U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported in the Initial Report):
FEBRUARY 1, 2002
-----------------
INFOCROSSING, INC.
(Exact name of issuer as specified in its charter)
DELAWARE 0-20824 13-3252333
------------------------------- ----------- ------------------
(State or other jurisdiction of Commission (IRS Employer
incorporation or organization) File Number Identification No.)
2 CHRISTIE HEIGHTS STREET LEONIA, NEW JERSEY 07605
(Address of principal executive offices)
(201) 840-4700
(Issuer's telephone number)
N/A
(Former name or former address, if changed
since last report.)
ITEM 2. ACQUISITION OF ASSETS
On February 5, 2002, Infocrossing, Inc. (the "Registrant") (Nasdaq: IFOX)
entered into a Stock Purchase Agreement with American Software, Inc., a Georgia
corporation ("ASI") whereby the Registrant purchased all of the outstanding
capital stock of AmQUEST, Inc., a Georgia corporation ("AmQUEST"), from ASI (the
"AmQUEST Acquisition"). At the closing, cash consideration totaling $20,283,072
was paid to ASI. The Registrant financed this acquisition with (i) the
$10,000,000 proceeds from the private placement of Senior Subordinated
Debentures with detachable warrants and (ii) cash held by the Registrant. This
amount is subject to adjustment upon a subsequent final determination of the
working capital of AmQUEST.
AmQUEST is a managed services provider that delivers technology infrastructure
management services to enterprise clients. AmQUEST's principal assets consist of
rights under contracts, leases and licenses of the employees, equipment, real
estate, and intellectual property used in performing AmQUEST's business. From
and after the AmQUEST Acquisition, AmQUEST has continued to operate its business
as a wholly-owned subsidiary of the Registrant.
The purpose of this amendment is to provide the financial statements and pro
forma financial information required by Item 7.
ITEM 7A. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Appendix A: Audited Financial Statements of AmQUEST as of April 30, 2001 and
2000 and for each of the years in the three year period ended April 30, 2001
Appendix B: Unaudited Financial Statements of AmQUEST as of January 31, 2002 and
April 30, 2001 and for the three and nine month periods ended January 31, 2002
and 2001
ITEM 7B. PRO FORMA FINANCIAL INFORMATION
Appendix C: Unaudited Condensed Consolidated Pro Forma Financial Information as
of and for the year ended December 31, 2001
ITEM 7C. EXHIBITS
The following exhibits are filed herewith:
Exhibit 23 Consent of KPMG LLP.
The following exhibits filed with the initial Current Report on Form 8-K dated
February 1, 2002 for the AmQUEST Acquisition and the related financing are
incorporated herein by reference.
Exhibit 2.1 Stock Purchase Agreement dated as of February 5, 2002
by and between Infocrossing Inc. and American
Software, Inc.
Exhibit 4.1 Securities Purchase Agreement dated as of February 1,
2002 by and between Infocrossing, Inc. and the
Purchasers named therein.
Exhibit 4.2 Form of Debenture of Infocrossing, Inc.
Exhibit 4.3 Warrant Agreement dated as of February 1, 2002 by and
between Infocrossing as Issuer and the Warrantholders
party thereto.
Exhibit 99.1 Press Release of Infocrossing, Inc., and American
Software, Inc., dated February 5, 2002.
Exhibit 99.2 Guaranty Agreement dated as of February 1, 2002 by
and between the Infocrossing, Inc. Subsidiaries named
therein, Infocrossing, Inc. and the Purchasers named
therein.
Exhibit 99.3 Management Rights Letter dated as of February 1, 2002
between Infocrossing, Inc. and the Purchasers named
therein.
Exhibit 99.4 Amended and Restated Registration Rights
Agreement dated as of February 1, 2002 by and between
Infocrossing, the DB Holder named therein, the
Sandler Holders named therein and the Camden Holders
named therein.
Exhibit 99.5 Second Amended and Restated Stockholders' Agreement
dated as of February 1, 2002 by and between
Infocrossing and the Stockholders named therein.
Exhibit 99.6 Agreement Letter dated as of February 1, 2002 between
Infocrossing Inc., the Warrantholders named therein
and the Camden entities named therein.
Exhibit 99.7 Lease Agreement, dated as of February 5, 2002,
between ASI Properties, Inc. and AmQUEST, Inc.
Exhibit 99.8 Guaranty of Lease, dated as of February 5, 2002, from
Infocrossing, Inc. to ASI Properties, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INFOCROSSING, INC.
Date: April 17, 2002 /s/
----------------- --------------------------------------
Nicholas J. Letizia
Secretary, Sr. VP & General Counsel
APPENDIX A
AUDITED FINANCIAL STATEMENTS OF AMQUEST AS OF APRIL 30, 2001 AND 2000
AND FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED APRIL 30, 2001
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
Financial Statements
April 30, 2001 and 2000
(With Independent Auditors' Report Thereon)
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report A-2
Balance Sheets as of April 30, 2001 and 2000 A-3
Statements of Operations for the Years ended
April 30, 2001, 2000, and 1999 A-4
Statements of Stockholder's Equity (Deficit)
for the Years ended April 30, 2001, 2000,
and 1999 A-5
Statements of Cash Flows for the Years ended
April 30, 2001, 2000, and 1999 A-6
Notes to Financial Statements A-7
A-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AmQUEST, Inc.:
We have audited the accompanying balance sheets of AmQUEST, Inc. (a wholly owned
subsidiary of American Software, Inc.) - (the "Company") as of April 30, 2001
and 2000, and the related statements of operations, stockholder's equity
(deficit), and cash flows for each of the years in the three-year period ended
April 30, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmQUEST, Inc. at April 30, 2001
and 2000, and the results of its operations and its cash flows for each of the
years in the three-year period ended April 30, 2001 in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG, LLP
July 13, 2001
Atlanta, Georgia
A-2
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
Balance Sheets
(in thousands, except share amounts)
APRIL 30,
---------------------------
ASSETS 2001 2000
Current assets:
Accounts receivable, net of allowance for doubtful accounts of
$336 and $98 at April 30, 2001 and 2000, respectively $ 2,061 2,034
Due from Parent -- 219
Due from affiliates 651 643
Deferred income taxes 7 83
Prepaid expenses and other current assets 338 231
------------ -------------
Total current assets 3,057 3,210
Property and equipment, net 4,594 4,035
------------ -------------
$ 7,651 7,245
============ =============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of obligations under capital leases $ 1,587 1,493
Due to Parent 7,624 --
Accounts payable 1,416 1,080
Accrued expenses 1,103 1,576
Deferred income taxes 7 83
Deferred revenue 270 1,140
------------ -------------
Total current liabilities 12,007 5,372
Obligations under capital leases, net of current portion 1,045 907
------------ -------------
Total liabilities 13,052 6,279
------------ -------------
Stockholder's equity (deficit):
Common stock, no par value; 100,000 shares
authorized, issued and outstanding -- --
Additional paid-in capital 601 601
Retained earnings (deficit) (6,002) 365
------------ -------------
Total stockholder's equity (deficit) (5,401) 966
Commitments (note 7)
------------ -------------
$ 7,651 7,245
============ =============
See accompanying notes to financial statements.
A-3
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
Statements of Operations
(in thousands, except share and per share data)
YEARS ENDED APRIL 30,
------------------------------------------------------------
2001 2000 1999
--------------------- -------------------- -----------------
Revenues:
Managed services $ 19,088 18,474 16,129
IT services 1,991 1,792 1,378
Other 45 2,328 1,634
--------------------- -------------------- -----------------
Total revenues 21,124 22,594 19,141
--------------------- -------------------- -----------------
Cost of revenues:
Managed services 19,047 16,685 13,728
IT services 2,503 2,238 778
Other 45 1,167 1,514
--------------------- -------------------- -----------------
Total cost of revenues 21,595 20,090 16,020
--------------------- -------------------- -----------------
Gross (loss) profit (471) 2,504 3,121
Operating expenses:
Research and development costs 284 -- --
Sales and marketing 2,496 1,341 996
General and administrative 2,647 1,783 1,455
--------------------- -------------------- -----------------
Operating (loss) income (5,898) (620) 670
Other income -- 7 36
Interest expense (469) (106) (128)
--------------------- -------------------- -----------------
(Loss) income before income (6,367) (719) 578
tax benefit (expense)
Income tax benefit (expense) 39 171 (226)
--------------------- -------------------- -----------------
Net (loss) income $ (6,328) (548) 352
===================== ==================== =================
Net (loss) income per share:
Basic and diluted $ (63.28) (5.48) 3.52
===================== ==================== =================
Basic and diluted weighted-average
common shares outstanding 100,000 100,000 100,000
===================== ==================== =================
See accompanying notes to financial statements.
A-4
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
Statements of Stockholder's Equity (Deficit)
(in thousands, except share amounts)
COMMON STOCK
-----------------------------------
NUMBER TOTAL
OF ADDITIONAL RETAINED STOCKHOLDER'S
SHARES PAID-IN EARNINGS EQUITY
ISSUED AMOUNT CAPITAL (DEFICIT) (DEFICIT)
----------------- -------------------------------------------------------------------
Balances at April 30, 1998 100,000 $ -- 601 732 1,333
Net income -- -- -- 352 352
----------------- -------------------------------------------------------------------
Balances at April 30, 1999 100,000 -- 601 1,084 1,685
Income tax benefit recognized on
separate company income tax basis -- -- -- (171) (171)
Net loss -- -- -- (548) (548)
----------------- -------------------------------------------------------------------
Balances at April 30, 2000 100,000 -- 601 365 966
Income tax benefit recognized on
separate company income tax basis -- -- -- (39) (39)
Net loss -- -- -- (6,328) (6,328)
----------------- -------------------------------------------------------------------
Balances at April 30, 2001 100,000 $ -- 601 (6,002) (5,401)
================= ===================================================================
See accompanying notes to financial statements.
A-5
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
Statements of Cash Flows
(in thousands)
YEARS ENDED APRIL 30,
------------------------------------------------------------
2001 2000 1999
-------------------- ----------------- --------------------
Cash flows from operating activities:
Net (loss) income $ (6,328) (548) 352
Adjustment to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment 2,908 2,671 2,491
Loss on disposal of property and equipment -- -- 4
Deferred income taxes -- -- 10
Changes in operating assets and liabilities:
Due from/to Parent 7,804 (209) (577)
Due from/to affiliates (8) 330 (153)
Accounts receivable (27) (406) (107)
Prepaid expenses and other current assets (107) (81) (48)
Accounts payable 336 16 162
Accrued expenses (473) 726 434
Deferred revenue (870) 1,140 --
-------------------- ----------------- --------------------
Net cash flows provided by 3,235 3,639 2,568
operating activities
Cash flows from investing activities - purchase of property
and equipment (1,160) (1,371) (302)
Cash flows from financing activities - payments of
capital lease obligations (2,075) (2,268) (2,266)
-------------------- ----------------- --------------------
Net change in cash and cash -- -- --
equivalents
Cash and cash equivalents at beginning of year -- -- --
-------------------- ----------------- --------------------
Cash and cash equivalents at end of year $ -- -- --
==================== ================= ====================
Supplemental disclosure of cash paid for interest $ 365 106 128
==================== ================= ====================
Supplemental disclosure of noncash activities:
Assumption of capital lease obligations for property
and equipment $ 2,307 2,290 1,941
==================== ================= ====================
Income tax benefit recognized on separate
company income tax basis $ 39 171 --
==================== ================= ====================
See accompanying notes to financial statements.
A-6
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
Notes to Financial Statements
April 30, 2001, 2000, and 1999
(in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) DESCRIPTION OF BUSINESS
AmQUEST, Inc. (the "Company") is a hosting service provider
offering Web and application hosting services to Application
Service Providers ("ASP"), independent software vendors, system
integrators, and network service providers. The Company is
headquartered in Atlanta, Georgia, and is a wholly owned
subsidiary of American Software, Inc. ("ASI" or the "Parent").
(B) REVENUE RECOGNITION
Revenues principally consist of monthly managed services fees
charged to application hosting customers, including related
parties, under contracts having terms that typically range from
one to five years. Managed services fees charged to third-party
customers have both a fixed and variable component and are
recognized in the month the service is rendered over the contract
period. Managed services fees charged to the Parent and affiliates
are determined based on an allocation of the Company's total cost
of services. The allocation is derived from specific cost
identification, actual direct labor hours, and actual central
processing unit usage. Information technology ("IT") services
revenues consist of fees charged to customers for managing
information technology activities and are recognized in the month
the services are performed.
Other revenues primarily represent IT services performed for the
Parent and affiliates and revenues generated from third-party
customers which are not considered core to the managed services
and IT services segments. Other revenues are recognized in the
month the services are performed.
(C) DEFERRED REVENUE
Deferred revenue represents payments received from customers or
billings invoiced to customers for services in advance of revenue
recognition.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization on
property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets. Property and
equipment held under capital leases and leasehold improvements are
amortized over the shorter of the lease term or estimated useful
lives of the assets. The estimated useful lives of the assets are
as follows:
Computer equipment and purchased software 3 to 5 years
Furniture and fixtures 5 years
Leasehold improvements 3 years
A-7
(E) INCOME TAXES
The Company accounts for income taxes using the asset and
liability method. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases, and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
The Company's results of operations are included in the
consolidated Federal income tax return filed by ASI. The Company's
income tax liability has been computed for financial statement
purposes as if the Company filed separate income tax returns. To
the extent the tax computation produces a tax benefit for the
Company, the Parent intends to pay such amounts to the Company
only if and when realized by the Parent by the reduction in income
taxes payable with respect to the current tax period. The Parent
had net operating loss carryforwards of approximately $42 million
at April 30, 2001 which must be utilized by the Parent before the
Company would receive payment for any currently generated tax
benefits. Accordingly, the calculated income tax benefit for the
years ended April 30, 2001 and 2000 is recorded as a distribution
in the statement of stockholder's equity (deficit).
(F) STOCK COMPENSATION
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No.
25"), Accounting for Stock Issued to Employees, and related
interpretations, in accounting for fixed plan stock options. As
such, compensation expense is recorded on the date of grant only
if the current estimated fair value of the underlying stock
exceeds the exercise price. The Company has also provided pro
forma disclosures as if the fair value-based method of accounting
prescribed by Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock Based Compensation, had been used to
account for its fixed plan stock options.
(G) COMPUTATION OF NET INCOME (LOSS) PER SHARE
The Company has presented net income (loss) per share pursuant to
SFAS No. 128, Earnings Per Share, and the Securities and Exchange
Commission Staff Accounting Bulletin ("SAB") No. 98. Pursuant to
SFAS No. 128, unvested stock is excluded from basic earnings per
share and included in diluted earnings per share if dilutive.
Pursuant to SAB No. 98, common stock and convertible preferred
stock issued for nominal consideration, prior to the effective
date of an initial public
A-8
offering, are required to be included in the calculation of basic
and diluted net income (loss) per share, as if they were
outstanding for all periods presented. The Company has not had any
such issuances or grants for nominal consideration.
(H) ADVERTISING COSTS
Advertising costs are immaterial and expensed as incurred.
(I) FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments,
including accounts receivable and accounts payable, approximates
fair market value.
(J) REFERENCE TO PERIODS PRESENTED
References within the notes to the financial statements to 2001,
2000, and 1999 relate to the years ended April 30, 2001, 2000, and
1999, respectively.
(K) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with accounting
principles generally accepted in the United States of America.
Actual results could differ from those estimates.
(L) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED
ASSETS TO BE DISPOSED OF
The Company evaluates its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets or intangibles may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(M) COMPREHENSIVE INCOME (LOSS)
There are no differences between net income (loss) and
comprehensive income (loss) for any period presented.
A-9
(2) RELATED PARTY TRANSACTIONS
ASI provides marketing services, employees, and office space to the
Company; allows the Company to participate in insurance coverage and
benefit plans; and provides certain other administrative services to the
Company. The statements of operations include an allocation of these
expenses incurred by ASI on behalf of the Company based on specific
identification, direct labor hours, head count, and square footage of
leased properties which amounted to $1,537, $1,067, and $963 during 2001,
2000, and 1999, respectively. Management believes the methods of
allocation are reasonable.
The Company provides certain managed services and IT services to its
Parent and affiliates. The related intercompany revenues are determined
based on an allocation of the Company's total cost of services, which is
derived from specific cost identification, actual direct labor hours
incurred, and actual central processing unit usage. Intercompany managed
services revenues are included in "managed services" revenues in the
accompanying statements of operations together with those revenues
generated from third-party customers. Intercompany IT services revenues
are included in "other" revenues in the accompanying statements of
operations together with those revenues generated from third-party
customers which are not considered core to the managed services and IT
services segments. Intercompany managed services revenues were $3,543,
$3,776, and $4,078 for the years ended April 30, 2001, 2000, and 1999,
respectively. Intercompany IT services revenues were $45, $202, and $561
for the years ended April 30, 2001, 2000, and 1999, respectively. There
is no mark-up from cost in recognizing revenue on intercompany managed
services and IT services.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
APRIL 30,
----------------------------------
2001 2000
-------------- ---------------
Computer equipment $ 9,041 12,663
Purchased software 922 578
Furniture and fixtures 35 33
Leasehold improvements 11 11
-------------- ---------------
10,009 13,285
Less accumulated depreciation and amortization (5,415) (9,250)
-------------- ---------------
$ 4,594 4,035
============== ===============
A-10
(4) STOCK COMPENSATION
The Company has not issued any stock options; however, certain employees
of the Company have received stock options of ASI. Under SFAS No. 123,
ASI applies the provisions of APB Opinion No. 25 and related
interpretations in accounting for its stock option plans. Had
compensation cost for the Company's share of stock-based compensation
plans been determined consistent with SFAS No. 123, the Company's net
(loss) income and net (loss) income per share would have been as follows:
2001 2000 1999
----------------- -------------------- -------------------
Net (loss) income:
As reported $ (6,328) (548) 352
Pro forma (6,658) (862) 220
Net (loss) income per common share:
As reported $ (63.28) (5.48) 3.52
Pro forma (66.58) (8.62) 2.20
The fair value of each option grant was determined using the same
assumptions as those used by ASI and is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
2001 2000 1999
---------------- ---------------- ----------------
Dividend yield $ 0% 0% 0%
Expected volatility 121.2% 104.9% 85.9%
Risk-free interest rate 5.9% 5.6% 5.6%
Expected life 8 years 8 years 8 years
(5) ACCRUED EXPENSES
Accrued expenses consist of the following:
APRIL 30,
----------------------------------
2001 2000
-------------- ---------------
Accrued operating lease payments $ 373 987
Accrued wages, salaries, and employee benefits 472 458
Other 258 131
-------------- ---------------
$ 1,103 1,576
============== ===============
A-11
(6) INCOME TAXES
The Company is included in the consolidated Federal income tax return
filed by ASI; however, the Company has provided for income taxes as if it
were filing a separate income tax return.
The provision for income tax expense (benefit) consists of the following:
2001 2000 1999
----------- ---------- -----------
Current:
Federal $ (35) (154) 181
State (4) (17) 35
----------- ---------- -----------
(39) (171) 216
----------- ---------- -----------
Deferred:
Federal -- -- 9
State -- -- 1
----------- ---------- -----------
-- -- 10
----------- ---------- -----------
$ (39) (171) 226
=========== ========== ===========
The Company's actual income tax expense (benefit) differs from the
"expected" income tax expense (benefit) calculated by applying the
Federal statutory rate of 34% to income (loss) before provision for
income taxes as follows:
2001 2000 1999
----------- ----------- -----------
Computed "expected" income tax expense (benefit) $ (2,165) (244) 197
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income
tax effect (245) (23) 25
Nondeductible and other items 11 46 4
Valuation allowance for deferred
income tax assets 2,360 50 --
----------- ----------- -----------
$ (39) (171) 226
=========== =========== ===========
A-12
The income tax effects of temporary differences that give rise to
significant portions of the deferred income tax assets and deferred
income tax liabilities computed on a separate return basis at April 30,
2001 and 2000 are presented as follows:
APRIL 30,
-------------------------------------
2001 2000
----------------- ----------------
Deferred income tax assets:
Accruals not deducted for tax purposes $ 96 96
Allowances for doubtful accounts 128 37
Net operating loss carryforwards 2,076 --
Other 117 --
----------------- ----------------
Total gross deferred income tax assets 2,417 133
Less valuation allowance (2,410) (50)
----------------- ----------------
Net deferred income tax assets 7 83
Deferred income tax liability - property and equipment (7) (83)
----------------- ----------------
Net deferred income tax asset $ -- --
================= ================
The net change in the valuation allowance for deferred income tax assets
for 2001 and 2000 was an increase of $2,360 and $50, respectively. In
assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate
realization of deferred income tax assets is dependent upon several
factors, including the generation of future taxable income during the
periods in which those temporary differences become deductible and the
timing and amount of ASI earnings. Management considers the scheduled
reversal of deferred income tax liabilities, projected future taxable
income of the Company and ASI, and tax planning strategies in making this
assessment.
At April 30, 2001, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $5 million which expires in
varying amounts through 2021.
(7) COMMITMENTS
(A) LEASES
The Company is obligated under various capital leases for certain
computer equipment and purchased software that expire at various
dates during the next three years. At April 30, 2001, the amount
of equipment and related accumulated amortization recorded under
capital leases was as follows:
Computer equipment and purchased software $ 6,743
Less accumulated amortization 4,001
----------------
$ 2,742
================
A-13
Amortization of assets held under capital leases is included with
depreciation expense.
The Company also has several noncancelable operating leases,
primarily for computer equipment and software, that expire over
the next three years. These leases generally contain renewal
options for periods ranging from three to five years and require
the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases during 2001, 2000,
and 1999 was $3,731, $2,706, and $1,244, respectively.
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) and
future minimum capital lease payments as of April 30, 2001 are as
follows:
YEAR ENDING CAPITAL OPERATING
APRIL 30, LEASES LEASES
-------------------- --------------- ---------------
2002 $ 1,573 1,054
2003 945 491
2004 179 171
--------------- ---------------
Total minimum lease payments 2,697 1,716
===============
Less amount representing interest (at rates of
2.00% through 7.90%) 65
---------------
Present value of minimum capital
lease payments 2,632
Less current installments of obligations under
capital leases 1,587
---------------
Obligations under capital leases,
excluding current installments $ 1,045
===============
(B) 401(K) PROFIT SHARING PLAN
The employees of the Company are offered the opportunity to
participate in the ASI 401(k) Profit Sharing Plan (the "401(k)
Plan"), which is intended to be a tax-qualified defined
contribution plan under Section 401(k) of the Internal Revenue
Code. Employees who have completed one year of service are
eligible to participate in the 401(k) Plan. Eligible employees may
contribute up to 15% of pretax income to the 401(k) Plan. Subject
to certain limitations, the Company may make a discretionary
matching contribution at an amount determined by the Board of
Directors of the Company. The Company made contributions of $70,
$36, and $44 for 2001, 2000, and 1999, respectively.
A-14
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
Notes to Financial Statements
April 30, 2001, 2000, and 1999
(in thousands, except per share data)
(8) BUSINESS AND CREDIT CONCENTRATIONS
Two customers (excluding intercompany amounts) accounted for 17% of the
Company's revenue in 2001, two customers accounted for 30% of the
Company's revenue in 2000, and two customers accounted for 29% of the
Company's revenue in 1999. Total accounts receivable outstanding from
these customers were approximately $662 and $350 at April 30, 2001 and
2000, respectively.
The Company generally does not require collateral on accounts receivable
as the majority of its customers are large, well established companies.
The Company estimates an allowance for doubtful accounts based on the
creditworthiness of its customers, general economic conditions, and other
factors. Consequently, an adverse change in those factors could affect
the Company's estimate of its uncollectible accounts receivable.
(9) SEGMENT INFORMATION
The Company discloses business segment information in accordance with
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 establishes standards for the way public
business enterprises are to report selected financial information about
operating segments in financial reports issued to stockholders. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers.
The Company operates in two segments based on services provided in two
product markets. Managed services provides data center infrastructure,
network outsourcing services, and e-commerce solution hosting and
monitoring. IT services provides professional staffing assistance.
A-15
SEGMENT INFORMATION
YEARS ENDED APRIL 30,
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
Revenue:
Managed services $ 19,088 18,474 16,129
IT services 1,991 1,792 1,378
Other 45 2,328 1,634
----------------------------------------------------
Total $ 21,124 22,594 19,141
====================================================
Gross profit (loss):
Managed services $ 41 1,789 2,401
IT services (512) (446) 600
Other -- 1,161 120
----------------------------------------------------
Total $ (471) 2,504 3,121
====================================================
Capital expenditures (including capital lease additions):
Managed services $ 3,450 3,510 2,134
IT services 7 14 6
Other 10 137 103
----------------------------------------------------
Total $ 3,467 3,661 2,243
====================================================
Depreciation and amortization:
Managed services $ 2,852 1,852 1,699
IT services 9 6 5
Other 47 813 787
----------------------------------------------------
Total $ 2,908 2,671 2,491
====================================================
APRIL 30, APRIL 30,
2001 2000
-------------------------------------
Identifiable assets:
Managed services $ 7,085 5,591
IT services 95 107
Other 471 1,547
-------------------------------------
Total $ 7,651 7,245
=====================================
A-16
APPENDIX B
UNAUDITED FINANCIAL STATEMENTS OF AMQUEST AS OF JANUARY 31, 2002 AND
APRIL 30, 2001 AND FOR THE THREE AND NINE MONTH PERIODS ENDED JANUARY 31,
2002 AND 2001
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
INDEX TO FINANCIAL STATEMENTS
PAGE
Balance Sheets as of January 31, 2002
(Unaudited) and April 30, 2001 B-2
Unaudited Statements of Operations for
the Three and Nine Month Periods
ended January 31, 2002 and 2001 B-3
Unaudited Statements of Cash Flows
for the Nine Month Periods ended
January 31, 2002 and 2001 B-4
Notes to Financial Statements (Unaudited) B-5
B-1
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
Balance Sheets
(in thousands, except share amounts)
JANUARY 31, APRIL 30,
------------------ -------------------
ASSETS 2002 2001
------------------ -------------------
(UNAUDITED)
Current assets:
Accounts receivable, net of allowance for doubtful accounts of $30
and $336 at January 31, 2002 and April 30, 2001, respectively $ 1,683 2,061
Due from affiliates -- 651
Deferred income taxes 7 7
Prepaid expenses and other current assets 260 338
------------------ -------------------
Total current assets 1,950 3,057
Property and equipment, net 2,759 4,594
Other long-term assets 79 --
------------------ -------------------
$ 4,788 7,651
================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of obligations under capital leases $ 1,027 1,587
Due to Parent -- 7,624
Accounts payable -- 1,416
Accrued expenses 1,442 1,103
Deferred income taxes 7 7
Deferred revenue -- 270
------------------ -------------------
Total current liabilities 2,476 12,007
Obligations under capital leases, net of current portion 374 1,045
------------------ -------------------
Total liabilities 2,850 13,052
------------------ -------------------
Stockholder's equity (deficit):
Common stock, no par value; 100,000 shares
authorized, issued and outstanding -- --
Additional paid-in capital 9,658 601
Accumulated deficit (7,720) (6,002)
------------------ -------------------
Total stockholder's equity (deficit) 1,938 (5,401)
Commitments
------------------ -------------------
$ 4,788 7,651
================== ===================
See accompanying notes to financial statements.
B-2
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
Statements of Operations (Unaudited)
(in thousands, except share and per share data)
THREE MONTHS ENDED JANUARY 31, NINE MONTHS ENDED JANUARY 31,
--------------------------------------------------------------------------------
2002 2001 2002 2001
--------------------- ----------------------------------------------------------
Revenues:
Managed services $ 4,373 4,584 13,303 13,087
IT staffing services 256 516 730 1,778
Other -- 439 -- 1,107
--------------------- ------------------- ------------------ -----------------
Total revenues 4,629 5,539 14,033 15,972
--------------------- ------------------- ------------------ -----------------
Cost of revenues:
Managed services 3,667 4,766 11,670 12,539
IT staffing services 167 673 574 2,205
Other -- 759 -- 1,966
--------------------- ------------------- ------------------ -----------------
Total cost of revenues 3,834 6,198 12,244 16,710
--------------------- ------------------- ------------------ -----------------
Gross profit (loss) 795 (659) 1,789 (738)
Operating expenses:
Research and development costs -- -- -- 284
Sales and marketing 401 680 1,519 1,843
General and administrative 438 1,018 1,420 1,851
--------------------- ------------------- ------------------ -----------------
Operating loss (44) (2,357) (1,150) (4,716)
Interest expense (188) (78) (568) (208)
--------------------- ------------------- ------------------ -----------------
Loss before (232) (2,435) (1,718) (4,924)
income tax benefit
Income tax benefit -- -- -- --
--------------------- ------------------- ------------------ -----------------
Net loss $ (232) (2,435) (1,718) (4,924)
===================== ==========================================================
Net loss per share:
Basic and diluted $ (2.32) (24.35) (17.18) (49.24)
===================== ==========================================================
Basic and diluted weighted-average
common shares outstanding 100,000 100,000 100,000 100,000
===================== ==========================================================
See accompanying notes to financial statements.
B-3
AMQUEST, INC.
(A Wholly Owned Subsidiary of American Software, Inc.)
Statements of Cash Flows (Unaudited)
(in thousands)
NINE MONTHS ENDED JANUARY 31,
------------------------------------------
2002 2001
------------------ ------------------
Cash flows from operating activities:
Net loss $ (1,718) (4,924)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment 1,872 2,165
Loss on disposal of property and equipment (3) --
Changes in operating assets and liabilities:
Due from/to Parent 1,904 5,268
Accounts receivable 378 (153)
Prepaid expenses and other assets (1) 53
Accounts payable and accrued expenses (897) 619
Deferred revenue (270) (505)
------------------ ------------------
1,265 2,523
Net cash flows provided by operating activities
Cash flows from
investing activities - purchase of property
and equipment (34) (803)
Cash flows from financing activities - payments of
capital lease obligations (1,231) (1,720)
------------------ ------------------
Net change in cash and cash equivalents -- --
Cash and cash equivalents at beginning of year -- --
------------------ ------------------
Cash and cash equivalents at end of year $ -- --
================== ==================
Supplemental disclosure of cash paid for interest $ 140 65
================== ==================
Assumption of capital lease obligations for
property and equipment $ -- 2,537
================== ==================
Amounts due to the Company's parent and affiliates
contributed by the parent to paid in capital $ 9,057 --
================== ==================
See accompanying notes to financial statements.
B-4
AMQUEST, INC.
Notes to Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The financial statements present the accounts of AmQUEST, Inc. ("AmQUEST" or the
"Company"). Through January 31, 2002, the Company was a wholly-owned subsidiary
of American Software, Inc. ("ASI"). Certain disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted. These interim
financial statements should be read in conjunction with the Company's Audited
Financial Statements for the year ended April 30, 2001.
The balance sheet as of January 31, 2002, the statements of operations for the
three and nine months ended January 31, 2002 and 2001, and the statements of
cash flows for the nine months ended January 31, 2002 and 2001 have not been
audited. In the opinion of management, all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations, and cash flows for the periods indicated have
been made. The results of operations for the periods ended January 31, 2002 and
2001 are not necessarily indicative of the operating results for the full fiscal
years.
Commitments - The Company is obligated under various capital leases for certain
computer equipment and purchased software that expire at various dates during
the next three years. The Company also has several noncancelable operating
leases, primarily for computer equipment and software, which expire over the
next three years. Please refer to Note 7 of Notes to Financial Statements in the
Annual Report as of April 30, 2001 for details of these obligations.
(2) CAPITAL CONTRIBUTION
As of January 31, 2002, in anticipation of the transaction discussed in Note 3,
ASI agreed to contribute $9,057,275 to the Paid in Capital of the Company. This
amount includes $180,000 of outstanding accounts payable; the remainder equals
the net obligation of the Company to ASI and its affiliated companies.
B-5
(3) SALE OF AMQUEST
On February 5, 2002, the Company's parent corporation, American Software, Inc.,
a Georgia corporation ("ASI") entered into a Stock Purchase Agreement with
Infocrossing, Inc., a Delaware corporation ("Infocrossing") pursuant to which
Infocrossing purchased all of the outstanding capital stock of AmQUEST from ASI.
At the closing, cash consideration totaling $20,283,735 was paid by Infocrossing
to ASI. This amount will be subject to adjustment upon a subsequent final
determination of the working capital of AmQUEST.
Infocrossing (formerly Computer Outsourcing Services, Inc.) and its wholly-owned
subsidiaries provide comprehensive information technology outsourcing services
to companies, institutions, and government agencies.
AmQUEST has operated two segments based on services provided to two distinct
product markets. Managed Services provides data center infrastructure, network
outsourcing services, and e-commerce solutions. IT Services involved providing
professional staffing assistance. Prior to the date of the sale, the IT Services
segment was transferred to ASI and was not part of the transaction with
Infocrossing.
After the date of the acquisition, the Company will continue to operate the
Managed Services segment as a wholly-owned subsidiary of Infocrossing.
B-6
APPENDIX C
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2001
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
On February 5, 2002, Infocrossing, Inc. (the "Registrant") (Nasdaq: IFOX)
entered into a Stock Purchase Agreement with American Software, Inc., a Georgia
corporation ("ASI") whereby the Registrant purchased all of the outstanding
capital stock of AmQUEST, Inc., a Georgia corporation ("AmQUEST"), from ASI (the
"AmQUEST Acquisition"). At the closing, cash consideration totaling $20,283,072
was paid to ASI. The Registrant financed this acquisition with (i) the
$10,000,000 proceeds from the private placement of Senior Subordinated
Debentures with detachable warrants and (ii) cash held by the Registrant. This
amount is subject to adjustment upon a subsequent final determination of the
working capital of AmQUEST.
The following unaudited condensed consolidated pro forma financial information
(the "Pro Forma Information") is presented to illustrate the effects of the
acquisition of AmQUEST by the Registrant as if such transaction had occurred on
the first day of the period presented in the unaudited condensed consolidated
pro forma statement of operations (January 1, 2001) and on the last day of the
period for the unaudited condensed consolidated pro forma balance sheet
(December 31, 2001). The Pro Forma Information is based on the historical
statements of the Registrant, as of and for the year ended December 31, 2001,
and AmQUEST, as of and for the twelve months ended January 31, 2002, giving
effect to the acquisition under the purchase method of accounting subject to the
adjustments in the accompanying notes to the Pro Forma Information. Accordingly,
the assets and liabilities acquired have been recorded at their estimated fair
values, which are subject to further adjustment based upon future events and
analysis. The Pro Forma Information has been prepared by the Registrant's
management without audit.
The Pro Forma Information may not be indicative of the results that actually
would have occurred had the combination been in effect on the date indicated,
nor does it purport to indicate the results which may be obtained in the future.
The Pro Forma Information should be read in conjunction with the financial
statements and notes thereto of AmQUEST appearing in appendices A and B to this
Report and the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001.
C-1
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 2001
(IN THOUSANDS)
INFOCROSSING, PRO FORMA PRO FORMA
ASSETS INC. AMQUEST, INC. ADJUSTMENTS CONSOLIDATED
------------------ ----------------- ----------------- ------------------
Current assets:
Cash and equivalents $ 24,344 $ -- $ (10,344) a $ 14,000
accounts receivable, net of
allowances for doubtful accounts 2,411 1,683 -- 4,094
Prepaid expenses and other current assets 2,012 267 67 a 2,346
------------------ ----------------- ----------------- ------------------
Total current assets 28,767 1,950 (10,277) 20,440
Property and equipment, net 17,173 2,759 (877) b 19,055
Goodwill 7,737 -- 20,139 c 27,876
Deferred software and other intangibles, net 2,571 -- 1,200 b 3,771
Other non-current assets 2,526 79 133 a 2,738
------------------ ----------------- ----------------- ------------------
$ 58,774 $ 4,788 $ 10,318 $ 73,880
================== ================= ================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
current portion of obligations
under capital leases $ 894 $ 1,027 $ -- $ 1,921
Current portion of long-term debt 1,000 -- -- 1,000
Accounts payable 1,915 -- -- 1,915
Accrued expenses 9,558 1,442 2,256 d 13,256
Deferred revenue and other current liabilities 451 7 -- 458
------------------ ----------------- ----------------- ------------------
Total current liabilities 13,818 2,476 2,256 18,550
Obligations under capital leases,
net of current portion 1,871 374 -- 2,245
Long-term debt, net of current portion 1,762 -- 8,280 a 10,042
Other long-term liabilities 3,398 -- -- 3,398
------------------ ----------------- ----------------- ------------------
Total liabilities 20,849 2,850 10,536 34,235
------------------ ----------------- ----------------- ------------------
Preferred stock 43,961 -- -- 43,961
------------------ ----------------- ----------------- ------------------
Stockholder's equity (deficit):
Common stock 59 -- -- 59
Additional paid-in capital 59,054 9,658 (7,938) a, e 60,774
Treasury stock (2,756) -- -- (2,756)
Retained earnings (deficit) (62,393) (7,720) 7,720 e (62,393)
------------------ ----------------- ----------------- ------------------
Total stockholders' equity (deficit) (6,036) 1,938 (218) (4,316)
------------------ ----------------- ----------------- ------------------
$ 58,774 $ 4,788 $ 10,318 $ 73,880
================== ================= ================= ==================
See accompanying notes to unaudited condensed consolidated
pro forma financial information.
C-2
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA PRO FORMA
INFOCROSSING, INC. AMQUEST, INC. ADJUSTMENTS CONSOLIDATED
------------------------------------------------------------------ ------------------
Revenues:
Managed services $ 26,986 $ 18,242 $ -- $ 45,228
IT staffing services -- 943 (943) f --
--------------------- ---------------------- ----------------- ------------------
Total revenues 26,986 19,185 (943) 45,228
--------------------- ---------------------- ----------------- ------------------
Operating costs:
Managed services 33,349 16,257 (2,068) g,h 47,538
IT staffing services -- 872 (872) f --
--------------------- ---------------------- ----------------- ------------------
Total cost of revenues 33,349 17,129 (2,940) 47,538
--------------------- ---------------------- ----------------- ------------------
Gross profit/(loss) (6,363) 2,056 1,997 (2,310)
Operating expenses:
Sales and marketing 3,597 2,172 (466) h 5,303
General and administrative 10,636 2,216 (1,018) h,i,j 11,834
Loss on lease facilities 5,650 -- -- 5,650
amortization of restricted
stock award 9,823 -- -- 9,823
Amortization of goodwill 644 -- -- c 644
--------------------- ---------------------- ----------------- ------------------
Operating loss (36,713) (2,332) 3,481 (35,564)
Interest income/(expense) 886 (829) (2,222) a,k (2,165)
--------------------- ---------------------- ----------------- ------------------
(Loss) income before income tax
benefit (expense) (35,827) (3,161) 1,259 (37,729)
Income tax benefit (expense) (697) 39 -- (658)
--------------------- ---------------------- ----------------- ------------------
Net loss (36,524) (3,122) 1,259 (38,387)
Accretion and dividends on
redeemable preferred stock (8,524) -- -- (8,524)
--------------------- ---------------------- ----------------- ------------------
Net loss to common
stockholders $ (45,048) $ (3,122) $ 1,259 $ (46,911)
================================================================== ==================
Net loss per share:
Basic and diluted $ (7.77) $ (8.09)
======================= ==================
Basic and diluted weighted-average
common shares outstanding 5,801,312 5,801,312
======================= ==================
See accompanying notes to unaudited condensed consolidated
pro forma financial information.
C-3
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
a) The Registrant paid $20,284,000 at closing. This amount is subject to
adjustment upon the subsequent final determination of AmQUEST's working
capital. The Registrant financed this acquisition with (i) the
$10,000,000 proceeds from the private placement of Senior Subordinated
Debentures with detachable warrants and (ii) cash held by the
Registrant. The warrants have been valued at $1,720,000, and the
debentures have been recorded at $8,280,000. The difference between
the initial book value of the debentures and their face value will be
accreted using the interest method over the three-year initial term of
the debentures through a charge to interest expense. The debentures
bear interest, payable semi-annually (either in cash or by issuing
additional debentures and warrants), at 12% for the first two years and
13% for the third year. The Registrant can elect to extend the
maturity of the debentures for a fourth year, during which the interest
rate will be 14%. Financing costs of $200,000 were incurred, of which
$60,000 was paid and $140,000 was accrued at closing. These costs will
be amortized over the three-year initial term of the debentures as a
charge to interest expense. For a complete description of this
financing, see the Current Report on Form 8-K filed on February 5, 2002
by the Registrant, to which this Form is an amendment.
b) The carrying amounts of certain fixed assets have been adjusted to
estimated fair market values, and the estimated fair value of
intangible assets acquired, consisting of customer contracts, has been
recorded based upon an independent appraisal.
c) In accordance with the provisions of FASB Statements No. 141 and 142,
the goodwill resulting from the acquisition of AmQUEST has not been
amortized and the historical amortization of goodwill of Infocrossing
has not been eliminated in the pro forma statement of operations.
d) Accrual of various costs of the transaction, including legal and other
fees, severance, and other liabilities incurred in connection with the
business combination in the amount of $1,008,000. Also accrued is
$1,248,000 of committed payments for leases and telecommunication
charges for equipment and services not required for continuing
operations.
e) Elimination of the AmQUEST stockholder's equity. The fair value of the
warrants of $1,720,000 is also recorded as Paid in Capital.
See a) above.
f) This segment of AmQUEST's business was not purchased by the Registrant.
g) Reduction of $1,185,000 of expenses relating to the equipment and
services noted in d) above.
h) Reductions in expense as a result of synergies between the two
operations totaling approximately $1,396,000. Of this amount, $883,000
is in operating costs, $466,000 in selling expenses, and $47,000 in
administrative expenses.
C-4
i) The amortization of the intangible assets noted in b) above total
$324,000 in the first year.
j) Reduction in administrative overhead allocated by ASI to AmQUEST of
approximately $1,295,000.
k) Reduction in interest earnings of approximately $387,000 on the
$10,000,000 cash used for the purchase, plus $1,230,000 of interest on
the debentures, $538,000 in accretion of the discount, and $67,000 of
amortization of financing costs as noted in a) above.
C-5