As filed with the Securities and Exchange Commission on November 4, 2005
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
CONVERSION SERVICES INTERNATIONAL, INC.
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(Name of small business issuer in its charter)
Delaware 7379 20-1010495
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
100 Eagle Rock Avenue
East Hanover, New Jersey 07936
Phone: (973) 560-9400
Fax: (973) 560-9500
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(Address and telephone number of principal executive office)
CONVERSION SERVICES INTERNATIONAL, INC. 2003 INCENTIVE PLAN
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(FULL TITLE OF THE PLAN)
Scott Newman
President and Chief Executive Officer
100 Eagle Rock Avenue
East Hanover, New Jersey 07936
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(NAME AND ADDRESS OF AGENT FOR SERVICE)
(973) 560-9400
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(TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
CALCULATION OF REGISTRATION FEE
Title of each Proposed maximum
class of securities Amount to be offering price Amount of
to be registered registered per unit registration fee
Shares of common stock, par 6,666,667 (1) $1.30 (2) $1,020.07
value $0.001 per share
================================================================================
(1) The aggregate amount of securities registered hereunder is 6,666,667 shares
of common stock issuable upon exercise of options, which may be granted pursuant
to our 2003 Incentive Plan. Pursuant to Rule 416 promulgated under the
Securities Act of 1933, as amended, this Registration Statement covers such
indeterminate additional shares of common stock to be offered or issued to
prevent dilution as a result of future stock splits, stock dividends or other
similar transactions.
(2) The fee with respect to these shares has been calculated pursuant to
paragraphs (h) and (c) of Rule 457 upon the basis of $1.30, the average of the
high and low prices for our common stock on November 1, 2005, a date within five
(5) business days prior to the date of filing of this registration statement, as
reported by the American Stock Exchange ("AMEX").
EXPLANATORY NOTE
This Registration Statement contains two parts. The first part contains a
"Reoffer Prospectus," which has been prepared in accordance with the
requirements of Part I of Form S-3 (as required by Section C.1. of the General
Instructions to Form S-8). The Reoffer Prospectus will be used for reoffers and
resales by affiliates of Conversion Services International, Inc. (the
"Registrant") of shares of common stock of the Registrant to be issued upon
exercise of options granted or to be granted pursuant to the Registrant's 2003
Incentive Plan, and by non-affiliates of the Registrant of shares of common
stock previously issued to them upon exercise of options. The second part
contains information required in the registration statement pursuant to Part II
of Form S-8. Pursuant to the introductory note to Part I of Form S-8, the plan
information, which constitutes part of the "Plan Prospectus," is not being filed
with the Securities and Exchange Commission.
2
PROSPECTUS
CONVERSION SERVICES INTERNATIONAL, INC.
6,666,667 Shares of Common Stock
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Conversion Services International, Inc. 2003 Incentive Plan
This prospectus is being used in connection with the offering from time to
time by certain selling stockholders of our company or their successors in
interest of shares of the common stock which may be acquired upon the exercise
of, stock options issued or to be issued pursuant to our 2003 Incentive Plan
(the "Plan").
The common stock may be sold from time to time by the selling stockholders
or by their pledgees, donees, transferees or other successors in interest. Such
sales may be made in the over-the-counter market or otherwise at prices and at
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions. The common stock may be sold by one or more of the
following: (a) block trades in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell portions of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this prospectus; (c) an exchange distribution in accordance with the rules of
such exchange; and (d) ordinary brokerage transactions and transactions in which
the broker solicits purchases. In effecting sales, brokers or dealers engaged by
the selling stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
selling stockholders in amounts to be negotiated immediately prior to the sale.
Such brokers or dealers and any other participating brokers or dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Act") in connection with such sales. In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 may be
sold under Rule 144 rather than pursuant to this prospectus. We will not receive
any of the proceeds from the sale of these shares, although we have paid the
expenses of preparing this prospectus and the related registration statement.
The closing sales price of our common stock on November 1, 2005 as
reported by the American Stock Exchange ("AMEX") was $1.30.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is November 4, 2005.
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TABLE OF CONTENTS
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Prospectus Summary ...........................................................1
Where You Can Find More Information ..........................................2
Documents Incorporated By Reference ..........................................3
The Company ..................................................................4
Forward Looking Statements ...................................................5
Risk Factors .................................................................6
Use of Proceeds .............................................................18
Selling Stockholders ........................................................19
Plan of Distribution ........................................................22
Legal Matters ...............................................................23
Experts .....................................................................23
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
4
PROSPECTUS SUMMARY
The following summary contains basic information about Conversion Services
International, Inc. and this prospectus. It may not contain all of the
information that is important to you. For a more complete understanding, we
encourage you to read the entire prospectus and the documents incorporated by
reference into this prospectus. In this prospectus, the words "CSI," "Company,"
"we," "our" and "us" refer to Conversion Services International, Inc. and our
consolidated subsidiaries. We effectuated a 1-15 reverse stock split on
September 21, 2005, and the share totals throughout this filing reflect the
split.
Common Stock outstanding 54,093,745 Shares (1)
before the offering
Common Stock issuable
upon exercise of
options o granted or to
be granted which may be
offered pursuant to
this prospectus
AMEX Symbol for Common "CVN"
Stock
Risk Factors We will not receive any proceeds from
the sales of these shares. We will
receive proceeds to the extent that
currently outstanding options are
exercised. We will use the exercise
proceeds, if any, for working capital
and general corporate purposes.
Risk Factors There are risks associated with an
investment in the common stock offered
by this prospectus. You should
carefully consider the risk factors
described in this prospectus in the
"Risk Factors" section before making a
decision to invest.
(1) As of October 31, 2005. Does not include shares of common stock issuable
upon exercise of options, notes or warrants.
5
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may read and copy, upon payment of a fee set by the SEC, any documents that we
file with the SEC as its public reference room at 450 Fifth Street, N.W.,
Washington, D.C. You may also call the SEC at 1-800-432-0330 for more
information on the public reference rooms. Our filings are also available to the
public on the Internet through the SEC's EDGAR database. You may access the
EDGAR database at the SEC's website at www.sec.gov.
This prospectus is part of registration statement on Form S-8 that
we have filed with the SEC to register the common stock offered hereby under the
Act. As permitted by SEC rules, this prospectus does not contain all of the
information contained in the registration statement and accompanying exhibits
and schedules that we file with the SEC. You may refer to the registration
statement, the exhibits and schedules for more information about us and our
common stock. The registration statement, exhibits and schedules are available
at the SEC's public reference rooms or through its EDGAR database on the
Internet.
You should rely only on the information contained in this prospectus
or any supplement to this prospectus. We have not authorized anyone to provide
you with different information.
Our common stock is quoted on the AMEX under the symbol "CVN."
6
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the SEC pursuant to the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") are incorporated herein
by reference:
1. The description of the common stock contained in our Registration
Statement (File No. 333- 115423) on Form SB-2/A filed with the SEC
on April 26, 2005.
2. Annual Report on Form 10-KSB/A for the fiscal year ended December
31, 2004.
3. Quarterly Report on Form 10-QSB/A for the quarter ended March 31,
2005.
4. Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005.
5. Current Reports on Forms 8-K filed with the SEC on April 13, 2005,
July 22, 2005, July 28, 2005, August 3, 2005, August 3, 2005,
September 16, 2005, September 21, 2005, September 28, 2005 and
October 11, 2005.
6. Definitive Proxy on Schedule 14A filed with the SEC on July 26,
2005.
7. Registration Statement on Form 8-A filed with the SEC on September
16, 2005.
8. All other reports filed by Registrant pursuant to Section 13(a) or
15(d) of the Exchange Act, since the end of the fiscal year covered
by the annual report referred to in (a) above.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this
offering shall be deemed to be incorporated by reference in this prospectus and
to be a part of this prospectus from the date of filing thereof.
Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of this prospectus.
We will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request of that person, a copy of
all documents incorporated by reference into the registration statement of which
this prospectus is a part, other than exhibits to those documents (unless such
exhibits are specifically incorporated by reference into such documents).
Requests for such documents should be directed to Mitchell Peipert, Secretary,
Conversion Services International, Inc., 100 Eagle Rock Avenue, East Hanover,
New Jersey 07936, telephone: (973) 560-9400
THE COMPANY
Conversion Services International, Inc. is a technology firm
providing professional services to the Global 2000 as well as mid-market
clientele. Our core competency areas include strategic consulting, data
warehousing, business intelligence and data management consulting. Our clients
are primarily in the financial services, pharmaceutical, healthcare and
telecommunications industries, although we do have clients in other industries.
Our clients are primarily located in the northeastern United States. We enable
organizations to leverage their corporate information assets by providing
strategy, process, methodology, data warehousing, business intelligence,
enterprise reporting and analytic solutions. Our organization delivers value to
our clients, utilizing a combination of business acumen, technical proficiency,
experience and a proven set of "best practices" methodologies to deliver cost
effective services through either fixed price or time and material engagements.
We are committed to being a leader in data warehousing and business intelligence
consulting, allowing us to be a valuable asset and trusted advisor to our
customers.
Our Services
As a full service strategic consulting, business intelligence, data
warehousing and data management consulting firm, we offer services in the
following solution categories:
Strategic Consulting
o Project Management (PMO)
o Data Warehousing and Business Intelligence Strategic Planning
o Business Technology Alignment
o Tool Analysis and Recommendation
o Integration Management, Mergers and Acquisitions
o Regulatory Compliance (The Health Insurance Portability and
Accountability Act of 1996, Basel II, Sarbanes-Oxley)
o Process Improvement (Lean, Six Sigma)
o Organizational Analysis and Assessment (mergers and acquisitions) o
Acquisition Readiness
o Information, Process and Infrastructure (IPI) Diagrams
o Request For Proposal creation and responses
o Training and Education
o Change Management Consulting
Business Intelligence
o Architecture and Implementation
o Ad-Hoc Query and Analysis
o Enterprise Reporting Solutions
o Online Analytical Processing o Analytics and Dashboards
o Business Performance Management
o Business Intelligence Competency Center
o Proof of Concepts and Prototypes
o Business Intelligence Strategy
o Data Mining
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Data Warehousing
o Data Warehousing Design, Development and Implementation
o Departmental Data Warehousing
o Federated Data Warehousing
o Conforming Facts/Dimensions
o Proof of Concepts and Prototypes
o Data Mart Delivery
o Outsourcing
o Extract, Transformation and Loading
o Data Warehouse Framework
Data Management
o Data Quality Center of Excellence
o Data Profiling
o Data Quality / Cleansing
o Data Transformation
o Data Migrations and Conversions
o Metadata Management
o Enterprise Information Integration (EII)
o Integration Management
o Enterprise Information Architecture
o Quality Assurance Testing (Verification, Validation, Certification)
o Infrastructure Management and Support
o Application Development
During the six month period ended June 30, 2005, two of the Company's
clients, Leading Edge Communications Corporation (LEC), a related party, and
Bank of America, accounted for approximately 14.5% and 15.2%, respectively, of
total revenues. For the six months ended June 30, 2004, LEC, Bank of America and
Pfizer accountedfor approximately 10.5%, 18.9% and 13.0% of our total revenues.
During the year ended December 31, 2004, two of our clients, LEC and Bank of
America, accounted for approximately 15.2% and 15.9% of total revenues. For the
year ended December 31, 2003, two of our clients, Morgan Stanley and Verizon
Wireless, accounted for approximately 11.2% and 29.2% of our total revenues.
Further, the majority of our current assets consist of accounts receivable, and
as of December 31, 2004, one customer, LEC, accounted for 15.2% of our accounts
receivable balance. With the recent acquisition of new businesses and our
objective of acquiring more over the next year, we believe that our reliance on
these clients will continue to decline this year and in the future.
Nevertheless, the loss of any of our largest clients could have a material
adverse effect on our business.
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.
9
FORWARD LOOKING STATEMENTS
Some of the statements set forth 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.
10
RISK FACTORS
One should carefully consider the following risk factors and all other
information contained in this prospectus before investing in our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could adversely affect our business, financial condition,
results of operations, performance, achievements and industry and could result
in a complete loss of one's investment. The risks and uncertainties described
below are not the only ones we may face. See also "Forward Looking Statements."
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 six month period ended June 30, 2005, two of the Company's
clients, Leading Edge Communications Corporation (LEC), a related party, and
Bank of America, accounted for approximately 14.5% and 15.2%, respectively, of
total revenues. For the six months ended June 30, 2004, LEC, Bank of America and
Pfizer accountedfor approximately 10.5%, 18.9% and 13.0% of our total revenues.
During the year ended December 31, 2004, two of our clients, LEC and Bank of
America, accounted for approximately 15.2% and 15.9% of total revenues. For the
year ended December 31, 2003, two of our clients, Morgan Stanley and Verizon
Wireless, accounted for approximately 11.2% and 29.2% of our total revenues.
Further, the majority of our current assets consist of accounts receivable, and
as of December 31, 2004, one customer, LEC, accounted for 15.2% of our accounts
receivable balance. With the recent acquisition of new businesses and our
objective of acquiring more over the next year, we believe that our reliance on
these clients will continue to decline in the future. The loss of any of our
largest clients could have a material adverse effect on our business. In
addition, our contracts provide that our services are terminable upon short
notice, typically not more than 30 days. Non-renewal or termination of contracts
with these or other clients without adequate replacements could have a material
and adverse effect upon our business. In addition, a large portion of our
revenues are derived from information technology consulting services that are
generally non-recurring in nature. There can be no assurance that we will:
o obtain additional contracts for projects similar in scope to those
previously obtained from our clients;
o be able to retain existing clients or attract new clients;
o provide services in a manner acceptable to clients;
o offer pricing for services which is acceptable to clients; or
o broaden our client base so that we will not remain largely dependent
upon a limited number of clients that will continue to account for a
substantial portion of our revenues.
Our internal controls and procedures have been materially deficient, and
we are in the process of correcting internal control deficiencies.
11
In the first quarter of 2005, resulting from comments related to the
Company's Registration Statement on Form SB-2/A, the Company and its independent
registered public accounting firm recognized that our internal controls had
material weaknesses. We have restated our results of operations for the
Company's quarterly results for the quarters ended March 31, 2004, June 30, 2004
and September 30, 2004.
If we cannot rectify these material weaknesses through remedial measures
and improvements to our systems and procedures, management may encounter
difficulties in timely assessing business performance and identifying incipient
strategic and oversight issues. Management is currently focused on remedying
internal control deficiencies, and this focus will require management from time
to time to devote its attention away from other planning, oversight and
performance functions.
We cannot provide assurances as to the timing of the completion of these
efforts. We cannot be certain that the measures we take will ensure that we
implement and maintain adequate internal controls in the future. Any failure to
implement required new or improved controls, or difficulties encountered in
their implementation, could harm our operating results or cause us to fail to
meet our reporting obligations.
The Company may have liability in connection with its recent securities
offerings.
We have completed various financings equaling $13,040,000 through the
issuance of our common stock, as well as the issuance of notes and warrants
convertible into our common stock, while a Registration Statement on Form SB-2
was on file with the SEC but had not yet been declared effective (those
transactions were with certain investors of Taurus Advisory Group, LLC, Laurus
Master Fund, Ltd. and three entities affiliated with Sands Brothers
International Limited). We also issued our common stock in connection with the
acquisition of substantially all the assets of Evoke Software Corporation during
this time (we subsequently sold such assets in July 2005). Even though all
stockholders, noteholders and warrantholders have been advised of their rights
to rescind those financing transactions and they each have waived their rights
to rescind those transactions, there is a remote possibility that each of those
transactions could be reversed and the consideration received by us may have to
be repaid. In such an event, our business could be adversely affected and we may
have an obligation to fund such rescissions.
Certain client-related complications may materially adversely affect our
business.
We may be subject to additional risks relating to our clients that could
materially adversely affect our business, such as delays in clients paying their
outstanding invoices, lengthy client review processes for awarding contracts,
delay, termination, reduction or modification of contracts in the event of
changes in client policies or as a result of budgetary constraints, and/or
increased or unexpected costs resulting in losses under fixed-fee contracts,
which factors could also adversely affect our business.
We have a history of losses and we could incur losses in the future.
During the six months ended June 30, 2005 and during the fiscal years
ended December 31, 2004 and December 31, 2003, we sustained operating losses and
cannot be sure that we will operate profitably in the future. During the six
months ended June 30, 2005, we sustained a net loss in the approximate amount of
($6.4 million). During the six months ended June 30, 2004, we sustained a net
loss in the approximate amount of ($1.5 million). During the fiscal year ended
December 31, 2004, we sustained a net loss in the approximate amount of ($32.9
million), of which $23.3 million of the loss resulted from impairment of
goodwill and intangibles for the year ended December 31, 2004 as a result of our
annual impairment review for the DeLeeuw Associates and Evoke acquisitions (and
goodwill recorded for other assets). During the fiscal year ended December 31,
2003, we sustained a net loss in the approximate amount of ($307,000). If we do
not become profitable, we could have difficulty obtaining funds to continue our
operations. We have incurred net losses since our merger with LCS Group, Inc. We
may continue to generate losses from the ongoing business prior to returning the
Company to profitability.
12
We have a significant amount of debt, which, in the event of a default, could
have material adverse consequences upon us.
Our total debt as of October 27, 2005 is approximately $11,290,000. The
degree to which we are leveraged could have important consequences to us,
including the following:
o A portion of our cash flow must be used to pay interest on our
indebtedness, and therefore is not available for use in our
business;
o Our indebtedness increases our vulnerability to changes in general
economic and industry conditions;
o Our ability to obtain additional financing for working capital,
capital expenditures, general corporate purposes or other purposes
could be impaired;
o Our failure to comply with restrictions contained in the terms of
our borrowings could lead to a default which could cause all or a
significant portion of our debt to become immediately payable; and
o If we default, the loans will become due and we may not have the
funds to repay the loans, and we could discontinue our business and
investors could lose all their money.
In addition, certain terms of such loans require the prior consent of
Laurus Master Fund, Ltd. on many corporate actions including, but not limited
to, mergers and acquisitions--which is part of our ongoing business strategy.
Our operating results are difficult to forecast.
We may increase our general and administrative expenses in the event that
we increase our business and/or acquire other businesses, while our operating
expenses for sales and marketing and costs of services for technical personnel
to provide and support our services also increases. Additionally, although most
of our clients are large, creditworthy entities, at any given point in time, we
may have significant accounts receivable balances with clients that expose us to
credit risks if such clients either delay or elect not to pay or are unable to
pay such obligations. If we have an unexpected shortfall in revenues in relation
to our expenses, or significant bad debt experience, our business could be
materially and adversely affected.
Our profitability, if any, will suffer if we are not able to maintain our
pricing, utilization of personnel and control our costs. A continuation of
current pricing pressures could result in permanent changes in pricing policies
and delivery capabilities.
Our gross profit margin is largely a function of the rates we are able to
charge for our information technology services. Accordingly, if we are not able
to maintain the pricing for our services or an appropriate utilization of our
professionals without corresponding cost reductions, our margins will suffer.
The rates we are able to charge for our services are affected by a number of
factors, including:
o our clients' perceptions of our ability to add value through our
services;
13
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.
Our ability to achieve growth targets is dependent in part on maintaining
existing clients and continually attracting and retaining new clients to replace
those who have not renewed their contracts. Our ability to achieve market
acceptance, including for data warehousing, will require substantial efforts and
expenditures on our part to create awareness of our services.
If we should experience rapid growth, such growth could strain our managerial
and operational resources, which could adversely affect our business.
Any rapid growth that we may experience would most likely place a
significant strain on our managerial and operational resources. If we continue
to acquire other companies, we will be required to manage multiple relationships
with various clients, strategic partners and other third parties. Further growth
(organic or by acquisition) or an increase in the number of strategic
relationships may increase this strain on existing managerial and operational
resources, inhibiting our ability to achieve the rapid execution necessary to
implement our growth strategy without incurring additional corporate expenses.
Lack of detailed written contracts could impair our ability to collect fees,
protect our intellectual property and protect ourselves from liability to
others.
14
We try to protect ourselves by entering into detailed written contracts
with our clients covering the terms and contingencies of the client engagement.
In some cases, however, consistent with what we believe to be industry practice,
work is performed for clients on the basis of a limited statement of work or
verbal agreements before a detailed written contact can be finalized. To the
extent that we fail to have detailed written contracts in place, our ability to
collect fees, protect our intellectual property and protect ourselves from
liability from others may be impaired.
Failure to achieve and maintain effective internal controls in accordance with
Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on
our business and operating results. In addition, current and potential
stockholders could lose confidence in our financial reporting, which could have
a material adverse effect on our stock price.
Effective internal controls are necessary for us to provide reliable
financial reports and effectively prevent fraud. If we cannot provide reliable
financial reports or prevent fraud, our operating results could be harmed.
Commencing in July 2007, we will be required to document and test our
internal control procedures in order to satisfy the requirements of Section 404
of the Sarbanes-Oxley Act, which requires annual management assessments of the
effectiveness of our internal controls over financial reporting and a report by
our independent registered public accounting firm addressing these assessments.
During the course of our testing, we may identify deficiencies which we may not
be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley
Act for compliance with the requirements of Section 404. In addition, if we fail
to maintain the adequacy of our internal controls, as such standards are
modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal
control environment could also cause investors to lose confidence in our
reported financial information, which could have a material adverse effect on
our stock price.
Compliance with changing regulation of corporate governance and public
disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC
regulations and exchange rules (although not, as of the date of this
Registration Statement, applicable to us), are creating uncertainty for
companies such as ours. These new or changed laws, regulations and standards are
subject to varying interpretations in many cases due to their lack of
specificity, and as a result, their application in practice may evolve over time
as new guidance is provided by regulatory and governing bodies, which could
result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We are
committed to maintaining high standards of corporate governance and public
disclosure. As a result, our efforts to comply with evolving laws, regulations
and standards have resulted in, and are likely to continue to result in,
increased general and administrative expenses and a diversion of management time
and attention from revenue-generating activities to compliance activities. In
particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of
2002 and the related regulations regarding our required assessment of our
internal controls over financial reporting and our independent registered public
accounting firm's audit of that assessment will require the commitment of
significant financial and managerial resources. We expect these efforts to
require the continued commitment of significant resources. Further, our board
members, chief executive officer and chief financial officer could face an
increased risk of personal liability in connection with the performance of their
duties. As a result, we may have difficulty attracting and retaining qualified
board members and executive officers, which could harm our business. If our
efforts to comply with new or changed laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due to
ambiguities related to practice, our reputation may be harmed.
15
We face intense competition and our failure to meet this competition could
adversely affect our business.
Competition for our information technology consulting services, including
data warehousing, is significant and we expect that this competition will
continue to intensify due to the low barriers to entry. We may not have the
financial resources, technical expertise, sales and marketing or support
capabilities to adequately meet this competition. We compete against numerous
large companies, including, among others, multi-national and other major
consulting firms. These firms have substantially greater market presence, longer
operating histories, more significant client bases and greater financial,
technical, facilities, marketing, capital and other resources than we have. If
we are unable to compete against such competitors, our business will be
adversely affected.
Our competitors may respond more quickly than us to new or emerging
technologies and changes in client requirements. Our competitors may also devote
greater resources than we can to the development, promotion and sales of our
services. If one or more of our competitors develops and implements
methodologies that result in superior productivity and price reductions without
adversely affecting their profit margins, our business could suffer. Competitors
may also:
o engage in more extensive research and development;
o undertake more extensive marketing campaigns;
o adopt more aggressive pricing policies; and
o make more attractive offers to our existing and potential employees
and strategic partners.
In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties that
could be detrimental to our business.
New competitors, including large computer hardware, software, professional
services and other technology companies, may enter our markets and rapidly
acquire significant market share. As a result of increased competition and
vertical and horizontal integration in the industry, we could encounter
significant pricing pressures. These pricing pressures could result in
substantially lower average selling prices for our services. We may not be able
to offset the effects of any price reductions with an increase in the number of
clients, higher revenue from consulting services, cost reductions or otherwise.
In addition, professional services businesses are likely to encounter
consolidation in the near future, which could result in decreased pricing and
other competition.
If we fail to adapt to the rapid technological change constantly occurring in
the areas in which we provide services, including data warehousing, our business
could be adversely affected.
The market for information technology consulting services and data
warehousing is rapidly evolving. Significant technological changes could render
our existing services obsolete. We must adapt to this rapidly changing market by
continually improving the responsiveness, functionality and features of our
services to meet clients' needs. If we are unable to respond to technological
advances and conform to emerging industry standards in a cost-effective and
timely manner, our business could be materially and adversely affected.
16
We depend on our management. If we fail to retain key personnel, our business
could be adversely affected.
There is intense competition for qualified personnel in the areas in which
we operate. The loss of existing personnel or the failure to recruit additional
qualified managerial, technical and sales personnel, as well as expenses in
connection with hiring and retaining personnel, particularly in the emerging
area of data warehousing, could adversely affect our business. We also depend
upon the performance of our executive officers and key employees in particular,
Messrs. Scott Newman, Glenn Peipert and Robert C. DeLeeuw. Although we have
entered into employment agreements with Messrs. Newman, Peipert and DeLeeuw, the
loss of any of these individuals could have a material adverse effect upon us.
In addition, we have not obtained "key man" life insurance on the lives of
Messrs. Newman, Peipert or DeLeeuw.
We will need to attract, train and retain more employees for management,
engineering, programming, sales and marketing, and client service and support
positions. As noted above, competition for qualified employees, particularly
engineers, programmers and consultants, continues to be intense. Consequently,
we may not be able to attract, train and retain the personnel we need to
continue to offer solutions and services to current and future clients in a cost
effective manner, if at all.
If we fail to raise capital that we may need to support and increase our
operations, our business could be adversely affected.
Our future capital uses and requirements will depend on several factors,
including:
o the extent to which our solutions and services gain market
acceptance;
o the level of revenues from current and future solutions and
services;
o the expansion of operations;
o the costs and timing of product and service developments and sales
and marketing activities;
o the costs related to acquisitions of technology or businesses; and
o competitive developments.
We may require additional capital in order to continue to support and
increase our sales and marketing efforts, continue to expand and enhance the
solutions and services we are able to offer to current and future clients and
fund potential acquisitions. This capital may not be available on terms
acceptable to us, if at all. In addition, we may be required to spend
greater-than-anticipated funds if unforeseen difficulties arise in the course of
these or other aspects of our business. As a consequence, we will be required to
raise additional capital through public or private equity or debt financings,
collaborative relationships, bank facilities or other arrangements. We cannot
assure you that such additional capital will be available on terms acceptable to
us, if at all. Further, if we raise capital though an equity or debt financing
at reduced exercise or conversion price, it could trigger certain anti-dilution
provisions with other investors. Any additional equity financing is expected to
be dilutive to our stockholders, and debt financing, if available, may involve
restrictive covenants and increased interest costs. Our inability to obtain
sufficient financing may require us to delay, scale back or eliminate some or
all of our expansion programs or to limit the marketing of our services. This
could have a material and adverse effect on our business.
17
We could have potential liability for intellectual property infringement,
personal injury, property damage or breach of contract to our clients that could
adversely affect our business.
Our services involve development and implementation of computer systems
and computer software that are critical to the operations of our clients'
businesses. If we fail or are unable to satisfy a client's expectations in the
performance of our services, our business reputation could be harmed or we could
be subject to a claim for substantial damages, regardless of our responsibility
for such failure or inability. In addition, in the course of performing
services, our personnel often gain access to technologies and content which
include confidential or proprietary client information.
Although we have implemented policies to prevent such client information
from being disclosed to unauthorized parties or used inappropriately, any such
unauthorized disclosure or use could result in a claim for substantial damages.
Our business could be adversely affected if one or more large claims are
asserted against us that are uninsured, exceed available insurance coverage or
result in changes to our insurance policies, including premium increases or the
imposition of large deductible or co-insurance requirements. Although we
maintain general liability insurance coverage, including coverage for errors and
omissions, there can be no assurance that such coverage will continue to be
available on reasonable terms or will be available in sufficient amounts to
cover one or more large claims.
We do not intend to pay dividends on shares of our common stock in the
foreseeable future.
We have never paid cash dividends on our common stock other than
distributions resulting from our past tax status as a Subchapter S corporation.
Our current Board of Directors does not anticipate that we will pay cash
dividends in the foreseeable future. Instead, we intend to retain future
earnings for reinvestment in our business and/or to fund future acquisitions. In
addition, the security agreement with Laurus Master Fund, Ltd. requires that we
obtain their consent prior to paying any dividends.
Our management group owns or controls a significant number of the outstanding
shares of our common stock and will continue to have significant ownership of
our voting securities for the foreseeable future.
Scott Newman and Glenn Peipert, our principal stockholders and our
executive officers and two of our directors, beneficially own approximately
35.6% and 17.3%, 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 9.9% 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.
18
Our certificate of incorporation allows the Board of Directors to issue
preferred stock with rights and preferences set by our board without further
stockholder approval. The issuance of shares of this "blank check preferred"
under particular circumstances could have an anti-takeover effect. For example,
in the event of a hostile takeover attempt, it may be possible for management
and the board to endeavor to impede the attempt by issuing shares of blank check
preferred, thereby diluting or impairing the voting power of the other
outstanding shares of common stock and increasing the potential costs to acquire
control of us. Our Board of Directors has the right to issue blank check
preferred without first offering them to holders of our common stock, as the
holders of our common stock have no preemptive rights.
Our services or solutions may infringe upon the intellectual property rights of
others.
We cannot be sure that our services and solutions, or the solutions of
others that we offer to our clients, do not infringe on the intellectual
property rights of third parties, and we may have infringement claims asserted
against us or against our clients. These claims may harm our reputation, cost us
money and prevent us from offering some services or solutions. In some
instances, the amount of these expenses may be greater than the revenues we
receive from the client. Any claims or litigation in this area, whether we
ultimately win or lose, could be time-consuming and costly, injure our
reputation or require us to enter into royalty or licensing arrangements. We may
not be able to enter into these royalty or licensing arrangements on acceptable
terms. To the best of our knowledge, we have never infringed upon the
intellectual property rights of another individual or entity.
We could be subject to systems failures that could adversely affect our
business.
Our business depends on the efficient and uninterrupted operation of our
computer and communications hardware systems and infrastructure. We currently
maintain our computer systems in our facilities at our offices in New Jersey and
elsewhere. We do not have complete redundancy in our systems and therefore any
damage or destruction to our systems would significantly harm our business.
Although we have taken precautions against systems failure, interruptions could
result from natural disasters as well as power losses, telecommunications
failures and similar events. Our systems are also subject to human error,
security breaches, computer viruses, break-ins, "denial of service" attacks,
sabotage, intentional acts of vandalism and tampering designed to disrupt our
computer systems. We also lease telecommunications lines from local and regional
carriers, whose service may be interrupted. Any damage or failure that
interrupts or delays network operations could materially and adversely affect
our business.
Our business could be adversely affected if we fail to adequately address
security issues.
We have taken measures to protect the integrity of our technology
infrastructure and the privacy of confidential information. Nonetheless, our
technology infrastructure is potentially vulnerable to physical or electronic
break-ins, viruses or similar problems. If a person or entity circumvents its
security measures, they could jeopardize the security of confidential
information stored on our systems, misappropriate proprietary information or
cause interruptions in our operations. We may be required to make substantial
additional investments and efforts to protect against or remedy security
breaches. Security breaches that result in access to confidential information
could damage our reputation and expose us to a risk of loss or liability.
Risks Relating To Acquisitions
We face intense competition for acquisition candidates, and we may have limited
cash available for such acquisitions.
19
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.
We will encounter difficulties in identifying suitable acquisition candidates
and integrating new acquisitions.
A key element of our expansion strategy is to grow through acquisitions.
If we identify suitable candidates, we may not be able to make investments or
acquisitions on commercially acceptable terms. Acquisitions may cause a
disruption in our ongoing business, distract management, require other resources
and make it difficult to maintain our standards, controls and procedures. We may
not be able to retain key employees of the acquired companies or maintain good
relations with their clients or suppliers. We may be required to incur
additional debt and to issue equity securities, which may be dilutive to
existing stockholders, to effect and/or fund acquisitions.
We cannot assure you that any acquisitions we make will enhance our business.
We cannot assure you that any completed acquisition will enhance our
business. Since we anticipate that acquisitions could be made with both cash and
our common stock, if we consummate one or more significant acquisitions, the
potential impacts are:
o a substantial portion of our available cash could be used to
consummate the acquisitions and/or we could incur or assume
significant amounts of indebtedness;
o losses resulting from the on-going operations of these acquisitions
could adversely affect our cash flow; and
o our stockholders could suffer significant dilution of their interest
in our common stock.
Also, we are required to account for acquisitions under the purchase
method, which would likely result in our recording significant amounts of
goodwill. The inability of a subsidiary to sustain profitability may result in
an impairment loss in the value of long-lived assets, principally goodwill and
other tangible and intangible assets, which would adversely affect our financial
statements. Additionally, we could choose to divest any acquisition that is not
profitable.
Risks Relating To Our Common Stock
20
Our relationship with our majority stockholders presents potential conflicts of
interest, which may result in decisions that favor them over our other
stockholders.
Our principal beneficial owners, Scott Newman, Glenn Peipert and Robert C.
DeLeeuw, provide management and financial assistance to us. When their personal
investment interests diverge from our interests, they and their affiliates may
exercise their influence in their own best interests. Some decisions concerning
our operations or finances may present conflicts of interest between us and
these stockholders and their affiliated entities.
The limited prior public market and trading market may cause possible volatility
in our stock price.
There has only been a limited public market for our securities and there
can be no assurance that an active trading market in our securities will be
maintained. In addition, the overall market for securities in recent years has
experienced extreme price and volume fluctuations that have particularly
affected the market prices of many smaller companies. The trading price of our
common stock is expected to be subject to significant fluctuations including,
but not limited to, the following:
o quarterly variations in operating results and achievement of key
business metrics;
o changes in earnings estimates by securities analysts, if any;
o any differences between reported results and securities analysts'
published or unpublished expectations;
o announcements of new contracts or service offerings by us or our
competitors;
o market reaction to any acquisitions, divestitures, joint ventures or
strategic investments announced by us or our competitors;
o demand for our services and products;
o shares being sold pursuant to Rule 144 or upon exercise of warrants;
and
o general economic or stock market conditions unrelated to our
operating performance.
These fluctuations, as well as general economic and market conditions, may
have a material or adverse effect on the market price of our common stock.
We may be de-listed from the AMEX if we do not meet continued listing
requirements.
Our common stock commenced trading on the AMEX on September 21, 2005. The
AMEX (Part 10, Section 1003) requires stockholders' equity (for continued
listing) of at least $6,000,000 if a listed company has sustained net losses in
its five most recent fiscal years. As of June 30, 2005, our stockholders' equity
was approximately $9,209,000.
If our common stock is de-listed by the AMEX, trading of our common stock
would thereafter likely be conducted on the OTC Bulletin Board. In such case,
the market liquidity for our common stock would likely be negatively affected,
which may make it more difficult for holders of our common stock to sell their
securities in the open market and we could face difficulty raising capital
necessary for our continued operations.
21
Additional authorized shares of our common stock and preferred stock available
for issuance may adversely affect the market.
We are authorized to issue 85 million shares of our common stock. As of
October 27, 2005, there were 54,093,564 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 October 27, 2005, we had
6,506,032 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 October 27, 2005, we had outstanding stock
options and warrants to purchase approximately 4,147,621 shares of our common
stock, the exercise price of which range between $0.825 and $5.25 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 6,666,667 shares
are currently reserved for issuance in connection with our 2003 Incentive Plan,
of which options to purchase approximately 2,751,065 shares have been issued
under the plan. A significant number of such options and warrants contain
provisions for broker-assisted exercise. To the extent such options or warrants
are exercised, the holders of our common stock will experience further dilution.
In addition, in the event that any future financing should be in the form of, be
convertible into or exchangeable for, equity securities, and upon the exercise
of options and warrants, investors may experience additional dilution.
The exercise of the outstanding convertible securities will reduce the
percentage of common stock held by our stockholders. Further, the terms on which
we could obtain additional capital during the life of the convertible securities
may be adversely affected, and it should be expected that the holders of the
convertible securities would exercise them at a time when we would be able to
obtain equity capital on terms more favorable than those provided for by such
convertible securities. As a result, any issuance of additional shares of common
stock may cause our current stockholders to suffer significant dilution which
may adversely affect the market.
In addition to the above-referenced shares of common stock which may be
issued without stockholder approval, we have 20 million shares of authorized
preferred stock, the terms of which may be fixed by our Board of Directors. We
presently have no issued and outstanding shares of preferred stock and while we
have no present plans to issue any shares of preferred stock, our Board of
Directors has the authority, without stockholder approval, to create and issue
one or more series of such preferred stock and to determine the voting, dividend
and other rights of holders of such preferred stock. The issuance of any of such
series of preferred stock may have an adverse effect on the holders of common
stock.
Shares eligible for future sale may adversely affect the market.
From time to time, certain of our stockholders may be eligible to sell all
or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the
Securities Act of 1933 (Securities Act), subject to certain limitations. In
general, pursuant to Rule 144, a stockholder (or stockholders whose shares are
aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common stock
or the average weekly trading volume of the class during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of securities, without any limitation, by our stockholders that are
non-affiliates that have satisfied a two-year holding period. Any substantial
sale of our common stock pursuant to Rule 144 or pursuant to any resale
prospectus may have material adverse effect on the market price of our
securities.
22
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.
23
USE OF PROCEEDS
The shares which may be sold under this prospectus will be sold for
the respective accounts of each of the selling stockholders. Accordingly, CSI
will not realize any proceeds from the sale of the shares, except that it will
derive proceeds if all of the options currently outstanding are exercised. If
exercised, such funds will be available to CSI for working capital and general
corporate purposes. No assurance can be given, however, as to when or if any or
all of the options will be exercised. All expenses of the registration of the
shares will be paid for by CSI. See "Selling Stockholders" and "Plan of
Distribution."
SELLING STOCKHOLDERS
The following table sets forth the name and relationship to CSI and
its affiliates (within the past three years) of each selling stockholder, the
number of shares of common stock which each selling stockholder (1) owned of
record before the offering; (2) may acquire pursuant to the exercise of a
previously granted option or options which hereafter may be granted under the
Plan, all of which shares may be sold pursuant to this prospectus; and (3) the
amount of common stock to be owned by each selling stockholder and (if one
percent or more) the percentage of the class to be owned by such stockholder
assuming the grant of the maximum number of shares issuable under the Plan, the
exercise of all options granted under the Plan, and the sale of all shares
acquired upon exercise of such options.
The information contained in this table reflects "beneficial"
ownership of common stock within the meaning of Rule 13d-3 under the Exchange
Act. As of October 31, 2005, the Company had 54,093,564 shares of common stock
outstanding. Beneficial ownership information reflected in the table includes
shares issuable upon the exercise of outstanding options/warrants issued by the
Company at their initial exercise prices.
Name and Relationship Amount of Common Stock Amount Offered Amount of Common Stock and
to the Company Within Beneficially Owned As of Hereby Percentage of Class to be
the Past Three Years October 31, 2005 Owned After the Offering
Mitchell Peipert 100,000 (1) 300,000 (1) *
(*) Less than 1%.
(1) Represents vested options. All options were granted under our 2003
Incentive Plan. Mr. Peipert's options were granted on March 29, 2004. One-third
of such options vested 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.
24
PLAN OF DISTRIBUTION
In this section of the prospectus, the term "selling stockholder" means
and includes: (1) the persons identified in the tables above as the Selling
Stockholders; and (2) any of their donees, pledgees, distributees, transferees
or other successors in interest who may (a) receive any of the shares of our
common stock offered hereby after the date of this prospectus and (b) offer or
sell those shares hereunder.
The shares of our common stock offered by this prospectus may be sold from
time to time directly by the selling stockholders. Alternatively, the selling
stockholders may from time to time offer such shares through underwriters,
brokers, dealers, agents or other intermediaries. The selling stockholders as of
the date of this prospectus have advised us that there were no underwriting or
distribution arrangements entered into with respect to the common stock offered
hereby. The distribution of the common stock by the selling stockholders may be
effected: in one or more transactions that may take place on the AMEX (including
one or more block transaction) through customary brokerage channels, either
through brokers acting as agents for the selling stockholders, or through market
makers, dealers or underwriters acting as principals who may resell these shares
on the AMEX; in privately-negotiated sales; by a combination of such methods; or
by other means. These transactions may be effected at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
other negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the selling stockholders in
connection with sales of our common stock
The selling stockholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
such transactions, broker-dealers may engage in short sales of the shares of our
common stock in the course of hedging the positions they assume with the selling
stockholders. The selling stockholders also may sell shares short and redeliver
the shares to close out such short positions. The selling stockholders may enter
into option or other transactions with broker-dealers which require the delivery
to the broker-dealer of shares of our common stock. The broker-dealer may then
resell or otherwise transfer such shares of common stock pursuant to this
prospectus.
The selling stockholders also may lend or pledge shares of our common
stock to a broker-dealer. The broker-dealer may sell the shares of common stock
so lent, or upon a default the broker-dealer may sell the pledged shares of
common stock pursuant to this prospectus. Any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule
144 rather than pursuant to this prospectus. The selling stockholders have
advised us that they have not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
securities. There is no underwriter or coordinating broker acting in connection
with the proposed sale of shares of common stock the selling stockholders.
Although the shares of common stock covered by this prospectus are not
currently being underwritten, the selling stockholders or their underwriters,
brokers, dealers or other agents or other intermediaries, if any, that may
participate with the selling security holders in any offering or distribution of
common stock may be deemed "underwriters" within the meaning of the Act and any
profits realized or commissions received by them may be deemed underwriting
compensation thereunder.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of shares of the common stock offered hereby may not
simultaneously engage in market making activities with respect to the common
stock for a period of up to five days preceding such distribution. The selling
stockholders will be subject to the applicable provisions of the Exchange Act
and the rules and regulations promulgated thereunder, including without
limitation Regulation M, which provisions may limit the timing of purchases and
sales by the selling stockholders.
25
In order to comply with certain state securities or blue sky laws and
regulations, if applicable, the common stock offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In certain
states, the common stock may not be sold unless they are registered or qualified
for sale in such state, or unless an exemption from registration or
qualification is available and is obtained.
We will bear all costs, expenses and fees in connection with the
registration of the common stock offered hereby. However, the selling
stockholders will bear any brokerage or underwriting commissions and similar
selling expenses, if any, attributable to the sale of the shares of common stock
offered pursuant to this prospectus.
We have agreed to indemnify certain of the selling security holders
against certain liabilities, including liabilities under the Act, or to
contribute to payments to which any of those security holders may be required to
make in respect thereof.
There can be no assurance that the selling stockholders will sell any or
all of the securities offered by them hereby.
LEGAL MATTERS
The legality of the common stock to be offered hereby has been passed upon
for us by Ellenoff Grossman & Schole LLP.
EXPERTS
The audited financial statements for our company as of the year ended
December 31, 2004, incorporated by reference in this prospectus are reliant on
the reports of Friedman LLP, East Hanover, 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.
26
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION
IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
CONVERSION SERVICES INTERNATIONAL, INC.
6,666,667 SHARES OF COMMON STOCK
November 4, 2005
27
PART II
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 3 INCORPORATION OF DOCUMENTS BY REFERENCE
Included in Part I of this registration statement.
ITEM 4 DESCRIPTION OF SECURITIES
The description of the common stock contained in our Registration
Statement (File No. 333-115243) on Form SB-2/A filed with the Commission on
April 26, 2005 and declared effective by the commission on April 29, 2005 is
hereby incorporated by reference.
ITEM 5 INTERESTS OF NAMED EXPERTS AND COUNSEL
N/A
ITEM 6 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "GCL")
empowers a corporation to indemnify its directors and officers and to purchase
insurance with respect to liability arising out of the performance of their
duties as directors and officers. The GCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of stockholders or otherwise.
Article Seventh of our Certificate of Incorporation, as amended,
eliminates the personal liability of directors to the fullest extent permitted
by Section 102 of the GCL. Article Eighth provides for indemnification of all
persons whom we shall have the power to indemnify pursuant to Section 145 of the
GCL.
The effect of the foregoing is to require CSI to the extent
permitted by law to indemnify the officers and directors of CSI for any claim
arising against such persons in their official capacities if such person acted
in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of CSI, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling CSI pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. We currently have liability insurance coverage for our
officers and directors.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers or persons controlling CSI pursuant to the
foregoing provisions, CSI has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
II-1
ITEM 7 EXEMPTION FROM REGISTRATION CLAIMED
All shares of common stock registered hereunder for reoffer or resale will
be issued upon exercise of options granted or to be granted pursuant to the
Registrant's 2003 Incentive Plan. The options are non-transferable and the
underlying shares will be issued in transactions not involving a public
offering. Upon exercise of an option, the optionee is required to execute an
undertaking not to resell such shares except pursuant to an effective
registration statement or other exemption under the Act, a restrictive legend is
placed on the certificates for the shares of common stock purchased and transfer
stops are placed against such certificates. Such shares may only be reoffered
and sold pursuant to registration under the Act or pursuant to an applicable
exemption under the Act. As a result, such offers and sales are exempt from the
registration requirements of the Act pursuant to the provisions of Section 4(2)
of the Act.
ITEM 8 EXHIBITS
NUMBER DESCRIPTION
4.1 Registrant's 2003 Incentive Plan, as amended to date
5.1 Opinion of Ellenoff Grossman & Schole LLP
23.1 Consent of Friedman LLP
23.2 Consent of Ellenoff Grossman & Schole LLP (included in Exhibit 5.1)
ITEM 9: UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 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 Act and will be governed by the final adjudication of
such issue.
II-2
SIGNATURES
Pursuant to 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 S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of East Hanover, New Jersey, on November 3, 2005.
CONVERSION SERVICES INTERNATIONAL, INC.
By: /s/ Scott Newman
---------------------------------------------
Name: Scott Newman
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-8 has been signed by the following persons in
the capacities and on the dates indicated.
PERSON CAPACITY DATE
Scott Newman President, Chief Executive November 3, 2005
Officer, Chairman and Principal
Executive Officer
Glenn Peipert Executive Vice President, Chief November 3, 2005
Operating Officer and Director
Mitchell Peipert Vice President, Chief Financial November 3, 2005
Officer, Secretary, Treasurer
and Principal Accounting Officer
Lawrence K. Reisman November 3, 2005
Director
Joseph Santiso Director November 3, 2005
II-3
>
{00007273.DOC.4}
EXHIBIT INDEX
NUMBER DESCRIPTION
4.1 Registrant's 2003 Incentive Plan, as amended to date
5.1 Opinion of Ellenoff Grossman & Schole LLP
23.1 Consent of Friedman, LLP
23.2 Consent of Ellenoff Grossman & Schole LLP (included in Exhibit 5.1)