UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-Q
 
 ý
              QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended June 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 109
                Manalapan,
      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 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 whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer.  See definition of
“accelerated filer” and large accelerated filer in Rule 12b-2 of the Exchange
Act.  (Check One)
 
 Large
      Accelerated Filer  o
              Accelerated
      Filer  oNon
      - Accelerated Filer  o
              Smaller
      Reporting Company  x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o  No ý
 
 
 The
number of shares of Common Stock, $.0001 par value, outstanding as of August 11,
2008 was 23,857,160.
 
  
  
 ACCOUNTABILITIES,
INC.
 INDEX
 
 PART
I – FINANCIAL INFORMATION
 
 
 Item
      1. - Financial Statements (Unaudited)Balance
      Sheets as of June 30, 2008 and September 30, 2007
              3Statements
      of Operations for the Three and Nine Months Ended June 30, 2008 and
      2007
              4Statement
      of Stockholders’ Equity for the Nine Months Ended June 30,
      2008
              5Statements
      of Cash Flows for the Nine Months Ended June 30, 2008 and
    2007
              6Notes
      to Financial Statements
              7Item
      2. - Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
              15Item
      3. - Quantitative and Qualitative Disclosure about Market
      Risks
              27Item
      4. - Controls and Procedures
              27
 
 PART
II – OTHER INFORMATION
 
 Item
      1. - Legal Proceedings
              27Item
      1A. - Risk Factors
              28Item
      2. - Unregistered Sales of Equity Securities and Use of
      Proceeds
              28Item
      3. - Defaults upon Senior Securities
              28Item
      4. - Submission of Matters to a Vote of Security Holders
              28Item
      5. - Other Information
              28Item
      6. - Exhibits
              28Signatures
              29
 
 
 
  2
  ACCOUNTABILITIES,
INC.
 BALANCE
SHEETS
 June
      30,
              
              
              September
      30,2008
              
              
              2007(unaudited)ASSETSCurrent
      assets:Cash
              
              $
              89,000
              
              
              $
              137,000Accounts
      receivable – less allowance for doubtful accounts of $523,000 and
      $338,000, respectively
              
              
              1,105,000
              
              
              
              224,000Due
      from financial institution
              
              
              123,000
              
              
              
              134,000Unbilled
      receivables
              
              
              212,000
              
              
              
              1,182,000Prepaid
      expenses
              
              
              366,000
              
              
              
              268,000Due
      from related party
              
              
              76,000
              
              
              
              51,000Total
      current assets
              
              
              1,971,000
              
              
              
              1,996,000Property
      and equipment, net
              
              
              344,000
              
              
              
              149,000Other
      assets
              
              
              9,000
              
              
              
              34,000Intangible
      assets, net
              
              
              1,506,000
              
              
              
              2,023,000Goodwill
              
              
              3,332,000
              
              
              
              4,617,000Total
      assets
              
              $
              7,162,000
              
              
              $
              8,819,000LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable and accrued liabilities
              
              $
              1,365,000
              
              
              $
              1,348,000Accrued
      wages and related obligations
              
              
              1,515,000
              
              
              
              1,367,000Current
      portion of long-term debt
              
              
              437,000
              
              
              
              691,000Current
      portion of related party long-term debt
              
              
              985,000
              
              
              
              1,647,000Due
      to related party
              
              
              61,000
              
              
              
              169,000Total
      current liabilities
              
              
              4,363,000
              
              
              
              5,222,000Long
      term debt, net of current portion
              
              
              341,000
              
              
              
              450,000Related
      party long-term debt, net of current portion
              
              
              1,212,000
              
              
              
              2,440,000Acquisition
      related contingent liability
              
              
              193,000
              
              
              
              257,000Total
      liabilities
              
              
              6,109,000
              
              
              
              8,369,000Commitments
      and contingencies (Note 10)Stockholders’
      equity:Preferred
      stock, $0.0001 par value, 5,000,000 shares authorized; zero shares issued
      and outstanding
              
              
              -
              
              
              
              -Common
      stock, $0.0001 par value, 95,000,000 shares authorized; 23,857,000 and
      17,469,000 shares issued and outstanding as of June 30, 2008 and September
      30, 2007, respectively
              
              
              2,000
              
              
              
              2,000Additional
      paid-in capital
              
              
              3,195,000
              
              
              
              1,735,000Accumulated
      deficit
              
              
              (2,144,000
              )
              
              
              (1,287,000
              )Total
      stockholders’ equity
              
              
              1,053,000
              
              
              
              450,000Total
      liabilities and stockholders’ equity
              
              $
              7,162,000
              
              
              $
              8,819,000
 The
accompanying notes are an integral part of these financial statements.
 
 
  3
  ACCOUNTABILITIES,
INC.
 
 STATEMENTS
OF OPERATIONS
 (unaudited)
 
 Three
      Months
              
              
              Nine
      MonthsEnded
              
              
              EndedJune
      30,
                2008
              
              
              June
      30,
                2007
              
              
              June
      30,
                2008
              
              
              June
      30,
                2007Revenue
              
              $
              15,889,000
              
              
              $
              16,241,000
              
              
              $
              49,780,000
              
              
              $
              40,710,000Direct
      cost of services
              
              
              13,442,000
              
              
              
              13,410,000
              
              
              
              41,833,000
              
              
              
              33,929,000Gross
      profit
              
              
              2,447,000
              
              
              
              2,831,000
              
              
              
              7,947,000
              
              
              
              6,781,000Selling,
      general and administrative expenses *
              
              
              2,182,000
              
              
              
              2,493,000
              
              
              
              7,528,000
              
              
              
              6,126,000Depreciation
      and amortization
              
              
              116,000
              
              
              
              106,000
              
              
              
              341,000
              
              
              
              214,000Income
      from operations
              
              
              149,000
              
              
              
              232,000
              
              
              
              78,000
              
              
              
              441,000Interest
      expense
              
              
              144,000
              
              
              
              246,000
              
              
              
              687,000
              
              
              
              633,000Loss
      on goodwill impairment
              
              
              -
              
              
              
              -
              
              
              
              148,000
              
              
              
              -Net
      loss on debt extinguishments
              
              
              -
              
              
              
              -
              
              
              
              100,000
              
              
              
              -Net
      income (loss)
              
              $
              5,000
              
              
              $
              (14,000
              )
              
              $
              (857,000
              )
              
              $
              (192,000
              )Net
      income (loss) per share:Basic
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              (0.04
              )
              
              $
              (0.01
              )Diluted
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              (0.04
              )
              
              $
              (0.01
              )Weighted
      average shares outstanding:Basic
              
              
              21,582,000
              
              
              
              16,530,000
              
              
              
              19,165,000
              
              
              
              15,079,000Diluted
              
              
              22,045,000
              
              
              
              16,530,000
              
              
              
              19,165,000
              
              
              
              15,079,000
 
 
 *
Includes $41,000 and $7,000 for the three months ended June 30, 2008 and 2007,
respectively, and $250,000 and $12,000 for the nine months ended June 30, 2008
and 2007, respectively in non-cash charges for stock based
compensation.
 
 The
accompanying notes are an integral part of these financial
statements.
 
    4
  
 
 
 ACCOUNTABILITIES,
INC.
 
 Statement
of Stockholders’ Equity
 (unaudited)
 
 Nine
      Months EndedJune
      30, 2008Common
      Stock – Shares:Balance
      at beginning of period
              
              
              17,469,000Debt
      conversions to restricted common stock
              
              
              2,194,000Stock-based
      compensation relating to restricted common stock, net of
      forfeitures
              
              
              1,402,000Issuance
      of restricted common stock to employees and directors for
    cash
              
              
              1,108,000Issuance
      of restricted common stock to related party for cash and cancellation of
      outstanding invoices
              
              
              1,400,000Private
      placement to independent third parties
              
              
              284,000Balance
      at end of period
              
              
              23,857,000Common
      Stock – Par Value:Balance
      at beginning of period
              
              $
              2,000-Balance
      at end of period
              
              $
              2,000Additional
      Paid-In Capital:Balance
      at beginning of period
              
              $
              1,735,000Debt
      conversions to restricted common stock
              
              
              622,000Stock-based
      compensation relating to restricted common stock
              
              
              250,000Issuance
      of restricted common stock to employees and directors for
    cash
              
              
              221,000Issuance
      of restricted common stock to related party for cash and cancellation of
      outstanding invoices
              
              
              280,000Private
      placement to independent third parties
              
              
              87,000Balance
      at end of period
              
              $
              3,195,000Accumulated
      DeficitBalance
      at beginning of period
              
              $
              (1,287,000
              )Net
      loss
              
              
              (857,000
              )Balance
      at end of period
              
              $
              (2,144,000
              )
 
 The
accompanying notes are an integral part of these financial
statements.
 
 
  5
  
 ACCOUNTABILITIES,
INC.
 
 STATEMENTS
OF CASH FLOWS
 (unaudited)
 
 
 Nine
      Months EndedJune
      30,
              
              
              June
      30,2008
              
              
              2007Cash
      flows from operating activities:Net
      loss
              
              $
              (857,000
              )
              
              $
              (192,000
              )Adjustments
      to reconcile net loss to cash provided by operating
      activities:Depreciation
      and amortization
              
              
              341,000
              
              
              
              214,000Stock-based
      compensation
              
              
              250,000
              
              
              
              12,000Bad
      debt expense
              
              
              184,000
              
              
              
              127,000Loss
      on goodwill impairment
              
              
              148,000
              
              
              
              -Net
      loss on debt extinguishments
              
              
              100,000
              
              
              
              -Amortization
      of discount on long-term debt
              
              
              18,000
              
              
              
              -Common
      stock issued for fees
              
              
              -
              
              
              
              67,000Changes
      in operating assets and liabilities, net of effect of
      acquisitions:Trade
      accounts receivable
              
              
              (95,000
              )
              
              
              (381,000
              )Due
      from financial institution
              
              
              11,000
              
              
              
              310,000Prepaid
      expenses
              
              
              (98,000
              )
              
              
              (49,000
              )Due
      from related party
              
              
              (108,000
              )
              
              
              (14,000
              )Other
      assets
              
              
              25,000
              
              
              
              (2,000
              )Accounts
      payable and accrued liabilities
              
              
              369,000
              
              
              
              268,000Net
      cash provided by operating activities
              
              
              288,000
              
              
              
              360,000Cash
      flows from investing activities:Purchase
      of property and equipment
              
              
              (246,000
              )
              
              
              (56,000
              )Acquisitions
              
              
              -
              
              
              
              (533,000
              )Net
      cash used in investing activities
              
              
              (246,000
              )
              
              
              (589,000
              )Cash
      flows from financing activities:Proceeds
      from issuance of long-term debt
              
              
              -
              
              
              
              50,000Principal
      payments on long-term debt
              
              
              (173,000
              )
              
              
              (177,000
              )Proceeds
      from issuance of long-term debt – related parties
              
              
              62,000
              
              
              
              385,000Principal
      payments on long-term debt – related parties
              
              
              (452,000
              )
              
              
              (403,000
              )Payments
      on contingent acquisition related liability
              
              
              (64,000
              )
              
              
              (162,000
              )Proceeds
      from issuance of common stock
              
              
              537,000
              
              
              
              720,000Net
      cash (used in) provided by financing activities
              
              
              (90,000
              )
              
              
              413,000Change
      in cash
              
              
              (48,000
              )
              
              
              184,000Cash
      at beginning of period
              
              
              137,000
              
              
              
              8,000Cash
      at end of period
              
              $
              89,000
              
              
              $
              192,000
 The
accompanying notes are an integral part of these financial statements.
 
  6
  ACCOUNTABILITIES,
INC.
 
 NOTES
TO FINANCIAL STATEMENTS
 (unaudited)
 
 1.      Description
of the Company and its Business
 
 Nature
of Operations
 
 Accountabilities,
Inc. (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
 
 Interim
Financial Information
 
 The
financial information as of and for the three and nine months ended June 30,
2008 and 2007 is unaudited, but includes all adjustments (consisting only of
normal recurring adjustments) that the Company considers necessary for a fair
statement of its financial position at such dates and the operating results and
cash flows for those periods.  The year-end balance sheet data was
derived from audited financial statements, and certain information and note
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to SEC rules or regulations; however, the Company believes the
disclosures made are adequate to make the information presented not
misleading.
 
 The
results of operations for the interim periods presented are not necessarily
indicative of the results of operations to be expected for the fiscal
year.  These condensed interim financial statements should be read in
conjunction with the audited financial statements and notes thereto for the year
ended September 30, 2007, which are included in the Company’s Form 10 as filed
with the Securities and Exchange Commission.
 
 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.
 
 
 3.
              Net
      Income (Loss) per Share
 
 The
Company presents both basic and diluted earnings per share amounts (“EPS”) 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
include 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.   Warrants for which the exercise or conversion price exceeds
the average market price over the period are anti-dilutive and are excluded from
the calculation.
 
 The
following table summarizes the calculation of net income (loss) per share for
the three and nine months ended June 30, 2008 and 2007:
  7
  
 Three
      Months Ended
              
              
              Three
      Months Ended
              
              
              Nine
      Months Ended
              Nine
      Months EndedJune
      30, 2008
              
              
              June
      30, 2007
              
              
              June
      30, 2008
              June
      30, 2007Net
      income (loss)
              
              $
              5,000
              
              
              $
              (14,000
              )
              
              $
              (857,000
              )
              
              $
              (192,000
              )Basic:Weighted average shares
              
              
              21,582,000
              
              
              
              16,530,000
              
              
              
              19,165,000
              
              
              
              15,079,000Diluted:Weighted average shares
              
              
              21,582,000
              
              
              
              16,530,000
              
              
              
              19,165,000
              
              
              
              15,079,000Potentially
      dilutive shares
              
              
              463,000
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      dilutive shares
              
              
              22,045,000
              
              
              
              16,530,000
              
              
              
              19,165,000
              
              
              
              15,079,000Net
      income (loss) per share:Basic
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              (0.04
              )
              
              $
              (0.01
              )Diluted
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              (0.04
              )
              
              $
              (0.01
              )
 
 The
potentially dilutive shares presented above do not include the anti-dilutive
effect of approximately 725,000 and 1,249,000 potential common shares for the
three months ended June 30, 2008 and 2007, respectively, and approximately
844,000 and 1,028,000 potential common shares for the nine months ended June 30,
2008 and 2007, respectively.
 
 4.      Acquisitions
 
 ReStaff
Services, Inc. Offices Acquisition
 
 On
February 26, 2007, the Company acquired the operations, including three offices
of ReStaff Services, Inc. (“ReStaff”), for a total purchase price of
$4,710,000.  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 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
              
              
              62,000Total
      purchase price
              
              $
              3,312,000
 
  8
  
 Customer
lists and relationships, and the non-competition agreement are being
amortized over weighted average useful lives of seven years and three years,
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.  All results of operations of the acquired offices have
been included in the accompanying Statements of Operations since the date of
acquisition.
 
 Stratus
Services Group, Inc. Offices Acquisition
 
 On
November 28, 2005 the Company acquired the operations of three offices from
Stratus Services Group, Inc. (“Stratus Acquisition”) in exchange for an earnout
consisting of  a) 2% of revenue for the first twelve months, b) 1% of
revenue for the second twelve months, and c) 1% of revenue for the third twelve
months (“Stratus Earnout”). All results of operations of the acquired offices
have been included in the accompanying Statements of Operations since the date
of acquisition. Because the purchase price includes only the Stratus Earnout
which is based upon future revenues, the total fair value of the acquired assets
is greater than the purchase price as of the day of the acquisition, which was
zero as the Stratus Earnout had yet to be earned.  Consequently, the
total fair value of the acquired assets of $678,000 was recorded as a liability
(“Acquisition related contingent liability”) as of the day of the acquisition in
accordance with SFAS 141.  Through June 30, 2008, $485,000 has been
paid relating to the Stratus Earnout.
 
 The
following unaudited pro forma information shows the Company’s results of
operations for the nine months ended June  30, 2008 and 2007, as if
the ReStaff Acquisition had occurred on October 1, 2006.  These pro
forma statements have been prepared for comparative purposes only and are not
intended to be indicative of what the Company’s results would have been had the
acquisition occurred at the beginning of the periods presented or the results
which may occur in the future.
  Nine
      Months Ended
              
              
              Nine
      Months EndedJune
      30, 2008
              
              
              June
      30, 2007Revenue
              
              $
              49,780,000
              
              
              $
              49,027,000Net
      loss
              
              $
              (857,000
              )
              
              $
              (380,000
              )Basic
      and diluted loss per share
              
              $
              (0.04
              )
              
              $
              (0.02
              )
 
  5.      Intangible
Assets and Goodwill
 
 The
following table presents detail of the Company’s intangible assets, estimated
lives, related accumulated amortization and goodwill :
 
 As
      of June 30, 2008
              
              
              As
      of September 30, 2007Accumulated
              
              
              
              
              
              
              
              
              AccumulatedGross
              
              
              Amortization
              
              
              Net
              
              
              Gross
              
              
              Amortization
              
              
              NetCustomer
      lists and relationships (7 years)
              
              $
              2,007,000
              
              
              $
              (554,000
              )
              
              $
              1,453,000
              
              
              $
              2,269,000
              
              
              $
              (325,000
              )
              
              $
              1,944,000Non-competition
      agreements(3
      years)
              
              
              111,000
              
              
              
              (58,000
              )
              
              
              53,000
              
              
              
              110,000
              
              
              
              (31,000
              )
              
              
              79,000Total
              
              $
              2,118,000
              
              
              $
              (612,000
              )
              
              $
              1,506,000
              
              
              $
              2,379,000
              
              
              $
              (356,000
              )
              
              $
              2,023,000Goodwill
      (indefinite life)
              
              $
              3,332,000
              
              
              
              
              
              
              $
              3,332,000
              
              
              $
              4,617,000
              
              
              
              
              
              
              $
              4,617,000
 
  9
  On
February 26, 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 nine months
ended June 30, 2008 and 2007 of $256,000 and $173,000,
respectively.  Estimated intangible asset amortization expense (based
on existing intangible assets) for the remaining three months of fiscal 2008 is
$79,000 and for the fiscal 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 relating to the write off of costs capitalized in connection
with a planned reverse-merger with Hyperion Energy, Inc., that will 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 June 30, 2008
              
              $
              3,332,000
 
 
 6.
              Long-Term
      Debt
 
 Long-term
debt at June 30, 2008 and September 30, 2007 is summarized as
follows:
  June
      30,
              
              
              September
      30,2008
              
              
              2007Long-term
      debt16.25%
      subordinated note (i)
              
              $
              102,000
              
              
              $
              93,0003%
      convertible subordinated note (ii)
              
              
              464,000
              
              
              
              527,00018%
      unsecured note (iii)
              
              
              80,000
              
              
              
              80,000Long
      term capitalized consulting obligations (v)
              
              
              57,000
              
              
              
              159,000Long
      term capitalized lease obligation (xiv)
              
              
              25,000
              
              
              
              -10%
      convertible subordinated note (xiii)
              
              
              -
              
              
              
              232,000Other
      debt
              
              
              50,000
              
              
              
              50,000Total
              
              
              778,000
              
              
              
              1,141,000Less
      current maturities
              
              
              437,000
              
              
              
              691,000Non-current
      portion
              
              
              341,000
              
              
              
              450,000Related
      party long-term debt13%
      unsecured demand note (iv)
              
              
              104,000
              
              
              
              101,000Long
      term capitalized consulting obligations (vi)
              
              
              24,000
              
              
              
              46,00012%
      unsecured convertible note (vii)
              
              
              100,000
              
              
              
              270,000Demand
      loans (viii)
              
              
              83,000
              
              
              
              30,0006%
      unsecured note (ix)
              
              
              100,000
              
              
              
              300,0006%
      unsecured note (x)
              
              
              1,677,000
              
              
              
              2,846,0009%
      unsecured note (xi)
              
              
              109,000
              
              
              
              210,000Unsecured
      loan (xii)
              
              
              -
              
              
              
              284,000Total
              
              
              2,197,000
              
              
              
              4,087,000Less
      current maturities
              
              
              985,000
              
              
              
              1,647,000Non-current
      portion
              
              
              1,212,000
              
              
              
              2,440,000Total
      long-term debt
              
              
              2,975,000
              
              
              
              5,228,000Less
      current maturities
              
              
              1,422,000
              
              
              
              2,338,000Total
      non-current portion
              
              $
              1,553,000
              
              
              $
              2,890,000
 
  10
  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 has 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.
 
 (iv)           A
$150,000 unsecured demand note was issued March 31, 2006 to a principal
shareholder of the Company as a finders fee in consideration for sourcing and
completing the US Temp Acquisition.  The note bears an annual interest
rate of 8%. On October 31, 2007, the Company entered into a forbearance
agreement with the holder of the note wherein the holder agreed to waive
defaults and refrain from exercising its rights and remedies against the Company
until October 31, 2008 in exchange for an increase in the interest rate to 13%
per annum.
 
 On 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.
 
  11
  Demand
Loans
 
 (viii)           In
October 2005 a major shareholder advanced the Company $30,000 to fund its
initial operations. During the six months ended March 31, 2008, the same
shareholder advanced an additional $18,000. During the three months ended June
30, 2008 another major shareholder advanced the Company $35,000.  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%.
 
 (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.
 
 (xi)           In
February 2007, a $275,000 unsecured note was issued as partial finder’s fee
consideration, 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
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.
 
 (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
  12
  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.
 
 7.           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 June 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 June 30, 2008 and the
changes during the nine months ended June 30, 2008 is presented
below:
 
 
 Nonvested
      Shares
              
              Shares
              
              
              Weighted-Average
                Grant-Date
      Fair ValueNonvested
      at October 1, 2007
              
              
              585,000
              
              
              $
              0.34Granted
              
              
              1,403,000
              
              
              $
              0.30Vested
              
              
              (298,000
              )
              
              $
              0.32Forfeited
              
              
              (1,000
              )
              
              $
              0.30Nonvested
      at June 30, 2008
              
              
              1,689,000
              
              
              $
              0.31
 
 Compensation
expense is measured as the fair value of the shares granted and is recognized on
a straight-line basis over the required vesting period.  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.  For the nine months ended June
30, 2008 and 2007, compensation expense relating to restricted stock awards
under the Plan was $133,000 and $12,000, respectively.  As of June 30,
2008, there was $417,000 of total unrecognized compensation
cost.  That cost is expected to be recognized as an expense over a
weighted-average period of 2.9 years. The total fair value of shares vested
during the nine months ended June 30, 2008 was $128,000.
 
 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 6, in exchange for the cancellation of $26,000 of outstanding invoices
payable and $54,000 in cash.  The shares had a fair value of $108,000
on the date of issuance.   The difference between the fair value
of the shares issued and the consideration received has been recorded as
stock-based compensation expense of $26,000.
 
 During
the second quarter of fiscal 2008, the Company issued 1,108,000 shares of
restricted common stock to certain employees and directors at a price of $0.20
per share. The shares had a fair value of $312,000 on the date of
issuance.  The difference between the fair value of the shares issued
and the cash received from the employees and directors has been recorded as
stock-based compensation expense of $91,000.
  13
  8.           Stockholders’
Equity
 
 As of the
Date of Inception (June 9, 2005), a stockholders’ deficit of $1,765,000 existed
relating to remaining liabilities associated with the discontinued businesses of
certain wholly owned subsidiaries (the “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.  As stock issuances to
settle these liabilities were completed, both the stockholders’ deficit and
Accounts payable and accrued liabilities were reduced.  As of June 30,
2008 and September 30, 2007 the total remaining amount of these liabilities
outstanding was $700,000 relating to unremitted payroll tax withholdings of the
Humana Businesses.
 
 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 June 30, 2008, $25,000 remained outstanding on the
note and is classified on the accompanying balance sheets as an amount due from
related party.
 
 9.           Supplemental
Disclosure of Cash Flow Information
 
 Non-cash
investing and financing activities:
 
 Nine
      Months Ended
              
              
              Nine
      Months EndedJune
      30,
              
              
              June
      30,2008
              
              
              2007Cash
      paid for interest
              
              $
              590,000
              
              
              $
              567,000Non-cash
      investing and financing activities:ReStaff
      Acquisition: issuance of restricted common stock
              
              
              
              
              
              
              307,000Restricted
      common stock issued to satisfy Humana Businesses’
    liabilities
              
              
              
              
              
              
              89,000Restricted
      common stock issued for future services
              
              
              
              
              
              
              66,000ReStaff
      Acquisition purchase price adjustment and debt reduction
              
              
              1,398,000Debt
      converted to restricted common stock at fair value
              
              
              622,000Stock-based
      compensation
              
              
              250,000
              
              
              
              12,000Capital
      lease obligation for computer equipment
              
              
              33,000Note
      receivable outstanding for restricted common stock issued
              
              
              25,000Issuance
      of shares for related-party outstanding invoices
              
              
              26,000$
              2,944,000
              
              
              $
              1,041,000
 
 10.
Commitments and contingencies
 
 In the
ordinary course of its business, the Company is periodically threatened with or
named as a defendant in various lawsuits.  In 2005, the Company
acquired the outstanding receivables and customer lists from 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 the last several months 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.
  14
  Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
 AND
RESULTS OF OPERATIONS
 
 The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes. This discussion and analysis 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 expectations concerning matters that are not
historical facts. Such forward-looking statements may be identified by words
such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,”
“expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or
“will” or the negative of these terms or other comparable terminology. These
statements, and all phases of our operations, are subject to known and unknown
risks, uncertainties and other factors as identified in our amended Form 10
registration statement filed April 15, 2008 (File No. 000-30734). Readers are
cautioned not to place undue reliance on these forward-looking statements. Our
actual results, levels of activity, performance or achievements and those of our
industry may be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. We undertake no obligation to update the
forward-looking statements in this filing. References in this filing to
“Accountabilities,” the “Company,” “we,” “us,” and “our” refer to
Accountabilities, Inc. and its subsidiaries.
 
 Overview
 
 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 June 30, 2008, we provide these
services in key markets across the United States, through the operation of 13
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 June 30,
2008 we have agreements with nine different regional public accounting firms,
which to date through June 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 June 30, 2008 direct professional services
have historically constituted less than 20% of our revenues.
  15
  
 
 ▪
              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 June 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.
 
 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 currently 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 for 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
      represents 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 represents 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
  16
  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 June 30, 2008 we had
      negative working capital of ($2,392,000), for which the component
      constituting the current portion of long term debt was
      $1,422,000.  Total outstanding debt as of June 30, 2008 was
      $2,975,000, $427,000 of which is past due or due upon demand, whereas
      $1,677,000 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 the Working Capital section below, to
      effectively accomplish these
objectives.
 
 ▪
              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.
 
 The
purchase price associated with the ReStaff Services, Inc., offices acquisition
was subject to purchase allocation adjustments based upon the final
determination of the acquired tangible and intangible net asset values as of the
respective closing date. Adjustments have been recorded to reduce the original
purchase price and restructure the related debt issued for the
acquisition.  Final independent third-party valuations of the acquired
intangible assets have also been completed and reflected in the accompanying
interim financial statements.
  17
  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 CPA Partner on Premise marketing and sales
strategy.  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.
 
 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.
  18
  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
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS
141(revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) will
significantly change how business combinations are accounted for and will be
effective for business combinations consummated on June 1, 2009 and
thereafter.
 
 In June
2007, the Financial Accounting Standards Board (“FASB”) ratified Emerging Issues
Task Force (“EITF”) Issue No. 06-11 (“EITF Issue No. 06-11”), “Accounting for
Income Tax Benefits of Dividends on Shared-Based Payment Awards”. EITF Issue No.
06-11 requires that tax benefits generated by dividends paid during the vesting
period on certain equity-classified share-based compensation awards be treated
as additional paid-in capital and included in a pool of excess tax benefits
available to absorb tax deficiencies from share-based payment
awards.  EITF Issue No. 06-11 is effective beginning with the 2009
fiscal year.  We do not expect the adoption of EITF Issue No. 06-11 to
have an impact on our financial position or results of operations.
 
 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 SFAS No. 157, “Fair Value Measurements” (“SFAS
157”), which provides guidance for using fair value to measure assets and
liabilities. The pronouncement clarifies (1) the extent to which companies
measure assets and liabilities at fair value; (2) the information used to
measure fair value; and (3) the effect that fair value measurements have on
earnings. SFAS 157 will apply whenever another standard requires (or permits)
assets or liabilities to be measured at fair value. SFAS 157 is effective as of
the beginning of our 2009 fiscal year.  We do not expect the
adoption of SFAS 157 to have a material impact on our consolidated financial
position or results of operations.
 
 In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Pension and Other Postretirement Plans.”  This Statement requires
recognition of the funded status of a single-employer defined benefit
post-retirement plan as an asset or liability in its statement of financial
position.  Funded status is determined as the difference between the
fair value of plan assets and the benefit obligation.  Changes in that
funded status should be recognized in other comprehensive
income.  This recognition provision and the related disclosures were
effective as of the end of the fiscal year ending after December 15,
2006.  The Statement also requires the measurement of plan assets and
benefit obligations as of the date of the fiscal year-end statement of financial
position.  This measurement provision is effective for fiscal years
ending after December 15, 2008.  We do not expect adoption of this new
standard to have a material impact on our financial position, results of
operations or cash flows.
 
 Results
of Operations
 
 Three
months ended June 30, 2008 compared to three months ended June 30,
2007
 
 Revenue
 
 For the
three months ended June 30, 2008, revenue decreased $352,000, or 2%, to
$15,889,000, as compared to $16,241,000 in the same period of the prior
year.  This slight decrease in revenue is primarily attributable to a
decrease in revenue of $808,000 from the business acquired in the ReStaff
Acquisition and a decrease in revenue of $278,000 from the business acquired in
the US Temps Acquisition.  These declines were due to a combination of
the loss of accounts and lower billings for several larger customers that were
not fully offset by the acquisition of new accounts or existing account
increases.   The revenue decreases were partially offset by
increased revenue of $423,000 provided by the business acquired in the Stratus
Acquisition and increased revenue of $474,000 from our Direct Professional
Services.
  19
  Direct
cost of services
 
 For the
three months ended June 30, 2008, direct cost of services increased modestly to
$13,442,000, as compared to $13,410,000 in the same period of the prior
year.
 
 Gross
profit
 
 For the
three months ended June 30, 2008 gross profit decreased $384,000, or 14%, to
$2,447,000, as compared to $2,813,000 in the same period in the prior
year.  As a percentage of revenue, gross profit for the three months
ended June 30, 2008 decreased to 15.4% as compared to 17.4% in the same period
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 the clients.
 
 Selling,
general and administrative expenses
 
 For the
three months ended June 30, 2008, selling, general and administrative expenses
decreased $311,000, or 12%, to $2,182,000, as compared to $2,493,000 in the same
period of the prior year.  Selling, general and administrative
expenses include non-cash charges for stock based compensation expense of
$41,000 for the three months ended June 30, 2008 as compared with $12,000 in the
same period of the prior year.  As a percentage of revenue, selling,
general and administrative expenses were 13.7% for the three months ended June
30, 2008 compared to 15.4% during the same period in the prior
year.  Management has been aggressively managing expenses and has
successfully reduced expenses by seeking efficiencies in operating offices and
corporate functions.
 
 Depreciation
and amortization
 
 For the
three months ended June 30, 2008, depreciation and amortization increased
$10,000, or 9%, to $116,000, as compared to $106,000 in the same period in the
prior year.  The increase is attributable to increased purchases of
property and equipment made during the current fiscal year.
 
 Income
from operations
 
 As a
result of the above, income from operations was $149,000 for the three months
ended June 30, 2008 versus income from operations of $232,000 for the same
period in the prior year, representing a decrease of 36%.
 
 Interest
expense
 
 Interest
expense includes the net discounts associated with the sales of accounts
receivable, as well as interest on debt associated with acquired companies and
financing our operations. Interest expense for the three months ended June 30,
2008 was $144,000, as compared to $246,000 during the same period in the prior
year, representing a decrease of 41%.
 During
the second quarter of 2008 we substantially reduced the level of debt
outstanding by reducing 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 three
percentage point reduction in the federal prime lending rate from the same
period of the prior year, resulted in lowered interest expense on our sold
outstanding accounts receivable.
 
 Net
income (loss)
 
 The
factors described above resulted in net income for the three months ended June
30, 2008 of $5,000, as compared to a net loss of ($14,000) during the same
period of the prior year.
 
 Nine
months ended June 30, 2008 compared to nine months ended June 30,
2007
 
 Revenues
 
 For the
nine months ended June 30, 2008, revenue increased $9,070,000, or 22%, to
$49,780,000, as compared to $40,710,000 in the same period of the prior
year.  Of this increase, $5,358,000 was provided by the operations
acquired in connection with the ReStaff Acquisition, which occurred on February
26, 2007.  Excluding the ReStaff Acquisition, revenue increased
$3,712,000.  This increase was primarily attributable to the growth in
our Partner on Premise program as well as an increase in the revenues provided
by the offices acquired in the US Temps and Stratus Acquisitions and our Direct
Professional Services offering.
 
  20
  Direct
cost of services
 
 For the
nine months ended June 30, 2008, direct cost of services increased $7,904,000,
or 23%, to $41,833,000, as compared to $33,929,000 in the same period of the
prior year.  Of this increase, $4,706,000 was attributed to the
ReStaff Acquisition.  Excluding the ReStaff Acquisition, direct cost
of services increased $3,198,000.  This increase was primarily
attributable to the growth in our Partner on Premise program as well as an
increase in the business provided by the offices acquired in the US Temps and
Stratus Acquisitions and our Direct Professional Services offering.
 
 Gross
profit
 
 For the
nine months ended June 30, 2008 gross profit increased $1,166,000, or 17%, to
$7,947,000, as compared to $6,781,000 in the same period in the prior
year.  Of this increase, $652,000 was provided by the operations
acquired in connection with the ReStaff Acquisition.  Excluding the
ReStaff Acquisition, gross profit increased $514,000.  This increase
was primarily attributable to the growth in our Partner on Premise
program.  As a percentage of revenue gross profit for the nine months
ended June 30, 2008 was 16.0% as compared to 16.7% in the same period 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 the clients.
 
 Selling,
general and administrative expenses
 
 For the
nine months ended June 30, 2008, selling, general and administrative expenses
increased $1,402,000, or 23%, to $7,528,000, as compared to $6,126,000 in the
same period in the prior year. Selling, general and administrative expenses
include non-cash charges for stock-based compensation expense of $250,000 for
the nine months ended June 30, 2008 as compared with $12,000 in the same period
in the prior year.  As a percentage of revenue, selling, general and
administrative expenses were consistent at 15.1% for the nine months ended June
30, 2008 compared to 15.0% during the same period in the prior
year.  The overall increase in selling, general and administrative
expenses in the current period is reflective of the increased stock-based
compensation expense, and increases to support our additional sales volume,
offset by expense reduction initiatives during the third quarter.
 
 Depreciation
and amortization
 
 For the
nine months ended June 30, 2008, depreciation and amortization increased
$127,000, or 59%, to $341,000, as compared to $214,000 in the same period in the
prior year.  The increase is attributable to amortization associated
with acquired assets from the ReStaff Acquisition, completed in February 2007 as
well as increased purchases of property and equipment made during the current
fiscal year.
 
 Income
from operations
 
 As a
result of the above, income from operations was $78,000 for the nine months
ended June 30, 2008 versus $441,000 for the same period in the prior year,
representing a decrease of 82%.
 
 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 the nine months ended June 30, 2008 was $687,000, as compared to $633,000
during the same period in the prior year, 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 the ReStaff
Acquisition.
 
 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 will
not occur.
 
 Net
loss on debt extinguishment
 
 Net loss
on debt extinguishment 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.
 
  21
  Net
loss
 
 The
factors described above resulted in a net loss for the nine months ended June
30, 2008 of ($857,000), as compared to a net loss of ($192,000) during the same
period in the prior year.
 
 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 June
30, 2008, cash was $89,000, a decrease of ($48,000) from $137,000 as of
September 30, 2007.
 
 Net cash
provided by operating activities during the nine months ended June 30, 2008
decreased ($72,000) to $288,000, from $360,000 during the same period of the
prior year.  This was primarily due to decreased profitability and
reduction in due to a related party, offset by an increase in outstanding
accounts payable and accrued liabilities as of June 30, 2008.
 
 Net cash
used in investing activities during the nine months ended June 30, 2008
decreased ($343,000) to $246,000 from $589,000 during the same period of the
prior year, primarily as a result of cash paid for the ReStaff Acquisition in
the prior year.
 
 Net cash
used in financing activities during the nine months ended June 30, 2008
increased $503,000 to ($90,000) from $413,000 provided by financing activities
during the same period of the prior year, 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.
 
 
 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 June
30, 2008 we had negative working capital of ($2,392,000), for which the
component constituting the current portion of long- term debt was
$1,422,000.  Within the current portion of long-term debt $427,000 is
past due or due upon demand as explained further below.  Total
outstanding debt as of June 30, 2008 was $2,975,000.  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 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 $427,000 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,
 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)
              In
      January 2008 the holder of the $250,000, 10% convertible subordinate note
      issued in August 2007, as described in (xiii) of the  section
      captioned “Debt” below, agreed to exchange the note and accrued interest
      for 744,031 shares of common stock and warrants to purchase 100,000 shares
      of common stock at $0.50,
 d)
              In
      January 2008 the holder of the $280,000, 12% unsecured convertible note
      issued April 1, 2006, as described in (vii) of the  section
      captioned “Debt” below, agreed to exchange $100,000 of the outstanding
      principal for 600,000 shares of common
stock.
 e)
              In
      March, 2008 the related party described in (xii) of the section captioned
      “Debt” below agreed to exchange $120,000 of outstanding principal on the
      note for 600,000 shares of common
stock.
 f)
              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
      raising gross proceeds of $221,500.
 g)
              In
      January 2008 we commenced a private offering to sell up to $200,000
      of common stock and warrants, at
no
  22
  more than
a 25% discount to the average closing market price for the five days preceding
the transaction, and limiting the number of warrants issued to no more than 10%
of the common shares issued, and through February 29, 2008, $35,000 in proceeds
have been received in exchange for 100,000 shares of common stock and warrants
to purchase an additional 9,800 shares of common stock at $0.50 per
share,
 h)
              In
      December 2007 we retained an outside financial advisory and investment
      banking firm to advise and assist us in raising
      capital.  Through June 30, 2008 we have completed the planning
      phase and we are actively pursuing the raising of
  capital.
 i)
              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.
 j)
              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 the section captioned “Debt” below.  The $0.20 offering
      price represented a 25% discount from the market price. As of June 30,
      2008, $25,000 remained outstanding on the
note.
 k)
              We
      are aggressively managing cash and expenses, including the increased costs
      of becoming 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 becoming a reporting company,
      and
 l)
              We
      are continuing our efforts at expanding our higher margin professional
      services.
 
 The
working capital deficit of ($2,392,000) as of June 30, 2008, represents a
decrease of $834,000 as compared to a working capital deficit of ($3,226,000) as
of September 30, 2007.  This working capital deficit decrease 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 July 22, 2008, the amount of sold receivables
outstanding was $5,888,000, which includes $395,500 of the
overadvance.
 
  23
  Debt
 
 Long-term
debt at June 30, 2008 and September 30, 2007 is summarized as
follows:
 
 June
      30,
              
              
              September
      30,2008
              
              
              2007Long-term
      debt16.25%
      subordinated note (i)
              
              $
              102,000
              
              
              $
              93,0003%
      convertible subordinated note (ii)
              
              
              464,000
              
              
              
              527,00018%
      unsecured note (iii)
              
              
              80,000
              
              
              
              80,000Long
      term capitalized consulting obligations (v)
              
              
              57,000
              
              
              
              159,000Long
      term capitalized lease obligation (xiv)
              
              
              25,000
              
              
              
              -10%
      convertible subordinated note (xiii)
              
              
              -
              
              
              
              232,000Other
      debt
              
              
              50,000
              
              
              
              50,000Total
              
              
              778,000
              
              
              
              1,141,000Less
      current maturities
              
              
              437,000
              
              
              
              691,000Non-current
      portion
              
              
              341,000
              
              
              
              450,000Related
      party long-term debt13%
      unsecured demand note (iv)
              
              
              104,000
              
              
              
              101,000Long
      term capitalized consulting obligations (vi)
              
              
              24,000
              
              
              
              46,00012%
      unsecured convertible note (vii)
              
              
              100,000
              
              
              
              270,000Demand
      loans (viii)
              
              
              83,000
              
              
              
              30,0006%
      unsecured note (ix)
              
              
              100,000
              
              
              
              300,0006%
      unsecured note (x)
              
              
              1,677,000
              
              
              
              2,846,0009%
      unsecured note (xi)
              
              
              109,000
              
              
              
              210,000Unsecured
      loan (xii)
              
              
              -
              
              
              
              284,000Total
              
              
              2,197,000
              
              
              
              4,087,000Less
      current maturities
              
              
              985,000
              
              
              
              1,647,000Non-current
      portion
              
              
              1,212,000
              
              
              
              2,440,000Total
      long-term debt
              
              
              2,975,000
              
              
              
              5,228,000Less
      current maturities
              
              
              1,422,000
              
              
              
              2,338,000Total
      non-current portion
              
              $
              1,553,000
              
              
              $
              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 has 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, we 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 us 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, we 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 us until
October 31, 2008 in exchange for an increase in the interest rate to 18% per
annum.
 
 (iv)           A
$150,000 unsecured demand note was issued March 31, 2006 to a principal
shareholder as a finder’s fee in consideration for sourcing and completing the
US Temp Acquisition.  The note bears an annual interest rate of
8%. On October 31, 2007, we entered into a forbearance agreement with the
holder of the note wherein the holder agreed to waive
  24
  defaults
and refrain from exercising its rights and remedies against us until October 31,
2008 in exchange for an increase in the interest rate to 13% per
annum.
 
 On March
31, 2006, in connection with the US Temp Acquisition, we entered into three long
term consulting obligations which require us 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 us 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 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)           We
issued a $280,000 unsecured convertible note 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, we 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 us
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.  We 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 us $30,000 to fund our initial
operations. During the six months ended March 31, 2008, the same shareholder
advanced an additional $18,000. During the three months ended June 30, 2008
another major shareholder advanced us $35,000.  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 our
employee. 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, we completed our 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.  In addition, the note 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.
 
 (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%.
 
 (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.
  25
  
 (xi)           In
February 2007, a $275,000 unsecured note was issued as partial finder’s fee
consideration, 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, we
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.  We borrowed and subsequently repaid $450,000 in March, 2007,
and borrowed the balance of $500,000 in June, 2007 which was payable in equal
weekly installments of $10,000.  We 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, we issued 600,000 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. We 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.
 
 (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 our 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.  We 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, we 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
 
 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 that 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 that 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.
 
 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%.
 
  26
  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) above, 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 the
section captioned “Debt” above.  The $0.20 offering price represented
a 25% discount from the market price. As of June 30, 2008, $25,000 remained
outstanding on the note.
 
 Item
      3.
              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, 2007 outstanding uncollected receivables sold were
$6,195,000.  Our weighted average outstanding uncollected receivables
sold for the year ending September 30, 2007 was
$5,079,000.  Management estimates that had the average interest rate
increased by two percentage points during the year ending September 30, 2007,
interest expense would have increased by approximately $102,000.
 
 We
believe that our business operations are not exposed to market risk relating to
foreign currency exchange risk or commodity price risk.
 
 Item
      4.
              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
report.  There were no changes in our internal controls during the
quarter ended June 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.
 
 Part
      II
              Other
      InformationItem
      1.
              Legal
      Proceedings
 
 We are
involved, from time to time, in routine litigation arising in the ordinary
course of business, including the matters described in Amendment No. 3 to our
Form 10 Registration Statement filed on April 15, 2008.  There have
been no material changes in the status of such matters since the filing of that
registration statement.
 
 In 2005,
we acquired the outstanding receivables and customer lists from 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
  27
  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 wages for the last several months which may be reduced upon
audit.  Management believes that we have properly calculated its
unemployment insurance tax and is in compliance with all applicable laws and
regulations.  We appealed the ruling and are awaiting a determination,
but we intend to vigorously defend our position that we are not the predecessor
employer.  Management estimates the range of possible loss between
$0  and $103,000.
 
 Item
      1A.
              Risk
      Factors
 
 There
have been no material changes with respect to the risk factors disclosed in our
latest Amended Form 10 Registration Statement filed on April 15,
2008.
 
 Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds
 
 In May
2008, we 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. We relied
upon the exemption provided by Section 4(2) of the Securities Act of 1933 in
making such issuance.
 
 In May
2008, we 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 June 30,
2008, $25,000 remained outstanding on the note. We relied upon the exemption
provided by Section 4(2) of the Securities Act of 1933 in making such
issuance.
 
 Item
      3.
              Defaults
      Upon Senior Securities
 We are
currently in default under promissory notes in the principal amounts of
$175,000, $80,000 and $150,000, respectively, as a result of our failure to make
timely payments of principal and/or interest.  Each of the holders of these
notes has entered into a forbearance agreement with us and agreed to refrain
from exercising rights and remedies against us in exchange for an increase in
the interest rate of the note.  As of June 30, 2008, the aggregate amount
of payments due but not made under the notes was $286,000.
 
 Item
      4.
              Submission
      of Matters to a Vote of Security
Holders
 
 No
matters were submitted to a vote of stockholders during the quarter ended June
30, 2008.
 
 Item
      5.
              Other
      Information
 
 None
 
 Item
      6
              Exhibits
 
 Number
              Description10.42
              Promissory
      Note dated May 15, 2008 issued by Tri-State Employment Services, Inc.
      toAccountabilities,
      Inc. in the Principal Amount of $200,00010.43
              Stock
      Purchase Agreement dated May 15, 2008 between Accountabilities, Inc. and
      Tri-State Employment Services, Inc.10.44
              Form
      of Stock Purchase Agreement utilized in connection with May, 2008 Private
      Placement31.1
              Certification
      of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act
      of 200231.2
              Certification
      of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act
      of 200232.1
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of Sarbanes-Oxley Act of 2002
 
  28
  
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 ACCOUNTABILITIES,
      INC.Date: 
      August 14, 2008
              By:
              /s/ Jeffrey
      J. RaymondName: 
      Jeffrey J. RaymondTitle: 
      Chief Executive Officer
  Date: 
      August 14, 2008
                By:
                /s/ Stephen
      DelVecchiaName: 
      Stephen DelVecchiaTitle: 
      Chief Financial Officer
 29