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

                                  FORM 10-KSB/A

|X|   Annual report pursuant to section 13 or 15(d) of the Securities Exchange
      Act of 1934. For the fiscal year ending December 31, 2004

                                       Or

|_|   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934. For the transition period from to .

                         Commission file number 0-30420

                     CONVERSION SERVICES INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

                 Delaware                                       20-1010495
       (State or other jurisdiction                           (IRS Employer
    of incorporation or organization)                     Identification number)

 100 Eagle Rock Avenue, East Hanover, NJ                          07936
 (Address of Principal Executive Offices)                       (Zip Code)

                                  973-560-9400
              (Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(g) of the Act:

                               Title of Each Class
                    ---------------------------------------
                         Common Stock, $.001 par value

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES  |X|           NO  |_|

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

         State issuer's revenues for its most recent fiscal year: $25,166,517

         The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $56,499,264 as of April 8, 2005 (based on
the closing price for such stock as of April 8, 2005).

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock:

               Class                      Outstanding at April 8, 2005
------------------------------------- -------------------------------------
   Common Stock, $.001 par value                   781,010,668


<PAGE>
Explanatory Note

         This Amendment No. 1 to this Annual Report on Form 10-KSB for the year
ended December 31, 2004 was filed in order to clarify the restricted cash
portion of the Company's August 2004 transaction with Laurus Master Fund, Ltd.
("Laurus"). In exchange for a $5,000,000 secured convertible term note bearing
interest at prime rate (as reported in the Wall Street Journal) plus 1%, Laurus
established a $5.0 million account to be used only for acquisition targets
identified by the Company that are approved by Laurus in Laurus' sole
discretion.

         Parts 1 and 2 have been amended herein to reflect this change. This
amendment does not otherwise update information in the original filing to
reflect facts or events occurring subsequent to the date of the original filing.
All information contained in this amendment and the original filing is subject
to updating and supplementing as provided in periodic reports subsequent to the
original filing date of this Form 10-KSB with the Securities and Exchange
Commission.



                                       2
<PAGE>
                   SPECIAL NOTE ON FORWARD LOOKING STATEMENTS

         In addition to historical information, this Annual Report on Form
10-KSB contains forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the sections entitled "Business", "Risk Factors", and
"Management's Discussion and Analysis or Plan of Operation." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's opinions only as of the date thereof. We undertake no
obligation to revise or publicly release the results of any revision of these
forward-looking statements. Readers should carefully review the risk factors
described in this Annual Report and in other documents that we file from time to
time with the Securities and Exchange Commission.

         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. You should be
aware that the occurrence of any of the events described in these risk factors
and elsewhere in this Annual Report 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. 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.

                                      INDEX

--------------------------------------------------------------------------------
PART I                                                                         4
Item 1.        Business                                                        4
Item 2.        Description of Property                                        35
Item 3.        Legal Proceedings                                              36
Item 4.        Submission of Matters to a Vote of Security Holders            36


PART II                                                                       37
Item 5.        Market for Common Equity and Related Stockholder Matters       37
Item 6.        Management's Discussion and Analysis or Plan of Operation      38
Item 7.        Financial Statements                                           55
Item 8.        Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure                                       55
Item 8A.       Controls and Procedures                                        56
Item 8B.       Other Information                                              59


PART III                                                                      60
Item 9.        Directors, Executive Officers, Promoters and Control
               Persons; Compliance With Section 16(a) of the Exchange Act     60
Item 10.       Executive Compensation                                         62
Item 11.       Security Ownership of Certain Beneficial Owners and
               Management and Related Stockholder Matters                     68
Item 12.       Certain Relationships and Related Transactions                 69
Item 13.       Exhibits                                                       71
Item 14.       Principal Accountant Fees and Services                         75

               Signatures                                                     76

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


                                       3
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

         References in this Form 10-KSB to the "Company," "CSI," "we," "our,"
and "us" refer to Conversion Services International, Inc. and our consolidated
subsidiaries. We are 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.

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

      o     understanding of data management solutions;
      o     ability to provide solutions that integrate people, improve process
            and integrate technologies;
      o     extensive service offerings as it relates to data warehousing,
            business intelligence, strategy and data quality;
      o     our perspective regarding the accuracy of data and our data
            purification process,
      o     best practices methodology, process and procedures;
      o     experience in architecting, recommending and implementing large and
            complex data warehousing and business intelligence solutions; and
      o     ability to establish centers of excellence within client
            organizations to address data quality and business intelligence.

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

      o     enhance our brand and mindshare;
      o     continue growth both organically and via acquisition;
      o     increase our geographic coverage;
      o     expand our client relationships;
      o     introduce new and creative service offerings; and
      o     leverage our strategic alliances.

                                       4
<PAGE>

         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.

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

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

Our Services

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

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

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

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

                                       5
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                       6
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                       7
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                       8
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

                                       9
<PAGE>

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

 Category of Services         Percentage of Revenues for the year ended
                                          December 31,

                                              2004            2003
                                              ----            ----
 Strategic Consulting                         34.1%           17.3%
 Business Intelligence                        21.6%           22.2%
 Data Warehousing                             15.9%           14.8%
 Data Management                              22.7%           45.7%
 Software                                      5.4%            0.0%
 Other                                         0.3%            0.0%

Recent Acquisitions

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

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

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

         Integration of DeLeeuw's Change Management Consulting practices with
CSI's Data Warehousing and Business Intelligence core competency "The Center for
Data Warehousing" was completed in 2004. The Change Management, Six Sigma and
Lean methodology have been introduced to our clients along with our innovative
Information, Process and Infrastructure (IPI) Diagrams, which provide detailed
blueprints of our client's information, business processes and infrastructure on
a single highly detailed diagram. These diagrams can be utilized for risk
management, compliance, validation, planning and budgeting requirements. The IPI
diagram offering, launched in the first quarter of 2004, continues to receive
favorable reaction from our clients. In addition, we expanded our Data Warehouse

                                       10
<PAGE>

ssessment, Business Technology Alignment (BTA) and Quality Management Offering
(QMO) related offerings in 2004, which will be the focus of our marketing and
communications programs for 2005. A QMO offering is a combination of
methodologies, best practices and automated techniques leveraged to establish
and enforce standards and procedures as it relates to elevating the quality of
executive information in an efficient and effective manner. We believe that
these offerings will drive greater understanding and demand for both data
warehousing and business intelligence implementations by delivering best
practices methodologies, tools and techniques to reduce risk, time to market and
total cost of ownership of these engagements. One component of our business
strategy is to continue to enhance and expand our offerings which include best
practices, process improvement, methodologies, advisory services and
implementation expertise.

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

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

                                       11
<PAGE>

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

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

Recent Financings

         In May 2004, pursuant to the complete conversion of a $2.0 million
unsecured convertible line of credit note issued in October 2003 at $0.12 per
share, Taurus Advisory Group, LLC ("Taurus") received 16,666,666 shares of our
common stock, plus interest paid in cash. Because we failed to perform a private
investment in public equity transaction by September 1, 2004, the conversion
price on the October 2003 note was adjusted to a fixed conversion price of
$0.105 per share, and 2,380,953 additional shares of common stock were issued to
Taurus. No additional proceeds were received by us. In addition, Taurus received

                                       12
<PAGE>

a warrant to purchase 4,166,666 shares of our common stock, which has an
exercise price of $0.105 per share. This warrant expires in June 2009. Further
in May 2004, we raised an additional $2.0 million pursuant to a new five-year
unsecured promissory note with Taurus. In June 2004, we replaced the May 2004
note by issuing a five-year $2.0 million unsecured convertible line of credit
note with Taurus. The note accrues interest at an annual rate of 7%, and the
conversion price of the shares of common stock issuable under the note is equal
to $0.105 per share.

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

Additionally, in exchange for a $5,000,000 secured convertible term note bearing
interest at prime rate (as reported in the Wall Street Journal) plus 1%, Laurus
has established a $5.0 million account to be used only for acquisition targets
identified by us that are approved by Laurus in Laurus' sole discretion. There
is a possibility that we may never make use of the funds in this account. We
have no obligation to meet financial covenants under the $5.0 million secured
convertible term note. This note is convertible into our common stock at a fixed
conversion price of $0.14 per share. In the event that we issue common stock or
derivatives convertible into our common stock for a price less than the fixed
conversion price, then the fixed conversion price is reset to the lower price on
a full-ratchet basis. This note matures in three years. We issued Laurus a
common stock purchase warrant that provides Laurus with the right to purchase
12.0 million shares of our common stock. The exercise price for the first 6.0
million shares acquired under the warrant is $0.29 per share, the exercise price
for the next 3.0 million shares acquired under the warrant is $0.31 per share,
and the exercise price for the final 3.0 million shares acquired under the
warrant is $0.35 per share. The common stock purchase warrant expires on August
15, 2011. We paid $0.75 million in brokerage and transaction closing related
costs. These costs were deducted from the $5.0 million restricted cash balance
being provided to us by Laurus. As a result of the beneficial conversion
feature, a discount on debt issued of $5.6 million was recorded and is being
amortized to interest expense over the three year life of the debt agreement. An
early termination fee is due to Laurus in an amount equal to five percent (5%)
of the total investment amount if such termination occurs prior to the first
anniversary of the closing, four percent (4%) if such termination occurs after
the first anniversary but prior to the second anniversary, and three percent
(3%) if after the second anniversary.

                                       13
<PAGE>

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

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

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

                                       14
<PAGE>

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

Clients

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

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

Marketing

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

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

      o     Trade Show Participation: We expect that exposure in trade shows
            should further solidify our position in our industry. In the proper
            setting, the trade show can be viewed as a mobile mini-showroom
            concept to demonstrate our services. There are a number of
            significant trade show events within our target industry that
            provide significant exposure to prospective customers in major

                                       15
<PAGE>

            metropolitan markets, media and press exposure and collaborative
            networking with technology partners. As with most trade show events,
            the higher level of sponsorship, the greater exposure and benefits
            received, such as the location of our booth, banner and advertising
            space. We participated as a Gold Level Sponsor for the Digital
            Consulting Institute (DCI) Customer Relationship Management
            Conference and Technology Showcase in New York in May 2004, and we
            participated as Gold Level Sponsor for DCI's Business Intelligence
            and Data Warehouse Conference in Boston in September 2004.

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

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

                  Database Vendors:

                  IBM -                     We are an Indirect Passport
                                            Advantage Reseller Partner
                                            which enables us to resell
                                            IBM software products. We
                                            also employ consulting staff
                                            trained and certified in IBM
                                            technology.
                  Oracle -                  We are part of the Oracle Partner
                                            Program (OPP) as a Certified
                                            Solution Provider (CSP). We also
                                            employ certified Oracle
                                            professionals and our partnership
                                            allows us to utilize Oracle support
                                            channels for technical advisement.
                  Microsoft -               We are a Microsoft Certified
                                            Solution Provider. We
                                            maintain the required number
                                            of Microsoft certified
                                            professionals to hold this
                                            designation.
                  Sybase -                  We have a Systems Integration
                                            Agreement and employ professionals
                                            trained in the vendor's technology.

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


                                       16
<PAGE>

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

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

Protection Against Disclosure of Client Information

                                       17
<PAGE>

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

Intellectual Property

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

Competition

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

      o     Accenture
      o     Cap Gemini Ernst & Young
      o     IBM Global Services
      o     Keane
      o     Bearing Point
      o     Answerthink

Employees

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

                                       18
<PAGE>

         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.


Available Information

         We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). You may read and copy any document we file with the Commission at
the Commission's public reference rooms at 450 Fifth Street, N.W., Washington,
D.C. 20549, 233 Broadway, New York, New York 10279, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Our Commission filings are also available to the public from the
Commission's Website at "http://www.sec.gov." We make available free of charge
our annual, quarterly and current reports, proxy statements and other
information upon request. To request such materials, please send an email to
Mitchell Peipert, our Chief Financial Officer, at our address as set forth above
or at (973) 560-9400.

         We maintain a Website at "http://www.csiwhq.com" (this is not a
hyperlink, you must visit this website through an internet browser). Our Website
and the information contained therein or connected thereto are not incorporated
into this Annual Report on Form 10-KSB.


RISK FACTORS

         The following factors should be considered carefully in evaluating the
Company and its business:

Risks Relating to Our Business

Because we depend on a small number of key clients, non-recurring revenue and
contracts terminable on short notice, our business could be adversely affected
if we fail to retain these clients and/or obtain new clients at a level
sufficient to support our operations and/or broaden our client base.

         During the year ended December 31, 2004, two of our clients, Leading
Edge Communications Corporation (LEC), a related party (15.2%), and Bank of
America (15.9%), accounted collectively for approximately 31% of total revenues.
For the year ended December 31, 2003, two of our clients, Morgan Stanley (11.2%)
and Verizon Wireless (29.2%), accounted collectively for approximately 41% of
our total revenues. Further, the majority of our current assets consist of
accounts receivable, and as of December 31, 2004, one customer, LEC, accounted
for 15.6% of our accounts receivable balance. With the recent acquisition of new
businesses and our objective of acquiring more over the next year, we believe
that our reliance on these clients

                                       19
<PAGE>

will continue to decline in the future. The loss of any of our largest clients
could have a material adverse effect on our business. In addition, our contracts
provide that our services are terminable upon short notice, typically not more
than 30 days. Non-renewal or termination of contracts with these or other
clients without adequate replacements could have a material and adverse effect
upon our business. In addition, a large portion of our revenues are derived from
information technology consulting services that are generally non-recurring in
nature. There can be no assurance that we will:

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

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

      o     provide services in a manner acceptable to clients;

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

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

Our internal controls and procedures have been materially deficient, and we are
in the process of correcting internal control deficiencies.

         In February 2005, resulting from comments related to the Company's
Registration Statement on Form SB-2/A, the Company and its independent
registered public accounting firm recognized that our internal controls had
material weaknesses. We have restated our results of operations for the
Company's quarterly results for the quarters ended March 31, 2004, June 30, 2004
and September 30, 2004. For further information concerning our internal
controls, see Item 8A - "Controls and Procedures."

         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.

                                       20
<PAGE>

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

Certain client-related complications may materially adversely affect our
business.

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

We have a history of losses and we could incur losses in the future.

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

We have a significant amount of debt, which, in the event of a default, could
have material adverse consequences upon us.

         Our total debt as of April 8, 2005 is $11,259,000, as described below
in Management's Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources. The degree to which we are leveraged could have important
consequences to us, including the following:

                                       21
<PAGE>

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

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

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

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

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

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

Our operating results are difficult to forecast.

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

Our profitability, if any, will suffer if we are not able to maintain our
pricing, utilization of personnel and control our costs. A continuation of
current pricing pressures could result in permanent changes in pricing policies
and delivery capabilities.

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

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

      o     pricing policies of our competitors;

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

                                       22
<PAGE>

      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.

                                       23
<PAGE>

Lack of detailed written contracts could impair our ability to collect fees,
protect our intellectual property and protect ourselves from liability to
others.

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

Failure to achieve and maintain effective internal controls in accordance with
Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on
our business and operating results. In addition, current and potential
stockholders could lose confidence in our financial reporting, which could have
a material adverse effect on our stock price.

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

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

Compliance with changing regulation of corporate governance and public
disclosure may result in additional expenses.

         Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new
SEC regulations and exchange rules (although not, as of the date of this Annual
Report, 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

                                       24
<PAGE>

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.

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.

                                       25
<PAGE>

         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.

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.

                                       26
<PAGE>

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.

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

                                       27
<PAGE>

unauthorized parties or used inappropriately, any such unauthorized disclosure
or use could result in a claim for substantial damages. Our business could be
adversely affected if one or more large claims are asserted against us that are
uninsured, exceed available insurance coverage or result in changes to our
insurance policies, including premium increases or the imposition of large
deductible or co-insurance requirements. Although we maintain general liability
insurance coverage, including coverage for errors and omissions, there can be no
assurance that such coverage will continue to be available on reasonable terms
or will be available in sufficient amounts to cover one or more large claims.

We do not intend to pay dividends on shares of our common stock in the
foreseeable future.

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

Our management group owns or controls a significant number of the outstanding
shares of our common stock and will continue to have significant ownership of
our voting securities for the foreseeable future.

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

      o     delay or prevent a change in the control;

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

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

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.

                                       28
<PAGE>

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.

                                       29
<PAGE>

Risks Relating To Acquisitions

We face intense competition for acquisition candidates, and we may have limited
cash available for such acquisitions.

         There is a high degree of competition among companies seeking to
acquire interests in information technology service companies such as those we
may target for acquisition. We are expected to continue to be an active
participant in the business of seeking business relationships with, and
acquisitions of interests in, such companies. A large number of established and
well-financed entities, including venture capital firms, are active in acquiring
interests in companies that we may find to be desirable acquisition candidates.
Many of these investment-oriented entities have significantly greater financial
resources, technical expertise and managerial capabilities than we do.
Consequently, we may be at a competitive disadvantage in negotiating and
executing possible investments in these entities as many competitors generally
have easier access to capital, on which entrepreneur-founders of privately-held
information technology service companies generally place greater emphasis than
obtaining the management skills and networking services that we can provide.
Even if we are able to compete with these venture capital entities, this
competition may affect the terms and conditions of potential acquisitions and,
as a result, we may pay more than expected for targeted acquisitions. If we
cannot acquire interests in attractive companies on reasonable terms, our
strategy to build our business through acquisitions may be inhibited. Pursuant
to a secured convertible term note dated August 16, 2004 with Laurus Master
Fund, Ltd., as of April 8, 2005, the Company has approximately $4.3 million in
restricted cash available that may be used for acquisition targets only upon the
approval of Laurus in its sole discretion. There is a possibility that we may
never make use of the funds in this account. As a result, our ability to fund
acquisitions may be hindered further.

We will encounter difficulties in identifying suitable acquisition candidates
and integrating new acquisitions.

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

We cannot assure you that any acquisitions we make will enhance our business.

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

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

                                       30
<PAGE>

      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

Our relationship with our majority stockholders presents potential conflicts of
interest, which may result in decisions that favor them over our other
stockholders.

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

The limited prior public market and trading market may cause possible volatility
in our stock price.

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

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

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

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

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

                                       31
<PAGE>

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

      o     demand for our services and products;

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

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


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

There are limitations in connection with the availability of quotes and order
information on the OTCBB.

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

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

                                       32
<PAGE>

disclosure document mandated by the SEC relating to the penny stock market. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our shares of common stock and
may affect the ability of investors to sell such shares of common stock in the
secondary market and the price at which such investors can sell any of such
shares.

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

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

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

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

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

      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.

                                       33
<PAGE>

There is a limitation in connection with the editing and canceling of orders on
the OTCBB.

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

Increased dealer compensation could adversely affect the stock price.

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

Additional authorized shares of our common stock and preferred stock available
for issuance may adversely affect the market.

         We are authorized to issue 1 billion shares of our common stock. As of
April 8, 2005, there were 781,010,668 shares of common stock issued and
outstanding. However, the total number of shares of our common stock issued and
outstanding does not include shares reserved in anticipation of the conversion
of notes or the exercise of options or warrants. As of April 8, 2005, we had
108,297,618 shares of common stock underlying convertible notes, and we have
reserved shares of our common stock for issuance in connection with the
potential conversion thereof. As of April 8, 2005, we had outstanding stock
options and warrants to purchase approximately 63,432,647 shares of our common
stock, the exercise price of which range between $0.055 and $0.35 per share, and
we have reserved shares of our common stock for issuance in connection with the
potential exercise thereof. Of the reserved shares, a total of 50 million shares
are currently reserved for issuance in connection with our 2003 Incentive Plan,
of which options to purchase an aggregate of 41,265,981 shares have been issued
under the plan. A significant number of such options and warrants contain
provisions for broker-assisted exercise. To the extent such options or warrants
are exercised, the holders of our common stock will experience further dilution.
In addition, in the event that any future financing should be in the form of, be
convertible into or exchangeable for, equity securities, and upon the exercise
of options and warrants, investors may experience additional dilution.

         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.

                                       34
<PAGE>

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

Shares eligible for future sale may adversely affect the market.

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

Director and officer liability is limited.

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


ITEM 2.       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. 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.

                                       35
<PAGE>

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

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

         See Note 18 to the Notes to Consolidated Financial Statements.

ITEM 3.       LEGAL PROCEEDINGS

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

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year ended December 31, 2004.


                                       36
<PAGE>

                                     PART II

ITEM 5.       MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

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

                                 High                               Low
                                 ----                               ---
 2003 by Quarter
 January 1 - March 31          $0.031                              $0.012
 April 1 - June 30             $0.09                               $0.027
 July 1 - September 30         $0.185                              $0.08
 October 1 - December 31       $0.17                               $0.09

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

 2005 by Quarter
 January 1 - March 31          $0.255                              $0.145


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

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

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

                                       37
<PAGE>

(b) Record Holders. As of April 8, 2005, there were 478 registered holders of
our common stock, including shares held in street name. As of April 8, 2005,
there were 781,010,668 shares of common stock issued and outstanding.

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


(d) Sales of Unregistered Securities

         Set forth below is information regarding the issuance and sales of our
securities without registration during the fourth quarter of fiscal 2004. The
sale did not involve the use of an underwriter and no commissions were paid in
connection with such sale. The sale was made in reliance on Section 4(2) of the
Securities Act of 1933, as amended (the "Act").

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

ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Overview of our Business

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

         Conversion Services International, Inc. provides professional services
to the Global 2000 as well as mid-market clientele relating to strategic
consulting, data warehousing, business intelligence and data management and, as
a result of its acquisition of Evoke Software Corporation, the sale of software
which is used to survey and quantify the quality of data. This software is a
tool that is used to identify problems with company data prior to being
transferred into a data warehouse. The Company's services based clients are

                                       38
<PAGE>

primarily in the financial services, pharmaceutical, healthcare and
telecommunications industries, although it has clients in other industries as
well. The Company's clients are primarily located in the northeastern United
States. The Company delivers value to its clients, utilizing a combination of
business acumen, technical proficiency, experience and a proven set of "best
practices" methodologies to deliver cost effective services. The Company is
committed to being a leader in data warehousing and business intelligence
consulting, enabling it to be a valuable asset and trusted advisor to its
customers. See Item 1 - Business for a full description of our services and
offerings.

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

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

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

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

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

                                       39
<PAGE>

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

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

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

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

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

                                       40
<PAGE>

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

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

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

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

                                       41
<PAGE>

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

Results of Operations

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

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


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

Years Ended December 31, 2004 and 2003

Revenue

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

Services

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

Related party services

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

                                       42
<PAGE>

Software

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


Support and maintenance

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

Cost of revenue

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

Services

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

Related party services

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

Software

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

                                       43
<PAGE>

 Support and maintenance

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

Gross Profit

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

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

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

Services

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

Related party services

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

Software

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

 Support and maintenance

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

                                       44
<PAGE>

Selling and marketing

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

General and administrative

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

Research and Development

         Research and development costs primarily include the payroll, employee
benefits and other headcount-related costs associated with the employees working
on the development of upgrades and new versions of the Evoke Axio software
product. Research and development costs were $0.5 million, or 2.1% of revenue
compared to zero for the comparative periods in the prior year. The research and
development department was obtained in association with the Evoke acquisition
which was completed during 2004.

   Goodwill  and intangibles impairment

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

   Depreciation and amortization

         Depreciation expense is recorded on the Company's property and
equipment which is generally depreciated over a period between three to seven
years. Amortization of leasehold improvements is taken over the shorter of the
estimated useful life of the asset or the remaining term of the lease. The
Company amortizes deferred financing costs utilizing the effective interest
method over the term of the related debt instrument. Acquired software is

                                       45
<PAGE>

amortized on a straight-line basis over an estimated useful life of three years.
Acquired contracts are amortized over a period of time that approximates the
estimated life of the contracts, based upon the estimated annual cash flows
obtained from those contracts, generally five to six years. Depreciation and
amortization expenses were $1.1 million for the year ended December 31, 2004
compared to $0.2 million for the year ended December 31, 2003. $0.6 million and
$0.1 million of the increase in depreciation and amortization during the year
ended December 31, 2004 is attributed to amortization of the acquired Evoke and
DeLeeuw Associates intangible assets, respectively.

 Interest Expense

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

Other income (expense)

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

Income Taxes

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

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

Years Ended December 31, 2003 and 2002

         Revenue

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

         Cost of revenues

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

                                       46
<PAGE>

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

         General and administrative expenses

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

         Research and development

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

         Goodwill impairment

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

         Depreciation and amortization

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

         Interest expense

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

         Other income (expense)

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


                                       47
<PAGE>

         Income taxes

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

         There are currently no material commitments for capital expenditures.

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

                                       48
<PAGE>

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

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

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

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

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

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

         Additionally, in exchange for a $5,000,000 secured convertible term
note bearing interest at prime rate (as reported in the Wall Street Journal)
plus 1%, Laurus has established a $5.0 million account to be used only for
acquisition targets identified by us that are approved by Laurus in Laurus' sole
discretion. There is a possibility that we may never make use of the funds in
this account. We have no obligation to meet financial covenants under the $5.0
million secured convertible term note. This note is convertible into Company

                                       49
<PAGE>

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. A portion of Laurus's revolving line of credit will be
used to pay off all outstanding borrowings from North Fork Bank. The Company
issued Laurus a common stock purchase warrant that provides Laurus with the
right to purchase 12.0 million shares of the Company's common stock. The
exercise price for the first 6.0 million shares acquired under the warrant is
$0.29 per share, the exercise price for the next 3.0 million shares acquired
under the warrant is $0.31 per share, and the exercise price for the final 3.0
million shares acquired under the warrant is $0.35 per share. The common stock
purchase warrant expires on August 16, 2011. The Company paid $0.75 million in
brokerage and transaction closing related costs. These costs were deducted from
the $5.0 million restricted cash balance provided to the Company by Laurus. As
of December 31, 2004, $3.7 million was outstanding under the revolving line of
credit. The interest rate on the revolving line and the acquisition note was
6.25% during December 2004. As a result of the beneficial conversion feature, a
discount on debt issued of $5.6 million was recorded and is being amortized to
interest expense over the three year life of the debt agreement. As a result of
the beneficial conversion feature, a discount on debt issued of $5.6 million was
recorded and is being amortized to interest expense over the three year life of
the debt agreement. An early termination fee is due to Laurus in an amount equal
to five percent (5%) of the total investment amount if such termination occurs
prior to the first anniversary of the closing, four percent (4%) if such
termination occurs after the first anniversary but prior to the second
anniversary, and three percent (3%) if after the second anniversary.

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

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

         In September 2004, we issued to Sands Brothers Venture Capital LLC,
Sands Brothers Venture Capital III LLC and Sands Brothers Venture Capital IV LLC
(collectively, "Sands") three subordinated secured convertible promissory notes
equaling $1.0 million (the "Notes"), each with an annual interest rate of 8%
expiring September 22, 2005. The Notes are secured by substantially all
corporate assets, subordinate to Laurus. The Notes are convertible into shares
of our common stock at the election of Sands at any time following the
consummation of a convertible debt or equity financing with gross proceeds of $5
million or greater (a "Qualified Financing"). The conversion price of the shares
of our common stock issuable upon conversion of the Notes shall be equal to a
price per share of common stock equal to forty percent (40%) of the price of the
securities issued pursuant to a Qualified Financing. If no Qualified Offering
has been consummated by September 8, 2005, then Sands may elect to convert the
Notes at a fixed conversion price of $0.14 per share. In the event that we issue
stock or derivatives convertible into our stock for a price less the

                                       50
<PAGE>

aforementioned fixed conversion price, then the fixed conversion price is reset
using a weighted average dilution calculation. We also issued Sands three common
stock purchase warrants (the "Warrants") providing Sands with the right to
purchase 6.0 million shares of our common stock. The exercise price of the
shares of our common stock issuable upon exercise of the Warrants shall be equal
to a price per share of common stock equal to forty percent (40%) of the price
of the securities issued pursuant to a Qualified Financing. If no Qualified
Offering has been consummated by September 8, 2005, then Sands may elect to
exercise the Warrants at a fixed conversion price of $0.14 per share. The latest
that the Warrants may expire is September 8, 2008. Using the Black-Scholes
option pricing model, we determined the fair value of the warrant to be $0.5
million. As a result of the beneficial conversion feature, a discount on debt
issued of $0.5 million was recorded in September 2004 and is being amortized to
interest expense over the one year life of the debt instrument. Finally, we
engaged Sands Brothers International Limited as our non-exclusive financial
advisor at $6,000 per month for a period of one year.

         The following is a summary of the debt instruments outstanding as of
April 8, 2005:

<TABLE>
<CAPTION>
---------------------------------- ---------------------------- ---------------------------- -------------------------
Lender                             Type of facility             Outstanding as of April 8, Remaining Availability
                                                                2005 (not including        (if applicable)
                                                                interest) (all numbers
                                                                approximate)
---------------------------------- ---------------------------- ---------------------------- -------------------------
<S>                                 <C>                         <C>                          <C>
Laurus Master Fund, Ltd.           Convertible Line of Credit   $3,700,000                   $0
---------------------------------- ---------------------------- ---------------------------- -------------------------
Laurus Master Fund, Ltd.           Convertible Term note        $4,251,000                   $0
---------------------------------- ---------------------------- ---------------------------- -------------------------
Sands  Brothers  Venture  Capital  Convertible Promissory Note  $50,000                      $0
LLC
---------------------------------- ---------------------------- ---------------------------- -------------------------
Sands  Brothers  Venture  Capital  Convertible Promissory Note  $850,000                     $0
III LLC
---------------------------------- ---------------------------- ---------------------------- -------------------------
Sands  Brothers  Venture  Capital  Convertible Promissory Note  $100,000                     $0
IV LLC
---------------------------------- ---------------------------- ---------------------------- -------------------------
Taurus   Advisory   Group,    LLC  Convertible Promissory Note  $2,000,000                   $0
investors
---------------------------------- ---------------------------- ---------------------------- -------------------------
Scott Newman                       Promissory Note              $183,000                     $0
---------------------------------- ---------------------------- ---------------------------- -------------------------
Glenn Peipert                      Promissory Note              $125,000                     $0
---------------------------------- ---------------------------- ---------------------------- -------------------------
TOTAL                                                           $11,259,000                  $0
---------------------------------- ---------------------------- ---------------------------- -------------------------
</TABLE>

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

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

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

                                       51
<PAGE>

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

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

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

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

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

                                       52
<PAGE>

   Off-balance sheet arrangements

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

   Contractual Obligations

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

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Revenue recognition

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

Services

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

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

Software

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

                                       53
<PAGE>

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

Business Combinations

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

Impairment of Goodwill, Intangible Assets and Other Long-Lived Assets

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

Allowances for Doubtful Accounts

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

Stock-based Compensation

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

                                       54
<PAGE>

Deferred Income Taxes

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

Recent Pronouncements

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


 ITEM 7.      FINANCIAL STATEMENTS.

         The Financial Statements of the Company and the accompanying notes
thereto, and the independent auditor's report required by this item are included
as part of this Form 10-KSB and immediately follow the signatures page of this
Form 10-KSB.

 ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE.

         On June 1, 2004, Ehrenkrantz Sterling & Co., LLC ("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.

                                       55
<PAGE>


ITEM 8A - CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures.

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

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

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

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

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

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

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

                                       56
<PAGE>

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

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

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

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

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

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

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

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

                                       57
<PAGE>

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

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

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

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

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

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

Changes in internal control over financial reporting.

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

                                       58
<PAGE>

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

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

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

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

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

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


ITEM 8B. OTHER INFORMATION

Not applicable


                                       59
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;COMPLIANCE
         WITH SECTION 16(A) OF THE EXCHANGE ACT.

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our officers, directors and persons who beneficially own more than 10%
of a registered class of our equity securities ("ten percent stockholders") to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and ten percent stockholders are
charged by the SEC regulations to furnish us with copies of all Section 16(a)
forms they file.

         Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to us during the past fiscal year, and, if applicable, written
representations that Form 5 was not required, we believe that all Section 16(a)
filing requirements applicable to our officers, directors and ten percent
stockholders were fulfilled.

         The following table sets forth the names and ages of 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:

<TABLE>
<CAPTION>
------------------------------------- ----------------------- ------- -----------------------------------------------
Name                                  Year First Elected As    Age    Position(s) Held
                                      an Officer Or Director
------------------------------------- ----------------------- ------- -----------------------------------------------
<S>                                            <C>              <C>   <C>
Scott Newman                                   2004             45    President, Chief Executive Officer and
                                                                      Chairman
------------------------------------- ----------------------- ------- -----------------------------------------------
Glenn Peipert                                  2004             44    Executive Vice President, Chief Operating
                                                                      Officer and Director
------------------------------------- ----------------------- ------- -----------------------------------------------
Mitchell Peipert                               2004             46    Vice President, Chief Financial Officer,
                                                                      Secretary and Treasurer
------------------------------------- ----------------------- ------- -----------------------------------------------
Lawrence K. Reisman                            2004             45    Director
------------------------------------- ----------------------- ------- -----------------------------------------------
Robert C. DeLeeuw                              2004             48    Senior Vice President and President of
                                                                      DeLeeuw Associates, LLC
------------------------------------- ----------------------- ------- -----------------------------------------------
</TABLE>


         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

                                       60
<PAGE>

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.

         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.

                                       61
<PAGE>

         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.

         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.

ITEM 10. EXECUTIVE COMPENSATION.

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


                                       62
<PAGE>

                           SUMMARY COMPENSATION TABLE*

<TABLE>
<CAPTION>
                                                                                               Long Term Compensation
                                                                                               ----------------------
                                             Annual Compensation(1)                   Awards                        Payouts
                                           --------------------------------    -----------------------      ------------------------
                                                                               Restricted    Securities
                                                               Other Annual      Stock       Underlying      LTIP       All Other
Name and Principal Position      Year      Salary     Bonus    Compensation     Award(s)    Options/SARs    Payouts     Compensation
---------------------------      ----      ------     -----    ------------     --------    ------------    -------     ------------
                                            ($)          ($)       ($)            ($)           (#)            ($)          ($)

<S>                              <C>      <C>           <C>      <C>            <C>            <C>            <C>         <C>
Scott Newman                     2004     487,270       --            --         --             --             --         14,054 (2)
President, Chief Executive       2003     244,452       --            --         --             --             --        206,686 (3)
Officer and Chairman             2002     143,750       --            --         --             --             --        259,418 (3)

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

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

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

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

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

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

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


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

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

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

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


                                       63
<PAGE>

Option/SAR Grants as of December 31, 2004

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

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


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

<TABLE>
<CAPTION>
                                                       Number of Securities             Value of Unexercised
                                                      Underlying Unexercised            In-the-Money Options
                                                  Options at December 31, 2004(1)     at December 31, 2004 (1)
                                                  -----------------------------      ------------------------
Name and Principal Position                       Exercisable    Unexercisable     Exercisable     Unexercisable
---------------------------                       -----------    -------------     -----------     -------------
<S>                                                    <C>         <C>                  <C>          <C>
Mitchell Peipert                                       0           4,500,000            0            $990,000
   Vice President , Chief Financial Officer,
   Secretary and Treasurer
</TABLE>

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


2003 Incentive Plan

General

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

      o     incentive stock options to purchase shares of our common stock,
      o     non-qualified stock options to purchase shares of common stock, and
      o     SARs and shares of restricted common stock.

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

                                       64
<PAGE>

Objectives

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

Oversight

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

Types of grants

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

Eligibility

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

Statutory Conditions on Stock Options

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

         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.

                                       65
<PAGE>

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

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

Payment Upon Exercise Of Options

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

Stock Appreciation Rights

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

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

Tax Consequences

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

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

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

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

      (ii)  one year from the date of exercise.

                                       66
<PAGE>

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

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

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

Employment Agreements

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

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

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

                                       67
<PAGE>

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

ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
              RELATED STOCKHOLDER MATTERS

         The following table sets forth certain information regarding the
beneficial ownership of our common stock, our only class of outstanding voting
securities as of April 8, 2005, based on 781,010,668 aggregate shares of common
stock outstanding as of such date, by: (i) each person who is known by us to own
beneficially more than 5% of our outstanding common stock with the address of
each such person, (ii) each of our present directors and officers, and (iii) all
officers and directors as a group:

<TABLE>
<CAPTION>
-------------------------------------------- ------------------------------- -----------------------------------------

           Name and Address of                  Amount of Common Stock         Percentage of Outstanding Common Stock
          Beneficial Owner(1)(2)                   Beneficially Owned                    Beneficially Owned
-------------------------------------------- ------------------------------- -----------------------------------------
<S>                                                  <C>                                       <C>
Scott Newman(3)                                       294,195,833                               37.7%
-------------------------------------------- ------------------------------- -----------------------------------------

Glenn Peipert(4)                                      150,000,000                               19.2%
-------------------------------------------- ------------------------------- -----------------------------------------

Mitchell Peipert(5)                                     1,500,000                                  *
-------------------------------------------- ------------------------------- -----------------------------------------

Robert C. DeLeeuw(6)                                   80,000,000                               10.2%
-------------------------------------------- ------------------------------- -----------------------------------------

Lawrence K. Reisman(7)                                    150,000                                   *
-------------------------------------------- ------------------------------- -----------------------------------------

WHRT I Corp. (8)                                       72,543,956                                9.3%
-------------------------------------------- ------------------------------- -----------------------------------------

All directors and officers as a group (5
persons)                                              525,845,833                               67.3%
-------------------------------------------- ------------------------------- -----------------------------------------
</TABLE>

--------------------------------------------
* 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.

                                       68
<PAGE>

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

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

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

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

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

Equity Compensation Plan Disclosure

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

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

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

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

         In November 2003, the Company executed an Independent Contractor
Agreement with LEC, whereby the Company agreed to be a subcontractor for LEC,
and to provide consultants as required to LEC. In return for these services, the
Company receives a fee from LEC based on the hourly rates established for
consultants subcontracted to LEC. In May 2004, the Company acquired 49% of all
issued and outstanding shares of common stock of LEC. The acquisition was
completed through a Stock Purchase Agreement between the Company and the sole

                                       69
<PAGE>

stockholder of LEC. In connection with the acquisition, the Company (i) repaid a
bank loan on behalf of the seller in the amount of $35,000; (ii) repaid an LEC
bank loan in the amount of $38,000; and (iii) satisfied an LEC obligation for
$10,000 of prior compensation to an employee. For the year ended December 31,
2004, the Company invoiced LEC $3.8 million for the services of consultants
subcontracted to LEC by the Company. As of December 31, 2004, the Company had
accounts receivable due from LEC of approximately $0.8 million. There are no
known collection problems with respect to LEC. The majority of their billing is
derived from Fortune 1000 clients. The collection process is slow as these
clients require separate approval on their own internal systems, which extends
the payment cycle. The Company feels confident in the collectibility of these
accounts receivable as the majority of the revenues from LEC derive from Fortune
1000 clients.

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

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

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

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

         As of November 17, 2004, Mr. Newman has agreed to personally support
our cash requirements to enable us to fulfill our obligations through March 31,
2005, to the extent necessary, up to a maximum amount of $0.5 million. We
believe that our reliance on such commitment is reasonable and that Mr. Newman
has sufficient liquidity and net worth to honor such commitment. We believe that
Mr. Newman's written commitment provides us with the legal right to request and
receive such advances. Any loan by Mr. Newman to the Company would bear interest

                                       70
<PAGE>

at 3% per annum. As of December 14, 2004, Scott Newman, our President, Chief
Executive Officer and Chairman, loaned the Company $0.2 million, and Glenn
Peipert, our Executive Vice President, Chief Operating Officer and Director,
loaned the Company $0.125 million. The unsecured loans by Mr. Newman and Mr.
Peipert each accrue interest at a simple rate of 3% per annum, and each has a
term expiring on January 1, 2006. As of December 31, 2004, approximately $0.2
million and $0.125 million remained outstanding to Messrs. Newman and Peipert,
respectively.

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

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

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

ITEM 13.      EXHIBITS

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

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

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

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

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

                                       71
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

         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).

                                       72
<PAGE>

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

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

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

         10.5 2003 Incentive Plan (filed as Schedule B on Schedule 14A on
January 5, 2004).

         10.6 Security Agreement, dated August 16, 2004, among the Registrant,
DeLeeuw Associates, LLC, CSI Sub Corp. (DE), Evoke Software Corporation and
Laurus Master Fund, Ltd. ("Laurus") (filed as Exhibit 4.1 on Form 10-QSB on
August 23, 2004).

         10.7 Secured Convertible Minimum Borrowing Note, dated August 16, 2004
(filed as Exhibit 4.4 on Form 10-QSB on August 23, 2004).

         10.8 Secured Revolving Note, dated August 16, 2004 (filed as Exhibit
4.5 on Form 10-QSB on August 23, 2004).

         10.9 Secured Convertible Term Note, dated August 16, 2004 (filed as
Exhibit 4.6 on Form 10-QSB on August 23, 2004).

         10.10 Stock Pledge Agreement, dated August 16, 2004, among the
Registrant and Laurus (filed as Exhibit 4.8 on Form 10-QSB on August 23, 2004).

         10.11 Restricted Account Agreement, dated August 16, 2004, among the
Registrant, Laurus and North Fork Bank.*

         10.12 Senior Subordinated Secured Convertible Promissory Note, dated
September 22, 2004, in favor of Sands Brothers Venture Capital LLC (filed as
Exhibit 10.1 on Form 8-K on September 27, 2004).

         10.13 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).

         10.14 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).

         10.15 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).

         10.16 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).

                                       73
<PAGE>

         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).

         10.18 Consulting Agreement with Morgan Stanley & Co., Incorporated
(filed as Exhibit 10.18 on Form SB-2/A on January 19, 2005).

         10.19 Consulting Agreement with Cellco Partnership (now known as
Verizon Wireless) (filed as Exhibit 10.19 on Form SB-2/A on January 19, 2005).

         21 Subsidiaries of the Company (filed as Exhibit 21 on Form SB-2/A on
September 30, 2004).

         31.1* Certification of the Company's Chief Executive Officer pursuant
to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

         31.2* Certification of the Company's Chief Financial Officer pursuant
to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

         32.1* Certification of the Company's Chief Executive Officer pursuant
to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350.

         32.2* Certification of the Company's Chief Financial Officer pursuant
to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350.
--------------------
* filed herewith


                                       74
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         The following table sets forth fees billed to us by our independent
registered public accounting firms during the fiscal years ended December 31,
2004, and December 31, 2003, for: (i) services rendered for the audit of our
annual financial statements and the review of our quarterly financial
statements; (ii) services by our independent registered public accounting firms
that are reasonably related to the performance of the audit or review of our
financial statements and that are not reported as Audit Fees; (iii) services
rendered in connection with tax compliance, tax advice and tax planning; and
(iv) all other fees for services rendered.

                                      December 31, 2003     December 31, 2004
                                      -----------------     -----------------

Audit Fees                                 $ 17,500           $281,975
Audit Related Fees                         $     --           $212,480
Tax Fees                                   $     --           $ 36,799
All Other Fees                             $     --           $     --
                                           ---------------------------
                                           $ 17,500           $531,254

Audit Committee Policies

         The board of directors is solely responsible for the approval in
advance of all audit and permitted non-audit services to be provided by the
independent auditors (including the fees and other terms thereof), subject to
the de minimus exceptions for non-audit services provided by Section
10A(i)(1)(B) of the Exchange Act, which services are subsequently approved by
the board of directors prior to the completion of the audit. None of the fees
listed above are for services rendered pursuant to such de minimus exceptions.


                                       75
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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

         We have audited the accompanying consolidated balance sheet of
Conversion Services International, Inc. and Subsidiaries as of December 31,
2004, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the years ended December 31, 2004 and 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

         We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Conversion Services
International, Inc. and Subsidiaries as of December 31, 2004, and the results of
its operations and its cash flows for the years ended December 31, 2004 and
2003, in conformity with accounting principles generally accepted in the United
States of America.


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

                                      F-1
<PAGE>

<TABLE>
<CAPTION>
                    CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2004

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

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

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

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


See Notes to Consolidated Financial Statements.

                                      F-2
<PAGE>

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

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

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

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

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

See Notes to Consolidated Financial Statements.

                                      F-3
<PAGE>

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

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

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

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

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

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

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

See Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>

<TABLE>
<CAPTION>

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

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

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


                                      F-5
<PAGE>

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


<TABLE>
<CAPTION>
                                                                         2004                     2003
                                                                   -----------------          -------------
<S>                                                                     <C>                     <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

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

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

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

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

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

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

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

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

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

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

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

See Notes to Consolidated Financial Statements.

                                      F-6
<PAGE>

                     CONVERSION SERVICES INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Accounting Policies

      Organization and Business

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

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

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

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

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

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

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

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

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

      Principles of Consolidation

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

      Revenue recognition


                                      F-7
<PAGE>

Services

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

Software

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

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

Business Combinations

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

      Research and development costs

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


                                      F-8
<PAGE>

      Accounts receivable

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

      Property and equipment

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

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

      Goodwill and intangible assets

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

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

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

      Deferred financing costs

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


                                      F-9
<PAGE>

      Discount on debt

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

      Stock compensation

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

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

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


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

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

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


                                      F-10
<PAGE>

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

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

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

      Concentrations of credit risk

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

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

      Advertising

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

      Income taxes

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

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

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


                                      F-11
<PAGE>

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

      Derivatives

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

      Equity investments

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

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

      Foreign Currency Translation

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

      Comprehensive Income

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

      Reclassification

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

      Use of estimates

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


                                      F-12
<PAGE>

Note 2: Recent Pronouncements

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

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

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

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

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

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


                                      F-13
<PAGE>

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

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

Note 3 - Mergers and acquisitions

Acquisition of DeLeeuw Associates, Inc.

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


                                      F-14
<PAGE>

COMPONENTS OF PURCHASE PRICE:

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

ALLOCATION OF PURCHASE PRICE:

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

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

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

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

Acquisition of Evoke Software Corporation

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

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


                                      F-15
<PAGE>

COMPONENTS OF PURCHASE PRICE:

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


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

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

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

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

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

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

The  Company  performed  its annual  impairment  review in  connection  with its
year-end financial closing in December 2004 and has determined that the recorded
amount of the Evoke goodwill and certain intangibles was impaired as of December
31, 2004. As a result, the Company recorded an impairment charge with respect to
Evoke goodwill and certain intangibles of approximately $11,100,000.


                                      F-16
<PAGE>

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

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

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


Note 4 - Property and equipment

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

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


Note 5 - Intangible assets


Intangibles acquired along with their assigned lives are as follows:

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


                                      F-17
<PAGE>

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

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

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


Note 6 - Deferred financing costs

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

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

Note 7 - Discount on debt

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


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


                                      F-18
<PAGE>

Note 8 - Line of credit

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

      Laurus Transaction:

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

      Additionally,  in exchange for a $5,000,000 secured  convertible term note
bearing interest at prime rate (as reported in the Wall Street Journal) plus 1%,
Laurus has  established a $5.0 million  account to be used only for  acquisition
targets identified by us that are approved by Laurus in Laurus' sole discretion.
There is a possibility  that we may never make use of the funds in this account.
We have no obligation to meet financial  covenants under the $5,000,000  secured
convertible  term note (See Note 10 to the Consolidated  Financial  Statements).
This note is convertible  into Company common stock at a fixed  conversion price
of $0.14 per share. In the event that the Company issues Company common stock or
derivatives  convertible  into  Company  common stock for a price less the fixed
conversion price, then the fixed conversion price is reset to the lower price on
a  full-ratchet  basis.  This note matures in three years. A portion of Laurus's
revolving line of credit will be used to pay off all outstanding borrowings from
North Fork Bank. An early termination fee is due to Laurus in an amount equal to
five  percent (5%) of the total  investment  amount if such  termination  occurs
prior  to the  first  anniversary  of the  closing,  four  percent  (4%) if such
termination  occurs  after  the  first  anniversary  but  prior  to  the  second
anniversary, and three percent (3%) if after the second anniversary.

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


                                      F-19
<PAGE>

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

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


Note 9 - Short Term Notes Payable

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


                                      F-20
<PAGE>

Note 10 - Long Term Debt

Long-term debt consisted of the following:

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

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


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


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


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


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


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



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


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


                                      F-21
<PAGE>

      Obligations under Capital Leases

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

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


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

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

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

Note 11 - Income Taxes

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


                                      F-22
<PAGE>

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


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

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


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

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

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


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


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


                                      F-23
<PAGE>

Note 12 - Common Stock

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

Note 13 - Common Stock Warrants

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

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

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

Note 14 - Stock Based Compensation

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

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


                                      F-24
<PAGE>

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


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

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


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

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

Note 15 - Loss Per Share

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


                                      F-25
<PAGE>

      Basic and diluted loss per share were determined as follows:

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

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


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

Note 16 - Major Customers

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

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

Note 17 - Employee Benefit Plan

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

Note 18 - Commitments and Contingencies

      Legal Proceedings

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


                                      F-26
<PAGE>

      Employment Agreements

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

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

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

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

      Lease Commitments

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

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

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

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


                                      F-27
<PAGE>

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


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


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

Note 19 - Related Party Transactions

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

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

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

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

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


                                      F-28
<PAGE>

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

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

Note 20 - Segment Information

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

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

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

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


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


                                      F-29
<PAGE>

Geographic Information

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

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

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


Note 21 - Subsequent Events

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

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


                                      F-30
<PAGE>

                                   SIGNATURES

              Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.

Dated: July 25, 2005


                               /s/ Scott Newman
                               ------------------------------------------------
                               Scott Newman
                               President, Chief Executive Officer and Chairman

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature Title Date

<TABLE>
<CAPTION>
<S>                                 <C>                                         <C>
/s/ Scott Newman                    President, Chief Executive                  July 25, 2005
----------------                    Officer and Chairman
Scott Newman

/s/ Mitchell Peipert                Vice President, Chief Financial
--------------------                Officer, Secretary and Treasurer            July 25, 2005
Mitchell Peipert

/s/ Glenn Peipert                   Executive Vice President, Chief
-----------------                   Operating Officer and Director              July 25, 2005
Glenn Peipert

/s/ Lawrence K. Reisman             Director                                    July 25, 2005
-----------------------
Lawrence K. Reisman

/s/ Joseph Santiso                  Director                                    July 25, 2005
-----------------------
Joseph Santiso
</TABLE>