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) November 21, 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
East Hanover, New Jersey 07936
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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 November 21, 2005, Conversion Services International, Inc. (the
"Company") issued a press release announcing that it will restate its financial
statements for the quarters ended September 30, 2004, March 31, 2005 and June
30, 2005, and the year ended December 31, 2004, and such financial statements
should not be relied upon. These quarterly and annual financial statements will
be restated primarily as a result of revised accounting treatment related to the
Company's issuance of financial instruments in August and September 2004 and to
properly record the loss resulting from the fair value adjustment of the
financial instruments. 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, as well as its Audit Committee, on November 21, 2005, and was
discussed with the Company's independent registered public accounting firm.
In August 2004, the Company issued a warrant to purchase 800,000 shares of
Company common stock to Laurus Master Fund as part of a financing transaction.
In September 2004, the Company issued warrants to purchase 400,000 shares of
Company common stock to three entities affiliated with Sands Brothers Venture
Capital. Using the guidance in EITF 00-27, Application of EITF Issue No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios," the Company had previously accounted
for these warrants by calculating the fair value of the warrants using an option
pricing model and attributing a portion of the underlying debt associated to the
warrants by recording the value of the warrants as a component of stockholders'
equity and a corresponding reduction of the debt.
The value of these warrants are now reflected as a financial instrument in
the current liabilities section of the Condensed Consolidated Balance Sheet as a
result of the issuance of a registration rights agreement that included a
liquidated damages clause, which linked to an effective registration of such
securities. Accordingly, the Company applied EITF 00-19, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock" and accounted for the warrants as a liability. The Company
is also required to revalue the liability at each reporting period to reflect
the current fair value of the financial instruments. The gain or loss associated
with this revaluation is recorded as a component of income (loss) from
continuing operations. The accounting changes had no cash flow impact to the
Company.
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This change requires restatement of the Company's Quarterly Reports for
the periods ending September 30, 2004, March 31, 2005 and June 30, 2005, and the
Company's Annual Report for the year ended December 31, 2004, and the amended
Quarterly Reports and the Annual Report for those periods are being filed
simultaneously with this Current Report.
As a result of these corrections, management has recommended, and the
Board of Directors and its Audit Committee, has approved, the restatement of
each of the quarters ended September 30, 2004, March 31, 2005 and June 30, 2005,
and the restatement of the year ended December 31, 2004, through the filing of
an amended Form 10-QSB for each of these quarters and an amended Form 10-KSB/A
for the year end. In addition, the Company will also incorporate these
corrections for its third quarter ended September 30, 2005 in its Quarterly
Report on Form 10-QSB filed today.
Item 9.01 Financial Statements and Exhibits
(c) Exhibits.
Exhibit Number Description
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99.1 Press Release dated November 21, 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.
November 21, 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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