As Filed with the Securities and Exchange Commission on November 19, 2007
Registration No. 333-145739
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
HYPERION ENERGY, INC.
(Exact Name of Registrant as specified in its charter)
| Colorado | 6770 | None |
| (State or jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification) |
P.O. Box 152112
San Diego, California 92195
Telephone: (619) 569-8297
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
____________________
Walter Reed
President and Chief Executive Officer
Hyperion Energy, Inc.
P.O. Box 152112
San Diego, California 92195
Telephone: (619) 569-8297
(Name, address, including zip code, and telephone number, including area code, of agent for service)
____________________
Copies to:
Brian Reiss, Esq. 9121 Atlanta Avenue, Suite 638 Huntington Beach, California 92646 Telephone: (806) 624-6850 Facsimile: (714) 378-9093 | Philip D. Forlenza, Esq. Giordano, Halleran & Ciesla, P.C. 125 Half Mile Road P.O. Box 190 Middletown, New Jersey 07748 Telephone: (732) 741-3900 Facsimile: (732) 224-6599 |
____________________
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement and satisfaction of all other conditions under the asset purchase agreement dated July 26, 2007 between Hyperion Energy, Inc. and Accountabilities, Inc., which is attached as Annex A to the to the proxy statement/prospectus forming part of this registration statement.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. Registration No. __________
If this Form is a post-effective amendment filed pursuant to Rule 462 (d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Registration No. __________
CALCULATION OF REGISTRATION FEE
Title of each class of securities registered | | Amount to be registered | | | Proposed maximum offering price per security | | | Proposed maximum aggregate offering price | | | Amount of registration fee (1) | |
| | | | | | | | | | | | | |
| Common Stock, $.001 par value | | | 18,452,334 | | | $ | 0.07 | (1) | | $ | 1,291,664 | (1) | | $ | 40 | (2) |
| (1) | Based upon book value of assets to be transferred to registrant. |
____________________
The Registrant hereby amends this registration statement on any date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this registration statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement becomes effective on whatever date the Commission, acting pursuant to said Section 8(a), may determine.
____________________
The information in this proxy statement/prospectus is not complete and may be changed. A registration statement relating to the securities to be issued under the Asset Purchase Agreement attached as Annex A to this proxy statement/prospectus has been filed with the Securities and Exchange Commission. The common stock may not be sold nor may offers to buy be accepted until the registration statement is effective. This proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state in which the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 14, 2007
Dear Accountabilities shareholders:
On behalf of the board of directors of Accountabilities, Inc., I am pleased to deliver this proxy statement/prospectus for Hyperion Energy’s proposed purchase of substantially all of the assets used by Accountabilities in its staffing and workforce solutions business.
In connection with the asset purchase transaction, Hyperion Energy will issue a number of shares of its common stock to Accountabilities that is equal to the number of shares of common stock of Accountabilities outstanding at the time of the closing of the transaction. After giving effect to the surrender and cancellation of shares owned by Hyperion Energy’s existing sole shareholder, the shares of Hyperion Energy issued to Accountabilities will represent 100% of Hyperion Energy’s outstanding Common Stock after the completion of the transaction, and Hyperion Energy will seek to have a market maker submit an application to the National Association of Securities Dealers, Inc. for the quotation of Hyperion Energy common stock on the OTC Bulletin Board. Accountabilities will distribute all of the Hyperion Energy shares to Accountabilities’ stockholders as soon as reasonably practicable after the closing of the transaction. Based upon the current number of shares of Accountabilities’ common stock outstanding and issuable upon the exercise of outstanding warrants and conversion of convertible securities, the maximum number of shares issuable to Accountabilities in connection with the transaction would be 18,452,334 shares. Accountabilities’ management believes that if the Hyperion Energy common stock becomes quoted on the OTC Bulletin Board, the transaction with Hyperion Energy will provide its shareholders with the added liquidity, and more accurate valuation, that securities quoted on the OTC Bulletin Board enjoy compared to securities included in the “pink sheets”; however, the Hyperion Energy common stock is not currently quoted on the OTC Bulletin Board and we cannot assure you that we will be able to identify a market maker to submit an application to the National Association of Securities Dealers, Inc. to have the Hyperion Energy common stock quoted on the OTC Bulletin Board or that the Hyperion Energy stock will ever be quoted on the OTC Bulletin Board.
After careful consideration, the board of directors of Accountabilities has approved the asset sale transaction and unanimously recommends that its shareholders approve the transaction. Completion of the asset sale transaction requires that shareholders of Accountabilities approve the transaction. Accountabilities has scheduled a special shareholder meeting to obtain shareholder votes on this proposal. Information regarding the special meeting is included in this document. I encourage you to read this entire document and its annexes carefully before deciding how to vote. In particular, you should read and consider carefully the risks discussed under the caption titled “Risk Factors” beginning on page 8 of the proxy statement/prospectus before completing your proxy card.
Your vote is important, regardless of the number of shares you own. To vote your shares, you may use the enclosed proxy card or you may attend the special meeting of stockholders being held by Accountabilities. If you do not vote, it will have the same effect as voting against approval of the asset purchase transaction.
We are very enthusiastic about the asset purchase transaction and join the members of the two companies’ boards in recommending that you vote “FOR” the proposals being submitted for your consideration and vote.
Thank you for your continued support.
/s/ ALLAN HARTLEY
President
Accountabilities, Inc.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the transaction or the registration of Hyperion Energy common stock to be issued in the transaction or determined whether the proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated __________, 2007 and is first being mailed to shareholders of Accountabilities on or about __________, 2007.
Accountabilities, Inc.
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
(732) 333-3622
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD __________, 2007
____________________
To the holders of common stock of Accountabilities, Inc.:
The Special Meeting of Shareholders of Accountabilities will be held at 500 Craig Road, Manalapan, New Jersey, on __________, 2007 at ___ a.m., New York City time, for the following purposes:
| 1. | To consider and vote upon a proposal to approve the sale of substantially all of the assets used by Accountabilities, Inc. in its staffing and workforce solutions business to Hyperion Energy, Inc. in exchange for a number of shares of Hyperion Energy, Inc. common stock which will be equal to the number of shares of Accountabilities, Inc. common stock outstanding at the time of the closing of the transaction. |
| 2. | To consider and vote upon any motion to adjourn the meeting to a later time to permit, among other things, further solicitation of proxies if necessary to establish a quorum or to obtain additional votes in favor of the foregoing items. |
| 3. | To consider and act on such other business as may properly come before the meeting or any adjournment or adjournments thereof. |
Accountabilities’ board of directors has fixed the close of business on __________, 2007 as the record date for the determination of shareholders entitled to receive notice of and to vote at the meeting and any adjournment or postponements thereof.
The proposals, as well as information about the proposed sale of Accountabilities’ assets to Hyperion Energy are described in detail in the accompanying proxy statement/prospectus. You are urged to read these materials very carefully and in their entirety before deciding how to vote.
A quorum, consisting of a majority of shares of common stock entitled to vote at the special meeting, must be present in person or by proxy before action may be taken at the special meeting. The affirmative vote of holders of a majority of the outstanding shares of Accountabilities’ common stock is required to approve the asset purchase agreement and the transactions contemplated thereby. The affirmative vote of holders of the majority of the Accountabilities’ common stock present and entitled to vote at the special meeting is required to approve the other proposals.
Your vote is very important, regardless of the number of shares of Accountabilities common stock you own. Please vote as soon as possible to ensure that your shares are represented at the special meeting. Even if you plan to attend the special meeting in person, please sign, date and return the accompanying proxy in the enclosed addressed envelope, which requires no postage if mailed in the United States. If you are a record holder, you may also cast your vote in person at the special meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares.
If you choose to approve a proposal, please check the box indicating a vote “FOR” the proposal by following the instructions contained in the enclosed proxy card. If you properly sign and return your proxy card with no voting instructions, you will be deemed to have voted “FOR” the approval of each of the proposals put forth at the special meeting. If you do not vote, it will have the same effect as a vote against the asset sale. You may revoke your proxy at any time before it is voted at the special meeting.
After careful consideration, Accountabilities’ board of directors determined that the asset purchase agreement and the sale of substantially all of the assets used by Accountabilities in its staffing and workforce solutions business to Hyperion Energy is in the best interests of Accountabilities and its shareholders. The board of directors unanimously recommends that you vote “FOR” each of the proposals to be presented at the special meeting.
By Order of the Board of Directors
/s/ RONALD SHAPSS
Ronald Shapss
Chairman
__________, 2007
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES.
TABLE OF CONTENTS
| | PAGE NO. |
| | |
| QUESTIONS AND ANSWERS ABOUT THE TRANSACTION | 1 |
| SUMMARY | 3 |
| SELECTED FINANCIAL DATA OF HYPERION ENERGY | 6 |
| SELECTED FINANCIAL DATA OF ACCOUNTABILITIES | 7 |
| MARKET PRICE AND DIVIDEND INFORMATION | 8 |
| RISK FACTORS | 8 |
| INFORMATION ABOUT THE SPECIAL MEETING | 14 |
| THE TRANSACTION | 16 |
| DESCRIPTION OF THE ASSET PURCHASE AGREEMENT | 21 |
| BUSINESS OF HYPERION ENERGY | 25 |
| HYPERION ENERGY MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION | 25 |
| BUSINESS OF ACCOUNTABILITIES | 26 |
| ACCOUNTABILITIES’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 30 |
| ACCOUNTABILITIES’ MANAGEMENT | 43 |
| HYPERION ENERGY MANAGEMENT | 51 |
| SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS AND MANAGEMENT | 52 |
| DESCRIPTION OF HYPERION ENERGY CAPITAL STOCK | 54 |
| CERTAIN LEGAL INFORMATION AND ADDITIONAL INFORMATION FOR SHAREHOLDERS | 60 |
| INDEX TO FINANCIAL STATEMENTS | F-1 |
| ANNEXES | |
| A. Asset Purchase Agreement dated as of July 26, 2007, between Accountabilities, Inc. and Hyperion Energy, Inc. | A-1 |
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Why am I receiving this proxy statement/prospectus?
Hyperion Energy has agreed to purchase substantially all of the assets used by Accountabilities in its staffing services and workforce solutions business. Under the asset purchase agreement signed by the parties on July 26, 2007, Hyperion Energy will issue to Accountabilities a number of shares of its common stock equal to the number of shares of common stock of Accountabilities outstanding at the time of the closing of the transaction in payment of the purchase price of the assets. The existing sole shareholder of Hyperion Energy has agreed to surrender all of his shares for cancellation at the time of the transaction in exchange for a payment of $12,500 which was made after the signing of the asset purchase agreement. As a result, the shares of Hyperion Energy common stock issued to Accountabilities will represent 100% of Hyperion Energy’s outstanding common stock after the completion of the transaction.
In order to complete the transaction, the shareholders of Accountabilities must approve the asset purchase agreement pursuant to which Accountabilities will sell the assets used in its staffing and workforce solutions business to Hyperion Energy. This proxy statement/prospectus is being provided to you for the purpose of obtaining your vote and supplying you with important information concerning the companies and the transaction. You should consider this information carefully before deciding how to vote on the transaction and other proposals.
Why is Accountabilities selling its assets?
Accountabilities’ board of directors believes that it is in the best interests of Accountabilities and its shareholders to have a more liquid and efficient trading market for the securities owned by its shareholders and is proposing the transaction so that its staffing and workforce solutions business can be conducted through an entity having securities quoted on the NASD OTC Bulletin Board. Accountabilities’ common stock is currently traded on the “pink sheets” quotation system which is generally considered a less liquid and efficient market than the NASD OTC Bulletin Board. Applications for inclusion of a security on the NASD OTC Bulletin Board can only be submitted by a market maker, and Accountabilities will seek to have a market maker submit an application with respect to the Hyperion Energy common stock prior to the distribution of the Hyperion Energy shares to Accountabilities’ stockholders. Accountabilities has not yet identified a market maker that will submit the application to the NASD.
What assets will remain with Accountabilities after the transaction?
The business and assets being transferred to Hyperion Energy will represent substantially all of the assets currently held by Accountabilities. The assets retained by Accountabilities will be assets related to its proposed debit payroll card business, which at this time are nominal. In addition, Accountabilities has reached an agreement in principle to acquire Woopee Connect, Inc., a voice over internet protocol (commonly referred to as VOIP) company. As a result, after the transactions with Hyperion Energy and Woopee Connect are completed, shareholders of Accountabilities will own shares in two companies: Hyperion Energy, Inc., which will conduct the staffing and workforce solutions business transferred to it by Accountabilities, and Accountabilities, Inc., which expects to continue the development of the payroll debit card business it is retaining and operate Woopee Connect as a wholly owned subsidiary engaged in providing VOIP services.
When is the transaction expected to be completed?
Assuming that the shareholders of Accountabilities approve the sale of assets to Hyperion Energy, it is expected that the transaction will be completed within three business days after the Accountabilities’ shareholder meeting.
What will happen to the shares received by Accountabilities?
Accountabilities will distribute the shares of Hyperion Energy’ common stock to its shareholders of record as of __________, 2007 as promptly as reasonably practicable after the completion of the asset sale transaction. As a result of the transaction, you will own shares in two companies, Accountabilities and Hyperion.
Where and when is the special meeting of Accountabilities’ Stockholders?
The special meeting of Accountabilities’ shareholders will be held at ___ a.m., New York City time, on __________, 2007, at Accountabilities’ offices located at 500 Craig Road, Manalapan, New Jersey.
Who can vote at the special meeting?
Holders of Accountabilities common stock outstanding at the close of business on the record date, __________, 2007, are entitled to notice of and to vote at the Accountabilities special meeting. Each share of Accountabilities common stock is entitled to one vote. On November 15, 2007, there were 17,613,325 common shares outstanding.
If my shares are held in street name, will my broker vote my shares?
Your broker will not vote your shares without your consent. If you hold your shares in the name of a bank, broker or nominee, you should follow the instructions you receive from your bank, broker or nominee.
Do I have dissenters’ rights with respect to the transaction?
No. Stockholders of Accountabilities will not have dissenters or appraisal rights under Section 262 of the Delaware General Corporation Law with respect to the transaction.
What should I do now to vote at the special meeting?
Mark your proxy card indicating your vote on each of the proposals, sign and mail it in the enclosed return envelope as soon as possible so that your shares can be voted at the special meeting. If you return your signed proxy card but do not indicate your vote, your shares will be voted “FOR” each proposal presented by your company.
May I change my vote after I mail by proxy card?
Yes. You may change your vote at any time before your proxy is voted at the special meetings. You can do this in one of three ways:
▪ | You can send a written statement that you revoke your proxy, which to be effective must be received prior to the vote at the special meetings. |
▪ | You can submit a new proxy card prior to the vote at the special meetings. The new proxy must be dated after your original proxy and received prior to the vote at the special meetings. |
▪ | You can attend the special meeting and vote in person. At the special meeting, you will be required to provide a written termination of your original proxy. Your attendance at the special meeting alone will not revoke your proxy. |
Accountabilities shareholders should send revocations of a proxy or new proxy cards to Michael S. Krome, Secretary, at the address on the Notice of Special Meeting of Shareholders of Accountabilities.
Whom should I call if I have questions?
Accountabilities shareholders should contact Stephen DelVecchia, Accountabilities' Chief Financial Officer, at (732) 333-3622 with any question about this proxy statement/prospectus or the transaction.
SUMMARY
This summary highlights selected information from this document and may not contain all of the information that is important to you. To understand the transaction fully, and for a more description of the legal terms of the complete transaction, you should read carefully this entire document and the documents to which we have referred you. We have included page references in parentheses to direct you to a more complete description of the topics presented in this summary.
The Companies (pages 25 and 26)
Hyperion Energy, Inc.
P.O. Box 152112
San Diego, California 92185
(619) 569-8297
Hyperion Energy, Inc. was incorporated in the State of Colorado on December 29, 2005 and has been in the development stage since inception and has conducted virtually no business operations, other than organizational activities and the registration of its common stock under the Securities Exchange Act of 1934. Hyperion Energy was formed as a vehicle to pursue a business combination and has no full time employees and owns no real estate or personal property.
Accountabilities, Inc.
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
(732) 333-3622
Accountabilities is a national provider of diversified staffing, recruiting and consulting services across a variety of industries and sizes of business. Its service offerings include:
▪ | its CPA Partner on Premise Program through which it has developed sales and marketing affiliations with leading regional CPA firms; |
▪ | Direct Professional Services, including staff augmentation, executive search and interior contract and project management, consulting services in the areas of accounting and finance, including Sarbanes-Oxley compliance, mergers and acquisitions, corporate reorganizations, information systems and tax related matters; and |
▪ | its StaffingAbilities services which involve general temporary staffing in the areas of light industrial services and administrative support. |
The Transaction (page 16)
Under the terms of the asset purchase agreement dated as of July 26, 2007 between Accountabilities and Hyperion Energy, Hyperion Energy has agreed to purchase substantially all of the assets of Accountabilities used in its staffing and workforce solutions business.
Purchase Price of Accountabilities Assets (page 21)
At the closing of the transaction, Hyperion Energy will issue to Accountabilities a number of shares of Hyperion Energy common stock that is equal to the number of shares of Accountabilities common stock outstanding at the time of the closing. In addition, Accountabilities has paid the sole shareholder of Hyperion Energy $12,500 in exchange for his agreement to cancel all of the shares of Hyperion Energy that he owns at the time of the closing of the transaction. After giving effect to the cancellation of all of the existing outstanding shares of Hyperion Energy common stock at the time of the closing, the shares issued to Accountabilities will represent 100% of Hyperion Energy’s outstanding common stock following the transaction.
Accountabilities’ Reasons for the Transaction (page 17)
Accountabilities’ board of directors believes that the terms of the transaction and the asset purchase agreement are in the best interests of Accountabilities and its shareholders. Accountabilities’ prior management team terminated the Company’s registration under the Securities Exchange Act of 1934 in August 2005 after it had disposed of substantially all of its then current business operations and did not have the financial resources to continue as a reporting company. Since that time, Accountabilities’ new management team has
grown its staffing and workforce solutions business; however, the common stock of Accountabilities is currently traded on the “pink sheets” quotation system which is generally considered a less liquid and efficient market than the NASD OTC Bulletin Board. The board of directors of Accountabilities believes that it is in the best interests of Accountabilities and its shareholders to have a more liquid and efficient market for the securities owned by Accountabilities’ shareholders and that there are benefits associated with conducting business through an entity having securities registered under the Securities Exchange Act of 1934, including a greater ability to raise capital and use securities as currency in acquisition transactions. As a result of difficulties associated with auditing the financial records of the business conducted by Accountabilities before it commenced its current line of business, the board believes that re-registering Accountabilities common stock under the Securities Exchange Act of 1934 so that Accountabilities common stock could be traded on the OTC Bulletin Board or another market could not be accomplished without unreasonable effort and expense. As a result, the sale of assets to Hyperion Energy has been structured so that the shareholders of Accountabilities will collectively receive a 100% interest in Hyperion Energy in the form of common stock that will be registered under the Securities Exchange Act of 1934. Inclusion of a security on the NASD OTC Bulletin Board can be arranged only by a market maker for the security. Management plans to arrange for a market maker to submit an application with respect to the Hyperion Energy stock to the NASD so that the shares distributed to Accountabilities’ stockholders will trade on the OTC Bulletin Board following the transaction.
Hyperion Energy’s Reasons for the Transaction
Hyperion Energy has no assets and no active business operations. Since its formation, its principal business objective has been to achieve long-term growth potential through a combination with another business. The proposed transaction with Accountabilities is consistent with this business objective. Hyperion Energy has no interest in the proposed transaction other than its receipt of assets from Accountabilities.
Distribution by Accountabilities of Hyperion Energy Shares (page 19)
Hyperion Energy will deliver the shares issuable in exchange for the Accountabilities assets to Accountabilities at closing. Accountabilities expects to distribute the Hyperion Energy shares to Accountabilities shareholders of record as of ______, 2007 on a one-share-for-one-share basis as soon as reasonably practicable after the closing.
Accountabilities’ Plans for After the Transaction
If the sale of the assets used in its staffing and workforce solutions business is completed, Accountabilities plans to continue to develop the debit payroll card business currently under development by its wholly owned subsidiary, World Card, Inc. In addition, Accountabilities has reached an agreement in principle to acquire Woopee Connect, Inc., a New Jersey based corporation engaged in providing voice over internet protocol services. It is anticipated that the transaction will be structured as a merger of a newly formed wholly owned subsidiary of Accountabilities with and into Woopee Connect, Inc., with the outstanding shares of Woopee Connect, Inc. being converted into shares representing approximately 51% of Accountabilities common shares after giving effect to the merger. The transfer of Accountabilities’ assets to Hyperion Energy is a condition to the acquisition of Woopee Connect, and the Woopee Connection acquisition is expected to close after the record date for determining shareholders of Accountabilities entitled to receive the distribution of Hyperion shares. James Zimbler, an officer of Accountabilities and beneficial owner of approximately 5.1% of Accountabilities outstanding shares, Norman Goldstein, a director of Accountabilities and the beneficial owner of approximately 2.9% of Accountabilities outstanding shares, and Pylon Management, Inc., the beneficial owner of approximately 14.8% of Accountabilities outstanding shares, are shareholders of Woopee Connect, Inc., and will beneficially own approximately 25.6%, 15.7% and 32.7%, respectively, of Accountabilities’ shares following the Woopee Connect acquisition.
Interests of Directors and Officers of Accountabilities in the Transaction (page 19)
None of Accountabilities’ directors or executive officers has interests in the transaction with Hyperion Energy that are different from, or in addition to, the interests of Accountabilities’ shareholders generally, except that it is anticipated that each of such officers and directors will serve in a position with Hyperion Energy after the transaction that is substantially similar to such individual’s current position with Accountabilities after the completion of the transaction.
Interest of Director and Officer of Hyperion Energy in the Transaction
Walter Reed, the sole officer and shareholder of Hyperion Energy, has no interest in the transaction other than his receipt of a $12,500 payment from Accountabilities that was made in consideration of his agreement to surrender all of his shares of Hyperion Energy for cancellation at the time of the closing.
Votes Required (pages 14 and 16)
The asset sale and the other transactions contemplated by the asset purchase agreement will be approved if the holders of a majority of the outstanding shares of Accountabilities common stock vote for the proposal. Approval of the proposal to adjourn the special meeting to a later time will require a majority of the holders of outstanding shares of Accountabilities common stock present and entitled to vote at the special meeting, whether or not a quorum is present, to vote in favor of the proposal. As of November __, 2007, directors and officers of Accountabilities and their affiliates owned or were entitled to vote 8,950,069 Accountabilities common shares. These shares represent approximately 49.8% of the outstanding Accountabilities common shares.
Recommendation to Shareholders (page 18)
After careful consideration, Accountabilities’ board determined that the asset sale is in the best interests of Accountabilities and its shareholders and that the transactions contemplated by the asset purchase agreement are advisable. The board approved the asset purchase agreement and unanimously recommends that Accountabilities’ shareholders vote “FOR” approval of the sale of assets to Hyperion Energy and “FOR” the other proposals presented in this proxy statement/ prospectus.
Conditions to the Transaction (page 24)
Completion of the transaction depends upon the satisfaction or waiver of a number of conditions, including, among other things:
▪ | the approval by Accountabilities’ shareholders of the sale of the assets; |
▪ | the accuracy in all material respects of the representations and warranties given by the parties as of the closing date; and |
▪ | the performance in all material respects by the parties of all obligations under the asset purchase agreement that are to be performed or complied with prior to the closing date. |
Material Federal Income Tax Consequences (page 19)
Accountabilities will be subject to federal income tax on the transaction and also upon the distribution of the shares of Hyperion Energy common stock to the Accountabilities’ shareholders. To the extent that net operating loss carryforwards are available, they may offset any income or gain that is recognized. Accountabilities will hold the shares of Hyperion Energy common stock with an adjusted tax basis equal to their fair market value on the date or dates on which the Hyperion Energy shares are received.
While the sale of Accountabilities’ assets to Hyperion Energy should have no direct tax consequences to the shareholders of Accountabilities, it is anticipated that the distribution of shares of Hyperion Energy common stock will be taxable to each shareholder as a dividend to the extent of the shareholder’s share of Accountabilities’ current and accumulated earnings and profits for the year in which the distribution is made, and to the extent that the distribution in a year exceeds that share, as a return of capital to the extent of the shareholder’s adjusted tax basis in the shareholders’ Accountabilities common shares, and then generally as capital gain.
All shareholders are urged to consult their tax advisors to determine the effect of the transactions under federal tax law (or foreign tax law where applicable) and under their own state and local tax law.
Regulatory Approvals
No regulatory approvals are required in connection with the transaction.
Dissenters’ Rights of Accountabilities Shareholders (page 2)
Shareholders of Accountabilities will not have dissenters’ rights in connection with the transaction.
SELECTED FINANCIAL DATA OF HYPERION ENERGY
Hyperion Energy is providing the following selected financial data to assist in your analysis of the financial aspects of the transactions. Hyperion Energy derived the annual historical information for the period from December 29, 2005 (inception) through December 31, 2006 from the financial statements of Hyperion Energy, which have been audited by Rotenberg & Co., LLP, independent public accountants. The results of operations for the period presented may not necessarily be indicative of the results of operations that can be anticipated for an entire year. The following information should be read in conjunction with the Form 10SB of Hyperion Energy filed with the Securities and Exchange Commission on March 15, 2007, as well as “Hyperion Energy Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes beginning on page F-3.
Statements of Operations Data
| | | Year Ended December 31, 2006 | | | December 29, 2005 (inception) through December 31, 2006 | | | Nine Months Ended September 30, 2007 | |
| | | | | | | | | | | | |
| General & Administrative Expenses | | | - | | | | 1,390 | | | | - | |
| | | | | | | | | | | | |
| Net Loss Per Share (Basic) | | | - | | | | - | | | | - | |
Net Loss Per Share (Diluted) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance Sheet Data
| | | As of | |
| | | December 31, 2006 | | | September 30, 2007 | |
| | | | | | | | |
| Total Liabilities | | | - | | | | - | |
| | | | | | | | |
| Stockholders’ Equity | | | 1,390 | | | | 1,390 | |
| | | | | | | | |
| | | | | | | | | |
SELECTED FINANCIAL DATA OF ACCOUNTABILITIES
Accountabilities is providing the following selected financial data with respect to its staffing and workforce solutions business to assist in your analysis of the financial aspects of the transaction. Accountabilities derived the annual historical information for the fiscal years ended September 30, 2006 and the period from September 1, 2005 (date of inception) through September 30, 2005 from the financial statements prepared with respect to Accountabilities’ staffing and workforce solutions business, which have been audited by Miller, Ellin & Company, LLP, independent public accountants. The financial data of Accountabilities for the nine months ended June 30, 2006 and 2007 have been derived from the unaudited interim financial statements that, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation of financial position and results of operations. The results of operations for the interim period may not necessarily be indicative of the results of operations that can be anticipated for an entire year. The following information should be read in conjunction with “Accountabilities’ Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes beginning on page F-16.
Statements of Operations Data
| | | Year Ended | | | For the Period from September 1, 2005 (Date of Inception) to | | | Nine Months Ended June 30 | |
| | | September 30, 2006 | | | September 30, 2005 | | | 2007 | | | 2006 | |
| | | | | | | | | (Unaudited) | | | (Unaudited) | |
| | | | | | | | | | | | | | | | |
| Income (loss) from operations | | $ | 638,000 | | | $ | (91,000 | ) | | $ | 442,000 | | | $ | 312,000 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Balance Sheet Data
| | | As of | |
| | | September 30, 2006 | | | September 30, 2005 | | | June 30, 2007 | |
| | | | | | | | | (Unaudited) | |
| | | | | | | | | | | | |
| Long-term debt including current portion | | $ | 1,614,000 | | | $ | - | | | $ | 5,295,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
MARKET PRICE AND DIVIDEND INFORMATION
Hyperion Energy’s common stock has not traded on any stock exchange. Hyperion Energy is not aware of any market activity in its common stock. As of November 15, 2007, Hyperion Energy had one (1) record holder of its common stock.
The following table shows, for the periods indicated, the reported high and low sale prices for shares of Accountabilities’ common stock as reported in the “Pink Sheets” for the fiscal quarters indicated as adjusted for a 1-for-5 reverse stock split effected on April 3, 2006. As of November 15, 2007, there were approximately 229 record holders of Accountabilities’ common stock. Accountabilities has not paid any cash dividends on its common stock during the periods presented.
| | | Low | | | High | |
Fiscal Year Ended September 30, 2006 | | | | | | | | |
| First Quarter | | $ | .20 | | | $ | .95 | |
| | | | | | | | |
| Third Quarter | | | .35 | | | | .65 | |
| | | | | | | | |
Fiscal Year Ended September 30, 2007 | | | | | | | | |
| | | | | | | | |
| Second Quarter | | | .30 | | | | .78 | |
| | | | | | | | |
| Fourth Quarter | | | .32 | | | | .70 | |
Fiscal Year Ending September 30, 2008 | | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
The last reported sales price of the Accountabilites common stock prior to the announcement of the proposed transaction with Hyperion Energy on July 26, 2007, was $.39. On November 16, 2007, the last reported sales price of the Accountabilities stock was $.38.
RISK FACTORS
You may incur tax liability as a result of the distribution of the Hyperion Energy common stock to you.
It is anticipated that the distribution of shares of Hyperion Energy common stock will be taxable to each shareholder of Accountabilities as a dividend to the extent of the shareholder’s share of Accountabilities current and accumulated earnings and profits for the year in which the distribution is made, and to the extent that the distribution in a year exceeds that share as a return of capital to the extent of the shareholder’s adjusted tax basis in the shareholders’ Accountabilities’ common shares, and then generally as capital gain.
Even if the sale of assets to Hyperion Energy is approved, a public market for Hyperion Energy common stock may not develop or if it does develop, may be limited or volatile.
There is presently no public market for Hyperion Energy’s common stock. Hyperion Energy intends to seek to have its shares listed for trading on the OTC Bulletin Board as soon as practicable after the transaction. Hyperion Energy can give no assurance that it will be able to qualify for trading on the OTC Bulletin Board. Even if it qualifies for trading on the OTC Bulletin Board, it cannot guarantee that a market for its common stock will develop or be maintained. The OTC Bulletin Board is a quotation system and neither the securities quoted on the OTC Bulletin Board nor the companies that issue them are "listed" as is the case with a stock exchange such as the New York Stock Exchange or the American Stock Exchange. It is likely that any market that develops for the common stock will be volatile and trading in the stock may be limited. In addition, many brokerage firms may not be willing to effect transactions in its securities. Even if a purchaser finds a broker willing to effect a transaction in Hyperion Energy securities, the combination of brokerage commissions, state transfer taxes, if any, and any other selling costs may exceed the selling price. Further, lending institutions may not permit the use of Hyperion Energy common stock as collateral for a loan.
Trading prices after the transaction will be uncertain and may fluctuate significantly.
As a result of the distribution of the Hyperion Energy shares to you, you will own shares of Accountabilities common stock and shares of Hyperion Energy common stock. The combined price of Accountabilities common stock and Hyperion Energy common stock may be greater or less than, or equal to, the trading price of Accountabilities common stock immediately prior to the transaction. The price of the Hyperion Energy common shares could vary widely in response to various factors and events, including:
▪ | the number of common shares being sold and purchased in the marketplace; |
| ▪ | variations in operating results; |
▪ | regulation and industry trends; |
▪ | rumors of significant events which can circulate quickly in the marketplace, particularly over the internet; and |
▪ | the difference between Hyperion Energy’s actual results and the results expected by shareholders and analysts. |
“Penny Stock” rules may adversely affect the ability to trade Hyperion Energy shares.
It is likely that the Hyperion Energy common stock will be classified as a “penny stock” depending upon its market price and the manner in which it is traded. The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the Nasdaq Stock Market, provided that current price and volume information is proved by the exchange or the Nasdaq Stock Market. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a risk disclosure document that provides information about penny stocks and the nature and level of risk in the penny stock market and other information. In addition, the penny stock rules require a broker-dealer to enter into a special written agreement with respect to the transaction. These requirements may have the effect of reducing the level of trading activity in the secondary market for a security that becomes subject to the penny stock rules. Prices for penny stocks are often not available and investors are often unable to sell such stocks.
Hyperion Energy may issue preferred stock that may adversely affect holders of its common stock.
Hyperion Energy may issue shares of its preferred stock in the future without stockholder approval and upon such terms as its board of directors may determine. The rights of stockholders will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of discouraging a person from acquiring a majority of Hyperion Energy’s outstanding common stock. Hyperion Energy has no present plans to issue any shares of preferred stock.
The value of your Accountabilities’ common stock will likely be substantially diminished after the transaction.
The staffing and workforce solutions business that will be transferred to Hyperion Energy if the asset sale transaction is completed represents substantially all of the assets of Accountabilities. The operations that will be retained by Accountabilities are in their development stage, and it is likely that the price of Accountabilities common stock will decline as a result of the transfer of Accountabilities’ primary business to another entity.
Actual or perceived sales of a significant number of shares of Hyperion Energy common stock in the public market could adversely affect the price of the shares.
Hyperion Energy cannot predict the extent to which the dilution, the availability of a large amount of shares for sale, and the possibility of additional issuances and sales of its common stock will negatively affect the trading price of its common stock or the liquidity of its common stock.
The value of the Hyperion Energy common stock to be received by Accountabilities’ shareholders may decline before shares may be sold.
Accountabilities will distribute one share of Hyperion Energy common stock to its shareholders as promptly as reasonably practicable following the closing date. The dollar value of Hyperion Energy common stock to be received by Accountabilities shareholders will depend on the market value of Hyperion Energy common stock in the future. Accountabilities cannot predict the market price of Hyperion Energy common stock after the completion of the transaction.
Affiliates of Accountabilities will have restrictions placed on the resale of Hyperion Energy common stock.
The shares of Hyperion Energy common stock distributed to shareholders of Accountabilities following the closing of the transaction have been registered under the Securities Act of 1933. These shares may be traded freely and without restriction by the shareholders who are not deemed to be “affiliates” of Accountabilities or Hyperion Energy as that term is defined in the rules under the Securities
Act of 1933. Stock received by shareholders who are deemed to be “affiliates” may be sold without registration as provided by Rules 144 or 145, or as otherwise permitted, under the Securities Act of 1933.
The professional staffing and workforce solutions business conducted by Accountabilities has a limited operating history, which limits the availability of information to evaluate the business.
Accountabilities commenced its professional staffing and workforce solutions business in June 2005. As a result, shareholders and prospective investors will have limited operating and financial information to evaluate Accountabilities historical performance and future prospects. Accountabilities faces the risks and difficulties of an early-stage company, including uncertainties of market acceptance, competition, cost increases and delays in achieving business objectives. There can be no assurance that management will succeed in addressing any or all of these risks, and the failure to do so would have a material adverse effect on Accountabilities’ business, financial condition and operating results.
If Accountabilities fails to execute its acquisitions or investments, its business could suffer.
Accountabilities has supplemented its internal growth through acquisitions and may do so in the future through acquisitions, investments or joint ventures. Management evaluates potential acquisitions, investments and joint ventures on an ongoing basis. Accountabilities’ acquisitions and investments pose many risks, including:
| ▪ | It may not be able to compete successfully for available acquisition candidates, complete future acquisitions or investments or accurately estimate their financial effect on its business; |
| ▪ | Future acquisitions, investments or joint ventures may require it to issue additional common stock, spend significant cash amounts or decrease its operating income; |
| ▪ | It may have trouble integrating the acquired business and retaining its personnel; |
| ▪ | Acquisitions, investments or joint ventures may disrupt business and distract management from other responsibilities; and |
| ▪ | If its acquisitions or investments fail, its business could be harmed |
Accountabilities may acquire additional companies, which may result in adverse effects on its earnings.
Accountabilities may at times become involved in discussions with potential acquisition candidates. Any acquisition that it may consummate may have an adverse effect on its liquidity and earnings and may be dilutive to its earnings. In the event that it consummates an acquisition or obtains additional capital through the sale of debt or equity to finance an acquisition, shareholders may experience dilution in their equity. Accountabilities previously obtained growth through acquisitions of other companies and businesses. Under Statements of Financial Accounting Standards No.141, Business Combinations (SFAS No.141) and No. 142 Goodwill and Other intangible Assets (SFAS No. 142) implemented in June 2001, Accountabilities is required to periodically review goodwill and indefinite life intangible assets for possible impairment. In the event that it is required to write down the value of any assets under these pronouncements, it may materially and adversely affect its earnings.
Accountabilities’ management may be unable to effectively integrate acquisitions and to manage growth, and may be unable to fully realize any anticipated benefits of these acquisitions.
Accountabilities’ business strategy includes growth through both acquisitions and internal development. It is subject to various risks associated with its growth strategy, including the risk that it will be unable to identify and recruit suitable acquisition candidates in the future or to integrate and manage the acquired companies. Acquired companies’ histories, geographical locations, business models and business cultures can be different from our its in many respects. Senior management may face significant challenges in their efforts to integrate Accountabilities’ businesses and the business of the acquired companies or assets, and to effectively manage continued growth. There can be no assurance that efforts to integrate the operations of any acquired assets or companies acquired in the future will be successful, that Accountabilities can manage its growth or that the anticipated benefits of these proposed acquisitions will be fully realized. The dedication of management resources to these efforts may detract attention from day-to-day business. There can be no assurance that there will not be substantial costs associated with these activities or of the success of the integration efforts, either of which could have a material adverse effect on Accountabilities’ operating results.
Accountabilities may be exposed to employment-related claims and costs that could materially adversely affect its business.
Due to the nature of Accountabilities’ business of placing workers in the workplace of other businesses on a temporary or permanent basis it is subject to a large number of laws and regulations relating to employment. The risks related to engaging in such business include but are not limited to:
| ▪ | claims of discrimination and harassment, |
| ▪ | violations of wage and hour laws, |
| ▪ | claims relating to actions by customers including property damage and personal injury, misuse of proprietary information and misappropriation of assets, and |
| ▪ | immigration related claims. |
In addition, some or all of these claims may give rise to litigation, which could be time-consuming to its management, and therefore, could have a negative effect on Accountabilities’ business. In some instances, Accountabilities has agreed to indemnify its customers against some or all of these types of liabilities. It has policies and guidelines in place to help reduce its exposure to these risks and has purchased insurance policies against certain risks in amounts that it currently believe to be adequate. However, there can be no assurance that its insurance will be sufficient in amount or scope to cover these types of liabilities or that it will be able to secure insurance coverage for such risks on affordable terms. Furthermore, there can be no assurance that Accountabilities will not experience these issues in the future or that they will not have a material adverse effect on its business.
Should Accountabilities’ arrangement with Tri-State terminate it cannot be assured that it would be able to secure a comparable employee leasing provider or workers compensation insurance on affordable terms
Accountabilities leases the majority of its workers from Tri-State Employment Services, Inc., a professional employment organization and major shareholder of Accountabilities, Inc. Accountabilities leases employees in order to mitigate certain insurance risks and obtain greater employee benefits at more advantages rates via Tri-State’s much larger scale. Through this agreement with Tri-State, Tri-State is the statutory employer, whereas Accountabilities is responsible for the hiring, termination, compensation structure, management, supervision and otherwise overall performance and day to day duties of all employees. Employees are leased from Tri-State based upon agreed upon rates which are dependent upon the individual employee’s compensation structure, as agreed to between Accountabilities and the employee. Should Accountabilities’ arrangement with Tri-State terminate it cannot be assured that it would be able to secure a comparable leasing provider at agreeable rates. Should Accountabilities be unsuccessful at finding a comparable employee leasing provider it cannot be assured that Accountabilities would be able to secure required workers compensation insurance on affordable terms. The failure to obtain a comparable employee leasing provider or workers compensation insurance at affordable rates would possibly require significant working capital requirements which are not currently necessary. In addition, there can be no assurance that Accountabilities will be successful at passing these increased costs to its clients which may reduce its profit margins.
Accountabilities bears the risk of nonpayment from its clients and the possible effects of bankruptcy filings by clients.
To the extent that any particular client experiences financial difficulty, or is otherwise unable to meet its obligations as they become due, Accountabilities’ financial condition and results of operations could be adversely affected. For work performed prior to the termination of a client agreement, Accountabilities is obligated to pay the agreed upon fees to its employees leasing provider Tri-State, whether or not its client pays it on a timely basis, or at all. A significant increase in uncollected account receivables may have a material adverse effect on Accountabilities’ earnings and financial condition.
Accountabilities’ failure to remain competitive could harm its business.
Accountabilities’ business is highly competitive. Accountabilities competes with larger companies that have greater name recognition, financial resources and larger staffs. It also competes with smaller, more specialized entities who are able to concentrate their resources on particular areas. To remain competitive, Accountabilities must provide superior service and performance on a cost-effective basis to its customers. Any failure to do so could have a material adverse effect on its business.
Any significant economic downturn could result in Accountabilities’ customers using fewer staffing and consulting services, which could materially adversely affect its business.
Demand for staffing and consulting services is significantly affected by the general level of economic activity. As economic activity slows, many customers reduce their utilization of temporary employees before undertaking layoffs of their regular full-time employees. Further, demand for permanent placement services also slows as the labor pool directly available to its customers increases, making it easier for them to identify new employees directly. Typically, Accountabilities may experience increased pricing pressures from competitors during periods of economic downturn, which could have a material adverse effect on its financial condition. Additionally, in geographic areas where Accountabilities derives a significant amount of business, a regional or localized economic downturn could adversely affect its operating results and financial position.
The loss of any of key personnel could harm Accountabilities’ business.
Accountabilities’ future financial performance is significantly impacted by its ability to attract, motivate and retain key management personnel. Competition for qualified management personnel is very competitive and in the event that Accountabilities experiences turnover in senior management positions, it cannot assure you that it will be able to recruit suitable replacements on a timely basis. It must also successfully integrate all new management and other key positions within its organization to achieve its operating objectives. Even if it is successful, turnover in key management positions could temporarily harm financial performance and results of operations until the new management becomes familiar with Accountabilities’ business.
Accountabilities’ success depends in large part on its ability to attract and retain qualified temporary and permanent personnel
Accountabilities’ success depends on its ability to provide clients with highly qualified and experienced personnel who possess the skills and experience necessary to satisfy their needs. Such individuals are in great demand, particularly in certain geographic areas, and are likely to remain a limited resource for the foreseeable future. Consequently, Accountabilities must continuously evaluate and upgrade its base of available qualified personnel to keep pace with changing customer needs and emerging technologies. Furthermore, a substantial number of its temporary employees during any given year will terminate their employment with Accountabilities and accept regular staff employment with its customers. There can be no assurance that qualified candidates will continue to be available to Accountabilities in sufficient numbers and on acceptable terms. The failure to identify, recruit, train and place candidates as well as retain qualified temporary employees over a long period of time could materially adversely affect Accountabilities’ business.
Operating as a public company will increase costs, and management will be required to devote substantial time to new compliance initiatives.
As a result of operating the staffing and workforce solutions business through a public company, Hyperion will incur significant legal, accounting and other expenses that Accountabilities did not incur as a non-reporting company. In addition, the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, as well as rules subsequently implemented by the Securities and Exchange Commission, or the SEC, have imposed various new requirements on public companies, including requiring changes in corporate governance practices. After the transaction, Hyperion management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase legal and financial compliance costs and will make some activities more time-consuming and costly. For example, management expects these new rules and regulations to make it more difficult and more expensive to obtain director and officer liability insurance, and management may be required to accept reduced policy limits and coverage. These rules and regulations could also make it more difficult for Hyperion to attract and retain qualified persons to serve on its board of directors, board committees or as executive officers after the transaction.
In addition, Sarbanes-Oxley requires, among other things, that Hyperion maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, beginning with its Annual Report for the fiscal year ended September 30, 2008, management expects to be required to furnish a report by its management on its internal control over financial reporting. Further, management expects that its external auditors will be required to audit Hyperion’s internal control over financial reporting report and include their attestation on that report in its annual report on Form 10-K starting from the annual report for the 2009 fiscal year. The process of fully documenting and testing internal control procedures in order to satisfy these requirements will result in increased general and administrative expenses and may shift management time and attention from profit-generating activities to compliance activities. Furthermore, during the course of Hyperion’s internal control testing, management may identify deficiencies which it may not be able to remediate in time to meet the reporting deadline under Section 404.
In anticipation of becoming part of a public company and in order to respond to additional regulations applicable to public companies, such as Section 404, Accountabilities’ management anticipates hiring additional finance and accounting personnel after the transaction with Hyperion is completed. Some of these positions require candidates with public company experience, and Hyperion may be unable to locate and hire such individuals as quickly as needed, if at all. In addition, new employees will require time and training to
learn a new business and operating processes and procedures. If the finance and accounting organization is unable for any reason to respond adequately to the increased demands that will result from being a public company, the quality and timeliness of financial reporting may suffer, which could result in identification of internal control weaknesses. Any consequences resulting from inaccuracies or delays in Hyperion’s reported financial statements could have an adverse effect on the trading price of its common stock as well as an adverse effect on its business, operating results, and financial condition.
Moreover, if Hyperion is not able to comply with the requirements of Section 404 in a timely manner, or if it or its independent registered public accounting firm identifies deficiencies in its internal control over financial reporting that are deemed to be material weaknesses, the market price of Hyperion’s stock could decline and it could be subject to sanctions or investigations by the NASD, the SEC or other regulatory authorities, which would require additional financial and management resources.
Accountabilities has significant working capital requirements and has historically been heavily reliant upon the issuance of debt, including debt from related parties, to meet these working capital requirements.
Historically, Accountabilities has experienced negative working capital balances and as of June 30, 2007 and September 30, 2006 had negative working capital of ($2,189,000) and ($886,000), respectively.
Accountabilities requires significant amounts of working capital to operate its business and to pay expenses relating to employment of temporary employees. Temporary personnel are generally paid on a weekly basis while payments from customers are generally received 30 to 60 days after billing. As a result, Accountabilities must maintain sufficient cash availability to pay temporary personnel prior to receiving payment from customers. Accountabilities finances its operations primarily through sales of its receivables to a financial institution, issuance of debt, including debt issued to related parties, and also through cash generated by operating activities.
Under the terms of its receivable sale agreement the maximum amount of trade receivables that can be sold is $5,000,000, for which the purchaser advances 90% of the assigned receivables’ value upon sale, and 10% upon final collection. As collections reduce previously sold receivables, Accountabilities may replenish these with new receivables. The risk Accountabilities bears from bad debt losses on trade receivables sold is retained by Accountabilities and receivables sold which become greater than 90 days old can be charged back to Accountabilities by the purchaser. Any such increase in trade receivables older than 90 days and charged back would decrease amounts available for working capital purposes and could have an adverse effect on liquidity and financial condition.
As of June 30, 2007, Accountabilities owed $589,000 under promissory notes that are past due or which are due upon demand, $412,000 of which is due to related parties.
Accountabilities has, in the past, been required to aggressively manage its cash to ensure adequate funds to meet working capital requirements and to service debt. Such steps included working to improve collections and adjusting the timing of cash expenditures, reducing operating expenses where feasible and working to generate cash from a variety of other sources.
Accountabilities has historically experienced periods of negative cash flow from operations and investment activities. Any such increase or sustained negative cash flows would decrease amounts available for working capital purposes and could have an adverse effect on its liquidity and financial condition.
There is no assurance that Accountabilities will generate the necessary net income or operating cash flows to meet the funding needs of its business in the future due to a variety of factors, including the cyclical nature of the staffing and professional services industry and the other factors discussed in this “Risk Factors” section. If it is unable to do so, its liquidity would be adversely affected and it would consider taking a variety of actions, including: attempting to reduce fixed costs (for example, reducing the size of its administrative work force), curtailing or reducing planned capital additions, raising additional equity, borrowing additional funds, refinancing existing indebtedness or taking other actions. There can be no assurance, however, that Accountabilities will be able to successfully take any of these actions, including adjusting expenses sufficiently or in a timely manner, or raising additional equity, increasing borrowings or completing refinancings on any terms or on terms that are acceptable to it. Accountabilities inability to take these actions as and when necessary would materially adversely affect its liquidity, results of operations and financial condition.
Hyperion may be exposed to contingent liabilities associated with the predecessor operations of Accountabilities, Inc.
A subsidiary of Accountabilities, Inc., which ceased operating at the end of 2004, has been notified by the IRS and certain state taxing authorities that it has accumulated liabilities totaling approximately $750,000 for unremitted payroll taxes during the 2004 calendar year period. Based upon the information presently available, management does not expect the parent, Accountabilities, Inc., to be subject to this liability, nor does management expect that the assets of the staffing and workforce solutions business will be required to satisfy these liabilities. However, there can be no assurance that future events will not result in an unfavorable outcome.
INFORMATION ABOUT THE SPECIAL MEETING
Date, Time and Place of the Special Meeting; Matters to be Considered
The enclosed proxy is solicited by the board of directors of Accountabilities for use at the special meeting of shareholders to be held on __________, 2007 at ____ a.m., New York City time, and at any adjournment or postponements of the meeting. This proxy statement/prospectus and the accompanying form of proxy were first mailed to shareholders of Accountabilities on or about ________, 2007.
At the Accountabilities special meeting, shareholders of Accountabilities will vote on a proposal to approve the asset purchase agreement and the transactions contemplated thereby.
If necessary, shareholders of Accountabilities will vote to adjourn or postpone the meeting to a later time to permit, among other things, further solicitation of proxies in order to establish a quorum or to obtain additional votes in favor of the foregoing proposal.
The Accountabilities board of directors has approved the asset purchase agreement and unanimously recommends that shareholders of Accountabilities vote “FOR” each of the proposals being presented to them.
Record Date for the Special Meeting
Only Accountabilities shareholders of record at the close of business on __________, 2007 are entitled to vote at the special meeting. As of November 15, 2007, there were outstanding 17,973,528 of Accountabilities’ common shares.
Quorum; Vote Required for Approval of Proposals
Each holder of common shares is entitled to one vote for each share held. A quorum, consisting of a majority of common shares entitled to vote at the special meeting, must be in person or by proxy before action may be taken at the special meeting.
The affirmative vote of the holders of a majority of the outstanding Accountabilities common shares is required to approve the proposal to approve the asset purchase agreement and the transactions contemplated thereby. The affirmative vote of the holders of a majority of the Accountabilities common shares present and entitled to vote at the special meeting, whether or not a quorum is present, is required to adjourn the meeting.
On November 15, 2007 (without reflecting any currently exercisable options), directors and officers of Accountabilities, and their affiliates, owned and were entitled to vote 8,950,069 Accountabilities common shares. These shares represented approximately 49.8% of the outstanding Accountabilities common shares.
Solicitation of Proxies and Revocation of Proxies
The costs of expenses of solicitation of Accountabilities proxies will be paid by Accountabilities. In addition to the use of the mails, proxies may be solicited by directors, officers and regular employees of Accountabilities personally or by telephone, but such persons will not be specifically compensated for such services.
Any shareholder giving a proxy in this form may revoke it before it is exercised by submitting a new proxy bearing a date later than any prior proxy or by giving notice of revocation to Accountabilities in writing, in a verifiable communication, or at the special meeting. The presence at the special meeting of the person appointing a proxy does not, by itself, revoke the appointment. All shares represented by timely, valid and unrevoked proxies will be voted at the special meeting in accordance with the specifications indicated thereon. If no specification is indicated on a proxy, the proxy will be voted in favor of each proposal.
How Proxies Will Be Voted
Allan Hartley and Stephen DelVecchia have been named as proxies in the Accountabilities proxy. Shares represented by a proxy will be voted at the special meeting as specified in the proxy. Properly executed proxies that do not contain voting instructions will be voted “FOR” the approval of the sale of assets pursuant to the asset purchase agreement. If you submit a proxy that indicates an abstention from voting, your shares will be counted as present for purposes of determining the existence of a quorum, but they will not be voted on the proposal. Broker non-votes will have the effect of votes against the proposal to approve the sale of assets and will not affect any other proposal presented to the shareholders.
The proxies will be entitled to vote in their discretion on any other matters that may properly come before the meeting.
ACCOUNTABILITIES PROPOSAL NO. 1
Approval of the Sale of Substantially All of the Assets used by Accountabilities in its
Staffing and Workforce Solutions Business Pursuant to Asset Purchase Agreement
Sale of Assets to Hyperion Energy
Under the terms of the asset purchase agreement, Accountabilities has agreed to sell to Hyperion Energy substantially all of the assets that Accountabilities uses in its staffing and workforce solutions business. For a more complete discussion of terms of the transaction, please refer to the section entitled “Description of the Asset Purchase Agreement” or the asset purchase agreement attached as Annex A to this document.
Effect of Failure to Obtain Shareholder Approval
If Accountabilities does not obtain the approval of its shareholders of this Proposal No. 1, it will be in violation of the conditions to the consummation of the transaction. As a result, either Hyperion Energy or Accountabilities may refuse to proceed with the transaction and terminate the asset purchase agreement.
Voting Information
Approval of this Proposal No. 1 requires the affirmative vote of the holders of a majority of the outstanding shares of Accountabilities common stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT ACCOUNTABILITIES
SHAREHOLDERS VOTE “FOR” PROPOSAL NO. 1:
APPROVAL OF THE SALE OF SUBSTANTIALLY ALL OF THE ASSETS OF
ACCOUNTABILITIES PURSUANT TO THE ASSET PURCHASE AND REORGANIZATION
____________________
ACCOUNTABILITIES PROPOSAL NO. 2
The Adjournment
The Accountabilities special meeting may be adjourned or postponed to another time or place for the purpose of, among other things, permitting dissemination of information regarding material developments relating to the transaction or permitting further solicitation of proxies by Accountabilities’ board of directors in favor of Proposal No. 1.
Voting Information
Approval of this Proposal No. 2 requires the affirmative vote of the holders of a majority of the shares of Accountabilities common stock present and entitled to vote at the special meeting, whether or not a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT ACCOUNTABILITIES
SHAREHOLDERS VOTE “FOR” PROPOSAL NO. 2:
THE ADJOURNMENT
____________________
THE TRANSACTION
Background of the Transaction
During the past year, Accountabilities’ management concluded that conducting Accountabilities’ staffing and workforce solutions business through an entity having securities traded on a national securities exchange, the Nasdaq Stock Market or the Over-the-Counter Bulletin Board could enhance the Company’s ability to raise capital and use stock as currency for potential acquisition transactions; however, management was aware that listing on an exchange, the Nasdaq Stock Market or the OTC Bulletin Board would require that Accountabilities common stock be registered under the Securities Exchange Act of 1934. In August 2005, the prior management of Accountabilities (which was then known as Humana Transworld Services, Inc.) had terminated the registration of the common stock as a result of a lack of financial resources and the absence of any significant business activity following the disposition of its prior business operations. The last audit conducted with respect to the financial statements of Humana Transworld Services related to the fiscal year ended September 30, 2003 and the last financial statements prepared by Humana Transworld Services were for the nine months ended June 30, 2004. In assessing whether registration of Accountabilities common stock under the Securities Exchange Act of 1934 could again be achieved, management was aware that registration would require that audited financial statements for the fiscal years ended September 30, 2004, 2005 and 2006 be submitted to the SEC. As a result, Accountabilities’ management examined whether an audit could be accomplished without unreasonable effort and expense. After analyzing corporate records pertaining to the predecessor business, Accountabilities’ management concluded that due to the absence and lack of completeness of financial information pertaining to the predecessor business, as well as the unavailability of persons associated with the predecessor business, an audit of the period during which the predecessor business was conducted after September 30, 2003 might not be possible and, in any event, would require unreasonable effort and expense. As a result, Accountabilities management examined whether other methods besides re-registration under the Securities Exchange Act of 1934 were available which could result in Accountabilities’ shareholders owning securities registered under the Securities Exchange Act of 1934 that could potentially be listed on a securities exchange or traded on the Nasdaq Stock Market or OTC Bulletin Board, such as a merger or other business combination with a registered company.
After consulting with professional advisors and analyzing the regulations which require reporting companies to file audited financial statements of the acquired company in connection with a significant acquisition, management concluded that a merger or share exchange would be precluded due to rules requiring the filing of audited acquired company financial statements with the SEC, but that if Accountabilities sold assets to a reporting company, it might be possible to satisfy the financial statement requirements through the submission of “carve-out” financial statements which presented the financial condition and operating results of the business to be transferred, but excluded financial information relative to the predecessor business conducted by Humana.
In 2006, members of Accountabilities’ management became aware that the management of Tilden Associates, Inc., a company with shares quoted on the OTC Bulletin Board, believed that the cost of Tilden Associates remaining a public company exceeded the benefits provided by Tilden Associates’ public status. Discussions with Tilden Associates’ management ultimately led to the negotiation of an asset purchase and reorganization agreement which was executed by the parties in February 2007 and provided that Accountabilities would sell its staffing and workforce solutions business to Tilden Associates in exchange for shares of Tilden Associates common stock that would be registered under the Securities Act of 1933. Accountabilities’ management decided to limit the transaction to Accountabilities’ staffing and workforce solutions business because its payroll debit card business was in its initial
stage of development and represented a different line of business, and management believed that the investment community could more easily assess the prospects and performance of the staffing and workforce solutions business if it was conducted through a separate entity. Following the execution of the letter of intent, Accountabilities’ advisors consulted with the SEC with respect to the potential use of “carve-out” financial statements in connection with the transaction and, in September 30, 2006, Tilden Associates requested that the Office of the Chief Accountant of the SEC concur in its view that acquired company financial statement requirements could be satisfied through the inclusion of carve-out financial statements in the applicable filings submitted to the SEC. After additional discussion and written communications with the SEC, the Office of the Chief Accountant advised Tilden Associates by letter dated October 12, 2006 that it would raise no objection if financial statements of Accountabilities’ staffing and workforce solutions business were presented on a carve-out basis in SEC filings required to be made in connection with the transaction.
In April 2007, Accountabilities’ management learned that Tilden Associates, in violation of the asset purchase and reorganization agreement between the parties, had failed to timely file its Annual Report on Form 10-KSB and its shares had been removed from trading on the OTC Bulletin Board. As a result of this breach, Accountabilities formally terminated the asset purchase and reorganization agreement with Tilden Associates on April 27, 2007.
Following the termination of the Tilden transaction, James Zimbler, Vice President of Accountabilities and a principal in a merger and acquisition advisory firm, spoke to potential sources of shell companies with securities registered under the Securities Exchange Act of 1934. These discussions ultimately led to Mr. Zimbler and other members of the Accountabilities’ management team becoming acquainted with several reporting shell companies, including Lexit Technology, Inc. and Hyperion Energy. Initially, Accountabilities entered into a letter of intent to transfer its assets to Lexit Technology, but terminated negotiations with respect to the transaction due to uncertainty related to the ownership of Lexit Technology. Following the termination of the Lexit Technology transaction, management proposed a similar transaction to Walter Reed, the sole officer, director and shareholder of Hyperion Energy. This proposal led to the preparation, negotiation and signing of the asset purchase agreement on July 26, 2007. Among the items negotiated at arms-length and ultimately reflected in the asset purchase agreement was the $12,500 to be paid by Accountabilities to Mr. Reed in consideration of his agreement to cancel all of the shares of Hyperion Energy common stock that he owned at the time of the closing of the transaction. Based upon management’s discussion with representatives of other shell companies and taking into account that there was no “ticker symbol” for the Hyperion Energy common stock, the Accountabilities’ Board of Directors concluded that the cash payment required by Mr. Reed was fair and reasonable.
In August 2007, Hyperion Energy requested that the Office of the Chief Accountant of the SEC concur in its view that acquired company financial statement requirements could be satisfied through the inclusion of carve-out financial statements in the applicable filings submitted to the SEC. By letter dated August 21, 2007, the Office of the Chief Accountant advised that it would raise no objection to the use of carve-out financial statements in connection with the proposed transaction.
During the time that discussions were taking place with respect to the Tilden and Hyperion Energy transaction, representatives of Pylon Management, a consultant to and shareholder of Acountabilities, and James Zimbler, who collectively own a controlling interest in Woopee Connect, proposed to Accountabilities’ management that Accountabilities acquire Woopee Connect by way of merger after it completed the Hyperion Energy transaction so that Accountabilities would have revenue producing activity after it disposed of its staffing and workforce solutions business. At a meeting held in April 2007, the Accountabilities’ Board of Directors authorized management to pursue discussions with respect to the acquisition of Woopee, and the parties reached an agreement in principle in August 2007. The closing of the acquisition of Woopee Connect will be conditioned upon the closing of the Hyperion Energy transaction; however, the closing of the Hyperion Energy transaction is not conditioned upon the closing of the Woopee Connect acquisition.
Hyperion Energy’s Reasons for the Transaction
Hyperion Energy was formed to pursue a business combination through acquisition of, or merger with, an existing operating company. The proposed transaction will Accountabilities will fulfill the purpose for which Hyperion Energy was formed. Walter Reed, the sole officer, director and shareholder of Hyperion Energy, has no interest in the transaction other than his receipt of $12,500 which was paid to him in exchange for his agreement to surrender all of the shares of Hyperion Energy that he owns for cancellation.
Accountabilities’ Reasons for the Transaction
Accountabilities’ board of directors has determined that the terms of the transaction and the asset purchase agreement are in the best interests of Accountabilities and its shareholders. The primary reason for engaging in the transaction is so that Accountabilities’ staffing and workforce solutions business can be conducted through an entity having securities registered under the Securities Exchange Act of 1934 so that an application can be submitted by a market maker to have the securities included on the NASD’s OTC Bulletin Board. Hyperion Energy common stock is registered under the Securities Exchange Act of 1934. Registration of Accountabilities’ common stock was terminated by Accountabilities prior management team in August 2005 after it had disposed of
substantially all of its then current business operations and lacked the financial resources to continue as a reporting company. As a result, the Accountabilities’ common stock is not currently registered under the Securities Exchange Act of 1934 and there are no current plans to register the Accountabilities’ shares due to the absence and lack of completeness of certain financial information pertaining to its prior operations which would be required to register Accountabilities’ common stock. Among the information and factors that the Accountabilities’ board of directors considered in its deliberations were the following:
▪ | historical information concerning Accountabilities’ businesses, prospects, financial performance and condition, operations, management and competitive position; |
| ▪ | the financial condition, results of operations and businesses of Accountabilities before and after giving effect to the transaction; |
| ▪ | their belief that it will be easier to obtain financing if the staffing and workforce solutions business is conducted through an entity with securities traded on a more liquid and efficient market than the “pink sheets”; |
▪ | their belief that by acquiring and distributing Hyperion Energy stock to Accountabilities’ shareholders, Accountabilities’ shareholders will have the opportunity to own a more liquid and attractive stock if the stock is quoted on the OTC Bulletin Board, a national exchange or the Nasdaq Stock Market; |
| ▪ | the nominal cash payment of $12,500 which it would be required to pay to the sole shareholder of Accountabilities in consideration of his agreement to cancel all of his Hyperion Energy shares; |
| ▪ | the fact that the ownership of the Accountabilities’ shareholders in the staffing and workforce solutions business would not be diluted as a result of the transaction; and |
▪ | their belief that, after considering possible alternatives to the transaction, the purchase price offered by Hyperion Energy was fair. |
Accountabilities board of directors also considered potentially negative factors relating to the transactions, including:
▪ | the risk that the potential benefits sought in the transactions might not be realized; |
▪ | the possibility that the transactions might not be consummated and the effect of public announcement of the transactions if they are not consummated; |
▪ | the fact that the Hyperion Energy common stock was not yet listed on a stock exchange, the Nasdaq Stock Market or the OTC Bulletin Board; |
▪ | the costs incurred in connection with the transaction and the additional costs that would be incurred as a result of being a publicly traded reporting company; |
▪ | the risks associated with potential fluctuations in Hyperion Energy’s common stock price in the future; |
| ▪ | the taxable nature of the transaction; and |
| ▪ | the additional regulatory requirements to which the accounting and workforce solutions business would be subject after the transaction, including the Sarbanes-Oxley Act of 2002. |
The foregoing discussion of the information and factors considered by Accountabilities’ board of directors is not intended to be exhaustive but is believed to include all material factors considered by the board. There can be no assurance that the strategic goals of the transaction will be achieved. See “Risk Factors” for a description of the risks relating to the transaction and the companies.
Recommendation of the Accountabilities’ Board of Directors
In view of the wide variety of information and factors, both positive and negative, considered by Accountabilities’ board of directors, the board of directors did not find it practical to, and did not, quantify or otherwise assign relative or specific weights to the foregoing factors. After taking into consideration all of the factors, the board determined that the transaction and the asset purchase agreement
were in the best interests of Accountabilities and its shareholders and that Accountabilities should enter into the asset purchase agreement and complete the transaction.
In considering the recommendation of Accountabilities’ board of directors, you should be aware that the directors and executive officers of Accountabilities have interests in the transaction that are different from, and in addition to, the interests of Accountabilities’ shareholders generally. These interests are discussed in more detail in the section entitled “Interests of Directors and Officers of Accountabilities in the Transaction.”
Shareholder Approval in Connection with the Transactions
In order for the transactions to be completed, the asset purchase agreement and the transactions contemplated thereby must be approved by the holders of a majority of the outstanding shares of Accountabilities common stock at Accountabilities’ special meeting.
Under the asset purchase agreement, the failure of the shareholders of Accountabilities to give their approval of the asset sale transaction at the special meeting will permit the termination of the asset purchase agreement and the abandonment of the transaction.
Interests of Officers and Directors of Accountabilities in the Transaction
None of the Accountabilities directors and executive officers has interests in the transaction that are different from, or in addition to, the interests of Accountabilities shareholders generally, except that each of such officers and directors will serve in a position with Hyperion Energy after the transaction that is substantially similar to such individual’s position with Accountabilities.
Closing of the Transaction
Assuming all other conditions are met, if Accountabilities shareholders approve the transaction-related proposals, it is expected that the closing will occur within three business days after the special meeting.
Distribution by Accountabilities of Hyperion Energy Shares
Accountabilities will distribute all of the shares of Hyperion Energy common stock received in exchange for Accountabilities’ assets to holders of record of Accountabilities common stock as of __________, 2007 on a proportionate basis as soon as reasonably practicable after the closing of the transactions. Shareholders of Accountabilities will receive one share of common stock of Hyperion Energy for each share of Accountabilities common stock that they hold.
Treatment of Convertible Notes and Warrants
As of the date of this proxy statement/prospectus, Accountabilities has outstanding $250,000 aggregate principal amount of 10% convertible notes which are convertible into Accountabilities common stock at a conversion price per share equal to the greater of 75% of the closing price of the common stock on the trading day preceding the conversion or the Per Share Enterprise Value (as defined) which will not be less than $18,000,000. Accountabilities has also issued a convertible note in the principal amount of $280,000 which is convertible at conversion prices ranging from $.40 per share to $.75 per share. In addition, Accountabilities has outstanding warrants to acquire an aggregate of 55,896 shares of Accountabilities’ common stock at an exercise price of $.75 per share. The terms of the notes and warrants provide each holder will receive upon conversion or exercise a number of shares of Hyperion Energy stock that the holder would have received if the notes and warrants were exercised prior to the record date for the distribution of the Hyperion Energy shares to the shareholders of Accountabilities.
Material Federal Income Tax Consequences
The following is a summary of the anticipated material United States federal income tax consequences that may be relevant to shareholders of Accountabilities in connection with the transaction and the distribution by Accountabilities of the shares of Hyperion Energy common stock to the Accountabilities shareholders. This discussion, which does not purport to be a complete discussion of all tax aspects of the transaction and the distributions, is based upon the Internal Revenue Code of 1986, the Treasury regulations (including temporary regulations) promulgated under the tax code, judicial authorities and administrative rulings, all as in effect on the date hereof and all of which are subject to change (possibly with retroactive effect) by legislation, administrative action, or judicial decision. Any such change could alter the tax consequences that are described below.
This discussion addresses only shareholders who hold shares of Accountabilities as capital assets within the meaning of Section 1221 of the tax code and does not address all of the tax consequences that may be relevant to shareholders in light of their particular circumstances or to certain types of shareholders subject to special treatment under the tax code, including dealers in securities or commodities, traders in securities who elect to apply a mark-to-market method of accounting, tax-exempt organizations, foreign persons, employee benefit plans, personal holding companies, persons who hold shares as a position in a “straddle” or as part of a “hedging,” “conversion,” or “constructive sale” transaction for United States federal income tax purposes, or persons who received their shares through the exercise of employee stock options or otherwise as compensation. In addition, this discussion does not consider the effect of any applicable state, local or foreign tax laws, nor does it consider the tax consequences of transactions effectuated before, after or concurrently with, the transaction or the distributions.
No rulings have been requested or received from the Internal Revenue Service as to the matters discussed, and there is no intent to seek any such ruling. Accordingly, no assurance can be given that the IRS will not challenge the tax treatment of the matters discussed or, if it does challenge the tax treatment, that it will not be successful.
Each shareholder should consult his, her or its tax adviser with respect to the particular tax consequences to the shareholder of all possible federal, state, local or foreign tax consequences of the transaction and the distributions.
Corporate-Level Tax Consequences to Accountabilities
The sale of assets by Accountabilities will constitute taxable transactions for federal income tax purposes. Accountabilities will recognize gain or loss (which may be ordinary or capital) with respect to each of the assets sold, computed in each case by determining the fair market value of the consideration (including liabilities assumed) allocable to the asset sold and by subtracting therefrom the adjusted tax basis of the asset sold.
The shares of Hyperion Energy common stock that are received by Accountabilities upon the sale of its assets will constitute capital assets in its hands and will have a tax basis equal to their fair market value on the date or dates on which the Hyperion Energy shares are received. The determination of fair market value may take into account various factors, including the restrictions on transfer to which the Hyperion Energy shares received by Accountabilities are subject. Upon the distribution by Accountabilities of shares of Hyperion Energy common stock, Accountabilities will recognize a taxable gain to the extent that the fair market value of the Hyperion Energy shares, at the time of their distribution, exceeds their tax basis. In making a determination of fair market value, the IRS may contend that the shares of Hyperion Energy common stock should be valued without regard to any restrictions on transfer, in part because the shares of Hyperion Energy common stock may be transferable in the hands of the Accountabilities shareholders.
Hyperion Energy will hold each of the assets that it acquires from Accountabilities with a tax basis equal to the portion of the consideration (including liabilities assumed) that is allocated thereto, which will generally be their fair market value, as determined pursuant to Section 1060 of the tax code, and will have a holding period in such assets that begins on that date. Hyperion Energy will be entitled to deductions, including depreciation and amortization deductions, with respect to the assets that are acquired, to the extent allowed by the tax code.
Tax Consequences to the Accountabilities Shareholders
The sales of assets by Accountabilities to Hyperion Energy, in and of themselves, should not subject the shareholders of Accountabilities to any direct tax consequences. By contrast, the distributions by Accountabilities of the shares of Hyperion Energy common stock that it received directly from Hyperion Energy in connection with the asset sale will be taxable to the shareholders of Accountabilities. To the extent that such distributions are paid out of Accountabilities’ current or accumulated earnings and profits for the year of the distributions, such distributions will be taxable as dividends to the Accountabilities shareholders, and the amount of such dividends will not be reduced by the adjusted tax basis that the shareholder has in his, her or its Accountabilities shares. If the distribution exceeds the shareholder’s allocable portion of Accountabilities’ current and accumulated earnings and profits, the excess will be treated as a tax-free return of capital to the extent of the shareholder’s adjusted tax basis in his, her or its Accountabilities shares, and thereafter as a gain or loss from the sale of property. Such gain will generally be long-term capital gain to the extent that the shareholder has held the Accountabilities shares for more than one year.
Pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003, which was signed into law by President Bush on May 28, 2003, the maximum rate of tax on both dividends and long-term capital gains is 15%, in the case of individuals, estates and trusts. This rule applies to sales made on or after May 6, 2003 and to dividends in taxable years beginning after December 31, 2002. In addition, that act provides that if an individual receives dividends with respect to a share of stock that are extraordinary dividends (within the meaning of Section 1059(c) of the tax code), any loss on the sale or exchange of the share shall, to the extent of such dividends, be treated as a long-term capital loss. The rule is invoked, in general, when the amount of the dividend allocable to a
share equals or exceeds 10% of the shareholder’s adjusted basis in the share of common stock, without regard for the holding period that the shareholder has in the share.
A shareholder of Accountabilities who receives a distribution of shares of Hyperion Energy common stock will have a basis in such stock equal to its fair market value on the date of the distribution and a holding period in such stock that begins on that day.
In the case of a shareholder of Accountabilities that is a domestic corporation, any distribution that is treated as a dividend from Accountabilities, pursuant to the rules described above, generally will be eligible for certain percentage dividends-received deductions under Section 243 of the tax code, subject to applicable limitations, including those relating to “debt-financed portfolio stock” under Section 246A of the tax code and the holding-period requirements of section 246 of the tax code. However, pursuant to Section 1059 of the tax code, any corporate shareholder that has not held its Accountabilities common shares for more than two years before the dividend announcement date, and that receives an “extraordinary dividend” from Accountabilities, must reduce the tax basis of its shares in Accountabilities (but not below zero) by the portion of the “extraordinary dividend” that is deducted under the dividends-received deduction provision. If such portion exceeds the shareholder’s adjusted tax basis in its Accountabilities shares, the shareholder must treat any such excess as additional gain from the sale or exchange of such shares for the taxable year in which the extraordinary dividend is made. In general, a domestic corporate shareholder will be treated as having received an “extraordinary dividend” from Accountabilities if the amount of the dividend equals or exceeds 10% of the shareholder’s basis in its Accountabilities common shares.
Management and Operations of Hyperion Energy after the Transaction
It is anticipated that each of the current officers and directors of Accountabilities will serve in positions with Hyperion Energy substantially similar to their positions with Accountabilities after the completion of the transaction. See “Hyperion Energy Management.”
Regulatory Approvals
No regulatory approvals are required in connection with the transactions.
Shares Eligible for Future Sale
Shareholders of Accountabilities that were not affiliates of Accountabilities prior to the closing of the transactions and are not affiliates of Hyperion Energy will be eligible to sell their Hyperion Energy shares without restrictions upon receipt of the shares. Persons who were affiliates of Accountabilities prior to the closing of the transaction, who, as of the date of this proxy statement/prospectus, own approximately 49.8% of Accountabilities’ outstanding shares, will be able to sell their shares subject only to the volume, manner of sale and notice provisions of Rules 144 and 145 under the Securities Act of 1933.
DESCRIPTION OF THE ASSET PURCHASE AGREEMENT
The following description of the asset purchase agreement describes the material provisions of the agreement and is qualified in its entirety by reference to the asset purchase agreement, which is attached as Annex A to this document and is incorporated into this document by reference. We urge all shareholders of Accountabilities to read the agreement it is entirety for a complete description of the terms and conditions of the transaction.
Purchase and Sale of Accountabilities’ Assets
Hyperion Energy has agreed to purchase substantially all of the assets which Accountabilities uses in its staffing and workforce solutions business. As of June 30, 2007, the aggregate book value of the assets to be transferred to Hyperion Energy was $9,013,000.
Purchase Price for Accountabilities’ Assets
Hyperion Energy will issue to Accountabilities a number of shares of common stock equal to the number of shares of common stock of Accountabilities outstanding at the time of the closing of the transaction for the purchase of the Accountabilities assets.
Assumed Liabilities of Accountabilities
At closing, Hyperion Energy will assume substantially all of the liabilities of Accountabilities arising out of the conduct of Accountabilities’ staffing and workforce solutions business or relating to the ownership of the acquired assets. The assumed liabilities will include, among other things, third-party accounts payable, accrued expenses and indebtedness for borrowed money, which totaled approximately $7,832,000 as of June 30, 2007, as well as liabilities arising in connection with the contracts and orders assigned to Accountabilities.
Accountabilities will remain liable for liabilities and obligations related to its retained assets, which are expected to be nominal.
Assets Retained by Accountabilities
After the closing of the transaction with Hyperion Energy, Accountabilities will retain all assets associated with its debit payroll card business, which remains in its initial stage of development. In addition, Accountabilities has agreed in principle to acquire Woopee Connect, Inc., a VOIP company, through a merger of a wholly owned subsidiary of Accountabilities into Woopee Connect. During the 12 months ended September 30, 2007, Woopee Connect had total revenues of approximately $10,000.
Representations and Warranties
The asset purchase agreement contains various representations and warranties made as of the date of the agreement and as of the closing date by the parties regarding aspects related to their respective assets, business, financial condition, structure and other facts pertinent to the sale and purchase of assets. The following summarizes the material representations and warranties made by each party.
Representations and Warranties of Accountabilities
The representations and warranties of Accountabilities relate to, among other things:
▪ | the corporate power and authority to transact business, including to execute and deliver the asset purchase agreement and perform its obligations under the asset purchase agreement; |
▪ | the organization, valid existence, good standing and qualification to transact business; |
▪ | compliance of the asset purchase agreement and related documents with organizational documents, applicable laws and material agreements, including the absence of events of default or breach thereunder, and required governmental consents and approvals; |
▪ | the absence of fees or commissions payable to brokers or other parties in connection with the transaction. |
Representations and Warranties of Hyperion Energy
The representations and warranties of Hyperion Energy relate to, among other things:
▪ | the corporate power and authority to transact business, including to execute and deliver the asset purchase agreement necessary to the transaction and to perform its obligations under the asset purchase agreement; |
▪ | the absence of specified changes in its financial condition, properties, business, results of operations or accounting principles since a specified date; |
▪ | compliance of the asset purchase agreement and related documents with organizational documents, applicable laws and material agreements, including the absence of events of default or breach thereunder, and required governmental consents and approvals; |
▪ | the organization, valid existence, good standing and qualification to transact business; |
▪ | compliance with SEC reporting requirements; |
▪ | accuracy of its financial statements; |
▪ | absence of pending or threatened litigation; |
▪ | its recent formation and conduct of no business except its organizational activities and execution and delivery of the asset purchase agreement; |
▪ | payment of taxes and filing of tax returns; and |
▪ | the absence of fees or commissions payable to brokers or other parties in connection with the transaction. |
Certain Covenants
Until the closing, Hyperion Energy has agreed to:
▪ | conduct no business except as contemplated by the asset purchase agreement; |
▪ | confer regularly with Accountabilities and advise Accountabilities of any change or event which would have a material adverse effect on it; |
▪ | take all actions necessary to comply with legal requirements which may be imposed on it with respect to the asset purchase transaction; |
▪ | promptly inform Accountabilities in writing of any material changes from the representations and warranties made by it in the asset purchase agreement; |
▪ | provide Accountabilities with access to all of its properties, books and records; |
▪ | duly and timely file all reports required to be filed by it with the SEC; |
▪ | take all actions reasonably requested by Accountabilities in connection with arranging for the Hyperion Common Stock to be listed on the OTC Bulletin Board; |
▪ | procure the resignation of its sole stockholder as a director and officer prior to the closing of the transaction and cause its Board of Directors, prior to such resignations, to elect the designees of Accountabilities to the Board; and |
▪ | cause all liabilities of Hyperion Energy to be discharged. |
In addition, without the prior written consent of Accountabilities, Hyperion Energy has agreed not do any of the following before the closing:
▪ | amend its articles of incorporation or by-laws; |
▪ | declare or pay any dividends, split, combine or reclassify its capital stock or repurchase any capital stock; |
▪ | merge or consolidate with any other business or acquire any stock or other ownership interest in any other entity; |
▪ issue any securities;
▪ | enter into any other agreements that are material to its business, except in the ordinary course consistent with past practice; |
▪ | take any actions which would make its representations and warranties untrue; |
▪ | purchase any real or personal property; |
▪ | enter into an agreement or commit to do any of the foregoing. |
Conditions to Completing the Transaction
The completion of the transaction depends upon satisfaction of a number of conditions, including:
▪ | the accuracy, as of the closing date, of the representations and warranties made by all parties; |
▪ | the absence of any temporary restraining order, preliminary or permanent injunction or other court order or other restraint or legal prohibition preventing the consummation of the transaction; |
▪ | the performance by all parties of their respective obligations under the asset purchase agreement; |
▪ | the approval of the asset purchase agreement by the stockholders of Accountabilities; |
▪ | the registration statement, of which this document is a part, becoming effective under the Securities Act and the absence of any stop order or proceedings by the SEC seeking a stop order. |
Termination of Asset Purchase Agreement Prior to Closing
At any time prior to closing, either party may terminate the asset purchase agreement if:
▪ | both parties consent in writing; |
▪ | there has been a breach of a representation that would be reasonably likely to have a material adverse effect on the other party, or a breach of a material covenant in the representations, warranties and covenants contained herein, unless, in either case, the breach is cured within two days of the breaching party receiving notice of the breach; |
▪ | the consummation of the transaction is prohibited by a final non-appealable order of any court; or |
▪ | if the shareholders of Accountabilities fail to approve the asset purchase agreement. |
Effects of Termination
If the asset purchase agreement is terminated by the mutual consent of the parties, then the asset purchase agreement will become void and no party to the agreement will incur any liability for the termination. No party will be relieved of liability incurred as a result of a willful and material breach of the asset purchase agreement, however.
Indemnification
Walter Reed, the sole officer, director and shareholder of Hyperion Energy, has agreed to indemnify Accountabilities, its officers, directors, agents and employees from and against any damages arising from or breach of the representations and warranties set forth in the asset purchase agreement and any transaction. liability or taxes arising out of the activities of Hyperion Energy prior to closing.
BUSINESS OF HYPERION ENERGY
Hyperion Energy, based on proposed business activities, is a “blank check” company. The U.S. Securities and Exchange Commission defines those companies as “any development stage company that is issuing a penny stock, within the meaning of Section 3(a)(51) of the Securities Exchange Act of 1934, as amended, and that has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies.” Under SEC Rule 12b-2 under the Securities Act of 1933, as amended, Hyperion Energy also qualifies as a “shell company,” because it has no or nominal assets (other than cash) and no or nominal operations. Many states have enacted statutes, rules and regulations limiting the sale of securities of “blank check” companies in their respective jurisdictions. Management does not intend to undertake any efforts to cause a market to develop in Hyperion Energy’s securities, either debt or equity, until Hyperion Energy has successfully concluded a business combination. Hyperion Energy intends to comply with the periodic reporting requirements of the Securities Exchange Act for so long as it is subject to those requirements.
Hyperion Energy was organized to provide a method for a foreign or domestic private company to become a reporting (“public”) company whose securities are qualified for trading in the United States secondary market such as the NYSE, NASDAQ, AMEX, and the NASD OTC Bulletin Board, and, as a vehicle to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantage of being a publicly held corporation and, to a lesser extent that desires to employ our funds in its business. Hyperion Energy’s principal business objective has been to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings.
HYPERION ENERGY MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
Hyperion Energy was organized as a vehicle to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly held corporation. Hyperion Energy’s principal business objective has been to achieve long-term growth potential through a combination with a business rater than immediate, short-term earnings.
Hyperion Energy does not currently engage in any business activities that provide cash flow. The costs of completing the acquisition of assets from Accountabilities will be paid with money in its treasury, if any, or with additional money contributed by Walter Reed, its sole director, officer and stockholder, or another source.
Prior to completing the transaction with Accountabilities, Hyperion Energy anticipates incurring costs related to:
| (i) | filing of Securities Exchange Act reports, and |
| (ii) | costs relating to consummating the Accountabilities’ transaction. |
Hyperion Energy believes that it will be able to meet these costs through use of funds in its treasury and additional amounts, as necessary, to be loaned to or invested in it by its stockholders, management or other investors.
After the completion of the transaction with Accountabilities, it is anticipated that the revenues and earnings of Accountabilities will be sufficient to sustain operations for the foreseeable future.
BUSINESS OF ACCOUNTABILITIES
Overview
Accountabilities is a national provider of diversified staffing, recruiting and consulting services across a variety of industries and sizes of business. The following summarizes the corporate history and general development of Accountabilities:
| ▪ | Accountabilities was originally incorporated as a Delaware corporation named TTI Holdings of America Corp. in November 1994 and its primary business from inception through July 2001 was the establishment and support of thermal spray coating shops in Latin America. |
| ▪ | In June 2000, TTI Holdings of America acquired Tranventures Industries, Inc., a New York corporation formed to exploit various business opportunities in the transportation and logistics industries in exchange for shares of TTI Holdings of America common stock. |
| ▪ | In July 2001, TTI Holdings of America divested the thermal spray coating business by way of a spin-off of a wholly owned subsidiary to its shareholders. |
| ▪ | In August 2002, TTI Holdings of America acquired Steam Cleaning USA, Inc., a corporation formed to acquire and expand a steam cleaning business in a reverse acquisition transaction pursuant to which Steam Cleaning USA, Inc. was merged into TTI Holdings of America, and TTI Holdings of America changed its name to Steam Cleaning USA, Inc. |
| ▪ | In July 1, 2003, Steam Cleaning USA, Inc. acquired all of the outstanding capital stock of Humana Trans Services Holding Corp., a Delaware corporation which, through its subsidiaries, provided employee leasing and benefits processing services and temporary staffing placement solutions to the trucking industry. |
| ▪ | In August 2003, Steam Cleaning USA, Inc. changed its name to Humana Trans Services Holding Corp. |
| ▪ | In December 2004, Humana sold its employee leasing and benefits processing business to a third party. |
| ▪ | In June 2005, Humana acquired a business plan concept from Alan Hartley related to the staffing and recruitment of professional employees and, at the same time formed a new subsidiary named Accountabilities Inc. to develop the new business plan and named Mr. Hartley as president of the subsidiary. |
| ▪ | In July 2005, Humana sold the segment of its staffing business devoted to the trucking industry to an entity controlled by its management team (excluding Mr. Hartley). |
| ▪ | In October 2005, Accountabilities Inc., the subsidiary of Humana, was merged into Humana and the surviving corporation changed its name to Accountabilities, Inc. |
| ▪ | In November 2005, Accountabilities acquired the operations of three offices from Stratus Services Group, Inc. in exchange for its agreement to pay to Stratus a percentage of revenues of the acquired business for a period of 36 months. |
| ▪ | In March 2006, Accountabilities acquired the operations of five offices from US Temp Services, Inc. for a purchase price of $1,723,000. |
| ▪ | In February 2007, Accountabilities acquired substantially all of the business and assets of ReStaff Services, Inc. for a total purchase price of $4,710,000. |
The information set forth below pertains to the staffing and workforce solutions business that will be transferred to Hyperion Energy pursuant to the asset purchase agreement.
Services Offerings and Markets
Accountabilities’ service offerings are as follows:
▪ | CPA Partner on Premise Program |
In June 2005 Accountabilities acquired the business model and concept of Allan Hartley (who later was appointed President of Accountabilities) which was to become Accountabilities’ CPA Partner on Premise Program. Through its Partner on Premise Program, Accountabilities has agreements with leading regional public accounting firms to function as its sales and marketing presence in pre-defined markets. These public accounting firms offer to provide Accountabilities’ non-attest related finance and accounting services to their current client base as well as any other client in the pre-defined market area. This relationship provides Accountabilities with the ability to provide its professional accounting and finance services immediately to an established client base in that market, and to co-brand, utilizing the recognized name of the public accounting firm as well as Accountabilities’ name in the solicitation of new clients, while the public accounting firm derives both an additional source of revenue as well as the ability to provide these additional services to its clients. As of June 30, 2007 Accountabilities has agreements with nine different regional public accounting firms, which through June 30, 2007 have historically generated less than 10% of total Accountabilities’ revenues. Accountabilities believes that the benefits it derives from these agreements include:
| ▪ | the use of a recognized and trusted CPA brand, which it believes is a significant market differentiator versus competitors; |
| ▪ | accelerated market presence through the immediate access to the CPA firm clients; and |
| ▪ | a significant reduction in start-up costs associated with developing new offices and markets. |
While the CPA Firm acts as a marketing and sales arm for Accountabilities and provides access to its client base, Accountabilities retains control of the clients, employees systems and processes. Accountabilities provides, among other things, industry expertise, business plans, market analysis, management and technical services, back office support, including enterprise-wide financial, accounting and human resources systems, personnel and assistance in training to its CPA Partners. As compensation, the CPA firm receives a commission equal to the profits calculated by Accountabilities, less 10% of the revenues which is retained by Accountabilities.
▪ | Direct Professional Services |
Accountabilities Direct Professional Services include Staff Augmentation and Consulting Services. Staff Augmentation services include executive search, interim contract and project management in the areas of Accounting and Finance, IT/Technology, Engineering, Biotechnology and Biopharmaceutical. Consulting services include accounting and finance consulting services in the areas of Sarbanes-Oxley compliance, mergers and acquisitions, corporate reorganizations, information systems and tax related matters. Accountabilities provides these services directly through the operations of its two wholly owned offices and national network of consultants and through its CPA Partner on Premise Program whereby its services are marketed and sold through its network of affiliated CPA firms. Management’s intention is to continue to expand on the provision of direct professional services which generally produce gross margins averaging between 30% to 50% at the job level versus those of general temporary staffing, such as in Accountabilities’ Staffing Abilities service offering, which typically average between 10% to 20% at the job level. Direct professional services to be emphasized include those in the fields of accounting and information technology, which Accountabilities has begun marketing through its CPA Partner on Premise Program affiliated CPA firms, as well as marketing directly to clients. Additionally, management intends to explore cross-selling opportunities with its Staffing Abilities clients. Through June 30, 2007 direct professional services have historically constituted less than 20% of Accountabilities’ revenues.
Accountabilities provides general temporary staffing in the areas of light industrial services and administrative support to a diverse range of clients ranging from sole proprietorships to Fortune 500 companies. Light industrial includes assignments for warehouse work, manufacturing work, general factory and distribution. Administrative support services include placements satisfying a range of general business needs including data entry processors, customer service representatives, receptionists and general office personnel.
Services are offered through the operation of branch offices located in key markets across the country, under the oversight of branch and district managers and regional vice presidents. Accountabilities believes that a physical presence in the relevant market is key to understanding the needs of its clients and to obtaining the necessary employees. Branch and regional
managers enjoy a high degree of autonomy in the marketing of services at the local level, the hiring of employees and client relations.
The Staffing Abilities business has grown largely through the acquisition of established offices from general staffing companies, such as those acquired from Stratus Services Group, Inc., US Temp Services, Inc and ReStaff Services, Inc. as explained in more detail elsewhere in this proxy statement/prospectus. The Staffing Abilities service offerings have provided Accountabilities with a predictable source of revenues to aid in supporting the growth of its CPA Partner on Premise Program and Direct Professional Service offerings, and functions as a potential client base for which to cross-sell higher margin professional services. Although management currently intends to emphasize the growth of higher margin direct professional services, management intends to continue to provide the Staffing Abilities services for the foreseeable future, and to continue to explore ways to profitably grow its Staffing Abilities business.
Accountabilities also augments revenues form the above lines of business with the following:
| ▪ | National Recruiting Center – Through its national recruiting center, Accountabilities receives and completes job orders for candidates for any market in the U.S. Through this center, it also obtains overflow orders from its CPA firm affiliates and orders outside of their designated area, splitting the fees 50/50, thereby further capitalizing on its CPA relationships, but at higher margins than those derived through its Partner on Premise agreements. |
| ▪ | Job Board – Through its job board AccountingEmployees.com, Accountabilities is able to capitalize on one of the fastest growing segments of the staffing industry. CPA members post jobs for free while all other postings are fee based. |
Organization
Management of Accountabilities’ staffing and consulting services operations is coordinated from its headquarters in Manalapan, New Jersey, which provides support and centralized services to its offices in the administrative, marketing, public relations, accounting and training areas. As of June 30, 2007, Accountabilities conducted its operations in 11 states, including, New Jersey, New York, Massachusetts, Connecticut, Pennsylvania, Maryland, Georgia, Florida, Mississippi, Colorado and California through 13 offices and nine different Partner on Premise Agreements covering 16 different locations.
Competition
Accountabilities’ professional staffing services face competition in attracting clients as well as skilled specialized employment candidates. In providing professional staffing services, Accountabilities operates in a competitive, fragmented market and competes for clients and associates with a variety of organizations that offer similar services. Its principal competitors include:
▪ | local, regional and national accounting firms; |
▪ | independent contractors; |
▪ | traditional and Internet-based staffing firms and their specialized divisions; and |
▪ | the in-house resources of its clients. |
Accountabilities competes for clients on the basis of the quality of professionals, the timely availability of professionals with requisite skills, the scope and price of services, and the geographic reach of services. Although Accountabilities’ believes it competes favorably with its competitors, many of its competitors have significantly greater financial resources, generate greater revenues and have greater name recognition than it does.
The general temporary staffing and professional services industries, including the services offered through Accountabilities’ CPA Partner on Premise Program, are highly competitive with few barriers to entry. Accountabilities believes that the majority of companies offering these services are local, full-service or specialized operations with less than five offices. Within local markets, typically no single company has a dominant share of the market. Accountabilities also competes for qualified candidates and customers with larger, national full-service and specialized competitors in local, regional, national and international markets. Competitors offering general temporary staffing services nationally, similar to Accountabilities’ Staffing Abilities services include
companies such as Adecco SA, Spherion Corporation (commercial staffing segment), Kelly Services, Inc., Manpower Inc., Remedy Intelligent Staffing, Express Personnel Services, Inc., and Randstad North America. Competitors offering professional services on a national level, similar to Accountabilities’ Direct Professional Services include Resources Connection, Inc., Robert Half International, Inc., KForce, Inc. and MPS Group, Inc. Many of Accountabilities’ principal competitors have greater financial, marketing and other resources than Accountabilities. In addition, there are a number of medium-sized firms which compete with Accountabilities in certain markets where they may have a stronger presence, such as regional or specialized markets.
Accountabilities believes that the competitive factors in obtaining and retaining customers include understanding customers’ specific job requirements, providing qualified temporary personnel and permanent placement candidates in a timely manner, monitoring quality of job performance and pricing of services. Accountabilities believes that the primary competitive factors in obtaining qualified candidates for temporary employment assignments are wages, benefits and flexibility and responsiveness of work schedules.
Employees
Accountabilities has approximately 85 full-time staff employees. Accountabilities placed approximately 6,965 employees on temporary assignments with clients during fiscal year ended September 30, 2006. All of the employees on temporary assignments and all but approximately 10 full time employees are provided to Accountabilities under an employee leasing arrangement with Tri-State Employment Services, which is the statutory employer and which arranges for workers compensation insurance coverage for the employees. This arrangement allows Accountabilities to mitigate certain insurance risks and obtain employee benefits at more advantageous rates. Employees are leased from Tri-State based upon agreed upon rates which are dependent upon the individual employee’s compensation structure. Under the agreement, which has an indefinite term, Accountabilities is responsible for the hiring, termination, compensation structure, management, supervision and otherwise overall performance and day to day duties of the leased employees. As of November 15, 2007, Tri-State owned approximately 28.7% of Accountabilities’ outstanding common stock.
Properties
Accountabilities’ headquarters are located in Manalapan, New Jersey. As of June 30, 2007, placement activities were conducted through more than 13 offices located in the United States.
Legal Proceedings
ALS, LLC instituted an action against Accountabilities, US Temps, Inc. and a consultant to Accountabilities in the United States District Court, District of New Jersey in May 2007 in which it alleges that Accountabilities tortiously interfered with ALS’ business relationship with US Temps by causing US Temps to terminate its relationship with ALS under an agreement pursuant to which ALS provided employee outsourcing services to US Temps prior to Accountabilities’ acquisition of certain assets from US Temps. ALS also alleges that Accountabilities has liability as a successor to US Temps for US Temps’ alleged breach of the outsourcing agreement and is seeking unspecified damages. Accountabilities believes that ALS’ claims are without merit and intends to vigorously contest this matter.
In the ordinary course of business, Accountabilities is, from time to time, threatened with litigation or named as a defendant in other lawsuits. Accountabilities is not aware of any other pending legal proceedings that are likely to have a material adverse impact on it.
ACCOUNTABILITIES’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our financial statements and the related notes and other financial information included in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in "Risk Factors."
Overview
Background and Description of SWSB
The Staffing and Workforce Solutions Business of Accountabilities, Inc. (which we refer to herein as “SWSB”) began operations in September 2005. Immediately prior to the formation of SWSB, Accountabilities, Inc. had no other material operations. SWSB was formed with the objective of providing both niche professional services as well as general staffing services to the business community. Niche professional services include project management, interim contract, consulting and executive search, in the areas of accounting, information technology, engineering, biotechnology and biopharmaceutical. General temporary staffing services are provided to a variety of clientele in the areas of clerical and light industrial services. As of June 30, 2007, SWSB provides these services in key markets across the United States, through the operation of 13 offices in 11 states and through cooperative sales and marketing arrangements with nine different regional public accounting firms through its Partner on Premise Program. A more detailed description of SWSB’s service offerings is as follows:
▪ | CPA Partner on Premise Program |
Through its Partner on Premise Program, SWSB has agreements with leading regional public accounting firms to function as its sales and marketing presence in pre-defined markets. These public accounting firms offer to provide SWSB’s non-attest related finance and accounting services to their current client base as well as any other client in the pre-defined market area. This relationship provides SWSB with the ability to provide its professional accounting and finance services immediately to an established client base in that market, and to co-brand, utilizing the recognized name of the public accounting firm as well as SWSB’s in the solicitation of new clients, while the public accounting firm derives both an additional source of revenue as well as the ability to provide these additional services to their clients. As of June 30, 2007 Accountabilities has agreements with nine different regional public accounting firms, which to date through June 30, 2007 have historically generated less than 10% of total SWSB revenues. While the CPA Firm acts as a marketing and sales arm for Accountabilities and provides access to its client base, Accountabilities retains control of the clients, employees systems and processes. Accountabilities provides, among other things, industry expertise, business plans, market analysis, management and technical services, back office support, including enterprise-wide financial, accounting and human resources systems, personnel and assistance in training to its CPA Partners. As compensation, the CPA firm receives a commission equal to the profits calculated by Accountabilities, less 10% of the revenues which is retained by Accountabilities.
▪ | Direct Professional Services |
Accountabilities Direct Professional Services include Staff Augmentation and Consulting Services. Staff Augmentation services include executive search, interim contract and project management in the areas of Accounting and Finance, IT/Technology, Engineering, Biotechnology and Biopharmaceutical. Consulting services include accounting and finance consulting services in the areas of Sarbanes-Oxley compliance, mergers and acquisitions, corporate reorganizations, information systems and tax related matters. Accountabilities provides these services directly through the operations of its two wholly owned offices and national network of consultants and through its CPA Partner on Premise Program whereby its services are marketed and sold through its network of affiliated CPA firms. Managements intention is to continue to expand on the provision of direct professional services which typically produce gross margins averaging between 30% to 50% at the job level versus those of general temporary staffing, such as in SWSB’s Staffing Abilities service offering, which typically average between 10% to 20% at the job level. Direct professional services to be emphasized include those in the fields of accounting and information technology, which SWSB has begun marketing through its CPA Partner on Premise Program affiliated CPA firms, as well as marketing directly to clients. Additionally, management intends to explore cross-selling opportunities with its Staffing Abilities clients. Through June 30, 2007 direct professional services have historically constituted less than 20% of SWSB’s revenues.
Accountabilities provides general temporary staffing in the areas of light industrial services and administrative support to a diverse range of clients ranging from sole proprietorships to Fortune 500 companies. Light industrial includes assignments for warehouse work, manufacturing work, general factory and distribution. Administrative support services include placements satisfying a range of general business needs including data entry processors, customer service representatives,
receptionists and general office personnel. The Staffing Abilities business has grown largely through the acquisition of established offices from general staffing companies, such as those from Stratus Services Group, Inc., US Temp Services, Inc and ReStaff Services, Inc. as explained in more detail elsewhere in this document. The Staffing Abilities service offerings have provided SWSB with a predictable source of revenues to aid in supporting the growth of its CPA Partner on Premises Program and Direct Professional Service offerings, and functions as a potential client base for which to cross-sell higher margin professional services. Although management currently intends to emphasize the growth of higher margin direct professional services, management currently intends to continue to provide its Staffing Abilities services for the foreseeable future, and to continue to explore ways to profitably grow its Staffing Abilities business.
Accountabilities also augments revenues from the above lines of business with the following:
| ▪ | National Recruiting Center – Through its national recruiting center, Accountabilities receives and completes job orders for candidates for any market in the U.S. Through this center, it also obtains overflow orders from its CPA firm affiliates and orders outside of their designated area, splitting the fees 50/50, thereby further capitalizing on its CPA relationships, but at higher margins than those derived through its Partner on Premise agreements. |
| ▪ | Job Board – Through its job board AccountingEmployees.com, Accountabilities is able to capitalize on one of the fastest growing segments of the staffing industry. CPA members post jobs for free while all other postings are fee based. |
SWSB’s future profitability and rate of growth, if any, will be directly affected by its ability to continue to expand its service offerings at acceptable gross margins through the continued introduction of differentiated marketing and sales channels, such as its CPA Partner on Premise Program, and through the successful completion and integration of acquisitions. SWSB’s ability to sustain profitability will also be affected by the extent to which it must incur additional expenses to expand its sales, marketing, and general and administrative capabilities to expand its business. The largest component of SWSB’s operating expenses is personnel costs. Personnel costs consist of salaries, benefits and incentive compensation, including bonuses and stock-based compensation, for its employees. Management expects its operating expenses will continue to grow in absolute dollars, assuming SWSB’s revenues continue to grow. As a percentage of revenue, management expects these expenses to decrease, although it has no assurance that they will.
The following are material trends that are creating opportunities and risks to SWSB's business, and a discussion of how management is responding.
| ▪ | Management believes that the CPA Partner on Premise sales and marketing agreements represents a significant marketing differentiator to SWSB’s current and potential clients in that the services are associated with the trusted name of known regional public accounting firms, and represents an important part of SWSB’s strategy of growing its Direct Professional Services offering. In recognition of this, SWSB is continuing to invest in efforts to support the identification and procurement of additional CPA firm affiliates nationwide, as well as investing in the continued improvement and refinement of its operations and general and administrative activities to support SWSB’s current relationship going forward. |
| ▪ | A significant component of SWSB's 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 SWSB’s CPA Partner on Premise marketing and sales strategy. Additionally, management seeks acquisitions in desired geographical markets and which have minimal costs and risks associated with integration. Management believes that effectively acquiring businesses with these attributes will be critical to carrying out its strategy of capitalizing on the CPA Partner on Premise Program and other sales and marketing initiatives, as well as existing infrastructure designed to absorb this additional business. |
| ▪ | SWSB’s success depends on its ability to provide its clients with highly qualified and experienced personnel who possess the skills and experience necessary to satisfy their needs. Such individuals are in great demand, particularly in certain geographic areas, and are likely to remain a limited resource for the foreseeable future. Management is responding to this demand through proactive recruiting efforts, targeted marketing, the use of SWSB’s job board, AccountingEmployees.com, and the continued expansion of the CPA Partner on Premise Program which management believes is also an attractive differentiator to prospective candidates. |
| ▪ | SWSB has financed its growth largely through the issuance of debt and has incurred negative working capital. As of June 30, 2007 SWSB had negative working capital of ($2,189,000), for which the component constituting the current portion of short term debt was $2,158,000. Total outstanding debt as of June 30, 2007 was $5,295,000, $587,000 of which is past due or due upon demand, whereas $3,200,000 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. The ability to service its debt and to generate sufficient amounts of working capital is critical to the successful operation of SWSB’s business. Management is engaging in the following activities to effectively accomplish these objectives: a) the continued expansion of higher margin professional services, b) management is currently in discussions with creditors to restructure amounts currently due as well as to restructure amounts not yet due with more easily serviceable payment terms, including the possibility of conversion of certain portions to equity, c) aggressively managing cash and expenses, and d) seeking additional sources of financing with acceptable terms, including the sale of additional debt or equity related instruments of Accountabilities, Inc. |
| ▪ | After becoming part of a public company, SWSB 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, SWSB will incur increases in such items as personnel costs, professional services fees, and fees for independent directors. In the first and second quarters of 2007, general and administrative expenses increased substantially as SWSB added resources and incurred outside audit, valuation and legal fees in preparation to become a public company. |
Reverse Acquisition and Carve Out Accounting Treatment
In July 2007, Accountabilities and Hyperion Energy entered into an Asset Purchase Agreement, whereby Hyperion agreed to purchase the assets of SWSB in exchange for a number of shares of Hyperion common stock equal to the number of shares of Accountabilities, Inc. common stock outstanding at the time of closing. In addition, Accountabilities paid the sole shareholder of Hyperion a total of $12,500 in exchange for his agreement to surrender all of his shares of Hyperion common stock for cancellation at the time of closing. As a result of these transactions, the shares of Hyperion common stock issued to Accountabilities will represent 100% of Hyperion’s outstanding common stock.
The Hyperion shares have been registered with the Securities and Exchange Commission under a Form S-4 Registration Statement, of which this proxy statement/prospectus is a part, for distribution on a pro rata basis to Accountabilities’ shareholders upon the closing of the acquisition transaction. Due to the resulting 100% ownership by Accountabilities, Inc.’s shareholders, the transaction will be accounted for as a recapitalization and the historical financial statements presented will be those of SWSB for all periods prior to the merger. The historical net assets of SWSB will be restated to give effect to the total par value of the common stock issued in the transaction, with the balance represented as additional paid-in capital.
Additionally, the accompanying financial statements and notes have been prepared to reflect only the purchased SWSB operations utilizing certain “carve-out” accounting procedures wherein certain assets, liabilities and expenses historically recorded or incurred at the Accountabilities, Inc. level, which related to or were incurred on behalf of SWSB, have been identified and allocated as appropriate to reflect the financial results of SWSB as if it were a stand alone entity since the date of inception in September 2005. Consequently, all transactions directly associated with the operations of SWSB, have been reflected, as well as the majority of indirect expenses incurred at the parent company level since the date of inception. Accordingly, the financial statements presented are those of SWSB for all periods presented.
Mergers and Acquisitions
One of SWSB’s key strategies is to focus on mergers and acquisitions of companies that either complement its existing service offerings, expand its geographic presence and/or further expand and strengthen its existing infrastructure.
In fiscal 2006 SWSB consummated the following two material acquisitions:
▪ | Stratus Services Group, Inc. Offices Acquisition (“Stratus Acquisition”). In November 2005, SWSB 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, SWSB acquired the operations, including five general staffing offices, of US Temp Services, Inc. in exchange for cash, notes and shares of Accountabilities common stock. |
During the nine months ended June 30, 2007 SWSB consummated the following material acquisition:
▪ | ReStaff Services, Inc. Offices Acquisition (“ReStaff Acquisition”). On February 26, 2007, SWSB acquired the operations, including three general staffing offices, of ReStaff Services, Inc. in exchange for, cash, notes and shares of Accountabilities common stock. |
The purchase price associated with the ReStaff Services, Inc., offices acquisition is subject to purchase allocation adjustments based upon the final determination of the acquired tangible and intangible net asset values as of their respective closing dates. All of SWSB’s acquisitions have been accounted for as purchases and the results of operations of the acquired operations have been included in the SWSB results since the dates of acquisition.
As mentioned above, management continues to invest resources in activities to seek, complete and integrate acquisitions that enhance SWSB’s current service offerings and effectively assimilate into its CPA Partner on Premise marketing and sales strategy. Currently, management expects acquisitions to continue to constitute a significant portion of SWSB’s future growth, if any, and is emphasizing acquisitions in the areas of professional accounting temporary and consulting services, with a secondary emphasis on information technology temporary consulting services. Management believes that acquisitions of these types of businesses will experience greater growth potential when combined with our CPA Partner on Premise Program and existing infrastructure, than when operated independently. Should SWSB be successful at acquiring businesses with the appropriate characteristics, upon terms acceptable to us, and successfully integrate such acquired businesses into its operations, management expects acquisitions to contribute significantly toward the growth in our professional service offerings resulting in a greater proportion of its revenue over time compared to its Staffing Abilities general staffing service offerings.
Critical Accounting Policies
The following discussion and analysis of the financial condition and results of operations of SWSB are based upon its financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires management of SWSB to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The following represents a summary of the critical accounting policies of SWSB, which management believes are the most important to the portrayal of the financial condition and results of operations and involve inherently uncertain issues that require management’s most difficult, subjective or complex judgments.
Revenue Recognition. SWSB primarily charges its clients on an hourly basis for the services of its associates. SWSB recognizes revenue once services have been rendered and invoices the majority of its clients on a weekly basis. In the case of search fees, SWSB recognizes revenue at the time the candidate commences employment.
Allowance for Doubtful Accounts. SWSB maintains an allowance for doubtful accounts for estimated losses resulting from its clients failing to make required payments for services rendered. Management estimates this allowance based upon knowledge of the financial condition of its clients, review of historical receivable and reserve trends and other pertinent information. If the financial condition of any of SWSB’s clients deteriorates or there is an unfavorable trend in aggregate receivable collections, additional allowances may be required.
Income Taxes. SWSB is not a separate legal or taxable entity, however, it records an estimated provision for income taxes in accordance with SFAS 109, “Accounting for Income Taxes”, as if SWSB were a stand-alone taxable entity since the date of inception in order to provide a more accurate depiction of the stand-alone operating results of SWSB. Under SFAS 109, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. If necessary, valuation allowances are established to reduce deferred tax assets to the amount expected to be realized when, in management’s opinion, it is more likely than not that some portion of the deferred tax assets will not be realized. The estimated provision for income taxes represents current taxes that would be payable net of the change during the period in deferred tax assets and liabilities.
Intangible Assets. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and other intangible assets with indefinite lives are not subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. SWSB performed its annual impairment analysis as of May 31, 2007 and will continue to test for impairment annually. No impairment was indicated as of May 31, 2007. Other intangible assets with finite lives are
subject to amortization, and impairment reviews are performed in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
Recent Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FAS 115” (“SFAS 159”), which permits companies to measure certain financial assets and financial liabilities at fair value. Under SFAS 159, companies that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis. SFAS 159 establishes presentation and disclosure requirements to clarify the effect of a company’s election on its earnings but does not eliminate disclosure requirements of other accounting standards. Assets and liabilities that are measured at fair value must be displayed on the face of the balance sheet. SFAS 159 is effective as of the beginning of our 2009 fiscal year. SWSB does not expect the adoption of SFAS 159 to have a material impact on its consolidated financial position or results of operations.
In September 2006, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” This EITF requires that companies disclose how they report, within their financial statements, taxes assessed by a governmental authority that involve a specific revenue producing transaction between a seller and a customer. These types of taxes may include, but are not limited to, sales, use, value added and excise taxes. These taxes collected from customers may be presented either on a gross basis (that is, included in revenue and cost of services) or on a net basis (excluded from revenue and cost of services but included as a liability in the balance sheet until the tax has been remitted to the appropriate governmental authority). SWSB has historically accounted for such taxes on a net basis and therefore adoption of EITF Issue No. 06-03 is not expected to have a material impact on SWSB’s fiscal 2007 financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which provides guidance for using fair value to measure assets and liabilities. The pronouncement clarifies (1) the extent to which companies measure assets and liabilities at fair value; (2) the information used to measure fair value; and (3) the effect that fair value measurements have on earnings. SFAS 157 will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. SFAS 157 is effective as of the beginning of SWSB's 2009 fiscal year. SWSB does not expect the adoption of SFAS 157 to have a material impact on its consolidated financial position or results of operations.
In September 2006 the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”) which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for fiscal years ending after November 15, 2006. SWSB does not expect this pronouncement to have a material impact on its financial statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans.” This Statement requires recognition of the funded status of a single-employer defined benefit post-retirement plan as an asset or liability in its statement of financial position. Funded status is determined as the difference between the fair value of plan assets and the benefit obligation. Changes in that funded status should be recognized in other comprehensive income. This recognition provision and the related disclosures are effective as of the end of the fiscal year ending after December 15, 2006. The Statement also requires the measurement of plan assets and benefit obligations as of the date of the fiscal year-end statement of financial position. This measurement provision is effective for fiscal years ending after December 15, 2008. SWSB does not expect its adoption of this new standard to have a material impact on its financial position, results of operations or cash flows.
In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that SWSB recognize in its financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. SWSB does not expect that the implementation of FIN 48 will have a material impact on its financial position, results of operations or cash flows.
In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” (“SFAS 156”). SFAS 156 provides relief for entities that use derivatives to economically hedge fluctuations in the fair value of their servicing rights and changes how gains and losses are computed in certain transfers or securitizations. SFAS 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006. SWSB does not expect the adoption of SFAS 156 to have a material impact on its financial position, results of operations or cash flows.
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”). SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole, eliminating the need to bifurcate the
derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. SWSB does not expect the adoption of SFAS 155 to have a material impact on its financial position, results of operations or cash flows.
Results of Operations
Fiscal year ended September 30, 2006 compared to the period from September 1, 2005 (Date of Inception) to September 30, 2005
Revenues
For fiscal 2006, the first year of revenue generating activities, revenue was $34,088,000, as compared to no revenues in fiscal 2005. Of SWSB’s total 2006 revenue, $32,565,000, or 96%, was provided by businesses acquired in the past 12 months, most significantly, the Stratus Acquisition and US Temp Acquisition. Excluding businesses acquired in the past 12 months, revenues in fiscal 2006 were $1,523,000.
Direct cost of services
SWSB leases the majority of its workers from Tri-State Employment Services, Inc., a professional employment organization and major shareholder of Accountabilities, Inc. SWSB leases employees in order to mitigate certain insurance risks and obtain greater employee benefits at more advantages rates via Tri-State’s much larger scale. Through this agreement with Tri-State, Tri-State is the statutory employer, whereas SWSB is responsible for the hiring, termination, compensation structure, management, supervision and otherwise overall performance and day to day duties of all employees. Employees are leased from Tri-State based upon agreed upon rates which are dependent upon the individual employee’s compensation structure, as agreed to between SWSB and the employee. Direct cost of services consists mainly of leased employee direct labor costs, as well as costs of non-leased employees where SWSB is the statutory employer, and other labor related costs.
For fiscal 2006, the first year of revenue generating activities, direct cost of services was $28,728,000 as compared to no direct cost of services in fiscal 2005. Of SWSB’s total 2006 direct cost of services, $28,413,000, or 99%, was incurred by businesses it acquired in the past 12 months, most significantly, the Stratus Acquisition and US Temp Acquisition. Excluding businesses acquired in the past 12 months, direct cost of services in fiscal 2006 were $315,000.
Gross profit
For fiscal 2006, the first year of revenue generating activities, gross profit was $5,360,000 as compared to no gross profit in fiscal 2005. Of SWSB’s total 2006 gross profit, $4,152,000, or 78%, was generated by businesses SWSB acquired in the past 12 months, most significantly, the Stratus Acquisition and US Temp Acquisition. Excluding businesses acquired in the past 12 months, gross profit in fiscal 2006 was $1,208,000. As a percentage of revenue gross profit was 16% for fiscal 2006.
Selling, general and administrative expenses
Selling, general and administrative expenses includes the labor, marketing, corporate overhead and other costs not directly associated with generating revenue such as costs associated with the acquisition and retention of clients and the fees paid to public accounting firms pursuant to SWSB’s Partner on Premise cooperative sales and marketing agreements, occupancy, administrative labor, benefit plan administration, professional fees and other operating expenses. In addition, selling, general and administrative expenses include charges associated with the proposed sale of assets to Hyperion Energy, costs associated with filing the S-4 registration statement of which this proxy statement/prospectus forms a part, as well as continued investments throughout the organization to support strategic initiatives.
Selling, general and administrative expenses increased to $4,604,000 in fiscal 2006, from $91,000 in fiscal 2005, as fiscal 2005 contained only minimal activities, mostly related to the formation and start-up of SWSB's business.
Depreciation and amortization
Depreciation and amortization in fiscal 2006 was $118,000, as compared to no depreciation and amortization in fiscal 2005, as operating activities had not yet begun in fiscal 2005. Of the total depreciation and amortization expense in fiscal 2006, $93,000 related to the amortization of intangible assets from companies we have acquired.
Income (loss) from operations
As a result of the above, income from operations was $638,000 in fiscal 2006 versus a loss of ($91,000) in fiscal 2005, as fiscal 2005 contained minimal activities, whereas 2006 represented SWSB’s launch of revenue generating activities, the assembly of SWSB’s management team, and the acquisition and integration of acquired companies.
Interest expense
Interest expense includes the net discounts associated with the sales of accounts receivable, as well as interest on debt associated with acquired companies and financing our operations. SWSB has historically issued debt as a primary means of funding its growth. Consequently, interest expense for fiscal 2006 was $498,000, as compared to no interest expense in fiscal 2005 as SWSB had no debt or accounts receivables in fiscal 2005.
Provision for income taxes
An estimated provision for income taxes has been prepared in accordance with SFAS 109, “Accounting for Income Taxes”, as if SWSB were a stand-alone entity since the date of inception, without regard to the tax circumstances of Accountabilities, Inc. in order to provide a more accurate depiction of the stand-alone operating results of SWSB. Accordingly, income tax expense of $56,000 was recorded in fiscal 2006, and an income tax benefit of ($36,000) was recorded in fiscal 2005, reflecting a 40% effective income tax rate in both fiscal years.
Net income (loss)
The factors described above resulted in net income in fiscal 2006 of $84,000, as compared to a net loss of ($55,000) in fiscal 2005.
Nine months ended June 30, 2007 compared to nine months ended June 30, 2006
Revenues
For the nine months ended June 30, 2007 revenue increased $19,210,000, or 89%, to $40,710,000, as compared to $21,500,000 in the same period of the prior year. Of this increase, $5,612,000 was provided by businesses acquired in the past 12 months. Excluding businesses acquired in the past 12 months, revenue increased $13,598,000. This increase was primarily attributable to the growth in SWSB’s professional service offerings and Partner on Premise program, a full nine months of operations of the Stratus Acquisition as opposed to seven months in the same period of the prior year which accounted for approximately $1,600,000 of the increase, and nine full months of operations of the US Temp Acquisition as opposed to three in the prior year which accounted for approximately $7,607,000 of the increase.
Direct cost of services
SWSB leases the majority of its workers from Tri-State Employment Services, Inc., a professional employment organization and major shareholder of Accountabilities, Inc. SWSB leases employees in order to mitigate certain insurance risks and obtain greater employee benefits at more advantages rates via Tri-State’s much larger scale. Through this agreement with Tri-State, Tri-State is the statutory employer, whereas SWSB is responsible for the hiring, termination, compensation structure, management, supervision and otherwise overall performance and day to day duties of all employees. Employees are leased from Tri-State based upon agreed upon rates which are dependent upon the individual employee’s compensation structure, as agreed to between SWSB and the employee. Direct cost of services consists mainly of leased employee direct labor costs, as well as costs of non-leased employees where we are the statutory employer, and other labor related costs.
For the nine months ended June 30, 2007 direct cost of services increased $15,831,000, or 88%, to $33,928,000, as compared to $18,097,000 in the same period of the prior year. Of this increase, $4,722,000 was incurred by businesses acquired in the past 12 months. Excluding businesses acquired in the past 12 months, direct cost of services increased $11,109,000. This increase was primarily attributable to the growth in SWSB’s professional service offerings and Partner on Premise program, a full nine months of operations of the Stratus Acquisition as opposed to seven months in the same period of the prior year which accounted for approximately $2,461,000 of the increase, and nine full months of operations of the US Temp Acquisition as opposed to three in the prior year which accounted for approximately $6,657,000 of the increase.
Gross profit
For the nine months ended June 30, 2007 gross profit increased $3,379,000, or 99%, to $6,782,000, as compared to $3,403,000 in the same period of the prior year. Of this increase, $890,000 was provided by businesses acquired in the past 12 months. Excluding businesses acquired in the past 12 months, gross profit increased $2,489,000. This increase was primarily
attributable to the growth in SWSB's professional service offerings and Partner on Premise program, a full nine months of operations of the Stratus Acquisition as opposed to seven months in the same period of the prior year which accounted for approximately $415,000 of the increase, and nine full months of operations of the US Temp Acquisition as opposed to three in the prior year which accounted for approximately $950,000 of the increase. As a percentage of revenue gross profit for the nine months ended June 30, 2007 increased to 16.7% as compared to 15.8% in the same period of the prior year, reflecting growth in both SWSB's higher margin professional services and our Partner on Premise program.
Selling, general and administrative expenses
Selling, general and administrative expenses includes the labor, marketing, corporate overhead and other costs not directly associated with generating revenue such as costs associated with the acquisition and retention of clients and the fees paid to public accounting firms pursuant to SWSB’s Partner on Premise cooperative sales and marketing agreements, occupancy, administrative labor, benefit plan administration, professional fees and other operating expenses. In addition, selling, general and administrative expenses include charges associated with the reverse merger with Hyperion, costs associated with filing the S-4 registration statement of which this proxy statement/prospectus forms a part, as well as continued investments throughout the organization to support strategic initiatives.
For the nine months ended June 30, 2007, selling, general and administrative expenses increased $3,113,000, or 103%, to $6,126,000, as compared to $3,013,000 in the same period of the prior year. As a percentage of revenue, selling, general and administrative increased to 15% during the nine month period ended June 30, 2007, from 14% during the same period of the prior year, reflecting the proportionate increase in fees paid to public accounting firms pursuant to SWSB's Partner on Premise cooperative sales and marketing agreements. The overall increase in selling, general and administrative expenses in the current year period reflects the overall increase in business activity, as well as costs associated with SWSB’s reverse merger with Hyperion, costs associated with filing the S-4 registration statement of which this proxy statement/prospectus forms a part, as well as continued investments throughout the organization to support strategic initiatives.
Depreciation and amortization
For the nine months ended June 30, 2007, depreciation and amortization increased $136,000, or 174%, to $214,000, as compared to $78,000 in the same period of the prior year. The current period’s increase is attributable to amortization associated with acquired assets from the ReStaff Acquisition, acquired in March 2007, and nine full months of amortization associated with intangible assets acquired from the US Temp Acquisition, as opposed to three in the prior year period, and nine full months of amortization associated with intangible assets acquired from the Stratus Acquisition as opposed to seven in the prior year period.
Income from operations
As a result of the above, income from operations was $442,000 for the nine months ended June 30, 2007 versus $312,000 in the same period of the prior year, representing an increase of 42%.
Interest expense
Interest expense includes the net discounts associated with the sales of accounts receivable, as well as interest on debt associated with acquired companies and financing SWSB’s operations. SWSB has historically issued debt as a primary means of funding its growth. Consequently, interest expense for the nine months ended June 30, 2007 was $633,000, as compared to $290,000 in the same period of the prior year, primarily reflecting an overall increase in the volume of SWSB's business and consequently net discounts associated with sales of its receivables, as well as debt issued for acquisitions.
Provision for income taxes
An estimated provision for income taxes has been prepared in accordance with SFAS 109, “Accounting for Income Taxes”, as if SWSB were a stand-alone entity since the Date of Inception, without regard to the tax circumstances of Accountabilities, Inc. in order to provide a more accurate depiction of the stand-alone operating results of SWSB. Accordingly, an income tax benefit of ($76,000) was recorded in the nine months ended June 30, 2007, and an income tax expense of $10,000 was recorded in the same period of the prior year, reflecting a 40% effective income tax rate in both periods.
Net loss
The factors described above resulted in a net loss for the nine months ended June 30, 2007 of ($115,000), as compared to net income of $12,000 in the same period of the prior year.
Liquidity and Capital Resources
Cash Flows
SWSB has historically relied on cash flows from operations, borrowings under debt facilities and proceeds from sales of stock to satisfy its working capital requirements as well as to fund acquisitions. In the future, SWSB may need to raise additional funds through public and/or additional private debt or equity financings to take advantage of business opportunities, including existing business growth and mergers and acquisitions.
At June 30, 2007, cash was $192,000, an increase of $184,000 from $8,000 as of September 30, 2006.
Net cash provided by operating activities during the nine months ended June 30, 2007 increased $148,000 to $360,000, from $212,000 during the same period of the prior year, despite an increase in net loss for the current period to ($115,000) from net income of $12,000 during the same period of the prior year. This was primarily due to a $279,000 increase in non-cash items for the current period.
Net cash provided by operating activities during the year ended September 30, 2006 increased $267,000 to $268,000, from $1,000 during the year ended September 30, 2005. Net cash provided by operating activities for the year ended September 30, 2006 consisted of net income of $84,000 plus non-cash items of $295,000, less net cash used by changes in operating assets and liabilities of ($111,000). Net cash provided by operating activities for the prior year consisted of a net loss of ($55,000) less non-cash items of ($36,000), plus net cash provided by changes in operating assets and liabilities of $92,000.
Net cash used in investing activities during the nine months ended June 30, 2007 increased ($333,000) to ($589,000), from ($256,000) during the same period of the prior year, primarily as a result of an increase in the cash amounts paid for acquisitions. During the nine months ended June 30, 2007 cash paid for acquisitions totaled $533,000 reflecting the ReStaff Acquisition. During the nine months ended June 30, 2006, cash paid for acquisitions totaled $170,000, primarily reflecting the US Temp Acquisition.
Net cash used in investing activities during the year ended September 30, 2006 increased to ($341,000) as compared to ($1,000) during the year ended September 30, 2005. The year ended September 30, 2006 reflected $94,000 in purchases of property and equipment and $247,000 in cash paid for acquisitions, primarily reflecting the US Temp Acquisition.
Net cash provided by financing activities during the nine months ended June 30, 2007 increased $147,000 to $413,000, from $266,000 during the same period of the prior year. Net cash provided by financing activities during the nine months ended June 30, 2007 was primarily the result of private placement sales of Accountabilities, Inc. common stock and debt to finance the operations of SWSB, totaling $720,000 and $435,000, respectively, offset by repayments of debt and the Stratus Acquisition contingent acquisition related liability together totaling ($742,000). Net cash provided by financing activities during the nine months ended June 30, 2006 was primarily the result of proceeds from the issuance of long-term debt to finance the operations of SWSB, totaling $327,000, and cash invested by Accountabilities, Inc. of $150,000, offset by repayments of debt and payments on the Stratus Acquisition contingent acquisition related liability together totaling ($211,000).
Net cash provided by financing activities during the year ended September 30, 2006 was $81,000, as compared to no cash provided by financing activities during the prior year. Net cash provided by financing activities during the year ended September 30, 2006 was primarily the result of private placements of debt, and cash invested by Accountabilities, Inc., to fund the operations of SWSB of $311,000 and $150,000, respectively, offset by repayments of debt and the Stratus Acquisition contingent acquisition related liability together totaling ($380,000). There were no financing related activities during the year ended September 30, 2005.
Working Capital
SWSB has financed its growth largely through the issuance of debt and has incurred negative working capital. As of June 30, 2007 SWSB had negative working capital of ($2,189,000), for which the component constituting the current portion of short term debt was $2,158,000. Within the current portion of short term debt $587,000 is past due or due upon demand as explained further below. Total outstanding debt as of June 30, 2007 was $5,295,000. The ability to service debt and to generate sufficient amounts of working capital is critical to the successful operation of SWSB’s business. If management is unsuccessful at restructuring or raising the necessary capital to repay the amounts currently past due or due upon demand, or if SWSB cannot generate sufficient cash flow from operations necessary to service its existing debt on a short and long-term basis, SWSB’s ability to continue to operate would be jeopardized. Management is engaging in the following activities to effectively accomplish these objectives: a) it is currently in discussions with
creditors to restructure amounts currently due as well as to restructure amounts not yet due with more easily serviceable payment terms, including the possibility of conversion of certain portions to equity, b) aggressively managing SWSB’s cash and expenses, and c) seeking additional sources of financing with acceptable terms, including the sale of additional debt or equity related instruments, and d) the continued expansion of higher margin professional services.
The working capital deficit of ($2,189,000) as of June 30, 2007, represented an increase of ($1,303,000) as compared to a deficit of ($886,000) as of September 30, 2006. This working capital deficit increase was primarily the result of a $1,254,000 increase in the current portion of long-term debt, the majority of which was issued to finance acquisitions. Working capital was a deficit of ($56,000) as of September 30, 2005, representing minimal operations of SWSB up until that time, as current assets totaled $37,000 offset by current liabilities of $93,000.
Because SWSB’s revenue depends primarily on billable labor hours, most of its 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. SWSB sells its accounts receivable to a financial institution as a means of managing its working capital. Under the terms of SWSB’s receivable sale agreement the maximum amount of trade receivables that can be sold is $8,000,000. As collections reduce previously sold receivables, SWSB may replenish these with new receivables. Net discounts per the agreement are represented by an interest charge at an annual rate of prime plus 1.5% (“Discount Rate”) applied against outstanding uncollected receivables sold. The risk SWSB bears from bad debt losses on trade receivables sold is retained by SWSB, and receivables sold may not include amounts over 90 days past due. The agreement is subject to a minimum discount computed as minimum sales per month of $3,000,000 multiplied by the then effective Discount Rate, and a termination fee applies of 3% of the maximum facility in year one of the agreement, 2% in year two, and 1% thereafter. In addition, an overadvance of $500,000 was received, is secured by outstanding receivables, and is due within one year.
Debt
The table and accompanying footnotes below summarize the outstanding debt of SWSB as of the end of the most recent interim period and fiscal year end. The entirety of SWSB’s debt as described below will be assumed by Hyperion with the same terms.
| | | June 30, 2007 | | | September 30, 2006 | |
| Long-term debt | | | | | | |
| | | | | | | | |
| 3% convertible subordinated note (ii) | | | 553,000 | | | | 631,000 | |
| | | | | | | | |
| Long-term capitalized consulting obligations (v) | | | 191,000 | | | | 266,000 | |
| | | | | | | | |
| Total | | | 1,020,000 | | | | 1,096,000 | |
| | | | | | | | |
| Noncurrent portion | | | 482,000 | | | | 665,000 | |
Related party long-term debt | | | | | | | | |
| 8% unsecured demand note (iv) | | | 101,000 | | | | 135,000 | |
Long-term capitalized consulting obligations (vi) | | | | | | | | |
| 12% unsecured convertible note (vii) | | | 280,000 | | | | 280,000 | |
| | | | | | | | |
| 6% unsecured note (ix) | | | 300,000 | | | | - | |
| | | | | | | | |
| 9% unsecured note (xi) | | | 243,000 | | | | - | |
| | | | | | | | |
| Total | | | 4,275,000 | | | | 518,000 | |
| | | | | | | | |
| Noncurrent portion | | | 2,655,000 | | | | 45,000 | |
| | | | | | | | |
| Less current maturities | | | 2,158,000 | | | | 904,000 | |
| | | | | | | | |
| | | | | | | | | |
US Temp Services, Inc. Acquisition Notes and Long Term Consulting Obligations
As partial consideration associated with the US Temp Acquisition four subordinated notes were issued.
| (i) | | A $175,000 subordinated note was issued March 31, 2006, and was due January 30, 2007. The note has an annual interest rate of 8% with principal and interest payable in equal monthly installments of $18,150. The note is secured by office equipment and other fixed assets. Due to the failure to make timely payments under the terms of the note, the holder has elected the option of declaring the note in technical default and began assessing interest, beginning April 1, 2007, at the rate of 11.25% per annum, and to impose a 5% late charge on the overdue balance outstanding. |
| (ii) | | A $675,000 convertible subordinated note was issued March 31, 2006 and is due March 31, 2012. The note bears interest at an annual rate of 3%, and is convertible in part or in whole into common shares at any time at the option of the holder at the specified price of $1.50 per share. The note is secured by office equipment and other fixed assets |
| (iii) | A $80,000 unsecured non-interest bearing note was issued March 31, 2006, and was due June 29, 2006. Due to the failure to make timely payments under the terms of the note, on April 1, 2007, the holder elected the option of declaring the note in technical default and began charging interest at a rate of 18% per annum. |
| (iv) | A $150,000 unsecured demand note was issued March 31, 2006 to a principal shareholder of Accountabilities, Inc. as a finder’s fee in consideration for sourcing and completing the US Temp Acquisition. The note bears an annual interest rate of 8%. |
On March 31, 2006, in connection with the US Temp Acquisition, SWSB entered into three long term consulting obligations which require SWSB to pay fixed recurring amounts but which do not require the other party to provide any minimum level of services. Consequently, the agreements have been treated as debt obligations in the accompanying financial statements and capitalized, net of interest imputed at a rate of 8.75% per year. The imputed interest was determined by reference to terms associated with credit available to SWSB at that time. All three agreements expire on March 31, 2009.
| (v) | | Two of the agreements were entered into with the principals of US Temps and each require annual payments of $60,000 in the first two years and $30,000 in the final year, payable in fixed weekly amounts. These two agreements in total were initially recognized at a fair value of $292,000 using a discount rate of 8.75%. |
| (vi) | The third agreement was entered into with a major shareholder of Accountabilities, Inc. and requires annual payments of $30,000 in each of three years, payable in fixed weekly amounts. The agreement was initially recorded at a fair value of $84,000 using an interest rate of 5%. |
12%, Unsecured Convertible Note
| (vii) | A $280,000 unsecured convertible note was issued on April 1, 2006 to a shareholder and director of Accountabilities, Inc. The note is due April 1, 2007, bears an annual interest rate of 12%, and is convertible into common shares at any time at the option of the holder at a conversion rate of $.40 per share up to the first $100,000 of principal, $.55 per share up to the next $100,000 of principal, and up to $.75 per share up to the final $80,000 in principal. |
Demand Loan
| (viii) | In October 2005 a major shareholder advanced Accountabilities, Inc. $30,000 to fund the initial operations of SWSB. The amount is classified as a short-term loan and is due and payable upon demand by the shareholder. |
ReStaff Inc., Acquisition Notes
As partial consideration associated with the ReStaff Acquisition the following notes and loan were issued. The notes issued in (ix) and (x) below were issued to the then sole shareholder of ReStaff who was also issued 600,000 shares of common stock as partial consideration and who also became an employee of the company. The debt issued in (xi) and (xii) below was issued to two separate major shareholders of Accountabilities, Inc.
| (ix) | In February 2007 a $300,000 non-interest bearing unsecured note was issued. The note is due February 25, 2009 and bears an annual interest rate of 6%. |
| (x) | | In February 2007, a $2,900,000 unsecured note was issued. The note bears an annual interest rate of 6% with principal and interest payable in equal monthly installments of $69,400 over four years beginning June 27, 2007. The note is subject to proportionate reduction in principal in the event the acquired operations generate less than $1,000,000 in net income before taxes in any year during the term of the note. |
| (xi) | In February 2007 a $275,000 unsecured note was issued as partial finder’s fee consideration, bearing annual interest of 9%, with principal and interest payable in equal monthly installments of $2,885 over 104 months. |
| (xii) | In order to finance portions of the purchase price, Accountabilities, Inc. entered into a borrowing arrangement with another major stockholder. Under the terms of the agreement up to $950,000 may be borrowed without interest. As consideration for the loan the stockholder was granted 600,000 shares of restricted common stock. SWSB borrowed and subsequently repaid $450,000 within March 2007, and borrowed the balance of $500,000 in June 2007 which is payable in equal monthly installments of $10,000. SWSB follows the guidance in Accounting Principles Board Opinion No. 14, Accounting for Convertible Debt and Debt Issued With Stock Purchase Warrants, by treating the relative fair value of the restricted common stock granted as a discount to the debt, with a corresponding increase in net assets. Accordingly, a relative fair value associated with the granted common stock of $119,000 was calculated, $4,000 of which was apportioned to the initial $450,000 borrowed and repaid in March 2007 and recorded as interest expense, and $115,000 was apportioned to the $500,000 balance and recorded as deferred financing costs to be amortized as interest expense beginning in June 2007. As of June 30, 2007, the fair value of the loan outstanding was $368,000, net of deferred financing costs of $102,000. |
Reliance on Related Parties
SWSB has historically relied on funding from related parties in order to meet its liquidity needs, such as the debt described in (iv), (vi), (vii), (viii), (ix), (x) and (xi) above. Management believes that the terms associated with these instruments would not differ materially from those that might have been negotiated with independent parties. However, management believes that the advantages SWSB derived from obtaining funding from related parties include a shortened length of time to identify and obtain funding sources due to the often pre-existing knowledge of SWSB’s business and prospects possessed by the related party, and the lack of agent or broker compensation often deducted from gross proceeds available to SWSB. Management anticipates SWSB will continue to have significant working capital requirements in order to fund its growth and operations, and to the extent SWSB does not generate sufficient cash flow from operations to meet these working capital requirements it will continue to seek other sources of funding including the issuance of related party debt.
Sales of Common Stock
Accountabilities, Inc. completed the following sales of shares of its stock in order to help finance the operations of SWSB.
On November 26, 2006 Accountabilities, Inc. completed the private placement of 1,000,000 shares of common stock to an independent third party in exchange for $200,000 in cash and a non-interest bearing note with a principal amount of $200,000. The note was subsequently collected in December 2006.
In February 2007 Accountabilities commenced a private offering to sell up to $3,000,000 of convertible exchangeable notes bearing 8% annual interest and warrants to purchase up to 799,800 shares of common stock. The notes were convertible into restricted common shares of Accountabilities, Inc. at a price of 75% of the average closing price of Accountabilities, Inc.’s common stock over the preceding five days prior to the election to convert, subject to a minimum conversion price of $.40 per share. Each warrant is exercisable for one share of Accountabilities common stock at an exercise price of $.75 per share at any time prior to the two year anniversary date of its issuance. Additionally, in the event Accountabilities, Inc. sells all or substantially all of its assets to another corporation, the notes are exchangeable for substantially similar notes of the acquiring corporation, or, if the acquiring corporation is not publicly traded, the holder of the note may redeem the note for an amount equal to 106% of the then outstanding principal amount plus all unpaid outstanding interest accrued. The offering was subsequently terminated by SWSB in April 2007. Through June 30, 2007, $201,000 in net proceeds pursuant to the private offering have been received. All investors elected to immediately convert the notes into shares of restricted common stock, and consequently 439,729 restricted common shares, and 55,986 warrants, have been issued and are outstanding. Due to the immediate election to convert, the transactions have been accounted for as a sale of common stock.
As discussed above, net assets was increased in March 2007 by $119,000 representing the allocated relative fair value of the common stock issued to the lender in conjunction with the $950,000 loan received to finance portions of the purchase price of ReStaff.
Contractual Obligations
The following summarizes our contractual obligations and commercial commitments as of September 30, 2006:
Contractual Obligations and Commitments | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 years | |
| | | | | | | | | | | | | | | | |
Long-term debt, including interest | | | | | | | | | | | | | | | | | | | | |
| Operating leases | | | 447,000 | | | | 253,000 | | | | 194,000 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | |
| Total contractual obligations and commitments | | $ | 2,148,000 | | | $ | 1,203,000 | | | $ | 750,000 | | | $ | 195,000 | | | $ | - | |
Financial Market Risks
SWSB’s receivable sale agreement is subject to variable rate interest which could be adversely affected by an increase in interest rates. As of June 30, 2007, September 30, 2006 and September 30, 2005, outstanding uncollected receivables sold were $6,060,000, $4,332,000 and $0, respectively. SWSB's weighted average outstanding uncollected receivables sold for the nine month periods ending June 30, 2007 and 2006, and the years ending September 30, 2006 and September 30, 2005 were $4,843,000, $2,698,000, and $3,128,000 and $0, respectively. Management estimates that had the average interest rate increased by two percentage points during the year ending September 30, 2006, interest expense would have increased by approximately $63,000.
ACCOUNTABILITIES' MANAGEMENT
Set forth below is certain biographical information regarding those persons who, as of September 14, 2007, serve as directors and executive officers of Accountabilities. It is anticipated that each of such individuals will serve in a similar position with Accountabilities after the transaction; however, it is anticipated that the Accountabilities’ management will be restructured after the staffing and workforce solutions business is transferred to Hyperion and that the new management team will consist of primarily personnel involved in the business of Woopee Connect.
Name | Age | Title |
| | | |
| Ronald Shapss | 61 | Chairman of the Board |
| Allan Hartley | 56 | President and Director |
| Mark S. Levine | 46 | Chief Operating Officer |
| Stephen DelVecchia | 38 | Chief Financial Officer |
| Michael Newstead | 57 | Vice President of Operations |
| James Zimbler | 42 | Vice President, Treasurer |
| Elliott Cole | 75 | Director |
| Norman Goldstein | 66 | Director |
| Jay H. Schecter | 54 | Director |
| John Messina | 40 | Director |
Ronald Shapss is the founder of Ronald Shapss Corporate Services, Inc., a company engaged in consolidating fragmented industries since 1992. RSCS was instrumental in facilitating the roll-up of several companies into such entities as U.S. Delivery, Inc., Consolidated Delivery & Logistics, Inc. and Corestaff, Inc. Mr. Shapss was also the founder of Coach USA, Inc. and is presently on the advisory boards of Consolidated Partners Founding Fund, L.L.C., and 1+ USA, Inc., which founded Advanced Communications Group, Inc., a CLEC that trades on the New York Stock Exchange. A 1970 graduate of Brooklyn Law School, Mr. Shapss is a member of the New York bar and has served as a director of Accountabilities since July 2003.
Allan Hartley was appointed President of Accountabilities in June 2005. Prior thereto, he managed the professional staffing group of Norrell Corporation. In 1994, he founded Creative Financial Staffing, Inc. which partnered with 29 CPA firms to provide staffing services. From 1989 through 1994, he was Vice President of Contract Services of Romac International. From 1983 through 1989, Mr. Hartley was employed by Robert Half International, including Manager of the Contracts Division.
Mark S. Levine joined Accountabilities as Chief Operating Officer in February, 2007. From 2001 until joining Accountabilities, he served as Executive Vice President of Accretive Solutions, Inc., a professional staffing services firm. From 1997 until 2001, he was Chief Marketing Officer of Stratus Services Group, Inc., a national staffing firm. From 1995 until 1997, Mr. Levine was Regional Vice President of Corestaff Services, Inc., a staffing services provider. From 1993 until 1995, Mr. Levine was employed in various capacities by Norrell Services, including Regional Vice President.
Stephen DelVecchia joined Accountabilities as Chief Financial Officer in March, 2007. Prior thereto, he was employed by Geller and Company LLC, one of the largest privately held finance and accounting services firms in the U.S., where he functioned as the Chief Financial Officer of the firm as well as Co-Chief Operating Officer of the private equity services division. From 2000 to 2003 he was with Corbis Motion LLC, a media licensing and services company purchased, where he also functioned as Chief Financial Officer as well as Chief Operating Officer of the research subsidiary. From 1999 to 2000, Mr. DelVecchia was CFO for GSV Inc., a publicly traded company where he was responsible for all SEC compliance and capital market placements. From 1996 to 1999, Mr. DelVecchia led the financial reporting and compliance group for Barnes and Noble, Inc., a book retailer where he led all SEC compliance, reporting and audit functions. Mr. DelVecchia earned his CPA license while an auditor with Grant Thornton LLP.
Michael Newstead joined Accountabilities in April 2006 as the Vice President of Operations. Mr. Newstead served as President of Strategic Edge Solutions from February 2004 to December 2005 and Vice President of New Development of Strategic Edge Solutions from July 2000 to January 2004. In January 1999, he opened an IT staffing office for AETEA Information Technologies which he managed until June 2000. Prior thereto he served as Regional Vice President of AccuStaff from June 1992 to October 1998 and served in various capacities with BSI Temporaries from January 1973 to June 1992, including Executive Vice President.
James W. Zimbler has served as a Vice President and Treasurer of Accountabilities since 2005 and has been a principal of Alpha Corporate Advisors, LLC, since its inception in May 2002. Alpha is involved as a consultant in the mergers and acquisitions of public companies and consulting for private companies that wish to access the public markets. Prior to becoming a founding member of Alpha, he was involved in consulting for capital raising, recapitalization and mergers and acquisitions for various clients. He has served on the Board of Directors and/or Officer of several companies since 2000, including Triton Petroleum Group, Inc., Universal Media, Inc., and Genio Holdings, Inc.
Elliot Cole, who joined the Accountabilities’ Board of Directors in April 2004, is a partner with Patton Boggs LLP. Mr. Cole has practiced corporate law for 40-plus years, more than 30 of which he has been as a partner at Patton Boggs LLP. His expertise is rooted in the representation of early-stage companies. He has been a trustee of Boston University, his alma mater, for over 20 years, having served on its Investment Committee and Community Technology Fund.
Norman Goldstein has served as a Director of Accountabilities since December 2006. He has served as the President and CEO of NGA Inc., an export/import company primarily dealing in the importation, sale and distribution of all types of flat glass products throughout the USA since 2000. Prior to his association with NGA Inc., Mr. Goldstein formed Norwell International, which acquired a small glove company and engaged in the business of latex gloves and other related medical/dental products. In the year 2000, Mr. Goldstein sold Norwell International to one of the largest glove manufacturers in Malaysia (Asia Pacific Ltd.)
Jay H. Schechter has served as a Director of Accountabilities since December 2006 and as an officer with Tri-State Employment Services, Inc. since 1999, overseeing the areas of corporate strategic planning, credit and finance and legal. From 1984 until joining Tri-State, Mr. Schecter served as Senior Vice President of Kaufman Astoria.
John Messina jointed the Accountabilities’ Board of Directors in April 2007 and is currently Executive Vice President of Tri-State Employment Services, Inc., and has been with Tri-State since 1997. Prior to joining Tri-State, Mr. Messina worked in the transportation industry and has been an entrepreneur in several small businesses.
Board of Directors Independence
The Board has affirmatively determined that Messrs. Shapss, Krome, Cole and Goldstein are “independent directors,” as that term is defined under the rules of the Nasdaq Stock Market. The non-independent directors are Messrs. Hartley, Messina and Schecter.
Compensation Committee Interlocks and Insider Participation
Except for Ronald Shapss, Allan Hartley, Mark Levine, James Zimbler and Michael Krome, no officer or former officer of Accountabilities participated during the last completed fiscal year in deliberations of Accountabilities’ Board of Directors concerning executive officer compensation.
During the fiscal year ended September 30, 2006, no executive officer of Accountabilities served as (i) a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served on the Board of Directors of Accountabilities or (ii) a director of another entity, one of whose executive officers served on the Accountabilities’ Board of Directors.
Accountabilities Executive Compensation
Overview of Accountabilities' Compensation Policy
Until September 2007, the Board of Directors of Accountabilities reviewed and approved the annual compensation for Accountabilities’ executive officers. In September 2007, the Board of Directors appointed a Compensation Committee, consisting of Elliot Cole and Norman Goldstein, which pursuant to its charter will have the responsibility of evaluating and approving compensation of directors and officers and formulating Accountabilities’ compensation policy in the future. To date, the primary objective of the compensation policy, including the executive compensation policy, as administered by the Board of Directors, has been to help attract and retain experienced, talented leaders who have the intelligence, drive and vision to guide the company through the challenge of managing its existing business, and to develop new business initiatives. This policy has been designed to reward the achievement of annual and long-term strategic goals aligning executive performance with company growth and shareholder value. In addition, the Board of Directors has endeavored to promote an ownership mentality among key management and the Board of Directors.
The compensation policy administered by the Board of Directors has been designed to reward performance. In measuring executive officers’ contribution to Accountabilities, the Board of Directors has considered numerous factors, including the company’s growth and financial performance as measured by revenue, gross margin and net income before taxes among key performance indicators.
Regarding most compensation matters, including executive and director compensation, management provides recommendations to the Board of Directors. In addition, inasmuch as certain executive officers have been members of the Board, their views as to their own compensation have been taken into account by the Board. Until September 2007 when it established the Compensation Committee, the Board of Directors did not delegate any of its functions to others in setting compensation; however, in September 2007, the Board authorized the grant of restricted stock awards with respect to 1,500,000 shares of Accountabilities’ common stock to key employees and others who contribute to the success of the company, and authorized Allan Hartley, President of Accountabilities, and Stephen DelVecchia, Chief Financial Officer of Accountabilities, to designate the recipients of such awards after consultation with an outside consultant. No such awards have yet been allocated. Prior to September 2007, the Board of Directors did not engage any consultant related to executive and/or director compensation matters.
Stock price performance has not been a factor in determining annual compensation because the price of the Accountabilities’ common stock is subject to a variety of factors outside of management’s control. The Board of Directors does not subscribe to an exact formula for allocating cash and non-cash compensation, and equity based compensation was awarded only to new hires during the two most recently completed fiscal years. However, a portion of total executive compensation is expected to be performance-based in fiscal 2008 and future years, in order to better align the goals of executives with the goals of stockholders. Neither the Board of Directors nor the Compensation Committee has developed formal guidelines to use for allocating compensation between cash and non-cash compensation; however, the Board of Directors believes that long-term performance can be enhanced through an ownership culture that encourages long-term participation by executive officers in equity based awards, and it is anticipated that the Compensation Committee will take into account the liquidity and market price of equity to be awarded, publicly available data for other comparable companies, the number of shares and options held by members of management and the company’s cash position in determining the appropriate allocation. It is anticipated that in making such allocations, the Compensation Committee will balance the company’s need to limit cash expenditures with the expectations of those individuals that it hopes to recruit and retain as employees, and that incentive compensation will be split between cash and equity in a ratio designed to best motivate the executives after taking into account available resources.
Elements of Accountabilities' Compensation Plan
The principal components of compensation for Accountabilities’ executive officers are:
▪ | performance-based incentive cash compensation; |
▪ | retirement and other benefits. |
Base salary, performance based awards and stock awards may be tailored to best fit an executive officer’s specific circumstances or if required by competitive market conditions for attracting and retaining skilled personnel. Factors considered include the individual’s
particular background and circumstances, including training and prior relevant work experience, and comparison to other executives within Accountabilities having similar levels of experience. Compensation paid in fiscal 2007 to executive officers was primarily determined by reference to the initial compensation arrangement agreed to when each executive officer joined Accountabilities and for certain executive officers, including Mr. Hartley, Mr. DelVecchia and Mr. Levine, the employment agreements between them and Accountabilities.
Base Salary
Accountabilities provides named executive officers and other employees with base salary to compensate them for services rendered during the fiscal year. Base salary ranges for named executive officers are determined for each executive based on his or her position and responsibility.
During its review of base salaries for executives, the Board primarily considers:
▪ | market data, which generally consists of publicly available filings of other professional staffing and workforce solutions companies, including Westaff, Stratus Services Group, Inc., Resources Connection and Kforce, Inc.; |
▪ | internal review of the executives’ compensation, both individually and relative to other officers; and |
▪ | individual performance of the executive. |
Salary levels are typically evaluated annually as part of Accountabilities’ performance review process as well as upon a promotion or other change in job responsibility. Accountabilities has not established specific quantitative performance goals for individual executives. Inasmuch as Accountabilities has only a limited operating history, and the level of compensation which could be paid to executive officers has been constrained by availaable resources, annual performance reviews have not yet been a material element of determining compensation; however, it is anticipated that the Compensation Committee will develop more formal review procedures and criteria as the business matures and resources become more available. During fiscal 2007, compensation to its most highly compensated officers arose primarily out of the terms of employment agreements with these officers.
Performance-Based Incentive Compensation
The Board has made awards of Accountabilities’ common stock to officers and other employees to promote high performance and achievement of corporate goals, encourage the growth of stockholder value and allow key employees to participate in Accountabilities' long-term growth and profitability. The award of stock assists Accountabilities in:
▪ | enhancing the link between the creation of stockholder value and long-term executive incentive compensation; |
▪ | providing an opportunity for increased equity ownership by executives; and |
▪ | maintaining competitive levels of total compensation. |
Stock award levels vary among participants based on their positions within Accountabilities.
Accountabilities has paid only nominal cash bonuses during the past three fiscal years and has not established any specific individual or corporate quantitative and qualitative performance goals for determining future performance based incentive compensation, except to the extent that executive officers are entitled to such compensation pursuant to employment agreements. Incentive compensation payable under employment agreements is based upon a percentage of earnings before income taxes, depreciation and amortization or net profit. The Compensation Committee has not yet developed a policy with respect to how incentive cash compensation will fit within its overall compensation philosophy but it is anticipated that any such policy will be influenced by competitive market conditions for attracting and retaining skilled personnel.
Stock Plans
Accountabilities did not have an established employee stock purchase plan, option plan or equity award plan in place until the Board adopted the Accountabilities, Inc. Equity Incentive Plan in September 2007. The Equity Incentive Plan provides for the grant of stock options, stock appreciation rights and restricted stock awards to employees, directors and other persons in a position to contribute to the growth and success of Accountabilities. A total of 2,000,000 shares of Accountabilities common stock have been reserved for issuance under the Equity Incentive Plan. As of September 30, 2007, no awards have been made under the Equity Incentive Plan, although the Accountabilities’ Board of Directors has authorized Mr. Hartley and Mr. DelVecchia to allocate restricted stock awards with respect to 1,500,000 shares to eligible participants. It is anticipated that the Board of Directors of Hyperon will adopt a similar equity incentive plan after the transaction with Accountabilities is completed.
Perquisites and Other Personal Benefits
Accountabilities provides some executive officers with perquisites and other personal benefits that the Board believes are reasonable and consistent with its overall compensation program to better enable it to attract and retain superior employees for key positions. The Board periodically reviews the levels of perquisites and other personal benefits provided to named executive employees.
Each of Accountabilities’ employees is entitled to receive medical and dental benefits and part of the cost is funded by the employee.
Summary Compensation Table
The following table sets forth information concerning the total compensation awarded to, earned by or paid to Accountabilities’ Chief Executive Officer and Principal Financial Officer during the three fiscal years ended September 30, 2007, 2006 and 2005 and each other executive officer who earned in excess of $100,000 in fiscal 2007, whom we sometimes refer to herein as the “Named Officers”.
Name and Principal Position | Fiscal Year Ended | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option Awards ($) | | | Non-Equity Incentive Plan Compensation ($) | | | Nonqualified Deferred Compensation Earnings ($) | | | All Other Compensation ($) | | | Total ($) | |
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| Financial Officer | 09/30/05 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
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| Officer | 09/30/05 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
(1) Represents compensation expense recorded with respect to grant of restricted stock which is based upon market price of stock awarded as discounted by 20% for lack of liquidity.
Grants of Plan-Based Awards
The following table sets forth information regarding grants of plan-based awards to Named Executive Officers for the fiscal year ended September 30, 2007.
| | | All Other Stock Awards: Number of Shares of Stock or Units | | | Grant Date Fair Value of Stock Awards | |
| Stephen DelVecchia, Chief Financial Officer | March 5, 2007 | | | 60,000 | (1) | | $ | 32,400 | |
| Mark Levine, Chief Operating Officer | January 30, 2007 | | | 500,000 | (2) | | $ | 180,000 | |
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| (1) | Represents a grant of restricted stock under employment agreement that vests in three equal annual installments commencing upon the first anniversary of the date of grant. |
| (2) | Represents a grant of restricted stock under employment agreement that vests in five equal annual installments commencing upon the first anniversary of the date of grant. |
Outstanding Equity Awards at Fiscal Year-End
The following table provides information about all equity compensation awards held by the Named Executive Officers as of September 30, 2007:
OUTSTANDING EQUITY AWARDS
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Name | | Date of Grant | | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | Option Exercise Price ($) | | | Option Expiration Date | | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |
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Stephen DelVecchia, Chief Financial Officer | | 03/5/07 | | | | -- | | | | -- | | | | -- | | | $ | -- | | | | -- | | | | 60,000 | (1) | | $ | 30,000 | | | | -- | | | $ | -- | |
Mark Levine, Chief Operating Officer | | | 01/30/07 | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | 500,000 | (2) | | | 250,000 | | | | -- | | | | -- | |
(1) Represents an award of restricted stock that vests in equal annual installments on March 5, 2008, 2009 and 2010.
(2) Represents an award of restricted stock that vests in equal annual installments on January 30, 2008, 2009, 2010, 2011 and 2012.
Compensation of Accountabilities Board of Directors
Accountabilities has not paid any compensation to its Board of Directors
Employment Agreements
Accountabilities entered into an employment agreement with Allan Hartley, its President, in May 2005, which provided for an annual salary of $120,000 per year for the first six months of the agreement and $150,000 thereafter. Mr. Hartley was issued 250,000 shares of Accountabilities common stock pursuant to the agreement, which entitles Mr. Hartley to participate in any special incentive plan approved by the Board of Directors. The agreement had an original term of six months and is renewable annually for additional one year terms unless either party sends a notice of non-renewal at least 30 days prior to the end of the applicable term. Accountabilities may terminate the agreement for cause (as defined in the agreement).
Accountabilities entered into an employment agreement in January 2007 with Mark Levine, its Chief Operating Officer, which provides for an annual base salary of $230,000 per annum and entitles Mr. Levine to an annual bonus of $25,000 or 2% of Accountabilities earnings before interest, taxes and amortization, whichever is greater, and options to acquire 500,000 shares of Accountabilities common stock at a purchase price of $.005 per share which vest at a rate of 100,000 shares per year. Accountabilities subsequently issued 500,000 shares of restricted stock to Mr. Levine in lieu of such options. The agreement, which has an indefinite term, provides that Mr. Levine is entitled to three months severance pay, payable over a three month period if he is terminated without cause. The Board of Directors approved this severance package based upon the caliber of services Mr. Levine brings to the company and the competition it faced in filling this position. As of September 30, 2007, the amount of severance compensation that would be payable to Mr. Levine in the event of a termination without cause would be $76,666.
In March 2007, Accountabilities entered into an employment agreement with Stephen DelVecchia, its Chief Financial Officer, which provides for an annual base salary of $150,000 for the first 90 days of employment, and $165,000 thereafter, and a profit sharing bonus of 1.5% of Accountabilities’ net profit, but not in excess of 100% of base salary. Mr. DelVecchia was issued 60,000 shares of Accountabilities common stock pursuant to the agreement, which vest at a rate of 20,000 shares per annum over a three year period. The agreement, which has an indefinite term, provides for one months severance pay if the agreement is terminated by Accountabilities for any reason other than cause (as defined in the agreement), death or disability, or if the agreement is terminated by Mr. DelVecchia for good reason. The Board of Directors approved this severance package based upon the caliber of services Mr. DelVecchia brings to the company and the competition it faced in filling this position. As of September 30, 2007, the amount of severance compensation that would be owed to Mr. DelVecchia in the event of a termination by Accountabilities without cause or by Mr. DelVecchia for good reason would be $13,750, payable over a one month period. If there is any material change in the ownership of Accountabilities, whether by purchase, merger, consolidation or otherwise, Accountabilities is required to use its best efforts to secure the assumption of the agreement by successor ownership. Failure of Accountabilities to obtain such assumption shall entitle Mr. DelVecchia to one month’s severance pay.
In agreeing to the severance provisions with Mr. Levine and Mr. DelVecchia, the Accountabilities’ Board of Directors believed that these provisions were necessary to induce them to accept employment with Accountabilities, and that such provisions are relatively common for chief operating officers and chief financial officers. Differences between the severance arrangements with Mr. Levine and Mr. DelVecchia are primarily a result of the negotiations that took place between Accountabilities and such officers.
Hyperion Energy will assume each of the employment agreements described above.
Certain Relationships and Related Party Transactions of Accountabilities
During the fiscal year ended September 30, 2006, Accountabilities, as payment of a finders fee and in consideration of consulting services rendered in connection with an acquisition transaction, issued Washington Capital, LLC 150,000 shares of Accountabilities’ common stock and a demand note in the principal amount of $150,000 and bearing interest at the rate of 8% per annum and agreed to pay $90,000 to Washington Capital, LLC in monthly installments over a three year period. Washington Capital, LLC is the beneficial owner of approximately 14.8% of Accountabilities’ common stock. During the fiscal years ended September 30, 2006 and 2007, Accountabilities had made aggregate payments of $17,000 and $30,000, respectively, to Washington Capital, LLC under the installment agreement, and as of September 30, 2007 $101,000 was outstanding under the demand note.
During the fiscal year ended September 30, 2007, Accountabilities, as payment of a finders fee in connection with an acquisition transaction, issued Pylon Management, Inc. 300,000 shares of Accountabilities’ common stock and a $274,000 note bearing interest at 9% and payable in 104 equal weekly installments of $2,885. In addition, during the fiscal years ended September 30, 2006 and 2007, Accountabilities paid $93,250 and $104,000, respectively, to Pylon Management, Inc. in consideration of consulting services rendered. Pylon Management, Inc. is owned by the same individual who owns Washington Capital LLC and along with Washington
Capital LLC is the beneficial owner of approximately 14.8% of Accountabilities’ common stock.
In October 2006, Pylon Management, Inc., loaned Accountabilities $30,000. All of such amount, which is due upon demand, was outstanding at September 30, 2007.
In March 2006, Accountabilities advanced $14,000 to its President, Allan Hartley, which is evidenced by a non-interest bearing note payable upon demand. The entire principal amount was outstanding at September 30, 2007.
In April 2006, Norman Goldstein, who was appointed as a director of Accountabilities in December 2006, loaned Accountabilities $280,000, which is evidenced by an unsecured convertible note bearing interest at an annual rate of 12%. The note is convertible into common shares at any time at the option of the holder at a conversion rate of $.40 per share with respect to the first $100,000 of principal, $.55 per share with respect to the next $100,000 of principal and $.75 per share with respect to the remaining $80,000 of principal. As of September 30, 2007, $270,000 of the note remained outstanding.
Accountabilities leases the majority of its workers from Tri-State Employment Services, Inc, a professional employment organization and beneficial owner of approximately 28.7% of Accountabilities’ common stock. SWSB leases employees in order to mitigate certain insurance risks and obtain greater employee benefits at more advantages rates via Tri-State’s much larger scale. Employees are leased from Tri-State based upon agreed upon rates which are dependent upon the individual employee’s compensation structure, as agreed to between SWSB and the employee. The total amount of leasing costs charged by Tri-State during the fiscal years ended September 30, 2006 and 2007 was $25,312,000 and $50,979,000, respectively.
In order to finance portions of the purchase price of an acquisition, Accountabilities entered into a borrowing arrangement with Tri-State in 2007 pursuant to which up to $950,000 was eligible to be borrowed without interest. As consideration for the loan, Tri-State was granted 600,000 shares of restricted common stock. Accountabilities borrowed and subsequently repaid $450,000 within March 2007, and borrowed the balance of $500,000 in June 2007 which is payable in equal monthly installments of $10,000. As of September 30, 2007, $283,557 was outstanding under the loan.
In August 2007, Accountabilities reached an agreement in principle to acquire Woopee Connect, Inc., after Accountabilities’ staffing and workforce solutions business has been transferred to Hyperion Energy, Inc. Woopee is a New Jersey based corporation engaged in providing voice over internet protocol services. James Zimbler, an officer of Accountabilities and beneficial owner of approximately 5.1% of Accountabilities’ outstanding shares, Norman Goldstein, a director of Accountabilities and beneficial owner of approximately 2.9% of Accountabilities outstanding shares, and Pylon Management, Inc. are shareholders of Woopee Connect, Inc. It is anticipated that the transaction will be structured as a merger of a newly formed wholly owned subsidiary of Accountabilities with and into Woopee Connect, Inc., with the outstanding shares of Woopee Connect, Inc. being converted into shares representing approximately 51% of Accountabilities common shares after giving effect to the merger. The transaction is expected to close after the record date for determining shareholders of Accountabilities entitled to receive the distribution of Hyperion shares. In addition, Accountabilities has made advances to Woopee Connect, Inc. to aid in certain working capital and start-up costs during the year ended September 30, 2007 totaling $20,000, of which the full amount is outstanding as of September 30, 2007.
Historically, although no written policy existed with respect to the review and approval of related party transactions, related party transactions have been submitted for approval and ratification to disinterested members of the Board of Directors. In September 2007, the Board appointed an Audit Committee consisting of Mr. Cole and Mr. Goldstein. In accordance with the Audit Committee Charter, any proposed transactions between Accountabilities and related parties will be subject to the review and approval of the Audit Committee.
HYPERION ENERGY MANAGEMENT
Directors and Executive Officers of Hyperion Energy
As of the date of this proxy statement/prospectus, Walter Reed, age 72, is the President, Secretary and Director of Hyperion. The closing of the asset purchase agreement is conditioned upon Mr. Reed’s resignation as an officer and director of Hyperion Energy at or prior to the time of closing. Mr. Reed is a 35 year veteran in the field of Radio Frequency (RF) and Microwave technologies, working in the capacity of top-level management for companies such as:
▪ | Dynatech Corporation, served as Corporate Officer, SVP, Marketing/Sales/Contracts and Director of New SWSB Development; |
▪ | Amplica Corporation, a division of Comsat, Inc., as VP responsible for Marketing, Sales and Program Management; responsible for Major Military and Commercial Contracts; |
▪ | E&M Labs, (A Sterling Corporation) served as corporate VP; |
▪ | MAG Technology served as Executive VP, Contracts/Marketing/Sales; |
▪ | Rantec Corp (An Emerson Electric Company) Director Marketing and Contracts |
▪ | Westinghouse Corp. R&D-Field Engineer involved with Naval Underwater Research Studies |
Mr. Reed served in the capacity of board member and advisor to several corporations; he earned a BS and LLB degrees with advanced education at UCLA School of SWSB.
Compensation of Board of Directors
Hyperion Energy has not paid any compensation to its Board of Directors.
Executive Compensation
Hyperion Energy has not paid any compensation to any officers or employees.
Employment Agreements
Hyperion Energy is not a party to any employment agreements.
SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Voting Securities by Principal Holders and Management of Hyperion Energy Prior to Transaction with Accountabilities
The following table sets forth certain information as of November 15, 2007 with respect to Hyperion Energy common stock beneficially owned by (i) each director, (ii) each person known to Hyperion Energy to beneficially own more than 5% of its common stock, (iii) Hyperion Energy’ Named Executive Officers, and (iv) all executive officers and directors as a group.
Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | | Percentage of Outstanding Shares | |
Walter Reed P.O. Box 152112 San Diego, California 92195 | | | 1,390,000 | (1) | | | 100 | % |
All Executive Officers and Directors as a Group (1 person) | | | | | | | | |
| (1) | Mr. Reed has agreed to surrender all of such shares upon the closing of the sale of Accountabilities’ assets to Hyperion Energy in exchange for a $12,500 cash payment which was made to him by Accountabilities. |
Ownership of Voting Securities by Principal Holders and Management of Hyperion After Giving Effect to Transaction with Accountabilities
The following table sets forth certain information with respect to Hyperion Energy common stock, as of November 15, 2007, that would be beneficially owned after the completion of the proposed transaction with Accountabilities by (i) each director, (ii) each beneficial owner of more than 5% of Hyperion Energy’s common stock, (iii) the persons that will be directors and executive officers of Hyperion and (iv) all executive officers and directors as a group.
Name | | Amount and Nature of Beneficial Ownership | | | Percentage of Outstanding Shares | |
| | | | | | | | % |
| Allan Hartley | | | 890,000 | | | | 5.0 | |
| | | | (2) | | | | |
| James Zimbler | | | 910,369 | | | | 5.1 | |
| | | | | | | | |
| John Messina | | | 100,000 | | | | (3) | |
| | | | | | | | |
| Mark Levine | | | 500,000 | | | | 2.8 | |
| Michael Newstead | | | - | | | | - | |
| | | | | | | | |
| Tri-State Employment Services, Inc. (1) | | | 5,161,700 | | | | 28.7 | |
| | | | | | | | |
| | | | | | | | | |
All Executive Officers and Directors as a Group (10 persons) | | | | | | | | % |
| __________ | | | | | | | | |
| (1) | The address of this shareholder is 160 Broadway, #15 New York, New York 10038. Robert Cassera, President of Tri-State Employment Services, Inc. will exercise investment and dispositive power of the shares owned by Tri-State Employment Services, Inc. |
(2) Represents shares issuable upon conversion of convertible note.
(3) Less than 1%.
| (4) | Includes 150,000 shares owned by Washington Capital, LLC. Pylon Management, Inc and Washington Capital, LLC are owned by Kathy Raymond who will exercise sole investment and dispositive power of the shares owned by Pylon Management and Washington Capital. |
Ownership of Voting Securities by Principal Holders and Management of Accountabilities
The following table sets forth certain information as of November 15, 2007 with respect to Accountabilities common shares beneficially owned by (i) each director and executive officer, (ii) each person known to Accountabilities to beneficially own more than five percent of its common shares, and (iii) all executive officers and directors as a group. Except as otherwise indicated, the mailing address for each person listed in the table is 500 Craig Road, Suite 201, Manalapan, New Jersey 07726. Each of such shareholders will hold an identical number of shares and percentage interests in Hyperion Energy after the completion of the asset purchase transaction and the distribution of the Hyperion Energy shares.
Name | | Amount and Nature of Beneficial Ownership | | | Percentage of Outstanding Shares | |
| | | | | | | | |
| Allan Hartley | | | 890,000 | | | | 5.0 | |
| | | | | | | | |
| James Zimbler | | | 910,369 | | | | 5.1 | |
| | | | | | | | |
| John Messina | | | 100,000 | | | | (3 | ) |
| | | | | | | | |
| Mark Levine | | | 500,000 | | | | 2.8 | |
| Michael Newstead | | | - | | | | - | |
| | | | | | | | |
| Tri-State Employment Services, Inc. (1) | | | 5,161,700 | | | | 28.7 | |
| | | | | | | | |
| | | | | | | | | |
All Executive Officers and Directors as a Group (10 persons) | | | | | | | | |
| __________ | | | | | | | | |
| (1) | The address of this shareholder is 160 Broadway, #15 New York, New York 10038. Robert Cassera, President of Tri-State Employment Services, Inc. exercises investment and dispositive power of the shares owned by Tri-State Employment Services, Inc. |
(2) Represents shares issuable upon conversion of convertible note.
(3) Less than 1%.
| (4) | Includes 150,000 shares owned by Washington Capital, LLC. Pylon Management, Inc and Washington Capital, LLC are owned by Kathy Raymond who exercises sole investment and dispositive power of the shares owned by Pylon Management and Washington Capital. |
DESCRIPTION OF HYPERION ENERGY CAPITAL STOCK
The following description of Hyperion Energy’s capital stock summarizes the material terms and provisions of its capital stock, but is not complete. For the complete terms of the capital stock, please refer to Hyperion Energy’ articles of incorporation and its by-laws, which are incorporated by reference into the registration statement that includes this proxy statement/prospectus.
General
Hyperion Energy is currently authorized to issue 100,000,000 shares of its common stock, par value $.001 per share. Hyperion Energy is also currently authorized to issue 20,000,000 shares of preferred stock.
Common Stock
The articles of incorporation of Hyperion Energy currently authorize it to issue up to 100,000,000 shares of common stock. As of November 15, 2007, there were 1,390,000 shares of common stock outstanding, held by one shareholder of record. There will be a maximum of 18,452,334 shares of Hyperion Energy common stock outstanding immediately following the transaction with Accountabilities.
The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. No holder of common stock is entitled to cumulate votes in the election of directors. The common stock has no preemptive rights and is not subject to conversion or redemption.
Holders of the common stock are entitled to receive dividends out of earnings or surplus legally available at the times and in the amounts that the board of directors may determine. Hyperion Energy has never paid a dividend on its common stock. It is Hyperion Energy’s intention to continue this policy.
Upon the liquidation, dissolution or winding-up of Hyperion Energy, the holders of its common stock are entitled to share in all assets legally available for distribution to shareholders after payment of all liabilities and the liquidation preferences, if any, of any outstanding preferred stock. Each outstanding share of common stock is, and any shares of common stock offered by this prospectus when they are paid for will be, fully paid and nonassessable.
Preferred Stock
The articles of incorporation of Hyperion Energy authorize it to issue up to 20,000,000 shares of preferred stock. As of November 15, 2007, there were no shares of preferred stock outstanding, and it is not anticipated that any shares of preferred stock will be outstanding immediately after the transaction with Accountabilities..
In the future, the board of directors of Hyperion Energy may establish one or more classes or series from this preferred stock and may fix the relative rights and preferences of each such class or series, including, but not limited to, fixing the relative voting rights, if any, of each such class or series to the full extent permitted by law.
The board of directors of Hyperion Energy may issue shares of preferred stock with disproportionate voting rights or class-voting rights relative to Hyperion Energy common stock, which may be convertible into common stock, and which may rank prior to Hyperion Energy common stock as to payment of dividends and to the distribution of assets upon liquidation or dissolution. The board of directors, without approval of the holders of common stock, can issue shares of classes of preferred stock with voting conversion rights, which could adversely affect the voting power of Hyperion Energy common stock.
The consent of the holders of Hyperion Energy common stock is not required for any such issuance of the undesignated shares of preferred stock. The existence of the preferred stock may have the effect of discouraging an attempt, through acquisition of a substantial number of shares of common stock to acquire control of Hyperion Energy, with a view to effecting a merger, sale or exchange of assets or similar transaction.
Indemnification of Directors, Officers and Employees
Colorado law requires a corporation to indemnify any director, officer or employee who is made or threatened to be made party to a proceeding by reason of the former or present official capacity of the director, officer or employee, against judgments, penalties, fines, settlements and reasonable expenses. Delaware law permits a corporation to prohibit indemnification by so providing in its articles of
incorporation or its by-laws. Hyperion Energy has not limited the statutory indemnification in its articles of incorporation and Hyperion Energy’ by-laws state that Hyperion Energy shall indemnify such persons for such expenses and liabilities to such extent as permitted by statute.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling Hyperion Energy pursuant to the foregoing provisions, Hyperion Energy has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.
Transfer Agent
As of the date of this proxy statement/prospectus, there is no transfer agent for the Hyperion Energy common stock. It is anticipated that Manhattan Transfer Registrar Co. will be engaged as transfer agent for the Hyperion Energy common stock after the asset purchase transaction is completed.
COMPARISON OF RIGHTS OF SHAREHOLDERS
Your rights as a shareholder of Accountabilities are governed by Delaware law and Accountabilities’ certificate of incorporation and by-laws. Your rights as a shareholder of Hyperion Energy will be governed by Colorado law and Hyperion Energy’s certificate of incorporation and by-laws. A comparison of your rights as a shareholder of Accountabilities compared to the rights you will have as a shareholder of Hyperion Energy are set forth below, including differences in your rights under New Jersey and Colorado law and under the certificate of incorporation and by-laws of Accountabilities and Hyperion Energy.
Hyperion Energy, Inc. | Accountabilities, Inc. |
Authorized Shares |
| The authorized capital stock of Hyperion Energy, Inc. consists of 120 million shares, consisting of 100 million shares of common stock, $.001 par value per share, and 20 million shares of preferred stock, $.001 par value per share. | The authorized capital stock of Accountabilities, Inc. consists of 100 million shares, consisting of 95 million shares of common stock, $.0001 par value per share, and 5 million shares of preferred stock, $.0001 par value per share. |
Vote Required for Election of Directors |
| The bylaws of Hyperion Energy, Inc. provide that the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. | The Delaware General Corporation Law (referred to herein as the “DGCL”) provides that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy and entitled to vote on the election of directors. A Delaware corporation may provide for cumulative voting in order to elect a director in its certificate of incorporation. |
Action by Shareholders without a Meeting |
| The Hyperion Energy Bylaws provide that any action required or permitted to be taken at a shareholders’ meeting may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. | The bylaws of Accountabilities, Inc. provide that any action required or permitted to be taken at any annual or special meeting of stockholders, may be taken without prior notice and without a vote, if a consent in writing, setting forth the action taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. |
Removal of Directors |
| As required by the Colorado Business Corporation Act (referred to herein as the “CBCA”), the Colorado Bylaws provide that any director or the entire board may be removed, with or without cause, by the holders of a majority of shares then entitled to vote at a meeting for the election of directors. | The Accountabilities Bylaws provide that any director or the entire board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except that when cumulative voting is permitted, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire board, of if there be classes of directors, at an election of the class of directors of which his is a part. |
Indemnification |
| The Hyperion Energy Bylaws provide that the corporation will indemnify directors and former directors, officers and former officers, only if such persons acted in good faith and in a manner such persons reasonably believed to be in or not opposed to the best interest of the company, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In addition, as required by the CBCA, the corporation is required to give shareholders, with or before the notice for the next shareholders’ meeting, a notice of all indemnification of, or advancement of expenses to, the company’s directors in connection with a proceeding by or in the right of the company. | The Accountabilities’ Certificate of Incorporation provides that the corporation shall indemnify directors and former directors, officers and former officers. The right to indemnification includes the right to be paid the expenses incurred in defending any proceeding in advance of its disposition; provided however, that if the DGCL requires, the payment of such expenses incurred by a director or officer shall be made only upon delivery to the corporation of an undertaking to repay all amounts advanced if it shall ultimately be determined that such director or officer is not entitled to indemnification. |
Notice of Adjournment and Other Actions |
| The Hyperion Energy Bylaws provide that notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. The CBCA also requires that (i) if the company’s authorized shares are to be increased, at least 30 days’ notice shall be given to the shareholders of records and (ii) if a shareholder meeting is adjourned for more than 120 days (in which case a new record date is to be fixed by the company’s board of directors), notice shall be given to record holders as of the new record date. | Delaware law provides that when a meeting is adjourned, notice need not be given of the adjourned meeting if the time, place, if any, thereof, are announced at the meeting at which the adjournment is taken. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Unlike the CBCA, Delaware law does not provide for a set notice period for an increase in the authorized shares. |
Record Date |
| Consistent with the CBCA, the Hyperion Energy Bylaws provide: (i) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment therefore, the record date is not to be more than 60 days nor less than 10 days before the date of such meeting; (ii) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, the record date shall not be more than 10 days from the date upon which the resolution fixing the record date is adopted by the board, and (iii) in the case of any other action, the record date shall not be more than 60 days prior to such other action. | The Accountabilities’ Bylaws provide that in order to determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any lawful action, the board may fix a record date not more than 60 days nor less than 10 days prior to any such action. |
Notice of Shareholder Nominations for Directors and Business to Be Brought Before Meetings |
| The Colorado Articles of Incorporation and the Hyperion Energy Bylaws do not contain any provision regarding advance notice of shareholder nominations of directors or notice of business to be brought before meetings of shareholders. | The Accountabilities’ Bylaws provide that business transacted at all special meetings shall be confined to the subjects stated in the call and matters germane thereto, unless all stockholders entitled to vote are present and consent. |
Amendment to Articles (Certificate) of Incorporation |
| Under the CBCA, amendments to the Hyperion Energy Articles of Incorporation, other than ministerial amendments authorized by the directors without shareholder action, may be proposed by the company’s board of directors or by the holders of shares representing at least 10% of all of the votes entitled to be cast on the amendment. The company’s board of directors must recommend the amendment to the shareholders, unless the amendment is being proposed by the shareholders, or unless the board of directors determines that because of a conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the company’s shareholders with the amendment. | Under the DGCL, stockholders are entitled to enact, without any action taken by the board of directors, an amendment to the Accountabilities’ Certificate of Incorporation. Amendments to the Accountabilities’ Certificate of Incorporation generally require that the board of directors adopt a resolution setting forth the amendment, describing its advisability and submitting it to a vote of the stockholders. |
Amendment to the Bylaws |
| The Hyperion Energy Bylaws provide that the bylaws may be rescinded, altered, amended, or repealed by the board by the vote of a majority of the number of directors, or by the shareholders by the vote of a majority of the outstanding shares of voting stock at an annual meeting of stockholders. | Under the DGCL, stockholders have the power to make, alter or repeal the bylaws of the company. The Accountabilities’ Certificate of Incorporation provides that the board has the power to make, alter or repeal the bylaws. |
Preferred Stock |
| The Hyperion Energy Articles of Incorporation authorize the board of directors to issue shares of preferred stock in one or more series, and to fix for each series the rights, preferences and designations. | The Accountabilities’ Certificate of Incorporation contains a similar authorization for the board of directors with respect to preferred stock. The board of directors is permitted to fix for each series the designations, preferences and relative, participating, optional or other special rights, including the voting rights of each series, and the qualifications, limitations or restrictions of such series. |
Dissolution |
| Under the CBCA, the company’s board of directors may submit a proposal of voluntary dissolution of our company to our shareholders entitled to vote thereon. The company’s board of directors must recommend such dissolution to the shareholders as part of the dissolution proposal, unless the board of directors determines that because of a conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to our shareholders. | Accountabilities, Inc. will be subject to the same voting requirements with respect to a dissolution of Accountabilities, Inc. as is Hyperion Energy, Inc., but only if the board of directors of Accountabilities, Inc. initially approves the dissolution of Accountabilities, Inc. If the board of directors does not approve such dissolution, unanimous written consent of all stockholders entitled to vote thereon is required to approve such dissolution of Accountabilities, Inc. |
Dividends |
| The Hyperion Energy Bylaws permit the board of directors to declare dividends upon the capital stock from funds legally available for that purpose. This provisions is subject to the CBCA requirement that the payment of distributions is generally permissible unless after giving effect to the dividend or distribution, the corporation would be unable to pay its debts as they became due in the usual course of business, or if the total assets of the corporation would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were dissolved at the time the dividend was paid, to satisfy the preferential rights of shareholders whose preferential rights upon dissolution of the corporation are greater than those of the shareholders receiving the dividend. | The Accountabilities’ Bylaws permit the board of directors to declare and pay dividends upon the outstanding shares as they deem advisable. Specifically, the provision with respect to dividends in the Accountabilities’ Bylaws is subject to the DCGL requirement that permits a corporation to declare and pay dividends out of surplus or, if there is no surplus, out of the net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year. The DGCL defines surplus as the excess of the net assets of the corporation over the capital of the corporation. Unless the corporation’s board of directors determines otherwise, the capital of the corporation is equal to the aggregate par value of the shares of stock having par value. |
Corporate Records (Form of Records) |
| Under the CBCA, the corporation is required to keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the corporation’s shareholders or its board of directors without a meeting, a record of all actions taken by a committee of the board of directors, and a record of all waivers of notices of meetings of the shareholders and of the board of directors or any committee of the board of directors. In addition, the CBCA requires the corporation to keep specific records at its principal office, including, among other things, the Colorado Articles of Incorporation, the Hyperion Energy Bylaws and the minutes of all shareholders’ meetings, and records of all action taken by the shareholders without a meeting, for the past three years. | The DGCL provides that any records maintained by the corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The DGCL does not require that the corporation keep any specific records at any particular place or for a specific period of time. |
Examination of Books and Records |
| Under the CBCA, any record or beneficial shareholder of the company may, upon 5 days’ written demand, inspect certain records, including shareholder actions, minutes of shareholder meetings, communications with shareholders and recent financial statements. In addition, upon 5 days’ written demand, any such shareholder may inspect the list of shareholders and certain other corporate records, including minutes of the meetings of our board of directors, if the shareholder either (i) has been a shareholder for at least 3 months or (ii) is a shareholder of at least 5% of all outstanding shares of any class of shares when the demand is made, provided that the demand is made in good faith for a proper purpose reasonably related to such person’s interests as a shareholder. | Under the DGCL, the inspection rights of the stockholders of the corporation are the same as under Colorado law, except: (i) there is no requirement that a stockholder has been a stockholder for at least 3 months or is a stockholder of at least 5% of all outstanding shares of any class of shares when the demand is made; and (ii) if the corporation refuses to permit inspection or does not reply to the demand within 5 business days after the demand has been made, the stockholder may apply to the Court of Chancery for an order to compel such inspection. |
Business Combination Statute |
| The CBCA does not contain any business combination provisions. | Section 203 of the DGCL provides for a three-year moratorium on certain business combinations with “interested stockholders” (generally, persons who own, individually or with or through other persons, 15% or more of the corporation’s outstanding voting stock). |
Dissenters (Appraisal) Rights |
| Under the CBCA, shareholders are entitled to exercise dissenters’ rights in the event of certain mergers, share exchanges, sales, leases, exchanges or other dispositions of all or substantially all of the property of the corporation. Shareholders also may dissent in the case of a reverse stock split that reduces the number of shares owned to a fraction of a share or to scrip if such scrip is to be acquired for cash or voided. Dissenters’ rights in Colorado are available to both record holders and beneficial holders. | The DGCL provides appraisal rights only in the case of a stockholder objecting to certain mergers or consolidations. Thus, under the DGCL, stockholders have no appraisal rights in a sale, lease or exchange of all or substantially all of a corporation’s assets. Appraisal rights in Delaware are available to record holders only. |
Derivative Actions |
| Under the CBCA, if a court finds that a derivative action was brought without reasonable cause, the court may require the plaintiff to pay the defendants’ reasonable expenses attributable to the defense of such action, exclusive of attorneys’ fees. In addition, we may, at any time before final judgment, require the plaintiff to give a security for the costs and reasonable expenses which may be incurred by us or other parties named as defendants in the defense of such action, but not including attorneys’ fees, if the shareholder instituting the action holds less than 5% of the outstanding shares of any class of our capital stock, unless the shares so held have a market value in excess of $25,000. If the court then finds that the action was instituted without cause, the corporation may have recourse to such security in the amount determined by the court. | The DGCL’s requirements for bringing derivative actions are substantially similar to those contained in the CBCA, except that the DGCL does not impose (i) the reasonable cause requirement and (ii) the security requirement imposed by the CBCA. |
Reacquisition of Stock by the Corporation |
| Under the CBCA, the corporation may acquire its own shares, subject to certain limitations, and except in certain circumstances, such shares will constitute authorized but unissued shares. | The DGCL requires that (i) all repurchases of shares by the corporation be made out of surplus and (ii) a purchase of shares redeemable at the option of the corporation not be made for more than the price at which the shares may then be redeemed. |
Franchise Tax |
| There is no franchise tax in Colorado. | The DGCL requires corporations to pay franchise tax annually. |
CERTAIN LEGAL INFORMATION AND ADDITIONAL
INFORMATION FOR SHAREHOLDERS
Legal Matters
The validity of the shares of common stock offered hereby will be passed upon for Hyperion Energy by Brian Reiss, Esq.
Experts
The consolidated balance sheet of Hyperion Energy as of December 31, 2006, and the consolidated statements of operations, shareholders’ equity and cash flows for the period from December 29, 2005 through December 31, 2006 have been included in this document in reliance on the report of Rotenberg & Co., LLP, independent certified public accountants, given on their authority as experts in accounting and auditing.
The consolidated balance sheets of SWSB as of September 30, 2005 and 2006 and the consolidated statements of operations, stockholders’ equity and cash flows for the years then ended have been included in this document in reliance on the reports of Miller, Ellin & Company, LLP, independent certified public accountants, given on their authority as experts in accounting and auditing.
Where You Can Find More Information
Hyperion Energy files annual, quarterly and current reports, proxy statements and other information with the SEC. Hyperion Energy’ SEC filings are available to the public over the Internet at the SEC’s web site at httyp://www.sec.gov. You may also read and copy any document Hyperion Energy files with the SEC at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549, 233 Broadway, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
INDEX TO FINANCIAL STATEMENTS
Hyperion Energy, Inc.
| | Page |
| Report of Independent Auditors | F-3 |
| Balance Sheets as of December 31, 2006 | F-4 |
| Statements of Operations for the Year Ended December 31, 2006 and the period December 29, 2005 (inception) through December 31, 2006 | F-5 |
| Statements of Changes in Shareholders’ Equity (Deficit) from December 29, 2005 (inception) through December 31, 2006 | F-6 |
| Statements of Cash Flows for the Year Ended December 31, 2006 and the period December 29, 2005 (inception) through December 31, 2006 | F-7 |
| Notes to Financial Statements | F-8 |
| Balance Sheet as of September 30, 2007 | F-10 |
| Statements of Operations for the nine months ended September 30, 2006 and 2007 | F-11 |
| Statements of Changes in Shareholder's Equity (Deficit) for the period December 29, 2005 (inception) to September 30, 2007 | F-12 |
| Statements of Cash Flows for the nine months ended September 30, 2006 and 2007 | F-13 |
| Notes to Financial Statements | F-14 |
| | |
Staffing and Workforce Solutions Business of Accountabilities, Inc.
| | Page |
| Report of Independent Auditors | F-16 |
| Balance Sheets as of September 30, 2005 and 2006 | F-17 |
| Statements of Operations for the Years Ended September 30, 2005 and 2006 | F-18 |
| Statements of Cash Flows for the Years Ended September 30, 2005 and 2006 | F-19 |
| Notes to Financial Statements | F-20 |
| Balance Sheets as of June 30, 2006 and 2007 | F-30 |
| Statements of Operations for the Nine Months Ended June 30, 2006 and 2007 | F-31 |
| Statements of Cash Flows for the Nine Months Ended June 30, 2006 and 2007 | F-32 |
| Notes to Financial Statements | F-33 |
| | |
Unaudited Pro Forma Condensed Combined Financial Statements of Hyperion Energy, Inc. and the Staffing and Workforce Solutions Business of Accountabilities, Inc.
| | Page |
| Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2007 | F-39 |
| Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 2007 | F-40 |
| Unaudited Pro Forma Condensed Combined Statement of Operations for the Twelve Months Ended December 31, 2006 | F-41 |
| Notes to Unaudited Pro Forma Condensed Combined Financial Statements | F-42 |
Culver City, California, Lawndale, California and Orange, California Offices of Stratus Services Group, Inc.
| | Page |
| Independent Registered Public Accounting Firm’s Report | F-43 |
| Statements of Net Assets Sold as of September 30, 2005 and 2004 | F-44 |
| Statement of Net Revenues, Cost of Revenues and Expenses for the years Ended September 30, 2005 and 2004 | F-45 |
| Notes to Financial Statements | F-46 |
| Statement of Net Revenues, Cost of Revenues and Expenses for the Two Months Ended November 28, 2005 and the Three Months Ended December 31, 2004 | F-50 |
| Notes to Financial Statements | F-51 |
| Unaudited Pro Forma Condensed Financial Information | F-53 |
ReStaff Services, Inc.
| | Page |
| Report of Independent Registered Public Accounting Firm | F-56 |
| Balance Sheets as of December 31, 2006 and 2005 | F-57 |
| Statements of Income for the Year Ended December 31, 2006 and the Period from April 12, 2005 (Inception) through December 31, 2005 | F-58 |
| Statements of Cash Flow for the Year Ended December 31, 2006 and the Period from April 12, 2005 (Inception) through December 31, 2005 | F-59 |
| Statement of Stockholders’ Equity for the Period from April 12, 2005 through December 31, 2006 | F-60 |
| Notes to Financial Statements | F-61 |
| Statements of Income for the Two Months Ended February 26, 2007 and the Three Months Ended March 31, 2006 | F-67 |
| Statements of Cash Flows for the Two Months Ended February 26, 2007 and the Three Months Ended March 31, 2006 | F-68 |
| Statement of Stockholders’ Equity for the Period from December 31, 2006 through February 26, 2007 | F-69 |
| Notes to Financial Statements | F-70 |
| Unaudited Pro Forma Condensed Financial Information | F-71 |
US Temp Services, Inc.
| | Page |
| Report of Independent Registered Public Accounting Firm | F-75 |
| Balance Sheets as of December 31, 2005 and 2004 | F-76 |
| Statements of Operations for the Years Ended December 31, 2005 and 2004 | F-77 |
| Statements of Cash Flow for the Years Ended December 31, 2005 and 2004 | F-78 |
| Statements of Stockholders’ Deficit for the Period from December 31, 2003 through December 31, 2005 | F-79 |
| Notes to Financial Statements | F-80 |
| Statements of Operations for the Three Months Ended March 31, 2006 and 2005 | F-87 |
| Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005 | F-88 |
| Statement of Stockholders’ Deficit for the Period from December 31, 2005 through March 31, 2006 | F-89 |
| Notes to Financial Statements | F-90 |
| Unaudited Pro Forma Condensed Financial Information | F-91 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders
Hyperion Energy, Inc.
San Diego, California
We have audited the accompanying balance sheet of Hyperion Energy, Inc. as of December 31, 2006, and the related statements of operations and changes in stockholders' equity (deficit) for the years then ended and the period from inception, December 29, 2005, through December 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2006, and the results of its operations for the year then ended and for the period from inception, December 29, 2005, through December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming Hyperion Energy, Inc. will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has incurred losses that have resulted in an accumulated deficit. This condition raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding this matter are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Rotenberg & Co., llp
Rotenberg & Co., llp
Rochester, New York
March 9, 2007
HYPERION ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
| | | As of | |
| | | December 31, 2006 | |
ASSETS | | | |
| | | | |
| | | |
| Cash | | $ | - | |
| | | | |
| Total Current Assets | | | - | |
| | | | |
| Total Assets | | $ | - | |
| | | | |
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) | | | | |
| | | | |
| Current Liabilities | | $ | - | |
| | | | |
| Accounts Payable | | | - | |
| | | | |
| Total Current Liabilities | | $ | - | |
| | | | |
| Stockholders’ Equity: Common Stock $.001 par value, authorized 100,000,000 shares, | | | | |
1,390,000 issued December 29, 2005 | | | | |
| Preferred Stock $.001 par value, authorized 20,000,000; 0 issued and outstanding | | | - | |
Additional Paid In Capital | | | | |
| | | | | |
Deficit accumulated during development stage | | | | |
| | | | | |
Total Shareholders’ Equity (Deficit) | | | | |
| | | | | |
Total Liability and Stockholders’ Equity (Deficit) | | | | |
See Notes to Financial Statements
HYPERION ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
| | | | | | December 29, 2005 | |
| | | | | | (Inception) | |
| | | Year Ended | | | Through | |
| | | December 31, 2006 | | | December 31, 2006 | |
| | | | | | | |
| REVENUES | | | | | | |
| | | | | | | |
| | | | | | | | |
| Total Revenues | | | - | | | | - | |
| | | | | | | | |
| General and Administrative Expenses | | | - | | | | 1,390 | |
Total General & Administrative Expenses | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
Weighted Average Number of Common Shares Outstanding | | | | | | | | |
See Notes to Financial Statements
HYPERION ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FROM DECEMBER 29, 2005 (INCEPTION) THROUGH DECEMBER 31, 2006
| | | | | | | | | | | | DEFICIT | | | | |
| | | | | | COMMON | | | ADDITIONAL | | | DURING | | | | |
| | | COMMON | | | STOCK | | | PAID-IN | | | DEVELOPMENT | | | | |
| | | STOCK | | | AMOUNT | | | CAPITAL | | | STAGE | | | TOTAL | |
| | | | | | | | | | | | | | | | |
| December 29, 2005 (inception) | | | | | | | | | | | | | | | |
Shares issued for services | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Net loss, December 31, 2005 | | | | | | | | | | | | | | | | | | | | |
| Balance December 31, 2005 | | | 1,390,000 | | | | 1,390 | | | | - | | | | (1,390 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | |
| Net loss, December 31, 2006 | | | | | | | | | | | | | | | - | | | | (1,390 | ) |
| | | | | | | | | | | | | | | | | | | | |
| Balance December 31, 2006 | | | 1,390,000 | | | $ | 1,390 | | | $ | - | | | $ | (1,390 | ) | | $ | - | |
See Notes to Financial Statements
HYPERION ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
| | | | | | December 29, 2005 | |
| | | | | | (Inception) | |
| | | Year Ended | | | Through | |
| | | December 31, 2006 | | | December 31, 2006 | |
| | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
| | | | | | | |
| | | | | | | | |
| Issuance of stock for services rendered | | | - | | | | 1,390 | |
| | | | | | | | |
| Net cash provided by (used in) operating activities | | | - | | | | - | |
| | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
| | | | | | | | |
| Net Cash provided by (used in) investing activities | | | - | | | | - | |
| | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| | | | | | | | |
| Net cash provided by (used in) financing activities | | | - | | | | - | |
| | | | | | | | |
| Net increase (decrease) in cash | | | - | | | | - | |
Cash at beginning of year | | | | | | | | |
| Cash at end of year | | $ | - | | | $ | - | |
| | | | | | | | |
| Non Cash investing and financing activities: | | | | | | | | |
Common stock issued to founder for services rendered | | | | | | | | |
| | | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | |
| Interest paid | | $ | - | | | $ | - | |
| | | | | | | | |
See Notes to Financial Statements
HYPERION ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2006
NOTE 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS |
HYPERION ENERGY, INC. (the "Company") was incorporated under the laws of the State of Colorado on December 29, 2005 and has been inactive since inception. The Company intends to serve as a vehicle to effect an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business.
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
BASIS OF PRESENTATION - DEVELOPMENT STAGE COMPANY
The Company has not earned any revenue from operations. Accordingly, the Company's activities have been accounted for as those of a "Development Stage Enterprise" as set forth in Financial Accounting Standards Board Statement No. 7 ("SFAS 7"). Among the disclosures required by SFAS 7 are that the Company's financial statements be identified as those of a development stage company, and that the statements of operations, stockholders' equity and cash flows disclose activity since the date of the Company's inception.
ACCOUNTING METHOD
The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
INCOME TAXES
Income taxes are provided in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. There were no current or deferred income tax expenses or benefits due to the Company not having any material operations for period ended December 31, 2006.
HYPERION ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2006
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
BASIC EARNINGS (LOSS) PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock. SFAS No. 128 supersedes the provisions of APB No. 15, and requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share. The Company has adopted the provisions of SFAS No. 128 effective December 29, 2005 (inception).
Basic net loss per share amounts is computed by dividing the net income by the weighted average number of common shares outstanding. Diluted earnings per share are the same as basic earnings per share due to the lack of dilutive items in the Company.
IMPACT OF NEW ACCOUNTING STANDARDS
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position, or cash flow.
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not established any source of revenue to cover its operating costs. The Company will engage in very limited activities without incurring any liabilities that must be satisfied in cash until a source of funding is secured. The Company will offer noncash consideration and seek equity lines as a means of financing its operations. If the Company is unable to obtain revenue producing contracts or financing or if the revenue or financing it does obtain is insufficient to cover any operating losses it may incur, it may substantially curtail or terminate its operations or seek other business opportunities through strategic alliances, acquisitions or other arrangements that may dilute the interests of existing stockholders.
NOTE 4 | SHAREHOLDER’S EQUITY |
On December 29, 2005 (inception), the Board of Directors issued 1,390,000 shares of common stock for $1,390 in services to the founding shareholder of the Company to fund organizational start-up costs.
The stockholders' equity section of the Company contains the following classes of capital stock as of December 31, 2006:
| • | Common stock, $ 0.001 par value: 100,000,000 shares authorized; 1,390,000 shares issued and outstanding |
| • | Preferred stock, $ 0.001 par value: 20,000,000 shares authorized; but not issued and outstanding. |
HYPERION ENERGY, INC.
(A Development Stage Enterprise)
BALANCE SHEET
SEPTEMBER 30, 2007
| | | September 30, 2007 | | | December 31, 2006 | |
| | | (Unaudited) | | | (Audited) | |
| | | | | | | |
| ASSETS | | | | | | |
| | | | | | | |
| | | | | | | | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDER’S EQUITY | | | | | | | | |
| | | | | | | | | |
Commitment and contingencies | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| Preferred stock, $.001 par value, | | | | | | | | |
authorized 20,000,000 shares, none issued | | | | | | | | |
| Common stock, $.001 par value, authorized 100,000,000 shares | | | | | | | | |
1,390,000 issued and outstanding | | | | | | | | |
| Additional paid in capital | | | - | | | | - | |
Deficit accumulated during the development stage | | | | | | | | |
| | | | | | | | | |
Total stockholder’s equity | | | | | | | | |
| | | | | | | | | |
Total liabilities and stockholder’s equity | | | | | | | | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements
HYPERION ENERGY, INC.
(A Development Stage Enterprise)
INTERIM AND UNAUDITED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | For the period | |
| | | For the nine | | | For the three | | | December 29, 2005 | |
| | | Months ended | | | Months ended | | | (inception) | |
| | | September 30, 2007 | | | September 30, 2007 | | | Through | |
| | | and 2006 | | | and 2006 | | | September 30, 2007 | |
| | | | | | | | | | |
| | | | | | | | | | | | |
| Expenses | | | - | | | | - | | | | - | |
General and Administrative | | | | | | | | | | | | |
| Total Expenses | | | - | | | | - | | | | (1,390 | ) |
| | | | | | | | | | | | |
| Net loss per share (basic and diluted) | | | - | | | | - | | | | - | |
Weighted average shares outstanding (basic and diluted) | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements
HYPERION ENERGY, INC.
(A Development Stage Enterprise)
INTERIM AND UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
For the period from December 29, 2005 (Inception) to September 30, 2007
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | Additional | | | | | | | |
| | | Common Stock | | | Paid-In | | | Deficit | | | | |
| | | Shares | | | Amount | | | Capital | | | Accumulated | | | Total | |
| | | | | | | | | | | | | | | | |
Issuance of Common Stock | | | | | | | | | | | | | | | |
Balance December 29, 2005 | | | | | | | | | | | | | | | | | | | | |
| Shares issued in lieu of services | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| 2005 Net Loss | | | | | | | | | | | | | | $ | (1,390 | ) | | $ | (1,390 | ) |
Balance at December 31, 2006 | | | | | | | | | | | | | | | | | | | | |
| September 30, 2007 | | | 1,390,000 | | | $ | 1,390 | | | $ | - | | | $ | (1,390 | ) | | $ | - | |
| | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements
HYPERION ENERGY, INC.
(A Development Stage Enterprise)
INTERIM AND UNAUDITED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | For the period | |
| | | For the nine months | | | December 29, 2005 | |
| | | Ended | | | (inception) | |
| | | September 30, 2007 | | | Through | |
| | | And 2006 | | | September 30, 2007 | |
| | | | | | | |
Cash flows from operating activities | | | | | | |
| Net loss | | $ | - | | | $ | (1,390 | ) |
Shares issued in lieu of services | | | | | | | | |
| | | | | | | | | |
Cash flows used in operating activities | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
Cash, beginning of period | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | | �� | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid during the period for: | | | | | | | | |
| | | | | | | | |
| Income taxes | | | - | | | | - | |
| | | | | | | | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements
HYPERION ENERGY, INC.
(A Development Stage Enterprise)
NOTES TO INTERIM AND UNAUDITED FINANCIAL STATEMENTS
September 30, 2007
NOTE 1 | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Nature of Operations
Hyperion Energy, Inc. (“the Company”) was incorporated in the State of Colorado on December 29, 2005 and has been inactive since inception. The company intends to serve as a vehicle to effect an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business. It is currently in its development stage.
As a blank check company, the Company’s business is to pursue a business combination through acquisition, or merger with, an existing company. The company has subsequently entered into an asset purchase agreement which is referenced in Note 5.
Since inception, the Company has been engaged in organizational efforts.
General
The accompanying unaudited financial statements include all adjustments of a normal and recurring nature, which, in the opinion of Company’s management, are necessary to present fairly the Company’s financial position as of September 30, 2007, the results of its operations for the three and nine months ended September 30, 2007 and 2006, and from the date of inception (December 29, 2005) through September 30, 2007, and cash flows for the nine months ended September 30, 2007 and 2006, and from the date of inception (December 29, 2005) through September 30, 2007.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These condensed financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s annual report on Form 10-K to the Securities and Exchange Commission for the year ended December 31, 2006
The results of operations and cash flows for the three and nine months September June 30, 2007 are not necessarily indicative of the results to be expected for the full year’s operation.
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
BASIS OF PRESENTATION – DEVELOPMENT STAGE COMPANY
The Company has not earned any revenue from operations. Accordingly, the Company's activities have been accounted for as those of a "Development Stage Enterprise" as set forth in Financial Accounting Standards Board Statement No. 7 ("SFAS 7"). Among the disclosures required by SFAS 7 are that the Company's financial statements be identified as those of a development stage company, and that the statements of operations, stockholders' equity and cash flows disclose activity since the date of the Company's inception.
ACCOUNTING METHOD
The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.
BASIC EARNINGS (LOSS) PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock. SFAS No. 128 supersedes the provisions of APB No. 15, and requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share. The Company has adopted the provisions of SFAS No. 128.
Basic net loss per share amounts is computed by dividing the net income by the weighted average number of common shares outstanding. Diluted earnings per share are the same as basic earnings per share due to the lack of dilutive items in the Company.
IMPACT OF NEW ACCOUNTING STANDARDS
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position, or cash flow.
The Company’s financial statements have been presented on the basis that it is a going concern in the development stage, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of the date of these financial statements, the Company has made no efforts to identify a possible business combination.
The Company’s shareholder shall fund the Company’s activities while the Company takes steps to locate and negotiate with a business entity through acquisition, or merger with, an existing company; however, there can be no assurance these activities will be successful.
NOTE 4 | SHAREHOLDER’S EQUITY |
On January 1, 2006, the Board of Directors issued 1,390,000 shares of common stock for $1,390 in services to the founding shareholder of the Company to fund organizational start-up costs.
The stockholders' equity section of the Company contains the following classes of capital stock as of September 30, 2007:
| • | Common stock, $ 0.001 par value: 100,000,000 shares authorized; 1,390,000 shares issued and outstanding; |
| • | Preferred stock, $ 0.001 par value: 20,000,000 shares authorized; but not issued and outstanding. |
On July 26, 2007, the Company entered into an Asset Purchase Agreement with AccountAbilities, Inc., based in Manalapan, New Jersey, to purchase substantially all of the properties, rights and assets used by AccountAbilities, Inc. in conducting its business of providing (i) professional staffing services, primarily to CPA firms and (ii) information technology/scientific staffing services and workforce solutions to various businesses.
The purchase price for the AccountAbilities, Inc. assets shall be a number of shares of the Company’s common stock which will be equal to the number of shares of AccountAbilities, Inc. common stock outstanding at the time of closing. In addition, AccountAbilities, Inc. has agreed to pay the Company’s sole shareholder a total of $12,500 in exchange for his agreement to surrender all of his shares of the Company’s common stock for cancellation at the time of closing. As a result of these transactions (the “Transactions”), the shares of the Company’s common stock issued to AccountAbilities, Inc. will represent 100% of the Company’s outstanding common stock after the completion of the Transactions.
The closing of the Transactions is scheduled to take place within five (5) days after the date when each of the conditions to closing set forth in the Purchase Agreement have been fulfilled (or waived by the party entitled to waive such condition), including, among others, the approval of the sale of assets by the stockholders of each of AccountAbilities, Inc., and the effectiveness of a Registration Statement on Form S-4 which will be filed with the Securities and Exchange Commission to register the shares being issued to AccountAbilities, Inc.
The existing sole officer and director of the Company will resign upon the closing of the Transactions and a new management team and new Board of Directors consisting of individuals to be designated by AccountAbilities, Inc. will be appointed.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Accountabilities, Inc.
We have audited the accompanying balance sheets of the Staffing and Workforce Solutions Business of Accountabilities, Inc., as of September 30, 2006 and 2005 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of Accountabilities, Inc.’s and the Staffing and Workforce Solutions Businesses management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Staffing and Workforce Solutions Businesses internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Staffing and Workforce Solutions Business of Accountabilities, Inc. as of September 30, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Miller, Ellin & Company, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
July 24, 2007
STAFFING AND WORKFORCE SOLUTIONS BUSINESS
OF ACCOUNTABILITIES, INC.
BALANCE SHEETS
| | | September 30, | |
| | | 2006 | | | 2005 | |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| | | | | | | | |
| Accounts receivable – less allowance for doubtful accounts of $140,000 | | | 106,000 | | | | - | |
Due from financial institution | | | | | | | | |
| Unbilled receivables | | | 945,000 | | | | - | |
| | | | | | | | |
| Current deferred tax asset, net | | | - | | | | 36,000 | |
| | | | | | | | |
| Total current assets | | | 1,720,000 | | | | 37,000 | |
| | | | | | |
| Property and equipment, net | | | 135,000 | | | | 1,000 | |
| | | | | | | | |
| Intangible assets, net | | | 745,000 | | | | - | |
| | | | | | | | |
| | | | | | | |
| | | | | | | | |
| | | | | | |
| LIABILITIES AND NET ASSETS | | | | | | |
| | | | | | |
| Accounts payable and accrued liabilities | | $ | 474,000 | | | $ | 93,000 | |
Accrued wages and related obligations | | | | | | | | |
| Current portion of long-term debt | | | 431,000 | | | | - | |
Current portion of related party long-term debt | | | | | | | | |
| Income taxes payable | | | 20,000 | | | | - | |
Due to Accountabilities, Inc. | | | | | | | | |
| Total current liabilities | | | 2,606,000 | | | | 93,000 | |
| | | | | | |
| Long-term debt, net of current portion | | | 665,000 | | | | - | |
Related party long-term debt, net of current portion | | | | | | | | |
| Acquisition related contingent liability | | | 448,000 | | | | - | |
| | | | | | | | |
| | | | | | | |
Commitments and contingencies (Note 13) | | | | | | |
| | | | | | | |
| | | | | | |
| Accumulated earnings (deficit) | | | 29,000 | | | | (55,000 | ) |
| | | | | | | | |
| Total net assets | | | 309,000 | | | | (55,000 | ) |
| | | | | | |
| Total liabilities and net assets | | $ | 4,073,000 | | | $ | 38,000 | |
The accompanying notes are an integral part of these financial statements
STAFFING AND WORKFORCE SOLUTIONS BUSINESS
OF ACCOUNTABILITIES, INC.
STATEMENTS OF OPERATIONS
| | | Year Ended September 30, 2006 | | | For The Period From September 1, 2005 (Date of Inception) to September 30, 2005 | |
| | | | | | | |
| | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
Selling, general and administrative expenses | | | | | | | | |
| Depreciation and amortization | | | 118,000 | | | | - | |
| | | | | | | | |
| Income (loss) from operations | | | 638,000 | | | | (91,000 | ) |
| | | | | | | | |
| Interest expense | | | 498,000 | | | | - | |
| | | | | | | | |
| Income (loss) before provision for (benefit of) income taxes | | | 140,000 | | | | (91,000 | ) |
| | | | | | | | |
| Provision (benefit) for income taxes | | | 56,000 | | | | (36,000 | ) |
| | | | | | | | |
| Net income (loss) | | $ | 84,000 | | | $ | (55,000 | ) |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements
STAFFING AND WORKFORCE SOLUTIONS BUSINESS
OF ACCOUNTABILITIES, INC.
STATEMENTS OF CASH FLOWS
| | | Year Ended September 30, 2006 | | | For The Period From September 1, 2005 (Date of Inception) to September 30, 2005 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| | | | | | | | |
| Adjustments to reconcile net income (loss) to cash provided by operating activities: | | | | | | | | |
Deferred income tax provision, net | | | | | | | | |
| Depreciation and amortization | | | 118,000 | | | | - | |
| | | | | | | | |
| Changes in operating assets and liabilities, net of effect of acquisitions: | | | | | | | | |
Trade accounts receivable | | | | | | | | |
| Due from financial institution | | | (431,000 | ) | | | - | |
| | | | | | | | |
| Due from related party | | | (14,000 | ) | | | - | |
| | | | | | | | |
| Accounts payable and accrued liabilities | | | 1,365,000 | | | | 92,000 | |
| | | | | | | | |
| Due to Accountabilities, Inc. | | | 30,000 | | | | - | |
| | | | | | | | |
| Net cash provided by operating activities | | | 268,000 | | | | 1,000 | |
| | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
Purchase of property and equipment | | | | | | | | |
| Acquisitions | | | (247,000 | ) | | | - | |
| | | | | | | | |
| Net cash used in investing activities | | | (341,000 | ) | | | (1,000 | ) |
| | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
Cash invested by Accountabilities, Inc. | | | | | | | | |
| Principal payments on long-term debt | | | (125,000 | ) | | | - | |
Proceeds from issuance of long-term debt – related parties | | | | | | | | |
| Principal payments on long-term debt – related parties | | | (26,000 | ) | | | | |
Payments on contingent acquisition related liability | | | | | | | | |
| | | | | | | | | |
Net cash provided by financing activities | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
Cash at beginning of period | | | | | | | | |
| Cash at end of period | | $ | 8,000 | | | $ | - | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements
STAFFING AND WORKFORCE SOLUTIONS BUSINESS
OF ACCOUNTABILITIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. | Summary of Significant Accounting Policies |
Nature of Operations and Basis of Presentation
The Staffing and Workforce Solutions Business of Accountabilities, Inc. (“SWSB”) began operations in September 2005 (“Date of Inception”). SWSB is a national provider of temporary commercial staffing in areas such as light industrial and clerical services, and professional niche staffing services in areas such as accounting, pharmaceutical and information technology. SWSB conducts all of its business in the United States through the operation of ten staffing and recruiting offices, and through marketing agreements with five public accounting firms. The agreements with the public accounting firms generally provide for the public accounting firm to market and sell accounting and finance staffing and placement services to customers in a defined market in exchange for a defined share of profits generated from those sales. Immediately prior to the start of operations of SWSB, Accountabilities, Inc. had no material business operations, and, since the date of formation, SWSB has constituted the majority of business operations within Accountabilities, Inc.
In July 2007, Accountabilities, Inc. and Hyperion Energy, Inc. (“Hyperion") entered into an Asset Purchase Agreement, whereby Hyperion agreed to purchase the business of SWSB in exchange for a number of shares of Hyperion common stock equal to the number of shares of Accountabilities, Inc. common stock outstanding at the time of closing. In addition, Accountabilities, Inc. will pay the sole shareholder of Hyperion a total of $12,500 in exchange for his agreement to surrender all of his shares of Hyperion common stock for cancellation at the time of closing. As a result of these transactions, the shares of Hyperion common stock issued to Accountabilities, Inc. will represent 100% of Hyperion’s outstanding common stock.
The Hyperion shares will be registered with the Securities and Exchange Commission under a Form S-4 Registration Statement for distribution on a pro rata basis to Accountabilities, Inc.’s shareholders upon the closing of the transaction. Due to the resulting 100% ownership by Accountabilities, Inc.’s shareholders, the transaction will be accounted for as a recapitalization and the historical financial statements presented will be those of SWSB for all periods prior to the merger. The historical net assets of SWSB will be restated to give effect to the total par value of the common stock issued in the transaction, with the balance represented as additional paid-in capital.
The accompanying financial statements and notes have been prepared utilizing certain “carve-out” accounting procedures wherein certain assets, liabilities and expenses historically recorded or incurred at the parent company level, which related to or were incurred on behalf of SWSB, have been identified and allocated as appropriate to reflect the financial results of SWSB as if it were a stand alone entity since the Date of Inception. Consequently, all transactions directly associated with the operations of SWSB, have been reflected, as well as the majority of indirect expenses incurred at the parent company level since the Date of Inception. Because SWSB’s operations have, since the Date of Inception, constituted the majority of business operations within Accountabilities, Inc., the indirect parent company operating expenses incurred since that date and not allocated to SWSB is considered immaterial. Management believes this allocation method to be reasonable under the circumstances.
Revenue Recognition
Revenues are recognized when professionals deliver services, or, in the case of permanent placements, when the candidate commences employment.
Cash
SWSB considers cash on hand, deposits in banks, and short-term investments purchased with an original maturity date of three months or less to be cash and cash equivalents.
Accounts Receivable
SWSB maintains an allowance for doubtful accounts for estimated losses resulting from its clients failing to make required payments for services rendered. Management estimates this allowance based upon knowledge of the financial condition of its clients, review of historical receivable and reserve trends and other pertinent information. If the financial condition of SWSB’s clients deteriorates or there is an unfavorable trend in aggregate receivable collections, additional allowances may be required.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the following estimated useful lives:
| |
| Office Equipment | 3 years |
| |
| Software | 3 years |
| |
Assessments of whether there has been a permanent impairment in the value of property and equipment are periodically performed by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Management believes no permanent impairment has occurred.
Intangible Assets
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and other intangible assets with indefinite lives are not subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. SWSB performed their annual impairment analysis as of May 31, 2007 and will continue to test for impairment annually. No impairment was indicated as of May 31, 2007. Other intangible assets with finite lives are subject to amortization, and impairment reviews are performed in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
Income Taxes
An estimated provision for income taxes has been prepared in accordance with SFAS 109, “Accounting for Income Taxes”, as if SWSB were a stand-alone entity since the Date of Inception, without regard to the tax circumstances of Accountabilities, Inc. in order to provide a more accurate depiction of the stand-alone operating results of SWSB. Despite significant deferred tax assets estimated for Accountabilities, Inc. due to historical net operating losses, it is not expected that these deferred tax assets will be available to SWSB after the sale to Hyperion.
Under SFAS 109, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. If necessary, valuation allowances are established to reduce deferred tax assets to the amount expected to be realized when, in management’s opinion, it is more likely than not that some portion of the deferred tax assets will not be realized. The estimated provision for income taxes represents current taxes that would be payable net of the change during the period in deferred tax assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.
US Temp Services, Inc. Offices Acquisition
On March 31, 2006 SWSB acquired the operations of five offices from US Temp Services, Inc. (“US Temp Acquisition”) for a total purchase price of $1,723,000. The consideration included $75,000 in cash and $930,000 in notes payable. In addition, concurrent with the acquisition, SWSB entered into long-term consulting agreements with two of the principals, which required the issuance of 160,000 shares of common stock valued at approximately $44,000 and a series of payments for future consulting services which have been treated as debt obligations with a fair value at the date of acquisition of approximately $292,000. The stock and payments under the consulting agreements have been treated as additional purchase price consideration. Transaction costs directly attributable to the acquisition totaled $382,000 and included consideration totaling $275,000 given to an individual, who is also a major shareholder of Accountabilities, Inc., in the form of 150,000 shares of common stock valued at approximately $41,000, a demand note totaling $150,000, and a series of payments for future consulting services which have been treated as debt obligations with a fair value at the date of acquisition of approximately $84,000. All results of operations of the acquired offices have been included in the accompanying Statements of Operations since the date of acquisition.
The following table summarizes the fair values of the assets acquired and the liabilities assumed at the date of the acquisition pursuant to Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS 141”).
| | | | |
| Property and equipment | | | 25,000 | |
Customer lists and relationships | | | | |
| Non-solicitation agreement | | | 30,000 | |
| | | | |
| Total assets acquired | | | 1,916,000 | |
| | | | |
| Total purchase price | | $ | 1,723,000 | |
Customer lists and relationships, and the non-solicitation agreement, and are being amortized over weighted average useful lives of seven years and three years, respectively. Through September 30, 2006 amortization of $12,000 and $5,000 has been recognized related to the customer lists and relationships and the non-solicitation agreement, respectively.
Stratus Services Group, Inc. Offices Acquisition
On November 28, 2005, SWSB acquired the operations of three offices from Stratus Services Group, Inc. (“Stratus Acquisition”). All results of operations of the acquired offices have been included in the accompanying Statements of Operations since the date of acquisition. The purchase price is contingent upon the future revenues generated by the offices from existing customers as follows: a) 2% of revenue for the first twelve months, b) 1% of revenue for the second twelve months, and c) 1% of revenue for the third twelve months (“Stratus Earnout”). In accordance with SFAS 141 fair values were assigned to the acquired assets and liabilities in recording the acquisition, and accordingly $638,000 was assigned to customer lists and relationships, and $40,000 to property and equipment. Because the purchase price includes only the Stratus Earnout which is based upon future revenues, the total fair value of the acquired assets is greater than the purchase price as of the day of the acquisition, which was zero as the Stratus Earnout had yet to be earned. Consequently, the total fair value of the acquired assets of $678,000 was recorded as a liability (“Acquisition related contingent liability”) as of the day of the acquisition in accordance with SFAS 141. Through September 30, 2006 $242,000 has been paid related to the Stratus Earnout, reducing the Acquisition related contingent liability to $436,000 as of September 30, 2006.
Customer lists and relationships associated with the Stratus Acquisition are being amortized over a weighted average useful life of seven years. Through September 30, 2006 amortization of $75,000 has been recognized related to the customer lists and relationships.
EXP Staffing, Inc. Offices Acquisition
On January 1, 2006 SWSB acquired the operations of two offices from EXP Staffing, Inc. (“EXP”). The purchase price consisted of 100,000 shares of common stock valued at $45,000, which was recorded as goodwill. The historical results of operations of EXP are not considered material to the financial statements of SWSB and therefore proforma disclosures are not included below.
Nucon Engineering Accounts Receivable and Customer Lists
On December 23, 2005 SWSB acquired outstanding accounts receivable and customer lists from Nucon Engineering Associates, Inc. (“Nucon”), in exchange for a series of payments to the principal totaling $61,000. No other assets, liabilities or commitments were exchanged. The servicing of the accounts receivable and customer relationships associated with the customer lists were assumed by existing SWSB employees. The historical results of operations of Nucon are not considered material to the financial statements of SWSB and therefore proforma disclosures are not included below.
The following unaudited pro forma information shows SWSB’s results of operations for the year ended September 30, 2006 and for the period from the Date of Inception, September 1, 2005 to September 30, 2005, as if the Stratus Acquisition and US Temp Acquisition had occurred on September 1, 2005. These pro forma statements have been prepared for comparative purposes only and are not intended to be indicative of what SWSB’s results would have been had the acquisition occurred at the beginning of the periods presented or the results which may occur in the future.
| | | Year Ended September 30, 2006 | | | For The Period From September 1, 2005 (Date of Inception) to September 30, 2005 | |
| | | | | | |
| Net income (loss) | | $20,000 | | | $(20,000 | ) |
3. | Intangible Assets and Goodwill |
The following table presents detail of SWSB’s intangible assets, estimated lives, related accumulated amortization and goodwill at September 30, 2006:
| | | Gross | | | Accumulated Amortization | | | Net | |
Customer lists and relationships (7 years) | | | | | | | | | | | | |
| Non-solicitation agreement (3 years) | | | 30,000 | | | | (5,000 | ) | | | 25,000 | |
| | | | | | | | | | | | |
| Total | | $ | 838,000 | | | $ | (93,000 | ) | | $ | 745,000 | |
| | | | | | | | | | | | |
| Goodwill (indefinite life) | | $ | 1,441,000 | | | | | | | $ | 1,441,000 | |
SWSB recorded amortization expense for the year ended September 30, 2006 of $93,000. Estimated intangible asset amortization expense (based on existing intangible assets) for the years ending September 30, 2007, 2008, 2009, 2010 and 2011 is $125,000, $125,000, $120,000, $115,000 and $115,000, respectively.
Due from related party represents outstanding amounts advanced to the president of Accountabilities, Inc. under a promissory note dated March 24, 2006 totaling $14,000 as of September 30, 2006. The note is payable upon demand and is not subject to interest.
SWSB had no property and equipment at September 30, 2005. At September 30, 2006 property and equipment consists of the following:
| | | | |
| Office Equipment | | | 9,000 | |
| | | | |
| Software | | | 1,000 | |
| | | | |
| | | | 160,000 | |
Less accumulated depreciation and amortization | | | | |
| | | $ | 135,000 | |
6. | Accrued Wages and Related Obligations |
Accrued wages and related obligations consisted of the following as of September 30, 2006:
Accrued payroll and related costs | | | | |
| Accrued leased employee costs | | | 995,000 | |
| | | | |
Accrued leased employee costs include the costs associated with employees leased by SWSB from TSE-PEO, Inc. (“TSE”), a professional employer organization that also owns approximately 10% of the outstanding common stock of Accountabilities, Inc. as of September 30, 2006. SWSB leases employees associated with all of its operations, with the exception of certain employees involved only in corporate functions. SWSB pays an amount equal to the actual wages and associated payroll taxes for the employee plus an agreed upon rate for workers’ compensation insurance. The total amount charged by TSE during the year ended September 30, 2006 was $25,312,000.
SWSB had no long-term debt at September 30, 2005. Long-term debt at September 30, 2006 is summarized as follows:
| Long-term debt | | | |
| | | | |
| 3% convertible subordinated note (ii) | | | 631,000 | |
| | | | |
| Long term capitalized consulting obligations (v) | | | 266,000 | |
| | | | |
| Less current maturities | | | 431,000 | |
| | | | |
| | | | | |
Related party long-term debt | | | | |
| 8% demand note - Related party (iv) | | | 135,000 | |
Long term capitalized consulting obligations (vi) | | | | |
| 12% unsecured convertible note (vii) | | | 280,000 | |
| | | | |
| Total | | | 518,000 | |
| | | | |
| Noncurrent portion | | | 45,000 | |
| | | | |
| Total long-term debt | | | 1,614,000 | |
| | | | |
| Total noncurrent portion | | $ | 710,000 | |
US Temp Services, Inc. Acquisition Notes and Long Term Consulting Obligations
As partial consideration associated with the US Temp Acquisition four subordinated notes were issued.
(i) A $175,000 subordinated note was issued March 31, 2006, and was due January 30, 2007. The note has an annual interest rate of 8% with principal and interest payable in equal monthly installments of $18,150. As of September 30, 2006 approximately $119,000 remains outstanding under this note. The note is secured by office equipment and other fixed assets. Due to the failure to make timely payments under the terms of the note, the holder has elected the option of declaring the note in technical default and began assessing interest, beginning April 1, 2007, at the rate of 11.25% per annum, and to impose a 5% late charge on the overdue balance outstanding.
(ii) A $675,000 convertible subordinated note was issued March 31, 2006 and is due March 31, 2012. The note bears interest at an annual rate of 3%, and is convertible in part or in whole into common shares at any time at the option of the holder at the specified price of $1.50 per share. The note is secured by office equipment and other fixed assets. As of September 30, 2006 approximately $631,000 remains outstanding under this note.
(iii) A $80,000 unsecured non-interest bearing note was issued March 31, 2006, and was due June 29, 2006. As of September 30, 2006 the full principal amount of $80,000 remains outstanding under this note. 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.
(iv) A $150,000 unsecured demand note was issued March 31, 2006 to a principal shareholder of Accountabilities, Inc. as a finders fee in consideration for sourcing and completing the US Temp Acquisition. The note bears an annual interest rate of 8%. As of September 30, 2006 payments of $15,000 have been made and $135,000 remains outstanding on the note.
On March 31, 2006, in connection with the US Temp Acquisition, SWSB entered into three long term consulting obligations which require SWSB to pay fixed recurring amounts but which do not require the other party to provide any minimum level of services. Consequently, the agreements have been treated as debt obligations in the accompanying financial statements and capitalized, net of interest imputed at a rate of 8.75% per year. The imputed interest was determined by reference to terms associated with credit available to SWSB at that time. All three agreements expire on March 31, 2009.
(v) Two of the agreements were entered into with the principals of US Temps and each require annual payments of $60,000 in the first two years and $30,000 in the final year, payable in fixed weekly amounts. These two agreements in total were initially recognized at a fair value of $292,000 using a discount rate of 8.75%. As of September 30, 2006, approximately $266,000 remains outstanding under these two agreements.
(vi) The third agreement was entered into with a major shareholder of Accountabilities, Inc. and requires annual payments of $30,000 in each of three years, payable in fixed weekly amounts. The agreement was initially recorded at a fair value of $84,000 using an interest rate of 5%. As of September 30, 2006, approximately $73,000 remains outstanding under this agreement.
12%, Unsecured Convertible Note
(vii) A $280,000 unsecured convertible note was issued on April 1, 2006 to a shareholder and director of Accountabilities, Inc. The note is due April 1, 2007, bears an annual interest rate of 12%, and is convertible into common shares at any time at the option of the holder at a conversion rate of $.40 per share up to the first $100,000 of principal, $.55 per share up to the next $100,000 of principal, and up to $.75 per share up to the final $80,000 in principal. As of September 30, 2006 the full amount of the note remained outstanding.
Demand Loan
(viii) In October 2005 a major shareholder advanced Accountabilities, Inc. $30,000 to fund the initial operations of SWSB. The amount is classified as a short-term loan as is due and payable upon demand by the shareholder and director. As of September 30, 2006 the full amount of the loan remained outstanding.
8. | Concentrations of Credit Risk |
SWSB maintains cash accounts with high credit quality financial institutions. At times, such accounts are in excess of federally insured limits. To date, SWSB has not experienced any losses in such accounts.
Financial instruments, which potentially subject SWSB to concentration of credit risk, consist primarily of trade receivables. However, concentrations of credit risk are limited due to the large number of customers comprising SWSB’s customer base and their dispersion across different business and geographic areas. SWSB monitors its exposure to credit losses and maintains an allowance for anticipated losses. To reduce credit risk, SWSB performs credit checks on certain customers. No single customer accounted for more than 10% of revenue for the year ended September 30, 2006, or for the period from the Date of Inception until September 30, 2005.
Net assets represents Accountabilities, Inc.’s investments since the Date of Inception and is separated between Accumulated earnings to date and Invested Capital. Invested Capital is primarily composed of stock issued by Accountabilities, Inc. for acquisitions and to fund the operations of SWSB.
SWSB has an agreement in place with a financial institution to sell its trade receivables on a limited recourse basis. Under the terms of the agreement the maximum amount of trade receivables that can be sold is $5,000,000, for which the purchaser advances 90% of the assigned receivables’ value upon sale, and 10% upon final collection. As collections reduce previously sold receivables, SWSB may replenish these with new receivables. At September 30, 2006, trade receivables of $431,000 had been sold and remain outstanding. Sales of receivables amounted to approximately $34,088,000 for the year ended September 30, 2006. No receivables were sold during the one-month period from September 1st (Date of Inception) to September 30, 2005. Net discounts per the agreement are represented by an interest charge at an annual rate of prime plus 1% , and a monthly fee of 0.6%, both applied against average outstanding uncollected receivables sold. Net discounts are included in interest expense in the accompanying Statements of Income and amounted to $452,000 and $0 for the years ended September 30, 2006 and 2005, respectively. The risk SWSB bears from bad debt losses on trade receivables sold is retained by SWSB, and receivables sold do not include $237,000 of receivables sold, but charged back by the financial institution because they were over 90 days past due. SWSB addresses its risk of loss on trade receivables in its allowance for doubtful accounts, which totaled $140,000 and $0, respectively as of September 30, 2006 and 2005.
11. | Provision for Income Taxes |
The provision for income taxes consists of the following:
| | | Year Ended September 30, 2006 | | | For The Period From September 1, 2005 (Date of Inception) to September 30, 2005 | |
| | | | | | | |
Income before income taxes | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| Current: | | | | | | | | |
| | | | | | | | |
| State | | | 3,000 | | | | | |
| | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| U.S. Federal | | | 30,000 | | | | (30,000 | ) |
| | | | | | | | |
| Total deferred | | | 36,000 | | | | (36,000 | ) |
| | | | | | | | |
| | | $ | 56,000 | | | $ | (36,000 | ) |
The provision for deferred income taxes for the period from Date of Inception to September 30, 2005 consisted of the tax benefit of $36,000 associated with $91,000 of net operating losses, and in the year ended September 30, 2006, consisted of the subsequent utilization of those net operating losses. As of September 30, 2005 SWSB had a current deferred tax asset of $36,000 relating to those net operating losses. SWSB had no deferred tax assets or liabilities as of September 30, 2006. There was no valuation allowance for deferred tax assets required in 2005.
The provision for income taxes differs from the amount that would result from applying the federal statutory rate as follows:
| | | Year Ended September 30, 2006 | | | For The Period From September 1, 2005 (Date of Inception) to September 30, 2005 | |
| | | | | | | |
U.S. Federal statutory rate | | | | | | | | |
| State income taxes, net of federal benefit | | | 5 | % | | | 5 | % |
| | | | | | | | |
| Effective tax rate | | | 40 | % | | | 40 | % |
12. | Supplemental Disclosure of Cash Flow Information |
Non-cash investing and financing activities:
| | | Year Ended September 30, 2006 | | | For The Period From September 1, 2005 (Date of Inception) to September 30, 2005 | |
| | | | | | | |
| | | | | | | | |
| Non-cash investing and financing activities: | | | | | | | | |
| | | | | | | | |
| Issuance of restricted stock | | $ | 85,000 | | | $ | - | |
| | | | | | | | |
| Issuance of restricted stock | | $ | 45,000 | | | $ | - | |
13. | Commitments and Contingencies |
Accountabilities, Inc. Contingencies
A subsidiary of AccountAbilities, Inc., which ceased operating at the end of 2004, has been notified by the IRS and certain state taxing authorities that it has accumulated liabilities totaling approximately $750,000 for unremitted payroll taxes during the 2004 calendar year period. Based upon the information presently available, management does not expect the parent, Accountabilities, Inc. to be subject to this liability, nor does management expect that the assets of SWSB will be required to satisfy these liabilities. However, there can be no assurance that future events will not result in an unfavorable outcome.
Lease Commitments
At September 30, 2006, Accountabilities, Inc. had operating leases, primarily for office premises, expiring at various dates through March 2009. At September 30, 2006 Accountabilities, Inc. had no capital leases. Future minimum rental commitments under operating leases are as follows:
Years Ending September 30: | | Operating Leases | |
| | | | |
| | | | |
| 2008 | | | 143,000 | |
| | | | |
| | | $ | 448,000 | |
Employment Agreements
Accountabilities, Inc. has employment agreements with certain key members of management, requiring mutual termination notice periods of up to 30 days. These agreements provide those employees with a specified severance amount depending on whether the employee is terminated with or without good cause as defined in the applicable agreement.
Legal Proceedings
Implicit Staffing Solutions, L.P. initiated an action against Accountabilities, Inc. and its President, Allan Hartley, in the 192nd District Court, Dallas County, Texas in March 2006 alleging that the company used the plaintiff’s resources to acquire assets for the company and that the company and Mr. Hartley conspired to breach fiduciary duties and usurp corporate opportunities. The plaintiff seeks to impose a constructive trust over assets of the company’s offices in California and Florida. Accountabilities, Inc. believes that the plaintiff’s claims are without merit and is vigorously contesting same.
ALS, LLC (“ALS”) instituted an action against Accountabilities, Inc., US Temp Services, Inc. (“US Temps”) and a major shareholder of Accountabilities, Inc., in the United States District Court, District of New Jersey in May 2007 in which it alleges that Accountabilities, Inc. tortiously interfered with ALS’ business relationship with US Temps by causing US Temps to terminate its relationship with ALS under an agreement pursuant to which ALS provided employee outsourcing services to US Temps prior to SWSB’s acquisition of certain assets from US Temps. ALS also alleges that Accountabilities, Inc. has liability as a successor to US Temps for US Temps’ alleged breach of the outsourcing agreement and is seeking unspecified damages. Accountabilities, Inc. believes that ALS’ claims are without merit and intends to vigorously contest this matter.
From time to time, Accountabilities, Inc. is involved in litigation incidental to its business including employment practices claims. There is currently no litigation that management believes will have a material impact on the financial position of SWSB.
14. | Quarterly Financial Information - Unaudited |
In the opinion of management, the following unaudited quarterly data for the fiscal years ended September 30, 2005 and September 30, 2006 reflect all adjustments necessary for a fair statement of the results of operations. All such adjustments are of a normal recurring nature.
Fiscal Year 2006: | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 9,000 | | | | 28,000 | | | | 41,000 | | | | 40,000 | |
| | | | | | | | | | | | | | | | |
| Income from operations | | | 25,000 | | | | 65,000 | | | | 222,000 | | | | 326,000 | |
| | | | | | | | | | | | | | | | |
| Interest expense | | | 12,000 | | | | 86,000 | | | | 192,000 | | | | 208,000 | |
| | | | | | | | | | | | | | | | |
| Income (loss) before provision for (benefit of) income taxes | | | 13,000 | | | | (21,000 | ) | | | 30,000 | | | | 118,000 | |
| | | | | | | | | | | | | | | | |
| Provision for (benefit of) income taxes | | | 6,000 | | | | (8,000 | ) | | | 12,000 | | | | 46,000 | |
| | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 7,000 | | | $ | (13,000 | ) | | $ | 18,000 | | | $ | 72,000 | |
| | | | | | | | | | | | | | | | |
Fiscal Year 2005: | | September 1, 2005 (Date of Inception) to September 30, 2005 | |
| | | | |
| | $ | - | |
| | | | | |
| | | | |
| | | | | |
| | | | |
| | | | | |
Selling, general and administrative expenses | | | | |
| Depreciation and amortization | | | - | |
| | | | |
| Loss from operations | | | (91,000 | ) |
| | | | |
| Interest expense | | | - | |
| | | | |
| Loss before benefit of income taxes | | | (91,000 | ) |
| | | | |
| Benefit of income taxes | | | (36,000 | ) |
| | | | |
| Net loss | | $ | (55,000 | ) |
| | | | |
15. Subsequent Events
Sale of Common Stock of Accountabilities, Inc.
On November 26, 2006 Accountabilities, Inc., completed the private placement of 1,000,000 shares of common stock to an independent third party in exchange for $200,000 in cash and a non-interest bearing note with a principal amount of $200,000. The note was subsequently collected in December 2006. The funds received from the stock sale are to be used to fund the operations of SWSB.
ReStaff Services, Inc. Acquisition
On February 26, 2007, Accountabilities, Inc. entered into an asset purchase agreement, for the benefit of SWSB’s operations, to acquire the operations, including three offices, of ReStaff Services, Inc. (“ReStaff”), with the closing date to occur no longer than 90 days from the date of the agreement. Under the terms of the agreement, the purchase price consists of the following: a) $700,000 in cash, b) a $300,000 note with a due date of either 90 days from the date of the agreement, non-interest bearing, or two years from the date of the agreement, subject to annual interest of 6%, dependent upon Accountabilities, Inc.’s ability to raise a minimum of $2,500,000 in a private placement of common stock, c) a $2,900,000 note bearing interest at 6% per annum, payable in equal monthly installments over four years beginning with the 121st day after the closing date, and is subject to proportionate reduction in principal in the event the acquired operations generate less than $1,000,000 in net income before taxes in any year during the term of the note, and d) 500,000 shares of common stock due within 90 days of the closing, valued at approximately $113,000.
As consideration for brokering and structuring the ReStaff acquisition, a finder’s fee, comprised of $300,000 in cash and 300,000 shares of Accountabilities, Inc. common stock valued at $68,000 is payable to a major stockholder of Accountabilities, Inc. The cash component is payable in 104 equal weekly installments.
Additionally, Accountabilities, Inc. entered into an agreement with another major stockholder to finance portions of the purchase price. Under the agreement $450,000 is to be funded from the stockholder, payable upon the closing of the new Receivable Sale Agreement (see “Receivable Sale Agreement” below) (“Loan Part A”), and up to $500,000 will be funded, payable without interest in equal weekly payments of $10,000 (“Loan Part B”). Additionally, as further consideration for the loan the stockholder is to receive 600,000 shares of Accountabilities, Inc. common stock, valued at approximately $136,000. Loan Part A was
subsequently received by Accountabilities, Inc., and repaid via the Overadvance from the new Receivable Sale Agreement (see “Receivable Sale Agreement” below). The receipt of Loan Part B is dependent upon certain events and conditions including the repayment in full of Loan Part A, the issuance of the shares, and the final closing of the acquisition of ReStaff.
Receivable Sale Agreement
On March 1, 2007, Accountabilities, Inc. entered into a new receivable sale agreement with a new purchaser, and terminated its former agreement.Under the terms of the new agreement the maximum amount of trade receivables that can be sold is $8,000,000. As collections reduce previously sold receivables, SWSB may replenish these with new receivables. Net discounts per the agreement are represented by an interest charge at an annual rate of prime plus 1.5% (“Discount Rate”) applied against outstanding uncollected receivables sold. The risk SWSB bears from bad debt losses on trade receivables sold is retained by Accountabilities, Inc., and receivables sold may not include amounts over 90 days past due. The agreement is subject to a minimum discount computed as minimum sales per month of $3,000,000 multiplied by the then effective Discount Rate, and a termination fee applies of 3% of the maximum facility in year one of the agreement, 2% in year two, and 1% thereafter. In addition, an overadvance of $500,000 was received, and is due within one year (“the Overadvance”).
Private Offering
In February 2007 Accountabilities, Inc. issued a Private Placement Memorandum offering to sell up to $3,000,000 of convertible exchangeable notes (“notes”) and warrants to purchase up to 799,800 shares of common stock. The notes bear annual interest of 8%, are convertible into common shares of Accountabilities, Inc. at a price of 75% of the average closing price of Accountabilities, Inc.’s common stock over the preceding five days prior to the election to convert, subject to a minimum conversion price of $.40 per share. Additionally, in the event Accountabilities, Inc. sells all or substantially all of its assets to another corporation, the notes are exchangeable for substantially similar notes of the acquiring corporation, or, if the acquiring corporation is not publicly traded, the holder of the note may redeem the note for an amount equal to 106% of the then outstanding principal amount plus all unpaid outstanding interest accrued.
STAFFING AND WORKFORCE SOLUTIONS BUSINESS
OF ACCOUNTABILITIES, INC.
BALANCE SHEETS
| | | June 30, 2007 | | | September 30, 2006 | |
| | | (unaudited) | | | | |
| ASSETS | | | | | | |
| | | | | | |
| Cash | | $ | 192,000 | | | $ | 8,000 | |
Accounts receivable – less allowance for doubtful accounts of $462,000 and $140,000 | | | | | | | | |
| Due from financial institution | | | 121,000 | | | | 431,000 | |
| | | | | | | | |
| Prepaid expenses | | | 265,000 | | | | 216,000 | |
Current deferred tax asset, net | | | | | | | | |
| Due from related party | | | 51,000 | | | | 14,000 | |
| | | | | | | | |
| | | | | | | | | |
Property and equipment, net | | | | | | | | |
| Other assets | | | 34,000 | | | | 32,000 | |
| | | | | | | | |
| Intangible assets, net | | | 2,113,000 | | | | 745,000 | |
| | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
LIABILITIES AND NET ASSETS | | | | | | | | |
| Current liabilities | | | | | | | | |
Accounts payable and accrued liabilities | | | | | | | | |
| Accrued wages and related obligations | | | 1,348,000 | | | | 1,178,000 | |
Current portion of long-term debt | | | | | | | | |
| Current portion of related party long-term debt | | | 1,620,000 | | | | 473,000 | |
| | | | | | | | |
| Due to related party | | | 254,000 | | | | - | |
Due to Accountabilities, Inc. | | | | | | | | |
| Total current liabilities | | | 4,392,000 | | | | 2,606,000 | |
| | | | | | | | |
| Long term debt, net of current portion | | | 483,000 | | | | 665,000 | |
Related party long-term debt, net of current portion | | | | | | | | |
| Acquisition related contingent liability | | | 286,000 | | | | 448,000 | |
| | | | | | | | |
| Total liabilities | | | 7,832,000 | | | | 3,764,000 | |
| | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | |
| Net Assets | | | | | | | | |
Accumulated earnings (deficit) | | | | | | | | |
| Invested capital | | | 1,267,000 | | | | 280,000 | |
| | | | | | | | |
| Total liabilities and net assets | | $ | 9,013,000 | | | $ | 4,073,000 | |
The accompanying notes are an integral part of these financial statements
STAFFING AND WORKFORCE SOLUTIONS BUSINESS
OF ACCOUNTABILITIES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
| | | Three Months Ended | | | Nine Months Ended | |
| | | June 30, 2007 | | | June 30, 2006 | | | June 30, 2007 | | | June 30, 2006 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 106,000 | | | | 41,000 | | | | 214,000 | | | | 78,000 | |
| | | | | | | | | | | | | | | | |
| Income from operations | | | 232,000 | | | | 222,000 | | | | 442,000 | | | | 312,000 | |
| | | | | | | | | | | | | | | | |
| Interest expense | | | 246,000 | | | | 192,000 | | | | 633,000 | | | | 290,000 | |
| | | | | | | | | | | | | | | | |
| Loss before benefit of income taxes | | | (14,000 | ) | | | 30,000 | | | | (191,000 | ) | | | 22,000 | |
| | | | | | | | | | | | | | | | |
| Benefit of income taxes | | | (5,000 | ) | | | 12,000 | | | | (76,000 | ) | | | 10,000 | |
| | | | | | | | | | | | | | | | |
| Net (loss) income | | $ | (9,000 | ) | | $ | 18,000 | | | $ | (115,000 | ) | | $ | 12,000 | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements
STAFFING AND WORKFORCE SOLUTIONS BUSINESS
OF ACCOUNTABILITIES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
| | | Nine Months Ended | |
| | | June 30, | |
| | | 2007 | | | 2006 | |
| Cash flows from operating activities: | | | | | | |
| | | | | | | | |
| Adjustments to reconcile net income (loss) to cash provided by operating activities: | | | | | | | | |
Deferred income tax provision, net | | | | | | | | |
| Depreciation and amortization | | | 216,000 | | | | 77,000 | |
| | | | | | | | |
| Stock-based compensation | | | 12,000 | | | | - | |
Common stock issued for fees | | | | | | | | |
Changes in operating assets and liabilities, net of effect of acquisitions: | | | | | | | | |
Trade accounts receivable | | | | | | | | |
| Due from financial institution | | | 310,000 | | | | (529,000 | ) |
| | | | | | | | |
| Due from related party | | | (37,000 | ) | | | (14,000 | ) |
| | | | | | | | |
| Accounts payable and accrued liabilities | | | 266,000 | | | | 1,269,000 | |
| | | | | | | | |
| Due to Accountabilities, Inc. | | | 23,000 | | | | 23,000 | |
| | | | | | | | |
| Net cash provided by operating activities | | | 360,000 | | | | 212,000 | |
| | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
Purchase of property and equipment | | | | | | | | |
| Acquisitions | | | (533,000 | ) | | | (170,000 | ) |
| | | | | | | | |
| Net cash used in investing activities | | | (589,000 | ) | | | (256,000 | ) |
| | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
Invested by Accountabilities, Inc. | | | | | | | | |
| Proceeds from issuance of long-term debt | | | 50,000 | | | | - | |
Principal payments on long-term debt | | | | | | | | |
| Proceeds from issuance of long-term debt – related parties | | | 385,000 | | | | 327,000 | |
Principal payments on long-term debt – related parties | | | | | | | | |
| Payments on contingent acquisition related liability | | | (162,000 | ) | | | (114,000 | ) |
Proceeds from issuance of common stock | | | | | | | | |
| | | | | | | | | |
Net cash provided by financing activities | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
Cash at beginning of period | | | | | | | | |
| Cash at end of period | | $ | 192,000 | | | $ | 222,000 | |
The accompanying notes are an integral part of these financial statements
STAFFING AND WORKFORCE SOLUTIONS BUSINESS
OF ACCOUNTABILITIES, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. | Description of SWSB and its Business |
Nature of Operations and Basis of Presentation
The Staffing and Workforce Solutions Business of Accountabilities, Inc. (“SWSB”) began operations in September 2005 (“Date of Inception”). SWSB is a national provider of temporary commercial staffing in areas such as light industrial and clerical services, and professional niche staffing services in areas such as accounting, pharmaceutical and information technology. SWSB conducts all of its business in the United States through the operation of staffing and recruiting offices, and through marketing agreements with public accounting firms. The agreements with the public accounting firms generally provide for the public accounting firm to market and sell accounting and finance staffing and placement services to customers in a defined market in exchange for a defined share of profits generated from those sales.
In July 2007, Accountabilities, Inc. and Hyperion Energy, Inc. (“Hyperion") entered into an Asset Purchase Agreement, whereby Hyperion agreed to purchase the business of SWSB in exchange for a number of shares of Hyperion common stock equal to the number of shares of Accountabilities, Inc. common stock outstanding at the time of closing. In addition, Accountabilities, Inc. will pay the sole shareholder of Hyperion a total of $12,500 in exchange for his agreement to surrender all of his shares of Hyperion common stock for cancellation at the time of closing. As a result of these transactions, the shares of Hyperion common stock issued to Accountabilities, Inc. will represent 100% of Hyperion’s outstanding common stock.
The Hyperion shares will be registered with the Securities and Exchange Commission under a Form S-4 Registration Statement for distribution on a pro rata basis to Accountabilities, Inc.’s shareholders upon the closing of the acquisition transaction. Due to the resulting 100% ownership by Accountabilities, Inc.’s shareholders, the transaction will be accounted for as a recapitalization and the historical financial statements presented will be those of SWSB for all periods prior to the merger. The historical net assets of SWSB will be restated to give effect to the total par value of the common stock issued in the transaction, with the balance represented as additional paid-in capital.
The accompanying financial statements and notes have been prepared utilizing certain “carve-out” accounting procedures wherein certain assets, liabilities and expenses historically recorded or incurred at the parent company level, which related to or were incurred on behalf of SWSB, have been identified and allocated as appropriate to reflect the financial results of SWSB as if it were a stand alone entity since the Date of Inception. Consequently, all transactions directly associated with the operations of SWSB, have been reflected, as well as the majority of indirect expenses incurred at the parent company level since the Date of Inception.
2. | Summary of Significant Accounting Policies |
Interim Financial Information
The financial information as of and for the three and nine months ended June 30, 2007 and 2006 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) that SWSB considers necessary for a fair statement of its financial position at such dates and the operating results and cash flows for those periods. The year-end balance sheet data was derived from audited financial statements and certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules or regulations; however, SWSB believes the disclosures made are adequate to make the information presented not misleading.
The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for the fiscal year. These condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended September 30, 2006, which are included in SWSB’s Form S-4 as filed with the Securities and Exchange Commission.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.
ReStaff Services, Inc. Offices Acquisition
On February 26, 2007, SWSB acquired the operations, including three offices, of ReStaff Services, Inc. (“ReStaff”), for a total purchase price of $4,710,000. The purchase price consisted of the following: a) $400,000 in cash due at the day of the closing of the transaction, b) $300,000 in cash due May 26, 2007, c) $347,000 in cash subject to the collection of certain identified accounts receivable, d) a $300,000 note due February 26, 2009 and bearing interest at 6% per annum, e) a $2,900,000 note bearing interest at 6% per annum, payable in equal monthly installments of $69,400 over four years beginning June 27, 2007, which is subject to proportionate reduction in principal in the event the acquired operations generate less than $1,000,000 in net income before taxes in any year during the term of the note, f) 500,000 shares of common stock valued at approximately $113,000, g) a $342,000 fee payable to a major shareholder as consideration for brokering and structuring the transaction, comprised of $274,000 payable in 104 equal weekly installments of $2,885 and bearing annual interest of 9%, and 300,000 shares of restricted common stock valued at $68,000, and h) 30,000 shares of restricted common stock issued to key employees of ReStaff valued at $7,000. All results of operations of ReStaff have been included in the accompanying Statements of Operations since the date of acquisition.
In order to finance portions of the purchase price, Accountabilities, Inc. entered into a borrowing arrangement with another major stockholder. Under the terms of the agreement up to $950,000 may be borrowed without interest. As consideration for the loan the stockholder was granted 600,000 shares of restricted common stock. SWSB borrowed and subsequently repaid $450,000 within March 2007, and borrowed the balance of $500,000 in June 2007 which is payable in equal monthly installments of $10,000. SWSB follows the guidance in Accounting Principles Board Opinion No. 14, Accounting for Convertible Debt and Debt Issued With Stock Purchase Warrants, by treating the relative fair value of the restricted common stock granted as a discount to the debt, with a corresponding increase in net assets. Accordingly, a relative fair value associated with the granted common stock of $119,000 was calculated, $4,000 of which was apportioned to the initial $450,000 borrowed and repaid in March 2007 and recorded as interest expense, and $115,000 was apportioned to the $500,000 balance and recorded as deferred financing costs to be amortized as interest expense beginning in June 2007. As of June 30, 2007, the fair value of the loan outstanding was $368,000, net of deferred financing costs of $102,000.
The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition. SWSB is in the process of obtaining third-party valuations of certain intangible assets; thus the allocation of the purchase price is subject to refinement.
| | | | |
| Property and equipment | | | 5,000 | |
Customer lists and relationships | | | | |
| Non-competition agreement | | | 80,000 | |
| | | | |
| Total assets acquired | | | 4,772,000 | |
| | | | |
| Total purchase price | | $ | 4,710,000 | |
Customer lists and relationships, and the non-competition agreement are being amortized over weighted average useful lives of seven years and three years, respectively.
US Temp Services, Inc. Offices Acquisition
On March 31, 2006 SWSB, acquired the operations of five offices from US Temp Services, Inc. (“US Temps”) for a total purchase price of $1,723,000. All results of operations of the acquired offices have been included in the accompanying Statements of Operations since the date of acquisition.
Stratus Services Group, Inc. Offices Acquisition
On November 28, 2005, SWSB acquired the operations of three offices from Stratus Services Group, Inc. (“Stratus Offices”) in exchange for an earnout consisting of: a) 2% of revenue for the first twelve months, b) 1% of revenue for the second twelve months, and c) 1% of revenue for the third twelve months (“Stratus Earnout”). All results of operations of the acquired offices have been included in the accompanying Statements of Operations since the date of acquisition. Because the purchase price includes only the Stratus Earnout which is based upon future revenues, the total fair value of the acquired assets is greater than the purchase price as of the day of the acquisition, which was zero as the Stratus Earnout had yet to be earned. Consequently, the total fair value of the acquired assets of $678,000 was recorded as a liability (“Acquisition related contingent liability”) as of the day of the acquisition in accordance with SFAS 141. Through June 30, 2007, $392,000 has been paid related to the Stratus Earnout.
The following unaudited pro forma information shows SWSB’s results of operations for the third quarter and year to date periods for 2007 and 2006, as if the ReStaff Acquisition, US Temp Acquisition and Stratus Acquisition had occurred on October 1, 2005. These pro forma statements have been prepared for comparative purposes only and are not intended to be indicative of what SWSB’s results would have been had the acquisition occurred at the beginning of the periods presented or the results which may occur in the future.
| | | Three Months Ended | | | Nine Months Ended | |
| | | June 30, 2007 | | | June 30, 2006 | | | June 30, 2007 | | | June 30, 2006 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | (8,000 | ) | | $ | 31,000 | | | $ | (214,000 | ) | | $ | (53,000 | ) |
4. | Intangible Assets and Goodwill |
The following table presents detail of SWSB’s intangible assets, estimated lives and related accumulated amortization:
| | | As of June 30, 2007 | | | As of September 30, 2006 | |
| | | | | | Accumulated | | | | | | | | | Accumulated | | | | |
| | | Gross | | | Amortization | | | Net | | | Gross | | | Amortization | | | Net | |
Customer lists and relationships (7 years) | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-competition agreements (3 years) | | | 110,000 | | | | (21,000 | ) | | | 89,000 | | | | 30,000 | | | | (5,000 | ) | | | 25,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 2,379,000 | | | $ | (266,000 | ) | | $ | 2,113,000 | | | $ | 838,000 | | | $ | (93,000 | ) | | $ | 745,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill (indefinite life) | | $ | 4,506,000 | | | | | | | $ | 4,505,000 | | | $ | 1,441,000 | | | | | | | $ | 1,441,000 | |
SWSB recorded amortization expense of $90,000 and $32,000 for the three months ended June 30, 2007 and 2006, respectively, and $173,000 and $62,000 for the nine months ending June 30, 2007 and 2006, respectively. Estimated intangible asset amortization expense (based on existing intangible assets) for the years ending September 30, 2007, 2008, 2009, 2010, 2011 and 2012 is $263,000, $361,000, $356,000, $335,000, $324,000 and $324,000, respectively. The change in the balance of goodwill is the result of the purchase of ReStaff.
On November 26, 2006 Accountabilities, Inc., completed the private placement of 1,000,000 shares of common stock to an independent third party in exchange for $200,000 in cash and a non-interest bearing note with a principal amount of $200,000. The note was subsequently collected in December 2006. The funds received from the stock sale are to be used to fund the operations of SWSB.
In February 2007 Accountabilities, Inc. issued a Private Placement Memorandum (“PPM”) offering to sell up to $3,000,000 of convertible exchangeable notes bearing 8% annual interest (“notes”) and warrants to purchase up to 799,800 shares of common stock, with the proceeds to used in the operations of SWSB. The notes are convertible into restricted common shares of Accountabilities, Inc. at a price of 75% of the average closing price of Accountabilities, Inc.’s common stock over the preceding five days prior to the election to convert, subject to a minimum conversion price of $.40 per share. Each warrant is exercisable for one share of Accountabilities, Inc. common stock at an exercise price of $.75 per share at any time prior to the two year anniversary date of its issuance. Additionally, in the event Accountabilities, Inc. sells all or substantially all of its assets to another corporation, the notes are exchangeable for substantially similar notes of the acquiring corporation, or, if the acquiring corporation is not publicly traded, the holder of the note may redeem the note for an amount equal to 106% of the then outstanding principal amount plus all unpaid outstanding interest accrued. Through June 30, 2007, $200,000 in net proceeds pursuant to the PPM have been received. All investors elected to immediately and simultaneously convert the notes into shares of restricted common stock, and consequently 439,729 restricted common shares, and 55,986 warrants, have been issued and are outstanding. Due to the immediate and simultaneious election to convert, the transactions have been accounted for as a sale of common stock in the accompanying financial statements.
As discussed further in Note 3 above, net assets was increased by $119,000 representing the allocated relative fair value of the common stock issued to the lender in conjunction with the $950,000 loan received to finance portions of the purchase price of ReStaff.
6. | Receivable Sale Agreement |
On March 1, 2007, Accountabilities, Inc. entered into a new receivable sale agreement with a new financial institution, and terminated its former agreement.Under the terms of the new agreement the maximum amount of trade receivables that can be sold is $8,000,000. As collections reduce previously sold receivables, SWSB may replenish these with new receivables. Net discounts per the agreement are represented by an interest charge at an annual rate of prime plus 1.5% (“Discount Rate”) applied against outstanding uncollected receivables sold. The risk SWSB bears from bad debt losses on trade receivables sold is retained by SWSB, and receivables sold may not include amounts over 90 days past due. The agreement is subject to a minimum discount computed as minimum sales per month of $3,000,000 multiplied by the then effective Discount Rate, and a termination fee applies of 3% of the maximum facility in year one of the agreement, 2% in year two, and 1% thereafter. In addition, an overadvance of $500,000 was received, is secured by outstanding receivables, and is due within one year.
7. | Stock Based Compensation |
During the second quarter of 2007 Accountabilities, Inc. issued 585,000 shares of restricted common stock to SWSB employees. Expense for restricted stock issuances is recognized over the vesting period, which is generally three to five years. Compensation expense recognized during the three and nine month periods ended June 30, 2007 was $7,000 and $12,000, respectively. The total income tax benefit recognized during the three and nine month periods ending June 30, 2007 was $3,000 and $5,000, respectively. A summary of the status of nonvested shares as of June 30, 2007 and changes during nine month period ended June 30, 2007 is presented below:
Nonvested Shares | | Shares | | | Weighted-Average Grant-Date Fair Value | |
| | | | | | | |
Nonvested at October 1, 2007 | | | | | | | | |
| Granted | | | 585,000 | | | | .22 | |
| | | | | | | | |
| Forfeited | | | - | | | | - | |
Nonvested at June 30, 2007 | | | | | | | | |
As of June 30, 2007, there was $119,000 of total unrecognized compensation cost related to nonvested restricted common stock grants. That cost is expected to be recognized over a weighted-average period of 4.4 years.
8. | Supplemental Disclosure of Cash Flow Information |
Non-cash investing and financing activities:
| | | Nine Months Ended | |
| | | June 30, | |
| | | 2007 | | | 2006 | |
| | | | | | | | |
| Non-cash investing and financing activities: | | | | | | | | |
| | | | | | | | |
| Issuance of restricted stock | | $ | 113,000 | | | $ | - | |
| | | | | | | | |
| Issuance of restricted stock | | $ | - | | | $ | 85,000 | |
| | | | | | | | |
| Issuance of restricted stock | | $ | - | | | $ | 45,000 | |
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
In July 2007, Accountabilities, Inc. and Hyperion Energy, Inc. (“Hyperion") entered into an Asset Purchase Agreement, whereby Hyperion agreed to purchase the Staffing and Workforce Solutions Business of Accountabilities, Inc. (“SWSB”) in exchange for a number of shares of Hyperion common stock equal to the number of shares of Accountabilities, Inc. common stock outstanding at the time of closing. In addition, Accountabilities, Inc. paid the sole shareholder of Hyperion a total of $12,500 in exchange for his agreement to surrender all of his shares of Hyperion common stock for cancellation at the time of closing. As a result of these transactions, the shares of Hyperion common stock issued to Accountabilities, Inc. will represent 100% of Hyperion’s outstanding common stock.
The Hyperion shares will be registered with the Securities and Exchange Commission under a Form S-4 Registration Statement for distribution on a pro rata basis to Accountabilities, Inc.’s shareholders upon the closing of the acquisition transaction. Due to the resulting 100% ownership by Accountabilities, Inc.’s shareholders, the transaction will be accounted for as a recapitalization and the historical financial statements presented will be those of SWSB for all periods prior to the merger. The historical net assets of SWSB will be restated to give effect to the total par value of the common stock issued in the transaction, with the balance represented as additional paid-in capital.
Additionally, as mentioned in the notes to the historical financial statements of SWSB, included elsewhere in this document, SWSB’s historical financial statements have been prepared to reflect only the purchased SWSB operations utilizing certain “carve-out” accounting procedures wherein certain assets, liabilities and expenses historically recorded or incurred at the Accountabilities, Inc. level, which related to or were incurred on behalf of SWSB, have been identified and allocated as appropriate to reflect the financial results of SWSB as if it were a stand alone entity since the date of inception.
The following unaudited pro forma condensed combined financial statements have been prepared to give effect to the proposed acquisition by Hyperion of SWSB. These unaudited pro forma condensed combined financial statements are derived from the historical financial statements of Hyperion and SWSB, which are included elsewhere in this document. These historical financial statements have been adjusted as described in the notes to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined balance sheet has been prepared assuming the acquisition of SWSB occurred on June 30, 2007. The unaudited pro forma condensed combined statement of operations for the twelve months ended December 31, 2006, and for the six months ended June 30, 2007, have been prepared assuming the acquisition of SWSB occurred on January 1, 2006.
The unaudited pro forma condensed combined financial statements are for informational purposes only and are not intended to represent or be indicative of the consolidated results of operations or financial position that would have been reported had the acquisition of SWSB been completed as of the dates presented. No effect has been given in these pro forma financial statements for synergistic benefits that may be realized through the combination of the two companies or costs that may be incurred in integrating their operations. The unaudited pro forma condensed combined financial statements should not be considered representative of future consolidated results of operations or financial position nor should historical results of operations be indicative of expected future results of operations.
Unaudited Pro forma Condensed Combined Balance Sheet
June 30, 2007
| | | Hyperion Historical | | SWSB Historical | | Pro Forma Adjustments | | | Pro Forma Combined | |
| ASSETS | | | | | | | | | | |
| Current assets | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Accounts receivable - less allowance for doubtful accounts | | | | | | 304,000 | | | | | | | 304,000 | |
Due from financial institution | | | | | | | | | | | | | | |
| Unbilled receivables | | | | | | 1,201,000 | | | | | | | 1,201,000 | |
| | | | | | | | | | | | | | |
| Current deferred tax asset, net | | | | | | 69,000 | | | | | | | 69,000 | |
| | | | | | | | | | | | | | |
| Total current assets | | | - | | | 2,203,000 | | | - | | | | 2,203,000 | |
| | | | | | | | | | | | | | |
| Property and equipment, net | | | | | | 153,000 | | | | | | | 153,000 | |
| | | | | | | | | | | | | | |
| Deferred tax asset | | | | | | 5,000 | | | | | | | 5,000 | |
| | | | | | | | | | | | | | |
| Goodwill | | | | | | 4,505,000 | | | | | | | 4,505,000 | |
| | | | | | | | | | | | | | |
| Total assets | | $ | - | | $ | 9,013,000 | | $ | | | | $ | 9,013,000 | |
LIABILITIES AND NET ASSETS | | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | | | | | | | | | | | | | | |
| Accrued wages and related obligations | | | | | | 1,348,000 | | | | | | | 1,348,000 | |
Current portion of long-term debt | | | | | | | | | | | | | | |
| Current portion of related party long-term debt | | | | | | 1,620,000 | | | | | | | 1,620,000 | |
| | | | | | | | | | | | | | |
| Due to Accountabilities, Inc. | | | | | | 53,000 | | | | | | | 53,000 | |
Total current liabilities | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Long term debt, net of current portion | | | | | | | | | | | | | | |
| Related party long-term debt, net of current portion | | | | | | 2,654,000 | | | | | | | 2,654,000 | |
Acquisition related contingent liability | | | | | | | | | | | | | | |
| Deferred tax liability | | | | | | 17,000 | | | | | | | 17,000 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stockholders' Equity/Net Assets | | | | | | | | | | | | | | |
| Preferred stock | | | - | | | - | | | | | | | - | |
| | | | | | | | | | | | | | |
| Additional paid-in capital | | | - | | | - | | | (16,223 | ) | (1) | | 1,249,387 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | (1,390 | ) | (3) | | | |
| | | | | | | | | | ) | | | | |
| Accumulated deficit | | | (1,390 | ) | | (86,000 | ) | | 1,390 | | (3) | | (86,000 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total liabilities and net assets | | | | | | | | | | | | | | |
See accompanying notes to unaudited pro forma condensed combined financial statements.
Unaudited Pro forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2007
| | | | | | | | | | | | |
| | Hyperion Historical | | | SWSB Historical | | | Pro Forma Adjustments | | | Pro Forma Combined | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | | | | 171,000 | | | | | | | | 171,000 | |
| | | | | | | | | | | | | | | |
| Income from operations | | - | | | | 308,000 | | | | - | | | | 308,000 | |
| | | | | | | | | | | | | | | |
| Interest expense | | | | | | 428,000 | | | | | | | | 428,000 | |
| | | | | | | | | | | | | | | |
| Loss before benefit of income taxes | | - | | | | (120,000 | ) | | | - | | | | (120,000 | ) |
| | | | | | | | | | | | | | | |
| Benefit of income taxes | | | | | | (47,000 | ) | | | | | | | (47,000 | ) |
| | | | | | | | | | | | | | | |
| Net loss | $ | - | | | $ | (73,000 | ) | | $ | - | | | $ | (73,000 | ) |
| | | | | | | | | | | | | | | |
| Net loss per common share | | | | | (a) | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Weighted average common shares outstanding | | | | | | | | | | | | | | |
| Basic | | 1,390,000 | | | | | | | | 16,223,325 | (1) | | | 17,613,325 | |
| (a) | SWSB is not a separate legal entity and utilizes certain "carve-out" accounting procedures. Therefore share and per share data is not applicable and is not presented. Please refer to Note 1. of SWSB's September 30, 2006 financial statements included elsewhere in this document. |
See accompanying notes to unaudited pro forma condensed combined financial statements.
Unaudited Pro forma Condensed Combined Statement of Operations
For the Twelve Months Ended December 31, 2006
| | | | | | | | | | | | | |
| | | Hyperion Historical | | | SWSB Historical | | | Pro Forma Adjustments | | | Pro Forma Combined | |
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| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | | | | | 152,000 | | | | | | | | 152,000 | |
| | | | | | | | | | | | | | | | |
| Income from operations | | | - | | | | 747,000 | | | | - | | | | 747,000 | |
| | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | 691,000 | | | | | | | | 691,000 | |
| | | | | | | | | | | | | | | | |
| Income before provision for income taxes | | | - | | | | 56,000 | | | | - | | | | 56,000 | |
| | | | | | | | | | | | | | | | |
| Provision for income taxes | | | | | | | 21,000 | | | | | | | | 21,000 | |
| | | | | | | | | | | | | | | | |
| Net income | | $ | | | | $ | 35,000 | | | $ | - | | | $ | 35,000 | |
| | | | | | | | | | | | | | | | |
| Net income per common share | | | | | | (a) | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Diluted | | $ | | | | | | | | | | | | $ | - | |
| | | | | | | | | | | | | | | | |
| Weighted average common shares outstanding | | | | | | (a) | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Diluted | | | 1,390,000 | | | | | | | | 16,223,325 | (1) | | | 17,613,325 | |
| (a) | SWSB is not a separate legal entity and utilizes certain "carve-out" accounting procedures. Therefore share and per share data is not applicable and is not presented. Please refer to Note 1. of SWSB's September 30, 2006 financial statements included elsewhere in this document. |
| See accompanying notes to unaudited pro forma condensed combined financial statements. |
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The following adjustments represent the pro forma adjustments giving effect to the transaction as if it had occurred at June 30, 2007 with respect to the unaudited pro forma condensed combined balance sheets and January 1, 2006 with respect to the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2006 and for the six month period ended June 30, 2007.
Footnotes to Pro Forma Condensed Combined Balance Sheet
| 1. | To record the estimated common shares necessary to arrive at the total outstanding shares to be issued by Hyperion in accordance with the Asset Purchase Agreement, which will equal the number of Accountabilities, Inc. common shares outstanding at the closing of the transaction and consequential recapitalization. |
| 2. | To record the balance of SWSB's Invested capital as Additional paid-in capital upon the closing of the transaction and consequential recapitalization. |
| 3. | To record the balance of Hyperion's Accumulated deficit as Additional paid-in capital upon the closing of the transaction and consequential recapitalization. |
Footnotes to Pro Forma Condensed Combined Statement of Income
| 1. | To record the estimated common shares necessary to arrive at the total outstanding shares to be issued by Hyperion in accordance with the Asset Purchase Agreement, which will equal the number of Accountabilities, Inc. common shares outstanding at the closing of the transaction and consequential recapitalization. |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT
To the Board of Directors and Stockholders
Accountabilities, Inc.
We have audited the accompanying statements of net assets sold of The Culver City, California, Lawndale, California and Orange, California offices of Stratus Services Group, Inc. (the “Division”) as of September 30, 2005 and 2004 and the statements of net revenues, cost of revenues and expenses for the years then ended. These financial statements are the responsibility of the Division’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, the financial statements referred to above has been prepared in connection with the Asset Purchase Agreement dated December 5, 2005 between Accountabilities, Inc., a Delaware Corporation (“Buyer”) and Stratus Services Group, Inc., a Delaware Corporation (“Seller”) for the sale of certain net assets and is not intended to be a complete presentation of the Division’s assets and liabilities and operating results.
In our opinion, the financial statements referred to above present fairly, in all material respects, the Division’s net assets sold pursuant to the Asset Purchase Agreement referred to in Note 1 as of September 30, 2005 and 2004 and the net revenues, cost of revenues and expenses for the years then ended, on the basis of accounting described in Note 1.
/s/ MILLER, ELLIN & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
May 24, 2007
CULVER CITY, CALIFORNIA, LAWNDALE, CALIFORNIA
AND ORANGE CALIFORNIA OFFICES OF
STRATUS SERVICES GROUP, INC.
STATEMENTS OF NET ASSETS SOLD
| | | SEPTEMBER 30, | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Assets sold: | | | | | | |
Deposits | | $ | 5,953 | | | $ | 3,693 | |
Property and equipment, net | | | 16,614 | | | | 6,746 | |
| | | | 22,567 | | | | 10,439 | |
| Liabilities transferred | | | - | | | | - | |
| | | | | | | | | |
| Net assets sold | | $ | 22,567 | | | $ | 10,439 | |
The accompanying notes are an integral part of these financial statements.
CULVER CITY, CALIFORNIA, LAWNDALE, CALIFORNIA
AND ORANGE CALIFORNIA OFFICES OF
STRATUS SERVICES GROUP, INC.
STATEMENTS OF NET REVENUES,
COST OF REVENUES AND EXPENSES
| | | YEARS ENDED | |
| | | SEPTEMBER 30, | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Net revenues | | $ | 17,010,917 | | | $ | 16,362,898 | |
| | | | | | | | | |
| Direct cost of services | | | 15,135,181 | | | | 14,988,747 | |
| | | | | | | | | |
| Gross profit | | | 1,875,736 | | | | 1,374,051 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
Compensation and related expenses | | | 756,172 | | | | 599,664 | |
General and administrative expenses | | | 636,214 | | | | 596,909 | |
Depreciation and amortization | | | 3,956 | | | | 2,562 | |
| | | | | | | | | |
| Total expenses | | | 1,396,342 | | | | 1,199,135 | |
| | | | | | | | | |
| Gross profit in excess of expenses | | $ | 479,394 | | | $ | 174,916 | |
The accompanying notes are an integral part of these financial statements.
CULVER CITY, CALIFORNIA, LAWNDALE, CALIFORNIA
AND ORANGE CALIFORNIA OFFICES OF
STRATUS SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Stratus Services Group, Inc. together with its 50%-owned joint venture, (the “Seller”) was a national provider of staffing and productivity consulting services. In December 2005, the Seller sold substantially all of the assets that it used to conduct its staffing services business.
Basis of Presentation
The accompanying financial statements have been prepared for the purpose of presenting the net assets sold of certain offices of the Seller (the “Division”) as of September 30, 2005 and September 30, 2004, pursuant to the Asset Purchase Agreement (the “Agreement”) dated December 5, 2005 between the Seller and Accountabilities, Inc. (the “Buyer”) and the Division’s statements of net revenues, cost of revenues and expenses for the years ended September 30, 2005 and 2004.
Pursuant to the Agreement, the Seller sold to the Buyer certain assets in connection with the operation of the sold offices. The purchase price is contingent upon the future revenues generated by the offices from existing customers as follows: a) 2% of revenue for the first twelve months, b) 1% of revenue for the second twelve months, and c) 1% of revenue for the third twelve months ("Stratus Earnout"). To date, $296,000 has been paid related to the first 12 months of the Stratus Earnout.
Historically, the Seller did not prepare financial statements for the sold Division and the accompanying financial statements are derived from the Seller’s historical accounting records. Accordingly, the historical operating results may not be indicative of the results after acquisition by the Buyer.
The statements of net revenues, cost of revenues and expenses include all revenues directly attributable to the Division, which consists of three staffing branch offices located in California. Cost of revenues and Expenses consist of identifiable direct amounts from the offices of the sold Division and allocated amounts not attributable to a specific office. Information about the Division cash flows is not available.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.
Revenue Recognition
The Division recognizes revenue from staffing services as the services are performed by its workforce. Fees for permanent placements are recognized at the time the candidate commences employment.
CULVER CITY, CALIFORNIA, LAWNDALE, CALIFORNIA
AND ORANGE CALIFORNIA OFFICES OF
STRATUS SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the following estimated useful lives:
| Furniture and fixtures | 3 years |
| Office Equipment | 3 years |
| Computer Equipment | 5 years |
| Software | 3 years |
| Leasehold Improvements | Term of lease |
Income Taxes
The Division is not a tax paying entity. Consequently, no provision for income taxes has been made.
NOTE 2 - DEPOSITS
The Division has refundable deposits with the landlords at the various office locations. These deposits are refundable to the extent the properties are returned to the landlord pursuant to the individual leases.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
| | | SEPTEMBER 30, | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Property and equipment | | $ | 22,235 | | | $ | 9,806 | |
| Leasehold improvements | | | 1,412 | | | | 1,412 | |
| | | | 23,647 | | | | 11,218 | |
| | | | | | | | | |
| Less accumulated depreciation and amortization | | | (7,033 | ) | | | (4,472 | ) |
| | | | | | | | | |
| Property and equipment, net | | $ | 16,614 | | | $ | 6,746 | |
| | | | | | | | | |
CULVER CITY, CALIFORNIA, LAWNDALE, CALIFORNIA
AND ORANGE CALIFORNIA OFFICES OF
STRATUS SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
NOTE 4 - COMMITMENTS
The Division conducts its operations in various leased facilities under leases that are classified as operating leases for financial reporting purposes. The leases provide for the Seller to pay real estate taxes, common area maintenance and certain other expenses. Lease terms expire between 2006 and 2007.
Future minimum lease commitments are as follows:
Years Ending September 30, | | | |
| | | | |
| 2006 | | $ | 51,000 | |
| 2007 | | | 19,000 | |
| | | | | |
| Total | | $ | 70,000 | |
| | | | | |
Rent expense totaled approximately $68,000 and $54,000 for the years ended September 30, 2005 and 2004, respectively.
NOTE 5 - ALLOCATED COSTS
The Statement of Revenues, Cost of Revenues and Expenses includes allocations of certain general and administrative expenses from the Seller to the Division arising from shared services and infrastructure. These expenses are allocated using estimates considered by management to be a reasonable reflection of the utilization of services provided to, and benefits received by, the Division. However, the resulting allocated costs are not intended to and do not necessarily equal the costs that the Division would have incurred on a stand-alone basis. Allocated costs for the years ended September 30, 2005 and 2004 totaled approximately $464,000 and $467,000, respectively.
NOTE 6 - RELATED PARTY TRANSACTIONS
Shareholder
A son of the chief executive officer of the Seller is also a significant shareholder of, and consultant to the Buyer.
Payroll Outsourcing
The Division was a party to an Outsourcing Agreement with ALS, LLC (“ALS”) and its affiliate, Advantage Services Group, LLC (“Advantage”), whereby ALS and Advantage provided payroll outsourcing services. As a result of this arrangement, all of the Division’s field personnel were employees of ALS. Another son of the chief executive officer of the Seller is a 50% member in ALS. The total amount charged to the Division under this agreement totaled approximately $15,854,000 and $3,818,000 for the years ended September 30, 2005 and 2004, respectively.
CULVER CITY, CALIFORNIA, LAWNDALE, CALIFORNIA
AND ORANGE CALIFORNIA OFFICES OF
STRATUS SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
NOTE 7 - ECONOMIC DEPENDENCE
Major Customers
For the year ended September 30, 2005, two customers accounted for approximately 23% of the Division’s revenues. For the year ended September 30, 2004, one customer accounted for approximately 13% of the Division’s revenues.
AND ORANGE CALIFORNIA OFFICES OF
STRATUS SERVICES GROUP, INC.
STATEMENT OF NET REVENUES, COST OF REVENUES AND EXPENSES
(Unaudited)
| | | For the Two | | | For the Three | |
| | | Months Ended | | | Months Ended | |
| | | November 28, 2005 | | | December 31, 2004 | |
| | | | | | | |
| Net revenues | | $ | 3,480,163 | | | $ | 3,853,744 | |
| | | | | | | | | |
| Direct cost of services | | | 3,059,013 | | | | 3,431,182 | |
| | | | | | | | | |
| Gross profit | | | 421,150 | | | | 422,182 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
Compensation and related expenses | | | 90,825 | | | | 193,769 | |
General and administrative expenses | | | 119,618 | | | | 127,251 | |
Depreciation and amortization | | | 1,073 | | | | 1,281 | |
| | | | | | | | | |
| Total expenses | | | 211,516 | | | | 322,301 | |
| | | | | | | | | |
| Gross profit in excess of expenses | | $ | 209,634 | | | $ | 99,881 | |
| | | | | | | | | |
CULVER CITY, CALIFORNIA, LAWNDALE, CALIFORNIA
AND ORANGE CALIFORNIA OFFICES OF
STRATUS SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Nature of Business and Significant Accounting Policies
Until December 2005, Stratus Services Group, Inc. together with its 50%-owned joint venture, (the “Company”) was a national provider of staffing and productivity consulting services. As of September 30, 2005, the Company operated a network of 29 offices in 7 states. In December 2005, the Company completed a series of asset sales transactions pursuant to which it sold substantially all of the assets that it used to conduct its staffing services business. The Company currently provides information technology staffing solutions to customers nationwide from its two offices in New Jersey and Florida.
Basis of Presentation
The accompanying financial statements have been prepared for the purpose of presenting the statements of net revenues, cost of revenues and expenses for the two months ended November 28, 2005 and the three months ended December 31, 2004 for certain offices sold by the Company (the “Division”), as per the Asset Purchase Agreement (the “Agreement”) dated December 5, 2005 (the “Closing Date”), and effective November 28, 2005, between the Company and Accountabilities, Inc. (the “Buyer”).
Pursuant to the Agreement, the Company sold to the Buyer certain tangible and intangible assets owned or used by the Company in connection with the operation of the sold offices. The purchase price is contingent upon the future revenues generated by the offices from existing customers as follows: a) 2% of revenue for the first twelve months, b) 1% of revenue for the second twelve months, and c) 1% of revenue for the third twelve months (“Stratus Earnout”).
Historically, the Company did not prepare financial statements for the sold Division and the accompanying financial statements are derived from the historical accounting records of the Company. Accordingly, the historical operating results may not be indicative of the results after acquisition by the Buyer.
The statements of net revenues, cost of revenues and expenses include all revenues directly attributable to the Division, which consists of three staffing branch offices located in California. Cost of revenues and Expenses consist of identifiable direct amounts from the offices of the sold Division and allocated amounts not attributable to a specific office. Information about the Division cash flows is not available.
Interim Financial Information
The financial information for the two months ended November 28, 2005 and the three months ended December 31, 2004 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the Statement of Net Revenues, Cost of Revenues and Expenses for those periods.
The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for the fiscal year. These condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto for the years ended September 30, 2005 and 2004.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.
Note 2 - Allocated Costs
The Statement of Revenues, Cost of Revenues and Expenses includes allocations of expenses from the Company to the Division arising from shared services and infrastructure. These allocated expenses include certain general and administrative expenses such as information technology resources and support; finance accounting and auditing expenses; legal advisory services; human resource activities; risk control support; insurance coverage; and facilities charges. These expenses are allocated using estimates considered by management to be a reasonable reflection of the utilization of services provided to, and benefits received by, the Division. However, the resulting allocated costs are not intended to and do not necessarily equal the costs that the Division would have incurred on a stand-alone basis. Allocated costs included in General and administrative expenses for the two months ended November 28, 2005 and the three months ended December 31, 2004 were approximately $85,000 and $94,000, respectively.
On December 5, 2005 Accountabilities, Inc. (“Accountabilities”), entered into an Asset Purchase Agreement with Stratus Services Group, Inc. (“Stratus”) to acquire, effective as of November 28, 2005, from Stratus, the operations of three of their offices located in Culver City, California, Lawndale, California and Orange California (“the Stratus Offices”), for use in Accountabilities’ Staffing and Workforce Solutions Business (“SWSB”).
The following unaudited pro forma condensed statement of operations for the fiscal year ended September 30, 2006 is based on historical financial statements of SWSB after giving effect to the acquisition of the Stratus Offices, using the purchase method of accounting and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed financial statements as if such acquisition had occurred as of the first day of fiscal 2006.
The total purchase price has been allocated to the net tangible and intangible assets acquired in connection with the acquisition based on their estimated fair values as described in Note 1 to these unaudited pro forma condensed financial statements.
The unaudited pro forma condensed financial statements have been prepared by management for illustrative purposes only and do not include the realization of cost savings from operating efficiencies, revenue synergies or other costs expected to result from the acquisition. The unaudited pro forma condensed financial statements are therefore not necessarily indicative of the condensed results of operations in future periods that would actually have been realized had SWSB and the Stratus Offices been a combined company during the specified period.
The unaudited pro forma condensed financial statements, including the notes thereto, should be read in conjunction with SWSB’s historical financial statements for the years ended September 30, 2006 and 2005, and its quarterly financial statements for the nine months ended June 30, 2007 and 2006 included elsewhere in this Registration Statement. The statements should also be read in conjunction with the Stratus Offices’ historical financial statements for the years ended September 30, 2005 and 2004, and its interim Statements of Net Revenues, Cost of Revenues and Expenses for the two months ended November 28, 2005 and the three months ended December 31, 2004, included elsewhere in this Registration Statement.
AND ORANGE CALIFORNIA OFFICES OF
STRATUS SERVICES GROUP, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2006
| | | Historical SWSB | | | Historical Stratus Offices | | | Pro Forma Adjustments | | | Pro Forma | |
| Revenues | | $ | 34,088,000 | | | $ | 3,480,163 | | | $ | - | | | $ | 37,568,163 | |
| | | | | | | | | | | | | | | | | |
| Direct cost of services | | | 28,728,000 | | | | 3,059,013 | | | | | | | | 31,787,013 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | 5,360,000 | | | | 421,150 | | | | | | | | 5,781,150 | |
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 4,604,000 | | | | 210,443 | | | | | | | | 4,814,443 | |
| Depreciation and amortization | | | 118,000 | | | | 1,073 | | | | 15,000 | (a) | | | 134,073 | |
| | | | | | | | | | | | | | | | | |
| Income from operations | | | 638,000 | | | | 209,634 | | | | (15,000 | ) | | | 832,634 | |
| | | | | | | | | | | | | | | | | |
| Interest expense | | | 498,000 | | | | | | | | 35,000 | (b) | | | 533,000 | |
| | | | | | | | | | | | | | | | | |
| Income before provision for income taxes | | | 140,000 | | | | 209,634 | | | | (50,000 | ) | | | 299,634 | |
| | | | | | | | | | | | | | | | | |
| Provision for income taxes | | | 56,000 | | | | | | | | 64,000 | (c) | | | 120,000 | |
| | | | | | | | | | | | | | | | | |
| Net income | | $ | 84,000 | | | $ | 209,634 | | | $ | (114,000 | ) | | $ | 179,634 | |
| | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited condensed pro forma financial statements.
The accompanying pro forma condensed statement of operations is presented to give effect to the acquisition of substantially all of the tangible and intangible assets, excluding accounts receivable, of certain offices of Stratus Services Group, Inc. ("the Division"), effective November 28, 2005. The pro forma condensed statement of operations assumes that the acquisition occurred October 1, 2005. Such information does not purport to be indicative of the results which would have actually been obtained if the acquisition had been effected on the date indicated nor is it indicative of actual or future operating results.
An independent valuation study was completed, resulting in the following allocations of the purchase price.
| Furniture, fixtures and equipment | | $ | 40,000 | |
| Customer list | | | 638,000 | |
| | | | | |
| Net assets acquired | | $ | 678,000 | |
| | | | | |
(2) | Pro Forma Adjustments—Condensed Statement of Operations for the Year Ended September 30, 2006 |
(a) Adjustment to reflect the depreciation and amortization expense relating to the furniture, fixtures and equipment and intangibles recorded in conjunction with the acquisition, not already reflected in SWSB's historical condensed statement of operations.
(b) Adjustment to reflect the increase in interest expense relating to the accounts receivable of the acquisition, which would have been financed under SWSB’s receivable sales agreement.
(c) Records income tax expense on the combined pro forma income utilizing SWSB’S effective tax rate for the combined income.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Accountabilities, Inc.
We have audited the accompanying balance sheets of Restaff Services, Inc. (the “Company”) as of December 31, 2006 and 2005 and the related statements of income, cash flows and stockholders’ equity for the year ended December 31, 2006 and the period from April 12, 2005 (date of inception) to December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Restaff Services, Inc. as of December 31, 2006 and 2005 and the results of its operations and its cash flows for the year ended December 31, 2006 and the period from April 12, 2005 (date of inception) to December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
/s/ MILLER, ELLIN & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
August 10, 2007
RESTAFF SERVICES, INC.
BALANCE SHEETS
| | | DECEMBER 31, | |
| | | 2006 | | | 2005 | |
ASSETS | | | | | | |
| Current Assets: | | | | | | |
Cash | | $ | 128,614 | | | $ | 104,362 | |
Accounts receivable – less allowance for doubtful accounts of | | | | | | | | |
$113,882 and $68,870, respectively | | | 236,117 | | | | - | |
Due from financial institution | | | 789,621 | | | | 619,832 | |
Due from related party | | | 148,895 | | | | - | |
Total current assets | | | 1,303,247 | | | | 724,194 | |
| | | | | | | | | |
| Property and equipment, net | | | 13,333 | | | | 17,333 | |
| Intangible assets, net | | | 777,423 | | | | 927,189 | |
| Goodwill | | | 3,459,867 | | | | 3,459,867 | |
Total assets | | $ | 5,553,870 | | | $ | 5,128,583 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Current Liabilities: | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 27,285 | | | $ | 6,210 | |
Accrued interest | | | 565,059 | | | | 171,133 | |
Accrued wages and related obligations | | | 248,098 | | | | 279,229 | |
Current portion of long-term debt | | | 1,575,000 | | | | 575,000 | |
Due to related party | | | - | | | | 44,056 | |
Total current liabilities | | | 2,415,442 | | | | 1,075,628 | |
| | | | | | | | | |
Long-term debt, net of current portion | | | 3,000,000 | | | | 4,000,000 | |
| | | | 5,415,442 | | | | 5,075,628 | |
| Commitments | | | | | | | | |
| | | | | | | | | |
| Stockholders’ Equity: | | | | | | | | |
Common stock - $.01 par value, 1,000 shares issued and outstanding | | | | | | | | |
As of December 31, 2006 and 2005, respectively | | | 10 | | | | 10 | |
Retained earnings | | | 138,418 | | | | 52,945 | |
Total stockholders’ equity | | | 138,428 | | | | 52,955 | |
Total liabilities and stockholders’ equity | | $ | 5,553,870 | | | $ | 5,128,583 | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
RESTAFF SERVICES, INC.
STATEMENTS OF INCOME
| | | | | | PERIOD FROM | |
| | | | | | APRIL 12, 2005 | |
| | | | | | (DATE OF | |
| | | YEAR ENDED | | | INCEPTION) TO | |
| | | DECEMBER 31, 2006 | | | DECEMBER 31, 2005 | |
| | | | | | | |
| Revenue | | $ | 19,287,149 | | | $ | 10,413,398 | |
| | | | | | | | | |
| Direct cost of services | | | 16,529,445 | | | | 8,949,746 | |
| | | | | | | | | |
| Gross profit | | | 2,757,704 | | | | 1,463,652 | |
| | | | | | | | | |
| Selling, general and administrative expenses | | | 1,818,207 | | | | 946,057 | |
| | | | | | | | | |
| Depreciation and amortization | | | 153,766 | | | | 102,511 | |
| | | | | | | | | |
| Income from operations | | | 785,731 | | | | 415,084 | |
| | | | | | | | | |
| Interest expense | | | 700,258 | | | | 362,139 | |
| | | | | | | | | |
| Net income | | $ | 85,473 | | | $ | 52,945 | |
The accompanying notes are an integral part of these financial statements.
RESTAFF SERVICES, INC.
STATEMENTS OF CASH FLOWS
| | | | | | PERIOD FROM | |
| | | | | | APRIL 12, 2005 | |
| | | | | | (DATE OF | |
| | | YEAR ENDED | | | INCEPTION) TO | |
| | | DECEMBER 31, 2006 | | | DECEMBER 31, 2005 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
Net income | | $ | 85,473 | | | $ | 52,945 | |
Adjustments to reconcile net income to cash provided by | | | | | | | | |
operating activities: | | | | | | | | |
Depreciation and amortization | | | 153,766 | | | | 102,511 | |
Bad debt expense | | | 45,012 | | | | 68,870 | |
Common stock issued for services | | | - | | | | 10 | |
| | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | |
Trade accounts receivable | | | (281,129 | ) | | | - | |
Due from financial institution | | | (169,789 | ) | | | (620,602 | ) |
Accounts payable and accrued liabilities | | | 383,870 | | | | 456,572 | |
| | | | | | | | | |
| Net cash provided by operating activities | | | 217,203 | | | | 60,306 | |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
Due from related party | | | (192,951 | ) | | | 44,056 | |
| | | | | | | | | |
| Net cash provided by (used in) financing activities | | | (192,951 | ) | | | 44,056 | |
| | | | | | | | | |
| Change in cash | | | 24,252 | | | | 104,362 | |
| | | | | | | | | |
| Cash, beginning of period | | | 104,362 | | | | - | |
| | | | | | | | | |
| Cash, end of period | | $ | 128,614 | | | $ | 104,362 | |
| | | | | | | | | |
| Supplemental cash flow information: | | | | | | | | |
Cash paid for interest | | $ | 306,332 | | | $ | 191,006 | |
| | | | | | | | | |
| Non-cash financing activities: | | | | | | | | |
Acquisition of Staffing.Com, Inc. for note payable | | $ | - | | | $ | 4,575,000 | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
RESTAFF SERVICES, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | COMMON STOCK | | | ACCUMULATED | | | | |
| | | SHARES | | | AMOUNT | | | EARNINGS | | | TOTAL | |
| | | | | | | | | | | | | |
| Date of inception, April 12, 2005 | | | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 1,000 | | | | 10 | | | | - | | | | 10 | |
| | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | 52,945 | | | | 52,945 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2005 | | | 1,000 | | | | 10 | | | | 52,945 | | | | 52,955 | |
| | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | 85,473 | | | | 85,473 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2006 | | | 1,000 | | | $ | 10 | | | $ | 138,418 | | | $ | 138,428 | |
| | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
RESTAFF SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
ReStaff Services, Inc. (the “Company”) was formed in April 2005 and began operations in May 2005 with the acquisition of Staffing.com, Inc.’s operations (see Note 2 below), and subsequently sold all of its operating assets in March 2007 (see Subsequent Events below). The Company provided temporary commercial staffing in areas such as light industrial and clerical services in the United States through the operation of two offices.
Revenue Recognition
Revenues are recognized when services are rendered.
Cash
The Company considers cash on hand, deposits in banks, and short-term investments purchased with an original maturity date of three months or less to be cash and cash equivalents.
Accounts Receivable
The Company maintains an allowance for doubtful accounts for estimated losses resulting from its clients failing to make required payments for services rendered. Management estimates this allowance based upon knowledge of the financial condition of its clients, review of historical receivable and reserve trends and other pertinent information. If the financial condition of the Company’s clients deteriorates or there is an unfavorable trend in aggregate receivable collections, additional allowances may be required.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the following estimated useful lives:
| Furniture and fixtures | 7 years |
| Office Equipment | 7 years |
| Computer Equipment | 5 years |
Assessments of whether there has been a permanent impairment in the value of property and equipment are periodically performed by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Management believes no permanent impairment has occurred.
RESTAFF SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and other intangible assets with indefinite lives are not subjected to amortization and were tested for impairment as of May 31, 2007. No impairment was indicated. Other intangible assets with finite lives are subject to amortization, and impairment reviews were performed in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
Income Taxes
The Company elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code for federal and state income tax purposes. An S-corporation is generally not subject to income taxes at the corporate level and the stockholder’s equitable share in the net earnings or loss of the Company and allowable credits are reportable on the individual tax return of the stockholder. Accordingly, the financial statements reflect no provision or liability for federal income taxes and the Company has no net operating loss or tax credit carryforwards available as a corporate entity.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.
NOTE 2 - ACQUISITION
On May 2, 2005, the Company acquired the operations of Staffing.com, Inc. (“Staffing.com Acquisition”) for a total purchase price of $4,575,000. The consideration consisted entirely of a note bearing 8% interest, payable in nine installments every six months beginning November 1, 2005. All results of operations of the acquired operations have been included in the accompanying Statements of Income since the date of acquisition.
RESTAFF SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2 – ACQUISITION (CONTINUED)
The following table summarizes the fair values of the assets acquired at the date of the acquisition pursuant to Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS 141”).
Accounts receivable | | $ | 68,100 | |
Property and equipment | | | 20,000 | |
Customer lists and relationships | | | 973,710 | |
Non-competition agreement | | | 53,323 | |
Goodwill | | | 3,459,867 | |
Total assets acquired | | $ | 4,575,000 | |
Customer lists and relationships are being amortized over a weighted average useful life of seven years, and the non-competition agreement is being amortized over a life of five years. Through December 31, 2006 amortization of $231,835 and $17,775, has been recognized related to the customer lists and relationships, and the non-competition agreement, respectively.
NOTE 3 - INTANGIBLE ASSETS
The following table presents detail of the Company’s identifiable intangible assets, their estimated lives, and related accumulated amortization and goodwill at December 31, 2006 and 2005:
| | | December 31, 2006 | | | December 31, 2005 | |
| | | | | | Accumulated | | | | | | | | | Accumulated | | | | |
| | | Gross | | | Amortization | | | Net | | | Gross | | | Amortization | | | Net | |
| | | | | | | | | | | | | | | | | | | |
| Customer lists and relationships (7 years) | | $ | 973,710 | | | $ | (231,832 | ) | | $ | 741,878 | | | $ | 973,710 | | | $ | (92,734 | ) | | $ | 880,976 | |
| Non-competition agreement (5 years) | | | 53,323 | | | | (17,778 | ) | | | 35,545 | | | | 53,323 | | | | (7,110 | ) | | | 46,213 | |
| | | $ | 1,027,033 | | | $ | (249,610 | ) | | $ | 777,423 | | | $ | 1,027,033 | | | $ | (99,844 | ) | | $ | 927,189 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill (indefinite life) | | $ | 3,459,867 | | | | | | | $ | 3,459,867 | | | $ | 3,459,867 | | | | | | | $ | 3,459,867 | |
RESTAFF SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 3 - INTANGIBLE ASSETS (CONTINUED)
The Company recorded amortization expense of $149,766 and $99,844 for the year ended December 31, 2006 and the period from April 12, 2005 (date of inception) to December 31, 2005, respectively. Estimated intangible asset amortization expense (based on existing intangible assets) for the years ending December 31, 2007, 2008, 2009, 2010 and 2011 is $149,766 in each year.
NOTE 4 – RELATED PARTY TRANSACTIONS
Due from related party and due to related party represents outstanding amounts advanced to, or due to, respectively, the sole shareholder of the Company. The amounts are payable upon demand and are not subject to interest.
NOTE 5 - PROPERTY AND EQUIPMENT
As of December 31, 2006 and 2005 property and equipment consisted of the following:
| | | 2006 | | | 2005 | |
| Furniture and fixtures | | $ | 2,000 | | | $ | 2,000 | |
| Office Equipment | | | 2,000 | | | | 2,000 | |
| Computer Equipment | | | 16,000 | | | | 16,000 | |
| | | | 20,000 | | | | 20,000 | |
Less: accumulated depreciation and amortization | | | 6,667 | | | | 2,667 | |
| | | $ | 13,333 | | | $ | 17,333 | |
NOTE 6 - LONG-TERM DEBT
Long-term debt at December 31, 2006 and 2005 consists entirely of the $4,575,000 note issued as consideration in the Staffing.com Acquisition. The note bears 8% interest and is payable in nine equal installments of $500,000 plus accrued interest every six months beginning November 1, 2005. The note is secured by all of the outstanding common stock of the Company as held by the Company’s sole shareholder. As of December 31, 2006 no payments had been made on the note. On February 26, 2007 the holder of the note declared the note in default and consequently all of the outstanding shares of the Company were transferred to the holder of the note in full satisfaction of the outstanding balance and accrued interest.
RESTAFF SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 7 - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash accounts with high credit quality financial institutions. At times, such accounts are in excess of federally insured limits. To date, the Company has not experienced any losses in such accounts.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade receivables. However, concentrations of credit risk are limited due to the large number of customers comprising the Company’s customer base and their dispersion across different business and geographic areas. The Company monitors its exposure to credit losses and maintains an allowance for anticipated losses. To reduce credit risk, the Company performs credit checks on certain customers. No single customer accounted for more than 10% of revenue for the year ended December 31, 2006 and period from April 12, 2005 (date of inception) to December 31, 2005.
NOTE 8 - STOCKHOLDERS’ EQUITY
In April 2005 the Company issued 1,000 shares of common stock in consideration of past services rendered. The services and corresponding common stock issued were valued at $10 and were charged to selling, general and administrative expenses in the accompanying statement of income during 2005.
NOTE 9 - SALES OF RECEIVABLES
The Company has an agreement in place with a financial institution to sell its trade receivables on a limited recourse basis. Under the terms of the agreement the maximum amount of trade receivables that can be sold is $2,000,000, for which the purchaser advances 85% of the assigned receivables’ value upon sale, and 15% upon final collection. As collections reduce previously sold receivables, the Company may replenish these with new receivables. At December 31, 2006 and 2005, trade receivables of $789,621 and $619,832 had been sold and remain outstanding. Sales of receivables for 2006 and the period from April 12, 2005 (date of inception) to December 31, 2005 amounted to $19,287,149 and $10,413,398, respectively. Net discounts per the agreement are represented by an interest charge at an annual rate of prime plus 1.275%, applied against average outstanding uncollected receivables sold. In addition, an increased annual interest rate may be applied to certain accounts receivable older than thirty days old up to a maximum of prime plus 1.90%. Net discounts are included in interest expense in the accompanying statements of income and amounted to $306,331 and $183,131 for the year ended December 31, 2006 and the period from April 12, 2005 (date of inception) to December 31, 2005, respectively. The risk the Company bears from bad debt losses on trade receivables sold is retained by the Company, and receivables sold do not include $236,117 of receivables sold, but charged back by the financial institution because they were over 90 days past due, as of December 31, 2006. The Company addresses its risk of loss on trade receivables in its allowance for doubtful accounts, which totaled $113,882 and $68,870, respectively as of December 31, 2006 and 2005.
RESTAFF SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 10 - COMMITMENTS
Lease Commitments
At December 31, 2006, the Company had operating leases for office premises, expiring at various dates through April 2010. At December 31, 2006 the Company had no capital leases. Future minimum rental commitments under operating leases are as follows:
Years Ending December 31: | | Operating Leases | |
| | | | |
| 2007 | | $ | 37,168 | |
| 2008 | | | 38,092 | |
| 2009 | | | 39,016 | |
| 2010 | | | 13,108 | |
| | | $ | 127,384 | |
NOTE 11 - SUBSEQUENT EVENTS
On February 26, 2007, the Company completed the sale of all of its operations to Accountabilities, Inc. in exchange for $700,000 in cash, $3,200,000 in notes payable and 500,000 shares of common stock of Accountabilities, Inc.
RESTAFF SERVICES, INC.
STATEMENTS OF INCOME
(Unaudited)
| | | For the Two Months Ended February 26, 2007 | | | For the Three Months Ended March 31, 2006 | |
| | | | | | | |
| Revenue | | $ | 2,974,844 | | | $ | 4,077,074 | |
| | | | | | | | | |
| Direct cost of services | | | 2,518,689 | | | | 3,489,681 | |
| | | | | | | | | |
| Gross profit | | | 456,155 | | | | 587,393 | |
| | | | | | | | | |
| Selling, general and administrative expenses | | | 416,513 | | | | 358,840 | |
| Depreciation and amortization | | | 25,070 | | | | 38,442 | |
| | | | | | | | | |
| Income from operations | | | 14,572 | | | | 190,111 | |
| | | | | | | | | |
| Interest expense | | | 130,330 | | | | 153,184 | |
| | | | | | | | | |
| Net (loss) income | | $ | (115,758 | ) | | $ | 36,927 | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
RESTAFF SERVICES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
| | | For the Two Months Ended February 26, 2007 | | | For the Three Months Ended March 31, 2006 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net (loss) income | | $ | (115,758 | ) | | $ | 36,927 | |
| Adjustments to reconcile net (loss) income to cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 25,069 | | | | 38,443 | |
Bad debts expense | | | 150,000 | | | | 13,155 | |
Changes in operating assets and liabilities: | | | | | | | | |
Trade accounts receivable | | | 24,537 | | | | (97,321 | ) |
Due from financial institution | | | 213,590 | | | | (34,237 | ) |
Accounts payable and accrued liabilities | | | (79,051 | ) | | | 166,546 | |
| | | | | | | | | |
Net cash provided by operating activities | | | 218,387 | | | | 123,513 | |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
Due from related party | | | (199,324 | ) | | | (18,914 | ) |
| | | | | | | | | |
Net cash used in financing activities | | | (199,324 | ) | | | (18,914 | ) |
| | | | | | | | | |
| Change in cash | | | 19,063 | | | | 104,599 | |
| | | | | | | | | |
| Cash at beginning of period | | | 128,614 | | | | 104,362 | |
| Cash at end of period | | $ | 147,677 | | | $ | 208,961 | |
| | | | | | | | | |
| Supplemental cash flow information: | | | | | | | | |
Cash paid for interest | | $ | 61,796 | | | $ | 62,938 | |
| | | | | | | | | |
| Non-cash financing activities: | | | | | | | | |
| Default and conversion of note and accrued interest for common stock held by sole shareholder | | $ | 5,208,593 | | | $ | - | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
RESTAFF SERVICES, INC.
STATEMENT OF STOCKHOLDER’S EQUITY
(Unaudited)
| | | | | | | | | Additional | | | | | | | |
| | | Common Stock | | | Paid-in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Earnings | | | Total | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Balance at December 31, 2006 | | | 1,000 | | | $ | 10 | | | $ | - | | | $ | 138,418 | | | $ | 138,428 | |
| | | | | | | | | | | | | | | | | | | | | |
| Default and conversion of note and accrued interest in exchange for common stock held by sole shareholder | | | | | | | | | | | 5,208,593 | | | | | | | | 5,208,593 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | | (115,758 | ) | | | (115,758 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at February 26, 2007 | | | 1,000 | | | $ | 10 | | | $ | 5,208,593 | | | $ | 22,660 | | | $ | 5,231,263 | |
The accompanying notes are an integral part of these financial statements.
RESTAFF SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
ReStaff Services, Inc. (the “Company”) was formed in April 2005 and began operations in May 2005 with the acquisition of Staffing.com, Inc.’s operations. Subsequently, on February 26, 2007 the majority of the Company’s operating assets were sold to Accountabilities, Inc. The Company provided temporary commercial staffing in areas such as light industrial and clerical services in the United States through the operation of two offices.
Interim Financial Information
The financial information for the two months ended February 26, 2007 and the three months ended March 31, 2006 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the operating results and cash flows for those periods.
The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for the fiscal year. These condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto for the years ended December 31, 2006 and 2005.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.
NOTE 2 – LONG-TERM DEBT
On February 26, 2007 the holder of the note issued by the Company in exchange for the operations of Staffing.com, Inc. declared the note in default due to non-payment. The note was secured by all of the outstanding common stock of the Company as held by the Company’s sole shareholder. Consequently all of the outstanding shares of the Company were transferred to the holder of the note in full satisfaction of the outstanding principal and accrued interest, which as of February 26, 2007 was $4,575,000 and $633,593, respectively. The exchange of the note for the outstanding common stock of the company was reflected as an increase to additional paid-in capital in the accompanying Statement of Stockholder’s Equity.
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
On February 26, 2007, ReStaff Services, Inc. (“ReStaff”) completed the sale of all of its operations to Accountabilities, Inc. for use in their Staffing and Workforce Solutions Business (“SWSB”).
The following unaudited pro forma condensed statements of operations for the fiscal year ended September 30, 2006 and for the nine months ended June 30, 2007 are based on historical financial statements of SWSB after giving effect to the acquisition of ReStaff, using the purchase method of accounting and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed financial statements as if such acquisition had occurred as of the first day of fiscal 2006.
The total purchase price, calculated as described in Note 1 to these unaudited pro forma condensed financial statements, has been allocated to the net tangible and intangible assets acquired in connection with the acquisition, based on their estimated fair values. Management has made a preliminary allocation of the purchase price based on various preliminary estimates of fair value. SWSB is in the process of obtaining a third party valuation of the intangible assets; thus, the allocation of the purchase price is subject to adjustment. Final purchase price adjustments may vary materially from the pro forma adjustments presented herein.
The unaudited pro forma condensed financial statements have been prepared by management for illustrative purposes only and do not include the realization of cost savings from operating efficiencies, revenue synergies or other costs expected to result from the acquisition. The unaudited pro forma condensed financial statements are therefore not necessarily indicative of the condensed results of operations in future periods that would actually have been realized had SWSB and ReStaff been a combined company during the specified period.
The unaudited pro forma condensed financial statements, including the notes thereto, should be read in conjunction with SWSB’s historical financial statements for the years ended September 30, 2006 and 2005, and its quarterly financial statements for the nine months ended June 30, 2007 and 2006 included elsewhere in this Registration Statement. The statements should also be read in conjunction with ReStaff’s historical financial statements for the years ended December 31, 2006 and 2005, and its interim financial statements for the two months ended February 26, 2007 and the three months ended March 31, 2006 included elsewhere in this Registration Statement.
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended September 30, 2006
| | | Historical | | | Historical | | | Pro Forma | | | Pro Forma | |
| | | SWSB | | | ReStaff | | | Adjustments | | | Pro Forma | |
| | | | | | | | | | | | | |
| Revenues | | $ | 34,088,000 | | | $ | 18,345,151 | | | $ | - | | | $ | 52,433,151 | |
| | | | | | | | | | | | | | | | | |
| Direct cost of services | | | 28,728,000 | | | | 15,843,776 | | | | | | | | 44,571,776 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | 5,360,000 | | | | 2,501,375 | | | | | | | | 7,861,375 | |
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 4,604,000 | | | | 1,687,155 | | | | | | | | 6,291,155 | |
| Depreciation and amortization | | | 118,000 | | | | 153,767 | | | | 86,000 | (a) | | | 357,767 | |
| | | | | | | | | | | | | | | | | |
| Income from operations | | | 638,000 | | | | 660,453 | | | | (86,000 | ) | | | 1,212,453 | |
| | | | | | | | | | | | | | | | | |
| Interest expense | | | 498,000 | | | | 686,693 | | | | (172,000 | )(b) | | | 1,012,693 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) before provision for income taxes | | | 140,000 | | | | (26,240 | ) | | | 86,000 | | | | 199,760 | |
| | | | | | | | | | | | | | | | | |
| Provision for (benefit of) income taxes | | | 56,000 | | | | | | | | 24,000 | (c) | | | 80,000 | |
| | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 84,000 | | | $ | (26,240 | ) | | $ | 62,000 | | | $ | 119,760 | |
| | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited condensed pro forma financial statements.
Unaudited Pro Forma Condensed Statement of Operations
For the Nine Months Ended June 30, 2007
| | | Historical | | | Historical | | | Pro Forma | | | Pro Forma | |
| | | SWSB | | | ReStaff | | | Adjustments | | | Pro Forma | |
| | | | | | | | | | | | | |
| Revenues | | $ | 40,710,000 | | | $ | 8,317,121 | | | $ | - | | | $ | 49,027,121 | |
| | | | | | | | | | | | | | | | | |
| Direct cost of services | | | 33,928,000 | | | | 7,099,111 | | | | | | | | 41,027,111 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | 6,782,000 | | | | 1,218,010 | | | | | | | | 8,000,010 | |
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 6,126,000 | | | | 1,039,924 | | | | | | | | 7,165,924 | |
| Depreciation and amortization | | | 214,000 | | | | 63,512 | | | | 36,000 | (a) | | | 313,512 | |
| | | | | | | | | | | | | | | | | |
| Income from operations | | | 442,000 | | | | 114,574 | | | | (36,000 | ) | | | 520,574 | |
| | | | | | | | | | | | | | | | | |
| Interest expense | | | 633,000 | | | | 325,064 | | | | (79,000 | )(b) | | | 879,064 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) before provision for income taxes | | | (191,000 | ) | | | (210,490 | ) | | | 43,000 | | | | (358,490 | ) |
| | | | | | | | | | | | | | | | | |
| Benefit of income taxes | | | (76,000 | ) | | | | | | | (68,000 | )(c) | | | (144,000 | ) |
| | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | (115,000 | ) | | $ | (210,490 | ) | | $ | 111,000 | | | $ | (214,490 | ) |
| | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited condensed pro forma financial statements.
(1) - Basis of Presentation
The accompanying pro forma condensed statements of operations, for the year ended September 30, 2006 and the nine months ended June 30, 2007, is presented to give effect to the acquisition of substantially all of the tangible and intangible assets of ReStaff Services, Inc. ("Restaff"), effective February 26, 2007. The pro forma condensed statements of operations assumes that the acquisition occurred October 1, 2005. Such information does not purport to be indicative of the results which would have actually been obtained if the acquisition had been effected on the date indicated nor is it indicative of actual or future operating results.
The following represents our preliminary allocations of the purchase price. We believe that the preliminary allocations are reasonable but are subject to revisions upon completion of an independent valuation study.
| Accounts Receivable | | $ | 200,000 | |
| Property and Equipment | | | 5,000 | |
| Customer lists and relationships | | | 1,461,000 | |
| Non-competition agreement | | | 80,000 | |
| Goodwill | | | 3,026,000 | |
Total assets acquired | | | 4,772,000 | |
| Accrued liabilities | | | (62,000 | ) |
Net assets acquired | | $ | 4,710,000 | |
(2) - Pro Forma Adjustments
(a) Adjustment to reflect the appropriate amortization expense relating to the intangibles recorded in conjunction with the acquisition of ReStaff.
(b) Adjustment to reflect the difference in total interest expense related to the debt issued in conjunction with the acquisition plus the assumed interest to finance ReStaff accounts receivable under SWSB’s receivable sales agreement, minus the amount of interest expense recorded on ReStaff’s Statement of Income for the relevant period.
(c) Records the income tax provision on the combined pro forma income or loss utilizing SWSB’S effective tax rate for the combined income or loss.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Accountabilities, Inc.
We have audited the accompanying balance sheets of US Temp Services, Inc. (the “Company”) as of December 31, 2005 and 2004 and the related statements of operations, cash flows and stockholders’ deficit for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of US Temp Services, Inc. as of December 31, 2005 and 2004 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Miller, Ellin & Company, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
July 2, 2007
US TEMP SERVICES, INC.
BALANCE SHEETS
| | | December 31, | |
| | | 2005 | | | 2004 | |
ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash | | $ | 167,711 | | | | 36,630 | |
| Accounts receivable – less allowance for doubtful accounts of $200,000 and $50,000, respectively | | | 248,372 | | | | 156,801 | |
| Due from financial institution | | | 351,759 | | | | 410,978 | |
| Unbilled receivables | | | 360,325 | | | | 300,888 | |
| Prepaid expenses | | | 142,129 | | | | 118,553 | |
| Due from related party | | | 10,773 | | | | 14,179 | |
Total current assets | | | 1,281,069 | | | | 1,038,029 | |
| | | | | | | | | |
| Property and equipment, net | | | 17,780 | | | | 19,183 | |
| Other assets | | | 11,370 | | | | 9,599 | |
| Intangible assets, net | | | 97,242 | | | | 121,326 | |
| Goodwill | | | 209,352 | | | | 209,352 | |
| | | | | | | | | |
Total assets | | $ | 1,616,813 | | | $ | 1,397,489 | |
| | | | | | | | | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Current liabilities | | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 1,100,221 | | | $ | 554,974 | |
| Accrued wages and related obligations | | | 128,187 | | | | 223,209 | |
| Current portion of long-term debt | | | 726,225 | | | | 730,612 | |
Total current liabilities | | | 1,954,633 | | | | 1,508,795 | |
| | | | | | | | | |
| Long term debt, net of current portion | | | 277,564 | | | | 257,712 | |
Total liabilities | | | 2,232,197 | | | | 1,766,507 | |
| | | | | | | | | |
| Commitments | | | | | | | | |
| | | | | | | | | |
| Stockholders’ deficit | | | | | | | | |
Common stock, no par value, 25,000 shares authorized; 4,000 and 12,000 issued and outstanding as of December 31, 2005 and 2004, respectively | | | 4,200 | | | | 3,400 | |
| Accumulated deficit | | | (619,584 | ) | | | (372,418 | ) |
Total stockholders’ deficit | | | (615,384 | ) | | | (369,018 | ) |
| | | | | | | | | |
Total liabilities and stockholders’ deficit | | $ | 1,616,813 | | | $ | 1,397,489 | |
The accompanying notes are an integral part of these financial statements.
US TEMP SERVICES, INC.
STATEMENTS OF OPERATIONS
| | | Year Ended December 31, | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Revenue | | $ | 22,181,088 | | | $ | 19,104,310 | |
| | | | | | | | | |
| Direct cost of services | | | 19,756,798 | | | | 17,245,373 | |
| | | | | | | | | |
| Gross profit | | | 2,424,290 | | | | 1,858,937 | |
| | | | | | | | | |
| Selling, general and administrative expenses | | | 2,310,897 | | | | 1,640,272 | |
| Depreciation and amortization | | | 28,099 | | | | 27,207 | |
| | | | | | | | | |
| Income from operations | | | 85,294 | | | | 191,458 | |
| | | | | | | | | |
| Interest expense | | | 332,460 | | | | 397,627 | |
| | | | | | | | | |
| Net loss | | $ | (247,166 | ) | | $ | (206,169 | ) |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
US TEMP SERVICES, INC.
STATEMENTS OF CASH FLOWS
| | | Years Ended December 31, | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (247,166 | ) | | $ | (206,169 | ) |
| Adjustments to reconcile net loss to cash (used in) provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 28,099 | | | | 27,206 | |
Bad debts expense | | | 155,563 | | | | 50,000 | |
Common stock issues for services | | | 800 | | | | | |
Changes in operating assets and liabilities: | | | | | | | | |
Trade accounts receivable | | | (306,571 | ) | | | (348,277 | ) |
Due from financial institution | | | 59,219 | | | | 50,773 | |
Prepaid expenses | | | (23,576 | ) | | | (105,832 | ) |
Due from related party | | | 3,406 | | | | (58,051 | ) |
Other assets | | | (1,771 | ) | | | 58,728 | |
Accounts payable and accrued liabilities | | | 514,960 | | | | (4,333 | ) |
| | | | | | | | | |
Net cash (used in) provided by operating activities | | | 182,963 | | | | (535,955 | ) |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
Purchase of property and equipment | | | (2,612 | ) | | | (7,731 | ) |
| | | | | | | | | |
Net cash used in investing activities | | | (2,612 | ) | | | (7,731 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
Proceeds from issuance of long-term debt | | | | | | | 575,000 | |
Principal payments on long-term debt | | | (49,270 | ) | | | (144,541 | ) |
| | | | | | | | | |
Net cash (used in) provided by financing activities | | | (49,270 | ) | | | 430,459 | |
| | | | | | | | | |
| Change in cash | | | 131,081 | | | | (113,227 | ) |
| | | | | | | | | |
| Cash at beginning of year | | | 36,630 | | | | 149,857 | |
| Cash at end of year | | $ | 167,711 | | | $ | 36,630 | |
| | | | | | | | | |
| Supplemental cash flow information: | | | | | | | | |
Cash paid for interest | | $ | 273,725 | | | $ | 332,409 | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
US TEMP SERVICES, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIT
| | | Common Stock | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Deficit | | | Total | |
| | | | | | | | | | | | | |
| Balance at December 31, 2003 | | | 4,000 | | | $ | 3,400 | | | $ | (166,249 | ) | | $ | (162,849 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | (206,169 | ) | | | (206,169 | ) |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2004 | | | 4,000 | | | | 3,400 | | | | (372,418 | ) | | | (369,018 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | (247,166 | ) | | | (247,166 | ) |
| | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 8,000 | | | | 800 | | | | | | | | 800 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2005 | | | 12,000 | | | $ | 4,200 | | | $ | (619,584 | ) | | $ | (615,384 | ) |
| | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
US TEMP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
US Temp Services, Inc. (the “Company”) began operations in November 2002 and subsequently sold all of its operating assets in March 2006 (see Subsequent Events below). The Company provided temporary commercial staffing in areas such as light industrial and clerical services in the United States through the operation of four offices.
Revenue Recognition
Revenues are recognized when services are rendered.
Cash
The Company considers cash on hand, deposits in banks, and short-term investments purchased with an original maturity date of three months or less to be cash and cash equivalents.
Accounts Receivable
The Company maintains an allowance for doubtful accounts for estimated losses resulting from its clients failing to make required payments for services rendered. Management estimates this allowance based upon knowledge of the financial condition of its clients, review of historical receivable and reserve trends and other pertinent information. If the financial condition of the Company’s clients deteriorates or there is an unfavorable trend in aggregate receivable collections, additional allowances may be required.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the following estimated useful lives:
| Furniture and fixtures | 7 years |
| Office Equipment | 7 years |
| Computer Equipment | 5 years |
Assessments of whether there has been a permanent impairment in the value of property and equipment are periodically performed by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Management believes no permanent impairment has occurred.
US TEMP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and other intangible assets with indefinite lives are not subjected to amortization and were tested for impairment as of May 31, 2007. No impairment was indicated. Other intangible assets with finite lives are subject to amortization, and impairment reviews were performed in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
Income Taxes
Income taxes are accounted for in accordance with SFAS 109, “Accounting for Income Taxes”. Under SFAS 109, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. If necessary, valuation allowances are established to reduce deferred tax assets to the amount expected to be realized when, in management’s opinion, it is more likely than not that some portion of the deferred tax assets will not be realized. The estimated provision for income taxes represents current taxes that would be payable net of the change during the period in deferred tax assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.
US TEMP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 2 - INTANGIBLE ASSETS
The following table presents detail of the Company’s identifiable intangible assets, their estimated lives, and related accumulated amortization and goodwill at December 31, 2005 and 2004:
| | | December 31, 2005 | | | December 31, 2004 | |
| | | | | | Accumulated | | | | | | | | | Accumulated | | | | |
| | | Gross | | | Amortization | | | Net | | | Gross | | | Amortization | | | Net | |
| Customer lists and relationships (7 years) | | $ | 168,585 | | | $ | (71,343 | ) | | $ | 97,242 | | | $ | 168,585 | | | $ | (47,259 | ) | | $ | 121,326 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill (indefinite life) | | $ | 209,352 | | | | | | | $ | 209,352 | | | $ | 209,352 | | | | | | | $ | 209,352 | |
The Company recorded amortization expense of $24,084 in each of the years ended December 31, 2005 and 2004. Estimated intangible asset amortization expense (based on existing intangible assets) for the years ending December 31, 2006, 2007, 2008, 2009 and 2010 is $24,084, $24,084, $24,084, $24,084 and $909, respectively.
NOTE 3 - DUE FROM RELATED PARTY
Due from related party represents outstanding amounts advanced to US Technical Services, Inc., a company owned by one of the major shareholders of the Company. The amounts are payable upon demand and are not subject to interest.
NOTE 4 - PROPERTY AND EQUIPMENT
As of December 31, 2005 and 2004 property and equipment consisted of the following:
| | | 2005 | | | 2004 | |
| Furniture and fixtures | | $ | 6,182 | | | $ | 6,182 | |
| Office Equipment | | | 43,179 | | | | 40,567 | |
| Computer Equipment | | | 1,077 | | | | 1,077 | |
| | | | 50,438 | | | | 47,826 | |
Less accumulated depreciation and amortization | | | 32,658 | | | | 28,643 | |
| | | $ | 17,780 | | | $ | 19,183 | |
US TEMP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 5 - LONG-TERM DEBT
At December 31, 2005 and 2004 long-term debt consisted of the following:
| | | 2005 | | | 2004 | |
| 10% unsecured, convertible, demand revolving credit facility (i) | | $ | 650,921 | | | $ | 634,112 | |
| 4% unsecured note, due through 2010 (ii) | | | 259,865 | | | | 250,559 | |
| 6% unsecured note, due through 2006 (iii) | | | 6,298 | | | | 9,480 | |
| 6% unsecured note, due through 2008 (iv) | | | 84,214 | | | | 91,827 | |
| Other | | | 2,491 | | | | 2,346 | |
Total | | | 1,003,789 | | | | 988,324 | |
Less current maturities | | | 726,225 | | | | 730,612 | |
Noncurrent portion | | $ | 277,564 | | | $ | 257,712 | |
(i) Unsecured revolving credit agreement providing for advances up to a maximum of $700,000. The agreement provides for annual interest of 10%, with principal payments due within 60 days after the end of each calendar quarter in an amount equal to the excess of the Company’s gross profits over $450,000. The agreement originally expired on the earlier of June 30, 2005 or the death of the holder, but was amended on June 30, 2005 to be due upon five days written demand. Up to $185,000 of the outstanding balance is convertible at the option of the holder for up to 20% of the outstanding common stock of the Company.
(ii) Unsecured note in the original amount of $336,000, bearing 4% annual interest, and payable in equal monthly installments of $3,500 through November 1, 2010.
(iii) Unsecured note in the original amount of $20,000, bearing 6% annual interest, and payable in equal monthly installments of $608 through June 9, 2006.
(iv) Unsecured note in the amount of $105,000, bearing 6% annual interest, and payable in equal monthly installments of $2,030 through October 1, 2008.
The aggregate long-term debt maturing during the next five years is as follows: 2006 - $726,225; 2007 - $48,930; 2008 - $47,979; 2009 - $30,315 and 2010 - $150,340.
US TEMP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 6 - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash accounts with high credit quality financial institutions. At times, such accounts are in excess of federally insured limits. To date, the Company has not experienced any losses in such accounts.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade receivables. However, concentrations of credit risk are limited due to the large number of customers comprising the Company’s customer base and their dispersion across different business and geographic areas. The Company monitors its exposure to credit losses and maintains an allowance for anticipated losses. To reduce credit risk, the Company performs credit checks on certain customers. No single customer accounted for more than 10% of revenue for the years ended December 31, 2005 and 2004.
NOTE 7 - STOCKHOLDERS’ EQUITY
In May 2005 the Company issued 8,000 shares of common stock in consideration of past serviced rendered. The services and corresponding common stock issued were valued at $800 and were charged to Selling, general and administrative expenses in the accompanying Statement of Operations during 2005.
NOTE 8 - SALES OF RECEIVABLES
The Company has an agreement in place with a financial institution to sell its trade receivables on a limited recourse basis. Under the terms of the agreement the maximum amount of trade receivables that can be sold is $2,400,000, for which the purchaser advances 85% of the assigned receivables’ value upon sale, and 15% upon final collection. As collections reduce previously sold receivables, the Company may replenish these with new receivables. At December 31, 2005 and 2004, trade receivables of $351,759 and $410,978 had been sold and remain outstanding. Sales of receivables for the years 2005 and 2004 amounted to $22,181,088 and $19,104,310. Net discounts per the agreement are represented by an interest charge at an annual rate of prime plus 2.9% , applied against average outstanding uncollected receivables sold, and a monthly fee of $3,200. In addition, the Company is required to comply with certain covenants, which if not complied with result in an increase in the interest charge to prime plus 5.9%. Net discounts are included in interest expense in the accompanying Statements of Operations and amounted to $41,600 and $176,563 for the years 2005 and 2004, respectively. The risk the Company bears from bad debt losses on trade receivables sold is retained by the Company, and receivables sold do not include $248,372 and $156,801 of receivables sold, but charged back by the financial institution because they were over 90 days past due, as of December 31, 2005 and 2004, respectively. The Company addresses its risk of loss on trade receivables in its allowance for doubtful accounts, which totaled $200,000 and $50,000, respectively as of December 31, 2005 and 2004.
US TEMP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 9 - PROVISION FOR INCOME TAXES
Due to the losses incurred during the years ended December 31, 2005 and 2004, the Company’s cumulative taxable losses, and the inability to carryback these losses, the Company has not recorded a current tax benefit for the net operating losses.
A reconciliation between the statutory federal income tax rate and the Company’s effective tax is as follows:
| | | Year Ended | |
| | | 2005 | | | 2004 | |
| Statutory federal income tax benefit | | $ | (86,508 | ) | | $ | (72,159 | ) |
| State taxes, net of federal benefit | | | (12,358 | ) | | | (10,308 | ) |
| Valuation allowance | | | 98,866 | | | | 82,468 | |
| | | | | | | | | |
| | | $ | - | | | $ | - | |
As of December 31, 2005 and 2004 the Company had total deferred tax assets, consisting entirely of federal and state tax net operating losses, of approximately $248,000 and $149,000, respectively, reserved against entirely by valuation allowances of the same amounts, since the Company believes it is more likely than not that these deferred tax assets will not be realized. Additionally, under provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership over a three-year period may significantly limit the amount of the net operating loss carryforwards which can be utilized each year in future periods to offset taxable income.
NOTE 10 - COMMITMENTS
Lease Commitments
At December 31, 2005, the Company had operating leases, primarily for office premises, expiring at various dates through March 2008. At December 31, 2005 the Company had no capital leases. Future minimum rental commitments under operating leases are as follows:
Years Ending December 31: | | Operating Leases | |
| | | | |
| 2006 | | $ | 69,303 | |
| 2007 | | | 32,814 | |
| 2008 | | | 18,223 | |
| | | $ | 120,340 | |
US TEMP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 11 - SUBSEQUENT EVENTS
On March 31, 2006, the Company completed the sale of all of its operations to AccountAbilities, Inc. in exchange for $1,005,000 consisting of $75,000 in cash and $930,000 in notes payable in satisfaction of all current notes payable of the Company.
US TEMP SERVICES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| | | For the Three Months Ended | |
| | | March 31, | |
| | | 2006 | | | 2005 | |
| | | | | | | |
| Revenue | | $ | 5,057,295 | | | $ | 2,110,753 | |
| | | | | | | | | |
| Direct cost of services | | | 4,453,367 | | | | 1,877,650 | |
| | | | | | | | | |
| Gross profit | | | 603,928 | | | | 233,103 | |
| | | | | | | | | |
| Selling, general and administrative expenses | | | 735,501 | | | | 202,128 | |
| Depreciation and amortization | | | 7,058 | | | | 6,334 | |
| | | | | | | | | |
| Income (loss) from operations | | | (138,631 | ) | | | 24,641 | |
| | | | | | | | | |
| Interest expense | | | 91,264 | | | | 27,211 | |
| | | | | | | | | |
| Net loss | | $ | (229,895 | ) | | $ | (2,570 | ) |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
US TEMP SERVICES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
| | | For the Three Months Ended | |
| | | March 31, | |
| | | 2006 | | | 2005 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (229,895 | ) | | $ | (2,570 | ) |
| Adjustments to reconcile net loss to cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 7,060 | | | | 6,960 | |
Bad debts expense | | | 188,512 | | | | 15,000 | |
Changes in operating assets and liabilities: | | | | | | | | |
Trade accounts receivable | | | (14,386 | ) | | | (184,463 | ) |
Due from financial institution | | | 63,337 | | | | 88,354 | |
Prepaid expenses | | | 5,105 | | | | (10,373 | ) |
Due from related party | | | - | | | | 8,186 | |
Other assets | | | - | | | | (1,771 | ) |
Accounts payable and accrued liabilities | | | 11,108 | | | | 166,907 | |
| | | | | | | | | |
Net cash provided by operating activities | | | 30,841 | | | | 86,230 | |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
Principal payments on long-term debt | | | (6,480 | ) | | | (7,227 | ) |
| | | | | | | | | |
Net cash used in financing activities | | | (6,480 | ) | | | (7,227 | ) |
| | | | | | | | | |
| Change in cash | | | 24,361 | | | | 79,003 | |
| | | | | | | | | |
| Cash at beginning of period | | | 167,711 | | | | 36,630 | |
| Cash at end of period | | $ | 192,072 | | | $ | 115,633 | |
| | | | | | | | | |
| Supplemental cash flow information: | | | | | | | | |
Cash paid for interest | | $ | 70,536 | | | $ | 13,511 | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
US TEMP SERVICES, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIT
(Unaudited)
| | | Common Stock | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Deficit | | | Total | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance at December 31, 2005 | | | 12,000 | | | $ | 4,200 | | | $ | (619,584 | ) | | $ | (615,384 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | (229,895 | ) | | | (229,895 | ) |
| | | | | | | | | | | | | | | | | |
| Balance at March 31, 2006 | | | 12,000 | | | $ | 4,200 | | | $ | (849,479 | ) | | $ | (845,279 | ) |
The accompanying notes are an integral part of these financial statements.
US TEMP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
US Temp Services, Inc. (the “Company”) began operations in November 2002. On March 31, 2006, the Company completed the sale of all of its operations to AccountAbilities, Inc. in exchange for $1,005,000 consisting of $75,000 in cash and $930,000 in notes payable in satisfaction of all current notes payable of the Company. The Company provided temporary commercial staffing in areas such as light industrial and clerical services in the United States through the operation of four offices.
Interim Financial Information
The financial information for the three months ended March 31, 2006 and 2005 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the operating results and cash flows for those periods.
The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for the fiscal year. These condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto for the years ended December 31, 2005 and 2004.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
On March 31, 2006, US Temp Services, Inc. (“US Temps”) completed the sale of all of its operations to Accountabilities, Inc. for use in their Staffing and Workforce Solutions Business (“SWSB”).
The following unaudited pro forma condensed statement of operations for the fiscal year ended September 30, 2006 is based on historical financial statements of SWSB after giving effect to the acquisition of US Temps, using the purchase method of accounting and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed financial statements as if such acquisition had occurred as of the first day of fiscal 2006.
The total purchase price has been allocated to the net tangible and intangible assets acquired in connection with the acquisition based on their estimated fair values as described in Note 1 to these unaudited pro forma condensed financial statements.
The unaudited pro forma condensed financial statements have been prepared by management for illustrative purposes only and do not include the realization of cost savings from operating efficiencies, revenue synergies or other costs expected to result from the acquisition. The unaudited pro forma condensed financial statements are therefore not necessarily indicative of the condensed results of operations in future periods that would actually have been realized had SWSB and US Temps been a combined company during the specified period.
The unaudited pro forma condensed financial statements, including the notes thereto, should be read in conjunction with SWSB’s historical financial statements for the years ended September 30, 2006 and 2005, and its quarterly financial statements for the nine months ended June 30, 2007 and 2006 included elsewhere in this Registration Statement. The statements should also be read in conjunction with US Temps’ historical financial statements for the years ended December 31, 2005 and 2004, and its quarterly financial statements for the three months ended March 31, 2006 and 2005 included elsewhere in this Registration Statement.
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended September 30, 2006
| | | Historical SWSB | | | Historical US Temps | | | Pro Forma Adjustments | | | Pro Forma | |
| | | | | | | | | | | | | |
| Revenues | | $ | 34,088,000 | | | $ | 10,555,409 | | | $ | - | | | $ | 44,643,409 | |
| | | | | | | | | | | | | | | | | |
| Direct cost of services | | | 28,728,000 | | | | 9,453,544 | | | | | | | | 38,181,544 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | 5,360,000 | | | | 1,101,865 | | | | | | | | 6,461,865 | |
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 4,604,000 | | | | 1,255,135 | | | | | | | | 5,859,135 | |
| Depreciation and amortization | | | 118,000 | | | | 15,190 | | | | 4,100 | (a) | | | 137,290 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | | 638,000 | | | | (168,460 | ) | | | (4,100 | ) | | | 465,440 | |
| | | | | | | | | | | | | | | | | |
| Interest expense | | | 498,000 | | | | 185,203 | | | | (11,700 | )(b) | | | 671,503 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) before provision for income taxes | | | 140,000 | | | | (353,663 | ) | | | 7,600 | | | | (206,063 | ) |
| | | | | | | | | | | | | | | | | |
| Provision for (benefit of) income taxes | | | 56,000 | | | | | | | | (138,000 | )(c) | | | (82,000 | ) |
| | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 84,000 | | | $ | (353,663 | ) | | $ | 145,600 | | | $ | (124,063 | ) |
| | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited condensed pro forma financial statements.
(1) - Basis of Presentation
The accompanying pro forma condensed statement of operations is presented to give effect to the acquisition of substantially all of the tangible and intangible assets of US Temp Services, Inc. ("US Temps"), effective March 31, 2006. The pro forma condensed statement of operations assumes that the acquisition occurred October 1, 2005. Such information does not purport to be indicative of the results which would have actually been obtained if the acquisition had been effected on the date indicated nor is it indicative of actual or future operating results.
An independent valuation study was completed, resulting in the following allocations of the purchase price.
| Accounts Receivable | | $ | 358,000 | |
| Property and Equipment | | | 25,000 | |
| Customer lists and relationships | | | 168,000 | |
| Non-solicitation agreement | | | 30,000 | |
| Goodwill | | | 1,335,000 | |
Total assets acquired | | | 1,916,000 | |
| Accrued liabilities | | | (193,000 | ) |
Net assets acquired | | $ | 1,723,000 | |
(2) Pro Forma Adjustments—Condensed Statement of Operations for the Year Ended September 30, 2006
(a) Adjustment to reflect the incremental depreciation and amortization expense relating to the property and equipment and intangibles recorded in conjunction with the acquisition, over the amount reflected on US Temps Statement of Operations for the relevant period.
(b) Adjustment to reflect the difference in total interest expense related to the debt issued in conjunction with the acquisition plus the assumed interest to finance US Temps accounts receivable under SWSB’s receivable sales agreement, minus the amount of interest expense reflected on US Temps Statement of Operations for the relevant period.
(c) Records the income tax provision on the combined pro forma income or loss utilizing SWSB’S effective tax rate for the combined income or loss.
Annex A
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made as of the 26th day of July, 2007, by and between Hyperion Energy, Inc. a Colorado corporation ("Hyperion") maintaining a business address of P.O. Box 152112, San Diego, California 92195, Walter Reed, an individual maintaining a business address at P.O. Box 152112, San Diego, California 92195 (the “Stockholder”) and Accountabilities, Inc., a Delaware corporation ("AI") with its principal business offices located at 500 Craig Road, Suite 201, Manalapan, New Jersey 07726.
WHEREAS, AI is in the business of providing (i) professional staffing services, primarily to CPA firms and (ii) information technology/scientific staffing services and workforce solutions to various businesses (collectively, the “Business”);
WHEREAS, the Stockholder owns all of the outstanding shares of the common stock of Hyperion;
WHEREAS, Hyperion desires to purchase from AI, and AI desires to sell to Hyperion substantially all of the properties, rights and assets used by AI in conducting the Business, all upon and subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Purchase and Sale and Delivery of the AI Assets.
1.1. Purchase and Sale of the AI Assets.
(a) AI Assets. Subject to and upon the terms and conditions of this Agreement and excluding the assets retained by AI as set forth in Section 1.1(b) herein, AI shall sell, transfer, convey, assign and deliver, to Hyperion, and Hyperion shall purchase from AI, all of the properties, rights and assets, of every kind and nature, real, personal or mixed, tangible or intangible, wherever located, which are owned, leased, licensed or used by AI in the conduct of the Business and which exist on the “Closing Date” (as defined in Section 1.5 below) (collectively, the "AI Assets"), including, without limitation, the following assets:
(i) all office supplies and similar materials (the "Supplies");
(ii) all contracts, agreements, leases, arrangements and/or commitments of any kind, whether oral or written, relating to the AI Assets (the "AI Contracts");
(iii) all customer lists, files, records and documents (including credit information) relating to customers and vendors of the Business and all other business, financial and employee books, records, files, documents, reports and correspondence relating to the Business (collectively, the "Records");
(iv) all rights of AI, if any, under express or implied warranties from the suppliers of AI in connection with the AI Assets;
(v) all furnishings, furniture, fixtures, tools, machinery, equipment and leasehold improvements owned by AI and related to the AI Assets, whether or not reflected as capital assets in the accounting records of AI (collectively, the "Fixed Assets");
(vi) all patents, trademarks, tradenames, service marks, copyrights and applications therefore which are owned by AI and related to the AI Assets and/or the operation of the Business;
(vii) all computers, computer programs, computer databases, hardware and software owned or licensed by AI and used in connection with the AI Assets and/or the operation of the Business;
(viii) all municipal, state and federal franchises, licenses, authorizations and permits of AI which are necessary to operate or are related to the AI Assets;
(ix) all prepaid charges, deposits, sums and fees of AI relating to the AI Assets or arising out of the operation of the Business;
(x) all claims and rights of AI related to or arising from the AI Assets or arising out of the operation of the Business;
(xi) all cash and cash equivalents;
(xii) accounts receivable and rights to payment related to or arising out of the conduct of the Business;
(xiii) all of the goodwill of the Business; and
(xiv) all other assets and properties of any nature whatsoever held by AI either directly or indirectly, and used in, allocated to, or required for the conduct of the Business.
(b) Retained Assets. Notwithstanding anything to the contrary set forth in this Agreement, the following assets of AI (the “Retained Assets”) are not included in the sale of AI Assets contemplated hereby: (i) the Purchase Price (as hereinafter defined) and the other rights of AI under or relating to this Agreement, (ii) the corporate minute books, stock records, qualification to conduct business as a foreign corporation, and other documents relating to the formation, maintenance or existence as a corporation of AI, except that AI agrees that it will provide copies of any such document from the corporate minute books as reasonably requested by Hyperion which Hyperion believes are necessary for the use and operation of the AI Assets and the conduct of the Business after the Closing Date, and (iii) any and all properties, rights and assets used in the conduct of AI’s payroll debit card business or any business conducted prior to June 2005.
1.2. Purchase Price. The purchase price for the AI Assets (the "Purchase Price") shall be a number of shares (the “Shares”) of Hyperion’s common stock, $0.001 par value (the “Hyperion Common Stock”) that is equal to the number of shares of the common stock of AI issued and outstanding at the time of the Closing. The Parties hereto intend that the Shares to be issued to AI shall represent one hundred percent (100%) of Hyperion’s outstanding Common Stock after the completion of this transaction, including the Share Cancellation (as defined below).
1.3. Assumption of Liabilities.
(a) Assumed Liabilities. Effective as of the Effective Date, Hyperion agrees to assume and to pay, perform and discharge all liabilities and obligations of AI, except the liabilities and obligations described in Section 1.3(b) below. The liabilities and obligations assumed by Hyperion will include, but not be limited to (i) the fees and expenses of AI’s counsel, accountants and other experts and all other expenses incurred by AI incident to the negotiation, preparation and execution of this Agreement and any agreement entered into in connection herewith and the performance by AI of its obligations hereunder or thereunder, (ii) arising under AI Contracts on and after the Closing Date and with respect to the use and operation of the AI Assets by Hyperion after the Closing Date and (iii) the obligation to issue
shares of Hyperion Common Stock in accordance with the terms of any options, warrants or convertible securities (the “Assumed Liabilities”).
(b) Liabilities Retained by AI. Hyperion shall not assume, be liable for or pay, and none of the AI Assets shall be subject to, and AI shall retain, be unconditionally liable for and pay, any liability or obligation (whether known or unknown, matured or unmatured, stated or unstated, recorded or unrecorded, fixed or contingent, currently existing or hereafter arising) of AI, under or in connection with the Retained Assets.
1.4. Share Cancellation. The Stockholder agrees that at the Closing, Stockholder shall surrender for cancellation all of the shares of Hyperion Common Stock (the “Hyperion Shares”) owned by him (the “Share Cancellation”) in consideration of a Twelve- Thousand Five Hundred Dollar ($12,500) payment (the “Share Payment”) which shall be shall be paid to the Stockholder on the tenth (10th) day following the date of the execution of this Agreement provided that during such ten (10) day period (i) no action, suit or proceeding or threat to bring any action, suit or proceeding has been made by any third party challenging or seeking to restrain, prohibit or obtain damages as a result of or in connection with the transactions that are the subject of this Agreement and (ii) no claim has been made by a third party alleging an ownership interest in or a right to acquire the Hyperion Shares. If the Share Payment is not made to Shareholder by reason of a matter set forth in clause (i) or (ii) above, the Share Payment shall be made at Closing. Pending the Closing, the certificate(s) representing the Hyperion Shares (together with stock power(s) duly executed in blank) shall be held in escrow by AI’s counsel and shall be released to (x) Hyperion at the Closing and (y) to Shareholder in the event of a termination of this Agreement. In the event that this Agreement is terminated for any reason other than the breach by AI, the Stockholder shall return any payments made pursuant to this Section 1.4 to AI within five (5) business days of such termination.
1.5. Closing. The closing (the “Closing”) of the transactions contemplated by this Agreement shall take place at the offices of AI in Manalapan, New Jersey, within five (5) days after the date when each of the conditions set forth in Section 6 shall have been fulfilled (or waived by the party entitled to waive such condition) or such other time or date or such other location as the parties may mutually agree (the "Closing Date").
2. Representations and Warranties of AI. Except as set forth in the corresponding sections or subsections of the AI Disclosure Schedule annexed hereto as Appendix I (the "AI Disclosure Schedule"; sometimes referred to herein as a "Disclosure Schedule"), AI hereby represents and warrants to Hyperion, that:
2.1. Organization, Good Standing and Qualification. Each of AI and its Subsidiaries (as defined below) is a corporation duly organized, validly existing as a corporation and in good standing under the laws of its respective jurisdiction of incorporation. AI and each of its Subsidiaries has all requisite power and authority to own and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing in each jurisdiction where the ownership or operation of its properties or conduct of its business requires such qualification, except where the failure to be so qualified or in good standing is not, when taken together with all other such failures, reasonably likely to have a material adverse effect on its business, financial condition, operating results or prospects (a “Material Adverse Effect”). AI has made available to Hyperion a complete and correct copy of its certificate of incorporation and by-laws (the "Organizational Documents"), each as amended to date. Such Organizational Documents as so made available are in full force and effect.
As used in this Agreement, (i) the term "Subsidiary" means any entity, whether incorporated or unincorporated, of which at least fifty percent of the securities or ownership interests having by their terms ordinary voting power to elect at least fifty percent of the board of directors or other persons performing similar functions is directly or indirectly owned by such party or by one or more of its respective Subsidiaries or by such party and any one or more of its respective Subsidiaries, (ii) reference
to "the other party" means, with respect to AI, Hyperion and Stockholder and means with respect to Hyperion and Stockholder, AI, and (iii) the term "Person" means an association, corporation, estate, general partnership, governmental entity (or any agency, department or political subdivision thereof), individual, joint stock company, joint venture, limited liability company, limited partnership, trust, or any other organization or entity.
2.2. Capital Structure. The authorized capital stock of AI consists of 95,000,000 shares of Common Stock, $.0001 par value (the “AI Common Stock”) of which 17,588,325 shares were issued and outstanding and no shares were held in treasury as of the date of this Agreement and 5,000,000 shares of Preferred Stock, $.0001 par value, of which no shares were outstanding as of the date of this Agreement. All of the outstanding shares of AI Common Stock have been duly authorized and are validly issued, fully paid and nonassessable. AI has no shares reserved for issuance. Except as set forth in Section 2.2 of the AI Disclosure Schedule, AI has no shares of AI Common Stock or Preferred Stock reserved for issuance and there are no preemptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements or commitments to issue or sell any shares of capital stock or other securities of AI or any securities or obligations convertible or exchangeable into or exercisable for, or giving any Person a right to subscribe for or acquire, any securities of AI, and no securities or obligations evidencing such rights are authorized, issued or outstanding. AI does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with its stockholders on any matter ("Voting Debt").
2.3. Corporate Authority; Approval. AI has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby, subject only to approval of this Agreement by the holders of a majority of the outstanding shares of AI Common Stock (the "AI Requisite Vote"). This Agreement is a valid and binding agreement of AI enforceable against AI in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles (the "Bankruptcy and Equity Exception"). The Board of Directors of AI has unanimously approved this Agreement and the sale of the AI Assets and the other transactions contemplated hereby.
2.4. Governmental Filings; No Violations.
(a) Other than the filings and/or notices (i) described in Section 4.19 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or the filing of a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), (ii) to comply with state securities or "blue-sky" laws, (such filings and/or notices of AI being the "AI Governmental Consents"), no notices, reports or other filings are required to be made by it with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by it from, any governmental or regulatory authority, court, agency, commission, body or other governmental entity ("Governmental Entity"), in connection with the execution and delivery of this Agreement by it and the consummation by it of the transactions contemplated hereby, except those that the failure to make or obtain are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on it or prevent, materially delay or materially impair its ability to consummate the transactions contemplated by this Agreement.
(b) The execution, delivery and performance of this Agreement by AI does not, and the consummation by it of the transactions contemplated hereby will not, constitute or result in (A) a breach or violation of, or a default under, its Organizational Documents or the Organizational Documents governing any of its Subsidiaries, (B) a breach or violation of, or a default under, the acceleration of any obligations or the creation of a lien, pledge, security interest or other encumbrance on its assets or the assets of any of its Subsidiaries (with or without notice, lapse of time or both) pursuant to, any agreement, lease, contract, note, mortgage, indenture, arrangement or other obligation ("Contracts")
binding upon it or any of its Subsidiaries or any law, statute, ordinance, regulation,, decree or order (“Laws”) or governmental or non-governmental permit or license to which it or any of its Subsidiaries is subject or (C) any change in the rights or obligations of any party under any of its Contracts, except, in the case of clause (B) or (C) above, for any breach, violation, default, acceleration, creation or change that, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect on it or prevent, materially delay or materially impair its ability to consummate the transactions contemplated by this Agreement. Section 2.4(b) of its Disclosure Schedule sets forth a correct and complete list of its Contracts and Contracts of its Subsidiaries pursuant to which consents or waivers are or may be required prior to consummation of the transactions contemplated by this Agreement other than those where the failure to obtain such consents or waivers is not reasonably likely to have a Material Adverse Effect on it or prevent or materially impair its ability to consummate the transactions contemplated by this Agreement.
2.5. Broker and Finders. Neither it nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders fees in connection with the transactions contemplated by this Agreement.
3. Representations and Warranties of Hyperion and Stockholder. Except as set forth in the corresponding sections or subsections of the Hyperion Disclosure Schedule annexed hereto as Appendix II (the "Hyperion Disclosure Schedule"), as the case may be, Hyperion and Stockholder, jointly and severally, hereby represent and warrant to AI, that:
3.1 Organization, Good Standing and Qualification. Hyperion is a corporation is duly organized, validly existing as a corporation and in good standing under the laws of the State of Colorado has all requisite power and authority to own and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing in each jurisdiction where the ownership or operation of its properties or conduct of its business requires such qualification. Hyperion has made available to AI a complete and correct copy of its Organizational Documents, each as amended to date. Such Organizational Documents as so made available are in full force and effect.
3.2. Capital Structure. The authorized capital stock of Hyperion consists of (a) 100,000,000 shares of Hyperion Common Stock, of which 1,390,000 shares were issued and outstanding and no shares were held in treasury as of the date of this Agreement and (b) 20,000,000 shares of Preferred Stock, par value $.001 per share (“Hyperion Preferred Stock”), of which no shares are issued and outstanding on the date hereof. All of the outstanding shares of Hyperion Common Stock have been duly authorized and are validly issued, fully paid and nonassessable. Hyperion has no shares of Hyperion Common Stock or Hyperion Preferred Stock reserved for issuance and there are no preemptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements or commitments to issue or to sell any shares of capital stock or other securities of Hyperion or any securities or obligations convertible or exchangeable into or exercisable for, or giving any Person a right to subscribe for or acquire, any securities of Hyperion, and no securities or obligation evidencing such rights are authorized, issued or outstanding. Hyperion does not have outstanding any Voting Debt.
3.3. Corporate Authority; Approval. Hyperion each has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement. This Agreement is a valid and binding agreement of Hyperion, enforceable against Hyperion in accordance with its terms, subject to the Bankruptcy and Equity Exception. The Shares of Hyperion Common Stock, when issued pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and no stockholder of Hyperion will have any preemptive right of subscription or purchase in respect thereof. The Board of Directors of Hyperion and the Stockholder have unanimously approved this Agreement, the acquisition of the AI Assets, the issuance of the shares and the other transactions contemplated hereby. The Shares of Hyperion Common Stock
issued to AI pursuant to this Agreement shall represent approximately 100.00% of the outstanding shares of Hyperion Common Stock outstanding immediately after the Closing.
3.4. Governmental Filings; No Violations.
(a) Other than (i) the filings and/or notices under the Exchange Act or the filing of a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), (ii) to comply with state securities or "blue-sky" laws, (such filings and/or notices of Hyperion being the "Hyperion Governmental Consents", no notices, reports or other filings are required to be made by Hyperion with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by Hyperion from, any Governmental Entity, in connection with the execution and delivery of this Agreement by it and the consummation by it of the transactions contemplated hereby, except those that the failure to make or obtain are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on it or prevent, materially delay or materially impair its ability to consummate the transactions contemplated by this Agreement.
(b) The execution, delivery and performance of this Agreement by Hyperion does not, and the consummation by it of the transactions contemplated hereby will not, constitute or result in (A) a breach or violation of, or a default under, its Organizational Documents, (B) a breach or violation of, or a default under, the acceleration of any obligations or the creation of a lien, pledge, security interest or other encumbrance on its assets (with or without notice, lapse of time or both) pursuant to, any contract binding upon it or any Law or governmental or non-governmental permit or license to which it is subject or (C) any change in the rights or obligations of any party under any of its Contracts.
3.5. Absence of Certain Changes. Except as expressly contemplated by this Agreement or set forth in Section 3.5 of the Hyperion Disclosure Schedule, since February 28, 2007, there has not been (i) any change in the financial condition, properties, prospects, business or results of operations of Hyperion, except those changes that are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on it; or (ii) any change by it in accounting principles, practices or methods.
3.6. Litigation and Liabilities. There are no (i) civil, criminal or administrative actions, suits, claims, hearings, investigations or proceedings pending or, to its knowledge, threatened against Hyperion or any of its Affiliates (which term, as used in this Agreement, shall be as defined in Rule 12b-2 under the Exchange Act) or (ii) obligations or liabilities, whether or not accrued, contingent or otherwise, including those relating to matters involving any Environmental Law, or any other facts or circumstances, that are reasonably likely to result in any claims against or obligations or liabilities of it or any of its Affiliates.
3.7. Taxes. Hyperion has prepared in good faith and duly and timely filed (taking into account any extension of time within which to file) all Tax Returns as defined below required to be filed by it and all such filed tax returns are complete and accurate in all material respects and: (i) it has paid all Taxes (as defined below) that are shown as due on such filed Tax Returns or that it is obligated to withhold from amounts owing to any employee, creditor or third party, except with respect to matters contested in good faith; (ii) as of the date hereof, there are not pending or, to its knowledge of its executive officers threatened, any audits, examinations, investigations or other proceedings in respect of Taxes or Tax matters; and (iii) there are not, to its knowledge, any unresolved questions or claims concerning its Tax liability. Hyperion has no liability with respect to Taxes. As used in this Agreement, (i) the term "Tax" (including, with correlative meaning, the terms "Taxes", and "Taxable") includes all federal, state, local and foreign income, profits, franchise, gross receipts, environmental, customs duty, capital stock, severance, stamp, payroll, sales, employment, unemployment, disability, use, property, withholding, excise, production, value added, occupancy and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts and any interest with respect to such penalties and additions, and (ii) the term "Tax Return"
includes all returns and reports (including elections, declarations, disclosures, schedules, estimates and information returns) required to be supplied to a Tax authority relating to Taxes
3.8. Broker and Finders. Neither Hyperion nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders fees in connection with the transactions contemplated by this Agreement.
3.9. SEC Reporting and Compliance.
(a) Hyperion filed a registration statement on Form 10SB under the Exchange Act which became effective on May 15, 2007. Since that date, Hyperion has timely filed with the Commission all registration statements, proxy statements, information statements and reports required to be filed pursuant to the Exchange Act.
(b) Hyperion has delivered to AI true and complete copies of all registration statements, information statements and other reports and filings (collectively, the “SEC Documents”) filed by Hyperion with the Commission. None of the SEC Documents, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements contained therein not misleading.
(c) Hyperion has not filed, and nothing has occurred with respect to which Hyperion would be required to file, any report on Form 8-K since May 15, 2007. Prior to and until the Closing, Hyperion will provide to AI copies of any and all amendments or supplements to the SEC Documents filed with the Commission and all subsequent registration statements and reports filed by Hyperion subsequent to the filing of the SEC Documents with the Commission and any and all subsequent information statements, proxy statements, reports or notices filed by the Hyperion with the Commission or delivered to the stockholders of Hyperion.
(d) Hyperion is not an investment company within the meaning of Section 3 of the Investment Company Act.
(e) All of the outstanding shares of Hyperion Common Stock are “restricted securities,” as defined under Rule 144 of the Securities Act, and all of such shares were issued in private transactions not involving a public offering. Hyperion is in compliance in all material respects with Rule 144 applicable to it and the Hyperion Common Stock.
(f) Hyperion is a “blank check company” subject to the requirements of Rule 419 of the Securities Act. Hyperion is in compliance in all material respects with Rule 419 applicable to it and the Hyperion Stock.
(g) Hyperion is also a “shell company” under Rule 12b-2 of the Securities Act because it has no assets (other than cash) and no operations.
(h) Between the date hereof and the Closing Date, Hyperion shall continue to timely satisfy the filing requirements of the Exchange Act and all other requirements of applicable securities laws, including Rule 144 and Rule 419.
(i) Hyperion has otherwise complied with the Securities Act, Exchange Act and all other applicable federal and state securities laws.
3.10. Financial Statements. The balance sheets, and statements of income, changes in financial position and stockholders’ equity contained in the SEC Documents (the “Hyperion Financial Statements”) (i) have been prepared in accordance with GAAP applied on a basis consistent with prior periods (and, in the case of unaudited financial information, on a basis consistent with year-end audits),
(ii) are in accordance with the books and records of Hyperion, and (iii) present fairly in all material respects the financial condition of Hyperion at the dates therein specified and the results of its operations and changes in financial position for the periods therein specified. The financial statements included on Form 10-SB for the period from inception, February 16, 2007, through February 28, 2007, are as audited by, and include the related opinions of Rotenberg & Co., LLP, Hyperion’s independent certified public accountants.
3.11. Compliance with Laws. The business of Hyperion has not been and is not being, conducted in violation of any Laws. No investigation or review by any Governmental Entity with respect to it is pending or, to the knowledge of its executive officers, threatened, nor has any Governmental Entity indicated an intention to conduct the same. To the knowledge of its executive officers, no material change is required in its processes, properties or procedures in connection with any such Laws, and it has not received any notice or communication of any material noncompliance with an y such Laws that has not been cured as of the date hereof. Hyperion has all Permits necessary to conduct its business as presently conducted.
3.12. Absence of Undisclosed Liabilities. Hyperion does not have any material obligation or liability (whether accrued, absolute, contingent, liquidated or otherwise, whether due or to become due), arising out of any transaction entered into at or prior to the Closing, except (a) as disclosed in the SEC Documents, (b) to the extent set forth on or reserved against in the balance sheet of Hyperion as of February 28, 2007 (the “Hyperion Balance Sheet”) or the Notes to the Hyperion Financial Statements, (c) current liabilities incurred and obligations under agreements entered into in the usual and ordinary course of business since February 28, 2007 (the “Hyperion Balance Sheet Date”), none of which (individually or in the aggregate) materially and adversely affects the condition (financial or otherwise), properties, assets, liabilities, business operations, results of operations or prospects of Hyperion, taken as a whole (the "Condition of Hyperion"), and (d) by the specific terms of any written agreement, document or arrangement attached as an exhibit to the SEC Documents.
3.13. Absence of Assets, Business, etc. Hyperion has not conducted any business activities other than those incident to its formation, the filing of the Form 10SB and the execution and delivery of this Agreement and Hyperion, other than as set forth in Section 3.13 of the Hyperion Disclosure Schedule:
(a) does not have any Subsidiaries;
(b) is not a party to any written or oral Contracts;
(c) owns no real or personal property or other assets;
| (d) | does not have and has never had any employees or adopted or maintained any Employee Benefit Plans. |
3.14. Stockholder Matters. Stockholder has good and marketable title to the Hyperion Shares free and clear of any lien, claim, charge or encumbrance. Stockholder has full power and authority to execute and deliver this Agreement and to perform his obligations hereunder. The execution, delivery and performance of this Agreement by Stockholder will not violate, conflict with or result in the breach of the terms of any other agreement, instrument, judgment, order or decree to which Stockholder is a party or may be subject.
4. Closing Deliveries.
1. By AI with respect to Sale of AI Assets. AI shall deliver to Hyperion at the Closing each of the following documents:
(a) a Bill of Sale in the form attached hereto as Exhibit A, duly executed by AI;
(b) an Assignment and Assumption of Contracts and Liabilities executed by AI evidencing AI's assignment and Hyperion's assumption of the Assumed Liabilities contemplated by Section 1.3 hereof in the form attached hereto as Exhibit B (the "Assignment and Assumption Agreement");
(c) cross receipt executed by AI, in the form of Exhibit C ("Cross Receipt");
(d) a certificate executed by the President of AI that all representations and warranties made herein by AI are true and correct and that all terms, conditions and provisions of this Agreement have been performed and complied with at the time of Closing;
(e) a certificate from the secretary of AI attesting to the accuracy of resolutions to be attached thereto approved by the Board of Directors of AI authorizing the sale of the AI Assets and providing incumbency information for the individual signing this Agreement on behalf of AI;
(f) such certificates or other documents as may be reasonably requested by Hyperion, including, without limitation, certificates of legal existence, good standing and certified charter documents from the Secretary of State of Delaware, and certificates of the Chief Executive Officer of AI with respect to minutes, resolutions, by-laws and any other relevant matters concerning AI in connection with the transactions contemplated by this Agreement.
4.2. By Hyperion with respect to Purchase of AI Assets. Hyperion shall deliver to AI at the Closing each of the following documents:
(a) a certificate representing the Shares;
(b) the Assignment and Assumption Agreement (Exhibit B), executed by Hyperion;
(c) the Cross Receipt (Exhibit C), executed by Hyperion;
(d) a certificate executed by the President of Hyperion that all representations and warranties made herein are true and correct and that all terms, conditions and provisions of this Agreement have been performed and complied with at the time of Closing; and
(e) a certificate of the secretary of Hyperion attesting to the accuracy of the resolutions to be attached thereto approved by the Board of Directors of Hyperion approving the purchase of the AI Assets and providing incumbency information for the individual signing this Agreement on behalf of Hyperion.
(f) such certificates or other documents as may be reasonably requested by AI, including, without limitation, certificates of legal existence, good standing and certified charter documents from the Secretary of State of Colorado, and certificates of an officer of Hyperion with respect to directors’ resolutions, by-laws and other matters.
4.3. By Stockholder with respect to Share Cancellation. Stockholder shall deliver to Hyperion at the Closing for cancellation a certificate representing 1,390,000 shares of Hyperion Common Stock duly endorsed for transfer or accompanied by a stock power duly executed in black.
4.4. By AI with respect to Share Cancellation. AI shall deliver to Stockholder by wire transfer at the Closing a cash payment in the amount of Twenty-Five Thousand Dollars ($25,000).
5. Covenants. Except as expressly contemplated or permitted by this Agreement, or to the extent that AI shall otherwise consent in writing, during the period from the date of this Agreement and continuing until the Closing, Hyperion agrees that:
5.1. Ordinary Course. Hyperion shall conduct no business activities other than as contemplated by the Agreement or required by law.
5.2. Dividends; Changes in Stock. Except to the extent contemplated by this Agreement, Hyperion shall not, nor shall it propose to, (i) declare or pay any dividends on or make other distributions in respect of any of its capital stock or other outstanding securities or interests, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in replacement of, in lieu of or in substitution for shares of its capital stock, or (iii) repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any shares of its capital stock.
5.3. Issuance of Securities. Hyperion shall not issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any shares of its capital stock of any class, any Voting Debt or any securities convertible into, or any rights, warrants, calls, subscriptions or options to acquire, any such shares, Voting Debt or convertible securities.
5.4. Governing Documents. Hyperion shall not amend or propose to amend their Organizational Documents.
5.5. No Acquisitions. Hyperion shall not acquire or agree to acquire by merging or consolidating with, or by purchasing an equity interest in or portion of the assets of, or by any manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets.
5.6. Other Actions. Hyperion shall not take any action that would or is reasonably likely to result in any of its representations and warranties set forth in this Agreement being untrue or in its failure to perform covenants it is obliged to perform hereunder or in any of the conditions to the Closing set forth in Section 6 not being satisfied.
5.7. Advice of Changes; Filings. Hyperion shall confer on a regular and frequent basis with AI and promptly advise AI in writing of any change or event having (in either case), or which, insofar as can reasonably be foreseen could have (in either case), a Material Adverse Effect on it (financial or otherwise), prospective results of operations or net worth. Hyperion shall promptly provide to AI (or its counsel) copies of all filings made by it with any Federal, state or foreign Governmental Entity in connection with this Agreement and the transactions contemplated hereby or which are material to the operation of the business conducted by it.
5.8. Notice of Untrue Facts. Hyperion will promptly advise the other party if, at any time before the Proxy Statement/Prospectus (as defined in Section 5.14) is mailed to the stockholders of AI or before the meeting of AI’s stockholders held pursuant to Section 5.14 hereof, the Proxy Statement/Prospectus as the same relates to it, contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.
5.9. Consents Without Any Condition. Hyperion shall not make any agreement or reach any understanding not approved in writing by the other party as a condition for obtaining any consent, authorization, approval, order, license, certificate, or permit required for the consummation of any of the transactions contemplated by this Agreement.
5.10. Legal Requirements. Hyperion will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on it with respect to the transactions contemplated by this Agreement (which actions shall include, without limitation, furnishing all information required in connection with approvals of or filings with any other Governmental Entity and filing initial notices and obtaining an administrative consent order or otherwise satisfying the requirements of any state or federal environmental laws with respect to properties owned, leased, or operated by it on or before the date of this Agreement and through the Closing Date, to the extent such properties are subject to such laws) and will promptly cooperate with and furnish information to AI in connection with any such requirements imposed upon Hyperion in connection with the transactions contemplated by this Agreement. It will take all reasonable actions necessary to obtain (and will cooperate with the other party obtaining) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity or other public or private third party, required to be obtained or made by Hyperion in connection with the transactions contemplated by this Agreement or the taking of any action contemplated thereby or by this Agreement.
5.11. Access to Information. Upon reasonable notice and subject to restrictions contained in confidentiality agreements to which Hyperion is subject, Hyperion shall afford to the officers, employees, accountants, counsel and other representatives of AI, access, during normal business hours during the period prior to the Closing, to all of its properties, books, contracts, commitments and records and during such period, it shall furnish promptly to the other (a) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws and (b) all other information concerning its business, properties and personnel as AI may reasonably request.
5.12. Additional Agreements; Best Efforts. Hyperion will use its best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including cooperating fully with AI. In case at any time after the Closing Date any further action is necessary or desirable to carry out the purposes of this Agreement or to vest Hyperion with full title to all properties, assets, rights, approvals, immunities and franchises of the Business, the proper officers and directors of each party to this Agreement shall take all such necessary action.
5.13. Additional Covenants of Hyperion and Stockholder. During the period from the date of this Agreement and continuing until the Closing, Hyperion and Stockholder agree that (except as expressly contemplated or permitted by this Agreement or to the extent that AI shall otherwise consent in writing):
(a) SEC Reports. Hyperion shall duly and timely file all reports and other documents required to be filed by it with the SEC and will deliver complete and accurate copies thereof to AI at the time of filing. None of such reports and other documents will contain at the time of filing any untrue statement of a material fact or omit to state any material fact (excluding any such misstatement or omission made in reliance upon information provided by AI) required to be stated therein or necessary to make the statements therein not misleading, and all of such reports shall comply as to form in all material respects with all of the applicable rules and regulations promulgated under the Exchange Act and the Securities Act, as the case may be.
(b) OTC Bulletin Board Listing. Hyperion shall take all actions reasonably requested by AI in connection with arranging for the Hyperion Common Stock to be listed on the OTC Bulletin Board.
(c) Resignation of Directors. Consistent with applicable law, Hyperion shall procure prior to the Closing Date, the resignation of the Stockholder as sole director of Hyperion and shall cause Hyperion’s Board of Directors, prior to the effectiveness of such resignation and prior to the Closing Date, to elect to the Board of Directors of Hyperion, effective as of the Closing Date, such
number of individuals as shall be designated by AI prior to the Closing.
(d) Discharge of Liabilities. Prior to the Closing Date, the Stockholder shall satisfy or cause Hyperion to satisfy and discharge all liabilities of Hyperion which would otherwise exist on the Closing Date such that Hyperion will have no liabilities, whether actual or contingent, on the Closing Date.
(e) Indebtedness. Hyperion shall not, incur (which shall be deemed to include entering into credit agreements, lines of credit or similar arrangements) any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of it or any of its Subsidiaries or guarantee any debt securities of others.
(f) Acquisitions of Property. Hyperion agrees it will not, without the prior written consent of AI, acquire or lease any additional real or personal property, including, without limitation, capital equipment or inventories.
(g) No Related Transaction. Hyperion shall not enter into or become a party to any contract, lease, agreement or transaction with any member of its board of directors, any of its officers or management employees or with any business organization owned or controlled by any of them, from the date of the execution of this Agreement to the Closing Date.
5.14. Registration Statement, Joint Proxy Statement/Prospectus and Related Matters.
(a) As promptly as practicable after the date of this Agreement, Hyperion and AI shall prepare, and Hyperion shall file with the SEC, a joint proxy statement/prospectus (the “Proxy Statement/Prospectus”) to be sent to the stockholders of AI in connection with the meeting of AI’s stockholders (the “AI Stockholders’ Meeting) to vote on the approval of the sale of the AI Assets hereunder and the other transactions contemplated hereby. In connection therewith, Hyperion shall prepare and file with the SEC a registration statement on Form S-4 pursuant to which the shares of Hyperion Common Stock to be issued pursuant to this Agreement will be registered with the SEC (the “Registration Statement”), and in which the Proxy Statement/Prospectus will be included as a prospectus. Hyperion shall use reasonable best efforts to cause the Registration Statement to become effective as soon after filing as practicable. Hyperion shall make all other necessary filings with respect to this Agreement and the transactions contemplated hereby under the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and regulations of the SEC thereunder.
(b) AI shall take such action as may be necessary to ensure that (i) the information to be supplied by AI for inclusion in the Registration Statement shall not at the time the Registration Statement is declared effective by the SEC contain any untrue statement of a material fact required to be stated in the Registration Statement or necessary in order to make the statements in the Registration Statement, in light of the circumstances under which they were made, not misleading, and (ii) the information supplied by AI for inclusion in the Proxy Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is first mailed to stockholders of AI or Hyperion, and at the time of the AI’s Stockholders’ Meeting contain any statement that, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made in the Proxy Statement/Prospectus not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for AI’s Stockholders’ Meeting that has become false or misleading. If at any time prior to the Closing any event relating to AI or any of its Affiliates, officers or directors should be discovered by AI that should be set forth in an amendment to the Registration Statement or a supplement to the Proxy Statement/Prospectus, AI shall promptly so inform Hyperion.
(c) Hyperion shall take such action as may be necessary to ensure that (i) the information to be supplied by it for inclusion in the Registration Statement shall not at the time the Registration Statement is declared effective by the SEC contain any untrue statement of a material fact required to be stated in the Registration Statement or necessary in order to make the statements in the Registration Statement, in light of the circumstances under which they were made, not misleading, and (ii) the information supplied by it for inclusion in the Proxy Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is first mailed to stockholders of AI, and at the time of AI’s Stockholders’ Meeting contain any statement that, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made in the Proxy Statement/Prospectus not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for AI’s Stockholders’ Meeting that has become false or misleading. If at any time prior to the Closing any event relating to Hyperion or any of their respective Affiliates, officers or directors should be discovered by Hyperion, as the case may be, that should be set forth in an amendment to the Registration Statement or a supplement to the Proxy Statement/Prospectus, the party discovering same shall promptly so inform AI.
(d) AI shall each call a meeting of stockholders to be held as promptly as practicable for the purpose of voting on the sale of the AI Assets pursuant to this Agreement and the other transactions contemplated hereby.
6. Conditions.
6.1. Conditions to Each Party’s Obligation to Close Transaction. The respective obligations of each party to effect the Transactions contemplated by this Agreement shall be subject to the satisfaction prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have been approved and adopted by the affirmative vote of the holders of a majority of the outstanding shares of AI Common Stock.
(b) Hyperion shall have received all state securities or “Blue Sky” permits and other authorizations necessary to issue the Hyperion Common Stock pursuant to this Agreement.
(c) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated by this Agreement shall be in effect.
(d) The Registration Statement shall have become effective under the Securities Act, no stop order suspending the effectiveness of the Registration Statement shall then be in effect, and no proceedings for that purpose shall then be threatened by the SEC or shall have been initiated by the SEC and not concluded or withdrawn.
6.2. Conditions of Obligations of Hyperion. The obligations of Hyperion to effect the transactions contemplated by this Agreement are subject to the satisfaction of the following conditions unless, to the extent permitted below, waived by Hyperion:
(a) The representations and warranties of AI set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement, and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement, and Hyperion shall have received a certificate signed on behalf of AI by the President and Chief Financial Officer of AI to such effect.
(b) AI shall have performed in all material respects all obligations, covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date, and Hyperion shall have received a certificate signed on behalf of AI by the president and Chief Financial Officer of AI to such effect.
6.3. Conditions of Obligations of AI. The obligation of AI to effect the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions unless waived by AI:
(a) The representations and warranties of Hyperion and Stockholder set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement and AI shall have received a certificate signed on behalf of Hyperion by the President of Hyperion to such effect.
(b) Hyperion and Stockholder shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and AI shall have received a certificate signed on behalf of Hyperion by the President of Hyperion to such effect.
(c) The consents set forth in Section 6.3(c) of the AI Disclosure Schedule shall have been obtained.
(d) The SEC shall have consented to the use of “carve-out” financial statements in the Registration Statement and in the Report on Form 8-K required to be filed by Hyperion following the Closing.
7. Post-Closing Agreements. AI and Hyperion, as the case may be, agree that from and after the Closing Date:
7.1. Further Assurances and Data.
(a) At any time and from time to time after the Closing Date, at Hyperion's reasonable request and without further consideration, AI shall execute and deliver such instruments of sale, transfer, conveyance, assignment and confirmation, and take such other action, all at Hyperion's sole cost and expense, as Hyperion may reasonably request to more effectively transfer, convey and assign to Hyperion, and to confirm Hyperion's title to, all the AI Assets, to put Hyperion in actual possession and operating control thereof, to assist Hyperion in exercising all rights with respect thereto, and to carry out the purpose and intent of this Agreement. Immediately after the Closing Date, AI shall, to the extent applicable, authorize the release to Hyperion of all files pertaining to the AI Assets held by any federal, state, county or local authorities, agencies or instrumentalities. AI and Hyperion will cooperate in communications with suppliers and customers to accomplish the transfer of the AI Assets to Hyperion.
(b) The parties agree that from and after the Closing Date, as to any monies received that rightfully belong to the other party, they shall remit such monies promptly to the other party.
7.2. Cooperation in Litigation. Each party hereto will reasonably cooperate with the other in the defense or prosecution of any litigation or proceeding already instituted or which may be instituted hereafter against or by such party relating to or arising out of the use of the AI Assets prior to the Closing Date (other than litigation arising out of the transactions contemplated by this Agreement). The party requesting such cooperation shall pay the out-of-pocket expenses (including legal fees and disbursements) of the party providing such cooperation and of its officers, directors, employees, other personnel and agents reasonably incurred in connection with providing such cooperation, but shall not be responsible to reimburse the party providing such cooperation for such party's time spent in such cooperation or the salaries or costs of fringe benefits or similar expenses paid by the party providing such
cooperation to its officers, directors, employees, other personnel and agents while assisting in the defense or prosecution of any such litigation or proceeding.
7.3. Consents. AI will use its commercially reasonable best efforts to obtain by the Closing Date, consents from each landlord relating to all real property leases identified on Section 2.16 of the AI Disclosure Schedule, consenting to the assumption of each such real property lease by Hyperion, and any other consents required under any Contract or otherwise in connection with the transactions contemplated by this Agreement. To the extent that any interest in any of the AI Assets is not capable of being assigned, transferred, conveyed or registered without the consent, waiver or authorization of, or registration with, a third person (including, but not limited to, a governmental, regulatory or administrative authority), or if such assignment, transfer, conveyance, registration or attempted assignment, transfer, conveyance or registration would constitute a breach of any AI Asset, or a violation of any law, statute, decree, rule, regulation or other governmental edict or is not immediately practicable, this Agreement shall not constitute an assignment, transfer or conveyance of such interest, or an attempted assignment, transfer or conveyance of such interest (such interests being hereinafter collectively referred to as “Restricted Interests”). The entire beneficial interest in any AI Assets subject to a restriction as described above, and any other interest in such AI Assets which are transferable notwithstanding such restriction, shall be transferred from AI to Hyperion as provided in Section 1.1(a). To the extent that any required consents, waivers, authorizations and registrations are not obtained, or until the impracticalities of transfer referred to therein are resolved, AI shall (i) provide to Hyperion, at the request of Hyperion, the benefits of any Restricted Interests, (ii) cooperate in reasonable and lawful arrangements designed to provide such benefits to Hyperion and (iii) enforce, at the request of Hyperion for the account of Hyperion, any rights of AI arising from any Restricted Interests (including the right to elect to terminate in accordance with the terms thereof upon the advice of Hyperion).
8. Indemnification. The Stockholder agrees to defend, indemnify and hold harmless AI and its officers, directors, employees, managers, members, agents, advisers and representatives (collectively, the “Indemnitees”) from and against, and pay or reimburse the Indemnitees for, any and all claims, demands, liabilities, obligations, losses, fines, costs, expenses, royalties, litigation, deficiencies or damages (whether absolute, accrued, contingent or otherwise and whether or not resulting from third party claims), including interest and penalties with respect thereto and out-of-pocket expenses and reasonable attorneys’ and accountants’ fees and expenses incurred in the investigation or defense of any of the same or in asserting, preserving or enforcing any of their respective rights hereunder (collectively, “Losses”, and each individually, a “Loss”), resulting from or arising out of:
(a) any breach of the Representations and Warranties of Hyperion and/or Stockholder set forth in this Agreement;
(b) any transaction, liability or obligation, whether absolute or contingent, that occurs or arises out of the business operations or activities of Hyperion on or prior to the Closing Date;
(c) Any taxes arising out of the operations of Hyperion prior to the Closing Date.
8.1. Indemnification Procedures. In the case of any claim asserted by a third party against a party entitled to indemnification under this Agreement (the “Indemnified Party”), notice shall be given by the Indemnified Party to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and the Indemnified Party shall permit the Indemnifying Party (at the expense of such Indemnifying Party) to assume the defense of any claim or any litigation resulting therefrom, provided, that (i) counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation shall be reasonably satisfactory to the Indemnified Party, and the Indemnified Party may participate in such defense at such Indemnified Party’s expense, and (ii) the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its indemnification obligation under this Agreement except to the extent that such failure results in a lack of actual notice to the Indemnifying Party and such Indemnifying Party is materially prejudiced as a result of such failure to give notice. Except with the prior written consent of the Indemnified Party, no Indemnifying Party, in the defense of any such claim or litigation, shall consent to entry of any judgment or enter into any settlement that provides for injunctive or other nonmonetary relief affecting the Indemnified Party or that does not include as an unconditional term thereof the giving by each claimant or plaintiff to such Indemnified Party of a release from all liability with respect to such claim or litigation. In no event shall a party guilty of fraud or willful misconduct be entitled to indemnity with respect to any matter involving such fraud or willful misconduct. In the event that the Indemnified Party shall in good faith determine that the Indemnified Party may have available to it one or more defenses or counterclaims that are inconsistent with one or more of those that may be available to the Indemnifying Party in respect of such claim or any litigation relating thereto, the Indemnified Party shall have the right at all times to take over and assume control over the defense, settlement, negotiations or litigation relating to any such claim at the sole cost of the Indemnifying Party, provided, that if the Indemnified Party does so take over and assume control, the Indemnified Party shall not settle such claim or litigation without the written consent of the Indemnifying Party, such consent not to be unreasonably withheld. In the event that the Indemnifying Party does not accept the defense of any matter as above provided, the Indemnified Party shall have the full right to defense against any such claim or demand, and shall be entitled to settle or agree to pay in full such claim or demand, subject to the written consent of the Indemnifying Party such consent not to be unreasonably withheld. In any event, except to the extent that they have an interest adverse to the other, the parties hereto shall cooperate in the defense of any claim or litigation subject to this Section 8 and the records of each shall be available to the other with respect to such defense.
9. Transfer and Sales Tax. Notwithstanding any provisions of law imposing the burden of such taxes on AI or Hyperion, as the case may be, Hyperion shall be responsible for and shall pay (a) all sales, bulk sales, use and transfer taxes, and (b) all governmental charges, if any, upon and due in connection with the sale or transfer of any of the AI Assets hereunder.
10. Termination.
10.1. Time of Termination. This Agreement may be terminated at any time prior to the Closing, whether before or after approval of the matters presented in connection with the transactions contemplated by this Agreement by the stockholders of AI:
(a) By mutual consent of Hyperion and AI.
(b) (i) By either Hyperion or Stockholder on the one hand or AI on the other hand if there shall be a material breach of any representation, warranty, covenant, obligation or agreement on the part of the other party set forth in this Agreement which breach shall not have been cured, in the case of a representation or warranty, prior to the Closing, or in the case of a covenant, obligation or agreement, within two (2) business days following receipt by the breaching party of notice of such breach; or (ii) by either Hyperion or AI if any permanent injunction or other order of a court or other competent authority preventing the consummation of the transactions contemplated by this Agreement shall have become final and non-appealable.
(c) By either Hyperion or AI if the stockholders of AI do not approve the transactions contemplated by this Agreement.
10.2. Effect of Termination. In event of a termination of this Agreement by either AI or Hyperion as provided in Section 10.1, this Agreement shall forthwith become void; provided, however, that no such termination shall relieve any party hereto from any liability for breach of this Agreement.
10.3. Remedies Not Exclusive. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute or otherwise, including, without limitation, the remedy of specific performance. The election of any one or more remedies by Hyperion or AI shall not constitute a waiver of the right to pursue other available remedies.
11. Notices. Any notices or other communications required or permitted hereunder shall be in writing and shall be sufficiently given if delivered personally or sent by facsimile (with transmission confirmed), Federal Express, registered or certified mail, return receipt requested, postage prepaid, addressed as follows or to such other address or facsimile number of which the parties may have given notice:
To AI: | With a copy to: |
| | |
| Accountabilities, Inc. | Giordano, Halleran & Ciesla, P.C. |
| 500 Craig Road, Suite 201 | 125 Half Mile Road, P.O. Box 190 |
| Manalapan, NJ 07726 | Middletown, NJ 07748 |
| Attention: Allan Hartley, President | Fax: 732-224-6599 |
| | Attention: Philip D. Forlenza, Esq. |
| | |
| To Hyperion or the Stockholder: | With a copy to: |
| | |
| Walter Reed | Lauren Scott |
| [Address] | [Address] |
Unless otherwise specified herein, such notices or other communications shall be deemed received (a) on the date delivered, if delivered personally, by facsimile or by Federal Express; or (b) three business days after being sent, if sent by registered or certified mail.
12. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns, except that neither party may assign its obligations hereunder without the prior written consent of the other party hereto.
13. Entire Agreement; Amendments; Attachments.
13.1. Entire Agreement; Amendment. This Agreement, all schedules and exhibits hereto, and all agreements and instruments to be delivered by the parties pursuant hereto represent the entire understanding and agreement between the parties hereto with respect to the subject matter hereof and supersede all prior oral and written, and all contemporaneous oral negotiations, commitments and understandings between such parties. Hyperion and AI, by the consent of their respective Boards of Directors, or officers authorized by such Boards, may amend or modify this Agreement, in such manner as may be agreed upon, by a written instrument executed by Hyperion and AI.
13.2. Attachments. If the provisions of any schedule or exhibit to this Agreement are inconsistent with the provisions of this Agreement, the provisions of this Agreement shall prevail. The exhibits and schedules attached hereto or to be attached hereafter are hereby incorporated as integral parts of this Agreement.
14. Expenses. Expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the parties in accordance with the terms of the letter agreement of even date herewith among AI and Hyperion.
15. Legal Fees. In the event that legal proceedings are commenced by any party hereto against any other party hereto in connection with this Agreement or the transactions contemplated hereby, the party which does not prevail in such proceedings shall pay the reasonable attorneys' fees and costs incurred by the prevailing party in such proceedings.
16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to conflicts of law principles.
17. Section Headings. The section headings are for the convenience of the parties and in no way alter, modify, amend, limit, or restrict the contractual obligations of the parties.
18. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
19. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which, when taken together, shall be one and the same document.
20. Public Disclosure. Neither party shall make any public statement about, nor issue any press release concerning this Agreement or the transactions contemplated hereby without first consulting with the other party hereto as to the form and substance of any such press release or public disclosure; provided, however, that nothing in this Section 18 shall be deemed to prohibit any party hereto from making any disclosure that its counsel deems necessary or advisable in order to satisfy such party's disclosure obligation imposed by law.
21. Employees; WARN Act. Effective on the Closing Date, AI shall terminate the employment of all employees engaged in the Business (the “Terminated Employees”), and shall terminate any employment agreements with such Terminated Employees. As of the Closing Date, Hyperion shall offer employment to all of the Terminated Employees (such hired persons being the “Hired Employees”), at initial salaries and with initial benefits comparable to those immediately prior to the termination. For the purposes of determining and measuring benefits provided to any given Hired Employee by Hyperion, each Hired Employee will be given credit for the Hired Employee’s term of service to AI. For a period of at least forty-five (45) days from and after the Effective Date, Hyperion shall employ substantially all, but in no event less than 70%, of the Hired Employees and shall not terminate more than 50 full time employees who were employed by AI as of the Closing Date. Hyperion shall be liable and responsible for any obligations under the Worker Adjustment and Retraining Notification Act, as amended (the “WARN Act”), arising out of Hyperion’s breach of this Section 21 with respect to the Hired Employees.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first above written.
| | AI: |
| | |
| | ACCOUNTABILITIES, INC. |
| | | |
| | By: | /s/ Allan Hartley |
| | | Name: Allan Hartley |
| | | Title: President |
| | | |
| | HYPERION: |
| | |
| | HYPERION ENERGY, INC. |
| | | |
| | By: | /s/ Walter Reed |
| | | Name: Walter Reed |
| | | Title: President |
| | | |
| | |
| | | |
| | By: | /s/ Walter Reed |
| | | Name: Walter Reed |
| | | |
| | | |
The Schedules and Exhibits to the Asset Purchase Agreement are not presented herein or delivered herewith. Set forth below is a description of the contents of the schedules and exhibits:
Schedules
| ▪ | Outstanding options, warrants and convertible securities of Accountabilities. |
| ▪ | Consents required to be obtained by Accountabilities. |
Exhibits
| ▪ | Form of Assignment and Assumption Agreement. |
Copies of the Schedules and Exhibits will be provided to the Securities and Exchange Commission upon request
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 7-108-402 of the Colorado Business Corporation Act (the “Act”) provides, generally, that the articles of incorporation of a Colorado corporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director; except that any such provision may not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the corporation or its shareholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) acts specified in Section 7-108-403 (concerning unlawful distribution), or (iv) any transaction from which a director directly or indirectly derived an improper personal benefit. Such provision may not eliminate or limit the liability of a director for any act or omission occurring prior to the date on which such provision becomes effective. Article V of the Company’s by-laws contain a provision eliminating liability as permitted by the statute.
Section 7-109-103 of the Act provides that a Colorado corporation must indemnify a person (i) who is or was a director of the corporation or an individual who, while serving as a director of the corporation, is or was serving at the corporation’s request as a director, officer, partner, trustee, employee or fiduciary or agent of another corporation or other entity or of any employee benefit plan (a “Director”) or officer of the corporation and (ii) who was wholly successful, on the merits or otherwise, in defense of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (a “Proceeding”), in which he was a party, against reasonable expenses incurred by him in connection with the Proceeding unless such indemnity is limited by the corporation’s articles of incorporation. The Company’s articles of incorporation do not contain any such limitation.
Section 7-109-102 of the Act provides, generally, that a Colorado corporation may indemnify a person made a party to a Proceeding because the person is or was a Director against any obligation incurred with respect to a Proceeding to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan) or reasonable expenses incurred in the Proceeding if the person conducted himself or herself in good faith and the person reasonably believed, in the case of conduct in an official capacity with the corporation, that the person’s conduct was in the corporation’s best interests and, in all other cases, his conduct was at least not opposed to the corporation’s best interests and, with respect to any criminal proceedings, the person had no reasonable cause to believe that his conduct was unlawful. The Company’s articles of incorporation and its by-laws provide for such indemnification. A corporation may not indemnify a Director in connection with any Proceeding charging the Director derived an improper personal benefit, whether or not involving actions in an official capacity, in which Proceeding the Director was judged liable on the basis that he derived an improper personal benefit. Any indemnification permitted in connection with a Proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with such Proceeding.
Under Section 7-109-107 of the Act, unless otherwise provided in the articles of incorporation, a Colorado corporation may indemnify an officer, employee, fiduciary or agent of the corporation to the same extent as a Director and may indemnify such a person who is not a Director to a greater extent, if not inconsistent with public policy and if provided for by its by-laws, general or specific action of its board of directors or shareholders, or contract. The Company’s by-laws provide for indemnification of officers, employees and agents of the Company to the same extent as its Directors.
The above discussion of our by-laws and of the Act is not intended to be exhaustive and is qualified in its entirety by such by-laws and the Act.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrants as disclosed above, the registrants have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Item 21. | Exhibits and Financial Statement Schedules. | |
(a) | Exhibit Index | |
Number | Description |
| 2.1 | Asset Purchase Agreement dated as of July 26, 2007, among Hyperion Energy, Walter Reed and Accountabilities, Inc. (filed as Appendix A to Proxy Statement / Prospectus) |
| 2.2 | Asset Purchase Agreement between Accountabilities, Inc. and Stratus Services Group, Inc. |
| 3.1 | Certificate of Incorporation of the Registrant. (1) |
| 3.2 | By-Laws of the Registrant. (1) |
| 5 | Opinion and Consent of Brian Reiss, Esq. (filed with Amendment No. 1 to Registration Statement) |
| 10.1 | Convertible Note issued by Accountabilities, Inc. to North Atlantic Resources LTD in principal amount of $250,000. |
| 10.2 | Form of Warrant issued with respect to 55,986 shares of Accountabilities, Inc. Common Stock. |
| 10.3 | Employment Agreement between Accountabilities, Inc. and Allan Hartley. |
| 10.4 | Employment Agreement between Accountabilities, Inc. and Mark Levine. |
| 10.5 | Employment Agreement between Accountabilities, Inc. and Stephen DelVecchia. |
| 10.6 | Convertible Subordinated Note dated March 31, 2006 issued by Accountabilities, Inc. to Bernard Freedman and Alice Freedman Living Trust in principal amount of $675,000. |
| 10.7 | Demand Note dated March 31, 2006 issued by Accountabilities, Inc. to Washington Capital in the principal amount of $150,000. |
| 10.8 | Subordinated Note dated March 31, 2006 issued by Accountabilities, Inc. to Bernard Freedman and Alice Freedman Living Trust in principal amount of $175,000. |
| 10.9 | Promissory Note dated March 31, 2006 issued by Accountabilities, Inc. to Stratus Services Group, Inc. in principal amount of $80,000 |
| 10.10 | Consulting Agreement dated March 31, 2006 between Accountabilities, Inc. and William Thomas. |
| 10.11 | Consulting Agreement dated March 31, 2006 between Accountabilities, Inc. and Jerry Schumacher. |
| 10.12 | Consulting Agreement dated March 31, 2006 between Accountabilities, Inc. and Washington Capital, LLC. |
| 10.13 | Convertible Note dated April 1, 2006 to Norman Goldstein. |
| 10.14 | Promissory Note dated March 5, 2007 issued by Accountabilities, Inc. to ReStaff Services, Inc. in principal amount of $300,000. |
| 10.15 | Promissory Note dated March 5, 2007 issued by Accountabilities, Inc. to ReStaff Services, Inc. in principal amount of $2,900,000. |
| 10.16 | Interim Financing Agreement dated Februay 23, 2007 between Accountabilities, Inc. and Tri-State Employment Services, Inc. |
| 10.17 | Stock Purchase Agreement dated November 27, 2006 between Accountabilities, Inc. and Tre-State Employment Services, Inc. |
| 10.18 | Agreement dated August 1, 2006 between Accountabilities, Inc. and Tri-State Employment Services , Inc. |
| 10.19 | Account Transfer Agreement dated as of March 1, 2007 between Accountabilities, Inc. and Wells Fargo. |
| 10.20 | Finder's Fee Agreement dated February 26, 2007 issued by Accountabilities, Inc. to Pylon Management in principal amount of $300,000. |
| 23.1 | Consent of Brian Reiss, Esq. (filed with Exhibit 5) |
| 23.2 | Consent of Miller Ellin & Company, LLP |
| 23.3 | Consent of Rotenberg & Co., LLP with respect to Hyperion Energy, Inc. |
| 23.4 | Consent of Ronald Shapss. |
| 23.5 | Consent of Allan Hartley. |
| 23.6 | Consent of Elliot Cole. |
| 23.7 | Consent of Norman Goldstein. |
| 23.8 | Consent of John Messina. |
| 23.9 | Consent of Jay Schecter |
| 99.1 | Accountabilities, Inc. Proxy Card. (previously filed) |
| Footnote 1 | Incorporated by reference to similarly numbered Exhibits filed with Registrant’s Form 10-KSB as filed with the Securities and Exchange Commission on March 15, 2007. |
| | |
(b) | Financial Statement Schedules | |
| | All schedules are omitted because they are not applicable or the required information is shown in the Registrant’s Financial Statements or notes thereto. | |
| (a) | The undersigned Registrant hereby undertakes: |
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the amount of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in amount and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee��� table in the effective registration statement. |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities. The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| i. | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| ii. | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| iii. | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| iv. | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(b)(1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (a)(1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as part of an amendment to the registration statement and will not be used until such an amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by the Registrant is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, the State of California, on November 15, 2007.
| | Hyperion Energy, Inc. |
| | | |
| Date: November 15, 2007 | By: | /s/ Walter Reed |
| | | Name: Walter Reed |
| | | Title: Chairman, President and Chief Executive Officer |
| | | |
Pursuant to the requirements of the Securities Exchange Act of 1933, this Amendment No. 1 to Registration Statement has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Name | Title | Date |
/s/ Walter Reed Walter Reed | Chairman, President and Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) | November 15, 2007 |
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