Conversion Services International Reports Third Quarter Gross Profit Soars 26%

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.,

[phone],  



Web site:  http://www.csiwhq.com/ 

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