UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 12, 2005 (March 31, 2005)
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Conversion Services International, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-30420 20-1010495
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
100 Eagle Rock Avenue 07936
East Hanover, New Jersey
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 560-9400
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 4.02 NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED
AUDIT REPORT OR COMPLETED INTERIM REVIEW
(a) On April 12, 2005, Conversion Services International, Inc. (the "Company")
issued a press release announcing that it will restate its financial statements
for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004 and
such financial statements should not be relied upon. These quarterly financial
statements will be restated as a result of revised accounting treatment related
to the purchase accounting for the Company's 2004 acquisitions of DeLeeuw
Associates, Inc. ("DeLeeuw") and Evoke Software Corporation ("Evoke") , to
revise the accounting for a deferred tax liability recorded in connection with
the DeLeeuw Associates acquisition, and certain merger costs associated with the
reverse merger with LCS Group, Inc. A description of the principal adjustments
resulting from the restatement is set forth in the press release, a copy of
which is attached to this Current Report. The Company's determination to account
for the transaction as set forth in the press release was made by the Board of
Directors of the Company on March 31, 2005 was discussed with the Company's
independent registered public accounting firm.
As a result of comments received from the Securities and Exchange
Commission ("SEC") in connection with the review of the Company's Registration
Statement on Form SB-2, File No. 333-115243, the Company made the decision to
change its accounting treatment as previously recorded for the acquisitions of
both DeLeeuw and Evoke. The original purchase accounting for the DeLeeuw
acquisition was reported by the Company in its Quarterly Report on Form 10-QSB
for the quarter ended March 31, 2004 (filed with the SEC on May 21, 2004) and
the purchase accounting for the Evoke acquisition was originally reported in the
Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2004
(filed with the SEC on August 23, 2004). This change requires restatement of the
Company's Quarterly Reports for the periods ending March 31, June 30 and
September 30, 2004, and amended Quarterly Reports for those periods are being
filed simultaneously with this Current Report.
The restatement relates to the following two accounting transactions:
o In accordance with SFAS 141, paragraph 22, the quoted market price
of the Company's equity securities issued to effect the business combinations of
DeLeeuw and Evoke should be used to estimate the fair value of these
acquisitions. Additionally, the Company has evaluated EITF 99-12 "Determination
of the Measurement Date for the Market Price of Acquirer Securities Issued in a
Purchase Business Combination" based upon $0.22 and $0.18 per share stock value,
which is based on the market price of the Company's securities over a reasonable
period of time before and after the terms of the DeLeeuw and Evoke acquisitions
were agreed to and announced on February 26, 2004 and May 27, 2004,
respectively. The Company previously used an alternative method for valuing the
stock issued by the Company in these transactions; and
o The Company recorded an intangible asset as a result of the DeLeeuw
acquisition and initially classified this asset as having an indefinite life.
The Company has revised the classification of this intangible asset and assigned
a definitive life to the asset. As a result of this change, approximately
$92,000 of additional amortization expense was recorded by the Company during
the nine months ended September 30, 2004.
Management has determined that the matters discussed above, among other
factors, constitute a material weakness in the Company's disclosure controls and
procedures. As a
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result, management has determined the Company did not maintain effective
disclosure controls and procedures regarding its purchase accounting related to
its acquisitions in 2004. The material weakness and management's conclusion as
to the effectiveness of the Company's disclosure controls and procedures will be
disclosed in Item 8A of Part II of the Company's Annual Report on 10-KSB.
The Company has performed its impairment review as of December 31, 2004 in
connection with the DeLeeuw and Evoke acquisitions as restated and expects its
impairment charge for the year ended December 31, 2004 to be approximately $23.3
million.
As a result of these corrections, management has recommended, and the
Board of Directors has approved, the restatement of each of the quarters ended
March 31, 2004, June 30, 2004 and September 30, 2004 through the filing of an
amended Form 10-QSB for each of these quarters. In addition, the Company will
also incorporate these corrections for its fourth quarter and fiscal year ended
December 31, 2004 in its Annual Report on Form 10-KSB which it intends to file
within the next several days.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
Exhibit Number Description
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99.1 Press Release dated April 12, 2005
Statements contained in this Current Report on Form 8-K, which are not
historical facts, are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based largely on current expectations and are subject to a number
of known and unknown risks, uncertainties and other factors beyond our control
that could cause actual events and results to differ materially from these
statements. These statements are not guarantees of future performance, and
readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this release. We undertake no
obligation to update publicly any forward-looking statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
April 12, 2005 CONVERSION SERVICES INTERNATIONAL, INC.
By: /s/ Scott Newman
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Name: Scott Newman
Title: President and Chief Executive Officer
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