As filed with the Securities and Exchange Commission on November 30, 2004
                           Registration No. 333-115243


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

                               Amendment No. 2 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 of           (Primary Standard Industrial       (I.R.S Employer
incorporation or organization)       Classification Code Number)        Identification No.)



                              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                                                 OFFERING PRICE              AMOUNT OF
                  TO BE REGISTERED                  AMOUNT TO BE REGISTERED            PER UNIT              REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
shares of common stock, par value $0.001 per share      453,140,492 (1)               $0.21 (2)                 $12,085.98
---------------------------------------------------------------------------------------------------------------------------------
shares of common stock, par value $0.001 per share,      89,249,999 (1)               $0.14 (2)                 $1,583.12
underlying convertible notes
---------------------------------------------------------------------------------------------------------------------------------
shares of common stock, par value $0.001 per share,      6,000,000 (1)                $0.29 (2)                  $220.46
underlying warrants
---------------------------------------------------------------------------------------------------------------------------------
shares of common stock, par value $0.001 per share,      3,000,000 (1)                $0.31 (2)                  $117.83
underlying warrants
---------------------------------------------------------------------------------------------------------------------------------
shares of common stock, par value $0.001 per share,      3,000,000 (1)                $0.35 (2)                  $133.04
underlying warrants
---------------------------------------------------------------------------------------------------------------------------------
shares of common stock, par value $0.001 per share,        4,166,666                  $0.105 (2)                  $55.43
underlying warrants
---------------------------------------------------------------------------------------------------------------------------------
shares of common stock, par value $0.001 per share,      6,000,000 (1)                $0.14 (2)                  $106.43
underlying warrants
---------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                     564,557,157                                         $14,302.29 (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 as well as anti-dilution provisions
applicable to the convertible notes and warrants.

(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 November 30, 2004


                       564,557,157 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 November 26, 2004,
was $0.17.


      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 ____ __, 2004

      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..................................................16
BUSINESS...........................................................................................17
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS........................................30
CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND FINANCIAL DISCLOSURE........44
USE OF PROCEEDS....................................................................................44
SELLING STOCKHOLDERS...............................................................................45
PLAN OF DISTRIBUTION...............................................................................47
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.......................................49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....................................56
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS...............................................57
DESCRIPTION OF SECURITIES..........................................................................60
SHARES ELIGIBLE FOR FUTURE SALE....................................................................63
EXPERTS............................................................................................63
LEGAL MATTERS......................................................................................63
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES................63
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 and software 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. By leveraging
best practices and  methodologies,  we help  organizations set strategy to reach
their goals and deliver them via best  practices  implementations.  Our business
and technology  offerings help clients improve  performance and maximize returns
on  technology   investments.   Our  capabilities  include  benchmarking,   tool
selection,   business  intelligence,   data  warehousing,   analytics,   process
improvement and application development and support.

OUR SERVICES

      As a full service data  warehousing,  business  intelligence  and strategy
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, M&A
            o     Compliance (HIPAA, Basel II, Sarbanes-Oxley)
            o     Process Improvement (Lean, Six Sigma)
            o     Organizational Analysis and Assessment (M&A)
            o     Methodology, process, procedures
            o     Acquisition Readiness
            o     Information, Process and Infrastructure (IPI) Diagrams
            o     RFP creation and responses
            o     Training and Education

      BUSINESS INTELLIGENCE
            o     Architecture and Implementation
            o     Ad-Hoc Query and Analysis
            o     Enterprise Reporting Solutions
            o     Online Analytical Processing
            o     Analytics and Dashboards
            o     Business Performance Management
            o     Business Intelligence Competency Center
            o     Proof of Concepts and Prototypes
            o     BI Strategy
            o     Data Mining


                                       1


      DATA WAREHOUSING
            o     DW 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     Data Architecture / Database
            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)

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


      During the nine month period ended September 30, 2004, two of our clients,
Leading Edge  Communications  Corporation  (17.9%) and Bank of America  (13.4%),
accounted  collectively  for  approximately  31% of total revenues  (unaudited).
During the nine month period ended  September 30, 2003  (unaudited),  one of our
clients,  Verizon  Wireless,  accounted for approximately 30% 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.  During the fiscal year ended December 31, 2002, two of our
clients,  Morgan  Stanley  (27.4%)  and  Verizon  Wireless  (31.6%),   accounted
collectively  for  approximately  59% of our  total  revenues.  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.


PURPOSE OF THIS PROSPECTUS

      This prospectus  relates to the resale of shares of our common stock owned
by, or issuable  upon  conversion  of notes or exercise of warrants 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.  However, we will receive proceeds, to be used for working capital
purposes,  upon the exercise of warrants held by certain  selling  stockholders.
For  further   information   about  the  selling   stockholders,   see  "Selling
Stockholders."


                                       2


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  564,557,157  shares  of  our  common
                                        stock.  The  selling  stockholders  will
                                        determine  when  they  will  sell  their
                                        shares.

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


COMMON STOCK OUTSTANDING:               We have  772,082,096  shares  of  common
                                        stock  issued  and   outstanding  as  of
                                        November 26, 2004.


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

USE OF  PROCEEDS:                       We will not receive any of the  proceeds
                                        from the sale of shares of common  stock
                                        offered  by  the  selling  stockholders.
                                        However, we will receive proceeds, to be
                                        used for working capital purposes,  upon
                                        the exercise of warrants held by certain
                                        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 nine month period ended September 30, 2004, two of our clients,
Leading Edge  Communications  Corporation  (17.9%) and Bank of America  (13.4%),
accounted  collectively  for  approximately  31% of total revenues  (unaudited).
During the nine month period ended  September 30, 2003  (unaudited),  one of our
clients,  Verizon  Wireless,  accounted for approximately 30% 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.  During the fiscal year ended December 31, 2002, two of our
clients,  Morgan  Stanley  (27.4%)  and  Verizon  Wireless  (31.6%),   accounted
collectively for approximately 59% of our total revenues.  Further, the majority
of our current  assets  consist of accounts  receivable,  and as of December 31,
2003, 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. 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.


                                       4


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  year ended  December  31,  2003,  we had a decrease  in
revenues and gross  profits,  and we  sustained an operating  loss and cannot be
sure that we will operate profitably in the future.

      During the fiscal year ended December 31, 2003, our 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.  In addition,  our gross  profits
decreased by  approximately  5.8%.  Accordingly,  we sustained a net loss in the
approximate amount of ($307,000).


      During the nine month  period  ended  September  30,  2004,  our  revenues
increased  by $8.0  million  (unaudited)  from $10.6  million for the nine month
period ended September 30, 2003  (unaudited) to $18.7 million for the nine month
period ended September 30, 2004. In addition, our gross profits increased by 2.5
percentage points, from 28.8% for the nine month period ended September 30, 2003
(unaudited) to 31.3%  (unaudited)  for the nine month period ended September 30,
2004. However, we sustained a net loss for the nine month period ended September
30, 2004 of ($4.3 million)(unaudited),  a decrease of ($4.2 million) as compared
to net income of $68,000  for the nine month  period  ended  September  30, 2003
(unaudited).


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


      On August 16,  2004,  we entered  into a security  agreement  with  Laurus
Master Fund, Ltd.,  pursuant to which we have borrowed $3,200,000 as of November
26, 2004.  Our total debt is  $10,451,000,  as described  below in  Management's
Discussion and Analysis or Plan of Operation - Liquidity and Capital  Resources.
Such loan is  collateralized  and secured by all of our  corporate  assets.  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; and

      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.

      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 loan  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.


                                       5


OUR REVENUES 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  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;

      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.


                                       6


      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.

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.


                                       7


      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.

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 and Glenn Peipert. Although we have entered into employment
agreements  with  Messrs.  Newman  and  Peipert,  the  loss of  either  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 either  Messrs.  Newman or
Peipert.

      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 numerous 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;


                                       8


      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. 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.

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 a 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.


                                       9


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
39.2% and  19.6%,  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  10.4% 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.

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.

WE MAY NOT BE ABLE TO COMPLY WITH THE SARBANES-OXLEY ACT.


      The enactment of the Sarbanes-Oxley Act in July 2002 created a significant
number of new corporate governance  requirements and additional requirements may
be enacted in the future. Since our common stock is currently quoted on the Over
The  Counter  Bulletin  Board  (OTCBB),  we are not  currently  subject  to such
governance  requirements.  Although we expect to implement the requisite changes
to become compliant with existing and new requirements when they do apply to us,
we may not be able to do so, or to do so in a timely manner .

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.


                                       10


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
Texas.  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.

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 November 26,
2004, the Company has  $4,251,000 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.  It 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.


                                       11


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.

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 and Glenn Peipert,  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.  Given that our Board of Directors
only has one independent  member, our ability to comply with state corporate law
and/or the requirements of the Sarbanes-Oxley Act of 2002 may be impaired.

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 Over The  Counter  Bulletin  Board  (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;


                                       12


      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,  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.

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.


                                       13


      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

      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.


                                       14


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 1,000,000,000 shares of our common stock. As of
November  26,  2004,  there were  772,082,096  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 November 26, 2004, we had
89,249,999  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 November 26, 2004, we had outstanding stock
options and warrants to purchase  approximately  54,471,666 shares of our common
stock, the exercise price of which range between $0.105 and $0.20 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  100,000,000
shares are currently reserved for issuance in connection with our 2003 Incentive
Plan, of which  options to purchase an aggregate of 34,060,000  shares have been
issued under the plan. A significant number of such options and warrants contain
provisions  for  cashless  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.

      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 20,000,000  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.


                                       15


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.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      Some  of  the  statements  under  "Prospectus  Summary,"  "Risk  Factors,"
"Management's  Discussion  and  Analysis  of  Financial  Condition  and  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.

                  [remainder of page intentionally left blank]


                                       16


                                    BUSINESS

      Conversion Services International,  Inc. is a technology and software 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     continue  to  enhance  and  expand  the  capabilities  of the  Evoke
            Software Corporation software product;

      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.


                                       17


      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  84.3% 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."

OUR SERVICES

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

      STRATEGIC CONSULTING

            o     Project  Management  (PMO) - Setting up  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
                  both 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,  ETL,  data  profiling,
                  database and data modeling.

            o     Integration  Management,  M&A - 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     Compliance  (HIPAA,  Basel  II,  Sarbanes-Oxley)  - Work  with
                  clients to analyze,  design and implement  operational control
                  and  procedures   that  will  align   organization   with  new
                  regulatory requirements.

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

            o     Organizational  Analysis  and  Assessment  (M&A)  - 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.


                                       18


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

            o     RFP  creation  and  responses  -  Gather  user  and  technical
                  requirements  and  develop a  Request  For  Proposal  (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  and  Evoke.   Provide   mentoring  in  data
                  warehousing and business  intelligence  methodologies and best
                  practices  as  well  as  technology  tool  training  including
                  business intelligence tools such as Cognos,  MicroStrategy and
                  Evoke.

      BUSINESS INTELLIGENCE

            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
                  tool, 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  an  analytical  tool,  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  monitoring  and
                  managing  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.

            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     BI 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  extraction
                  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.


                                       19


      DATA WAREHOUSING

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

            o     Departmental   Data   Warehousing   -  Design,   develop   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 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 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 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 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,  develop 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 leveraged in a data warehouse implementation.

      DATA MANAGEMENT

            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,   develop  and
                  implementation of custom data migrations.  These solutions are
                  based on our methodology and best practices.


                                       20


            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 trusted.

            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.

      The  following  illustrates  what  percentage of revenues each category of
services comprises our overall revenues:





Category of Services             Percentage of Revenues for the      Percentage of Revenues for the
                                 nine months ended September 30,    three months ended September 30,
                                       2004              2003           2004             2003
                                       ----              ----           ----             ----
                                  (unaudited)         (unaudited)     (unaudited)    (unaudited)
                                                                            
Strategic Consulting                  34.7%              11.1%          45.5%           10.0%
Business Intelligence                 17.0%              25.2%          12.7%           36.3%
Data Warehousing                      16.3%              11.1%          16.6%            9.4%
Data Management                       32.0%              52.6%          25.2%           44.3%



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 February 2004, we added  personnel of the
business  intelligence  consulting  division of Software  Forces,  LLC, an award
winning partner of Crystal Decisions.


                                       21


      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.

      CSI 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  CSI and  Mary  Ferrara,  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 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 that certain  Acquisition  Agreement by and between CSI, DeLeeuw 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,  $1,900,000,  $500,000  of which has 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  Acquisition  Agreement;  (ii)
issued 80,000,000 shares of our common stock to Mr. DeLeeuw,  7,200,000 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
Acquisition Agreement;  and (iii) issued options to purchase 2,000,000 shares of
our common stock to certain employees of DeLeeuw Associates. DeLeeuw Sub changed
its name to "DeLeeuw Associates, LLC."

      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 that certain
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 $448,154 in deferred compensation ($189,583
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."  Approximately 5,500,000 shares issued to WHRT I Corp. are subject
to a lock-up period after the Registration Statement is effective, in which such
shares shall be released and freely  tradable one month  following the effective
date of this Registration Statement.  The remainder of the shares issued to WHRT
I Corp.  are subject to a lock-up  period after this  Registration  Statement is
effective as follows (the following assumes the Registration  Statement has been
declared effective by the SEC): (i) 20% shall be released and freely tradable on
October 1, 2004;  (ii) 20% shall be released  and freely  tradable on January 1,
2005; (iii) 20% shall be released and freely tradable on April 1, 2005; (iv) 20%
shall be  released  and freely  tradable  on July 1, 2005;  and (v) 20% shall be
released and freely tradable on October 1, 2005.


                                       22


      Integration of DeLeeuw's Change Management Consulting practices with CSI's
Data Warehousing and Business  Intelligence core competency "The Center for Data
Warehousing" will continue throughout 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 leveraged  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  will be the focus of our marketing and  communications
programs  for 2004.  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.  Our business  strategy is to continue to enhance and expand
our offerings which include best practices, process improvement,  methodologies,
advisory services and implementation expertise.


      Evoke is managed and operated as a subsidiary company, but its integration
is limited to infrastructure  and back office  operations.  CSI has a multi-year
record of leveraging  the Evoke suite of products,  which will continue  under a
Value Added  Reseller and Systems  Integration  partnership.  In addition to the
existing Evoke field and engineering personnel, a number of business development
and  support  resources  are  being  transitioned  into  Evoke  to  bolster  the
organizational  infrastructure  required to advance the companies  growth plans.
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.


      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 uniquely positioned to expand
our client foot print by delivering  unique 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. With our
recently  acquired  subsidiary  Evoke,  CSI 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.


                                       23


RECENT FINANCINGS


      In May 2004, pursuant to the complete conversion of a $2,000,000 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 $3,000,000  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 $6,000,000  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  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.   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
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.  A portion of Laurus's  revolving
line of credit were used to pay off all  outstanding  borrowings from North Fork
Bank. 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.  We paid  $749,000 in  brokerage  and  transaction  closing
related  costs.  These costs were deducted from the $5,000,000  restricted  cash
balance being provided to us by Laurus.



                                       24


      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 (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.  Finally,  we engaged  Sands  Brothers
International Limited as our non-exclusive financial advisor at $6,000 per month
for a period of one year.

      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 12,500,000 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 is required  to purchase  the  remaining  8,928,572  shares of
Common Stock for $1,250,000 by December 31, 2004.

CLIENTS

      For more than 14 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 nine month period ended  September 30,
2004, two of our clients,  Leading Edge  Communications  Corporation (17.9%) and
Bank of America (13.4%),  accounted  collectively for approximately 31% of total
revenues  (unaudited).  During the nine month  period ended  September  30, 2003
(unaudited),  one of our clients, Verizon Wireless,  accounted for approximately
30% 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.  During the fiscal year ended December
31,  2002,  two of our  clients,  Morgan  Stanley  (27.4%) and Verizon  Wireless
(31.6%),  accounted collectively for approximately 59% 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.



                                       25


MARKETING

      We  currently  market our services  through our Director of Marketing  and
Corporate  Communications,  investors  relations firm and public relations firm,
and our sales force comprised of 10 employees,  and we also receive new business
through client referrals. We are planning to use the investor relations firm and
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
            enrolled as Gold Level Sponsor for DCI's Business  Intelligence  and
            Data Warehouse Conference in Boston in September 2004.

      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 an expert
            in individual product areas.

      o     Vendor Relations: We are identifying key vendor relationships.  With
            the ability to leverage  our  fourteen  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.


                                       26


                     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.

            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.

                     EVOKE 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 developing a 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, which every employee receives and signs
an acknowledgement  of, 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.


                                       27


INTELLECTUAL PROPERTY

      Our trademark registration applications for the marks "TECH SMART BUSINESS
WISE",  "QUALITY  MANAGEMENT  OFFICE" AND "QMO" 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.

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 its  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, and

      o     Answerthink.

EMPLOYEES

      As of September 30, 2004, we had 44 outside  consultants,  124 consultants
on the payroll and 57 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 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.

LEGAL PROCEEDINGS


      On June 29, 2004,  Viant Capital LLC commenced  legal action against us 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 our behalf from February 18 to May 17, 2004.  Viant alleges that
it is owed a fee of approximately  $450,000  relating to our loan from a private
investor in May 2004.  Management  believes that this loan does not qualify as a
private equity transaction and we intend to vigorously defend this action. As of
November 26, 2004,  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.



                                       28


DESCRIPTION OF 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. Our monthly rent with respect to our East
Hanover,  New Jersey facility is $24,965.  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
$1,152,000  and  $1,239,000  in 2003 and  2002,  respectively.  The  Company  is
committed  under several  operating  leases for  automobiles  that expire during
2007.

      See Notes 8 and 13 to Consolidated Financial Statements.


                                       29


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 "Issues and Uncertainties" 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
consulting,  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  clients are
primarily  in the  financial  services,  pharmaceutical  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
enables   organizations  to  leverage  their  corporate  information  assets  by
providing  strategy,  process and methodology,  best practices data warehousing,
business  intelligence,   enterprise  reporting  and  analytic  solutions.   The
Company's business and technology offerings help clients improve performance and
maximize returns on technology investments.

      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.

      The Company derives a substantial portion 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 activities.  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 prices it obtains 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 verticals, particularly in financial services.


                                       30


      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.  Billing  rates for the  Company's  operations  improved 8.3% for the
three months ended  September  30, 2004 when  compared to the three months ended
June 30, 2004.


      As  the  Company  continues  to  see  increases  in  client  spending  and
improvements  in economic  conditions,  the Company 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 and gains  market
share, 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 in the BI/DW
industry that 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 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  BI/DW  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  $4.2  million to fund
acquisitions  via its financing  transaction with Laurus Master Fund, Ltd., some
of these acquisitions may hinge upon future financings.

      Revenue from  consulting  and  professional  services is recognized at the
time the services are performed,  evidence of an arrangement  exists, the fee is
fixed or determinable and collectibility is reasonably assured.  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.  Revenues  for  large  services  projects  are
recognized using the percentage of completion method for long-term  construction
type  contracts  where  costs to  complete  the  contract  could  reasonably  be
estimated.  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.   The
percentage-of-completion  method is not  applicable  for the Company's  software
sales.  The  relationship  of costs incurred to date compared to estimated total
costs at  completion  is used to determine  the  percentage of completion on the
project.  This  percentage  is applied to the total  revenue to be earned on the
project and that portion of revenue is recognized in the current period.


                                       31



      Revenue  from  software  licensing  and  maintenance  and support are also
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 directly 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.  Additionally,  billings in excess of revenue
recognized on projects  being  accounted for using the  percentage-of-completion
method are  recorded as deferred  revenues.  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.

      During  the  nine  month  period  ended  September  30,  2004,  two of the
Company's clients,  Leading Edge Communications  Corporation (17.9%) and Bank of
America (13.4%),  accounted for approximately 31% of total revenues (unaudited).
During the nine month period ended September 30, 2003  (unaudited),  one client,
Verizon  Wireless,   accounted  collectively  for  approximately  30%  of  total
revenues.


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

RESULTS OF OPERATIONS

      THE FOLLOWING  TABLE SETS FORTH CERTAIN  STATEMENT OF OPERATIONS  DATA FOR
THE PERIODS INDICATED EXPRESSED AS A PERCENTAGE OF TOTAL REVENUES:


                                       32





                                                    YEARS ENDED DECEMBER 31,  NINE MONTHS ENDED SEPTEMBER 30,
                                                  ----------------------------------------------------------
                                                     2002             2003             2003            2004
                                                  ----------------------------------------------------------
                                                  (restated)                        (unaudited)     (unaudited)
                                                                                         
REVENUE                                             100.0%           100.0%           100.0%           100.0%
COST OF SALES                                        65.7             71.5             71.1             68.6
                                                  ----------------------------------------------------------

GROSS PROFIT                                         34.3             28.5             28.9             31.4
                                                  ----------------------------------------------------------

OPERATING EXPENSES
   Selling and marketing                              6.7             10.8             10.0             14.7
   General and administrative                        21.9             18.8             17.2             26.1
   Research and development                            --               --               --              1.4
   Depreciation and amortization                      0.9              1.5              1.4              2.8
                                                  ----------------------------------------------------------

                                                     29.5             31.1             28.6             45.0
                                                  ----------------------------------------------------------

INCOME (LOSS) FROM OPERATIONS                         4.8             (2.6)             0.2            (13.6)
                                                  ----------------------------------------------------------

OTHER INCOME (EXPENSE)
   Equity in losses from investments                   --               --               --             (0.1)
   Other income                                        --               --               --                0
   Interest income                                     --               --               --                0
   Interest expense                                  (0.9)            (0.9)            (0.8)            (3.4)
                                                  ----------------------------------------------------------

                                                     (0.9)            (0.9)            (0.9)            (3.5)
                                                  ----------------------------------------------------------

LOSS BEFORE TAXES                                     3.9             (3.5)            (0.6)           (17.1)
                                                  ----------------------------------------------------------

INCOME TAXES (BENEFIT)
   Current                                            0.6               --               --             (0.7)
   Deferred                                          (0.5)            (1.3)             0.0              0.0
                                                  ----------------------------------------------------------

                                                      0.1             (1.3)             0.0             (0.7)
MINORITY INTEREST                                      --               --               --             (0.2)
                                                                                        0.0               --
                                                  ----------------------------------------------------------

NET INCOME (LOSS)                                     3.8             (2.2)            (0.6)           (16.2)
                                                  ----------------------------------------------------------

UNSECURED CONVERTIBLE LINE OF CREDIT
   BENEFICIAL CONVERSION FEATURE                       --               --               --              6.5

NET INCOME (LOSS) ATTRIBUTABLE TO
                                                  ----------------------------------------------------------
   COMMON STOCKHOLDERS                                3.8%            (2.2) %          (0.6)%          (22.7)%
                                                  ==========================================================

PROFORMA DATA:
   Income before taxes (benefit)                       -- %             -- %           (0.6)%             -- %
   Income taxes (benefit)                              --               --             (0.3)              --
                                                  ----------------------------------------------------------
   Net income (loss)                                   -- %             -- %           (0.4)%             -- %
                                                  ----------------------------------------------------------




                                       33




Nine Months Ended September 30, 2004 and 2003 (unaudited)

      Revenue.  Our revenues are primarily  comprised of billings to clients for
consulting  hours  worked on client  projects.  Revenues  for nine months  ended
September 30, 2004 were $18.7 million (unaudited), an increase of 75.9% over the
nine months ended  September 30, 2003  (unaudited).  This increase was primarily
attributable  to projects  obtained in the fourth quarter of 2003 that are still
ongoing  or  have   developed   into  new  projects.   The  project  design  and
infrastructure projects obtained in the fourth quarter of 2003 are recognized at
the time that the services are performed as these are not related to fixed price
projects  requiring  percentage of completion  accounting.  These  projects were
completed during 2004 and newly defined projects arose from these relationships.
The project design and infrastructure projects are based upon time and materials
and are billed and  recognized  at the time that the services  are  performed as
these are not related to fixed price projects.  Additionally,  $0.8 million,  or
4.2% of revenues, and $3.4 million, or 18.0% of revenues, is attributable to the
Evoke and DeLeeuw acquisitions which were completed in 2004.


      There has been an  increase in hourly  rates  charged  for  services.  The
average  rate for the three months ended  September  30, 2004  increased by 8.3%
over the three month ended June 30, 2004. This is substantially  attributable to
the acquisition of DeLeeuw Associates, whose billing rates are higher than CSI's
traditional billing rates. DeLeeuw Associates' focus is more highly concentrated
on management  consulting,  which is generally  associated  with higher  billing
rates. Revenues for the three month ended September 30, 2004 increased 5.6% over
the three months ended June 30, 2004.  If the average  rates had not  increased,
revenues would have decreased by 2.4% for the same period.


      Cost of services. Cost of services primarily includes payroll and benefits
costs for our  consultants.  Cost of  services  was $12.8  million,  or 68.6% of
revenue for the nine months ended  September 30, 2004  (unaudited),  compared to
$7.5 million,  or 71.1% of revenue for the nine months ended  September 30, 2003
(unaudited)  due to $2.3  million  of cost to  operate  the  DeLeeuw  and  Evoke
companies  which were both acquired in 2004, and $3.0 million of cost associated
with  producing the increased  revenues and a shift in the  consulting  force to
higher paid consultants.  This is directly correlated to the increase in billing
rates discussed above in the analysis of revenue.

      Cost of  Services  for  DeLeeuw  for the  period of March 1, 2004  through
September  30, 2004 were $2.2  million  (unaudited).  Cost of  services  for the
Company  (excluding  DeLeeuw and Evoke) for the nine months ended  September 30,
2004 were $10.4 million  (unaudited),  an increase of 37.9% over the nine months
ended September 30, 2003 (unaudited).

      Gross profit.  Our gross profit percentage  increased to $5.9 million,  or
31.4% of revenues,  for the nine months ended September 30, 2004 (unaudited)from
$3.1  million,   or  28.8%,  for  the  nine  months  ended  September  30,  2003
(unaudited).  The DeLeeuw acquisition  contributed gross profit of $1.2 million,
or 6.2% of revenues for the nine months ended September 30,  2004(unaudited) and
the Evoke  acquisition  contributed  gross  profit of $0.7  million,  or 3.6% of
revenues, for the nine months ended September 30, 2004 (unaudited). Gross profit
attributed to ongoing CSI operations was $4.0 million, or 21.5% of revenues, and
68.5% of total gross profit,  for the nine months ended September 30, 2004. As a
percentage  of total gross profit for the nine months ended  September 30, 2004,
DeLeeuw  contributed  19.8% of total gross profit,  Evoke  contributed  11.7% of
total gross profit,  and ongoing  Company  operations  contributed the remaining
68.5% of total gross  profit.  The gross profit  percentage  for the nine months
ended  September 30, 2004, was 34.5%,  87.3% and 27.6% for DeLeeuw,  Evoke,  and
ongoing Company operations, respectively.

      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 $2.7 million, or 14.7% of revenue,
for the nine  months  ended  September  30, 2004  (unaudited),  compared to $1.1
million,  or 10.0% of revenue,  for the nine  months  ended  September  30, 2003
(unaudited).  We  have  added  six  additional  salespeople  and a  Director  of
Marketing and Corporate Communications through new hires and retaining staffs of
acquired  companies as part of our strategy to gain new clients and increase our
revenue.  For the nine months ended  September  30, 2004,  $0.5 million and $0.2
million of the increase is attributed to the operations of the Evoke and DeLeeuw
acquisitions,  respectively.  Payroll expense and commissions  increased by $0.6
million for the nine months ended  September  30, 2004 as compared with the same
period in the prior year due to the additional headcount discussed above.



                                       34



      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 $4.9 million, or 26.1% of revenue, for the nine months
ended  September 30, 2004  (unaudited),  compared to $1.8  million,  or 17.2% of
revenue, for the nine months ended September 30, 2003 (unaudited).  $0.7 million
and $0.5 million of the increase in general and  administrative  expenses during
the  three  months  ended  September  30,  2004 is  attributed  to the  costs of
operating the Evoke and DeLeeuw companies  subsequent to the acquisitions during
2004, respectively.  Additionally,  $0.2 million is attributed to an increase in
officer's  salaries 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.  We increased general and administrative  and development  headcount by
twelve employees during 2004, as compared to 2003, to support the increased size
of the  business  which  resulted in an increase in salaries of $0.2  million in
comparing  the nine months  ended  September  30, 2004 versus the same period in
2003. For the nine months ended  September 2004, an increase of $0.2 million was
incurred as the result of legal and accounting  fees  associated with becoming a
public company and higher  insurance  premiums due to the growth of the Company.
For the nine months ended September 30, 2004, general and administrative expense
increased,  as  compared  to the  same  period  in the  prior  year,  due to the
increased  headcount  of 15 and 43 and  payroll  costs of $0.8  million and $0.6
million for the acquisitions of Evoke and DeLeeuw, respectively, in 2004.

      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 our
Evoke Axio software  product.  Research and development costs were $0.3 million,
or 1.5% of revenue  for the nine months  ended  September  30, 2004  (unaudited)
compared to zero for the comparative  period in the prior year. The research and
development  department was obtained in association  with the Evoke  acquisition
which was completed during 2004.

      Depreciation  and  amortization.  Depreciation  expense is recorded on our
property and  equipment  which is generally  depreciated  over a period  between
three to seven years. 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 $0.5 million for the nine months
ended  September  30, 2004  (unaudited),  compared to $0.1  million for the nine
months ended  September  30, 2003  (unaudited).  $0.3 million of the increase in
depreciation and amortization during the nine months ended September 30, 2004 is
attributed to amortization of the acquired Evoke intangible assets.

      Other income (expense).  We incur interest expense on loans from financial
institutions,  from capital  lease  obligations  related to the  acquisition  of
equipment  used in our  business,  and on the  outstanding  convertible  line of
credit notes.  Amortization  of the discount of debt issued $0.3 million is also
recorded as interest expense. Interest expense recorded was $0.6 million for the
nine months ended September 30, 2004  (unaudited),  compared to $0.1 million for
the nine months ended September 30, 2003  (unaudited).  This is directly related
to the August and  September  financings  described  below in the  liquidity and
capital  resources  section.  We recorded  equity  income in our  investment  in
DeLeeuw  International  (Turkey) of $11,000 for the nine months ended  September
30, 2004,  and an equity loss in our  investment  in LEC of $36,000 for the nine
months ended September 30, 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 $1.2  million  in the  quarter  ending  September  2004
(unaudited).  This  allowance  was  recorded  because,  based on the  weight  of
available evidence, it is more likely than not that some portion of the deferred
tax asset may not be realized.



                                       35



      No income tax  expense or benefit  was  recorded  in the prior year as the
Company was an "S" Corporation through September 30, 2003 (unaudited). Pro forma
income taxes for the  comparable  nine month period in the prior year would have
been an income tax provision of $27,000 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
$1,800,000 from  $16,200,000 for the year ended December 31, 2002 to $14,400,000
for the year ended December 31, 2003. Our revenues  decreased by $4,400,000 with
an offsetting  increase of $2,600,000 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,
generally.

      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.

      Selling and marketing  expenses.  Selling and marketing expenses increased
$458,000  or 42% to  $1,553,000  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  $302,000  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
$103,000.

      General and administrative  expenses.  General and administrative expenses
decreased by 23.9% or $847,000,  to $2,702,000  for the year ended  December 31,
2003,  from  $3,549,000 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 $997,000. 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 $159,000 in additional salaries
to support the  acquisition.  The  reduction  of rent  expense by  $106,000  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.

      Depreciation and  amortization.  Depreciation  and  amortization  expenses
increased by $64,000 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  $136,000 and $139,000 in interest expense
during the fiscal years ended December 31, 2003 and 2002, respectively,  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.  The decrease in interest expense  reflects the increased  average
outstanding borrowings and at a lower variable rate of interest charged in 2003.


                                       36


LIQUIDITY AND CAPITAL RESOURCES


      Cash totaled $0.9 million as of September 30, 2004 (unaudited) compared to
$0.4 million as of December 31, 2003. Our cash balance is primarily derived from
customer  remittances,  bank  borrowings,  equity and debt  financing,  and cash
obtained  from  acquired  businesses,  and is used for general  working  capital
needs. We had $83,000 on deposit with a financial  institution as collateral for
a  letter  of  credit  and  have  classified  this  as  restricted  cash  on our
consolidated balance sheet.

      Working  capital is ($2.3  million)  at  September  30,  2004  (unaudited)
compared to ($0.7 million) at December 31, 2003. The Company's  working  capital
position has deteriorated  during the nine month period ended September 30, 2004
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 $1.4
million of additional borrowings against the Company's line of credit and a $1.0
million loan on a short term note payable.  As of December 31, 2003, the Company
had negative  working  capital  primarily  due to the  operating  losses of $0.3
million  sustained by the Company  during 2003 and the  liabilities  incurred in
connection with the acquisition of Scosys,  Inc. of $0.2 million at December 31,
2003.

      Net cash used by operations  for the year ended  December 31, 2003 of $0.5
million  increased by $0.5 million from $52,000 for the year ended  December 31,
2002. This increase in cash usage was due to a $0.1 million increase in accounts
receivable,  a $0.1 million  increase in the  deferred  tax benefit,  and a $0.3
million net loss. Cash used by operations during the nine months ended September
30, 2004 was $3.0 million (unaudited), an increase of $2.7 million from the nine
months  ended  September  30, 2003  (unaudited).  This  increase in cash used by
operations is primarily due to a $2.0 million loss from operations (adjusted for
non-cash  charges),  a $1.1  million  increase  in accounts  receivable,  a $0.5
million increase in the related party receivables,  and a $0.2 million reduction
in deferred revenue during the nine month period,  which was partially offset by
an increase in accounts  payable  and accrued  expenses of $0.9  million.  Trade
accounts  receivable  increased primarily due to $0.9 million of receivables for
DeLeeuw  which was acquired in March 2004 and $0.5 million for Evoke,  which was
acquired in June 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.  Deferred  revenue
declined as a result of recognition of the revenue as it was earned during 2004.
Accounts  payable and accrued expenses  increased  primarily due to $0.3 million
related  to  DeLeeuw  and $1.3  million  related  to Evoke,  both of which  were
acquired during 2004.

      Cash  provided by (used by)  investing  activities  consists  primarily of
investments  in  acquired  companies,   equity  investments  in  companies,  and
purchases of property and equipment.  Net cash provided by investing  activities
was $0.1  million  during the year ended  December 31, 2002 and net cash used in
investing  activities was $0.1 million for the year ended December 31, 2003. Net
cash provided by investing  activities  for the year ended  December 31, 2002 of
$0.1 million was due to a collection  of a $0.2  million note  receivable.  Cash
used by  investing  activities  was $1.8  million  during the nine months  ended
September  30, 2004  (unaudited).  This was due to payments of $2.1 million made
primarily as acquisition payments for DeLeeuw and for the purchases of equipment
for the Company,  partially  offset by $0.3 million of cash  acquired as part of
the Evoke acquisition.

      Cash  provided by financing  activities  consists  primarily of borrowings
under line of credit  facilities,  issuances of debt  instruments,  issuances of
equity  instruments,  and repayments of debt. Cash used in financing  activities
was $0.1  million  for the year ended  December  31,  2002 and cash  provided by
financing activities was $1.0 million for the year ended December 31, 2003. Cash
provided by financing  activities  was $5.2 million during the nine months ended
September  30,  2004  (unaudited).  During the first nine  months of 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 and additional line of
credit  borrowings  of $1.4  million.  $0.8  million of  principal  payments  on
long-term debt and on capital lease  obligations were made by the Company during
this time period.



                                       37




      There are currently no material commitments for capital expenditures.


      For the year ended  December 31, 2003 and the nine months ended  September
30, 2004 (unaudited), we invoiced LEC $393,000 and $1,727,200, respectively, for
the services of consultants  subcontracted to LEC by us. As of December 31, 2003
and September 30, 2004, we had accounts receivable due from LEC of approximately
$393,000 and  $901,000,  respectively,  and we have  provided LEC with  extended
payment terms. There are no known collections  problems with respect to LEC. 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.


      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.  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.

      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.  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.  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  September  30,  2004,  $3.2
million was outstanding under the revolving line of credit. The interest rate on
the revolving line and the acquisition  note was 5.75% during September 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.


                                       38



      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 (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.  Finally,  we engaged  Sands  Brothers
International Limited as our non-exclusive financial advisor at $6,000 per month
for a period of one year. 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.




The following is a summary of the debt  investments  outstanding  as of November
26, 2004:



------------------------------------------------------------------------------------------------------------------------------
Lender                                   Type of facility                  Outstanding  as of          Remaining Availability
                                                                           November  26, 2004
                                                                           (not including interest)
------------------------------------------------------------------------------------------------------------------------------
                                                                                              
Laurus Master Fund, Ltd.                 Convertible Line of Credit        $3,200,000                  $0
------------------------------------------------------------------------------------------------------------------------------
Laurus Master Fund, Ltd.                 Convertible Term note             $4,251,000                  $0
------------------------------------------------------------------------------------------------------------------------------
Sands Brothers Venture Capital LLC       Convertible Promissory Note       $50,000                     $0
------------------------------------------------------------------------------------------------------------------------------
Sands Brothers Venture Capital III LLC   Convertible Promissory Note       $850,000                    $0
------------------------------------------------------------------------------------------------------------------------------
Sands Brothers Venture Capital IV LLC    Convertible Promissory Note       $100,000                    $0
------------------------------------------------------------------------------------------------------------------------------
Taurus Advisory Group, LLC investors     Convertible Promissory Note       $2,000,000                  $0
------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                                      $10,451,000                  $0
------------------------------------------------------------------------------------------------------------------------------




                                       39


      Cash  generating  revenues  from Evoke have been  approximately  40% below
expectations  during the three months  ended  September  30,  2004.  The Company
expects the Evoke  revenues to increase  over the next  several  quarters as its
sales  force  has  been  actively   soliciting   business  in  the  marketplace.
Additionally,  the Company has  continued to generate  losses that have exceeded
expectations.  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 12,500,000 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 is required  to purchase  the  remaining  8,928,572  shares of
common stock for $1,250,000 by December 31, 2004.


      On November 16, 2004, Scott Newman,  President and Chief Executive Officer
of the Company,  paid to the Company  $188,520,  the outstanding  balance of Mr.
Newman's  stockholder  loan.  Glenn Peipert,  Executive Vice President and Chief
Operating Officer of the Company,  paid to the Company $19,806,  the outstanding
balance of Mr. Peipert's stockholder loan.


      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
$500,000.  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.

      The Company  expects the  aforementioned  transactions to occur within the
contracted time periods. In the event that they do not materialize,  the Company
may be required to seek additional  sources of financing in the near future.  If
the Company is unsuccessful  in obtaining  additional  sources of financing,  it
could experience difficulty meeting its current obligations as they become due.

      The Company believes existing cash,  borrowing  capacity under the line of
credit or alternative  financing  sources,  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.



                                       40


APPLICATION OF CRITICAL ACCOUNTING POLICIES

      REVENUE RECOGNITION

PROFESSIONAL SERVICES

      Revenue from  consulting  and  professional  services is recognized at the
time the services are performed,  evidence of an arrangement  exists, the fee is
fixed or determinable and collectibility is reasonably assured.  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.

      Revenues for large services  projects are recognized  using the percentage
of completion  method for long-term  construction  type contracts where costs to
complete the contract  could  reasonably  be estimated.  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.  The  relationship  of costs  incurred  to date
compared  to  estimated  total  costs at  completion  is used to  determine  the
percentage of completion on the project. This percentage is applied to the total
revenue to be earned on the project and that portion of revenue is recognized in
the current period.  Additionally,  billings in excess of revenue  recognized on
projects  being  accounted  for using the  percentage-of-completion  method  are
recorded  as  deferred  revenues.  The  percentage-of-completion  method  is not
applicable for the Company's software sales.

SOFTWARE

      Revenue  from  software  licensing  and  maintenance  and support are also
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 directly 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.

      We license  software and provide a  maintenance  and support  agreement to
customers.  These  items are  invoiced  as  separate  items and  vendor-specific
objective  evidence  (VSOE)  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.

      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.


                                       41


      AMORTIZATION


      The Company  amortizes  deferred  financing  costs utilizing the effective
interest method over the term of the related debt instrument. Acquired contracts
are amortized  over 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.


      GOODWILL AND INTANGIBLE ASSETS

      Goodwill  represents  the amounts  paid in  connection  with a  settlement
agreement with the Elligent  Consulting Group to re-acquire the ownership rights
to the  Company  in 1998 and in  connection  with the  acquisitions  of  Scosys,
DeLeeuw  and  Evoke.  Additionally,  as part of the  Scosys,  DeLeeuw  and Evoke
acquisitions,  the Company acquired  intangible  assets.  FASB Statement 142 was
adopted as of  January  1, 2002 for all  goodwill  recognized  in the  Company's
balance sheet as of December 31, 2001. This statement changed the accounting for
goodwill  from  an  amortization  method  to an  impairment-only  approach,  and
introduced a new model for determining impairment charges.

      Goodwill and intangible assets are reviewed for impairment whenever events
or  circumstances  indicate  impairment  might exist, or at least annually.  The
Company assesses the  recoverability  of its assets, in accordance with SFAS No.
142 "Goodwill and Other Intangible  Assets,"  comparing  projected  undiscounted
cash flows  associated  with those  assets  against  their  respective  carrying
amounts.  Impairment, if any, is based on the excess of the carrying amount over
the fair value of those assets.  The Company's  goodwill and  intangible  assets
were  evaluated  and deemed not to be impaired at December 31, 2003.  There have
been no events or  circumstances  that  would  indicate  that there has been any
impairment during the nine months ended September 30, 2004.

      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 September  30, 2004,  one customer,  LEC, a related party  company,
comprised approximately 17.6% of the Company's accounts receivable balance.

      INCOME TAXES

      The  Company  accounts  for  income  taxes  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.

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


                                       42



      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  approximately  $1.2  million in the third  quarter of 2004.  This
allowance was recorded because, based on the weight of available evidence, it is
more  likely  than not that some  portion of the  deferred  tax asset may not be
realized.

      For  informational  purposes,  the  accompanying  statements of operations
include an unaudited pro-forma adjustment for income taxes which would have been
recorded if CSI had not been an "S" Corporation. 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.


           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.  However, we will receive proceeds, to be
used for working capital purposes, upon the exercise of warrants held by certain
selling stockholders.


                                       43


                              SELLING STOCKHOLDERS


      This prospectus  relates to the offering for resale of 564,557,157  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 November  26, 2004.  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.


                                       44





---------------------------------------- -------------------- --------------------- ------------------
                                                                                    NUMBER OF SHARES
                                          POSITION, OFFICE    NUMBER OF SHARES OF    REPRESENTED BY
                                          OR OTHER MATERIAL    COMMON STOCK, NOT        WARRANTS
                                            RELATIONSHIP      INCLUDING WARRANTS,     BENEFICIALLY
                                                               BENEFICIALLY OWNED       OWNED (1)
                                                                  PRIOR TO THE
          SELLING STOCKHOLDER                                     OFFERING (1)
---------------------------------------- -------------------- --------------------- ------------------
                                                                     NUMBER
---------------------------------------- -------------------- --------------------- ------------------
                                                                           
Mathew and Kyle Szulik (2)               None                     23,035,714        3,125,000
---------------------------------------- -------------------- --------------------- ------------------
Jermar Corp. (3)                         None                     22,526,190        206,250
---------------------------------------- -------------------- --------------------- ------------------
Redec & Associates LLC (4)               None                     17,750,000        0
---------------------------------------- -------------------- --------------------- ------------------
Trust FBO Claire S. Adelson (5)          None                      5,666,666        0
---------------------------------------- -------------------- --------------------- ------------------
Lawrence D. Share (2)                    None                      9,666,667        0
---------------------------------------- -------------------- --------------------- ------------------
Richard and Stacey Adelson (2)           None                      2,561,904        50,000
---------------------------------------- -------------------- --------------------- ------------------
Alisa Farber Revocable Trust (6)         None                      1,000,000        0
---------------------------------------- -------------------- --------------------- ------------------
Edward and Nancy McSorley (2)            None                      4,047,619        156,250
---------------------------------------- -------------------- --------------------- ------------------
Ronald Kertes (2)                        None                      1,666,668        0
---------------------------------------- -------------------- --------------------- ------------------
Andrew Holder (2)                        None                        971,429        212,500
---------------------------------------- -------------------- --------------------- ------------------
Steven and Wendi Levitt (2)              None                        714,286        156,250
---------------------------------------- -------------------- --------------------- ------------------
Ardmore Blouses, Inc. Retirement Plan    None                        485,714        106,250
(7)
---------------------------------------- -------------------- --------------------- ------------------
Patricia A. DeSalvo-Cavelius (2)         None                        485,714        106,250
---------------------------------------- -------------------- --------------------- ------------------
David Horowitz (2)                       None                        219,048        47,916
---------------------------------------- -------------------- --------------------- ------------------
Michael D. Mitchell, MD (8)              Former Chief
                                         Executive Officer
                                         and Director             18,154,824        0
---------------------------------------- -------------------- --------------------- ------------------
Alex Bruni (9)                           Former Chief
                                         Financial Officer         1,000,000        0
---------------------------------------- -------------------- --------------------- ------------------
Gene R. Kazlow, Esq. (10)                None                        500,000        0
---------------------------------------- -------------------- --------------------- ------------------
Janet M. Portelly (11)                   None                        500,000        0
---------------------------------------- -------------------- --------------------- ------------------
Lawrence J. Slavin (12)                  None                        200,000        0
---------------------------------------- -------------------- --------------------- ------------------
Roger Jones (13)                         None                        125,000        0
---------------------------------------- -------------------- --------------------- ------------------
J.T. Shulman & Company, P.C. (14)        None                        100,000        0
---------------------------------------- -------------------- --------------------- ------------------
Traffix, Inc. (15)                       None                        250,000        0
---------------------------------------- -------------------- --------------------- ------------------
WHRT I Corp. (16)                        None                     72,543,956        0
---------------------------------------- -------------------- --------------------- ------------------
John Giglio (16)                         None                        659,341        0
---------------------------------------- -------------------- --------------------- ------------------
Donald Townsend (16)                     None                        961,538        0
---------------------------------------- -------------------- --------------------- ------------------
Lacy Edwards (16)                        None                      1,785,714        0
---------------------------------------- -------------------- --------------------- ------------------
Andy Galewsky (16)                       None                         55,500        0
---------------------------------------- -------------------- --------------------- ------------------
Lee Pointer (16)                         None                         55,500        0
---------------------------------------- -------------------- --------------------- ------------------
Jeff Millman (16)                        None                         55,500        0
---------------------------------------- -------------------- --------------------- ------------------
Steve McWhirter (16)                     None                         39,000        0
---------------------------------------- -------------------- --------------------- ------------------
Richard Hasting (16)                     None                         39,000        0
---------------------------------------- -------------------- --------------------- ------------------
Sterling Runion (16)                     None                         39,000        0
---------------------------------------- -------------------- --------------------- ------------------
Terry Manning (16)                       None                         39,000        0
---------------------------------------- -------------------- --------------------- ------------------
Tim Leslie (16)                          None                         39,000        0
---------------------------------------- -------------------- --------------------- ------------------
Kimberly Livingston (16)                 None                         39,000        0
---------------------------------------- -------------------- --------------------- ------------------
Chris Buckley (16)                       None                         28,000        0
---------------------------------------- -------------------- --------------------- ------------------
Isabelle Knight (16)                     None                         28,000        0
---------------------------------------- -------------------- --------------------- ------------------
Eckhard Bogner (16)                      None                         28,000        0
---------------------------------------- -------------------- --------------------- ------------------
Alan Brignall (16)                       None                         28,000        0
---------------------------------------- -------------------- --------------------- ------------------
Scott Newman (17)                        President, Chief        150,050,000        0
                                         Executive Officer
                                         and Chairman
---------------------------------------- -------------------- --------------------- ------------------
Glenn Peipert (18)                       Executive Vice           75,000,000        0
                                         President, Chief
                                         Operating Officer
                                         and Director
---------------------------------------- -------------------- --------------------- ------------------
Robert C. DeLeeuw (19)                   Senior Vice              40,000,000        0
                                         President
---------------------------------------- -------------------- --------------------- ------------------
Laurus Master Fund, Ltd. (20)            None                     82,107,141        12,000,000
---------------------------------------- -------------------- --------------------- ------------------
Sands Brothers Venture Capital LLC (21)  None                        357,143        300,000
---------------------------------------- -------------------- --------------------- ------------------
Sands Brothers Venture Capital III LLC   None                      6,071,429        5,100,000
(21)
---------------------------------------- -------------------- --------------------- ------------------
Sands Brothers Venture Capital IV LLC    None                        714,286        600,000
(21)
---------------------------------------- -------------------- --------------------- ------------------
TOTAL                                                            542,390,491
---------------------------------------- -------------------- --------------------- ------------------








---------------------------------------- ---- ---------------------- ---------------------- --------------------
                                                 TOTAL NUMBER OF         COMMON STOCK          PERCENTAGE OF
                                                SHARES OF COMMON      BENEFICIALLY OWNED       COMMON STOCK
                                               STOCK BENEFICIALLY     AFTER THE OFFERING    BENEFICIALLY OWNED
                                                    OWNED (1)                                  AFTER TO THE
          SELLING STOCKHOLDER                                                                    OFFERING
---------------------------------------- ---- ---------------------- ---------------------- --------------------
                                                                            NUMBER              PERCENTAGE
---------------------------------------- ---- ---------------------- ---------------------- --------------------
                                                                                   
Mathew and Kyle Szulik (2)                    26,225,714             65,000                 *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Jermar Corp. (3)                              23,522,440             790,000                *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Redec & Associates LLC (4)                    19,395,000             1,645,000              *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Trust FBO Claire S. Adelson (5)               6,071,666              405,000                *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Lawrence D. Share (2)                         9,666,667              0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Richard and Stacey Adelson (2)                2,611,904              0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Alisa Farber Revocable Trust (6)              1,230,000              230,000                *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Edward and Nancy McSorley (2)                 4,533,869              330,000                *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Ronald Kertes (2)                             1,666,668              0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Andrew Holder (2)                             2,093,929              910,000                *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Steven and Wendi Levitt (2)                   1,083,536              213,000                *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Ardmore Blouses, Inc. Retirement Plan         591,964                0                      *
(7)
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Patricia A. DeSalvo-Cavelius (2)              1,206,964              615,000                *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
David Horowitz (2)                            291,964                25,000                 *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Michael D. Mitchell, MD (8)                   21,754,824             3,600,000              *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Alex Bruni (9)                                1,900,000              900,000                *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Gene R. Kazlow, Esq. (10)                     500,000                0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Janet M. Portelly (11)                        500,000                0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Lawrence J. Slavin (12)                       200,000                0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Roger Jones (13)                              125,000                0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
J.T. Shulman & Company, P.C. (14)             100,000                0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Traffix, Inc. (15)                            250,000                0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
WHRT I Corp. (16)                             72,543,956             0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
John Giglio (16)                              659,341                0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Donald Townsend (16)                          961,538                0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Lacy Edwards (16)                             1,785,714              0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Andy Galewsky (16)                            55,500                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Lee Pointer (16)                              55,500                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Jeff Millman (16)                             55,500                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Steve McWhirter (16)                          39,000                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Richard Hasting (16)                          39,000                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Sterling Runion (16)                          39,000                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Terry Manning (16)                            39,000                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Tim Leslie (16)                               39,000                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Kimberly Livingston (16)                      39,000                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Chris Buckley (16)                            28,000                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Isabelle Knight (16)                          28,000                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Eckhard Bogner (16)                           28,000                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Alan Brignall (16)                            28,000                 0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Scott Newman (17)                             295,050,000            145,000,000            18.8%
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Glenn Peipert (18)                            150,000,000            75,000,000             9.8%
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Robert C. DeLeeuw (19)                        80,000,000             40,000,000             5.2%
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Laurus Master Fund, Ltd. (20)                 94,107,141             0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Sands Brothers Venture Capital LLC (21)       657,143                0                      *
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Sands Brothers Venture Capital III LLC        11,171,429             0                      *
(21)
---------------------------------------- ---- ---------------------- ---------------------- --------------------
Sands Brothers Venture Capital IV LLC         1,314,286              0                      *
(21)
---------------------------------------- ---- ---------------------- ---------------------- --------------------
TOTAL                                          22,166,666            834,285,157            269,728,000
---------------------------------------- ---- ---------------------- ---------------------- --------------------




                                       45


* Less than 1%

(1)   Consists  (as  applicable)  of shares of common stock that may be acquired
      upon the conversion of outstanding notes and exercise of warrants.

(2)   Consists  of shares  obtained  via private  investments  in the Company in
      October 2003 and May 2004 via Taurus Advisory Group, LLC.

(3)   Consists  of shares  obtained  via private  investments  in the Company in
      October 2003 and May 2004 via Taurus Advisory  Group,  LLC. Jerry Z. Ceder
      is the natural  person having  investment  and/or voting  control over the
      shares.

(4)   Consists  of shares  obtained  via private  investments  in the Company in
      October 2003 and May 2004 via Taurus Advisory  Group,  LLC. Jerry Z. Ceder
      is the natural  person having  investment  and/or voting  control over the
      shares.

(5)   Consists  of shares  obtained  via private  investments  in the Company in
      October 2003 and May 2004 via Taurus Advisory  Group,  LLC. Claire Adelson
      and Shirley Moss are the natural persons having  investment  and/or voting
      control over the shares.

(6)   Consists  of shares  obtained  via private  investments  in the Company in
      October 2003 and May 2004 via Taurus Advisory Group,  LLC. Alisa and Allan
      Farber are the natural  persons  having  investment  and/or voting control
      over the shares.

(7)   Consists  of shares  obtained  via private  investments  in the Company in
      October 2003 and May 2004 via Taurus Advisory Group, LLC. Michael and Alan
      Wolf are the natural persons having  investment and/or voting control over
      the shares.

(8)   Consists of shares issued to Mr. Mitchell in January 2004 in consideration
      for a loan made to the Company.

(9)   Consists of shares  issued to Mr. Bruni in January  2004 in  consideration
      for a loan made to the Company.

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

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

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

(13)  Consists of shares issued to Mr. Jones in December  2003 in  consideration
      for a loan made to a former subsidiary of the Company.

(14)  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.

(15)  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.

(16)  Consists of shares issued  pursuant to the Company's  acquisition  in June
      2004 of Evoke Software Corporation ("Evoke") to Evoke (now known as WHRT I
      Corp.) and its  employees.  Lacy  Edwards  is the  natural  person  having
      investment and/or voting control over the shares held by WHRT I Corp.

(17)  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.

(18)  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.

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

(20)  Consists of shares  underlying  notes and warrants issued to Laurus Master
      Fund,  Ltd.  in August  2004.  David Grin and Eugene  Grin are the natural
      persons  having  investment  and/or  voting  control  over Laurus  Capital
      Management,  LLC, which is the entity that exercises investment and voting
      power over Laurus Master Fund, Ltd. and the shares.

(21)  Consists of shares  underlying notes and warrants issued in September 2004
      pursuant to  $1,000,000  financing.  Steven  Sands is the  natural  person
      having investment and/or voting control over the shares.

      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.


                                       46


                              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:

      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.

      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.


                                       47


      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.

      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 AN     AGE    POSITION(S) HELD
                                     OFFICER OR DIRECTOR
------------------------------------------------------------- -------- --------------------------------------------------------
                                                              
Scott Newman                                 2004               45     President, Chief Executive Officer and Chairman
------------------------------------------------------------- -------- --------------------------------------------------------
Glenn Peipert                                2004               43     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               47     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.


                                       48


      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.


                                       49


      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,  2001,  2002 and 2003:  (i)
individuals who served as, or acted in the capacity of, our principal  executive
officer for the fiscal year ended  December  31,  2003;  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, 2003 and who were
employed at the end of fiscal year 2003.





                           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           2003       244,452        --           --            --                --           --          206,686 (2)
 President, Chief
 Executive Officer
 and Chairman           2002       143,750        --           --            --                --           --          259,418 (2)
                        2001       250,000        --           --            --                --           --          220,000 (2)

 Glenn Peipert          2003       223,016        --           --            --                --           --          171,309 (3)
 Executive Vice
 President, Chief
 Operating Officer
 and Director
                        2002       143,750        --           --            --                --           --          199,166 (3)
                        2001       187,500        --           --            --                --           --          165,633 (3)



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

* 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.


(2)   Amounts shown reflect distributions  resulting from our past tax status as
      a  Subchapter S  corporation  of $150,000 in 2001,  $209,020 in 2002,  and
      $153,738 in 2003, as well as $56,686 in 2001,  $50,398 in 2002 and $66,262
      in 2003 of expenses,  which include auto,  travel and equipment  purchases
      paid for by the Company.

(3)   Amounts shown reflect distributions  resulting from our past tax status as
      a  Subchapter S  corporation  of $115,200 in 2001,  $134,252 in 2002,  and
      $101,988 in 2003, as well as $56,109 in 2001,  $64,914 in 2002 and $63,645
      in 2003 of expenses,  which include auto,  travel and equipment  purchases
      paid for by the Company.



                                       50


OPTION GRANTS AS OF SEPTEMBER 30, 2004




--------------------------------- ---------------------------- ------------------------------- -------------------- ----------------
Name                              Number    of     Securities  Percent   of   total   options  Exercise price       Expiration Date
                                  underlying  options granted  granted   to    employees   in
                                  (1)                          fiscal year
--------------------------------- ---------------------------- ------------------------------- -------------------- ----------------
                                                                                                        
Mitchell Peipert                  4,500,000                    13.2%                           $0.165               March 28, 2014
--------------------------------- ---------------------------- ------------------------------- -------------------- ----------------
Lawrence K. Reisman               450,000                      1.3%                            $0.20                May 27, 2014
--------------------------------- ---------------------------- ------------------------------- -------------------- ----------------


(1) All options  were granted  under the  Company's  2003  Incentive  Plan.  Mr.
Peipert's options were granted on March 29, 2004, and Mr. Reisman's options were
granted  on May 28,  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.


      As of September 30, 2004, options to purchase a total of 34,060,000 shares
of common stock were  granted by our Board of  Directors  at an exercise  prices
ranging from $0.165 to $0.23 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.
The 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 below.

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  100,000,000
shares of common stock for issuance upon exercise of options. 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.


                                       51


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.

      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 by 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,  by withheld
shares that,  upon exercise,  have a fair market value at the time the option is
exercised equal to the option price, plus applicable  withholding tax, or in the
form of shares of our common stock.


                                       52


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.

      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.

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 payment of three year's base salary.

      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 payment of three year's base salary.


                                       53


      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 payment of three  year's  base
salary.

      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 payment of one year's base salary.


                                       54


         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 November 26, 2004,  based on  772,082,096  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)                                             295,050,000                                38.2%
------------------------------------------------------------------------------------------------------------------------------------
Glenn Peipert(4)                                            150,000,000                                19.4%
------------------------------------------------------------------------------------------------------------------------------------
Mitchell Peipert(5)                                              *                                       *
------------------------------------------------------------------------------------------------------------------------------------
Robert C. DeLeeuw(6)                                        80,000,000                                 10.4%
------------------------------------------------------------------------------------------------------------------------------------
Lawrence K. Reisman(7)                                           *                                       *
------------------------------------------------------------------------------------------------------------------------------------
WHRT I Corp. (8)                                            72,543,956                                  9.4%
------------------------------------------------------------------------------------------------------------------------------------
All directors and officers as a group
(5 persons)                                                 525,050,000                                68.0%
------------------------------------------------------------------------------------------------------------------------------------



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

* 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.  Does not include an option to purchase
      4,500,000  shares of common stock granted on March 29, 2004 at an exercise
      price of $0.165 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. 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.  Does not include an option to purchase 450,000
      shares of common  stock  granted 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. 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.


                                       55


              CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

      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 $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  September  30,  2004,  Scott  Newman and Glenn  Peipert  owed us an
aggregate of approximately  $207,000,  including accrued  interest.  These loans
bear at 3% per annum and are due and payable by December 31,  2005.  These loans
were repaid in full as of November 16, 2004.


      Dr. Michael Mitchell,  the former  President,  Chief Executive Officer and
sole  director of LCS,  had loaned an aggregate of $930,707 to us. This loan was
converted  into  shares of our common  stock at the closing of the merger of LCS
and CSI. Dr. Mitchell is a selling stockholder hereunder.


      On March 22, 2002, we issued  500,000 shares of our common stock to two of
our former directors, which we valued at $0.04 per share.

      During our fiscal year ended  February 28, 2003,  A&J  Marketing,  Inc., a
company  owned by Alex Bruni,  acquired the  Golfpromo.net  and  PlayGolfNow.com
domain  names after we had lost our right to these names  because we were unable
to pay the fees needed to retain these rights. A&J Marketing subsequently opened
websites using these names and is now operating these websites.

      Other than those described above, 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.


                                       56


            MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      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, 2002 through  September 30, 2004. Such prices  represent
quotations between dealers, without dealer markup, markdown or commissions,  and
may not represent actual transactions.

                                            HIGH                         LOW
                                            ----                         ---

 2002 BY QUARTER

 January 1 - March 31                       $0.37                       $0.03
 April 1 - June 30                          $0.51                       $0.04
 July 1 - September 30                      $0.10                       $0.04
 October 1 - December 31                    $0.05                       $0.01

 2003 BY QUARTER

 January 1 - March 31                       $0.04                       $0.01
 April 1 - June 30                          $0.09                       $0.08
 July 1 - September 30                      $0.19                       $0.06
 October 1 - December 31                    $0.19                       $0.06

 2004 BY QUARTER

 January 1 - March 31                       $0.25                       $0.13
 April 1 - June 30                          $0.26                       $0.12
 July 1 - September 30                      $0.32                       $0.19



      We are listed on the OTC Bulletin  Board.  On November 26, 2004,  the high
and low bid  prices  for  shares  of our  common  stock in the  over-the-counter
market, as reported by NASD OTCBB, were $0.21 and $0.17, 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.  Sales of  substantial  amounts of our common  stock in the public
market could adversely affect the prevailing market price of our common stock.


      Record Holders. As of November 26, 2004, there were 480 registered holders
of our common  stock,  including  shares held in street name. As of November 26,
2004, there were 772,082,096 shares of common stock issued and outstanding.


      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.


                                       57


                            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  November  26,  2004,  there  were
772,082,096 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
November  26,  2004,   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.

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.


      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.


                                       58


      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.

OPTIONS

      The  only  executive  officers  or  directors  to  receive  options  as of
September 30, 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 September 30, 2004, options to purchase a total of 34,060,000 shares
of common stock were  granted by our Board of  Directors  at an exercise  prices
ranging from $0.165 to $0.23 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.
The options expire on the ten year anniversary of their grant date


                                       59


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.


                                       60


                         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 564,557,157
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,  2003  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.


                                       61


      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.

      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.


                                       62


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS

                                                                        PAGE
                                                                        ----


Report of Independent Registered Public Accounting Firm                 F-1


Consolidated Balance Sheet                                              F-2

Consolidated Statements of Operations                                   F-3

Consolidated Statements of Changes in Stockholders' Equity              F-4

Consolidated Statements of Cash Flows                                   F-5

Notes to Consolidated Financial Statements                              F-7



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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


We have  audited  the  accompanying  consolidated  balance  sheet of  Conversion
Services  International,  Inc. and  subsidiary as of December 31, 2003,  and the
related consolidated  statements of operations,  changes in stockholders' equity
and  cash  flows  for  the  years  ended  December  31,  2003  and  2002.  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 Oversite 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 consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Conversion Services
International,  Inc. and subsidiary as of December 31, 2003 and the consolidated
results of its  operations  and its cash flows for the years ended  December 31,
2003 and 2002, in conformity with accounting  principles  generally  accepted in
the United States of America.

/s/ Friedman L.L.P.

Livingston, New Jersey March 30, 2004, except for Notes 1 and 9, as to which the
date is May 4, 2004


                                      F-1


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



                                                                  December 31,       September 30,
                                                                     2003                2004
                                                                 ------------        ------------
                                                                                      (UNAUDITED)
ASSETS
CURRENT ASSETS
                                                                               
  Cash                                                           $    411,586        $    882,986
  Restricted cash                                                        --                83,375
  Accounts receivable, net of allowance for
    doubtful accounts of $92,000 and $150,755 at
    December 31, 2003 and September 30, 2004, respectively          2,052,343           4,216,357
  Account receivable from related parties                                --               900,942
  Prepaid expenses                                                    113,803             188,513
  Costs in excess of billings                                            --               139,565
  Deferred tax asset                                                   36,700              63,938
                                                                 ------------        ------------
    TOTAL CURRENT ASSETS                                            2,614,432           6,475,676
                                                                 ------------        ------------

PROPERTY AND EQUIPMENT, at cost, net                                  270,696             697,399
                                                                 ------------        ------------

OTHER ASSETS
  Restricted cash                                                        --             4,251,000
  Due from stockholders, including accrued
  interest of $21,600 and $25,696 at December 31, 2003
  and September 30, 2004, respectively                                203,623             207,719
  Goodwill                                                          1,094,206           2,506,224
  Deferred loan costs, net of accumulated amortization
  of $77,484 and $30,881 at December 31, 2003 and
  September 30, 2004, respectively                                     24,862             850,539
  Intangible assets, net of accumulated amortization of
  $89,710 and $461,063 at December 31, 2003 and
  September 30, 2004, respectively                                    344,290           6,079,679
  Discount on debt issued, net of accumulated
  amortization of $0 and $270,434 at December 31, 2003 and
  September 30, 2004, respectively                                       --             7,305,741
  Deferred tax asset                                                  191,000                --
  Equity investments                                                     --               113,876
  Security deposits                                                    16,791               4,433
                                                                 ------------        ------------

                                                                    1,874,772          21,319,211
                                                                 ------------        ------------

    TOTAL ASSETS                                                 $  4,759,900        $ 28,492,286
                                                                 ============        ============

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
  Line of credit                                                 $  1,782,699        $  3,200,000
  Current portion of long-term debt                                   461,981             110,622
  Deferred revenue                                                       --             1,057,533
  Accounts payable and accrued expenses                             1,025,248           3,947,987
  Short-term note payable                                                --               454,545
                                                                 ------------        ------------

    TOTAL CURRENT LIABILITIES                                       3,269,928           8,770,687
                                                                 ------------        ------------

LONG-TERM DEBT, net of current portion                                233,928           4,714,026
                                                                 ------------        ------------

DEFERRED TAXES                                                         36,900              36,900
                                                                 ------------        ------------

MINORITY INTEREST                                                        --               157,104
                                                                 ------------        ------------

COMMITMENTS and CONTINGENCIES                                            --                  --
STOCKHOLDER'S EQUITY
  Common stock, $.001 par value, 1,000,000 shares
  authorized, issued and outstanding as of
  December 31, 2003; 1,000,000,000 shares authorized,
  768,510,668 issued and outstanding as of
  September 30, 2004                                                    1,000             768,511
  Additional paid in capital                                        1,446,250          18,501,875
  Foreign currency translation                                           --                 4,053
  Accumulated deficit                                                (228,106)         (4,460,870)
                                                                 ------------        ------------

    TOTAL STOCKHOLDERS EQUITY                                       1,219,144          14,813,569
                                                                 ------------        ------------

    TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                    $  4,759,900        $ 28,492,286
                                                                 ============        ============


                 See Notes to Consolidated Financial Statements.


                                      F-2


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS




                                                    YEARS ENDED DECEMBER 31,              NINE MONTHS ENDED SEPTEMBER 30,
                                              ----------------------------------        ----------------------------------
                                                  2002                 2003                 2003                 2004
                                              -------------        -------------        -------------        -------------
                                               (Restated)                                (UNAUDITED)           (UNAUDITED)
                                                                                                 
REVENUE                                       $  16,244,790        $  14,366,456        $  10,607,502        $  18,655,937

COST OF SERVICES                                 10,677,527           10,265,808            7,545,080           12,804,331
                                              -------------        -------------        -------------        -------------

GROSS PROFIT                                      5,567,263            4,100,648            3,062,422            5,851,606
                                              -------------        -------------        -------------        -------------

OPERATING EXPENSES
  Selling and Marketing                           1,095,072            1,552,766            1,064,951            2,745,801
  General and administrative                      3,549,423            2,701,934            1,826,501            4,860,995
  Research and development                             --                                                          270,976
  Depreciation & amortization                       149,463              213,158              147,127              516,119
                                              -------------        -------------        -------------        -------------

TOTAL OPERATING EXPENSES                          4,793,958            4,467,858            3,038,579            8,393,891
                                              -------------        -------------        -------------        -------------

INCOME (LOSS) FROM OPERATIONS                       773,305             (367,210)              23,843           (2,542,285)
                                              -------------        -------------        -------------        -------------

OTHER INCOME (EXPENSE)
  Equity in losses from investments                    --                   --                   --                (24,900)
  Other income                                         --                   --                   --                  7,295
  Interest income                                     5,400                5,400                 --                  3,392
  Interest expense                                 (139,152)            (135,753)             (92,304)            (636,494)
                                              -------------        -------------        -------------        -------------

                                                   (133,752)            (130,353)             (92,304)            (650,707)
                                              -------------        -------------        -------------        -------------

INCOME (LOSS) BEFORE TAXES                          639,553             (497,563)             (68,461)          (3,192,992)
INCOME TAXES (BENEFIT)
  Current                                           101,100                 --                   --               (136,271)
  Deferred                                          (78,700)            (190,800)                --                   --
                                              -------------        -------------        -------------        -------------

                                                     22,400             (190,800)                --               (136,271)
MINORITY INTEREST                                      --                   --                   --                (42,296)
                                              -------------        -------------        -------------        -------------

NET INCOME (LOSS)                                   617,153             (306,763)             (68,461)          (3,014,425)

UNSECURED CONVERTIBLE LINE OF CREDIT
BENEFICIAL CONVERSION FEATURE                          --                   --                   --              1,214,286
                                              -------------        -------------        -------------        -------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS                           $     617,153        $    (306,763)       $     (68,461)       $  (4,228,711)
                                              =============        =============        =============        =============

UNAUDITED PRO FORMA DATA:
  Income before income taxes (benefit)        $     617,153        $    (306,763)       $     (68,461)       $        --
  Income taxes (benefit)                            246,491             (122,521)             (27,325)                --
                                              -------------        -------------        -------------        -------------


  Net income (loss)                           $     370,662        $    (184,242)       $     (41,136)       $        --
                                              =============        =============        =============        =============

NET INCOME (LOSS) PER SHARE (Unaudited)       $        0.00        $       (0.00)       $       (0.00)       $       (0.01)
                                              =============        =============        =============        =============

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES USED IN THE ACTUAL AND PRO
FORMA NET INCOME (LOSS) PER SHARE
CALCULATION (Unaudited)                         593,000,000          593,000,000          593,000,000          689,233,712
                                              =============        =============        =============        =============



                See Notes to Consolidated Financial Statements.


                                      F-3


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




                                                                   Additional         Retained           Other             Total
                                                  Capital           Paid-in           Earnings       Comprehensive     Stockholders'
                                                   Stock            Capital           (Deficit)         Income            Equity
                                                ------------      ------------      ------------     ------------      ------------
                                                                                                        
Balance, January 1, 2002, as restated           $        900      $    140,800      $    190,424     $         --      $    332,124

     Net income                                           --                --           617,153                            617,153

     Distributions to stockholders                        --                --          (178,340)                          (178,340)
                                                ------------      ------------      ------------     ------------      ------------

Balance, December 31, 2002, as restated                  900           140,800           629,237               --           770,937

     Net loss                                             --                --          (306,763)                          (306,763)

     Issuance of 100,000 shares of
     Common Stock of Conversion
     Services International, Inc.                        100         1,522,338                --                          1,522,438

     Distributions to stockholders                        --          (216,888)         (550,580)                          (767,468)
                                                ------------      ------------      ------------     ------------      ------------

Balance, December 31, 2003                      $      1,000      $  1,446,250      $   (228,106)    $         --      $  1,219,144

     Net loss                                             --                --        (3,018,478)                        (3,018,478)

     Foreign currency translation                                                                           4,053             4,053

     Effect of Conversion Services
     International recapitalization                   (1,000)            1,000                                                   --

     Relative fair value of warrants
     issued                                               --         3,086,668                --                          3,086,668

     Fair value of stock grants to
     employees                                            --            87,125                --                             87,125

     Costs incurred in connection with
     LCS Golf merger                                      --           (95,678)               --                            (95,678)

     Issuance of 593,000,000 shares of
     Common Stock of Conversion Services
     International, Inc. in connection
     with the reverse merger into LCS Golf.          593,000          (593,000)               --                                 --

     Issuance of 80,000,000 shares of
     Common Stock of Conversion Services
     International, Inc. in connection
     with the acquisition of DeLeeuw
     Associates, Inc.                                 80,000         2,078,246                --                          2,158,246

     Issuance of 16,666,666 shares of
     Common Stock of Conversion Services
     International, Inc. in connection
     with the conversion of debt into
     Company stock.                                   16,667         1,983,333                --                          2,000,000

     Issuance of 76,463,049 shares of
     Common Stock of Conversion Services
     International, Inc. in connection
     with the acquisition of Evoke
     Software Corporation.                            76,463         1,712,351                --                          1,788,814

     Issuance of 2,380,953 shares of
     Common Stock of Conversion Services
     International, Inc. in connection
     with a stock purchase agreement.                  2,381            (2,381)                                                  --

     Compensation expense for stock
     options issued to non-employees                      --             7,500                --                              7,500

     Discount on debt issued                                         7,576,175                                            7,576,175

     Unsecured convertible line of credit
     beneficial conversion feature                        --         1,214,286        (1,214,286)                                --
                                                ------------      ------------      ------------     ------------      ------------
Balance, September 30, 2004 (Unaudited)         $    768,511      $ 18,501,875      $ (4,460,870)    $      4,053      $ 14,813,569
                                                ============      ============      ============     ============      ============



                 See Notes to Consolidated Financial Statements.


                                      F-4


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                                      YEARS ENDED DECEMBER 31,      NINE MONTHS ENDED SEPTEMBER 30,
                                                                     ---------------------------    -------------------------------

                                                                        2002            2003            2003            2004
                                                                     -----------     -----------     -----------     -----------
                                                                      (Restated)                     (UNAUDITED)     (UNAUDITED)
                                                                                                         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                  $   617,153     $  (306,763)    $   (68,461)    $(4,228,711)
    Adjustments to reconcile net income (loss) to net cash used
      in operating activities:
    Depreciation                                                         108,890          95,837          56,622         104,211
    Amortization of intangible assets and deferred loan costs and
      discount on debt issued                                             40,573         117,321          83,595         803,580
    Beneficial conversion feature associated with convertible
      debt instruments                                                        --              --              --       1,214,286
    Deferred tax benefit                                                 (78,700)       (190,800)             --        (136,238)
    Compensation expense for stock options and stock issued                   --              --              --          94,625
    Allowance for doubtful accounts                                      (75,000)         42,000          54,000          75,748
    Write-off deferred loan costs                                             --              --              --          45,215
    Loss on disposal of equipment                                             --              --              --          35,496
    Loss on equity investments                                                --              --              --          24,900
    Minority interest in Evoke Software Corporation                           --              --              --         (42,296)
    Conversion of accrued interest to additional paid-in capital              --          22,438              --              --
  Changes in operating assets and liabilities:
    Increase in accounts receivable                                     (180,980)       (268,325)       (381,137)     (1,059,936)
    Increase in accounts receivable from related parties                      --              --              --        (507,984)
    (Increase) decrease in prepaid expense                                73,139         (50,611)         (5,319)          3,824
    (Increase) decrease in security deposits                               1,250          (2,070)             --              --
    Increase in costs in excess of billings                                   --              --              --        (139,565)
    Increase in due from stockholders                                         --              --              --          (4,096)
    Decrease in other assets                                                  --              --          57,313          14,721
    Increase (decrease) in accounts payable and accrued expenses        (548,661)           (327)        (91,906)        920,258
    Increase (decrease) in other current liabilities                          --              --          (2,086)          8,987
    Increase (decrease) in deferred revenue                              (10,000)             --              --        (196,509)
                                                                     -----------     -----------     -----------     -----------

      Net cash used in o perating activities                             (52,336)       (541,300)       (297,379)     (2,969,484)
                                                                     -----------     -----------     -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property and equipment                                  (41,050)        (93,640)        (20,759)        (42,111)
  Investment in DeLeeuw Associates, net of cash acquired                      --              --              --      (2,010,266)
  Investment in Evoke Software Corp., net of cash acquired                    --              --              --         346,073
  Equity investment in Leading Edge Communications Corp.                      --              --              --         (83,000)
  Collection (issuance) of note receivable                               210,000           2,100              --              --
  Acquisition of intangible assets and goodwill                          (82,277)        (11,951)             --              --
                                                                     -----------     -----------     -----------     -----------

      Net cash provided by (used in) investing activities                 86,673        (103,491)        (20,759)     (1,789,304)
                                                                     -----------     -----------     -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Cash overdraft                                                           5,661          (5,661)             --         (51,900)
  Net advances under line of credit                                      454,137       1,112,863          89,862       1,410,890
  Principal payments on long-term debt                                  (308,828)       (777,957)       (295,785)       (729,028)
  Deferred loan costs in connection with long-term debt                  (23,241)             --              --              --
  Deferred loan costs in connection with line of credit                       --              --         (95,436)       (911,954)
  Issuance of short-term note payable                                         --              --              --       1,000,000
  Issuance of long-term note payable                                          --              --              --       5,000,000
  Issuance of convertible debt                                                --       1,500,000       1,522,438       4,000,000
  Principal payments on capital lease obligations                             --              --              --         (92,987)
  Due from stockholders                                                   (5,400)         (5,400)             --              --
  Distributions to stockholders                                         (178,340)       (767,468)       (767,468)             --
  Restricted cash                                                             --              --              --      (4,334,375)
  Costs incurred in connection with LCS merger                                --              --              --         (95,678)
                                                                     -----------     -----------     -----------     -----------

      Net cash provided by (used in) financing activities                (56,011)      1,056,377         453,611       5,194,968
                                                                     -----------     -----------     -----------     -----------

  Effect of exchange rate changes on cash and cash equivalents                --              --              --           4,312
NET INCREASE (DECREASE) IN CASH                                          (21,674)        411,586         135,473         440,492
CASH, beginning of period                                                 21,674              --              --         442,494
                                                                     -----------     -----------     -----------     -----------

CASH, end of period                                                  $        --     $   411,586     $   135,473     $   882,986
                                                                     ===========     ===========     ===========     ===========



                 See Notes to Consolidated Financial Statements.


                                      F-5


                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                                     YEARS ENDED DECEMBER 31,        NINE MONTHS ENDED SEPTEMBER 30,
                                                                  -----------------------------      -------------------------------
                                                                     2002              2003              2003              2004
                                                                  -----------       -----------       -----------       -----------
                                                                  (Restated)                          (UNAUDITED)        (UNAUDITED)
                                                                                                            
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Cash paid for interest                                           $   135,066       $    89,630       $    84,860       $   134,546
 Cash paid for income taxes                                           229,007            28,258                --                --
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
 During 2003 and 2002, the Company entered into
   various capital lease arrangements for computer
   equipment in the amount of $23,556
   and $2,928, respectively
 During 2002, the Company financed the acquisition
   of certain intangibles through an obligation due
   to a third party in the amount of $700,811
 During 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                                                        --                --                --           444,775
 Acquired computer software                                                --                --                --         1,381,000
 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                                                      --                --                --        (1,301,856)
 Minority interest                                                         --                --                --          (199,400)

 In March 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                                           --                --                --         1,597,000
 Acquired tradename                                                        --                --                --           722,000
 Acquired goodwill                                                         --                --                --         1,403,875
 Acquired investment in limited liability company                          --                --                --            55,776
 Acquired deferred tax liability                                           --                --                --          (300,000)
 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 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 common 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 Laurus Master Fund, Ltd.  ("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 third  quarter of 2004 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  common 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 Note 6 - 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  common  stock and include  beneficial  conversion  privileges.  As a
result,  the Company has recorded a discount on debt relating to the transaction
in the amount of $454,500 in the third  quarter of 2004 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 warrants to purchase up to 6,000,000
shares of Company  common  stock 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: SUMMARY OF SIGNIFICANT 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 Doorways,  Inc., a
wholly owned subsidiary of CSI, (together the "Company") are principally engaged
in the information  technology  services  industry in the following areas:  data
warehousing,  business  intelligence,  management  consulting  and  professional
services,  on credit, to its customers principally located in New Jersey and New
York. In November 2002, the Company acquired the operations of Scosys, Inc. that
is engaged in the  information  technology  services  industry.  Included in the
Company's results of operations related to Scosys were the following:


                                   Years ended December 31,
                                 ---------------------------
                                    2002             2003
                                 ----------       ----------
Revenues                         $  456,000       $3,034,000
Cost of Services                    335,000        2,169,000
                                 ----------       ----------
Gross Profit                        121,000          865,000
General and Administrative           10,000          159,000

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 CSI was  considered
the "acquirer" of LCS Group,  Inc. for financial  reporting  purposes,  as CSI's
stockholders  control more than 50% 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 CSI, and a retroactive  restatement of CSI's historical
stockholders'  equity. The retroactive  restatement took place subsequent to the
merger on January  30,  2004.  On March 4, 2004,  the Company  acquired  DeLeeuw
Associates,   Inc.   ("DeLeeuw").   DeLeeuw  is  a  management  consulting  firm
specializing in integration,  reengineering  and project  management.  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. On June 28, 2004, the Company acquired
substantially all the assets of Evoke Software Corporation ("Evoke"), a provider
of data discovery,  profiling and quality management software. Doorways, Inc. is
a wholly owned subsidiary of the Company that is currently dormant.


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.).  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

Revenue from consulting and professional  services is recognized at the time the
services are performed,  evidence of an arrangement  exists, the fee is fixed or
determinable and  collectibility  is reasonably  assured (in accordance with SOP
97-2 and SAB 101). 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.


Revenues for large  services  projects are  recognized  using the  percentage of
completion  method for  long-term  construction  type  contracts  where costs to
complete the contract  could  reasonably  be estimated.  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.  The  relationship  of costs  incurred  to date
compared  to  estimated  total  costs at  completion  is used to  determine  the
percentage of completion on the project. This percentage is applied to the total
revenue to be earned on the project and that portion of revenue is recognized in
the current period.  Additionally,  billings in excess of revenue  recognized on
projects  being  accounted  for using the  percentage-of-completion  method  are
recorded  as  deferred  revenues.  The  percentage-of-completion  method  is not
applicable for the Company's software sales.



                                      F-7



Revenue from software  licensing and maintenance and support (not applicable for
the year ended December 31, 2003) are also 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  directly  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 FAS 48 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  (not  applicable  for the year ended  December  31,  2003) is
recorded when customers are invoiced for software  maintenance and support.  The
revenue is recognized over the term of the  maintenance  and support  agreement.
Additionally,  billings  in excess  of  revenue  recognized  on  projects  being
accounted for using the percentage-of-completion method are recorded as deferred
revenues.

The Company licenses  software and provides a maintenance and support  agreement
(not applicable for the year ended December 31, 2003) to customers.  These items
are invoiced as separate  items and VSOE 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.




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  changes  the  allowance  for  doubtful  accounts,  when  deemed
necessary, based on its history of past write-offs and collections,  contractual
terms and current credit conditions.

PROPERTY AND EQUIPMENT

Property  and  equipment  are stated at cost and includes  equipment  held under
capital lease agreements.  Depreciation,  which includes  amortization of leased
equipment,  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.
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.

AMORTIZATION


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 that  approximates the estimated
life of the contracts,  based upon the estimated annual cash flows obtained from
those contracts, generally five to six years.


GOODWILL AND INTANGIBLE ASSETS


Goodwill  represents the amounts paid in connection with a settlement  agreement
with the Elligent  Consulting  Group to re-acquire  the ownership  rights to the
Company and in connection with the acquisition of Scosys, Inc. Additionally,  as
part of Scosys, DeLeeuw and Evoke acquisitions,  the Company acquired intangible
assets.  The Company  adopted FASB  Statement  142 as of January 1, 2002 for all
goodwill recognized in the Company's balance sheet as of December 31, 2001. This
statement changed the accounting for goodwill from an amortization  method to an
impairment-only  approach, and introduced a new model for determining impairment
charges.



                                      F-8



Goodwill and intangible  assets are reviewed for impairment  whenever  events or
circumstances  indicate impairment might exist or at least annually. The Company
assesses  the  recoverability  of its assets,  in  accordance  with SFAS No. 142
"Goodwill and Other Intangible  Assets," comparing  projected  undiscounted cash
flows  associated with those assets against their respective  carrying  amounts.
Impairment,  if any, is based on the excess of the carrying amount over the fair
value of those assets.  The Company's  goodwill and  intangible  assets were not
impaired at December 31, 2003. There have been no events or  circumstances  that
would indicate that there has been any  impairment  during the nine months ended
September 30, 2004.

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.




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.


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, 2003, one customer  approximated  25% of the Company's  accounts  receivable
balance.  At September  30, 2004,  one customer,  LEC, a related party  company,
comprised approximately 17.6% of the Company's accounts receivable balance.


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  $8,000 and $5,700 for the years ended  December  31, 2003 and
2002,  respectively.  Advertising  costs amounted to $132,300 and $2,700 for the
nine month periods ended September 30, 2004 and 2003, respectively (unaudited).


INCOME TAXES

The Company accounts for income taxes 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.

On  January  1,  2001,  CSI  elected  to  be an  "S"  Corporation  whereby,  the
shareholders account for their share of CSI"s earnings,  losses,  deductions and
credits on their Federal and various state income tax returns. CSI is subject to
New York City and various state income taxes.  On September 30, 2003,  CSI's "S"
Corporation  status was revoked in connection with the conversion of convertible
subordinated debt into common shares.  Effective October 1, 2004, as a result of
the  revocation,  the Company's tax status  reverts to a C Corporation  and on a
prospective basis, the Company would expect to have an effective income tax rate
of approximately 40%.


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 $1,240,800 in the third quarter of 2004 (unaudited). This allowance
was  recorded  because,  based on the weight of available  evidence,  it is more
likely  than  not  that  some  portion  of the  deferred  tax  asset  may not be
realizable.

For informational purposes, the accompanying statements of operations include an
unaudited pro forma  adjustment  for income taxes which would have been recorded
if the Company had not been an "S" Corporation.  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 full year 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-9


DERIVATIVES

In September 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 " Accounting for Derivative  Instruments and Hedging  Activities" ("SFAS
No. 133"), which requires the recognition of all derivatives as either assets or
liabilities  measured at fair value,  with changes in value reflected as current
period income  (loss) unless  specific  hedge  accounting  criteria are met. The
effective  date of SFAS No. 133, as amended by SFAS No. 138, is for fiscal years
beginning  after  September  15,  2000.  The Company  adopted SFAS No. 133 as of
January 1, 2001, resulting in no material impact upon adoption. SFAS No. 133 did
not have a material impact on the financial results for the years ended December
31, 2003 and 2002.


EQUITY INVESTMENTS

In  August  2003,  DeLeeuw  acquired  a  non-controlling   interest  in  DeLeeuw
International  (a  company  formed  under the laws of  Turkey).  The  Company is
accounting  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 Mary Ferrara,  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  operations.
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.

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.


RECLASSIFICATIONS

Certain  amounts in prior periods have been  reclassified to conform to the 2003
presentation.

RESTATEMENT OF FINANCIAL STATEMENTS

The following is a brief  description of the  differences  between the Company's
original accounting  treatment and the revised accounting  treatment that it has
concluded is appropriate  and has been reflected in the  accompanying  financial
statements for the respective periods.

Recognition of interest income on Due from  Stockholders - Retained  earnings at
January 1, 2002 has been adjusted to reflect interest income on loans receivable
due from  stockholders.  The Company's  original  accounting did not include any
adjustments to its financial  statements for interest due on these loans.  These
loans  receivable  bear  interest  at 3% per  annum and are due and  payable  by
December 31, 2005.  The revised  accounting  resulted in an increase to retained
earnings  of  $10,800  as of  January 1, 2002.  The  Company  also  recorded  an
additional $5,400 as interest income as a result of the correction of this error
for the year ended December 31, 2002.

Recognition  of Additional  Intangibles  and Goodwill  related to acquisition of
Scosys,  Inc. - Retained  earnings  at  December  31,  2002 has been  reduced by
approximately  $11,000 to  reflect  additional  amortization  expense on certain
acquired  intangibles and interest  expense on an obligation to a third party in
connection  with the  acquisition  of Scosys,  Inc.  (See Note 5). The Company's
original accounting did not properly include the amount of intangibles  acquired
in connection with the Scosys, Inc.  acquisition in November 2002. In connection
with this acquisition, the Company recorded an additional $351,723 in intangible
assets and $349,088 in goodwill and a corresponding  obligation of $700,811 to a
third party. (See Note 7)

Stockholders'  Equity - Common stock has been  reduced by $1,000 and  Additional
paid in capital has been  increased  by $1,000 at January 1, 2002 to reflect the
consolidated results of the Company which were previously reported as affiliated
and combined entities.

NOTE 2: RECENT PRONOUNCEMENTS

On  August  16,  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations".  This  statement  addresses  financial  accounting and
reporting for obligations  associated with the retirement of tangible long-lived
assets and the associated asset retirement  costs.  Specifically,  this standard
requires  entities  to  record  the  fair  value  of a  liability  for an  asset
retirement  obligation  in the  period in which it is  incurred.  The  entity is
required to capitalize the cost by increasing the carrying amount of the related
long-lived  asset. The capitalized cost is then depreciated over the useful life
of the  related  asset  and the  liability  is  accreted,  with  changes  to the
operating  expense,  to  the  estimated   settlement   obligation  amount.  Upon
settlement of the  liability,  an entity either  settles the  obligation for its
recorded  amount or incurs a gain or loss.  The standard is effective for fiscal
years  beginning  after June 15, 2002. The Company adopted SFAS No. 143 as of as
of January 1, 2003 and this  adoption  had no material  impact on the  Company's
consolidated financial statements for the year ended December 31, 2003.


                                      F-10


In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144).
SFAS  144  supersedes  Statement  of  Financial  Accounting  Standards  No.  121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and certain  provisions  of APB Opinion No. 30  "Reporting  the
Results of  Operations  -  Reporting  the  Effects of Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
Transactions."  SFAS 144  establishes  standards  for  long-lived  assets  to be
disposed of, and  redefines  the  valuation  and  presentation  of  discontinued
operations.  SFAS 144 is effective for fiscal years beginning after December 15,
2001, and interim  periods  within those fiscal years.  The adoption of SFAS 144
did not have a material effect on the Company's consolidated financial position,
results of operations, and cash flows.

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal Activities".  The standard requires companies to recognize
costs associated with exit or disposal  activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan.  Examples of costs
covered by the standard  include lease  termination  costs and certain  employee
severance  costs  that  are  associated  with  a   restructuring,   discontinued
operation, plant closing or other exit or disposal activity. Previous accounting
guidance was provided by EITF 94-3, "Liability  Recognition for Certain Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a  Restructuring)".  SFAS No. 146 replaces EITF 94-3. SFAS 146
is to be applied  prospectively to exit or disposal  activities  initiated after
December  31, 2002.  The Company  adopted SFAS No. 146 as of January 1, 2003 and
this  adoption had no material  impact on the Company's  consolidated  financial
statements for the year ended December 31, 2003.

In November 2002, the EITF reached consensus on EITF No. 00-21,  "Accounting for
Revenue Arrangements with Multiple  Deliverables".  This consensus requires that
revenue  arrangements with multiple  deliverables be divided into separate units
of accounting if the deliverables in the arrangement meet specific criteria.  In
addition,  arrangement  consideration must be allocated among the separate units
of accounting based on their relative fair values, with certain limitations. The
Company will be required to adopt the  provisions of this  consensus for revenue
arrangements  entered into after June 30,  2003,  and the Company has decided to
apply  it on a  prospective  basis.  The  Company  does  not  have  any  revenue
arrangements that would have a material impact on its financial  statements with
respect to EITF No. 00-21.

In  November  2002,  the  FASB  issued  FASB  Interpretation,  or  FIN  No.  45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees of  Indebtedness  of Others".  FIN No. 45 elaborates on the
disclosures  to be made by a  guarantor  in its  interim  and  annual  financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize,  at the inception of a
guarantee,  a  liability  for the fair  value of the  obligation  undertaken  in
issuing the guarantee. However, a liability does not have to be recognized for a
parent's  guarantee of its subsidiary's  debt to a third party or a subsidiary's
guarantee  of the debt owed to a third  party by either  its  parent or  another
subsidiary of that parent. The initial recognition and measurement provisions of
FIN No.  45 are  applicable  on a  prospective  basis to  guarantees  issued  or
modified after December 31, 2002  irrespective  of the  guarantor's  fiscal year
end. The  disclosure  requirements  of FIN No. 45 are  effective  for  financial
statements  with annual periods ending after December 15, 2002. The Company does
not have any guarantees that would require disclosure under FIN No. 45.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-based
Compensation - Transition  and Disclosure - an Amendment to SFAS No. 123".  SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value-based method of accounting for stock-based employee compensation.  In
addition,  this statement amends the disclosure requirements of SFAS No. 123 for
public  companies.  This statement is effective for fiscal years beginning after
December 15, 2002. The Company  adopted the disclosure  requirements of SFAS No.
148 as of January 1, 2003 and plans to continue to follow the  provisions of APB
Opinion No. 25 for accounting for stock based compensation.


                                      F-11


In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities -- An Interpretation of ARB No. 51", which clarifies the application of
Accounting  Research Bulletin No. 51,  "Consolidated  Financial  Statements," to
certain entities in which equity investors do not have the  characteristics of a
controlling  financial interest or do not have sufficient equity at risk for the
entity to finance  its  activities  without  additional  subordinated  financial
support from other parties.  FIN No. 46 provides guidance related to identifying
variable  interest  entities  (previously  known  generally  as special  purpose
entities, or SPEs) and determining whether such entities should be consolidated.
FIN No. 46 must be applied  immediately to variable interest entities created or
interests in variable  interest entities  obtained,  after January 31, 2003. For
those  variable  interest  entities  created or interests  in variable  interest
entities obtained on or before January 31, 2003, the guidance in FIN No. 46 must
be applied in the first fiscal year or interim period  beginning  after June 15,
2003. The Company adopted FIN No. 46 as of January 1, 2003 and this adoption had
no material impact on the Company's  consolidated  financial  statements for the
year ended December 31, 2003.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with Characteristics of Both Liabilities and Equity". This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities  and  equity.  It  requires  that an  issuer  classify  a  financial
instrument  that is  within  its  scope  as a  liability  (or an  asset  in some
circumstances) because that financial instrument embodies the characteristics of
an  obligation  of  the  issuer.   This  standard  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 Company has determined that it did not have any financial  instruments
that are impacted by SFAS No. 150.

NOTE 3: PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

                                         December 31,           September 30,
                                            2003                    2004
                                         -----------            -----------
                                                                 (unaudited)

Computer equipment                       $   609,968            $   932,320
Furniture and fixtures                       103,777                260,577
Automobiles                                   72,833                 72,833
Leasehold improvements                        87,546                216,307
                                         -----------            -----------
                                             874,124              1,482,037
Accumulated depreciation                    (603,428)              (784,638)
                                         -----------            -----------
                                         $   270,696            $   697,399
                                         ===========            ===========


NOTE 4: RELATED PARTY TRANSACTIONS


Due from  stockholders  of  $204,000  at  December  31,  2003  consists of loans
receivable  and  accrued  interest  thereon  from the  majority  stockholders  /
officers of the Company.  These loans bear  interest at 3% per annum and are due
and payable by December 31, 2005. As of September 30, 2004, Scott Newman,  Chief
Executive Officer, and Glenn Peipert,  Chief Operating Officer, owed the Company
an aggregate of approximately $208,000,  including accrued interest. These loans
were repaid in full as of November 16, 2004 (unaudited).



                                      F-12


NOTE 5: INTANGIBLES

Intangibles acquired have been assigned as follows:



                                                                December 31,       September 30,
                                                                   2003               2004
                                                                -----------        -----------
                                                                                   (unaudited)
                                                                             
Customer Contracts                                              $   414,000        $ 2,376,000
Approved vendor status                                                   --          1,597,000
Computer software                                                        --          1,381,000
Tradename                                                                --          1,166,742
Proprietary rights and rights to the name of Scosys, Inc.            20,000             20,000
                                                                -----------        -----------
                                                                    434,000          6,540,742
Accumulated amortization                                            (89,710)          (461,063)
                                                                -----------        -----------

                                                                $   344,290        $ 6,079,679
                                                                ===========        ===========


NOTE 6: LINE OF CREDIT

The credit  facility  provides for a maximum  borrowing of $2,250,000,  based on
eligible accounts receivable. The interest rate is at the bank's prime rate plus
one (5.0% at December 31,  2003).  The line is  collateralized  by all corporate
assets, guaranteed by the Company's shareholders,  and expires on June 30, 2004.
As of December  31,  2003,  the  Company is in  violation  of certain  financial
covenants in  connection  with the credit  facility and notes payable to a bank.
(See Note 14).

On October 29, 2003,  the Company  obtained an additional  $2,000,000  Unsecured
Convertible  Line of Credit  Note.  The terms of the note  provide for  interest
accruing  at 7% per annum  with a  maturity  date of October  28,  2008,  unless
converted into Common Stock at the Company or the Noteholder's option. (See Note
14)

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.

On August 16,  2004,  the Company  replaced its  $3,000,000  line of credit with
North Fork Bank with a revolving  line of credit with Laurus  Master Fund,  Ltd.
("Laurus"),  whereby  the Company  will have  access 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.  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  $2,000,000   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 the Company's  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 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 $5,000,000 to be used for acquisitions. 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 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.  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 was 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  12,000,000
shares of the Company's 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 16, 2011.
The Company paid $749,000 in brokerage and  transaction  closing  related costs.
These costs were deducted from the $5,000,000  restricted cash balance  provided
to the Company by Laurus.  As of September 30, 2004,  $3,200,000 was outstanding
under the revolving line of credit.  The interest rate on the revolving line and
the  acquisition  note was  5.75%  during  September  2004.  As a result  of the
beneficial  conversion feature associated with the aforementioned notes payable,
a  discount  on debt  issued  was  recorded  by the  Company  in the  amount  of
$5,621,630  in the  September  2004 quarter  which will be amortized to interest
expense over the three year life of the debt agreement.


                                      F-13


NOTE 7: LONG-TERM DEBT

Long term debt consists of the following:




                                                                                                December 31,       September 30,
                                                                                                   2003               2004
                                                                                                -----------        -----------
                                                                                                                   (Unaudited)


                                                                                                             
Note payable to a bank requiring monthly  installments of $8,333,  plus interest
at the bank's  prime rate plus 1/4% (4.25% at December 31, 2003),  due November
2005. The note is  collateralized  by all corporate  assets and is guaranteed by
the Company's stockholders                                                                      $   191,666        $        --

Note payable to a bank requiring monthly installments of $11,667,  plus interest
at LIBOR plus 200 basis points, due November 2005. The note is collateralized by
all corporate  assets,  pledged  securities of one of the  stockholders,  and is
guaranteed  by the Company's stockholders. The LIBOR rate at December 31, 2003 was 1.46%            268,333                 --

An obligation due to a third party in connection with an acquisition of Scosys, payable
through May 2004. The obligation has been present valued at the Company's implicit
borrowing rate at the time of the acquisition (5.25%)                                               213,533                 --

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
See note 6 - Line of Credit 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

Notes payable under capital lease obligations payable to various finance companies
for equipment at varying rates of interest and maturity dates through 2007                           22,377            239,142
                                                                                                -----------        -----------

                                                                                                    695,909          7,239,142
Relative  fair  values  ascribed  to  warrants  associated  with the above  debt
instruments.  This amount is being accreted to the debt instrument over the term
of the related debt agreements, which range from three to five years                                     --         (2,414,494)

Less: Current portion of long-term debt including obligations under capital leases
of $8,448 and $110,622 for 2003 and 2004, respectively                                             (461,981)          (110,622)
                                                                                                -----------        -----------
                                                                                                $   233,928        $ 4,714,026
                                                                                                -----------        -----------


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



                                December 31,            September 30, 
               Years Ending         2003                    2004
               ------------     ------------             ----------
                                                         (unaudited)
                 2004            $461,981                $       --
                 2005             227,706                   110,622
                 2006               6,222                   103,875
                 2007                  --                 5,024,645
                 2008                  --                        --
                 2009                  --                 2,000,000
               -----------------------------------------------------
                                 $ 695,909              $ 7,239,142
               -----------------------------------------------------


As a result of the Replacement Line of Credit described in Note 14, no long-term
portion of the Notes  payable to the bank were  reclassified  to be  reported as
currently due as a result of the Company's violation of existing covenants.


                                      F-14


NOTE 8: OBLIGATIONS UNDER CAPITAL LEASES


The Company has entered into various capital leases that are  collateralized  by
computer  equipment  with an  original  cost  of  approximately  $389,000  as of
December 31, 2003 and $338,000 as of September 30, 2004 (unaudited).

The following is a schedule of future minimum payments required under the leases
together  with their  present  value as of December 31, 2003 and  September  30,
2004 (unaudited):




                                                                                      Year ended
                                                             Year ended            September 30, 2004
                                                          December 31, 2003           (unaudited)
                                                        -------------------        ------------------
                                                                             
                           2004                         $      11,012              $        --
                           2005                                 9,219                  154,878
                           2006                                 6,593                  120,441
                           2007                                    --                   26,394
                                                        --------------------       ------------------
                                                               26,824                  301,713

            Less: Amount representing interest                 (4,447)                 (62,571)
                                                        --------------------       ------------------

                                                        $      22,377              $   239,142
                                                        ====================      ===================


NOTE 9: STOCKHOLDERS' EQUITY

In July 2003, the Company issued  $1,500,000 of 7% Convertible  Promissory Notes
due January 1, 2006.  On September  30, 2003,  these notes were  converted  into
100,000 shares of CSI's common stock.

NOTE 10: 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:


                          Years ended December 31,
                      ----------------------------------     Nine months ended
                         2003                     2002      September 30, 2004
                      ---------                ---------         ---------
                                                                (unaudited)
Current-Federal       $      --                $  63,300         $      --
Current-State                --                   37,800                --
Deferred-Federal       (147,800)                 (63,500)          (49,532)
Deferred-State          (43,000)                 (15,200)          (14,406)
                      ---------                ---------         ---------

                      $(190,800)               $  22,400         $ (63,938)
                      =========                =========         =========


Deferred tax benefit in 2002 consisted of the temporary difference caused by the
conversion of cash-basis tax accounting to accrual-basis tax accounting pursuant
to Internal Revenue Code section 481(a) which allows up to a 4 year spreading of
the income and expenses caused by the change in accounting method that completed
during 2002.

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


                                      F-15


Deferred  tax  assets   (liabilities)   consisted  of  the  following  temporary
differences:


                            December 31, 2003      September 30, 2004
                            -----------------      ------------------
                                                        (unaudited)

Net operating losses           $   164,900             $ 1,204,000
Accounts receivable                 36,700                  60,200
property and equipment               2,200                   2,200
Ggoodwill                          (36,900)                (60,500)
Intangible assets                   23,900                  98,800
                               -----------             -----------

                               $   190,800               1,304,700
                               ===========
Valuation allowance                                     (1,240,762)
                                                       -----------
                                                       $    63,938
                                                       ===========

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  approximately  $1,240,800  in the  third  quarter  of 2004.  This
allowance was recorded because, based on the weight of available evidence, it is
more  likely  than not that some  portion of the  deferred  tax asset may not be
realized.


NOTE 11: MAJOR CUSTOMERS


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.

During  2002,  the Company had sales to these same two major  customers,  Morgan
Stanley  (approximately  27%) and Verizon  Wireless  (approximately  32%), which
totaled approximately  $9,540,000.  Amounts due from these customers included in
accounts  receivable were approximately  $726,000 at December 31, 2002. Further,
as  of  December  31,  2002,  one  customer,  Verizon  Wireless,  accounted  for
approximately 26% of the Company's accounts receivable balance.

During the nine month period ended  September 30, 2004, two of our clients,  LEC
(17.9%) and Bank of America (13.4%),  accounted for  approximately  31% of total
revenues.  Amounts due from these customers included in accounts receivable were
$2,334,073 at September 30, 2004 (unaudited).  Further, as of September 30, 2004
(unaudited),  one customer,  LEC,  accounted for 17.6% of the Company's accounts
receivable balance.


NOTE 12: 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, 2003 and 2002 was
approximately $24,000 and $20,000, respectively, and $28,000 for the nine months
ended September 30, 2004 (unaudited).


NOTE 13: COMMITMENTS

LEASE COMMITMENTS

The Company's  corporate  headquarters are located in East Hanover,  New Jersey,
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.


Rent expense,  including automobile rentals,  totaled approximately $313,000 and
$416,000 in 2003 and 2002, respectively,  and $296,353 for the nine months ended
September 30, 2004 (unaudited).


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


Future  minimum lease  payments due under all operating  lease  agreements as of
December 31, 2003 and September 30, 2004 (unaudited) are as follows:



                                      F-16



      Years Ending December 31

                                OFFICE            AUTOMOBILES           TOTAL
                              ----------          ----------          ----------

                2004          $  310,615          $   33,013          $  343,628
                2005             299,575              30,785             330,360
                2006                  --              30,785              30,785
                2007                  --               7,696               7,696
                              ----------          ----------          ----------

                              $  610,190          $  102,279          $  712,469
                              ==========          ==========          ==========

      Years Ending September 30, (unaudited)

                                OFFICE            AUTOMOBILES           TOTAL
                              ----------          ----------          ----------

                2004          $  316,325          $   73,410          $  389,735
                2005             308,635              59,373             368,008
                2006             297,595              52,893             350,488
                2007             297,595              20,303             317,898
                2008             297,595                  --             297,595
          Thereafter             595,190                  --             595,190
                              ----------          ----------          ----------

                              $2,112,934          $  205,980          $2,318,914
                              ==========          ==========          ==========


LETTER OF CREDIT


The Company is committed  under an  outstanding  letter of credit with a bank to
secure the  security  deposit on the office space in the amount of $83,375 as of
September 30, 2004 (unaudited) and December 31, 2003 and $191,356 as of December
31, 2002.


AGREEMENTS

During 2002, the Company executed a twelve month  employment  agreement with one
of Scosys' senior  management.  This agreement  expired in November 2003 and has
not been renewed.

NOTE 14: SUBSEQUENT EVENTS

Reverse Merger

On August 21, 2003,  LCS Group,  Inc.,  LCS  Acquisition  Corp.,  a wholly owned
subsidiary of LCS Group,  Inc., CSI and CSI's  executive  officers and principal
stockholders, executed an Agreement and Plan of Reorganization to merge CSI into
LCS Acquisition  Corp. This transaction was consummated on January 30, 2004, CSI
became  the  operating  entity,  LCS Group  changed  its name to CSl and the CSI
shareholders control approximately 84% of the shares of the Company.

In connection with this transaction,  LCS Group, Inc. agreed to a.) increase the
number of common  shares  they  were  authorized  to issue  from  50,000,000  to
1,000,000,000;  b.)  authorized  the right to issue up to  20,000,000  shares of
preferred  stock; and c.) adopted the 2003 Stock Incentive Plan (the "2003 Stock
Option Plan").

The 2003 Stock Option 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.  On March 29, 2004, the Company granted
19,200,000  options to purchase its common stock at an exercise price of $0.165.
The 19.2 million options granted on March 29, 2004 were granted to the following
company employees:  Vice President and Chief Financial  Officer,  Vice President
and  General  Manager,  Practice  Director - The  Center  for Data  Warehousing,
Director of Business  Development,  Vice President of Professional  Services and
Vice President of  Technology.  The options have a ten year life and vest over a
three year period.  There was no  compensation  expense  recorded in the Company
income  statement.  The fair  value of the  options  was  determined  using  the
Black-Scholes  option  pricing  model and the  pro-forma  impact on earnings was
disclosed in footnote form.


Although LCS Group,  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 CSI was considered the "acquirer" of LCS
Group, Inc. for financial reporting purposes, as CSI's stockholders control more
than 50% 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
CSI, and a retroactive restatement of CSI's historical stockholders' equity. The
retroactive restatement took place subsequent to the merger on January 30, 2004.



                                      F-17



PRO FORMA  INFORMATION:  For the nine months ended  November 30, 2003, LCS Group
Inc. reported an unaudited loss from operations of approximately  $561,000.  The
loss  from   operations   consisted   of  $487,000   of  selling,   general  and
administrative  expenses and $74,000 of interest expense.  As part of the merger
with CSI, a condition precedent to closing the merger  transaction,  100% of the
outstanding  stock of LCS Golf,  Inc. (a  wholly-owned  subsidiary of LCS Group,
Inc.) was required to be sold to a  third-party.  As the results noted above are
those of LCS Golf, Inc. which was sold prior to the merger, no pro-forma results
of operations are shown as there is no continuing impact or effect to results of
operations. As a result of the retroactive recapitalization,  CSI would have had
593,000,000  and 592,900,000  shares of common stock  outstanding as of December
31, 2003 and 2002, respectively.


Borrowings under the Unsecured Convertible Line of Credit Note

On October  29,  2003,  the Company  made  arrangements  to obtain a  $2,000,000
Unsecured  Convertible  Line of Credit Note.  The terms of this new 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. As of February 28, 2004, the Company has drawn down on the
facility and received advances totaling $2,000,000.

Replacement Line of Credit

On March 30, 2004,  the Company  executed a $3,000,000  revolving line of credit
secured  by  substantially  all of the  corporate  assets  with a new  financial
institution.  This credit  facility was utilized to replace the existing Line of
Credit  facility  expiring  in June 2004 and both Notes  payable to a bank.  The
terms of this new note  provide  for  interest  accruing  on  advances  at seven
eighths of one percent (7/8%) over the  institution's  prime rate.  This line of
credit contains  certain  financial  covenants  including but not limited to a.)
Debt Service Coverage ratios; b.) Minimum Tangible Capital Funds limits; and c.)
Current Ratio limits, as defined.  The Company started to be measured  quarterly
on these covenants beginning June 30, 2004.

DeLeeuw Acquisition

In March 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. At the closing of the merger,  DAI was
merged with and into DCL, and Mr.  DeLeeuw  received  $2,000,000  and 80,000,000
outstanding  shares  of  common  stock  of  CSI  (approximately   11.9%  of  the
outstanding  shares).  On  March  5,  2004,  DCL  changed  its  name to  Deleeuw
Associates, LLC.

Employment Agreements

On February 27, 2004, Robert C. DeLeeuw,  Senior Vice President and President of
our wholly owned  subsidiary,  DeLeeuw  Associates,  LLC, agreed to a three-year
employment agreement. 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 payment of one year's base salary.

On March 26, 2004,  the Company  entered into  employment  agreement  with Scott
Newman , CSI's  President and Chief  Executive  Officer,  director and principal
stockholder.  The  agreement  provides  for an annual  salary of $500,000 and an
annual  bonus  to be  awarded  by  the  Company's  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 payment
of three year's base salary.


                                      F-18


On March 26, 2004,  the Company  entered into  employment  agreement  with Glenn
Peipert,  CSI's  Vice  President  and  Chief  Operating  Officer,  director  and
principal  stockholder.  The agreement provides for an annual salary of $375,000
and an annual bonus to be awarded by the Company's 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 payment
of three year's base salary.

On March 26, 2004, the Company entered into  employment  agreement with Mitchell
Peipert,  CSI's  Vice  President  and Chief  Financial  Officer.  The  agreement
provides  for an annual  salary to of $200,000 and an annual bonus to be awarded
by the Company's  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 payment of three year's base salary.

NOTE 15: SUBSEQUENT EVENTS (UNAUDITED)

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  Robert  C.  DeLeeuw,  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  results  of
operations  for the  period  subsequent  to its  acquisition  on March 4,  2004.
Exclusive  of future  consideration,  the  purchase  price was  allocated to the
various assets of DeLeeuw Associates as follows:

      The  components  and  allocations  of the  purchase  price  were  based on
      independent third party valuations as of the acquisition date.



                  COMPONENTS OF PURCHASE PRICE:
                  -----------------------------

                                                           
                  Cash payments                               $ 1,939
                  Acquisition costs                                71
                  Value of Common Stock                         2,158
                                                              -------
                                                              $ 4,168

                  ALLOCATION OF PURCHASE PRICE:

                  Approved vendor status (a)                   (1,597)..........(indefinite life)
                  Accounts receivable                            (975)
                  Tradename                                      (722)..........(indefinite life)
                  Goodwill                                     (1,404)
                  Other assets                                    (56)
                  Current liabilities assumed                     286
                  Deferred tax liability assumed                  300
                                                              -------
                                                              $    --
                                                              =======
================================================================================


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.


                                      F-19


No value has been ascribed to the property and equipment  acquired in connection
with the acquisition of DeLeeuw  Associates based upon  independent  third party
valuations as of the acquisition date.

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.

      To reflect the acquisition of assets and assumption of certain liabilities
of Evoke and the allocation of the purchase price on the basis of the fair value
of the assets  received,  liabilities  assumed,  and the fair values assigned to
identifiable intangible assets and to goodwill in June 2004, presented as if the
acquisition had occurred in December 2003 (in thousands), the purchase price was
allocated to the various assets and liabilities of Evoke as follows:

      The  components  and  allocations  of the  purchase  price  were  based on
independent third party valuations as of the acquisition date.



                  COMPONENTS OF PURCHASE PRICE:
                  -----------------------------
                                                   
                  Value of Common Stock               $ 1,789
                  Acquisition costs                       151
                                                      -------
                                                      $ 1,940

                  ALLOCATION OF PURCHASE PRICE:

                  Customer contracts                   (1,962).........(Six year estimated life)
                  Computer software                    (1,381).........(Three year estimated life)
                  Trade name                             (445).........(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                     1,302
                  Minority interest                       199
                                                      -------
                                                      $    --
                                                      =======


      In valuing the assets  acquired and the liabilities  assumed,  the Company
retained  an   independent   valuation   firm.  The  fair  value  of  Evoke  was
independently determined by this firm.


      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.

      Pursuant  to the  Non-Competition  Agreement  among the  Company  and Lacy
Edwards,  dated June 28, 2004,  Mr.  Edwards  shall not  directly or  indirectly
compete with the Company or its  subsidiaries.  No allocation of purchase  price
has been ascribed in connection with this agreement.

      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 proforma earnings.

      512,500  shares of common  stock of the Company  have been paid to certain
Evoke employees to retain their employment.  A charge of $87,125 was included in
the Company's results of operations for the quarter ending June 30, 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 unaudited pro forma consolidated statements of operations for the year
ended  December 31, 2003 and the nine months ended  September 30, 2004 set forth
below gives  effect to the  acquisitions  of DeLeeuw  Associates,  LLC and Evoke
Software Corporation as if they occurred on January 1, 2003.


                                      F-20


                               Year ended            Nine months ended
                            December 31, 2003        September 30, 2004
                               ------------            ------------
Revenues                       $ 25,422,859            $ 21,035,774
Net Loss                       $ (3,301,174)           $ (4,985,292)
Net Loss per share             $      (0.01)           $      (0.01)

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 provide for
interest  accruing on advances at seven  eighths of one percent  (7/8%) over the
institution's  prime rate.

      On August 16, 2004,  the Company  replaced its  $3,000,000  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 $6,000,000 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.  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  $2,000,000  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 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
$5,000,000 to be used for  acquisitions.  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  12,000,000
shares of the Company's 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 16, 2011.
The Company paid $749,000 in brokerage and  transaction  closing  related costs.
These costs will be deducted from the $5,000,000  restricted  cash balance being
provided to the Company by Laurus.  As of  September  30, 2004,  $3,200,000  was
outstanding  under  the  revolving  line of  credit.  The  interest  rate on the
revolving line and the  acquisition  note was 5.75% during  September 2004. As a
result of the beneficial  conversion  feature associated with the aforementioned
notes  payable,  a discount  on debt  issued was  recorded by the Company in the
amount of $5,621,630  in the  September  2004 quarter which will be amortized to
interest expense over the three year life of the debt agreement.



                                      F-21




Short term notes payable


      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 (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.  Finally,  we engaged  Sands  Brothers
International Limited as our non-exclusive financial advisor at $6,000 per month
for a period of one year.

      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.


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:

                                        September 30,
                                              2004        Amortization period
                                           ----------------------------------
               Laurus Master Fund          $5,621,630           3 years
               Sands Brothers                 454,545           1 year
               Taurus Advisory Group        1,500,000           5 years 
                                           ----------
                                            7,576,175
                                           ----------
               Accumulated amortization    $7,305,741
                                           ==========

Private Stock Sale

      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 is required  to purchase  the  remaining  8,928,572  shares of
common stock for $1,250,000 by December 31, 2004.

Repayment of Stockholder Loans


      On November 16, 2004, Scott Newman,  President and Chief Executive Officer
of the Company,  paid to the Company  $188,520,  the outstanding  balance of Mr.
Newman's  stockholder  loan.  Glenn Peipert,  Executive Vice President and Chief
Operating Officer of the Company,  paid to the Company $19,806,  the outstanding
balance of Mr. Peipert's stockholder loan.



                                      F-22


Related party transactions

      In November 2003, the Company executed an Independent Contractor Agreement
with Leading Edge Communications  Corporation (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 upon the
hourly rates established for consultants subcontracted to LEC.

      The Company  acquired 49% of all issued and  outstanding  shares of common
stock of LEC as of May 1, 2004.  The Company  accounts for its investment in LEC
under the  equity  method and does not  exercise  significant  control  over the
investee  nor have  control of LEC's Board of  Directors.  The  acquisition  was
completed  through a Stock  Purchase  Agreement  between  the  Company  and Mary
Ferrara,  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, 2003 and the nine months ended  September
30, 2004, the Company  invoiced LEC $393,000 and $1,727,200,  respectively,  for
the services of consultants  subcontracted to LEC by the Company. As of December
31, 2003 and September 30, 2004,  the Company had accounts  receivable  due from
LEC of approximately  $393,000 and $901,000,  respectively,  and the Company has
provided  LEC with  extended  payment  terms.  There  are no  known  collections
problems  with  respect to LEC.  The  majority of their  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.  The Company  feels  confident in the  collectibility  of these  accounts
receivable  as the  majority of the  revenues  from LEC derive from  Fortune 100
clients.

Stock options


      The 2003  Incentive  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. On March 29, 2004 and April 12, 2004,
the Company  granted a total of 19,950,000  options to purchase its common stock
at an exercise price of $0.165 per share.  The options granted are a combination
of both incentive and nonqualified  options,  vest over a three year period from
the date of grant, and expire ten years from the date of grant.  Between May and
June 2004, the Company granted  11,905,000  options to purchase its common stock
at an exercise price of $0.20 per share.  The options  granted are all incentive
options,  vest over a three year period  from the date of grant,  and expire ten
years from the date of grant.  Between  July and  September  2004,  the  Company
granted  1,755,000  options to purchase its common stock at an exercise price of
$0.23 per share.  The options  granted are all  incentive  options,  vest over a
three year period from the date of grant,  and expire ten years from the date of
grant.


      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 APB25,  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  September 30, 2004, the Company  granted  450,000 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.


                                      F-23


      The following  pro-forma net income and earnings per share (EPS)  reflects
the difference  between stock compensation costs charged to operations under the
APB 25 intrinsic value method and pro-forma stock  compensation  cost that would
have been  recorded  if the SFAS 123 fair  value  method had been  applied.  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.  CSI'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.




                                                             Year ended       Nine months ended
                                                            December 31,        September 30,
                                                                2003                2004
                                                           -------------       -------------
                                                                                (unaudited)
                                                                         
Reported net loss                                          $    (307,000)      $  (4,228,711)
Pro-forma stock compensation, net of tax                              --            (156,285)
                                                           -------------       -------------

Pro forma net loss                                         $    (307,000)      $  (4,384,996)
                                                           =============       =============

Basic EPS:
     As re ported                                          $          --       $       (0.01)
     Pro-forma                                             $          --       $       (0.01)
Diluted EPS:
     As reported                                           $          --       $       (0.01)
     Pro-forma                                             $          --       $       (0.01)
Weighted average fair value per option share granted                 N/A       $        0.13
Weighted average assumptions used to value options
     Risk free interest rate                                         N/A       $        0.01
     Expected volatility                                             N/A         138% - 151%
     Expected life (years)                                           N/A                 300%



There were no options  granted  during the year ended  December 31,  2003.  As a
result,  the assumptions  pertaining to the option grants during 2003 were noted
as N/A in the above table.

Earnings per share

      Basic earnings per share is computed on the basis of the weighted  average
number of common shares  outstanding.  Diluted earnings 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-24




                                                         Year Ended December 31,    Nine Months Ended September 30,
                                                                  2003                            2004
                                                              -------------                  -------------
                                                                                               (unaudited)
                                                                                       
Net loss available for common stockholders (A)                $    (306,763)                 $  (4,228,711)
Weighted average outstanding shares of common stock (B)         593,000,000                    689,233,712
Common stock and common stock equivalents (C)                   593,000,000                    689,233,712
Loss per share:

  Basic (A/B)                                                 $       (0.00)                 $       (0.01)
                                                              =============                  =============

  Diluted (A/C)                                               $       (0.00)                 $       (0.01)
                                                              =============                  =============


      For  the  nine  months  ended  September  30,  2004,   34,060,000   shares
attributable to outstanding  stock options were excluded from the calculation of
diluted  earnings 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  earnings per share for both
the three and the nine months  ended  September  30, 2004 because the effect was
antidilutive.

Income taxes

      Our  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  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  $1,240,800  in the third  quarter  of 2004.  This  allowance  was
recorded because,  based on the weight of available evidence,  it is more likely
than not that some portion of the deferred tax asset may not be realized.

      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.


Commitments and contingencies


      On June 29, 2004,  Viant Capital LLC commenced  legal action against us 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 our loan
from a private investor in May 2004. Management believes that this loan does not
qualify as a private equity  transaction and we intend to vigorously  defend the
company.  As of November 26, 2004,  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.


Lease Commitments

      In July 2004, the Company's lease agreement for its corporate headquarters
facility in East Hanover, New Jersey was amended. The lease term was extended to
December 31, 2010 from December 31, 2005, and an additional 3,500 square feet of
space was obtained.


                                      F-25


                           EVOKE SOFTWARE CORPORATION

                    REPORT ON AUDITS OF FINANCIAL STATEMENTS

                          YEAR ENDED DECEMBER 31, 2003
                     AND NINE MONTHS ENDED DECEMBER 31, 2002


                                TABLE OF CONTENTS



                                                                        Page
                                                                        ----

Report of Independent Registered Public Accounting Firm                 F-27

Consolidated Balance Sheets                                             F-28

Consolidated Statements of Operations                                   F-29

Consolidated Statements of Redeemable Convertible Preferred
Stock and Shareholders' Deficiency and Other Comprehensive Loss         F-30

Consolidated Statements of Cash Flows                                   F-31

Notes to Consolidated Financial Statements                              F-32



                                      F-26


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Evoke Software Corporation:

We have audited the accompanying  consolidated  balance sheets of Evoke Software
Corporation (a California Corporation) and Subsidiaries (together the "Company")
as of December 31, 2003 and 2002,  and the related  consolidated  statements  of
operations,  consolidated  statements of redeemable  convertible preferred stock
and shareholders' deficiency and other comprehensive loss and cash flows for the
year ended December 31, 2003 and the nine months ended December 31, 2002.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an 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 Evoke Software Corporation and
Subsidiaries  as of  December  31,  2003  and  2002  and the  results  of  their
operations  and their cash flows for the year ended  December  31,  2003 and the
nine months ended  December 31, 2002 in conformity  with  accounting  principles
generally accepted in the United States of America.


/s/ Friedman LLP
------------------
Livingston, New Jersey
September 3, 2004


                                      F-27


                           EVOKE SOFTWARE CORPORATION
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)



                                                                                                 December 31,
                                                                                       ----------------------------
                                                                                           2003             2002
                                                                                       ------------    ------------
ASSETS
Current assets:
                                                                                                 
   Cash                                                                                $        586    $      1,862
   Accounts receivable, net of allowance for
      doubtful accounts of $0 in 2003 and $25 in 2002                                           999           2,784
   Prepaid expenses and other current assets                                                    161             293
                                                                                       ------------    ------------
Total current assets                                                                          1,746           4,939

Furniture and equipment, net of accumulated depreciation of $1,086
      in 2003 and $1,042 in 2002                                                                350             852
Other assets                                                                                    102             111
                                                                                       ------------    ------------
Total assets                                                                           $      2,198    $      5,902
                                                                                       ============    ============

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
   Accounts payable and accrued liabilities                                            $      1,337    $      1,224
   Notes payable                                                                                 --              92
   Deferred revenue                                                                           1,970           2,450
                                                                                       ------------    ------------
Total current liabilities                                                                     3,307           3,766

Deferred revenue, long term portion                                                              --             336
                                                                                       ------------    ------------
Total liabilities                                                                             3,307           4,102
                                                                                       ------------    ------------

Commitments                                                                                      --              --

Redeemable convertible preferred stock:
   Series  AA, no par value,  authorized,  issued  and  outstanding, 44,265,578
   shares at December 31, 2003 and 2002; aggregate  liquidation  preference of
   $24,420 in 2003 and $22,660 in 2002                                                       13,648           7,718

Shareholders' deficiency:
   Common stock, no par value, 60,000,000 shares authorized; 3,703,723 shares issued
   and outstanding in 2003 and 3,649,819 shares issued and outstanding in 2002               80,618          80,615
   Accumulated deficit                                                                      (95,073)        (86,317)
    Cumulative translation adjustment                                                          (302)           (216)
                                                                                       ------------    ------------
Total shareholders' deficiency                                                              (14,757)         (5,918)
Total liabilities, redeemable convertible preferred stock                              ------------    ------------
    and shareholders' deficiency                                                       $      2,198    $      5,902
                                                                                       ============    ============



See Notes to Consolidated Financial Statements.


                                      F-28


                           EVOKE SOFTWARE CORPORATION
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In thousands)



                                                                   Nine Months
                                             Year Ended               Ended
                                             December 31,           December 31,
                                                 2003                 2002
                                               -------              -------
Revenues:
                                                              
   License fees                                $ 2,014              $ 1,675

   Maintenance, product support and other
     services                                    3,891                3,658
                                               -------              -------
Total revenues                                   5,905                5,333

Operating expenses:
   Cost of license fees                             41                   12
   Cost of maintenance, product support
     and other services                            340                  337
   Sales and marketing                           4,661                2,471
   Product development                           2,000                1,792
   General and administrative                    1,648                2,366
   Restructuring charge                             40                1,451
                                               -------              -------
Total operating expenses                         8,730                8,429
                                               -------              -------
Loss from operations                            (2,825)              (3,096)

Other income (expense), net                         (1)                  15
                                               -------              -------
Net loss                                       $(2,826)             $(3,081)
                                               =======              =======



See Notes to Consolidated Financial Statements


                                      F-29


                           EVOKE SOFTWARE CORPORATION
                                AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
       SHAREHOLDERS' DEFICIENCY AND OTHER COMPREHENSIVE LOSS FOR THE NINE
      MONTHS ENDED DECEMBER 31, 2002 AND THE YEAR ENDED DECEMBER 31, 2003
                      (In thousands, except share amounts)



                                                                               Shareholders' Deficiency
                                                                            ------------------------------
                                                       Redeemable
                                                       Convertible
                                                     Preferred Stock               Common Stock
                                                                            -----------------------------
                                                   Shares        Amount       Shares          Amount
                                                 ------------- ------------ ------------- ---------------
                                                                               
Balance at March 31, 2002                           3,823,709     $ 74,534       744,253     $       948
   Issuance of Series AA preferred stock, less
     issuance costs of $180                        44,265,578        5,320
   Accretion of Series D&E preferred stock                 --        5,133            --              --
   Preferred stock conversion to common stock      (3,823,709)     (79,667)    2,905,566          79,667
   Accretion of Series AA preferred stock                  --        2,398            --              --
   Net loss
   Foreign currency translation adjustment                 --           --            --              --

   Comprehensive loss                                      --           --            --              --
                                                 ------------- ------------ ------------- ---------------

Balance at December 31, 2002                       44,265,578        7,718     3,649,819          80,615

   Exercise of stock options                                                      53,904               3
   Accretion of Series AA preferred stock                  --        5,930            --              --
   Net loss
   Foreign currency translation adjustment

   Comprehensive loss                                      --           --            --              --
                                                 ------------- ------------ ------------- ---------------
Balance at December 31, 2003                       44,265,578      $13,648     3,703,723      $   80,618
                                                 ============= ============ ============= ===============




                                                           Shareholders' Deficiency
                                                ----------------------------------------------------
                                                                        Other
                                                   Accumulated      Comprehensive
                                                     Deficit           Income            Total
                                                 ----------------- ---------------- ----------------
                                                                             
Balance at March 31, 2002                              $ (75,705)       $     (197)     $   (74,954)
   Issuance of Series AA preferred stock, less
     issuance costs of $180
   Accretion of Series D&E preferred stock                (5,133)               --           (5,133)
   Preferred stock conversion to common stock                  --               --           79,667
   Accretion of Series AA preferred stock                 (2,398)               --           (2,398)
   Net loss                                               (3,081)                            (3,081)
   Foreign currency translation adjustment                     --             (19)              (19)
                                                                                    ----------------
   Comprehensive loss                                          --               --           (3,100)
                                                 ----------------- ---------------- ----------------

Balance at December 31, 2002                             (86,317)            (216)           (5,918)

   Exercise of stock options                                                                      3
   Accretion of Series AA preferred stock                 (5,930)               --           (5,930)
   Net loss                                               (2,826)                            (2,826)
   Foreign currency translation adjustment                                    (86)              (86)
                                                                                    ----------------
   Comprehensive loss                                          --               --           (2,912)
                                                 ----------------- ---------------- ----------------
Balance at December 31, 2003                         $   (95,073)       $    (302)      $   (14,757)
                                                 ================= ================ ================



See Notes to Consolidated Financial Statements


                                      F-30


                           EVOKE SOFTWARE CORPORATION
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)



                                                                               Year           Nine Months
                                                                               Ended            Ended
                                                                            December 31,      December 31,
                                                                                2003             2002
                                                                              -------           -------

OPERATING ACTIVITIES
                                                                                          
Net loss                                                                      $(2,826)          $(3,081)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization                                                  457               457
   Impairment  of furniture and equipment                                          --               837
   (Gain) loss on disposals of furniture and equipment                             32               (29)
   Changes in operating assets and liabilities:
     Restricted cash                                                               --               426
     Accounts receivable                                                        1,785            (2,081)
     Prepaid expenses and other current assets                                    132               (79)
     Accounts payable and accrued liabilities                                     113              (916)
     Deferred revenue                                                            (816)             (462)
     Other Assets                                                                   9               130
                                                                              -------           -------
Net cash used in operating activities                                          (1,114)           (4,798)
                                                                              -------           -------

INVESTING ACTIVITIES
Proceeds from dispositions of furniture and equipment                              13               159
                                                                              -------           -------

FINANCING ACTIVITIES
Repayments of notes payable                                                       (92)              (76)
Proceeds of preferred stock sale net of issuance costs                             --             5,320
Proceeds from exercise of stock options                                             3                --
                                                                              -------           -------
Net cash provided by (used in) financing activities                               (89)            5,244

Effect of exchange rate differences on cash                                       (86)              (19)
                                                                              -------           -------
Increase (decrease) in cash                                                    (1,276)              586

CASH, at beginning of period                                                    1,862             1,276
                                                                              -------           -------

CASH, at end of year                                                          $   586           $ 1,862
                                                                              =======           =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest                                        $     3           $     2
                                                                              =======           =======

SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS
Accretion of Series D&E preferred stock                                       $ 5,133           $    --
Preferred stock conversion to common stock                                     79,667                --
Accretion of Series AA preferred stock                                          2,398             5,930


See Notes to Consolidated Financial Statements


                                      F-31


                           EVOKE SOFTWARE CORPORATION
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (In thousands, except share amounts)

Note 1:      THE COMPANY

             Evoke  Software  Corporation  (the  "Company")  designs,  develops,
             markets and  supports  technology  that  assists  organizations  in
             managing large quantities of data. The Company's  software products
             allow its customers to better  understand the content,  quality and
             structure of their data. In 2002, the Company  changed its year end
             from March 31 to Decmeber  31. The Company  derives  revenues  from
             sales to companies principally in North America and Europe.

                                         Year Ended        Nine Months Ended
                                      December 31, 2003    December 31, 2002
                                      --------------------------------------

             North America                $  4,069            $  4,017
             Europe                          1,836               1,316
                                      --------------------------------------

                                          $  5,905            $  5,333
                                      ======================================

Note 2:      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             PRINCIPLES OF CONSOLIDATION

             The consolidated  financial  statements include the accounts of the
             Company and its foreign subsidiaries.  All significant intercompany
             accounts  and  transactions  have  been  eliminated.  The asset and
             liability  accounts  of  the  Company's  foreign  subsidiaries  are
             translated  from their local currency at the rates in effect at the
             balance  sheet date.  Revenue and expense  items are  translated at
             average rates of exchange prevailing during the period. Translation
             adjustments   are  accumulated  and  reported  as  a  component  of
             shareholders'  deficiency.  Foreign currency  transaction gains and
             losses, which have not been material,  are recorded in other income
             and expense in the consolidated statement of operations.

             USE OF ESTIMATES

             The   preparation  of  financial   statements  in  conformity  with
             accounting  principles  generally  accepted  in the  United  States
             requires  management to make certain estimates and assumptions that
             affect  the  reported   amounts  of  assets  and   liabilities  and
             disclosure of contingent  assets and liabilities at the date of the
             financial  statements and the reported results of operations during
             the  reporting  period.  Actual  results  could  differ  from those
             estimates.

             CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS

             Financial  instruments  that  potentially  subject  the  Company to
             concentrations  of risk  include  cash  accounts  receivable.  Cash
             consists  principally of demand  deposit and money market  accounts
             primarily  held  with  financial   institutions  with  high  credit
             standings.  The Company has not experienced any significant  losses
             on its cash.

             The Company  performs  ongoing credit  evaluations of customers and
             generally does not require  collateral.  Revenues from one customer
             accounted  for 15% and 21% of  total  revenues  in the  year  ended
             December  31, 2003 and the nine months  ended  December  31,  2002,
             respectively.

             At  December  31,  2003,  the  Company  was owed  $457  from  three
             customers which represented  approximately 45.9% of the outstanding
             accounts  receivable.  At December 31,  2002,  the Company was owed
             $2,029 from two customers which represented  approximately 70.2% of
             the outstanding accounts receivable.

             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 changes the  allowance for
             doubtful accounts,  when deemed necessary,  based on its history of
             past  write-offs  and  collection,  contractual  terms and  current
             credit conditions.


                                      F-32


             FAIR VALUE OF FINANCIAL INSTRUMENTS

             Cash, accounts receivable, accounts payable and accrued liabilities
             are carried at cost, which approximates fair value due to the short
             maturity of these instruments.

             FURNITURE AND EQUIPMENT

             Furniture  and  equipment  are  stated  at cost,  less  accumulated
             depreciation.  Depreciation  is  computed  using the  straight-line
             method over the estimated  useful lives of the assets,  which range
             from two to five years.

             SOFTWARE DEVELOPMENT COSTS

             Software  development  costs have been  accounted for in accordance
             with   Statement  of  Financial   Accounting   Standards   No.  86,
             "Accounting for the Costs of Computer  Software to be Sold,  Leased
             or  Otherwise  Marketed."  Capitalization  of software  development
             costs begins upon the  establishment of technological  feasibility,
             subject  to net  realizable  value  considerations.  To date,  such
             capitalizable  costs  have  not  been  material.  Accordingly,  the
             Company  has charged  all such costs to  research  and  development
             expense.  Future capitalized costs, if any, will be amortized based
             on the greater of the expense,  as  determined  on a  straight-line
             basis  over the  estimated  life of the  products,  or the ratio of
             current  revenue to the total of  current  and  anticipated  future
             revenue.

             REVENUE RECOGNITION

             The  Company  licenses   software  under   noncancellable   license
             agreements and provides services including  maintenance,  training,
             installation, consulting and support services. License fee revenues
             are generally  recognized when a noncancellable  license  agreement
             has been  signed,  the  product  has  been  shipped,  there  are no
             uncertainties surrounding product acceptance, the fees are fixed or
             determinable  and  collection is considered  probable.  The Company
             allocates a portion of  contractual  license fees to  post-contract
             support activities covered under the contract, including first year
             maintenance and product  support  services based on vendor specific
             objective evidence of fair value. The Company's agreements with its
             customers and resellers do not contain  product return rights.  For
             license arrangements with resellers, the Company recognizes revenue
             when  the  licenses  are  resold  to the end  user.  Revenues  from
             maintenance  agreements for  maintaining,  supporting and providing
             periodic  upgrades  are  recognized  ratably  over the  maintenance
             period, which in most instances is one year. Revenues for training,
             installation,  and  consulting  services are recognized as services
             are performed.

             INCOME TAXES

             The Company  accounts for income taxes in accordance with Statement
             of Financial  Accounting  Standards No. 109, "Accounting for Income
             Taxes" ("SFAS 109"), which requires the use of the liability method
             in  accounting  for income taxes.  Under this method,  deferred tax
             assets and  liabilities  are measured  using  enacted tax rates and
             laws that will be in effect when the  differences  are  expected to
             reverse.


                                      F-33


             ACCOUNTING FOR STOCK-BASED COMPENSATION

             The Company  accounts for employee stock options in accordance with
             Accounting  Principles Board Opinion No. 25,  "Accounting for Stock
             Issued to  Employees"  ("APB 25") and has adopted  the  "disclosure
             only"  alternative  described  in SFAS  No.  123,  "Accounting  for
             Stock-Based Compensation" ("FAS 123"). Equity instruments issued to
             non-employees  are accounted for in accordance  with the provisions
             of FAS 123 and related interpretations.

             PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION

             The  Company  has  elected  to use the  intrinsic  value  method in
             accounting for its employee stock options because,  the alternative
             fair value  accounting  requires the use of option valuation models
             that were not developed for use in valuing  employee stock options.
             Under the intrinsic  value method,  when the exercise  price of the
             Company's  employee  stock  options  equals the market price of the
             underlying  stock on the date of grant, no compensation  expense is
             recognized.

             The fair value of each option  granted is  estimated on the date of
             grant using the Minimum value option-pricing  valuation model, with
             the following assumptions for options granted during the year ended
             December 31, 2003 and nine months ended December 31, 2002:

                                                  2003               2002
                                            -----------------   --------------

             Expected dividend yield               --                    --
             Risk-free interest rate              3.3%                  2.8%
             Expected life                     3 years              3 years

             The Minimum Value option valuation model used was developed for use
             in estimating the fair value of traded options that have no vesting
             restrictions  and  are  fully  transferable.  In  addition,  option
             valuation   models   require   the  input  of   highly   subjective
             assumptions, including the expected life of the option. Because the
             Company's employee stock options have characteristics significantly
             different from those of traded  options and because  changes in the
             subjective input  assumptions can materially  affect the fair value
             estimate,  in  management's  opinion,  the  existing  models do not
             necessarily  provide a reliable single measure of the fair value of
             its employee stock options.

             For purposes of pro forma  disclosure,  the estimated fair value of
             options is amortized to pro forma expense over the options' vesting
             period. Pro forma information is as follows:

                                                                  Nine months
                                             Year Ended              Ended
                                            December 31           December 31
                                                2003                  2002
                                           ------------           ------------
             Net loss:
                As reported                $     (2,826)          $     (3,081)
                                           ------------           ------------

                Pro forma                  $     (2,833)          $     (3,087)
                                           ============           ============

             The  weighted-average  fair value at grant date of options  granted
             during 2003 and 2002 was $ .05 and $.04.

             RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

             In August 2001, the FASB issued SFAS No. 144,  "Accounting  for the
             Impairment or Disposal of Long-Lived Assets",  effective for fiscal
             periods  beginning  after  December  15, 2001 and  interim  periods
             within those fiscal years. SFAS 144 establishes an accounting model
             for impairment or disposal of long-lived assts to be disposed of by
             sale. The Company adopted SFAS 144 on March 31, 2002.


                                      F-34


             In November 2001, the FASB issued an  announcement  on the topic of
             "Income Statement  Characterization of Reimbursements  received for
             Out-of-Pocket   Expenses   Incurred"  (the   "Announcement").   The
             Announcement  required  companies  to  characterize  reimbursements
             billed  for  out-of-pocket   expenses  as  revenue  in  the  income
             statement.  The  Announcement  was applied in  financial  reporting
             periods  beginning  after  December 15, 2001.  There were no netted
             reimbursements   received  for  2003  and  2002  for  out-of-pocket
             expenses   against  the  related   expenses  in  the   accompanying
             consolidated statement of operations, respectively. Adoption of the
             Announcement  has no impact  on gross  profit or net loss but would
             increase both services revenues and the cost of services revenues.

             In July 2002, the FASB issued SFAS No. 146,  "Accounting  for Costs
             Associated with Exit or Disposal Activities". The standard requires
             companies  to  recognize  costs  associated  with exit or  disposal
             activities  when  they are  incurred  rather  than at the date of a
             commitment to an exit or disposal  plan.  Examples of costs covered
             by  the  standard  include  lease  termination  costs  and  certain
             employee  severance costs that are associated with a restructuring,
             discontinued  operation,  plant  closing or other exit or  disposal
             activity.  Previous  accounting guidance was provided by EITF 94-3,
             "Liability  Recognition for Certain Employee  Termination  Benefits
             and  Other  Costs  to Exit an  Activity  (including  Certain  Costs
             Incurred in a  Restructuring)".  SFAS No. 146  replaces  EITF 94-3.
             SFAS  146  is to be  applied  prospectively  to  exit  or  disposal
             activities  initiated  after December 31, 2002. The Company adopted
             SFAS  No.  146 as of  January  1,  2003 and  this  adoption  had no
             material impact on the Company's  financial  position or results of
             operations.

             In November 2002, the FASB issued FASB  Interpretation,  or FIN No.
             45,"Guarantor's   Accounting   and  Disclosure   Requirements   for
             Guarantees,   Including  Indirect  Guarantees  of  Indebtedness  of
             Others".  FIN No. 45 elaborates on the  disclosures to be made by a
             guarantor in its interim and annual financial  statements about its
             obligations  under certain  guarantees that it has issued.  It also
             clarifies  that  a  guarantor  is  required  to  recognize,  at the
             inception  of a  guarantee,  a liability  for the fair value of the
             obligation   undertaken  in  issuing  the  guarantee.   However,  a
             liability does not have to be recognized  for a parent's  guarantee
             of  its  subsidiary's  debt  to a  third  party  or a  subsidiary's
             guarantee of the debt owed to a third party by either its parent or
             another  subsidiary  of that parent.  The initial  recognition  and
             measurement   provisions  of  FIN  No.  45  are   applicable  on  a
             prospective  basis to guarantees  issued or modified after December
             31, 2002  irrespective  of the  guarantor's  fiscal  year end.  The
             disclosure  requirements  of FIN No. 45 are effective for financial
             statements  with annual periods ending after December 15, 2002. The
             Company does not have any guarantees that would require  disclosure
             under FIN No. 45.

             In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for
             Stock-based Compensation - Transition and Disclosure - an Amendment
             to SFAS No.  123".  SFAS No. 148  provides  alternative  methods of
             transition for a voluntary change to the fair value-based method of
             accounting for stock-based employee compensation. In addition, this
             statement  amends the disclosure  requirements  of SFAS No. 123 for
             public  companies.  This  statement is  effective  for fiscal years
             beginning   after  December  15,  2002.  The  Company  adopted  the
             disclosure  requirements  of SFAS  No.148 as of January 1, 2003 and
             plans to follow the provisions of APB Opinion No. 25 for accounting
             for stock based compensation.

             In January  2003,  the FASB  issued FIN No. 46,  "Consolidation  of
             Variable  Interest  Entities -- An  Interpretation  of ARB No. 51",
             which clarifies the application of Accounting Research Bulletin No.
             51,  "Consolidated  Financial  Statements," to certain  entities in
             which  equity  investors  do  not  have  the  characteristics  of a
             controlling  financial interest or do not have sufficient equity at
             risk for the entity to finance its  activities  without  additional
             subordinated  financial  support  from  other  parties.  FIN No. 46
             provides guidance related to identifying variable interest entities
             (previously known generally as special purpose  entities,  or SPEs)
             and determining  whether such entities should be consolidated.  FIN
             No. 46 must be applied  immediately to variable  interest  entities
             created or interests in variable interest entities obtained,  after
             January 31, 2003. For those variable  interest  entities created or
             interests  in  variable  interest  entities  obtained  on or before
             January 31, 2003, the guidance in FIN No. 46 must be applied in the
             first fiscal year or interim period  beginning after June 15, 2003.
             The  Company  adopted  FIN No.  46 as of  January  1, 2003 and this
             adoption  had no impact  on the  Company's  consolidated  financial
             statements.


                                      F-35


             In May 2003, the FASB issued SFAS No. 150,  "Accounting for Certain
             Financial  Instruments with Characteristics of Both Liabilities and
             Equity".  This  statement  establishes  standards for how an issuer
             classifies  and measures in its  statement  of  financial  position
             certain  financial   instruments  with   characteristics   of  both
             liabilities  and  equity.  It  requires  that an issuer  classify a
             financial instrument that is within its scope as a liability (or an
             asset in some  circumstances)  because  that  financial  instrument
             embodies the  characteristics of an obligation of the issuer.  This
             standard 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  Company  has  adopted  SFAS No.  150 in the  applicable
             reporting period and does not expect it will have a material impact
             on the Company's Consolidated Financial Statements.

Note 3:      FURNITURE AND EQUIPMENT

             Furniture and equipment consist of the following:

                                                       December 31,
                                              -------------------------------
                                                   2003              2002
                                              --------------   --------------
            Furniture                         $         267    $         434
            Leasehold improvements                      372               --
            Equipment and related software              797              927
                                              --------------   --------------
                                                      1,436            1,361
            Less accumulated depreciation             1,086            1,042
                                              --------------   --------------
                                              $         350    $         852
                                              ==============   ==============

Note 4:      RESTRUCTURING AND ASSET IMPAIRMENT WRITE-DOWNS

             For the nine months ended December 31, 2002, the Company  continued
             implementation  of a plan  approved by  management  to  restructure
             operations to better align its  deployment  of operating  resources
             with lower revenue and activity  levels.  In so doing,  the Company
             recorded  asset  impairment  charges   representing  $837  for  the
             write-down  of furniture  and  equipment  related to excess  office
             space.  Work force reductions  mainly in the U.S. and the Company's
             U.K. subsidiary were recorded with a total charge to operations for
             severance and associated costs of $456. All affected  employees had
             been  terminated  as of  December  31,  2002  and  all  termination
             benefits  had been  paid to  former  employees.  In  addition,  the
             Company  recorded  $158 as a charge to  operations  principally  in
             conjunction with the closing of its offices in London and Paris.

Note 5:      NOTES PAYABLE

             Obligations due to an equipment vendor were fully paid in 2003.

Note 6:      COMMITMENTS

             The Company has entered into  operating  leases for certain  office
             space and  equipment  with  original  terms  ranging  from 12 to 60
             months expiring  through August 2006. The facility leases generally
             contain renewal options and provisions adjusting the lease payments
             based upon changes in operating costs of the facilities.

             The Company had a twenty-three  month lease with a server equipment
             vendor under a capitalized  lease obligation which required monthly
             payments totaling $2. The obligation was fully paid in April 2003.

             Future  minimum lease  payments  under all  operating  leases as of
             December 31, 2003 (in thousands) are as follows:

                   Year Ending December 31                    Amount
                   -----------------------               -----------------

                             2004                        $             492
                             2005                                      364
                             2006                                      215
                                                         -----------------
                            Total                        $           1,071
                                                         =================

             Rent expense from operating  leases for the year ended December 31,
             2003 and the nine  months  ended  December  31, 2002 was $1,058 and
             $883.


                                      F-36


Note 7:      SHAREHOLDERS' DEFICIENCY

             PREFERRED STOCK FINANCING

             In August 2002, the Company issued  44,265,578  shares of Series AA
             preferred stock at $0.12425 per share,  and received  approximately
             $5,500 in cash for the offering (before  deducting issuing expenses
             totaling  $180).  In connection with and effective upon the closing
             of the financing, all shares of the Company's prior Series A, B, C,
             D and E preferred stock  automatically  converted into Common Stock
             on a one-for-one  share basis,  except that 1,948,569 shares of the
             prior  preferred stock converted into the Series AA preferred stock
             upon  participation  in the financing.  Accordingly,  following the
             closing of the financing, only common stock and Series AA preferred
             stock remained issued and outstanding.

             REVERSE STOCK SPLIT

             Contemporaneous   with  and   subject   to  the   closing   of  the
             aforementioned  preferred stock financing,  the Company completed a
             ten-for-one reverse stock split of issued and outstanding preferred
             and common stock. All preferred and common share prices and amounts
             associated with rights,  preferences,  dividends, and privileges in
             the accompanying financial statements were adjusted to reflect such
             reverse split.

             REDEEMABLE CONVERTIBLE PREFERRED STOCK

             At December  31, 2003 and 2002,  redeemable  convertible  preferred
             stock   consisted  of   44,265,578   shares  of  Series  AA  shares
             authorized,   issued   and   outstanding.   Aggregate   liquidation
             preference  totaled  $24,420 and  $22,660 at December  31, 2003 and
             2002.

             DIVIDENDS

             The holders of Series AA convertible  preferred  stock are entitled
             to receive  dividends  when,  as and if,  declared  by the Board of
             Directors  but only out of funds that are legally  available at the
             rate of  $0.03976  per  share per  annum.  These  dividends  are in
             preference to any  declaration or payment of any dividend on common
             stock of the Company.

             CONVERSION

             Each share of Series AA convertible  preferred stock, at the option
             of the  holder,  is  convertible  into the number of fully paid and
             non-assessable shares of common stock at the conversion rate of one
             to one,  subject to  anti-dilution  adjustments  and the accrual of
             dividends. Each share of Series AA convertible preferred stock will
             automatically  be converted  into shares of common stock,  based on
             the then-effective  conversion price,  immediately upon the closing
             of a firmly  underwritten  qualified public offering pursuant to an
             effective  registration  statement under the Securities Act of 1933
             for a total  offering  of not less  than  $30,000,000  prior to the
             deduction of underwriting  commissions and expenses and a per share
             price (subject to adjustment for stock splits,  stock dividends and
             similar  events)  which  is not  less  than  $2.982;  or  the  date
             specified by written  consent or agreement of the holders of 75% of
             the then outstanding shares of said stock.

             LIQUIDATION

             In the event of any  liquidation,  dissolution or winding up of the
             Company, including a merger,  consolidation or other transaction in
             which  more  than  50%  voting  control  is  transferred,   whether
             voluntary  or  involuntary,  the  holders of Series AA  convertible
             preferred stock are entitled to receive, prior and in preference to
             any distribution of any of the assets of the Company to the holders
             of common  stock,  an amount equal to the original  purchase  price
             plus  accrued but unpaid  dividends,  or $0.55245  and $0.51269 for
             each share at  December  31,  2003 and 2002,  respectively.  If the
             assets of the Company legally  available for distribution  shall be
             insufficient  to permit the  payment in full to the  holders of the
             Series AA  convertible  preferred  stock the Series AA  liquidation
             preference,  then  the  entire  assets  of  the  Company  shall  be
             distributed  ratably  among the  holders  of Series AA  convertible
             stock in proportion to their ownership thereof.


                                      F-37


             VOTING

             The holders of Series AA convertible  preferred  stock are entitled
             to the  number  of votes  equal to the  number  of shares of common
             stock into which each share of convertible preferred stock could be
             converted,  and have voting  rights and powers  equal to the voting
             rights and powers of the common stock.

             REDEMPTION

             At any time after  August 9, 2006,  the holders of greater than 50%
             of the  outstanding  shares of Series AA preferred stock shall have
             the right to request  that the Company  purchase all or any portion
             of the shares of Series AA  preferred  stock held by such  holders,
             paying to such  holders an amount in cash  equal to the  repurchase
             price,  defined as the  Series AA  liquidation  preference,  or the
             original per share price plus all accrued but unpaid dividends.

             COMMON STOCK

             At December  31, 2003 the  Company  has  reserved  shares of common
             stock for future issuance as follows:

             Series AA redeemable convertible preferred stock        44,265,578
             Common stock warrants                                       46,533
             Options available for grant                              2,121,636
             Stock options outstanding                                6,520,636
                                                                 --------------
                                                                     52,954,383
                                                                 ==============

             COMMON STOCK WARRANTS

             In connection with certain notes issued in 1999, and converted into
             shares of series D  redeemable  convertible  preferred  stock,  the
             Company issued warrants for the purchase of 33,866 shares of Series
             C  redeemable   convertible  preferred  shares.  The  warrants  are
             exercisable  at  $12.90  per share and  expire in April  2004.  The
             Company valued these warrants using the  Black-Scholes  method with
             an interest  rate of 6%, a five year life, a  volatility  factor of
             1.0 and no expected  dividend  yield.  The Company  deemed the fair
             value of these warrants to be immaterial.

             Throughout  2001 and 2000, the Company issued  warrants to purchase
             9,167  shares of common  stock to a service  provider.  The Company
             determined the fair value of these options using the  Black-Scholes
             method with a  volatility  factor of 1, an  interest  rate of 6%, a
             dividend  rate of 0% and a life of five years.  The value  recorded
             for these  warrants was  approximately  $59.  The  warrants  expire
             through October 2006.


                                      F-38


             In August of 2000, the Company  issued  warrants  exercisable  into
             3,500  shares of common  stock to a lender  in  connection  with an
             equipment loan, in which the Company made an early repayment of the
             remaining  outstanding  balance during 2002. The Company determined
             the fair value of these options using the Black-Scholes method with
             a  volatility  factor of 1.0, an interest  rate of 6.0%, a dividend
             rate of 0% and a life of ten  years.  The value of these  warrants,
             approximately  $24 was recorded by the Company as prepaid financing
             costs and was being  amortized to interest  expense over 36 months.
             The remaining  prepaid  financing  balance was amortized in full at
             the time of repayment. The warrants expire in August 2010.

             STOCK OPTIONS

             On  September  4,  2002,  the  Board of  Directors  of the  Company
             approved  the  amendment  of the 2000 stock option plan under which
             incentive stock options may be granted to employees,  directors and
             consultants  of the Company to purchase up to  8,892,321  shares of
             common stock.

             The exercise price of stock options  granted under the 2000 Plan is
             equal to the then-current fair market value of the Company's common
             stock at time of  grant.  In  January  of  2002,  the  Company,  in
             believing that the 2000 Plan exercise price was considerably higher
             than what was  considered  to be the then current fair market value
             of the  Company's  common  stock,  introduced  an Exchange  Program
             allowing  employees and directors,  with options having an exercise
             price of $0.75  per share or  greater,  the  opportunity  to cancel
             existing  stock options in exchange for new ones.  This program was
             intended to allow the  exchange  of  existing  options for the same
             number of new options to be granted at least six months and one day
             after the cancellation  date of the old options,  January 16, 2002,
             at an  exercise  price  equal  to  the  fair  market  value  of the
             Company's  stock on  September  4, 2002,  the grant date of the new
             options.

             Options  granted under terms of both the existing 1997 plan and the
             2000 plan  generally have a maximum term of 10 years from the grant
             date, are immediately  exercisable and generally vest over a 4 year
             period.  The plan provides that the unvested  shares are subject to
             repurchase  by the Company upon  termination  of  employment at the
             original  price paid for the shares.  The shares  generally vest at
             the rate of 25% after one year and  ratably on a monthly  basis for
             three years  thereafter.  The number of shares that were subject to
             repurchase  totaled  4,772 and 4,835 as of  December  31,  2003 and
             2002, respectively.


                                      F-39


             A summary of the Company's  stock option  activity  during 2003 and
             2002 is as follows:



                                                                             WEIGHTED-AVERAGE
                                                                            EXERCISE PRICE PER
                                                     NUMBER OF SHARES             SHARE
                                                     ------------------    ---------------------
                                                                     
             Outstanding at March 31, 2002                     116,774     $               6.40
                 Granted                                     6,449,821                     0.05
                 Exercised                                          --                       --
                 Canceled                                     (27,347)                     7.50
                                                     -----------------
             Outstanding at December 31, 2002                6,539,248                     0.06
               Granted                                         481,257                     0.05
               Exercised                                      (53,904)                     0.05
               Canceled                                      (445,965)                     0.06
                                                     -----------------
             Outstanding at December 31, 2003                6,520,636                     0.06
                                                     ==================


             The following  table  summarizes the  outstanding  and  exercisable
             stock options at December 31, 2003:



                                                          OPTIONS OUTSTANDING & EXERCISABLE
                                  ----------------------------------------------------------------------------------
                                                                  WEIGHTED-AVERAGE       WEIGHTED-AVERAGE EXERCISE
             EXERCISE                                          REMAINING CONTRACTUAL               PRICE
             PRICE PER                                            LIFE (YEARS)
             SHARE                   NUMBER OF SHARES
             -------------------- -------------------------- --------------------------- ---------------------------
                                                                                 
                      $0.05             6,431,451                   8.70                     $  0.05
                       1.00                 5,960                   4.25                     $  1.00
                       1.10                 3,250                   3.59                     $  1.10
                       1.30                 4,000                   5.77                     $  1.30
                       7.50                75,975                   6.79                     $  7.50
                                     ------------
                                        6,520,636                   8.67                     $  0.06
                                     ============


             Options to purchase 2,121,636 shares of common stock were available
             for future grant at December 31, 2003.

             OPTIONS ISSUED TO NON-EMPLOYEES

             During  2003 and 2002,  there were no  options or stock  granted to
             non-employees.

Note 8:      INCOME TAXES
             The Company had  deferred  tax assets of  approximately  $5,124 and
             $3,954 as of December 31, 2003 and 2002, respectively.  Realization
             of the deferred tax assets is dependent upon future taxable income,
             if any, the amount and timing of which are uncertain.  Accordingly,
             the net  deferred  tax assets have been fully offset by a valuation
             allowance. The net valuation allowance increased by approximately $
             1,170 during the year ended December 31, 2003 primarily relating to
             net operating  losses and tax credit  carryforwards.  In 2002,  the
             valuation allowance decreased by approximately $14,293 primarily as
             a result of an August 2002 event which was triggered by a change in
             control when the preferred shareholders converted their shares into
             common shares.  The difference  between the statutory tax rates and
             the Company's  effective tax rate of zero percent is due to the 100
             percent valuation  allowance against net deferred tax assets. o The
             Company had  Federal  and state  operating  loss  carryforwards  of
             approximately  $ 8,200 and $4,994 as of December 31, 2003 and 2002,
             respectively.  The net operating loss  carryforwards will expire at
             various dates through 2023.

Note 9:      EMPLOYEE RETIREMENT AND BENEFIT PLAN

             The Company has a deferred  compensation plan for all eligible U.S.
             employees,  which  qualifies  under Section  401(k) of the Internal
             Revenue Code. Under the terms of the 401(k) Plan,  member employees
             may contribute  varying amounts of their annual  compensation.  The
             Plan provides for discretionary employer contributions to the Plan.
             There have been no employer  contributions  to the Plan in 2003 and
             2002.


                                      F-40


Note 10:     SUBSEQUENT EVENT

             On June 28,  2004,  the Company sold  substantially  all of its net
             assets to Conversion Services International,  Inc. a public company
             (CSI). The acquisition was completed  pursuant to an Asset Purchase
             agreement  between CSI, Evoke Asset Purchase Corp., a subsidiary of
             CSI, and the Company.  In connection with the acquisition,  CSI (i)
             issued  72,543,956  shares  of its  common  stock  to the  Company,
             7,150,000  shares  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 the Company;  (iii) issued 3,919,093 shares
             of its  common  stock to  certain  executives  of the  Company as a
             severance payment and to certain employees as retention shares; and
             (iv)  agreed  to pay  $448  in  deferred  compensation  to  certain
             employees of the Company. For accounting purposes, this transaction
             was deemed to have occurred on June 30, 2004.


                                      F-41


Conversion Services International, Inc.
Notes to Pro Forma Condensed Financial Statements

PRO FORMA FINANCIAL INFORMATION

The  following  Pro  Forma  Financial  Statements  are  based on the  historical
financial statements of Conversion Services International,  Inc. (the "Company")
and  Evoke  Software  Corporation  ("Evoke"),  adjusted  to give  effect  to the
acquisition of Evoke by the Company.  The Balance Sheet assumes the  acquisition
occurred as of June 30, 2004. For accounting purposes, the Evoke acquisition was
deemed to have occurred on June 30, 2004.  Transaction  volumes  between June 28
and June 30, 2004 were de minimis. The Pro Forma Income Statements, for the year
ended  December  31,  2003 and the six months  ended June 30,  2004,  assume the
acquisition occurred as of the first day of the applicable period.


The pro forma financial  information  does not reflect certain  anticipated cost
savings  resulting  from the operation of Evoke by the Company.  There can be no
assurance that the Company will be able to realize any anticipated cost savings.
The pro  forma  statements  should  be  read in  conjunction  with  the  audited
consolidated  financial  statements of the Company and the related notes thereto
which are included in the Company's  Amendment No. 2 to Form SB-2 filed with the
SEC on November 30, 2004.



                                      F-42


                    CONVERSION SERVICES INTERNATIONAL, INC.
                       PRO FORMA CONDENSED BALANCE SHEET
                    JUNE 30, 2004 (IN THOUSANDS) (UNAUDITED)



                                                             CONVERSION
                                                           SERVICES, INT'L  EVOKE SOFTWARE       PRO FORMA           PRO FORMA
                                                            (CONSOLIDATED)   CORPORATION        ADJUSTMENTS        CONSOLIDATED
                                                            --------------   -----------        -----------        ------------
ASSETS

CURRENT ASSETS
                                                                                                         
  Cash                                                         $     56        $    141 (1)       $    356(1)        $    553
  Restricted cash                                                    83              --                 83
  Accounts receivable                                             3,475             580                (65)             3,990
  Accounts receivable from related parties                          786              --                 --                786
  Prepaid expenses                                                  177              78                 --                255
  Costs in excess of billings                                        27              --                 --                 27
  Deferred tax asset                                                687              --                 --                687
                                                               --------        --------           --------           --------
    TOTAL CURRENT ASSETS                                          5,291             799                291              6,381
                                                               --------        --------           --------           --------
PROPERTY AND EQUIPMENT, at cost, net                                444             184                 --                628
                                                               --------        --------           --------           --------

OTHER ASSETS
  Due from stockholders, including
    accrued interest of $24                                         206              --                 --                206
  Goodwill                                                        2,506              --                 --              2,506
  Deferred financing costs                                          515              --                 --                515
  Intangible assets, net of
    accumulated amortization of $137                              2,616              --              1,359(1), (3)      5,801
                                                                     --              --              1,381(1)              --
                                                                     --              --                445(1)              --
  Equity investments                                                122              --                 --                122
  Investment in Evoke                                             1,820              --                 --              1,820
  Other assets                                                        2              56                (45)                13
                                                               --------        --------           --------           --------
                                                                  7,787              56              3,140             10,983

                                                               $ 13,522        $  1,039           $  3,431           $ 17,992
                                                               ========        ========           ========           ========

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
  Line of credit                                               $  2,041        $     --           $     --           $  2,041
  Current portion of long-term debt                                  68              --                 --                 68
  Deferred compensation liability                                    --              --                443(1)             443
  Deferred revenue                                                   49           1,254                 --              1,303
  Accounts payable and accrued expenses                           1,960           1,302                (65)             3,197
                                                               --------        --------           --------           --------
    TOTAL CURRENT LIABILITIES                                     4,118           2,556                378              7,052
                                                               --------        --------           --------           --------
LONG-TERM DEBT, net of current portion                            2,100              --                 --              2,100
                                                               --------        --------           --------           --------
DEFERRED TAXES                                                      337              --                 --                337
                                                               --------        --------           --------           --------
MINORITY INTEREST                                                    --              --                199(1)             199
                                                               --------        --------           --------           --------
COMMITMENTS AND CONTINGENCIES                                        --              --                 --                 --
STOCKHOLDER'S EQUITY
  Common stock, $.001 par value, 1,000,000
     shares authorized, issued and outstanding                      766          80,619             80,619(1)(9)          766
  Preferred Stock                                                    --          13,649             13,649(1)(9)           --
  Additional paid in capital                                      7,788              --              1,940(1)           9,728
  Cumulative translation adjustment                                  --            (415)               415(1)              --
  Accumulated deficit                                            (1,587)        (95,370)            94,767(1)          (2,190)
                                                               --------        --------           --------           --------

                                                                  6,967          (1,517)             2,854              8,304
                                                               --------        --------           --------           --------

                                                               $ 13,522        $  1,039           $  3,431           $ 17,992
                                                               ========        ========           ========           ========


            See Accompanying Notes to Pro Forma Financial Statements


                                      F-43


                    CONVERSION SERVICES INTERNATIONAL, INC.
                       PRO FORMA STATEMENTS OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2004
               (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)



                                            CONVERSION              EVOKE
                                           SERVICES INT'L          SOFTWARE             PRO FORMA               PRO FORMA
                                           (CONSOLIDATED)            CORP.             ADJUSTMENTS             CONSOLIDATED
                                            -------------        -------------        -------------           -------------
                                                                                                  
REVENUE                                     $      11,778        $       2,380        $          --           $      14,158
COST OF SERVICES                                    8,154                   90                   --                   8,244
                                            -------------        -------------        -------------           -------------

GROSS PROFIT                                        3,624                2,290                   --                   5,914
                                            -------------        -------------        -------------           -------------

Selling and Marketing                               1,304                1,718                   --                   3,022
G&A                                                 3,163                  481                   --                   3,644
Produict Development                                   --                  737                   --                     737
Restructuing Charge                                    --                    5                   --                       5
Depreciation & amortization                            98                  129                  603(3)                  830
                                            -------------        -------------        -------------           -------------

OPERATING EXPENSES                                  4,565                3,070                  603                   8,238
                                            -------------        -------------        -------------           -------------

INCOME FROM OPERATIONS                               (941)                (780)                (603)                 (2,324)
                                            -------------        -------------        -------------           -------------

OTHER INCOME (EXPENSE), net                          (145)                  23                   --                    (122)
                                            -------------        -------------        -------------           -------------

LOSS BEFORE INCOME TAXES                           (1,086)                (757)                (603)                 (2,446)
                                            -------------        -------------        -------------           -------------

INCOME TAXES (BENEFIT)                               (460)                  --                 (241)(5)                (701)
                                                                                                241(6)
                                            -------------        -------------        -------------           -------------

                                                     (460)                  --                      --                 (701)
                                            -------------        -------------        -------------           -------------

NET LOSS                                             (626)                (757)                (603)                 (1,745)


UNSECURED CONVERTIBLE LINE OF CREDIT
BENEFICIAL CONVERSION FEATURE                         667                   --                   --                     667
                                            -------------        -------------        -------------           -------------


NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS                                $      (1,293)       $        (757)       $        (603)          $      (2,412)
                                            =============        =============        =============           =============

NET LOSS PER SHARE                          $       (0.00)                 N/A        $       (0.01)          $       (0.00)
                                            =============        =============        =============           =============

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES USED IN THE NET LOSS PER SHARE
CALCULATION                                   675,628,205                   --           76,463,049             752,091,254
                                            =============        =============        =============           =============


            See Accompanying Notes to Pro Forma Financial Statements


                                      F-44


                    CONVERSION SERVICES INTERNATIONAL, INC.
                       PRO FORMA STATEMENTS OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 2003
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



                                                CONVERSION              EVOKE
                                              SERVICES INT'L          SOFTWARE
                                                 (RESTATED)             CORP.                  PRO FORMA               PRO FORMA
                                                 (AUDITED)            (AUDITED)               ADJUSTMENTS            CONSOLIDATED
                                               -------------        -------------           -------------           -------------
                                                                                                        
REVENUE                                        $      19,518        $       5,905           $          --           $      25,423

COST OF SERVICES                                      13,472                  381                      --                  13,853
                                               -------------        -------------           -------------           -------------

GROSS PROFIT                                           6,046                5,524                      --                  11,570
                                               -------------        -------------           -------------           -------------

Selling and Marketing                                  1,639                4,661                      --                   6,300
G&A                                                    4,148                1,191                      --                   5,339
Product Development                                       --                2,000                      --                   2,000
Restructuing Charge                                       --                   40                      --                      40
Depreciation & amortization                              224                  457                   1,206(4)                1,887
                                               -------------        -------------           -------------           -------------

OPERATING EXPENSES                                     6,011                8,349                   1,206                  15,566
                                               -------------        -------------           -------------           -------------

INCOME FROM OPERATIONS                                    35               (2,825)                 (1,206)                 (3,996)
                                               -------------        -------------           -------------           -------------

OTHER INCOME (EXPENSE), net                             (211)                  (1)                     --                    (212)
                                               -------------        -------------           -------------           -------------

INCOME (LOSS) BEFORE INCOME TAXES                       (176)              (2,826)                 (1,206)                 (4,208)
                                               -------------        -------------           -------------           -------------

INCOME TAXES (BENEFIT)                                  (191)                  --                    (482)(5)                (673)
                                                          --                   --                     482 (6)                 482
                                               -------------        -------------           -------------           -------------

                                                        (191)                  --                      --                    (191)
                                               -------------        -------------           -------------           -------------

NET INCOME (LOSS)                              $          15        $      (2,826)          $      (1,206)          $      (4,017)
                                               =============        =============           =============           =============

NET INCOME (LOSS) PER SHARE                    $        0.00                  N/A           $       (0.02)          $       (0.01)
                                               =============        =============           =============           =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
USED IN THE NET INCOME (LOSS) PER SHARE
CALCULATION                                      673,000,000                   --              76,463,049             749,463,049
                                               =============        =============           =============           =============


            See Accompanying Notes to Pro Forma Financial Statements


                                      F-45



CONVERSION SERVICES  INTERNATIONAL,  INC. Notes to Pro Forma Condensed Financial
Statements

NOTE A - The pro forma adjustments to the condensed  consolidated  balance sheet
are as follows:

1)    To reflect the  acquisition  of assets and  assumption of  liabilities  of
      Evoke Software Corporation and the allocation of the purchase price on the
      basis of the fair value of the assets received,  liabilities  assumed, and
      the fair values assigned to identifiable  intangible assets as of June 30,
      2004 (in thousands)

      The  components  and  allocations  of the  purchase  price  were  based on
      independent third party valuations as of the acquisition date.



                  COMPONENTS OF PURCHASE PRICE:
                  -----------------------------
                                                   
                  Value of Common Stock               $ 1,789
                  Acquisition costs                       151
                                                      -------
                                                      $ 1,940

                  ALLOCATION OF PURCHASE PRICE:
                  -----------------------------
                  Customer contracts                   (1,962)...................(Six year estimated life)
                  Computer software                    (1,381)...................(Three year estimated life)
                  Trade name                             (445)...................(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                     1,302
                  Minority interest                       199
                                                      -------
                                                      $    --
                                                      =======


2)    Elimination of intercompany accounts receivable and accounts payable.

NOTE B - The pro forma  adjustments to the condensed  consolidated  statement of
operations are as follows:

3)    To reflect the amortization of Evoke's  identified  intangible  assets for
      the six months ended June 30, 2004.  Amortization of identified intangible
      assets are as follows(in thousands): :

        DESCRIPTION                    AMORTIZATION
        -----------                    ------------

        Computer software                $230
        Customer contracts                373
                                         ----

        Total                            $603
                                         ====

4)    To reflect  the  amortization  of Evoke's  intangible  assets for the year
      ended December 31, 2003.  Amortization of identified intangible assets are
      as follows(in thousands): :

        DESCRIPTION                    AMORTIZATION
        -----------                    ------------

        Computer software                $  460
        Customer contracts                  746
                                         ------

        Total                            $1,206
                                         ======


                                      F-46


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

5)    To reflect a provision  for income taxes which  includes an  adjustment to
      reflect the  Company's  pro forma  income tax rate of 40.0%.  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

6)    To  reflect a  valuation  allowance  for income tax  benefit  provided  in
      footnote 5.

NOTE C - Other Pro Forma Disclosures

7)    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.

8)    Pursuant  to the  Non-Competition  Agreement  among the  Company  and Lacy
      Edwards, dated June 28, 2004, Mr. Edwards shall not directly or indirectly
      compete with the Company or its  subsidiaries.  No  allocation of purchase
      price has been ascribed in connection with this agreement.

9)    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 proforma earnings.

10)   512,500  shares of common  stock of the Company  have been paid to certain
      Evoke  employees  to retain  their  employment.  A charge of  $87,125  was
      included in the  Company's  results of operations  for the quarter  ending
      June 30, 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.


                                      F-47


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

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.


                       564,557,157 SHARES OF COMMON STOCK


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

                                   PROSPECTUS

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


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


                                _______ __, 2004


                                     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                            $   14,302.29
Printing and engraving expenses                 $    2,500.00*
Legal fees and expenses                         $   40,000.00*
Accounting fees and expenses                    $   20,000.00*
Transfer Agent and Registrar fees               $    2,000.00*
Miscellaneous fees and expenses                 $    1,197.71*
                                                -------------
                  Total                         $   80,000.00*

                  * 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  12,500,000  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 is required to
purchase  the  remaining  8,928,572  shares of Common  Stock for  $1,250,000  by
December 31, 2004.

      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.


                                      II-2


      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.  (7,200,000 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 Plan and Agreement of Merger and Reorganization, dated February 27, 2004,
among DeLeeuw Associates, Inc., DeLeeuw Conversion LLC and us).


                                      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.

      On March 22, 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
      Registrant, 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 Registrant, 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  Registrant,
      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 Registrant,  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 Registrant's Certificate of Incorporation,
      dated  January 27, 2004 (filed as Exhibit 3.1 on Form 8-K on February  17,
      2004).

3.3   Certificate of Amendment to the Registrant's Certificate of Incorporation,
      dated  January 30, 2004 (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).

4.3   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).

4.4   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).


                                      II-5


4.5   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).

4.6   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).

4.7   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).

4.8   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.*

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 DeLeeuw  Associates,  LLC (formerly  known as
      DeLeeuw Conversion LLC) and Robert C. DeLeeuw, dated February 27, 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).


                                      II-6


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).

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).

10.17 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).

14    Code of Conduct and Ethics**

21    Subsidiaries of the Company.

23.1  Consent of Friedman LLP.**

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

* To be filed by amendment.

** 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 November 30, 2004.


                                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,                   November 30, 2004
Scott Newman                                      Chairman and Principal Executive Officer


*
----------------------------------------          Executive Vice President, Chief Operating             November 30, 2004
Glenn Peipert                                     Officer and Director


*
----------------------------------------          Vice President, Chief Financial Officer,              November 30, 2004
Mitchell Peipert                                  Secretary, Treasurer and Principal
                                                  Accounting Officer


*
----------------------------------------          Director                                              November 30, 2004
Lawrence K. Reisman


* By: /s/ Scott Newman
      as attorney-in-fact
      November 30, 2004