Summary of CORPORATE RESOURCE SERVICES, INC.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes to the condensed consolidated financial statements. This discussion and analysis contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements relate to expectations, projections, estimates or objectives relating to the Company and may be identified by words such as "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "should" or "will," or the negative of these terms or other comparable terminology. Forward-looking statements are based on historical facts, current expectations and reasonable assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from those expressed in any such forward-looking statements. These risks and uncertainities include, without limitation, those identified in the section titled "Risk Factors" in our annual report on Form 10-K for our 2011 Fiscal Year and our other reports filed with the SEC. Some of the key factors that may have a direct bearing on our expected results of operations, performance and financial condition are:

? our ability to satisfy our working capital requirements;

? our ability to identify suitable acquisition candidates or investment opportunities;

? our ability to integrate any acquisitions made and fully realize the anticipated benefits of these acquisitions;

? successor liabilities that we may be subject to as a result of acquisitions;

? material employment related claims and costs as a result of the nature of our business;

? our ability to retain key management personnel;

? the financial difficulty of our clients, which may result in nonpayment of amounts owed to us;

? significant economic downturns resulting in reduced demand for our services;

? our ability to attract and retain qualified temporary personnel who possess the skills and experience necessary to satisfy our clients;

? our ability to raise additional capital;

? our ability to achieve and manage growth;

? the continued cooperation of our creditors; and

? our ability to diversify our client base.

Readers are cautioned not to place undue reliance on these forward-looking statements. Our actual results, levels of activity, performance or achievements and those of our industry may be materially different from any of those that are expressed or implied by these forward-looking statements. Except as required by law, we undertake no obligation to update the forward-looking statements in this filing.

References in this filing to the "Company," "we," "us" and "our" refer, to Corporate Resource Services, Inc., in each case including consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

Our acquisitions of Tri-Diamond and TS Staffing were required to be accounted for as a pooling-of-interest from a related party. Our condensed consolidated financial statements as of June 29, 2012 have been restated to include these acquisitions as if they occurred on October 1, 2010 for Tri-Diamond and TS Staffing (see Note 1).

Overview

We are a national provider of diversified staffing, recruiting and consulting services, including temporary staffing services, with a focus on light industrial, professional, clerical and administrative support and insurance related staffing. We provide our services across a variety of industries and to a diverse range of clients ranging from sole proprietorships to Fortune 1000 companies. We conduct all of our business in the United States from our New York City headquarters and the operation of 187 staffing and recruiting offices nationwide, 79 of which are onsite offices at our client's facilities.

Our future profitability and rate of growth, if any, will be directly affected by our ability to continue to expand the services we offer at acceptable gross margins, and to achieve economies of scale, through the continued introduction of differentiated marketing and sales channels, and through the successful completion and integration of acquisitions. Our ability to be profitable will also be affected by the extent to which we are able to extinguish debt and incur additional expenses to increase our sales, marketing and administrative capabilities to expand our business. The largest component of our operating expenses is personnel costs. Personnel costs consist of salaries, employment taxes, benefits and incentive compensation (including bonuses and stock-based compensation) for our employees. Our management expects that our operating expenses will continue to grow in absolute dollars as our business continues to grow. As a percentage of revenue, we expect our operating expenses to decrease as our revenues increase.

We have financed our growth largely through the issuance of debt as well as advances and loans from our principal shareholder and related companies. As of June 29, 2012, we had working capital of $600,000. Current liabilities as of June 29, 2012 included approximately $2,135,000 in the current portion of long-term debt (including $758,000 to related parties) and a loan payable to a related party of $3,088,000, which is due and payable to Tri-State for costs charged by Tri-State for professional employment organization services but arise and are paid in the ordinary course of business. On March 30, 2012 the Company and TS Employment agreed to convert $12 million of loans payable into 25,962,788 shares of Common Stock, at a value per share of $0.4622. Additionally, $11,600,000 of accrued wages and related costs represents invoices from Tri-State in July 2012 but are attributable to June 2012. Our total outstanding debt and loans payable to related party as of June 29, 2012 was $3,846,000, $758,000 of which is past due or due upon demand. In order to service our debt and maintain our current level of operations, as well as fund the costs of being a reporting company, we must be able to generate sufficient amounts of cash flow and working capital. Our management is engaged in several strategic activities, as explained further below in the section titled "Working Capital," to effectively accomplish these objectives.

Mergers and Acquisitions

One of our key strategies is to merge or acquire companies that grow or complement our business and the services we offer, expand our geographic presence or further strengthen our existing infrastructure (see Note
3). Management expects acquisitions to continue to play a key role in our future growth. Completing such acquisitions with unrelated third parties, however, will likely be limited by our ability to negotiate purchase terms and obtain financing on terms that are acceptable to us given our current financial position, as discussed below.

Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board issued Accounting Standards Update No. 2012-02, Intangibles-Goodwill and Other (Topic 350) ("ASU 2012-02"), which allows entities to first assess factors to determine whether it is necessary to perform a quantitative impairment test. Under ASU 2012-02, entities would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entities determine, based on qualitative assessment, that it is more likely than not that the indefinite-live intangible asset is impaired. ASU 2012-02 is effective for us in Fiscal Year 2012 and earlier adoption is permitted. The Company cannot presently determine what effect, if any, the application of the amendments in ASU 2012-02 may have on its financial statements.

Results of Operations

The Company's subsidiaries completed the following acquisitions in the 2011 Fiscal Year and to date in the 2012 Fiscal Year ? ICG Inc. completed the ICG Acquisition, through a public foreclosure sale, on the ICG Closing Date;

? Diamond Staffing completed the Tri-Diamond Acquisition on January 31, 2011; and

? The Company acquired TS Staffing on November 21, 2011.

As a result, the results of operations of ICG Inc. are included in the results of operations for the 2011 Fiscal Year beginning on the ICG Closing Date. Since Diamond Staffing and TS Staffing were acquired from a related party, they have been accounted for as a pooling-of-interest by a related party and, as a result, the Company's results of operations have been restated to include the results of operations of TS Staffing as if the acquisition had been in effect for all reporting periods (the results of operations previously incorporated the Tri-Dimaond Acquisition).

The Company's operations are subject to seasonal variations based on the nature of the industry. The Company's revenues tend to be strongest in its first fiscal quarter primarily due to growth in the light industrial business supporting the holiday season. Revenues tend to be weakest in our second fiscal quarter following the previous quarter's peak and have traditionally grown throughout the year thereafter. Our gross profit percentage follows a similar trend due to payroll taxes that reach statutory limits at some point in the year and restart annually on January 1. As the payroll taxes related to temporary employees reach the statutory threshold, some of these taxes are reduced and the hourly cost of producing revenues decreases, causing an increase in related gross margin percentage.

Three months ended June 29, 2012 compared to three months ended June 30, 2011

Revenues

For the three months ended June 29, 2012, revenue increased $15.3 million, or 11.0%, to $153.5 million as compared to $138.2 million for the three months ended June 30, 2011, which was restated to include $47.9 million from TS Staffing's predecessor, TSS Corp. The Company's strong growth is primarily attributable to organic growth, especially in those companies previously acquired, that is consistent with national staffing industry trends. The increase for the three months ended June 29, 2012 compared to the three months ended June 30, 2011 was primarily driven by the addition of new customers and increased demand from existing customers that is consistent with national staffing industry trends. In addition, $2.0 million of the increase resulted from acquisitions since the third quarter of the 2011 Fiscal Year. In January 2012, a sales executive from ICG Inc. and 14 other sales, administration and operations personnel resigned from the Company and began operating a competing temporary placement firm. For the three months ended June 29, 2012, ICG Inc. revenues decreased $2.8 million, or 38.4%, from $7.3 million to $4.5 million.

CRD's acquisition of a portion of the businesses of the former GT Systems focused on the permanent placement of personnel. The Company recognized approximately $1.9 million and $1.8 million in revenue in the three months ended June 29, 2012 and June 30, 2011, respectively, from permanent placements, primarily from CRD.

Direct cost of producing revenues

Tri-State provides professional employer services to the Company. Professional employer services rendered include the provision of payroll services, benefits and workers compensation insurance coverage. These arrangements allow us to mitigate certain insurance risks and obtain employee benefits at more advantageous rates. The costs of the professional employer services are included in direct cost of services, which include the payroll and related taxes of the Company's temporary employees.

For the three months ended June 29, 2012, direct cost of services increased $14.7 million, or 11.6%, to $135.4 million, as compared to $120.7 million for the three months ended June 30, 2011, which was restated to include $43.6 million in direct cost of producing revenues from TS Staffing. Prior to being acquired by the Company, TS Staffing's predecessor, TSS Corp., was an affiliate of Tri-State and self-administered its payroll services, benefits and workers compensation insurance, resulting in a reallocation of certain costs between the cost of producing revenues and selling, general and administrative expenses.

The cost of producing revenues increase for the quarter ended June 29, 2012 was primarily driven by the 11.0% increase in revenues, which was partially offset by a reduction in the administrative fee TS Employment charges the Company. This reduction will yield an annual savings of approximately $1.6 million. As it's volume of business increases, the Company may be able to realize further reductions to the administrative fee.

As a percentage of revenue, the Company's cost of producing revenues increased 0.9%, from 87.3% to 88.2%, primarily as a result of competitive pricing pressure and the Company's stronger relative growth in the light industrial businesses, which traditionally generates lower gross margins. These increases were partially offset by the reduction in fees from TS Employment. These factors combined to cause the consolidated cost of producing revenues to grow at a greater rate than the associated revenues.

Gross profit

For the reasons described above, gross profit for the quarter ended June 29, 2012 increased $565,000, or 3.2%, to $18,081,000, or 11.8% of revenues compared to $17,516,000, or 12.7% of revenues in the same quarter in the 2011 Fiscal Year, which was restated to include $4.3 million of gross profit from TS Staffing.

Selling, general and administrative expenses

For the three months ended June 29, 2012, selling, general and administrative expenses increased $3.5 million, or 23.3%, to $18.6 million, or 12.1% of revenues, as compared to $15.1 million, or 10.9% of revenues, in the three months ended June 30, 2011, which was restated to include $2.9 million of expenses from TS Staffing. The increase was primarily due to increased selling expenses related to the increase in revenues, primarily commissions and new employees added to support the revenue growth as well as higher corporate administration costs, including a severance charge of $390,000 related to an agreement with a former officer of the Company.

During the second and third quarters of the 2012 Fiscal Year, the Company has undertaken initiatives to reduce selling, general and administrative costs. These initiatives are expected to reduce selling, general and administrative costs as a percentage of revenue in future quarters.

Depreciation and amortization

For the three months ended June 29, 2012, depreciation and amortization decreased $285,000 to $458,000 as compared to $743,000 in the three months ended June 30, 2011, which was restated to include $100,000 from TS Staffing, primarily due to a decrease in the amortization of the intangibles related to the ICG Acquisition.

Income (loss) from operations

The factors described above resulted in a loss from operations of ($979,000) for the three months ended June 30, 2012. This was a decrease of $2,663,000 from income from operations of $1,684,000, restated to include income of $1,377,000 from TS Staffing, for the three months ended June 30, 2011.

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. For the second quarter of the 2012 Fiscal Year, interest expense increased $205,000 to $972,000 as compared to $767,000 the same period in the 2011 Fiscal Year, which was restated to include $179,000 of interest expense from TS Staffing. The net increase was due to higher average account receivable balances due to increased sales volumes, higher weighted average borrowing rates at Accountabilities with Amerisource, the recognition of interest expense on amounts due to Tri-State and affiliates of $86,000. Substantial efforts have been and continue to be made to reduce outstanding balances on our sold accounts receivable that, in effect, reduce the interest charged on those balances.

Acquisitions related expenses

Acquisition expenses for the three months ended June 30, 2011 were $10,000, which related to an acquisition by Diamond Staffing. These expenses consisted primarily of legal and accounting fees. There was no acquisition expense in the three months ended June 30, 2012.

Other expense (income)

Net income (loss)

The factors described above resulted in a net loss of ($2,494,000) for the three months ended June 29, 2012, as compared to net income of $907,000 in the comparable period in the 2011 Fiscal Year, restated to include net income of $1,198,000 at TS Staffing for the quarter ended June 30, 2011.

Nine months ended June 29, 2012 compared to nine months ended June 30, 2011

Revenues

For the nine months ended June 29, 2012, revenue increased $71.5 million, or 18.4%, to $460.1 million as compared to $388.6 million for the nine months ended June 30, 2011, which was restated to include $142.6 million from TS Staffing. The Company's growth continues to be primarily driven by organic growth that is consistent with national staffing industry trends. The increase for the nine months ended June 29, 2012 compared to the nine months ended June 30, 2011 also includes acquisitions since the second quarter of the 2011 Fiscal Year that have added $9.4 million of revenues, was primarily due to a new light industrial customer from the first quarter of the 2011 Fiscal Year that added $12.3 million in revenues and the remaining increase of $49.8 million or 13.2% of 2011 Fiscal Year revenues, resulting from other new customers and demand from existing customers that is consistent with national staffing industry trends.

CRD's acquisition of a portion of the businesses of GT Systems focused on permanent placement of personnel. The Company recognized approximately $4.1 million and $4.9 million in revenue in the nine months ended June 29, 2012 and June 30, 2011, respectively, from permanent placements primarily from CRD.

Direct cost of producing revenues

Tri-State provides professional employer services to the Company. Professional employer services rendered include the provision of payroll services, benefits and workers compensation insurance coverage. These arrangements allow us to mitigate certain insurance risks and obtain employee benefits at more advantageous rates. The costs of the professional employer services are included in direct cost of services, and include the payroll and related taxes of the Company's temporary employees.

For the nine months ended June 29, 2012, direct cost of services increased $69.2 million, or 19.4%, to $406.3 million, as compared to $337.1 million for the nine months ended June 30, 2011, which was restated to include $129.7 million in direct cost of producing revenues from TS Staffing. Prior to being acquired by the Company, TS Staffing's successor, TSS Corp., was an affiliate of Tri-State and self-administered its payroll services, benefits and workers compensation insurance, resulting in a reallocation of certain costs between producing revenues and selling, general and administrative expenses.

The cost of producing revenues increase for the nine months ended June 29, 2012 was primarily driven by the 18.4% increase in revenues, which was partially offset by three 0.1% decreases in the administrative fee TS Employment charges the Company during the third fiscal quarter of 2012 (total of 0.3%). This reduction will yield an annual savings of approximately $1.6 million. As it's volume of business increases, the Company may be able to realize further reductions to the administrative fee.

As a percentage of revenue, the Company's cost of producing revenues increased 1.6%, from 86.7% to 88.3%, primarily as a result of competitive pricing pressures and the Company's stronger relative growth in the light industrial businesses, which traditionally generates lower gross margins. These factors combined to cause the consolidated cost of producing revenues to grow at a greater rate than the associated revenues.

Gross profit

For the reasons described above, gross profit for the nine months ended June 29, 2012 increased $2.3 million, or 4.4%, to $53.8 million, or 11.7% of revenues, compared to $51.5 million, or 13.3% of revenues in the same period of the 2011 Fiscal Year, which was restated to include $15.1 million of gross profit from TS Staffing.

Selling, general and administrative expenses

For the nine months ended June 29, 2012, selling, general and administrative expenses increased $6.8 million, or 1.8%, to $52.5 million, or 11.4% of revenues, as compared to $45.7 million, or 11.8% of revenues, in the nine months ended June 30, 2011, which was restated to include $9.0 million of expenses from TS Staffing.

The dollar increase was primarily due to increased selling expenses related to the increase in revenues, primarily commissions and new employees added to support the revenue growth as well as higher corporate administration costs, including a severance charge of $390,000 related to an agreement with a former officer of the Company in the third fiscal quarter of 2012. These increases were partially offset by a decrease in stock-based compensation expense of $1.0 million, which was primarily due to the granting of restricted common shares to two senior executives in the second quarter of the 2011 Fiscal Year.

During the second and third quarters of the 2012 Fiscal Year, the Company has undertaken initiatives to reduce selling, general and administrative costs and expects these costs to decline as a percentage of revenues.

Depreciation and amortization

For the nine months ended June 29, 2012, depreciation and amortization decreased $742,000 to $1,468,000 as compared to $2,210,000 in the nine months ended June 30, 2011, which was restated to include $305,000 from TS Staffing, primarily due to a decrease in the amortization of intangibles related to the ICG Acquisition.

Income (loss) from operations

The factors described above resulted in a decrease in income from operations of $3,777,000, from $3,622,000, which was restated to include income of $3,684,000 from TS Staffing for the nine months ended June 30, 2011, to a loss from operations of ($155,000) for the nine months ended June 29, 2012.

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. For the first nine months of Fiscal Year 2012, interest expense increased $1,688,000 to $3,823,000 as compared to $2,135,000 the same period in the 2011 Fiscal Year, which was restated to include $587,000 of interest expense from TS Staffing. The net increase was due to higher average account receivable balances due to increased sales volumes, and higher weighted average borrowing rates at Accountabilities with Amerisource, the recognition of interest expense on amounts due to Tri-State and affiliates of $780,000 and the recognition of $140,000 of early termination fees due to ICG Inc.'s change in funding sources in October 2011. Substantial efforts have been and continue to be made to reduce outstanding balances on our sold accounts receivable which, in effect, reduces the interest charged on those balances.

Acquisitions related expenses

Acquisition expenses for the nine months ended June 29, 2012 decreased by $193,000 to $409,000 from $602,000 for the nine months ended June 30, 2011, restated to include $59,000 from TS Staffing. The expenses in the current year were due to the TS Staffing Acquisition which occurred on November 21, 2011, and the prior year amount was due to the Tri-Diamond Acquisition, which closed in the second fiscal quarter of 2011. These expenses consisted primarily of legal and accounting fees.

Net gain on ICG Inc. revaluation

In conjunction with a sales executive from ICG Inc. and 14 other sales, administration and operations personnel resigning in January 2012, the Company recognized the following non-operating gains and losses, netting to a gain of $537,000 in the nine months ended June 29, 2012:
? Gain on remeasurement of long term debt of $766,000;

? Cash received resulting from a settlement of litigation of $350,000; and,

? Impairment of goodwill of ($398,000) and intangible assets ($181,000).

Other expense (income)

In the third quarter of Fiscal Year 2012, the Company incurred a charge of $543,000 to establish an allowance for the potential uncollectibility of indemnifiable costs associated with CRD's acquisition of certain assets of GT Systems. These costs primarily relate to the period prior to CRD's acquisition of GT Systems in April 5, 2010. For the nine months ended June 30, 2011, other income was $40,000 attributable to CRD for amounts earned under a service and collections agreement with Rosenthal, whereby the Company provided services to assist Rosenthal in collecting their outstanding receivables.

Net income (loss)

The factors described above resulted in a net loss of ($4,392,000) million for the nine months ended June 29, 2012, as compared to a net income of $925,000 in the comparable period in the 2011 Fiscal Year, which was restated to include net income of $3,038,000 million at TS Staffing for the nine months ended June 30, 2011.

Liquidity and Capital Resources

Cash Flows

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

As of June 29, 2012, we had $108,000 of cash on hand as compared to no cash on hand as of September 30, 2011.

Net cash used in operating activities during the nine months ended June 29, 2012, was ($3.6 million) as compared to $6.8 million provided by operating activities, restated to include $4.9 million of net cash provided during the same period of the prior year for TS Staffing. This net decrease of ($10.4 million) primarily reflects the change from net income to net loss of $5.3 million, a decrease in accounts payable and accrued salaries of $2.6 million, an outflow increase in net accounts and unbilled receivables of $1.5 million and a decrease in stock compensation expense of $1.0 million.

Net cash used in investing activities during the nine months ended June 29, 2012, decreased $10,000 to ($428,000) from ($438,000) during the nine months ended June 30, 2011.

Net cash provided by financing activities during the nine months ended June 29, 2012 increased by $10.2 million to $4.1 million from cash used in financing . . .