ý
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended December 31, 2008
|
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
11-3255619
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|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
195
Route 9 South, Suite 109
Manalapan,
New Jersey 07726
|
||
(Address
of principal executive offices)
|
||
(732)
333-3622
|
||
(Registrant’s
telephone number, including area code)
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||
Securities registered under Section 12(b) of the Exchange
Act: Not
Applicable
|
||
Securities
registered under Section 12(g) of the Exchange Act:
|
||
Common
Stock, $.0001 par value
|
||
(Title
of class)
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Large Accelerated Filer o
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Accelerated Filer o
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Non - Accelerated Filer o
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Smaller Reporting Company x
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Page
No.
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||
Item
1.
|
Financial
Statements (Unaudited)
|
|
Balance
Sheets as of December 31, 2008 and September 30, 2008
|
1
|
|
Statements
of Operations for the Three Months Ended December 31, 2008 and
2007
|
2
|
|
Statement
of Stockholders’ Equity for the Three Months Ended December 31,
2008
|
3
|
|
Statements
of Cash Flows for the Three Months Ended December 31, 2008 and
2007
|
4
|
|
Notes
to Financial Statements
|
5
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
|
Item
3.
|
Quantitative
and Qualitative Disclosure about Market Risks
|
19
|
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
|
20
|
Item
5.
|
Other
Information
|
21
|
Item
6.
|
Exhibits
|
21
|
Signatures
|
22
|
December
31
|
September
30
|
|||||||
2008
|
2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 80,000 | $ | 69,000 | ||||
Accounts
receivable – less allowance for doubtful accounts of $426,000 and
$445,000, respectively
|
- | 1,362,000 | ||||||
Due
from financial institution
|
235,000 | 202,000 | ||||||
Unbilled
receivables
|
439,000 | 671,000 | ||||||
Prepaid
expenses
|
372,000 | 326,000 | ||||||
Due
from related party
|
51,000 | 51,000 | ||||||
Total
current assets
|
1,177,000 | 2,681,000 | ||||||
Property
and equipment, net
|
316,000 | 340,000 | ||||||
Other
assets
|
10,000 | 10,000 | ||||||
Intangible
assets, net
|
1,263,000 | 1,426,000 | ||||||
Goodwill
|
3,332,000 | 3,332,000 | ||||||
Total
assets
|
$ | 6,098,000 | $ | 7,789,000 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 1,415,000 | $ | 1,431,000 | ||||
Accrued
wages and related obligations
|
545,000 | 2,019,000 | ||||||
Current
portion of long-term debt
|
402,000 | 420,000 | ||||||
Current
portion of related party long-term debt
|
941,000 | 946,000 | ||||||
Acquisition related contingent liability
|
109,000 | 193,000 | ||||||
Due
to related party
|
41,000 | 61,000 | ||||||
Total
current liabilities
|
3,453,000 | 5,070,000 | ||||||
Long
term debt, net of current portion
|
277,000 | 307,000 | ||||||
Related
party long-term debt, net of current portion
|
1,041,000 | 1,144,000 | ||||||
Total
liabilities
|
4,771,000 | 6,521,000 | ||||||
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; 23,791,000 and
23,792,000 shares issued and outstanding as of December 31, 2008 and
September 30, 2008, respectively
|
2,000 | 2,000 | ||||||
Additional
paid-in capital
|
3,277,000 | 3,236,000 | ||||||
Accumulated
deficit
|
(1,952,000 | ) | (1,970,000 | ) | ||||
Total
stockholders’ equity
|
1,327,000 | 1,268,000 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 6,098,000 | $ | 7,789,000 |
Three
Months
|
||||||||
Ended
|
||||||||
December
31,
2008
|
December
31,
2007
|
|||||||
Revenue
|
$ | 17,351,000 | $ | 18,148,000 | ||||
Direct
cost of services
|
14,658,000 | 15,087,000 | ||||||
Gross
profit
|
2,693,000 | 3,061,000 | ||||||
Selling,
general and administrative expenses *
|
2,420,000 | 2,599,000 | ||||||
Depreciation
and amortization
|
112,000 | 107,000 | ||||||
Income
from operations
|
161,000 | 355,000 | ||||||
Interest
expense
|
143,000 | 314,000 | ||||||
Net
income
|
$ | 18,000 | $ | 41,000 | ||||
Net
income per share:
|
||||||||
Basic
|
$ | 0.00 | $ | 0.00 | ||||
Diluted
|
$ | 0.00 | $ | 0.00 | ||||
Weighted
average shares outstanding:
|
||||||||
Basic
|
22,169,000 | 16,884,000 | ||||||
Diluted
|
22,247,000 | 17,142,000 | ||||||
Three
Months Ended
|
||||
December
31, 2008
|
||||
Common
Stock – Shares:
|
||||
Balance
at beginning of period
|
23,792,000
|
|||
Forfeitures
of restricted stock awards
|
(1,000
|
)
|
||
Balance
at end of period
|
23,791,000
|
|||
Common
Stock – Par Value:
|
||||
Balance
at beginning of period
|
$
|
2,000
|
||
-
|
||||
Balance
at end of period
|
$
|
2,000
|
||
Additional
Paid-In Capital:
|
||||
Balance
at beginning of period
|
$
|
3,236,000
|
||
Stock-based
compensation relating to restricted common stock
|
41,000
|
|||
Balance
at end of period
|
$
|
3,277,000
|
||
Accumulated
Deficit:
|
||||
Balance
at beginning of period
|
$
|
(1,970,000
|
)
|
|
Net
income
|
18,000
|
|||
Balance
at end of period
|
$
|
(1,952,000
|
)
|
|
Three
Months Ended
|
||||||||
December
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$
|
18,000
|
$
|
41,000
|
||||
Adjustments
to reconcile net income to cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
112,000
|
107,000
|
||||||
Stock-based
compensation
|
41,000
|
11,000
|
||||||
Amortization
of discount on long-term debt
|
-
|
12,000
|
||||||
Bad
debt expense
|
11,000
|
-
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
Trade
accounts receivable
|
1,583,000
|
631,000
|
||||||
Due
from financial institution
|
(33,000
|
)
|
(42,000
|
)
|
||||
Prepaid
expenses
|
(46,000
|
)
|
(113,000
|
)
|
||||
Due
to related party
|
(20,000
|
)
|
-
|
|||||
Other
assets
|
-
|
(24,000
|
)
|
|||||
Accounts
payable and accrued liabilities
|
(1,490,000
|
)
|
(172,000
|
)
|
||||
Net
cash provided by operating activities
|
176,000
|
451,000
|
||||||
Cash
flows from investing activities:
|
||||||||
Purchase
of property and equipment
|
(9,000
|
)
|
(30,000
|
)
|
||||
Net
cash used in investing activities
|
(9,000
|
)
|
(30,000
|
)
|
||||
Cash
flows from financing activities:
|
||||||||
Principal
payments on long-term debt
|
(48,000
|
)
|
(77,000
|
)
|
||||
Proceeds
from issuance of long-term debt – related parties
|
-
|
27,000
|
||||||
Principal
payments on long-term debt – related parties
|
(108,000
|
)
|
(219,000
|
)
|
||||
Payments
on contingent acquisition related liability
|
-
|
(31,000
|
)
|
|||||
Net
cash used in financing activities
|
(156,000
|
)
|
(300,000
|
)
|
||||
Change
in cash
|
11,000
|
121,000
|
||||||
Cash
at beginning of period
|
69,000
|
137,000
|
||||||
Cash
at end of period
|
$
|
80,000
|
$
|
258,000
|
||||
Three
Months Ended
|
Three
Months Ended
|
|||||||
December
31, 2008
|
December
31, 2007
|
|||||||
Net
income
|
$ | 18,000 | $ | 41,000 | ||||
Basic:
|
||||||||
Weighted average shares
|
22,169,000 | 16,884,000 | ||||||
Diluted:
|
||||||||
Weighted average shares
|
22,169,000 | 16,884,000 | ||||||
Potentially
dilutive shares
|
78,000 | 258,000 | ||||||
Total
dilutive shares
|
22,247,000 | 17,142,000 | ||||||
Net
income per share:
|
||||||||
Basic
|
$ | 0.00 | $ | 0.00 | ||||
Diluted
|
$ | 0.00 | $ | 0.00 |
As
of December 31, 2008
|
As
of September 30, 2008
|
|||||||||||||||||||||||
Accumulated
|
Accumulated
|
|||||||||||||||||||||||
Gross
|
Amortization
|
Net
|
Gross
|
Amortization
|
Net
|
|||||||||||||||||||
Customer
lists and relationships (7 years)
|
$
|
1,923,000
|
$
|
(694,000
|
)
|
$
|
1,229,000
|
$
|
2,007,000
|
$
|
(625,000
|
)
|
$
|
1,382,000
|
||||||||||
Non-competition
agreements
(3
years)
|
111,000
|
(77,000
|
)
|
34,000
|
111,000
|
(67,000
|
)
|
44,000
|
||||||||||||||||
Total
|
$
|
2,034,000
|
$
|
(771,000
|
)
|
$
|
1,263,000
|
$
|
2,118,000
|
$
|
(692,000
|
)
|
$
|
1,426,000
|
||||||||||
Goodwill
(indefinite life)
|
$
|
3,332,000
|
$
|
3,332,000
|
$
|
3,332,000
|
$
|
3,332,000
|
||||||||||||||||
December
31,
|
September
30,
|
|||||||
2008
|
2008
|
|||||||
Long-term
debt
|
||||||||
16.25%
subordinated note (i)
|
$ | 102,000 | $ | 102,000 | ||||
3%
convertible subordinated note (ii)
|
407,000 | 436,000 | ||||||
18%
unsecured note (iii)
|
80,000 | 80,000 | ||||||
Long
term capitalized consulting obligations (v)
|
23,000 | 38,000 | ||||||
Long
term capitalized lease obligation (xii)
|
17,000 | 21,000 | ||||||
Other
debt
|
50,000 | 50,000 | ||||||
Total
|
679,000 | 727,000 | ||||||
Less
current maturities
|
402,000 | 420,000 | ||||||
Non-current
portion
|
277,000 | 307,000 | ||||||
Related
party long-term debt
|
||||||||
13%
unsecured demand note (iv)
|
104,000 | 104,000 | ||||||
Long
term capitalized consulting obligations (vi)
|
9,000 | 17,000 | ||||||
18%
unsecured convertible note (vii)
|
100,000 | 100,000 | ||||||
Demand
loans (viii)
|
55,000 | 65,000 | ||||||
6%
unsecured note (ix)
|
100,000 | 100,000 | ||||||
6%
unsecured note (x)
|
1,577,000 | 1,631,000 | ||||||
9%
unsecured note (xi)
|
37,000 | 73,000 | ||||||
Total
|
1,982,000 | 2,090,000 | ||||||
Less
current maturities
|
941,000 | 946,000 | ||||||
Non-current
portion
|
1,041,000 | 1,144,000 | ||||||
Total
long-term debt
|
2,661,000 | 2,817,000 | ||||||
Less
current maturities
|
1,343,000 | 1,366,000 | ||||||
Total
non-current portion
|
$ | 1,318,000 | $ | 1,451,000 | ||||
Nonvested
Shares
|
Shares
|
Weighted-Average
Grant-Date
Fair Value
|
||||||
Nonvested
at October 1, 2008
|
1,624,000 | $ | 0.31 | |||||
Forfeited
|
(1,000 | ) | $ | 0.30 | ||||
Nonvested
at December 31, 2008
|
1,623,000 | $ | 0.31 | |||||
Three
Months Ended
|
Three
Months Ended
|
|||||||
December
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Cash
paid for interest
|
$
|
134,000
|
$
|
243,000
|
||||
Non-cash
investing and financing activities:
|
||||||||
Stock-based
compensation
|
41,000
|
11,000
|
▪ | Staffing Abilities |
▪
|
CPA
Partner on Premise Program
|
▪ | 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. During the first quarter of fiscal 2009, there have been growing concerns about the U.S. macro-economic environment including the significant turmoil in the credit and financial markets, declining GDP growth, an increase in the unemployment rate for individuals with college degrees, and increasing jobless claims; as well as several significant sudden business failures. The economic uncertainties in which we currently operate make it challenging to predict the near-term future and could have a significant adverse impact on our clients and our business. Our ability to sustain profitability will also be affected by the extent to which we must incur additional expenses to expand our sales, marketing, and general and administrative capabilities to expand our business. The largest component of our operating expenses is personnel costs. Personnel costs consist of salaries, benefits and incentive compensation, includin bonuses and stock-based compensation for our employees. Management expects our operating expenses will continue to grow in absolute dollars, assuming our revenues continue to grow. |
|
▪
|
A
significant component of our growth to date has come through
acquisitions. Management continues to invest resources in
activities to seek, complete and integrate acquisitions that enhance
current service offerings, and effectively assimilate into
our operations, marketing and sales
strategies. Additionally, management seeks acquisitions in
desired geographical markets and which have minimal costs and risks
associated with integration. Management believes that
effectively acquiring businesses with these attributes will be critical
to our growth.
|
|
▪
|
Our
success depends on our ability to provide our clients with highly
qualified and experienced personnel who possess the skills and experience
necessary to satisfy their needs. Such individuals are in great
demand, particularly in certain geographic areas, and are likely to remain
a limited resource for the foreseeable future. Management is
responding to this demand through proactive recruiting efforts and
targeted marketing.
|
|
▪
|
We
have financed our growth largely through the issuance of debt and have
incurred negative working capital. As of December 31, 2008 we
had negative working capital of ($2,276,000), for which the component
constituting the current portion of long-term debt was
$1,343,000. Total outstanding debt as of December 31, 2008 was
$2,661,000, $591,000 of which is past due or due upon demand, whereas
$1,577,000 of which is subject to proportionate reduction in the event the
associated acquired businesses for which the debt was issued do not
produce agreed upon levels of profitability. In order to
service our debt, maintain our current level of operations, as well as
fund the increased costs of becoming a reporting company and our growth
initiatives, we must be able to generate sufficient amounts of cash flow
and working capital. Management is engaged in several
activities, as explained further in the Working Capital section below, to
effectively accomplish these objectives; 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.
|
|
▪
|
As
a result of becoming a fully reporting public company, we will experience
increases in certain general and administrative expenses to comply with
the laws and regulations applicable to public companies. These laws and
regulations include the provisions of the Sarbanes-Oxley Act of 2002 and
the rules of the Securities and Exchange Commission and the Nasdaq Stock
Market. To comply with the corporate governance and operating
requirements of being a public company, we will incur increases in such
items as personnel costs, professional services fees, and fees for
independent directors.
|
▪
|
Stratus Services
Group, Inc. Offices Acquisition (“Stratus
Acquisition”). In November 2005, we acquired the
operations of three general staffing offices from Stratus Services Group,
Inc. in exchange for certain future earn-out
payments.
|
▪
|
US Temp
Services, Inc. Offices Acquisition (“US Temp
Acquisition”). On March 31, 2006, we acquired the
operations, including five general staffing offices, of US Temp Services,
Inc. in exchange for cash, notes and shares of our common
stock.
|
▪
|
ReStaff
Services, Inc. Offices Acquisition (“ReStaff
Acquisition”). On February 26, 2007, we acquired the
operations, including three general staffing offices, of ReStaff Services,
Inc. in exchange for, cash, notes and shares of our common
stock.
|
|
a)
|
In
October 2008, we extended the terms of three forbearance agreements with
respect to $286,000 of the $591,000 past due or due upon demand
debt. These short term debt holders have agreed to waive
defaults and refrain from exercising their rights and remedies against us
until October 31, 2009.
|
|
b)
|
In
December 2007 we retained an outside financial advisory and investment
banking firm to advise and assist us in raising
capital.
|
|
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,
|
|||||||
2008
|
2008
|
|||||||
Long-term
debt
|
||||||||
16.25%
subordinated note (i)
|
$ | 102,000 | $ | 102,000 | ||||
3%
convertible subordinated note (ii)
|
407,000 | 436,000 | ||||||
18%
unsecured note (iii)
|
80,000 | 80,000 | ||||||
Long
term capitalized consulting obligations (v)
|
23,000 | 38,000 | ||||||
Long
term capitalized lease obligation (xii)
|
17,000 | 21,000 | ||||||
Other
debt
|
50,000 | 50,000 | ||||||
Total
|
679,000 | 727,000 | ||||||
Less
current maturities
|
402,000 | 420,000 | ||||||
Non-current
portion
|
277,000 | 307,000 | ||||||
Related
party long-term debt
|
||||||||
13%
unsecured demand note (iv)
|
104,000 | 104,000 | ||||||
Long
term capitalized consulting obligations (vi)
|
9,000 | 17,000 | ||||||
18%
unsecured convertible note (vii)
|
100,000 | 100,000 | ||||||
Demand
loans (viii)
|
55,000 | 65,000 | ||||||
6%
unsecured note (ix)
|
100,000 | 100,000 | ||||||
6%
unsecured note (x)
|
1,577,000 | 1,631,000 | ||||||
9%
unsecured note (xi)
|
37,000 | 73,000 | ||||||
Total
|
1,982,000 | 2,090,000 | ||||||
Less
current maturities
|
941,000 | 946,000 | ||||||
Non-current
portion
|
1,041,000 | 1,144,000 | ||||||
Total
long-term debt
|
2,661,000 | 2,817,000 | ||||||
Less
current maturities
|
1,343,000 | 1,366,000 | ||||||
Total
non-current portion
|
$ | 1,318,000 | $ | 1,451,000 | ||||
Item
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISKS
|
Item
4.
|
CONTROLS
AND PROCEDURES
|
Part
II
|
Other
Information
|
Item
1.
|
Legal
Proceedings
|
Item
1A.
|
Risk
Factors
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
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
|
10.45
|
Temporary
Forbearance Agreement dated October 31, 2008 between Accountabilities,
Inc. and Bernard Freedman
|
10.46
|
Temporary
Forbearance Agreement dated October 31, 2008 between Accountabilities,
Inc. and Bernard Freedman
|
10.47
|
Temporary
Forbearance Agreement dated October 31, 2008 between Accountabilities,
Inc. and Washington Capital LLC
|
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 17, 2009
|
By:
|
/s/ Jeffrey J. Raymond | |
Name: Jeffrey J. Raymond | |||
Title: Chief Executive Officer | |||
ACCOUNTABILITIES, INC. | |||
Date:
February 17, 2009
|
By:
|
/s/ Stephen DelVecchia | |
Name: Stephen DelVecchia | |||
Title: Chief Financial Officer | |||