-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Thp7s9h8IqSHR7X9ID7DOC8Qu7JMYV2oTz8w5yaON1HsMTAsHPUZTia+OGWyRM4H yPiA7zIis8vUkih89FiPdQ== 0000893816-04-000023.txt : 20040514 0000893816-04-000023.hdr.sgml : 20040514 20040514172821 ACCESSION NUMBER: 0000893816-04-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFOCROSSING INC CENTRAL INDEX KEY: 0000893816 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133252333 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20824 FILM NUMBER: 04809123 BUSINESS ADDRESS: STREET 1: 2 CHRISTIE HEIGHTS STREET CITY: LEONIA STATE: NJ ZIP: 07605 BUSINESS PHONE: 2018404700 MAIL ADDRESS: STREET 1: 2 CHRISTIE HEIGHTS STREET CITY: LEONIA STATE: NJ ZIP: 07605 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER OUTSOURCING SERVICES INC DATE OF NAME CHANGE: 19930328 10-Q 1 q104.txt FIRST QUARTER 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: MARCH 31, 2004 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): [ ] Yes [X] No. There were 18,326,631 shares of the registrant's Common Stock, $0.01 par value, outstanding as of May 10, 2004. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) MARCH 31, DECEMBER 31, 2004 2003 ----------------- ----------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and equivalents $ 39,553 $ 10,073 Trade accounts receivable, net of allowances for doubtful accounts of $616 and $570, respectively 4,400 3,592 Due from related parties 229 226 Prepaid license fees 785 945 Other current assets 2,853 1,780 -------------- ------------- 47,820 16,616 -------------- ------------- PROPERTY and EQUIPMENT, net 17,419 18,249 -------------- ------------- OTHER ASSETS: Deferred software, net 1,157 1,264 Goodwill, net 28,361 28,361 Other intangible assets, net 707 788 Security deposits and other non-current assets 2,270 1,384 -------------- ------------- 32,495 31,797 -------------- ------------- TOTAL ASSETS $ 97,734 $ 66,662 ============== ============= LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable $ 3,250 $ 2,768 Current portion of long-term debt and capitalized lease obligations 2,329 2,559 Current portion of accrued loss on leased facilities 207 202 Accrued expenses 2,185 1,516 Current deferred revenue 1,319 1,356 -------------- ------------- 9,290 8,401 LONG-TERM LIABILITES: Notes payable, long-term debt and capitalized lease obligations 25,647 25,732 Accrued loss on leased facilities, net of current portion 674 732 Deferred revenue, net of current portion 21 42 Other long-term liabilities 975 954 -------------- ------------- TOTAL LIABILITIES 36,607 35,861 -------------- ------------- 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 18,805,609 and 15,732,038, respectively 188 157 Additional paid-in capital 139,372 109,565 Accumulated deficit (75,295) (76,070) -------------- ------------- 64,265 33,652 Less 618,969 and 594,990 shares, respectively, of common stock held in treasury, at cost (3,138) (2,851) -------------- ------------- TOTAL STOCKHOLDERS' EQUITY 61,127 30,801 -------------- ------------- TOTAL LIABILITES AND STOCKHOLDERS' EQUITY $ 97,734 $ 66,662 ============== =============
See Notes to Consolidated Financial Statements.
INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ------------------------------------ THREE MONTHS ENDED MARCH 31, ------------------------------------ 2004 2003 --------------- -------------- REVENUES $ 15,176 $ 13,129 --------------- -------------- COSTS and EXPENSES: Costs of revenues, excluding depreciation shown below 10,223 8,774 Selling and promotion costs 736 712 General and administrative expenses 1,377 1,364 Depreciation and amortization 1.593 1,416 --------------- -------------- 13,929 12,266 --------------- -------------- INCOME FROM OPERATIONS 1,247 863 --------------- -------------- Interest income (38) (20) Interest expense 703 593 --------------- -------------- 665 573 --------------- -------------- INCOME BEFORE INCOME TAXES 582 290 Income tax (benefit) expense (193) 20 --------------- -------------- NET INCOME 775 270 Accretion and dividends on redeemable preferred stock - (2,448) --------------- -------------- NET INCOME (LOSS) TO COMMON STOCKHOLDERS $ 775 $ (2,178) =============== ============== BASIC INCOME (LOSS) PER SHARE: Net income (loss) to common stockholders $ 0.05 $ (0.40) =============== ============== Weighted average number of common shares outstanding 15,193 5,379 =============== ============== DILUTED INCOME (LOSS) PER SHARE: Net income (loss) to common stockholders $ 0.05 $ (0.40) =============== ============== Weighted average number of common shares and share equivalents outstanding 17,146 5,379 =============== ==============
See Notes to Consolidated Financial Statements.
INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED, IN THOUSANDS) COMMON PAR VALUE ADDITIONAL ACCUMULATED TREASURY TOTAL SHARES PAID IN CAPITAL DEFICIT STOCK AT COST ------------ -------------- ---------------- ----------------- -------------- ------------- Balances, December 31, 2003 15,732 $ 157 $ 109,565 $ (76,070) $ (2,851) $ 30,801 Exercises of stock options 30 - 313 - (287) 26 Issuance of a warrant - - 137 - - 137 Vesting of a non-qualified stock option - - 19 - - 19 Exercises of warrants 127 2 994 - - 996 Private placement of common stock 2,917 29 28,344 - - 28,373 Net income - - - 775 - 775 ------------ ----------- ------------- -------------- ----------- ------------ Balances, March 31, 2004 18,806 $ 188 $ 139,372 $ (75,295) $ (3,138) $ 61,127 ============ =========== ============= ============== =========== ============
See Notes to Consolidated Financial Statements.
INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) ------------------------------------------- THREE MONTHS ENDED MARCH 31, ------------------------------------------- 2004 2003 -------------------- -------------------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 775 $ 270 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,593 1,416 Accretion of discounted Debentures - 139 Non-employee option and warrant issued for services 19 - Decrease (increase) in: Trade accounts receivable (808) 962 Prepaid license fees and other current assets (794) 50 Security deposits and other non-current assets (886) (152) Increase (decrease) in: Accounts payable 482 (590) Income taxes payable 18 21 Accrued expenses 274 834 Payments on accrued loss on leased facilities (39) (37) Deferred revenue and other liabilities (37) (1,128) ----------------- ----------------- Net cash provided by operating activities 597 1,785 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (128) (969) Payments of costs related to the acquisition of AmQUEST, Inc. - (200) Increase in deferred software costs (30) (28) ----------------- ----------------- Net cash used in investing activities (158) (1,197) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from a private equity placement 28,768 - Repayment of debt and capitalized leases (732) (462) Exercises of stock options and warrants 1,022 - Interest on related party balances (3) (2) ----------------- ----------------- Net cash provided by (used in) financing activities 29,055 (464) ----------------- ----------------- Net cash provided by continuing operations 29,494 124 CASH FLOWS FROM DISCONTINUED OPERATIONS: Payments on portion of accrued loss on leased facilities relating to discontinued operations (14) (13) ----------------- ----------------- Net increase in cash and equivalents 29,480 111 Cash and equivalents, beginning of period 10,073 7,026 ----------------- ----------------- Cash and equivalents, end of the period $ 39,553 $ 7,137 ================= ================= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 675 $ 85 ================= ================= Income taxes $ 20 $ 51 ================= ================= SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY: Equipment acquired subject to capital leases $ 417 $ 1,262 ================= ================= SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: Treasury shares received in payment of a stock option exercise $ 287 $ - ================= ================= Additional Debentures issued in lieu of a cash payment of interest $ - $ 636 ================= =================
See Notes to Consolidated Financial Statements. INFOCROSSING, INC. AND SUBSIDIAIRES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated balance sheets as of March 31, 2004 and the consolidated statements of operations, the consolidated statement of stockholders' equity, and the consolidated statements of cash flows for the three months ended March 31, 2004 and 2003 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 period ended March 31, 2004 is not necessarily indicative of the operating results for the full year. Certain reclassifications have been made to the prior period to conform to the current presentation. Certain disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These 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, 2003, as amended. The consolidated financial statements include the accounts of Infocrossing, Inc. and its wholly owned subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated. 2. STOCK-BASED COMPENSATION The Company accounts for stock options granted to employees and directors under the Plan in accordance with Accounting Principles Board Opinion No. 25 and related Interpretations. Accordingly, no compensation cost has been recognized for stock option awards. Had compensation cost been determined in accordance with Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation", the Company's income (loss) in thousands of dollars and income (loss) per common share for the three months ended March 31, 2004 and 2003 would have been as follows: THREE MONTHS ENDED MARCH 31, --------------------------------------- 2004 2003 ----------------- ------------------ Net income (loss) to common stockholders: As reported $ 775 $ (2,178) Deduct: stock-based employee compensation, net of taxes (769) (730) -------------- --------------- Pro forma $ 6 $ (2,908) ============== =============== Net income (loss) to common stockholders per diluted share: As reported $ 0.05 $ (0.40) ============== =============== Pro forma $ 0.00 $ (0.54) ============== =============== 3. NOTES PAYABLE On October 21, 2003, in connection with the redemption of the Company's Redeemable Preferred Stock, the Company issued $25,000,000 of senior secured term loans maturing in October 2008. These term loans were held by the prior holders of the Redeemable Preferred Stock. On February 13, 2004, the term loans were purchased by a financial institution. The terms and conditions of the term loans were not materially altered. The notes contain 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 notes limit the Company's ability to pay dividends. The Company was in compliance with such loan covenants at March 31, 2004. 4. BASIC AND DILUTED EARNINGS PER COMMON SHARE Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128") requires the presentation of basic and diluted earnings per share ("EPS"). Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed using the weighted average number of common shares plus the dilutive effect of common stock equivalents. Common stock equivalents that are antidilutive are excluded from the computation of weighted average share equivalents. Certain common stock equivalents that are currently antidilutive may be dilutive in the future. In determining the diluted loss per common share for the three-month periods ended March 31, 2004 and 2003, common stock equivalents of approximately 694,000 and 6,205,000, respectively, have been excluded since the effect of including such equivalents would have been antidilutive. 5. PRIVATE OFFERING OF SHARES On March 30, 2004 (the "Closing Date"), in a private placement, the Company issued 2,917,000 shares of common stock in exchange for net proceeds of $28,768,500. The private placement was made only to accredited investors in a transaction exempt from the registration requirements of the Securities Act of 1933. Investors who participated in the private placement received certain registration rights with respect to the common stock issued in the private placement. Approximately $20 million of the proceeds of the private placement were used to fund the acquisition discussed in Note 7. The remainder of the amount raised will be used for the payment of fees and expenses of the offering and for working capital purposes. 6. INCOME TAXES In the quarter ended March 31, 2004, the Company recorded a tax benefit of $234,000 from the sale of New Jersey State net operating loss carryforwards ("NOLs"), offset by estimated state income tax expense of $41,000. At December 31, 2003, the Company had NOLs of approximately $37.3 million for federal income tax purposes that begin to expire in 2019. As a result of a recapitalization of the Company's capital structure on October 21, 2003, the timing and use of these NOLs in future years is expected to be limited in any one year. The Company's net deferred tax assets, including the benefit from the NOLs, have been fully offset by a valuation allowance due to the uncertainty of realizing such tax benefits. 7. SUBSEQUENT EVENTS ACQUISITION & ADDITIONAL TERM LOANS 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 ("Holdings") for approximately $35 million in cash and 135,892 shares of common stock of the Company valued at approximately $1,859,000 (the "SMS Acquisition"). SMS, headquartered in Orange County, California, provides computing operations, business process outsourcing and managed application services to clients primarily located in the western United States. SMS' principal assets consist of rights under contracts, leases of equipment, software licenses, real estate and intellectual property used in performing its business. The Company anticipates that SMS will continue to operate its business as a wholly owned subsidiary of the Company. The Company is in the process of valuing the assets acquired and liabilities assumed. It is estimated that the value of customer contracts acquired will be approximately $1,500,000 and the remainder of the purchase price, including costs and fees, will be allocated to goodwill. On April 2, 2004, the Company and its lender (see Note 3) amended and restated the term loan agreement, dated as of October 21, 2003 and amended on February 13, 2004 (the "Term Loan Agreement") to provide a portion of the funding for the SMS Acquisition. As amended and restated, the Term Loan Agreement provides for a Term Loan A facility with a maximum borrowing of $25 million and a Term Loan B facility with a maximum borrowing of $15 million. The Company borrowed $15 million from the Term Loan B facility and, along with approximately $20 million from the private offering of shares completed on March 30, 2004, completed the SMS Acquisition. Term Loan B is at an interest rate of Prime plus 3% with a floor of 9% and matures along with the Term Loan A on October 21, 2008. The term loans include monthly payments of interest and monthly principal payments of $312,500 beginning in December 2004. The Term Loan Agreement is subject to certain restrictive 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, transactions with affiliates, and the payment of dividends. The Term Loan Agreement is guaranteed by each of the Company's subsidiaries. The Term Loan Agreement is also secured by a pledge of substantially all of the assets of the Company and all of its subsidiaries. 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 clients. We deliver a full suite of managed and outsourced solutions that enable clients to leverage our infrastructure and process expertise to improve their efficiency and reduce their operating costs. During our nearly twenty year history, 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, such as the acquisition of AmQUEST, Inc. in February 2002 and the acquisition of ITO Acquisition Corporation, a California corporation doing business as Systems Management Specialists, or "SMS," on April 2, 2004, have contributed significantly to our historical growth and remain an integral component of our long-term growth strategy. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2004 AND 2003 Net income improved by $505,000, from $270,000 for the three months ended March 31, 2003 (the "Prior Quarter") to $775,000 for the three months ended March 31, 2004 (the "Current Quarter") on 16% higher revenues. Operating costs in the Current Quarter improved to 92% of revenue compared with 93% in the Prior Quarter. For the Current Quarter, revenues increased $2,047,000 (16%) to $15,176,000 from $13,129,000 for the Prior Quarter. This growth is attributable to new customer contracts added during the past twelve months and increased revenue from certain existing customer contracts. Costs of revenues increased $1,449,000 (17%) to $10,223,000 during the Current Quarter compared with $8,774,000 for the Prior Quarter. Costs of revenues as a percentage of revenue were 67% in both the Current and Prior Quarters. Selling and promotion costs increased $24,000 (3%) to $736,000 in the Current Quarter from $712,000 for the Prior Quarter. General and administrative expenses increased $13,000 (1%) to $1,377,000 for the Current Quarter from $1,364,000 for the Prior Quarter. Depreciation and amortization of fixed assets and other intangibles increased $177,000 (13%), from $1,416,000 for the Prior Quarter to $1,593,000 for the Current Quarter, as a result of depreciation on additional computer equipment acquired to support new customers. As a percentage of revenues, however, depreciation and amortization declined from 11% in the Prior Quarter to 10% in the Current Quarter. Net interest expense of $665,000 was recorded for the Current Quarter compared with $573,000 for the Prior Quarter. The net change of $92,000 reflects an increase of $110,000 in interest expense, due to a larger average outstanding debt balance than in the Prior Quarter, offset by an increase in interest income of $18,000. In the Current Quarter, we recorded a tax benefit of $234,000 from the sale of New Jersey State net operating loss carryforwards ("NOLs"), offset by estimated state income tax expense of $41,000, compared with state income tax expense of $20,000 recorded in the Prior Quarter. At December 31, 2003, we had Federal NOLs of approximately $37.3 million for federal income tax purposes that begin to expire in 2019. As a result of a recapitalization of our capital structure on October 21, 2003, the timing and use of these NOLs in future years is expected to be limited in any one year. The carrying value of our net deferred tax assets, including the benefit from the NOLs, has been fully offset by a valuation allowance due to the uncertainty of realizing such tax benefits. We had net income of $775,000 for the Current Quarter compared with $270,000 for the Prior Quarter. Net loss to common stockholders after accretion and accrued dividends on preferred stock was $2,178,000 for the Prior Quarter. On October 21, 2003, we redeemed all outstanding preferred stock, thus no accretion and dividends were recorded in the Current Quarter. We had income per common share of $0.05 in both a basic and diluted basis, compared with a loss of $0.40 for the Prior Quarter, also on both a basic and diluted basis. The number of weighted average shares increased from 5.4 million shares for the Prior Quarter to 15.2 million shares in the Current Quarter largely because of private placements of (a) 9,739,111shares of common stock and warrants to purchase 3,408,689 shares of common stock in October 2003 and (b) 2,917,000 shares of common stock in March 2004. The weighted average number of shares and share equivalents was 17.1 million in the Current Quarter compared with 5.4 million shares in the Prior Quarter. Common stock equivalents were excluded in determining the net income or loss per share when the inclusion of such equivalents would be antidilutive. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was approximately $597,000 for the three months ended March 31, 2004. During the Current Period, we had $775,000 of net income and $1,593,000 of depreciation and amortization. Significant working capital changes include an annual lease prepayment of $551,000 for the facility in Norcross, GA, and the payment of approximately $1,025,000 of license fees and $210,000 of other costs related to certain new clients that will be amortized over the various contract terms. Other working capital changes include an increase in accounts receivable of $808,000 offset by increases in accounts payable and accrued expenses of $774,000. Principal investing activities during the three months ended March 31, 2004 include $128,000 for the purchase of property and equipment. During the first three months of 2004, we also entered into capital leases having an aggregate carrying value of approximately $417,000. On March 30, 2004, in a private placement, we issued 2,917,000 shares of common stock in exchange for $28,768,500 net of fees and expenses. The private placement was made only to accredited investors in a transaction exempt from the registration requirements of the Securities Act of 1933. Investors who participated in the private placement received certain registration rights with respect to the common stock issued in the private placement. Approximately $20 million of the proceeds of the private placement were used to fund the acquisition discussed in Subsequent Events. The remainder of the amount raised will be used for working capital purposes. Other financing activities during the Current Period included $732,000 in payments of principal with respect to debt and capital lease obligations and the receipt of $1,022,000 from exercises of options and warrants. As of March 31, 2004, we had cash and equivalents of $39,553,000. We used approximately $20 million of this to fund the acquisition discussed below. We believe that our cash, cash remaining from the private placements, 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. The following table summarizes information about our contractual obligations as of December 31, 2003 and the periods in which payments are due. Certain of these amounts are not required to be included in our consolidated balance sheet:
PAYMENTS DUE BY PERIOD (IN THOUSANDS) ------------------------------------------------------------------------------------------------ CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1-3 4 - 5 AFTER 1 YEAR YEARS YEARS 5 YEARS --------------- -------------- --------------- -------------- --------------- Long-Term Debt (1) $ 24,956 $ 267 $ 490 $ 24,199 $ - Operating Leases and Software Licenses 30,801 4,930 7,384 6,886 11,601 Capital Lease Obligations 3,393 2,335 1,058 - - Other Long-Term Liabilities Reflected on the Company's Balance Sheet under GAAP (2) 934 202 377 355 - --------------- -------------- --------------- -------------- --------------- Total Contractual Cash Obligations $ 60,084 $ 7,734 $ 9,309 $ 31,440 $ 11,601 =============== ============== =============== ============== ===============
(1) Does not give effect to the potential acceleration of payments based on future performance. (2) Payments of Accrued Loss on Leased Facilities. Excludes Deferred Revenue, as it is not a cash obligation, and Deferred Rent, as payments are included under Operating Leases. SUBSEQUENT EVENTS ACQUISITION & ADDITIONAL TERM LOANS 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 ("Holdings") for approximately $35 million in cash and 135,892 shares of common stock of the Company valued at approximately $1,859,000 (the "SMS Acquisition"). The SMS Acquisition was effected pursuant to a Stock Purchase Agreement, dated as of March 3, 2004, between Holdings and the Company. SMS, headquartered in Orange County, California, provides computing operations, business process outsourcing and managed application services to clients primarily located in the western United States. SMS' principal assets consist of rights under contracts, leases of equipment, software licenses, real estate and intellectual property used in performing its business. We anticipate that SMS will continue to operate its business as a wholly owned subsidiary of the Company. We are in the process of valuing the assets acquired and liabilities assumed. It is estimated that the value of customer contracts acquired will be approximately $1,500,000 and the remainder of the purchase price, including costs and fees, will be allocated to goodwill. On April 2, 2004, we and our lender amended and restated the term loan agreement, dated as of October 21, 2003 and amended on February 13, 2004 (the "Term Loan Agreement") to provide a portion of the funding for the SMS Acquisition. As amended and restated, the Term Loan Agreement provides for a Term Loan A facility with a maximum borrowing of $25 million and a Term Loan B facility with a maximum borrowing of $15 million. We borrowed $15 million from the Term Loan B facility and, along with approximately $20 million from the private offering of shares completed on March 30, 2004, completed the SMS Acquisition. Term Loan B is at an interest rate of Prime plus 3% with a floor of 9% and matures along with the Term Loan A on October 21, 2008. The term loans include monthly payments of interest and monthly principal payments of $312,500 beginning in December 2004. The Term Loan Agreement is subject to certain restrictive 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, transactions with affiliates, and the payment of dividends. The Term Loan Agreement is guaranteed by each of our subsidiaries. The Term Loan Agreement is also secured by a pledge of substantially all of our assets and all of our subsidiaries. CRITICAL ACCOUNTING POLICIES AND ESTIMATES General Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States, which require the selection and application of significant accounting policies, and which require management to make significant estimates and assumptions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies. Revenue Recognition Our services are provided under a combination of fixed monthly fees and time and materials billings. Contracts with customers typically range from one to five years. Revenue is recognized (1) after we have obtained an executed service contract from the customer; (2) as the services are rendered; (3) when the price is fixed as per the service contract; and (4) when we believe that collectibility is reasonably assured based on our credit risk policies and procedures that we employ. Allowance for Doubtful Accounts We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Tangible and Intangible Assets We have significant tangible and intangible assets on our balance sheet, primarily property and equipment, deferred software costs, and intangible assets, primarily goodwill, related to acquisitions. The assignment of useful lives to these assets and the valuation and classification of intangible assets involves significant judgments and the use of estimates. The testing of these tangible and intangibles under established accounting guidelines for impairment also requires significant use of judgment and assumptions. Our assets are tested and reviewed for impairment on an ongoing basis under the established accounting guidelines. Changes in business conditions or changes in the decisions of management as to how assets will be deployed in our operations could potentially require future adjustments to asset valuations. Deferred Taxes A tax valuation allowance is established, as needed, to reduce net deferred tax assets to the amount for which recovery is probable. As of March 31, 2004, we have established a full valuation allowance of $16.6 million against our net deferred tax assets because of our history of operating losses. Depending on the amount and timing of taxable income we may generate in the future, as well as other factors including limitations that may arise from changes in our ownership, we could recognize no benefit from our deferred tax assets, or we could recognize some or all of their full value. 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 within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, 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; new products; technological changes; our dependence on third party suppliers; intellectual property rights; difficulties with the integration of ITO Acquisition Corporation, d/b/a Systems Management Specialists; 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. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report and are based on information currently and reasonably known to us. Except as required by law, 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 Report or to reflect the occurrence or effect of anticipated or unanticipated events. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We are not exposed to material gains or losses related to the impact of interest rate changes, foreign currency fluctuations, or changes in the market values of our investments. We generally invest in fixed income securities - typically commercial paper, certificates of deposit, and money market accounts issued only by major corporations and financial institutions of recognized strength and security - and hold all investments to maturity. At March 31, 2004, our outstanding fixed rate debt was approximately $27,967,000. If market rates decline, we run the risk that the related required payments on the fixed rate debt will exceed those that would be paid based on then current market rates. Market Risk Our accounts receivable are subject, in the normal course of business, to collection risks. We regularly assess these risks and have policies and business practices to mitigate the adverse effects of collection risks. As a result, we do not anticipate any material losses in this area in excess of the recorded allowance for doubtful accounts. Foreign Currency Risks We have no material foreign operations. 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 Senior Vice President of Finance, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including the Chief Executive Officer and the Senior Vice President of Finance, concluded that our disclosure controls and procedures were effective as of March 31, 2004. There have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. PART II - OTHER INFORMATION ITEM 2 - CHANGES IN SECURITES (c) Recent Issuances of Unregistered Securities On March 30, 2004, in a private placement, we issued 2,917,000 shares of common stock in exchange for $30,628,500. The private placement was made only to accredited investors in a transaction exempt from the registration requirements of the Securities Act of 1933. This transaction is exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. Roth Capital Partners acted as placement agent for this offering. Total fees and expenses of the offering were approximately $2,258,000. Approximately $20 million of the proceeds of the private placement were used to fund an acquisition consummated on April 2, 2004. The remainder of the amount raised will be used for working capital purposes. On April 12, 2004 a registration statement on Form S-3 was filed by the Company on behalf of the investors as selling shareholders. We will not receive any proceeds from any sales of stock under this registration statement. The following is a listing of the investors NUMBER OF SHARES JLF Asset Management 715,000 Lehman Brothers 470,000 Janus Capital 400,000 Leaf Investment 335,000 J. Steven Emerson 290,000 Baron Funds 290,000 Trustman Funds 125,000 SF Capital 97,000 Crestview Capital 65,000 Corsair Capital 50,000 Topaz Partners 50,000 FlyLine Holdings 20,000 SRG Capital 10,000 ------------------ TOTAL 2,917,000 ================== ITEM 5 - OTHER INFORMATION (a) Other Information Code of Ethics The Company has adopted a code of ethics that applies to the Company's principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Company has posted the Code of Ethics on its website at www.infocrossing.com under the caption Investor Relations. In addition, a copy of the Code of Ethics may be obtained by writing to Infocrossing, Inc., attention: Corporate Secretary, 2 Christie Heights Street, Leonia, NJ 07605. Code of Conduct The Company has adopted a Code of Conduct that applies to all Directors, officers and employees of the Company. The Company has posted the Code of Conduct on its website at www.infocrossing.com under the caption Investor Relations. In addition, a copy of the Code of Conduct may be obtained by writing to Infocrossing, Inc., attention: Corporate Secretary, 2 Christie Heights Street, Leonia, NJ 07605. (b) Procedure for Stockholders to Recommend Nominees for Director: The Board of Directors of the Company will consider shareholder recommendations of candidates when the recommendations are submitted in a proper manner. Any shareholder recommendations should include the candidate's name and qualifications to serve as a Director. Submissions should be addressed to Corporate Secretary, Infocrossing, Inc., 2 Christie Heights Street, Leonia, NJ 07605. For potential nominees to be considered at the 2005 annual meeting of stockholders, the Corporate Secretary must receive the information no earlier than December 14, 2004 and no later than January 13, 2005. The notice must include the candidate's age, business address, residence address, principal occupation or employment, the number of shares beneficially owned by the candidate, and information that would be required to solicit a proxy under federal securities laws. The notice must also include the nominating shareholder's name, address, and the number of shares beneficially owned, as well as the period such shares have been held by, the nominating shareholder. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 2 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. 3.1A Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Company's Form 10-KSB for the period ended October 31, 1999. 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 By-Laws, incorporated by reference to Exhibit 3.2 to the Company's Form 10-KSB for the period ended October 31, 1999. 10 Amended and Restated Term Loan Agreement, dated as of April 2, 2004 between the lenders named therein and the Company, incorporated by reference to Exhibit 10.1 to a Current Report on Form 8-K filed April 7, 2004. 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) to be filed. 32 Certifications required by Rule 13a-14(b) to be furnished but not filed. 99 Code of Conduct. (b) Reports on Form 8-K: On March 4, 2004, the Company announced a definitive agreement to purchase ITO Acquisition Corp and proposed debt and equity financing for the acquisition under Items 5 and 7 of Form 8-K. On March 18, 2004, the Company released earnings for the fourth quarter and full year ended December 31, 2003, under Items 9 and 12 of Form 8-K. On March 26, 2004, the Company announced a private placement of securities under Item 5 of Form 8-K. On February 6, 2004, the Company amended the following Current Reports on Form 8-K to correct the signature pages: Earnings Release for March 31, 2003 filed May 7, 2003, Earnings Release for June 30, 2003 filed August 7, 2003, Earnings Release for September 30, 2003 filed November 13, 2003, Guidance Release for 2003 filed April 10, 2003, and Revised Guidance Release for 2003 filed September 19, 2003. On February 6, 2004, the Company amended a Current Report on Form 8-K, originally filed on October 22, 2003 to announce the closing of a private placement of common shares and a recapitalization of debt and equity, to update and expand the information provided under Item 7 - Pro Forma Statements. 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 14, 2004 /s/ ZACH LONSTEIN ------------------------------------------ Zach Lonstein Chairman & Chief Executive Officer May 14, 2004 /s/ WILLIAM J. McHALE ------------------------------------------ William J. McHale Senior Vice President of Finance EX-31 2 x31_q1.txt 302 CERTIFICATIONS EXHIBIT 31 CERTIFICATIONS REQUIRED TO BE FILED BY RULE 13A-14(A) I, Zach Lonstein, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Infocrossing, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's Board of Directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. May 14, 2004 /s/ ZACH LONSTEIN ----------------------------------------- Zach Lonstein Chairman and Chief Executive Officer EXHIBIT 31 (CONTINUED) CERTIFICATIONS REQUIRED TO BE FILED BY RULE 13A-14(A) I, William J. McHale, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Infocrossing, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's Board of Directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. May 14, 2004 /s/ WILLIAM J. McHALE ----------------------------------------- William J. McHale Senior Vice President of Finance EX-32 3 x32_q1.txt 906 CERTIFICATIONS EXHIBIT 32 CERTIFICATIONS REQUIRED BY RULE 13A-14(B) TO BE FURNISHED BUT NOT FILED CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Infocrossing, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Zach Lonstein and William J. McHale, Chairman and Chief Executive Officer and Senior Vice President of Finance, respectively, of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ ZACH LONSTEIN /s/ WILLIAM J. McHALE - ------------------------------ --------------------------------- Zach Lonstein William J. McHale Chairman and Chief Executive Officer Senior Vice President of Finance May 14, 2004 May 14, 2004 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 4 x99.txt CODE OF CONDUCT INFOCROSSING, INC. CODE OF CONDUCT The Board of Directors of Infocrossing, Inc. (with its subsidiaries, the "Company") has adopted this code of conduct (this "Code") to: o promote honest and ethical conduct, including fair dealing and the ethical handling of conflicts of interest; o promote full, fair, accurate, timely and understandable disclosure; o promote compliance with applicable laws and governmental rules and regulations; o ensure the protection of the Company's legitimate business interests, including corporate opportunities, assets and confidential information; and o deter wrongdoing. All directors, officers and employees of the Company are expected to be familiar with the Code and to adhere to those principles and procedures set forth in the Code that apply to them. Additional policies and procedures of the Company (including those set forth in the Infocrossing Employee Handbook and Code of Ethics (as applicable) are separate requirements that apply to the Company's officers, directors and employees, but are not part of this Code. For purposes of this Code, the "Code of Conduct Contact Person" will be the Vice President of Human Resources. I. HONEST AND CANDID CONDUCT Each director, officer and employee owes a duty to the Company to act with integrity. Integrity requires, among other things, being honest and candid. Deceit and subordination of principle are inconsistent with integrity. Each director, officer and employee must: o Act with integrity; including being honest and candid while still maintaining the confidentiality of information where required or consistent with the Company's policies. o Observe both the form and spirit of laws and governmental rules and regulations, accounting standards and Company policies. o Adhere to high standards of business ethics. II. CONFLICTS OF INTEREST A "conflict of interest" may occur when an individual's private interest interferes or appears to interfere with the interests of the Company. A conflict of interest can arise when a director, officer or employee takes actions or has interests that may make it difficult to perform his or her Company work objectively and effectively. For example, a conflict of interest would arise if a director, officer or employee, or a member or his or her family, receives improper personal benefits as a result of his or her position in the Company. Any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest must be discussed with the Code of Conduct Contact Person. Service to the Company should never be subordinated to personal gain and advantage. Conflicts of interest should, wherever possible, be avoided. In particular, conflict of interest situations involving directors, executive officers and other employees who occupy supervisory positions or who have discretionary authority in dealing with any third party specified below, may include the following: o any significant ownership interest in any supplier or customer; o any consulting or employment relationship with any customer, supplier or competitor; o any outside business activity that detracts from an individual's ability to devote appropriate time and attention to his or her responsibilities with the Company; o the receipt of non-nominal gifts or excessive entertainment from any company with which the Company has current or prospective business dealings; o being in the position of supervising, reviewing or having any influence on the job evaluation, pay or benefit of any immediate family member; and o selling anything to the Company or buying anything from the Company, except on the same terms and conditions as other directors, officers or employees are permitted to so purchase or sell. Such situations, if material, must always be discussed with the Code of Conduct Contact Person. In addition, such situations, if material, must be approved (i) by the Audit Committee, in the case of executive officers or directors, and (ii) by the Code of Conduct Contact Person, in the case of other employees. Anything that would present a conflict for a director, officer or employee would likely also present a conflict if it were related to a member of his or her family. III. DISCLOSURE Each director, officer or employee involved in the Company's disclosure process, including the principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions (the "Financial Officers") is required to be familiar with and comply with the Company's disclosure controls and procedures and internal control over financial reporting, to the extent relevant to his or her area of responsibility, so that the Company's public reports and documents filed with the Securities and Exchange Commission ("SEC") comply in all material respects with the applicable federal securities laws and SEC rules. In addition, each such person having direct or supervisory authority regarding these SEC filings or the Company's other public communications concerning its general business, results, financial condition and prospects should, to the extent appropriate within his or her area of responsibility, consult with other Company officers and employees and take other appropriate steps regarding these disclosures with the goal of making full, fair, accurate, timely and understandable disclosure. Each director, officer or employee, who is involved in the Company's disclosure process, including without limitation the Financial Officers, must: o Familiarize himself or herself with the disclosure requirements applicable to the Company as well as the business and financial operations of the Company. o Not knowingly misrepresent, or cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company's independent auditors, governmental regulators and self-regulatory organizations. o Properly review and critically analyze proposed disclosure for accuracy and completeness (or, where appropriate, delegate this task to others). IV. COMPLIANCE It is the Company's policy to comply with all applicable laws, rules and regulations. It is the personal responsibility of each employee, officer and director to adhere to the standards and restrictions imposed by those laws, rules and regulations. As more fully set forth in the Infocrossing, Inc. Insider Trading Policy, it is against Company policy (and in many circumstances illegal) for a director, officer or employee to profit from undisclosed information relating to the Company or any other company. Any director, officer or employee may not purchase or sell any of the Company's securities while in possession of material nonpublic information relating to the Company (except as otherwise permitted by law (e.g., pursuant to a plan that meets all of the requirements of SEC Rule 10b5-1(c)). Also, any director, officer or employee may not purchase or sell securities of any other company while in possession of any material nonpublic information relating to that company. Any director, officer or employee who is uncertain about the legal rules involving a purchase or sale of any Company securities or any securities in companies that he or she is familiar with by virtue of his or her work for the Company, should consult with the Code of Conduct Contact Person before making any such purchase or sale. V. REPORTING AND ACCOUNTABILITY The Audit Committee is responsible for applying this Code to specific situations in which questions are presented to it and has the authority to interpret this Code in any particular situation (provided, however, that, as required by NASDAQ rules, waivers of this Code for executive officers or directors may be granted only by the Board of Directors). Any director, officer or employee who becomes aware of any existing or potential violation of this Code is required to notify the Code of Conduct Contact Person promptly. Failure to do so is itself a violation of this Code. Any questions relating to how this Code should be interpreted or applied should be addressed to the Code of Conduct Contact Person. A director, officer or employee who is unsure of whether a situation violates this Code should discuss the situation with the Code of Conduct Contact Person to prevent possible misunderstandings and embarrassment at a later date. Each director, officer or employee must: o Notify the Code of Conduct Contact Person promptly of any existing or potential violation of this Code. o Not retaliate against any other director, officer or employee for reports of potential violations that are made in good faith. The Company will follow the following procedures in investigating and enforcing this Code, and in reporting on the Code: o Violations and potential violations will be reported by the Code of Conduct Contact Person to the Audit Committee. o The Audit Committee will take all appropriate action to investigate any violations reported to them. o If the Audit Committee determines that a violation has occurred, they will inform the Board of Directors, in the case of a violation by a director or executive officer, or the Chief Executive Officer, in the case of any other employee. Upon being notified that a violation has occurred, the Board of Directors (in the case of a violation by a director or executive officer) or the Chief Executive Officer (in the case of a violation by any other employee), in consultation with other appropriate company personnel, will take such disciplinary or preventive action as it deems appropriate, up to and including dismissal or, in the event of criminal or other serious violations of law, notification of appropriate governmental authorities. The Company has a Sarbanes-Oxley Complaint Procedure for employees who wish anonymously or confidentially to report concerns regarding questionable accounting or auditing matters, suspected violations of the Sarbanes-Oxley Act of 2002, or suspected violations of other Company policies and procedures. Complaints should be addressed as follows: Audit Committee of the Board of Directors of Infocrossing, Inc., P.O. Box 1868, Leonia, NJ 07605. Any correspondence received in this post office box will be forwarded to the member of the Audit Committee designated by Committee to review such correspondence. Notwithstanding the above requirements of this Code that employees report existing or potential violations of the Code to the Code of Conduct Contact Person, employees may, in the alternative, if they feel more comfortable doing so, report such existing or potential violations of the Code by way of the Sarbanes-Oxley Complaint Procedure. VI. WAIVER From time to time, the Company may waive some provisions of this Code. Any waiver of the Code for executive officers or directors of the Company may be made only by the Board of Directors and must be promptly disclosed by filing a Form 8-K with the SEC within 5 business days. Any waiver for other employees may be made only by the Code of Conduct Contact Person. VII. DISCLOSURE OF CODE A copy of this Code, including any amendments, shall be filed as an exhibit to the Company's Annual Report on Form 10-K. -----END PRIVACY-ENHANCED MESSAGE-----