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 March 31, 2007
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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
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Commission file number: 0-20824
INFOCROSSING, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3252333
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2 Christie Heights Street; Leonia, NJ 07605
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(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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act) Check
one:
Large Accelerated Filer [ ] Accelerated Filer [X] Non-accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
There were 22,107,223 shares of the registrant's Common Stock, $0.01 par value,
outstanding as of May 7, 2007.
Page 1
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts)
March 31, December 31,
ASSETS 2007 2006
--------------- ---------------
(Unaudited)
CURRENT ASSETS:
Cash and equivalents $ 19,118 $ 22,324
Trade accounts receivable, net of allowances for doubtful accounts of
$339 at March 31, 2007 and $380 at December 31, 2006 24,335 23,000
Due from related parties 136 167
Prepaid software costs 9,577 8,399
Deferred income taxes 2,447 2,447
Current deferred customer acquisition costs 1,170 1,039
Other current assets 8,561 7,584
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Total current assets 65,344 64,960
Property, equipment and purchased software, net 50,791 45,049
Deferred software, net 2,835 2,826
Goodwill 157,454 157,454
Other intangible assets, net 15,992 16,819
Deferred income taxes 2,940 4,184
Deferred customer acquisition costs 2,898 2,658
Deferred financing costs 2,575 2,836
Other non-current assets 1,333 1,339
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TOTAL ASSETS $ 302,162 $ 298,125
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,684 $ 11,065
Current portion of long-term debt and capitalized lease obligations 20,799 18,749
Accrued expenses 14,625 13,596
Income taxes payable 1,767 1,544
Current deferred revenue 4,029 4,334
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Total current liabilities 49,904 49,288
Notes payable, long-term debt and capitalized lease
obligations, net of current portion 114,087 113,202
Deferred revenue, net of current portion 6,011 6,067
Other long-term liabilities 4,520 4,326
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TOTAL LIABILITIES 174,522 172,883
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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 22,687,042 and 22,675,811 at March 31, 2007
and December 31, 2006, respectively 227 227
Additional paid-in capital 174,289 173,684
Accumulated deficit (43,255) (45,048)
------------ ------------
131,261 128,863
Less 668,969 shares at March 31, 2007 and December 31, 2006,
of common stock held in treasury, at cost (3,621) (3,621)
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TOTAL STOCKHOLDERS' EQUITY 127,640 125,242
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 302,162 $ 298,125
============ ============
See Notes to Consolidated Financial Statements.
Page 2
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, In Thousands Except
Numbers of Shares and Per Share Amounts)
------------------------------------
Three Months Ended March 31,
------------------------------------
2007 2006
--------------- --------------
REVENUES $ 59,158 $ 55,921
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COSTS and EXPENSES:
Costs of revenues, excluding depreciation and
amortization shown below 40,982 39,876
Selling and promotion costs 3,044 2,292
General and administrative expenses 4,956 5,288
Depreciation and amortization 4,536 4,131
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53,518 51,587
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INCOME FROM OPERATIONS 5,640 4,334
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Interest income 111 105
Interest expense 2,475 2,522
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2,364 2,417
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INCOME BEFORE INCOME TAXES 3,276 1,917
Income tax expense 1,483 906
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NET INCOME $ 1,793 $ 1,011
=============== ==============
BASIC INCOME PER SHARE:
Net income $ 0.08 $ 0.05
=============== ==============
Weighted average number of common shares outstanding 22,008,038 20,754,196
=============== ==============
DILUTED INCOME PER SHARE:
Net income $ 0.08 $ 0.05
=============== ==============
Weighted average number of common shares and
share equivalents outstanding 23,553,830 21,922,259
=============== ==============
See Notes to Consolidated Financial Statements.
Page 3
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
Common Additional Accumulated Treasury
Shares Par Value Paid in Capital Deficit Stock at Cost Total
---------- ----------- ---------------- ---------------- ---------------- ---------------
Balances,
December 31, 2006 22,676 $ 227 $ 173,684 $ (45,048) $ (3,621) $ 125,242
Exercises of stock options 11 - 114 - - 114
Tax credit for stock options - - 16 - - 16
Stock option expense - - 475 - - 475
Net income - - - 1,793 - 1,793
---------- ----------- ---------------- -------------- ---------------- ---------------
Balances,
March 31, 2007 22,687 $ 227 $ 174,289 $ (43,255) $ (3,621) $ 127,640
========== =========== ================ ============== ================ ===============
See Notes to Consolidated Financial Statements.
Page 4
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,
-------------------------------------------
2007 2006
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(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,793 $ 1,011
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 4,536 4,131
Accretion of discounted convertible debt 88 88
Deferred income taxes 1,238 451
Compensation expense related to stock options 475 464
Deferred compensation expense related to executive pension benefits 108 92
Payments received on related party balances, net of interest charges 31 96
Decrease (increase) in:
Trade accounts receivable (1,335) 425
Prepaid software costs (1,178) (6,497)
Deferred customer acquisition costs and other current assets (718) (1,022)
Other non-current assets 27 (391)
Increase (decrease) in:
Accounts payable (2,381) 717
Accrued expenses 994 (4,449)
Income taxes payable (106) 427
Deferred revenue (361) 4,165
Other liabilities 121 249
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Net cash provided by (used in) operating activities 3,332 (43)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment, and purchased software (1,900) (1,054)
Payments related to acquisitions - (2,237)
Increase in deferred software costs (224) (308)
----------------- -----------------
Net cash used in investing activities (2,124) (3,599)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt and capitalized leases (4,544) (1,640)
Excess tax benefit from exercise of stock options 16 -
Exercises of stock options and warrants 114 124
----------------- -----------------
Net cash used in financing activities (4,414) (1,516)
----------------- -----------------
Net decrease in cash and equivalents (3,206) (5,158)
Cash and equivalents, beginning of period 22,324 16,892
----------------- -----------------
Cash and equivalents, end of the period $ 19,118 $ 11,734
================= =================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,946 $ 2,612
================= =================
Income taxes $ 334 $ 29
================= =================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY:
Equipment acquired subject to capital leases $ 7,391 $ 1,727
================= =================
Shares given in partial payment of an acquisition $ - $ 1,786
================= =================
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 March 31, 2007, the consolidated statements
of operations and cash flows for the three months ended March 31, 2007 and 2006,
and the consolidated statement of stockholders' equity for the three months
ended March 31, 2007 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 March 31, 2007 and 2006 are not necessarily indicative of
the operating results for the full year.
Except for the adoption of Financial Accounting Standards Board ("FASB")
Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109 ("FIN48") as discussed in Note 4 below,
there were no changes to the Company's Critical Accounting Policies as disclosed
in our Annual Report on Form 10-K for the year ended December 31, 2006.
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, 2006.
2. STOCK OPTIONS AND WARRANTS; STOCK-BASED COMPENSATION
The Company issues options pursuant to its 2005 Stock Plan (the "2005 Plan").
The Company has reserved 2,000,000 of the authorized shares of Common Stock for
issuance under the 2005 Plan. On June 21, 2007, the stockholders of the Company
will vote on a proposal to increase the shares reserved for the 2005 Plan to
2,500,000. Unless terminated earlier, the 2005 Plan will terminate on the tenth
anniversary of the day immediately preceding the date on which the 2005 Plan was
approved by the stockholders. Options are also outstanding from issuances under
two predecessor plans.
There were 4,076,224 and 4,072,982 options exercisable at March 31, 2007 and
December 31, 2006, respectively. At March 31, 2007, the Company has reserved
1,591,903 common shares for issuance upon exercise of the following warrants:
(i) 65,000 shares exercisable at $18.00 per share expiring September 16, 2010;
(ii) 50,000 shares exercisable at $15.00 per share expiring January 13, 2009;
and (iii) 1,476,903 shares exercisable at $7.86 per share expiring October 20,
2008. In addition, there are 5,673,759 shares reserved for issuance upon the
potential exchange of the $72,000,000 outstanding convertible notes (the
"Notes").
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
123(R), Share-Based Payment ("SFAS 123(R)") using the modified prospective
method effective January 1, 2006.
The fair value of each stock option is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in the first quarter of 2007: a risk-free interest
rate of between 4.45% and 4.74%; expected lives of three to five years; and
expected volatility of between 41.3% and 47.5%. The following weighted average
assumptions were used for grants in the first quarter of 2006: a risk-free
interest rate of between 4.37% and 4.6%; expected lives of three to five years;
and expected volatility of between 46.3% and 47.6%. The fair value for each
grant is amortized over the vesting period of the option, typically three years.
Options that vest immediately are expensed when granted.
Page 6
In the quarter ended March 31, 2007, the total stock option expense is $475,000,
of which $176,000 is recorded in costs of revenues excluding depreciation and
the remainder is in general and administrative expenses. In the quarter ended
March 31, 2006, the total stock option expense was $464,000, of which $172,000
was in costs of revenues excluding depreciation with the remainder in general
and administrative expenses. At the Company's current effective tax rate (see
Note 4), the after-tax effect of the expense of stock options in 2007 was
approximately $261,000 or $0.01 for both basic and diluted shares. The
unrecorded pretax compensation cost related to unvested options at March 31,
2007 totals approximately $2,830,000, amortizable over the period ending March
31, 2010. Additional option grants will increase this amount, and forfeitures of
options will reduce it.
3. 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 quarters ended March 31, 2007 and 2006, the weighted average
number of shares used in calculating diluted earnings per share includes options
and warrants to purchase common stock, aggregating 1,545,792 and 1,244,976
shares, respectively. The calculation of earnings per share for the quarters
ended March 31, 2007 and 2006 excludes 1,270,909 and 2,443,622 shares,
respectively, related to out-of-the-money stock options and warrants because to
include them in the calculation would be antidilutive. The 5,673,759 shares that
would result from assumed conversion of the Company's convertible Notes (which
also would require a pro forma adjustment to reported net income to add back
$815,000 of interest on the Notes, net of tax) are excluded as they are not
dilutive. The adoption of SFAS 123(R) did not have a material impact on the
number of diluted shares outstanding.
4. INCOME TAXES
In the period ended March 31, 2007, the Company recorded income tax expense of
$1,483,000, consisting of a current provision of $245,000 and a deferred
provision of $1,238,000. The effective rate in the quarter ended March 31, 2007
was 45%, compared with 47% in the quarter ended March 31, 2006. The decrease in
the effective rate in the Current Quarter compared with the Prior Year's Quarter
relates to state income taxes.
A deferred tax benefit reflects future income tax savings realizable when tax
credits, net operating loss carry-forwards, or other deductions based on
temporary differences between taxable income and income before income taxes can
be used to reduce income taxes. If there is uncertainty of realizing deferred
tax benefits, a valuation allowance must be established. The Company has a
deferred tax valuation allowance of $2,462,000 at March 31, 2007. The Company
has net operating loss carry-forwards of approximately $34,000,000 for Federal
income tax purposes that begin to expire in 2019. The use of these net operating
loss carry-forwards is limited in amount in future years pursuant to Section 382
of the Internal Revenue Code.
In June 2006, the FASB issued FIN48, which is required for fiscal years
beginning after December 15, 2006. The Company adopted the provisions of FIN48
on January 1, 2007. FIN48 clarifies the accounting for uncertainty in income
taxes by prescribing a minimum recognition threshold and measurement process for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. At the adoption date and as of March 31,
2007, the Company had no material unrecognized tax uncertainties. The Company
may from time to time be assessed interest and penalties, although such
assessments have historically been immaterial to our financial results. Penalty
assessments are recorded in general and administrative expenses and interest
assessments are recorded as interest expense.
Page 7
5. RELATED PARTY TRANSACTIONS
On May 9, 2007, the employment agreements between the Company's Chairman and
Vice Chairman were amended to increase the retirement benefit from $180,000 to
$230,000 annually for the Chairman beginning January 1, 2012 and from $120,000
to $170,000 annually for the Vice Chairman beginning January 1, 2010. The
pension benefits payable to each of the Chairman and the Vice Chairman are not
payable pursuant to a funded qualified pension plan. The Company did not make
any contributions for 2006, and does not expect to contribute to this plan in
2007. The expense recorded in the periods ended March 31, 2007 and 2006 was
$108,000 and $92,000, respectively.
In accordance with the Sarbanes-Oxley Act of 2002, no further advances have been
made to the Company's officers since July 2002. The accounts have accrued
interest. During the quarter ended March 31, 2007, an officer repaid
approximately $34,000 from the amounts due to the Company, and has subsequently
repaid the remaining $12,000 balance.
6. CONTINGENT TRANSACTION BONUS POOL
On March 5, 2007, the Board of Directors of the Company approved a transaction
bonus pool of up to $5,000,000 in the event there is a Change in Control, as
described below. The recipients of awards under this arrangement may include the
Company's principal executive officer, president, principal financial officer,
principal operating officer, and named executive officers as well as other
officers and employees of the Company. Any awards under this plan shall be made
by the Options and Compensation Committee of the Company's Board of Directors in
the sole discretion of the members of such committee. "Change in Control" of the
Company shall mean a Change in Control of a nature that would be required to be
reported in the Company's definitive proxy statement filed under the Securities
Exchange Act of 1934, as amended (the "Act"), or any successor thereto, provided
that without limiting the foregoing, a Change in Control of the Company also
shall mean (i) the acquisition of voting stock by a person or a "group" of
persons, as provided by Section 13d-3 of the Act, resulting in such person or
group having beneficial ownership of at least 25% of the Company's stock
eligible to vote for the election of directors; (ii) certain changes in the
Board of Directors of the Company whereby the individuals having a majority of
the votes at the beginning of a 24 month period cease having such a majority at
the end of such period; or (iii) a merger transaction whereby the Company's
shareholders do not own voting securities in the surviving entity representing
at least 50% of the total voting power to elect directors of the surviving
entity.
Page 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Our management believes that we are a leading provider of selective information
technology outsourcing services to enterprise clients. We deliver a full suite
of outsourced solutions that enable clients to leverage our infrastructure and
process expertise to improve their efficiency and reduce their operating costs.
During our history of more than twenty years, we have developed expertise in
managing complex computing environments, beginning with traditional data center
outsourcing services and evolving to a comprehensive set of managed solutions.
We support a variety of clients, and assure the optimal performance, security,
reliability, and scalability of our clients' 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 November 30, 2005, we acquired 100% of the membership interests in
(i)Structure, LLC, a Delaware limited liability company with operations in
Colorado and data centers in Omaha, NE and Tempe, AZ (the "(i)Structure
Acquisition"). In August 2006, we changed the name of (i)Structure, LLC to
Infocrossing, LLC. The operations of Infocrossing, LLC have been integrated into
our operations so that the entire enterprise benefits from operational leverage
and consolidation.
We operate in one reportable segment of providing information technology
outsourcing services.
Certain reclassifications have been made to the prior period to conform to the
current presentation.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2007 AND 2006
For the quarter ended March 31, 2007 (the "Current Quarter"), revenues increased
$3,237,000 (6%) to $59,158,000 from $55,921,000 for the quarter ended March 31,
2006 (the "Prior Year's Quarter"). Revenue for the first quarter of 2007 was net
of attrition totaling approximately 1.5% of revenues. On a sequential basis,
revenues increased $225,000 compared with revenues of $58,933,000 for the fourth
quarter of 2006 and benefited from the installation of new clients for our
selective outsourcing services. This included a portion of the $42,000,000 in
new contracts, averaging five years in length, which were previously announced
on March 13, 2007. The majority of the services under these contracts will
commence after the first quarter and are expected to provide greater revenues in
the second and third quarters of the year. Additionally, revenues for our
healthcare processing services were lower than expected for the Current Quarter.
Revenues for these services are based on when the transactions are submitted by
clients and processed. A significant number of the transactions that were
expected to be processed in the first quarter were delayed, resulting in lower
healthcare processing revenues than expected in the first quarter and a backlog
that is expected to be processed through the remainder of the year.
Costs of revenues, excluding depreciation and amortization ("COR"), increased by
$1,106,000 (3%) to $40,982,000 during the Current Quarter compared with
$39,876,000 for the Prior Year's Quarter. COR as a percentage of revenues
decreased to 69% in the Current Quarter from 71% in the Prior Year's Quarter,
reflecting the savings achieved during 2006 from the integration of
(i)Structure, LLC, which we purchased in November 2005. We acquired (i)Structure
in November of 2005, and implemented approximately $14,000,000 in annual cost
reductions during 2006.
Selling and promotion costs increased by $752,000 (33%) to $3,044,000 for the
Current Quarter from $2,292,000 for the Prior Year's Quarter, and increased as a
percentage of revenues to 5% for the Current Quarter from 4% for the Prior
Year's Quarter. Of this increase, $375,000 (50% of the increase) is attributable
to additional compensation and related expenses for an expanded sales force. The
remainder of the increase is attributable to expanded marketing activities. As
discussed in the Company's annual report on Form 10-K for December 31, 2006, we
expect to increase our sales and marketing expenses by approximately $3,000,000
in 2007, to add more people to our sales team and increase our spending on
marketing to build broader market awareness.
Page 9
General and administrative expenses ("G&A") decreased by $332,000 (6%) to
$4,956,000 for the Current Quarter from $5,288,000 for the Prior Year's Quarter.
The principal reason for the decrease relates to $206,000 of severance recorded
in 2006 related to the (i)Structure Acquisition.
On January 1, 2006, we adopted Statement of Financial Accounting Standards
("SFAS") No. 123(R), Shared-Based Payment ("SFAS 123(R)"). This standard
requires us to measure the cost of employee services received in exchange for an
award of equity instruments based on the fair value of the award on the grant
date. It eliminates the intrinsic method previously allowable under APB Opinion
No. 25. In the Current Quarter, the total stock option expense is $475,000, of
which $176,000 is in COR and the remainder is in G&A. In the Prior Year's
Quarter the total stock option expense was $464,000, of which $172,000 was in
COR with the remainder in G&A. At our current effective tax rate, the after-tax
effect of the expense of stock options in the Current Quarter was approximately
$261,000 or $0.01 for both basic and diluted shares. The unrecorded pretax
compensation cost related to unvested options at March 31, 2007 totals
approximately $2,830,000, amortizable over the period ending March 31, 2010.
Additional option grants will increase this amount, and forfeitures of
options will reduce it.
Depreciation and amortization of fixed assets and intangibles increased $405,000
(10%) to $4,536,000 for the Current Quarter from $4,131,000 for the Prior Year's
Quarter, related to depreciation on fixed asset additions.
Net interest expense decreased by $53,000 to $2,364,000 for the Current Quarter
from $2,417,000 for the Prior Year's Quarter. This decrease consists of an
increase in interest income of $6,000 and a net reduction in interest expense of
$47,000. Interest expense (including amortization of deferred financing costs)
on bank debt declined $130,000 from the Prior Year's Quarter total of $1,404,000
compared with $1,274,000 in the Current Quarter. Such debt was $55,000,000 for
the Prior Year's Quarter and averaged $46,843,000 during the Current Quarter. An
increase in interest expense related to capitalized leases of $83,000 partially
offset the decrease in bank debt interest.
A deferred tax benefit reflects future income tax savings realizable when tax
credits, net operating loss carry-forwards, or other deductions based on
temporary differences between taxable income and income before income taxes can
be used to reduce income taxes. If there is uncertainty of realizing deferred
tax benefits, a valuation allowance must be established. We have a deferred tax
valuation allowance of $2,462,000 at March 31, 2007. We have net operating loss
carry-forwards of approximately $34,000,000 for Federal income tax purposes that
begin to expire in 2019. The use of these net operating loss carry-forwards is
limited in amount in future years pursuant to Section 382 of the Internal
Revenue Code of 1986.
For the Current Quarter, we recorded a tax expense of $1,483,000, compared with
tax expense of $906,000 for the Prior Year's Quarter. The effective rate in the
Current Quarter was 45%, compared with 47% in the Prior Year's Quarter. The
decrease in the effective rate relates to state income taxes. Although income
taxes were accrued at a rate of 45% in the Current Period, they are payable at
the rate of 8% after the application of net operating loss carry-forwards.
We had net income of $1,793,000 for the Current Quarter compared with $1,011,000
for the Prior Year's Quarter. For the Current Quarter, we had income per common
share of $0.08 on both a basic and diluted basis, compared with income per
common share of $0.05 per basic and diluted share for the Prior Year's Quarter.
The number of weighted average basic shares increased to approximately
22,008,000 at March 31, 2007 from approximately 20,754,000 at March 31, 2006,
reflecting the issuance of approximately 1,236,000 shares from the exercise of
options and warrants. Diluted weighted average shares increased from
approximately 21,922,000 at March 31, 2006 to approximately 23,554,000 diluted
shares at March 31, 2007. The Company has convertible Notes (see "Liquidity and
Capital Resources") that may be converted, in certain circumstances, into
5,673,759 shares of common stock. The potential conversion of the Notes (which
also would require a pro forma adjustment to reported net income to add back
$815,000 of interest on the Notes, net of tax) are excluded from the calculation
of diluted shares in the Current Quarter since they are not dilutive at this
time.
Page 10
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 Current Quarter our EBITDA increased by $1,711,000 (20%) to $10,176,000
from $8,465,000 for the Prior Year's Quarter. EBITDA for the Current and Prior
Year's Quarters includes non-cash charges of $475,000 and $464,000,
respectively, relating to stock option expense recorded under SFAS 123(R).
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 Quarter.
Reconciliation - in Thousands
- --------------------------------------------------------------------------------
Quarter Ended March 31,
--------------------------------------------
2007 2006
-------------------- --------------------
NET INCOME $ 1,793 $ 1,011
Add back:
Tax expense 1,483 906
Net interest expense 2,364 2,417
Depreciation and amortization 4,536 4,131
---------------- ----------------
EBITDA $ 10,176 $ 8,465
================ ================
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
from operating activities or any other performance measures derived in
accordance with GAAP.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $3,332,000 for the Current Quarter
(net of a $16,000 decrease in taxes payable related to the exercise of stock
options that is classified as a financing activity) on $1,793,000 of net income,
as adjusted for non-cash depreciation, amortization, and accretion of debt
discount of $4,624,000 and $1,132,000 from a decrease in deferred tax assets and
an increase in taxes payable (other than the amount classified as a financing
activity), which includes the utilization of a portion of the Company's net
operating loss carry-forwards. SFAS 123(R) requires that the tax benefit
attributable to stock option dispositions be classified as a financing activity
in the statement of cash flows beginning with the year ended December 31, 2006,
rather than as a component of cash from operations. Significant sources of cash
during the Current Quarter included: the accrual of $108,000 for a non-qualified
unfunded pension plan; and $475,000 from the non-cash-expense related to stock
options required pursuant to SFAS 123(R). Significant uses of cash during the
Current Quarter included an increase in accounts receivable of $1,335,000; an
increase in prepaid expenses and other current assets of $1,896,000, a decrease
in deferred revenue of $361,000; and a decrease in accounts payable, accrued
expenses and other liabilities of $1,266,000.
Page 11
Investing activities during the Current Quarter include $1,900,000 for the
purchase of fixed assets, mostly for software licenses that will benefit
operations in 2007 and future years. During the Current Quarter, we also entered
into capital leases having an aggregate carrying value of approximately
$7,391,000 and invested $224,000 in internally-developed software. Approximately
$3,760,000 of the capital leases were for the previously-announced upgrades we
completed in the Current Quarter to our Tempe, AZ facility, and $2,900,000 of
capital leases for equipment were for success-based requirements including new
customer contracts and amendments to existing customer contracts. The remaining
capital lease additions were for equipment replacement.
Free cash flow, defined as cash flow from operations less cash disbursed for
capital expenditures and deferred software additions, was $1,208,000 for the
Current Quarter compared with a negative $1,405,000 for the Prior Year's
Quarter. We present this measure because we consider such information an
important supplemental measure of performance and believe it is frequently used
by securities analysts, investors and other interested parties in the evaluation
of companies with market capitalization comparable to our own, many of which
present free cash flow when reporting their results. The table below shows the
reconciliation of free cash flow to cash flow from operations for the two
periods.
Three Months Ended March 31,
---------------------------------------
2007 2006
------------------ -----------------
(In thousands)
Cash flow provided by operations $ 3,332 $ (43)
Less:
Purchases of property and equipment
including software costs deferred (2,124) (1,362)
--------------- --------------
Free Cash Flow $ 1,208 $ (1,405)
=============== ==============
Free cash flow 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 GAAP. These limitations include that free cash flow excludes
other significant cash flows, such as principal payments on debt. Because of
these limitations, free cash flow should not be considered as a principal
indicator of our performance. We compensate for these limitations by relying
primarily on the Company s GAAP results and using free cash flow only on a
supplemental basis.
Financing activities during the Current Quarter include the repayment of
approximately $2,558,000 on the term loan described below and $1,986,000 of
capital leases, and the receipt of $114,000 from the exercise of stock options.
As noted above, we added $7,391,000 of equipment subject to new capital lease
agreements during the Current Quarter. Payments due on capital leases in the
next twelve months are $7,716,000, out of a total due on capital leases at March
31, 2007 of $24,267,000.
We have a $70,000,000 senior secured credit facility (the "Credit Agreement"),
with certain banks and other financial institutions that were initially, or in
the future might become, lenders (the "Lenders"), including a Lender that also
acts as sole and exclusive administrative and collateral agent (the "Agent"),
and an affiliate of the Agent that acts as sole and exclusive lead arranger and
sole book manager. The Credit Agreement provides for a $55 million term loan,
subject to a combination of scheduled quarterly repayment amounts which began
September 30, 2006, potential annual payments due no more than 95 days after
each year-end equal to 50% of our Excess Cash Flow, as that term is defined in
the Credit Agreement, with the first of such payments of $177,000 made April 3,
2007, and other payments as described below. The Credit Agreement also provides
for a $15 million revolving credit facility (including letter of credit
subfacilities). We currently have no balance due on the revolving credit
facility. The maturity date for both the term loan and the revolving credit
facility is April 14, 2009.
Loans outstanding under the Credit Agreement bear interest at LIBOR plus the
Applicable Rate (as such term is defined in the Credit Agreement) or, at our
option, the alternate base rate (the greater of the prime rate or the federal
funds rate plus one half of one percent (0.50%)) plus the Applicable Rate. At
March 31, 2007, the interest rate on the term loan was 8.345%.
Page 12
If we receive certain types of cash proceeds, including but not limited to
insurance proceeds, proceeds from the sale of assets, or proceeds from the
exercise of stock warrants and certain stock options, we are required to make
prepayments of the term loan in the amount of one-half of the proceeds received.
We made a payment on January 4, 2007 of $179,500 related to option exercises in
2006. Such prepayments, when made, reduce the amounts of future scheduled
quarterly amortization payments. The scheduled quarterly amortization payment
made in the Current Quarter was $2,378,000. The currently scheduled quarterly
amounts due on the term loan are: $9,515,000 for the remainder of 2007; and
$16,651,000 for 2008. The balance of the term loan and any amounts outstanding
under the revolving credit facility are due April 14, 2009.
The terms of the Credit Agreement include various 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 repurchases, and transactions with
affiliates. In addition, the terms of the Credit Agreement limit our ability to
pay cash dividends. We were in compliance with such covenants at March 31, 2007
and 2006.
We have $72,000,000 of outstanding 4.0% Convertible Senior Notes due July 15,
2024 (the "Notes"). Interest on the Notes is payable semi-annually in the amount
of $1,440,000 in July and January.
The Notes are convertible, subject to certain circumstances listed below, 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
must 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 common
stock, or a combination thereof. At the current conversion price of $12.69, the
Notes are convertible into 5,673,759 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.
The circumstances that permit holders to convert their Notes are: (1) if the
market price per share of our common stock is more than 130% of the applicable
conversion price for at least 20 consecutive trading days during the 30
consecutive trading day period ending on the last day of the preceding fiscal
quarter; (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, such as (a) distributions to our
common stockholders of rights to acquire shares of our common stock at a
discount; (b) 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
(c) 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 (the "CIC Put"). 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" as defined in the indenture when
repurchasing the Notes. The CIC Put represents an embedded derivative that would
require bifurcation. Since we believe that any value associated with the CIC Put
would be de minimis, no value was assigned at the time of issuance or in the
subsequent periods, and this embedded derivative was not bifurcated. If the
value should become material in the future, we will report it at such time.
We can call 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.
We have no current plans to call the Notes.
Page 13
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 additional
indebtedness, as defined in the indenture.
As of March 31, 2007, we had cash and equivalents of $19,118,000 and
approximately $14,256,000 of availability under our revolving credit facility.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109 ("FIN48"), which is required for fiscal
years beginning after December 15, 2006. We adopted the provisions of FIN48 on
January 1, 2007. FIN48 clarifies the accounting for uncertainty in income taxes
by prescribing a minimum recognition threshold and measurement process for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. At the adoption date and as of March 31,
2007, we had no material unrecognized tax uncertainties. We may from time to
time be assessed interest and penalties, although such assessments have
historically been immaterial to our financial results. Penalty assessments are
recorded in general and administrative expenses and interest assessments are
recorded as interest expense.
In September 2006 and February 2007, respectively, the FASB issued Statement of
Accounting Standards ("SFAS") No. 157, Fair Value Measurements, and SFAS No.
159, The Fair Value Option for Financial Assets and Financial Liabilities, both
effective for fiscal years beginning after November 15, 2007. The Company has
not determined if its adoption of these statements will have an impact on
operations or financial position.
FORWARD-LOOKING STATEMENTS
Statements made in this Report on Form 10-Q (the "Quarterly Report"), including
the accompanying 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; and other risks and uncertainties including those set forth in
this Quarterly 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 14
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Quarterly Report and are
based on information currently and reasonably known to us. We undertake no
obligation to release any revisions to or update these forward-looking
statements to reflect events or circumstances that occur after the date of this
Quarterly Report or to reflect the occurrence or effect of anticipated or
unanticipated events.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
With respect to our investments, we are not significantly exposed to the impact
of interest rate changes, foreign currency fluctuations, or changes in market
values. We primarily invest in money market mutual funds issued only by major
financial institutions of recognized strength and security. We do not make
investments for trading purposes.
Interest Rate Risk
We believe that the carrying amount of our fixed rate debt and capitalized
leases of $89,869,000 approximates fair value based on interest rates that are
currently available to us with similar terms and remaining maturities. As of
March 31, 2007, we had $45,017,000 of outstanding debt bearing interest at LIBOR
plus the Applicable Rate (as such term is defined in the Credit Agreement). At
our option, this debt can alternatively bear interest at the Applicable Rate
plus either the Bank of America prime rate or the federal funds rate plus
one-half of one percent (0.50%). The rate on this portion of our debt was 8.345%
at March 31, 2007. A one percent change in the interest rate paid on this debt,
on the balance at March 31, 2007, would result in a $450,000 annual change in
interest expense.
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 believe that our foreign currency risk is immaterial. Our income from foreign
sources is derived from a single customer and amounted to approximately 1% of
total revenues in 2006 and for the Current Quarter.
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 March 31, 2007. There have been no changes in our internal control over
financial reporting that occurred during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Page 15
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
We are involved in various claims and proceedings. While management currently
believes that the ultimate outcome of these proceedings, individually and in the
aggregate, will not have a material adverse effect on our financial position,
resolution of proceedings is subject to inherent uncertainties, and unfavorable
rulings could occur. We continually evaluate our exposure to loss contingencies
arising from pending or threatened legal proceedings. If circumstances arose
which would change management's view with respect to the ultimate outcome of any
of these matters, we would, as appropriate, recognize a loss contingency at such
time.
ITEM 1A - RISK FACTORS
There have been no material changes to the Risk Factors discussed in our Annual
Report on Form 10-K for the period ended December 31, 2006.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Page 16
ITEM 6 - EXHIBITS
Exhibit No. Description
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 the Company's 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 the Company's Current Report on
Form 8-K filed October 14, 2004
2.3 Purchase Agreement, dated October 24, 2005, by and between
Infocrossing, Inc. and Level 3 Financing, Inc., incorporated by
reference to Exhibit 10 to a Current Report on Form 8-K filed
October 25, 2005.
3.1A Company's Restated Certificate of Incorporation, incorporated by
reference 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 Amended and Restated Bylaws of the Company, incorporated herein
by reference to Exhibit 3.2 to the Company's Form 10-Q/A filed
May 17, 2004.
4.1A 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.
4.1B 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.
4.1C 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.
4.1D 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.
Page 17
Exhibit No. Description
4.2A 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.
4.2B 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.
4.3A 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 Exhibit 4.2 to a Registration Statement No.
333-117340 on Form S-3 filed July 13, 2004.
4.3B 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 Exhibit 4.4 to a Registration Statement No.
333-117340 on Form S-3 filed July 13, 2004.
4.4 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.
4.5 Warrant Agreement between the Company and the Warrantholders
party thereto, incorporated by reference to the Company's Annual
Report on Form 10-K for the period ended December 31, 2004.
4.6A 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.
4.6B Amendment to 1992 Plan approved at the Company's Annual Meeting
of Stockholders held on June 22, 2001, incorporated by reference
to the Company's Annual Report on Form 10-K for December 31,
2004.
4.7A 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.
4.7B Amendment to 2002 Plan adopted by the Board of Directors on
January 21, 2005, incorporated by reference to the Company's
Annual Report on Form 10-K for December 31, 2004.
4.7C Amendment to 2002 Plan approved at the Company's Annual Meeting
of Stockholders held on June 15, 2004, incorporated by reference
to the Company's Annual Report on Form 10-K for December 31,
2004.
Page 18
Exhibit No. Description
4.8A The Company's 2005 Stock Plan, incorporated by reference to the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders held on June 13, 2005.
4.8B Amendment to the 2005 Stock Plan, incorporated by reference to
the Company's Definitive Proxy Statement for the Annual Meeting
of Stockholders held on June 15, 2006.
10.1A Acquisition Loan Agreement dated July 29, 2004 between the
Company, various Lenders and CapitalSource Finance LLC as Agent
for the Lenders ("Acquisition Loan Agreement"), incorporated by
reference to Exhibit 10.7 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 2004.
10.1B Guaranty and Security Agreement dated as of July 29, 2004,
between the Company and certain of the Company's subsidiaries and
CapitalSource Finance LLC ("Security Agreement"), incorporated by
reference to Exhibit 10.8 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 2004.
10.1C Stock Pledge Agreement dated as of July 29, 2004, between the
Company and certain of the Company's subsidiaries and
CapitalSource Finance LLC ("Stock Pledge Agreement"),
incorporated by reference to Exhibit 10.9 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 2004.
10.2A Consent, Waiver and First Amendment to Acquisition Loan
Agreement dated as of October 1, 2004, incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K filed
October 4, 2004.
10.2B Joinder to Security Agreement dated October 1, 2004,
incorporated by reference to the Company's Annual Report on Form
10-K for the period ended December 31, 2004.
10.2C Addendum to Stock Pledge Agreement dated October 1, 2004,
incorporated by reference to the Company's Annual Report on Form
10-K for December 31, 2004.
10.2D Amended and Restated Consent, Waiver, and First Amendment to
Acquisition Loan Agreement, dated as of October 6, 2004,
incorporated by reference to Exhibit 10.16 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
2004.
10.2E Second Amendment to Acquisition Loan Agreement and Other
Documents, dated as of November 8, 2004, incorporated by
reference to Exhibit 10.17 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 2004.
10.2F Third Amendment to Acquisition Loan Agreement and Other
Documents, dated as of December 29, 2004, incorporated by
reference to the Company's Annual Report on Form 10-K for
December 31, 2004.
Page 19
Exhibit No. Description
10.3A Credit Agreement, dated November 30, 2005, between Infocrossing,
Inc., the lenders thereto, Bank of America, N.A. and Banc of
America Securities, LLC, incorporated by reference to a Current
Report on Form 8-K filed December 1, 2005.
10.3B Security Agreement, dated November 30, 2005, between
Infocrossing, Inc., certain subsidiaries of Infocrossing, Inc.,
and Bank of America, N.A., incorporated by reference to a Current
Report on Form 8-K filed December 1, 2005.
10.3C Securities Pledge Agreement, dated November 30, 2005, between
Infocrossing, Inc., certain subsidiaries of Infocrossing, Inc.,
and Bank of America, N.A., incorporated by reference to a Current
Report on Form 8-K filed December 1, 2005.
10.3D Amendment No. 1 to Credit Agreement and Waiver between the
Company and Bank of America, N.A., incorporated by reference to
the Company's Annual Report on Form 10-K for December 31, 2006.
10.3E Amendment No. 2 to Credit Agreement between the Company and Bank
of America, N.A. , incorporated by reference to the Company's
Annual Report on Form 10-K for December 31, 2006.
10.3F Amendment No. 3 to Credit Agreement and Waiver between the
Company and Bank of America, N.A. , incorporated by reference to
the Company's Annual Report on Form 10-K for December 31, 2006.
10.3G Security Joinder Agreement by Infocrossing iConnection dated as
of June 23, 2006, incorporated by reference to the Company's
Annual Report on Form 10-K for December 31, 2006.
10.3H Pledge Agreement Supplement between the Company and Bank of
America, N.A. dated as of June 23, 2006, incorporated by
reference to the Company's Annual Report on Form 10-K for
December 31, 2006.
10.10A Agreement of Sale and Leaseback, dated November 30, 2005,
between Infocrossing, Inc. and LSAC Operating Partnership, L.P.,
incorporated by reference to a Current Report on Form 8-K filed
December 1, 2005.
10.10B Lease, dated November 30, 2005, between (i)Structure, LLC and
LSAC Omaha L.P., incorporated by reference to a Current Report on
Form 8-K filed December 1, 2005.
10.10C Lease, dated December 29, 2005, between (i)Structure, LLC and
LSAC Tempe L.P. is not filed as it is substantially the same as
that between the (i)Structure, LLC and LSAC Omaha, L.P. except as
to the description of the building and the amount of rent.
10.11A Lease dated June 2, 1997 between the Company and Leonia
Associates, LLC, incorporated by reference to the Company's
Annual Report on Form 10-K for December 31, 2004.
10.11B First Amendment of Lease between the Company and Leonia
Associates, LLC, dated January 16, 1998, incorporated by
reference to the Company's Annual Report on Form 10-K for
December 31, 2004.
Page 20
Exhibit No. Description
10.11C Second Amendment of Lease between the Company and Leonia
Associates, LLC, dated as of September 9, 1999, incorporated by
reference to the Company's Annual Report on Form 10-K for
December 31, 2004.
10.11D 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.
10.12A 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.
10.12B 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.
10.20A (c) 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.
10.20B (b)(c) Amendment One to Employment Agreement between the
Company and Mr. Lonstein, effective as of May 9, 2007.
10.21 (c) 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.
10.22A (c) 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
the Company's Form 10-Q for the period ended July 31, 2000.
10.22B (c) Amendment One to Employment Agreement between the Company
and Mr. Wallach, dated as of December 22, 2006, incorporated by
reference to a Current Report on Form 8-K filed December 22,
2006.
10.22C (b)(c) Amendment Two to Employment Agreement between the
Company and Mr. Wallach, effective as of May 9, 2007.
10.24 (c) Employment Agreement between the Company and Lee C. Fields,
dated as of August 8, 2005, incorporated by reference to a
Current Report on Form 8-K filed August 9, 2005
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Exhibit No. Description
10.26A (c) Employment Agreement between the Company and Michael D.
Jones dated as of May 4, 2006, incorporated by reference to a
Current Report on Form 8-K filed May 8, 2006
10.26B (c) Special Sale Bonus Agreement between (i)Structure, LLC and
Mr. Jones, incorporated by reference to Exhibit 10.30 to the
Company's Annual Report on Form 10-K for December 31, 2005.
10.30 (a) 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.
10.31A Contract for Services between Verizon Information Technologies,
Inc. (now Infocrossing Healthcare Services, Inc.) and the State
of Missouri, including Amendments 1 through 6, (the "Missouri
Contract") incorporated by reference to the Company's Quarterly
Report on Form 10-Q for March 31, 2005.
10.31B Amendments no. 7 and 8 to the Missouri Contract, incorporated
by reference to Exhibit 10.32B to the Company's Quarterly Report
on Form 10-Q for September 30, 2006.
31 (b) Certifications required by Rule 13a-14(a) to be filed.
32 (b) Certifications required by Rule 13a-14(b) to be furnished but
not filed.
(a) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
(b) Filed herewith.
(c) Management compensatory plan or arrangement.
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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.
May 10, 2007 /s/ ZACH LONSTEIN
------------------------------------------
Zach Lonstein
Chairman & Chief Executive Officer
May 10, 2007 /s/ WILLIAM J. McHALE
------------------------------------------
William J. McHale
SVP - Finance and Chief Financial Officer
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EXHIBITS FILED HEREWITH
10.20B Amendment One to Employment Agreement between the Company and
Mr. Lonstein, effective as of May 9, 2007.
10.22C Amendment Two to Employment Agreement between the Company and
Mr. Wallach, effective as of May 9, 2007.
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 24