UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





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




For
the quarterly period ended June 30, 2010




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





Commission
file number 000-30734





CORPORATE
RESOURCE SERVICES, INC.


(Exact
name of Registrant as specified in its charter)





Delaware
            
            80-0551965(State
      or other jurisdictionof
              incorporation
      or organization)
            
            (I.R.S.
      EmployerIdentification
      No.)160
      Broadway, 11th
      Floor
              New
      York,  New York 10038(Address
      of principal executive offices)(646)
      443-2380(Registrant’s
      telephone number, including area code)(Former
      name, former address and former fiscal year, if changed since last
      report)




Indicate
by check mark whether the registrant (1) has 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T  during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). o
Yes   o  No





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





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 4,
2010 was 29,339,000.












CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES


INDEX




PART
      I – FINANCIAL INFORMATIONItem
      1. Financial Statements (Unaudited)
              
              3Condensed
      Consolidated Balance Sheets as of June 30, 2010 (unaudited) and September
      30, 2009
              
              3Condensed
      Consolidated Statements of Operations for the Three and Nine Months Ended
      June 30, 2010 and 2009 (unaudited)
              
              4Condensed
      Consolidated Statement of Stockholders’ Equity (Deficit) for the Nine
      Months EndedJune
      30, 2010 (unaudited)
              
              5Condensed
      Consolidated Statements of Cash Flows for the Nine Months Ended June 30,
      2010 and 2009(unaudited)
              
              6Notes
      to Condensed Consolidated Financial Statements
              
              7Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
              
              16Item
      3. Quantitative and Qualitative Disclosures about Market
    Risks
              
              23Item
      4. Controls and Procedures
              
              24PART
      II – OTHER INFORMATIONItem
      1. Legal Proceedings
              
              24Item
      1A. Risk Factors
              
              24Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
              
              24Item
      3. Defaults Upon Senior Securities
              
              24Item
      4. (Removed and Reserved)
              
              24Item
      5. Other Information
              
              24Item
      6. Exhibits
              
              25Signatures
              
              26


2




CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




June
      30,
            
            
            September
      30,2010
            
            
            2009(unaudited)ASSETSCurrent
      assets:Cash
            
            $
            27,000
            
            
            $
            63,000Accounts
      receivable – less allowance for doubtful accounts of $503,000 and
      $188,000, respectively
            
            
            2,673,000
            
            
            
            996,000Due
      from financial institution
            
            
            441,000
            
            
            
            130,000Unbilled
      receivables
            
            
            1,385,000
            
            
            
            783,000Prepaid
      expenses
            
            
            118,000
            
            
            
            299,000Due
      from related party
            
            
            21,000
            
            
            
            21,000Total
      current assets
            
            
            4,665,000
            
            
            
            2,292,000Property
      and equipment, net
            
            
            817,000
            
            
            
            141,000Other
      assets
            
            
            27,000
            
            
            
            21,000Intangible
      assets, net
            
            
            2,913,000
            
            
            
            944,000Goodwill
            
            
            2,327,000
            
            
            
            2,947,000Total
      assets
            
            $
            10,749,000
            
            
            $
            6,345,000LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable and accrued liabilities
            
            $
            2,934,000
            
            
            $
            1,579,000Accrued
      wages and related obligations-due to related party
            
            
            2,846,000
            
            
            
            1,801,000Accrued
      wages and related obligations
            
            
            28,000
            
            
            
            35,000Current
      portion of long-term debt
            
            
            1,050,000
            
            
            
            454,000Current
      portion of related party long-term debt
            
            
            1,009,000
            
            
            
            811,000Due
      to related party
            
            
            1,576,000
            
            
            
            344,000Total
      current liabilities
            
            
            9,443,000
            
            
            
            5,024,000Long
      term debt, net of current portion
            
            
            1,250,000
            
            
            
            190,000Related
      party long-term debt, net of current portion
            
            
            -
            
            
            
            580,000Deferred
      rent
            
            
            118,000
            
            
            
            -Total
      liabilities
            
            
            10,811,000
            
            
            
            5,794,000Commitments
      and contingenciesStockholders’
      equity (deficit):Preferred
      stock, $0.0001 par value, 5,000,000 shares authorized; zero shares issuedand
      outstanding
            
            
            -
            
            
            
            -Common
      stock, $0.0001 par value, 95,000,000 shares authorized; 33,596,000 and23,689,000
      shares issued and 29,339,000 and 23,689,000 outstanding as of June 30,2010
      and September 30, 2009, respectively
            
            
            3,000
            
            
            
            2,000Additional
      paid-in capital
            
            
            6,109,000
            
            
            
            3,397,000Accumulated
      deficit
            
            
            (6,174,000
            )
            
            
            (2,848,000
            )Total
      stockholders’ equity (deficit)
            
            
            (62,000)
            
            
            
            551,000Total
      liabilities and stockholders’ equity (deficit)
            
            $
            10,749,000
            
            
            $
            6,345,000




See accompanying notes to condensed
consolidated financial statements.


3


CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited)




Three
      Months Ended
            
            
            Nine
      Months EndedJune
      30,
              2010
            
            
            June
      30,
              2009
            
            
            June
      30,
              2010
            
            
            June
      30,
              2009Revenue
            
            $
            32,522,000
            
            
            $
            12,726,000
            
            
            $
            60,107,000
            
            
            $
            42,315,000Direct
      cost of producing revenues-purchased from related party
            
            
            25,875,000
            
            
            
            11,108,000
            
            
            
            50,747,000
            
            
            
            36,770,000Gross
      profit
            
            
            6,647,000
            
            
            
            1,618,000
            
            
            
            9,360,000
            
            
            
            5,545,000Selling,
      general and administrative expenses *
            
            
            6,887,000
            
            
            
            1,590,000
            
            
            
            10,439,000
            
            
            
            5,147,000Depreciation
      and amortization
            
            
            204,000
            
            
            
            99,000
            
            
            
            370,000
            
            
            
            314,000Acquisition
      expenses
            
            
            482,000
            
            
            
            -
            
            
            
            482,000
            
            
            
            -Other
      (income)
            
            
            (446,000
            )
            
            
            -
            
            
            
            (446,000
            )
            
            
            -(Loss)
      income from continuing operations
            
            
            (480,000
            )
            
            
            (71,000
            )
            
            
            (1,485,000
            )
            
            
            84,000Interest
      expense
            
            
            256,000
            
            
            
            86,000
            
            
            
            418,000
            
            
            
            336,000Loss
      on debt extinguishments – related party
            
            
            -
            
            
            
            -
            
            
            
            1,423,000
            
            
            
            -Net
      loss from continuing operations
            
            
            (736,000
            )
            
            
            (157,000
            )
            
            
            (3,326,000
            )
            
            
            (252,000
            )Income
      (loss) from discontinued operations
            
            
            -
            
            
            
            82,000
            
            
            
            -
            
            
            
            (316,000
            )Net
      loss
            
            $
            (736,000
            )
            
            $
            (75,000
            )
            
            $
            (3,326,000
            )
            
            $
            (568,000
            )Net
      loss per share from continuing operations:Basic
            
            $
            (0.03
            )
            
            $
            (0.01
            )
            
            $
            (0.13
            )
            
            $
            (0.01
            )Diluted
            
            $
            (0.03
            )
            
            $
            (0.01
            )
            
            $
            (0.13
            )
            
            $
            (0.01
            )Net
      income (loss) per share from discontinued operations:Basic
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            (0.01
            )Diluted
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            (0.01
            )Total
      net loss per share:Basic
            
            $
            (0.03
            )
            
            $
            0.00
            
            
            $
            (0.13
            )
            
            $
            (0.03
            )Diluted
            
            $
            (0.03
            )
            
            $
            0.00
            
            
            $
            (0.13
            )
            
            $
            (0.03
            )Weighted
      average shares outstanding:Basic
            
            
            29,339,000
            
            
            
            22,715,000
            
            
            
            26,201,000
            
            
            
            22,439,000Diluted
            
            
            29,339,000
            
            
            
            22,715,000
            
            
            
            26,201,000
            
            
            
            22,439,000







*
            Includes
      $27,000 and $103,000 for the three and nine months ended June 30, 2010,
      respectively and $39,000 and $122,000 for the three and nine months ended
      June 30, 2009, respectively, in non-cash charges for stock based
      compensation.





See
accompanying notes to condensed consolidated financial
statements.


4




CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)


(unaudited)





Nine
      Months EndedJune
      30,
              2010Common
      stock – shares:Balance
      at beginning of period
            
            
            23,689,000Forfeitures
      of restricted stock grants
            
            
            (350,000
            )Common
      stock issued as collateral
            
            
            4,257,000Debt
      conversions to unregistered common stock
            
            
            6,000,000Balance
      at end of period
            
            
            33,596,000Common
      stock – par value:Balance
      at beginning of period
            
            $
            2,000Debt
      conversions to unregistered common stock
            
            
            1,000Balance
      at end of period
            
            $
            3,000Additional
      paid-in capital:Balance
      at beginning of period
            
            $
            3,397,000Debt
      conversions to unregistered common stock
            
            
            2,609,000Stock-based
      compensation relating to unregistered common stock
            
            
            103,000Balance
      at end of period
            
            $
            6,109,000Accumulated
      deficit:Balance
      at beginning of period
            
            $
            (2,848,000
            )Net
      loss
            
            
            (3,326,000
            )Balance
      at end of period
            
            $
            (6,174,000
            )Total
      stockholders’ (deficit)
            
            $
            (62,000
            )





See
accompanying notes to condensed consolidated financial statements.




5





CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited)








Nine
      Months EndedJune
      30,
            
            
            
            June
      30,2010
            
            
            
            2009Cash
      flows from operating activities:Net
      loss
            
            $
            (3,326,000
            )
            
            $
            (568,000
            )Less:
      net (loss) from discontinued operations
            
            
            -
            
            
            
            (316,000
            )Net
      loss from continuing operations
            
            
            (3,326,000
            )
            
            
            (252,000
            )Adjustments
      to reconcile net loss to cash (used in) provided by operating
      activities:Depreciation
      and amortization
            
            
            370,000
            
            
            
            314,000Stock-based
      compensation
            
            
            103,000
            
            
            
            122,000Bad
      debt expense
            
            
            506,000
            
            
            
            140,000Loss
      on debt extinguishments – related party
            
            
            1,423,000
            
            
            
            -Straight
      Line Rent
            
            
            118,000
            
            
            
            -Changes
      in operating assets and liabilities:Trade
      accounts receivable including unbilled receivables
            
            
            (2,827,000
            )
            
            
            394,000Due
      from financial institution
            
            
            (311,000
            )
            
            
            (49,000
            )Prepaid
      expenses
            
            
            181,000
            
            
            
            121,000Other
      assets
            
            
            (6,000
            )
            
            
            -Accounts
      payable and accrued liabilities-due to related parties
            
            
            58,000
            
            
            
            (227,000
            )Accounts
      payable and accrued liabilities-due to unrelated parties
            
            
            2,479,000
            
            
            
            77,000Net
      cash (used in) provided by operating activities – continuing
      operations
            
            
            (1,232,000
            )
            
            
            640,000Net
      cash (used in) operating activities – discontinued
    operations
            
            
            (17,000
            )
            
            
            (300,000
            )Net
      cash (used in) provided by operating activities
            
            
            (1,249,000
            )
            
            
            340,000Cash
      flows from investing activities:Purchase
      of property and equipment – continuing operations
            
            
            (15,000
            )
            
            
            (12,000
            )Net
      cash used in investing activities
            
            
            (15,000
            )
            
            
            (12,000
            )Cash
      flows from financing activities:Principal
      payments on long-term debt
            
            
            (4,000
            )
            
            
            (78,000
            )Advances
      from related party – net
            
            
            1,232,000
            
            
            
            -Principal
      payments on long-term debt – related parties
            
            
            -
            
            
            
            (302,000
            )Net
      cash used in financing activities – continuing operations
            
            
            1,228,000
            
            
            
            (380,000
            )Net
      cash provided by (used in) financing activities
            
            
            1,228,000
            
            
            
            (380,000
            )Net
      (decrease) in cash
            
            
            (36,000
            )
            
            
            (52,000
            )Cash
      at beginning of period
            
            
            63,000
            
            
            
            69,000Cash
      at end of period
            
            $
            27,000
            
            
            $
            17,000




See accompanying notes to condensed
consolidated financial statements.


6


CORPORATE
RESOURCE SERVICES, INC. AND SUBSIDIARIES





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





1.
            Description
      of the Company and its Business





Holding
Company Reorganization





Corporate
Resource Services, Inc., a Delaware corporation (the “Company”), was formed on
December 15, 2009 for the purpose of acquiring and managing staffing
companies.  On February 23, 2010, the Company completed a holding
company reorganization whereby Accountabilities, Inc., a Delaware corporation
(“Accountabilities”), which immediately prior to the reorganization was the
Company’s parent company, became a wholly-owned subsidiary of the
Company.





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





References
in these Notes to Condensed Consolidated Financial Statements to the “Company”
refer, for periods prior to February 23, 2010, to Accountabilities, and, for the
periods after the reorganization, to Corporate Resource Services, Inc., in each
case including its consolidated subsidiaries, Accountabilities and Corporate
Resource Development Inc. (“CRD”), a newly formed wholly-owned subsidiary of the
Company, formed on March 23, 2010, unless otherwise indicated or the context
otherwise requires.





Nature
of Operations





Through
its two wholly-owned subsidiaries, Accountabilities and CRD, the Company is a
national provider of diversified staffing, recruiting and consulting services,
including temporary staffing services, with a focus on light industrial services
and clerical and administrative support.  The Company provides its
services across a variety of industries and to a diverse range of clients
ranging from sole proprietorships to Fortune 1000 companies.  The
Company conducts all of its business in the United States through its New York
City headquarters and the operation of 17 staffing and recruiting
offices.





2.
            Summary
      of Significant Accounting Policies





Business
Combinations





Acquisitions
of businesses made on or after December 15, 2009 are accounted for using the
acquisition method. Under the acquisition method the assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree are
measured at their fair values as of the acquisition date. Costs incurred to
effect the acquisition are recognized separately as an expense from the
acquisition rather than being included in the cost. Acquisitions of businesses
made prior to December 15, 2009 have been accounted for under the purchase
method. In contrast with the acquisition method, the purchase method required
that the costs of acquisitions, including costs incurred to effect the
acquisitions, be allocated to the individual assets and liabilities based on
their estimated fair values.





Revenue
Recognition





Staffing
and consulting revenues are recognized when services are provided. Permanent
placement revenue, which generated 3.7%  and 2.0% of total revenue in
the three and nine months ended June 30, 2010, respectively, is recognized when
the candidate commences employment, net of an allowance for those not expected
to remain with clients through a 90-day guarantee period, wherein the Company is
obligated to find a suitable replacement.




Consolidation





The
accompanying condensed consolidated financial statements include the accounts of
the company and its two wholly owned subsidiaries, Accountabilities and CRD. All
significant intercompany transactions have been eliminated in
consolidation.





7





Interim
Financial Information





The
condensed consolidated financial information as of and for the three and nine
months ended June 30, 2010 and 2009 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of its financial position at such dates and
the operating results and cash flows for those periods.  The condensed
year-end balance sheet was derived from audited financial statements, and
certain information and note disclosures normally included in annual financial
statements, prepared in accordance with accounting principles generally accepted
in the United States, have been condensed or omitted pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission (the “SEC”); however,
the Company believes the disclosures made are adequate to make the information
presented not misleading in any material respect.





The
results of operations for the interim periods presented are not necessarily
indicative of the results of operations to be expected for the full fiscal
year.  These condensed consolidated interim financial statements
should be read in conjunction with the audited financial statements and notes
thereto for the year ended September 30, 2009, which are included in
Accountabilities’ Form 10-K as filed with the SEC on December 28,
2009.  Certain reclassifications have been made to the accompanying
condensed consolidated financial statements to conform to the current period’s
presentation.





Income
Taxes





Accounting
principles generally accepted in the United States ("GAAP") requires the use of
the asset and liability method.  Under this method, deferred income
taxes are recognized for the estimated tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end, based on enacted tax laws and statutory
rates applicable to the periods in which the differences are expected to affect
taxable income.  If necessary, valuation allowances are established to
reduce deferred tax assets to the amount expected to be realized when, in
management’s opinion, it is more likely than not that some portion of the
deferred tax assets will not be realized.





The
Company has adopted Financial Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes – An interpretation of SFAS 109”, as
codified in Accounting Standards Codification (“ASC”) 740. This interpretation
addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements. Under
ASC 740, the Company may recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical
merits of the position.





Use
of Estimates





The
preparation of financial statements in conformity with GAAP 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.
            Acquisitions





GT
Systems, Inc.





On April
5, 2010 the Company, through its wholly-owned subsidiary, CRD, acquired certain
of the operations of GT Systems, Inc. and its operating affiliates (“GT
Systems”), for $3,000,000 of which $750,000 was paid at the closing with the
balance payable, with no interest, in installments of $250,000 per quarter for
one year, and thereafter, .75% of revenue on a monthly basis until the
earlier
of payment of the full purchase price, or April 5, 2013. If, on April 5, 2013,
the full purchase price has not been paid, then any remaining balance shall be
due and payable by CRD.  The
acquisition was made to expand the Company’s penetration of the New York
Tri-State region, diversify the Company’s product offerings, and the Company
believes it can benefit through anticipated savings due to economies of
scale.  The purchase resulted in CRD’s acquisition of certain
fixed and identifiable intangible assets of GT Systems.





The
following table presents the allocation of the purchase price which has been
accounted for at the fair values of the assets acquired and liabilities assumed
under the acquisition method of accounting:





Backlog
            
            $
            195,000Salesrepresentative
      network
            
            
            2,055,000PP&E
            
            
            750,000Total
      Purchase Price
            
            $
            3,000,000





In
addition, the Company has entered into a three year consulting agreement with GT
Systems former owner for his assistance with the administration of the business
and maintenance of customer and client relationships. Compensation to be paid
under the agreement includes an annual payment of $200,000, 0.4% of the gross
sales of each pay period, and an additional 0.6% of the annual gross sales in
excess of $80,000,000. The Company has incurred $110,000 of consulting expenses
from April 5, 2010 to June 30, 2010, which is reflected in selling general and
administrative expenses on the Statements of Operations.




8




As a
result of the acquisition, the Company earned $446,000, which has been reported
as other income. This income consists of fees earned pursuant to a services
agreement with an affiliate of GT Systems which expired in June 2010, and
amounts earned under a Service and Collections agreement with the seller,
whereby the Company provides services to assist the seller in collecting the
outstanding receivables of GT Systems prior to its acquisition.





The
Company also incurred $482,000 in acquisitions-related costs, which include a
finder’s fee of $52,000, legal fees of $360,000 and accounting fees of
$70,000.





The
following table shows certain unaudited pro forma results of the Company,
assuming the Company had acquired the assets of GT Systems at the beginning of
the nine months ended June 30, 2010:




Included
      in the
                Financial
      Statements
                Presented
                CRD’s
      Acquisition
                of
      Certain Assets of
                GT
      Systems
                April
      5, 2010 -
                June
      30, 2010
              
              
              Supplemental
                Pro
      forma
                Consolidated
                October
      1, 2009 -
                June
      30, 2010Revenue
              
              $
              18,286,000
              
              
              $
              96,222,000Net
      (loss) from continuing operations
              
              $
              (175,000
              )
              
              $
              (3,694,000
              )







4.
              Discontinued
      Operations





CPA
Partner on Premise Program (“CPA POP”):





In April
2009, the Company discontinued its CPA POP service offering through which it had
provided staffing and recruiting services for the placement of finance and
accounting personnel through sales and marketing agreements with ten public
accounting firms. The Company has reported the results of the CPA POP program as
discontinued operations in the accompanying condensed consolidated statements of
operations.  All prior period information has been reclassified to be
consistent with the current period presentation.





Direct
Professional Services:





In the
first quarter of fiscal 2010, in an effort to focus management’s efforts and use
the Company’s capital more directly on its light industrial and clerical and
administrative service offerings, the Company discontinued the portion of the
Direct Professional Services offering associated with the provision of
accounting and finance services offered directly to
clients.  Accordingly, the Company has reported the operations
associated with the direct provision of accounting and finance services as
discontinued operations in the accompanying condensed consolidated statements of
operations.  All prior period information has been reclassified to be
consistent with the current period presentation.







5.
              Net
      Loss per Share





The
Company presents both basic and diluted earnings per share amounts
(“EPS”).  Basic EPS is calculated by dividing net (loss) income by the
weighted average number of common shares outstanding during the period. Diluted
EPS per share reflects any potential dilution that could occur if securities or
other contracts to issue common stock, such as options, convertible notes and
convertible preferred stock, were exercised or converted into common stock or
could otherwise cause the issuance of common stock that then shared in
earnings.  Such potential additional common stock is included in the
computation of diluted earnings per share.  Diluted loss per share is
not computed because any potential additional common stock would reduce the
reported loss per share and therefore have an anti dilutive
effect.  The weighted-average number of common shares outstanding does
not include 4,257,000 shares of stock held in escrow to secure the debt related
to the GT Systems acquisition (see note 8) or the anti-dilutive effect of
approximately 592,000 common stock equivalent shares for the three and nine
months ended June 30, 2010, and 688,000 common stock equivalent shares for the
three and nine months ended June 30, 2009, representing warrants, convertible
debt and non-vested shares.




9




6.
            Intangible
      Assets and Goodwill





The
following table provides a detailed presentation of the Company’s intangible
assets, estimated lives, related accumulated amortization and
goodwill:





As
      of June 30, 2010
            
            
            As
      of September 30, 2009Accumulated
            
            
            
            
            
            
            
            
            AccumulatedGross
            
            
            Amortization
            
            
            Net
            
            
            Gross
            
            
            Amortization
            
            
            NetCustomer
      lists and relationships (7 to 10 years)
            
            $
            4,071,000
            
            
            $
            (1,158,000
            )
            
            $
            2,913,000
            
            
            $
            1,821,000
            
            
            $
            (888,000
            )
            
            $
            933,000Non-competition
      agreements(3
      years)
            
            
            111,000
            
            
            
            (111,000
            )
            
            
            -
            
            
            
            111,000
            
            
            
            (100,000
            )
            
            
            11,000Total
            
            $
            4,182,000
            
            
            $
            (1,269,000
            )
            
            $
            2,913,000
            
            
            $
            1,932,000
            
            
            $
            (988,000
            )
            
            $
            944,000Goodwill
      (indefinite life)
            
            $
            2,327,000
            
            
            
            
            
            
            $
            2,327,000
            
            
            $
            2,947,000
            
            
            
            
            
            
            $
            2,947,000





The
Company recorded amortization expense for the nine months ended June 30, 2010
and 2009 of $281,000 and $153,000, respectively.  Estimated intangible
asset amortization expense (based on existing intangible assets) for the
remaining three months of fiscal 2010 is $157,000 and for the fiscal years
ending September 30, 2011, 2012, 2013, 2014 and 2015 is $432,000, $432,000,
$388,000, $274,000 and $205,000, respectively.





On
February 5, 2010, the Company entered into a Settlement and Release Agreement
with the former owner of a business acquired by the Company in 2007, ReStaff
Services, Inc. (“ReStaff”), whereby all obligations owed by the Company to
ReStaff, totaling $1,165,000, were released in exchange for a series of payments
totaling $545,000.  This debt restructuring was accounted for as a
reduction in the purchase price of ReStaff, with a corresponding adjustment to
goodwill.  Subsequently, the restructured note was settled in exchange
for the issuance of shares of the Company’s common stock.





Goodwill
balances and the adjustment made during the second quarter of fiscal 2010 are as
follows:





Goodwill
      as of September 30, 2009
            
            $
            2,947,000ReStaff
      purchase price adjustment
            
            
            (620,000
            )Goodwill
      as of June 30, 2010
            
            $
            2,327,000




7.
            Related
      Parties





The
Company has entered into professional service arrangements with TSE-PEO, Inc.
and TSE, Inc. (collectively “TSE”), professional employer organizations
(collectively “PEO”) that share common ownership with Tri-State Employment
Services, Inc., which is also the beneficial owner, with its affiliates, of
approximately 66% of the Company’s outstanding common stock.  TSE, as
a PEO, is a single source provider of integrated services that enable business
owners to cost-effectively outsource functions such as human resource support,
employee benefits, payroll and workers’ compensation and other strategic
services.  TSE does this by becoming an employer of record for tax and
insurance purposes.  Fees for this arrangement charged by TSE to the
Company are comparable to the fees TSE charges its other
customers.  While amounts payable to TSE are part of the Company’s
costs of doing business, the Company sets the rates and prices that it charges
its end user customers (i.e. those who
require temporary services workers).  The Company has this PEO
relationship with employees associated with all of its operations.  As
shown on the accompanying balance sheet, amounts accrued for wages and related
charges at June 30, 2010 and September 30, 2009 are $2,846,000 and $1,801,000,
respectively.  TSE has provided financial accommodations to the
Company by allowing it to delay from time to time amounts due to TSE under the
professional services arrangement with TSE.





On
February 22, 2010, TSE agreed to assume the obligation to make a series of
payments totaling $545,000 from the Company in exchange for the issuance of
3,666,667 shares of the Company’s common stock, as more fully described
below.  On May 1, 2010, CRD entered into an account purchase agreement
with TSE, as more fully described below.




10




The
caption “Due to related party” on the accompanying condensed consolidated
balance sheets primarily consists of $1,661,000 advanced to the Company by TSE,
and $50,000 due to a former officer of the Company for compensation related to
the discontinued operations, net of certain amounts to be reimbursed to the
Company.





On May 3,
2010, CRD entered into an account purchase agreement (the “Account Purchase
Agreement”) with TSE in order to provide financing to CRD.  Under the
terms of the Account Purchase Agreement, CRD sells its receivables to
TSE.  TSE obtains the funds necessary under the Account Purchase
Agreement from its current lender on comparable terms, and is passing through
all of its financing costs to CRD without markup.  The maximum amount
of trade receivables that may be sold at any one time is $45,000,000, for which
TSE will advance 90% of the assigned receivables’ value upon sale, and 10% upon
final collection, subject to certain offsets, with interest charged at 2.5% plus
prime.  The risk CRD bears from bad debt losses on trade receivables
sold is retained by CRD, and receivables sold which become greater than 90 days
old can be charged back to CRD by TSE For the three months ended June 30, 2010,
the total financing cost was $95,000. This arrangement is intended to be
temporary and is subject to the Company obtaining its own direct arrangement
with a financing source. The amount outstanding under this agreement at June 30,
2010 was $8,875,000, which amount has been netted against accounts
receivable.





8.
            Long-Term
      Debt





Long-term
debt at June 30, 2010 and September 30, 2009 is summarized as
follows:




June
      30,
            
            
            September
      30,2010
            
            
            2009Long-term
      debt16.25%
      subordinated note (i)
            
            $
            -
            
            
            $
            102,0003%
      convertible subordinated note (ii)
            
            
            -
            
            
            
            408,00018%
      unsecured note (iii)
            
            
            -
            
            
            
            80,000Long
      term capitalized lease obligation (iv)
            
            
            -
            
            
            
            4,000CRD
      (v)
            
            
            2,250,000
            
            
            
            -Other
      debt
            
            
            50,000
            
            
            
            50,000Total
            
            
            2,300,000
            
            
            
            644,000Less
      current maturities
            
            
            1,050,000
            
            
            
            454,000Non-current
      portion
            
            
            1,250,000
            
            
            
            190,000Related
      party long-term debt13%
      unsecured demand note (vi)
            
            
            104,000
            
            
            
            104,00018%
      unsecured convertible note (vii)
            
            
            100,000
            
            
            
            100,000Demand
      loans (viii)
            
            
            55,000
            
            
            
            131,0006%
      unsecured note (ix)
            
            
            -
            
            
            
            1,056,000Advance
      from TSE (x)
            
            
            750,000
            
            
            
            -Total
            
            
            1,009,000
            
            
            
            1,391,000Less
      current maturities
            
            
            1,009,000
            
            
            
            811,000Non-current
      portion
            
            
            -
            
            
            
            580,000Total
      long-term debt
            
            
            3,309,000
            
            
            
            2,035,000Less
      current maturities
            
            
            2,059,000
            
            
            
            1,265,000Total
      non-current portion
            
            $
            1,250,000
            
            
            $
            770,000





(i)
            A
      $175,000 subordinated note was issued March 31, 2006, originally due
      January 30, 2007 and originally having an annual interest rate of 8% with
      principal and interest payable in equal monthly installments of
      $18,150.  The note was secured by office equipment and other
      fixed assets.  Due to the failure to make timely payments under
      the terms of the note, the holder declared the note in technical default,
      began assessing interest at a higher rate, imposed late
      charges.  The holder has since entered into forbearance
      agreements under which defaults have been waived and forbearance terms
      extended.  On December 29, 2009, the obligations under this note
      were transferred by the holder to TSE and then settled in full in exchange
      for shares of the Company’s common stock, as further described
      below.





(ii)
            A
      $675,000 convertible subordinated note was issued March 31, 2006, bearing
      interest at an annual rate of 3% and originally due on March 31,
      2012.  The note was secured by office equipment and other fixed
      assets.  On December 29, 2009, the obligations under this note
      were transferred by the holder to TSE and then settled in full in exchange
      for shares of the Company’s common stock, as further described
      below.




11




(iii)
            An
      $80,000 unsecured non-interest bearing note was issued March 31, 2006, and
      was originally 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.  Since then, the
      Company entered into forbearance agreements under which the holder has
      waived defaults and effectively extended forbearance terms.  On
      December 29, 2009, the obligations under this note were transferred by the
      holder to TSE and then settled in full in exchange for shares of the
      Company’s common stock, as further described
  below.





Concurrent
      with the acquisition of the debt described in (i), (ii) and (iii) above,
      TSE entered into an exchange agreement with the Company whereby all
      obligations associated with the debt, including the outstanding principal
      and accrued interest at that date, were satisfied through the issuance of
      2,333,333 shares of the Company’s common stock.  On the date of
      the exchange, there was $590,000 in principal and accrued interest of
      $52,000 outstanding on the notes.  The Company recorded a loss
      of $501,000 on the extinguishment of the debt representing the difference
      between the fair value of the shares issued on the date of the exchange
      and the remaining principal and accrued interest payable on the
      notes.  The fair value of the shares issued in the exchange was
      determined by reference to the per share closing price of the Company’s
      common stock on the date of the exchange, which was $0.49.  A
      special committee of independent directors of the Company approved
      entering into this exchange
agreement.





(iv)
            In
      November 2007, the Company entered into a capital lease agreement to
      purchase computer equipment.  The original principal of $33,000
      was payable over a lease term of 24 months in equal monthly installments
      of $1,843.





(v)
            In
      connection with the acquisition of certain assets of GT Systems for
      $3,000,000, on April 4, 2010, the Company made a down payment of $750,000
      with a balance of $2,250,000. This balance is to be paid with no interest,
      at $250,000 per quarter for one year, and thereafter .75% of revenue on a
      monthly basis until the
      earlier of payment of the full purchase price, or April 5, 2013. If, on
      April 5, 2013, the full purchase price has not been paid, then any
      remaining balance shall be due and payable by CRD. This debt is
      secured by 4,257,000 shares of the Company’s common stock being held in
      escrow.





(vi)
            An
      unsecured demand note was issued March 31, 2006 to an affiliate of a
      former director and officer of the Company, having an original principal
      of $150,000 and bearing an annual interest rate of 8%.  The
      Company has entered into various forbearance agreements under which the
      holder agreed to waive defaults, refrain from exercising its rights and
      remedies against the Company, and effectively extend the terms of the
      forbearance until October 31, 2008, in exchange for an increase in the
      interest rate to 13% per annum.  On October 31, 2008, the
      Company entered into another forbearance agreement with the holder of the
      note effectively extending the terms of the original forbearance agreement
      until October 31, 2009.  As of the date of this Form 10-Q, no
      demand for payment has been received by the Company and the Company and
      the holder are currently discussing extending the terms and conditions for
      payment on the note.





(vii)
            A
      $100,000 unsecured convertible note and 600,000 shares of common stock
      were issued on January 31, 2008 to an affiliate of a director of the
      Company in exchange for another note that had an outstanding principal
      balance of $200,000.  This $100,000 unsecured convertible note
      was originally due October 31, 2008 and bore interest at an annual rate of
      12%.  It is convertible at any time at the option of the holder
      at a specified price of $0.40 per share. Due to the failure to pay the
      note at maturity, the interest rate on the note has increased to 18% per
      annum.





(viii)
            Demand
      loans consist of amounts due to an affiliate of a former director and
      officer of the Company, as well as a former director of the
      Company.  The amounts are not subject to interest, are
      classified as short-term loans and are due and payable upon demand by the
      shareholders.





(ix)
            On
      February 5, 2010, the Company entered into a Settlement and Release
      Agreement with the former owner of ReStaff, an employee of
      Accountabilities, whereby all obligations owed by the Company to ReStaff
      were released in exchange for a series of payments totaling
      $545,000.  These obligations included the remaining principal of
      $1,056,000 outstanding on this note, $75,000 previously included in demand
      loans and $34,000 in accrued interest payable.  This debt
      restructuring was accounted for as a reduction in the purchase price of
      ReStaff, with a corresponding adjustment to
  goodwill.





On
      February 22, 2010, TSE agreed to assume the obligation to make the series
      of payments totaling $545,000 to the former owner of Restaff from the
      Company.  In exchange for the assumption of this payment
      obligation and TSE’s lead in negotiating the disputed amount, the Company
      agreed to issue 3,666,667 shares of its common stock.  The
      Company recorded a loss of $922,000 on the extinguishment of debt,
      representing the difference between the fair value of the shares issued on
      the date of the exchange and $545,000.  The fair value of the
      shares issued on the date of the exchange was determined by reference to
      the per share closing price of the Company’s common stock on the date of
      the exchange, which was $0.40.  A special committee of
      independent directors of the Company approved the above
      exchange.




12




(x)
            In
      connection with the acquisition of certain assets of GT Systems, TSE made
      the down payment of $750,000 on behalf of the Company. This amount is due
      on demand, with no interest due. It is classified as short term
      debt.





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), (v), (vi), (vii) and
(x) above.  Management believes that the advantages the Company
derived from obtaining funding from related parties include a shortened length
of time to identify and obtain funding sources 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 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, the Company will continue to seek
other sources of funding, including through the issuance of related party
debt.





9.
            Stock-Based
      Compensation





In
September, 2007, the Board of Directors of Accountabilities adopted the
Accountabilities, Inc. Equity Incentive Plan (the “Plan”).  Under the
terms of the reorganization discussed above, the Company has assumed the Plan
and any agreements thereunder pursuant to which restricted stock awards of
Accountabilities’ common stock were granted.  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,
2010, 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.  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 non-vested shares as of June 30, 2010, and the
changes during the nine months ended June 30, 2010, is presented
below:




Number
      of Non- Vested AwardShares
            
            
            Weighted-Average
              Grant-Date Fair ValueNon-vested
      at October 1, 2009
            
            
            974,000
            
            
            $
            0.31Forfeitures
            
            
            (350,000
            )
            
            $
            0.30Vested
            
            
            (326,000
            )
            
            $
            0.32Non-vested
      at June 30, 2010
            
            
            298,000
            
            
            $
            0.33





Compensation
expense is measured using the grant-date fair value of the shares granted and is
recognized on a straight-line basis over the required vesting
period.  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, 2010 and 2009,
compensation expense relating to restricted stock awards was $103,000 and
$122,000, respectively.  As of June 30, 2010, there was $55,000 of
total unrecognized compensation cost.  That cost is expected to be
recognized as an expense over a weighted-average period of 1.6
years.  The total fair value of the shares that vested during the nine
months ended June 30, 2010 was $129,000.





10.
            Receivable
      Sale Agreement - Overadvances





Additional
overadvance amounts are occasionally extended to the Company at the election of
the financial institution to which the Company sells its trade
receivables.  As of June 30, 2010, the total amount outstanding under
the overadvance was fully repaid.  Overadvances are subject to a fee
of 2%.  The overadvance was originally repayable in weekly payments of
$8,500, which weekly payment amounts were increased to $9,500 in December
2009.




13




11.
            Supplemental
      Disclosure of Cash Flow Information






Nine
      Months Ended
              
              
              Nine
      Months EndedJune
      30,
              
              
              June
      30,2010
              
              
              2009Cash
      paid for:Interest
              
              $
              275,000
              
              
              
              307,000Income
      Taxes
              
              
              -
              
              
              
              -Non-cash
      investing and financing activities:Stock
      based compensation
              
              
              103,000
              
              
              
              122,000ReStaff
      Acquisition purchase price adjustment and debt reduction
              
              
              620,000
              
              
              
              -Debt
      converted to restricted common stock at fair value
              
              
              2,610,000Acquisition
      of CRD Assets
              
              
              3,000,000
              
              
              
              -Notes
      issued for purchase of CRD – seller
              
              
              2,250,000
              
              
              
              -Advance
      for purchase of CRD – related party
              
              
              750,000
              
              
              
              -




12.
            Stockholders’
      Equity





As part
of the reorganization discussed above, each issued and outstanding share of
Accountabilities’ common stock was automatically converted into one share of the
Company’s common stock, and each restricted share of Accountabilities’ common
stock issued and outstanding under the Plan immediately prior to the
reorganization was automatically converted into a similarly restricted share of
Company’s common stock.  Additionally, (a) any warrant to purchase
shares of Accountabilities’ common stock outstanding and unexercised immediately
prior to the effective time of the reorganization was converted into a warrant
to acquire, under the same terms and conditions, shares of the Company’s common
stock, and (b) each outstanding note which was convertible in whole or in part
into shares of Accountabilities’ common stock became convertible at the
effective time of the reorganization into shares of Company’s common stock under
the same terms and conditions.





The
Company is authorized to issue 95,000,000 shares of common stock, par value
$0.0001 per share, and 5,000,000 shares of preferred stock, par value
$0.0001.





In
connection with the acquisition of GT Systems on April 5, 2010, the Company
issued  4,257,000 shares of common stock to the seller as collateral
for the debt related to the purchase. These shares are being held in escrow and
the Company will have the right to repurchase a portion
of the shares at $.0001 per share following the Company’s installment payments
on the outstanding portion of the purchase price,
provided that the remaining number of shares held by the escrow agent following
any such repurchase must have a minimum value in relation to the amount of debt
that will continue to be outstanding, determined using a market based formula.
These
shares are neither treated as outstanding for the Company’s financial statements
in this Quarterly Report on Form 10-Q, nor included in the number of the
Company’s shares of common stock outstanding on the cover page of this Quarterly
Report on Form 10-Q.





13.
            Commitments
      and Contingencies





Accounts
Receivable





In
connection with the Company’s sale of its trade receivables, it is contingently
liable to repurchase from its financial institution any receivables that are 90
days past due. The Company provides an estimated allowance for doubtful accounts
to address this contingency.





Unremitted
Payroll Taxes Related to Predecessor Company





Included
in Accounts payable and accrued liabilities in the accompanying financial
statements are assessments for unremitted payroll taxes for calendar year 2004
received from the IRS and certain state taxing authorities totaling
approximately $700,000.  The assessments relate to a subsidiary of
Accountabilities which had been conducting employee leasing and benefits
processing operations which were discontinued in December 2004.  The
amount included in Accounts payable and accrued liabilities in the accompanying
financial statements represents what management estimates will ultimately be
payable for this liability based upon its knowledge of events and
circumstances.  However, there can be no assurance that future events
and circumstances will not result in an ultimate liability, including penalties
and interest, in excess of management’s current estimate.





Lease
Commitments





At June
30, 2010 and September 30, 2009, the Company had operating leases, primarily for
office premises, expiring at various dates through September 2017.  On
November 27, 2009, the Company vacated its corporate headquarters in Manalapan,
New Jersey and relocated to New York City, New York.  The Company
leased its New Jersey corporate headquarters under an operating lease that was
set to expire in December 2014.  The Company entered into a new
operating lease for its New York City location for 2,400 square feet of office
space which is set to expire on December 31, 2016.




14




The
landlord of the vacated New Jersey corporate headquarters alleges that the
Company is obligated to make payments under the lease for its former New Jersey
location through December 2014, which the Company is contesting.  As a
result of vacating the New Jersey location prior to the expiration of the lease,
the Company has recorded an additional liability for the remaining lease
rentals, reduced by an estimate of the landlord’s recovery from re-letting the
space, at fair value as of June 30, 2010.  The Company retained the
full right to use the premises until January 2010, the time at which the
premises were no longer available to the Company.  Included in
accounts payable and accrued liabilities at June 30, 2010 on the accompanying
condensed consolidated balance sheet is a total estimated net liability of
$303,000 related to this lease.  The total remaining lease payments
under the lease of $1,142,000, net of the effect of estimated sublease rentals
of $811,000 and prepaid rent of $11,000, was discounted using a rate of
4.75%.   The Company had previously recorded rent expense on a
straight-line basis resulting in a recognized liability of
$167,000.  As of June 30, 2010 the Company recorded $136,000 in
additional rent expense in selling, general and administrative expenses to
recognize the fair value of the liability of $303,000.





In
connection with the acquisition of CRD, the Company has negotiated a new lease
of space in New York City which has been agreed in principle to by the parties
and is awaiting signature. The lease is for a five year period ending August 30,
2014. The minimum future rental payments under the lease are as
follows:





Rent
      Commitments for theyear
      ending September 30,2010
            
            $
            291,0002011
            
            
            1,079,0002012
            
            
            1,106,0002013
            
            
            1,238,0002014
            
            
            1,269,000




The
Company is accounting for this lease as if signed and accordingly is recording
the rent expense on the straight line basis of $89,000 per month.


14.
              Subsequent
      Events
 
 The
Company does not have any material subsequent events from the balance sheet date
through the date the financial statements were filed.


15


Item 2.
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITIONAND
      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”. 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 annual report on
Form 10-K for the fiscal year ended September 30, 2009, and our other reports
filed with the Securities and Exchange Commission, or SEC. 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. Except as required by law, we undertake no
obligation to update the forward-looking statements in this filing. References
in this filing to the “Company,” “we,” “us,” and “our” refer, for periods prior
to February 23, 2010, to Accountabilities, Inc., and, for the periods after
February 23, 2010, to Corporate Resource Services, Inc., in each case including
consolidated subsidiaries, unless otherwise indicated or the context otherwise
requires.





Holding
Company Reorganization





Corporate
Resource Services, Inc., a Delaware corporation was formed on December 15, 2009
for the purpose of acquiring and managing staffing companies.  On
February 23, 2010, we completed a holding company reorganization whereby
Accountabilities, Inc., a Delaware corporation (“Accountabilities”), which
immediately prior to the reorganization was our parent company, became our
wholly-owned subsidiary.





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





Overview





Through
our two wholly-owned subsidiaries, Accountabilities and Corporate Resource
Development Inc. (“CRD”), we are a national provider of diversified staffing,
recruiting and consulting services, including temporary staffing services, with
a focus on light industrial services and clerical and administrative
support.  We provide our services across a variety of industries and
to a diverse range of clients ranging from sole proprietorships to Fortune 1000
companies.  We conduct all of our business in the United States
through our New York City headquarters and the operation of 17 staffing and
recruiting offices.





Our
future profitability and rate of growth, if any, will be directly affected by
our ability to continue to expand our service offerings at acceptable gross
margins, and to achieve economies of scale, through the continued introduction
of differentiated marketing and sales channels, and through the successful
completion and integration of acquisitions. Our ability to be profitable will
also be affected by the extent to which we must incur additional expenses to
expand our sales, marketing, and general and administrative capabilities to
expand our business.  The largest component of our operating expenses
is personnel costs. Personnel costs consist of salaries, employment taxes,
benefits and incentive compensation, including bonuses and stock-based
compensation, for our employees. Our management expects our operating expenses
will continue to grow in absolute dollars, assuming our business continues to
grow. As a percentage of revenue, we expect our operating expenses to decrease
as our revenues increase, although we have no assurance that our revenues will
increase or that we will be able to reduce our operating expenses as a
percentage of revenue.





The
following are material trends that are creating opportunities and risks for our
business:





·
            We
      have financed our growth largely through advances from our principal
      shareholder and related companies.  As of June 30, 2010, we had
      negative working capital of ($4,778,000).  In order to repay
      these advances, service our debt, maintain our current level of operations
      and fund our growth initiatives, we must be able to generate sufficient
      amounts of cash flow from our operations.  Our management is
      engaged in several activities, as explained further in the “Working
      Capital” section below, to effectively accomplish these objectives;
      however, continued or increased volatility and disruption in the global
      capital and credit markets could negatively impact our business operations
      and therefore our liquidity and ability to meet working capital
      needs.




16




·
            Any
      further economic downturn could result in less demand from customers and
      lower revenues.  Because demand for staffing services is
      sensitive to changes in the level of economic activity, our business
      suffers during economic downturns.  As economic activity slows,
      companies tend to reduce their use of temporary employees and recruitment
      services before undertaking layoffs of their regular employees, resulting
      in decreased demand for our personnel.  Conversely, if the
      economy improves, demand for temporary staffing and recruitment services
      may increase as employers seek to fill open positions using temporary
      staffing until permanent employees are hired, resulting in increased
      demand for our personnel.




·
            A
      significant component of our growth to date has come through
      acquisitions.  Our management continues to invest resources in
      activities to seek, complete and integrate acquisitions that grow or
      enhance our current service offerings.  Additionally, management
      seeks acquisitions in desired geographical markets and that have fewer
      costs and risks associated with integration.  Our management
      believes that effectively acquiring businesses with these attributes will
      be critical to carrying out our
strategy.




·
            As
      a result of the current economic situation, some of our competitors have
      decreased their pricing in order to capture market share.  This
      has resulted in increased competitive pressure in our market, as well as
      pressure on our gross margins.




Discontinued
Operations





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





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





In the
first quarter of fiscal 2010, in an effort to focus management’s efforts, and
use our capital more directly for our light industrial and clerical and
administrative service offerings, we discontinued our remaining accounting and
finance operations, which formed part of our Direct Professional Services
offering.  As a result, the operations associated with the direct
provision of accounting and finance services is classified as discontinued
operations for all periods presented in the accompanying financial
statements.





During
the fiscal year ending September 30, 2009, the Company decided to focus more of
its efforts on providing temporary commercial staffing and decrease its
activities in the permanent placement of personnel.  Consequently,
there was no permanent placement revenue and gross profit for the Company in the
9 months ended June 30, 2010 from its traditional line of business as
compared to $449,000 in the 2009 fiscal year.  However,
a small part of the acquired business of GT Systems, Inc. focuses on permanent
placement of personnel.  The Company realized approximately $1.3
million in revenue in the quarter ended June 30, 2010 from this
business.





Mergers
and Acquisitions





One of
our key strategies is to focus on mergers and acquisitions of companies that
grow or complement our existing service offerings and lines of business and
expand our geographic presence and/or further expand and strengthen our existing
infrastructure and benefit from the economies of scale.





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





Pursuant
to the GT Acquisition Agreement, Rosenthal foreclosed on certain assets of the
GT Entities, related to the temporary and permanent placement of employees, and
sold the assets to CRD in a secured creditor’s private sale under Article 9 of
the Uniform Commercial Code for $3,000,000 (the “GT Purchase
Price”).  In connection with our guarantee of the obligation of CRD to
pay the GT Purchase Price, on April 5, 2010 the Company issued 4,257,332 shares
of the Company’s common stock to Rosenthal.  These shares are held in
escrow and are subject to a stock repurchase agreement, dated April 5, 2010,
between Rosenthal and us, pursuant to which we have the right to repurchase some
or all of such shares as the GT Purchase Price is paid.  These
shares are neither treated as outstanding for our financial statements in this
Quarterly Report on Form 10-Q, nor included in the number of our shares of
common stock outstanding on the cover page of this Quarterly Report on Form
10-Q.Additionally, in connection with the acquisition, CRD entered into
a consulting agreement with the former owner of GT Systems as more fully
described in Note 3.





17





We have
accounted for the acquisition of a portion of the assets of GT Systems using the
acquisition method and the results of operations of CRD are included in the
results of our third fiscal quarter, which ended on June 30,
2010.





Our
management continues to invest resources in activities to seek, complete and
integrate acquisitions that may grow or enhance our current service offerings,
expand our geographical market presence, and effectively compliment our
marketing and sales strategies.  Currently, our management expects
acquisitions to continue to constitute a significant portion of any future
growth, including potential asset acquisitions from one or more related
parties.  Completing such acquisitions, however, will likely be
limited by our ability to negotiate purchase terms and/or obtain third party or
additional related party financing on terms acceptable to us, given our current
working capital deficit, as discussed below.





We are
currently engaged in discussions with Tri-State Employment Services,
Inc.,  (“TSE”), a professional employer organization that is also the
beneficial owner, with its affiliates, of approximately 66% of our outstanding
common stock, for the potential acquisition of certain of the staffing assets of
affiliates of TSE.  It is expected that any consideration paid to TSE
under such an acquisition is likely to consist of our equity
securities.  However, there is no assurance that any such acquisition
will be completed.





Recent
Accounting Pronouncements





There are
no recently issued accounting pronouncements that are not yet effective that we
believe will have a material effect on our financial statements.





Results
of Operations





Three
months ended June 30, 2010 compared to three months ended June 30,
2009





Revenue





Consolidated
revenues for the three months ended June 30, 2010 totaled $32,522,000, as
compared to $12,726,000 for the three months ended June 30, 2009. The increase
of $19,796,000 was primarily attributable to revenue generated by CRD of
$18,286,000, subsequent to the Company's April 5, 2010 acquisition of certain
assets of GT Systems. The balance of the increase in the amount of $1,510,000 is
attributable to additional demand from existing customers, the improvement in
the overall general economy and the Company’s natural business
cycle.





Direct
cost of services





Consolidated
direct cost of services for the three months ended June 30, 2010 totaled
$25,875,000, as compared to $11,108,000 for the three months ended June 30,
2009.  The increase of $14,767,000 was primarily attributable to the
direct costs incurred by CRD of $13,082,000 subsequent to the Company's April 5,
2010 acquisition of certain assets of  GT Systems. The balance of the
increase in the amount of $1,685,000 is attributable to additional demand from
existing customers, changes in the mix of temporary employees leased, the
increases in revenues for the period and in unemployment and workers’
compensation insurance.





Gross
profit





Consolidated
gross profit for the three months ended June 30, 2010 totaled $6,647,000, as
compared to $1,618,000 for the three months ended June 30, 2009.  The
increase of $5,029,000 is primarily attributable to the gross profit generated
by CRD of $5,204,000 subsequent to the Company's April 5, 2010 acquisition of
certain assets of GT Systems, offset by a $175,000 decrease attributable to a
combination of  lower billing rates due to competition, as well as
increases in unemployment and workers’ compensation insurance.





Selling,
general and administrative expenses





Consolidated
selling, general and administrative expenses for the three months ended June 30,
2010 totaled $6,887,000, as compared to $1,590,000 for the three months ended
June 30, 2009.  The increase of $5,297,000 is primarily attributable
to the selling, general and administrative expenses incurred by CRD of
$5,503,000 subsequent to the Company's April 5, 2010 acquisition of certain
assets of GT Systems, offset by a $206,000 decrease attributable to management’s
cost control initiatives.




18




Depreciation
and amortization





Consolidated
depreciation and amortization expenses for the three months ended June 30, 2010
totaled $204,000, as compared to $99,000 for the three months ended June 30,
2009.  The increase of $105,000 is primarily attributable to the
depreciation and amortization expenses incurred by CRD of $127,000 subsequent to
the Company's April 5, 2010 acquisition of certain assets of GT Systems, offset
by a reduction in the amount of $22,000 that is attributable to certain
intangible assets that were  fully amortized during the first quarter
of this fiscal year and the elimination of certain leasehold improvements in
the  prior year.





Loss
from continuing operations





Consolidated
loss from continuing operations for the three months ended June 30, 2010 totaled
$480,000, as compared to $71,000 for the three months ended June 30,
2009.  The increase of $409,000 is primarily attributable to the
reasons outlined above.  CRD had losses of $175,000 during the three
months ended June 30, 2010, which are primarily attributable to acquisition
related expenses.





Interest expense





Consolidated
interest expense for the three months ended June 30, 2010 totaled $256,000, as
compared to $86,000 for the three months ended June 30, 2009.  The
increase of $170,000 is primarily attributable to the interest expense incurred
by CRD of $195,000 subsequent to the Company's April 5, 2010 acquisition of
certain assets of GT Systems. This was offset by a reduction in the amount of
$25,000 that is attributable to the assumption of Company debt by TSE in
exchange for 6,000,000 shares of our common stock in the first two quarters of
the current fiscal year.





Net
loss





The
factors described above resulted in a net loss for the three months ended June
30, 2010 of $736,000.  During the three months ended June 30, 2009,
the Company had a net loss of $75,000.




Nine
months ended June 30, 2010 compared to nine months ended June 30,
2009





Revenue





Consolidated
revenues for the nine months ended June 30, 2010 totaled $60,107,000, as
compared to $42,315,000 for the nine months ended June 30, 2009. The increase of
$17,792,000 was primarily attributable to revenue generated by CRD of
$18,286,000, subsequent to the Company's April 5, 2010 acquisition of certain
assets of GT Systems. This was offset by a reduction in the amount of $494,000
attributable to the overall decline in economic activity since the beginning of
the recession in December 2007, partially offset by the acquisition of new
accounts in existing offices. Although revenues began to increase during the
second quarter of 2010, this increase was not enough to offset the decline in
revenue experienced during our first quarter.





Direct
cost of services





Consolidated
direct cost of services for the nine months ended June 30, 2010 totaled
$50,747,000, as compared to $36,770,000 for the nine months ended June 30,
2009.  The increase of $13,977,000 was primarily attributable to the
direct costs incurred by CRD of $13,082,000 subsequent to the Company's April 5,
2010 acquisition of certain assets of GT Systems. The balance of the increase in
the amount of $895,000 is attributable to additional demand from existing
customers as well as increases in the mix of temporary employees leased and
increases in unemployment and workers’ compensation insurance.





Gross
profit





Consolidated
gross profit for the nine months ended June 30, 2010 totaled $9,360,000, as
compared to $5,545,000 for the nine months ended June 30, 2009.  The
increase of $3,815,000 is primarily attributable to the gross profit generated
by CRD of $5,204,000 subsequent to the Company's April 5, 2010 acquisition of
certain assets of GT Systems.  This was offset by a reduction in the
amount of $1,389,000 attributable to a combination of lower billing rates due to
competition as well as increases in unemployment and workers compensation
insurance.




19





Selling,
general and administrative expenses





Consolidated
selling, general and administrative expenses for the nine months ended June 30,
2010 totaled $10,439,000, as compared to $5,147,000 for the nine months ended
June 30, 2009.  The increase of $5,292,000 is primarily attributable
to the selling, general and administrative expenses incurred by CRD of
$5,503,000 subsequent to the Company's April 5, 2010 acquisition of certain
assets of GT Systems (of which, $482,000 was transaction expenses related to the
acquisition of GT Systems), offset by a decrease in the amount of $211,000,
which is attributable to management’s cost control initiatives.





Depreciation
and amortization





Consolidated
depreciation and amortization expenses for the nine months ended June 30, 2010
totaled $370,000, as compared to $314,000 for the nine months ended June 30,
2009.  The increase of $56,000 is primarily attributable to the
depreciation and amortization expenses incurred by CRD of $127,000 subsequent to
the Company's April 5, 2010 acquisition of certain assets of GT Systems. This
was offset by a reduction in the amount of $71,000, which is attributable to
certain intangible assets that were fully amortized during the first quarter of
this fiscal year and the elimination of certain leasehold improvements in the
prior year.





(Loss)
income from continuing operations





Consolidated
loss from continuing operations for the nine months ended June 30, 2010 totaled
$1,485,000, as compared to consolidated income from operations of $84,000 for
the nine months ended June 30, 2009.  The increased loss of $1,569,000
is primarily attributable to the factors previously discussed
above.





Interest
expense





Consolidated
interest expense for the nine months ended June 30, 2010 totaled $418,000, as
compared to $336,000 for the nine months ended June 30, 2009.  The
increase of $82,000 is primarily attributable to the interest expense incurred
by CRD of $195,000 subsequent to the Company's April 5, 2010 acquisition of
certain assets of GT Systems. This was offset by a reduction in the amount of
$113,000 that is attributable to the assumption of debt by TSE in exchange for
common stock of the Company which occurred during the first and second quarters
of the current fiscal year. (See below.)





Loss
on debt extinguishments





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





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





Net
loss from continuing operations





During
the nine months ended June 30, 2010, the Company incurred a net loss from
continuing operations of $3,326,000, as compared to a net loss from continuing
operations of $252,000 for the same period in the prior year.  The
Company’s increased losses are primarily due to the factors previously
discussed.





CRD had
losses of $175,000 during the nine months ended June 30, 2010, which are
primarily attributable to acquisition related expenses.





Income
(loss) from discontinued operations





As noted
above, the Company did not have any discontinued operations after March 31,
2009.




20




Net
loss





The
factors described above resulted in a net loss for the nine months ended June
30, 2010 of $3,326,000.  During the nine months ended June 30, 2009,
the Company had a net loss of $568,000, due to the factors previously
discussed.





Liquidity
and Capital Resources





Cash
Flows





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





At June
30, 2010, cash was $27,000, a decrease of $36,000 from $63,000 as of September
30, 2009.





Net cash
flows used in operating activities from continuing operations during the nine
months ended June 30, 2010, were $1,232,000 as compared to cash generated from
operations of $640,000 during the same period of the prior year.  This
decrease of $1,872,000 was principally due to the increase in accounts
receivable and due from financial institutions which was partially offset by an
increase in accounts payable.





Net cash
used in investing activities during the nine months ended June 30, 2010,
increased $3,000 to $15,000 from $12,000 during the same period of the prior
year, which reflects expenditures associated with the relocation of our
corporate headquarters from New Jersey to New York during the current fiscal
year.





Net cash
provided by financing activities during the nine months ended June 30, 2010,
increased by $1,608,000 to $1,228,000 from $(380,000) used during the same
period of the prior year.  This increase was primarily due to the
advances from related parties of $1,232,000 and the restructuring and
elimination of certain debt outstanding during the current fiscal year as well
as our failure to make scheduled principal payments on other outstanding
debt.





Working
Capital





As of
June 30, 2010, we had negative working capital of ($4,778,000), which represents
an increase in the deficit of $2,046,000 as compared to a working capital
deficit of ($2,732,000) as of September 30, 2009.  The increase in the
amount of working capital deficit was the result of the Company incurring
$1,750,000 of acquisition financing related to the acquisition of GT Systems
($1,000,000 of which is the short term portion of the long term debt owed to the
seller of GT Systems, and $750,000 is an advance from TSE to fund the down
payment for the GT Systems acquisition), with the balance primarily attributable
to the use of working capital to finance operating deficits.  The
current portion of long term debt includes $2,059,000 which is past due or due
upon demand ($1,009,000 of such amount is owed to related
parties).  Also included in the net working capital deficit is
$2,846,000, which is due and payable to TSE relating to costs charged by TSE for
professional employment organization services provided by TSE to us, which arise
and are paid in the ordinary course of business, normally on a weekly
basis.





In order
to service our debt, maintain our current level of operations and finance our
growth initiatives, we must be able to generate sufficient amounts of cash flow
and working capital.  Our management has engaged and continues to
engage in the following activities to effectively accomplish these
objectives:





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





b)
            In
      the first quarter of fiscal 2010, we discontinued the operations
      associated with the direct provision of accounting and finance services in
      order to focus management’s efforts, as well as our capital, more directly
      on our light industrial, and clerical and administrative service
      offerings.  This discontinued segment of our operations
      generated income (losses) from its operations of $1,000 and ($311,000) for
      the six months ended March 31, 2010 and 2009,
      respectively.  This segment has been reported as discontinued
      operations in the accompanying financial
  statements.




21




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





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





e)
            On
      May 3, 2010, CRD entered into an account purchase agreement with TSE to
      provide financing to CRD.  A description of this agreement is
      provided below.





f)
            In
      connection with our acquisition of CRD, on April 5, 2010, TSE provided the
      initial down payment of $750,000.  This amount is due on demand,
      with no interest due.





g)
            TSE
      has provided further financial accommodations to us by allowing us to
      delay from time to time amounts due to TSE under our professional services
      arrangement with TSE.





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





We
believe, based on the above activities and our current expectations, that we
have adequate resources for liquidity to meet our operating needs through June
30, 2011.





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.  Accountabilities sells its 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%, or the Discount Rate,
applied against outstanding uncollected receivables sold.  The risk we
bear from bad debt losses on trade receivables sold is retained by us, and
receivables sold may not include amounts over 90 days past due.  The
agreement is subject to a minimum discount computed as minimum sales per month
of $3,000,000 multiplied by the then effective Discount Rate, and a termination
fee of 3% applies to the maximum facility in year one of the agreement, 2% in
year two, and 1% thereafter. As of June 30, 2010, the amount of advances against
sold receivables outstanding was $3,856,000.





On May 3,
2010, CRD entered into an account purchase agreement (the “Account Purchase
Agreement”) with TSE in order to provide financing to CRD.  Under the
terms of the Account Purchase Agreement, CRD sells its receivables to
TSE.  TSE obtains the funds necessary under the Account Purchase
Agreement from its current lender on comparable terms, and is passing through
all of its financing costs to CRD without markup.  The maximum amount
of trade receivables that may be sold at any one time is $45,000,000, for which
TSE will advance 90% of the assigned receivables’ value upon sale, and 10% upon
final collection, subject to certain offsets, with interest charged at 2.5% plus
prime.  The risk CRD bears from bad debt losses on trade receivables
sold is retained by CRD, and receivables sold which become greater than 90 days
old can be charged back to CRD by TSE For the three months ended June 30, 2010,
the total financing cost was $95,000. This arrangement is intended to be
temporary and is subject to the Company obtaining its own direct arrangement
with a financing source. The amount outstanding under this agreement at June 30,
2010 was $8,875,000, which amount has been reduced from accounts
receivable.





Sales
of Common Stock





While
there were no sales of our common stock during the three months ended June 30,
2010, as more fully described in Note 3 to the financial statements, on April 5,
2010, in connection with the acquisition of certain assets of GT Systems, we
issued 4,257,000 shares of our common stock to the seller, which is being held
in escrow, as collateral for the debt related to the purchase.  In
connection with these issuances, we relied on an exemption from registration
under the Securities Act of 1933, as amended, or the Securities Act, as set
forth in Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.  The 4,257,000 shares of our common stock being held in
escrow are neither treated as outstanding for our financial statements in this
Quarterly Report on Form 10-Q, nor included in the number of our shares of
common stock outstanding on the cover page of this Quarterly Report on Form
10-Q.




22




Critical
Accounting Policies





The
preceding discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
and the rules of the SEC.





The
following represents a summary of the critical accounting policies, which our
management believes are the most important to the portrayal of our 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.  Our management estimates this allowance based
upon knowledge of the financial condition of our clients, review of historical
receivable and reserve trends and other pertinent information.  If the
financial condition of any of our clients deteriorates or there is an
unfavorable trend in aggregate receivable collections, additional allowances may
be required.





Stock-Based
Compensation.We calculate stock-based compensation expense
using the fair value method required by GAAP.  The value of the
portion of the award that is ultimately expected to vest is recognized as an
expense on a straight-line basis over the requisite service
periods.





Income Taxes.  We
account for income taxes using the liability method.  Under that
method, deferred income taxes are recognized for the estimated tax consequences
in future years of differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax laws
and statutory rates applicable to the periods in which the differences are
expected to affect taxable income.  If necessary, valuation allowances
are established to reduce deferred tax assets to the amount expected to be
realized when, in management’s opinion, it is more likely than not that some
portion of the deferred tax assets will not be realized.  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. We evaluate the probable resolution of tax positions based on the
technical merits that the position will be sustained upon examination, presuming
that the tax position will be examined by the relevant taxing authority that has
full knowledge of all relevant information.





The
Company has adopted Financial Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes – An interpretation of SFAS 109”, as
codified in Accounting Standards Codification (“ASC”) 740. This interpretation
addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements. Under
ASC 740, the Company may recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical
merits of the position.





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 perform an annual impairment analysis to test for
impairment.  No impairment was indicated by our
latest  impairment analysis.  Intangible assets with finite
lives are subject to amortization over the period they are expected to benefit
and impairment reviews are performed when there is an indication that the asset
might be impaired.




Use of EstimatesThe
preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.





Item
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
Applicable.




23




Item
      4.
              CONTROLS
      AND PROCEDURES






As
required by SEC Rule 13a-15(b) under the Securities and Exchange Act of 1934, as
amended, or the Exchange Act, we carried out an evaluation, under the
supervision and with the participation of our management, including our
principal executive and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end
of the period covered by this Quarterly Report on Form 10-Q.  Based on
this evaluation, we noted that certain changes to the design of our disclosure
controls and procedures had not been made that were necessary to reflect
significant changes that occurred in our senior management and board of
directors.  Due to this, our principal executive and principal
financial officer concluded that our disclosure controls and procedures were not
effective as of June 30, 2010.  We are in the process of remediating
the material weaknesses identified in our assessment by defining and documenting
the roles and responsibilities of new senior management as they relate to proper
disclosure controls and procedures.





There
were no changes in our internal controls over financial reporting during the
quarter ended June 30, 2010 that have materially affected, or are reasonably
likely to have materially affected, our internal controls over financial
reporting.  We are however in the process of remediating the material
weaknesses identified in our assessment as of our fiscal year end September 30,
2009.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.




Part
      II
              OTHER
      INFORMATION




Item
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 our Annual Report on Form
10-K for the fiscal year ended September 30, 2009.




Item
1A. RISK
FACTORS
 
 There has
been no material changes with respect to the risk factors disclosed in our
latest Annual Report on Form 10-K for the fiscal year ended September 30, 2009
as filed with the SEC.
 
 Item
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 Not
applicable.
 
 Item
3. DEFAULTS
UPON SENIOR SECURITIES
 
 Not
applicable.
 
 Item
4. (REMOVED
AND RESERVED)
 
 Item
5. OTHER
INFORMATION
 
 Not
applicable.




24




Item
6. Exhibits




Number
            
            Description10.1
            
            Account
      Purchase Agreement between Corporate Resource Development and Tri-State
      Employment Services, Inc., dated as of May 1, 201031.1
            
            Certification
      of Principal Executive Officer and Principal Financial
      Officer  pursuant to Section 302 of Sarbanes-Oxley Act of
      200232.1
            
            Certification
      of Principal Executive Officer and Principal Financial
      Officer  pursuant to Section 906 of Sarbanes-Oxley Act of
      2002


25




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.




Corporate
      Resource Services, Inc.Date:
      August 16, 2010
              By:
              /s/
      Jay H. SchecterJay
      H. SchecterChief
      Executive Officer(Principal
      Executive and Financial and Accounting
Officer)




26