10-Q 1 q305.txt THIRD QUARTER 2005 REPORT 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 SEPTEMBER 30, 2005 ------------------------------------------------- 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 --------------------------------------------------------- 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. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): [ ] Yes [X] No. There were 20,200,466 shares of the registrant's Common Stock, $0.01 par value, outstanding as of November 8, 2005. Page 1 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AMOUNTS) SEPTEMBER 30, DECEMBER 31, ASSETS 2005 2004 --------------- --------------- (UNAUDITED) CURRENT ASSETS: Cash and equivalents $ 39, 247 $ 26,311 Trade accounts receivable, net of allowances for doubtful accounts of $1,404 and $249 at September 30, 2005 and December 31, 2004, respectively 19,686 26,707 Due from related parties 249 238 Prepaid income taxes 135 - Prepaid license fees 1,760 1,585 Deferred income taxes 1,260 1,260 Other current assets 5,497 4,650 ------------ ------------ Total current assets 67,834 60,751 Property, equipment and purchased software, net 26,459 25,113 Deferred software, net 1,369 1,077 Goodwill 104,403 103,177 Other intangible assets, net 11,053 12,328 Deferred income taxes 11,468 11,715 Security deposits and other non-current assets 2,165 2,489 ------------ ------------ TOTAL ASSETS $ 224,751 $ 216,650 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 8,395 $ 9,041 Current portion of long-term debt and capitalized lease obligations 28,927 3,683 Current portion of accrued loss on leased facilities 174 217 Accrued expenses 7,367 8,056 Income taxes payable - 305 Deferred revenues 419 1,267 ------------ ------------ Total current liabilities 45,282 22,569 Long-term debt and capitalized lease obligations, net of current portion 71,979 100,432 Accrued loss on leased facilities, net of current portion 400 505 Other long-term liabilities 2,458 1,907 ------------ ------------ TOTAL LIABILITIES 120,119 125,413 ------------ ------------ 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 20,869,435 and 20,395,473 at September 30, 2005 and December 31, 2004, respectively 209 204 Additional paid-in capital 161,477 150,278 Accumulated deficit (53,433) (56,107) ------------ ------------ 108,253 94,375 Less 668,969 and 618,969 shares at September 30, 2005 and December 31, 2004, respectively, of common stock held in treasury, at cost (3,621) (3,138) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 104,632 91,237 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 224,751 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- --------------------------------------- 2005 2004 2005 2004 ------------------ ------------------ ------------------ ----------------- (UNAUDITED) (UNAUDITED) REVENUES $ 34,094 $ 26,445 $ 106,815 $ 66,232 --------------- --------------- --------------- -------------- COSTS and EXPENSES: Costs of revenues, excluding depreciation shown below 25,171 18,514 76,524 46,303 Selling and promotion costs 1,262 801 3,376 2,442 General and administrative expenses 3,242 1,848 9,832 5,085 Depreciation and amortization 2,713 2,197 8,004 5,928 --------------- --------------- --------------- -------------- 32,388 23,360 97,736 59,758 --------------- --------------- --------------- -------------- INCOME FROM OPERATIONS 1,706 3,085 9,079 6,474 --------------- --------------- --------------- -------------- Interest income (276) (126) (528) (206) Fees related to loans repaid - - - 1,347 Interest expense 1,710 968 4,917 2,783 --------------- --------------- --------------- -------------- 1,434 842 4,389 3,924 --------------- --------------- --------------- -------------- INCOME BEFORE INCOME TAXES 272 2,243 4,690 2,550 Income tax expense (benefit) 159 202 2,016 (4) --------------- --------------- --------------- -------------- NET INCOME $ 113 $ 2,041 $ 2,674 $ 2,554 =============== =============== =============== ============== BASIC INCOME PER SHARE: Net income $ 0.01 $ 0.11 $ 0.13 $ 0.15 =============== =============== =============== ============== Weighted average number of common shares outstanding 20,213,613 18,620,252 20,183,031 17,382,089 =============== =============== =============== ============== DILUTED INCOME PER SHARE: Net income $ 0.01 $ 0.10 $ 0.12 $ 0.13 =============== =============== =============== ============== Weighted average number of common shares and share equivalents outstanding 21,031,167 21,088,760 22,047,307 19,599,100 =============== =============== =============== ==============
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, 2004 20,395 $ 204 $ 150,278 $ (56,107) $ (3,138) $ 91,237 Exercises of stock options and warrants 474 5 5,890 - - 5,895 Value related to a change in the conversion price of convertible debt - - 4,596 - - 4,596 Repurchase stock - - - - (483) (483) Tax credit for disqualifying disposition of stock options - - 713 - - 713 Net income - - - 2,674 - 2,674 ---------- --------- ---------------- -------------- -------------- ---------------- Balances, September 30, 2005 20,869 $ 209 $ 161,477 $ (53,433) $ (3,621) $ 104,632 ========== ========= ================ ============== ============== ================
See Notes to Consolidated Financial Statements. Page 4
INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------- 2005 2004 -------------------- -------------------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,674 $ 2,554 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 8,004 5,928 Additions to allowance for doubtful accounts 1,285 132 Accretion of discounted debt 130 31 Unamortized fees related to loans repaid - 1,097 Deferred income taxes 960 - Non-employee option and warrant issued for services - 168 Interest due on related party balances (11) (8) Decrease (increase) in: Trade accounts receivable 5,736 (5,254) Prepaid license fees and other current assets (991) (1,863) Security deposits and other non-current assets 324 (449) Increase (decrease) in: Accounts payable (646) 859 Payments on accrued loss on leased facilities (109) (119) Accrued expenses (1,361) (3,372) Income taxes payable (440) 230 Deferred revenues and other liabilities (297) 145 ----------------- ----------------- Net cash provided by operating activities 15,258 79 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (3,078) (852) Disposal of property 15 - Repurchase of stock (483) - Payment of purchase price and costs relating to acquisitions, net of cash acquired (554) (42,785) Increase in deferred software costs (625) (233) ----------------- ----------------- Net cash used in investing activities (4,725) (43,870) ----------------- ----------------- 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 - 69,480 Payment of costs related to the convertible notes and term loans - (655) Repayment of debt and capitalized leases (3,453) (42,581) Exercises of stock options and warrants 5,895 2,886 ----------------- ----------------- Net cash provided by financing activities 2,442 72,503 ----------------- ----------------- Net cash provided by continuing operations 12,975 28,712 CASH FLOWS FROM DISCONTINUED OPERATION: Payments on portion of loss on leased facilities relating to discontinued operation (39) (42) ----------------- ----------------- Net increase in cash and equivalents 12,936 28,670 Cash and equivalents, beginning of period 26,311 10,073 ----------------- ----------------- Cash and equivalents, end of the period $ 39,247 $ 38,743 ================= ================= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 5,516 $ 956 ================= ================= Income taxes $ 1,232 $ 103 ================= ================= SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY: Equipment acquired subject to capital leases $ 4,679 $ 4,464 ================= ================= Common stock issued in connection with an acquisition $ - $ 2,939 ================= ================= 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 September 30, 2005, the consolidated statements of operations for the three and nine months ended September 30, 2005 and 2004, the consolidated statements of cash flows for the nine months ended September 30, 2005 and 2004, and the consolidated statement of stockholders' equity for the nine months ended September 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 September 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, were recorded. The intangible asset is being amortized over its estimated useful life of ten years. Page 6 The following table summarizes the 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 =========== 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, were recorded. In June 2004, the name of SMS was changed to Infocrossing West, Inc. 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 September 30, 2005, such contingent consideration paid or accrued totaled $775,000, 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 nine-month period ended September 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 September 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 NINE MONTHS ENDED SEPTEMBER 30, 2004 (IN THOUSANDS EXCEPT PER SHARE DATA) 3 Months Ended 9 Months Ended September 30, 2004 September 30, 2004 Revenues $ 38,516 $ 110,835 --------------------- ------------------ Net income $ 4,269 $ 7,873 --------------------- ------------------ Basic net earnings per share $ 0.23 $ 0.45 --------------------- ------------------ Diluted net earnings per equivalent share $ 0.20 $ 0.40 --------------------- ------------------ 3. STOCK-BASED COMPENSATION In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards Number 123(R) ("SFAS 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 December 15, 2005. The Company plans to adopt SFAS 123(R), effective January 1, 2006, using the modified prospective method as defined in the statement. As permitted by SFAS 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. Page 8 Had compensation cost been determined in accordance with SFAS 123, the Company's income (loss) in thousands of dollars and basic and diluted earnings (loss) per common share for the three and nine month periods ended September 30, 2005 and 2004, respectively, would have been as follows (in thousands except per share data):
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------------- ------------------------------------ 2005 2004 2005 2004 ---------------- ------------------ ----------------- ---------------- Net income as reported $ 113 $ 2,041 $ 2,674 $ 2,554 Deduct stock-based employee compensation determined under the fair value method for all awards, net of tax (258) (1,800) (1,670) (2,441) ----------- -------------- ------------ ------------ Pro forma income (loss) $ (145) $ 241 $ 1,004 $ 114 =========== ============== ============ ============ Net income (loss) per share: Basic as reported $ 0.01 $ 0.11 $ 0.13 $ 0.15 =========== ============== ============ ============ Diluted as reported $ 0.01 $ 0.10 $ 0.12 $ 0.13 =========== ============== ============ ============ Basic, pro forma $ (0.01) $ 0.01 $ 0.05 $ 0.01 =========== ============== ============ ============ Diluted, pro forma $ (0.01) $ 0.01 $ 0.05 $ 0.01 =========== ============== ============ ============
The Pro forma income (loss) and pro forma basic and diluted earnings (loss) per share for the periods ended September 30, 2004 have been restated to properly account for forfeitures. 4. RESET OF CONVERSION PRICE ON CONVERTIBLE NOTES 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 must 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 were 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 were to be 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 would immediately be reduced by 17.38% (to $12.69 initially, subject to adjustment as noted above for stock dividends, splits, etc.)(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 during the term of the Notes. On August 5, 2005, the Reset Adjustment was triggered. As a result of the Reset Adjustment, the number of common shares into which the Notes are convertible is 5,673,759, an increase of 986,259 shares. For the three and nine month periods ended September 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. The Reset Adjustment was valued in accordance with EITF 00-27, "APPLICATION OF ISSUE NO. 98-5 - CERTAIN CONVERTIBLE INSTRUMENTS" at $4,596,000, and this amount was recorded as an increase to Additional Paid in Capital and as a discount to the carrying value of the Notes. This additional discount will be accreted to the carrying value of the Notes through a charge to interest expense over the life of the Notes. Page 9 5. 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. The following table lists the share equivalents included and excluded from the computation of diluted earnings per share in the periods presented.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2005 2004 2005 2004 ---------------- --------------- --------------- -------------- SHARE EQUIVALENTS INCLUDED IN THE COMPUTATION OF DILUTED EARNINGS PER SHARE: Options and warrants 817,554 2,468,508 1,851,885 2,217,011 SHARE EQUIVALENTS EXCLUDED FROM THE COMPUTATION OF DILUTED EARNINGS PER SHARE BECAUSE THEY WOULD BE ANTI-DILUTIVE: Options and warrants 2,935,799 739,700 1,507,550 741,150 Shares issuable for convertible debt 5,673,759 4,687,500 5,673,759 4,687,500
6. INCOME TAXES In the period ended September 30, 2005, the Company recorded income tax expense of $2,016,000, consisting of a current provision of $597,000 and a deferred provision of $1,419,000. 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. 7. SUBSEQUENT EVENTS REPAYMENT OF DEBT On October 1, 2004, the Company borrowed $24,375,000 from a non-revolving loan facility to pay a portion of the cost of the IHS acquisition. Monthly principal payments of approximately $609,000 were to begin on July 1, 2007, and a final payment of $11,578,000 was scheduled to be made on March 15, 2009. At September 30, 2005, this loan was included in the current portion of long term debt. On October 21, 2005, the Company repaid the outstanding balance of $24,375,000, plus accrued interest and a $12,500 prepayment penalty. The Company recorded interest expense of $256,000 in October 2005 to eliminate unamortized loan costs. Page 10 ACQUISITION On October 24, 2005, the Company entered into a definitive agreement to acquire (i)Structure, LLC ("(i)Structure"), an IT outsourcing company, from a subsidiary of Level 3 Communications, Inc. (Nasdaq: LVLT) for $81.5 million, including $1.5 million of Infocrossing stock (the "(i)Structure Agreement"). The purchase price is subject to customary working capital and certain other adjustments, including an increase of up to $10 million in cash to reimburse the seller for capital expenditures and certain other costs related to providing services for new customers that are pending installation. The Company plans to fund the cash portion of the purchase price with a combination of cash on hand, and with the proceeds of a new debt facility and other financing, including the potential sale and leaseback of certain assets. The Company has received a commitment for $70 million in bank financing. As noted above, the Company has repaid an existing debt facility. The transaction, which is subject to customary closing conditions, including the receipt of Hart-Scott-Rodino clearance, is expected to close within 45 days from the signing of the (i)Structure Agreement. Page 11 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 $38,347,000 including the contingent consideration discussed below, related acquisition costs of $1,224,000 and 135,892 shares of our common stock valued at $1,439,000 (the "SMS Acquisition"). 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. 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 September 30, 2005, such contingent consideration totaled $775,000 that has been recorded as additional goodwill. In June 2004, the name of SMS was changed to Infocrossing West, Inc. 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"). IHS provides managed care, Medicare, and Medicaid claims processing services as well as Medicaid fiscal agent services. 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 SEPTEMBER 30, 2005 AND 2004 Net income decreased by $1,928,000 from $2,041,000 for the quarter ended September 30, 2004 (the "Prior Year's Quarter") to $113,000 for the quarter ended September 30, 2005 (the "Current Quarter"). 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 exclude IHS. For the Current Quarter, revenues increased $7,649,000 (29%) to $34,094,000 from $26,445,000 for the Prior Year's Quarter. We realized approximately $11,504,000 of revenues from customers added as the result of acquisitions completed in 2004. Excluding revenues added through acquisitions in 2004, revenues decreased by $3,855,000 (15%). The decrease is net of growth from both new and existing customers. Page 12 Costs of revenues excluding depreciation increased by $6,657,000 (36%) to $25,171,000 during the Current Quarter compared with $18,514,000 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 74% in the Current Quarter from 70% in the Prior Year's Quarter, reflecting a lower gross margin. This higher percentage reflects our decision not to reduce resources, because we believe that such resources will be redeployed to meet anticipated future growth. Selling and promotion costs increased by $461,000 (58%) to $1,262,000 for the Current Quarter from $801,000 for the Prior Year's Quarter, and increased as a percentage of revenues to 4% for the Current Quarter from 3% for the Prior Year's Quarter. This increase is attributable to additional compensation and related expenses for an expanded sales force. General and administrative expenses increased by $1,394,000 (75%) to $3,242,000 for the Current Quarter from $1,848,000 for the Prior Year's Quarter. General and administrative expenses increased as a percentage of revenues to 10% in the Current Quarter from 7% in the Prior Year's Quarter. Approximately $347,000, or 25% of the total increase, was related to acquisitions completed in 2004. We also incurred $524,000 (38%) of increased professional fees including audit fees and compliance costs with respect to the Sarbanes-Oxley Act of 2002. Approximately $363,000 of the increase related to additional personnel required because of the recent acquisitions. Depreciation and amortization of fixed assets and other intangibles increased $516,000 (24%) to $2,713,000 for the Current Quarter from $2,197,000 for the Prior Year's Quarter. Of this increase, $368,000 (71%) of depreciation of fixed assets and amortization of other intangibles was related to acquisitions completed in 2004. The remainder of the increase of $148,000 (29%) resulted from fixed asset additions during the twelve months ended September 30, 2005. Net interest expense increased by $592,000 to $1,434,000 for the Current Quarter from $842,000 for the Prior Year's Quarter. The increase consists of $742,000 in additional interest expense partially offset by $150,000 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 incurred during the Current Quarter. For the Current Quarter, we recorded a tax expense of $159,000 compared with a tax expense of $202,000 for the Prior Year's Quarter. The tax expense for the Current Quarter consists of a current provision of $39,000 and a deferred tax provision of $120,000. As of December 31, 2004, we had net operating loss carry-forwards of approximately $37,000,000 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 $113,000 for the Current Quarter compared with $2,041,000 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 basic income per common share of $0.11and diluted income per share of $0.10 for the Prior Year's Quarter. The number of weighted average shares increased to approximately 20,214,000 shares for basic shares and approximately 21,031,000 shares on a diluted basis for the Current Quarter from approximately 18,620,000 basic shares and diluted shares of 21,089,000 for the Prior Year's Quarter. The increase in weighted average basic shares of 1,594,000 was the result of exercises of options and warrants, net of the repurchase of 50,000 shares. Fewer share equivalents were included in the calculation in 2005, however, since the average market price of the Company's common stock had declined from $13.34 for the Prior Year's Quarter to $9.34 in the Current Quarter. For the Current and Prior Quarters, the weighted average number of shares used in calculating diluted earnings per share includes options and warrants to purchase common stock aggregating 817,554 and 2,468,508 shares, respectively. The calculations for 2005 and 2004 exclude 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. Page 13 RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 Net income increased by $120,000 (5%) from $2,554,000 for the nine-month period ended September 30, 2004 (the "Prior Year's Period") to $2,674,000 for the nine-month period ended September 30, 2005 (the "Current Period"). 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 exclude IHS. For the Current Period, revenues increased $40,583,000 (61%) to $106,815,000 from $66,232,000 for the Prior Year's Period. The Company realized approximately $45,127,000 of revenues from customers added as the result of acquisitions completed in 2004. Excluding revenues added through acquisitions in 2004, revenues decreased by $4,544,000 (7%). The decrease is net of growth from both new and existing customers. Costs of revenues excluding depreciation increased by $30,221,000 (65%) to $76,524,000 during the Current Period compared with $46,303,000 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 72% in the Current Period from 70% in the Prior Year's Period, reflecting a lower gross margin. This higher percentage reflects our decision not to reduce resources, because we believe that such resources will be redeployed to meet anticipated future growth. Selling and promotion costs increased by $934,000 (38%) to $3,376,000 for the Current Period from $2,442,000 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. This increase is attributable to additional compensation and related expenses for an expanded sales force. General and administrative expenses increased by $4,747,000 (93%) to $9,832,000 for the Current Period from $5,085,000 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 $1,160,000, or 24% of the total increase, was related to acquisitions completed in 2004. Approximately $1,285,000 (27% 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 $1,334,000 (28%) of increased professional fees, including audit fees and compliance costs with respect to the Sarbanes-Oxley Act of 2002. Approximately $589,000 of the increase related to additional personnel required because of the recent acquisitions. Insurance expense also increased by $150,000 for the same reason. Depreciation and amortization of fixed assets and other intangibles increased $2,076,000 (35%) to $8,004,000 for the Current Period from $5,928,000 for the Prior Year's Period. Of this increase, $1,519,000 (73%) of depreciation of fixed assets and amortization of other intangibles was related to acquisitions completed in 2004. The remainder of the increase of $557,000 (27%) resulted from fixed asset additions during the twelve months ended September 30, 2005. Depreciation and amortization decreased as a percentage of revenues to 8% in the Current Period compared with 9% in the Prior Year's Period. Net interest expense increased by $465,000 to $4,389,000 for the Current Period from $3,924,000 for the Prior Year's Period. The results for the Prior Period 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 $1,812,000 consisting of $2,134,000 in additional interest expense partially offset by an increase in interest income of $322,000. 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 incurred during the Current Period. For the Current Period, we recorded a tax expense of $2,016,000 compared with a tax benefit of $4,000 for the Prior Year's Period. The tax expense for the Current Period consists of a current provision of $597,000 and a deferred provision of $1,419,000. 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. Page 14 We have net income of $2,674,000 for the Current Period compared with $2,554,000 for the Prior Year's Period. In the Current Period, we had income per common share of $0.13 and $0.12 on a basic and diluted basis, respectively, compared with income per common share of $0.15 and $0.13 on a basic and diluted basis, respectively, for the Prior Year's Period. The number of weighted average shares increased to approximately 20,183,000 basic shares and approximately 22,047,000 shares on a diluted basis for the Current Period from approximately 17,382,000 basic shares and approximately 19,599,000 shares on a diluted basis for the Prior Year's Period. The increase in weighted average basic shares of 2,801,000 was the result of exercises of options and warrants, net of the repurchase of 50,000 shares. For the Current and Prior Periods, the weighted average number of shares used in calculating diluted earnings per share includes options and warrants to purchase common stock aggregating 1,851,885 and 2,217,011 shares, respectively. The calculations for 2005 and 2004 exclude 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. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $15,258,000 for the nine-month period ended September 30, 2005 (the "Current Period"). During the Current Period, sources of cash included $2,674,000 of net income adjusted for non-cash charges of $8,004,000 of depreciation and amortization, additions to the allowance for doubtful accounts of $1,285,000, and $960,000 from a decrease in deferred tax assets; $324,000 from an decrease in other assets; and $5,736,000 from a decrease in accounts receivable. Significant uses of cash during the Current Period include a reduction of taxes payable and an increase in prepaid taxes totaling $440,000; an increase in prepaid expenses and other current assets of $991,000; and a decrease in accrued expenses and accounts payable of $2,007,000. 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 $3,078,000 of equipment and other property, payment of $554,000 of subsequent contingent purchase price relating to the SMS Acquisition, and additions of $625,000 to software development costs. 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. In July 2005, we purchased 50,000 shares for approximately $483,000. On October 24, 2005, we entered into a definitive agreement to acquire (i)Structure, LLC ("(i)Structure"), an IT outsourcing company for $81.5 million, including $1.5 million of Infocrossing stock (the "(i)Structure Agreement"). The purchase price is subject to customary working capital and certain other adjustments, including an increase of up to $10 million in cash to reimburse the seller for capital expenditures and certain other costs related to providing services for new customers that are pending installation. The purchase price will be increased by $1 million of our common stock if a pending agreement between (i)Structure and a prospective client is signed within six months of closing. We plan to fund the cash portion of the purchase price with a combination of cash on hand, and with the proceeds of a new debt facility and other financing, including the potential sale and leaseback of certain assets. As noted below, we have repaid an existing debt facility. The transaction, which is subject to customary closing conditions, including the receipt of Hart-Scott-Rodino clearance, is expected to close within 45 days from the signing of the (i)Structure Agreement. We received a commitment for $70 million in bank financing. Financing activities during the Current Period include the repayment of approximately $3,453,000 of capital leases and the receipt of $5,895,000 from the exercise of employee stock options. In addition, we added $4,679,000 of equipment subject to new capital lease agreements during the Current Period. In 2004, we completed a private offering of $72,000,000 aggregate principal amount of 4.0% Convertible Senior Notes due July 15, 2024 (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. Page 15 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 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 our common stock, or a combination thereof. At the initial conversion price of $15.36, the $72,000,000 of Notes were 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 were to be less than 68.23% of the conversion price then in effect ($10.48) for at least 20 trading days during any 30 consecutive trading day period, the conversion price would 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. As a result of the Reset Adjustment, the number of common shares into which the Notes are convertible is 5,673,759, an increase of 986,259 shares. The Reset Adjustment was valued in accordance with EITF 00-27, "APPLICATION OF ISSUE NO. 98-5 - CERTAIN CONVERTIBLE INSTRUMENTS" at $4,596,000, and this amount was recorded as an increase to Additional Paid in Capital and as a discount to the carrying value of the Notes. This additional discount will be accreted to the carrying value of the Notes through a charge to interest expense over the life of the Notes. The holders may convert their Notes into shares of our common stock, currently at a conversion price of $12.69 per share, equal to a conversion rate of approximately 78.8022 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 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 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. Page 16 In July 2004, we established a $25,000,000, non-revolving loan facility, available for use in connection with the acquisition of complementary businesses. We paid a 1.0% commitment fee at the closing of the loan and an unused facility fee at the rate of 0.75% per annum which would have continued until we borrowed more than $10,000,000 on a cumulative basis. We would have incurred prepayment penalties if we terminated the facility during the first 18 months or prepaid any advance prior to the one-year anniversary of the applicable borrowing date. The facility and any loans made under the facility were guaranteed by all of our subsidiaries, and any such loans and the guarantees were 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 represented the full loan availability under the line. The $625,000 balance was required to 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 were to begin on July 1, 2007, and a final payment of $11,578,000 was scheduled to be made on March 15, 2009. At September 30, 2005, this loan was included in the current portion of long term debt. Subsequent to the date of the financial statements presented herewith, on October 21, 2005, we repaid the outstanding balance of $24,375,000, plus accrued interest and a $12,500 prepayment penalty. We recorded interest expense of $256,000 in October 2005 to eliminate unamortized loan costs. On February 22, 2005, we filed a "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. As of September 30, 2005, we had cash and equivalents of $39,247,000. 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 for any other 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 nine months ended September 30, 2005 our EBITDA increased by $4,681,000 (38%) to $17,083,000 from $12,402,000 for the comparable period in 2004. Page 17 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 ------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------- 2005 2004 -------------------- -------------------- NET INCOME $ 2,674 $ 2,554 Add back (deduct): Tax expense (benefit) 2,016 (4) Interest expense 4,389 3,924 Depreciation and amortization 8,004 5,928 ---------------- ---------------- EBITDA $ 17,083 $ 12,402 ================ ================ 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. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued SFAS 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 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 December 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 share based payments granted after the effective date and (b) based on the requirements of SFAS 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 SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. Page 18 We plan to adopt SFAS 123(R), effective January 1, 2006, using the modified-prospective method. As permitted by SFAS 123, we currently account for share-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 SFAS 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 share-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 the completion of the acquisition and integration of (i)Structure, LLC.; 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. 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. Page 19 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 September 30, 2005. 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. 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. 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 settlement did not have any financial impact on the Company. 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. Page 20 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. The following table gives information with respect to this program.
Total Number of Maximum Dollar Value Shares Purchased as of Shares that May Part of Publicly Yet Be Purchased Total Number of Average Price Paid Announced Plans or Under the Plans or Shares Purchased Per Share Programs Programs July 1-31, 2005 50,000 $9.67 50,000 $9,516,511
Page 21 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 among 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 22 (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, 2000 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 23 (a) Exhibits (continued): 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, incorporated by reference to Exhibit 10.6D to the Company's Quarterly Report on Form 10-Q for June 30, 2005. 10.6E Master Assignment and Assumption Agreement, dated as of February 13, 2004, 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 24 (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 25 (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 January 26, 2005. 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 26 (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. 10.23 Purchase Agreement dated as of October 24, 2005, between Level 3 Financing, Inc. and the Company, incorporated by reference to Exhibit 10 to a Current Report on Form 8-K filed October 25, 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 27 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. November __, 2005 /s/ ZACH LONSTEIN ------------------------------------------ Zach Lonstein Chairman & Chief Executive Officer November __, 2005 /s/ WILLIAM J. McHALE ------------------------------------------ William J. McHale Chief Financial Officer Page 28 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 29