As filed with the Securities and Exchange Commission on April 21, 2005
                          Registration No. 333-115243


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                               Amendment No. 5 to
                                    FORM SB-2


             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


                     CONVERSION SERVICES INTERNATIONAL, INC.
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)


        Delaware                          7379                    20-1010495
-----------------------     ----------------------------     ------------------
(State or jurisdiction      (Primary Standard Industrial       (I.R.S. Employer
of incorporation or          Classification Code Number)     Identification No.)
organization)


                              100 Eagle Rock Avenue
                         East Hanover, New Jersey 07936
                              Phone: (973) 560-9400
                               Fax: (973) 560-9500
--------------------------------------------------------------------------------
          (Address and telephone number of principal executive office)

                                  Scott Newman
                      President and Chief Executive Officer
                     Conversion Services International, Inc.
                              100 Eagle Rock Avenue
                         East Hanover, New Jersey 07936
                              Phone: (973) 560-9400
                               Fax: (973) 560-9500
--------------------------------------------------------------------------------
            (Name, address and telephone number of agent for service)

                                   Copies to:

                            Douglas S. Ellenoff, Esq.
                         Ellenoff Grossman & Schole LLP
                        370 Lexington Avenue, 19th floor
                            New York, New York 10017
                              Phone: (212) 370-1300
                               Fax: (212) 370-7889

Approximate  date of proposed sale to the public:  As soon as practicable  after
the effective date of this Registration Statement.


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. |_|

If this Form is a  post-effective  amendment filed pursuant to Rule 462(c) 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. |_|

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. |_|

If delivery  of the  prospectus  is  expected  to be made  pursuant to Rule 434,
please check the following box. |_|



                                         CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------
               TITLE OF EACH                                         PROPOSED MAXIMUM
            CLASS OF SECURITIES                 AMOUNT TO BE          OFFERING PRICE           AMOUNT OF
              TO BE REGISTERED                   REGISTERED              PER UNIT          REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------
                                                                                  
shares of common stock, par value $0.001       369,912,823 (1)           $0.21 (2)             $9,842.27
per share
--------------------------------------------------------------------------------------------------------------
TOTAL                                            369,912,823                                 $9,842.27 (3)
--------------------------------------------------------------------------------------------------------------


(1) Also  registered  hereby are such  additional and  indeterminable  number of
shares as may be issuable due to  adjustments  for changes  resulting from stock
dividends, stock splits and similar changes.

(2)  Estimated  solely  for the  purpose of  calculating  the  registration  fee
pursuant to Rule 457(c) under the Securities Act of 1933.

(3) Previously paid.

The securities  registered  hereby will be made on a continuous or delayed basis
in the future in accordance with Rule 415 under the Securities Act.

THE REGISTRANT HEREBY AMENDS THIS  REGISTRATION  STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT  SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY  STATES THAT THIS REGISTRATION  STATEMENT
SHALL  THEREAFTER  BECOME  EFFECTIVE  IN  ACCORDANCE  WITH  SECTION  8(A) OF THE
SECURITIES  ACT OF  1933 OR  UNTIL  THIS  REGISTRATION  STATEMENT  SHALL  BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION,  ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.



                                                           Subject to Completion
                                     Preliminary Prospectus dated April 21, 2005


                       369,912,823 SHARES OF COMMON STOCK

                                       OF

                     CONVERSION SERVICES INTERNATIONAL, INC.

      This prospectus relates to the offering for resale of shares of our common
stock by certain  selling  stockholders  who received  shares in both LCS Group,
Inc.  (hereinafter  referred to as LCS) and Conversion  Services  International,
Inc.  (hereinafter  referred to as CSI) in private  financing  transactions  and
acquisitions.

      We will bear all expenses,  other than selling commissions and fees of the
selling stockholders, in connection with the registration and sale of the shares
being offered by this prospectus.


      Our common  stock is traded on the Over The Counter  Bulletin  Board under
the symbol  "CSII." The closing price of our common stock on April 19, 2005, was
$0.275.


      In this  prospectus,  the  terms  "CSI,"  "we,"  or  "us"  each  refer  to
Conversion Services International,  Inc., which was formerly known as LCS Group,
Inc. In January 2004, we merged with and into a wholly owned  subsidiary of LCS.
In connection with this transaction, among other things, LCS changed its name to
"Conversion Services International, Inc."

      The selling stockholders who wish to sell their shares of our common stock
may offer and sell such shares on a continuous  or delayed  basis in the future.
These  sales may be  conducted  in the open  market or in  privately  negotiated
transactions and at market prices,  fixed prices or negotiated  prices.  We will
not  receive  any of the  proceeds  from the sale of the shares of common  stock
owned by the selling stockholders.

      INVESTING IN OUR COMMON STOCK INVOLVES RISKS.  YOU SHOULD REVIEW CAREFULLY
AND  CONSIDER  THE  INFORMATION  DESCRIBED  UNDER  THE  HEADING  "RISK  FACTORS"
BEGINNING ON PAGE 4.

      NEITHER THE  SECURITIES AND EXCHANGE  COMMISSION NOR ANY STATE  SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS  IS TRUTHFUL OR  COMPLETE.  ANY  REPRESENTATION  TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                   Subject to Completion, dated ____ __, 2005

      THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING  STOCKHOLDERS  MAY NOT SELL  THESE  SECURITIES  UNTIL  THE  REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE  COMMISSION IS EFFECTIVE.  THIS
PROSPECTUS  IS NOT AN OFFER TO SELL THESE  SECURITIES  AND IS NOT  SOLICITING AN
OFFER TO BUY  THESE  SECURITIES  IN ANY  STATE  WHERE  THE  OFFER OR SALE IS NOT
PERMITTED.

                                TABLE OF CONTENTS



                                                                                             Page
                                                                                             ----
                                                                                          
PROSPECTUS SUMMARY.............................................................................1
RISK FACTORS...................................................................................4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................................18
BUSINESS......................................................................................19
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.....................................33
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE........................................................................49
USE OF PROCEEDS...............................................................................49
SELLING STOCKHOLDERS..........................................................................50
PLAN OF DISTRIBUTION..........................................................................51
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS..................................53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................60
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS..........................................60
DESCRIPTION OF SECURITIES.....................................................................64
SHARES ELIGIBLE FOR FUTURE SALE...............................................................67
EXPERTS.......................................................................................67
LEGAL MATTERS.................................................................................67
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES...........67
FINANCIAL STATEMENTS.........................................................................F-1


      Any prospective  investor should not rely on any information not contained
in this document. We have not authorized anyone to provide any other information
to the contrary.  This document may only be used where it is legal to sell these
securities.  The  information in this document may only be accurate as of and on
the date of this document.


                               PROSPECTUS SUMMARY

      The  following  summary  contains  basic  information  about  us and  this
prospectus.  Because it is a summary, it does not contain all of the information
that you  should  consider  before  investing  in our common  stock.  For a more
complete understanding of our company, our business and a possible investment in
our common stock, you should read the entire prospectus carefully, including the
Risk Factors starting on page 4.

OVERVIEW OF OUR BUSINESS

      Conversion  Services  International,  Inc. is a technology  firm providing
professional  services to the Global 2000 as well as mid-market  clientele.  Our
core competency areas include strategic consulting,  data warehousing,  business
intelligence  and data management  consulting.  Our clients are primarily in the
financial   services,   pharmaceutical,    healthcare   and   telecommunications
industries,  although we do have  clients in other  industries.  Our clients are
primarily located in the northeastern United States. We enable  organizations to
leverage their  corporate  information  assets by providing  strategy,  process,
methodology, data warehousing,  business intelligence,  enterprise reporting and
analytic solutions. Our organization delivers value to our clients,  utilizing a
combination of business acumen,  technical proficiency,  experience and a proven
set of "best practices" methodologies to deliver cost effective services through
either fixed price or time and material engagements. We are committed to being a
leader in data warehousing and business intelligence consulting,  allowing us to
be a valuable asset and trusted advisor to our customers.

OUR SERVICES

      As a  full  service  strategic  consulting,  business  intelligence,  data
warehousing  and data  management  consulting  firm,  we offer  services  in the
following solution categories:

      STRATEGIC CONSULTING

            o     Project Management (PMO)

            o     Data Warehousing and Business Intelligence Strategic Planning

            o     Business Technology Alignment

            o     Tool Analysis and Recommendation

            o     Integration Management, Mergers and Acquisitions

            o     Regulatory Compliance (The Health Insurance Portability and
                  Accountability Act of 1996, Basel II, Sarbanes-Oxley)

            o     Process Improvement (Lean, Six Sigma)

            o     Organizational Analysis and Assessment (mergers and
                  acquisitions)

            o     Acquisition Readiness

            o     Information, Process and Infrastructure (IPI) Diagrams

            o     Request For Proposal creation and responses

            o     Training and Education

            o     Change Management Consulting

      BUSINESS INTELLIGENCE

            o     Architecture and Implementation

            o     Ad-Hoc Query and Analysis

            o     Enterprise Reporting Solutions

            o     Online Analytical Processing

            o     Analytics and Dashboards


                                       1


            o     Business Performance Management

            o     Business Intelligence Competency Center

            o     Proof of Concepts and Prototypes

            o     Business Intelligence Strategy

            o     Data Mining

      DATA WAREHOUSING

            o     Data Warehousing Design, Development and Implementation

            o     Departmental Data Warehousing

            o     Federated Data Warehousing

            o     Conforming Facts/Dimensions

            o     Proof of Concepts and Prototypes

            o     Data Mart Delivery

            o     Outsourcing

            o     Extract, Transformation and Loading

            o     Data Warehouse Framework

      DATA MANAGEMENT

            o     Data Quality Center of Excellence

            o     Data Profiling

            o     Data Quality / Cleansing

            o     Data Transformation

            o     Data Migrations and Conversions

            o     Metadata Management

            o     Enterprise Information Integration (EII)

            o     Integration Management

            o     Enterprise Information Architecture

            o     Quality Assurance Testing (Verification, Validation,
                  Certification)

            o     Infrastructure Management and Support

            o     Application Development

      See Business on page 17 for a detailed description of these offerings.

      During the year ended December 31, 2004, two of our clients,  Leading Edge
Communications  Corporation,  a  related  party  (15.2%),  and  Bank of  America
(15.9%), accounted collectively for approximately 31% of total revenues. For the
year ended  December 31, 2003, two of our clients,  Morgan  Stanley  (11.2%) and
Verizon Wireless  (29.2%),  accounted  collectively for approximately 41% of our
total revenues.  Further, the majority of our current assets consist of accounts
receivable,  and as of December  31, 2004,  two  customers,  Morgan  Stanley and
Verizon Wireless,  accounted for 19% and 15% of our accounts receivable balance,
respectively. With the recent acquisition of new businesses and our objective of
acquiring more over the next year, we believe that our reliance on these clients
will continue to decline this year and in the future. Nevertheless,  the loss of
any of our largest clients could have a material adverse effect on our business.


                                       2


PURPOSE OF THIS PROSPECTUS

      This prospectus  relates to the resale of shares of our common stock owned
by certain  selling  stockholders  who will use this  prospectus to resell their
shares of common  stock.  We will not  receive  any  proceeds  from sales by the
selling  stockholders.  For further information about the selling  stockholders,
see "Selling Stockholders."

OUR CORPORATE INFORMATION

      Our offices are located at 100 Eagle Rock Avenue, East Hanover, New Jersey
07936, and our telephone number is (973) 560-9400.


Our Corporate Information

      Our offices are located at 100 Eagle Rock Avenue, East Hanover, New Jersey
07936, and our telephone number is (973) 560-9400.

                                  THE OFFERING

--------------------------------------------------------------------------------

COMMON STOCK OFFERED:               The selling  stockholders are offering up to
                                    369,912,823  shares of our common stock. The
                                    selling  stockholders  will  determine  when
                                    they will sell their shares.

--------------------------------------------------------------------------------


COMMON STOCK OUTSTANDING:           We have  781,010,668  shares of common stock
                                    issued and outstanding as of April 19, 2005.


--------------------------------------------------------------------------------

USE OF PROCEEDS:                    We will not receive any of the proceeds from
                                    the sale of shares of common  stock  offered
                                    by the selling stockholders.

--------------------------------------------------------------------------------

TRADING MARKET:                     Our common stock is currently  listed on the
                                    OTC Bulletin  Board under the trading symbol
                                    "CSII."

--------------------------------------------------------------------------------

RISK FACTORS:                       Investment  in our common  stock  involves a
                                    high  degree of risk.  You should  carefully
                                    consider  the  information  set forth in the
                                    "Risk Factors" section of this prospectus as
                                    well as other  information set forth in this
                                    prospectus,    including    our    financial
                                    statements and related notes.

--------------------------------------------------------------------------------


                                       3


                                  RISK FACTORS

      An investment in our securities is extremely  risky.  You should carefully
consider the following risks, in addition to the other information  presented in
this prospectus,  before deciding to buy our securities. If any of the following
risks  actually  materialize,  our  business  and  prospects  could be seriously
harmed,  the price and value of our securities  could decline and you could lose
all or part of your investment.  The risks and uncertainties described below are
intended to be the material risks that are specific to us and to our industry.

RISKS RELATING TO OUR BUSINESS

BECAUSE WE DEPEND ON A SMALL  NUMBER OF KEY CLIENTS,  NON-RECURRING  REVENUE AND
CONTRACTS  TERMINABLE ON SHORT NOTICE,  OUR BUSINESS COULD BE ADVERSELY AFFECTED
IF WE  FAIL TO  RETAIN  THESE  CLIENTS  AND/OR  OBTAIN  NEW  CLIENTS  AT A LEVEL
SUFFICIENT TO SUPPORT OUR OPERATIONS AND/OR BROADEN OUR CLIENT BASE.

      During the year ended December 31, 2004, two of our clients,  Leading Edge
Communications  Corporation (LEC), a related party (15.2%),  and Bank of America
(15.9%), accounted collectively for approximately 31% of total revenues. For the
year ended  December 31, 2003, two of our clients,  Morgan  Stanley  (11.2%) and
Verizon Wireless  (29.2%),  accounted  collectively for approximately 41% of our
total revenues.  Further, the majority of our current assets consist of accounts
receivable,  and as of December 31, 2004, one customer, LEC, accounted for 15.6%
of  our  accounts  receivable  balance.  With  the  recent  acquisition  of  new
businesses  and our  objective of acquiring  more over the next year, we believe
that our reliance on these clients will  continue to decline in the future.  The
loss of any of our largest  clients could have a material  adverse effect on our
business.  In addition,  our contracts  provide that our services are terminable
upon short notice,  typically not more than 30 days.  Non-renewal or termination
of contracts with these or other clients  without  adequate  replacements  could
have a material  and adverse  effect upon our  business.  In  addition,  a large
portion of our  revenues  are derived  from  information  technology  consulting
services that are generally  non-recurring in nature.  There can be no assurance
that we will:

      o     obtain  additional  contracts for projects similar in scope to those
            previously obtained from our clients;

      o     be able to retain existing clients or attract new clients;

      o     provide services in a manner acceptable to clients;

      o     offer pricing for services which is acceptable to clients; or

      o     broaden our client base so that we will not remain largely dependent
            upon a limited number of clients that will continue to account for a
            substantial portion of our revenues.

OUR INTERNAL CONTROLS AND PROCEDURES HAVE BEEN MATERIALLY DEFICIENT,  AND WE ARE
IN THE PROCESS OF CORRECTING INTERNAL CONTROL DEFICIENCIES.


      In the first  quarter  of 2005,  resulting  from  comments  related to the
Company's Registration Statement on Form SB-2/A, the Company and its independent
registered  public  accounting firm  recognized  that our internal  controls had
material  weaknesses.  We  have  restated  our  results  of  operations  for the
Company's quarterly results for the quarters ended March 31, 2004, June 30, 2004
and  September  30,  2004.  For  further  information  concerning  our  internal
controls, see Management's Discussion and Analysis or Plan of Operation.



                                       4


      If we cannot rectify these material  weaknesses  through remedial measures
and  improvements  to our  systems  and  procedures,  management  may  encounter
difficulties in timely assessing business performance and identifying  incipient
strategic and  oversight  issues.  Management is currently  focused on remedying
internal control deficiencies,  and this focus will require management from time
to time to  devote  its  attention  away  from  other  planning,  oversight  and
performance functions.

      We cannot  provide  assurances as to the timing of the completion of these
efforts.  We cannot be certain  that the  measures  we take will  ensure that we
implement and maintain adequate internal controls in the future.  Any failure to
implement  required new or improved  controls,  or  difficulties  encountered in
their  implementation,  could harm our operating  results or cause us to fail to
meet our reporting obligations.

THE  COMPANY  MAY  HAVE  LIABILITY  IN  CONNECTION  WITH ITS  RECENT  SECURITIES
OFFERINGS.

      We have completed various financings of which approximately $11,259,000 is
outstanding through the issuance of our common stock, as well as the issuance of
notes and warrants  convertible  into our common stock,  while our  Registration
Statement  on Form SB-2 was on file  with the SEC but had not yet been  declared
effective  (those  transactions  were with certain  investors of Taurus Advisory
Group,  LLC, Laurus Master Fund,  Ltd. and three entities  affiliated with Sands
Brothers  International  Limited). We also issued our common stock in connection
with the acquisition of Evoke Software Corporation during this time. Even though
all  stockholders,  noteholders  and  warrantholders  have been advised of their
rights to rescind those financing  transactions  and they each have waived their
rights to rescind those transactions, there is a remote possibility that each of
those  transactions  could be reversed and the consideration  received by us may
have to be repaid.  In such an event,  our business could be adversely  affected
and we may have an obligation to fund such rescissions.

CERTAIN  CLIENT-RELATED   COMPLICATIONS  MAY  MATERIALLY  ADVERSELY  AFFECT  OUR
BUSINESS.

      We may be subject to additional  risks  relating to our clients that could
materially adversely affect our business, such as delays in clients paying their
outstanding  invoices,  lengthy client review processes for awarding  contracts,
delay,  termination,  reduction  or  modification  of  contracts in the event of
changes  in client  policies  or as a result of  budgetary  constraints,  and/or
increased or unexpected  costs  resulting in losses under  fixed-fee  contracts,
which factors could also adversely affect our business.

WE HAVE A HISTORY OF LOSSES AND WE COULD INCUR LOSSES IN THE FUTURE.

      During the fiscal years ended  December 31, 2004 and December 31, 2003, we
sustained operating losses and cannot be sure that we will operate profitably in
the future.  During the fiscal year ended  December 31, 2004, we sustained a net
loss in the  approximate  amount of ($32.9  million).  $23.3 million of the loss
resulted from impairment of goodwill and intangibles for the year ended December
31, 2004 as a result of our annual impairment review for the DeLeeuw  Associates
and  Evoke   acquisitions   (and  goodwill   recorded  for  other  assets)  (see
Management's   Discussion   and   Analysis  or  Plan  of  Operation  -  Goodwill
Impairment).  During the fiscal year ended December 31, 2003, we sustained a net
loss in the approximate amount of ($307,000). If we do not become profitable, we
could have  difficulty  obtaining  funds to  continue  our  operations.  We have
incurred  net losses  since our merger with LCS Group,  Inc. We may  continue to
generate  losses from the ongoing  business  prior to  returning  the Company to
profitability..


                                       5


WE HAVE A SIGNIFICANT  AMOUNT OF DEBT,  WHICH, IN THE EVENT OF A DEFAULT,  COULD
HAVE MATERIAL ADVERSE CONSEQUENCES UPON US.


      Our total debt as of April 19, 2005 is $11,259,000,  as described below in
Management's  Discussion  and  Analysis or Plan of  Operation  -  Liquidity  and
Capital  Resources.  The degree to which we are leveraged  could have  important
consequences to us, including the following:


      o     A  portion  of our cash  flow  must be used to pay  interest  on our
            indebtedness,  and  therefore  is  not  available  for  use  in  our
            business;

      o     Our indebtedness  increases our  vulnerability to changes in general
            economic and industry conditions;

      o     Our ability to obtain  additional  financing  for  working  capital,
            capital  expenditures,  general corporate purposes or other purposes
            could be impaired;

      o     Our failure to comply with  restrictions  contained  in the terms of
            our  borrowings  could lead to a default  which could cause all or a
            significant portion of our debt to become immediately payable; and

      o     If we  default,  the loans  will  become due and we may not have the
            funds to repay the loans, and we could  discontinue our business and
            investors could lose all their money.

      In  addition,  certain  terms of such loans  require the prior  consent of
Laurus Master Fund, Ltd. on many corporate  actions  including,  but not limited
to, mergers and acquisitions--which is part of our ongoing business strategy.

OUR OPERATING RESULTS ARE DIFFICULT TO FORECAST.

      We may increase our general and administrative  expenses in the event that
we increase our business  and/or acquire other  businesses,  while our operating
expenses for sales and marketing  and costs of services for technical  personnel
to provide and support our services also increases. Additionally,  although most
of our clients are large,  creditworthy entities, at any given point in time, we
may have significant accounts receivable balances with clients that expose us to
credit risks if such  clients  either delay or elect not to pay or are unable to
pay such obligations. If we have an unexpected shortfall in revenues in relation
to our expenses,  or  significant  bad debt  experience,  our business  could be
materially and adversely affected.

OUR  PROFITABILITY,  IF ANY,  WILL  SUFFER  IF WE ARE NOT ABLE TO  MAINTAIN  OUR
PRICING,  UTILIZATION  OF PERSONNEL  AND CONTROL OUR COSTS.  A  CONTINUATION  OF
CURRENT PRICING  PRESSURES COULD RESULT IN PERMANENT CHANGES IN PRICING POLICIES
AND DELIVERY CAPABILITIES.

      Our gross profit  margin is largely a function of the rates we are able to
charge for our information technology services.  Accordingly, if we are not able
to maintain the pricing for our services or an  appropriate  utilization  of our
professionals  without  corresponding cost reductions,  our margins will suffer.
The rates we are able to charge for our  services  are  affected  by a number of
factors, including:

      o     our  clients'  perceptions  of our ability to add value  through our
            services;

      o     pricing policies of our competitors;


                                       6


      o     our ability to accurately  estimate,  attain and sustain  engagement
            revenues,  margins and cash flows over increasingly  longer contract
            periods;

      o     the  use  of   globally   sourced,   lower-cost   service   delivery
            capabilities by our competitors and our clients; and

      o     general economic and political conditions.

      Our gross  margins are also a function of our ability to control our costs
and improve our efficiency.  If the  continuation  of current pricing  pressures
persists it could result in permanent  changes in pricing  policies and delivery
capabilities and we must continuously improve our management of costs.

UNEXPECTED COSTS OR DELAYS COULD MAKE OUR CONTRACTS UNPROFITABLE.

      In  the  future,   we  may  have  many  types  of   contracts,   including
time-and-materials contracts,  fixed-price contracts and contracts with features
of  both  of  these  contract  types.  Any  increased  or  unexpected  costs  or
unanticipated  delays in connection with the  performance of these  engagements,
including  delays  caused by  factors  outside  our  control,  could  make these
contracts less profitable or unprofitable, which would have an adverse effect on
all of our margins and potential net income.

OUR  BUSINESS  COULD BE  ADVERSELY  AFFECTED IF WE FAIL TO ADAPT TO EMERGING AND
EVOLVING MARKETS.

      The markets for our  services  are  changing  rapidly  and  evolving  and,
therefore,  the  ultimate  level  of  demand  for our  services  is  subject  to
substantial  uncertainty.  Most  of our  historic  revenue  was  generated  from
providing  information  technology services only. During the last several years,
we have focused our efforts on providing data warehousing services in particular
since we believe that there is going to be an increased  need in this area.  Any
significant  decline  in  demand  for  programming,   applications  development,
information  technology or data warehousing consulting services could materially
and adversely affect our business and prospects.

      Our ability to achieve  growth targets is dependent in part on maintaining
existing clients and continually attracting and retaining new clients to replace
those who have not  renewed  their  contracts.  Our  ability to  achieve  market
acceptance, including for data warehousing, will require substantial efforts and
expenditures on our part to create awareness of our services.

IF WE SHOULD  EXPERIENCE  RAPID GROWTH,  SUCH GROWTH COULD STRAIN OUR MANAGERIAL
AND OPERATIONAL RESOURCES, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.

      Any  rapid  growth  that  we may  experience  would  most  likely  place a
significant strain on our managerial and operational  resources.  If we continue
to acquire other companies, we will be required to manage multiple relationships
with various clients, strategic partners and other third parties. Further growth
(organic  or  by  acquisition)  or  an  increase  in  the  number  of  strategic
relationships  may increase this strain on existing  managerial and  operational
resources,  inhibiting our ability to achieve the rapid  execution  necessary to
implement our growth strategy without incurring additional corporate expenses.

LACK OF DETAILED  WRITTEN  CONTRACTS  COULD IMPAIR OUR ABILITY TO COLLECT  FEES,
PROTECT OUR  INTELLECTUAL  PROPERTY  AND PROTECT  OURSELVES  FROM  LIABILITY  TO
OTHERS.

      We try to protect  ourselves by entering into detailed  written  contracts
with our clients covering the terms and contingencies of the client  engagement.
In some cases, however, consistent with what we believe to be industry practice,
work is  performed  for clients on the basis of a limited  statement  of work or
verbal  agreements  before a detailed  written contact can be finalized.  To the
extent that we fail to have detailed written  contracts in place, our ability to
collect  fees,  protect our  intellectual  property and protect  ourselves  from
liability from others may be impaired.


                                       7


FAILURE TO ACHIEVE AND MAINTAIN  EFFECTIVE  INTERNAL CONTROLS IN ACCORDANCE WITH
SECTION 404 OF THE  SARBANES-OXLEY  ACT COULD HAVE A MATERIAL  ADVERSE EFFECT ON
OUR  BUSINESS  AND  OPERATING  RESULTS.  IN  ADDITION,   CURRENT  AND  POTENTIAL
STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING,  WHICH COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR STOCK PRICE.

      Effective  internal  controls  are  necessary  for us to provide  reliable
financial  reports and effectively  prevent fraud. If we cannot provide reliable
financial reports or prevent fraud, our operating results could be harmed.

      Commencing  July 15,  2006,  we will be required to document  and test our
internal control  procedures in order to satisfy the requirements of Section 404
of the Sarbanes-Oxley  Act, which requires annual management  assessments of the
effectiveness of our internal controls over financial  reporting and a report by
our independent  registered public accounting firm addressing these assessments.
During the course of our testing, we may identify  deficiencies which we may not
be able to remediate in time to meet the deadline imposed by the  Sarbanes-Oxley
Act for compliance with the requirements of Section 404. In addition, if we fail
to maintain  the  adequacy  of our  internal  controls,  as such  standards  are
modified,  supplemented  or  amended  from  time to time,  we may not be able to
ensure that we can conclude on an ongoing basis that we have effective  internal
controls  over  financial  reporting  in  accordance  with  Section  404  of the
Sarbanes-Oxley  Act.  Failure to achieve  and  maintain  an  effective  internal
control  environment  could  also  cause  investors  to lose  confidence  in our
reported  financial  information,  which could have a material adverse effect on
our stock price.

COMPLIANCE  WITH  CHANGING   REGULATION  OF  CORPORATE   GOVERNANCE  AND  PUBLIC
DISCLOSURE MAY RESULT IN ADDITIONAL EXPENSES.


      Changing laws,  regulations and standards relating to corporate governance
and  public  disclosure,  including  the  Sarbanes-Oxley  Act of  2002,  new SEC
regulations   and  exchange  rules  (although  not,  as  of  the  date  of  this
Registration  Statement,   applicable  to  us),  are  creating  uncertainty  for
companies such as ours. These new or changed laws, regulations and standards are
subject  to  varying  interpretations  in  many  cases  due  to  their  lack  of
specificity, and as a result, their application in practice may evolve over time
as new guidance is provided by  regulatory  and  governing  bodies,  which could
result in continuing  uncertainty  regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We are
committed to  maintaining  high  standards of  corporate  governance  and public
disclosure.  As a result, our efforts to comply with evolving laws,  regulations
and  standards  have  resulted  in,  and are  likely to  continue  to result in,
increased general and administrative expenses and a diversion of management time
and attention from  revenue-generating  activities to compliance activities.  In
particular,  our efforts to comply with Section 404 of the Sarbanes-Oxley Act of
2002 and the  related  regulations  regarding  our  required  assessment  of our
internal controls over financial reporting and our independent registered public
accounting  firm's  audit of that  assessment  will  require the  commitment  of
significant  financial  and  managerial  resources.  We expect these  efforts to
require the continued  commitment of significant  resources.  Further, our board
members,  chief  executive  officer and chief  financial  officer  could face an
increased risk of personal liability in connection with the performance of their
duties. As a result, we may have difficulty  attracting and retaining  qualified
board members and  executive  officers,  which could harm our  business.  If our
efforts to comply with new or changed laws,  regulations  and  standards  differ
from  the  activities   intended  by  regulatory  or  governing  bodies  due  to
ambiguities related to practice, our reputation may be harmed.



                                       8


WE FACE  INTENSE  COMPETITION  AND OUR  FAILURE TO MEET THIS  COMPETITION  COULD
ADVERSELY AFFECT OUR BUSINESS.

      Competition for our information technology consulting services,  including
data  warehousing,  is  significant  and we expect  that this  competition  will
continue to  intensify  due to the low  barriers  to entry.  We may not have the
financial  resources,  technical  expertise,  sales  and  marketing  or  support
capabilities to adequately meet this  competition.  We compete against  numerous
large  companies,  including,  among  others,  multi-national  and  other  major
consulting firms. These firms have substantially greater market presence, longer
operating  histories,  more  significant  client  bases and  greater  financial,
technical,  facilities,  marketing, capital and other resources than we have. If
we are  unable  to  compete  against  such  competitors,  our  business  will be
adversely affected.

      Our  competitors  may  respond  more  quickly  than us to new or  emerging
technologies and changes in client requirements. Our competitors may also devote
greater  resources  than we can to the  development,  promotion and sales of our
services.   If  one  or  more  of  our   competitors   develops  and  implements
methodologies that result in superior  productivity and price reductions without
adversely affecting their profit margins, our business could suffer. Competitors
may also:

      o     engage in more extensive research and development;

      o     undertake more extensive marketing campaigns;

      o     adopt more aggressive pricing policies; and

      o     make more attractive offers to our existing and potential  employees
            and strategic partners.

      In addition,  current and potential  competitors  have  established or may
establish cooperative  relationships among themselves or with third parties that
could be detrimental to our business.

      New competitors, including large computer hardware, software, professional
services  and other  technology  companies,  may enter our  markets  and rapidly
acquire  significant  market  share.  As a result of increased  competition  and
vertical  and  horizontal  integration  in  the  industry,  we  could  encounter
significant   pricing  pressures.   These  pricing  pressures  could  result  in
substantially lower average selling prices for our services.  We may not be able
to offset the effects of any price  reductions with an increase in the number of
clients,  higher revenue from consulting services, cost reductions or otherwise.
In  addition,   professional   services   businesses  are  likely  to  encounter
consolidation  in the near future,  which could result in decreased  pricing and
other competition.

IF WE FAIL TO ADAPT TO THE RAPID  TECHNOLOGICAL  CHANGE CONSTANTLY  OCCURRING IN
THE AREAS IN WHICH WE PROVIDE SERVICES, INCLUDING DATA WAREHOUSING, OUR BUSINESS
COULD BE ADVERSELY AFFECTED.

      The  market  for  information  technology  consulting  services  and  data
warehousing is rapidly evolving.  Significant technological changes could render
our existing services obsolete. We must adapt to this rapidly changing market by
continually  improving  the  responsiveness,  functionality  and features of our
services to meet clients'  needs.  If we are unable to respond to  technological
advances  and conform to emerging  industry  standards in a  cost-effective  and
timely manner, our business could be materially and adversely affected.


                                       9


WE DEPEND ON OUR  MANAGEMENT.  IF WE FAIL TO RETAIN KEY PERSONNEL,  OUR BUSINESS
COULD BE ADVERSELY AFFECTED.

      There is intense competition for qualified personnel in the areas in which
we operate.  The loss of existing personnel or the failure to recruit additional
qualified  managerial,  technical  and sales  personnel,  as well as expenses in
connection  with hiring and retaining  personnel,  particularly  in the emerging
area of data  warehousing,  could adversely affect our business.  We also depend
upon the performance of our executive  officers and key employees in particular,
Messrs.  Scott Newman,  Glenn  Peipert and Robert C.  DeLeeuw.  Although we have
entered into employment agreements with Messrs. Newman, Peipert and DeLeeuw, the
loss of any of these  individuals  could have a material adverse effect upon us.
In  addition,  we have not  obtained  "key man" life  insurance  on the lives of
Messrs. Newman, Peipert or DeLeeuw.

      We will need to attract,  train and retain more employees for  management,
engineering,  programming,  sales and marketing,  and client service and support
positions.  As noted above,  competition for qualified  employees,  particularly
engineers,  programmers and consultants,  continues to be intense. Consequently,
we may not be  able to  attract,  train  and  retain  the  personnel  we need to
continue to offer solutions and services to current and future clients in a cost
effective manner, if at all.

IF WE FAIL TO  RAISE  CAPITAL  THAT WE MAY  NEED TO  SUPPORT  AND  INCREASE  OUR
OPERATIONS, OUR BUSINESS COULD BE ADVERSELY AFFECTED.

      Our future capital uses and  requirements  will depend on several factors,
including:

      o     the  extent  to  which  our   solutions  and  services  gain  market
            acceptance;

      o     the  level  of  revenues  from  current  and  future  solutions  and
            services;

      o     the expansion of operations;

      o     the costs and timing of product and service  developments  and sales
            and marketing activities;

      o     the costs related to acquisitions of technology or businesses; and

      o     competitive developments.

      We may  require  additional  capital in order to  continue  to support and
increase  our sales and  marketing  efforts,  continue to expand and enhance the
solutions  and  services we are able to offer to current and future  clients and
fund  potential  acquisitions.  This  capital  may  not be  available  on  terms
acceptable  to  us,  if at  all.  In  addition,  we  may be  required  to  spend
greater-than-anticipated funds if unforeseen difficulties arise in the course of
these or other aspects of our business. As a consequence, we will be required to
raise  additional  capital through public or private equity or debt  financings,
collaborative  relationships,  bank facilities or other arrangements.  We cannot
assure you that such additional capital will be available on terms acceptable to
us, if at all.  Further,  if we raise capital though an equity or debt financing
at reduced exercise or conversion price, it could trigger certain  anti-dilution
provisions with other investors.  Any additional equity financing is expected to
be dilutive to our stockholders,  and debt financing, if available,  may involve
restrictive  covenants and  increased  interest  costs.  Our inability to obtain
sufficient  financing may require us to delay,  scale back or eliminate  some or
all of our expansion  programs or to limit the  marketing of our services.  This
could have a material and adverse effect on our business.


                                       10


WE COULD  HAVE  POTENTIAL  LIABILITY  FOR  INTELLECTUAL  PROPERTY  INFRINGEMENT,
PERSONAL INJURY, PROPERTY DAMAGE OR BREACH OF CONTRACT TO OUR CLIENTS THAT COULD
ADVERSELY AFFECT OUR BUSINESS.

      Our services involve  development and  implementation  of computer systems
and  computer  software  that are  critical to the  operations  of our  clients'
businesses.  If we fail or are unable to satisfy a client's  expectations in the
performance of our services, our business reputation could be harmed or we could
be subject to a claim for substantial damages,  regardless of our responsibility
for such  failure  or  inability.  In  addition,  in the  course  of  performing
services,  our  personnel  often gain access to  technologies  and content which
include  confidential  or  proprietary  client  information.  Although  we  have
implemented  policies to prevent such client information from being disclosed to
unauthorized parties or used inappropriately,  any such unauthorized  disclosure
or use could result in a claim for  substantial  damages.  Our business could be
adversely  affected if one or more large claims are asserted against us that are
uninsured,  exceed  available  insurance  coverage  or result in  changes to our
insurance  policies,  including  premium  increases or the  imposition  of large
deductible or co-insurance requirements.  Although we maintain general liability
insurance coverage, including coverage for errors and omissions, there can be no
assurance  that such coverage will continue to be available on reasonable  terms
or will be available in sufficient amounts to cover one or more large claims.

WE DO  NOT  INTEND  TO PAY  DIVIDENDS  ON  SHARES  OF OUR  COMMON  STOCK  IN THE
FORESEEABLE FUTURE.

      We  have  never  paid  cash  dividends  on our  common  stock  other  than
distributions  resulting from our past tax status as a Subchapter S corporation.
Our  current  Board  of  Directors  does  not  anticipate  that we will pay cash
dividends  in the  foreseeable  future.  Instead,  we intend  to  retain  future
earnings for reinvestment in our business and/or to fund future acquisitions. In
addition,  the security agreement with Laurus Master Fund, Ltd. requires that we
obtain their consent prior to paying any dividends.

OUR MANAGEMENT  GROUP OWNS OR CONTROLS A SIGNIFICANT  NUMBER OF THE  OUTSTANDING
SHARES OF OUR COMMON STOCK AND WILL  CONTINUE TO HAVE  SIGNIFICANT  OWNERSHIP OF
OUR VOTING SECURITIES FOR THE FORESEEABLE FUTURE.

      Scott  Newman  and  Glenn  Peipert,  our  principal  stockholders  and our
executive  officers and two of our  directors,  beneficially  own  approximately
37.7% and  19.2%,  respectively,  of our  outstanding  common  stock.  Robert C.
DeLeeuw, our Senior Vice President and President of our wholly owned subsidiary,
DeLeeuw  Associates,  LLC, owns  approximately  10.2% of our outstanding  common
stock. As a result,  these persons will have the ability,  acting as a group, to
effectively  control  our  affairs  and  business,  including  the  election  of
directors  and  subject  to  certain  limitations,  approval  or  preclusion  of
fundamental  corporate  transactions.  This  concentration  of  ownership of our
common stock may:

      o     delay or prevent a change in the control;

      o     impede  a  merger,  consolidation,  takeover  or  other  transaction
            involving us; or

      o     discourage  a  potential  acquirer  from  making a  tender  offer or
            otherwise attempting to obtain control of us.


                                       11


THE  AUTHORIZATION  AND ISSUANCE OF "BLANK CHECK"  PREFERRED STOCK COULD HAVE AN
ANTI-TAKEOVER EFFECT DETRIMENTAL TO THE INTERESTS OF OUR STOCKHOLDERS.

      Our  certificate of  incorporation  allows the Board of Directors to issue
preferred  stock with rights and  preferences  set by our board without  further
stockholder  approval.  The issuance of shares of this "blank  check  preferred"
under particular  circumstances could have an anti-takeover effect. For example,
in the event of a hostile  takeover  attempt,  it may be possible for management
and the board to endeavor to impede the attempt by issuing shares of blank check
preferred,  thereby  diluting  or  impairing  the  voting  power  of  the  other
outstanding shares of common stock and increasing the potential costs to acquire
control  of us.  Our  Board of  Directors  has the  right to issue  blank  check
preferred  without first  offering  them to holders of our common stock,  as the
holders of our common stock have no preemptive rights.

OUR SERVICES OR SOLUTIONS MAY INFRINGE UPON THE INTELLECTUAL  PROPERTY RIGHTS OF
OTHERS.

      We cannot be sure that our services  and  solutions,  or the  solutions of
others  that we  offer  to our  clients,  do not  infringe  on the  intellectual
property rights of third parties,  and we may have infringement  claims asserted
against us or against our clients. These claims may harm our reputation, cost us
money  and  prevent  us  from  offering  some  services  or  solutions.  In some
instances,  the amount of these  expenses  may be greater  than the  revenues we
receive  from the  client.  Any claims or  litigation  in this area,  whether we
ultimately  win  or  lose,  could  be  time-consuming  and  costly,  injure  our
reputation or require us to enter into royalty or licensing arrangements. We may
not be able to enter into these royalty or licensing  arrangements on acceptable
terms.  To the  best  of  our  knowledge,  we  have  never  infringed  upon  the
intellectual property rights of another individual or entity.

WE COULD BE  SUBJECT  TO  SYSTEMS  FAILURES  THAT  COULD  ADVERSELY  AFFECT  OUR
BUSINESS.

      Our business depends on the efficient and  uninterrupted  operation of our
computer and communications  hardware systems and  infrastructure.  We currently
maintain our computer systems in our facilities at our offices in New Jersey and
elsewhere.  We do not have complete  redundancy in our systems and therefore any
damage or  destruction  to our systems  would  significantly  harm our business.
Although we have taken precautions against systems failure,  interruptions could
result  from  natural  disasters  as well as  power  losses,  telecommunications
failures  and  similar  events.  Our systems  are also  subject to human  error,
security  breaches,  computer viruses,  break-ins,  "denial of service" attacks,
sabotage,  intentional  acts of vandalism and tampering  designed to disrupt our
computer systems. We also lease telecommunications lines from local and regional
carriers,  whose  service  may  be  interrupted.  Any  damage  or  failure  that
interrupts or delays network  operations  could  materially and adversely affect
our business.

OUR  BUSINESS  COULD BE  ADVERSELY  AFFECTED  IF WE FAIL TO  ADEQUATELY  ADDRESS
SECURITY ISSUES.

      We  have  taken  measures  to  protect  the  integrity  of our  technology
infrastructure  and the privacy of confidential  information.  Nonetheless,  our
technology  infrastructure  is potentially  vulnerable to physical or electronic
break-ins,  viruses or similar problems.  If a person or entity  circumvents its
security   measures,   they  could   jeopardize  the  security  of  confidential
information  stored on our systems,  misappropriate  proprietary  information or
cause  interruptions  in our operations.  We may be required to make substantial
additional  investments  and  efforts  to  protect  against  or remedy  security
breaches.  Security  breaches that result in access to confidential  information
could damage our reputation and expose us to a risk of loss or liability.


                                       12


RISKS RELATING TO ACQUISITIONS

WE FACE INTENSE COMPETITION FOR ACQUISITION CANDIDATES,  AND WE MAY HAVE LIMITED
CASH AVAILABLE FOR SUCH ACQUISITIONS.


      There is a high degree of competition  among companies  seeking to acquire
interests  in  information  technology  service  companies  such as those we may
target for acquisition.  We are expected to continue to be an active participant
in the business of seeking  business  relationships  with, and  acquisitions  of
interests in, such companies.  A large number of established  and  well-financed
entities,  including venture capital firms, are active in acquiring interests in
companies that we may find to be desirable acquisition candidates. Many of these
investment-oriented  entities have  significantly  greater financial  resources,
technical expertise and managerial capabilities than we do. Consequently, we may
be  at  a  competitive   disadvantage  in  negotiating  and  executing  possible
investments in these entities as many  competitors  generally have easier access
to  capital,  on  which   entrepreneur-founders  of  privately-held  information
technology service companies generally place greater emphasis than obtaining the
management  skills and networking  services that we can provide.  Even if we are
able to compete with these venture capital entities, this competition may affect
the terms and conditions of potential  acquisitions and, as a result, we may pay
more than expected for targeted acquisitions.  If we cannot acquire interests in
attractive  companies on  reasonable  terms,  our strategy to build our business
through  acquisitions may be inhibited.  Pursuant to a secured  convertible term
note dated August 16, 2004 with Laurus Master Fund,  Ltd., as of April 19, 2005,
the Company has approximately $4.3 million in restricted cash available that may
be used for acquisition  targets only upon the approval of Laurus.  As a result,
our ability to fund acquisitions may be hindered further.


WE WILL ENCOUNTER  DIFFICULTIES IN IDENTIFYING SUITABLE  ACQUISITION  CANDIDATES
AND INTEGRATING NEW ACQUISITIONS.

      A key element of our expansion  strategy is to grow through  acquisitions.
If we identify  suitable  candidates,  we may not be able to make investments or
acquisitions  on  commercially  acceptable  terms.   Acquisitions  may  cause  a
disruption in our ongoing business, distract management, require other resources
and make it difficult to maintain our standards, controls and procedures. We may
not be able to retain key  employees of the acquired  companies or maintain good
relations  with  their  clients  or  suppliers.  We may  be  required  to  incur
additional  debt  and to issue  equity  securities,  which  may be  dilutive  to
existing stockholders, to effect and/or fund acquisitions.

WE CANNOT ASSURE YOU THAT ANY ACQUISITIONS WE MAKE WILL ENHANCE OUR BUSINESS.

      We cannot  assure you that any  completed  acquisition  will  enhance  our
business. Since we anticipate that acquisitions could be made with both cash and
our common stock,  if we consummate one or more  significant  acquisitions,  the
potential impacts are:

      o     a  substantial  portion  of our  available  cash  could  be  used to
            consummate  the  acquisitions   and/or  we  could  incur  or  assume
            significant amounts of indebtedness;

      o     losses resulting from the on-going  operations of these acquisitions
            could adversely affect our cash flow; and

      o     our stockholders could suffer significant dilution of their interest
            in our common stock.

      Also,  we are  required to account  for  acquisitions  under the  purchase
method,  which  would  likely  result in our  recording  significant  amounts of
goodwill.  The inability of a subsidiary to sustain  profitability may result in
an impairment loss in the value of long-lived assets,  principally  goodwill and
other tangible and intangible assets, which would adversely affect our financial
statements.  Additionally, we could choose to divest any acquisition that is not
profitable.


                                       13


RISKS RELATING TO OUR COMMON STOCK

OUR RELATIONSHIP WITH OUR MAJORITY  STOCKHOLDERS PRESENTS POTENTIAL CONFLICTS OF
INTEREST,  WHICH  MAY  RESULT  IN  DECISIONS  THAT  FAVOR  THEM  OVER OUR  OTHER
STOCKHOLDERS.

      Our principal beneficial owners, Scott Newman, Glenn Peipert and Robert C.
DeLeeuw,  provide management and financial assistance to us. When their personal
investment  interests diverge from our interests,  they and their affiliates may
exercise their influence in their own best interests.  Some decisions concerning
our  operations  or finances may present  conflicts  of interest  between us and
these stockholders and their affiliated entities.

THE LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE POSSIBLE VOLATILITY
IN OUR STOCK PRICE.

      There has only been a limited  public market for our  securities and there
can be no assurance  that an active  trading  market in our  securities  will be
maintained. The OTCBB is an unorganized,  inter-dealer,  over-the-counter market
which  provides  significantly  less  liquidity  than  NASDAQ  and the  national
securities  exchange,  and  quotes  for  securities  quoted on the OTCBB are not
listed in the  financial  sections of newspapers as are those for NASDAQ and the
national securities exchange. In addition,  the overall market for securities in
recent years has  experienced  extreme price and volume  fluctuations  that have
particularly  affected the market prices of many smaller companies.  The trading
price of our common stock is expected to be subject to significant  fluctuations
including, but not limited to, the following:

      o     quarterly  variations in operating  results and  achievement  of key
            business metrics;

      o     changes in earnings estimates by securities analysts, if any;

      o     any differences  between reported  results and securities  analysts'
            published or unpublished expectations;

      o     announcements  of new  contracts  or service  offerings by us or our
            competitors;

      o     market reaction to any acquisitions, divestitures, joint ventures or
            strategic investments announced by us or our competitors;

      o     demand for our services and products;

      o     shares being sold pursuant to Rule 144 or upon exercise of warrants;
            and

      o     general  economic  or  stock  market  conditions  unrelated  to  our
            operating performance.

      These fluctuations, as well as general economic and market conditions, may
have a material or adverse effect on the market price of our common stock.

THERE ARE  LIMITATIONS IN CONNECTION  WITH THE  AVAILABILITY OF QUOTES AND ORDER
INFORMATION ON THE OTCBB.

      Trades and quotations on the OTCBB involve a manual process and the market
information  for such  securities  cannot  be  guaranteed.  In  addition,  quote
information,  or even firm quotes,  may not be available.  The manual  execution
process may delay order processing and intervening price fluctuations may result
in the failure of a limit order to execute or the execution of a market order at
a significantly  different price.  Execution of trades,  execution reporting and
the  delivery  of  legal  trade  confirmation  may  be  delayed   significantly.
Consequently, one may not able to sell shares of our common stock at the optimum
trading prices.


                                       14


THERE ARE DELAYS IN ORDER COMMUNICATION ON THE OTCBB.

      Electronic  processing of orders is not available for securities traded on
the OTCBB and high order volume and communication risks may prevent or delay the
execution of one's OTCBB trading orders. This lack of automated order processing
may affect the timeliness of order execution  reporting and the  availability of
firm quotes for shares of our common  stock.  Heavy market  volume may lead to a
delay in the processing of OTCBB security orders for shares of our common stock,
due to the manual nature of the market.  Consequently,  one may not able to sell
shares of our common stock at the optimum trading prices.

PENNY STOCK REGULATIONS MAY IMPOSE CERTAIN  RESTRICTIONS ON MARKETABILITY OF OUR
SECURITIES.

      The SEC has adopted  regulations which generally define a "penny stock" to
be any equity  security  that has a market price (as defined) of less than $5.00
per share or an exercise price of less than $5.00 per share,  subject to certain
exceptions.  As a result,  our shares of common  stock are subject to rules that
impose additional sales practice  requirements on  broker-dealers  who sell such
securities to persons other than established clients and "accredited investors".
For transactions  covered by these rules, the broker-dealer  must make a special
suitability  determination for the purchase of such securities and have received
the  purchaser's  written  consent  to the  transaction  prior to the  purchase.
Additionally,  for any transaction  involving a penny stock,  unless exempt, the
rules  require the  delivery,  prior to the  transaction,  of a risk  disclosure
document  mandated  by  the  SEC  relating  to  the  penny  stock  market.   The
broker-dealer   must  also   disclose  the   commission   payable  to  both  the
broker-dealer  and the  registered  representative,  current  quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must  disclose  this  fact and the  broker-dealer's  presumed  control  over the
market.  Finally,  monthly  statements  must be  sent  disclosing  recent  price
information  for the penny  stock held in the  account  and  information  on the
limited  market in penny  stocks.  Consequently,  the  "penny  stock"  rules may
restrict  the ability of  broker-dealers  to sell our shares of common stock and
may affect the ability of  investors  to sell such shares of common stock in the
secondary  market  and the price at which  such  investors  can sell any of such
shares.

      Investors should be aware that, according to the SEC, the market for penny
stocks has  suffered  in recent  years from  patterns  of fraud and abuse.  Such
patterns include:

      o     control  of  the  market   for  the   security   by  one  or  a  few
            broker-dealers that are often related to the promoter or issuer;

      o     manipulation of prices through prearranged matching of purchases and
            sales and false and misleading press releases;

      o     "boiler room"  practices  involving  high pressure sales tactics and
            unrealistic price projections by inexperienced sales persons;

      o     excessive  and  undisclosed  bid-ask  differentials  and  markups by
            selling broker-dealers; and


                                       15


      o     the  wholesale  dumping  of the same  securities  by  promoters  and
            broker-dealers  after  prices  have  been  manipulated  to a desired
            level,  along with the  inevitable  collapse  of those  prices  with
            consequent investor losses.

      Our management is aware of the abuses that have occurred  historically  in
the penny stock market.

THERE IS A RISK OF MARKET FRAUD.

      OTCBB securities are frequent targets of fraud or market manipulation. Not
only because of their generally low price,  but also because the OTCBB reporting
requirements  for these  securities are less stringent than for listed or NASDAQ
traded  securities,  and no  exchange  requirements  are  imposed.  Dealers  may
dominate  the market and set prices  that are not based on  competitive  forces.
Individuals  or groups may create  fraudulent  markets  and  control the sudden,
sharp increase of price and trading  volume and the equally  sudden  collapse of
the market price for shares of our common stock.

THERE IS LIMITED LIQUIDITY ON THE OTCBB.

      When fewer shares of a security are being traded on the OTCBB,  volatility
of prices may  increase  and price  movement  may outpace the ability to deliver
accurate quote information. Due to lower trading volumes in shares of our common
stock,  there may be a lower likelihood of one's orders for shares of our common
stock being executed, and current prices may differ significantly from the price
one was quoted by the OTCBB at the time of one's order entry.

THERE IS A LIMITATION IN CONNECTION  WITH THE EDITING AND CANCELING OF ORDERS ON
THE OTCBB.

      Orders for OTCBB  securities  may be  canceled  or edited  like orders for
other  securities.  All  requests to change or cancel an order must be submitted
to,  received  and  processed by the OTCBB.  Due to the manual order  processing
involved in  handling  OTCBB  trades,  order  processing  and  reporting  may be
delayed,  and one may not be able to cancel or edit one's  order.  Consequently,
one may not able to sell  shares  of our  common  stock at the  optimum  trading
prices.

INCREASED DEALER COMPENSATION COULD ADVERSELY AFFECT THE STOCK PRICE.

      The dealer's spread (the difference between the bid and ask prices) may be
large and may result in substantial losses to the seller of shares of our common
stock on the OTCBB if the stock must be sold immediately. Further, purchasers of
shares of our common stock may incur an immediate  "paper" loss due to the price
spread.  Moreover,  dealers  trading  on the  OTCBB may not have a bid price for
shares of our common stock on the OTCBB. Due to the foregoing, demand for shares
of our common stock on the OTCBB may be decreased or eliminated.

ADDITIONAL  AUTHORIZED  SHARES OF OUR COMMON STOCK AND PREFERRED STOCK AVAILABLE
FOR ISSUANCE MAY ADVERSELY AFFECT THE MARKET.


      We are  authorized to issue 1 billion  shares of our common  stock.  As of
April 19,  2005,  there  were  781,010,668  shares of common  stock  issued  and
outstanding.  However, the total number of shares of our common stock issued and
outstanding  does not include shares  reserved in anticipation of the conversion
of notes or the  exercise of options or warrants.  As of April 19, 2005,  we had
108,297,618  shares of common stock  underlying  convertible  notes, and we have
reserved  shares  of our  common  stock  for  issuance  in  connection  with the
potential  conversion  thereof.  As of April 19, 2005, we had outstanding  stock
options and warrants to purchase  approximately  63,432,647 shares of our common
stock, the exercise price of which range between $0.055 and $0.35 per share, and
we have reserved  shares of our common stock for issuance in connection with the
potential exercise thereof. Of the reserved shares, a total of 50 million shares
are currently  reserved for issuance in connection with our 2003 Incentive Plan,
of which options to purchase an aggregate of 41,265,981  shares have been issued
under the plan.  A  significant  number of such  options  and  warrants  contain
provisions for broker-assisted  exercise. To the extent such options or warrants
are exercised, the holders of our common stock will experience further dilution.
In addition, in the event that any future financing should be in the form of, be
convertible into or exchangeable for, equity  securities,  and upon the exercise
of options and warrants, investors may experience additional dilution.



                                       16


      The exercise of the  outstanding  convertible  securities  will reduce the
percentage of common stock held by our stockholders. Further, the terms on which
we could obtain additional capital during the life of the convertible securities
may be  adversely  affected,  and it should be expected  that the holders of the
convertible  securities  would  exercise them at a time when we would be able to
obtain equity  capital on terms more  favorable  than those provided for by such
convertible securities. As a result, any issuance of additional shares of common
stock may cause our current  stockholders to suffer  significant  dilution which
may adversely affect the market.

      In addition to the  above-referenced  shares of common  stock which may be
issued  without  stockholder  approval,  we have 20 million shares of authorized
preferred stock,  the terms of which may be fixed by our Board of Directors.  We
presently have no issued and outstanding  shares of preferred stock and while we
have no  present  plans to issue any  shares of  preferred  stock,  our Board of
Directors has the authority,  without stockholder  approval, to create and issue
one or more series of such preferred stock and to determine the voting, dividend
and other rights of holders of such preferred stock. The issuance of any of such
series of  preferred  stock may have an adverse  effect on the holders of common
stock.

SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.

      From time to time, certain of our stockholders may be eligible to sell all
or some of  their  shares  of  common  stock  by  means  of  ordinary  brokerage
transactions  in the open  market  pursuant to Rule 144,  promulgated  under the
Securities Act of 1933  (Securities  Act),  subject to certain  limitations.  In
general,  pursuant to Rule 144, a stockholder (or stockholders  whose shares are
aggregated)  who has  satisfied a one-year  holding  period may,  under  certain
circumstances,  sell within any three-month  period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common stock
or the average weekly trading volume of the class during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of  securities,   without  any  limitation,   by  our   stockholders   that  are
non-affiliates  that have satisfied a two-year  holding period.  Any substantial
sale  of our  common  stock  pursuant  to Rule  144 or  pursuant  to any  resale
prospectus  may  have  material  adverse  effect  on  the  market  price  of our
securities.

DIRECTOR AND OFFICER LIABILITY IS LIMITED.

      As permitted by Delaware law, our certificate of incorporation  limits the
liability  of our  directors  for  monetary  damages for breach of a  director's
fiduciary  duty except for  liability in certain  instances.  As a result of our
charter  provision and Delaware  law,  stockholders  may have limited  rights to
recover  against  directors  for breach of  fiduciary  duty.  In  addition,  our
certificate of incorporation  provides that we shall indemnify our directors and
officers to the fullest extent permitted by law.


                                       17


                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      Some  of  the  statements  under  "Prospectus  Summary,"  "Risk  Factors,"
"Management's Discussion and Analysis or Plan of Operation," and "Description of
Business" in this prospectus are  forward-looking  statements.  These statements
involve known and unknown risks,  uncertainties and other factors that may cause
our or our  industry's  actual  results,  levels  of  activity,  performance  or
achievements  to be  materially  different  from any future  results,  levels of
activity,  performance,  or achievements expressed or implied by forward-looking
statements.  Such factors include,  among other things, those listed under "Risk
Factors" and elsewhere in this prospectus.

      In some cases, you can identify forward-looking  statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates,"  "believes,"
"estimates,"  "predicts,"  "potential," "proposed," "intended," or "continue" or
the  negative of these terms or other  comparable  terminology.  You should read
statements  that  contain  these  words  carefully,  because  they  discuss  our
expectations  about  our  future  operating  results  or  our  future  financial
condition or state other "forward-looking"  information.  There may be events in
the future that we are not able to  accurately  predict or  control.  Before you
invest in our securities,  you should be aware that the occurrence of any of the
events  described in these risk factors and elsewhere in this  prospectus  could
substantially harm our business,  results of operations and financial condition,
and that upon the  occurrence of any of these  events,  the trading price of our
securities  could  decline  and you could  lose all or part of your  investment.
Although  we believe  that the  expectations  reflected  in the  forward-looking
statements are reasonable,  we cannot  guarantee  future results,  growth rates,
levels of activity,  performance or achievements. We are under no duty to update
any of the  forward-looking  statements  after  the date of this  prospectus  to
conform these statements to actual results.

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                                       18


                                    BUSINESS

      Conversion  Services  International,  Inc. is a technology  firm providing
professional  services to the Global 2000 as well as mid-market  clientele.  Our
core competency areas include strategic consulting,  data warehousing,  business
intelligence  and data management  consulting.  Our clients are primarily in the
financial   services,   pharmaceutical,    healthcare   and   telecommunications
industries,  although we do have  clients in other  industries.  Our clients are
primarily located in the northeastern United States. We enable  organizations to
leverage their  corporate  information  assets by providing  strategy,  process,
methodology, data warehousing,  business intelligence,  enterprise reporting and
analytic solutions. Our organization delivers value to our clients,  utilizing a
unique combination of business acumen,  technical proficiency,  experience and a
proven set of "best practices"  methodologies to deliver cost effective services
through either fixed price or time and material engagements. We are committed to
being a  leader  in  data  warehousing  and  business  intelligence  consulting,
allowing us to be a valuable asset and trusted advisor to our customers.

      We  believe  that  our  primary  strengths  that  distinguish  us from our
competitors are our:

      o     understanding of data management solutions;

      o     ability to provide solutions that integrate people,  improve process
            and integrate technologies;

      o     extensive  service  offerings  as it  relates  to data  warehousing,
            business intelligence, strategy and data quality;

      o     our  perspective  regarding  the  accuracy  of  data  and  our  data
            purification process,

      o     best practices methodology, process and procedures;

      o     experience in architecting,  recommending and implementing large and
            complex data warehousing and business intelligence solutions; and

      o     ability  to   establish   centers  of   excellence   within   client
            organizations to address data quality and business intelligence.

      Our  goal is to be the  premier  provider  of data  warehousing,  business
intelligence and related strategic consulting services,  as well as data quality
products for organizations  seeking to leverage and improve the quality of their
corporate information. In support of this goal we intend to:

      o     enhance our brand and mindshare;

      o     continue growth both organically and via acquisition;

      o     increase our geographic coverage;

      o     expand our client relationships;

      o     introduce new and creative service offerings; and

      o     leverage our strategic alliances.

      We are  committed  to  being a leader  in data  warehousing  and  business
intelligence  consulting.  As  a  data  warehousing  and  business  intelligence
specialist,  we approach  business  intelligence  from a strategic  perspective,
providing  integrated data  warehousing and business  intelligence  strategy and
technology  implementation  services to clients that are  attempting to leverage
their  enterprise   information.   Our  matrix  of  services  includes  strategy
consulting,   data  warehousing  and  business  intelligence   architecture  and
implementation  solutions, data quality solutions and data management solutions.
We have  developed a methodology  which provides a framework for each stage of a
client   engagement,   from  helping  the  client  conceive  its  strategy,   to
architecting,  engineering  and extending its  information.  We believe that our
integrated methodology allows us to deliver reliable,  robust, scalable,  secure
and extensible  business  intelligence  solutions in rapid  timeframes  based on
accurate information.


                                       19


      We are a Delaware  corporation  formerly named LCS Group,  Inc. In January
2004, a privately held company named  Conversion  Services  International,  Inc.
("Old CSI") merged with and into our wholly owned  subsidiary,  LCS  Acquisition
Corp.  In  connection  with  such  transaction:  (i) a 14-year  old  information
technology business became our operating business,  (ii) the former stockholders
of  Old  CSI  assumed  control  of  our  Board  of  Directors  and  were  issued
approximately  75.9% of the outstanding  shares of our common stock at that time
(due to subsequent  events,  that  percentage of ownership has  decreased),  and
(iii) we  changed  our name to  "Conversion  Services  International,  Inc." The
acquisition  was  accounted  for as a  reverse  acquisition.  Please  see Note 1
Accounting  Policies  of the  Notes to  Consolidated  Financial  Statements  for
further discussion on this transaction.

      Our offices are located at 100 Eagle Rock Avenue, East Hanover, New Jersey
07936, and our telephone number is (973) 560-9400.

OUR SERVICES

      As a  full  service  strategic  consulting,  business  intelligence,  data
warehousing  and data  management  firm,  we  offer  services  in the  following
solution categories:

      STRATEGIC  CONSULTING:  - Involves planning and assessing both process and
technology, performing gap analysis, making recommendations regarding technology
and process  improvements  to help our clients  realize their business goals and
maximize their investments in people and technology.

            o     Project  Management (PMO) - Setting up an internal office at a
                  client  location,   staffed  with   senior/certified   project
                  managers  that  act  in  accordance   with  the  policies  and
                  procedures  identified  in  CSI  Best  Practices  for  Project
                  Management.

            o     Data Warehousing and Business Intelligence  Strategic Planning
                  - Helping clients develop a strategic  roadmap to align with a
                  data warehouse or business intelligence implementation.  These
                  engagements  are focused on six  strategic  domains  that have
                  been identified and documented by CSI: Business Case,  Program
                  Formulation,  Organizational  Design,  Program  Methodologies,
                  Architecture and Operations and Servicing.

            o     Business  Technology  Alignment  - A strategic  offering  that
                  consists of a series of interviews including both the business
                  and  technology  constituents.   The  purpose  is  to  collect
                  information regarding user satisfaction, user requirements and
                  expectations,  as well as the technology groups  understanding
                  of needs and current and future deliverables.  The result is a
                  document that outlines  recommendations that will better align
                  the user and  technology  groups and  deliver  more  perceived
                  value.

            o     Tool  Analysis  and   Recommendation  -  Gather  business  and
                  technical  requirements and measure those requirements against
                  the   capabilities   of   available   tools  in  the   current
                  marketplace.   Tools   evaluated   and   recommended   include
                  reporting,  ad-hoc query,  analytics,  extract,  transform and
                  load  processes  (ETL),  data  profiling,  database  and  data
                  modeling.

            o     Integration  Management,  Mergers and Acquisitions - Work with
                  clients  to   implement   best   practices   for  mergers  and
                  acquisitions.  Support all aspects of the integration  process
                  from initial assessment through implementation support.

            o     Regulatory  Compliance (The Health  Insurance  Portability and
                  Accountability  Act of 1996, Basel II,  Sarbanes-Oxley) - Work
                  with  clients to  analyze,  design and  implement  operational
                  control and  procedures  that will align the  organization  to
                  meet new regulatory requirements.


                                       20


            o     Process  Improvement  (Lean, Six Sigma) - Provide a full array
                  of  products  and  services  in support of Lean and Six Sigma,
                  including training,  process  improvement,  project management
                  and implementation support.

            o     Organizational    Analysis   and   Assessment   (mergers   and
                  acquisitions)  - Work with clients to implement best practices
                  for  mergers  and  acquisitions.  Support  all  aspects of the
                  integration    process   from   initial   assessment   through
                  implementation support.

            o     Acquisition  Readiness - Work with  clients to better  prepare
                  them for large scale  acquisitions  in the financial  services
                  domain.  This includes  building best  practices,  mapping and
                  gapping  and  implementing  a strategic  roadmap to  integrate
                  multiple companies.

            o     Information,  Process and  Infrastructure  (IPI)  Diagrams - A
                  blueprinting   process  and  service  that   facilitates   and
                  accelerates the strategic planning process.

            o     Request For Proposal  creation and responses - Gather user and
                  technical  requirements  and develop  Requests  For  Proposals
                  (RFP) on behalf of our  clients.  Respond to client  RFPs with
                  detailed project plans, solutions and cost.

            o     Training and Education - Provide formal classroom training for
                  Business Objects software  products.  Provide training in data
                  warehousing and business  intelligence  methodologies and best
                  practices,  as well as  technology  tool  training,  including
                  business intelligence tools such as Cognos and MicroStrategy.

            o     Change   Management   Consulting   -   Assist   clients   with
                  implementing project management  governance and best practices
                  for large scale change initiatives,  including consolidations,
                  conversions, integration of new business processes and systems
                  applications.

      BUSINESS  INTELLIGENCE:  A category of applications  and  technologies for
gathering,  storing,  analyzing and providing  access to data to help enterprise
users make better and quicker business decisions.

            o     Architecture and  Implementation - Develop  architecture plans
                  and  install  all  tools  required  to  implement  a  business
                  intelligence  solution.   Develop  the  business  intelligence
                  solution   in  tools   such  as  Cognos,   Business   Objects,
                  MicroStrategy, Crystal Reports and Spotfire.

            o     Ad-Hoc Query and Analysis - Identify and document ad-hoc query
                  requirements,  architect a  supporting  database  structure to
                  support the identified hierarchies,  implement an ad-hoc query
                  tools, provide training and education.

            o     Enterprise   Reporting   Solutions  -  Identify  and  document
                  reporting   requirements,   architect  a  supporting  database
                  structure to support the identified hierarchies,  implement an
                  enterprise reporting tool, provide training and education.

            o     Online Analytical  Processing - Identify and document analytic
                  requirements,  architect a  supporting  database  structure to
                  support the identified hierarchies,  drill-downs and slice and
                  dice  requirements,   implement   analytical  tools,   provide
                  training and education.

            o     Analytics  and  Dashboards - Identify  and document  dashboard
                  requirements.  These  requirements are typically driven by Key
                  Performance  Indicators (KPIs) identified by upper management.
                  Architect  a  supporting  database  structure  to support  the
                  identified   hierarchies,   drill-downs  and  slice  and  dice
                  requirements, implement a dashboard tool, provide training and
                  education.

            o     Business Performance Management - Leveraging a new or existing
                  business  intelligence  implementation  to monitor  and manage
                  both business  process and IT events  through key  performance
                  indicators.

            o     Business  Intelligence  Competency Center - Set up an internal
                  office  at a client  location,  staffed  with a mix of  senior
                  business  intelligence  developers  and business  intelligence
                  architects  that  will  implement  best  practices,  policies,
                  procedures,  standards  and provide  training and mentoring to
                  further  increase the use of the data warehouse and facilitate
                  the business  owners  embracing  of the business  intelligence
                  solution.


                                       21


            o     Proof of Concepts and Prototypes - Gather requirements, design
                  and   implement   a   small   scale   business    intelligence
                  implementation called a Proof of Concept. The Proof of Concept
                  will validate the technology  and/or business case, as well as
                  "sell" the concept of business intelligence to management.

            o     Business  Intelligence  Strategy - Helping  clients  develop a
                  roadmap  to   leverage  a   business   intelligence   platform
                  throughout  the  enterprise  aligning  the  client  with  best
                  practices.

            o     Data  Mining -  Implementing  data mining  tools that  extract
                  implicit,   previously   unknown,   and   potentially   useful
                  information  from data.  These tools typically use statistical
                  and visualization techniques to discover and present knowledge
                  in a form which is easily  comprehensible to humans.  Business
                  intelligence  tools will answer questions based on information
                  that has already been  captured  (history),  data mining tools
                  will discover  information  and project  information  based on
                  historic information.

      DATA  WAREHOUSING:  A  consolidated  view of  enterprise  data,  making it
simpler and more  efficient to run queries over data that  originally  came from
different sources.

      o     Data Warehousing  Design,  Development and  Implementation - Design,
            development and  implementation of custom data warehouse  solutions.
            These solutions are based on our methodology and best practices.

      o     Departmental   Data   Warehousing   -   Design,    development   and
            implementation  of custom data mart  solutions.  Data mart solutions
            typically  encompass a subject area or department.  These  solutions
            are based on our methodology and best practices.

      o     Federated  Data  Warehousing - When  implementing  a federated  data
            warehouse environment,  multiple data warehouses will be implemented
            to support multiple  functions  within an  organization.  Functional
            analysis  will  then  be  performed  over  multiple  data  warehouse
            environments.

      o     Conforming  Facts/Dimensions  - Conformed  dimensions can be used to
            analyze  facts from two or more data  marts.  In a  multi-data  mart
            environment,  all data marts  require a "customer"  dimension  and a
            "time"  dimension.  If they  are the same  dimension,  then you have
            conforming dimensions,  allowing you to extract and manipulate facts
            relating to a particular customer from multiple marts.  Conforming a
            fact is  standardizing  the  definitions of terms across  individual
            data marts.  Often,  different divisions or departments use the same
            term in different  ways.  This process leads a client to "the single
            version of the truth".

      o     Proof of Concepts and Prototypes - Gather  requirements,  design and
            implement  a small  scale data  warehouse  that is called a Proof of
            Concept.  The Proof of Concept will validate the  technology  and/or
            business case, as well as "sell" the concept of data  warehousing to
            management.

      o     Data Mart  Delivery  - Design,  development  and  implementation  of
            custom data mart solutions.  Data mart solutions typically encompass
            a  subject  area or  department.  These  solutions  are based on our
            methodology and best practices.

      o     Outsourcing -  Implementing  and  supporting a client data warehouse
            solution at a CSI location.

      o     Extract,  Transformation  and Loading - We have  expertise  and best
            practices  integrating ETL tools with other data warehouse tools, as
            well as leveraging ETL tools for each specific engagement.

      o     Data  Warehouse  Framework  - A concept  that is  applied  to a data
            warehouse engagement whereby we will create an architecture document
            and best practices surrounding the integration of all tools utilized
            in a data warehouse implementation.


                                       22


      DATA  MANAGEMENT:  Innovative  solutions  for  moving  data  (information)
throughout an enterprise  (services include data conversions,  system migrations
and data warehousing).

      o     Data Quality  Center of Excellence - Set up an internal  office at a
            client  location,   staffed  with  a  mix  of  senior  data  quality
            developers  and data quality  architects  that will  implement  best
            practices, policies, procedures,  standards and provide training and
            mentoring to further  increase the level of data quality  throughout
            the  enterprise  and increase the awareness  and  importance of data
            quality as it pertains to decision making.

      o     Data   Profiling  -  An  automated   data   analysis   process  that
            significantly accelerates the data analysis process.

      o     Data  Quality/Cleansing  - Leveraging our best practices to identify
            data quality  concerns  and provide  rules to cleanse and purify the
            information.

      o     Data   Transformation   -  CSI  has  expertise  and  best  practices
            performing data  transformations.  The tools typically  include data
            profiling, ETL and data cleansing tools.

      o     Data   Migrations  and   Conversions  -  Design,   development   and
            implementation of custom data migrations.  These solutions are based
            on our methodology and best practices.

      o     Metadata Management - Based on our Data Warehouse Framework, we will
            build a metadata  repository  that is integrated with all tools used
            in a data  warehouse  implementation  and will be  leveraged  by the
            business intelligence environment.

      o     Enterprise  Information  Integration (EII) - Enterprise  Information
            Integration  tools are used to integrate  information by providing a
            logical view of data without moving any data.  This is  particularly
            useful when bridging a business  intelligence  tool to multiple data
            marts or data warehouses.

      o     Integration Management - Creating a roadmap to integrate information
            across  the  enterprise,  applications  or  business  functions  and
            implementing the roadmap.

      o     Enterprise  Information  Architecture - Leveraging our  Information,
            Process and Infrastructure  (IPI) Diagrams to create a "snapshot" of
            the  current  information  flow  and  desired   implementation  flow
            throughout the  enterprise.  The result is a strategic  roadmap with
            recommendations and statements of work.

      o     Quality Assurance Testing (Verification,  Validation, Certification)
            - We have  developed  a quality  assurance  process  referred  to as
            Verification,  Validation,  Certification (VVC) of information. This
            is a  repeatable  process  that will  insure  that all data has been
            validated to be accurate, consistent and trustworthy.

      o     Infrastructure Management and Support - An infrastructure must be in
            place to support any data warehouse or data  management  initiative.
            This may include servers,  cables,  disaster recovery or any process
            and procedure needed to support these types of initiatives.

      o     Application   Development  -  Custom   application   development  or
            integration   to  support   data   management   or  data   warehouse
            initiatives.  This may include  modification of existing  enterprise
            applications  to  capture  additional  information  required  in the
            warehouse or may be a standalone application developed to facilitate
            improved integration of existing information.


                                       23


      The following  illustrates  the  percentage  of revenues  provided by each
category of services as a percentage of overall revenues:



Category of Services                                   Percentage of Revenues for the year ended
                                                                     December 31,
                                                        2004                                2003
                                                        ----                                ----
                                                                                      
Strategic Consulting                                    34.1%                               17.3%
Business Intelligence                                   21.6%                               22.2%
Data Warehousing                                        15.9%                               14.8%
Data Management                                         22.7%                               45.7%
  Software                                               5.4%                                0.0%
    Other                                                0.3%                                0.0%


RECENT ACQUISITIONS

      We will also continue to pursue strategic acquisitions that strengthen our
ability to  compete  and extend  our  ability  to  provide  clients  with a core
comprehensive services offering.

      In November 2003, the Company executed an Independent Contractor Agreement
with Leading Edge Communications  Corporation (LEC),  whereby CSI agreed to be a
subcontractor for LEC, and to provide  consultants as required to LEC. In return
for  these  services,  CSI  receives  a fee from LEC based on the  hourly  rates
established for consultants subcontracted to LEC.

      In March 2004,  through our  subsidiary  DeLeeuw  Conversion LLC ("DeLeeuw
Sub"), we acquired DeLeeuw Associates, Inc. ("DeLeeuw Associates"), a management
consulting  firm in the  information  technology  sector with core competency in
delivering  Change  Management  Consulting,  including  both Six  Sigma and Lean
domain expertise to enhance service delivery,  with proven process methodologies
resulting  in time to market  improvements  within the  financial  services  and
banking  industries.  The acquisition (the "DeLeeuw  Acquisition") was completed
pursuant to an Acquisition  Agreement by and between CSI, DeLeeuw Associates and
Robert C. DeLeeuw (the "Acquisition Agreement").  In connection with the DeLeeuw
Acquisition,  we:  (i) paid Mr.  DeLeeuw,  as the sole  stockholder  of  DeLeeuw
Associates,  $1.9 million; and (ii) issued 80,000,000 shares of our common stock
to Mr.  DeLeeuw.  DeLeeuw Sub changed  its name to  "DeLeeuw  Associates,  LLC."
Please see Notes 1 and 3 of our Notes To Consolidated  Financial  Statements for
further discussion on this transaction.

      Integration of DeLeeuw's Change Management Consulting practices with CSI's
Data Warehousing and Business  Intelligence core competency "The Center for Data
Warehousing"  was completed in 2004. The Change  Management,  Six Sigma and Lean
methodology  have been  introduced  to our  clients  along  with our  innovative
Information,  Process and Infrastructure (IPI) Diagrams,  which provide detailed
blueprints of our client's information, business processes and infrastructure on
a single  highly  detailed  diagram.  These  diagrams  can be utilized  for risk
management, compliance, validation, planning and budgeting requirements. The IPI
diagram  offering,  launched in the first quarter of 2004,  continues to receive
favorable reaction from our clients. In addition, we expanded our Data Warehouse
Assessment,  Business Technology Alignment (BTA) and Quality Management Offering
(QMO)  related  offerings in 2004,  which will be the focus of our marketing and
communications   programs  for  2005.  A  QMO  offering  is  a  combination   of
methodologies,  best practices and automated  techniques  leveraged to establish
and enforce  standards and  procedures as it relates to elevating the quality of
executive  information  in an efficient  and effective  manner.  We believe that
these  offerings  will  drive  greater  understanding  and  demand for both data
warehousing  and  business  intelligence   implementations  by  delivering  best
practices methodologies, tools and techniques to reduce risk, time to market and
total cost of  ownership  of these  engagements.  One  component of our business
strategy is to continue to enhance and expand our  offerings  which include best
practices,   process   improvement,   methodologies,   advisory   services   and
implementation expertise.


                                       24


      In May 2004,  CSI  acquired  49% of all issued and  outstanding  shares of
common stock of LEC. The  acquisition  was  completed  through a Stock  Purchase
Agreement  between CSI and the sole  stockholder of LEC. In connection  with the
acquisition, CSI (i) repaid a bank loan on behalf of the seller in the amount of
$35,000;  (ii)  repaid an LEC bank  loan in the  amount  of  $38,000;  and (iii)
satisfied an LEC obligation for $10,000 of prior compensation to an employee.

      In  June  2004,   through  our  subsidiary   Evoke  Asset  Purchase  Corp.
("Acquisition  Sub"),  we acquired  substantially  all of the assets and assumed
substantially  all  of  the  liabilities  of  Evoke  Software   Corporation,   a
privately-held California corporation ("Evoke") which designs, develops, markets
and supports  software  programs for data analysis,  data profiling and database
migration applications and provides related support and consulting services. The
acquisition  (the  "Evoke  Acquisition")  was  completed  pursuant  to an  Asset
Purchase  Agreement  (the  "Asset  Purchase  Agreement")  by  and  between  CSI,
Acquisition  Sub and Evoke. In connection  with the Evoke  Acquisition,  we: (i)
issued 72,543,956  shares of our common stock to Evoke,  7,150,000 of which have
been  deposited  into an  escrow  account  for a  period  of one year and may be
reduced based upon claims for  indemnification  that may be made pursuant to the
Asset  Purchase  Agreement;   (ii)  issued  5%  of  the  outstanding  shares  of
Acquisition Sub to Evoke;  (iii) issued  3,919,093 shares of our common stock to
certain  executives of Evoke as a severance  payment and to certain employees as
retention  shares;  (iv) agreed to pay  approximately  $0.5  million in deferred
compensation  (approximately  $0.2  million to be paid over a seven month period
and the remainder to be paid over a twelve month period) to certain employees of
Evoke; and (v) assumed substantially all of Evoke's liabilities. Acquisition Sub
changed its name to "Evoke Software  Corporation"  and Evoke changed its name to
WHRT I Corp.  Before the  merger,  certain  investors  of Evoke  invested  $0.55
million in Evoke,  which investment was converted into  approximately  5,500,000
shares of our common stock upon effectuation of the merger.  Those approximately
5,500,000  shares issued to WHRT I Corp. are subject to a lock-up period after a
Registration  Statement on Form SB-2 is declared effective by the Securities and
Exchange Commission,  in which such shares shall be released and freely tradable
one month  following  the  effective  date of our  Registration  Statement.  The
remainder of the shares issued to WHRT I Corp.  are subject to a lock-up  period
after the Registration  Statement is effective as follows (the following assumes
the  Registration  Statement  has been declared  effective by the SEC):  (i) 60%
shall be released and freely tradable when a Registration  Statement is declared
effective (such Registration Statement is presently pending);  (ii) 20% shall be
released  and freely  tradable on July 1, 2005;  and (iii) 20% shall be released
and  freely  tradable  on  October  1,  2005.  Please see Note 3 of our Notes to
Consolidated Financial Statements for further discussion on this transaction.

      Evoke is managed and operated as a majority-owned  subsidiary company, but
its integration is limited to infrastructure and back office operations. CSI has
a  license  to use  Evoke  software  products  and has a  multi-year  record  of
leveraging the Evoke suite of products,  which will continue under a Value Added
Reseller and Systems  Integration  partnership.  The data analysis and profiling
technology developed and marketed by Evoke is receiving economic and development
assistance from CSI to enhance and extend the current technology platform.  As a
result,  Evoke  released a new  version  of Axio in  September  2004.  The major
emphasis will be on automating many of the project related tasks associated with
data proofing,  as well as the introduction of a workflow driving user interface
to reduce the learning curve and increase time to proficiency. Evoke is planning
to include data cleansing and operational  data quality  monitoring,  as well as
quality scorecard modules,  to the existing data quality platform.  The combined
expertise  and  synergy   between  CSI  and  Evoke  has  also  resulted  in  the
introduction of value based services  offerings.  These offerings include:  Best
Practices  Methodology,  Quality  Improvement  Programs  (QIP) and  Quick  Start
Services Programs to accelerate Return on Investment and knowledge transfer.


                                       25


      We believe that as new  opportunities  are created,  Global 2000 companies
will  continue the trend of expanding  the  utilization  of external  consulting
expertise  to support  corporate  initiatives  focused on  maximizing  Return On
Investment  (ROI),   leveraging   existing  technology   infrastructure   though
optimizations  and best practices and will continue to leverage and derive value
from  corporate   information   assets  such  as  data   warehousing,   business
intelligence  and  analytics.  We believe that we are  positioned  to expand our
client base by delivering  business value  resulting from our 15 years of domain
expertise, proven best practices, methodologies, processes and automation within
data warehousing architecture and implementation. Our ability to apply Six Sigma
and Lean core  competency  to client  processes  and  implementation  strategies
further strengthens our competitive standing.  CSI, with the assistance of Evoke
Axio, is well  positioned to support the  increasing  industry  emphasis on data
quality  and the use of  automation  to reduce  the costs  associated  with data
warehouse and business intelligence  projects,  data migrations and conversions,
as well as packaged  application  implementations  such as  Enterprise  Resource
Planning  (ERP),  Customer  Relationship   Management  (CRM)  and  Supply  Chain
Management  (SCM) by leveraging the automation and validation  gained by the use
of data profiling technology.

RECENT FINANCINGS

      In  May  2004,  pursuant  to the  complete  conversion  of a $2.0  million
unsecured  convertible  line of credit note issued in October  2003 at $0.12 per
share,  Taurus Advisory Group, LLC ("Taurus")  received 16,666,666 shares of our
common stock, plus interest paid in cash. Because we failed to perform a private
investment in public equity  transaction  by September 1, 2004,  the  conversion
price on the  October  2003 note was  adjusted  to a fixed  conversion  price of
$0.105 per share, and 2,380,953 additional shares of common stock were issued to
Taurus. No additional proceeds were received by us. In addition, Taurus received
a warrant  to  purchase  4,166,666  shares  of our  common  stock,  which has an
exercise price of $0.105 per share.  This warrant expires in June 2009.  Further
in May 2004,  we raised an additional  $2.0 million  pursuant to a new five-year
unsecured  promissory  note with Taurus.  In June 2004, we replaced the May 2004
note by issuing a five-year $2.0 million  unsecured  convertible  line of credit
note with  Taurus.  The note  accrues  interest at an annual rate of 7%, and the
conversion  price of the shares of common stock issuable under the note is equal
to $0.105 per share.

      In August  2004,  we replaced  our $3.0  million line of credit with North
Fork  Bank with a  revolving  line of  credit  with  Laurus  Master  Fund,  Ltd.
("Laurus"),  whereby  we have  access to borrow up to $6.0  million  based  upon
eligible accounts receivable. A portion of Laurus's revolving line of credit was
used to pay off all outstanding  borrowings from North Fork Bank. This revolving
line,  effectuated through a $2.0 million convertible minimum borrowing note and
a $4.0 million  revolving note,  provides for advances at an advance rate of 90%
against eligible accounts receivable, with an annual interest rate of prime rate
(as reported in the Wall Street Journal) plus 1%, and matures in three years. We
have  no  obligation  to  meet  financial   covenants  under  the  $2.0  million
convertible  minimum  borrowing  note or the $4.0 million  revolving  note.  The
interest rate on these notes will be decreased by 1.0% for every 25% increase in
our  stock  price  above  the  fixed  conversion  price  prior  to an  effective
registration statement and 2.0% thereafter up to a minimum of 0.0%. This line of
credit is secured  by  substantially  all the  corporate  assets.  Both the $2.0
million  convertible  minimum borrowing note and the $4.0 million revolving note
provide for  conversion  at the option of the holder of the amounts  outstanding
into our common  stock at a fixed  conversion  price of $0.14 per share.  In the
event that we issue  common  stock or  derivatives  convertible  into our common
stock for a price less than the aforementioned  fixed conversion price, then the
fixed conversion price is reset using a weighted average dilution calculation.


                                       26


      Additionally,  in exchange  for a secured  convertible  term note  bearing
interest at prime rate (as reported in the Wall Street  Journal) plus 1%, Laurus
has made available to us an additional $5.0 million to be used for acquisitions.
We have no obligation to meet financial covenants under the $5.0 million secured
convertible term note. This note is convertible into our common stock at a fixed
conversion  price of $0.14 per share. In the event that we issue common stock or
derivatives  convertible  into our common  stock for a price less than the fixed
conversion price, then the fixed conversion price is reset to the lower price on
a  full-ratchet  basis.  This note matures in three years.  The proceeds of this
loan are restricted for use for approved  acquisition  targets  identified by us
that are approved by Laurus.  We issued Laurus a common stock  purchase  warrant
that  provides  Laurus with the right to  purchase  12.0  million  shares of our
common stock. The exercise price for the first 6.0 million shares acquired under
the  warrant is $0.29 per share,  the  exercise  price for the next 3.0  million
shares acquired under the warrant is $0.31 per share, and the exercise price for
the final 3.0 million shares acquired under the warrant is $0.35 per share.  The
common stock purchase  warrant expires on August 15, 2011. We paid $0.75 million
in brokerage and transaction  closing  related costs.  These costs were deducted
from the $5.0 million restricted cash balance being provided to us by Laurus. As
a result of the beneficial conversion feature, a discount on debt issued of $5.6
million was recorded and is being  amortized to interest  expense over the three
year life of the debt agreement. An early termination fee is due to Laurus in an
amount  equal  to five  percent  (5%) of the  total  investment  amount  if such
termination  occurs prior to the first anniversary of the closing,  four percent
(4%) if such  termination  occurs after the first  anniversary  but prior to the
second anniversary, and three percent (3%) if after the second anniversary.

      The fair value of the 12.0  million  warrants  was  determined  to be $2.0
million using the  Black-Scholes  option pricing model.  The assumptions used in
the fair value  calculation  were as follows:  stock  prices of $0.21,  exercise
prices  of  $0.29,  $0.31  and  $0.35  (as  applicable),  term of  seven  years,
volatility (annual) of 150.65%, annual rate of quarterly dividends of 0%, a risk
free rate of 1.33%, and the fair value per share of the warrants was accordingly
calculated  to be $0.20.  The Company will  amortize this relative fair value of
the warrants to interest expense over the three-year life of the debt agreement.

      Under the Laurus  agreement,  the Company was obligated to ensure that the
shares  provided for issuance  under the agreement  were properly  registered by
December 19, 2004. As a result of the Company's Registration Statement not being
declared  effective  prior to this date,  the  Company is  incurring  liquidated
damages to Laurus in an amount equal to 1% for each thirty day period  (prorated
for partial  periods) on a daily basis of the sum of (x) the original  aggregate
principal amount of the term note plus (y) the original principal amount of each
applicable  minimum borrowing note. While such event continues,  such liquidated
damages  shall be paid  not  less  often  than  each  thirty  days.  Any  unpaid
liquidated  damages as of the date when an event has been  cured by the  Company
shall be paid within three days  following the date on which such event has been
cured by the Company. As a result, the Company has recorded a charge in December
2004 for approximately $44,000.

      In September 2004, we issued to Sands Brothers  Venture Capital LLC, Sands
Brothers  Venture  Capital  III LLC and Sands  Brothers  Venture  Capital IV LLC
(collectively,  "Sands") three subordinated secured convertible promissory notes
equaling  $1.0 million (the  "Notes"),  each with an annual  interest rate of 8%
expiring  September  22,  2005.  The  Notes are  secured  by  substantially  all
corporate assets,  subordinate to Laurus.  The Notes are convertible into shares
of our  common  stock  at the  election  of  Sands  at any  time  following  the
consummation  of a convertible  debt or equity  financing with gross proceeds of
$5.0 million or greater (a "Qualified  Financing").  The conversion price of the
shares of our common stock issuable upon  conversion of the Notes shall be equal
to a price per share of common stock equal to forty  percent  (40%) of the price
of the  securities  issued  pursuant to a Qualified  Financing.  If no Qualified
Offering has been  consummated  by  September  8, 2005,  then Sands may elect to
convert the Notes at a fixed  conversion  price of $0.14 per share. In the event
that we issue stock or derivatives  convertible  into our stock for a price less
than the aforementioned  fixed conversion price, then the fixed conversion price
is reset using a weighted  average  dilution  calculation.  We also issued Sands
three common stock purchase  warrants (the "Warrants")  providing Sands with the
right to purchase 6.0 million shares of our common stock.  The exercise price of
the shares of our common stock  issuable upon exercise of the Warrants  shall be
equal to a price per share of common stock equal to forty  percent  (40%) of the
price  of  the  securities  issued  pursuant  to a  Qualified  Financing.  If no
Qualified  Offering has been  consummated  by September 8, 2005,  then Sands may
elect to exercise the Warrants at a fixed  conversion  price of $0.14 per share.
The latest  that the  Warrants  may expire is  September  8, 2008.  Finally,  we
engaged Sands  Brothers  International  Limited as our  non-exclusive  financial
advisor at $6,000 per month for a period of one year.


                                       27


      On November  8, 2004,  we entered  into a Stock  Purchase  Agreement  (the
"Agreement")  with  a  private  investor,   CMKX-treme,  Inc.  Pursuant  to  the
Agreement,  CMKX-treme,  Inc.  agreed to purchase 12.5 million  shares of common
stock for a purchase price of $1.75  million.  Under the terms of the Agreement,
CMKX-treme,  Inc. initially  purchased 3,571,428 shares of common stock for $0.5
million,  and it was  required to purchase  the  remaining  8,928,572  shares of
Common  Stock for $1.25  million by December  31,  2004.  As of March 17,  2005,
CMKX-treme, Inc. remitted final payment for the remaining 8,928,572 shares.

CLIENTS

      For 15 years, we have helped our clients develop  strategies and implement
technology solutions to help them leverage corporate information.

      Our clients  are  primarily  in the  financial  services,  pharmaceutical,
healthcare and  telecommunications  industries and are primarily  located in the
northeastern United States.  During the year ended December 31, 2004, two of our
clients, Leading Edge Communications  Corporation,  a related party, (15.2%) and
Bank of America (15.9%),  accounted  collectively for approximately 31% of total
revenues.  For the year ended  December  31, 2003,  two of our  clients,  Morgan
Stanley  (11.2%)  and  Verizon  Wireless  (29.2%),  accounted  collectively  for
approximately 41% of our total revenues. As we continue to pursue and consummate
acquisitions,  our dependence on these customers should be less significant.  We
do not have long-term contracts with any of these customers.  The loss of any of
our largest  customers could have a material adverse effect on our business.  We
have not had any collections problems with any of these customers to date.

MARKETING

      We  currently  market our services  through our director of marketing  and
corporate  communications,  public relations firm, and our sales force comprised
of 10 employees,  and we also receive new business through client referrals.  We
are using the public relations firm in order to expand our brand awareness,  and
are  further  engaging,  or expect to engage,  in the  following  sales  related
programs and activities:

      o     Web Site Promotion:  Our website  (www.csiwhq.com) has recently been
            reformatted  to  reflect  our  vision  and  business  plan.  We  are
            currently  promoting our website  through  various  internet  search
            engines.

      o     Trade Show  Participation:  We expect  that  exposure in trade shows
            should further solidify our position in our industry.  In the proper
            setting,  the trade  show can be  viewed  as a mobile  mini-showroom
            concept  to  demonstrate  our  services.   There  are  a  number  of
            significant  trade  show  events  within our  target  industry  that
            provide  significant  exposure  to  prospective  customers  in major
            metropolitan  markets,  media and press  exposure and  collaborative
            networking with technology partners. As with most trade show events,
            the higher level of sponsorship,  the greater  exposure and benefits
            received,  such as the location of our booth, banner and advertising
            space.  We  participated  as a Gold Level  Sponsor  for the  Digital
            Consulting   Institute   (DCI)  Customer   Relationship   Management
            Conference and  Technology  Showcase in New York in May 2004, and we
            participated  as Gold Level Sponsor for DCI's Business  Intelligence
            and Data Warehouse Conference in Boston in September 2004.


                                       28


      o     Seminars  with Vendors:  We expect that joint  seminars with leading
            software   vendors   should  also   stimulate   new  business   lead
            generations.  We also expect to enhance our perception as experts in
            individual product areas.

      o     Vendor  Relations:   We  are  continually   identifying  key  vendor
            relationships.  With the ability to leverage our 15 year history, we
            intend  to  continue  to  forge  and  maintain   relationships  with
            technical,  service and industry  vendors.  We have  solidified  and
            continue to develop strategic  relationships with technology vendors
            in the data  warehousing  and  business  intelligence  arena.  These
            relationships  designate our status as a systems  integration and/or
            reseller which authorizes us to provide  consulting  services and to
            resell select vendor software.  We employ  certified  consultants in
            our vendor  partner  technology  platforms.  We  currently  maintain
            relationships with the following:

            DATABASE VENDORS:

            IBM-        We are an Indirect Passport  Advantage  Reseller Partner
                        which  enables us to resell IBM  software  products.  We
                        also employ  consulting  staff  trained and certified in
                        IBM technology.

            ORACLE-     We are part of the  Oracle  Partner  Program  (OPP) as a
                        Certified   Solution  Provider  (CSP).  We  also  employ
                        certified  Oracle   professionals  and  our  partnership
                        allows  us  to  utilize  Oracle  support   channels  for
                        technical advisement.

            MICROSOFT-  We  are a  Microsoft  Certified  Solution  Provider.  We
                        maintain  the  required  number of  Microsoft  certified
                        professionals to hold this designation.

            SYBASE-     We  have a  Systems  Integration  Agreement  and  employ
                        professionals trained in the vendor's technology.

            BUSINESS INTELLIGENCE VENDORS:

            BUSINESS
            OBJECTS-    We are a Systems  Integration and Reseller  Partner.  We
                        employ and  maintain a staff of  professionals  that are
                        certified in the vendor's  technology.  In addition,  we
                        are a Certified Onsite Education  Partner,  which allows
                        us to directly  market and provide a certified  training
                        partner,  which  enables us to provide  onsite  training
                        classes in the respective vendor technology.

            COGNOS-     We are a Systems  Integration and Reseller  Partner.  We
                        employ and  maintain a staff of  professionals  that are
                        certified in the vendor's technology.

         MICROSTRATEGY- We are a Systems Integration and Reseller Partner. We
                        employ and  maintain a staff of  professionals  that are
                        certified in the vendor's technology.

            SPOTFIRE-   We are a Systems  Integration and Reseller  Partner.  We
                        employ and  maintain a staff of  professionals  that are
                        certified in the vendor's technology.


                                       29


           DATA WAREHOUSING VENDORS:

           INFORMATICA- We are a Systems  Integration and Reseller  Partner.  We
                        employ and  maintain a staff of  professionals  that are
                        certified in the vendor's technology.

            ASCENTIAL
            SOFTWARE-   We are a Systems  Integration and Reseller  Partner.  We
                        employ and  maintain a staff of  professionals  that are
                        certified in the vendor's technology.

            COMPUTER
            ASSOCIATES  We are an  affiliate  partner.  We employ and maintain a
                        staff  of  professionals   that  are  certified  in  the
                        vendor's technology.

            SIMILARITY
            SYSTEMS-    We are a Systems  Integration and Reseller  Partner.  We
                        employ and  maintain a staff of  professionals  that are
                        certified in the vendor's technology. In addition, Evoke
                        Software,  our majority owned subsidiary,  is a Reseller
                        for  Similarity  Systems  and  Similarity  Systems  is a
                        reseller of Evoke Axio.

      o     Expanded Direct Sales  Activities:  We are continually  updating our
            campaign for our sales personnel that will include lead  generation,
            cross selling and  up-selling.  We conduct direct sales  activities,
            such as cold call, networking and attending partnership functions to
            generate  leads for direct sales  opportunities.  We have  developed
            marketing campaigns, both in collaboration as well as independently,
            such as  email  blasts,  seminars  and  direct  mail  campaigns.  In
            addition,  we have  developed  a number  of best  practices  service
            offerings which  encompass  selection,  deployment,  implementation,
            maintenance  and knowledge  transfer.  In some cases,  these service
            offerings  include  methodologies and best practices for integrating
            several vendor technology  platforms  resulting in cross selling and
            up  selling  opportunities  when  applicable.   We  maintain  vendor
            independence  by  consistently  evaluating  the  respective  vendors
            technology in our lab located at our  headquarters  in East Hanover,
            New Jersey. We regularly attend vendor partnership events, including
            partner  summits  and  user  group  meetings,   in  support  of  our
            partnership programs.

PROTECTION AGAINST DISCLOSURE OF CLIENT INFORMATION

      As our core business relates to the storage and use of client information,
which is often  confidential,  we have  implemented  policies to prevent  client
information   from   being   disclosed   to   unauthorized   parties   or   used
inappropriately.  Our employee  handbook,  of which every employee  receives and
acknowledges,  mandates that it is strictly prohibited for employees to disclose
client  information  to  third  parties.  Our  handbook  further  mandates  that
disciplinary  action be taken against  those who violate such policy,  including
possible  termination.  Our outside consultants sign  non-disclosure  agreements
prohibiting  disclosure  of client  information  to third  parties,  among other
things, and we perform background checks on employees and outside consultants.

INTELLECTUAL PROPERTY

      Our trademark registration applications for the marks "TECH SMART BUSINESS
WISE",  "QUALITY  MANAGEMENT  OFFICE",  "QMO",  DQXPRESS AND DQROI are presently
pending before the United States Patent and Trademark Office.  Further,  we have
over 30 domestic and foreign trademarks  relating to Evoke Software  Corporation
and  its  products.  We  use  non-disclosure   agreements  with  our  employees,
independent  contractors and clients to protect information which we believe are
proprietary or constitute trade secrets.


                                       30


COMPETITION

      To our  knowledge,  there are no  publicly-traded  competitors  that focus
solely on data  warehousing and business  intelligence  consulting and strategy.
However, we have numerous competitors in the general marketplace, including data
warehouse  and  business  intelligence  practices  within  large  international,
national and regional  consulting and  implementation  firms, as well as smaller
boutique technology firms. Many of our competitors are large companies that have
substantially  greater  market  presence,   longer  operating  histories,   more
significant  client bases,  and  financial,  technical,  facilities,  marketing,
capital and other  resources than we have. We believe that we compete with these
firms on the basis of the  quality  of our  services,  industry  reputation  and
price. We believe our competitors include firms such as:

      o     Accenture

      o     Cap Gemini Ernst & Young

      o     IBM Global Services

      o     Keane

      o     Bearing Point

      o     Answerthink

EMPLOYEES


      As of December 31, 2004, we had 39 outside consultants, 105 consultants on
the payroll and 66  non-consultant  employees.  Outside  consultants are not our
employees,  and as such, do not receive  benefits or have taxes withheld.  These
consultants  are  members  or  employees  of  separate  corporations,  they  are
responsible  for providing us with a current  certificate  of insurance and they
are  responsible  for  filing  and  payment  of their  own  taxes.  We  maintain
relationships   with  these  consultants  and  their  status  is  updated  in  a
proprietary data base application that we have built. Consultants on the payroll
are our full time employees who are  consultants.  Such consultants are billable
to clients,  and they receive full benefits and have taxes  withheld  similar to
other employees.


      None of our  employees  are  represented  by a labor union or subject to a
collective bargaining  agreement.  We have never experienced a work stoppage and
we believe that our relations with employees are good.


                                       31


PROPERTY

      The Company's corporate headquarters are located at 100 Eagle Rock Avenue,
East  Hanover,  New Jersey  07936,  where it  operates  under an  amended  lease
agreement  expiring  December  31,  2010.  In addition to minimum  rentals,  the
Company is liable for its proportionate share of real estate taxes and operating
expenses,  as  defined.  DeLeeuw  Associates,  LLC has an office at Suite  1460,
Charlotte  Plaza,  201 South College  Street,  Charlotte,  North Carolina 28244.
DeLeeuw  leases this space which has a stated  expiration  date of December  31,
2005.

      Evoke leases  offices in the following  locations:  Riata  Corporate  Park
Building VII,  12357-III Riata Trace Parkway,  Austin,  Texas; 1900 13th Street,
Boulder,  Colorado;  and Am Soldnermoos 17, D-85399  Hallbergmoos,  Germany. The
expiration  dates  for  these  leases  are July  2006,  July  2006 and May 2005,
respectively.

      Rent expense totaled  approximately  $0.6 million and $0.3 million in 2004
and 2003, respectively.  The Company is committed under several operating leases
for automobiles that expire during 2007.

      See Note 18 to the Notes to Consolidated Financial Statements.

LEGAL PROCEEDINGS


      On June 29, 2004,  Viant  Capital LLC commenced  legal action  against the
Company in the United  States  District  Court for the Southern  District of New
York.  Through an agreement with Viant,  Viant had the exclusive right to obtain
private equity transactions on behalf of the Company from February 18 to May 17,
2004. Viant alleges that it is owed a fee of approximately  $450,000 relating to
the Company's loan from a private investor in May 2004. Management believes that
this loan does not  qualify as a private  equity  transaction  and it intends to
vigorously defend the Company. As of April 19, 2005, there have been no material
developments in the suit. The Company has estimated the probable loss related to
this suit to be the agreed upon contract signing fee of $75,000 and has recorded
a liability for this amount.



                                       32


MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

OVERVIEW OF OUR BUSINESS

      Management's   Discussion  and  Analysis  contains   statements  that  are
forward-looking.   These  statements  are  based  on  current  expectations  and
assumptions  that are subject to risks and  uncertainties.  Actual results could
differ  materially  because of factors discussed in "Risk Factors" and elsewhere
in this report.  The Company  undertakes  no duty to update any  forward-looking
statement to conform the statement to actual results or changes in the Company's
expectations.

      Conversion Services International,  Inc. provides professional services to
the  Global  2000  as  well  as  mid-market   clientele  relating  to  strategic
consulting, data warehousing,  business intelligence and data management and, as
a result of its acquisition of Evoke Software Corporation,  the sale of software
which is used to survey and  quantify  the quality of data.  This  software is a
tool  that is used to  identify  problems  with  company  data  prior  to  being
transferred  into a data  warehouse.  The Company's  services  based clients are
primarily   in  the   financial   services,   pharmaceutical,   healthcare   and
telecommunications  industries,  although it has clients in other  industries as
well. The Company's  clients are primarily  located in the  northeastern  United
States.  The Company  delivers value to its clients,  utilizing a combination of
business  acumen,  technical  proficiency,  experience and a proven set of "best
practices"  methodologies  to deliver cost  effective  services.  The Company is
committed  to being a  leader  in data  warehousing  and  business  intelligence
consulting,  enabling  it to be a  valuable  asset and  trusted  advisor  to its
customers.  See Item 1 - Business  for a full  description  of our  services and
offerings.

      The Company began operations in 1990. Its services were originally focused
on e-business  solutions and data  warehousing.  In the late 1990s,  the Company
strategically   repositioned  itself  to  capitalize  on  its  data  warehousing
expertise in the fast growing business intelligence/data  warehousing space. The
Company became a public company via its merger with a wholly owned subsidiary of
LCS Group, Inc., effective January 30, 2004.

      The  Company's  core  strategy   includes   capitalizing  on  the  already
established in-house business intelligence/data  warehousing ("BI/DW") technical
expertise  and its seasoned  sales force.  This is expected to result in organic
growth through the addition of new customers.  In addition, this foundation will
be leveraged as the Company pursues targeted strategic acquisitions.

      Revenues for the Company are categorized by strategic consulting, business
intelligence, data warehousing, data management and software. They are reflected
in the chart below as a percentage of overall revenues:



      Category of Services                                   Percentage of Revenues for the year ended
                                                                           December 31,
                                                              2004                                2003
                                                              ----                                ----
                                                                                            
      Strategic Consulting                                    34.1%                               17.3%
      Business Intelligence                                   21.6%                               22.2%
      Data Warehousing                                        15.9%                               14.8%
      Data Management                                         22.7%                               45.7%
      Software                                                 5.4%                                0.0%
      Other                                                    0.3%                                0.0%



                                       33


      Strategic  consulting  revenues  increased  from  17.3%  to 34.1% of total
revenues for the years ended December 31, 2003 and 2004,  respectively.  This is
primarily  attributable  to the $5.4 million,  or 62.8% of strategic  consulting
revenues,  derived from DeLeeuw  Associates which was acquired by the Company in
March 2004.  Excluding DeLeeuw  Associates,  strategic  consulting revenues as a
percent of total  revenue for the year ended  December  31,  2004 were 16.1%,  a
decrease  of 4.1% from the 17.3% in the  comparable  prior year  period.  During
2004, the Company  obtained new business and increased  existing client business
in this segment by 1.2% of total 2004 revenues,  however, due to the acquisition
of a new software  business  segment in 2004 which  resulted in a larger revenue
base  attributable  to  a  new  business  segment,  the  overall  percentage  of
comparable  year-to-year  revenues  (excluding  the 2004  impact of the  DeLeeuw
Associates acquisition) declined.

      Business  intelligence  services revenues were 21.6% of total revenues for
the year ended  December 31, 2004,  declining by 0.6% of revenues as compared to
22.2% for the  comparable  prior  year  period.  While the  percentage  of total
revenues attributable to this category declined in 2004 as compared to the prior
year,  the decline is primarily  due to the  acquisition  of DeLeeuw  Associates
which  substantially  increased  revenues in the  strategic  consulting  line of
business and the acquisition of Evoke which increased the Company's  revenues in
the software line of business.  On an absolute  dollar  basis,  revenues in this
category of $5.4 million for the year ended  December 31, 2004 increased by $2.2
million, or 68.8%, from $3.2 million for the year ended December 31, 2003.

      Data warehousing revenues represented 15.9% of total revenues for the year
ended December 31, 2004, increasing by 1.1% of total revenues from 14.8% for the
year  ended   December  31,  2003.   While  the  percentage  of  total  revenues
attributable to this category remained constant in 2004 as compared to the prior
year,  this is primarily  due to the  acquisition  of DeLeeuw  Associates  which
substantially  increased  revenues in the strategic  consulting line of business
and the  acquisition  of Evoke which  increased  the  Company's  revenues in the
software line of business.  On an absolute  dollar basis,  however,  revenues in
this category of $4.0 million for the year ended  December 31, 2004 increased by
$1.8 million, or 81.8%, from $2.2 million for the year ended December 31, 2003.

      Data  management  revenues  decreased as a percentage of total revenues by
23.0% of revenues,  from 45.7% for the year ended December 31, 2003 to 22.7% for
the year  ended  December  31,  2004.  While the  percentage  of total  revenues
attributable  to this  category  declined in 2004 as compared to the prior year,
15.4% of the  decline  is due to the  acquisition  of DeLeeuw  Associates  which
substantially  increased  revenues in the strategic  consulting line of business
and the  acquisition  of Evoke which  increased  the  Company's  revenues in the
software  line of business  and 5.4% of the decline is due to a shift in the mix
of the  Company's  business  from the data  management  line of  business to the
strategic  consulting,  business  intelligence  and  data  warehousing  lines of
business in 2004. In absolute dollars, 2004 revenues in the data management line
of business of $5.7  million,  decreased by $0.9  million,  or 13.6%,  from $6.6
million for the year ended December 31, 2003.

      Software revenues increased from zero for the year ended December 31, 2003
to 5.4% of revenues for the year ended December 31, 2004.  This is  attributable
to revenues from Evoke Software which was acquired by the Company in June 2004.

      The Company derives a majority of its revenue from  professional  services
engagements.  Its  revenue  depends on the  Company's  ability to  generate  new
business,  in addition to preserving  present  client  engagements.  The general
domestic economic  conditions in the industries the Company serves,  the pace of
technological change, and the business requirements and practices of its clients
and potential  clients directly affect this. When economic  conditions  decline,
companies  generally  decrease their technology budgets and reduce the amount of
spending  on the type of  information  technology  (IT)  consulting  the Company
provides. The Company's revenue is also impacted by the rate per hour it is able
to charge for its services  and by the size and  chargeability,  or  utilization
rate, of its  professional  workforce.  During  periods of economic  decline and
reduced client  spending,  competition  for new  engagements  increases,  and it
becomes more  difficult to maintain  its billing  rates and sustain  appropriate
utilization  rates.  If the Company is unable to maintain  its billing  rates or
sustain  appropriate  utilization  rates  for  its  professionals,  its  overall
profitability  may  decline.  The Company is beginning  to see  improvements  in
economic conditions, which have recently led to increased spending on consulting
services in certain vertical markets, particularly in financial services.


                                       34


      Although  the Company is  beginning  to  experience  the  benefits of some
positive economic  indicators,  it continues to experience  pricing pressures as
competition for new engagements  remains strong and as movements  toward the use
of lower-cost  service delivery  personnel continue to grow within its industry.
Despite  strong  pricing  pressures,  the Company has improved its  consolidated
billing  rates in 2004 when compared to the prior year.  The  Company's  growing
national  presence and experienced,  highly skilled workforce have enabled it to
successfully  differentiate  its  value  and  capabilities  from  those  of  its
competitors,   in  effect,  lessening  the  impact  of  current  market  pricing
pressures.

      As  the  Company  continues  to  see  increases  in  client  spending  and
improvements in economic  conditions,  it will continue to focus on a variety of
growth  initiatives  in order to improve its market share and increase  revenue.
Moreover,  as the Company achieves top line growth, the Company will concentrate
its efforts on improving  margins and driving  earnings to the bottom line.  The
Company intends to improve  margins by limiting its use of outside  consultants,
complementing  its service  offerings  with higher level  management  consulting
opportunities,  continuously  evaluating  the size of its  workforce in order to
balance the Company's skill base with the market demand for services.

      In addition to the  conditions  described  above for growing the Company's
current business, the Company will continue to grow through acquisition.  One of
the Company's  objectives is to make acquisitions of companies offering services
complementary  to the Company's  lines of business will accelerate the Company's
business plan at lower costs than it would generate  internally and also improve
its  competitive  positioning  and expand the  Company's  offerings  in a larger
geographic  area.  The service  industry is very  fragmented,  with a handful of
large international  firms having data warehousing and/or business  intelligence
divisions,  and hundreds of regional  boutiques  throughout  the United  States.
These  smaller  firms do not  have  the  financial  wherewithal  to scale  their
businesses or compete with the larger players, and the Company believes that the
service  industry  as a whole is  ready  for  consolidation.  The  Company  will
continue to aggressively  pursue these firms,  adding new geographies,  areas of
expertise and verticals to its current business.  These acquisitions will likely
be consummated  with a combination  of cash and stock.  Although the Company has
approximately  $4.3 million to fund  acquisitions via its financing  transaction
with Laurus Master Fund, Ltd., some of these  acquisitions may hinge upon future
financings.

      During the fiscal  year ended  December  31,  2004,  two of the  Company's
clients, Leading Edge Communications  Corporation,  a related party, (15.2%) and
Bank of America (15.9%),  accounted for approximately 31% of total revenues. For
the year ended December 31, 2003, two of our clients, Morgan Stanley (11.2%) and
Verizon Wireless  (29.2%),  accounted  collectively for approximately 41% of our
total revenues.

      The Company's most significant costs are personnel expenses, which consist
of consultant fees, benefits and payroll-related expenses.


                                       35


      RESULTS OF OPERATIONS

      The following  table sets forth  selected  financial  data for the periods
indicated:



                                  Selected Statement of Operations Data for the Years
                                                   Ended December 31,
                                  ----------------------------------------------------
                                             2004                              2003
                                  ----------------------------------------------------
                                                                  
Net sales                            $ 25,166,517                       $14,366,456
Gross profit                            6,152,992                         4,100,648
Net loss                              (32,861,194)                         (306,763)
Net loss per share:
   Basic                             $      (0.05)                      $     (0.00)
   Diluted                           $      (0.05)                      $     (0.00)




                                   Selected Statement of Financial Position Data for
                                              the Years Ended December 31,
                                  ----------------------------------------------------
                                             2004
                                  ---------------------------
                                  
Working capital                      $ (2,996,682)
Total assets                           27,305,321
Long-term debt                          5,181,369
Total stockholders' equity             12,444,374


YEARS ENDED DECEMBER 31, 2004 AND 2003

      REVENUE

      The Company's revenues are primarily  comprised of billings to clients for
consulting hours worked on client projects. Revenues for the year ended December
31,  2004 were $25.2  million,  an  increase of $10.8  million,  or 75.2%,  over
revenues of $14.4 million for the year ended December 31, 2003.

      SERVICES

      Revenues  from  services  for the year ended  December 31, 2004 were $19.9
million,  an increase of $5.9 million,  or 42.0%, over revenues of $14.0 million
for the year ended  December 31, 2003.  $5.4 million,  or 27.1% of 2004 services
revenues relates to revenues derived from DeLeeuw  Associates which was acquired
by the Company in March 2004.  The  remaining  $0.5  million of  increased  2004
revenue as  compared  to the prior year  relates to an  increase  in the average
billing rates coupled with a reduction in hours billed. The Company  experienced
a 15.9%  increase in the average  billing  rate in 2004 as compared to the prior
year, exclusive of the impact of the DeLeeuw Associates  acquisition.  This is a
direct result of the increased revenues in the strategic consulting and business
intelligence segments, both of which command higher billing rates than the other
segments.   Hours  billed  for  time  and  material  based  work  in  2004  were
approximately  16.2% less than hours  billed in 2003.  This decline is partially
due to resources  that were utilized on a substantial  fixed-price  project that
was undertaken by the Company during 2004. Additionally, the Company experienced
some attrition in the consulting  workforce  coupled with increased  nonbillable
time due to gaps in the completion of ongoing assignments versus the start dates
of new assignments.

      RELATED PARTY SERVICES

      Revenues  from related  parties for the year ended  December 31, 2004 were
$3.8 million,  an increase of $3.4 million over revenues of $0.4 million for the
year ended  December 31, 2003.  The increase in 2004 results from a full year of
invoicing  to LEC during  2004,  versus six weeks in the prior  year,  under the
independent  contractor  agreement  executed  by the Company and LEC in November
2003.  Additionally,  the  average  billing  rate  increased  by 7.6% in 2004 as
compared  to 2003  which is  primarily  due to the  hiring of six  higher  level
consultants for a project obtained by this related party.


                                       36


      SOFTWARE

      Software   revenues  are  derived  from  the  sale  of  software  licenses
pertaining to the licensing of our Evoke Axio data profiling software. Evoke was
acquired  by the  Company in June 2004 and,  as a result,  the  Company has only
included  revenues for the second half of 2004.  Revenues  from software for the
year ended  December 31, 2004 were $0.3 million as compared to zero in the prior
year.  During 2004, the Company deferred  approximately  $0.3 million of license
revenue that is being  recognized  over the life of the support and  maintenance
agreements.

      SUPPORT AND MAINTENANCE

      Revenues from support and maintenance for the year ended December 31, 2004
were $1.1  million as  compared  to zero in the prior  year.  This  increase  in
revenues is  attributable  to revenues  derived  from Evoke  Software  which was
acquired by the Company in June 2004.

      COST OF REVENUE

      Cost of revenue  primarily  includes  payroll and  benefits  costs for the
Company's  consultants  as well as the cost of software that is sold or licensed
by the company.  Cost of revenue was $19.0 million,  or 75.6% of revenue for the
year ended December 31, 2004, compared to $10.3 million, or 71.5% of revenue for
the year ended December 31, 2003.

      SERVICES

      Cost of revenue  for  services  was $15.5  million,  or 77.7% of  services
revenue for the year ended  December 31,  2004,  compared to $10.0  million,  or
71.2% of services  revenue for the year ended December 31, 2003. Cost of revenue
for DeLeeuw Associates,  which was acquired by the Company on March 4, 2004, for
the period March 4, 2004 through  December 31, 2004 were $3.7 million,  or 18.6%
of  services  revenues.  Additionally,  during  2004,  the  Company  recorded  a
stock-based  compensation  charge of $1.4 million, or 7.0% of services revenues,
to  cost of  services  revenues.  Cost  of  services  revenue  for  the  Company
(excluding DeLeeuw Associates and the stock-based  compensation  charge) for the
year ended December 31, 2004 were $10.4 million, an increase of $0.4 million, or
4.0%,  as compared to $10.0 million for the year ended  December 31, 2003.  This
increase is  attributed  to a 15.7% average  increase in  compensation  cost, in
2004,  for the Company's  consulting  force as compared to the prior year.  This
increase is primarily  attributable to hiring highly skilled  consultants in the
strategic  consulting,  data  warehousing  and  business  intelligence  lines of
business.

      RELATED PARTY SERVICES

      Cost of revenue for related party  services was $3.3 million,  or 87.2% of
related party services revenue for the year ended December 31, 2004, compared to
$0.3  million,  or 82.5% of related  party  services  revenue for the year ended
December  31,  2003.  The  increase  in 2004  results  from a full year of costs
related to the consultants  which are providing  services for this related party
in 2004,  versus six weeks of cost  incurred  in the prior  year.  Further,  the
increase in 2004  reflects  the cost of six higher level  consultants  hired for
specialized work during the year and annual increases for the consulting force.

      SOFTWARE

      Cost of  revenue  for  software  was $0.2  million,  or 63.3% of  software
revenue  for the year ended  December  31,  2004,  compared to zero for the year
ended December 31, 2003. In 2004,  cost of software  revenue related to both the
cost of the Evoke Software revenues.

      SUPPORT AND MAINTENANCE

      Cost of revenue for support and maintenance includes costs associated with
resolving  customer  inquiries.  Cost of revenue for support and maintenance was
$31,000,  or 2.9% of support and maintenance revenue for the year ended December
31,  2004,  as  compared  to zero for the prior  year.  The  increase in cost of
support and  maintenance  is entirely  attributable  to Evoke Software which was
acquired by the Company in June 2004.


                                       37


      GROSS PROFIT

      Gross  profit was $6.2  million,  or 24.4% of  revenue  for the year ended
December 31, 2004,  compared to $4.1  million,  or 28.5% of revenue for the year
ended December 31, 2003.

      As a  percentage  of total gross  profit for the years ended  December 31,
2004 and 2003, services contributed 72.1% and 98.4%, respectively, related party
services contributed 8.0% and 1.6%, respectively,  software contributed 1.8% and
zero,  respectively,  and support and  maintenance the remaining 17.0% and zero,
respectively.

      The gross profit  percentage  for the year ended  December  31, 2004,  was
33.2%, 86.9% and 17.5% for DeLeeuw Associates,  Evoke, and ongoing operations of
the Company,  respectively.  The Company's gross profit  percentage for the year
ended December 31, 2003 was 28.5%.  There is no comparable prior year amount for
DeLeeuw Associates or Evoke as they were both acquired by the Company in 2004.

      SERVICES

      Gross profit from services was $4.4 million,  for the year ended  December
31, 2004, an increase of $0.4 million, or 10.0%, as compared to $4.0 million for
the year ended  December  31,  2003.  As a percent of services  revenues,  gross
profit of 22.3% for the year ended  December 31, 2004  represented a decrease of
6.5%  points  as  compared  to 28.8% of  services  revenues  for the year  ended
December 31, 2003. The Company recorded a $1.4 million stock-based  compensation
charge  during 2004 which  reduced  gross  profit by 7.0% of services  revenues.
Excluding this charge,  the 2004 gross profit  percentage would have been 29.3%,
an increase of 0.5% as compared to the prior year.  This  increase is the result
of the gross profit attributable to DeLeeuw Associates, which had a gross profit
percentage of 33.2% for the ten months ended December 31, 2004.

      RELATED PARTY SERVICES

      Gross  profit for related  party  services was $0.5  million,  or 12.8% of
related party services revenue for the year ended December 31, 2004, compared to
$64,000,  or 17.5% of related party services revenue for the year ended December
31, 2003.  The 4.7% point  decline in the related  party  services  gross profit
percentage  relates to  increased  consultant  costs in 2004 as  compared to the
prior year without  corresponding  increases in the billing rates charged to the
client.

      SOFTWARE

      Gross  profit  resulting  from  software  was  $0.1  million,  or 36.7% of
software revenue for the year ended December 31, 2004,  compared to zero for the
year ended December 31, 2003.  During 2004, the Company  deferred  approximately
$0.3 million of license  revenue that is being  recognized  over the life of the
support and maintenance agreements.

      SUPPORT AND MAINTENANCE

      Gross profit for support and  maintenance  was $1.0  million,  or 97.1% of
support  and  maintenance  revenue  for the year ended  December  31,  2004,  as
compared to zero in the prior year.  The increased  gross profit for support and
maintenance is  attributable  to the Company's  acquisition of Evoke Software in
June 2004.

      SELLING AND MARKETING

      Selling and marketing  expenses  include  payroll,  employee  benefits and
other  headcount-related costs associated with sales and marketing personnel and
advertising,  promotions,  tradeshows,  seminars and other programs. Selling and
marketing  expenses  were $4.1  million,  or 16.2% of revenue for the year ended
December 31, 2004,  compared to $1.6  million,  or 10.8% of revenue for the year
ended  December  31,  2003.  $0.9  million and $0.4  million of the  increase in
selling  and  marketing  expenses  during the year ended  December  31,  2004 is
attributed  to the costs  related to  operating  Evoke and  DeLeeuw  Associates,
respectively, which were both acquired during 2004. $0.7 million of the increase
resulted from increased  payroll and related costs associated with the increased
headcount in the Company's  existing sales force.  The remaining $0.5 million is
reflected  in the  addition  of  six  additional  employees  and a  Director  of
Marketing  and  Corporate  Communications  both through new hires and  retaining
existing employees of the acquired companies as part of our strategy to gain new
clients and increase revenue.


                                       38


      GENERAL AND ADMINISTRATIVE

      General and  administrative  costs include payroll,  employee benefits and
other headcount-related  costs associated with the finance,  legal,  facilities,
certain human resources and other administrative  headcount, and legal and other
professional and administrative fees. General and administrative costs were $6.8
million,  or 27.1% of revenue for the year ended  December 31, 2004  compared to
$2.7  million,  or 18.8% of revenue for the year ended  December 31, 2003.  $0.6
million and $1.2 million of the increase in general and administrative  expenses
during the year ended  December 31, 2004 is attributed to the costs of operating
Evoke  and  DeLeeuw  Associates  subsequent  to the  acquisitions  during  2004,
respectively. Additionally, $1.4 million is attributed to an increase in general
and  administrative  payroll  costs as the  result of  hiring a chief  financial
officer  during the fourth  quarter of 2003 and increasing the salaries of other
Company  officers to compensate them  competitively  with other public companies
the size of the Company.  $0.5  million  represents  an increase in  development
headcount by twelve  employees  during 2004, as compared to 2003, to support the
increased  size  of the  business  and  the  increased  compliance  requirements
inherent in becoming a public  company.  Professional  fees related to legal and
accounting  increased  by $0.4  million  primarily  due to work  related  to the
Company's public filing requirements.

      RESEARCH AND DEVELOPMENT

      Research and  development  costs primarily  include the payroll,  employee
benefits and other headcount-related costs associated with the employees working
on the  development  of upgrades  and new  versions  of the Evoke Axio  software
product.

Research and development costs were $0.5 million, or 2.1% of revenue compared to
zero for the comparative periods in the prior year. The research and development
department  was obtained in  association  with the Evoke  acquisition  which was
completed during 2004.

      GOODWILL AND INTANGIBLES IMPAIRMENT

      Impairment  of goodwill of $23.3  million for the year ended  December 31,
2004  resulted  from the  Company's  annual  impairment  review for the  DeLeeuw
Associates and Evoke acquisitions which occurred in 2004. Statement of Financial
Accounting  Standards No. 142 ("SFAS No. 142"),  "Goodwill and Other  Intangible
Assets",  instructs  the  Company  to  test  intangible  assets  for  impairment
annually, or more frequently if events or changes in circumstances indicate that
the asset  might be  impaired.  There  were no  specific  events or  changes  in
circumstances  in either of the two acquired  companies that would have required
an interim impairment charge. The Company performed its annual impairment review
as of  December  31,  2004 and  determined  that an  impairment  charge of $23.3
million was required  consisting  of $11.1  million  related to the goodwill and
intangibles  previously  recorded for Evoke  Software,  an  impairment  of $11.5
million related to the goodwill and intangibles  previously recorded for DeLeeuw
Associates,  and $0.7 million  related to goodwill  recorded  for other  assets.
There  were no  goodwill  impairment  charges  recorded  during  the year  ended
December 31, 2003.

      DEPRECIATION AND AMORTIZATION

      Depreciation  expense is recorded on the Company's  property and equipment
which is  generally  depreciated  over a period  between  three to seven  years.
Amortization  of  leasehold  improvements  is  taken  over  the  shorter  of the
estimated  useful  life of the asset or the  remaining  term of the  lease.  The
Company  amortizes  deferred  financing costs  utilizing the effective  interest
method  over the term of the  related  debt  instrument.  Acquired  software  is
amortized on a straight-line basis over an estimated useful life of three years.
Acquired  contracts are amortized  over a period of time that  approximates  the
estimated  life of the  contracts,  based upon the  estimated  annual cash flows
obtained from those  contracts,  generally five to six years.  Depreciation  and
amortization  expenses  were $1.1  million for the year ended  December 31, 2004
compared to $0.2 million for the year ended December 31, 2003.  $0.6 million and
$0.1 million of the increase in depreciation  and  amortization  during the year
ended December 31, 2004 is attributed to  amortization of the acquired Evoke and
DeLeeuw Associates intangible assets, respectively.


                                       39


      INTEREST EXPENSE

      The Company incurs interest expense on loans from financial  institutions,
from capital lease  obligations  related to the acquisition of equipment used in
its  business,  and  on  the  outstanding  convertible  line  of  credit  notes.
Amortization  of the discount on debt issued of $0.9 million is also recorded as
interest expense.  Interest expense recorded was $3.1 million for the year ended
December 31, 2004 compared to $0.1 million for the year ended December 31, 2003.
This  increase  is  primarily   related  to  the  Laurus  and  Sands   financing
transactions described below in the liquidity and capital resources section.

      OTHER INCOME (EXPENSE)

      The  Company  recorded  interest  income of  $22,000  and other  income of
approximately $14,000 for the year ended December 31, 2004, compared to interest
income of $5,000 for the year ended  December  31,  2003.  The Company  recorded
equity  income  in  its   investment  in  DeLeeuw   International   (Turkey)  of
approximately $5,000 for the year ended December 31, 2004.

      INCOME TAXES

      The Company  evaluates the amount of deferred tax assets that are recorded
against  expected  taxable income over its forecasting  cycle which is currently
two years. As a result of this evaluation,  the Company has recorded a valuation
allowance  of $11.5  million  during  the year ended  December  31,  2004.  This
allowance was recorded because, based on the weight of available evidence, it is
more likely than not that some,  or all,  of the  deferred  tax asset may not be
realized.

      No income tax  expense or benefit  was  recorded  in the prior year as the
Company was an "S"  Corporation  through  September  30, 2003.  Pro forma income
taxes for the prior year would have been an income tax  benefit of $0.2  million
using the effective tax rate of 40%.

YEARS ENDED DECEMBER 31, 2003 AND 2002

      REVENUE

      For the year ended December 31, 2003,  revenues  decreased by $1.8 million
from $16.2 million for the year ended December 31, 2002 to $14.4 million for the
year ended  December  31, 2003.  Our revenues  decreased by $4.4 million with an
offsetting increase of $2.6 million from those accounts acquired pursuant to our
acquisition of Scosys, Inc. The decrease was attributable  primarily to the soft
market in information technology consulting services that existed in 2003.

      COST OF REVENUES

      For the year ended December 31, 2003,  revenues  decreased by $0.4 million
from $10.7 million for the year ended December 31, 2002 to $10.3 million for the
year ended  December  31,  2003.  This is  directly  related to the  decrease in
revenues.

      GROSS PROFIT

      Our gross  profit  percentage  decreased to 28.5% of revenues for the year
ended  December 31, 2003 from 34.3% for the year ended  December  31, 2002.  The
decrease in gross profit percentage was due to a combination of higher personnel
costs and lower  rates  realized  for  billable  consultants  as a result of the
softer  market.  We expect  that the gross  profit  margins  will rise in future
quarters,  as we begin to hire consultants on payroll,  which we anticipate will
translate into higher margins.


                                       40


      SELLING AND MARKETING EXPENSES

      Selling  and  marketing  expenses  increased  $0.5  million or 42% to $1.6
million for the year ended  December 31, 2003,  and increased as a percentage of
revenue from 6.7% to 10.8%, respectively.  The increase in selling and marketing
expenses was related  primarily to our  strategic  decision to capitalize on the
projected  upturn in  information  technology  consulting  services.  We hired a
seasoned Vice President of Sales and additional  experienced  sales  executives.
These expenses had the effect of increasing  sales  salaries and  commissions by
$0.3 million for the year ended  December 31, 2003  compared with the year ended
December 31, 2002.  Accordingly,  sales travel and  entertainment,  benefits and
payroll taxes increased by $0.1 million.

      GENERAL AND ADMINISTRATIVE EXPENSES

      General and administrative expenses decreased by 23.9% or $0.8 million, to
$2.7 million for the year ended  December  31,  2003,  from $3.5 million for the
year ended  December 31, 2002, and decreased as a percentage of revenue to 18.8%
from 21.8%,  respectively.  The decrease in general and administrative  expenses
was related primarily to the reduction of in-house  developers salaries totaling
$1.0 million.  The reduction  represents a combination  of developers  that were
terminated as part of a cost cutting movement and the change in status of our in
house development  manager in 2002 (non-billable  status) to an on site customer
project  in  2003  (billable  status).  In  connection  with  the  Scosys,  Inc.
acquisition,  we incurred  $0.2  million in  additional  salaries to support the
acquisition.  The reduction of rent expense by $0.1 million was another  factor.
We were able to negotiate a temporary  reduction  in rent as space  requirements
diminished as a result of the termination of in-house developers.

      RESEARCH AND DEVELOPMENT

      The Company had no research  and  development  expense for the years ended
December 31, 2003 or 2002.

      GOODWILL IMPAIRMENT

      The Company had no goodwill  impairment  for the years ended  December 31,
2003 or 2002.

      DEPRECIATION AND AMORTIZATION

      Depreciation and amortization  expenses  increased by $0.1 million for the
fiscal  year ended  December  31,  2003,  compared  to the same  period in 2002.
Depreciation  is computed  principally by an accelerated  method and is based on
the  estimated  useful lives of the various  assets  ranging from three to seven
years.  The increase in amortization  expense is attributable to the increase in
identifiable intangibles from the acquisition of Scosys, Inc.

      INTEREST EXPENSE

      We incurred  $0.1  million in interest  expense  during each of the fiscal
years ended December 31, 2003 and 2002,  related  primarily to borrowings  under
our line of  credit.  Borrowings  under  the line of  credit  were  used to fund
operating  activities,  to make payments under the obligation in connection with
the Scosys acquisition and for distributions to stockholders.

      OTHER INCOME (EXPENSE)

      We had no other income  (expense) for the years ended December 31, 2003 or
2002.

      INCOME TAXES

      The Company  evaluates the amount of deferred tax assets that are recorded
against  expected  taxable income over its forecasting  cycle which is currently
two years. As a result of this  evaluation,  the Company has recorded a deferred
tax benefit of $0.2 million during the year ended December 31, 2004.

      No income tax  expense or benefit  was  recorded  in the prior year as the
Company was an "S" Corporation.


                                       41


LIQUIDITY AND CAPITAL RESOURCES

      Cash totaled $1.0 million as of December 31, 2004 compared to $0.4 million
as of December 31, 2003.  The Company's  cash balance is primarily  derived from
customer remittances,  bank borrowings and acquired cash and is used for general
working capital needs.  The Company had $0.1 million on deposit with a financial
institution  as  collateral  for a letter of credit and has  classified  this as
restricted cash on the accompanying consolidated balance sheet.

      Working capital deficit is ($3.0 million) as of December 31, 2004 compared
to ($0.7  million)  as of December  31,  2003.  The  Company's  working  capital
position  has  deteriorated  during the  current  year  primarily  due to losses
incurred by the Company and  liabilities  assumed as a result of the acquisition
of Evoke.  The losses generated by the Company and the payments in settlement of
Evoke's  obligations  have  resulted in the need for $1.9 million of  additional
borrowings  against the Company's line of credit, a $1.0 million loan on a short
term note payable, $0.5 million raised through the sale of Company common stock,
and $0.3 million of loans to the Company by the Chief Executive  Officer and the
Chief Operating Officer of the Company.

      Cash used by operations  during the year ended  December 31, 2004 was $4.4
million,  an increase in cash used by  operations  of $3.9 million from the year
ended  December 31, 2003.  This increase in cash used by operations is primarily
due to a $4.0 million "cash-based" loss from operations, as determined by adding
the non-cash  charges  incurred of $28.9  million to the reported  loss of $32.9
million  for the year ended  December  31,  2004,  a $1.3  million  increase  in
accounts  receivable,  a $0.4 million increase in the related party receivables,
and a $0.1  million  increase  in prepaid  expenses  during the year,  which was
partially offset by an increase in accounts payable and accrued expenses of $1.2
million,  and an increase in deferred  revenue of $0.1 million.  Trade  accounts
receivable  increased primarily due to $0.9 million of receivables  attributable
to DeLeeuw  Associates  which was  acquired  in March 2004 and $0.8  million for
Evoke,  both of which were  acquired  during  2004.  The increase in the related
party  receivables  is due to  billings  to  LEC  for  work  performed  under  a
subcontractor  agreement beginning in December 2003. The Company acquired 49% of
LEC in 2004.  Accounts payable and accrued expenses  increased  primarily due to
$0.4 million related to DeLeeuw Associates and $0.8 million related to Evoke.

      Cash used by investing  activities  was $1.9 million during the year ended
December  31, 2004.  This was due to payments of $2.1 million made  primarily as
acquisition  payments for DeLeeuw  Associates and for the purchases of equipment
for the Company,  partially  offset by $0.3 million of cash  received as part of
the Evoke acquisition.

      Cash  provided by financing  activities  was $6.9 million  during the year
ended December 31, 2004.  During 2004, $4.0 million was raised from the issuance
of line of credit  notes and $1.0  million  was raised  from the  issuance  of a
short-term note payable,  additional  line of credit  borrowings of $1.9 million
and $0.5  million  was  raised  from the sale of Company  common  stock and $0.2
million was obtained from other sources.  $0.9 million of principal  payments on
long-term debt and on capital lease  obligations were made by the Company during
this time period.

      There are currently no material commitments for capital expenditures.

      In order to expand its brand awareness and increase revenues, during 2005,
the Company  expects to engage in new or  expanded  marketing  and direct  sales
initiatives.  These  initiatives,  as  discussed  in  Marketing  on page 15, are
estimated to cost the Company an incremental $0.4 million in 2005 as compared to
the promotional expenditures incurred by the Company in 2004.

      The  Company  also  expects  to incur  costs,  in 2005,  of  approximately
$125,000  in  order to  improve  its  internal  controls  surrounding  financial
reporting and disclosure.

      As of December 31, 2004 and 2003, the Company had accounts  receivable due
from LEC of approximately $0.8 million and $0.4 million, respectively. There are
no known collections problems with respect to LEC.

      For the years  ended  December  31, 2004 and 2003,  we  invoiced  LEC $3.8
million  and  $0.4  million,  respectively,  for  the  services  of  consultants
subcontracted  to LEC by us. The majority of its billing is derived from Fortune
100 clients.  The collection  process is slow as these clients require  separate
approval on their own internal systems, which extends the payment cycle. We feel
confident in the collectibility of these accounts  receivable as the majority of
the revenues from LEC derive from Fortune 100 clients.


                                       42


      In February  2004,  we obtained  $2.0 million in financing  pursuant to an
October 2003 unsecured convertible line of credit note. In May 2004, pursuant to
the complete  conversion of this unsecured  convertible line of credit note, the
participating  investor  received  16,666,666  shares of our common stock,  plus
interest.  Due to an  adjustment  in the  conversion  price in  September  2004,
participating investors received an additional 2,380,953 shares of common stock.
As a  result  of the  initial  conversion  and the  adjustment,  we  recorded  a
beneficial conversion charge of $1.2 million.  Further in May 2004, we raised an
additional $2.0 million  pursuant to a new five-year  unsecured  promissory note
with the same investor. In June 2004, we replaced the May 2004 note by issuing a
five-year $2.0 million  unsecured  convertible line of credit note with the same
investor.  The note accrues at an annual interest rate of 7%, and the conversion
price of the shares of common stock  issuable  under the note is equal to $0.105
per share. In addition,  such investor received a warrant to purchase  4,166,666
shares of our  common  stock at an  exercise  price of $0.105  per  share.  This
warrant  expires in June 2009.  This note also  contains  beneficial  conversion
features,  and as a result,  we recorded a beneficial  conversion charge of $1.5
million  which  is  being  amortized  into  income  over  the  life of the  debt
instrument.  Additionally,  using the  Black-Scholes  option pricing  model,  we
determined the fair value of the warrant to be $0.5 million.

      In March 2004, all  outstanding  amounts under our previous line of credit
and notes payable agreements with Fleet Bank, totaling $2.3 million, were repaid
and $2.5 million was borrowed  from a new $3.0 million line of credit with North
Fork Bank (formerly  TrustCompany  Bank). The terms of this note with North Fork
Bank provided for interest  accruing on advances at seven eighths of one percent
(7/8%) over the  institution's  prime rate.  The line of credit  agreement  with
North Fork Bank contained both financial and non-financial covenants.

      In August 2004, the Company  replaced its $3.0 million line of credit with
North Fork Bank with a revolving  line of credit with Laurus  Master Fund,  Ltd.
("Laurus"),  whereby the Company has access to borrow up to $6.0  million  based
upon eligible accounts  receivable.  This revolving line,  effectuated through a
$2.0 million  convertible  minimum  borrowing note and a $4.0 million  revolving
note,  provides for advances at an advance rate of 90% against eligible accounts
receivable,  with an annual interest rate of prime rate (as reported in the Wall
Street  Journal) plus 1%, and maturing in three years.  We have no obligation to
meet financial  covenants under the $2.0 million  convertible  minimum borrowing
note or the $4.0 million  revolving note.  These notes will be decreased by 1.0%
for every 25% increase  above the fixed  conversion  price prior to an effective
registration statement and 2.0% thereafter up to a minimum of 0.0%. This line of
credit is secured  by  substantially  all the  corporate  assets.  Both the $2.0
million  convertible  minimum borrowing note and the $4.0 million revolving note
provide for  conversion  at the option of the holder of the amounts  outstanding
into the Company's  common stock at a fixed conversion price of $0.14 per share.
In the event that the Company  issues  common stock or  derivatives  convertible
into  Company  common  stock  for a price  less  than the  aforementioned  fixed
conversion  price,  then the fixed  conversion  price is reset  using a weighted
average dilution calculation.

      Additionally,  in exchange  for a secured  convertible  term note  bearing
interest at prime rate (as reported in the Wall Street  Journal) plus 1%, Laurus
has made  available  to the Company an  additional  $5.0  million to be used for
acquisitions.  We have no obligation to meet financial  covenants under the $5.0
million secured  convertible  term note.  This note is convertible  into Company
common stock at a fixed  conversion  price of $0.14 per share. In the event that
the Company issues Company common stock or derivatives  convertible into Company
common  stock  for a price  less the  fixed  conversion  price,  then the  fixed
conversion price is reset to the lower price on a full-ratchet  basis. This note
matures in three  years.  This cash will be  restricted  for use until  approved
acquisition  targets identified by the Company are approved by Laurus. A portion
of Laurus's  revolving  line of credit  will be used to pay off all  outstanding
borrowings  from North Fork  Bank.  The  Company  issued  Laurus a common  stock
purchase  warrant that  provides  Laurus with the right to purchase 12.0 million
shares of the  Company's  common  stock.  The  exercise  price for the first 6.0
million shares acquired under the warrant is $0.29 per share, the exercise price
for the next 3.0 million  shares  acquired under the warrant is $0.31 per share,
and the  exercise  price for the final 3.0  million  shares  acquired  under the
warrant is $0.35 per share.  The common stock purchase warrant expires on August
16, 2011.  The Company paid $0.75 million in brokerage and  transaction  closing
related costs.  These costs were deducted from the $5.0 million  restricted cash
balance provided to the Company by Laurus. As of December 31, 2004, $3.7 million
was  outstanding  under the revolving  line of credit.  The interest rate on the
revolving  line and the  acquisition  note was 6.25% during  December 2004. As a
result of the beneficial  conversion  feature, a discount on debt issued of $5.6
million was recorded and is being  amortized to interest  expense over the three
year  life of the debt  agreement.  As a  result  of the  beneficial  conversion
feature,  a discount on debt issued of $5.6  million was  recorded  and is being
amortized to interest expense over the three year life of the debt agreement. An
early  termination  fee is due to Laurus in an amount equal to five percent (5%)
of the total  investment  amount if such  termination  occurs prior to the first
anniversary of the closing,  four percent (4%) if such termination  occurs after
the first  anniversary  but prior to the second  anniversary,  and three percent
(3%) if after the second anniversary.


                                       43


      The fair value of the 12.0  million  warrants  was  determined  to be $2.0
million using the  Black-Scholes  option pricing model.  The assumptions used in
the fair value  calculation  were as follows:  stock  prices of $0.21,  exercise
prices  of  $0.29,  $0.31  and  $0.35  (as  applicable),  term of  seven  years,
volatility (annual) of 150.65%, annual rate of quarterly dividends of 0%, a risk
free rate of 1.33%, and the fair value per share of the warrants was accordingly
calculated  to be $0.20.  The Company will  amortize this relative fair value of
the warrants to interest expense over the seven-year life of the debt agreement.
The note also includes a beneficial conversion feature and a discount on debt of
$5.6 million was recorded in September  2004 and will also be amortized over the
three-year life of the debt agreement.

      Under the Laurus  agreement,  the Company was obligated to ensure that the
shares  provided for issuance  under the agreement  were properly  registered by
December 19, 2004. As a result of the Company's Registration statement not being
declared  effective  prior to this date,  the  Company is  incurring  liquidated
damages to Laurus an amount equal to 1% for each thirty day period (prorated for
partial  periods)  on a daily  basis  of the sum of (x) the  original  aggregate
principal  amount of the Note  plus (y) the  original  principal  amount of each
applicable  Minimum Borrowing Note. While such event continues,  such liquidated
damages  shall be paid  not  less  often  than  each  thirty  days.  Any  unpaid
liquidated  damages as of the date when an event has been  cured by the  Company
shall be paid within three days  following the date on which such event has been
cured by the Company. As a result, the Company has recorded a charge in December
2004 for approximately $44,000.

      In September 2004, we issued to Sands Brothers  Venture Capital LLC, Sands
Brothers  Venture  Capital  III LLC and Sands  Brothers  Venture  Capital IV LLC
(collectively,  "Sands") three subordinated secured convertible promissory notes
equaling  $1.0 million (the  "Notes"),  each with an annual  interest rate of 8%
expiring  September  22,  2005.  The  Notes are  secured  by  substantially  all
corporate assets,  subordinate to Laurus.  The Notes are convertible into shares
of our  common  stock  at the  election  of  Sands  at any  time  following  the
consummation of a convertible debt or equity financing with gross proceeds of $5
million or greater (a "Qualified Financing"). The conversion price of the shares
of our common stock  issuable  upon  conversion of the Notes shall be equal to a
price per share of common stock equal to forty percent (40%) of the price of the
securities issued pursuant to a Qualified  Financing.  If no Qualified  Offering
has been  consummated by September 8, 2005,  then Sands may elect to convert the
Notes at a fixed conversion price of $0.14 per share. In the event that we issue
stock  or  derivatives   convertible  into  our  stock  for  a  price  less  the
aforementioned  fixed conversion price, then the fixed conversion price is reset
using a weighted average dilution calculation. We also issued Sands three common
stock  purchase  warrants  (the  "Warrants")  providing  Sands with the right to
purchase  6.0 million  shares of our common  stock.  The  exercise  price of the
shares of our common stock issuable upon exercise of the Warrants shall be equal
to a price per share of common stock equal to forty  percent  (40%) of the price
of the  securities  issued  pursuant to a Qualified  Financing.  If no Qualified
Offering has been  consummated  by  September  8, 2005,  then Sands may elect to
exercise the Warrants at a fixed conversion price of $0.14 per share. The latest
that the  Warrants  may expire is  September  8, 2008.  Using the  Black-Scholes
option  pricing  model,  we determined  the fair value of the warrant to be $0.5
million.  As a result of the beneficial  conversion  feature, a discount on debt
issued of $0.5 million was recorded in September 2004 and is being  amortized to
interest  expense  over the one year life of the debt  instrument.  Finally,  we
engaged Sands  Brothers  International  Limited as our  non-exclusive  financial
advisor at $6,000 per month for a period of one year.


                                       44



      The following is a summary of the debt instruments outstanding as of April
19, 2005:



---------------------------------- ---------------------------- ---------------------------- -------------------------
Lender                             Type of facility             Outstanding as of April 19,  Remaining Availability
                                                                2005 (not including          (if applicable)
                                                                interest) (all numbers
                                                                approximate)
---------------------------------- ---------------------------- ---------------------------- -------------------------
                                                                                    
Laurus Master Fund, Ltd.           Convertible Line of Credit   $3,700,000                   $0
---------------------------------- ---------------------------- ---------------------------- -------------------------
Laurus Master Fund, Ltd.           Convertible Term note        $4,251,000                   $0
---------------------------------- ---------------------------- ---------------------------- -------------------------
Sands  Brothers  Venture  Capital  Convertible Promissory Note  $50,000                      $0
LLC
---------------------------------- ---------------------------- ---------------------------- -------------------------
Sands  Brothers  Venture  Capital  Convertible Promissory Note  $850,000                     $0
III LLC
---------------------------------- ---------------------------- ---------------------------- -------------------------
Sands  Brothers  Venture  Capital  Convertible Promissory Note  $100,000                     $0
IV LLC
---------------------------------- ---------------------------- ---------------------------- -------------------------
Taurus   Advisory   Group,    LLC  Convertible Promissory Note  $2,000,000                   $0
investors
---------------------------------- ---------------------------- ---------------------------- -------------------------
Scott Newman                       Promissory Note              $183,000                     $0
---------------------------------- ---------------------------- ---------------------------- -------------------------
Glenn Peipert                      Promissory Note              $125,000                     $0
---------------------------------- ---------------------------- ---------------------------- -------------------------
TOTAL                                                           $11,259,000                  $0
---------------------------------- ---------------------------- ---------------------------- -------------------------



      The Company has generated  losses that have exceeded  expectations  during
2004. To that extent,  the Company has experienced  continued negative cash flow
which has created a liquidity  issue for the Company that it currently  believes
to  be  short-term.  To  address  this  issue,  the  following  financings  were
effectuated:

      In November 2004, the Company entered into a Stock Purchase Agreement (the
"Agreement")  with  a  private  investor,   CMKX-treme,  Inc.  Pursuant  to  the
Agreement,  CMKX-treme,  Inc.  agreed to purchase 12.5 million  shares of common
stock for a purchase price of $1.75  million.  Under the terms of the Agreement,
CMKX-treme,  Inc. initially  purchased 3,571,428 shares of common stock for $0.5
million,  and it was  required to purchase  the  remaining  8,928,572  shares of
common  stock for $1.25  million by December  31,  2004.  As of March 17,  2005,
CMKX-treme, Inc. remitted final payment for the remaining 8,928,572 shares.

      Additionally, as of November 17, 2004, Mr. Newman has agreed to personally
support the Company's cash  requirements to enable it to fulfill its obligations
through March 31, 2005, to the extent necessary,  up to a maximum amount of $0.5
million. The Company believes that its reliance on such commitment is reasonable
and that  Mr.  Newman  has  sufficient  liquidity  and net  worth to honor  such
commitment.  The Company believes that Mr. Newman's written commitment  provides
the Company with the legal right to request and receive such advances.  Any loan
by Mr. Newman to the Company would bear interest at 3% per annum. As of December
14, 2004,  Mr. Newman had loaned the Company $0.2 million,  and Mr.  Peipert had
loaned the Company  $0.125  million.  The unsecured  loans by Mr. Newman and Mr.
Peipert  each accrue  interest at a simple rate of 3% per annum,  and each has a
term  expiring on January 1, 2006. As of December 31, 2004,  approximately  $0.2
million and $0.125 million remained  outstanding to Messrs.  Newman and Peipert,
respectively.

      As of March 30, 2005, Messrs.  Newman,  Peipert and Robert C. DeLeeuw have
agreed to personally  support our cash  requirements to enable us to fulfill our
obligations through May 1, 2006, to the extent necessary, up to a maximum amount
of $2.5 million.  Mr.  Newman  personally  guaranties  up to $1.4  million,  Mr.
Peipert guaranties up to $0.7 million and Mr. DeLeeuw personally guaranties $0.4
million.  We believe that our reliance on such commitment is reasonable and that
Messrs.  Newman,  Peipert and DeLeeuw have sufficient liquidity and net worth to
honor such commitment.  We believe that this written commitment provides us with
the legal  right to  request  and  receive  such  advances.  Any loan by Messrs.
Newman, Peipert and DeLeeuw to the Company would bear interest at 3% per annum.


                                       45


      The Company  has  completed  various  financing  transactions  through the
issuance  of  common  stock,  as well as the  issuance  of  notes  and  warrants
convertible  into our common stock,  while a registration  statement was on file
with the  Securities  and  Exchange  Commission  but had not yet  been  declared
effective. Those transactions were with the following entities:

            o     Taurus Advisory Group, LLC            $4.0 million
            o     Laurus Master Fund, Ltd.              $11.0 million
            o     Sands Brothers International Ltd.
                  (3 affiliated entities)               $1.0 million

      Even though all  stockholders,  noteholders and  warrantholders  have been
advised of their rights to rescind those  financing  transactions  and they each
have  waived  their  rights to  rescind  those  transactions,  there is a remote
possibility that each of those transactions could be reversed. In such an event,
the Company could be adversely  affected and may have an obligation to fund such
rescissions.

      The Company believes existing cash,  borrowing  capacity under the line of
credit or  alternative  financing  sources,  the  funding to be  provided by the
principal   stockholders',   and  funds  generated  from  operations  should  be
sufficient to meet operating requirements over the upcoming twelve month period.
We may raise  additional  funds through debt or equity  transactions in order to
fund expansion,  to develop new or enhanced products and services, to respond to
competitive pressures,  or to acquire complementary  businesses or technologies.
There is no assurance,  however, that additional financing will be available, or
if available,  will be available on acceptable terms. Any decision or ability to
obtain  additional  financing  through debt or equity  investment will depend on
various factors, including, among others, revenues, financial market conditions,
strategic  acquisition  and investment  opportunities,  and  developments in the
Company's markets. The sale of additional equity securities or future conversion
of  convertible  debt  would  result in  additional  dilution  to the  Company's
stockholders.

      OFF-BALANCE SHEET ARRANGEMENTS

      The  Company  does  not  have  any   transactions,   agreements  or  other
contractual arrangements that constitute off-balance sheet arrangements.

      CONTRACTUAL OBLIGATIONS

      At December 31, 2004, the Company had certain contractual cash obligations
and other commercial  commitments,  as set forth in the following table (amounts
in table are noted in millions):



-------------------------------------------------------------------------------------------------------------------
Contractual Obligations                       Total         Less than 1 year         1-3 years          4-5 years
-------------------------------------------------------------------------------------------------------------------
                                                                                                 
Long-term debt                               $ 7.3                      $--               $7.3               $ --
-------------------------------------------------------------------------------------------------------------------
Short-term note payable                        1.0                       1.0               0.0                0.0
-------------------------------------------------------------------------------------------------------------------
Capital lease obligations                      0.2                       0.1               0.1                 --
-------------------------------------------------------------------------------------------------------------------
Operating leases                               2.6                       0.8               1.2                0.6
-------------------------------------------------------------------------------------------------------------------
Employment agreements                          5.4                       5.4                --                 --
-------------------------------------------------------------------------------------------------------------------
Total                                        $16.5                      $7.3              $8.6               $0.6
-------------------------------------------------------------------------------------------------------------------



                                       46


APPLICATION OF CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION

      Our revenue  recognition policy is significant  because revenues are a key
component  of our results from  operations.  In  addition,  revenue  recognition
determines the timing of certain expenses,  such as incentive  compensation.  We
follow very  specific and detailed  guidelines  in measuring  revenue;  however,
certain  judgments and estimates  affect the  application of the revenue policy.
Revenue  results are difficult to predict and any shortfall in revenues or delay
in recognizing revenues could cause operating results to vary significantly from
quarter to quarter and could  result in future  operating  losses or reduced net
income.

SERVICES

      Revenue from  consulting  and  professional  services is recognized at the
time the services  are  performed  on a project by project  basis.  For projects
charged on a time and materials basis, revenue is recognized based on the number
of hours  worked by  consultants  at an  agreed-upon  rate per  hour.  For large
services  projects  where costs to complete the  contract  could  reasonably  be
estimated,  the Company undertakes  projects on a fixed-fee basis and recognizes
revenues on the  percentage  of  completion  method of  accounting  based on the
evaluation of actual costs incurred to date compared to total  estimated  costs.
Revenues  recognized  in excess of billings  are  recorded as costs in excess of
billings.  Billings in excess of revenues  recognized  are  recorded as deferred
revenues until revenue recognition criteria are met.  Reimbursements,  including
those  relating  to travel and other  out-of-pocket  expenses,  are  included in
revenues, and an equivalent amount of reimbursable expenses are included in cost
of services.

      The  percentage-of-completion  method of accounting is not  applicable for
the Company's software sales.

SOFTWARE

      Revenue from software licensing and maintenance and support are recognized
when persuasive  evidence of an arrangement exists,  delivery has occurred,  the
fee is fixed or determinable,  and  collectibility  is reasonably  assured.  The
Evoke software is delivered by the Company either directly to the customer or to
a  distributor  on an order by order  basis.  The  software is not sold with any
right  of  return  privileges  and,  as a  result,  a  returns  reserve  is  not
applicable.  License fee revenue is  recognized  by the Company in the period in
which delivery occurs. Maintenance and support revenue is recorded in revenue on
a pro rata  basis  over  the  term of the  maintenance  and  support  agreement.
Deferred   revenue  is  recorded  when   customers  are  invoiced  for  software
maintenance  and  support.  The  revenue  is  recognized  over  the  term of the
maintenance and support agreement.

      The Company  licenses  software  and  provides a  maintenance  and support
agreement  to  customers.  These  items  are  invoiced  as  separate  items  and
vendor-specific  objective  evidence  is  determined  for  the  maintenance  and
support,  generally by identifying  in the contract the cost of the  maintenance
and support to the customer in subsequent renewal periods.

BUSINESS COMBINATIONS

      We are required to allocate the  purchase  price of acquired  companies to
the tangible and intangible  assets  acquired and  liabilities  assumed based on
their estimated fair values.  Such a valuation  requires us to make  significant
estimates  and  assumptions,  especially  with  respect  to  intangible  assets.
Critical  estimates in valuing certain  intangible  assets include,  but are not
limited to, future expected cash flows from customer contracts,  customer lists,
distribution agreements and acquired developed technologies, and estimating cash
flows from projects when  completed  and discount  rates.  Our estimates of fair
value  are based  upon  assumptions  believed  to be  reasonable,  but which are
inherently  uncertain and  unpredictable  and, as a result,  actual  results may
differ from  estimates.  These  estimates may change as  additional  information
becomes  available  regarding  the  assets  acquired  and  liabilities  assumed.
Additionally,  in accordance with EITF 99-12,  the Company values an acquisition
based upon the market price of its common stock for a reasonable  period  before
and after the date the terms of the acquisition are agreed to and announced.

IMPAIRMENT OF GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS

      We  evaluate  our  identifiable  goodwill,  intangible  assets,  and other
long-lived  assets for  impairment  on an annual  basis and  whenever  events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable  based on  expected  undiscounted  cash flows  attributable  to that
asset. Future impairment  evaluations could result in impairment charges,  which
would  result in an expense in the period of  impairment  and a reduction in the
carrying value of these assets.


                                       47


ALLOWANCES FOR DOUBTFUL ACCOUNTS

      We make judgments regarding our ability to collect outstanding receivables
and provide  allowances for the portion of receivables  when collection  becomes
doubtful.  Provisions are made based upon a specific  review of all  significant
outstanding invoices. For those invoices not specifically  reviewed,  provisions
are  provided  at  differing  rates,  based upon the age of the  receivable.  In
determining these percentages,  we analyze our historical  collection experience
and current  economic  trends.  If the  historical  data we use to calculate the
allowance  provided for doubtful accounts does not reflect the future ability to
collect outstanding receivables, additional provisions for doubtful accounts may
be needed and our future  results of operations  could be  materially  affected.
During 2004,  $114,785 of uncollectible  accounts receivable were written off of
the accounts receivable against the allowance for doubtful accounts.

STOCK-BASED COMPENSATION

      We issue stock  options to our  employees  and provide our  employees  the
right to purchase  ordinary  shares under  employee  stock  purchase  plans.  We
account for our stock-based  compensation plans under the intrinsic value method
of  accounting  as  defined  by  Accounting  Principles  Board  Opinion  No. 25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
interpretations.  For equity  instruments  under  fixed  plans,  APB 25 does not
require  that any amount of expense to be recorded in the  statement  of income;
however,  SFAS No. 123,  "Accounting for Stock-Based  Compensation" does require
disclosure of these amounts in a pro forma table to the financial statements. In
determining  this disclosure the value of an option is estimated using the Black
Scholes  option  valuation  model.  This  model  requires  the  input of  highly
subjective  assumptions and a change in our assumptions  could materially affect
the fair value estimate, and thus the total calculated costs associated with the
grant of stock options or issuance of stock under employee stock purchase plans.
In addition, in disclosing the fair-value cost of stock-based  compensation,  we
estimate that we will be able to obtain a 40% tax benefit on these costs.  There
is the potential that this tax benefit will not be obtained to this extent or at
all, which directly  impacts the level of expenses  associated with  stock-based
compensation.   We  expect  our  accounting  policies,   regarding   stock-based
compensation  to be  materially  affected by our adoption of SFAS123R,  which is
described  under "Recent  Pronouncements."  We have not yet determined  what the
impact of the adoption of SFAS123R will be on our compensation philosophy.

DEFERRED INCOME TAXES

      Determining the consolidated provision for income tax expense,  income tax
liabilities and deferred tax assets and liabilities involves judgment. We record
a valuation  allowance to reduce our deferred tax assets to the amount of future
tax  benefit  that is more likely than not to be  realized.  We have  considered
future  taxable  income and prudent and  feasible  tax  planning  strategies  in
determining  the  need for a  valuation  allowance.  A  valuation  allowance  is
maintained  by the Company due to the impact of the current  years net operating
loss (NOL).  In the event that we determine that we would not be able to realize
all or part of our net deferred tax assets,  an  adjustment  to the deferred tax
assets would be charged to net income in the period such  determination is made.
Likewise,  if we later  determine  that it is more  likely than not that the net
deferred tax assets would be realized,  then the previously  provided  valuation
allowance  would  be  reversed.   Our  current   valuation   allowance   relates
predominately to benefits derived from the utilization of our NOL's.

RECENT PRONOUNCEMENTS

      In  December  2004,  the  Financial   Accounting  Standards  Board  issued
Statement  of Financial  Accounting  Standards  ("SFAS") No. 123R,  "Share-Based
Payment,  an Amendment of SFAS No. 123 and 95". This final standard replaces the
existing  requirements  under SFAS 123 and APB 25 and requires that all forms of
share-based payments to employees, including employee stock options and employee
stock  purchase  plans,  be treated the same as other forms of  compensation  by
recognizing  the related cost in the statements of income.  SFAS 123R eliminates
the ability to account for stock-based  compensation  transactions  using APB 25
and requires instead that such  transactions be accounted for using a fair-value
based  method.  SFAS 123R is effective for interim or annual  periods  beginning
after June 15,  2005 and allows  companies  to restate  the full year of 2005 to
reflect the impact of expensing  under SFAS 123R as reported in the footnotes to
the financial statements for the first half of 2005. The transitional provisions
of SFAS  123R  allow  companies  to  select  either  a  modified-prospective  or
modified-retrospective  transition  method  which  effectively  impacts in which
periods actual  expense will be reported in the statements of income.  We are in
the process of determining  the  transitional  method we will apply. We have not
determined how SFAS123R will modify,  if at all, our compensation  philosophy in
general or for stock option grants in particular.  We cannot currently  estimate
the amount of  stock-based  compensation  expense which will be related to stock
option grants or the issue of warrants in 2005 and thereafter.


CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures.

      Under  the  supervision  and with  the  participation  of our  management,
including our chief executive officer and our chief financial  officer,  we have
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls  and  procedures  pursuant  to  Securities  Exchange  Act of 1934  Rule
13a-15(e)  as of the end of the  period  covered  by our  Annual  Report on Form
10-KSB.  Based on that evaluation,  and as a result of comments  received in the
first quarter of 2005 from the Staff of the SEC  pertaining to our  Registration
Statement on Form SB-2/A,  File No. 333-115243 (the  "Registration  Statement"),
our chief executive  officer and our chief financial officer have concluded that
a material weakness exists with regard to the valuation and purchase  accounting
of our  recent  acquisitions,  including  the  inability  to  prepare  financial
statements and footnotes in accordance with SEC rules and regulations.

      In connection with our acquisitions of DeLeeuw Associates,  Inc. and Evoke
Software  Corporation,  we misapplied  generally accepted accounting  principles
whereby we did not value the  acquisitions  and record  the  resulting  purchase
accounting  in  accordance  with SFAS 141 and EITF 99-12.  As a result,  we were
required  in March 2005 to restate our  financial  statements  for the  quarters
ended March 31,  2004,  June 30, 2004 and  September  30, 2004.  Management  now
believes and has  determined  that the  disclosure  controls and  procedures for
these three quarters were not effective.

      In light of the need for these  restatements and the material  weakness in
our valuation and purchase accounting for recent acquisitions, commencing in the
first quarter of our 2005 fiscal year, we are beginning to undertake a review of
our  disclosure,  financial  information  and internal  controls and  procedures
regarding these areas for future acquisitions.  This review will include efforts
by our  management  and  directors,  as well as the  use of  additional  outside
resources, as follows:

            o Senior  accounting  personnel and our chief financial officer will
continue to review any future  acquisition  or divestiture in order to evaluate,
document and approve its  accounting  treatment in accordance  with SFAS 141 and
EITF 99-12;

            o We will  augment,  as  necessary,  such  procedures  by  obtaining
concurrence  with  independent  outside  accounting  experts prior to finalizing
financial reporting for such transactions; and

            o We will  incorporate  the  applicable  parts  of the  action  plan
described in the next paragraph.

In conjunction  with the measures  outlined below, we believe these actions will
strengthen  our internal  control over our valuation and purchase  accounting of
future acquisitions,  and this material weakness should be resolved.  Management
does not  anticipate  any  extra  cost from this  change  in its  valuation  and
purchase accounting of future acquisitions.

      In  addition,  we  previously  identified  two internal  control  matters.
Neither relates to the subject matter of the material weakness  described above,
yet combined  with the  above-referenced  material  weakness,  constitute in the
aggregate a material weakness in our internal control over financial  reporting.
These internal control matters,  identified in October 2004 by Friedman LLP, our
independent registered public accounting firm, are summarized as follows:

            o Lack  of  certain  internal  controls  over  period-end  financial
reporting related to the identification of transactions,  primarily contractual,
and accounting for them in the proper periods; and

            o Accounting  and reporting for our complex  financing  transactions
related to the beneficial  conversion features and the determination of the fair
value of warrants in such transactions.

      Management  is  establishing  an action plan that it believes will correct
the aggregated material weaknesses  described above. Our estimated costs related
to the correction of these material weaknesses is approximately  $0.125 million,
most notably  related to our  conversion to the Great Plains  accounting  system
during the third quarter of 2004. The conversion to the Great Plains  accounting
system required  inconsequential  modifications  to our  transaction  processing
systems. The effect of the migration to this system has been to provide a better
audit trail than our  previous  system.  The batch  processing  of  transactions
provides  the ability for review of  transactions  prior to being  posted in the
accounting  system.  Further,  the ability to close and lock  periods to prevent
changes  to  prior  periods  provides  greater  reliability  of the data and the
financial  statements  (resulting from the financial  statements  being prepared
directly by the accounting system as opposed to using  spreadsheets,  which have
greater  potential for error).  Finally,  this system has the ability to provide
comparative   financial  statements  to  expectations,   which  drives  variance
reporting. As a result of this system change, there were changes in our internal
control over  financial  reporting  starting in the third quarter of 2004, as we
have redesigned the  organization  structure to drive more focus on our internal
control environment. Other measures included in our action plan are as follows:

            o We have  formed a  Disclosure  Committee  consisting  of our chief
executive  officer,  chief  operating  officer,  senior vice president of sales,
general counsel and  controller,  chaired by our chief  financial  officer.  The
Disclosure  Committee is comprised of these key members of senior management who
have knowledge of significant  portions of our internal control system,  as well
as the business and competitive  environment in which we operate. One of the key
responsibilities  of each  Disclosure  Committee  member is to review  quarterly
reports,  annual reports and registration statements to be filed with the SEC as
each progress  through the preparation  process.  Open lines of communication to
financial reporting  management exist for Disclosure Committee members to convey
comments and suggestions;

            o A  process  to be  established  whereby  material  agreements  are
reviewed  by the  legal,  accounting  and  sales  departments  and an  executive
management  member that includes  determination  of  appropriate  accounting and
disclosure;

            o Our accounting and legal  departments are now working more closely
and in conjunction to accurately account for period-end  financial reporting and
complex financing transactions;

            o We are constantly  assessing our existing environment and continue
to  make  further  changes,  as  appropriate,  in  our  finance  and  accounting
organization to create clearer segregation of responsibilities  and supervision,
and to increase the level of technical accounting expertise including the use of
outside accounting experts;

            o There will be closer  monitoring of the preparation of our monthly
and  quarterly  financial  information.  We are in the  process  of  instituting
regular quarterly  meetings to review each department's  significant  activities
and respective  disclosure  controls and procedures and to have such in place by
the end of the second quarter of 2005;

            o  Department  managers  have been  tasked  with  tracking  relevant
non-financial  operating metrics and other pertinent  operating  information and
communicating their findings to a member of the Disclosure Committee; and

            o We will  conduct  quarterly  reviews of the  effectiveness  of our
disclosure  controls and  procedures,  and we have enhanced our quarterly  close
process to include detailed analysis in support of the financial  accounts,  and
improved supervision over the process.

We believe  that we will  satisfactorily  address the control  deficiencies  and
material  weakness relating to these matters by the end of the second quarter of
2005, although there can be no assurance that we will do so.

      At the same time as we  continue  our  efforts  to  improve  our  internal
control  environment,  management  of the  Company  is still in the  process  of
implementing the above procedures and controls, including review and evaluation,
to  mitigate  recognized  weaknesses  specifically  for the  preparation  of the
financial  statements  for the  periods  covered  by our  Annual  Report on Form
10-KSB.  Management  believes  that these  procedures  and  controls are not yet
effective in ensuring the proper  collection,  evaluation  and disclosure of the
financial  information for the periods covered by this.  Based on the foregoing,
our chief executive  officer and our chief financial  officer concluded that our
disclosure  controls  and  procedures  were not yet  effective  at a  reasonable
assurance level as of the date of our Annual Report on Form 10-KSB.

      Management,  including our chief executive officer and our chief financial
officer, does not expect that our disclosure controls and internal controls will
prevent  all error or all fraud,  even as the same are  improved  to address any
deficiencies  and/or weaknesses.  A control system, no matter how well conceived
and operated,  can provide only  reasonable,  not absolute,  assurance  that the
objectives  of the  control  system  are met.  Over  time,  controls  may become
inadequate  because of changes in conditions or  deterioration  in the degree of
compliance with policies or procedures.  Further, the design of a control system
must reflect the fact that there are resource  constraints,  and the benefits of
controls  must be  considered  relative to their costs.  Because of the inherent
limitations  in all control  systems,  no  evaluation  of  controls  can provide
absolute  assurance  that all control  issues and  instances  of fraud,  if any,
within the Company have been detected.  These inherent  limitations  include the
realities that judgments in  decision-making  can be faulty, and that breakdowns
can occur  because of simple  error or mistake.  Additionally,  controls  can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control.

Changes in internal control over financial reporting.

         Our company also maintains a system of internal controls. The term
"internal controls," as defined by the American Institute of Certified Public
Accountants' Codification of Statement on Auditing Standards, AU Section 319,
means controls and other procedures designed to provide reasonable assurance
regarding the achievement of objectives in the reliability of our financial
reporting, the effectiveness and efficiency of our operations and our compliance
with applicable laws and regulations. In connection with the preparation of the
Registration Statement, our management identified certain weaknesses in our
internal control procedures and in our valuation and purchase accounting of our
acquisitions in 2004. Our management and Board have adopted corrective measures
as described in the third and fourth paragraphs of this Controls and Procedures
section above. The following measures have materially affected our internal
control over financial reporting since our last Quarterly Report:

                  o Senior accounting personnel and our chief financial officer
will continue to review any future acquisition or divestiture in order to
evaluate, document and approve its accounting treatment in accordance with SFAS
141 and EITF 99-12;

                  o We will augment, as necessary, such procedures by obtaining
concurrence with independent outside accounting experts prior to finalizing
financial reporting for such transactions;

                  o We have formed a Disclosure Committee consisting of our
chief executive officer, chief operating officer, senior vice president of
sales, general counsel and controller, chaired by our chief financial officer.
The Disclosure Committee is comprised of these key members of senior management
who have knowledge of significant portions of our internal control system, as
well as the business and competitive environment in which we operate. One of the
key responsibilities of each Disclosure Committee member is to review quarterly
reports, annual reports and registration statements to be filed with the SEC as
each progress through the preparation process. Open lines of communication to
financial reporting management exist for Disclosure Committee members to convey
comments and suggestions;

                  o Our accounting and legal departments are now working more
closely and in conjunction to accurately account for period-end financial
reporting and complex financing transactions;

                  o There will be closer monitoring of the preparation of our
monthly and quarterly financial information. We are in the process of
instituting regular quarterly meetings to review each department's significant
activities and respective disclosure controls and procedures and to have such in
place by the end of the second quarter of 2005; and

                  o Department managers have been tasked with tracking relevant
non-financial operating metrics and other pertinent operating information and
communicating their findings to a member of the Disclosure Committee.




                                       48


                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                       ACCOUNTING AND FINANCIAL DISCLOSURE

      For the ten months ended  December 31,  2003,  we changed our  independent
auditor  and   certifying   accountant  to   Ehrenkrantz   Sterling  &  Co.  LLC
("Ehrenkrantz").  Prior thereto,  we had engaged  Eisner LLP as our  independent
auditor and certifying accountant.  There have been no disagreements with Eisner
LLP on any matter of accounting  principles or  practices,  financial  statement
disclosure or auditing scope or procedures,  which disagreements if not resolved
to the  satisfaction  of Eisner LLP would  have  caused  them to make  reference
thereto in their report.

      On June 1, 2004,  Ehrenkrantz  merged with the firm of  Friedman  Alpren &
Green LLP. The new entity,  Friedman LLP  ("Friedman"),  was retained by us, and
our Board of Directors  approved this  decision on June 7, 2004.  For the period
since  Ehrenkrantz's  appointment  through  June 7,  2004,  there  have  been no
disagreements  with  Ehrenkrantz  on any  matter  of  accounting  principles  or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements  if not resolved to the  satisfaction  of  Ehrenkrantz  would have
caused them to make  reference  thereto in their  report.  In addition,  for the
period since Ehrenkrantz's  appointment through June 7, 2004, we did not consult
with Friedman regarding any matter that was the subject of a "disagreement" with
Ehrenkrantz, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and
the related  instructions  to Item 304 of Regulation  S-K, or with regard to any
"reportable  event," as that term is defined in Item  304(a)(1)(v) of Regulation
S-K, except as such consultations as may have been made with former employees of
Ehrenkrantz who are now employees of Friedman.

                                 USE OF PROCEEDS

      We will not receive any of the proceeds  from the offering of common stock
for sale by the selling stockholders.


                                       49


                              SELLING STOCKHOLDERS


      This prospectus  relates to the offering for resale of 369,912,823  shares
of our common stock by certain selling  stockholders who received shares in both
LCS and CSI in private financing  transactions and  acquisitions.  The following
table sets forth each stockholder who is offering shares of our common stock for
sale under this prospectus,  any position, office or other material relationship
which such selling  stockholder has had with us within the past three years, the
amount of shares owned by such stockholder prior to this offering, the amount to
be  offered  for such  stockholder's  account,  the  amount  of be owned by such
stockholders  following  completion of the offering and (if one percent or more)
the percentage of the class to be owned by such  stockholder  after the offering
is complete.  The prior-to-offering  figures are as of April 19, 2005. All share
numbers are based on  information  that these  stockholders  supplied to us. The
table assumes that each  stockholder  will sell all of its shares  available for
sale during the  effectiveness of the registration  statement that includes this
prospectus.  Stockholders  are not  required  to sell their  shares.  Beneficial
ownership  is  determined  in  accordance  with SEC  rules and  regulations  and
includes voting or investment power with respect to the securities.


      The  percentage  interset  of each  selling  stockholder  is  based on the
beneficial  ownership  of such  selling  stockholder  divided  by the sum of the
current  outstanding  shares of common stock plus the additional shares, if any,
which would be issued to such  selling  stockholder  (but not any other  selling
stockholder) when converting notes,  exercising  warrants or other rights in the
future.



----------------------------- ------------------- ---------------------------------------------------------------------------------
                                                                   TOTAL NUMBER      NUMBER OF     NUMBER OF SHARES  PERCENTAGE OF
                               POSITION, OFFICE      NUMBER OF     OF SHARES OF      SHARES OF      OF COMMON STOCK   COMMON STOCK
                              OR OTHER MATERIAL      SHARES OF     COMMON STOCK     COMMON STOCK     BENEFICIALLY     BENEFICIALLY
                                 RELATIONSHIP      COMMON STOCK    BENEFICIALLY      OFFERED BY     OWNED AFTER THE   OWNED AFTER
                                                   BENEFICIALLY        OWNED          SELLING          OFFERING          TO THE
                                                  OWNED PRIOR TO                    STOCKHOLDER                         OFFERING
SELLING STOCKHOLDER                               THE OFFERING
----------------------------- ------------------- ----------------------------------------------------------------------------------
                                                      NUMBER          NUMBER           NUMBER           NUMBER         PERCENTAGE
----------------------------- ------------------- ----------------------------------------------------------------------------------
                                                                                                    
Mathew and Kyle Szulik (1)    None                  21,250,000     26,225,714       21,250,000        4,975,714            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Jermar Corp. (2)              None                  22,408,000     23,522,440       22,408,000        1,114,440            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Redec & Associates LLC (2)    None                  17,750,000     19,395,000       17,750,000        1,645,000            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Trust FBO Claire
  S. Adelson (3)              None                   5,666,666      6,071,666        5,666,666          405,000            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Lawrence D. Share (1)         None                   9,666,667      9,666,667        9,666,667                0            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Richard and Stacey
  Adelson (1)                 None                   2,333,333      2,611,904        2,333,333          278,571            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Alisa Farber Revocable
  Trust (4)                   None                   1,000,000      1,230,000        1,000,000          230,000            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Edward and Nancy
  McSorley (1)                None                   3,958,333      4,533,869        3,958,333          575,536            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Michael D. Mitchell, MD (5)   former President,     18,154,824     21,754,824       18,154,824        3,600,000            *
                              Chief Executive
                              Officer and Director
----------------------------- ------------------- ----------------------------------------------------------------------------------
Alex Bruni (6)                former Chief           1,000,000      1,900,000        1,000,000          900,000            *
                              Financial Officer
----------------------------- ------------------- ----------------------------------------------------------------------------------
Gene R. Kazlow, Esq. (7)      None                     500,000        500,000          500,000                0            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Janet M. Portelly (8)         None                     500,000        500,000          500,000                0            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Lawrence J. Slavin (9)        None                     200,000        200,000          200,000                0            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Roger Jones (10)              None                     125,000        125,000          125,000                0            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
J.T. Shulman &
  Company, P.C. (11)          None                     100,000        100,000          100,000                0            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Traffix, Inc. (12)            None                     250,000        250,000          250,000                0            *
----------------------------- ------------------- ----------------------------------------------------------------------------------
Scott Newman (13)             President, Chief     150,050,000    294,195,833      150,050,000      144,195,833          18.7%
                              Executive Officer
                              and Chairman
----------------------------- ------------------- ----------------------------------------------------------------------------------
Glenn Peipert (14)            Executive Vice        75,000,000    150,000,000       75,000,000       75,000,000           9.8%
                              President, Chief
                              Operating Officer
                              and Director
----------------------------- ------------------- ----------------------------------------------------------------------------------
Robert C. DeLeeuw (15)        Senior Vice           40,000,000    80,000,000        40,000,000       40,000,000           5.2%
                              President
----------------------------- ------------------- ----------------------------------------------------------------------------------
TOTAL                                              369,912,823    642,782,917      369,912,823      272,920,094

----------------------------- ------------------- ----------------------------------------------------------------------------------



                                       50


* Less than 1%

(1)   Consists  of  shares  obtained  via  the  conversion  of an  October  2003
      convertible  line of credit note among Taurus Advisory Group,  LLC and the
      Company in January 2004.

(2)   Consists  of  shares  obtained  via  the  conversion  of an  October  2003
      convertible  line of credit note among Taurus Advisory Group,  LLC and the
      Company  in January  2004.  Jerry Z. Ceder is the  natural  person  having
      investment and/or voting control over the shares.

(3)   Consists  of  shares  obtained  via  the  conversion  of an  October  2003
      convertible  line of credit note among Taurus Advisory Group,  LLC and the
      Company in January 2004.  Claire  Adelson and Shirley Moss are the natural
      persons having investment and/or voting control over the shares.

(4)   Consists  of  shares  obtained  via  the  conversion  of an  October  2003
      convertible  line of credit note among Taurus Advisory Group,  LLC and the
      Company in January  2004.  Alisa and Allan Farber are the natural  persons
      having investment and/or voting control over the shares.

(5)   Consists of shares issued to Mr. Mitchell in January 2004 in consideration
      for a loan made to the Company that was converted into common stock.

(6)   Consists of shares  issued to Mr. Bruni in January  2004 in  consideration
      for a loan made to the Company that was converted into common stock.

(7)   Consists of shares issued to Mr. Kazlow in December 2003 in  consideration
      for performed legal services to the Company.

(8)   Consists of shares issued in December 2003 in consideration  for performed
      legal services to the Company by Ms. Portelly's husband, Mr. Barry Feiner.

(9)   Consists of shares issued to Mr. Slavin in December 2003 in  consideration
      for performed consulting services to the Company.

(10)  Consists of shares issued to Mr. Jones in December  2003 in  consideration
      for a loan made to a former  subsidiary  of the Company that was converted
      into common stock.

(11)  Consists of shares issued to J.T. Shulman & Company, P.C. in November 2003
      in consideration for performed  accounting services to the Company. Jay T.
      Shulman is the natural person having investment and/or voting control over
      the shares.

(12)  Consists  of  shares   issued  to  Traffix,   Inc.  in  January   2004  in
      consideration  for a loan made to the Company.  Jeffrey L. Schwartz is the
      natural person having investment and/or voting control over the shares.

(13)  Consists of shares  issued to Mr.  Newman in January 2004  pursuant to the
      merger of privately-held Conversion Services International,  Inc. into the
      Company's wholly owned subsidiary, LCS Acquisition Corp.

(14)  Consists of shares  issued to Mr.  Peipert in January 2004 pursuant to the
      merger of privately-held Conversion Services International,  Inc. into the
      Company's wholly owned subsidiary, LCS Acquisition Corp.

(15)  Consists  of shares  issued to Mr.  DeLeeuw in March 2004  pursuant to the
      acquisition of DeLeeuw Associates, Inc.

      Because the selling  stockholders may, under this prospectus,  sell all or
some  portion of their  common  stock,  only an estimate  can be given as to the
amount  of  common  stock  that will be held by the  selling  stockholders  upon
completion of the offering.  In addition,  the selling  stockholders  identified
above may have sold,  transferred  or otherwise  disposed of all or a portion of
their common stock after the date on which they provided  information  regarding
their stockholdings.

                              PLAN OF DISTRIBUTION

      Selling  stockholders may offer and sell, from time to time, the shares of
our common  stock  covered by this  prospectus.  The term  selling  stockholders
includes donees, pledgees,  transferees or other successors-in-interest  selling
securities received after the date of this prospectus from a selling stockholder
as a gift, pledge,  partnership distribution or other non-sale related transfer.
The selling  stockholders  will act independently of us in making decisions with
respect to the timing, manner and size of each sale. Sales may be made on one or
more  exchanges or in the  over-the-counter  market or otherwise,  at prices and
under terms then  prevailing  or at prices  related to the then  current  market
price or in negotiated  transactions.  The selling  stockholders  may sell their
securities by one or more of, or a combination of, the following methods:


                                       51


      o     purchases  by  a  broker-dealer  as  principal  and  resale  by  the
            broker-dealer for its own account pursuant to this prospectus;

      o     ordinary brokerage transactions and transactions in which the broker
            solicits purchasers;

      o     block trades in which the  broker-dealer  so engaged will attempt to
            sell the  securities  as agent but may position and resell a portion
            of the block as principal to facilitate the transaction;

      o     an over-the-counter distribution in accordance with the rules of the
            NASDAQ National Market;

      o     in privately negotiated transactions; and,

      o     in options transactions.

      To the extent  required,  we may amend or  supplement  this  prospectus to
describe a specific plan of  distribution.  In connection with  distributions of
the  securities or otherwise,  the selling  stockholders  may enter into hedging
transactions with broker-dealers or other financial institutions.  In connection
with those  transactions,  broker-dealers  or other financial  institutions  may
engage in short sales of shares of our common stock in the course of hedging the
positions they assume with selling  stockholders.  The selling  stockholders may
also sell shares of our common stock short and redeliver the securities to close
out their short positions.  The selling  stockholders may also enter into option
or other transactions with  broker-dealers or other financial  institutions that
require the delivery to the  broker-dealer  or other  financial  institution  of
securities  offered by this prospectus,  which  securities the  broker-dealer or
other  financial  institution  may  resell  pursuant  to  this  prospectus,   as
supplemented or amended to reflect the transaction. The selling stockholders may
also pledge securities to a broker-dealer or other financial  institution,  and,
upon a default,  the  broker-dealer or other financial  institution,  may affect
sales of the pledged securities pursuant to this prospectus,  as supplemented or
amended to reflect the transaction.

      The selling  stockholders  may also sell  shares  under Rule 144 under the
Securities Act, if available,  rather than under this  prospectus.  In effecting
sales,  broker-dealers or agents engaged by the selling stockholders may arrange
for other  broker-dealers  to participate.  Broker-dealers or agents may receive
commissions,  discounts or concessions from the selling  stockholders in amounts
to  be  negotiated  immediately  prior  to  the  sale.  The  maximum  amount  of
compensation to be received by any NASD member or independent  broker-dealer for
the sale of any securities  registered under this prospectus will not be greater
than 8.0% of the gross proceeds from the sale of such securities.

      In  offering  the  securities  covered  by this  prospectus,  the  selling
stockholders  and  any   broker-dealers   who  execute  sales  for  the  selling
stockholders  may  be  treated  as  "underwriters"  within  the  meaning  of the
Securities  Act in connection  with sales.  Any profits  realized by the selling
stockholders  and  the  compensation  of any  broker-dealer  may be  treated  as
underwriting discounts and commissions.

      The  selling   stockholders  and  any  other  person  participating  in  a
distribution  will be subject to the  Securities  Exchange Act of 1934 (Exchange
Act). The Exchange Act rules include,  without  limitation,  Regulation M, which
may limit the  timing of  purchases  and sales of any of the  securities  by the
selling stockholders and other participating persons. In addition,  Regulation M
may  restrict  the  ability of any person  engaged  in the  distribution  of the
securities to engage in market-making  activities with respect to the particular
security being distributed for a period of up to five business days prior to the
commencement  of the  distribution.  This may  affect the  marketability  of the
securities  and the  ability of any person or entity to engage in  market-making
activities  with  respect  to the  securities.  We  have  informed  the  selling
stockholders that the anti-manipulation rules of the SEC, including Regulation M
promulgated under the Exchange Act, may apply to their sales in the market.


                                       52


      We  will  make  copies  of  this  prospectus   available  to  the  selling
stockholders for the purpose of satisfying the prospectus delivery  requirements
of the Securities Act. The selling  stockholders may indemnify any broker-dealer
that participates in transactions  involving the sale of the securities  against
certain liabilities, including liabilities arising under the Securities Act.

      At the time a particular  offer of  securities  is made,  if  required,  a
prospectus  supplement  will be  distributed  that will set forth the  number of
securities  being offered and the terms of the  offering,  including the name of
any  underwriter,  dealer or agent,  the purchase price paid by any underwriter,
any discount, commission and other item constituting compensation, any discount,
commission  or concession  allowed or re-allowed or paid to any dealer,  and the
proposed selling price to the public.

          DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

      The  following  table sets forth the names and ages our current  directors
and executive officers, the principal offices and positions with us held by each
person and the date such person  became a director  or  executive  officer.  Our
Board of  Directors  elects  our  executive  officers  annually.  Each  year the
stockholders elect the members of our Board of Directors.

      Our directors and executive officers are as follows:



------------------------ ----------------------- ------- -----------------------------------------------
NAME                     YEAR FIRST ELECTED AS    AGE    POSITION(S) HELD
                         AN OFFICER OR DIRECTOR
------------------------ ----------------------- ------- -----------------------------------------------
                                                
Scott Newman                      2004             45    President, Chief Executive Officer and
                                                         Chairman
------------------------ ----------------------- ------- -----------------------------------------------
Glenn Peipert                     2004             44    Executive Vice President, Chief Operating
                                                         Officer and Director
------------------------ ----------------------- ------- -----------------------------------------------
Mitchell Peipert                  2004             46    Vice President, Chief Financial Officer,
                                                         Secretary and Treasurer
------------------------ ----------------------- ------- -----------------------------------------------
Lawrence K. Reisman               2004             45    Director
------------------------ ----------------------- ------- -----------------------------------------------
Robert C. DeLeeuw                 2004             48    Senior Vice President and President of
                                                         DeLeeuw Associates, LLC
------------------------ ----------------------- ------- -----------------------------------------------


      SCOTT NEWMAN has been our President,  Chief Executive Officer and Chairman
since  January  2004.  Mr.  Newman  founded  the  former   Conversion   Services
International, Inc. in 1990 (before its merger with and into the LCS) and is our
largest stockholder. He has over twenty years of experience providing technology
solutions to major companies  internationally.  Mr. Newman has direct experience
in strategic planning,  analysis,  design, testing and implementation of complex
big-data  solutions.  He  possesses  a  wide  range  of  software  and  hardware
architecture/discipline  experience,  including,  client/server, data discovery,
distributed  systems,  data  warehousing,  mainframe,  scaleable  solutions  and
e-business.  Mr.  Newman has been the  architect  and lead  designer  of several
commercial software products used by Chase,  Citibank,  Merrill Lynch and Jaguar
Cars. Mr. Newman advises and reviews data warehousing and business  intelligence
strategy on behalf of our Global 2000 clients,  including  AT&T Capital,  Jaguar
Cars,  Cytec  and  Chase.  Mr.  Newman  is a  member  of  the  Young  Presidents
Organization,  a leadership  organization  that  promotes the exchange of ideas,
pursuit of learning and sharing  strategies to achieve personal and professional
growth and success. Mr. Newman received his B.S. from Brooklyn College in 1980.


                                       53


      GLENN  PEIPERT has been our  Executive  Vice  President,  Chief  Operating
Officer and Director  since January 2004.  Mr.  Peipert held the same  positions
with the former Conversion Services  International,  Inc. since its inception in
1990.  Mr.  Peipert  has over two  decades  of  experience  consulting  to major
organizations  about leveraging  technology to enable strategic  change.  He has
advised clients  representing a broad  cross-section of rapid growth  industries
worldwide. Mr. Peipert has hands on experience with the leading data warehousing
products.  His skills  include  architecture  design,  development  and  project
management.    He   routinely   participates   in   architecture   reviews   and
recommendations  for our Global 2000  clients.  Mr.  Peipert  has managed  major
technology  initiatives at Chase, Tiffany,  Morgan Stanley, Cytec and the United
States Tennis  Association.  He speaks  nationally on applying data  warehousing
technologies to enhance business  effectiveness  and has authored multiple white
papers regarding business intelligence. Mr. Peipert is a member of the Institute
of  Management  Consultants,   as  well  as  TEC  International,   a  leadership
organization  whose  mission is to increase  the  effectiveness  and enhance the
lives of chief  executives and those they influence.  Mr. Peipert is the brother
of Mitchell Peipert, our Vice President,  Chief Financial Officer, Secretary and
Treasurer. Mr. Peipert received his B.S. from Brooklyn College in 1982.

      MITCHELL  PEIPERT has been our Vice President,  Chief  Financial  Officer,
Secretary and Treasurer  since January 2004. Mr.  Peipert is a Certified  Public
Accountant  who held the same  positions  with the  former  Conversion  Services
International,  Inc. from January 2001 to September 2002. From September 2002 to
December  2003,  Mr.  Peipert  was  Senior  Sales  Executive  for NIA  Group and
President of E3 Management  Advisors.  From April 1992 until  January 2001,  Mr.
Peipert  served as Senior Vice  President of  Operations  and  Controller of TSR
Wireless LLC, where he directed the  accounting,  operations and human resources
functions.  He also assisted the chief executive officer in strategic  planning,
capital  raising  and  acquisitions.  Prior to his  employment  by TSR,  he held
various  managerial  roles  for  Anchin,   Block  &  Anchin,   certified  public
accountants,  Merrill Lynch and Grant  Thornton.  Mr.  Peipert is the brother of
Glenn  Peipert,  our  Executive  Vice  President,  Chief  Operating  Officer and
Director.  Mr.  Peipert  received  his B.S.  from  Brooklyn  College in 1980 and
received his M.B.A. in Finance from Pace University in 1986.

      LAWRENCE K.  REISMAN has been a Director  of our  company  since  February
2004. Mr. Reisman is a Certified Public Accountant who has been the principal of
his own firm,  The  Accounting  Offices of L.K.  Reisman,  since 1986.  Prior to
forming his company, Mr. Reisman was a tax manager at Coopers & Lybrand and Peat
Marwick  Mitchell.  He  routinely  provides  accounting  services  to small  and
medium-sized companies,  which services include auditing, review and compilation
of  financial  statements,   corporate,  partnership  and  individual  taxation,
designing  accounting systems and management  consulting  services.  Mr. Reisman
received his B.S. and M.B.A.  in Finance from St. John's  University in 1981 and
1985, respectively.

      ROBERT C. DELEEUW has been our Senior Vice  President and the President of
our wholly owned  subsidiary,  DeLeeuw  Associates,  LLC,  since March 2004. Mr.
DeLeeuw founded DeLeeuw  Associates,  LLC, formerly known as DeLeeuw Associates,
Inc., in 1991. Mr. DeLeeuw has over twenty-five  years experience in banking and
consulting.  During this time, he has managed and supported  some of the largest
merger  projects  in the  history of the  financial  services  industry  and has
implemented  numerous  large-scale  business and process change programs for his
clients.  He has been published in American Banker,  Mortgage Banking  Magazine,
The  Journal of  Consumer  Lending  and Bank  Technology  News where he has also
served as a member of the Editorial  Advisory  Board.  Mr. DeLeeuw  received his
B.S.  from Rider  University  in 1979 and received his M.S. in  Management  from
Stevens Institute of Technology in 1986.


                                       54


      Directors do not receive compensation for their duties as directors.

CODE OF CONDUCT AND ETHICS

      Our Board of  Directors  has adopted a Code of Conduct and Ethics which is
applicable   to   all   our   directors,   officers,   employees,   agents   and
representatives,   including  our  principal  executive  officer  and  principal
financial officer,  principal accounting officer or controller, or other persons
performing similar functions.

EXECUTIVE COMPENSATION

      The  following  table sets  forth,  for the fiscal  years  indicated,  all
compensation  awarded to, paid to or earned by the  following  type of executive
officers  for the fiscal  years ended  December  31,  2004,  2003 and 2002:  (i)
individuals who served as, or acted in the capacity of, our principal  executive
officer for the fiscal year ended  December  31,  2004;  and (ii) our other most
highly compensated  executive officer, who together with the principal executive
officer are our most highly compensated officers whose salary and bonus exceeded
$100,000  with  respect to the fiscal year ended  December 31, 2004 and who were
employed at the end of fiscal year 2004.

                           SUMMARY COMPENSATION TABLE*



                                                                                             LONG TERM COMPENSATION
                                                                                             ----------------------

                                                 ANNUAL COMPENSATION(1)                 AWARDS                      PAYOUTS
                                           --------------------------------  -------------------------     -------------------------

NAME AND                         YEAR      SALARY     BONUS    OTHER ANNUAL  RESTRICTED    SECURITIES       LTIP         ALL OTHER
PRINCIPAL                                                      COMPENSATION    STOCK       UNDERLYING      PAYOUTS     COMPENSATION
POSITION                                                                      AWARD(S)    OPTIONS/SARS
------------------------------------------------------------------------------------------------------------------------------------
                                            ($)         ($)         ($)       ($)              (#)           ($)            ($)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                              
Scott Newman                     2004     487,270       --          --         --               --            --         14,054 (2)
President, Chief Executive       2003     244,452       --          --         --               --            --        206,686 (3)
Officer and Chairman             2002     143,750       --          --         --               --            --        259,418 (3)

Glenn Peipert                    2004     362,180       --          --         --               --            --         14,054 (2)
Executive Vice President,        2003     223,016       --          --         --               --            --        171,309 (4)
Chief Operating Officer and      2002     143,750       --          --         --               --            --        199,166 (4)
Director

Mitchell Peipert, Vice           2004     193,524       --          --         --           4,500,000         --         14,413 (2)
President, Chief Financial       2003      10,000       --          --         --               --            --          1,133 (2)
Officer, Treasurer and           2002     138,750       --          --         --               --            --         13,591 (2)
Secretary

Robert C. DeLeeuw, Senior Vice   2004     329,400       --          --         --               --            --            592 (5)
President and President of
DeLeeuw Associates, LLC

Steven Huber, Vice President     2004     273,168       --          --         --           4,500,000         --          6,686 (2)
and General Manager              2003     170,042       --          --         --               --            --          6,971 (2)


-------------------------

*     Salary reflects total  compensation  paid to these executives (both before
      and after the merger described in Item 1).

(1)   The annual amount of perquisites and other personal benefits,  if any, did
      not  exceed  the  lesser  of  $50,000  or 10% of the total  annual  salary
      reported for each named executive  officer and has therefore been omitted,
      unless otherwise stated above.


                                       55


(2)   Amounts  shown  reflect  payments  related  to  medical,  dental  and life
      insurance.

(3)   Amounts shown reflect distributions  resulting from the operating entity's
      past tax status as a  Subchapter  S  corporation  of  $209,020 in 2002 and
      $153,738  in  2003,  as well as  $50,398  in 2002 and  $66,262  in 2003 of
      expenses,  which include auto, travel and equipment  purchases paid for by
      the Company.

(4)   Amounts shown reflect distributions  resulting from the operating entity's
      past tax status as a  Subchapter  S  corporation  of  $134,252 in 2002 and
      $101,988  in  2003,  as well as  $64,914  in 2002 and  $63,645  in 2003 of
      expenses,  which include auto, travel and equipment  purchases paid for by
      the Company.

(5)   Amounts shown reflect payment related to life insurance.

OPTION/SAR GRANTS AS OF DECEMBER 31, 2004



-------------------------- ---------------------- --------------------- -------------- ----------------------
Name                       Number of securities   Percent of total      Exercise or    Expiration Date
                           underlying             options/SARs          base price
                           options/SARs granted   granted to            ($/Sh)
                           (#) (1)                employees in
                                                  fiscal year
-------------------------- ---------------------- --------------------- -------------- ----------------------
                                                                                  
Mitchell Peipert           4,500,000              13.2%                 $0.165         March 28, 2014
-------------------------- ---------------------- --------------------- -------------- ----------------------


(1) All options  were granted  under the  Company's  2003  Incentive  Plan.  Mr.
Peipert's options were granted on March 29, 2004. One-third of such options vest
upon the first  anniversary  of the grant  date,  one-third  vest on the  second
anniversary of the grant date,  and one-third  vest on the third  anniversary of
the grant date.

                AGGREGATE OPTIONS EXERCISABLE IN LAST FISCAL YEAR
                        AND FISCAL YEAR END OPTION VALUES



                                                        Number of Securities            Value of Unexercised
                                                       Underlying Unexercised           In-the-Money Options
                                                  Options at December 31, 2004 (1)    at December 31, 2004 (1)
                                                  --------------------------------    ------------------------

Name and Principal Position                       Exercisable    Unexercisable     Exercisable     Unexercisable
---------------------------                       -----------    -------------     -----------     -------------
                                                                                       
Mitchell Peipert                                       0           4,500,000            0            $990,000
   Vice President, Chief Financial
   Officer, Secretary and Treasurer


-----------------
(1) As of  December  30,  2004 the market  value of a share of common  stock was
$0.22.  No shares were  exercised by  executive  officers or directors in fiscal
year ended December 31, 2004.


                                       56


2003 INCENTIVE PLAN

General

      The  2003  Incentive  Plan  was  approved  at a  special  meeting  of  our
stockholders  on January 23, 2004.  The Plan  authorizes us to issue 100 million
shares of common stock for issuance upon  exercise of options,  of which we have
reserved  50  million   shares.   It  also  authorizes  the  issuance  of  stock
appreciation  rights,  referred  to herein as SARs.  The Plan  authorizes  us to
grant:

      o     incentive stock options to purchase shares of our common stock,

      o     non-qualified stock options to purchase shares of common stock, and

      o     SARs and shares of restricted common stock.

      The Plan may be amended,  terminated or modified by our Board at any time,
subject to stockholder approval as required by law, rule or regulation.  No such
termination,  modification  or  amendment  may affect the rights of an  optionee
under an outstanding option or the grantee of an award.

Objectives

      The objective of the Plan is to provide incentives to our officers,  other
key employees, consultants,  professionals and non-employee directors to achieve
financial results aimed at increasing  stockholder value and attracting talented
individuals to CSI. Persons eligible to be granted incentive stock options under
the Plan will be those employees,  consultants,  professionals  and non-employee
directors  whose  performance,  in the  judgment of a committee  of our Board of
Directors, can have a significant effect on our success.

Oversight

      The Board,  acting as a whole,  or a committee  thereof  appointed  by our
Board, will administer the Plan by making  determinations  regarding the persons
to whom  options  should  be  granted  and the  amount,  terms,  conditions  and
restrictions  of the awards.  The Board or such committee also has the authority
to interpret the provisions of the Plan and to establish and amend rules for its
administration subject to the Plan's limitations.

Types of grants

      The Plan allows us to grant incentive stock options,  non-qualified  stock
options,  shares of  restricted  stock,  SARs in  connections  with  options and
independent SARs. The Plan does not specify what portion of the awards may be in
the  form  of any of the  foregoing.  Incentive  stock  options  awarded  to our
employees are qualified stock options under the Internal Revenue Code.

Eligibility

      Under the Plan, we may grant  incentive stock options only to our officers
and employees, and we may grant non-qualified options to officers and employees,
as well as our directors, independent contractors and agents.

Statutory Conditions on Stock Options

      Exercise Price.  To the extent that Options  designated as incentive stock
options become exercisable by an optionee for the first time during any calendar
year for common  stock  having a fair  market  value  greater  than One  Hundred
Thousand  Dollars  ($100,000),  the portions of such  options  which exceed such
amount shall be treated as nonqualified  stock options.  Incentive stock options
granted to any person who owns,  immediately  after the grant,  stock possessing
more than 10% of the combined  voting  power of all classes of our stock,  or of
any parent or subsidiary of ours,  must have an exercise price at least equal to
110% of the fair market  value of common stock on the date of grant and the term
of the option may not be longer than five years.


                                       57


      Expiration Date. Any option granted under the Plan will expire at the time
fixed by the Board or its  committee,  which  cannot be more than ten (10) years
after the date it is  granted  or, in the case of any  person who owns more than
10% of the combined voting power of all classes of our stock or of any parent or
subsidiary corporation, not more than five years after the date of grant.

      Exerciseability.  The Board or its  committee may also specify when all or
part of an option becomes exercisable, but in the absence of such specification,
the option will  ordinarily be  exercisable  in whole or part at any time during
its term. However, the Board or its committee may accelerate the exerciseability
of any option at its discretion.

      Assignability.  Options granted under the Plan are not assignable,  except
by the laws of descent and  distribution or as may be otherwise  provided by the
Board or its committee.

Payment Upon Exercise Of Options

      Payment of the  exercise  price for any option may be in cash or by broker
assisted exercise.

Stock Appreciation Rights

      A Stock  Appreciation  Right is the right to benefit from  appreciation in
the value of common stock. A SAR holder,  on exercise of the SAR, is entitled to
receive  from us in cash or common  stock an amount  equal to the excess of: (a)
the fair market value of common stock  covered by the  exercised  portion of the
SAR, as of the date of such  exercise,  over (b) the fair market value of common
stock  covered by the  exercised  portion of the SAR as of the date on which the
SAR was granted.

      The Board or its committee  may grant SARs in  connection  with all or any
part of an option granted under the Plan, either  concurrently with the grant of
the option or at any time thereafter,  and may also grant SARs  independently of
options.

Tax Consequences

      An employee  or  director  will not  recognize  income on the  awarding of
incentive stock options and nonstatutory options under the Plan.

      An optionee will recognize  ordinary  income as the result of the exercise
of a  nonstatutory  stock  option in the amount of the excess of the fair market
value of the stock on the day of exercise over the option exercise price.

      An employee  will not  recognize  income on the  exercise of an  incentive
stock option,  unless the option  exercise  price is paid with stock acquired on
the exercise of an incentive  stock option and the following  holding period for
such stock has not been satisfied. The employee will recognize long-term capital
gain or loss on a sale of the shares  acquired on exercise,  provided the shares
acquired are not sold or otherwise disposed of before the earlier of:

      (i)   two years from the date of award of the option, or

      (ii)  one year from the date of exercise.


                                       58


      If the shares are not held for the required  period of time,  the employee
will recognize  ordinary income to the extent the fair market value of the stock
at the time the option is exercised exceeds the option price, but limited to the
gain  recognized  on sale.  The  balance  of any such gain will be a  short-term
capital gain. Exercise of an option with previously owned stock is not a taxable
disposition  of such stock.  An employee  generally  must include in alternative
minimum  taxable  income the amount by which the price such employee paid for an
incentive stock option is exceeded by the option's fair market value at the time
his or her rights to the stock are freely  transferable  or are not subject to a
substantial risk of forfeiture.

      As of December 31, 2004,  options to purchase a total of 41,265,981 shares
of common stock were  outstanding  at an exercise  prices ranging from $0.055 to
$0.23 per share.  Generally,  one-third of the options granted vest on the first
anniversary, one-third of the options granted vest on the second anniversary and
one-third  of the  options  granted  vest  on the  third  anniversary.  However,
8,900,981 options granted during 2004 were immediately vested upon grant and had
a below  fair-market  value  exercise  price of $0.055  per share.  The  Company
recorded $1.4 million of compensation  expense with respect to this option grant
during 2004. All options expire on the ten year anniversary of their grant date.

All options described above have been issued pursuant to the 2003 Incentive Plan
described above.

EMPLOYMENT AGREEMENTS

      Scott  Newman,  our  President and Chief  Executive  Officer,  agreed to a
five-year  employment  agreement  dated  as of March  26,  2004.  The  agreement
provides for an annual  salary to Mr.  Newman of $500,000 and an annual bonus to
be awarded by our  to-be-appointed  Compensation  Committee.  The agreement also
provides for health,  life and  disability  insurance,  as well as a monthly car
allowance.  In the event that Mr. Newman's  employment is terminated  other than
with good cause,  he will  receive a lump sum payment of the longer of (1) three
year's base salary or (2) the period  from the date of  termination  through the
expiration date.

      Glenn  Peipert,  Executive  Vice  President and Chief  Operating  Officer,
agreed to a  five-year  employment  agreement  dated as of March 26,  2004.  The
agreement provides for an annual salary to Mr. Peipert of $375,000 and an annual
bonus to be awarded by our to-be-appointed Compensation Committee. The agreement
also provides for health,  life and disability  insurance,  as well as a monthly
car allowance.  In the event that Mr.  Peipert's  employment is terminated other
than with good  cause,  he will  receive a lump sum payment of the longer of (1)
three year's base salary or (2) the period from the date of termination  through
the expiration date.

      Mitchell Peipert, Vice President,  Chief Financial Officer,  Treasurer and
Secretary,  agreed to a three-year  employment  agreement  dated as of March 26,
2004. The agreement provides for an annual salary to Mr. Peipert of $200,000 and
an annual bonus to be awarded by our to-be-appointed Compensation Committee. The
agreement also provides for health, life and disability insurance,  as well as a
monthly car allowance.  In the event that Mr. Peipert's employment is terminated
other than with good cause,  he will receive a lump sum payment of the longer of
(1) three  year's  base  salary or (2) the period  from the date of  termination
through the expiration date.

      Robert C. DeLeeuw, Senior Vice President and President of our wholly owned
subsidiary, DeLeeuw Associates, LLC, agreed to a three-year employment agreement
dated as of February 27, 2004.  The  agreement  provides for an annual salary to
Mr. DeLeeuw of $350,000 and an annual bonus to be awarded by our to-be-appointed
Compensation  Committee.  The  agreement  also  provides  for  health,  life and
disability  insurance.  In the event that Mr. DeLeeuw's employment is terminated
other than with good cause,  he will receive a lump sum payment of the longer of
(1) one  year's  base  salary  or (2) the  period  from the date of  termination
through the expiration date.


                                       59


         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


      The  following  table  sets  forth  certain   information   regarding  the
beneficial  ownership of our common stock, our only class of outstanding  voting
securities as of April 19, 2005, based on 781,010,668 aggregate shares of common
stock outstanding as of such date, by: (i) each person who is known by us to own
beneficially  more than 5% of our  outstanding  common stock with the address of
each such person, (ii) each of our present directors and officers, and (iii) all
officers and directors as a group:




-------------------------------------------- ------------------------------- --------------------------------------------
           NAME AND ADDRESS OF                  AMOUNT OF COMMON STOCK         PERCENTAGE OF OUTSTANDING COMMON STOCK
          BENEFICIAL OWNER(1)(2)                   BENEFICIALLY OWNED                    BENEFICIALLY OWNED
-------------------------------------------- ------------------------------- --------------------------------------------
                                                                         
Scott Newman(3)                                       294,195,833                               37.7%
-------------------------------------------- ------------------------------- --------------------------------------------
Glenn Peipert(4)                                      150,000,000                               19.2%
-------------------------------------------- ------------------------------- --------------------------------------------
Mitchell Peipert(5)                                    1,500,000                                  *
-------------------------------------------- ------------------------------- --------------------------------------------
Robert C. DeLeeuw(6)                                   80,000,000                               10.2%
-------------------------------------------- ------------------------------- --------------------------------------------
Lawrence K. Reisman(7)                                  150,000                                   *
-------------------------------------------- ------------------------------- --------------------------------------------
WHRT I Corp. (8)                                       72,543,956                                9.3%
-------------------------------------------- ------------------------------- --------------------------------------------
All directors and officers as a group (5
persons)                                              525,845,833                               67.3%
-------------------------------------------- ------------------------------- --------------------------------------------


---------------------------

* Represents less than 1% of the issued and outstanding Common Stock.

(1)   Each stockholder, director and executive officer has sole voting power and
      sole dispositive  power with respect to all shares  beneficially  owned by
      him, unless otherwise indicated.

(2)   All  addresses  except  for  WHRT I  Corp.  are  c/o  Conversion  Services
      International,  Inc.,  100 Eagle Rock  Avenue,  East  Hanover,  New Jersey
      07936.

(3)   Mr.  Newman  is the  Company's  President,  Chief  Executive  Officer  and
      Chairman of the Board.

(4)   Mr.  Glenn  Peipert  is the  Company's  Executive  Vice  President,  Chief
      Operating Officer and Director.

(5)   Mr.  Mitchell  Peipert is the Company's Vice  President,  Chief  Financial
      Officer,  Secretary  and  Treasurer.  Consists  of an option  to  purchase
      1,500,000  shares of common stock granted on March 29, 2004 at an exercise
      price of  $0.165  per  share.  Does not  include  an  option  to  purchase
      3,000,000  shares of common stock granted on March 29, 2004 at an exercise
      price of $0.165 per share,  of which  1,500,000  shares  vest on March 29,
      2006 and 1,500,000 shares vest on March 29, 2007. One-third of the options
      granted vest on the first  anniversary,  one-third of the options  granted
      vest on the second  anniversary  and one-third of the options granted vest
      on the third anniversary. The option grant expires on March 28, 2014.

(6)   Mr.  DeLeeuw is the Company's  Senior Vice  President and the President of
      the Company's wholly owned subsidiary, DeLeeuw Associates, LLC.

(7)   Mr.  Reisman is a  Director.  Consists  of an option to  purchase  150,000
      shares of common  stock  granted on May 28, 2004 at an  exercise  price of
      $0.20 per share.  Does not include an option to purchase 300,000 shares of
      common  stock  granted on May 28, 2004 at an  exercise  price of $0.20 per
      share,  of which  150,000  shares vest on May 28, 2006 and 150,000  shares
      vest on May 28, 2007.  One-third of the options  granted vest on the first
      anniversary,   one-third  of  the  options  granted  vest  on  the  second
      anniversary  and  one-third  of the  options  granted  vest  on the  third
      anniversary. The option grant expires on May 27, 2014.

(8)   Based on a Schedule 13G filed with the Securities  Exchange  Commission on
      July 8,  2004.  WHRT I Corp.'s  address  is c/o Tudor  Ventures,  50 Rowes
      Wharf, 6th Floor, Boston, Massachusetts 02420.


                                       60


EQUITY COMPENSATION PLAN DISCLOSURE

The  following  table sets forth  certain  information  as of December  31, 2004
regarding securities:



                                                                                 Number of securities
                             Number of securities to      Weighted-average      remaining available for
                             be issued upon exercise      exercise price of      future issuance under
                             of outstanding options,    outstanding options,      equity compensation
Plan Category                  warrants and rights       warrants and rights             plans
----------------------      ------------------------   ----------------------  -------------------------
                                                                             
Equity Compensation
Plans Approved by
Security Holders                   41,265,981              $        0.15                 8,734,019

Equity Compensation
Plans Not Approved by
Security Holders                           --                         --                        --
                            ------------------------   ----------------------  -------------------------
    Total                          41,265,981              $        0.15                 8,734,019
                            ========================   ======================  =========================


              CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

      In November 2003, the Company executed an Independent Contractor Agreement
with LEC,  whereby  the Company  agreed to be a  subcontractor  for LEC,  and to
provide  consultants  as  required  to LEC.  In return for these  services,  the
Company  receives  a fee from LEC  based on the  hourly  rates  established  for
consultants  subcontracted  to LEC. In May 2004, the Company acquired 49% of all
issued  and  outstanding  shares of common  stock of LEC.  The  acquisition  was
completed  through a Stock Purchase  Agreement  between the Company and the sole
stockholder of LEC. In connection with the acquisition, the Company (i) repaid a
bank loan on behalf of the seller in the amount of  $35,000;  (ii) repaid an LEC
bank loan in the amount of $38,000;  and (iii)  satisfied an LEC  obligation for
$10,000 of prior  compensation  to an employee.  For the year ended December 31,
2004,  the Company  invoiced LEC $3.8  million for the  services of  consultants
subcontracted  to LEC by the Company.  As of December 31, 2004,  the Company had
accounts  receivable due from LEC of  approximately  $0.8 million.  There are no
known collection  problems with respect to LEC. The majority of their billing is
derived from  Fortune  1000  clients.  The  collection  process is slow as these
clients require separate approval on their own internal  systems,  which extends
the payment cycle.  The Company feels confident in the  collectibility  of these
accounts receivable as the majority of the revenues from LEC derive from Fortune
1000 clients.


      On November 8, 2004, Mr. Newman  entered into a stock  purchase  agreement
with a private investor, CMKX-treme, Inc. Pursuant to the agreement, CMKX-treme,
Inc. agreed to purchase 2,833,333 shares of common stock for a purchase price of
$250,000.  As of April 19, 2005,  the shares have not been issued to CMKX-treme,
Inc. because it has not yet remitted payment for the shares.

      On November 8, 2004, Mr. Peipert  entered into a stock purchase  agreement
with a private investor, CMKX-treme, Inc. Pursuant to the agreement, CMKX-treme,
Inc. agreed to purchase 5,666,667 shares of common stock for a purchase price of
$500,000.  As of April 19, 2005,  the shares have not been issued to CMKX-treme,
Inc. because it has not yet remitted payment for the shares.



                                       61


      On November 10, 2004,  the Company and Dr.  Michael  Mitchell,  the former
President, Chief Executive Officer and sole director of LCS, executed a one-year
consulting  agreement  whereby Dr.  Mitchell  would perform  certain  consulting
services on behalf of the Company. Dr. Mitchell will receive an aggregate amount
of $0.25 million as compensation  for services  provided to the Company.  During
2004,  an  aggregate  amount of $50,000 was paid to Mr.  Mitchell  for  services
provided under this consulting agreement.

      As of November 16, 2004,  Mr. Newman and Mr. Peipert repaid in full to the
Company loans in the aggregate of approximately $0.2 million,  including accrued
interest.  These loans bore interest at 3% per annum and were due and payable by
December 31, 2005.

      As of November 17, 2004,  Mr. Newman has agreed to personally  support our
cash  requirements  to enable us to fulfill our  obligations  through  March 31,
2005,  to the  extent  necessary,  up to a maximum  amount of $0.5  million.  We
believe that our reliance on such  commitment is reasonable  and that Mr. Newman
has sufficient liquidity and net worth to honor such commitment. We believe that
Mr. Newman's written commitment  provides us with the legal right to request and
receive such advances. Any loan by Mr. Newman to the Company would bear interest
at 3% per annum.  As of December 14, 2004,  Scott Newman,  our President,  Chief
Executive  Officer and  Chairman,  loaned the Company  $0.2  million,  and Glenn
Peipert,  our Executive Vice President,  Chief  Operating  Officer and Director,
loaned the Company  $0.125  million.  The unsecured  loans by Mr. Newman and Mr.
Peipert  each accrue  interest at a simple rate of 3% per annum,  and each has a
term  expiring on January 1, 2006. As of December 31, 2004,  approximately  $0.2
million and $0.125 million remained  outstanding to Messrs.  Newman and Peipert,
respectively.

      As of March 30, 2005, Messrs.  Newman,  Peipert and Robert C. DeLeeuw have
agreed to personally  support our cash  requirements to enable us to fulfill our
obligations through May 1, 2006, to the extent necessary, up to a maximum amount
of $2.5 million.  Mr.  Newman  personally  guaranties  up to $1.4  million,  Mr.
Peipert  guaranties  up to $0.7 million and Mr.  DeLeeuw  personally  guaranties
approximately  $0.4 million.  We believe that our reliance on such commitment is
reasonable  and  that  Messrs.  Newman,  Peipert  and  DeLeeuw  have  sufficient
liquidity and net worth to honor such  commitment.  We believe that this written
commitment  provides  us with  the  legal  right to  request  and  receive  such
advances.  Any loan by Messrs.  Newman, Peipert and DeLeeuw to the Company would
bear interest at 3% per annum.

      Dr. Michael Mitchell,  the former  President,  Chief Executive Officer and
sole  director of LCS, had loaned an aggregate of $0.93 million to us. This loan
was  converted  into shares of our common  stock at the closing of the merger of
LCS and CSI.

      Other than those  described  above,  during the last two fiscal years,  we
have no material  transactions which involved or are planned to involve a direct
or  indirect  interest  of  a  director,  executive  officer,  greater  than  5%
stockholder or any family of such parties.


                                       62


            MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) MARKET  INFORMATION.  Our common  stock  traded on the OTC  Bulletin  Board,
except as indicated  below,  and/or the Pink Sheets LLC under the symbol  "LCSG"
from  mid-1998  through  July 16,  2003 and  "LCSI"  through  February  2, 2004.
Beginning  February  3, 2004,  our common  stock has traded on the OTC  Bulletin
Board under the symbol "CSII."

      The  following  chart  sets  forth  the high and low bid  prices  for each
quarter  from  January 1, 2003 through  March 31,  2005.  Such prices  represent
quotations between dealers, without dealer markup, markdown or commissions,  and
may not represent actual transactions.

                                              HIGH             LOW
                                              ----             ---

2003 BY QUARTER
January 1 - March 31                         $0.031          $0.012
April 1 - June 30                            $ 0.09          $0.027
July 1 - September 30                        $0.185          $ 0.08
October 1 - December 31                      $ 0.17          $ 0.09

2004 BY QUARTER
January 1 - March 31                         $ 0.25          $ 0.12
April 1 - June 30                            $0.265          $ 0.11
July 1 - September 30                        $ 0.31          $ 0.18
October 1 - December 31                      $ 0.25          $ 0.16

2005 BY QUARTER
January 1 - March 31                         $0.255          $0.145

      We are listed on the OTC Bulletin  Board.  On March 31, 2005, the high and
low bid prices for shares of our common stock in the over-the-counter market, as
reported by NASD OTCBB, were $0.255 and $0.20, respectively.

      On April 21, 2004, we filed an application to list our common stock on the
American  Stock  Exchange.  We are  presently  responding to the requests of the
American Stock Exchange for further information and documentation.  There can be
no assurance, however, that such application will be approved.

      No prediction  can be made as to the effect,  if any, that future sales of
shares of our common  stock or the  availability  of our common stock for future
sale  will  have  on the  market  price  of our  common  stock  prevailing  from
time-to-time.  The additional  registration  of our common stock and the sale of
substantial  amounts of our common stock in the public  market  could  adversely
affect the prevailing market price of our common stock.


(b) RECORD HOLDERS.  As of April 19, 2005, there were 478 registered  holders of
our common  stock,  including  shares held in street name. As of April 19, 2005,
there were 781,010,668 shares of common stock issued and outstanding.


(c) DIVIDENDS. We have not paid dividends on our common stock in the past and do
not anticipate doing so in the foreseeable future. We currently intend to retain
future earnings,  if any, to fund the development and growth of our business. In
addition,  the security agreement with Laurus Master Fund, Ltd. requires that we
obtain their consent prior to paying any dividends.


                                       63


                            DESCRIPTION OF SECURITIES


      The  following  description  of our  capital  stock  is a  summary  and is
qualified in its entirety by the provisions of our Certificate of Incorporation,
as amended.  We are  authorized  to issue up to  1,000,000,000  shares of common
stock,  par value $.001 per share. As of April 19, 2005,  there were 781,010,668
shares of common stock issued and outstanding.  We are authorized to issue up to
20,000,000  shares of preferred  stock,  par value $.001.  As of April 19, 2005,
there were 0 shares of preferred stock issued and outstanding.


COMMON STOCK

      The holders of common  stock are  entitled to one vote for each share held
of record on all  matters  to be voted on by the  stockholders.  The  holders of
common stock are entitled to receive dividends ratably, when, as and if declared
by the Board of  Directors,  out of funds legally  available.  In the event of a
liquidation,  dissolution  or  winding-up of us, the holders of common stock are
entitled  to share  equally and ratably in all assets  remaining  available  for
distribution  after payment of liabilities  and after provision is made for each
class of stock, if any, having  preference over the common stock. The holders of
shares  of common  stock,  as such,  have no  conversion,  preemptive,  or other
subscription  rights and there are no  redemption  provisions  applicable to the
common stock. All of the outstanding  shares of common stock are validly issued,
fully-paid and nonassessable.

PREFERRED STOCK

      The shares of preferred stock may be issued in series, and shall have such
voting  powers,  full or limited,  or no voting powers,  and such  designations,
preferences and relative  participating,  optional or other special rights,  and
qualifications,  limitations  or  restrictions  thereof,  as shall be stated and
expressed in the  resolution or  resolutions  providing for the issuance of such
stock  adopted  from  time to time by our  Board  of  Directors.  Our  Board  of
Directors is  expressly  vested with the  authority to determine  and fix in the
resolution or  resolutions  providing  for the issuances of preferred  stock the
voting powers,  designations,  preferences and rights,  and the  qualifications,
limitations or restrictions  thereof, of each such series to the full extent now
or hereafter permitted by the laws of the State of Delaware.


                                       64


CONVERTIBLE NOTES

      In June 2004,  we issued a five-year  $2.0 million  unsecured  convertible
line of credit note with a private  investor.  The note  accrues  interest at an
annual  rate of 7%,  and the  conversion  price of the  shares of  common  stock
issuable under the note is equal to $0.105 per share.

      In August 2004, we replaced our $3,000,000  line of credit with North Fork
Bank with a revolving line of credit with Laurus Master Fund,  Ltd.  ("Laurus"),
whereby we will have the ability to borrow up to $6,000,000  based upon eligible
accounts  receivable.  This  revolving  line,  effectuated  through a $2,000,000
convertible minimum borrowing note and a $4,000,000 revolving note, provides for
advances at an advance rate of 90% against eligible accounts receivable, with an
annual interest rate of prime rate (as reported in the Wall Street Journal) plus
1%, and  maturing  in three  years.  The  interest  rate on these  notes will be
decreased  by 1.0% for every 25%  increase  in our stock  price  above the fixed
conversion  price  prior  to  an  effective   registration  statement  and  2.0%
thereafter  up to a  minimum  of  0.0%.  This  line  of  credit  is  secured  by
substantially all the corporate assets. Both the $2,000,000  convertible minimum
borrowing note and the  $4,000,000  revolving note provide for conversion at the
option of the holder of the amounts outstanding into our common stock at a fixed
conversion  price  of $0.14  per  share.  In the  event  that we issue  stock or
derivatives convertible into our stock for a price less the aforementioned fixed
conversion  price,  then the fixed  conversion  price is reset  using a weighted
average dilution calculation.

      In September 2004, we issued to Sands Brothers  Venture Capital LLC, Sands
Brothers  Venture  Capital  III LLC and Sands  Brothers  Venture  Capital IV LLC
(collectively,  "Sands") three subordinated secured convertible promissory notes
equaling  $1,000,000  (the  "Notes"),  each with an annual  interest  rate of 8%
expiring  September  22,  2005.  The  Notes are  secured  by  substantially  all
corporate assets,  subordinate to Laurus.  The Notes are convertible into shares
of our  common  stock  at the  election  of  Sands  at any  time  following  the
consummation of a convertible debt or equity financing with gross proceeds of $5
million or greater to us (a "Qualified Financing").  The conversion price of the
shares of our common stock issuable upon  conversion of the Notes shall be equal
to a price per share of common stock equal to forty  percent  (40%) of the price
of the  securities  issued  pursuant to a Qualified  Financing.  If no Qualified
Offering has been  consummated  by  September  8, 2005,  then Sands may elect to
convert the Notes at a fixed  conversion  price of $0.14 per share. In the event
that we issue stock or derivatives  convertible  into our stock for a price less
the  aforementioned  fixed conversion  price, then the fixed conversion price is
reset using a weighted average dilution calculation.

WARRANTS

      A private investor received a warrant to purchase  4,166,666 shares of our
common  stock at $0.105 per share in June 2004.  These  warrants  expire in June
2009.

      Laurus  received a warrant  to  purchase  12,000,000  shares of our common
stock.  The exercise  price for the first  6,000,000  shares  acquired under the
warrant is $0.29 per share,  the exercise  price for the next  3,000,000  shares
acquired  under the warrant is $0.31 per share,  and the exercise  price for the
final  3,000,000  shares  acquired  under the warrant is $0.35 per share.  These
warrants expire in August 2011.

      We issued Sands three  common stock  purchase  warrants  (the  "Warrants")
providing Sands with the right to purchase 6,000,000 shares of our common stock.
The exercise  price of the shares of our common stock  issuable upon exercise of
the Warrants  shall be equal to a price per share of common stock equal to forty
percent  (40%) of the price of the  securities  issued  pursuant  to a Qualified
Financing.  If no Qualified  Offering has been consummated by September 8, 2005,
then Sands may elect to exercise  the  Warrants at a fixed  conversion  price of
$0.14 per share. The latest that the Warrants may expire is September 8, 2008.


                                       65


OPTIONS

      The only executive officers or directors to receive options as of December
31, 2004 were Mitchell Peipert,  who was granted an option to purchase 4,500,000
shares  of  common  stock by our  Board of  Directors  on March  29,  2004 at an
exercise price of $0.165 per share, and Lawrence K. Reisman,  who was granted an
option to purchase  450,000  shares of common stock by our Board of Directors on
May 28, 2004 at an exercise  price of $0.20 per share.  One-third of the options
granted vest on the first anniversary,  one-third of the options granted vest on
the second  anniversary  and one-third of the options  granted vest on the third
anniversary.  Mr.  Peipert's option expires on March 28, 2014, and Mr. Reisman's
option expires on May 27, 2014.

      As of December 31, 2004,  options to purchase a total of 41,265,981 shares
of common stock were  granted by our Board of  Directors  at an exercise  prices
ranging  from  $0.055 to $0.23 per share.  Generally,  one-third  of the options
granted vest on the first anniversary,  one-third of the options granted vest on
the second  anniversary  and one-third of the options  granted vest on the third
anniversary.  However,  8,900,981  options granted during 2004 were  immediately
vested upon grant and had a below fair-market value exercise price of $0.055 per
share. The Company recorded $1.4 million of compensation expense with respect to
this option grant during 2004. All options expire on the ten year anniversary of
their grant date.

TRANSFER AGENT

      Olde Monmouth Stock Transfer Co.,  Inc.,  200 Memorial  Parkway,  Atlantic
Highlands,  New Jersey  07716,  is the  transfer  agent for our shares of common
stock.

                                       66


                         SHARES ELIGIBLE FOR FUTURE SALE

      Future  sales of  substantial  amounts of our  common  stock in the public
market, or the perception that such sales may occur,  could adversely affect the
prevailing  market price of our common stock.  This could  adversely  affect the
prevailing  market price and our ability to raise equity  capital in the future.
Subject to this Registration Statement being declared effective, all 369,912,823
shares of common stock sold in this offering will be freely transferable without
restriction or further  registration  under the Securities  Act,  except for any
shares that may be sold or purchased by our  "affiliates."  Shares  purchased by
our affiliates  will be subject to the volume and other  limitations of Rule 144
of the Securities Act, or "Rule 144" described below. As defined in Rule 144, an
"affiliate" of an issuer is a person who, directly or indirectly, through one or
more intermediaries,  controls, is controlled by or is under common control with
the issuer.  These shares will be subject to the volume and other limitations of
Rule 144.

      Under Rule 144 as currently in effect, beginning 90 days after the date of
this prospectus, a person who has beneficially owned restricted shares of common
stock for at least one year, including the holding period of any prior owner who
is not an affiliate, would be entitled to sell a number of the shares within any
three-month  period equal to the greater of 1% of the then outstanding shares of
the common stock or the average weekly  reported volume of trading of the common
stock (if such common stock is traded on NASDAQ or another  exchange) during the
four calendar weeks preceding such sale.  Immediately after the offering,  1% of
our  outstanding  shares of common  stock  would equal  approximately  7,661,297
shares.  Under Rule 144,  restricted  shares  are  subject to manner of sale and
notice  requirements  and  requirements as to the availability of current public
information concerning us.

      Under Rule 144(k), a person who is not deemed to have been an affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years,  including the holding period
of any prior  owner who is not an  affiliate,  is  entitled  to sell such shares
without regard to the volume or other limitations of Rule 144 just described.

                                     EXPERTS

      The  audited  financial  statements  for our  company as of the year ended
December  31,  2004  included in this  prospectus  are reliant on the reports of
Friedman LLP, Livingston, New Jersey, independent registered public accountants,
as stated in their reports  therein,  upon the authority of that firm as experts
in auditing and  accounting.  Prior to our  engagement  of Friedman  LLP, we had
engaged  Ehrenkrantz  Sterling  & Co.  LLC  and  Eisner  LLP as our  independent
auditors and  certifying  accountants.  See "Changes in and  Disagreements  with
Accountants on Accounting and Financial Disclosure."

                                  LEGAL MATTERS

      The  legality  of this  offering  of shares of our  common  stock has been
passed upon on our behalf by Ellenoff Grossman & Schole LLP, New York, New York.

              DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
                         FOR SECURITIES ACT LIABILITIES

      We  have  indemnified  each  member  of the  Board  of  Directors  and our
executive  officers to the fullest  extent  authorized,  permitted or allowed by
law. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to  directors,  officers and  controlling  persons of the small
business issuer pursuant to the foregoing  provisions,  or otherwise,  the small
business  issuer  has  been  advised  that  in  the  opinion  of  the  SEC  such
indemnification  is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.


                                       67


      For the purpose of determining  any liability  under the  Securities  Act,
each post-effective amendment that contains a form of prospectus 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.

                       WHERE YOU CAN FIND MORE INFORMATION

      We have filed with the SEC a registration statement on Form SB-2 under the
Securities  Act,  and the rules and  regulations  promulgated  thereunder,  with
respect to the common stock offered hereby. This prospectus, which constitutes a
part of the registration statement,  does not contain all of the information set
forth  in the  registration  statement  and  the  exhibits  thereto.  Statements
contained  in this  prospectus  as to the  contents  of any  contract  or  other
document  that is filed as an  exhibit  to the  registration  statement  are not
necessarily  complete  and each such  statement  is qualified in all respects by
reference to the full text of such contract or document. For further information
with  respect  to us and the  common  stock,  reference  is  hereby  made to the
registration  statement  and the exhibits  thereto,  which may be inspected  and
copied at the principal office of the SEC, 450 Fifth Street,  N.W.,  Washington,
D.C. 20549,  and copies of all or any part thereof may be obtained at prescribed
rates from the Commission's  Public Reference  Section at such addresses.  Also,
the SEC  maintains a World Wide Web site on the  Internet at  http://www.sec.gov
that contains  reports,  proxy and information  statements and other information
regarding  registrants  that file  electronically  with the SEC. To request such
materials,  please  send an email  to  Mitchell  Peipert,  our  Chief  Financial
Officer, at our address as set forth above or at (973) 560-9400.

      We  are  in  compliance  with  the  information  and  periodic   reporting
requirements  of the  Exchange  Act and,  in  accordance  therewith,  will  file
periodic  reports,  proxy and information  statements and other information with
the SEC. Such  periodic  reports,  proxy and  information  statements  and other
information  will be  available  for  inspection  and  copying at the  principal
office, public reference facilities and Web site of the SEC referred to above.


                                       68


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Conversion Services International, Inc. and Subsidiaries
East Hanover, New Jersey

      We have audited the accompanying  consolidated balance sheet of Conversion
Services  International,  Inc. and Subsidiaries as of December 31, 2004, and the
related consolidated  statements of operations,  stockholders' deficit, and cash
flows  for the years  ended  December  31,  2004 and  2003.  These  consolidated
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
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  Conversion  Services
International, Inc. and Subsidiaries as of December 31, 2004, and the results of
its  operations  and its cash flows for the years  ended  December  31, 2004 and
2003, in conformity with accounting  principles generally accepted in the United
States of America.


/s/ Friedman LLP
------------------------
East Hanover, New Jersey
April 8, 2005


                                      F-1


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2004



                                                                     
ASSETS
CURRENT ASSETS
    Cash                                                                $  1,028,146
    Restricted cash                                                           83,375
    Accounts receivable, net of allowance for
      doubtful accounts of $209,582                                        4,349,229
    Accounts receivable from related parties; (Note 19)                      781,100
    Prepaid expenses                                                         309,459
                                                                        ------------
      TOTAL CURRENT ASSETS                                                 6,551,309
                                                                        ------------
PROPERTY AND EQUIPMENT, at cost, net; (Note 4)                               587,575
                                                                        ------------
OTHER ASSETS
    Restricted cash                                                        4,269,377
    Goodwill                                                               4,690,972
    Intangible assets, net of accumulated
      amortization of $911,142; (Note 5)                                   3,627,096
    Deferred financing costs, net of accumulated
      amortization of $126,767; (Note 6)                                     766,542
    Discount on debt issued, net of accumulated amortization of
      $921,605; (Note 7)                                                   6,654,570
    Equity investments                                                       144,460
    Other assets                                                              13,420
                                                                        ------------
                                                                          20,166,437
                                                                        ------------
      Total Assets                                                      $ 27,305,321
                                                                        ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
    Line of credit; (Note 8)                                            $  3,733,403
    Current portion of long-term debt                                        120,834
    Accounts payable and accrued expenses                                  3,777,941
    Short term note payable, (Note 9)                                        588,591
    Deferred revenue                                                       1,327,222
                                                                        ------------
      TOTAL CURRENT LIABILITIES                                            9,547,991

LONG-TERM DEBT, net of current portion, (Note 10)                          5,181,369
                                                                        ------------
      Total Liabilities                                                   14,729,360
                                                                        ------------
MINORITY INTEREST                                                            131,587
                                                                        ------------

COMMITMENTS AND CONTINGENCIES; (Note 18)                                          --
STOCKHOLDERS' EQUITY
    Common stock, $0.001 par value, 1,000,000,000 shares authorized;
        772,082,096 issued and outstanding                                   772,082
    Additional paid in capital                                            44,756,294
    Accumulated deficit                                                  (33,089,300)
    Accumulated other comprehensive income                                     5,298
                                                                        ------------
      Total Stockholders' Equity                                          12,444,374
                                                                        ------------
      Total Liabilities and Stockholders' Equity                        $ 27,305,321
                                                                        ============


See Notes to Consolidated Financial Statements.


                                      F-2


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,



                                                                2004              2003
                                                            -------------     -------------
                                                                        
REVENUE:
 Services                                                   $  19,888,205     $  14,000,998
 Related party services                                         3,837,065           365,458
 Software                                                         293,504                --
 Support and maintenance                                        1,074,933                --
 Other                                                             72,810                --
                                                            -------------     -------------
                                                               25,166,517        14,366,456
COST OF REVENUE:
 Services (inclusive of stock-based compensation of $1.4
   million at December 31, 2004)                               15,451,392         9,964,234
 Related party services                                         3,345,318           301,574
 Software                                                         185,688
 Support and maintenance                                           31,127                --
 Other                                                                 --                --
                                                            -------------     -------------
                                                               19,013,525        10,265,808
                                                            -------------     -------------
GROSS PROFIT                                                    6,152,992         4,100,648
                                                            -------------     -------------
OPERATING EXPENSES
 Selling and marketing                                          4,087,617         1,552,766
 General and administrative (inclusive of stock-based
   compensation of $0.1 million at December 31, 2004)           6,819,039         2,701,934
 Research and development                                         516,425                --
 Goodwill and intangibles impairment                           23,298,810                --
 Depreciation and amortization                                  1,117,209           213,158
                                                            -------------     -------------
                                                               35,839,100         4,467,858
                                                            -------------     -------------
LOSS FROM OPERATIONS                                          (29,686,108)         (367,210)
                                                            -------------     -------------
OTHER INCOME (EXPENSE)
 Equity in earnings from investments                                5,684                --
 Other income                                                       8,531                --
 Interest income                                                   22,388             5,400
 Interest expense                                              (3,088,702)         (135,753)
                                                            -------------     -------------
                                                               (3,052,099)         (130,353)
                                                            -------------     -------------
LOSS BEFORE INCOME TAXES (BENEFIT) AND MINORITY INTEREST      (32,738,207)         (497,563)

INCOME TAXES (BENEFIT)                                            190,800          (190,800)
                                                            -------------     -------------
LOSS BEFORE MINORITY INTEREST                                 (32,929,007)         (306,763)

MINORITY INTEREST                                                  67,813                --
                                                            -------------     -------------
NET LOSS                                                    $ (32,861,194)    $    (306,763)
                                                            =============     =============
UNAUDITED PRO FORMA DATA (Note 1):
  Loss before income taxes (benefit)                        $          --     $    (497,563)
  Income taxes (benefit)                                               --          (198,727)
                                                            -------------     -------------
  Net loss                                                  $ (32,861,194)    $    (298,836)
                                                            =============     =============

Net loss per share:
  Basic                                                     $       (0.05)    $       (0.00)
  Diluted                                                   $       (0.05)    $       (0.00)
Shares used to compute net loss per share:
  Basic                                                       698,220,972       450,000,000
  Diluted                                                     698,220,972       450,000,000


See Notes to Consolidated Financial Statements.


                                      F-3


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY



                                                                                                               Accumulated
                                                                              Additional        Retained          Other
                                              Common          Capital          Paid-in          Earnings      Comprehensive
                                              Shares           Stock           Capital          (Deficit)         Income
                                            -----------     ------------     ------------     ------------     ------------
                                                                                                
Balance, December 31, 2002, as restated         900,000     $        900     $    140,800     $    629,237     $         --
 Net loss                                            --               --               --         (306,763)              --
 Issuance of Common Stock                       100,000              100        1,522,338               --               --
 Distributions to stockholders                       --               --         (216,888)        (550,580)              --
                                            -----------     ------------     ------------     ------------     ------------
Balance, December 31, 2003                    1,000,000     $      1,000     $  1,446,250     $   (228,106)    $         --

 Net loss                                            --               --               --      (32,861,194)
 Foreign currency translation                        --               --               --               --            5,298
 Effect of Conversion Services
   International recapitalization            (1,000,000)          (1,000)           1,000               --               --
 Relative fair value of warrants issued              --               --        3,086,665               --               --
 Issuance of Common Stock in
   connection with the reverse
     merger into LCS Golf                   593,000,000          593,000         (593,000)              --               --
 Issuance of Common Stock in
   connection with the acquisition
     of DeLeeuw Associates, Inc.             80,000,000           80,000       15,760,000               --               --
 Issuance of Common Stock in connection
   with the conversion of debt
     into Company stock                      19,047,619           19,048        1,980,952               --               --
 Issuance of Common Stock in
   connection with the acquisition
     of Evoke Software Corporation           76,463,049           76,463       12,307,635               --               --
 Issuance of Common Stock in connection
   with a stock purchase agreement            3,571,428            3,571          496,429               --               --
 Compensation expense for stock
   and stock option grants                           --               --        1,479,902               --               --
 Discount on debt issued                             --               --        7,576,175               --               --
 Unsecured convertible line of
   credit beneficial conversion feature              --               --        1,214,286               --               --

 Total comprehensive loss                            --               --               --               --               --

                                            -----------     ------------     ------------     ------------     ------------
Balance, December 31, 2004                  772,082,096     $    772,082     $ 44,756,294     $(33,089,300)    $      5,298
                                            ===========     ============     ============     ============     ============


                                                   Total
                                               Stockholders'    Comprehensive
                                                  Equity             Loss
                                               ------------     -------------
                                                          
Balance, December 31, 2002, as restated        $    770,937
 Net loss                                          (306,763)       (306,763)
 Issuance of Common Stock                         1,522,438
 Distributions to stockholders                     (767,468)
                                               ------------     -------------
Balance, December 31, 2003                     $  1,219,144        (306,763)
                                                                =============

 Net loss                                       (32,861,194)    (32,861,194)
 Foreign currency translation                         5,298           5,298
 Effect of Conversion Services
   International recapitalization                        --
 Relative fair value of warrants issued           3,086,665
 Issuance of Common Stock in
   connection with the reverse
     merger into LCS Golf                                --
 Issuance of Common Stock in
   connection with the acquisition
     of DeLeeuw Associates, Inc.                 15,840,000
 Issuance of Common Stock in connection
   with the conversion of debt
     into Company stock                           2,000,000
 Issuance of Common Stock in
   connection with the acquisition
     of Evoke Software Corporation               12,384,098
 Issuance of Common Stock in connection
   with a stock purchase agreement                  500,000
 Compensation expense for stock
   and stock option grants                        1,479,902
 Discount on debt issued                          7,576,175
 Unsecured convertible line of
   credit beneficial conversion feature           1,214,286
                                                                -----------
 Total comprehensive loss                                --     (32,855,896)
                                                                ===========
                                               ------------
Balance, December 31, 2004                     $ 12,444,374
                                               ============


See Notes to Consolidated Financial Statements.


                                      F-4


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,



                                                                                       2004              2003
                                                                                   ------------      ------------
                                                                                               
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                        $(32,861,194)     $   (306,763)

   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization of
        leasehold improvements                                                          180,001            95,837
      Amortizaton of intangible assets                                                  821,432            82,800
      Amortization of discount on debt                                                  921,605                --
      Amortization of relative fair value of warrants issued                            449,848                --
      Amortization of deferred financing costs                                          134,402            34,521
      Beneficial conversion feature associated with convertible debt
        instruments                                                                   1,214,286                --
      Deferred taxes                                                                    190,800          (190,800)
      Goodwill and intangibles impairment                                            23,298,810                --
      Compensation expense for stock options and stock issued                         1,479,902                --
      Allowance for doubtful accounts                                                   117,582            42,000
      Conversion of accrued interest to additional paid-in capital                           --            22,438
      Write-off deferred loan costs                                                      45,213                --
      Loss on disposal of equipment                                                      88,190                --
      Income from equity investments                                                     (5,684)               --
      Minority interest in Evoke Software Corporation                                   (67,813)               --
   Changes in operating assets and liabilities:
      Increase in accounts receivable                                                (1,252,116)         (268,325)
      Increase in accounts receivable from related parties                             (388,100)               --
      Increase in prepaid expenses                                                     (120,092)          (50,611)
      (Increase) decrease in other assets                                                14,721            (2,070)
      Increase (decrease) in accounts payable and accrued expenses                    1,217,749              (327)
      Increase in deferred revenue                                                       73,179                --
                                                                                   ------------      ------------
         Net cash used in operating activities                                       (4,447,279)         (541,300)
                                                                                   ------------      ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of property and equipment                                               (147,833)          (93,640)
   Investment in DeLeeuw Associates, net of cash acquired                            (2,010,266)               --
   Investment in Evoke Software Corp., net of cash acquired                             334,073                --
   Collection of note receivable                                                             --             2,100
   Acquisition of intangible assets and goodwill                                             --           (11,951)
   Equity investment in Leading Edge Communications Corp.                               (83,000)               --
                                                                                   ------------      ------------
         Net cash used in investing activities                                       (1,907,026)         (103,491)
                                                                                   ------------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Cash overdraft                                                                            --            (5,661)
   Net advances under line of credit                                                  1,950,704         1,112,863
   Issuance of convertible line of credit notes                                              --         1,500,000
   Issuance of short-term note payable                                                1,000,000                --
   Issuance of long-term note payable                                                 4,730,623                --
   Deferred loan costs in connection with line of credit                               (893,309)               --
   Principal payments on long-term debt                                                (665,085)         (777,957)
   Proceeds from sale of Company common stock                                           500,000                --
   Principal payments on capital lease obligations                                      (85,595)               --
   Distributions to stockholders                                                             --          (767,468)
   Due from stockholders                                                                     --            (5,400)
   Proceeds from repayment of stockholder loans                                         203,623                --
   Long-term note payable to shareholders                                               307,981                --
   Restricted cash                                                                      (83,375)               --
                                                                                   ------------      ------------
      Net cash provided by financing activities                                       6,965,567         1,056,377
                                                                                   ------------      ------------
      Effect of exchange rate changes on cash and cash equivalents                        5,298                --
NET INCREASE IN CASH                                                                    616,560           411,586
CASH, beginning of year                                                                 411,586                --
                                                                                   ------------      ------------
CASH, end of year                                                                  $  1,028,146      $    411,586
                                                                                   ============      ============



                                      F-5


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,



                                                                         2004                     2003
                                                                   -----------------          -------------
                                                                                          
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

      Cash paid for interest                                            $ 276,680               $ 89,630
      Cash paid for income taxes                                               --                 28,258

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

      During 2004 and 2003, the Company entered into various capital lease
      arrangements for computer and trade show equipment in the amount of
      $249,241 and $23,556, respectively.

      During June 2004, the Company acquired substantially all of the assets and
      liabilities of Evoke Software Corporation. The following assets and
      liabilities were obtained as a result of the acquisition.

      Acquired cash                                                     $ 497,492               $     --
      Acquired accounts receivable                                        579,839                     --
      Acquired customer contracts                                       1,962,000                     --
      Acquired tradename                                                  651,000                     --
      Acquired computer software                                        1,381,000                     --
      Acquired goodwill                                                 9,901,000                     --
      Acquired prepaid expenses                                            78,533                     --
      Acquired other assets                                                11,350                     --
      Acquired furniture and equipment                                    183,717                     --
      Acquired deferred revenue                                        (1,254,043)                    --
      Acquired deferred compensation                                     (443,174)                    --
      Acquired liabilities                                               (802,000)                    --
      Minority interest                                                  (199,400)                    --

      On March 4, 2004, the Company acquired DeLeeuw Associates, Inc. The
      following assets and liabilities were obtained as a result of the
      acquisition.

      Acquired accounts receivable                                      $ 975,513               $     --
      Acquired approved vendor status                                     538,814                     --
      Acquired tradename                                                  722,000                     --
      Acquired goodwill                                                15,844,000                     --
      Acquired investment in limited liability company                     55,776                     --
      Acquired liabilities                                               (285,651)                    --


On May 5, 2004, a $2,000,000 Unsecured Convertible Line of Credit Note was
converted into 16,666,666 shares of Company common stock. The conversion price
was $0.12 per share, which represented 75% of the market price on the date of
conversion. The $666,667 effect of this beneficial conversion feature is
reflected in the Company's statement of operations for the June 2004 quarter.
The conversion price on the October 2003 note was adjusted to a fixed conversion
price of $0.105 per share on September 1, 2004, and 2,380,953 additional shares
of common stock were issued to the participating investor. Since the conversion
price was less than the market value of the common stock, the Company recorded a
$547, 619 discount on debt issued in September 2004 as a result of the
realization of a contingency that reduced earnings available to common
stockholders. The Company has reflected this beneficial conversion charge in the
accompanying consolidated statements of operations.

In June 2004, the Company signed an unsecured convertible line of credit note in
exchange for $2,000,000. The note bears interest at 7% per annum, is convertible
into shares of Company stock, and expires on June 6, 2009. The conversion price
is 75% of the average bid price for the ten trading days prior to the date of
conversion. However, on September 1, 2004, the conversion price was reset to a
fixed conversion price of $0.105 per share. As a result of the discount on debt
issued, the Company recorded a charge of $1,500,000 in September 2004, which
will be amortized to interest expense over the five year life of the debt
agreement.

On August 16, 2004, the Company executed a revolving line of credit agreement
and a secured convertible term note with the Laurus Master Fund ("Laurus"),
whereby the Company will have access to a $6,000,000 revolving line of credit
and an additional $5,000,000 cash to be used for acquisitions. These notes
provide beneficial conversion features to Laurus and, as a result, the Company
has recorded a $5,621,600 discount on debt in the September quarter which will
be amortized to interest expense over the three year life of the debt
instrument. Additionally, warrants to purchase up to 12,000,000 shares of
Company stock were issued as part of the above transaction. A relative fair
value of $2,041,200 was also ascribed to the warrants. This relative fair value
will also be amortized to interest expense over the life of the debt instrument.
See footnote 8 -- Line of Credit for further discussion surrounding this
transaction.

On September 22, 2004, the Company issued subordinated secured convertible
promissory notes in the amount of $1,000,000. These notes bear interest at 8%
per annum and expire September 22, 2005. These notes are convertible into shares
of Company stock and include beneficial conversion priviliges. As a result, the
Company has recorded a discount on debt relating to this transaction in the
amount of $454,500 in the September 2004 quarter which will be amortized to
interest expense over the one year life of the debt instrument. A relative fair
value of $545,500 was ascribed to the 6,000,000 warrants which were issued as
part of this transaction. The relative fair value will be amortized to interest
expense over the one year life of the debt instrument.

See Notes to Consolidated Financial Statements.


                                      F-6


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Accounting Policies

      Organization and Business

      Conversion  Services  International,  Inc. ("CSI") was incorporated in the
State of Delaware  and has been  conducting  business  since  1990.  CSI and its
wholly owned  subsidiaries  (together the "Company") are principally  engaged in
the information  technology services industry in the following areas:  strategic
consulting,  business intelligence,  data warehousing,  and data management,  on
credit, to its customers principally located in the northeastern United States.

      o     On November 1, 2002, the Company  acquired the operations of Scosys,
            Inc.  ("Scosys").  Scosys is engaged in the  information  technology
            services industry.

      o     On January 30, 2004, the Company became a public company through its
            merger with a wholly owned  subsidiary of LCS Group,  Inc.  Although
            LCS Group,  Inc.  (now known as Conversion  Services  International,
            Inc.)  was  the  legal  survivor  in  the  merger  and  remains  the
            Registrant with the Securities and Exchange  Commission,  the merger
            was accounted for as a reverse acquisition,  whereby the Company was
            considered the "acquirer" of LCS Group, Inc. for financial reporting
            purposes, as the Company's stockholders controlled approximately 76%
            of the post  transaction  combined  company.  Among  other  matters,
            reverse merger accounting requires LCS Group, Inc. to present in all
            financial statements and other public filings,  prior historical and
            other information of the Company,  and a retroactive  restatement of
            the  Company's  historical  stockholders'  equity.  The  retroactive
            restatement took place subsequent to the merger on January 30, 2004.

      o     On March 4, 2004, the Company acquired DeLeeuw Associates,  Inc. and
            merged the company  into  DeLeeuw  Associates,  LLC  ("DeLeeuw"),  a
            subsidiary  of  CSI.   DeLeeuw  is  a  management   consulting  firm
            specializing in integration, reengineering and project management.

      o     On May 1, 2004, the Company  acquired a 49% interest in Leading Edge
            Communications   Corporation   ("LEC"),  a  provider  of  enterprise
            software  and  services  solutions  for  technology   infrastructure
            management.

      o     On June 28, 2004, the Company acquired  substantially all the assets
            of Evoke  Software  Corporation  and the  stock of  Evoke's  foreign
            subsidiaries ("Evoke"), a provider of data discovery,  profiling and
            quality management software.

      o     Doorways,  Inc. is a wholly owned  subsidiary of the Company that is
            currently dormant.

      o     LEC  Corporation  of NJ is a wholly owned  subsidiary of the Company
            that incurs an  insignificant  amount of payroll  expense and has no
            other operations.

      o     CSI Sub Corp.  (DE) is a wholly owned  subsidiary of the Company and
            is the primary operating entity for the Company.

      Principles of Consolidation

      The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries,  Doorways,  Inc., DeLeeuw,  and Evoke Software
Corporation  (formerly known as Evoke Asset Purchase Corp.),  LEC Corporation of
NJ, and CSI Sub Corp. (DE). All intercompany transactions and balances have been
eliminated in the  consolidation.  Investments in business entities in which the
Company  does not have  control,  but has the  ability to  exercise  significant
influence (generally 20-50% ownership), are accounted for by the equity method.

      Revenue recognition


                                      F-7


Services

Revenue from consulting and professional  services is recognized at the time the
services are performed on a project by project basis.  For projects charged on a
time and materials  basis,  revenue is  recognized  based on the number of hours
worked  by  consultants  at an  agreed-upon  rate per hour.  For large  services
projects where costs to complete the contract could reasonably be estimated, the
Company undertakes  projects on a fixed-fee basis and recognizes revenues on the
percentage of completion  method of accounting based on the evaluation of actual
costs incurred to date compared to total estimated costs. Revenues recognized in
excess of  billings  are  recorded as costs in excess of  billings.  Billings in
excess of revenues  recognized  are recorded as deferred  revenues until revenue
recognition criteria are met. Reimbursements, including those relating to travel
and other out-of-pocket  expenses,  are included in revenues,  and an equivalent
amount  of  reimbursable  expenses  are  included  in cost of  services  and are
immaterial.

Software

Revenue from software  licensing and maintenance and support are recognized when
persuasive evidence of an arrangement exists,  delivery has occurred, the fee is
fixed or  determinable,  and  collectibility  is reasonably  assured.  The Evoke
software is  delivered  by the Company  either  directly to the customer or to a
distributor on an order by order basis.  The software is not sold with any right
of return privileges and, as a result, a returns reserve is not applicable.  The
Company recognizes net license revenues based upon the residual method after all
licensed  software  product has been  delivered  as  prescribed  by Statement of
Position  98-9,   "Modification   of  SOP  No.  97-2  with  Respect  to  Certain
Transactions." The Company recognizes  maintenance revenues over the term of the
maintenance contract. The maintenance rates for both license agreements with and
without  stated  renewal  rates are based upon the price  when sold  separately.
Vendor-specific  objective evidence of the fair value of maintenance for license
agreements  that do not include  stated renewal rates is determined by reference
to the price paid by the Company's customers when maintenance is sold separately
(i.e. the prices paid by customers in connection  with  renewals).

The  percentage-of-completion  method of  accounting is not  applicable  for the
Company's software sales.

Business Combinations

Business  combinations  are  accounted  for in  accordance  with  SFAS No.  141,
"Business  Combinations"  ("SFAS 141"),  which  requires the purchase  method of
accounting for business combinations be followed and in accordance with EITF No.
99-12  "Determination  of the Measurement  Date for the Market Price of Acquirer
Securities  Issued  in a  Purchase  Business  Combination"  ("EITF  99-12").  In
accordance  with SFAS 141, the Company  determines the recognition of intangible
assets based on the following  criteria:  (i) the  intangible  asset arises from
contractual  or other rights;  or (ii) the  intangible is separable or divisible
from the  acquired  entity and  capable of being  sold,  transferred,  licensed,
returned or exchanged.  In accordance  with SFAS 141, the Company  allocates the
purchase price of its business combinations to the tangible assets,  liabilities
and intangible assets acquired based on their estimated fair values.  The excess
purchase price over those fair values is recorded as goodwill.  Additionally, in
accordance  with EITF 99-12,  the Company values an  acquisition  based upon the
market price of its common stock for a  reasonable  period  before and after the
date the terms of the acquisition are agreed to and announced.

      Research and development costs

      The Company  incurs  research and  development  costs  related to software
upgrades and the development of new versions of its Evoke Axio software product.
Research and  development  costs are charged to expense as incurred.  Such costs
amounted to $516,425 and $0 in 2004 and 2003, respectively.


                                      F-8


      Accounts receivable

      The Company carries its accounts  receivable at cost less an allowance for
doubtful  accounts.  On a periodic  basis,  the Company  evaluates  its accounts
receivable  and  adjusts  the  allowance  for  doubtful  accounts,  when  deemed
necessary,   based  upon  its  history  of  past  write-offs  and   collections,
contractual  terms and  current  credit  conditions.  During  2004,  $114,785 of
uncollectible  accounts  receivable  were written off against the  allowance for
doubtful accounts.

      Property and equipment

      Property  and  equipment  are stated at cost and includes  equipment  held
under capital lease arrangements.  Depreciation,  which includes amortization of
leasehold improvements,  is computed principally by an accelerated method and is
based on the estimated  useful lives of the various assets ranging from three to
seven years.  Leasehold improvements are amortized over the shorter of the asset
life or the remaining lease term on a straight-line  basis. When assets are sold
or retired, the cost and accumulated  depreciation are removed from the accounts
and any gain or loss is included in operations.

      Expenditures  for maintenance and repairs have been charged to operations.
Major renewals and betterments have been capitalized.

      Goodwill and intangible assets

      Goodwill and intangible  assets are accounted for in accordance  with SFAS
No. 142 "Goodwill and Other  Intangible  Assets"  ("SFAS 142").  Under SFAS 142,
goodwill and indefinite  lived  intangible  assets are not amortized but instead
are  reviewed  annually  for  impairment,   or  more  frequently  if  impairment
indicators  arise.  Separable  intangible  assets that are not deemed to have an
indefinite life will continue to be amortized over their estimated useful lives.
The Company tests for  impairment  whenever  events or changes in  circumstances
indicate that the carrying amount of goodwill or other intangible assets may not
be  recoverable,  or at least annually at December 31 of each year.  These tests
are performed at the  reporting  unit level using a two-step,  fair-value  based
approach.  The first step compares the fair value of the reporting unit with its
carrying amount,  including goodwill. If the fair value of the reporting unit is
less than its carrying  amount, a second step is performed to measure the amount
of impairment  loss.  The second step  allocates the fair value of the reporting
unit to the  Company's  tangible and  intangible  assets and  liabilities.  This
derives an implied fair value for the reporting unit's goodwill. If the carrying
amount of the reporting  unit's goodwill  exceeds the implied fair value of that
goodwill,  an impairment loss is recognized  equal to that excess.  In the event
that the  Company  determines  that the value of  goodwill  or other  intangible
assets have become  impaired,  the Company will incur a charge for the amount of
the impairment during the fiscal quarter in which the determination is made.

      Goodwill  represents the amounts paid in connection with the  acquisitions
of Scosys,  DeLeeuw and Evoke and also in connection with a settlement agreement
with the Elligent  Consulting  Group to re-acquire  the ownership  rights to the
Company  in  1998.  Additionally,  as  part of the  Scosys,  DeLeeuw  and  Evoke
acquisitions, the Company acquired identifiable intangible assets. The Company's
goodwill and  intangible  assets were evaluated and deemed not to be impaired at
December 31, 2003. The Company has performed its annual  impairment review as of
December 31, 2004 and has determined that goodwill and certain intangible assets
were impaired at that date and,  accordingly,  has recorded an impairment charge
of $23,298,810.

      Acquired software is amortized on a straight-line  basis over an estimated
useful life of three years.  Acquired contracts are amortized over a period that
approximates  the  estimated  life of the  contracts,  based upon the  estimated
annual cash flows  obtained from those  contracts,  generally five to six years.
The approved vendor status intangible asset is being amortized over an estimated
life of forty months.

      Deferred financing costs

      The  Company  capitalizes  costs  associated  with  the  issuance  of debt
instruments. These costs are amortized on a straight-line basis over the term of
the related debt instruments, which currently range from one to three years.


                                      F-9


      Discount on debt

      The Company has allocated  the proceeds  received  from  convertible  debt
instruments  between the underlying debt instrument and the detachable  warrants
and has  recorded  the  discount  on the  debt  instrument  due to a  beneficial
conversion feature as a deferred charge. This deferred charge is being amortized
to  interest  expense  over  the life of the  related  debt  instruments,  which
currently range from one to five years.

      Stock compensation

      The  Company  follows   Accounting   Principles   Board  Opinion  No.  25,
"Accounting  for Stock Issued to  Employees"  ("APB 25") in  accounting  for its
employee  stock  options.  Under APB 25,  because the exercise of the  Company's
employee  stock option  equals the market price of the  underlying  stock on the
date  of  grant,  no  compensation   expense  is  recognized  in  the  Company's
consolidated  statements of operations.  The Company is required under Statement
of  Financial  Accounting  Standards  (SFAS) 123,  "Accounting  for  Stock-Based
Compensation",  which  established a fair value based method of  accounting  for
stock  compensation  plans  with  employees  and  others to  disclose  pro forma
financial information regarding option grants made to its employees.

      The Company  follows EITF No. 96-18,  "Accounting  for Equity  Instruments
That Are Issued to Other Than  Employees for Acquiring,  or in Conjunction  with
Selling,  Goods or Services"  ("EITF  96-18") in  accounting  for stock  options
issued to  non-employees.  Under EITF 96-18,  the equity  instruments  should be
measured  at the fair value of the equity  instrument  issued.  During the three
months  ended June 30,  2004,  the  Company  granted  650,000  stock  options to
non-employee recipients.  In compliance with EITF 96-18, the fair value of these
options was determined using the Black-Scholes option pricing model. The Company
is  recording  the fair value of these  options  as expense  over the three year
vesting period of the options.

      Had the Company determined  compensation cost based upon the fair value at
the grant date for its stock  options under SFAS No. 123, the Company's net loss
would have changed to the pro forma amounts indicated below:


                                                             Year ended
                                                          December 31, 2004
                                                        --------------------
Net loss:
    As reported                                          $    (32,861,194)
    Add: Stock based compensation expense recorded              1,466,777
    Less: Compensation expense per SFAS 123                    (2,998,232)
                                                         ----------------
    Pro forma                                            $    (34,392,649)
                                                         ================

Net loss per share:
    As reported
         Basic                                           $          (0.05)
         Diluted                                                    (0.05)
    Pro forma
         Basic                                           $          (0.05)
         Diluted                                                    (0.05)
                                                         ================

$13,125 of compensation  expense related to options granted to  non-employees is
included in the reported loss and has not been added back and fair valued in the
above calculation.


                                      F-10


There were no options granted prior to 2004. The per share weighted average fair
value of stock  options  granted  during 2004 was $0.16 per share on the date of
grant using the Black-Scholes  option-pricing  model with the following weighted
average assumptions:

      Expected dividend yield                        0.0%
      Risk-free interest rate                        2.5%
      Expected volatility                          148.0%
      Expected option life (years)                   3.0

      Pro  forma  information  regarding  net loss  and net  loss  per  share is
required by SFAS 123, as amended by SFAS 148, and has been  determined as if the
Company had  accounted  for its  employee  stock  options  under the  fair-value
method.  The  Black-Scholes  option  pricing  model used in this  valuation  was
developed for use in estimating the fair value of traded options,  which have no
vesting restrictions and are fully transferable. Option valuation models require
the  input  of  highly  subjective   assumptions.   The  Company's   stock-based
compensation has  characteristics  significantly  different from those of traded
options,  and changes in the  assumptions  used can  materially  affect the fair
value estimate.

      Concentrations of credit risk

      Financial   instruments   which   potentially   subject   the  Company  to
concentrations of credit risk are cash and accounts  receivable arising from its
normal  business  activities.  The  Company  routinely  assesses  the  financial
strength of its  customers,  based upon factors  surrounding  their credit risk,
establishes an allowance for doubtful  accounts,  and as a consequence  believes
that its accounts  receivable  credit risk  exposure  beyond such  allowances is
limited.  At  December  31,  2004,  LEC,  and  Bank  of  America  accounted  for
approximately  15.2%  and 6.8% of the  Company's  accounts  receivable  balance,
respectively.

      The  Company  maintains  its cash  with a high  credit  quality  financial
institution.   Each  account  is  secured  by  the  Federal  Deposit   Insurance
Corporation up to $100,000.

      Advertising

      The Company  expenses  advertising  costs as incurred.  Advertising  costs
amounted to  approximately  $162,000 and $8,000 for the years ended December 31,
2004 and 2003, respectively.

      Income taxes

      The Company  accounts for income taxes,  in accordance  with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109") and related interpretations, under an
asset and  liability  approach  that  requires the  recognition  of deferred tax
assets and liabilities  for the expected future tax  consequences of events that
have been recognized in the Company's  financial  statements or tax returns.  In
estimating future tax consequences, the Company generally considers all expected
future events other than enactments of changes in the tax laws or rates.

      The  Company  records a valuation  allowance  to reduce the  deferred  tax
assets to the amount that is more likely than not to be realized.  The Company's
current  valuation  allowance  primarily  relates to benefits from the Company's
NOL's.

      On January 1, 2001, the Company elected to be an "S" Corporation,  whereby
the  stockholders  account for their share of the  Company's  earnings,  losses,
deductions  and credits on their  federal and various  state income tax returns.
The  Company is subject to New York City and  various  state  income  taxes.  On
September  30,  2003,  the  Company's  "S"  Corporation  status  was  revoked in
connection with the conversion of convertible  subordinated  debt into shares of
common  stock.  Effective  October 1, 2003, as a result of the  revocation,  the
Company's tax status reverted to a "C"  Corporation.


                                      F-11


      For informational  purposes, the accompanying statements of operations for
2003  include a pro forma  adjustment  for income  taxes  which  would have been
recorded if the Company had not been an "S" Corporation. For 2004, the Company's
effective tax rate is estimated to be approximately 40%. This rate is based upon
the statutory federal income tax rate of 34% plus a blended rate for the various
states in which the Company  incurs income tax  liabilities,  net of the federal
income tax benefit for state  taxes  paid,  of 6%.  Since the Company was an "S"
corporation  for the first nine  months of 2003,  the pro forma rate is based on
the Company's estimated income tax rate for 2004 and is not based upon the prior
year's effective tax rate.

      Derivatives

      The Company  accounts for  derivatives  in  accordance  with SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging Activities" ("SFAS 133") and
related interpretations.  SFAS 133, as amended,  requires companies to recognize
all derivative  instruments as either assets or liabilities in the balance sheet
at fair  value.  At December  31,  2004,  the  Company had not entered  into any
transactions  which were  considered  hedges under SFAS 133. The  accounting for
changes in the fair value of a derivative instrument depends on: (i) whether the
derivative has been designated and qualifies as part of a hedging  relationship,
and (ii) the type of hedging relationship. For those derivative instruments that
are designated and qualify as hedging instruments,  a company must designate the
hedging  instrument  based upon the exposure being hedged as either a fair value
hedge, cash flow hedge or hedge of a net investment in a foreign operation.

      Equity investments

      Prior  to the  Company's  acquisition  of  DeLeeuw  in 2004,  DeLeeuw  had
acquired a non-controlling  interest in DeLeeuw  International (a company formed
under the laws of  Turkey).  The  Company  accounts  for its share of the income
(losses) of this investment under the equity method.

      The Company  acquired 49% of all issued and  outstanding  shares of common
stock of LEC as of May 1, 2004. The  acquisition  was completed  through a Stock
Purchase  Agreement  between  the Company  and the sole  stockholder  of LEC. In
connection with the acquisition, the Company (i) repaid a bank loan on behalf of
the seller in the amount of $35,000;  (ii) repaid an LEC bank loan in the amount
of  $38,000;  and  (iii)  satisfied  an LEC  obligation  for  $10,000  of  prior
compensation  to an employee.  The Company  accounts for its share of the income
(losses) of this investment under the equity method.

      Foreign Currency Translation

      Local  currencies  are  the  functional  currencies  for  Evoke's  foreign
subsidiaries.  Assets and liabilities are translated using the exchange rates in
effect at the balance  sheet date.  Income and  expenses are  translated  at the
average  exchange  rates  during the  period.  Translation  gains and losses not
reflected in earnings are reported as a component of stockholders' equity.

      Comprehensive Income

      Accumulated  other  comprehensive  income is comprised of foreign currency
translation  gains and losses  which have been  excluded  from net  income.  The
Company has reported the components of comprehensive  income on the consolidated
statements of shareholders' equity.

      Reclassification

      Certain amounts in prior periods have been  reclassified to conform to the
2004 financial statement presentation.

      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
disclosures  of contingent  assets and  liabilities at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.


                                      F-12


Note 2: Recent Pronouncements

In October 2004, the Financial Accounting Standards Board ("FASB") ratified EITF
04-8, "Accounting Issues Related to Certain Features of Contingently Convertible
Debt and the  Effect on  Diluted  Earnings  Per  Share."  The new rules  require
companies to include shares issuable upon conversion of contingently convertible
debt in their  diluted  earnings  per share  (EPS)  calculations  regardless  of
whether  the debt has a market  price  trigger  that is above the  current  fair
market value of the  company's  common stock that makes the debt  currently  not
convertible.  The new rules are  effective for  reporting  periods  ending on or
after December 15, 2004. At December 31, 2004,  the Company had no  contingently
convertible debt.

In  January  2003,  the  FASB  issued  FASB   Interpretation   ("FIN")  No.  46,
"Consolidation of Variable Interest Entities". In December 2003, the FASB issued
FIN No. 46  (Revised)  ("FIN  46-R") to address  certain  FIN 46  implementation
issues. This interpretation requires that the assets,  liabilities,  and results
of activities of a Variable  Interest  Entity ("VIE") be  consolidated  into the
financial  statements of the enterprise  that has a controlling  interest in the
VIE. FIN 46-R also requires additional  disclosures by primary beneficiaries and
other significant  variable  interest holders.  For entities acquired or created
before February 1, 2003, this  interpretation is effective no later than the end
of the first interim or reporting period ending after March 15, 2004, except for
those VIE's that are considered to be special  purpose  entities,  for which the
effective date is no later than the end of the first interim or annual reporting
period  ending  after  December 15, 2003.  For all entities  that were  acquired
subsequent to January 31, 2003, this interpretation is effective as of the first
interim or annual  period  ending after  December 31, 2003.  The adoption of the
provisions  of  this  interpretation  did  not  have a  material  effect  on our
financial condition or results of operations.

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities".  This  standard  amends  and
clarifies  financial  accounting  and  reporting  for  derivative   instruments,
including   certain   derivative   instruments   embedded  in  other  contracts,
collectively  referred to as derivatives,  and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Relationships." SFAS
No. 149 is effective for contracts  entered into or modified after June 30, 2003
and for  hedging  relationships  after  June  30,  2003.  The  adoption  of this
statement  did not have a  material  impact  on our  results  of  operations  or
financial condition.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity".  SFAS No. 150
clarifies the accounting for certain financial  instruments with characteristics
of both liabilities and equity and requires that those instruments be classified
as liabilities in statements of financial condition.  Previously,  many of those
financial  instruments were classified as equity.  SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period  beginning  after June
15, 2003.  The adoption the  provisions  of SFAS No. 150 did not have a material
effect on our results of operations or financial condition.

In December 2003,  the SEC issued Staff  Accounting  Bulletin No. 104,  "Revenue
Recognition"  ("SAB 104"),  which  supersedes SAB 101,  "Revenue  Recognition in
Financial  Statements." The primary purpose of SAB 104 is to rescind  accounting
guidance contained in SAB 101 related to multiple element revenue  arrangements,
which was superseded as a result of the issuance of EITF 00-21,  "Accounting for
Revenue  Arrangements with Multiple  Deliverables." While the wording of SAB 104
has changed to reflect  the  issuance  of EITF  00-21,  the revenue  recognition
principles of SAB 101 remain  largely  unchanged by the issuance of SAB 104. The
adoption of SAB 104 did not have a material impact on our financial statements.

In  December  2004,  the FASB issued SFAS No. 123  (Revised  2004)  "Share-Based
Payment" ("SFAS No. 123R") that addresses the accounting for share-based payment
transactions in which a company receives  employee  services in exchange for (a)
equity  instruments of the company or (b) liabilities that are based on the fair
value of the company's equity instruments or that may be settled by the issuance
of such equity  instruments.  SFAS No. 123R  addresses all forms of  share-based
payment  awards,  including  shares issued under employee stock purchase  plans,
stock options,  restricted stock and stock  appreciation  rights.  SFAS No. 123R
eliminates  the ability to account  for  share-based  compensation  transactions
using APB Opinion No. 25,  "Accounting for Stock Issued to Employees",  that was
provided in Statement 123 as originally  issued.  Under SFAS No. 123R  companies
are required to record  compensation  expense for all share based  payment award
transactions  measured at fair value.  This  statement is effective for quarters
ending  after  December  15,  2005.  We have not yet  determined  the  impact of
applying the various provisions of SFAS No. 123R.


                                      F-13


In December 2004, the FASB issued SFAS No. 153,  Exchanges of Nonmonetary Assets
-- An Amendment of APB Opinion No. 29,  Accounting for Nonmonetary  Transactions
(SFAS 153).  SFAS 153 eliminates the exception from fair value  measurement  for
nonmonetary  exchanges of similar  productive  assets in paragraph  21(b) of APB
Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an
exception  for  exchanges  that  do not  have  commercial  substance.  SFAS  153
specifies  that a nonmonetary  exchange has  commercial  substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange.  SFAS 153 is effective for the fiscal periods beginning after June 15,
2005 and is required to be adopted by the Company in the third  quarter of 2005.
The Company is  currently  evaluating  the effect that the  adoption of SFAS 153
will have on its consolidated  results of operations and financial condition but
does not expect it to have a material impact.

In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs: an amendment
of ARB No. 43,  Chapter 4," to clarify the  accounting  for abnormal  amounts of
idle facility expense, freight, handling costs and wasted material. SFAS No. 151
is effective for inventory  costs incurred  during fiscal years  beginning after
June 15, 2005.  We do not believe the  provisions of SFAS No. 151, when applied,
will have an impact on our financial position or results of operations.

Note 3 - Mergers and acquisitions

Acquisition of DeLeeuw Associates, Inc.

      In  February  2004,   the  Company  formed  a  wholly  owned   acquisition
subsidiary,  DeLeeuw  Conversion LLC ("DCL"),  for the purpose of consummating a
merger with DeLeeuw  Associates,  Inc. a privately-held  New Jersey  corporation
("DAI").  On March 4, 2004,  DCL completed the merger with DAI,  whereby DAI was
merged  with and into  DCL,  and the  president  and  sole  stockholder  of DAI,
received  $2,000,000 and 80,000,000  shares of common stock of CSI (at the time,
approximately  11.9% of the outstanding  shares).  On March 5, 2004, DCL changed
its name to  DeLeeuw  Associates,  LLC.  The  Company's  consolidated  financial
statements  include  DeLeeuw  Associates,  LLC's results of  operations  for the
period  subsequent  to its  acquisition  on March 4, 2004.  The  components  and
allocations  of the  purchase  price  were based on the fair value of assets and
liabilities acquired as of the acquisition date ($'s in 000's):


                                      F-14


COMPONENTS OF PURCHASE PRICE:

Cash payments                                $  1,939
Acquisition costs                                  71
Value of Common Stock                          15,840
                                             --------
                                             $ 17,850

ALLOCATION OF PURCHASE PRICE:

Approved vendor status                           (539)   (40 month life)
Accounts receivable                              (975)
Tradename                                        (722)   (indefinite life)
Goodwill                                      (15,844)
Other assets                                      (56)
Current liabilities assumed                       286
                                             --------
                                             $     --
                                             --------

An "approved  vendor" is on an exclusive  list to provide  vendor  services to a
specified client and has previously met established quality control standards of
that client.

The Company  performed its annual goodwill  impairment review in connection with
its year-end  financial  closing in December  2004 and has  determined  that the
recorded  amount of the goodwill  was  impaired as of December  31,  2004.  As a
result,  the Company recorded a goodwill  impairment  charge with respect to the
DAI goodwill of approximately $11,500,000.

The DAI  acquisition  was structured to be a non-taxable  transaction  and, as a
result, the goodwill recorded with respect to this transaction is not deductible
for income tax purposes.

Acquisition of Evoke Software Corporation

      On June 28, 2004, CSI,  through its subsidiary Evoke Asset Purchase Corp.,
acquired  substantially  all of the assets and assumed  substantially all of the
liabilities of Evoke, a privately-held  California corporation.  The acquisition
was completed  pursuant to an Asset Purchase  Agreement between CSI, Evoke Asset
Purchase Corp. and Evoke.  In connection  with the  acquisition,  CSI (i) issued
72,543,956  shares of its common  stock to Evoke,  7,150,000  of which have been
deposited  into an escrow  account for a period of  one-year  and may be reduced
based  upon  claims  for  indemnification  that  may  be  made  pursuant  to the
agreement;  (ii) issued 5% of the outstanding shares of the Evoke Asset Purchase
Corp.  to Evoke;  (iii) issued  3,919,093  shares of its common stock to certain
executives of Evoke as a severance payment and to certain employees as retention
shares;  and (iv) agreed to pay  $448,154 in  deferred  compensation  to certain
employees of Evoke. For accounting purposes, this transaction was deemed to have
occurred on June 30, 2004. Transaction volumes between June 28 and June 30, 2004
were de minimis.

      The  components  and  allocations  of the purchase price were based on the
fair value of assets and liabilities acquired as of the acquisition date ($'s in
000's).


                                      F-15


COMPONENTS OF PURCHASE PRICE:

Value of Common Stock                      $ 12,384
Acquisition costs                               163
                                           --------
                                           $ 12,547

ALLOCATION OF PURCHASE PRICE:
Customer contracts                           (1,962) (six year estimated life)
Computer software                            (1,381) (three year estimated life)
Goodwill                                     (9,901)
Tradename                                      (651) (indefinite life)
Accounts receivable                            (580)
Furniture and equipment                        (184)
Cash                                           (497)
Prepaid expenses                                (78)
Other assets                                    (11)
Deferred revenue                              1,254
Deferred compensation                           443
Other liabilities                               802
Minority interest                               199
                                           --------
                                           $     --
                                           ========

      The weighted  average life of the  identifiable  intangible  assets is 4.3
years.

      7,150,000  shares  of  common  stock of the  Company  have  been  withheld
pursuant to the Holdback Agreement among the Company, Evoke Asset Purchase Corp.
and Evoke Software  Corporation,  dated June 28, 2004, for a period of one year.
At the end of one year, if the Company is entitled to  indemnification  pursuant
to the Asset Purchase  Agreement among the same parties,  then the Company shall
retain all rights,  title and  interest in and to that  portion of the  holdback
shares necessary to satisfy the applicable amount of such indemnity  obligation.
In the event that these  shares are  released  pursuant  to the  Indemnification
Agreement  within  the  specified   period,   this  will  be  deemed  additional
consideration in connection with this acquisition.

      The  severance  payment in shares of common  stock to three  former  Evoke
employees was part of the negotiated purchase price and reflected in "Components
of Purchase Price" above. Such severance  payments were not allocated as part of
purchase price and have no continuing impact on subsequent pro forma earnings.

      512,500 shares of common stock of the Company have been granted to certain
Evoke employees to retain their employment.  A charge of $87,125 was included in
the Company's results of operations during 2004.

      Deferred  revenue  acquired  in  conjunction  with the  purchase  of Evoke
relates to  maintenance  contracts  that the Company  has assumed a  contractual
obligation to fulfill.  In accordance with EITF 01-3:  "Accounting in a Business
Combination for Deferred Revenue of an Acquiree," this liability was recorded at
its fair value.


The  Company  performed  its annual  impairment  review in  connection  with its
year-end financial closing in December 2004 and has determined that the recorded
amount of the Evoke goodwill and certain intangibles was impaired as of December
31, 2004. As a result, the Company recorded an impairment charge with respect to
Evoke goodwill and certain intangibles of approximately $11,100,000.  $9,901,000
relates to goodwill impairment,  and the remaining $1,150,000 is attributable to
intangibles (customer contracts $500,000 and tradename $651,000).



                                      F-16


      In  connection  with the  Company's  acquisition  of the  assets  of Evoke
Software,  five percent (5%) of the  outstanding  common stock of Evoke Software
Corporation was issued to WHRT I Corporation.

      The pro forma  consolidated  statements of operations  for the years ended
December  31, 2003 and 2004,  respectively,  set forth below gives effect to the
acquisitions  of DeLeeuw  Associates,  LLC and Evoke Software  Corporation as if
they occurred on January 1, 2003.

                                   Year ended            Year ended
                               December 31, 2003      December 31, 2004
                               ----------------------------------------
Revenues                         $ 22,422,859           $ 28,641,133
Net Loss                         $ (3,548,881)          $(33,671,080)
Net Loss per share               $      (0.01)          $      (0.05)


Note 4 - Property and equipment

Property and equipment consisted of the following:
                                                        December 31,
                                                            2004
                                                        ------------
Computer equipment                                      $   979,494
Furniture and fixtures                                      232,648
Leasehold improvements                                      216,306
                                                        ------------
                                                          1,428,448
Accumulated depreciation                                   (840,873)
                                                        ------------
                                                        $   587,575
                                                        ============

Depreciation and amortization expense related to property and equipment totaled
$0.2 million and $0.1 million for 2004 and 2003, respectively.

Note 5 - Intangible assets

Intangibles acquired along with their assigned lives are as follows:



                                                               December 31,    Amortization
                                                                 2004             period
                                                             ------------------------------
                                                                         
Customer contracts                                           $ 1,876,424       5 - 6 years
Approved vendor status                                           538,814        40 months
Computer software                                              1,381,000         3 years
Tradename                                                        722,000        Indefinite
Proprietary rights and rights to the name of Scosys, Inc.         20,000        Indefinite
                                                             -----------
                                                               4,538,238
Accumulated amortization                                        (911,142)
                                                             -----------
                                                             $ 3,627,096
                                                             ===========



                                      F-17


The  estimated  amortization  expense  for the next five years  related to other
finite-lived intangible assets is estimated to be as follows:

                                             Amortization of
                                            Intangible assets
                                         ----------------------
                                     2005 $          1,125,224
                                     2006              957,045
                                     2007              573,339
                                     2008              127,962
                                     2009               81,165
                               Thereafter               20,361
                                         ----------------------
                                          $          2,885,096
                                         ----------------------

In accordance  with SFAS No. 142, the Company  completed  the annual  impairment
review and  concluded  that a $1,150,376  impairment of  intangibles  existed at
December 31, 2004.

Note 6 - Deferred financing costs

      The Company has incurred and  capitalized  financing  costs in  connection
with two  financing  transactions  consummated  during  2004.  These  costs were
deferred  and  are  being  amortized  over  the  life of the  related  financing
agreement.  The following  illustrates the components of the deferred  financing
costs:

                                        Year Ended
                                       December 31,
                                          2004
                                     --------------
Laurus Master Fund                      $ 766,270
Sands Brothers                            127,039
                                     --------------
                                        $ 893,309
Accumulated amortization                 (126,767)
                                     --------------
                                        $ 766,542
                                     ==============

Note 7 - Discount on debt

      The Company has allocated  the proceeds  received  from  convertible  debt
instruments  between the underlying debt instrument and the detachable  warrants
and has  recorded  the  discount  on the  debt  instrument  due to a  beneficial
conversion feature as a deferred charge. This deferred charge is being amortized
to  interest  expense  over  the life of the  related  debt  instruments,  which
currently range from one to five years. The following illustrates the components
of the discount on debt and their applicable amortization period:


                                           December 31,
                                              2004          Amortization period
                                         --------------------------------------
Laurus Master Fund                        $ 5,621,630         3 years
Sands Brothers                              1,500,000         1 year
Taurus Advisory Group                         454,545         5 years
                                          -----------
                                            7,576,175
Accumulated amortization                     (921,605)
                                          -----------
                                          $ 6,654,570
                                          ===========


                                      F-18


Note 8 - Line of credit

      On March 30, 2004,  the Company  executed a $3,000,000  revolving  line of
credit with North Fork Bank  (formerly  known as  TrustCompany  Bank) secured by
substantially all of the corporate  assets.  The terms of this note provided for
interest  accruing on advances at seven  eighths of one percent  (7/8%) over the
institution's prime rate.

      Laurus Transaction:

      In August 2004, the Company  replaced its $3.0 million line of credit with
North Fork Bank with a revolving  line of credit with Laurus  Master Fund,  Ltd.
("Laurus"),  whereby the Company has access to borrow up to $6.0  million  based
upon  eligible  accounts  receivable.  A portion of Laurus's  revolving  line of
credit was used to pay off all outstanding borrowings from North Fork Bank. This
revolving line, effectuated through a $2.0 million convertible minimum borrowing
note and a $4.0 million revolving note, provides for advances at an advance rate
of 90% against  eligible  accounts  receivable,  with an annual interest rate of
prime  rate (as  reported  in the Wall  Street  Journal,  which  was 5.25% as of
December 31, 2004) plus 1%, and maturing in three years.  We have no  obligation
to meet financial  covenants under the $2,000,000  convertible minimum borrowing
note or the $4,000,000 revolving note. These notes will be decreased by 1.0% for
every 25%  increase  above  the fixed  conversion  price  prior to an  effective
registration statement and 2.0% thereafter up to a minimum of 0.0%. This line of
credit is secured  by  substantially  all the  corporate  assets.  Both the $2.0
million  convertible  minimum borrowing note and the $4.0 million revolving note
provide for  conversion  at the option of the holder of the amounts  outstanding
into the Company's  common stock at a fixed conversion price of $0.14 per share.
In the event that the Company  issues  common stock or  derivatives  convertible
into Company common stock for a price less the  aforementioned  fixed conversion
price,  then  the  fixed  conversion  price is reset  using a  weighted  average
dilution calculation.

      Additionally,  in exchange  for a secured  convertible  term note  bearing
interest at prime rate (as reported in the Wall Street  Journal) plus  1%,Laurus
has made  available  to the Company an  additional  $5.0  million to be used for
acquisitions.  We have no  obligation  to meet  financial  covenants  under  the
$5,000,000  secured  convertible  term  note  (See  Note 10 to the  Consolidated
Financial  Statements).  This note is convertible into Company common stock at a
fixed  conversion price of $0.14 per share. In the event that the Company issues
Company common stock or derivatives  convertible into Company common stock for a
price less the fixed conversion  price, then the fixed conversion price is reset
to the lower price on a  full-ratchet  basis.  This note matures in three years.
This  cash  will  be  restricted  for use  until  approved  acquisition  targets
identified  by the  Company  are  approved  by  Laurus.  A portion  of  Laurus's
revolving line of credit will be used to pay off all outstanding borrowings from
North Fork Bank. An early termination fee is due to Laurus in an amount equal to
five  percent (5%) of the total  investment  amount if such  termination  occurs
prior  to the  first  anniversary  of the  closing,  four  percent  (4%) if such
termination  occurs  after  the  first  anniversary  but  prior  to  the  second
anniversary, and three percent (3%) if after the second anniversary.

      The Company  issued Laurus a common stock  purchase  warrant that provides
Laurus with the right to purchase 12.0 million  shares of the  Company's  common
stock.  The exercise price for the first 6.0 million  shares  acquired under the
warrant is $0.29 per share,  the exercise  price for the next 3.0 million shares
acquired  under the warrant is $0.31 per share,  and the exercise  price for the
final 3.0 million  shares  acquired  under the  warrant is $0.35 per share.  The
common stock purchase warrant expires on August 16, 2011. The Company paid $0.75
million in brokerage and  transaction  closing  related costs.  These costs were
deducted from the $5.0 million  restricted cash balance  provided to the Company
by Laurus.  As of December 31,  2004,  $3.7  million was  outstanding  under the
revolving  line of  credit.  The  interest  rate on the  revolving  line and the
acquisition  note was 6.25% during  December 2004. As a result of the beneficial
conversion  feature,  a discount on debt issued of $5.6 million was recorded and
is being  amortized  to  interest  expense  over the three year life of the debt
agreement.  As a result of the beneficial conversion feature, a discount on debt
issued of $5.6 million was recorded and is being  amortized to interest  expense
over the three year life of the debt agreement.


                                      F-19


      The fair value of the warrant to purchase  12.0 million  common shares was
determined to be $2.0 million using the Black-Scholes  option pricing model. The
assumptions used in the fair value calculation were as follows:  stock prices of
$0.21, exercise prices of $0.29, $0.31 and $0.35 (as applicable),  term of seven
years, volatility (annual) of 150.65%, annual rate of quarterly dividends of 0%,
a risk free  rate of 1.33%,  and the fair  value per share of the  warrants  was
accordingly calculated to be $0.20. The Company will amortize this relative fair
value of the warrants to interest  expense over the three-year  life of the debt
agreement

      Under the Laurus  agreement,  the Company was obligated to ensure that the
shares  provided for issuance  under the agreement  were properly  registered by
December 19, 2004. As a result of the Company's Registration statement not being
declared  effective  prior to this date,  the  Company is  incurring  liquidated
damages to Laurus an amount equal to 1% for each thirty day period (prorated for
partial  periods)  on a daily  basis  of the sum of (x) the  original  aggregate
principal  amount of the Note  plus (y) the  original  principal  amount of each
applicable  Minimum Borrowing Note. While such event continues,  such liquidated
damages  shall be paid  not  less  often  than  each  thirty  days.  Any  unpaid
liquidated  damages as of the date when an event has been  cured by the  Company
shall be paid within three days  following the date on which such event has been
cured by the Company. As a result, the Company has recorded a charge in December
2004 for approximately $44,000.


Note 9 - Short Term Notes Payable

      In September  2004, the Company issued to Sands Brothers  Venture  Capital
LLC, Sands Brothers  Venture Capital III LLC and Sands Brothers  Venture Capital
IV LLC (collectively, "Sands") three subordinated secured convertible promissory
notes equaling $1,000,000 (the "Notes"), each with an annual interest rate of 8%
expiring  September  22,  2005.  The  Notes are  secured  by  substantially  all
corporate  assets,  but subordinate to Laurus.  The Notes are  convertible  into
shares  of the  Company's  common  stock  at the  election  of Sands at any time
following the  consummation of a convertible debt or equity financing with gross
proceeds  of $5 million or greater (a  "Qualified  Financing").  The  conversion
price of the shares of the Company's  common stock  issuable upon  conversion of
the Notes  shall be equal to a price per  share of common  stock  equal to forty
percent  (40%) of the price of the  securities  issued  pursuant  to a Qualified
Financing.  If no Qualified  Offering has been consummated by September 8, 2005,
then Sands may elect to convert the Notes at a fixed  conversion  price of $0.14
per share. In the event that the Company issues stock or derivatives convertible
into the Company's common stock for a price less than the  aforementioned  fixed
conversion  price,  then the fixed  conversion  price is reset  using a weighted
average dilution  calculation.  The Company also issued Sands three common stock
purchase  warrants (the  "Warrants")  providing Sands with the right to purchase
6,000,000 shares of the Company's common stock. The exercise price of the shares
of the Company's  common stock  issuable upon exercise of the Warrants  shall be
equal to a price per share of common stock equal to forty  percent  (40%) of the
price  of  the  securities  issued  pursuant  to a  Qualified  Financing.  If no
Qualified  Offering has been  consummated  by September 8, 2005,  then Sands may
elect to exercise the Warrants at a fixed  conversion  price of $0.14 per share.
The latest that the Warrants may expire is September 8, 2008.  The fair value of
the 6,000,000  warrants was  determined to be $545,000  using the  Black-Scholes
option pricing model. The assumptions  used in the fair market  calculation were
as follows:  stock price of $0.22,  exercise price of $0.14, term of four years,
volatility (annual) of 150.23%,  annual rate of quarterly dividends of 0%, and a
risk free rate of 1.33%.  The Company will  amortize this relative fair value of
the warrants to interest  expense over the one-year life of the debt  agreement.
The note also includes a beneficial conversion feature and a discount on debt of
$454,500  was recorded in  September  2004 and will also be  amortized  over the
one-year life of the debt agreement.


                                      F-20


Note 10 - Long Term Debt

Long-term debt consisted of the following:

                                                               December 31,
                                                                   2004
                                                              --------------

Secured convertible term note with a maturity date of
August 16, 2007 unless converted into common stock at
the note holder's option. The initial conversion price
is $0.14 per share. Interest accrues at a rate of prime
plus one percent. As of December 31, 2004, the interest
rate on this note was 6.25%. See note 8 - Line of
credit, Laurus Transaction, for further description of
this transaction.                                             $    5,000,000

Convertible line of credit note with a maturity date of
June 6, 2009 unless converted into common stock at the
Company or the note holder's option. Interest accrues at
7% per annum. The original conversion price to shares of
common stock is equal to 75% of the average trading
price for the prior ten trading days. In September 2004,
the price was reset to $0.105 per share. A warrant to
purchase 4,166,666 shares of Company common stock was
also issued. The exercise price of the warrant is $0.14
per share and the warrant expires on June 6, 2009. An
allocation of the relative fair value of the warrant and
the debt instrument was performed. The relative fair
value of the warrant was determined to be $500,000 and
is being amortized to interest expense over the life of
the note. A discount on debt issued of $1,500,000 was
recorded in September 2004 based on the reset conversion
terms.                                                             2,000,000

Unsecured loans to the Company by the Chief Executive
Officer, Mr. Newman, and the Chief Operating Officer,
Mr. Peipert, of the Company. These unsecured notes each
accrue interest at a simple rate of 3% per annum, and
each has a term expiring on January 1, 2006.                         307,981

Notes payable under capital lease obligations payable to
various finance companies for equipment at varying rates
of interest, ranging from 18% to 32% as of December 31,
2004, and have maturity dates through 2007.                          221,949
                                                              --------------
                                                                   7,529,930

Relative fair values ascribed to warrants associated
with the above debt agreements. This amount is being
accreted to the debt instrument over the term of the
related debt agreements, which range from three to five
years.                                                            (2,227,727)
                                                              --------------
Subtotal                                                          5,302,203

Less: Current portion of long-term debt, including
obligations under capital leases of $120,834.                       (120,834)
                                                              --------------
                                                              $    5,181,369
                                                              ==============


Future annual payments of long-term debt is as follows:


                       Years Ending December 31,
                       -------------------------
                                 2005                         $      120,834
                                 2006                                395,534
                                 2007                              5,013,562
                                 2008                                     --
                                 2009                              2,000,000
                                                              --------------
                                                              $    7,529,930
                                                              ==============


                                      F-21


      Obligations under Capital Leases

      The Company has entered into various capital leases that are
collateralized by computer equipment and a trade show booth with an original
cost of approximately $355,000.

      The following schedule lists future minimum lease payments under the
capital leases with their present value as of December 31, 2004:

                    Years Ending December 31,
                    -------------------------
                              2005                                  $ 160,231
                              2006                                     98,907
                              2007                                     14,233
                                                                    ---------
                                                                      273,371
                    Less: Amount representing interest                (51,422)
                                                                    ---------
                                                                    $ 221,949
                                                                    =========

      During  2004,  the  Company  recorded   depreciation  expense  related  to
equipment under capital leases of approximately $75,000.

      On October 29, 2003, the Company made  arrangements to obtain a $2,000,000
Unsecured  Convertible  Line of Credit Note.  The terms of this note provide for
interest  accruing on  advances at 7% per annum with a maturity  date of October
28,  2008,  unless  converted  into Common  Stock at the  Company's  or the Note
holder's option.  In February 2004, the Company  borrowed the entire  $2,000,000
available  under  this line of credit.  In May 2004,  pursuant  to the  complete
conversion of this unsecured  convertible line of credit note, the participating
investor received  16,666,666 shares of our common stock, plus interest.  Due to
an adjustment in the conversion price in September 2004, participating investors
received an  additional  2,380,953  shares of common  stock.  As a result of the
initial  conversion  and the  adjustment,  we recorded a  beneficial  conversion
charge of  $1,200,000.  Further in May 2004, we raised an additional  $2,000,000
pursuant to a new five-year unsecured promissory note with the same investor. In
June  2004,  we  replaced  the May 2004 note by issuing a  five-year  $2,000,000
unsecured  convertible  line of  credit  note with the same  investor.  The note
accrues at an annual interest rate of 7%, and the conversion price of the shares
of  common  stock  issuable  under  the note is equal to $0.105  per  share.  In
addition,  such investor received a warrant to purchase  4,166,666 shares of our
common stock at an exercise price of $0.105 per share.  This warrant  expires in
June 2009.  This note also contains  beneficial  conversion  features,  and as a
result, we recorded a beneficial  conversion charge of $1,500,000 which is being
amortized into income over the life of the debt instrument.  Additionally, using
the  Black-Scholes  option  pricing  model,  we determined the fair value of the
warrant to be $500,000.  The Company valued the warrant in accordance  with EITF
00-27  using  the   Black-Scholes   option   pricing  model  and  the  following
assumptions:  contractual term of five years, an average risk free interest rate
of 1.33%, a dividend  yield of 0%, and volatility of 138.62%.  The relative fair
value  attributed to the warrant  issued is amortized  over the note's  maturity
period (60 months) as interest expense.

Note 11 - Income Taxes

      The Company provides for federal and state income taxes in accordance with
current  rates applied to  accounting  income  before  taxes.  The provision for
income taxes is as follows:


                                      F-22


                                                    Years ended December 31,
                                                   -------------------------
                                                        2004          2003
                                                   -------------------------
 Current - Federal                                 $      --     $      --
 Current - State                                          --            --
 Deferred - Federal                                  147,800      (147,800)
 Deferred - State                                     43,000       (43,000)
                                                   -------------------------
                                                   $ 190,800     $(190,800)
                                                   =========================

      The Company's  provision for income taxes is based on estimated  effective
annual income tax rates.  The  provision may differ from income taxes  currently
payable  because certain items of income and expense are recognized in different
periods for financial statement purposes than for tax return purposes.

      The Company has net  operating  loss  carry-forwards  for both Federal and
State purposes  totaling  approximately  $11,300,000 and $413,000 that expire in
2024 and 2023, respectively.

                                                         December 31,
                                                 ------------------------------
                                                      2004             2003
                                                 ------------------------------
Net operating losses                             $  6,675,000     $    164,900
Accounts receivable                                    84,000           36,700
Property and equipment                                (16,000)           2,200
Accounts payable and accrued expenses                  32,000               --
Long-term debt                                         41,000               --
Goodwill                                            4,048,000          (36,900)
Intangible assets                                     620,000           23,900
                                                 ------------------------------
                                                   11,484,000          190,800
Valuation allowance                               (11,484,000)              --
                                                 ------------------------------
                                                 $         --     $    190,800
                                                 ==============================

      The Company  evaluates the amount of deferred tax assets that are recorded
against  expected  taxable income over its forecasting  cycle which is currently
two years. As a result of this evaluation,  the Company has recorded a valuation
allowance  of  $11,484,000  and zero for the years ended  December  31, 2004 and
2003,  respectively,  representing  a  current  year  change  in  the  valuation
allowance of  $11,484,000.  This  allowance was recorded  because,  based on the
weight of available  evidence,  it is more likely than not that some, or all, of
the deferred tax asset may not be realized.

      Income  taxes  computed  at the  federal  statutory  rate  differ from the
amounts provided as follows:

                                              For the year ended December 31,
                                             ---------------------------------
                                                   2004          2003
                                               --------------------------
Provision for Federal taxes at
   statutory rate (34%)                           (34.0)%       (34.0)%
State taxes, net of Federal benefit                (2.9)         (4.4)
Permanent difference due to
   non-deductible items                            17.1            --
Foreign income taxed at different rates             0.4            --
Valuation allowance applied against
   income tax benefit                              20.0            --
                                               --------------------------
Income tax provision                                0.6%       (38.4)%
                                               ===========================

      During the first nine months of 2004, the Company's effective tax rate was
estimated to be approximately 40%. This rate is based upon the statutory federal
income tax rate of 34% plus a blended  rate for the various  states in which the
Company incurs income tax liabilities, net of the federal income tax benefit for
state  taxes paid,  of 6%.  Since the  Company  was an "S"  corporation  for the
majority of 2003, the pro forma rate is based on the Company's  estimated income
tax rate for 2004 and is not based upon the prior year's effective tax rate.


                                      F-23


Note 12 - Common Stock

      On November 8, 2004, the Company  entered into a Stock Purchase  Agreement
(the  "Agreement")  with a private  investor,  CMKX-treme,  Inc. Pursuant to the
Agreement, CMKX-treme, Inc. agreed to purchase 12,500,000 shares of common stock
for  a  purchase  price  of  $1,750,000.  Under  the  terms  of  the  Agreement,
CMKX-treme,  Inc.  initially  purchased  3,571,428  shares of  common  stock for
$500,000,  and it was required to purchase  the  remaining  8,928,572  shares of
common  stock for  $1,250,000  by  December  31,  2004.  As of March  17,  2005,
CMKX-treme, Inc. remitted final payment for the remaining 8,928,572 shares.

Note 13 - Common Stock Warrants

      On June 7,  2004,  the  Company  granted a warrant to  purchase  4,166,666
shares of the Company's  common stock to the Taurus Advisory Group in connection
with the issuance of an unsecured convertible line of credit note at an exercise
price of $0.14 per share and an expiration date of June 6, 2009. See footnote 10
- Long Term Debt for further discussion of the related financing transaction.

      On August 16, 2004, the Company granted a warrant to purchase an aggregate
of 12,000,000  shares of the Company's  common stock to Laurus Master Fund, Ltd.
in connection with a secured  convertible  term note, a secured  revolving note,
and a secured  convertible  minimum  borrowing note. The first 6,000,000  shares
acquired under the warrant have an exercise  price of $0.29 per share,  the next
3,000,000  shares  acquired have an exercise  price of $0.31 per share,  and the
final 3,000,000  shares acquired have an exercise price of $0.35 per share.  The
expiration  date of the  warrant is August 16,  2011.  See  footnote 8 - Line of
Credit for further discussion of the Laurus transaction.

      On  September  22,  2004,  the  Company  granted a warrant to  purchase an
aggregate of 6,000,000  shares of the Company's common stock to three affiliates
of Sands  Brothers  Venture  Capital.  Sands  Brothers  Venture  Capital III LLC
received a warrant to purchase  5,100,000 shares of Company common stock,  Sands
Brothers  Venture  Capital LLC received a warrant to purchase  300,000 shares of
Company  common  stock,  and Sands  Brothers  Venture  Capital IV LLC received a
warrant  to  purchase  600,000  shares of Company  common  stock.  Each  warrant
provides  for an exercise  price equal to forty  percent  (40%) of the price per
share of Common  Stock  received  by the  Company in  connection  with the first
Qualified  Financing  occurring after the date of the warrant agreement.  In the
event  the  Company  does not  consummate  a  Qualified  Financing  on or before
September 7, 2005, the exercise  price adjusts to $0.14 per share.  The warrants
expire on  September  7, 2008.  See  footnote 9 - Short Term Notes  Payable  for
further discussion of the transaction.

Note 14 - Stock Based Compensation

      The 2003  Incentive  Plan ("2003 Plan")  authorizes  the issuance of up to
100,000,000  shares of common stock for issuance  upon  exercise of options.  It
also authorizes the issuance of stock  appreciation  rights. The options granted
may be a combination of both incentive and nonstatutory options,  generally vest
over a three year period  from the date of grant,  and expire ten years from the
date of grant.

      To the extent that CSI derives a tax benefit  from  options  exercised  by
employees,  such benefit  will be credited to  additional  paid-in  capital when
realized on the Company's income tax return. There were no tax benefits realized
by the Company during 2004 or 2003.


                                      F-24


      The following summarizes the stock option transactions under the 2003 Plan
during 2004:

                                                              Weighted average
                                                  Shares       exercise price
                                                ------------  -----------------
Options outstanding at December 31, 2003                 --     $        --
Options granted                                  43,060,981            0.15
Options exercised                                        --              --
Options canceled                                 (1,795,000)           0.20
                                                ------------   -------------
Options outstanding at December 31, 2004         41,265,981     $      0.15
                                                ============   =============

      The following  table  summarizes  information  concerning  outstanding and
exercisable Company common stock options at December 31, 2004:



                                          Weighted         Weighted average                      Weighted
Range of exercise       Options            average            remaining           Options        average
     prices           outstanding       exercise price     contractual life     exercisable    exercise price
-------------------------------------------------------------------------------------------------------------
                                                                                   
 $0.055                8,900,981     $   0.055                    9.9            8,900,981        $ 0.055
 $0.165 - $0.23       32,365,000         0.180                    9.3                   --             --
                      ----------                                                 ---------
                      41,265,981                                                 8,900,981
                      ==========                                                 =========


      On October 18, 2004,  options to purchase  8,900,981  shares of our common
stock were granted to several  employees  below fair market value at an exercise
price of  $0.055  per  share,  when the fair  market  value on date of grant was
$0.21.  These  options are  non-qualified  stock  options,  are all  immediately
vested,  and  expire  ten  years  from the date of  grant.  As a result  of this
issuance  of stock  options at a price  below fair  market  value on the date of
grant,   the  Company  has  recorded  a  stock-based   compensation   charge  of
approximately $1,380,000 during the fourth quarter of 2004.

Note 15 - Loss Per Share

      Basic  loss per share is  computed  on the basis of the  weighted  average
number of common shares  outstanding.  Diluted loss per share is computed on the
basis of the  weighted  average  number of common  shares  outstanding  plus the
effect of outstanding stock options using the "treasury stock" method.


                                      F-25


      Basic and diluted loss per share were determined as follows:



                                                              For the years ended December 31,
                                                              --------------------------------
                                                                  2004              2003
                                                              -------------     -------------
                                                                          
Net loss available for common stockholders (A)                $ (32,861,194)    $    (306,763)
Weighted average outstanding shares of common stock (B)         698,220,972       450,000,000
Common stock and common stock equivalents (C)                   698,220,972       450,000,000

Loss per share:
  Basic (A/B)                                                 $       (0.05)    $       (0.00)
                                                              =============     =============
  Diluted (A/C)                                               $       (0.05)    $       (0.00)
                                                              =============     =============


      For the year ended December 31, 2004,  41,265,981  shares  attributable to
outstanding stock options were excluded from the calculation of diluted loss per
share  because  the  effect  was  antidilutive.  There  were  no  stock  options
outstanding during 2003.  Additionally,  the effect of 22,166,666 warrants which
were  issued on June 7,  2004,  August  16,  2004 and  September  22,  2004 were
excluded  from the  calculation  of  diluted  loss per share for the year  ended
December 31, 2004 because the effect was antidilutive.

Note 16 - Major Customers

      During 2004, the Company had sales to two major customers,  LEC, a related
party  (15.2%)  and  Bank  of  America  (15.9%),   which  totaled  approximately
$7,828,000.  Amounts due from these  customers  included in accounts  receivable
were approximately $1,128,000 at December 31, 2004. As of December 31, 2004, LEC
and Bank of America accounted for approximately  15.2% and 6.8% of the Company's
accounts receivable balance, respectively.

      During 2003, the Company had sales to two major customers,  Morgan Stanley
(approximately  11%) and Verizon  Wireless  (approximately  29%),  which totaled
approximately $5,819,000.  Amounts due from these customers included in accounts
receivable were approximately  $729,000 at December 31, 2003. As of December 31,
2003,  Morgan Stanley and Verizon Wireless  accounted for  approximately 19% and
15% of the Company's accounts receivable balance, respectively.

Note 17 - Employee Benefit Plan

      The Company has a defined  contribution  profit sharing plan under Section
401(k) of the Internal  Revenue Code that covers  substantially  all  employees.
Eligible  employees  may  contribute  on a tax deferred  basis a  percentage  of
compensation  up to the maximum  allowable  amount.  Although  the plan does not
require  a  matching  contribution  by  the  Company,  the  Company  may  make a
contribution.  The  Company's  contributions  to the  plan for the  years  ended
December 31, 2004 and 2003 were approximately $81,000 and $24,000, respectively.

Note 18 - Commitments and Contingencies

      Legal Proceedings

      On June 29, 2004,  Viant  Capital LLC commenced  legal action  against the
Company in the United  States  District  Court for the Southern  District of New
York.  Through an agreement with Viant,  Viant had the exclusive right to obtain
private equity transactions on behalf of the Company from February 18 to May 17,
2004. Viant alleges that it is owed a fee of approximately  $450,000 relating to
the Company's loan from a private investor in May 2004. Management believes that
this loan does not  qualify as a private  equity  transaction  and it intends to
vigorously defend the Company.  As of April 8, 2005, there have been no material
developments in the suit. The Company has estimated the probable loss related to
this suit to be the agreed upon contract signing fee of $75,000 and has recorded
a liability for this amount.


                                      F-26


      Employment Agreements

      Scott  Newman,  our  President and Chief  Executive  Officer,  agreed to a
five-year  employment  agreement  dated  as of March  26,  2004.  The  agreement
provides for an annual  salary to Mr.  Newman of $500,000 and an annual bonus to
be awarded by our  to-be-appointed  Compensation  Committee.  The agreement also
provides for health,  life and  disability  insurance,  as well as a monthly car
allowance.  In the event that Mr. Newman's  employment is terminated  other than
with good cause,  he will  receive a lump sum payment of the longer of (1) three
year's base salary or (2) the period  from the date of  termination  through the
expiration date.

      Glenn  Peipert,  Executive  Vice  President and Chief  Operating  Officer,
agreed to a  five-year  employment  agreement  dated as of March 26,  2004.  The
agreement provides for an annual salary to Mr. Peipert of $375,000 and an annual
bonus to be awarded by our to-be-appointed Compensation Committee. The agreement
also provides for health,  life and disability  insurance,  as well as a monthly
car allowance.  In the event that Mr.  Peipert's  employment is terminated other
than with good  cause,  he will  receive a lump sum payment of the longer of (1)
three year's base salary or (2) the period from the date of termination  through
the expiration date.

      Mitchell Peipert, Vice President,  Chief Financial Officer,  Treasurer and
Secretary,  agreed to a three-year  employment  agreement  dated as of March 26,
2004. The agreement provides for an annual salary to Mr. Peipert of $200,000 and
an annual bonus to be awarded by our to-be-appointed Compensation Committee. The
agreement also provides for health, life and disability insurance,  as well as a
monthly car allowance.  In the event that Mr. Peipert's employment is terminated
other than with good cause,  he will receive a lump sum payment of the longer of
(1) three  year's  base  salary or (2) the period  from the date of  termination
through the expiration date.

      Robert C. DeLeeuw, Senior Vice President and President of our wholly owned
subsidiary, DeLeeuw Associates, LLC, agreed to a three-year employment agreement
dated as of February 27, 2004.  The  agreement  provides for an annual salary to
Mr. DeLeeuw of $350,000 and an annual bonus to be awarded by our to-be-appointed
Compensation  Committee.  The  agreement  also  provides  for  health,  life and
disability  insurance.  In the event that Mr. DeLeeuw's employment is terminated
other than with good cause,  he will receive a lump sum payment of the longer of
(1) one  year's  base  salary  or (2) the  period  from the date of  termination
through the expiration date.

      Lease Commitments

      The Company's corporate headquarters are located at 100 Eagle Rock Avenue,
East  Hanover,  New Jersey  07936,  where it  operates  under an  amended  lease
agreement  expiring December 31, 2010. Our monthly rent with respect to our East
Hanover,  New Jersey facility is $26,290.  In addition to minimum  rentals,  the
Company is liable for its proportionate share of real estate taxes and operating
expenses,  as  defined.  DeLeeuw  Associates,  LLC has an office at Suite  1460,
Charlotte  Plaza,  201 South College  Street,  Charlotte,  North Carolina 28244.
DeLeeuw  leases this space which has a stated  expiration  date of December  31,
2005. Our monthly rent with respect to our Charlotte, North Carolina facility is
$2,831.

      Evoke leases  offices in the following  locations:  Riata  Corporate  Park
Building VII,  12357-III Riata Trace Parkway,  Austin,  Texas; 1900 13th Street,
Boulder,  Colorado;  and Am Soldnermoos 17, D-85399  Hallbergmoos,  Germany. The
expiration dates for these leases are July 2006, July 2006 and May 2005. Monthly
rentals for these offices are $22,872, $5,284 and $2,000, respectively.

      Rent expense, including automobile rentals, totaled approximately $629,000
and $313,000 in 2004 and 2003, respectively.

      The Company is committed  under several  operating  leases for automobiles
that expire during 2007.


                                      F-27


      Future minimum lease payments due under all operating lease  agreements as
of December 31, 2004 are as follows:

 Years Ending December 31         Office        Automobiles        Total
 ------------------------      -----------      ------------     -----------
             2005              $  697,984       $   55,209       $  753,193
             2006                 496,672           48,729          545,401
             2007                 299,580           17,161          316,741
             2008                 299,580               --          299,580
             2009                 299,580               --          299,580
       Thereafter                 299,580               --          299,580
                               ----------       ----------       ----------
                               $2,392,976       $  121,099       $2,514,075
                               ==========       ==========       ==========

      The  Company   engaged  Sands  Brothers   International   Limited  as  its
non-exclusive financial advisor at $6,000 per month for a period of one year.

Note 19 - Related Party Transactions

      In November 2003, the Company executed an Independent Contractor Agreement
with LEC,  whereby  the Company  agreed to be a  subcontractor  for LEC,  and to
provide  consultants  as  required  to LEC.  In return for these  services,  the
Company  receives  a fee from LEC  based on the  hourly  rates  established  for
consultants  subcontracted  to LEC. In May 2004, the Company acquired 49% of all
issued  and  outstanding  shares of common  stock of LEC.  The  acquisition  was
completed  through a Stock Purchase  Agreement  between the Company and the sole
stockholder of LEC. In connection with the acquisition, the Company (i) repaid a
bank loan on behalf of the seller in the amount of  $35,000;  (ii) repaid an LEC
bank loan in the amount of $38,000;  and (iii)  satisfied an LEC  obligation for
$10,000 of prior  compensation to an employee.  For the years ended December 31,
2004 and 2003, the Company  invoiced LEC $3,837,065 and $365,458,  respectively,
for the  services of  consultants  subcontracted  to LEC by the  Company.  As of
December 31, 2004 and 2003, the Company had accounts  receivable due from LEC of
approximately   $781,000  and  $393,000,   respectively.   There  are  no  known
collection  problems  with  respect to LEC.  The  majority of their  billing is
derived from  Fortune  1000  clients.  The  collection  process is slow as these
clients require separate approval on their own internal  systems,  which extends
the payment cycle.  The Company feels confident in the  collectibility  of these
accounts receivable as the majority of the revenues from LEC derive from Fortune
1000 clients.

      On November 8, 2004, Mr. Newman  entered into a stock  purchase  agreement
with a private investor, CMKX-treme, Inc. Pursuant to the agreement, CMKX-treme,
Inc. agreed to purchase 2,833,333 shares of common stock for a purchase price of
$250,000.  As of April 8, 2005,  the shares have not been issued to  CMKX-treme,
Inc. because it has not yet remitted payment for the shares.

      On November 8, 2004, Mr. Peipert  entered into a stock purchase  agreement
with a private investor, CMKX-treme, Inc. Pursuant to the agreement, CMKX-treme,
Inc. agreed to purchase 5,666,667 shares of common stock for a purchase price of
$500,000.  As of April 8, 2005,  the shares have not been issued to  CMKX-treme,
Inc. because it has not yet remitted payment for the shares.

      On November 10, 2004,  the Company and Dr.  Michael  Mitchell,  the former
President, Chief Executive Officer and sole director of LCS, executed a one-year
consulting  agreement  whereby Dr.  Mitchell  would perform  certain  consulting
services on behalf of the Company. Dr. Mitchell will receive an aggregate amount
of $250,000 as compensation for services  provided to the Company.  During 2004,
an aggregate  amount of $50,000 was paid to Dr.  Mitchell for services  provided
under this consulting agreement.

      As of November 17, 2004,  Mr. Newman has agreed to personally  support the
Company's  cash  requirements  to enable it to fulfill its  obligations  through
March 31, 2005, to the extent necessary,  up to a maximum amount of $500,000. We
believe that our reliance on such  commitment is reasonable  and that Mr. Newman
has sufficient liquidity and net worth to honor such commitment. We believe that
Mr. Newman's written commitment  provides us with the legal right to request and
receive such advances. Any loan by Mr. Newman to the Company would bear interest
at 3% per annum.  As of December 14, 2004,  Scott Newman,  our President,  Chief
Executive  Officer  and  Chairman,  had loaned the Company  $200,000,  and Glenn
Peipert, our Executive Vice President, Chief Operating Officer and Director, had
loaned the Company  $125,000.  The unsecured loans by Mr. Newman and Mr. Peipert
each  accrue  interest  at a simple  rate of 3% per  annum,  and each has a term
expiring on January 1, 2006. As of December 31, 2004, approximately $188,000 and
$125,000 remained outstanding to Messrs. Newman and Peipert, respectively.


                                      F-28


      See  Note  21 to  the  Notes  to  Consolidated  Financial  Statements  for
additional related party transactions.

      Dr. Michael Mitchell,  the former  President,  Chief Executive Officer and
sole  director of LCS, had loaned an aggregate of $930,707 to the Company.  This
loan was converted  into shares of the Company's  common stock at the closing of
the merger of LCS and CSI.

Note 20 - Segment Information

      The Company has two  reportable  segments:  services and  software,  which
includes  support and  maintenance.  The services segment includes the Company's
information   technology   services  offerings  in  the  following  areas:  data
warehousing,  business  intelligence,  management  consulting  and  professional
services to its customers principally located in the northeastern United States.
The Company's  acquisitions of Scosys,  Inc., DeLeeuw  Associates,  Inc. and the
equity   adjustment   related  to  its  equity   investment   in  Leading   Edge
Communications  Corporation  have all been  included  in the  services  business
segment.  The  Company  maintains  offices  for its  services  business  in East
Hanover, New Jersey and Charlotte, North Carolina.

      The  software   segment   resulted  from  the  Company's   acquisition  of
substantially all the assets of Evoke Software Corporation ("Evoke") on June 28,
2004.  Evoke is a provider of data discovery,  profiling and quality  management
software.  Evoke's headquarters are in East Hanover, New Jersey and it maintains
development offices in Austin, Texas and Denver, Colorado.  Additionally,  Evoke
has sales offices in England and Germany.

      The Company  considers  all  revenues  and  expenses to be of an operating
nature and,  accordingly,  allocates them to industry segments regardless of the
profit  center in which  recorded.  Corporate  office  expenses are allocated to
certain segments based on resources  allocated.  The accounting  policies of the
reportable  segments  are  the  same  as  those  described  in  the  summary  of
significant accounting policies.

      The Company  considers  reportable  segments as business  units that offer
different products and are managed separately.



                                                                As of and for the years ended December 31,
                               ---------------------------------------------------------------------------------------------------
                                                      2004                                                 2003
                               -----------------------------------------------     -----------------------------------------------
                                  Services         Software       Consolidated       Services          Software       Consolidated
                               ------------      ------------     ------------     ------------      ------------     ------------
                                                                                                    
Net revenues from external
  customers                    $ 23,798,080      $  1,368,437     $ 25,166,517     $ 14,366,456      $         --     $ 14,366,456
Segment net loss                (19,260,675)      (13,600,519)     (32,861,194)        (306,763)               --         (306,763)
Interest income                      22,388                --           22,388            5,400                --            5,400
Interest expense                  2,139,093           949,609        3,088,702          135,753                --          135,753
Depreciation and
  amortization                      468,235           648,974        1,117,209          213,158                --          213,158
Total segment assets             22,508,434         4,796,887       27,305,321        4,759,900                --        4,759,900



                                      F-29


Geographic Information

                                           For the year ended December 31,
                                           -------------------------------
                                               2004              2003
                                           -----------       -----------
Revenues:
  United States                             $24,925,008       $14,366,456
  International                                 241,509                --
                                            -----------       -----------
                                            $25,166,517       $14,366,456
                                            ===========       ===========

                                                   As of December 31,
                                            -----------------------------
                                                2004              2003
                                            -----------       -----------
Long-lived assets:
  United States                             $   585,019       $   270,696
  International                                   2,556                --
                                            -----------       -----------
                                            $   587,575       $   270,696
                                            ===========       ===========

The software  segment had one customer  during 2004,  Wellpoint  that  comprised
10.5% of segment revenues. There was no software segment in 2003.

Note 21 - Subsequent Events

      In November 2004, the Company entered into a Stock Purchase Agreement (the
"Agreement")  with  a  private  investor,   CMKX-treme,  Inc.  Pursuant  to  the
Agreement,  CMKX-treme,  Inc.  agreed to purchase 12.5 million  shares of common
stock for a purchase price of $1.75  million.  Under the terms of the Agreement,
CMKX-treme,  Inc. initially  purchased 3,571,428 shares of common stock for $0.5
million,  and it was  required to purchase  the  remaining  8,928,572  shares of
common  stock for $1.25  million by December  31,  2004.  As of March 17,  2005,
CMKX-treme, Inc. remitted final payment for the remaining 8,928,572 shares.

      As of March 30, 2005, Messrs.  Newman,  Peipert and Robert C. DeLeeuw have
agreed to personally  support our cash  requirements to enable us to fulfill our
obligations through May 1, 2006, to the extent necessary, up to a maximum amount
of $2,500,000.  Mr. Newman personally  guaranties up to $1,415,000,  Mr. Peipert
guaranties up to $707,500 and Mr. DeLeeuw  personally  guaranties  $377,500.  We
believe  that our reliance on such  commitment  is  reasonable  and that Messrs.
Newman,  Peipert and DeLeeuw have  sufficient  liquidity  and net worth to honor
such commitment.  We believe that this written  commitment  provides us with the
legal right to request and receive such  advances.  Any loan by Messrs.  Newman,
Peipert and DeLeeuw to the Company would bear interest at 3% per annum.


                                      F-30


--------------------------------------------------------------------------------

YOU SHOULD RELY ONLY ON THE INFORMATION  CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED  ANYONE TO  PROVIDE  YOU WITH  INFORMATION  THAT IS  DIFFERENT.  THIS
DOCUMENT  MAY  ONLY BE USED  WHERE  IT IS  LEGAL  TO SELL  THE  SECURITIES.  THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.

ADDITIONAL  RISKS AND  UNCERTAINTIES  NOT  PRESENTLY  KNOWN OR THAT IS CURRENTLY
DEEMED  IMMATERIAL  MAY ALSO  IMPAIR  OUR  BUSINESS  OPERATIONS.  THE  RISKS AND
UNCERTAINTIES DESCRIBED IN THIS DOCUMENT AND OTHER RISKS AND UNCERTAINTIES WHICH
WE MAY FACE IN THE FUTURE WILL HAVE A GREATER IMPACT UPON THOSE WHO PURCHASE OUR
COMMON  STOCK.  THESE  PURCHASERS  WILL  PURCHASE OUR COMMON STOCK AT THE MARKET
PRICE OR AT A PRIVATELY  NEGOTIATED  PRICE AND WILL RUN THE RISK OF LOSING THEIR
ENTIRE INVESTMENT.


--------------------------------------------------------------------------------


--------------------------------------------------------------------------------


                     CONVERSION SERVICES INTERNATIONAL, INC.

                       369,912,823 SHARES OF COMMON STOCK


                                  -------------

                                   PROSPECTUS

                                  -------------


                                _______ __, 2005


--------------------------------------------------------------------------------


                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

      The  registrant's  certificate  of  incorporation,  as amended,  currently
states that a director of the registrant shall have no personal liability to the
registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director  except to the extent that  Section  102(b)(7)  (or any  successor
provision)  of the  Delaware  General  Corporation  Law, as amended from time to
time,  expressly provides that the liability of a director may not be eliminated
or limited.  No amendment or repeal of this provision shall apply to or have any
effect on the liability or alleged  liability of any director of the  registrant
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.

      The registrant's bylaws require the registrant to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director or
officer of the  registrant,  or is or was serving while a director or officer of
the registrant at its request as a director, officer, employee, agent, fiduciary
or other  representative  of another  corporation,  partnership,  joint venture,
trust,  employee benefit plan or other enterprise,  against expenses  (including
attorneys' fees), judgments,  fines, excise taxes and amounts paid in settlement
actually and reasonably  incurred by such person in connection with such action,
suit or proceeding to the full extent permissible under Delaware law. Any person
claiming indemnification as provided in the bylaws shall be entitled to advances
from the  registrant  for payment of the expenses of defending  actions  against
such person in the manner and to the full extent permissible under Delaware law.
On the request of any person requesting  indemnification  under such provisions,
the Board of Directors of the registrant or a committee  thereof shall determine
whether such  indemnification is permissible or such determination shall be made
by  independent  legal  counsel if the board or  committee  so directs or if the
board or committee is not empowered by statute to make such determination.

      The  indemnification  and  advancement of expenses  provided by the bylaws
shall  not be  deemed  exclusive  of any other  rights  to which  those  seeking
indemnification  or  advancement of expenses may be entitled under any insurance
or  other  agreement,   vote  of  stockholders  or  disinterested  directors  or
otherwise,  both as to actions in their  official  capacity and as to actions in
another capacity while holding an office,  and shall continue as to a person who
has ceased to be a director  or officer  and shall  inure to the  benefit of the
heirs,  executors and  administrators of such person.  The registrant shall have
the power to purchase and  maintain  insurance on behalf of any person who is or
was a  director,  officer,  employee  or  agent of the  registrant  or is or was
serving at its request as a director,  officer,  employee,  agent,  fiduciary or
other representative of another corporation,  partnership,  joint venture, trust
or other enterprise,  against any liability asserted against him and incurred by
him in any such capacity,  or arising out of his status as such,  whether or not
the  registrant  would have the power to indemnify  him against  such  liability
under the provisions of the bylaws.

      The duties of the  registrant  to indemnify  and to advance  expenses to a
director or officer  provided in the bylaws shall be in the nature of a contract
between the  registrant  and each such director or officer,  and no amendment or
repeal of any such provision of the bylaws shall alter, to the detriment of such
director or officer,  the right of such person to the advancement of expenses or
indemnification  related to a claim based on an act or failure to act which took
place prior to such amendment, repeal or termination.


                                      II-1


      Delaware law also permits  indemnification in connection with a proceeding
brought by or in the right of the registrant to procure a judgment in its favor.
Insofar as indemnification  for liabilities arising under the Securities Act may
be  permitted  to  directors,  officers or persons  controlling  the  registrant
pursuant to the foregoing  provisions,  the registrant has been informed that in
the  opinion  of the SEC  such  indemnification  is  against  public  policy  as
expressed in that Securities Act and is therefore unenforceable.  The registrant
has directors and officers liability insurance.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

      The  following is an estimate of the  expenses  that we expect to incur in
connection with this  registration.  We will pay all of these expenses,  and the
selling stockholders will not pay any of them.

                                                                       AMOUNT
                                                                     TO BE PAID
                                                                    -----------
SEC registration fee                                                $  9,842.27
Printing and engraving expenses                                     $  2,500.00*
Legal fees and expenses                                             $ 40,000.00*
Accounting fees and expenses                                        $ 50,000.00*
Transfer Agent and Registrar fees                                   $  2,000.00*
Miscellaneous fees and expenses                                     $  5,657.73*
                                                                    -----------
         Total                                                      $110,000.00*

      * Estimate, and subject to future contingencies.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

      Set forth below is  information  regarding  the  issuance and sales of our
securities  without  registration  during  the last three  years.  No such sales
involved the use of an underwriter  and no  commissions  were paid in connection
with the sale of any securities. Except as otherwise noted, all sales below were
made in reliance on Section 4(2) of the  Securities Act of 1933, as amended (the
"Act").

      In  November  2004,  we  entered  into a  Stock  Purchase  Agreement  (the
"Agreement") with a CMKX-treme, Inc. Pursuant to the Agreement, CMKX-treme, Inc.
agreed to purchase 12.5 million  shares of common stock for a purchase  price of
$1.75 million.  Under the terms of the  Agreement,  CMKX-treme,  Inc.  initially
purchased 3,571,428 shares of common stock for $0.5 million, and it was required
to purchase the remaining  8,928,572 shares of Common Stock for $1.25 million by
December 31, 2004. As of March 17, 2005, CMKX-treme, Inc. remitted final payment
for the remaining 8,928,572 shares


                                      II-2


      In September 2004, we issued to Sands Brothers  Venture Capital LLC, Sands
Brothers  Venture  Capital  III LLC and Sands  Brothers  Venture  Capital IV LLC
(collectively,  "Sands") three subordinated secured convertible promissory notes
equaling  $1,000,000  (the  "Notes"),  each with an annual  interest  rate of 8%
expiring  September  22,  2005.  The  Notes are  secured  by  substantially  all
corporate assets,  subordinate to Laurus.  The Notes are convertible into shares
of our  common  stock  at the  election  of  Sands  at any  time  following  the
consummation of a convertible debt or equity financing with gross proceeds of $5
million or greater to us (a "Qualified Financing").  The conversion price of the
shares of our common stock issuable upon  conversion of the Notes shall be equal
to a price per share of common stock equal to forty  percent  (40%) of the price
of the  securities  issued  pursuant to a Qualified  Financing.  If no Qualified
Offering has been  consummated  by  September  8, 2005,  then Sands may elect to
convert the Notes at a fixed  conversion  price of $0.14 per share. In the event
that we issue stock or derivatives  convertible  into our stock for a price less
the  aforementioned  fixed conversion  price, then the fixed conversion price is
reset using a weighted average dilution calculation.  We also issued Sands three
common stock purchase  warrants (the "Warrants")  providing Sands with the right
to purchase  6,000,000  shares of our common  stock.  The exercise  price of the
shares of our common stock issuable upon exercise of the Warrants shall be equal
to a price per share of common stock equal to forty  percent  (40%) of the price
of the  securities  issued  pursuant to a Qualified  Financing.  If no Qualified
Offering has been  consummated  by  September  8, 2005,  then Sands may elect to
exercise the Warrants at a fixed conversion price of $0.14 per share. The latest
that the Warrants may expire is September 8, 2008.

      In August 2004, we replaced our $3,000,000  line of credit with North Fork
Bank with a revolving line of credit with Laurus Master Fund,  Ltd.  ("Laurus"),
effectuated  through  a  $2,000,000  convertible  minimum  borrowing  note and a
$4,000,000  revolving  note,  with an  annual  interest  rate of prime  rate (as
reported in the Wall Street  Journal) plus 1%, and maturing in three years.  The
interest rate on these notes will be decreased by 1.0% for every 25% increase in
our  stock  price  above  the  fixed  conversion  price  prior  to an  effective
registration  statement and 2.0%  thereafter  up to a minimum of 0.0%.  Both the
$2,000,000  convertible minimum borrowing note and the $4,000,000 revolving note
provide for  conversion  at the option of the holder of the amounts  outstanding
into  our  common  stock  at a  fixed  conversion  price  of  $0.14  per  share.
Additionally,  in exchange for a secured  convertible term note bearing interest
at prime rate (as reported in the Wall Street  Journal) plus 1%, Laurus has made
available to us an additional $5,000,000 to be used for acquisitions.  This note
is convertible  into our common stock at a fixed  conversion  price of $0.14 per
share. In the event that we issue our stock or derivatives  convertible into our
stock  for a price  less  than  the  fixed  conversion  price,  then  the  fixed
conversion price is reset to the lower price.  This note matures in three years.
The proceeds of this loan will be  restricted  for use for approved  acquisition
targets  identified by us that are approved by Laurus. We issued Laurus a common
stock  purchase  warrant  that  provides  Laurus  with  the  right  to  purchase
12,000,000  shares  of our  common  stock.  The  exercise  price  for the  first
6,000,000  shares  acquired  under the warrant is $0.29 per share,  the exercise
price for the next  3,000,000  shares  acquired  under the  warrant is $0.31 per
share,  and the exercise price for the final 3,000,000 shares acquired under the
warrant is $0.35 per share.  The common stock purchase warrant expires on August
15,  2011.  Fees to Laurus  and Sands  (who  introduced  us to  Laurus)  equaled
approximately $749,000.

      Pursuant to the conversion of an unsecured convertible line of credit note
in May 2004,  participating  investors received  16,666,666 shares of our common
stock.  These shares were issued in reliance on ss.3(a)(9) of the Act. Due to an
adjustment in the conversion  price in September 2004,  participating  investors
received an additional 2,380,953 shares of common stock.

      In June 2004,  through our  subsidiary  Evoke  Asset  Purchase  Corp.,  we
acquired  substantially  all of the assets and assumed  substantially all of the
liabilities  of  Evoke  Software   Corporation,   a  privately-held   California
corporation ("Evoke"). In connection with the acquisition,  we issued 72,543,956
shares of our common stock to Evoke (7,150,000 of which have been deposited into
an escrow  account for a period of one-year and may be reduced based upon claims
for  indemnification  that may be made pursuant to the Asset Purchase  Agreement
among Evoke,  Evoke Asset Purchase Corp. and us), and issued 3,919,093 shares of
our common stock to certain  executives  of Evoke as a severance  payment and to
certain employees as retention shares.

      In March 2004,  Robert C. DeLeeuw was issued  80,000,000  shares of common
stock pursuant to our acquisition of DeLeeuw Associates, Inc.


                                      II-3


      In January 2004,  loans by Dr.  Michael  Mitchell,  the former  President,
Chief Executive  Officer and sole director of LCS, and by Alex Bruni, the former
Vice  President  and  Secretary  of LCS,  were  converted  into  18,313,157  and
1,000,000 shares of our common stock, respectively, at the closing of the merger
of privately-held  Conversion Services International,  Inc. ("Old CSI") with and
into LCS Acquisition Corp.,  whereby the former  stockholders of Old CSI assumed
control of our company (the "Merger").

      In January  2004,  500,000,000  shares of common  stock were issued  Scott
Newman,  Glenn  Peipert and certain  accredited  investors at the closing of the
Merger.

      In December 2003, Gene R. Kazlow, Esq. was issued 500,000 shares of common
stock in consideration for performed legal services.

      In December 2003,  Barry Feiner,  Esq. was issued 500,000 shares of common
stock in consideration for performed legal services.

      In December 2003, Susan Erwin was issued 200,000 shares of common stock in
consideration for a loan made to a former subsidiary of the Company.

      In December  2003,  Lawrence  Slavin was issued  100,000  shares of common
stock in consideration for performed consulting services.

      In December 2003, Roger Jones was issued 125,000 shares of common stock in
consideration for a loan made to a former subsidiary of the Company.

      In November 2003, J.T.  Shulman & Company,  P.C. was issued 125,000 shares
of common stock in consideration for performed accounting services.

      In May 2003,  Robert E. Morris was issued 1,100,000 shares of common stock
in consideration for a loan made to a former subsidiary of the Company.

      In March 2002, we issued  500,000 shares of our common stock to two of our
former directors.

      Other than as specifically set forth above, all of the above offerings and
sales were deemed to be exempt under Section 4(2) of the Act. No  advertising or
general solicitation was employed in offering the securities.  In each instance,
the  offerings  and sales  were made to a limited  number of  persons,  who were
either (i) accredited  investors,  (ii) business associates of the Company (iii)
employees  of the  Company,  or (iv)  executive  officers  or  directors  of the
Company.  In addition,  the transfer of such  securities  were restricted by the
Company in  accordance  with the  requirements  of the Act.  With respect to the
issuances to accredited  investors,  in addition to  representations by them, we
have made independent  determinations that they were accredited or sophisticated
investors,  capable of analyzing the merits and risks of their  investment,  and
that they understood the speculative nature of their investment. With respect to
the  business  associates  of the  Company,  employees  of the  Company  and the
executive  officers or directors of the Company,  in addition to representations
by them,  they were  provided with  detailed  information  and had access to all
material   information   about  the  Company,   and  we  have  made  independent
determinations  that that they were capable of analyzing the merits and risks of
their  investment,  and that they  understood  the  speculative  nature of their
investment.  Furthermore, all of the above-referenced persons were provided with
access to our filings with the Securities and Exchange Commission.


                                      II-4


ITEM 27. EXHIBITS

      The following is a list of exhibits  filed as a part of this  registration
statement. Where so indicated by footnote,  exhibits which were previously filed
are incorporated  herein by reference.  For exhibits  incorporated by reference,
the location of the exhibit in the previous filing is indicated  parenthetically
except for those  situations  where the exhibit number was the same as set forth
below.

      2.1 Agreement and Plan of Reorganization, dated August 21, 2003, among the
Company,  LCS Acquisition Corp.,  Conversion  Services  International,  Inc. and
certain  affiliated  stockholders  of Conversion  Services  International,  Inc.
(filed as Appendix A on Schedule 14A on January 5, 2004).

      2.2  First  Amendment  to  Agreement  and  Plan of  Reorganization,  dated
November 28, 2003, among the Company, LCS Acquisition Corp., Conversion Services
International,  Inc. and certain affiliated  stockholders of Conversion Services
International, Inc. (filed as Appendix A on Schedule 14A on January 5, 2004).

      2.3 Certificate of Merger,  dated January 30, 2004, relating to the merger
of LCS Acquisition Corp. and Conversion Services  International,  Inc. (filed as
Exhibit 2.3 on Form 8-K on February 17, 2004).

      2.4  Acquisition  Agreement,  dated February 27, 2004,  among the Company,
DeLeeuw Associates, Inc. and Robert C. DeLeeuw (filed as Exhibit 2.1 on Form 8-K
on March 16, 2004).

      2.5 Plan and Agreement of Merger and  Reorganization,  dated  February 27,
2004, among the Company,  DeLeeuw  Associates,  Inc. and DeLeeuw  Conversion LLC
filed as Exhibit 2.1 on Form 8-K on March 16, 2004).

      2.6 Asset Purchase  Agreement,  dated May 26, 2004,  among the Registrant,
Evoke Asset Purchase Corp. and Evoke Software  Corporation (filed as Exhibit 2.1
on Form 8-K on July 13, 2004).

      3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 on Form
10-SB on December 9, 1999).

      3.2   Certificate   of  Amendment   to  the   Company's   Certificate   of
incorporation,  dated  January  27,  2004,  amending,  among other  things,  the
authorized  shares of common and  preferred  stock (filed as Exhibit 3.1 on Form
8-K on February 17, 2004).

      3.3   Certificate   of  Amendment   to  the   Company's   Certificate   of
Incorporation, dated January 30, 2004, changing the name of the Company from LCS
Group, Inc. to Conversion Services International,  Inc. (filed as Exhibit 3.2 on
Form 8-K on February 17, 2004).

      3.4  Amended  and  Restated  Bylaws  (filed as Exhibit  3.3 on Form 8-K on
February 17, 2004).

      4.1  Securities  Purchase  Agreement,  dated  August 16,  2004,  among the
Registrant and Laurus (filed as Exhibit 4.2 on Form 10-QSB on August 23, 2004).

      4.2  Registration  Rights  Agreement,  dated  August 16,  2004,  among the
Registrant and Laurus (filed as Exhibit 4.3 on Form 10-QSB on August 23, 2004).

      4.3 Common Stock  Purchase  Warrant,  dated  August 16, 2004,  in favor of
Laurus  Master  Fund,  Ltd.  (filed as Exhibit  4.7 on Form 10-QSB on August 23,
2004).

      4.4 Common Stock Purchase  Warrant,  dated September 22, 2004, in favor of
Sands  Brothers  Venture  Capital  LLC  (filed  as  Exhibit  4.1 on Form  8-K on
September 27, 2004).


                                      II-5


      4.5 Common Stock Purchase  Warrant,  dated September 22, 2004, in favor of
Sands  Brothers  Venture  Capital  III LLC (filed as Exhibit  4.2 on Form 8-K on
September 27, 2004).

      4.6 Common Stock Purchase  Warrant,  dated September 22, 2004, in favor of
Sands  Brothers  Venture  Capital IV LLC  (filed as  Exhibit  4.3 on Form 8-K on
September 27, 2004).

      4.7  Registration  Rights  Agreement,  dated September 22, 2004, among the
Company,  Sands Brothers Venture Capital LLC, Sands Brothers Venture Capital III
LLC and Sands Brothers  Venture Capital IV LLC (filed as Exhibit 4.4 on Form 8-K
on September 27, 2004).


      5.1  Opinion of  Ellenoff  Grossman & Schole LLP (filed as Exhibit  5.1 on
Form SB-2/A on April 13, 2005).


      10.1 Employment  Agreement among the Company and Scott Newman, dated March
26, 2004 (filed as Exhibit 10.1 on Form 8-K/A on April 1, 2004).

      10.2 Employment Agreement among the Company and Glenn Peipert, dated March
26, 2004 (filed as Exhibit 10.2 on Form 8-K/A on April 1, 2004).

      10.3 Employment  Agreement among the Company and Mitchell  Peipert,  dated
March 26, 2004 (filed as Exhibit 10.3 on Form 8-K/A on April 1, 2004).

      10.4  Employment  Agreement  among the Company and Robert  DeLeeuw,  dated
March 26, 2004 (filed as Exhibit 10.4 on Form SB-2/A on September 30, 2004).

      10.5 2003  Incentive  Plan (filed as Schedule B on Schedule 14A on January
5, 2004).

      10.6  Security  Agreement,  dated August 16, 2004,  among the  Registrant,
DeLeeuw  Associates,  LLC, CSI Sub Corp.  (DE),  Evoke Software  Corporation and
Laurus  Master  Fund,  Ltd.  ("Laurus")  (filed as Exhibit 4.1 on Form 10-QSB on
August 23, 2004).

      10.7 Secured  Convertible  Minimum  Borrowing Note,  dated August 16, 2004
(filed as Exhibit 4.4 on Form 10-QSB on August 23, 2004).

      10.8 Secured  Revolving Note,  dated August 16, 2004 (filed as Exhibit 4.5
on Form 10-QSB on August 23, 2004).

      10.9  Secured  Convertible  Term Note,  dated  August 16,  2004  (filed as
Exhibit 4.6 on Form 10-QSB on August 23, 2004).

      10.10 Stock Pledge Agreement,  dated August 16, 2004, among the Registrant
and Laurus (filed as Exhibit 4.8 on Form 10-QSB on August 23, 2004).

      10.11 Senior  Subordinated  Secured  Convertible  Promissory  Note,  dated
September 22, 2004,  in favor of Sands  Brothers  Venture  Capital LLC (filed as
Exhibit 10.1 on Form 8-K on September 27, 2004).

      10.12 Senior  Subordinated  Secured  Convertible  Promissory  Note,  dated
September 22, 2004, in favor of Sands Brothers Venture Capital III LLC (filed as
Exhibit 10.2 on Form 8-K on September 27, 2004).


                                      II-6


      10.13 Senior  Subordinated  Secured  Convertible  Promissory  Note,  dated
September 22, 2004, in favor of Sands Brothers  Venture Capital IV LLC (filed as
Exhibit 10.3 on Form 8-K on September 27, 2004).

      10.14 Security Agreement,  dated September 22, 2004, among the Registrant,
Sands Brothers  Venture Capital LLC, Sands Brothers  Venture Capital III LLC and
Sands  Brothers  Venture  Capital IV LLC  (filed as Exhibit  10.4 on Form 8-K on
September 27, 2004).

      10.15  Subordination  Agreement,  dated  September  22,  2004,  among  the
Registrant,  Sands Brothers  Venture Capital LLC, Sands Brothers Venture Capital
III LLC,  Sands  Brothers  Venture  Capital IV LLC and Laurus Master Fund,  Ltd.
(filed as Exhibit 10.5 on Form 8-K on September 27, 2004).

      10.16 Advisory  Agreement,  dated September 22, 2004, among the Registrant
and Sands Brothers  International  Limited (filed as Exhibit 10.6 on Form 8-K on
September 27, 2004).

      10.17 Consulting Agreement with Morgan Stanley & Co.,  Incorporated (filed
as Exhibit 10.18 on Form SB-2/A on January 19, 2005).

      10.18 Consulting  Agreement with Cellco  Partnership (now known as Verizon
Wireless) (filed as Exhibit 10.19 on Form SB-2/A on January 19, 2005).

      21  Subsidiaries  of the  Company  (filed as Exhibit 21 on Form  SB-2/A on
September 30, 2004).

      23.1 Consent of Friedman LLP.**



--------------------

** Filed herewith.

ITEM 28. UNDERTAKINGS

      Insofar as  indemnification  for liabilities  arising under the Securities
Act of 1933  ("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 by 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 it is  against  public  policy  as  expressed  in  the
Securities Act and will be governed by the final adjudication of such issue.

      The undersigned registrant hereby undertakes:

      (1) To file, during any period in which it offers or sells  securities,  a
post-effective amendment to this registration statement to:

            (i) To include any  prospectus  required by section  10(a)(3) of the
Securities Act of 1933.


                                      II-7


            (ii) To  reflect  in the  prospectus  any  facts  or  events  which,
individually or together,  represent a fundamental  change in the information in
the registration  statement;  and notwithstanding the forgoing,  any increase or
decrease  in  volume  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) if, in the  aggregate,  the changes in the volume 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,
and

            (iii) To include any additional or changed  material  information on
the plan of distribution.

      (2) For purposes of determining  liability  under the  Securities  Act, to
treat each  post-effective  amendment  as a new  registration  statement  of the
securities  offered,  and the offering of the  securities at that time to be the
initial bona fide offering.

      (3) To file a post-effective  amendment to remove from registration any of
the securities that remains unsold at the end of the offering.


                                      II-8


                                   SIGNATURES


      In accordance  with the  requirements  of the  Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the  requirements  for filing on Form SB-2 and authorized  this  registration
statement  to be signed on its  behalf  by the  undersigned  in the city of East
Hanover, State of New Jersey, on April 21, 2005.


                            CONVERSION SERVICES INTERNATIONAL, INC.


                            By: /s/ Scott Newman
                                ---------------------------------------
                                Name:  Scott Newman
                                Title: President and Chief Executive Officer

      In accordance  with the  requirements  of the Securities Act of 1933, this
registration  statement  has  been  signed  by  the  following  persons  in  the
capacities and on the dates stated:




PERSON                                   CAPACITY                                                 DATE
------                                   --------                                                 ----
                                                                                           
/s/ Scott Newman
---------------------------------------- President, Chief Executive Officer, Chairman
Scott Newman                             and Principal Executive Officer                         April 21, 2005


*
---------------------------------------- Executive Vice President, Chief Operating               April 21, 2005
Glenn Peipert                            Officer and Director


*                                        Vice President, Chief Financial Officer,
---------------------------------------- Secretary, Treasurer and Principal Accounting           April 21, 2005
Mitchell Peipert                         Officer


*
---------------------------------------- Director                                                April 21, 2005
Lawrence K. Reisman


* By: /s/ Scott Newman
----------------------------------------
as attorney-in-fact
April 21, 2005




                                      II-9