ý
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended December 31, 2009
|
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
11-3255619
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
160
Broadway, 11th
Floor
New
York, New York 10038
|
||
(Address
of principal executive offices)
|
||
(646)
443-2380
|
||
(Registrant’s
telephone number, including area
code)
|
Large
accelerated Filer o
|
Accelerated
filer o
|
|
Non
- accelerated filer o
|
Smaller
reporting company x
|
Item
1. Financial Statements (Unaudited)
|
|
Balance
Sheets as of December 31, 2009 (unaudited) and September 30,
2009
|
3
|
Statements
of Operations for the Three Months Ended December 31, 2009 and 2008 (unaudited)
|
4
|
Statement
of Stockholders’ Equity for the Three Months Ended December 31, 2009
(unaudited)
|
5
|
Statements
of Cash Flows for the Three Months Ended December 31, 2009 and 2008
(unaudited)
|
6
|
Notes
to Financial Statements
|
7
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
14
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risks
|
20
|
Item
4. Controls and Procedures
|
20
|
PART
II – OTHER INFORMATION
|
|
Item
1. Legal Proceedings
|
20
|
Item
1A. Risk Factors
|
20
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
20
|
Item
3. Defaults Upon Senior Securities
|
20
|
Item
4. Submission of Matters to a Vote of Security Holders
|
21
|
Item
5. Other Information
|
21
|
Item
6. Exhibits
|
22
|
Signatures
|
23
|
December
31,
|
September
30,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$
|
35,000
|
$
|
63,000
|
||||
Accounts
receivable – less allowance for doubtful accounts of $258,000 and
$188,000, respectively
|
29,000
|
996,000
|
||||||
Due
from financial institution
|
282,000
|
130,000
|
||||||
Unbilled
receivables
|
755,000
|
783,000
|
||||||
Prepaid
expenses
|
133,000
|
299,000
|
||||||
Due
from related party
|
21,000
|
21,000
|
||||||
Total
current assets
|
1,255,000
|
2,292,000
|
||||||
Property
and equipment, net
|
136,000
|
141,000
|
||||||
Other
assets
|
21,000
|
21,000
|
||||||
Intangible
assets, net
|
881,000
|
944,000
|
||||||
Goodwill
|
2,947,000
|
2,947,000
|
||||||
Total
assets
|
$
|
5,240,000
|
$
|
6,345,000
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$
|
1,860,000
|
$
|
1,579,000
|
||||
Accrued
wages and related obligations
|
971,000
|
1,836,000
|
||||||
Current
portion of long-term debt
|
50,000
|
454,000
|
||||||
Current
portion of related party long-term debt
|
913,000
|
811,000
|
||||||
Due
to related party
|
348,000
|
344,000
|
||||||
Total
current liabilities
|
4,142,000
|
5,024,000
|
||||||
Long
term debt, net of current portion
|
-
|
190,000
|
||||||
Related
party long-term debt, net of current portion
|
478,000
|
580,000
|
||||||
Total
liabilities
|
4,620,000
|
5,794,000
|
||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, $0.0001 par value, 5,000,000 shares authorized; zero shares issued
and outstanding
|
-
|
-
|
||||||
Common
stock, $0.0001 par value, 95,000,000 shares authorized; 26,022,000 and
23,689,000 shares issued and outstanding as of December 31, 2009 and
September 30, 2009, respectively
|
3,000
|
2,000
|
||||||
Additional
paid-in capital
|
4,580,000
|
3,397,000
|
||||||
Accumulated
deficit
|
(3,963,000
|
)
|
(2,848,000
|
)
|
||||
Total
stockholders’ equity
|
620,000
|
551,000
|
||||||
Total
liabilities and stockholders’ equity
|
$
|
5,240,000
|
$
|
6,345,000
|
Three
Months
|
||||||||
Ended
|
||||||||
December
31,
2009
|
December
31,
2008
|
|||||||
Revenue
|
$ | 14,114,000 | $ | 16,655,000 | ||||
Direct
cost of services
|
12,687,000 | 14,431,000 | ||||||
Gross
profit
|
1,427,000 | 2,224,000 | ||||||
Selling,
general and administrative expenses *
|
1,861,000 | 1,766,000 | ||||||
Depreciation
and amortization
|
84,000 | 112,000 | ||||||
(Loss)
income from continuing operations
|
(518,000 | ) | 346,000 | |||||
Interest
expense
|
96,000 | 143,000 | ||||||
Loss
on debt extinguishment
|
501,000 | - | ||||||
Net
(loss) income from continuing operations
|
(1,115,000 | ) | 203,000 | |||||
Loss
from discontinued operations
|
- | (185,000 | ) | |||||
Net
(loss) income
|
$ | (1,115,000 | ) | $ | 18,000 | |||
Net
(loss) income per share from continuing operations:
|
||||||||
Basic
|
$ | (0.05 | ) | $ | 0.01 | |||
Diluted
|
$ | (0.05 | ) | $ | 0.01 | |||
Net
loss per share from discontinued operations:
|
||||||||
Basic
|
$ | 0.00 | $ | (0.01 | ) | |||
Diluted
|
$ | 0.00 | $ | (0.01 | ) | |||
Total
net (loss) income per share:
|
||||||||
Basic
|
$ | (0.05 | ) | $ | 0.00 | |||
Diluted
|
$ | (0.05 | ) | $ | 0.00 | |||
Weighted
average shares outstanding:
|
||||||||
Basic
|
22,767,000 | 22,169,000 | ||||||
Diluted
|
22,767,000 | 22,247,000 |
Three
Months Ended
|
||||
December
31, 2009
|
||||
Common
stock – shares:
|
||||
Balance
at beginning of period
|
23,689,000
|
|||
Debt
conversion to unregistered common stock
|
2,333,000
|
|||
Balance
at end of period
|
26,022,000
|
|||
Common
stock – par value:
|
||||
Balance
at beginning of period
|
$
|
2,000
|
||
Debt
conversion to unregistered common stock
|
1,000
|
|||
Balance
at end of period
|
$
|
3,000
|
||
Additional
paid-in capital:
|
||||
Balance
at beginning of period
|
$
|
3,397,000
|
||
Debt
conversion to unregistered common stock
|
1,143,000
|
|||
Stock-based
compensation relating to unregistered common stock
|
40,000
|
|||
Balance
at end of period
|
$
|
4,580,000
|
||
Accumulated
deficit:
|
||||
Balance
at beginning of period
|
$
|
(2,848,000
|
)
|
|
Net
loss
|
(1,115,000
|
)
|
||
Balance
at end of period
|
$
|
(3,963,000
|
)
|
|
Total
stockholders’ equity
|
$
|
620,000
|
Three
Months Ended
|
||||||||
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
(loss) income
|
$ | (1,115,000 | ) | $ | 18,000 | |||
Add:
net loss from discontinued operations
|
- | (185,000 | ) | |||||
Net
(loss) income from continuing operations
|
$ | (1,115,000 | ) | $ | 203,000 | |||
Adjustments
to reconcile net (loss) income to cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
84,000 | 112,000 | ||||||
Stock-based
compensation
|
40,000 | 41,000 | ||||||
Bad
debt expense
|
70,000 | 11,000 | ||||||
Loss
on debt extinguishment
|
501,000 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Trade
accounts receivable
|
886,000 | 1,521,000 | ||||||
Due
from financial institution
|
(151,000 | ) | (37,000 | ) | ||||
Prepaid
expenses
|
166,000 | (46,000 | ) | |||||
Due
to/from related party
|
4,000 | (20,000 | ) | |||||
Accounts
payable and accrued liabilities
|
(495,000 | ) | (1,513,000 | ) | ||||
Net
cash (used in) provided by operating activities – continuing
operations
|
(10,000 | ) | 272,000 | |||||
Net
cash provided by (used in) operating activities – discontinued
operations
|
2,000 | (96,000 | ) | |||||
Net
cash (used in) provided by operating activities
|
(8,000 | ) | 176,000 | |||||
Cash
flows from investing activities:
|
||||||||
Purchase
of property and equipment
|
(16,000 | ) | (9,000 | ) | ||||
Net
cash used in investing activities – continuing operations
|
(16,000 | ) | (9,000 | ) | ||||
Net
cash used in investing activities – discontinued
operations
|
- | - | ||||||
Net
cash used in investing activities
|
(16,000 | ) | (9,000 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Principal
payments on long-term debt
|
(4,000 | ) | (48,000 | ) | ||||
Principal
payments on long-term debt – related parties
|
- | (108,000 | ) | |||||
Net
cash used in financing activities – continuing operations
|
(4,000 | ) | (156,000 | ) | ||||
Net
cash used in financing activities – discontinued
operations
|
- | - | ||||||
Net
cash used in financing activities
|
(4,000 | ) | (156,000 | ) | ||||
Change
in cash
|
(28,000 | ) | 11,000 | |||||
Cash
at beginning of period
|
63,000 | 69,000 | ||||||
Cash
at end of period
|
$ | 35,000 | $ | 80,000 |
Three
Months Ended
|
Three
Months Ended
|
|||||||||||||||||||||||
December
31, 2009
|
December
31, 2008
|
|||||||||||||||||||||||
CPA
POP
|
Direct
Professional Services
|
Total
|
CPA
POP
|
Direct
Professional Services
|
Total
|
|||||||||||||||||||
Revenue
|
- | $ | 51,000 | $ | 51,000 | $ | 603,000 | $ | 93,000 | $ | 696,000 | |||||||||||||
Direct
cost of services
|
- | 41,000 | 41,000 | 185,000 | 42,000 | 227,000 | ||||||||||||||||||
Gross
profit
|
- | 10,000 | 10,000 | 418,000 | 51,000 | 469,000 | ||||||||||||||||||
Selling,
general and administrative expenses
|
- | 10,000 | 10,000 | 451,000 | 203,000 | 654,000 | ||||||||||||||||||
Loss
from discontinued operations
|
- | - | - | $ | (33,000 | ) | $ | (152,000 | ) | $ | (185,000 | ) |
December
31, 2009
|
September
30, 2009
|
|||||||||||||||||||||||
CPA
POP
|
Direct
Professional Services
|
Total
|
CPA
POP
|
Direct
Professional Services
|
Total
|
|||||||||||||||||||
Assets:
|
||||||||||||||||||||||||
Due
from financial institution
|
- | $ | 1,000 | $ | 1,000 | - | - | - | ||||||||||||||||
Accounts
receivable
|
- | 45,000 | 45,000 | - | $ | 84,000 | $ | 84,000 | ||||||||||||||||
Total
assets:
|
- | $ | 46,000 | $ | 46,000 | - | $ | 84,000 | $ | 84,000 | ||||||||||||||
Liabilities:
|
||||||||||||||||||||||||
Accounts
payable and accrued liabilities
|
$ | 25,000 | - | $ | 25,000 | $ | 61,000 | - | $ | 61,000 | ||||||||||||||
Total
liabilities:
|
$ | 25,000 | - | $ | 25,000 | $ | 61,000 | - | $ | 61,000 |
Three
Months Ended
|
Three
Months Ended
|
|||||||
December
31, 2009
|
December
31, 2008
|
|||||||
Net
(loss) income from continuing operations
|
$ | (1,115,000 | ) | $ | 203,000 | |||
Loss
from discontinued operations
|
- | (185,000 | ) | |||||
Net
(loss) income
|
$ | (1,115,000 | ) | $ | 18,000 | |||
Basic:
|
||||||||
Weighted average shares
|
22,767,000 | 22,169,000 | ||||||
Diluted:
|
||||||||
Weighted average shares
|
22,767,000 | 22,169,000 | ||||||
Potentially
dilutive shares
|
- | 78,000 | ||||||
Total
dilutive shares
|
22,767,000 | 22,247,000 | ||||||
Net
(loss) income per share from continuing operations:
|
||||||||
Basic
|
$ | (0.05 | ) | $ | 0.01 | |||
Diluted
|
$ | (0.05 | ) | $ | 0.01 | |||
Net
loss per share from discontinued operations:
|
||||||||
Basic
|
$ | 0.00 | $ | (0.01 | ) | |||
Diluted
|
$ | 0.00 | $ | (0.01 | ) | |||
Total
net (loss) income per share:
|
||||||||
Basic
|
$ | (0.05 | ) | $ | 0.00 | |||
Diluted
|
$ | (0.05 | ) | $ | 0.00 |
As
of December 31, 2009
|
As
of September 30, 2009
|
|||||||||||||||||||||||
Accumulated
|
Accumulated
|
|||||||||||||||||||||||
Gross
|
Amortization
|
Net
|
Gross
|
Amortization
|
Net
|
|||||||||||||||||||
Customer
lists and relationships (7 years)
|
$
|
1,821,000
|
$
|
(945,000
|
)
|
$
|
876,000
|
$
|
1,821,000
|
$
|
(888,000
|
)
|
$
|
933,000
|
||||||||||
Non-competition
agreements
(3
years)
|
111,000
|
(106,000
|
)
|
5,000
|
111,000
|
(100,000
|
)
|
11,000
|
||||||||||||||||
Total
|
$
|
1,932,000
|
$
|
(1,051,000
|
)
|
$
|
881,000
|
$
|
1,932,000
|
$
|
(988,000
|
)
|
$
|
944,000
|
||||||||||
Goodwill
(indefinite life)
|
$
|
2,947,000
|
$
|
2,947,000
|
$
|
2,947,000
|
$
|
2,947,000
|
December
31,
|
September
30,
|
|||||||
2009
|
2009
|
|||||||
Long-term
debt
|
||||||||
16.25%
subordinated note (i)
|
- | $ | 102,000 | |||||
3%
convertible subordinated note (ii)
|
- | 408,000 | ||||||
18%
unsecured note (iii)
|
- | 80,000 | ||||||
Long
term capitalized lease obligation (viii)
|
- | 4,000 | ||||||
Other
debt
|
$ | 50,000 | 50,000 | |||||
Total
|
50,000 | 644,000 | ||||||
Less
current maturities
|
50,000 | 454,000 | ||||||
Non-current
portion
|
- | 190,000 | ||||||
Related
party long-term debt
|
||||||||
13%
unsecured demand note (iv)
|
104,000 | 104,000 | ||||||
18%
unsecured convertible note (v)
|
100,000 | 100,000 | ||||||
Demand
loans (vi)
|
131,000 | 131,000 | ||||||
6%
unsecured note (vii)
|
1,056,000 | 1,056,000 | ||||||
Total
|
1,391,000 | 1,391,000 | ||||||
Less
current maturities
|
913,000 | 811,000 | ||||||
Non-current
portion
|
478,000 | 580,000 | ||||||
Total
long-term debt
|
1,441,000 | 2,035,000 | ||||||
Less
current maturities
|
963,000 | 1,265,000 | ||||||
Total
non-current portion
|
$ | 478,000 | $ | 770,000 |
Number
of Non- Vested Award
Shares
|
Weighted-Average
Grant-Date Fair Value
|
|||||||
Nonvested
at October 1, 2009
|
974,000 | $ | 0.31 | |||||
Vested
|
- | - | ||||||
Forfeited
|
- | - | ||||||
Nonvested
at December 31, 2009
|
974,000 | $ | 0.31 |
Three
Months Ended
|
Three
Months Ended
|
|||||||
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Cash
paid for interest
|
$
|
64,000
|
$
|
134,000
|
||||
Non-cash
investing and financing activities:
|
||||||||
Stock
based compensation
|
40,000
|
41,000
|
||||||
Debt
converted to restricted common stock at fair value
|
1,143,000
|
-
|
|
·
|
We
have financed our growth largely through the issuance of debt and have
incurred negative working capital. As of December 31, 2009, we
had negative working capital of $2,887,000, of which $963,000 constituted
the current portion of long-term debt. Total outstanding debt
as of December 31, 2009 was $1,441,000, $516,000 of which is either past
due or due upon demand, and $1,056,000 of which is subject to
proportionate reduction in the event the associated acquired businesses
for which the debt was issued do not produce agreed upon levels of
profitability. In order to service our debt, maintain our
current level of operations, as well as fund the costs of being a
reporting company and our growth initiatives, we must be able to generate
sufficient amounts of cash flow and working capital. Our
management is engaged in several activities, as explained further in 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.
|
|
·
|
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.
|
|
·
|
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 minimal
costs and risks associated with integration. Our management
believes that effectively acquiring businesses with these attributes will
be critical to carrying out our
strategy.
|
|
·
|
On
December 24, 2009, our Board of Directors approved a reorganization into a
holding company structure. In the transaction, we will become a
wholly-owned subsidiary of a newly formed holding
company. Stockholders of record will receive shares of the
holding company on a one-for-one basis and will not otherwise be affected
by the anticipated reorganization. The transaction is expected
to be consummated in the Company’s second fiscal quarter ending March 31,
2010. Our management believes such structure will provide
enhanced operational flexibility and greater opportunities for future
growth.
|
|
·
|
On
December 29, 2009, we entered into an Exchange Agreement with Tri-State
Employment Services, Inc. (“TSE”) whereby all amounts due to TSE under the
terms of notes recently acquired by them from a third party, were settled
in exchange for the issuance of unregistered 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 unregistered common
stock.
|
|
a)
|
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 of
unregistered 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
unregistered common stock.
|
|
b)
|
In
the first quarter of fiscal 2010, we discontinued the operations
associated with the direct provision of accounting and finance services in
order to focus management’s efforts, as well as our capital more directly
on our light industrial and administrative service
offerings. This segment of our operations generated losses from
its operations of $0 and ($152,000) for the three months ended December
31, 2009 and 2008, respectively. This segment has been reported
as discontinued operations in the accompanying financial
statements.
|
|
c)
|
We
are aggressively managing cash and expenses, including the increased costs
of being a reporting company, with activities such as seeking additional
efficiencies in our operating offices and corporate functions including
headcount reductions, if appropriate, improving our accounts receivable
collection efforts, obtaining more favorable vendor terms, and using our
finance and accounting consultants when available to aid in the necessary
obligations associated with being a reporting
company.
|
December
31,
|
September
30,
|
|||||||
2009
|
2009
|
|||||||
Long-term
debt
|
||||||||
16.25%
subordinated note (i)
|
- | $ | 102,000 | |||||
3%
convertible subordinated note (ii)
|
- | 408,000 | ||||||
18%
unsecured note (iii)
|
- | 80,000 | ||||||
Long
term capitalized lease obligation (viii)
|
- | 4,000 | ||||||
Other
debt
|
$ | 50,000 | 50,000 | |||||
Total
|
50,000 | 644,000 | ||||||
Less
current maturities
|
50,000 | 454,000 | ||||||
Non-current
portion
|
- | 190,000 | ||||||
Related
party long-term debt
|
||||||||
13%
unsecured demand note (iv)
|
104,000 | 104,000 | ||||||
18%
unsecured convertible note (v)
|
100,000 | 100,000 | ||||||
Demand
loans (vi)
|
131,000 | 131,000 | ||||||
6%
unsecured note (vii)
|
1,056,000 | 1,056,000 | ||||||
Total
|
1,391,000 | 1,391,000 | ||||||
Less
current maturities
|
913,000 | 811,000 | ||||||
Non-current
portion
|
478,000 | 580,000 | ||||||
Total
long-term debt
|
1,441,000 | 2,035,000 | ||||||
Less
current maturities
|
963,000 | 1,265,000 | ||||||
Total
non-current portion
|
$ | 478,000 | $ | 770,000 |
Part II Other Information | |
Item 1. Legal Proceedings |
Item 1A. Risk Factors |
Item 3. Defaults Upon Senior Securities |
Item 4. Submission of Matters to a Vote of Security Holders |
Item 5. Other Information |
Item 6. Exhibits |
Number
|
Description
|
10.50
|
Exchange Agreement between Accountabilities, Inc.
and Tri-State Employment Services, Inc. dated as of December 29, 2009
(incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the
Registrant on January 5, 2010)
|
10.51
|
Settlement
and Release Agreement between Accountabilities, Inc. and Rhonda Faria
dated as of February 5, 2010
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act
of 2002
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act
of 2002
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of Sarbanes-Oxley Act of
2002
|
ACCOUNTABILITIES,
INC.
|
|
Date: February
12, 2010
|
By:
/s/ Jay H. Schecter
|
Jay
H. Schecter
|
|
Chief
Executive Officer
|
|
(Principal
Executive Officer)
|
Date: February
12, 2010
|
By:
/s/ Stephen DelVecchia
|
Stephen
DelVecchia
|
|
Chief
Financial Officer
|
|
(Principal
Financial and Accounting Officer)
|