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

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission File Number 000-50849

KANBAY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)

6400 Shafer Court, Suite 100
Rosemont, Illinois 60018
Phone: (847) 384-6100
(Address, including zip code, and telephone number
(including area code) of registrant's principal executive office)

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

None.

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

        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: ý    No: o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K ý.

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes: o    No: ý

        The aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant on July 27, 2004, which was the day the Registrant completed an initial public offering of shares of its common stock, based on the closing sale price of $14.90 per share on such date on the Nasdaq National Market, was $245,683,120. Shares of common stock beneficially owned by each director and executive officer and by each person who beneficially owned 5% or more of the outstanding common stock have been excluded because such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

        As of March 23, 2005, the Registrant had 33,881,482 shares of common stock, $0.001 par value per share, outstanding.

Documents Incorporated By Reference

        Certain sections of the Registrant's Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual Meeting of Stockholders for the year ended December 31, 2004 (the "2005 Proxy Statement") are to be filed with the Securities and Exchange Commission within 120 days after the Registrant's fiscal year ended December 31, 2004 are incorporated by reference into Part III of this Report.

KANBAY INTERNATIONAL, INC.

TABLE OF CONTENTS

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PART I.

Item 1. Business

General

        We are a global provider of information technology, or IT, services and solutions focused on the financial services industry. We combine technical expertise with deep industry knowledge to offer a broad suite of services, including business process and technology advice, software package selection and integration, application development, maintenance and support, network and system security and specialized services through our global delivery model. Our three tier global delivery model combines onsite client relationship teams, senior technical and industry experts at our offsite regional service centers and cost-effective global delivery centers in India. The three tiers of our global delivery model help us to provide our clients with value-enhancing solutions using a seamless, consistent and cost-effective client service approach.

        We focus on the financial services industry and provide our services primarily to credit service companies, banking institutions, capital markets firms and insurance companies. In providing our services, we utilize a wide array of technologies to develop customized solutions that address our clients' specific needs. As of December 31, 2004, Household International (and its affiliates within the HSBC Group), Morgan Stanley, and CitiFinancial (an affiliate of Citigroup), were among our top clients.

        Our engagements with our top clients typically involve numerous projects and multiple business units within each client and vary in complexity, scope and duration. We seek to expand our client relationships and migrate each client over time from discrete initial engagements to longer-term, recurring projects. For example, over the past several years we have successfully deepened our relationship with our largest client, Household International. For the year ended December 31, 2004, Household International, which is also our largest stockholder with approximately 14.2% of our common stock, and its affiliates within the HSBC Group, accounted for 55.6% of our total revenues. Similarly, we have successfully developed our relationship with our second largest client, Morgan Stanley, which owns approximately 4.7% of our common stock and accounted for 10.3% of our total revenues in the year ended December 31, 2004. Our five largest clients together accounted for 80.4% of our total revenues in the year ended December 31, 2004. For each of 2004 and 2003, we received at least 90% of our total revenues from clients that we worked with during the prior year.

        We have operated our business since 1989 and converted from a limited liability company to a corporation in August 2000. Our corporate headquarters are located in Rosemont, Illinois. We have regional offices located in eight countries and delivery centers in Pune and Hyderabad, India, where 2,619 technical professionals were based as of December 31, 2004. We own a 49.0% interest in SSS Holdings Corporation Limited ("SSS"), which is based in Liverpool, England and focuses on providing IT services to the securities industry.

Initial Public Offering

        On July 27, 2004, we completed the initial public offering of shares of our common stock. In connection with our initial public offering, we issued and sold 5,362,500 shares of common stock and Household Investment Funding, Inc. ("HIFI"), which is our largest stockholder and an affiliate of our largest client, Household International, sold 1,787,500 shares of common stock at an offering price of $13.00 per share. On August 4, 2004, certain other selling stockholders sold an aggregate of 1,072,500 shares of common stock at the initial public offering price of $13.00 per share upon the exercise of the underwriters' over-allotment option. We did not receive any proceeds from the sale of the 1,787,500 shares sold by HIFI or the 1,072,500 shares sold by the other selling stockholders pursuant to the underwriters' over-allotment option. After deducting underwriting discounts, commissions and offering-related expenses, the initial public offering resulted in net proceeds to us of approximately $60 million.

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Secondary Public Offering

        On December 13, 2004, we completed a secondary public offering of shares of our common stock. In connection with this offering, certain of our stockholders, including HIFI and certain members of our management team, sold 5,000,000 shares of common stock at a public offering price of $26.50 per share. On December 28, 2004, certain of these selling stockholders sold an additional 750,000 shares of common stock at the public offering price of $26.50 per share upon the exercise of the underwriters' over-allotment option. We did not receive any proceeds from this offering.

Accurum Acquisition

        On March 3, 2005, we acquired Accurum, Inc., an IT services provider to the capital markets industry. Accurum provides application development, enterprise application integration, web services, data warehousing and quality assurance and testing within the front and middle office of capital markets firms, including sales and trading, risk management and research. We expect that this acquisition will complement the solutions that we offer to our capital markets clients in the areas of asset management, investment banking and securities trading. Accurum has 169 employees worldwide, located in offices in New York and New Jersey and a solution center in Chennai, India. The purchase price consisted of a $5 million closing payment, subject to certain adjustments, plus contingent payments of up to $7 million payable upon the achievement of certain performance targets. Accurum will continue to operate under its own name as a wholly-owned subsidiary of ours.

Industry Background

        The role of IT has evolved from simply supporting business enterprises to enabling their expansion and transformation. To succeed in today's marketplace, companies must respond rapidly to market trends, create new business models and improve productivity. Multiple technology platforms and an enhanced emphasis on security and back-up facilities have increased the complexity and cost of IT systems, resulting in greater IT-related risks. The increased complexity, cost and risk have created a growing need for specialists with experience in leveraging technology to support business strategy and expansion.

        Many companies have been forced to reduce their IT budgets as well as place a greater emphasis on closely managing IT spending and improving their return on investments. To accomplish these objectives, many IT departments have shifted all or a portion of their IT development, integration and maintenance requirements to outside IT service providers. In the current market environment, the global financial services industry is faced with a number of challenges, including increased regulatory scrutiny, growing competition and ongoing domestic and international consolidation. Consequently, companies within the financial services industry are looking externally for solutions that allow them to reduce costs and improve performance. Total global IT services spending within the financial services industry is expected to increase from $138.6 billion in 2004 to $177.7 billion in 2008, representing a compound annual growth rate of 6.4%. The financial services industry is expected to account for approximately 23% of total global IT services spending from 2004 to 2008.

Competitive Strengths

        We believe our competitive strengths include:

        Deep industry expertise.    We have developed expertise in the financial services industry, with a specific focus on credit services companies, banking institutions, capital markets and insurance. Our industry focus has enabled us to acquire a thorough understanding of our clients' business issues and applicable technologies, which allows us to deliver services and solutions tailored to each client's needs. We combine our deep knowledge of industry practices and challenges with an understanding of our clients' requirements to provide high quality, timely services. Because of our specific industry focus, a significant economic downturn in the financial services industry could negatively affect our business.

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        Three-tier global delivery model.    Our global delivery model allows us to provide each of our clients with a responsive and accessible relationship management team at the client's location, a readily available offsite team of technology and industry experts at one of our regional delivery centers and a cost-effective application development, maintenance and support team at one of our global delivery centers in India. We believe the processes and technology infrastructure comprising our three-tier global delivery model enable us to effectively integrate our onsite and offsite execution capabilities to deliver seamless, consistent services on a global basis. Although our global delivery model allows us to provide these benefits to our clients, demand for our services could decline as a result of negative public perception regarding, or new legislation restricting, the use of offshore IT service providers.

        Commitment to attracting, developing and retaining the highest quality employees.    We believe we have established a business culture throughout Kanbay that enables us to attract and retain the best available industry talent. From 2002 to 2004, we retained an average of 88% of our employees even though the number of our employees grew significantly. We believe that our high employee retention rate provides tangible benefits to our clients, such as low turnover on long-term engagements, retention of knowledge which can be applied to new projects, consistent quality and competent and responsive personnel. We expect that we will continue to grow and our anticipated growth could place a significant strain on our ability to maintain our culture and provide these tangible benefits to our clients.

        Long-term client relationships.    We have long-standing relationships with many large, international companies within the financial services industry. We focus on building enduring relationships with both existing and new clients and strive to achieve close interaction at every level of their organizations. Our ability to successfully deliver consistent, seamless solutions on a global basis combined with our deep knowledge of the financial services industry helps us expand the breadth and scope of our engagements with existing clients. We manage client relationships with our relationship development methodology, which helps us to migrate our clients over time from discrete initial engagements to longer-term, recurring projects. Because of our long-standing relationships, we have historically earned, and believe that in the future we will continue to earn, a significant portion of our revenues from a limited number of clients.

        Scalable global business model.    We believe that the combination of our three-tier global delivery model and our financial services industry focus allows us to quickly deploy project teams to engage new projects and rapidly meet client needs. Our ability to rapidly deploy our project teams on new engagements and to provide our services to our clients is dependent on many factors, including continued compliance with various immigration restrictions and the maintenance of our global communications infrastructure.

Risk Factors

        Our business, financial condition and operating results may suffer if any of the following risks are realized:

•

we lose any of our significant clients;



•

the financial services industry experiences a significant economic downturn;



•

we are unable to compete effectively against our larger competitors;



•

negative perception or new legislation regarding offshore IT service providers reduces demand for our services; or



•

we experience cost increases or disruptions of our operations in India.

        For a more detailed discussion of the risk factors that may affect our business, financial condition and operating results, please see Exhibit 99.1 to this report, which is incorporated by reference herein.

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Our Services

        We offer a broad suite of services to companies in the financial services industry that combines our industry expertise and technology capabilities. Our service offerings are fully integrated and include the following:

        Business process and technology advisory services.    We assist our clients by recommending the solution that is most appropriate to accomplish their objective in a cost-effective and timely manner. Through our business process and technology advisory services, we deploy our senior consultants and industry and technical experts to advise clients about how to best address business challenges and achieve objectives through the appropriate use of technology. Our consultants and experts offer industry perspectives and best practices in order to assist our clients with defining, optimizing and aligning their business objectives.

        Software package selection and integration.    We assist our clients in the selection and integration of software packages developed by third party vendors. Our employees have expertise in various software packages spanning our target sectors within the financial services industry, including electronic notification software for the banking industry, real-time credit card transaction processing applications, application and payment processing solutions for insurance companies and portfolio accounting applications for investment management firms.

        Application development, maintenance and support.    We provide application development, maintenance and support services for our clients' technology platforms, from web servers to legacy mainframes. Our application development capabilities span the software development life cycle, including defining software requirements, writing software programs and designing, prototyping, building, integrating, producing and implementing custom applications.

        Network and system security.    Our network and system security services include consulting on internet security assessment and strategy, developing internet security solutions and reviewing and monitoring internet security on an ongoing basis. In addition, we implement network and system security solutions such as identity authentication, encryption, firewalls, intrusion detection, anti-virus shields, virtual private networks, content management, application traffic management and biometrics. We have entered into reseller agreements with certain network and system security software vendors to license and support their software products.

        Specialized services.    Some of the specialized services we offer our clients include business intelligence, application management outsourcing and application testing and validation. Our business intelligence services utilize our tools and third party software to enable our clients to discover trends in their internal business or customer data and compare those trends to market data. Our application management outsourcing services can include employing clients' existing application support employees, transitioning to new applications, transforming legacy applications and executing longer-term service level agreements. Our application testing and validation services offer a unique pay-per-use model that enables clients to minimize costs by paying for these services as needed.

Our Clients

        We provide our services to companies in the financial services industry with a particular focus on credit service companies, banking institutions, capital markets firms and insurance companies.

        We have long-standing relationships with many large, international companies within the financial services industry. We focus on building enduring relationships with both existing and new clients through our relationship development methodology, which helps us migrate our clients from discrete initial engagements to longer-term, recurring projects. As a result, we have historically earned, and believe that we will continue to earn, a significant portion of our revenues from a limited number of clients. Household International, which is our largest client and our largest stockholder, accounted for 55.6%, 53.2% and 47.4% of our total revenues in the years ended December 31, 2004, 2003 and 2002,

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which in 2004 and 2003, included revenues from its affiliates within the HSBC Group. Morgan Stanley, which is our second largest client, accounted for 10.3%, 13.0% and 13.5% of our total revenues in the years ended December 31, 2004, 2003 and 2002. Our five largest clients together accounted for 80.4%, 80.7% and 74.7% of our total revenues in the years ended December 31, 2004, 2003 and 2002.

Credit Services

        We service various credit services companies, including, bank card and retail (private label) card issuers, payment processors and technology vendors. We have long-standing relationships with credit services companies around the world, such as Household International, CitiFinancial, Development Bank of Singapore and HDFC Bank.

        We provide our services to these credit services companies to help them accomplish various objectives, including:

•

improving their ability to process new and existing accounts;



•

collecting delinquent accounts;



•

organizing demographic information and customer purchasing history for marketing to new accounts;



•

enhancing their customer service capabilities; and



•

streamlining their processes for credit approval and financial authorization.

Banking Institutions

        The banking institutions we serve include multi-national commercial and retail banks and consumer finance companies around the world. These institutions include Household International (and its affiliates within the HSBC Group), CitiFinancial, and American General Finance (an affiliate of AIG).

        Our solutions help these institutions:

•

enhance their product offerings by decreasing loan approval times and providing easier access to product information;



•

add new functions to existing systems to meet governmental regulatory and compliance requirements;



•

lower costs by decreasing system processing times and creating more efficient processes; and



•

increase customer satisfaction by providing easy access to account information.

Capital Markets Firms

        We serve various types of capital markets firms, including asset management institutions, securities brokerage firms, private wealth management firms, investment banking institutions, securities exchanges and hedge funds. Our largest client in this industry is Morgan Stanley.

        Our services to these capital markets firms enhance their ability to:

•

match clients with relevant market research and trading opportunities;



•

track employee performance against sales targets;



•

enable their customers to utilize extranet sites to view reports generated from multiple internal systems;



•

increase fund accountant productivity; and



•

improve access to portfolio accounting data.

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Insurance Companies

        We serve insurance companies that provide life, property and casualty, health, commercial and supplemental life insurance. These clients include such companies as Sun Life Financial, Winterthur Life, Advocate Health and The Regence Group (an affiliate of Blue Cross and Blue Shield).

        We design, develop and implement solutions for our insurance clients that:

•

enable rapid entry into new geographic markets by reducing programming hours;



•

provide insurance agents and policyholders access to policy information via the web;



•

reduce the cost of ensuring state-by-state regulatory compliance by leveraging our global delivery model;



•

simplify and automate policyholder billing and payment processes, reducing customer inquiries and needed support staff; and



•

reduce testing costs by creating a comprehensive testing environment for both initial deployment and ongoing system testing.

Our Global Delivery Model

        We believe that our three-tier global delivery model is a significant competitive strength for us because it provides the following benefits to our clients:

•

responsiveness and accessibility of a relationship team at the client's location;



•

readily available offsite senior technical and industry experts;



•

economic leverage of a technical global delivery center;



•

the ability to accelerate delivery timetables by simultaneously processing project components at different locations;



•

round-the-clock execution capability spanning multiple time zones;



•

access to a large pool of highly skilled and experienced IT professionals;



•

physical and operational separation of client projects to provide enhanced security; and



•

a knowledge management solution that enables us to leverage our global financial services industry expertise.

        The objective of our three-tier global delivery model is to effectively integrate our onsite and offsite execution capabilities to deliver seamless, consistent services on a global basis. For most engagements, a multi-site team of our employees is assembled that includes a relationship management team at the client's location, offsite senior technical and industry experts at one of our regional service centers and an application development, maintenance and support team at one of our delivery centers in India. The client's system is then connected to our system to enable simultaneous processing of project components by our onsite and offsite personnel. Our onsite and offsite project managers have joint accountability for each project.

        Our regional service centers are typically located in the client's region to offer technical and industry expertise and timely responses. Our delivery centers in Pune and Hyderabad, India offer technology and industry expertise in addition to cost-effective delivery. We intend to expand our facilities in Pune, India and to commence construction of a new facility in Hyderabad, India to replace the delivery center that we currently lease.

        Our quality control programs and processes are designed to proactively identify and effectively resolve potential problems. Our programs and processes are CMM Level 5-assessed on a global basis. In addition, we have been ISO 9001-certified each year since 2001. Our quality control employees track

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relevant metrics to ensure adherence to our processes, conduct periodic internal quality audits of our projects to facilitate project level defect prevention and perform various process improvement activities.

        Our significant investment in our communications infrastructure is designed to provide uninterrupted service to our clients. Our communications infrastructure is composed of redundant high-speed optical fiber, backup satellite links and multiple path routing between our delivery centers in India and our clients' facilities. Our delivery centers in India rely on high-speed fiber optic intra-company connectivity and an on-premises satellite earth station for redundancy. In addition, our proprietary software tools provide our clients real-time access to global project status reports and a searchable central repository for project documents. These tools also enable us to monitor and synchronize different versions of software development projects being worked on in multiple centers and minimize management overhead costs.

Global Business Development

        We market our services through our global business development group, which is divided into the following groups:

•

marketing and sales support;



•

new client business development;



•

industry practice group and alliance management leaders; and



•

client account managers supported by our relationship practices group.

        Our sales approach emphasizes our combination of deep knowledge of the financial services industry, technical expertise and reliable delivery of cost-effective solutions. The goals of our sales approach include increasing the average order amount, decreasing the length of the sales cycle, developing new and innovative business solutions and expanding our relationships with existing clients to achieve close interaction at every level of their organizations.

SSS Holdings Corporation Limited

        As of December 31, 2004, we held 49.0% of the ownership interest in SSS Holdings Corporation Limited ("SSS"), which we originally acquired in November 2000 in exchange for 2,086,697 shares of our common stock valued at approximately $15.9 million. SSS is a Liverpool, England based IT services firm focused primarily on providing software maintenance and development and business process outsourcing services to U.K. securities firms. We do not control the business, operations or dividend policy of SSS. For the year ended December 31, 2004, SSS had revenues of £34.9 million, or approximately $63.9 million, and our share of the earnings of SSS provided us with $2.5 million of equity in earnings of affiliate.

Intellectual Property

        We do not rely on patents and do not believe that patents are important to our business. We rely upon a combination of trade secrets and nondisclosure and other contractual arrangements to protect our intellectual property rights and proprietary methodologies. It is our policy to enter into confidentiality agreements with our employees and consultants, and we generally control access to and distribution of our proprietary information. We pursue the registration of certain of our trademarks and service marks in the United States and other countries. We have registered "Kanbay" and our logo in the United States, New Zealand, Japan, the European Community, China and Australia.

        We generally implement safeguards designed to protect our clients' intellectual property in accordance with our clients' needs and specifications. Compliance with these safeguards is the

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responsibility of our management and is generally monitored by our clients through inspections or audits. The safeguards we implement may include some or all of the following:

•

segregation of the work area at our global delivery centers dedicated to a particular client from the work areas dedicated to other clients;



•

limited, secure-access to a client's server room, with regular monitoring of entries and exits;



•

separate, encrypted communication links between our global developers and the client's network;



•

custom configuration of computers used for the client's project to include only the hardware and software specified by the client; and



•

training programs to ensure that our employees are aware of, and sensitive to, the client's confidentiality needs.

Competition

        We believe that the principal competitive factors in our business include the ability to:

•

strategically execute engagements to deliver value-added and reliable solutions to our clients;



•

utilize industry and technical expertise to enable our clients to achieve their business objectives;



•

attract, train and retain high quality IT and industry professionals;



•

maintain financial strength to support investment in personnel and global infrastructure;



•

complete projects on time and within budget; and



•

other cost-effective pricing of services.

        We believe that we compete effectively on all of these factors.

        The global IT service providers with whom we compete fall into three broad categories: offshore IT service providers, large consulting and other professional service firms and in-house IT departments of large corporations. Some of our competitors have significant resources and financial capabilities combined with much larger numbers of IT professionals. As a result, these competitors may be better positioned to use significant economic incentives to secure contracts with our existing and prospective clients. These competitors may also be better able to compete for skilled professionals by offering them more attractive compensation or other incentives.

        Offshore IT service providers generally have some sales presence and software consultants working in North America or Europe, but execute most of their work offshore. In India alone, there are many offshore IT service providers, with a few top companies firmly established in the global market. The offshore IT service providers with whom we primarily compete include Cognizant Technology Solutions, Infosys Technologies and Wipro.

        We also compete with large multinational IT service providers such as Accenture, BearingPoint, Cap Gemini and Deloitte & Touche, many of which have established global delivery centers in such countries as India and China to leverage the cost benefits of global delivery.

        We believe that we are well positioned against competition because we are one of the few companies that cater primarily to the financial services industry. Through our global delivery model, we combine our onsite and offsite capabilities to balance cost and customer proximity. Many offshore service providers have business operations primarily in India, which allows them to offer lower-cost services, but their lack of onsite and offsite regional capabilities causes them to sacrifice customer intimacy. On the other hand, most multi-national service providers have extensive onsite client management capabilities, but these capabilities generally include large overhead costs which increase the cost of their services. We have a strong presence in the U.S., which we believe enables us to couple proximity to customers with a strong and cost-effective global delivery and support function.

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Operating Segment and Geographic Information

        We provide IT management consulting services and operate our business as a single operating segment. The majority of our services continue to be provided to clients in North America. In 2004, approximately 86% of our revenues came from work performed in North America, 10% from Asia/Pacific and 4% from Europe. Information regarding our revenues and total assets by geographic area for the three-year period ended December 31, 2004 is presented in note 14 of the audited consolidated financial statements included in this report.

Employees

        As of December 31, 2004, we had 3,708 full-time employees. In North America, we had a total of 670 employees, including 538 IT professionals and 132 sales, marketing and administrative personnel. We have one office in the United Kingdom, with a total of 24 employees. In the Asia-Pacific region, we operate from three offices in Australia and one each in Hong Kong, Singapore and Japan, with a total of 106 employees. Our India staff works from our delivery centers in Pune and Hyderabad with a total of 2,908 employees, including 2,619 IT professionals and 289 finance, recruiting, staffing, facility management and administrative personnel.

Available Information

        Our Internet website is http://www.kanbay.com. We make available free of charge on or through our Internet website this annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonable practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

        Information contained on our website is not part of this report and shall not be deemed to be incorporated by reference into this report or any other public filing made by us with the SEC.

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Item 2. Properties

        Our principal executive offices are located in Rosemont, Illinois. Our delivery center in Pune, India consists of four buildings and houses an onsite satellite earth station, dedicated communication links to clients and a technology learning training center. We own one of the buildings in Pune and lease the other three. We currently lease our delivery center in Hyderabad, India. We have multiple leases for our facilities in Pune and Hyderabad. The terms of these leases vary and have expiration dates ranging from March 2006 to September 2007.

        As of December 31, 2004, we conducted our business from the following properties:

(1)

On March 3, 2005, we acquired Accurum, Inc. Accurum leases its offices located in New York and New Jersey and its solution center in Chennai, India. The terms of these leases vary and have expiration dates ranging from April 2007 to November 2011.

Item 3. Legal Proceedings

        We are not a party to any litigation or other legal proceedings that we believe would have a material adverse effect on our business, financial condition or operating results.

Item 4. Submission of Matters to a Vote of Security Holders

        None.

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Item 5. Market for the Company's Common Equity and Related Stockholders Matters

Market Information

        Our common stock has been traded on the Nasdaq National Market under the symbol "KBAY" since July 22, 2004. Prior to that time, there was no public market for our common stock. The following table sets forth, for the periods indicated in the fiscal year ended December 31, 2004, the high and low sales price per share for our common stock as reported on the Nasdaq National Market.

Holders

        As of March 28, 2005, there were 48 holders of record of our common stock.

Dividends

        We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, our ability to pay dividends is restricted by certain provisions contained in our revolving credit facility which provides that we may not pay any dividends without written consent from Silicon Valley Bank.

Securities Authorized for Issuance under Equity Compensation Plans

        In addition, as of December 31, 2004, there were 500,000 shares available for issuance under our Employee Stock Purchase Plan, which is an equity compensation plan approved by security holders. There are no equity compensation plans that have not been approved by security holders.

Recent Sales of Unregistered Securities

        On December 19, 2003, we issued and sold 440,062 shares of common stock in connection with the exercise of options for an aggregate exercise price of $558,570. The options were exercised by six former employees and one estate of a former employee. The options were granted in 1999 pursuant to the Kanbay International, Inc. 1998 Non-Qualified Option Plan. At the time the options were granted, each former employee was employed by or providing services to us. The sale of these shares was exempt from registration under the Securities Act pursuant to Rule 701 promulgated under Section 3(b) of the Securities Act as transactions pursuant to a written compensatory benefits plan.

        On May 21, 2004, we issued and sold 62,596 shares of common stock upon the exercise of a warrant for an aggregate exercise price of $294,043. The warrant was exercised by The Co-Investment 2000 Fund, L.P. The sale of these shares was exempt from registration under the Securities Act pursuant to Section 4(2) as a transaction not involving a public offering.

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        On November 19, 2004, we issued 40,963 shares of common stock upon the conversion of a warrant by Silicon Valley Bancshares. The sale of these shares was exempt from registration under the Securities Act pursuant to Section 4(2) as a transaction not involving a public offering.

Use of Proceeds

        On July 27, 2004, we completed our initial public offering of shares of our common stock. In connection with our initial public offering, we offered and sold 5,362,500 shares of our common stock and HIFI offered and sold 1,787,500 shares of our common stock at a price of $13.00 per share. The offer and sale of the shares in the initial public offering were registered under the Securities Act of 1933, as amended, pursuant to a registration statement on Form S-1, as amended (File No. 333-113495), which was declared effective by the Securities and Exchange Commission on July 21, 2004. The managing underwriters in this offering were UBS Securities LLC, Robert W. Baird & Co. Incorporated and Janney Montgomery Scott LLC. On August 4, 2004, certain selling stockholders offered and sold 1,072,500 additional shares of our common stock at a price of $13.00 per share upon the exercise of the underwriters' over-allotment option.

        The aggregate price of the shares sold in our initial public offering, including the shares sold pursuant to the underwriters over-allotment option, was $106.9 million. Our portion of the net proceeds from the initial public offering was $60.4 million. In connection with the initial public offering, we paid underwriting discounts and commissions of $4.9 million and offering expenses of $4.5 million. We did not receive any proceeds from the sale of the 1,787,500 shares sold by HIFI or the 1,072,500 shares sold by other selling stockholders pursuant to the underwriters' over-allotment option. The net proceeds were invested in interest bearing short term and long term marketable securities. We currently plan to spend approximately $45 million of the net proceeds for the construction of a new delivery center in Hyderabad, India and the expansion of our delivery center in Pune, India. Since June 30, 2004, we spent approximately $8 million for the renovation of our facilities in India. We plan to spend approximately $28 million in 2005 and $9 million in 2006 on facility expansion activities.

        On December 13, 2004, we completed a secondary public offering of shares of our common stock. In connection with this offering, certain of our stockholders, including HIFI and certain members of our management team, sold 5,000,000 shares of common stock at a public offering price of $26.50 per share. On December 28, 2004, certain of these selling stockholders sold an additional 750,000 shares of common stock at the public offering price of $26.50 per share upon the exercise of the underwriters' over-allotment option. We did not receive any proceeds from this offering.

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Item 6. Selected Financial Data

        The following table presents selected historical consolidated financial data as of, and for the years ended, December 31, 2000, 2001, 2002, 2003, and 2004, which has been derived from our audited consolidated financial statements. You should read this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes for the years ended December 31, 2002, 2003 and 2004, which are included in the audited consolidated financial statements.

(1)

On November 30, 2000, we acquired a 49.4% interest in SSS Holdings Corporation Limited (SSS) in exchange for 2,086,697 shares of our common stock valued at approximately $15.9 million. As of December 31, 2004, we owned approximately 49.0% of SSS. We account for SSS under the equity method of accounting.

(2)

Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 does not permit goodwill and indefinite-lived intangible assets to be amortized. Upon adoption of SFAS No. 142, we recorded a non-cash charge of $2.0 million to reduce the carrying value of goodwill. This non-cash charge was recorded as a cumulative effect of an accounting change. If we had applied SFAS No. 142 retroactively as of January 1, 2000, our net income (loss) would have been $(12.0 million) in 2000 and $(2.4 million) in 2001.

(3)

For the period from January 1, 1999 through August 23, 2000, we operated as a Delaware limited liability company (LLC). On August 24, 2000, we converted from a LLC into a Delaware C corporation when all members exchanged their common and preferred units in the LLC for an equivalent number of shares of our common and preferred stock. Income (loss) per share of common stock and average shares outstanding is presented for the years during which we operated as a C corporation.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes, which appear elsewhere in this report. It contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report.

Overview

        We are a global provider of information technology services and solutions focused on the financial services industry. We combine technical expertise with deep industry knowledge to offer a broad suite of services, including business process and technology advice, software package selection and integration, application development, maintenance and support, network and system security and specialized services, through our global delivery model. We focus on the financial services industry and provide our services primarily to four industry groups with whom we work—credit services, banking, capital markets and insurance.

        Revenues increased to $182.6&nbs