CVN Conversion Services International,

Third Quarter Operating Expenses Decline More than 35% Year Over Year EAST HANOVER, N.J., Nov. 15 /PRNewswire-FirstCall/ -- Conversion Services International, Inc. (AMEX:CVN), a premier professional services firm focused on business intelligence and business process optimization solutions to Global 2000 organizations and other businesses, today announced its third quarter and nine month financial results for the period ended September 30, 2007. (Logo: http://www.newscom.com/cgi-bin/prnh/20060421/NYF015LOGO ) FINANCIAL HIGHLIGHTS THIRD QUARTER 2007 -- Operating loss declined 70.6% year over year -- Gross profit rose 26.8% year over year -- Operating expenses fell 35.3% -- Gross profit from services climbed to 29.5% from 19.8% -- an increase of 49% FINANCIAL HIGHLIGHTS THROUGH SEPTEMBER 2007 -- Operating loss declined 28.1% -- Gross profit from services rose to 25.4% from 22.3% -- an increase of 13.9% -- Operating expenses fell 17.7% Scott Newman, president and CEO of Conversion Services International, stated, "The financial results for the third quarter and nine months to September 30, 2007, show that we are making substantial progress in reducing costs and improving our margins. In the third quarter, we saw a marked improvement in operating expenses, which fell 35.3%, and better margins have boosted gross profit 26.8%. Combined, these efforts have reduced our operating loss by over 70% compared with last year's third quarter. Overall, our loss from operations, after adjusting out non-cash charges which consist of depreciation, amortization, impairment charges for goodwill and intangible assets, and stock compensation charges, of $329,670 declined by $845,019 from last year's third quarter loss from operations, as adjusted for the same non- cash charges, of $1,174,689. "I think that the case becomes even clearer when we look at consecutive quarters. The reduction in loss from operations from June 30, 2007 to September 30, 2007 was 56.5%. Loss from operations, after adjusting out the same non-cash charges, declined by $185,211, or 36.0% from second quarter 2007's adjusted loss from operations of $514,881. Also, gross profit was up 11%. The percentage of gross profit from services, including related party services, grew to 29.5% from 25.1%, a 17.5% increase in the gross profit percentage derived from services. Clearly, things have not only turned around, but they are accelerating toward bottom-line success." "What is most significant is the improved margins we are deriving from newer, bigger clients. We have hired more sales people to pursue these opportunities, and we expect to grow the sales staff by an additional 20% before year's end. In addition, we have refined our service offerings to better address the needs of our clients - holistically focusing on business intelligence and business process optimization - eliminating some of the less lucrative options. As a result, we generated 30.1% of our third quarter 2007 revenues from business with clients who did not have relationships with us in third quarter 2006. This enhanced business mix provides our clients with full, end-to-end solutions and is likely to continue to improve into 2008." He concluded, "Our business mix will continue to evolve, with an increase expected for business intelligence/data warehousing and for strategic consulting -- which naturally includes business process optimization-providing clients with both the business intelligence solutions to make strategic business decisions, as well as the ability to act upon those decisions enhancing competitiveness. In the nine months ending September 30, 2007, CSI has seen a marked increase in the number of engagements booked over the same time last year, with business including strategy and assessments, as well as repeat business with our highly-qualified technical and project management professionals. These engagements cover the gamut from financial services and insurance to industrial manufacturing, from retail to business services, and from media and publishing to pharmaceutical and life sciences industries, as well as public sector, energy and utilities organizations, further establishing our recognition and presence in these markets." THREE MONTH FINANCIAL RESULTS Revenues of $5.5 million for the quarter decreased by $0.6 million, or 10.0%, as compared to revenues of $6.1 million for the three months ended September 30, 2006. Cost of revenue was $4.0 million, or 73.3% of revenue for the three months ended September 30, 2007, representing a decrease of $0.9 million, or 18.6%, as compared to $4.9 million, or 81.1% of revenue for the three months ended September 30, 2006. Gross profit for third quarter 2007 reached $1.45 million up more than $300,000, or 26.8%, against 2006's third quarter gross profit of $1.15 million. Operating expenses in third quarter 2007 dropped $1.1 million, or 35.3%, to $2.05 million compared with operating expenses of $3.17 million in third quarter 2006. The operating loss shrank to $595,083 in third quarter 2007 from $2.02 million in the same period prior year - a reduction of 70.6%. For third quarter 2007, the Company reported net loss attributable to common stockholders of $958,426, or $0.01 per fully diluted share. This represents a 53.9% reduction in net loss attributable to common stockholders compared with third quarter 2006's $2.08 million, or $0.04 per fully diluted share. NINE MONTH FINANCIAL RESULTS For the nine months ended September 30, 2007, revenues decreased 15.5% to $16.5 million, as compared to revenues of $19.5 million for the nine months ended September 30, 2006. Cost of revenue was $12.6 million, or 76.2% of revenue for the nine months ended September 30, 2007, representing a decrease of $2.8 million, or 18.0%, as compared to $15.4 million, or 78.6% of revenue for the nine months ended September 30, 2006. Gross profit of $3.9 million for the nine months to September 30, 2007, declined from $4.19 million for the same period in the prior year. Nine month operating expenses fell more than $1.5 million to $7.28 million compared with operating expenses of $8.85 million for the nine months ended September 30, 2006. The operating loss declined to $3.35 million in the nine months to September 30, 2007 from $4.66 million for the same period in the prior year. For the first nine months of 2007, the Company reported net loss attributable to common stockholders of $8.0 million, or $0.13 per fully diluted share, compared with a loss attributable to common stockholders of $8.50 million, or $0.17 per fully diluted share, for the first nine months of 2006. About Conversion Services International, Inc. Conversion Services International, Inc. (CSI) is a leading provider of professional services focusing on strategic consulting, data warehousing, business intelligence, business process reengineering, as well as integration and information technology management solutions. CSI offers an array of products and services to help companies define, develop, and implement the warehousing and strategic use of both enterprise-wide and specific categories of strategic data. CSI's customers include ADP, Coach, Goldman Sachs, Liberty Mutual, Merck, Morgan Stanley, and Pfizer. Information about CSI can be found on the web at http://www.csiwhq.com/ or by calling its corporate headquarters at 888-CSI-5036. Note on Forward-Looking Statements Except for the historical information contained herein, this press release contains, among other things, certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such statements may include, without limitation, statements with respect to CSI's plans, objectives, expectations and intentions and other statements identified by words such as "may," "could," "would," "should," "believes," "expects," "anticipates," "estimates," "intends," "plans" or similar expressions. These statements are based upon the current beliefs and expectations of CSI's management and are subject to significant risks and uncertainties, including the ability of CSI to be in compliance with all applicable American Stock Exchange continued listing requirements, the ability to maintain revenue growth, the ability to locate and acquire other businesses and to successfully integrate such acquisitions, the ability to decrease operating expenses, and those detailed in CSI's filings with the Securities and Exchange Commission. Actual results may differ from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond CSI's control). CSI undertakes no obligation to update publicly any forward-looking statements. Investor Relations: Media Contact: Porter, LeVay & Rose, Inc. Tracee Lee Beebe Andrew Berlin, Account Executive Marketing & Communications Jeffrey Myhre, VP - Editorial Conversion Services International, Inc. 212-564-4700 973-560-9400 - FINANCIAL TABLES TO FOLLOW - CONVERSION SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, (Unaudited) Three months ended Nine months ended September 30, September 30, 2007 2006 2007 2006 REVENUE: Services $4,786,700 $5,190,322 $14,261,026 $17,178,485 Related party services 438,321 698,739 1,460,265 1,866,680 Reimbursable expenses 232,454 178,082 797,054 497,303 5,457,475 6,067,143 16,518,345 19,542,468 COST OF REVENUE: Services (inclusive of stock based compensation of zero and $0.2 million and $0.1 million and $0.3 million for the three and nine months ended September 30, 2007 and 2006, respectively). 3,287,460 4,062,219 10,411,797 13,057,721 Related party services 397,213 660,299 1,316,833 1,736,311 Consultant expenses 318,021 197,762 859,373 561,376 4,002,694 4,920,280 12,588,003 15,355,408 GROSS PROFIT 1,454,781 1,146,863 3,930,342 4,187,060 OPERATING EXPENSES Selling and marketing (inclusive of stock based compensation of $0.1 million for the three and nine months ended September 30, 2007 and $0.2 million and $0.4 million for the three and nine months ended September 30, 2006). 877,316 1,167,067 2,600,983 3,565,446 General and administrative (inclusive of stock based compensation of $0.1 million and zero for the three and nine months ended September 30, 2007 and $0.1 million and $0.5 million for the three and nine months ended September 30, 2006). 1,030,437 1,559,658 3,395,334 4,431,923 Lease impairment - - 210,765 - Goodwill impairment - 245,000 557,055 245,000 Depreciation and amortization 142,111 195,828 518,206 607,477 2,049,864 3,167,553 7,282,343 8,849,846 LOSS FROM OPERATIONS (595,083) (2,020,690) (3,352,001) (4,662,786) OTHER INCOME (EXPENSE) Equity in loss from investments (3,649) (37,339) (15,630) (48,005) Gain (loss) on financial instruments - 760,791 19,329 (715,212) Loss on early extinguishment of debt - - (288,060) (2,311,479) Interest expense, net (194,314) (605,249) (3,781,516) (2,444,795) (197,963) 118,203 (4,065,877) (5,519,491) LOSS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS (793,046) (1,902,487) (7,417,878) (10,182,277) INCOME TAXES - - - - NET LOSS FROM CONTINUING OPERATIONS (793,046) (1,902,487) (7,417,878) (10,182,277) DISCONTINUED OPERATIONS - Gain on disposal of discontinued operations - - - 2,050,000 - - - 2,050,000 NET LOSS (793,046) (1,902,487) (7,417,878) (8,132,277) Accretion of issuance costs associated with convertible preferred stock (95,000) (124,375) (389,076) (282,708) Dividends on convertible preferred stock (70,380) (52,640) (208,099) (92,223) NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(958,426) $(2,079,502) $(8,015,053) $(8,507,208) Basic net loss per common share from continuing operations $(0.01) $(0.04) $(0.12) $(0.20) Basic net income per common share from discontinued operations $ - $ - $ - $0.04 Basic net loss per common share $(0.01) $(0.04) $(0.12) $(0.16) Basic net loss per common share attributable to common stockholders $(0.01) $(0.04) $(0.13) $(0.17) Diluted net loss per common share from continuing operations $(0.01) $(0.04) $(0.12) $(0.20) Diluted net income per common share from discontinued operations $ - $ - $ - $0.04 Diluted net loss per common share $(0.01) $(0.04) $(0.12) $(0.16) Diluted net loss per common share attributable to common stockholders $(0.01) $(0.04) $(0.13) $(0.17) Weighted average shares used to compute net income (loss) per common share: Basic 73,796,475 51,921,996 63,106,416 51,190,806 Diluted 73,796,475 51,921,996 63,106,416 51,190,806 CONVERSION SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 2007 2006 ASSETS (Unaudited) CURRENT ASSETS Cash $29,479 $668,006 Accounts receivable, net of allowance for doubtful accounts of $330,092 and $279,422 as of September 30, 2007 and December 31, 2006, respectively 3,220,713 3,912,000 Accounts receivable from related parties, net of allowance for doubtful accounts of zero and $8,972 as of September 30, 2007 and December 31, 2006, respectively 326,741 330,006 Prepaid expenses 115,495 132,087 TOTAL CURRENT ASSETS 3,692,428 5,042,099 PROPERTY AND EQUIPMENT, at cost, net 188,148 265,084 OTHER ASSETS Goodwill; (Note 4) 6,269,650 6,826,705 Intangible assets, net of accumulated amortization of $1,657,637 and $1,265,958 as of September 30, 2007 and December 31, 2006, respectively 875,177 1,266,856 Deferred financing costs, net of accumulated amortization of $95,652 and $52,609 as of September 30, 2007 and December 31, 2006, respectively 14,348 57,391 Discount on debt issued, net of accumulated amortization of $2,053,691 and $1,793,921 as of September 30, 2007 and December 31, 2006, respectively 526,310 786,079 Equity investments 84,952 176,152 Other assets 304,844 110,445 8,075,281 9,223,628 Total Assets $11,955,857 $14,530,811 CONVERSION SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Line of credit; (Note 5) $1,915,045 $5,795,552 Current portion of long-term debt 15,258 578,685 Accounts payable and accrued expenses 2,436,935 2,009,729 Short term notes payable; (Note 6) 2,935,191 2,745,000 Deferred revenue 34,430 74,450 Related party note payable; (Note 12) 98,999 110,831 TOTAL CURRENT LIABILITIES 7,435,858 11,314,247 LONG-TERM DEBT, net of current portion 1,834,111 1,769,154 DEFERRED TAXES 363,400 363,400 Total Liabilities 9,633,369 13,446,801 CONVERTIBLE PREFERRED STOCK, $0.001 par value, $100 stated value, 20,000,000 shares authorized. SERIES A CONVERTIBLE PREFERRED STOCK, 19,000 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively 633,333 348,333 SERIES B CONVERTIBLE PREFERRED STOCK, 20,000 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively - 1,248,806 COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $0.001 par value, 200,000,000 shares authorized; 77,923,174 and 57,625,535 issued and outstanding at September 30, 2007 and December 31, 2006, respectively 77,923 57,625 SERIES B CONVERTIBLE PREFERRED STOCK, 20,000 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively 1,352,883 - Additional paid in capital 59,076,236 50,829,255 Treasury stock, at cost, 1,145,382 shares in treasury as of September 30, 2007 and December 31, 2006, respectively (423,869) (423,869) Accumulated deficit (58,394,018) (50,976,140) Total Stockholders' Equity (Deficit) 1,689,155 (513,129) Total Liabilities and Stockholders' Equity (Deficit) $11,955,857 $14,530,811 http://www.newscom.com/cgi-bin/prnh/20060421/NYF015LOGO DATASOURCE: Conversion Services International, Inc. CONTACT: Investor Relations, Andrew Berlin, Account Executive, or Jeffrey Myhre, VP - Editorial, both of Porter, LeVay & Rose, Inc., +1-212-564- 4700, for Conversion Services International, Inc.; Media Contact, Tracee Lee Beebe, Marketing & Communications, Conversion Services International, Inc., +1-973-560-9400, Web site: http://www.csiwhq.com/

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