
            September
      30,2008
            
            
            2007ASSETSCurrent
      assetsCash
            
            $
            69,000
            
            
            $
            137,000Accounts
      receivable – less allowance for doubtful accounts of $445,000 and
      $338,000, respectively
            
            
            1,362,000
            
            
            
            224,000Due
      from financial institution
            
            
            202,000
            
            
            
            134,000Unbilled
      receivables
            
            
            671,000
            
            
            
            1,182,000Prepaid
      expenses
            
            
            326,000
            
            
            
            268,000Due
      from related party
            
            
            51,000
            
            
            
            51,000Total current
    assets
            
            
            2,681,000
            
            
            
            1,996,000Property
      and equipment, net
            
            
            340,000
            
            
            
            149,000Other
      assets
            
            
            10,000
            
            
            
            34,000Intangible
      assets, net
            
            
            1,426,000
            
            
            
            2,023,000Goodwill
            
            
            3,332,000
            
            
            
            4,617,000Total assets
            
            $
            7,789,000
            
            
            $
            8,819,000LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
            
            $
            1,431,000
            
            
            $
            1,348,000Accrued
      wages and related obligations
            
            
            2,019,000
            
            
            
            1,367,000Current
      portion of long-term debt
            
            
            420,000
            
            
            
            691,000Current
      portion of related party long-term debt
            
            
            946,000
            
            
            
            1,647,000Due
      to related party
            
            
            61,000
            
            
            
            169,000Total current
      liabilities
            
            
            4,877,000
            
            
            
            5,222,000Long-term
      debt, net of current portion
            
            
            307,000
            
            
            
            450,000Related
      party long-term debt, net of current portion
            
            
            1,144,000
            
            
            
            2,440,000Acquisition
      related contingent liability
            
            
            193,000
            
            
            
            257,000Total liabilities
            
            
            6,521,000
            
            
            
            8,369,000Commitments
      and contingencies (Note 15)Stockholders’
      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; 23,792,000 and
      17,469,000 shares issued and outstanding, respectively
            
            
            2,000
            
            
            
            2,000Additional
      paid-in capital
            
            
            3,236,000
            
            
            
            1,735,000Accumulated
      deficit
            
            
            (1,970,000
            )
            
            
            (1,287,000
            )Total stockholders’
      equity
            
            
            1,268,000
            
            
            
            450,000Total liabilities and
      stockholders’ equity
            
            $
            7,789,000
            
            
            $
            8,819,000
 
 
 The
accompanying notes are an integral part of these financial
statements.
  F-3
  
 ACCOUNTABILITIES,
INC.
 STATEMENTS OF OPERATIONS
 
  Year
      EndedSeptember
      30,
            
            
            September
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2006Revenue
            
            $
            66,608,000
            
            
            $
            57,581,000
            
            
            $
            34,088,000Direct
      cost of services
            
            
            56,061,000
            
            
            
            48,061,000
            
            
            
            28,728,000Gross
      profit
            
            
            10,547,000
            
            
            
            9,520,000
            
            
            
            5,360,000Selling,
      general and administrative expenses *
            
            
            9,703,000
            
            
            
            8,488,000
            
            
            
            5,756,000Depreciation
      and amortization
            
            
            445,000
            
            
            
            321,000
            
            
            
            118,000Income
      (loss) from operations
            
            
            399,000
            
            
            
            711,000
            
            
            
            (514,000
            )Interest
      expense
            
            
            834,000
            
            
            
            895,000
            
            
            
            498,000Loss
      on goodwill impairment
            
            
            148,000
            
            
            
            -
            
            
            
            -Net
      loss on debt extinguishments
            
            
            100,000
            
            
            
            -
            
            
            
            -Net
      loss
            
            $
            (683,000
            )
            
            $
            (184,000
            )
            
            $
            (1,012,000
            )Basic
      and diluted net loss per share
            
            $
            (0.03
            )
            
            $
            (0.01
            )
            
            $
            (0.12
            )Shares
      used in basic and diluted per-share calculations
            
            
            19,903,000
            
            
            
            15,515,000
            
            
            
            8,792,000*
      Includes $291,000, $29,000 and $1,151,000 for the fiscal years ended
      September 30, 2008, 2007 and 2006, respectively in non-cash charges for
      stock-based compensation.
 
 
 The
accompanying notes are an integral part of these financial
statements.
 
  F-4
  ACCOUNTABILITIES,
INC.
 STATEMENTS OF CASH FLOWS
 
 
 Year
      EndedSeptember
      30,
            
            
            September
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2006Cash
      flows from operating activities:Net
      loss
            
            $
            (683,000
            )
            
            $
            (184,000
            )
            
            $
            (1,012,000
            )Adjustments
      to reconcile net loss to cash provided by operating
      activities:Depreciation
      and amortization
            
            
            445,000
            
            
            
            321,000
            
            
            
            118,000Bad
      debt expense
            
            
            156,000
            
            
            
            188,000
            
            
            
            140,000Stock-based
      compensation
            
            
            291,000
            
            
            
            29,000
            
            
            
            1,151,000Net
      loss on debt extinguishments
            
            
            100,000
            
            
            
            -
            
            
            
            -Loss
      on goodwill impairment
            
            
            148,000
            
            
            
            -
            
            
            
            -Amortization
      of discount on long-term debt
            
            
            18,000
            
            
            
            7,000
            
            
            
            -Changes
      in operating assets and liabilities, net of effect of
      acquisitions:Trade
      accounts receivable
            
            
            (783,000
            )
            
            
            (343,000
            )
            
            
            (833,000
            )Due
      from financial institution
            
            
            (68,000
            )
            
            
            297,000
            
            
            
            (431,000
            )Prepaid
      expenses
            
            
            (58,000
            )
            
            
            15,000
            
            
            
            (215,000
            )Due
      from related party
            
            
            (108,000
            )
            
            
            (37,000
            )
            
            
            (14,000
            )Other
      assets
            
            
            24,000
            
            
            
            (2,000
            )
            
            
            (32,000
            )Accounts
      payable and accrued liabilities
            
            
            932,000
            
            
            
            327,000
            
            
            
            1,396,000Net
      cash provided by operating activities
            
            
            414,000
            
            
            
            618,000
            
            
            
            268,000Cash
      flows from investing activities:Purchase
      of property and equipment
            
            
            (265,000
            )
            
            
            (69,000
            )
            
            
            (94,000
            )Acquisitions
            
            
            -
            
            
            
            (730,000
            )
            
            
            (247,000
            )Net
      cash used in investing activities
            
            
            (265,000
            )
            
            
            (799,000
            )
            
            
            (341,000
            )Cash
      flows from financing activities:Proceeds
      from issuance of long-term debt
            
            
            -
            
            
            
            275,000
            
            
            
            -Principal
      payments on long-term debt
            
            
            (217,000
            )
            
            
            (289,000
            )
            
            
            (125,000
            )Proceeds
      from issuance of long-term debt – related parties
            
            
            62,000
            
            
            
            384,000
            
            
            
            311,000Principal
      payments on long-term debt – related parties
            
            
            (560,000
            )
            
            
            (590,000
            )
            
            
            (26,000
            )Payments
      on contingent acquisition related liability
            
            
            (64,000
            )
            
            
            (191,000
            )
            
            
            (229,000
            )Proceeds
      from issuance of common stock
            
            
            562,000
            
            
            
            721,000
            
            
            
            150,000Net
      cash (used in) provided by financing activities
            
            
            (217,000
            )
            
            
            310,000
            
            
            
            81,000Change
      in cash
            
            
            (68,000
            )
            
            
            129,000
            
            
            
            8,000Cash
      at beginning of period
            
            
            137,000
            
            
            
            8,000
            
            
            
            -Cash
      at end of period
            
            $
            69,000
            
            
            $
            137,000
            
            
            $
            8,000
 
 
 The
accompanying notes are an integral part of these financial
statements
  F-5
  ACCOUNTABILITIES,
INC.
 Statement
of Stockholders’ Equity (Deficit)
 
  Additional
            
            
            
            
            
            TotalCommon
      Stock
            
            
            Paid-In
            
            
            Accumulated
            
            
            Stockholders’Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            Equity
      (Deficit)Balances
      as of September 30, 2005
            
            
            2,960,000
            
            
            $
            -
            
            
            $
            (1,765,000
            )
            
            $
            (91,000
            )
            
            $
            (1,856,000
            )Issuances
      in satisfaction of Humana Businesses’ liabilities
            
            
            5,586,000
            
            
            
            1,000
            
            
            
            976,000
            
            
            
            -
            
            
            
            977,000Restricted
      stock grants and stock-based compensation expense
            
            
            2,310,000
            
            
            
            -
            
            
            
            778,000
            
            
            
            -
            
            
            
            778,000Restricted
      common stock issued for fees
            
            
            1,300,000
            
            
            
            -
            
            
            
            373,000
            
            
            
            -
            
            
            
            373,000Issuance
      of restricted common stock for assets
            
            
            20,000
            
            
            
            -
            
            
            
            45,000
            
            
            
            -
            
            
            
            45,000Issuance
      of restricted common stock for US Temps acquisition
            
            
            310,000
            
            
            
            -
            
            
            
            85,000
            
            
            
            -
            
            
            
            85,000Note
      conversion to restricted common stock
            
            
            273,000
            
            
            
            -
            
            
            
            150,000
            
            
            
            -
            
            
            
            150,000Net
      loss for the year endedSeptember
      30, 2006
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            (1,012,000
            )
            
            
            (1,012,000
            )Balances
      as of September 30, 2006
            
            
            12,759,000
            
            
            
            1,000
            
            
            
            642,000
            
            
            
            (1,103,000
            )
            
            
            (460,000
            )Issuances
      in satisfaction of Humana Businesses’ liabilities
            
            
            950,000
            
            
            
            -
            
            
            
            89,000
            
            
            
            -
            
            
            
            89,000Issuances
      of restricted common stock
            
            
            1,445,000
            
            
            
            1,000
            
            
            
            602,000
            
            
            
            -
            
            
            
            603,000Issuance
      of restricted common stock with loan for purchase of
    ReStaff
            
            
            600,000
            
            
            
            -
            
            
            
            119,000
            
            
            
            -
            
            
            
            119,000Issuance
      of restricted common stock for ReStaff acquisition
            
            
            830,000
            
            
            
            -
            
            
            
            188,000
            
            
            
            -
            
            
            
            188,000Restricted
      stock grants and stock-based compensation expense
            
            
            585,000
            
            
            
            -
            
            
            
            29,000
            
            
            
            -
            
            
            
            29,000Restricted
      stock issued for future services
            
            
            300,000
            
            
            
            -
            
            
            
            66,000
            
            
            
            -
            
            
            
            66,000Net
      loss for the year endedSeptember
      30, 2007
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            (184,000
            )
            
            
            (184,000
            )Balances
      as of September 30, 2007
            
            
            17,469,000
            
            
            
            2,000
            
            
            
            1,735,000
            
            
            
            (1,287,000
            )
            
            
            450,000Note
      conversions to restricted common stock
            
            
            2,194,000
            
            
            
            -
            
            
            
            622,000
            
            
            
            -
            
            
            
            622,000Restricted
      stock grants and stock-based compensation expense, net of
      forfeitures
            
            
            1,337,000
            
            
            
            -
            
            
            
            291,000
            
            
            
            -
            
            
            
            291,000Issuance
      of restricted common stock to employees and directors for
    cash
            
            
            1,108,000
            
            
            
            -
            
            
            
            221,000
            
            
            
            -
            
            
            
            221,000Issuance
      of restricted common stock to related party for cash and cancellation of
      invoices
            
            
            1,400,000
            
            
            
            -
            
            
            
            280,000
            
            
            
            -
            
            
            
            280,000Private
      placement to independent third parties
            
            
            284,000
            
            
            
            -
            
            
            
            87,000
            
            
            
            -
            
            
            
            87,000Net
      loss for the year endedSeptember
      30, 2008
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            (683,000
            )
            
            
            (683,000
            )Balances
      as of September 30, 2008
            
            
            23,792,000
            
            
            $
            2,000
            
            
            $
            3,236,000
            
            
            $
            (1,970,000
            )
            
            $
            1,268,000
  The accompanying notes are an
integral part of these financial statements.
 
 
  F-6
  ACCOUNTABILITIES,
INC.
 
 NOTES
TO FINANCIAL STATEMENTS
 
 1.  Description
of the Company and its Business
 
 Accountabilities,
Inc. (the “Company”) was incorporated in November 1994 under the laws of the
State of Delaware under the name Thermaltec International, Corp.  On
May 18, 2001, the Company changed its name to TTI Holdings of America Corp.
(“TTI”).  From its inception until July 2001, TTI was primarily
engaged in the thermal spray coating industry in the United States and Costa
Rica.  In July 2001, TTI discontinued the operations of its thermal
spraying business.  In August 2002, in anticipation of a merger which
did not occur, TTI merged with a newly formed wholly owned subsidiary, Steam
Cleaning USA Inc., and simultaneously changed its name to Steam Cleaning USA,
Inc. In July 2003, Steam Cleaning USA, Inc. acquired all of the outstanding
common stock of Humana Trans Services Holding Corp., in exchange for
substantially all of the outstanding shares of Steam Cleaning USA, Inc. and as a
result changed its name to Humana Trans Services Holding Corp.
(“Humana”).  Humana’s primary business operations consisted of i)
providing employee leasing and benefits processing services to clients and ii)
temporary staffing solutions to the trucking industry.  On or about
December 31, 2004 Humana sold its employee leasing and benefits processing
business to a third party.  In July 2005, Humana sold the segment of
its business devoted to the trucking industry to an entity controlled by its
management team.  On June 9, 2005 (the Date of Inception) the Company
formed a new subsidiary, Accountabilities Inc., for the purpose of acquiring a
business plan and concept related to the staffing and recruitment of
professional employees.  Operations related to the business of
Accountabilities, Inc. began on September 1, 2005.  In October 2005,
Accountabilities, Inc. was merged into Humana and the surviving corporation
changed its name to Accountabilities, Inc.  All references to the
business of the Company prior to the Date of Inception are hereinafter referred
to as “the Humana Businesses”.
 
 The
Company is a national provider of temporary commercial staffing in areas such as
light industrial and clerical services, and professional niche consulting and
staffing services in areas such as accounting, pharmaceutical and information
technology.  The Company conducts all of its business in the United
States through the operation of 13 staffing and recruiting offices, and through
sales and marketing agreements with nine public accounting firms.  The
agreements with the public accounting firms generally provide for the public
accounting firm to market and sell accounting and finance staffing and placement
services to customers in a defined market in exchange for a defined share of
profits generated from those sales.
 
 2.  Summary
of Significant Accounting Policies
 
 Basis
of Presentation
 
 The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
(“GAAP”) and the rules of the Securities and Exchange Commission
(“SEC”).  As a result of the dispositions of all operations associated
with the Humana Businesses, which were conducted in separate subsidiaries, and
the subsequent formation and startup of Accountabilities, Inc., the financial
statements have been prepared based upon a change in reporting entity wherein
only the accounts and related activity of the Company beginning with the Date of
Inception have been included, and all accounts and related operating activity of
the discontinued Humana Businesses have been excluded in order to reflect this
reorganization of the Company.
 
 Revenue
Recognition
 
 Staffing
and consulting revenues are recognized when professionals deliver services.
Permanent placement revenue, which generated 2.1% of total revenue in both
fiscal 2008 and 2007 and 2.6% in fiscal 2006, 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.
 
  F-7
  Accounts
Receivable
 
 The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from its clients failing to make required payments for services
rendered.  Management estimates this allowance based upon knowledge of
the financial condition of its clients, review of historical receivable and
reserve trends and other pertinent information.  If the financial
condition of the Company’s clients deteriorates or there is an unfavorable trend
in aggregate receivable collections, additional allowances may be
required.
 
 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.  Management believes no
permanent impairment has occurred.
 
 Intangible
Assets
 
 In
accordance with SFAS No. 142, “Goodwill and Other 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 annual impairment analysis as of
June 30, 2008 and will continue to test for impairment annually.  No
impairment was indicated as of June 30, 2008.  Other intangible assets
with finite lives are subject to amortization, and impairment reviews are
performed in accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.”
 
 Stock-Based
Compensation
 
 The
Company calculates stock-based compensation expense in accordance with SFAS No.
123 Revised, “Share-Based Payment” (“SFAS 123(R)”).  This
pronouncement requires the measurement and recognition of compensation expense
for all share-based payment awards made to employees and directors including
employee stock options, stock appreciation rights and restricted stock awards to
be based on estimated fair values. Under SFAS 123(R), the value of the portion
of the award that is ultimately expected to vest is recognized as an expense
over the requisite service periods.  The Company recognizes
stock-based compensation expense on a straight-line basis over the requisite
service periods.
 
 Per
Share Information
 
 The
Company presents basic and diluted earnings per share (“EPS”) amounts in
accordance with SFAS No. 128, “Earnings Per Share.”  This
pronouncement establishes standards for the computation, presentation and
disclosure requirements for EPS for entities with publicly held common shares
and potential common shares.  Basic EPS is calculated by dividing net
income by the weighted average number of common shares outstanding during the
period.  Diluted EPS is based upon the weighted average number of
common shares and common stock equivalent shares outstanding during the period
calculated using the treasury-stock method for stock-based compensation subject
to vesting.  Under the treasury-stock method exercise proceeds
includes the amount of compensation costs for future services that the Company
has not yet recognized. Common stock equivalent shares are excluded from the
computation in periods in which they have an anti-dilutive
effect.  The weighted average number of shares for 2008, 2007 and 2006
does not include the anti-dilutive effect of 1,004,000, 946,000 and 479,000
common stock equivalents representing warrants, convertible debt and the effect
of non-vested shares since including them would be anti-dilutive.
 
 Income
Taxes
 
 The
Company accounts for income taxes using the asset and liability method as
prescribed by SFAS No. 109, “Accounting for Income Taxes” (“SFAS
109”).  Under this method, deferred income taxes are recognized for
the estimated tax consequences in future years of differences between the tax
basis of assets and liabilities and their financial reporting amounts at each
year-end based on enacted tax laws and statutory rates applicable to the periods
in which the differences are expected to affect taxable income.  If
necessary, valuation allowances are established to reduce deferred tax assets to
the amount expected to be realized when, in management’s opinion, it is more
likely than not that some portion of the deferred tax assets will not be
realized.
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Although management believes these estimates and assumptions
are adequate, actual results could differ from the estimates and assumptions
used.
 
 F-8
 3.      Acquisitions
 
 ReStaff
Services, Inc. Offices Acquisition
 
 On
February 26, 2007, the Company acquired the operations, including three offices
of ReStaff Services, Inc. (“ReStaff Acquisition”), for a total purchase price of
$4,710,000. The original purchase price consisted of the following: a) $400,000
in cash due at the day of the closing of the transaction, b) $300,000 in cash
due May 26, 2007, c) $347,000 in cash subject to the collection of certain
identified accounts receivable, d) a $300,000 note due February 26, 2009 and
bearing interest at 6% per annum, e) a $2,900,000 note bearing interest at 6%
per annum, payable in equal monthly installments of $69,400 over four years
beginning June 27, 2007, which was subject to proportionate reduction in
principal in the event the acquired operations generated less than $1,000,000 in
net income before taxes in any year during the term of the note, f) 500,000
shares of common stock valued at approximately $113,000, g) a $342,000 fee
payable to a major shareholder as consideration for brokering and structuring
the transaction, comprised of $274,000 payable in 104 equal weekly installments
of $2,885 and bearing annual interest of 9% and 300,000 shares of restricted
common stock valued at $68,000, and h) 30,000 shares of restricted common stock
issued to key employees of ReStaff valued at $7,000.
 
 A portion
of the original purchase price was subject to reduction if ReStaff’s audited net
income for the year ending December 31, 2006 was less than
$1,350,000.  On February 28, 2008, the Company completed its analysis
of ReStaff’s results and reduced the original purchase price by
$1,398,000.  The reduction in the purchase price was accomplished
through the restructuring of the remaining indebtedness to the former owner of
ReStaff and the issuance of 250,000 shares of restricted common stock with a
fair value of $50,000 on the restructuring date.  The restructuring
involved the exchange of notes payable with outstanding principal balances of
$3,090,000 and related accrued interest of $158,000 for two new
notes.  A $1,700,000 note was issued February 28, 2008 bearing an
annual interest rate of 6%.  The note is due on May 1, 2012 and is
payable in equal monthly installments of $39,925.  A $100,000 note was
issued February 28, 2008 bearing an annual interest rate of 6%.  The
principal and interest on this note are due on March 5, 2009.  All
results of operations of ReStaff have been included in the accompanying
Statements of Operations since the date of acquisition.
  During
the second quarter of fiscal 2008, the Company obtained independent third-party
valuations of the intangible assets acquired in the ReStaff
acquisition.  The Company has made adjustments to decrease the
previously estimated amount assigned to the customer list acquired by $262,000
and increase the amount assigned to the non-competition agreement by $1,000
based upon these final valuations with a corresponding increase in
goodwill.  Amortization of these revalued intangible assets is being
reflected prospectively as a change in estimate as of the final valuation
date.  The following table summarizes the final fair values of the
assets acquired and the liabilities assumed at the date of the acquisition and
the adjustments to the original purchase price made during the second quarter of
fiscal 2008.
 
 Property
      and equipment
            
            $
            5,000Non-competition
      agreement
            
            
            81,000Accounts
      receivable
            
            
            200,000Customer
      lists and relationships
            
            
            1,199,000Goodwill
            
            
            1,889,000Total
      assets acquired
            
            
            3,374,000Accrued
      liabilities
            
            
            (62,000
            )Total
      purchase price
            
            $
            3,312,000
 
 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, 2008 amortization of
$183,000 and $27,000 has been recognized related to the customer lists and
relationships and the non-competition agreement, respectively.  For
the year ended September 30, 2007 amortization of $122,000 and $16,000 has been
recognized related to the customer lists and relationships and the
non-competition agreement, respectively.
  US
Temp Services, Inc. Offices Acquisition
 
 On March
31, 2006 the Company acquired the operations of five offices from US Temp
Services, Inc. (“US Temp Acquisition”) for a total purchase price of
$1,723,000.  The consideration included $75,000 in cash and $930,000
in notes payable.  Concurrent with the acquisition, the Company
entered into long-term consulting agreements with two of the principals, which
required the issuance of 160,000 shares of common stock valued at approximately
$44,000 and a series of payments for future consulting services which have been
treated as debt obligations with a fair value at the date of acquisition of
approximately $292,000.  The stock and payments under the consulting
agreements have been treated as additional purchase price
consideration.  Transaction costs directly attributable to the
acquisition totaled $382,000 and included consideration totaling $275,000 given
to an individual, who is also a major shareholder of the Company, in the form of
150,000 shares of common stock valued at approximately $41,000, a demand note
totaling $150,000, and a series of payments for future consulting services which
have been treated as debt obligations with a fair value at the date of
acquisition of approximately $84,000.  All results of operations of
the acquired offices have been included in the accompanying Statement of
Operations since the date of acquisition.
 
 The
following table summarizes the fair values of the assets acquired and the
liabilities assumed at the date of the acquisition.
 
 Accounts
      receivable
            
            $
            358,000Property
      and equipment
            
            
            25,000Customer
      lists and relationships
            
            
            168,000Non-solicitation
      agreement
            
            
            30,000Goodwill
            
            
            1,335,000Total
      assets acquired
            
            
            1,916,000Accrued
      liabilities
            
            
            (193,000
            )Total
      purchase price
            
            $
            1,723,000
 
 Customer
lists and relationships, and the non-solicitation agreement are being amortized
over weighted average useful lives of seven years and three years, respectively.
For each year ended September 30, 2008 and 2007 amortization of $24,000 and
$10,000 has been recognized related to the customer lists and relationships and
the non-solicitation agreement, respectively.  For the year ended
September 30, 2006 amortization of $12,000 and $5,000 has been recognized
related to these respective assets.
 
 F-9
 Stratus
Services Group, Inc. Offices Acquisition
 
 On
November 28, 2005 the Company acquired the operations of three offices from
Stratus Services Group, Inc. (“Stratus Acquisition”).  All results of
operations of the acquired offices have been included in the accompanying
Statements of Operations since the date of acquisition.  The purchase
price is contingent upon the future revenues generated by the offices from
existing customers as follows: a) 2% of revenue for the first twelve months, b)
1% of revenue for the second twelve months, and c) 1% of revenue for the third
twelve months (“Stratus Earnout”).  Fair values were determined for
the acquired assets and liabilities in recording the acquisition, and
accordingly $638,000 was assigned to customer lists and relationships, and
$40,000 to property and equipment.  Because the purchase price
includes only the Stratus Earnout which is based upon future revenues, the total
fair value of the acquired assets was greater than the purchase price as of the
day of the acquisition, which was zero as the Stratus Earnout had yet to be
earned.  Consequently, the total fair value of the acquired assets of
$678,000 was recorded as a liability (“Acquisition related contingent
liability”) as of the day of the acquisition.  For the years ending
September 30, 2008, 2007 and 2006, $64,000, $191,000 and $230,000 has been paid
relating to the Stratus Earnout, respectively, reducing the Acquisition related
contingent liability to $193,000, $257,000 and $448,000 as of September 30,
2008, 2007 and 2006, respectively.
 
 Customer
lists and relationships associated with the Stratus Acquisition are being
amortized over a weighted average useful life of seven years.  For
each year ended September 30, 2008 and 2007 amortization of $91,000 has been
recognized related to the customer lists and relationships.  For the
year ended September 30, 2006, $75,000 has been recognized related to the
customer lists and relationships.
 
 During
fiscal 2006 the Company completed other individually immaterial acquisitions for
purchase prices totaling $106,000.  The historical results of these
acquired operations are not considered material to the Company’s financial
statements and therefore proforma disclosures are not included
below.
 
 The
following unaudited pro forma information shows the Company’s results of
operations for the years ended September 30, 2008, 2007 and 2006, as if the
ReStaff Acquisition, US Temp Acquisition and Stratus Acquisition had all
occurred on October 1, 2005.
 
 Year
      Ended
              September
      30, 2008
            
            
            Year
      Ended
              September
      30, 2007
            
            
            Year
      Ended
              September
      30, 2006Revenue
            
            $
            66,608,000
            
            
            $
            65,898,000
            
            
            $
            66,537,000Net
      loss
            
            $
            (683,000
            )
            
            $
            (352,000
            )
            
            $
            (872,000
            )Basic
      and diluted net loss per share
            
            $
            (0.03
            )
            
            $
            (0.02
            )
            
            $
            (0.09
            )
 
 4.      Intangible
Assets and Goodwill
 
 The
following table presents detail of the Company’s intangible assets, estimated
lives, related accumulated amortization and goodwill at September 30, 2008 and
2007:
 
 As
      of September 30, 2008
            
            
            As
      of September 30, 2007Accumulated
            
            
            
            
            
            
            
            
            AccumulatedGross
            
            
            Amortization
            
            
            Net
            
            
            Gross
            
            
            Amortization
            
            
            NetCustomer
      lists and relationships (7 years)
            
            $
            2,007,000
            
            
            $
            (625,000
            )
            
            $
            1,382,000
            
            
            $
            2,269,000
            
            
            $
            (325,000
            )
            
            $
            1,944,000Non-competition
      agreements (3 years)
            
            
            111,000
            
            
            
            (67,000
            )
            
            
            44,000
            
            
            
            110,000
            
            
            
            (31,000
            )
            
            
            79,000Total
            
            $
            2,118,000
            
            
            $
            (692,000
            )
            
            $
            1,426,000
            
            
            $
            2,379,000
            
            
            $
            (356,000
            )
            
            $
            2,023,000Goodwill
      (indefinite life)
            
            $
            3,332,000
            
            
            
            
            
            
            $
            3,332,000
            
            
            $
            4,617,000
            
            
            
            
            
            
            $
            4,617,000
 
 During
the second quarter of fiscal 2008, the Company obtained independent third-party
valuations of the customer list and non-competition agreement acquired in the
ReStaff acquisition. The Company has made adjustments to decrease the previously
estimated amount assigned to the customer list acquired by $262,000 and increase
the amount assigned to the non-competition agreement by $1,000 based upon these
final valuations with a corresponding increase in
goodwill.  Amortization of these revalued intangible assets is being
reflected prospectively as a change in estimate as of the final valuation
date.
 
 The
Company recorded amortization expense for the years ended September 30, 2008,
2007 and 2006 of $336,000, $263,000 and $93,000,
respectively.  Estimated intangible asset amortization expense (based
on existing intangible assets) for the years ending September 30, 2009, 2010,
2011, 2012 and 2013 is $313,000, $292,000, $280,000, $280,000 and $192,000,
respectively.
 
 The
Company accounts for its goodwill and other intangible assets in accordance with
SFAS 142, “Goodwill and Other Intangible Assets”.  Under this
standard, goodwill and other intangible assets deemed to have indefinite lives
are not amortized but are subject to annual impairment tests.  During
the second quarter of fiscal 2008, the Company recorded a $148,000 goodwill
impairment charge to write off costs capitalized in connection with a planned
reverse-merger with Hyperion Energy, Inc., that did not
occur.  Goodwill balances and adjustments made are as
follows:
 
 
 Goodwill
      as of September 30, 2007
            
            $
            4,617,000ReStaff
      purchase price adjustment
            
            
            (1,398,000
            )Final
      valuation of ReStaff intangible assets
            
            
            261,000Impairment
            
            
            (148,000
            )Goodwill
      as of September 30, 2008
            
            $
            3,332,000
 
  F-10
  5.      Related
Parties
 
 Due from
related party on the accompanying Balance Sheets represents outstanding amounts
advanced to major shareholders and the president of the
Company.   During 2007 the Company advanced $25,000 to a major
shareholder and $12,000 to a company whose owners are major shareholders in the
Company.  The Company received a promissory note dated March 24, 2006
in the principal amount of $14,000 from the president of the
Company.  The note is payable upon demand and is not subject to
interest.
 
 The
Company leases the majority of its workforce from a professional employer
organization that is also a major shareholder of the Company as explained
further in Note 7 below.
 
 6.      Property
and Equipment
 
 At
September 30, 2008 and 2007 property and equipment consisted of the
following:
 
 September
      30,
            
            
            September
      30,2008
            
            
            2007Furniture
      and fixtures
            
            $
            162,000
            
            
            $
            106,000Office
      equipment
            
            
            32,000
            
            
            
            19,000Computer
      equipment
            
            
            174,000
            
            
            
            77,000Software
            
            
            5,000
            
            
            
            5,000Leasehold
      improvements
            
            
            159,000
            
            
            
            27,000532,000
            
            
            
            234,000Less
      accumulated depreciation
            
            
            192,000
            
            
            
            85,000$
            340,000
            
            
            $
            149,000
 
 7.      Accrued
Wages and Related Obligations
 
 Accrued
wages and related obligations consisted of the following as of September 30,
2008 and 2007:
 
 September
      30,
            
            
            September
      30,2008
            
            
            2007Accrued
      payroll and related costs
            
            $
            25,000
            
            
            $
            155,000Accrued
      leased employee costs
            
            
            1,994,000
            
            
            
            1,212,000$
            2,019,000
            
            
            $
            1,367,000
 
 Accrued
leased employee costs include the costs associated with employees leased from a
professional employer organization that also owns approximately 31% of the
outstanding common stock of the Company as of September 30,
2008.  Accrued leased employee costs payable to this professional
employer organization and shareholder were $1,962,000 and $1,320,000 as of
September 30, 2008 and 2007, respectively.  The Company leases employees
associated with all of its operations, with the exception of certain employees
involved only in corporate functions.  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 this professional employer organization for the years ended
September 30, 2008, 2007 and 2006 was $59,268,000, $50,979,000 and $25,312,000,
respectively.
 
  F-11
  8.      Long-Term
Debt
 
 Long-term
debt at September 30, 2008 and 2007 is summarized as follows:
 
 September
      30,
            
            
            September
      30,2008
            
            
            2007Long-term
      debt16.25%
      subordinated note (i)
            
            $
            102,000
            
            
            $
            93,0003%
      convertible subordinated note (ii)
            
            
            436,000
            
            
            
            527,00018%
      unsecured note (iii)
            
            
            80,000
            
            
            
            80,000Long
      term capitalized consulting obligations (v)
            
            
            38,000
            
            
            
            159,000Long
      term capitalized lease obligation (xiv)
            
            
            21,000
            
            
            
            -10%
      convertible subordinated note (xiii)
            
            
            -
            
            
            
            232,000Other
      debt
            
            
            50,000
            
            
            
            50,000Total
            
            
            727,000
            
            
            
            1,141,000Less
      current maturities
            
            
            420,000
            
            
            
            691,000Non-current
      portion
            
            
            307,000
            
            
            
            450,000Related
      party long-term debt13%
      unsecured demand note (iv)
            
            
            104,000
            
            
            
            101,000Long
      term capitalized consulting obligations (vi)
            
            
            17,000
            
            
            
            46,00012%
      unsecured convertible note (vii)
            
            
            100,000
            
            
            
            270,000Demand
      loans (viii)
            
            
            65,000
            
            
            
            30,0006%
      unsecured note (ix)
            
            
            100,000
            
            
            
            300,0006%
      unsecured note (x)
            
            
            1,631,000
            
            
            
            2,846,0009%
      unsecured note (xi)
            
            
            73,000
            
            
            
            210,000Unsecured
      loan (xii)
            
            
            -
            
            
            
            284,000Total
            
            
            2,090,000
            
            
            
            4,087,000Less
      current maturities
            
            
            946,000
            
            
            
            1,647,000Non-current
      portion
            
            
            1,144,000
            
            
            
            2,440,000Total
      long-term debt
            
            
            2,817,000
            
            
            
            5,228,000Less
      current maturities
            
            
            1,366,000
            
            
            
            2,338,000Total
      non-current portion
            
            $
            1,451,000
            
            
            $
            2,890,000
 
 US
Temp Services, Inc. Acquisition Notes and Long Term Consulting
Obligations
 
 As
partial consideration associated with the US Temp Acquisition four notes were
issued.
 
 (i)           A
$175,000 subordinated note was issued March 31, 2006, and was due January 30,
2007.  The note had an annual interest rate of 8% with principal and
interest payable in equal monthly installments of $18,150.  The note
is secured by office equipment and other fixed assets.  Due to the
failure to make timely payments under the terms of the note, the holder has
elected the option of declaring the note in technical default and began
assessing interest, beginning April 1, 2007, at the rate of 11.25% per annum,
and to impose a 5% late charge on the overdue balance outstanding.  On
October 31, 2007, the Company entered into a forbearance agreement with the
holder of the note wherein the holder agreed to waive defaults and refrain from
exercising its rights and remedies against the Company until October 31, 2008 in
exchange for an increase in the interest rate to 16.25%.
 
 (ii)           A
$675,000 convertible subordinated note was issued March 31, 2006 and is due
March 31, 2012.  The note bears interest at an annual rate of 3%, and
is convertible in part or in whole into common shares at any time at the option
of the holder at the specified price of $1.50 per share.  The note is
secured by office equipment and other fixed assets.
 
 (iii)           A
$80,000 unsecured non-interest bearing note was issued March 31, 2006, and was
due June 29, 2006.  Due to the failure to make timely payments under
the terms of the note, on April 1, 2007, the holder elected the option of
declaring the note in technical default and began charging interest at a rate of
18% per annum.  On October 31, 2007, the Company entered into a
forbearance agreement with the holder of the note wherein the holder agreed to
waive defaults and refrain from exercising its rights and remedies against the
Company until October 31, 2008 in exchange for an increase in the interest rate
to 18% per annum.
  F-12
  
 (iv)           A
$150,000 unsecured demand note was issued March 31, 2006 to a principal
shareholder of the Company as a finder’s fee in consideration for sourcing and
completing the US Temp Acquisition.  The note bore an annual interest
rate of 8%. On October 31, 2007, the Company entered into a forbearance
agreement with the holder of the note wherein the holder agreed to waive
defaults and refrain from exercising its rights and remedies against the Company
until October 31, 2008 in exchange for an increase in the interest rate to
13%.
 
 On March
31, 2006, in connection with the US Temp Acquisition, the Company entered into
three long term consulting obligations which require the Company to pay fixed
recurring amounts but which do not require the other party to provide any
minimum level of services.  Consequently, the agreements have been
treated as debt obligations in the accompanying financial statements and
capitalized, net of interest imputed at a rate of 8.75% per year.  The
imputed interest was determined by reference to terms associated with credit
available to the Company at that time.  All three agreements expire on
March 31, 2009.
 
 (v)           Two
of the agreements were entered into with the principals of US Temps and each
require annual payments of $60,000 in the first two years and $30,000 in the
final year, payable in fixed weekly amounts.  These two agreements in
total were initially recognized at a fair value of $292,000 using a discount
rate of 8.75%.
 
 (vi)           The
third agreement was entered into with a major shareholder of the Company and
requires annual payments of $30,000 in each of three years, payable in fixed
weekly amounts.  The agreement was initially recorded at a fair value
of $84,000 using an interest rate of 5%.
 
 12%
Unsecured Convertible Note
 
 (vii)           A
$280,000 unsecured convertible note was issued on April 1, 2006 to a shareholder
and director of the Company.  The note was due April 1, 2007, bearing
an annual interest rate of 12%.  On October 31, 2007, the Company
entered into a forbearance agreement with the holder of the note wherein the
holder agreed to waive defaults and refrain from exercising its rights and
remedies against the Company until October 31, 2008 in exchange for an increase
in the interest rate to 18%. On January 31, 2008, the shareholder and director
exchanged the note, with an outstanding principal balance of $200,000 for
600,000 shares of restricted common stock with a fair value on the date of
exchange of $177,000 and a new unsecured convertible note in the principal
amount of $100,000 due October 31, 2008.  The new note bears interest
at an annual rate of 12% and is convertible at any time at the option of the
holder at a specified price of $0.40 per share.  The Company recorded
a loss of $77,000 on the extinguishment of the debt representing the difference
between the fair value of the shares issued on the date of conversion and the
remaining principal balance outstanding on the note.
 
 Demand
Loans
 
 (viii)           In
October 2005 a major shareholder advanced the Company $30,000 to fund its
initial operations.  During fiscal 2008, the same shareholder advanced
the Company an additional $18,000 and another major shareholder advanced the
Company $17,000.  The amounts are not subject to interest, are
classified as short-term loans and are due and payable upon demand by the
shareholders.
 
 ReStaff
Inc., Acquisition Notes
 
 As
partial consideration associated with the ReStaff Acquisition the following
notes and loan were issued.  The notes described in (ix) and (x) below
were issued to the then sole shareholder of ReStaff who was also issued 600,000
shares of common stock as partial consideration and who also became an employee
of the company.  A portion of the purchase price was subject to
reduction if ReStaff’s audited net income for the year ending December 31, 2006
was less than $1,350,000.  On February 28, 2008, the Company completed
its analysis of ReStaff’s results and reduced the original purchase price by
$1,398,000.  The reduction in the purchase price was accomplished
through the restructuring of the remaining indebtedness to the former owner of
ReStaff and the issuance of 250,000 shares of restricted common stock with a
fair value of $50,000 on the restructuring date.  The restructuring
involved the exchange of notes payable with outstanding principal balances of
$3,090,000 and related accrued interest of $158,000 for the two new notes
described in (ix) and (x) below.  The note described in (x) below is
subject to proportionate reduction in principal in the event the acquired
operations generate less than $1,000,000 in net income (as defined in the asset
purchase agreement) in any year during the term of the note.  The debt
described in (xi) and (xii) below was issued to two separate major shareholders
of the Company.
 
 (ix)           As
described above, in February 2008 a $100,000 unsecured note was
issued.  The note is due March 5, 2009, and bears an annual interest
rate of 6%.  As of September 30, 2007, $300,000 remained outstanding
on a 6% note issued in February, 2007 as partial consideration for the ReStaff
Acquisition as described above.
  F-13
  
 (x)           As
described above, in February 2008, a $1,700,000 unsecured note was
issued.  The note bears an annual interest rate of 6% with principal
and interest payable in equal monthly installments of $39,925 over four years
beginning May 1, 2008.  As mentioned above, the note is subject to
proportionate reduction in principal in the event the acquired operations
generate less than $1,000,000 in net income (as defined in the asset purchase
agreement) in any year during the term of the note. As of September 30, 2007,
$2,846,000 remained outstanding on a 6% note issued in February, 2007 as partial
consideration for the ReStaff Acquisition as described above.
 
 (xi)           In
February 2007, a $275,000 unsecured note was issued as partial finder’s fee
consideration to a major shareholder bearing annual interest of 9%, with
principal and interest payable in equal monthly installments of $2,885 over 104
months.
 
 (xii)           In
order to finance portions of the purchase price of the ReStaff Acquisition, the
Company entered into a borrowing arrangement with another major
stockholder.  Under the terms of the agreement, up to $950,000 was
available to be borrowed without interest.  As consideration for the
loan, the stockholder was granted 600,000 shares of restricted common
stock.  The Company borrowed and subsequently repaid $450,000 in
March, 2007, and borrowed the balance of $500,000 in June, 2007 which was
payable in equal weekly installments of $10,000.  The Company followed
the guidance in Accounting Principles Board Opinion No. 14, Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants, by treating the
relative fair value of the restricted common stock granted as a discount to the
debt, with a corresponding increase in additional paid-in
capital.  Accordingly, a relative fair value associated with the
granted common stock of $119,000 was calculated, $4,000 of which was apportioned
to the initial $450,000 borrowed and repaid in March, 2007 and recorded as
interest expense, and $115,000 was apportioned to the $500,000 balance and
recorded as deferred financing costs to be amortized as interest expense
beginning in June, 2007.  In March, 2008, the Company issued 600,000
shares of restricted common stock with a fair value of $159,000 in exchange for
the cancellation of the remaining principal balance of $120,000 outstanding on
the date of exchange.  The Company recorded a loss of $47,000 on the
extinguishment of the debt representing the difference between the fair value of
the shares issued on the date of conversion and the remaining principal balance
outstanding on the note, net of remaining deferred financing costs of
$8,000.
 
 Other
Long-Term Debt
 
 (xiii)           A
$250,000 convertible subordinated note was issued August 6, 2007 and was to
become due on February 16, 2008.  The note bore interest at an annual
rate of 10% and was convertible in whole or in part into common shares at any
time at the option of the holder.  The conversion price per share was
equal to the greater of 75% of the closing price of the common stock on the
trading day preceding the conversion or the Per Share Enterprise
Value.  Enterprise Value was defined as the sum of the aggregate
market price of all of the Company’s common stock outstanding and aggregate
outstanding indebtedness immediately prior to the conversion
date.  Per Share Enterprise Value was determined by dividing the
Enterprise Value by the total number of shares of common stock outstanding
immediately prior to the conversion date, provided that the Enterprise Value was
not to be less than $18,000,000.  In January, 2008, the holder
exchanged the note for 744,031 shares of restricted common stock and a
three-year warrant to purchase 100,000 shares of common stock at an exercise
price of $0.50 per share.  On the date of the exchange there was
$250,000 in principal and accrued interest of $10,000 outstanding on the
note.  The Company recorded a gain of $24,000 on the extinguishment of
the debt representing the difference between the fair value of the shares and
warrants issued on the date of conversion and the remaining principal and
accrued interest outstanding on the note.
 
 (xiv)           In
November, 2007, the Company entered into a capital lease agreement to purchase
computer equipment.  The original principal of $33,000 is payable over
a lease term of 24 months in equal monthly installments of $1,843.
 
 Reliance
on Related Parties
 
 The
Company has historically relied on funding from related parties in order to meet
its liquidity needs, such as the debt described in (iv), (vi), (vii), (viii),
(ix), (x), (xi) and (xii) above.  Management believes that the terms
associated with these instruments would not differ materially from those that
might have been negotiated with independent parties.  However,
management believes that the advantages the Company derived from obtaining
funding from related parties include a shortened length of time to identify and
obtain funding sources due to the often pre-existing knowledge of the Company’s
business and prospects possessed by the related party, and the lack of agent or
broker compensation often deducted from gross proceeds available to the
Company.  Management anticipates the Company will continue to have
significant working capital requirements in order to fund its growth and
operations, and to the extent the Company does not generate sufficient cash flow
from operations to meet these working capital requirements it will continue to
seek other sources of funding including the issuance of related party
debt.
 
  F-14
  The
aggregate amounts of long-term debt maturing after September 30, 2008 are as
follows:
 
 2009
            
            $
            1,366,0002010
            
            
            539,0002011
            
            
            567,0002012
            
            
            345,0002013
            
            
            0Thereafter
            
            
            0$
            2,817,000
 
 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, 2008,
current liabilities exceeded current assets by $2,196,000.  Included in
this amount, is approximately $486,000, which represents the current portion of
the debt described in (x) above, the total of which is subject to reduction in
the event the acquired operations do not attain sufficient levels of
profitability.  Also included in current liabilities is $700,000 of
unremitted payroll taxes associated with a discontinued subsidiary as disclosed
in the following Note 15, which has been outstanding since fiscal 2004, and for
which the ultimate date of resolution is unknown.  Additionally, subsequent
to September 30, 2008, the Company has been engaging in several activities to
further increase current assets and/or decrease current liabilities including
obtaining further forbearance agreements on the debt described in (i), (iii) and
(iv) above, issuing additional debt or equity instruments of the Company in
exchange for cash, and seeking additional reductions in operating expenditures
and increases in operating efficiencies.
  9.      Stock-Based
Compensation
 
 In
September, 2007, the Board adopted the Accountabilities, Inc. Equity Incentive
Plan (“the Plan”).  The Plan provides for the grant of stock options,
stock appreciation rights and restricted stock awards to employees, directors
and other persons in a position to contribute to the growth and success of the
Company.  A total of 2,000,000 shares of common stock have been
reserved for issuance under the Plan, and as of September 30, 2008 grants with
respect to 1,403,000 shares had been made.
 
 During
April 2007, 585,000 shares of restricted common stock were granted to certain
employees prior to the adoption of the Plan as restricted stock
awards.  Restricted stock award vesting is determined on an individual
grant basis.  Of the shares granted, 500,000 vest over five years and
85,000 vest over three years.
 
 A summary
of the status of the Company’s nonvested shares as of September 30, 2008 and the
changes during the year ended September 30, 2008 is presented
below:
 
 
 Shares
            
            
            Weighted-Average
              Grant-Date Fair
      ValueNonvested
      at October 1, 2006
            
            
            -
            
            
            
            -Granted
            
            
            585,000
            
            
            $
            0.34Nonvested
      at September 30, 2007
            
            
            585,000
            
            
            $
            0.34Granted
            
            
            1,403,000
            
            
            $
            0.30Vested
            
            
            (298,000
            )
            
            $
            0.32Forfeited
            
            
            (66,000
            )
            
            $
            0.30Nonvested
      at September 30, 2008
            
            
            1,624,000
            
            
            $
            0.31
 
 Compensation
expense is measured using the grant-date fair value of the shares granted and is
recognized on a straight-line basis over the required vesting
period.  For shares vesting immediately, compensation expense is
recognized on the date of grant.  Fair value is determined as a
discount from the current market price quote to reflect a) lack of liquidity
resulting from the restricted status and low trading volume and, b) recent
private placement valuations.  The shares granted during the 2008 and
2007 fiscal years had weighted-average grant date fair values of $0.30 and
$0.34, respectively representing discounts of 35% from market price for both
years.
 
 For the
years ended September 30, 2008, and 2007, compensation expense relating to
restricted stock awards was $174,000 and $29,000, respectively.  As of
September 30, 2008, there was $375,000 of total unrecognized compensation
cost.  That cost is expected to be recognized as an expense over a
weighted-average period of 2.7 years. The total fair value on the vesting date
of the shares that vested during the year ended September 30, 2008 was
$128,000.
 
 During
fiscal 2006, 2,310,000 shares of restricted common stock were issued to certain
employees and directors.  These shares vested immediately and had a
weighted average grant date fair value of $0.34 representing a 10% discount from
market price.  For the year ended September 30, 2006, compensation
expense relating to these restricted stock awards was $778,000.  In
addition, 1,300,000 shares, valued at $373,000 were issued to individuals for
fees relating to consulting services during the year ended September 30,
2006.
 
 In March,
2008, the Company issued 400,000 shares of common stock to the related party
that had made the $950,000 unsecured loan in March, 2007 as described in (xii)
of Note 8, in exchange for the cancellation of $26,000 of outstanding invoices
payable and $54,000 in cash.  The shares had a fair value of $106,000
on the date of issuance.   The difference between the fair value
of the shares issued and the consideration received has been recorded as
stock-based compensation expense of $26,000.
  F-15
  During
the second quarter of fiscal 2008, the Company issued 1,108,000 shares of
restricted common stock to certain employees and directors at a price of $0.20
per share. The shares had a fair value of $312,000 on the date of
issuance.  The difference between the fair value of the shares issued
and the cash received from the employees and directors has been recorded as
stock-based compensation expense of $91,000.
 
 10.           Concentrations
of Credit Risk
 
 The
Company maintains cash accounts with high credit quality financial
institutions.  At times, such accounts are in excess of federally
insured limits.  To date, the Company has not experienced any losses
in such accounts.  Financial instruments, which potentially subject
the Company to concentration of credit risk, consist primarily of trade
receivables.  However, concentrations of credit risk are limited due
to the large number of customers comprising the Company’s customer base and
their dispersion across different business and geographic areas.  The
Company monitors its exposure to credit losses and maintains an allowance for
anticipated losses.  To reduce credit risk, the Company performs
credit checks on certain customers.  No single customer accounted for
more than 10% of revenue for the years ended September 30, 2008, 2007 or
2006.
 
 11.           Stockholders’
Equity
 
 As of the
Date of Inception, a stockholders’ deficit of $1,765,000 existed relating to
remaining liabilities associated with the discontinued Humana Businesses, and
was recognized in additional paid-in capital with a corresponding amount in
accounts payable and accrued liabilities.  From the Date of Inception
through September 30, 2007 approximately 6,536,000 shares of common stock of the
Company were issued in satisfaction of these liabilities.  During
fiscal 2008, no additional shares were issued relating to the Humana
Businesses.   As stock issuances to settle these liabilities were
completed, both the stockholders’ deficit and Accounts payable and accrued
liabilities were reduced.  As of September 30, 2008 and 2007 the total
remaining amount of these liabilities outstanding was $700,000 related to
unremitted payroll tax withholdings of the subsidiary conducting the
discontinued employee leasing and benefit processing business.
 
 On
November 26, 2006, the Company completed the private placement of 1,000,000
shares of common stock to an independent third party in exchange for $200,000 in
cash and a non-interest bearing note with a principal amount of
$200,000.  The note was subsequently collected in December,
2006.
 
 In
February 2007, the Company commenced a private offering to sell up to $3,000,000
of convertible exchangeable notes bearing 8% annual interest and warrants to
purchase up to 799,800 shares of common stock.  The notes were to be
convertible into restricted common shares at a price of 75% of the average
closing price of the Company’s common stock over the preceding five days prior
to the election to convert, subject to a minimum conversion price of $.40 per
share.  Each warrant is exercisable for one share of common stock at
an exercise price of $.75 per share at any time prior to the two year
anniversary date of its issuance.  The offering was subsequently
terminated by the Company in April 2007.  Through September 30, 2007,
$202,000 in net proceeds pursuant to the private offering has been
received.  All investors elected to immediately convert the notes into
shares of restricted common stock, and consequently 445,000 restricted common
shares and 55,986 warrants have been issued and are outstanding.  Due
to the immediate election to convert, the transactions have been accounted for
as a sale of common stock.
 
 In March
2007, an agent was issued 300,000 shares of common stock valued at $66,000 for
future services to be provided in raising capital for the Company.
 
 As
discussed in Note 8, additional paid-in capital was increased in March 2007 by
$119,000, representing the allocated relative fair value of the common stock
issued to the lender in conjunction with the $950,000 loan received to finance
portions of the purchase price of ReStaff.
 
 During
the second quarter of fiscal 2008, the Company completed a private placement to
independent third parties of 100,000 shares of common stock at a price of $0.35
per share with warrants to purchase an aggregate 9,800 shares of common stock at
an exercise price of $0.50 per share.
 
 During
the third quarter of fiscal 2008, the Company completed a private placement to
independent third parties of 184,000 shares of common stock at a fair value of
$0.28 per share for cash.
 
 During
the third quarter of fiscal 2008, the Company entered into a stock purchase
agreement with a major shareholder to purchase 1,000,000 shares of common stock
at a fair value of $0.20 per share.  The Company received a
non-interest bearing note from the shareholder for $200,000 to finance the
purchase.  As of September 30, 2008 the note had been paid in full by
the stockholder.
 
  F-16
  12.           Sales
of Receivables
 
 On March
1, 2007, the Company entered into a new receivable sale agreement with a new
financial institution, and terminated its former agreement.  Under the
terms of the new agreement, the maximum amount of trade receivables that can be
sold is $8,000,000.  As collections reduce previously sold
receivables, the Company may replenish these with new receivables.  As
of September 30, 2008 and 2007, trade receivables of $202,000 and $134,000,
respectively, had been sold and remained outstanding.  Sales of
receivables amounted to approximately $65,605,000 and $56,216,000 for the years
ended September 30, 2008 and 2007, respectively.  Net discounts per
the agreement are represented by an interest charge at an annual rate of prime
plus 1.5% (“Discount Rate”) applied against outstanding uncollected receivables
sold.  The risk the Company bears from bad debt losses on trade
receivables sold is retained by the Company, and receivables sold may not
include amounts over 90 days past due.  The agreement is subject to a
minimum discount computed as minimum sales per month of $3,000,000 multiplied by
the then effective Discount Rate, and a termination fee applies of 3% of the
maximum facility in year one of the agreement, 2% in year two, and 1%
thereafter. Under the terms of the agreement, the financial institution advances
90% of the assigned receivables’ value upon sale, and the remaining 10% upon
final collection.  In addition, an overadvance of $500,000 was
received, is secured by outstanding receivables, and is being repaid in
weekly payments of $7,500 beginning in April, 2008.  Net discounts are
included in interest expense in the accompanying Statements of Operations and
amounted to $490,000 and $644,000 for the years ended September 30, 2008 and
2007.  The risk the Company bears from bad debt losses on trade
receivables sold is retained by the Company, and receivables sold for the years
ended September 30, 2008 and 2007 do not include $488,000 and $562,000,
respectively, of receivables sold, but charged back by the financial institution
because they were 90 days past due.  The Company addresses its risk of
loss on trade receivables in its allowance for doubtful accounts which totaled
$445,000 and $338,000 as of September 30, 2008 and 2007.
 
 Prior to
March 1, 2007, the Company had an agreement in place with a financial
institution to sell its trade receivables on a limited recourse
basis.  Under the terms of the agreement, the maximum amount of trade
receivables that could have been sold was $5,000,000, for which the purchaser
advanced 90% of the assigned receivables value upon sale, and 10% upon final
collection.  As collections reduced previously sold receivables, the
Company replenished these with new receivables.  Sales of receivables
amounted to approximately $34,088,000 for the year ended September 30,
2006.   Net discounts per the agreement were represented by an
interest charge at an annual rate of prime plus 1%, and a monthly fee of 0.6%,
both applied against average outstanding uncollected receivables
sold.  Net discounts are included in interest expense in the
accompanying Statements of Operations and amounted to $452,000 for the year
ended September 30, 2006. The risk the Company bore from bad debt losses on
trade receivables sold was retained by the Company.
 
 13.
Income Taxes
 
 Deferred
income tax assets and liabilities consist of the tax effects of temporary
differences related to the following:
 
 September
      30,
            
            
            September
      30,2008
            
            
            2007Deferred
      tax assets:Net
      operating losses
            
            $
            515,000
            
            
            $
            530,000Restricted
      stock
            
            
            44,000
            
            
            
            12,000Valuation
      allowance
            
            
            (506,000
            )
            
            
            (515,000
            )53,000
            
            
            
            27,000Deferred
      tax liabilities:Goodwill,
      customer lists and relationships and non-compete and solicit
      agreements
            
            
            (53,000
            )
            
            
            (27,000
            )$
            -
            
            
            $
            -
 
 In
assessing the realizability of deferred income tax assets, SFAS 109 establishes
a more likely than not standard. If it is determined that it is more likely than
not that 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.
 
 SFAS 109
further states that forming a conclusion 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, 2008
and 2007.
 
  F-17
  Since the
Date of Inception the Company has accumulated U.S. Federal net operating loss
carryforwards of approximately $1,288,000 that expire at various dates through
2028 and aggregate state net operating loss carryforwards of approximately
$1,288,000 that expire at various dates through 2018.
 
 The
provision (benefit) for income taxes differs from the amount that would result
from applying the federal statutory rate as follows:
 
 Year
      EndedSeptember
      30,
            
            
            September
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2006U.S.
      Federal statutory rate
            
            
            (35.0
            %)
            
            
            (35.0
            %)
            
            
            (35.0
            %)State
      income taxes, net of federal benefit
            
            
            (5.0
            %)
            
            
            (5.0
            %)
            
            
            (5.0
            %)Stock
      based compensation valuation
            
            
            45.1
            %
            
            
            -
            
            
            
            -Change
      in valuation allowance
            
            
            (5.1
            %)
            
            
            40.0
            %
            
            
            40.0
            %Effective
      tax rate
            
            
            0.0
            %
            
            
            0.0
            %
            
            
            0.0
            %
 
 14.           Supplemental
Disclosure of Cash Flow Information
 
 
 Year
      EndedSeptember
      30,
            
            
            September
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2006Cash
      paid for interest
            
            $
            712,000
            
            
            $
            829,000
            
            
            $
            489,000Non-
      cash investing and financing activities:ReStaff
      Acquisition purchase price adjustment and debt reduction
            
            
            1,398,000
            
            
            
            -
            
            
            
            -Debt
      converted to restricted common stock at fair value
            
            
            622,000
            
            
            
            -
            
            
            
            -Capital
      lease obligation for computer equipment
            
            
            33,000
            
            
            
            -
            
            
            
            -Issuance
      of shares for related party invoices
            
            
            26,000
            
            
            
            -
            
            
            
            -ReStaff
      Acquisition:Issuance
      of restricted common stock
            
            
            -
            
            
            
            307,000
            
            
            
            -Restricted
      common stock issued for future services
            
            
            -
            
            
            
            66,000
            
            
            
            -Restricted
      common stock issued to satisfy Humana Businesses’
    liabilities
            
            
            -
            
            
            
            89,000
            
            
            
            976,000Stock-based
      compensation
            
            
            291,000
            
            
            
            29,000
            
            
            
            778,000Restricted
      common stock issued for fees
            
            
            -
            
            
            
            -
            
            
            
            373,000Note
      conversion to restricted common stock
            
            
            -
            
            
            
            -
            
            
            
            149,000US
      Temp Acquisition:Issuance
      of restricted common stock
            
            
            -
            
            
            
            -
            
            
            
            85,000Other
      Acquisition:Issuance
      of restricted common stock
            
            
            -
            
            
            
            -
            
            
            
            45,000
 
 15.           Commitments
and Contingencies
 
 Unremitted
Payroll Taxes Related to Humana Businesses
 
 The
subsidiary conducting employee leasing and benefits processing services which
was part of the discontinued Humana Businesses has received assessments for
unremitted payroll taxes for calendar year 2004 from the IRS and certain state
taxing authorities totaling approximately $700,000.  This amount is
included in Accounts Payable and accrued expenses in the accompanying financial
statements and represents the amount management believes will ultimately be
payable for this liability based upon its knowledge of events and
circumstances.  However, there can be no assurance that future events
and circumstances will not result in an ultimate liability, including penalties
and interest, in excess of management’s current estimate.
 
  F-18
  Lease
Commitments
 
 At
September 30, 2008 and 2007, the Company had operating leases, primarily for
office premises, expiring at various dates through September 2014.  At
September 30, 2008, the Company had a capital lease for the purchase of computer
equipment.  Future minimum rental commitments under operating leases
are as follows:
 
 Years Ending September
      30:
            
            Operating
      Leases2009
            
            
            442,0002010
            
            
            343,0002011
            
            
            262,0002012
            
            
            252,0002013
            
            
            252,000Thereafter
            
            
            252,000$
            1,803,000
 
 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
 
 In 2005,
the Company acquired the outstanding receivables of Nucon Engineering
Associates, Inc. (“Nucon”).   During the third quarter of fiscal
2008, the Company was notified by the State of Connecticut that the Company may
be considered the predecessor employer associated with the accounts receivable
formerly owned by Nucon for State Unemployment Insurance (“SUI”) rate
purposes.  Nucon’s SUI rate was higher than the Company’s at the time
of the acquisition.  The State of Connecticut is claiming additional
SUI expense based on this higher rate and has assessed a higher experience rate
on wages for all periods subsequent to the acquisition date which may be reduced
upon audit.  Management believes that it has properly calculated its
unemployment insurance tax and is in compliance with all applicable laws and
regulations.  The Company has appealed the ruling and is awaiting a
determination, but intends to vigorously defend its position that the Company is
not the predecessor employer.  Management estimates the range of
possible loss between $0 and $103,000.
 
 ALS, LLC
(“ALS”) instituted an action against the Company, US Temp Services, Inc. (“US
Temps”) and a major shareholder of the Company, in the United States District
Court, District of New Jersey in May 2007, in which it alleged that the Company
tortiously interfered with ALS’ business relationship with US Temps by causing
US Temps to terminate its relationship with ALS under an agreement pursuant to
which ALS provided employee outsourcing services to US Temps prior to the
Company’s acquisition of certain assets from US Temps.  ALS also
alleged that the Company had liability as a successor to US Temps for US Temps’
alleged breach of the outsourcing agreement.  In October, 2008 a
settlement was reached with ALS whereby the Company has agreed to pay $60,000 in
twelve equal monthly installments of $5,000 beginning on October 1,
2008.
 
 From time
to time, the Company is involved in litigation incidental to its business
including employment practices claims.  There is currently no
litigation that management believes will have a material impact on the financial
position of the Company.
 
  F-19
  16.           Quarterly
Financial Information – Unaudited
 
 First
            
            
            Second
            
            
            Third
            
            
            FourthFiscal Year 2008
            
            Quarter
            
            
            Quarter
            
            
            Quarter
            
            
            QuarterRevenue
            
            $
            18,148,000
            
            
            $
            15,743,000
            
            
            $
            15,889,000
            
            
            $
            16,828,000Direct
      cost of services
            
            
            15,087,000
            
            
            
            13,304,000
            
            
            
            13,442,000
            
            
            
            14,228,000Gross
      profit
            
            
            3,061,000
            
            
            
            2,439,000
            
            
            
            2,447,000
            
            
            
            2,600,000Selling,
      general and administrative expenses
            
            
            2,599,000
            
            
            
            2,747,000
            
            
            
            2,182,000
            
            
            
            2,175,000Depreciation
      and amortization
            
            
            107,000
            
            
            
            118,000
            
            
            
            116,000
            
            
            
            104,000Income
      (loss) from operations
            
            
            355,000
            
            
            
            (426,000
            )
            
            
            149,000
            
            
            
            321,000Interest
      expense
            
            
            314,000
            
            
            
            229,000
            
            
            
            144,000
            
            
            
            147,000Loss
      on goodwill impairment
            
            
            --
            
            
            
            148,000
            
            
            
            --
            
            
            
            --Net
      loss on debt extinguishment
            
            
            --
            
            
            
            100,000
            
            
            
            --
            
            
            
            --Net
      (loss) income
            
            $
            41,000
            
            
            $
            (903,000
            )
            
            $
            5,000
            
            
            $
            174,000Net
      (loss) income per common share:Basic
            
            $
            0.00
            
            
            $
            (0.05
            )
            
            $
            0.00
            
            
            $
            0.01Diluted
            
            $
            0.00
            
            
            $
            (0.05
            )
            
            $
            0.00
            
            
            $
            0.01
 
 First
            
            
            Second
            
            
            Third
            
            
            FourthFiscal Year 2007
            
            Quarter
            
            
            Quarter
            
            
            Quarter
            
            
            QuarterRevenue
            
            $
            11,909,000
            
            
            $
            12,560,000
            
            
            $
            16,241,000
            
            
            $
            16,871,000Direct
      cost of services
            
            
            10,072,000
            
            
            
            10,447,000
            
            
            
            13,410,000
            
            
            
            14,132,000Gross
      profit
            
            
            1,837,000
            
            
            
            2,113,000
            
            
            
            2,831,000
            
            
            
            2,739,000Selling,
      general and administrative expenses
            
            
            1,661,000
            
            
            
            1,972,000
            
            
            
            2,493,000
            
            
            
            2,362,000Depreciation
      and amortization
            
            
            43,000
            
            
            
            65,000
            
            
            
            106,000
            
            
            
            107,000Income
      from operations
            
            
            133,000
            
            
            
            76,000
            
            
            
            232,000
            
            
            
            270,000Interest
      expense
            
            
            205,000
            
            
            
            182,000
            
            
            
            246,000
            
            
            
            262,000Net
      (loss) income
            
            $
            (72,000
            )
            
            $
            (106,000
            )
            
            $
            (14,000
            )
            
            $
            8,000Net
      (loss) income per common share:Basic
            
            $
            (0.01
            )
            
            $
            (0.01
            )
            
            $
            0.00
            
            
            $
            0.00Diluted
            
            $
            (0.01
            )
            
            $
            (0.01
            )
            
            $
            0.00
            
            
            $
            0.00
  F-20