UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended AUGUST 9, 2005
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR the transition period from ___________________ to _______________________
Commission file number: 0-20824
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INFOCROSSING, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3252333
------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2 CHRISTIE HEIGHTS STREET; LEONIA, NJ 07605
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 840-4700
Check 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 past 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 [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): [X] Yes [ ] No.
There were 20,200,466 shares of the registrant's Common Stock, $0.01 par value,
outstanding as of August 5, 2005.
Page 1
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2005 2004
--------------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 40,283 $ 26,311
Trade accounts receivable, net of allowances for doubtful accounts of
$1,420 and $249 at June 30, 2005 and December 31, 2004, respectively 19,404 26,707
Due from related parties 245 238
Prepaid income taxes 226 -
Prepaid license fees 1,802 1,585
Deferred income taxes 1,260 1,260
Other current assets 5,052 4,650
------------ ------------
Total current assets 68,272 60,751
Property, equipment and purchased software, net 27,101 25,113
Deferred software, net 1,230 1,077
Goodwill 104,228 103,177
Other intangible assets, net 11,472 12,328
Deferred income taxes 11,096 11,715
Security deposits and other non-current assets 2,321 2,489
------------ ------------
TOTAL ASSETS $ 225,720 $ 216,650
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,988 $ 9,041
Current portion of long-term debt and capitalized lease obligations 4,425 3,683
Current portion of accrued loss on leased facilities 189 217
Accrued expenses 7,824 8,056
Income taxes payable - 305
Deferred revenues 2,537 1,267
------------ ------------
Total current liabilities 20,963 22,569
Long-term debt and capitalized lease obligations, net of current portion 101,674 100,432
Accrued loss on leased facilities, net of current portion 435 505
Other long-term liabilities 2,276 1,907
------------ ------------
TOTAL LIABILITIES 125,348 125,413
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock; $0.01 par value; 3,000,000 shares authorized; none issued - -
Common stock; $0.01 par value; 50,000,000 shares authorized; shares issued of
20,869,352 and 20,395,473 at June 30, 2005 and December 31, 2004, respectively 209 204
Additional paid-in capital 156,847 150,278
Accumulated deficit (53,546) (56,107)
------------ ------------
103,510 94,375
Less 618,969 shares at June 30, 2005 and December 31, 2004,
of common stock held in treasury, at cost (3,138) (3,138)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 100,372 91,237
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 225,720 $ 216,650
============ ============
See Notes to Consolidated Financial Statements.
Page 2
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ---------------------------------------
2005 2004 2005 2004
------------------ ------------------ ------------------ -----------------
(UNAUDITED) (UNAUDITED)
REVENUES $ 35,194 $ 24,611 $ 72,721 $ 39,787
--------------- --------------- --------------- --------------
COSTS and EXPENSES:
Costs of revenues, excluding
depreciation shown below 25,506 17,567 51,353 27,790
Selling and promotion costs 1,156 905 2,114 1,641
General and administrative expenses 4,011 1,870 6,590 3,236
Depreciation and amortization 2,671 2,128 5,291 3,732
--------------- --------------- --------------- --------------
33,344 22,470 65,348 36,399
--------------- --------------- --------------- --------------
INCOME FROM OPERATIONS 1,850 2,141 7,373 3,388
--------------- --------------- --------------- --------------
Interest income (126) (37) (252) (80)
Fees related to loans repaid - 1,347 - 1,347
Interest expense 1,616 1,106 3,207 1,814
--------------- --------------- --------------- --------------
1,490 2,416 2,955 3,081
--------------- --------------- --------------- --------------
INCOME (LOSS) BEFORE
INCOME TAXES 360 (275) 4,418 307
Income tax (benefit) expense 236 (13) 1,857 (206)
--------------- --------------- --------------- --------------
NET INCOME (LOSS) $ 124 $ (262) $ 2,561 $ 513
=============== =============== =============== ==============
BASIC INCOME (LOSS) PER SHARE:
Net income (loss) $ 0.01 $ (0.01) $ 0.13 $ 0.03
=============== =============== =============== ==============
Weighted average number of common
shares outstanding 20,247,587 18,323,069 20,167,490 16,757,815
=============== =============== =============== ==============
DILUTED INCOME (LOSS) PER SHARE:
Net income (loss) $ 0.01 $ (0.01) $ 0.11 $ 0.03
=============== =============== =============== ==============
Weighted average number of
common shares and share equivalents
outstanding 22,114,261 18,323,069 22,415,204 19,019,320
=============== =============== =============== ==============
See Notes to Consolidated Financial Statements.
Page 3
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED, IN THOUSANDS)
COMMON PAR VALUE ADDITIONAL ACCUMULATED TREASURY TOTAL
SHARES PAID IN CAPITAL DEFICIT STOCK AT COST
------------ ----------- ---------------- -------------- -------------- --------------
Balances,
December 31, 2004 20,395 $ 204 $ 150,278 $ (56,107) $ (3,138) $ 91,237
Exercises of stock options
and warrants 474 5 5,890 - - 5,895
Tax credit for disqualifying
disposition of stock
options - - 679 - - 679
Net income - - - 2,561 - 2,561
------------ ----------- ------------- -------------- ----------- ------------
Balances,
June 30, 2005 20,869 $ 209 $ 156,847 $ (53,546) $ (3,138) $ 100,372
============ =========== ============= ============== =========== ============
See Notes to Consolidated Financial Statements.
Page 4
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
-------------------------------------------
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
2005 2004
-------------------- --------------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,561 $ 513
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 5,291 3,732
Additions to allowance for doubtful accounts 1,285 107
Accretion of discounted debt 62 -
Unamortized fees related to loans repaid - 1,097
Deferred income taxes 1,298 -
Non-employee option and warrant issued for services - 167
Interest due on related party balances (7) (5)
Decrease (increase) in:
Trade accounts receivable 6,018 (1,586)
Prepaid license fees and other current assets (619) (732)
Security deposits and other non-current assets 168 (824)
Increase (decrease) in:
Accounts payable (3,053) 737
Payments on accrued loss on leased facilities (72) (76)
Accrued expenses (904) (2,146)
Income taxes payable (531) 28
Deferred revenues and other liabilities 1,639 (147)
----------------- -----------------
Net cash provided by operating activities 13,136 865
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,000) (748)
Disposal of property 15 -
Payment of purchase price and costs relating to acquisitions, net of cash acquired (379) (39,087)
Increase in deferred software costs (372) (70)
----------------- -----------------
Net cash used in investing activities (2,736) (39,905)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from a private equity placement - 28,373
Proceeds from Term Loans - 15,000
Proceeds from a private placement of convertible notes - 57,900
Payment of costs related to the convertible notes and term loans (587)
Repayment of debt and capitalized leases (2,297) (41,573)
Exercises of stock options and warrants 5,895 1,051
----------------- -----------------
Net cash provided by financing activities 3,598 60,164
----------------- -----------------
Net cash provided by continuing operations 13,998 21,124
CASH FLOWS FROM DISCONTINUED OPERATION:
Payments on portion of loss on leased facilities relating to discontinued
operation (26) (27)
----------------- -----------------
Net increase in cash and equivalents 13,972 21,097
Cash and equivalents, beginning of period 26,311 10,073
----------------- -----------------
Cash and equivalents, end of the period $ 40,283 $ 31,170
================= =================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 3,198 $ 1,813
================= =================
Income taxes $ 1,095 $ 103
================= =================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY:
Equipment acquired subject to capital leases $ 4,219 $ 2,457
================= =================
Common stock issued in connection with an acquisition $ - $ 1,439
================= =================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Treasury shares received in payment of a stock option exercise $ - $ 287
================= =================
See Notes to Consolidated Financial Statements.
Page 5
INFOCROSSING, INC. AND SUBSIDIAIRES
NOTES TO THE CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Infocrossing, Inc.
and its wholly owned subsidiaries (collectively, the "Company"). All significant
inter-company balances and transactions have been eliminated.
The consolidated balance sheet as of June 30, 2005, the consolidated statements
of operations for the three and six months ended June 30, 2005 and 2004, the
consolidated statements of cash flows for the six months ended June 30, 2005 and
2004, and the consolidated statement of stockholders' equity for the six months
ended June 30, 2005 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 and cash flows
for the periods ended June 30, 2005 and 2004 are not necessarily indicative of
the operating results for the full year.
Certain reclassifications have been made to the prior periods to conform to the
current presentation.
Certain disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been
condensed or omitted. These consolidated interim financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 2004, as amended.
2. ACQUISITIONS
INFOCROSSING HEALTHCARE SERVICES, INC.
On October 1, 2004, the Company acquired the Medicaid, Medicare and Managed Care
claims processing business (the "Claims Processing Business") of Verizon
Information Technologies Inc. from Verizon Communications Inc. The sale was
structured as an acquisition of the common stock of the Claims Processing
Business. The purchase price was $43,500,000 in cash and approximately
$1,886,000 in related acquisition costs (the "IHS Acquisition"). Immediately
following the closing of the IHS Acquisition, the Claims Processing Business'
name was changed to Infocrossing Healthcare Services, Inc. ("IHS"). The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible and intangible
assets acquired and the liabilities assumed based on their respective fair
values. In connection with the allocation of the purchase price, goodwill of
$25,357,000 and an intangible asset subject to amortization in the amount of
$10,320,000, relating to contract rights and customer relationships, was
recorded. The intangible asset is being amortized over its estimated useful life
of ten years.
Page 6
The following table summarizes the preliminary amounts assigned to the
identifiable assets acquired and the liabilities assumed based on estimated fair
values as of the date of the IHS Acquisition with the remainder recorded as
goodwill.
OCTOBER 1, 2004
(IN THOUSANDS)
Trade accounts receivable $ 9,146
Other current assets 57
-----------
Total current assets 9,203
Property, equipment, and purchased software 2,049
Intangible assets subject to amortization 10,320
Goodwill 25,357
-----------
Total assets acquired 46,929
-----------
Accrued expenses (1,380)
Deferred revenues (72)
Other current liabilities (91)
-----------
Total current liabilities (1,543)
-----------
Purchase price $ 45,386
===========
Since the Company is in the process of finalizing its estimate of the fair
values of identifiable assets acquired and liabilities assumed, the allocation
of the purchase price of the IHS acquisition is subject to adjustment.
INFOCROSSING WEST, INC.
On April 2, 2004, the Company acquired all of the outstanding capital stock of
ITO Acquisition Corporation, a California corporation doing business as Systems
Management Specialists ("SMS"), from ITO Holdings, LLC for $34,909,000 in cash,
$1,224,000 in related acquisition costs and 135,892 shares of common stock of
the Company valued at approximately $1,439,000. The value of the 135,892 shares
was determined using the average market price of the Company's common stock two
days before and after March 4, 2004, when the terms of the acquisition were
determined and announced. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the purchase price was allocated to the
tangible and intangible assets acquired and the liabilities assumed based on
their respective fair values. In connection with the allocation of the purchase
price, goodwill of $41,320,000 and an intangible asset subject to amortization
in the amount of $1,650,000, relating to contract rights and customer
relationships, was recorded. In connection with an acquisition by SMS prior to
April 2004, the Company may have to pay contingent consideration for a period of
up to four years. Through June 30, 2005, such contingent consideration totaled
$657,000, which has been recorded as additional goodwill.
The results of operations of the aforementioned acquisitions are included with
that of the Company for the period subsequent to the respective acquisitions.
The following unaudited condensed combined pro forma information for the three
and six-month period ended June 30, 2004 gives effect to the IHS Acquisition and
the SMS Acquisition as if they had occurred on January 1, 2004. The SMS
Acquisition occurred as of April 1, 2004, thus the pro forma information for the
three months ended June 30, 2004 only gives effect to the IHS Acquisition. For
the purposes of the pro forma information, the Company has assumed that, other
than the related financings, it had sufficient cash to make the acquisitions.
The pro forma information may not be indicative of the results that actually
would have occurred had the transactions been in effect on the dates indicated,
nor does it purport to indicate the results that may be obtained in the future.
The pro forma information does not give effect to planned synergies and cost
savings.
Page 7
PRO FORMA INFORMATION FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004
(In Thousands except Per Share Data)
3 Months Ended June 6 Months Ended
30, 2004 June 30, 2004
Revenues $ 36,682 $ 72,319
--------------------- ------------------
Net income $ 1,913 $ 3,604
--------------------- ------------------
Basic net earnings
per share $ 0.10 $ 0.22
--------------------- ------------------
Diluted net earnings
per equivalent share $ 0.09 $ 0.19
--------------------- ------------------
3. STOCK-BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards Number 123(R) ("SFAS No. 123(R)"),
SHARE-BASED PAYMENT, which establishes standards for transactions in which an
entity exchanges its equity instruments for goods or services. This standard
requires a public entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. This eliminates the exception to account for such awards using the
intrinsic method previously allowable under APB Opinion No. 25. In accordance
with Rule 33-8568 of the Securities and Exchange Commission, SFAS 123(R) will be
effective for fiscal years beginning on or after June 15, 2005.
The Company plans to adopt SFAS 123(R) using the modified prospective method as
defined in the statement.
As permitted by SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION", the
Company currently accounts for share-based payments to employees using the
intrinsic value method prescribed by APB Opinion No. 25 and, as such, generally
recognizes no compensation cost for employee stock options. Accordingly, the
adoption of the fair value method pursuant to SFAS 123(R) will have a
significant impact on its results of operations, although it will have no impact
on its overall financial position. The impact of the adoption of SFAS 123(R)
cannot be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had the Company adopted SFAS 123(R) in
prior periods, the impact of that standard would have approximated the impact of
SFAS 123 as described in the disclosure of pro forma net income and earnings per
share below.
The Company has not determined what impact SFAS 123(R) may have on the nature of
its share-based compensation to employees in the future.
Had compensation cost been determined in accordance with SFAS No. 123, the
Company's income (loss) in thousands of dollars and basic and diluted earnings
(loss) per common share for the three and six month periods ended June 30, 2005
and 2004, respectively, would have been as follows (in thousands except per
share data):
Page 8
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ ------------------------------------
2005 2004 2005 2004
---------------- ---------------- ---------------- ----------------
Net income (loss) as reported $ 124 $ (262) $ 2,561 $ 513
Deduct stock-based
employee compensation determined
under the fair value method for all
awards, net of tax (189) (550) (1,412) (641)
----------- ------------ ----------- ------------
Pro forma income (loss) $ (65) $ (812) $ 1,149 $ (128)
=========== ============ =========== ============
Net income (loss) per share:
Basic as reported $ 0.01 $ (0.01) $ 0.13 $ 0.03
=========== ============ =========== ============
Diluted as reported $ 0.01 $ (0.01) $ 0.11 $ 0.03
=========== ============ =========== ============
Basic, pro forma $ (0.00) $ (0.04) $ 0.06 $ (0.01)
=========== ============ =========== ============
Diluted, pro forma $ (0.00) $ (0.04) $ 0.05 $ (0.01)
=========== ============ =========== ============
The Pro forma income (loss) and pro forma basic and diluted earnings (loss) per
share for the periods ended June 30, 2004 have been restated to properly account
for forfeitures.
4. BASIC AND DILUTED EARNINGS PER COMMON SHARE
The Company computes earnings per share in accordance with SFAS No. 128,
"EARNINGS PER SHARE." Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Diluted earnings per share adjusts basic earnings per share for the
effects of convertible securities, stock options and warrants and other
potentially dilutive financial instruments, only in the periods in which such
effect is dilutive. For the six and three months ended June 30, 2005, the
weighted average number of shares used in calculating diluted earnings per share
includes options and warrants to purchase common stock aggregating 2,247,714 and
1,866,674 shares, respectively. For the six and three months ended June 30,
2004, the weighted average number of shares used in calculating diluted earnings
per share includes options and warrants to purchase common stock aggregating
2,261,505 and 2,533,449 shares, respectively. The calculation for 2005 excludes
the potential conversion of the convertible debt (which would include an
adjustment to reported net income to add back the interest on the debt, net of
tax), because the effect of this adjustment would be anti-dilutive. The
convertible debt was not outstanding in the period ended June 30, 2004. The
calculation of earnings per share for the six and three months ended June 30,
2005 also excludes 1,363,650 and 1,502,150 shares, respectively, and the
calculation of earnings per share for the six and three months ended June 30,
2004 excludes 741,350 and 689,950 shares, respectively, related to
out-of-the-money stock options and warrants, because the inclusion of such
options and warrants would be anti-dilutive.
5. INCOME TAXES
In the period ended June 30, 2005, the Company recorded income tax expense of
$1,857,000, consisting of a current provision of $558,000 and a deferred
provision of $1,299,000.
At December 31, 2004, the Company had net operating loss carryforwards of
approximately $37,000,000 for federal income tax purposes that begin to expire
in 2019. The use of these net operating loss carryforwards may be limited under
Section 382 of the Internal Revenue Code, as a result of cumulative changes in
ownership of more than 50% over a three year period.
The Company reviews its deferred tax asset on a quarterly basis to determine if
a valuation allowance is required, primarily based on its estimate of future
taxable income. Changes in the Company's assessment of the need for a valuation
allowance could give rise to adjustments in the valuation allowance and tax
expense in the period of change.
At December 31, 2004, the Company had federal alternative minimum tax credit
carryforwards of approximately $60,000 that do not expire.
Page 9
6. LEGAL PROCEEDINGS
On November 1, 2004, the Company was served with a summons and complaint in a
lawsuit commenced by two former employees of ITO Acquisition Corporation d/b/a
Systems Management Specialists, now known as Infocrossing West, Inc. ("West")
filed in the Superior Court of California, Orange County (Case No. 04CC10709).
Plaintiffs asserted that they had been induced to join West in 2002 based on
promises of receiving equity interests and options to acquire additional equity
in West. Plaintiffs also asserted that on numerous occasions they had received
verbal assurance of receiving the foregoing equity interests in West. The
Company had acquired West on April 2, 2004. Plaintiffs' employment with West
terminated shortly after the Company's acquisition of West. Plaintiffs maintain
that they are entitled to direct damages of at least $15 million plus punitive
damages, costs, attorneys' fees, and other relief as the court may award. In
addition, one of the plaintiffs also asserted a claim for unpaid commissions of
approximately $30,000. On November 30, 2004, West filed an answer denying all of
plaintiffs' allegations. Discovery commenced in February 2005.
West is indemnified pursuant to the Stock Purchase Agreement between the Company
and ITO Holdings, LLC ("Holdings") dated as of March 3, 2004 (the "SPA") for
breaches of numerous representations and warranties contained in the SPA.
Holdings represented and warranted to the Company, among other things, that it
owned all of West's capital stock and there were no other equity interests or
commitments relating to West's capital stock. Holdings has confirmed its
indemnification obligations with respect to the claims asserted by plaintiffs.
If, however, discovery reveals that the commissions at issue were earned after
March 3, 2004, or if earned prior to such date, they were properly accrued, the
Company agreed to cooperate with Holdings to determine the appropriate amount of
commissions, if any, which would be due and owing from West. West believes it is
in its best interest to resolve the commissions issue early in the litigation to
avoid needless and protracted proceedings and expenses relating to such a minor
dispute. Accordingly, Holdings has agreed that West will not be responsible for,
or asked to contribute to, attorney's fees and costs associated with the
resolution of the commissions claim.
All matters were settled as of July 22, 2005. The entire settlement was paid
from an escrow account with respect to which Holdings was the beneficiary. The
escrow account had been established at the closing of the acquisition in the
event of an indemnification claim against Holdings.
7. SUBSEQUENT EVENT
The Company has $72,000,000 outstanding of 4.0% Convertible Senior Notes due
July 15, 2024 (the "Notes"). The Notes are convertible, subject to certain
conditions, at the option of the holder prior to maturity, into shares of the
Company's common stock at a specified conversion price, subject to certain
adjustments. The conversion price will be adjusted to reflect stock dividends,
stock splits, issuances of rights to purchase shares of common stock and other
events. Upon conversion, the Company will have the right to deliver to the
holders, at its option, cash, shares of common stock, or a combination thereof.
At the initial conversion price of $15.36, the $72,000,000 of Notes would be
convertible into 4,687,500 common shares. The Notes and the shares of common
stock into which they may be converted may be resold pursuant to a registration
statement on Form S-3 that became effective in August 2004. After the effective
date of the registration statement and prior to the end of the 18th month
thereafter, if the market price of the Company's common stock is less than
68.23% ($10.48) of the conversion price then in effect for at least 20 trading
days during any 30 consecutive trading day period, the conversion price shall
immediately be reduced by 17.38% (to $12.69 initially, subject to adjustment)
(the "Reset Adjustment"); provided that (i) the Reset Adjustment shall only be
applicable to Notes that have been sold or otherwise distributed pursuant to the
registration statement referred to above or pursuant to Rule 144(k) under the
Securities Act (and such adjustment shall apply to all such Notes, regardless of
whether they are so sold or distributed before or after adjustment), and (ii)
there shall be no more than one Reset Adjustment of the conversion price during
the term of the Notes. On August 5, 2005, the Reset Adjustment was triggered.
After the Reset Adjustment, the number of common shares into which the Notes may
be converted will be 5,673,759, an increase of 986,259 shares. For the three and
six month periods ended June 30, 2005, this increase in the number of shares
will not affect earnings per share, since the inclusion of the convertible
shares (which would include an adjustment to net income to add back the interest
on the Notes, net of tax) would be anti-dilutive.
Page 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Management believes that we are a leading provider of information technology, or
IT, and business process outsourcing services to enterprise customers. We
deliver a full suite of outsourced solutions that enable customers to leverage
our infrastructure and process expertise to improve their efficiency and reduce
their operating costs. During our twenty year history, we have developed
expertise in managing complex computing environments, beginning with traditional
data center outsourcing services and evolving into a comprehensive set of
managed solutions. We support a variety of customers, and assure the optimal
performance, security, reliability, and scalability of our customers' computer
platforms including mainframes, distributed servers, and networks, irrespective
of where the systems' components are located. Strategic acquisitions have
contributed significantly to our historical growth and remain an integral
component of our long-term growth strategy.
On April 2, 2004, we acquired all of the outstanding capital stock of ITO
Acquisition Corporation, a California corporation doing business as Systems
Management Specialists ("SMS"), from ITO Holdings, LLC for a total purchase
price of approximately $38,229,000 including contingent consideration, related
acquisition costs of $1,224,000 and 135,892 shares of our common stock valued at
$1,439,000 (the "SMS Acquisition"). In connection with an acquisition by SMS
prior to April 2004, the Company may have to pay contingent consideration for a
period of up to four years. Through June 30, 2005, such contingent consideration
totaled $657,000 that has been recorded as additional goodwill. In June 2004,
the name of this subsidiary was changed to Infocrossing West, Inc.
SMS, headquartered in Orange County, California, provides computing operations,
business process outsourcing, and managed application services to customers
primarily located in the western United States.
On October 1, 2004, we acquired a segment of Verizon Information Technologies
Inc. ("VITI") for a total purchase price of approximately $45,386,000 including
related acquisition costs of $1,886,000. Immediately after the acquisition we
changed VITI's name to Infocrossing Healthcare Services, Inc. ("IHS").
During 2004 we also used $7,090,000 in cash, incurred an estimated $116,000 of
acquisition-related costs, and issued 123,193 shares of common stock valued at
$1,500,000 for other acquisitions, including a business that offers e-mail
security services.
The integration of SMS was completed in early March 2005 and the integration of
the smaller acquisitions substantially was completed in 2004. The integration of
IHS is in process.
The foregoing acquisitions were recorded as purchases in accordance with the
Financial Accounting Standards Board, Statements of Financial Accounting
Standards No. 141, "Business Combinations" ("SFAS 141").
The Company and its subsidiaries operate in one reportable segment of providing
information technology and business process outsourcing services.
Certain reclassifications have been made to the prior period amounts to conform
to the current presentation.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2005 AND 2004
Net income increased by $386,000 from a loss of $262,000 for the quarter ended
June 30, 2004 (the "Prior Year's Quarter") to net income of $124,000 for the
quarter ended June 30, 2005 (the "Current Quarter") on 43% higher revenues. For
the Current Quarter, the results of operations include SMS, IHS, and other
acquisitions completed in 2004. For the Prior Year's Quarter, the results of
operations include SMS.
For the Current Quarter, revenues increased $10,583,000 (43%) to $35,194,000
from $24,611,000 for the Prior Year's Quarter. We realized approximately
$12,537,000 from customers added as the result of acquisitions completed in
2004. Excluding revenues added through acquisitions, revenues decreased by
$1,954,000 (8%). The decrease is net of growth from both new and existing
customers.
Page 11
Costs of revenues excluding depreciation increased by $7,939,000 (45%) to
$25,506,000 during the Current Quarter compared with $17,567,000 for the Prior
Year's Quarter. The increase includes costs associated with our expansion from
acquisitions completed in 2004. Costs of revenues as a percentage of revenues
increased to 72% in the Current Quarter from 71% in the Prior Year's Quarter,
reflecting a lower gross margin.
Selling and promotion costs increased by $251,000 (28%) to $1,156,000 for the
Current Quarter from $905,000 for the Prior Year's Quarter, but decreased as a
percentage of revenues to 3% for the Current Quarter from 4% for the Prior
Year's Quarter.
General and administrative expenses increased by $2,141,000 (114%) to $4,011,000
for the Current Quarter from $1,870,000 for the Prior Year's Quarter. General
and administrative expenses increased as a percentage of revenues to 11% in the
Current Quarter from 8% in the Prior Year's Quarter. Approximately $240,000, or
11% of the total increase, was related to acquisitions completed in 2004.
Approximately $1,285,000 (60% of the total increase) was added to the allowance
for doubtful accounts, including an unusual addition of $1,000,000 (pre-tax)
relating to incremental usage-based charges billed to a customer in prior
periods. We also incurred $430,000 (20%) of increased professional fees relating
to compliance costs with respect to the Sarbanes-Oxley Act of 2002 and audit
fees.
Depreciation and amortization of fixed assets and other intangibles increased
$543,000 (26%) to $2,671,000 for the Current Quarter from $2,128,000 for the
Prior Year's Quarter. Of this increase, $365,000 (67%) of depreciation of fixed
assets and amortization of other intangibles was related to acquisitions
completed in 2004. The remainder of the increase of $178,000 (33%) resulted from
fixed asset additions during the twelve months ended June 30, 2005. Depreciation
and amortization decreased as a percentage of revenues to 8% in the Current
Quarter compared with 9% in the Prior Year's Quarter.
Net interest expense decreased by $926,000 to $1,490,000 for the Current Quarter
from $2,416,000 for the Prior Year's Quarter. The results for the Prior Year's
Quarter included $1,347,000 for expensing the unamortized balance of costs
relating to approximately $40 million in term loans repaid in June 2004.
Excluding this write-off in 2004, there was a net increase of $421,000,
consisting of $510,000 in additional interest expense partially offset by
$89,000 in additional interest income. The increases in interest income and
expense are due to larger average outstanding balances of both cash and
outstanding debt, respectively, as well as increases in interest rates earned
and charged during the Current Quarter.
For the Current Quarter, we recorded a tax expense of $236,000 compared with a
tax benefit of $13,000 for the Prior Year's Quarter. The tax expense for the
Current Quarter consists of a current provision of $264,000 offset by a deferred
tax benefit of $28,000. As of December 31, 2004, we had net operating loss
carry-forwards of approximately $37 million for Federal income tax purposes that
begin to expire in 2019. The use of these net operating loss carry-forwards may
be limited in future years due to Section 382 of the Internal Revenue Code of
1986 (the "Code").
We have net income of $124,000 for the Current Quarter compared with a loss of
$262,000 for the Prior Year's Quarter. In the Current Quarter, we had income per
common share of $0.01 on both a basic and diluted basis, compared with a loss
per common share of $0.01 on both a basic and diluted basis for the Prior Year's
Quarter. The number of weighted average shares increased to approximately
20,248,000 shares for basic shares and approximately 22,114,000 shares on a
diluted basis for the Current Quarter from approximately 18,323,000 shares on
both a basic and diluted basis for the Prior Year's Quarter. The increase in
shares reflects 1,800,200 shares issued from the exercise of options and
warrants in the twelve months ended June 30, 2005 and the issuance of 123,200
shares of common stock for an acquisition in the second half of 2004. In
addition, in-the-money options to purchase 912,650 shares were granted during
the twelve months ended June 30, 2005. The shares and equivalents enumerated in
the immediately preceding sentences are in absolute amounts, not weighted
average amounts.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2005 AND 2004
Net income increased by $2,048,000 (399%) from $513,000 for the six-month period
ended June 30, 2004 (the "Prior Year's Period") to $2,561,000 for the six-month
period ended June 30, 2005 (the "Current Period") on 83% higher revenues. For
the Current Period, the results of operations include SMS, IHS, and other
acquisitions completed in 2004. For the Prior Year's Periods, the results of
operations include SMS for April through June 2004.
Page 12
For the Current Period, revenues increased $32,934,000 (83%) to $72,721,000 from
$39,787,000 for the Prior Year's Period. The Company realized approximately
$33,623,000 from customers added as the result of acquisitions completed in
2004. Excluding revenues added through acquisitions, revenues decreased by
$689,000 (2%). The decrease is net of growth from both new and existing
customers.
Costs of revenues excluding depreciation increased by $23,563,000 (85%) to
$51,353,000 during the Current Period compared with $27,790,000 for the Prior
Year's Period. The increase includes costs associated with our expansion from
acquisitions completed in 2004. Costs of revenues as a percentage of revenues
increased to 71% in the Current Period from 70% in the Prior Year's Period,
reflecting a lower gross margin.
Selling and promotion costs increased by $473,000 (29%) to $2,114,000 for the
Current Period from $1,641,000 for the Prior Year's Period, but decreased as a
percentage of revenues to 3% for the Current Period from 4% for the Prior Year's
Period.
General and administrative expenses increased by $3,354,000 (104%) to $6,590,000
for the Current Period from $3,236,000 for the Prior Year's Period. General and
administrative expenses increased as a percentage of revenues to 9% in the
Current Period from 8% in the Prior Year's Period. Approximately $814,000, or
24% of the total increase, was related to acquisitions completed in 2004.
Approximately $1,285,000 (38% of the total increase) was added to the allowance
for doubtful accounts, including an unusual addition of $1,000,000 (pre-tax)
relating to incremental usage-based charges billed to a customer in prior
periods. We also incurred $821,000 (24%) of increased professional fees relating
to compliance costs with respect to the Sarbanes-Oxley Act of 2002 and audit
fees.
Depreciation and amortization of fixed assets and other intangibles increased
$1,559,000 (42%) to $5,291,000 for the Current Period from $3,732,000 for the
Prior Year's Period. Of this increase, $1,151,000 (74%) of depreciation of fixed
assets and amortization of other intangibles was related to acquisitions
completed in 2004. The remainder of the increase of $408,000 (26%) resulted from
fixed asset additions during the twelve months ended June 30, 2005. Depreciation
and amortization decreased as a percentage of revenues to 7% in the Current
Period compared with 9% in the Prior Year's Period.
Net interest expense decreased by $126,000 to $2,955,000 for the Current Period
from $3,081,000 for the Prior Year's Period. The results for the Prior Year's
Quarter included $1,347,000 for expensing the unamortized balance of costs
relating to approximately $40 million in term loans repaid in June 2004.
Excluding this write-off in 2004, there was a net increase of $1,221,000
consisting of $1,393,000 in additional interest expense partially offset by an
increase in interest income of $172,000. The increases in interest income and
expense are due to larger average outstanding balances of both cash and
outstanding debt, respectively, as well as increases in interest rates earned
and charged during the Current Period.
For the Current Period, we recorded a tax expense of $1,857,000 compared with a
tax benefit of $206,000 for the Prior Year's Period. The tax expense for the
Current Period consists of a current provision of $558,000 and a deferred
provision of $1,299,000. The tax benefit for the Prior Year's Period included
$234,000 from the sale of New Jersey net operating loss carry-forwards. As of
December 31, 2004, we had net operating loss carry-forwards of approximately $37
million for Federal income tax purposes that begin to expire in 2019. The use of
these net operating loss carry-forwards may be limited in future years pursuant
to Section 382 of the Code.
We have net income of $2,561,000 for the Current Period compared with $513,000
for the Prior Year's Period.
In the Current Period, we had income per common share of $0.13 and $0.11 on a
basic and diluted basis, respectively, compared with income per common share of
$0.03 on both a basic and diluted basis for the Prior Year's Period. The number
of weighted average shares increased to approximately 20,167,000 basic shares
and approximately 22,415,000 shares on a diluted basis for the Current Period
from approximately 16,758,000 basic shares and approximately 19,019,000 shares
on a diluted basis for the Prior Year's Period. The increase in shares reflects
1,800,200 shares issued from the exercise of options and warrants in the twelve
months ended June 30, 2005 and the issuance of 123,200 shares of common stock
for an acquisition in the second half of 2004. In addition, in-the-money options
to purchase 972,650 shares were granted during the twelve months ended June 30,
2005. The shares and equivalents enumerated in the immediately preceding
sentences are in absolute amounts, not weighted average amounts.
Page 13
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $13,136,000 for the six-month
period ended June 30, 2005 (the "Current Period"). During the Current Period,
sources of cash included $2,561,0000 of net income adjusted for non-cash charges
of $5,291,000 of depreciation and amortization, additions to the allowance for
doubtful accounts of $1,285,000, and $1,298,000 from a decrease in deferred tax
assets; $1,639,000 from an increase in deferred revenues and other liabilities;
and $6,018,000 from a decrease in accounts receivable. Significant uses of cash
during the Current Quarter include a reduction of taxes payable and an increase
in prepaid taxes totaling $531,000; an increase in prepaid expenses and other
current assets of $619,000; and a decrease in accrued expenses and accounts
payable of $3,957,000. The utilization of a portion of the Company's net
operating loss carry-forwards is reflected in the decrease in deferred tax
assets.
Significant cash flows from investing activities include the purchase of
$2,000,000 of equipment and other property, payment of $379,000 of subsequent
contingent purchase price relating to the SMS Acquisition, and additions of
$372,000 to software development costs.
On June 30, 2004, we completed a private offering of $60,000,000 aggregate
principal amount of 4.0% Convertible Senior Notes due July 15, 2024 (the
"Notes"). Approximately $40,000,000 of the net proceeds from this offering was
used to repay 9.0% notes payable outstanding. The remaining balance was used to
fund acquisitions and for general corporate purposes. On July 6, 2004, the
initial purchaser exercised its option in full to purchase an additional
$12,000,000 of the Notes. Net proceeds after a discount of $2,520,000 and
approximately $591,000 of costs and fees were approximately $68,889,000.
Interest on the Notes is payable semi-annually in arrears each January 15th and
July 15th.
Offers and sales of the Notes were made only in the United States to qualified
institutional buyers in transactions exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"). The notes were
originally issued by us in a transaction exempt from the registration
requirements of the Securities Act and were immediately resold by the initial
purchaser in reliance on Rule 144A. The Notes and the shares of common stock
into which they may be converted may be resold pursuant to a registration
statement on Form S-3 that became effective in August 2004. We will not receive
any proceeds from any sales of common stock under this registration statement.
The Notes are convertible, subject to certain conditions, at the option of the
holder prior to maturity, into shares of our common stock at a specified
conversion price, subject to certain adjustments. The conversion price will be
adjusted to reflect stock dividends, stock splits, issuances of rights to
purchase shares of common stock and other events. Upon conversion, we will have
the right to deliver to the holders, at our option, cash, shares of our common
stock, or a combination thereof. At the initial conversion price of $15.36, the
$72,000,000 of Notes would be convertible into 4,687,500 common shares. After
the effective date of the registration statement and prior to the end of the
18th month thereafter, if the market price of our common stock is less than
68.23% ($10.48 initially, subject to adjustment) of the conversion price then in
effect for at least 20 trading days during any 30 consecutive trading day
period, the conversion price shall immediately be reduced by 17.38% (to $12.69
initially, subject to adjustment) (the "Reset Adjustment"); provided that (i)
the Reset Adjustment shall only be applicable to Notes that have been sold or
otherwise distributed pursuant to the registration statement referred to above
or pursuant to Rule 144(k) under the Securities Act (and such adjustment shall
apply to all such Notes, regardless of whether they are so sold or distributed
before or after adjustment), and (ii) there shall be no more than one Reset
Adjustment of the conversion price during the term of the Notes. On August 5,
2005, the Reset Adjustment was triggered.
The holders may convert their Notes into shares of our common stock, initially
at the conversion price of $15.36 per share, equal to a conversion rate of
approximately 65.1042 shares per $1,000 principal amount of Notes, prior to the
close of business on their stated maturity date under any of the following
circumstances: (1) during any fiscal quarter if the market price per share of
our common stock for a period of at least 20 consecutive trading days during the
30 consecutive trading day period ending on the last day of the preceding fiscal
quarter is more than 130% of the applicable conversion price; (2) on or before
July 15, 2019, during the five business-day period following any 10 consecutive
trading-day period in which the trading price for the Notes during such ten-day
period was less than 98% of the applicable conversion value for the Notes during
that period, subject to certain limitations; (3) if the Notes have been called
for redemption; or (4) upon the occurrence of specified corporate transactions.
The specified transactions
Page 14
include: (1) certain distributions to our common stockholders of rights to
acquire shares of our common stock at a discount; (2) certain distributions to
our common stockholders when the distribution has a per share value in excess of
5% of the market price of our common stock; and (3) a consolidation, merger or
binding share exchange pursuant to which our common stock will be converted into
cash, securities or other property. Upon a "change of control," as defined in
the indenture, the holders can require us to repurchase all or part of the Notes
for cash equal to 100% of principal plus accrued interest. A consolidation,
merger, or binding exchange also may constitute a "change of control" in certain
instances. If the "change of control" occurred prior to July 15, 2009, in
certain instances, we may be required to pay a "make whole premium" when
repurchasing the Notes. The amount of the "make whole premium" is set forth in
the indenture.
We have a call option, pursuant to which we may redeem the Notes, in part or in
whole, for cash at any time on or after July 15, 2007 at a price equal to 100%
of the principal amount of the Notes, plus accrued interest plus a "premium" if
the redemption is prior to July 15, 2009, provided, however, the Notes are only
redeemable prior to July 15, 2009 if the market price of our common stock has
been at least 150% of the conversion price then in effect for at least 20
trading days during any 30 consecutive trading day period. The "premium"
referred to in the preceding sentence shall be in an amount equal to $173.83 per
$1,000 principal amount of Notes, less the amount of any interest actually paid
on such Notes prior to the redemption date.
The holders of the Notes may require that we purchase for cash all or a portion
of the Notes on July 15, 2009, 2014, and 2019 at a repurchase price equal to
100% of the principal amount of the Notes plus any accrued interest. There are
no financial covenants, other than a limitation on incurring of additional
indebtedness, as defined in the indenture. We are not restricted from paying
dividends, or issuing other securities, or repurchasing other securities issued
by us under the terms of the indenture.
In July 2004, we established a $25,000,000, non-revolving loan facility,
available for use in connection with the acquisition of complementary
businesses. Advances can be made during the first three years of the term of the
facility and interest will be payable monthly in arrears at prime plus 3.0%. The
interest rate floor is 8.5%. Monthly principal payments equal to 2.5% of the
outstanding balance will commence at the conclusion of the draw period and
continue until March 2009 when any remaining balance will be due. Advances are
subject to satisfying certain acquisition criteria and the approval of the
lenders. We paid a 1.0% commitment fee at the closing of the loan and will pay
an unused facility fee at the rate of 0.75% per annum until we borrow more than
$10,000,000 on a cumulative basis. We may incur prepayment penalties if we
terminate the facility during the first 18 months or prepay any advance prior to
the one-year anniversary of the applicable borrowing date. The facility and any
loans made under the facility are guaranteed by all of our subsidiaries, and any
such loans and the guarantees are secured by a first-priority interest on
substantially all of our assets, including the capital stock and assets of the
subsidiaries. The facility contains certain covenants including, but not limited
to: a maximum leverage ratio; minimum consolidated earnings before interest,
taxes, depreciation, and amortization; a minimum debt coverage ratio; and
limitations on indebtedness, capital expenditures, investments, loans, mergers
and acquisitions, stock issuances, and transactions with affiliates. In
addition, the terms of the facility limit our ability to pay dividends.
On October 1, 2004, we borrowed $24,375,000 from the non-revolving loan facility
to pay a portion of the cost of the IHS acquisition. The amount borrowed
represents the full loan availability under the line. The $625,000 balance must
remain available in the event we are required to fund an Interest Reserve, as
that term is defined in the loan agreement. Monthly principal payments of
approximately $609,000 will begin on July 1, 2007, and a final payment of
$11,578,000 is scheduled to be made on March 15, 2009.
Financing activities during the Current Period include the repayment of
approximately $2,297,000 of capital leases and the receipt of $5,894,000 from
the exercise of employee stock options. In addition, we added $4,219,000 of
equipment subject to new capital lease agreements during the Current Period.
On February 22, 2005, we filed a preliminary, or "shelf" registration statement
with the Securities and Exchange Commission. This registration statement will
permit us to sell equity or debt securities, in any combination, for up to
$125,000,000. We intend to use the net proceeds we expect to receive from the
sale of the securities to reduce our outstanding debt and to fund possible
acquisitions and investments. The exact timing and terms of this financing will
depend upon market conditions and other factors. There can be no assurance that
such financing will occur. The registration statement was declared effective
June 22, 2005.
Page 15
On May 23, 2005, we announced that our Board of Directors approved a plan to
repurchase up to $10 million of our outstanding common stock. As of June 30,
2005, no shares had been purchased. In July 2005, we purchased 50,000 shares for
approximately $483,000.
As of June 30, 2005, we had cash and equivalents of $40,283,000.
We believe that our cash and equivalents, current assets, and cash generated
from future operating activities will provide adequate resources to fund our
ongoing operating requirements for at least the next twelve months. We may need
to obtain additional financing to fund significant acquisitions or other
substantial investments.
EBITDA
EBITDA represents net income before interest, taxes, depreciation and
amortization. We present EBITDA because we consider such information an
important supplemental measure of our performance and believe it is frequently
used by securities analysts, investors and other interested parties in the
evaluation of companies with comparable market capitalization to us, many of
which present EBITDA when reporting their results. We also use EBITDA as one of
the factors used to determine the total amount of bonuses available to be
awarded to executive officers and other employees. Our credit agreement uses
EBITDA (with additional adjustments) to measure compliance with covenants such
as interest coverage and debt incurred. EBITDA is also used by prospective and
current lessors as well as potential lenders to evaluate potential transactions
with us. In addition, EBITDA is also widely used by us and other buyers to
evaluate and determine the price of potential acquisition candidates.
For the six months ended June 30, 2005 our EBITDA increased by $5,545,000 (78%)
to $12,664,000 from $7,120,000 for the comparable period in 2004.
EBITDA has limitations as an analytical tool, and you should not consider it in
isolation, or as a substitute for analysis of our results as reported under U.S.
Generally Accepted Accounting Principles ("GAAP"). Some of these limitations
are: (a) EBITDA does not reflect changes in, or cash requirements for, our
working capital needs; (b) EBITDA does not reflect the significant interest
expense, or the cash requirements necessary to service interest or principal
payments, on our debts; and (c) although depreciation and amortization are
non-cash charges, the assets being depreciated and amortized may have to be
replaced in the future, and EBITDA does not reflect any cash requirements for
such capital expenditures. Because of these limitations, EBITDA should not be
considered as a principal indicator of our performance. We compensate for these
limitations by relying primarily on our GAAP results and using EBITDA only on a
supplemental basis.
The following table reconciles EBITDA to net income for the Current and Prior
Year's Period.
RECONCILIATION - IN THOUSANDS
- -------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
--------------------------------------------
2005 2004
-------------------- --------------------
NET INCOME $ 2,561 $ 513
Add back (deduct):
Tax expense (benefit) 1,857 (206)
Interest expense 2,955 3,081
Depreciation and amortization 5,291 3,732
---------------- ----------------
EBITDA $ 12,664 $ 7,120
================ ================
EBITDA is a measure of our performance that is not required by, or presented in
accordance with, GAAP. EBITDA is not a measurement of our financial performance
under GAAP and should not be considered as an alternative to net income, income
(loss) from operating activities or any other performance measures derived in
accordance with GAAP.
Page 16
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 153, EXCHANGES OF NONMONETARY ASSETS,
which eliminated the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. SFAS No. 153 will be effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. We do not believe the adoption of SFAS No. 153 will have a material impact
on our operating results or financial position.
In December 2004, the FASB issued SFAS No. 123 (R), SHARED-BASED PAYMENT, which
establishes standards for transactions in which an entity exchanges its equity
instruments for goods or services. This standard requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. This
eliminates the exception to account for such awards using the intrinsic method
previously allowable under APB Opinion No. 25. In accordance with Rule 33-8568
of the Securities and Exchange Commission, SFAS 123(R) will be effective for
fiscal years beginning on or after June 15, 2005.
SFAS 123(R) permits public companies to adopt its requirements using one of the
following two methods:
1. A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the requirements of
SFAS 123(R) for all shared based payments granted after the effective date and
(b) based on the requirements of FASB 123 for all awards granted to employees
prior to the effective date of SFAS 123(R) that remain unvested on the effective
date.
2. A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under FASB 123 for purposes
of pro forma disclosures either (a) all prior periods presented or (b) prior
interim periods of the year of adoption.
We plan to adopt FASB 123(R) using the modified-prospective method.
As permitted by FASB 123, we currently account for shared-based payments to
employees using APB Opinion 25's intrinsic value method and, as such, generally
recognize no compensation cost for employee stock options. Accordingly, the
adoption of SFAS 123(R)'s fair value method will have a significant impact on
our results of operations, although it will have no impact on our overall
financial position. The impact of the adoption of SFAS 123(R) cannot be
predicted at this time because it will depend on levels of share-based payments
granted in the future. However, had we adopted SFAS 123(R) in prior periods, the
impact of that standard would have approximated the impact of FASB 123 as
described in the disclosure of pro forma net income and earnings per share in
Note 1 to our consolidated financial statements.
We have not determined what impact SFAS 123(R) might have on the nature of our
shared-based compensation to employees in the future.
FORWARD-LOOKING STATEMENTS
Statements made in this Report, including the foregoing financial statements and
notes, other than statements of historical fact, are forward-looking statements
that involve risks and uncertainties. These statements relate to future events
or our future financial performance, including statements relating to products,
customers, suppliers, business prospects and effects of acquisitions. In some
cases, forward-looking statements can be identified by terminology such as
"may," "will," "should," "expect," "anticipate," "intend," "plan," "believe,"
"estimate," "potential," or "continue," the negative of these terms or other
comparable terminology. These statements involve a number of risks and
uncertainties and as such, final results could differ from estimates or
expectations due to a number of factors including, without limitation:
incomplete or preliminary information; changes in government regulations and
policies; continued acceptance of our products and services in the marketplace;
competitive factors; closing contracts with new customers and renewing contracts
with existing customers on favorable terms; expanding services to existing
customers; new products; technological changes; our dependence on third party
suppliers; intellectual property rights; difficulties with the identification,
completion, and integration of acquisitions, including the integration of
Verizon Information Technologies Inc., now known as Infocrossing Healthcare
Services, Inc.; and other risks and uncertainties including those set forth in
this Report that could cause actual events or results to differ materially from
any forward-looking statement. For any of these factors, we claim the protection
of the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, as amended.
Page 17
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK
We are not significantly exposed to the impact of interest rate changes, foreign
currency fluctuations, or changes in the market values of our investments. We
primarily invest in money market mutual funds or certificates of deposit and
commercial paper issued only by major corporations and financial institutions of
recognized strength and security, and hold all such investments to term. We
generally invest in instruments of no more than 30 days maturity. Our debt is at
a fixed rate of interest, and the carrying amount of long-term debt approximates
fair value based on interest rates that are currently available to us with
similar terms and remaining maturities.
MARKET RISK
Our accounts receivable are subject, in the normal course of business, to
collection risks. We regularly assess these risks and have established policies
and business practices to protect against the adverse effects of collection
risks. As a result, we do not anticipate any material losses in this area.
FOREIGN CURRENCY RISKS
We have no significant foreign-source income, and bill foreign customers in U.S.
dollars only.
ITEM 4 - CONTROLS AND PROCEDURES.
An evaluation was performed under the supervision and with the participation of
our management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the
end of the period covered by this report. Based on that evaluation, our
management, including the Chief Executive Officer and the Chief Financial
Officer, concluded that our disclosure controls and procedures were effective as
of June 30, 2005. There have been no changes in our internal control over
financial reporting that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Corcoran and Tallas v. Cortens, Dolan, ITO Acquisition Corporation d/b/a Systems
Management Specialists, and Does 1 through 50
- --------------------------------------------------------------------------------
On November 1, 2004, we were served with a summons and complaint in a lawsuit
commenced by two former employees of ITO Acquisition Corporation d/b/a Systems
Management Specialists, now known as Infocrossing West, Inc. ("West") filed in
the Superior Court of California, Orange County (Case No. 04CC10709). Plaintiffs
asserted that they had been induced to join West in 2002 based on promises of
receiving equity interests and options to acquire additional equity in West.
Plaintiffs also asserted that on numerous occasions they had received verbal
assurance of receiving the foregoing equity interests in West. We had acquired
West on April 2, 2004. Plaintiffs' employment with West terminated shortly after
our acquisition of West. Plaintiffs maintain that they are entitled to direct
damages of at least $15 million plus punitive damages, costs, attorneys' fees,
and other relief as the court may award. In addition, one of the plaintiffs also
asserted a claim for unpaid commissions of approximately $30,000. On November
30, 2004, West filed an answer denying all of plaintiffs' allegations. Discovery
commenced in February 2005.
Page 18
West is indemnified pursuant to the Stock Purchase Agreement between us and ITO
Holdings, LLC ("Holdings") dated as of March 3, 2004 (the "SPA") for breaches of
numerous representations and warranties contained in the SPA. Holdings
represented and warranted to us, among other things, that it owned all of West's
capital stock and there were no other equity interests or commitments relating
to West's capital stock. Holdings has confirmed its indemnification obligations
with respect to the claims asserted by plaintiffs. If, however, discovery
reveals that the commissions at issue were earned after March 3, 2004 or, if
earned prior to such date, they were properly accrued, we agreed to cooperate
with Holdings to determine the appropriate amount of commissions, if any, which
would be due and owing from West. West believes it is in its best interest to
resolve the commissions issue early in the litigation to avoid needless and
protracted proceedings and expenses relating to such a minor dispute.
Accordingly, Holdings has agreed that West will not be responsible for, or asked
to contribute to, attorney's fees and costs associated with the resolution of
the commissions claim.
All matters were settled as of July 22, 2005. The entire settlement was paid
from an escrow account with respect to which Holdings was the beneficiary. The
escrow account had been established at the closing of the acquisition in the
event of an indemnification claim against Holdings.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
UNREGISTERED SALES OF EQUITY SECURITIES:
None.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS:
On May 23, 2005, it was announced that the Company's Board of Directors approved
the repurchase of up to $10 million of the Company's outstanding common stock.
As of June 30, 2005, no repurchases have been made. In July 2005, the Company
purchased 50,000 shares for an aggregate of $483,489.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on June 13, 2005, the stockholders
elected three directors for a three-year term. The votes were as follows:
FOR WITHHELD
Zach Lonstein 13,481,676 739,197
Robert B. Wallach 13,570,616 650,257
Jeremiah M. Healy 13,561,045 659,828
Ms. Kathleen A. Perone and Messrs. Peter J. DaPuzzo, Michael B. Targoff, and
Howard L. Waltman have terms expiring in 2006 and beyond and continue as
directors of the Company.
The stockholders also approved, by a vote of 8,557,276 for and 1,834,326 against
with 5,410 abstaining to adopt the Company's 2005 Stock Plan.
Page 19
ITEM 6 - EXHIBITS
2.1 Stock Purchase Agreement between the Company and ITO Holdings, LLC,
dated as of March 3, 2004, incorporated by reference to Exhibit 2.1
to a Current Report on Form 8-K filed April 7, 2004.
2.2 Purchase and Sale Agreement, dated as of September 1, 2004 between
Verizon Data Services, Inc. and the Company, incorporated by
reference to Exhibit 2.1 to a Current Report on Form 8-K filed
October 14, 2004.
2.3 Stock Purchase Agreement dated as of February 5, 2002 by and between
the Company and American Software, Inc., incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
February 5, 2002.
3.1A Restated Certificate of Incorporation, incorporated by reference to
Exhibit 3.1A to the Company's Annual Report on Form 10-K for the
period ended December 31, 2004.
3.1B Certificate of Amendment to the Company's Certificate of
Incorporation, filed May 8, 2000, to increase the authorized shares
and to remove Article 11, incorporated by reference to the Company's
report on Form 10-Q for the period ended April 30, 2000.
3.1C Certificate of Amendment to the Company's Certificate of
Incorporation, filed as of June 5, 2000, to change the name of the
Company to Infocrossing, Inc., incorporated by reference to the
Company's report on Form 10-Q for the period ended April 30, 2000.
3.2 By-Laws, as amended, incorporated by reference to Exhibit 3.2 to the
Company's Form 10-Q/A filed May 17, 2004.
4.1 Indenture, dated as of June 30, 2004, between the Company as issuer
and Wells Fargo Bank, National Association, as trustee; and form of
4.00% Convertible Senior Notes due 2024, incorporated by reference to
a Registration Statement on Form S-3 filed July 13, 2004.
4.2 Resale Rights Agreement, dated as of June 30, 2004, by and between
the Company and Lehman Brothers, Inc. regarding the Company's 4.00%
Convertible Senior Notes due 2024, incorporated by reference to a
Registration Statement on Form S-3 filed July 13, 2004.
4.3 Securities Purchase Agreement, dated as of March 24, 2004, by and
among the Company and certain purchasers of the Company's common
stock, incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed April 1, 2004.
4.4 Registration Rights Agreement, dated as of March 24, 2004, by and the
Company and certain purchasers of the Company's common stock,
incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K filed April 1, 2004.
Page 20
(a) Exhibits (continued):
4.5 Securities Purchase Agreement, dated as of October 16, 2003, by and
among the Company and certain purchasers of common stock and
warrants, incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed October 22, 2003.
4.6 Registration Rights Agreement, dated as of October 16, 2003, by and
among the Company and certain purchasers of common stock and
warrants, incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed October 22, 2003.
4.7 Exchange Agreement, dated as of October 16, 2003, by and among the
Company and holders of series A preferred stock and series A
warrants, incorporated by reference to Exhibit 4.3 to the Company's
Current Report on Form 8-K filed October 22, 2003.
4.8 Second Amended and Restated Registration Rights Agreement, dated as
of October 21, 2003, by and among the Company and certain
stockholders of the Company, incorporated by reference to Exhibit
4.4 to the Company's Current Report on Form 8-K filed October 22,
2003.
4.9 Warrant Agreement dated as of February 1, 2002 by and between the
Company and the Warrantholders party thereto, incorporated by
reference to Exhibit 4.3 to the Company's Current Report on Form 8-K
filed February 5, 2002.
4.10 Warrant Agreement dated as of May 10, 20000 between the Company and
the Warrantholders Party thereto, incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K for the
period ended December 31, 2004.
10.1 Letter of Employment between the Company and John Lalli, dated as of
May 15, 2002, incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for March 31, 2005.
10.2 Contract for Services between Verizon Information Technologies, Inc.
(now Infocrossing Healthcare Services, Inc.) and the State of
Missouri, including Amendments 1 through 6, incorporated by
reference to the Company's Quarterly Report on Form 10-Q for March
31, 2005.
10.3A Acquisition Loan Agreement dated July 29, 2004 between the Company,
various Lenders and CapitalSource Finance LLC ("CapitalSource") as
Agent for the Lenders, incorporated by reference to Exhibit 10.7 to
the Company's Quarterly Report on Form 10Q for June 30, 2004.
10.3B Consent, Waiver and First Amendment to Acquisition Loan Agreement
dated as of October 1, 2004 by and among the Company and
CapitalSource, incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed October 4, 2004.
10.3C Amended and Restated Consent, Waiver, and First Amendment to
Acquisition Loan Agreement, dated as of October 6, 2004, by and
among the Company and CapitalSource, incorporated by reference to
Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2004.
10.3D Second Amendment to Acquisition Loan Agreement and Other Documents,
dated as of November 8, 2004, by and among the Company and
CapitalSource incorporated by reference to Exhibit 10.16 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 2004.
10.3E Third Amendment to Acquisition Loan Agreement and Other Documents,
dated as of December 29, 2004, incorporated by reference to Exhibit
10.4E to the Company's Annual Report on Form 10-K for the period
ended December 31, 2004.
Page 21
(a) Exhibits (continued):
10.3F Fourth Amendment to Acquisition Loan Agreement, dated as of May 19,
2005, by and between CapitalSource and the Company, incorporated by
reference to Exhibit 10 to a Current Report on Form 8-K filed May
23, 2005.
10.4A Guarantee and Security Agreement dated as of July 29, 2004, between
the Company and certain of the Company's subsidiaries and
CapitalSource, incorporated by reference to Exhibit 10.8 to the
Company's Quarterly Report on Form 10Q for June 30, 2004.
10.4B Joinder to Security Agreement dated October 1, 2004, incorporated
by reference to Exhibit 10.5B to the Company's Annual Report on
Form 10-K for the period ended December 31, 2004.
10.5A Stock Pledge Agreement Dated as of July 29, 2004, between the
Company and certain of the Company's subsidiaries and
CapitalSource, incorporated by reference to Exhibit 10.9 to the
Company's Quarterly Report on Form 10Q for June 30, 2004.
10.5B Addendum to Stock Pledge Agreement dated October 1, 2004,
incorporated by reference to Exhibit 10.6B to the Company's Annual
Report on Form 10-K for the period ended December 31, 2004.
10.6A Amended and Restated Term Loan Agreement, dated as of April 2, 2004
between the lenders named therein and the Company ("Amended and
Restated Term Loan Agreement"), incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
April 7, 2004.
10.6B First Amendment to Amended and Restated Term Loan Agreement, dated
as of June 30, 2004, between the lenders named therein and the
Company, incorporated by reference to Exhibit 4.5 to a Registration
Statement No. 333-117340 on Form S-3 filed July 13, 2004.
10.6C Term Loan Agreement dated as of October 21, 2003 by and among the
Company, Infocrossing Agent, Inc., and the lenders named therein,
incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed October 22, 2003.
10.6D First Amendment to Loan Agreement and other Loan Documents, dated
as of February 13, 2004, by and among the Company, certain
subsidiaries of the Company, certain lenders named therein, and
CapitalSource.
10.6E Master Assignment and Assumption Agreement, dated as of February
13, 2004, by and among by and among the Company, as borrower;
certain subsidiaries of the Company, as guarantors; Infocrossing
Agent, Inc., as agent for assigning lenders named therein;
assigning lenders named therein; and CapitalSource, incorporated by
reference to Exhibit 10.7E to the Company's Annual Report on Form
10-K for the period ended December 31, 2004.
10.7A Guaranty and Security Agreement, dated as of April 2, 2004, between
a subsidiary of the Company and CapitalSource, incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form
8-K filed April 7, 2004.
10.7B Guaranty and Security Agreement dated as of October 21, 2003 by and
among the Company, Infocrossing Agent, Inc., and the Company's
subsidiaries, incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed October 22, 2003.
10.8 Amended and Restated Stock Pledge Agreement, dated as of April 2,
2004, among the Company, a subsidiary of the Company, and
CapitalSource, incorporated by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K filed April 7, 2004.
Page 22
(a) Exhibits (continued):
10.9 Employment Agreement between the Company and Zach Lonstein, dated
as of January 1, 2005, incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K filed January 5,
2005, superseding an Employment Agreement, dated as of November
1, 1999, incorporated by reference to Exhibit 10.4 to the
Company's Form 10-Q for the period ended July 31, 2000.
10.10 Employment Agreement between the Company and Robert Wallach, dated
as of January 1, 2005, incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K filed January 5, 2005,
superseding an Employment Agreement, dated as of November 1, 1999,
incorporated by reference to Exhibit 10.5 to Infocrossing's Form
10-Q for the period ended July 31, 2000.
10.11A Employment Agreement, dated as of April 2, 2004, by and between
the Company and Patrick A. Dolan, incorporated by reference to
Exhibit 10.4 to the Company's Current Report on Form 8-K filed
April 7, 2004.
10.11B Settlement and Release Agreement dated as of October 15, 2004 by
and among the Company and Patrick A. Dolan, incorporated by
reference to Exhibit 99.2 to the Company's Current Report on Form
8-K filed November 5, 2004.
10.12A Employment Agreement, dated as of April 2, 2004, by and between
the Company and Jim Cortens, incorporated by reference to Exhibit
10.5 to the Company's Current Report on Form 8-K filed April 7,
2004.
10.12B Settlement and Release Agreement dated as of October 15, 2004 by
and among the Company and Jim Cortens, incorporated by reference
to Exhibit 13B to the Company's Annual Report on Form 10-K for the
period ended December 31, 2004.
10.13 Employment Agreement, dated as of October 1, 2004, by and between
a subsidiary of the Company and Michael J. Luebke, incorporated by
reference to Exhibit 14 to the Company's Annual Report on Form
10-K for the period ended December 31, 2004.
10.14A Company's 2002 Stock Option and Stock Appreciation Rights Plan
("2002 Plan"), incorporated by reference to Appendix B to the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders held on June 25, 2002.
10.14B Amendment to 2002 Plan adopted by the Board of Directors on
January 21, 2005, incorporated by reference to Exhibit 10.15B to
the Company's Annual Report on Form 10-K for the period ended
December 31, 2004.
10.14C Amendment to 2002 Plan approved at the Company's Annual Meeting of
Stockholders held on June 15, 2004, incorporated by reference to
Exhibit 10.15C to the Company's Annual Report on Form 10-K for the
period ended December 31, 2004.
10.14D Amendment to 2002 Plan adopted by the Board of Directors on April
1, 2004, incorporated by reference to Exhibit 10.15D to the
Company's Annual Report on Form 10-K for the period ended December
31, 2004.
10.15A Amended and Restated 1992 Stock Option and Stock Appreciation
Rights Plan ("1992 Plan"), incorporated by reference to Appendix A
to Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders held on May 8, 2000.
Page 23
(a) Exhibits (continued):
10.15B Amendment to 1992 Plan approved at the Company's Annual Meeting of
Stockholders held on June 22, 2001, incorporated by reference to
Exhibit 10.16B to the Company's Annual Report on Form 10-K for the
period ended December 31, 2004.
10.16 Stock Option Agreement under the Company's 2002 Stock Option and
Stock Appreciation Rights Plan, dated January 21, 2005, between
the Company and Zach Lonstein, incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
November 5, 2004.
10.17A Lease dated June 2, 1997 between the Company and Leonia
Associates, LLC, incorporated by reference to Exhibit 10.18A to
the Company's Annual Report on Form 10-K for the period ended
December 31, 2004.
10.17B First Amendment of Lease between the Company and Leonia
Associates, LLC, dated January 16, 1998, incorporated by reference
to Exhibit 10.18B to the Company's Annual Report on Form 10-K for
the period ended December 31, 2004.
10.17C Second Amendment of Lease between the Company and Leonia
Associates, LLC, dated as of September 9, 1999, incorporated by
reference to Exhibit 10.18C to the Company's Annual Report on Form
10-K for the period ended December 31, 2004.
10.17D Third Amendment of Lease between the Company and Leonia
Associates, LLC, dated as of August 28, 2000, incorporated by
reference to Exhibit 10.7D to the Company's 10-K for the fiscal
year ended October 31, 2000.
10.17E Fourth Amendment of Lease between the Company and Leonia
Associates, LLC, dated as of April 19, 2004, incorporated by
reference to Exhibit 10.18E to the Company's Annual Report on Form
10-K for the period ended December 31, 2004.
10.18A Office Lease Agreement dated May 22, 2000 between the Company and
Crocker Realty Trust, incorporated by reference to Exhibit 10.6 to
the Company's Form 10-Q for the period ended July 31, 2000.
10.18B First Amendment to Lease dated as of April 1, 2002 by and between
Crocker Realty Trust, L.P. and the Company, incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for period
ended March 31, 2002.
10.19A Tenth Floor Option Agreement between the Company, G-H-G Realty
Company ("GHG"), and RSL Com USA, Inc. ("RSL"), dated as of
November 30, 1999, with related notice of exercise dated February
14, 2000, incorporated by reference to Exhibit 10.6A to the
Company's Form 10-K for the fiscal year ended October 31, 2000.
10.19B Eleventh Floor Option Agreement between the Company, GHG, and RSL,
dated as of November 30, 1999, with related notice of exercise
dated December 2, 1999, incorporated by reference to Exhibit 10.6B
to the Company's 10-K for the fiscal year ended October 31, 2000.
Page 24
(a) Exhibits (continued):
10.20A* Master Services Agreement dated as of May 24, 2001 among the
Company, Alicomp, a Division of Alicare, Inc. and ADT Security
Services, Inc., incorporated by reference to Exhibit 10.1A to a
Registration Statement No. 333-110173 on Form S-3 filed February
6, 2004.
10.20B* Amendment to Master Services Agreement among the Company, Alicomp,
a Division of Alicare, Inc. and ADT Security Services, Inc. dated
as of January 11, 2002, incorporated by reference to Exhibit 10.1B
to a Registration Statement No. 333-110173 on Form S-3 filed
February 6, 2004.
10.20C* Computer Services Agreement dated as of March 21, 1997 by and
between the Company and Alicomp, a Division of Alicare, Inc.,
incorporated by reference to Exhibit 10.2A to a Registration
Statement No. 333-110173 on Form S-3 filed February 6, 2004.
10.20D* Marketing Agreement dated as of March 21, 1997 by and between the
Company and Alicomp, a Division of Alicare, Inc., incorporated by
reference to Exhibit 10.2B to a Registration Statement No.
333-110173 on Form S-3 filed February 6, 2004.
10.20E* Extension Agreement dated as of October 1, 2002 by and between the
Company and Alicomp, a Division of Alicare, Inc., incorporated by
reference to Exhibit 10.2C to a Registration Statement No.
333-110173 on Form S-3 filed February 6, 2004.
10.20F* Extension Agreement dated as of December 30, 2003 by and between
the Company and Alicomp, a Division of Alicare, Inc., incorporated
by reference to Exhibit 10.2D to a Registration Statement No.
333-110173 on Form S-3 filed February 6, 2004.
10.21 Employment Agreement dated as of August 8, 2005 by and between Lee
C. Fields and the Company, incorporated by reference to Exhibit 99
to a Current Report on Form 8-K filed August 9, 2005.
10.22 Infocrossing, Inc. 2005 Stock Plan, incorporated by reference to
Appendix C of a Definitive Proxy Statement for the Annual Meeting
of Stockholders held June 13, 2005.
14 Code of Ethics, incorporated by reference to the Company's
definitive Proxy Statement filed on April 29, 2004.
31 Certifications required by Rule 13a-14(a) and Section 302 of the
Sarbanes-Oxley Act of 2002 to be filed.
32 Certifications required by Rule 13a-14(b) and 18 U.S.C. Section
1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002) to be furnished but not filed.
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
Page 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INFOCROSSING, INC.
August 9, 2005 /s/ ZACH LONSTEIN
------------------------------------------
Zach Lonstein
Chairman & Chief Executive Officer
August 9, 2005 /s/ WILLIAM J. McHALE
------------------------------------------
William J. McHale
Chief Financial Officer
Page 26
EXHIBITS FILED HEREWITH
31 Certifications required by Rule 13a-14(a) and Section 302 of the
Sarbanes-Oxley Act of 2002 to be filed.
32 Certifications required by Rule 13a-14(b) and 18 U.S.C. Section
1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002) to be furnished but not filed.
Page 27