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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended DECEMBER 31, 2004
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR the transition period from to
----------------------- -----------------------
Commission file number: 0-20824
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INFOCROSSING, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 13-3252333
- --------------------------------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)

2 CHRISTIE HEIGHTS STREET LEONIA, NJ 07605
- --------------------------------------------------------------------------------
(Address of principal executive offices)

Registrant's telephone number, including area code: (201) 840-4700
---------------------------

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
- ------------------------------------ -----------------------------------------

- ------------------------------------ -----------------------------------------

Securities registered pursuant to Section 12(g) of the Exchange Act:

COMMON STOCK, $0.01 PAR VALUE PER SHARE
- --------------------------------------------------------------------------------
(Title of Class)
- --------------------------------------------------------------------------------
(Title of Class)


Page 1




Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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: [X] Yes [ ] No.

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in a
definitive proxy or information statement incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ].

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act): [X] Yes [ ] No.

On June 30, 2004, the last day of the registrant's most recently completed
second quarter, the aggregate market value of the outstanding shares of voting
stock held by non-affiliates of the registrant was approximately $225,840,000.

On March 14, 2005, there were 20,182,612 shares of the registrant's Common
Stock, $0.01 par value, outstanding.

Part III, Items 10-14 of this document are incorporated by reference from a
Definitive Proxy Statement to be filed by the Company on or before May 2, 2005.





Page 2



FORWARD LOOKING STATEMENTS


Statements made in this Annual Report, including the accompanying financial
statements and notes, other than statements of historical fact, are
forward-looking statements that involve risks and uncertainties. These
statements relate to future events or our future financial performance,
including statements relating to products, customers, suppliers, business
prospects and effects of acquisitions. In some cases, forward-looking statements
can be identified by terminology such as "may," "will," "should," "expect,"
"anticipate," "intend," "plan," "believe," "estimate," "potential," or
"continue," the negative of these terms or other comparable terminology. These
statements involve a number of risks and uncertainties and as such, final
results could differ from estimates or expectations due to a number of factors
including, without limitation: incomplete or preliminary information; changes in
government regulations and policies; continued acceptance of our products and
services in the marketplace; competitive factors; new products; technological
changes; our dependence on third party suppliers; intellectual property rights;
difficulties with the integration of acquisitions including Verizon Information
Technologies Inc., now known as Infocrossing Healthcare Services, Inc.; and
other risks and uncertainties including those set forth in this Report that
could cause actual events or results to differ materially from any
forward-looking statement. For any of these factors, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, as amended.

You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Annual Report on Form 10-K
and are based on information currently and reasonably known to us. We undertake
no obligation to release any revisions to or update these forward-looking
statements to reflect events or circumstances that occur after the date of this
Annual Report on Form 10-K or to reflect the occurrence or effect of anticipated
or unanticipated events.


PART I

ITEM 1. DESCRIPTION OF BUSINESS.


GENERAL

Unless stated otherwise, references in this report to "Infocrossing," "Company,"
"we," "our" or "us" refer to Infocrossing, Inc., a Delaware corporation, and its
subsidiaries. Each trademark, trade name or service mark of any other company
appearing in this Annual Report on Form 10-K belongs to its holder.

We are a national provider of selective information technology ("IT")
outsourcing and business processing solutions to large and medium size
commercial and government enterprises. Leveraging its data center
infrastructure, Infocrossing takes over and manages all or part of customers' IT
mainframe and non-mainframe operations. Customers utilize our IT systems,
personnel and processing expertise in order to reduce their operational and
capital expenses, improve service delivery, scale their IT operations or
implement new technologies. By selectively outsourcing well-defined IT
operations that are often too costly or inefficient to maintain in-house,
customers can redirect valuable IT resources to other business priorities.
Generally, our customer contracts are long-term - typically ranging from two to
seven years with an average between three and four years - and require fixed
monthly fees. Accordingly, we believe that our revenue stream is predictable and
stable.

We were organized as a New York corporation in October 1984 and reincorporated
in Delaware as of August 31, 1999. On June 5, 2000, we changed our name from
Computer Outsourcing Services, Inc. to highlight our expanded business base. We
have grown through acquisitions as well as through internal growth.





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MARKET OVERVIEW

We believe that the move toward IT outsourcing is a trend, with companies
focusing on their strengths and choosing to outsource select IT operations to
service providers with specialized expertise. As a result, we believe the IT
outsourcing market will continue to grow for the following reasons:

o The need for companies to reduce costs and improve operating margins;

o A general slowdown in capital spending on existing IT infrastructure;

o The increasing complexity of IT systems and the need to connect
electronically with customers, suppliers and other internal systems;

o The increasing requirements for rapid processing of information and the
instantaneous communication of large amounts of data to multiple locations;

o The desire of business and government organizations to focus on their core
competencies;

o The desire by business and government organizations to take advantage of
the latest advances in technology without the cost and resource commitment
required to maintain an in-house system;

o The need to provide alternative or back-up locations for mission critical
information; and

o The proliferation of web-based and wireless technologies.


BUSINESS STRATEGY

Our long-term business strategy is focused on the following:

SUPERIOR CUSTOMER SERVICE--We believe close attention to customer service and
support is vital to our business success and is a key competitive
differentiator. Customers are served by a dedicated Account Management team who
ensure consistent and responsive customer service; a highly experienced
Technical Services staff who plan and execute migrations across multiple
platforms; and an Operations Production group who manage our secure,
state-of-the art facilities.

MAXIMIZE LEVERAGED BUSINESS MODEL--By leveraging data centers in New Jersey,
Georgia, and California and our highly skilled IT operations staff, we are able
to support multiple customers with different computing platforms and operating
systems with different processes and different requirements. Additional
operating efficiencies are achieved by establishing consistent processes
throughout the organization and by using proprietary software tools that enable
us to efficiently manage customers' systems regardless of its location. Sharing
technology and staff across our broad customer base reduces our operating costs,
streamlines service delivery and presents us with attractive margin
opportunities. Once a customer migrates its IT operations to us, we can maximize
profitability by automating processes and tasks as well as taking full advantage
of underutilized hardware and processing capacity.

DEPLOY NEW PRODUCTS AND SERVICES--We maintain an extensive infrastructure that
serves as the underlying foundation across various IT solutions and continuously
is refined to encompass new computing platforms. Development of new service
offerings is focused on applying our expertise in infrastructure and systems
management to evolving hardware and software environments. New products and
services are developed or acquired in order to be replicated across multiple
customers, and augment our portfolio of recurring revenue services.

PURSUE ACQUISITION OPPORTUNITIES--Strategic acquisitions are an integral
component of our long-term growth strategy as we seek to add complementary IT
outsourcing services that augment our current service offerings. We look for
accretive acquisitions to leverage our data center infrastructure. Typical
candidates have a history of customer or transaction volume growth and mirror
our business model of revenue predictability.





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VALUE PROPOSITION

Selective IT outsourcing is an option considered by many business and government
organizations that want to reduce their IT operating costs without the risk and
loss of control associated with outsourcing their entire IT function.

We believe that we differentiate ourselves in the market by providing higher
levels of customer service and flexibility than our competitors. We have more
than two decades of experience managing mission-critical IT systems, assuring
the optimal performance, reliability, and scalability of our customer's
mainframe and non-mainframe environments.

We believe that when considering wholesale outsourcing or maintaining an
in-house infrastructure our potential customers consider the following factors:

LOWER IT COSTS--We believe our customers realize significant savings by using
our services over their current internal IT costs. By leveraging our IT
infrastructure, personnel, processes, and proprietary tools across multiple
customers, we believe our economies of scale translate into reduced costs for
our customers.

IMPROVED SERVICE DELIVERY--We believe our experience and resources result in
more efficient services than if our customers continued to perform the
operations tasks in-house. Our customers benefit from the operational leverage
we enjoy by allocating our resources over multiple customers. Because of
economies of scale, we believe that our customers may enjoy greater access to
resources otherwise uneconomical on a standalone basis.

ACCESS TO NEW TECHNOLOGIES--We believe outsourcing with us enables our customers
to take advantage of new technologies and best practices while minimizing the
capital investment and risks associated with implementing these solutions
in-house.

RE-DEPLOY RESOURCES--By turning over select IT operations to us, we believe that
our customers can concentrate on their core business.

INCREASED FLEXIBILITY--We believe that outsourcing enables our customers to
respond rapidly to changing markets, mergers and acquisitions, and major
organizational changes by providing a flexible, multi-platform infrastructure
that can scale or transition to accommodate change.


IT OPERATIONS INFRASTRUCTURE
DATA CENTER INFRASTRUCTURE--Delivering high-availability IT outsourcing
solutions to enterprise customers requires a significant investment in a secure
data center infrastructure. Our fully constructed facilities have been designed
to meet the stringent environmental and security requirements of enterprise and
government customers: raised-floor facilities feature state-of-the-art physical
components and redundant network offerings, including high standards for
security and reliability; fully redundant power supply systems; redundant
ingress and egress Internet access across multiple providers' multiple power
feeds; N+1 fire suppression systems and 24-hour security services.

TECHNOLOGY INFRASTRUCTURE--We have fully deployed mainframe, mid-range, open
system processing; data storage systems; printing equipment; and networking
hardware across our facilities. Our skilled operations team manages the
scheduling and production of customers' processing via a centralized command
center. We utilize technologies such as IBM's Virtual Tape Subsystem (VTS) to
reduce operational overhead by automating processes. The VTS is a system of
hardware and software licensed from IBM that eliminates the need for personnel
to manually load and unload tapes containing customer data.




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IT PROFESSIONAL STAFF --Supporting a 24 x 7 computing environment requires
significant operational resources skilled across a number of technology areas
including operating systems, computing, networking, and applications. Few
companies have the financial and human resources to support a 24-hour,
multi-platform computing environment. Our operations team is a highly skilled,
process driven organization that brings technical expertise across multiple
computing platforms and operating systems. As a result of our technical
competency and broad customer base, we believe our labor costs per customer
typically are lower than the costs our customers would incur by having internal
IT departments deliver the same service levels. Most of our computer hardware is
manufactured by IBM. We also rely heavily on system software licensed from IBM
or Computer Associates.

MANAGEMENT TOOLS--With the growth of networking as a low-cost method for
transmitting information, we have developed a proprietary suite of management
tools that enables us to monitor and manage customers' systems and components
from our facilities, at a customer's site, or at a third-party facility. These
tools enable us to grow our data-center infrastructure without having to
replicate the network operations center at each customer site.


PRODUCTS AND SERVICES

Our services are organized into two primary solution areas: Mainframe
Outsourcing Services and Non-Mainframe Services.

MAINFRAME OUTSOURCING--Our mainframe outsourcing solutions provide customers
with a cost-effective, operationally superior alternative to running and
managing a mainframe infrastructure in-house. We combine the scalability and
reliability of mainframe systems with the world-class management of, and access
to, hardware, systems software, and communications. We offer the latest
technologies, including Virtual Tape Subsystems, IBM's zSeries technology and
Linux on the mainframe, to provide greater uptime and more efficiency for our
customers. We have experience in operating multiple computer systems running on
different operating and complex enterprise environments and provide high
capacity in processing speed, connectivity, and storage management solutions.

NON-MAINFRAME SERVICES AND SOLUTIONS

o MID-RANGE SYSTEMS MANAGEMENT--We provide specialized support and
outsourcing resources for customers that rely on AS/400 and iSeries
computer systems. We operate, administer, and maintain midrange systems and
have the expertise and flexibility to manage systems the way the customer
chooses to have it managed.

o OPEN SYSTEMS MANAGEMENT--We provide on-site hosting and remote management
of customers' hardware and software running on Linux, Unix and Windows
servers for both Internet based and other applications. Customers can
choose from a wide range of options for their open systems - starting with
basic on-site hosting all the way up to fully customized, fully managed
services. This highly flexible approach makes it easy to support a variety
of systems from a simple website or database application, to a full-scale,
multinational Enterprise Resource Plan system.

o BUSINESS PROCESS OUTSOURCING--Business process outsourcing involves
customers contracting with us to perform functions that support their
business, but are not their core competency. These functions, commonly
called "back-office" processes, include services such as healthcare claims
processing, payroll, accounts receivable management, payment processing,
logistics, data entry and customer care services. Back-office processes are
often supported by an extensive IT infrastructure. We provide a variety of
customized IT services, including the development of proprietary software
to meet the IT processing requirements of particular customers. We manage
the software application and retain ownership of the software we develop.

o EMAIL SECURITY SERVICES--Our email security service provides customers spam
blocking; virus scanning, identification, cleansing, and content filtering.
The entire process is transparent to end users and creates an effective
boundary around a customers' email infrastructure that blocks unwanted
email and viruses from entering or leaving their corporate network thus
ensuring compliance with corporate email policies.



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o BUSINESS CONTINUITY--Our business continuity solutions help assure
customers that their operations can proceed in the face of disaster. We
offer 24 x 7, high-availability services, including disaster-planning
assistance. We provide a full alternate office site, including desktop
workstations, phone systems, and conventional office infrastructure such as
fax and copier machines, networked printers and conferencing facilities.


SALES AND MARKETING

Our direct sales, business development and marketing organizations target a
broad range of large and medium-size commercial and government enterprises.
Although we have developed specific expertise in several industries, including
financial services, publishing, manufacturing, consumer products, and
healthcare, we believe our reputation for technical expertise and service
quality extends across all industries.

o DIRECT SALES--A quota-carrying direct sales channel of senior sales
executives contacts prospective customers and uses its strong industry and
business relationships to identify new business opportunities.

o INDIRECT CHANNELS--We maintain marketing relationships with indirect sales
channels. Industry advisers and consultants play an important lead
generation role for qualified new business. Hardware and software vendors
also represent a highly qualified source of new business opportunities.

o CUSTOMER SERVICE REPRESENTATIVES--As a result of its frequent customer
contact, the Account Management organization identifies potential new
business opportunities with current customers.

o CUSTOMER REFERRALS--Current customers are an excellent source of referrals
for potential new business.

For the years ended December 31, 2004 and 2003, one client, ADT Security
Services, Inc., accounted for in excess of 10% of our consolidated revenues. For
the year ended December 31, 2002, clients accounting for in excess of 10% of our
consolidated revenues were ADT Security Services, Inc. and Alicomp, a division
of Alicare, Inc. ("Alicomp"). We also have had a joint marketing agreement with
Alicomp throughout the foregoing periods.


COMPETITION

We operate in a highly competitive market. Our current and potential competitors
include other independent computer service companies and divisions of
diversified enterprises, as well as the internal IT departments of existing and
potential customers. Among the most significant of our competitors are IBM
Corporation; Electronic Data Systems Corporation; Affiliated Computer Services,
Inc.; Computer Sciences Corp.; and SunGard Data Systems, Inc.

In general, the outsourcing services industry is fragmented, with numerous
companies offering services in limited geographic areas, vertical markets, or
product categories. Many of our larger competitors have substantially greater
financial and other resources than we do. We compete on the basis of a number of
factors, including price, quality of service, technological innovation, breadth
of services offered and responsiveness.

While our larger competitors seek to outsource entire IT departments, we
generally selectively target core IT functions such as computer processing and
storage solutions. In doing so, we position ourselves as a partner of the
customer's IT organization, rather than as a competitive threat.

We believe that our services are particularly attractive to mid-tier companies
that need substantial infrastructure to support their business environment, but
are considered "small" compared to the multi-billion dollar engagements signed
by our largest competitors. Many mid-market companies perceive, we believe,
larger outsourcers as "inflexible" and "unresponsive" to their smaller-scale
requirements. We believe that selective outsourcing enables them to maintain
overall control over their IT environment, while benefiting from the scale and
efficiency of an outsourcing provider.



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We cannot be sure that we will be able to compete successfully against our
competitors in the future. If we fail to compete successfully against our
current or future competitors with respect to these or other factors, our
business, financial condition, and results of operations will be materially and
adversely affected.


TECHNOLOGICAL CHANGES

Although we are not aware of any pending or prospective technological changes
that would adversely affect our business, new developments in technology could
have a material adverse effect on the development or sales of some or all of our
services or could render our services noncompetitive or obsolete. There can be
no assurance that we will be able to develop or acquire new and improved
services or systems that may be required in order for it to remain competitive.
We believe, however, that technological changes do not present a material risk
to our business because we expect to be able to adapt to and acquire any new
technology more easily than our existing and potential customers. In addition,
technological change increases the risk of obsolescence to potential customers
that might otherwise choose to maintain in-house systems rather than use our
services, thus potentially creating selling opportunities for us.


INTELLECTUAL PROPERTY MATTERS

Due to the rapid pace of technological change in the computer industry, we
believe that copyright and other forms of intellectual property protection are
of less significance than factors such as the knowledge and experience of
management and other personnel, and our ability to develop, enhance, market, and
acquire new systems and services. As a result, our systems and processes are not
protected by patents or by registered copyrights, trademarks, trade names, or
service marks. To protect our proprietary services and software from illegal
reproduction, we rely on certain mechanical techniques in addition to trade
secret laws, restrictions in certain of our customer agreements with respect to
use of our services and disclosure to third parties, and internal non-disclosure
safeguards, including confidentiality restrictions with certain employees.
Despite these efforts, it may be possible for our competitors or customers to
copy aspects of our trade secrets. We are experienced in handling confidential
and sensitive information for our customers, and we maintain numerous security
procedures to help ensure that the confidentiality of our customer's data is
maintained.


COMPLIANCE WITH ENVIRONMENTAL LAWS

We have not incurred any significant expense in our compliance with Federal,
state, and local environmental laws.


EMPLOYEES

As of December 31, 2004, we had 547 full-time and 6 part-time employees. None of
our employees is represented by a labor organization and we are not aware of any
activities seeking such organization. We consider our relationship with our
employees to be satisfactory.


INSURANCE

We maintain insurance coverage which we believe is reasonable, including errors
and omissions coverage, business interruption, and directors and officers
insurance to fund our operations in the event of catastrophic damage to any of
our operations centers, and insurance for the loss and reconstruction of our
computer systems. We also maintain extensive data backup procedures to protect
our data and our customer's data.


FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

Substantially all of our revenues are derived from U.S. sources.




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AVAILABLE INFORMATION

We maintain a website with the address www.infocrossing.com. We are not
including the information contained on our website as part of, or incorporating
it by reference into, this Annual Report on Form 10-K. We make available, free
of charge, through a link from our website to the EDGAR database at www.sec.gov
our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current
Reports on Form 8-K, and amendments to such reports, as soon as reasonably
practicable after we file such material with the Securities and Exchange
Commission.


ITEM 2. DESCRIPTION OF PROPERTY.

We lease a facility of approximately 67,000 square feet in Leonia, NJ for our
headquarters and data center operations. The lease expires on December 31, 2019.

We lease 30,600 square feet in a building located in the Atlanta metropolitan
area for data center operations. The lease expires on July 31, 2015.

We lease 5,700 square feet of office space in New York, NY. The lease expires on
December 31, 2009.

We lease space in buildings (the "Buckhead Facility") owned by the former owner
of Infocrossing Southeast, Inc. ("IFOX SE"). At the date of the acquisition, we
occupied approximately 33,400 square feet. Our lease agreement permits us to
return space to the lessor without penalty for a pro-rata reduction in rent. We
have moved most of the operations of IFOX SE to our facility in the Atlanta
metropolitan area, however we continue to provide open systems and AS400 systems
management services to certain clients (including the lessor) from the Buckhead
facility. We occupy approximately 11,100 square feet in the Buckhead Facility as
of December 31, 2004. This lease agreement expires on January 31, 2006, unless
we reduce our use of the space to zero at an earlier date.

With the purchase of ITO Acquisition Corporation d/b/a Systems Management
Specialists on April 2, 2004, we acquired a lease on a building consisting of
approximately 68,800 square feet in Brea, California for data center operations.
The lease expires on December 31, 2014. We subleased approximately 12,000 square
feet of this facility through December 31, 2005.

With the purchase of Verizon Information Technologies Inc. on October 1, 2004,
we acquired a lease on a building consisting of approximately 16,080 square feet
in Jefferson City, MO for general office use. The lease expires on November 15,
2007. The staff at this location provides Medicaid claims processing services to
the State of Missouri Department of Social Services, Division of Medical
Services.

We generally lease our equipment under standard commercial leases; in most
instances the leases are structured as capital leases with bargain purchase
options. Our equipment is generally covered by standard commercial maintenance
agreements.

We believe our facilities are in good condition and are adequate to accommodate
our current volume of business as well as anticipated increases.





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ITEM 3. 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
assert 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 assert 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, 2005, West filed an answer denying all of plaintiffs' allegations. Discovery
commenced recently.

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.

It is premature to give a proper evaluation of the probability of a favorable or
unfavorable outcome. While it is again premature to give a proper evaluation of
the potential liability, we believe that the above matters will be resolved
without any material adverse impact on our financial position, results of
operations, or cash flows.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.





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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.


Our common stock is traded on the NASDAQ Stock Market under the symbol IFOX. For
the periods reported below, the following table sets forth the high and low bid
quotations for the common stock as reported by NASDAQ-NMS.

BID
HIGH LOW

FOR THE YEAR ENDED DECEMBER 31, 2003:
1st Quarter ended March 31, 2003 7.150 5.890
2nd Quarter ended June 30, 2003 7.300 6.220
3rd Quarter ended September 30, 2003 8.500 7.040
4th Quarter ended December 31, 2003 12.130 7.280

FOR THE YEAR ENDED DECEMBER 31, 2004:
1st Quarter ended March 31, 2004 13.750 10.020
2nd Quarter ended June 30, 2004 14.780 9.880
3rd Quarter ended September 30, 2004 15.830 10.800
4th Quarter ended December 31, 2004 18.200 12.570

The closing price of our common stock on NASDAQ-NMS on March 11, 2005 was $18.04
per share. We have approximately 125 stockholders of record. In addition, we
believe that there are approximately 500 beneficial owners holding their shares
in "street name."

DIVIDENDS

We have not paid dividends to holders of our common stock since inception.
Certain provisions of a non-revolving loan facility agreement to which we are a
party do not permit us to pay cash dividends on our common stock.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table presents information regarding securities authorized for
issuance under equity compensation plans approved September 1992 and June 2002.


NUMBER OF SECURITIES TO WEIGHTED AVERAGE NUMBER OF SECURITIES
BE ISSUED UPON EXERCISE EXERCISE PRICE OF REMAINING AVAILABLE FOR
OF OUTSTANDING OPTIONS OUTSTANDING OPTIONS FUTURE ISSUANCE
------------------------- -------------------------- --------------------------

Two qualified Stock Option Plans -
previously approved by stockholders 3,012,605 $12.10 903,794



For a complete discussion of these plans, please see Note 9 of the Notes to
Financial Statements accompanying this report.




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SECURITIES AUTHORIZED FOR ISSUANCE UNDER OUTSTANDING WARRANTS

At December 31, 2004, we have reserved 3,055,095 common shares for issuance upon
exercise of the following warrants: (i) 1,062,500 shares exercisable at $5.86
per share expiring January 31, 2007; (ii) 65,000 shares exercisable at $18.00
per share expiring September 16, 2010; (iii) 50,000 shares exercisable at $15.00
per share expiring January 13, 2009; and (iv) 1,877,595 shares exercisable at
$7.86 per share expiring October 20, 2008.

RECENT ISSUANCES OF UNREGISTERED SECURITIES

Common Stock Sold

On March 31, 2004, we sold 2,917,000 shares of our common stock to accredited
investors in a private placement at an aggregate offering price of
$30,628,500. 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 $2,388,500.

The following is a listing of the investors that purchased shares in the
offering.



NAME OF INVESTOR INVESTMENT

Baron Small Cap Fund, a series of Baron Asset Fund $2,530,500
Baron iOpportunity Fund, a series of Baron Asset Fund 514,500
Bear Stearns Security Corp, Custodian FBO J. Steven Emerson - IRA Rollover II 1,732,500
Bear Stearns Security Corp, Custodian FBO J. Steven Emerson - Roth IRA 1,312,500
Brookbend & Co., nominee for Janus Capital Management LLC 4,200,000
Corsair Capital Investors, Ltd. 157,500
Corsair Capital Partners 100, L.P. 52,500
Corsair Capital Partners, L.P. 315,000
Crestview Capital Master, LLC 682,500
FlyLine Holdings, Ltd. 210,000
JLF Offshore Fund, Ltd. 4,620,000
JLF Partners I, L.P. 2,677,500
JLF Partners II, L.P. 210,000
LB I Group Inc. c/o Lehman Brothers Inc. 4,935,000
Leaf Investment Partners, L.P. c/o S Squared Technology Group 2,770,950
Leaf Offshore Investment Fund, Ltd. c/o S Squared Technology Group 746,550
SF Capital Partners, Ltd. 1,018,500
SRG Capital, LLC 105,000
Topaz Partners c/o Jemmco Capital Corp 525,000
Trustman c/o Arthur Vining Davis Foundation 24,150
Trustman c/o STI Classic Small Cap Growth Fund 1,281,000
Trustman c/o TUA Sandra Brooks 2,100
Trustman c/o TUA Troyal Brooks 5,250




Page 12




On June 10, 2004, a Registration Statement on Form S-3, filed by us on behalf of
the private placement investors and others as selling shareholders, was declared
effective. We will not receive any proceeds from any sales of stock under this
registration statement.

Convertible Notes Sold

On June 30, 2004, we completed a private offering of $60 million aggregate
principal amount of 4.0% Convertible Senior Notes due July 15, 2024 (the
"Notes"). On July 6, 2004, the initial purchaser exercised its option in full to
purchase an additional $12 million of the Notes. The Notes were offered and sold
only to qualified institutional buyers in compliance with Rule 144A of the
Securities Act of 1933. Total fees, discount, and expenses of the offering were
approximately $3,111,000. Lehman Brothers Inc. was the initial purchaser. The
Notes are convertible, in certain instances, into shares of our common stock.
The initial number of shares into which the Notes may be converted is 4,687,500,
viz., approximately 65.1042 shares of common stock per $1,000 principal amount.

The following is a listing of the investors that purchased Notes in the
offering.



NAME OF INVESTOR INVESTMENT

AG Offshore Convertibles, Ltd. $4,200,000
AG Domestic Convertibles, Ltd. 1,800,000
Basso Multi-Strategy Holding Fund Ltd. 2,000,000
Goldman Sachs & Co. Profit Sharing Master Trust 68,000
Highbridge International, LLC 15,000,000
LB I Group, Inc. 10,000,000
Lehman Brothers Inc. 14,000,000

OZ Mac 13 Ltd. 49,000
OZ Master Fund, Ltd. 3,883,000
Portside Growth and Opportunity Fund 4,000,000
SF Capital Partners Ltd. 3,000,000
Satellite Strategic Finance Associates, LLC 5,000,000
Silverback Master, Ltd. 6,000,000
Suttonbrook Capital Portfolio LP 3,000,000



Common Stock Issued for a Portion of Acquisition Price

On April 2, 2004, in connection with the acquisition of ITO Acquisition
Corporation, doing business as Systems Management Specialists, from ITO
Holdings, LLC ("Holdings"), Holdings was issued 135,892 shares of the common
stock of the Company as a portion of the purchase price. This transaction is
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.

On July 31, 2004, in connection with the acquisition of MailWatch, an e-mail
security business, from EasyLink Services Corporation ("EasyLink"), EasyLink was
issued 123,193 restricted shares of the common stock of the Company as a portion
of the purchase price. This transaction is exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.






Page 13




ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)

The selected balance sheet data as of December 31, 2004 and 2003 and the
selected statement of operations data for the years ended December 31, 2004,
2003, and 2002 have been derived from our audited financial statements included
elsewhere herein. The selected balance sheet data as of December 31, 2002, 2001,
2000, and October 31, 2000 and the statement of operations data for the years
ended December 31, 2001 and 2000, the fiscal year ended October 31, 2000 and the
two month period ended December 31, 2000 have been derived from our audited
financial statements not included herein. You should read these selected
financial data in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", our financial statements and the
notes to those statements included elsewhere herein.




STATEMENT OF OPERATIONS DATA
================================================================================================================================
FISCAL YEAR TWO MONTH
YEARS ENDED DECEMBER 31, ENDED PERIOD ENDED
------------------------------------------------------------ OCTOBER DECEMBER
2004 2003 2002 2001 (A) 31, 2000 31, 2000
------------- ----------- ------------ ------------ ------------- --------------

Revenues $ 104,949 $ 55,228 $ 50,774 $ 26,987 $ 24,471 $ 3,521
--------- -------- -------- --------- ---------- -----------
Net income (loss) from
continuing operations 19,963 1,356 1,137 (36,524) (14,983) (4,440)
--------- -------- -------- --------- ---------- -----------
Accretion and dividends
on redeemable preferred
stock (b) - (6,877) (9,293) (8,524) (3,836) (1,350)
--------- -------- -------- --------- ---------- -----------
Net income (loss) to
common stockholders $ 19,963 $ (5,521) $ (8,156) $ (45,048) $ (18,819) $ (5,790)
========= ======== ======== ========= ========== ===========
Net income (loss) to common
stockholders per diluted
common share $ 0.95 $ (0.76) $ (1.52) $ (7.77) $ (3.58) $ (0.98)
========= ======== ======== ========= ========== ===========



BALANCE SHEET DATA
=================================================================================================================================

AS OF DECEMBER 31,
---------------------------------------------------------------------------- AS OF OCTOBER
2004 2003 2002 2001 2000 31, 2000
------------- ----------- ------------ ------------ ------------ --------------

Total assets $ 216,650 $ 67,138 $ 65,495 $ 58,774 $ 78,844 $ 78,449
========= ======== ======== ========= ========= ===========
Notes payable, long term
debt,and capitalized lease
obligations, net of
current portion (including,
from May 2000 through
October 2003, redeemable
preferred stock) $ 100,432 $ 25,732 $ 64,066 $ 47,593 $ 34,146 $ 38,214
========= ======== ======== ========= ========= ===========
Common stockholders'
equity (deficit) $ 91,237 $ 30,801 $ (12,205) $ (6,036) $ 31,640 $ 36,874
========= ======== ======== ========= ========= ===========



No cash dividends have been declared (See Item 5, above).



Page 14



(a) Included in the net loss to common stockholders in 2001 was $9,823,000 in
amortization of a restricted stock award and a $5,650,000 loss on leased
facilities and office closings.

(b) In May 2000, we raised $60 million through a private placement of
redeemable preferred stock and warrants to purchase 2.7 million shares of
common stock. The redeemable preferred stock was initially recorded net of
a discount representing that portion of the proceeds assigned to the
warrants. The difference between the face value and the book value of the
redeemable preferred stock was being accreted over a seven-year period
through a charge to retained earnings. In addition, dividends accrued on
the redeemable preferred stock at an 8% annual rate, compounded quarterly.
On October 21, 2003, we exchanged all outstanding redeemable preferred
stock (including the rights to all unpaid dividends) and warrants issued in
the May 2000 private placement for $55 million in cash and notes payable
for $25 million. We obtained the cash for this transaction from a private
offering of 9.7 million shares of common stock and warrants to purchase 3.4
million shares of common stock that also closed on October 21, 2003. The
redemption of the redeemable preferred stock ended the accretion and
accrual of dividends as of the redemption date. Had the redemption not
taken place, accretion and the accrual of dividends would have been
approximately $10.1 million in 2003.


ITEM 7. 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 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 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 ("Holdings") for a total
purchase price of approximately $37,572,000 including related acquisition costs
of $1,224,000 and 135,892 shares of our common stock valued at $1,439,000 (the
"SMS Acquisition"). In June 2004, the name of this subsidiary 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 December 31, 2004, such contingent consideration totaled
$281,000 that was recorded as additional goodwill.

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.

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 (the "IHS Acquisition"). Immediately
after the acquisition we changed VITI's name to Infocrossing Healthcare
Services, Inc. ("IHS").

During 2004 we 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. These acquisitions were accounted for using the purchase
method of accounting.



Page 15




The operations of IHS, SMS and the other acquisitions completed in 2004 are
included in consolidated operations from the date of the respective acquisitions
in 2004. The acquired businesses are being integrated into the Company so that
the entire enterprise will benefit from operational leverage and consolidation.

On February 5, 2002, we completed the acquisition of AmQUEST, Inc., an
Atlanta-based IT outsourcing company, for approximately $20.2 million in cash
after certain post-closing adjustments (the "AmQUEST Acquisition"). This
acquisition combined two highly complementary businesses and enabled us to
benefit from increased scale, enhanced services, and expanded geographic reach.
This combination strengthened our position as one of the leading providers of IT
outsourcing solutions for large and mid-size companies across a broad range of
industries including financial services, security, publishing, healthcare,
telecommunications and manufacturing. In June 2004, we changed AmQUEST, Inc.'s
name to Infocrossing Southeast, Inc.

The foregoing acquisitions were recorded as purchases in accordance with the
Financial Accounting Standards Board, Statements of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations" ("SFAS 141"), which requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. SFAS 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets arising from
business combinations completed after June 30, 2001. We tested goodwill and
other intangible assets for impairment using processes described in SFAS 142 and
SFAS 144, and had no impairment to record in 2004, 2003, or 2002.

The Company and its subsidiaries operate in one reportable segment of providing
information technology and business process outsourcing services.



YEAR ENDED DECEMBER 31, 2004 AS
COMPARED TO THE YEAR ENDED DECEMBER 31, 2003

Net income to common stockholders increased by $25,484,000 from a loss of
$5,521,000 for 2003 to income of $19,963,000 for 2004 on 90.0% higher revenues.
For 2004, the results of operations include SMS, IHS, and other acquisitions
completed in 2004.

For the year ended December 31, 2004 (the "Current Year"), revenues increased
$49,721,000 (90.0%) to $104,949,000 from $55,228,000 for the year ended December
31, 2003 (the "Prior Year"). Approximately $40,630,000 of this growth is
attributable to revenue from clients added as the result of acquisitions
completed in 2004. The remainder of approximately $9,091,000 represents organic
growth, of which $5,900,000 was the result of new customer contracts while the
remaining increase resulted from increased revenues from existing clients.

Costs of revenues increased by $34,705,000 (94.7%) to $71,368,000 during the
Current Year compared with $36,663,000 for the Prior Year. The increase results
from the expansion of revenues from both acquisitions and organic growth. Costs
of revenues as a percentage of revenues increased to 68.0% in the Current Year
from 66.4% in the Prior Year, reflecting a lower gross margin. We had expected
our gross margin to decline after the SMS Acquisition until its operations could
be consolidated into our existing operating infrastructure. The integration of
SMS was completed in early March 2005. Gross margin improved from 30.0% in the
third quarter ended September 30, 2004 to 35.3% in the fourth quarter ended
December 31, 2004. This improvement reflects the inclusion of IHS, which
contributed 43% of our fourth quarter gross margin. Our infrastructure provides
a shared operating environment that enables us to effectively integrate new
clients, including clients acquired through acquisitions. We expect our gross
margin to improve as the integration of IHS progresses.

Due to higher compensation costs in the Current Year, selling and promotion
costs increased by $299,000 (10.0%) to $3,277,000 for the Current Year from
$2,978,000 for the Prior Year, but decreased as a percentage of revenues to 3.1%
for the Current Year from 5.4% for the Prior Year. Higher compensation costs
reflect a larger sales staff in the Current Year than in the Prior Year. The
reduction as a percentage of revenue reflects the benefits of integration of the
acquired businesses.



Page 16




General and administrative expenses increased by $3,157,000 (56.5%) to
$8,744,000 for the Current Year from $5,587,000 for the Prior Year. General and
administrative expenses declined as a percentage of revenue to 8.3% in the
Current Year from 10.1% in the Prior Year, reflecting the benefits of
operational leverage and consolidation of the acquired businesses. Approximately
$1,938,000, or 61.4% of the total increase, was related to acquisitions
completed in 2004. Approximately $700,000 (22.2% of the total increase) was due
to professional fees relating to compliance costs with respect to the
Sarbanes-Oxley Act of 2002. Also, an additional $200,000 of professional fees
was incurred, and salary costs were approximately $100,000 higher than in the
Prior Period.

Depreciation and amortization of fixed assets and other intangibles increased
$2,575,000 (42.2%) to $8,679,000 for the Current Year from $6,104,000 for the
Prior Year. Of this increase, $1,457,000 of depreciation of fixed assets and
amortization of other intangibles was related to acquisitions in the Current
Year. The remainder of the increase of $1,118,000 resulted from new fixed asset
additions totaling approximately $7,400,000 during the Current Year. Despite
these increases, depreciation and amortization decreased as a percentage of
revenues to 8.3% in the Current Year compared with 11.0% in the Prior Year.

Net interest expense increased by $2,959,000 to $5,457,000 for the Current Year
from $2,498,000 for the Prior Year. This net increase consists of $210,000 in
additional interest income; $1,822,000 in additional interest expense; and
$1,347,000 of deferred financing costs which were expensed upon the prepayment
of term loans of approximately $40 million in June 2004. The increases in
interest income and expense are due to larger average outstanding balances of
both cash and outstanding debt, respectively, in the Current Year. Interest
expense on the convertible debt in the Current Year, including amortization of
deferred financing costs and discount, amounted to $1,509,000.

A deferred tax benefit reflects future income tax savings realizable when tax
credits, net operating loss carry-forwards, or other deductions based on
temporary differences between taxable income and income before income taxes can
be used to reduce income taxes. If there is uncertainty of realizing deferred
tax benefits, a valuation allowance must be established. We had a deferred tax
valuation allowance of $15,207,000 at the end of the Prior Year.

For the Current Year, we recorded a tax benefit of $12,539,000 compared with a
tax provision of $42,000, which represented estimated state income taxes, for
the Prior Year. This change is due to a decrease of $12,550,000 in deferred tax
assets during the fourth quarter ended December 31, 2004 to recognize deferred
tax assets at amounts considered by management, more likely than not, to be
realized. Based on our recent history of profitability and our forecasts for
future periods, management has determined that it is more likely than not that
the net operating loss carryforwards and other temporary differences will be
realized. We have 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 amount in future years
pursuant to Section 382 of the Internal Revenue Code.

Due to a lack of SMS's history of generating taxable income, we recorded
a valuation allowance equal to 100% of their net deferred tax assets. In the
event that we are able to generate taxable earnings from SMS in the future and
determine it is more likely than not that we can realize our deferred tax
assets, an adjustment to the valuation allowance would be made which may
increase goodwill in the period that such determination is made.

We have net income of $19,963,000 for the Current Year compared with $1,356,000
for the Prior Year. Net loss to common stockholders after accretion and accrued
dividends on preferred stock was $5,521,000 for the Prior Year. We redeemed the
preferred stock in October 2003. The net loss to common stockholders included
non-cash charges for accretion and accrued dividends on preferred stock of
$6,877,000 in the Prior Year.

In the Current Year, we had income per common share of $1.12 on a basic basis
and $0.95 on a diluted basis, compared with a loss of $0.76 per share for the
Prior Year, on both a basic and diluted basis. The number of weighted average
shares increased to approximately 17,827,000 shares on a basic basis and
approximately 21,932,000 shares on a diluted basis in the Current Year from
approximately 7,280,000 shares on both a basic and diluted basis for the Prior
Year. The increase in shares reflects (i) private placements of (a)
9,739,111 shares 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; (ii) the potential conversion of $72,000,000 of 4% convertible notes due
July 15, 2024, which were issued during 2004, into 4,687,500 shares of common
stock; and (iii) the issuance of 259,085 shares of common stock for acquisitions
during 2004. The shares and equivalents enumerated in the immediately preceding
sentence are in absolute amounts, not weighted average amounts. Common stock
equivalents are excluded in determining the net income or loss per share when
the inclusion of such equivalents would be antidilutive.




Page 17




YEAR ENDED DECEMBER 31, 2003 AS
COMPARED TO THE YEAR ENDED DECEMBER 31, 2002

Certain reclassifications were made to the 2003 and 2002 financial statements to
conform to the current year presentation.

For the year ended December 31, 2003 ("2003"), revenues increased $4,454,000
(8.8%) to $55,228,000 from $50,774,000 for the year ended December 31, 2002
("2002"). Revenues from AmQUEST, which had only 11 months of operations in 2002,
contributed $1,599,000 of this increase. Revenues grew by 8.5%, excluding growth
contributed by AmQUEST. This organic revenue growth was net of a decline in the
revenue from our largest client, ADT Security Services, Inc. Revenues from this
significant customer were $14,977,000 in 2002 compared with $12,804,000 in 2003,
representing 29.5% and 23.2% of total revenues in the respective periods. The
decrease in revenue from this customer reflects the impact of special processing
provided in 2002, but not in 2003. Other organic revenue growth totaled 27.0%.

Costs of revenues increased $3,374,000 (10.1%) to $36,663,000 (66.4% of
revenues) during 2003 compared with $33,289,000 (65.6% of revenues) for 2002.
Costs of revenues in 2002 reflect the benefit from the settlement with a
software licensor described below. Without the benefit of that settlement, costs
of revenues in 2002 would have been $36,085,000 (71.1% of revenues). The
improvement in margin is related to the successful integration of the AmQUEST
operations.

In January 2002, we settled a dispute of claims with a software licensor.
Pursuant to the settlement, we received credits totaling $2,000,000 to be used
toward future purchases (the "Credits"). The entire value of the Credits was
recorded in 2002 and as of December 31, 2002, all the Credits had been
applied against certain software license fees. Additionally, we reversed accrued
expenses of $796,000 for software support and maintenance fees in 2002 in
connection with the settlement of the dispute.

Selling and promotion costs increased due to higher compensation costs by
$192,000 (6.9%) to $2,978,000 for 2003 from $2,786,000 for 2002, but decreased
as a percentage of revenues to 5.4% from 5.5% in 2002.

General and administrative expenses decreased $527,000 (8.6%) to $5,587,000 for
2003 from $6,114,000 for 2002. Contributing to the improvement was a reduction
of $269,000 in provision for bonuses and $195,000 in salary cost reductions, as
well as a reduction of $51,000 in provision for doubtful accounts.

Depreciation and amortization for fixed assets and other intangibles rose
$123,000 (2.1%), to $6,104,000 for 2003 from $5,981,000 for 2002.

We recorded net interest expense of $2,498,000 in 2003, compared with $1,965,000
in 2002. The net increase of $533,000 reflects (i) a decrease in interest income
of $69,000 from a lower average balance of interest-earning assets during 2003
and, to a lesser extent, lower interest rates, and (ii) an increase of $464,000
in interest expense on a larger average outstanding debt balance than in 2002.
In February 2002, we issued $10,000,000 of Senior Subordinated Debentures (the
"Debentures") in connection with the AmQUEST Acquisition, bearing interest at an
effective rate of 12.3%. We took advantage of a provision of the Debentures and
paid the interest payments due July 2002, February 2003 and July 2003 by issuing
a total of $1,190,000 in Additional Debentures, which bore the same effective
interest rate. In October 2003 we repaid the Debentures and Additional
Debentures from the proceeds of a private offering of common stock. Also in
October 2003, in connection with the redemption of all outstanding Redeemable
Preferred Stock, we issued $25,000,000 of five-year 9% term loans. Amortization
of debt issuance costs and amortization of the Debenture discount also
contributed to the increased interest expense in 2003.

In 2003, we recorded income tax expense of $42,000 representing estimated state
income taxes. In 2002, a net income tax benefit of $208,000 was recorded,
representing the carryback of $250,000 of Federal income tax credits net of
estimated state income tax expense of $42,000.

Cumulative pre-tax losses that cannot be carried back can be carried forward for
a period of 20 taxable years for Federal income tax purposes. We have 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 amount in future years pursuant to Section 382
of the Internal Revenue Code. The deferred tax asset associated with carrying
forward cumulative pre-tax losses has been fully offset by a valuation allowance
in 2003 due to the uncertainty of realizing such tax benefits.



Page 18




We have net income of $1,356,000 for 2003 compared with $1,137,000 for 2002. Net
loss to common stockholders after accretion and accrued dividends on preferred
stock was $5,521,000 for 2003 compared with a net loss of $8,156,000 for 2002.
The net loss to common stockholders included a decrease in non-cash charges for
accretion and accrued dividends on preferred stock of $2,416,000 to $6,877,000
in 2003 from $9,293,000 in 2002. The loss per common share was $0.76 for 2003
compared with a loss per common share of $1.52 in 2002, on both a basic and
diluted basis. Common stock equivalents were not included in determining the net
loss per share for both periods, since the inclusion of such equivalents would
be anti-dilutive.


LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $6,316,000 for the year ended
December 31, 2004 (the "Current Year"). During the Current Year, we had
$19,963,000 of net income, a non-cash income tax credit of $12,550,000;
$8,679,000 of depreciation and amortization, and a charge of $1,097,000 to
expense the unamortized balance of costs and expenses relating to the repayment
of approximately $40,000,000 of 9.0% notes payable. Other significant working
capital changes include an increase in accounts receivable of $23,115,000 of
which $12,459,000 relates to accounts receivable acquired with the SMS and IHS
Acquisitions. Accounts receivable also increased by $10,985,000 as a result of
operating activity during 2004. This increase included $5,659,000 related to
IHS, the collection of which was delayed due to the transition of accounts
payable processing by certain of the IHS customers. These receivables were
collected subsequent to year end.

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 $36,133,000 in cash, including costs, and 135,892 shares of our
common stock. As described below, the cash portion of the purchase price was
funded with proceeds from a note payable and the issuance of common stock in a
private placement.

On October 1, 2004, we acquired a segment of Verizon Information Technologies
Inc. , renamed Infocrossing Healthcare Services, Inc. ("IHS"). The purchase was
structured as an acquisition of the common stock of IHS for approximately
$45,386,000 in cash, including costs. As described below, a portion of the
purchase price was financed by borrowing $24,375,000 from a non-revolving loan
facility.

Other investing activities during the Current Year include $1,456,000 for the
purchase of fixed assets. During the Current Year, we also entered into capital
leases having an aggregate carrying value of approximately $5,942,000; paid
$7,206,000 of cash in connection with other acquisitions completed in 2004, and
invested $367,000 in internally-developed software.

In March 2004, we issued 2,917,000 shares of common stock in exchange for
$28,240,000, net of fees and expenses. The shares were issued in a private
placement to accredited investors in a transaction exempt from the registration
requirements of the Securities Act of 1933. Approximately $20,000,000 of the
proceeds of the private placement was used to fund the acquisition of SMS,
discussed above. The remainder of the amount raised was used for working capital
purposes and additional acquisitions. The shares of common stock issued in May
2004 may be resold pursuant to a registration statement on Form S-3 that became
effective in June 2004. We will not receive any proceeds from any sales of
common stock under this registration statement.

On October 21, 2003, in connection with the redemption of our redeemable
preferred stock, we issued $25,000,000 of senior secured notes payable maturing
in October 2008. These notes payable were held by the prior holders of the
redeemable preferred stock. On February 13, 2004, the notes payable were
purchased by a financial institution. The terms and conditions of the notes
payable were not materially altered. On April 2, 2004, the note payable
agreement was amended and restated to provide an additional $15,000,000 used to
fund a portion of the purchase price of SMS. On June 30, 2004, we repaid the
outstanding balance on the notes payable.

On June 30, 2004, we completed a private offering of $60,000,000 aggregate
principal amount of 4.0% Convertible Senior Notes due July 15, 2024 (the
"Notes"). Approximately $40,000,000 of the net proceeds from this offering was
used to repay the 9.0% notes payable described in the previous paragraph. The
remaining balance was used to fund acquisitions and for general corporate
purposes. On July 6, 2004, the initial purchaser exercised its option in full to
purchase an additional $12,000,000 of the Notes. Net proceeds after a discount
of $2,520,000 and approximately $591,000 of costs and fees were approximately
$68,889,000. Interest on the Notes is payable semi-annually in arrears beginning
on January 15, 2005.



Page 19




Offers and sales of the Notes were made only in the United States to qualified
institutional buyers in transactions exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"). The notes were
originally issued by us in a transaction exempt from the registration
requirements of the Securities Act and were immediately resold by the initial
purchaser in reliance on Rule 144A. The Notes and the shares of common stock
into which they may be converted may be resold pursuant to a registration
statement on Form S-3 that became effective in December 2004. We will not
receive any proceeds from any sales of common stock under this registration
statement.

The Notes are convertible, subject to certain conditions, at the option of the
holder prior to maturity, into shares of our common stock at a specified
conversion price, subject to certain adjustments. The conversion price will be
adjusted to reflect stock dividends, stock splits, issuances of rights to
purchase shares of common stock and other events. Upon conversion, we will have
the right to deliver to the holders, at our option, cash, shares of our common
stock, or a combination thereof. At the initial conversion price of $15.36, the
$72,000,000 of Notes would be convertible into 4,687,500 common shares. After
the effective date of the Registration Statement and prior to the end of the
18th month thereafter, if the market price of our common stock is less than
68.23% ($10.48 initially, subject to adjustment) of the conversion price then in
effect for at least 20 trading days during any 30 consecutive trading day
period, the conversion price shall immediately be reduced by 17.38% (to $12.69
initially, subject to adjustment); provided that (i) this 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 such reduction of the
conversion price during the term of the Notes.

The holders may convert their Notes into shares of our common stock, initially
at the conversion price of $15.36 per share, equal to a conversion rate of
approximately 65.1042 shares per $1,000 principal amount of Notes, prior to the
close of business on their stated maturity date under any of the following
circumstances: (1) during any fiscal quarter if the market price per share of
our common stock for a period of at least 20 consecutive trading days during the
30 consecutive trading day period ending on the last day of the preceding fiscal
quarter is more than 130% of the applicable conversion price; (2) on or before
July 15, 2019, during the five business-day period following any 10 consecutive
trading-day period in which the trading price for the Notes during such ten-day
period was less than 98% of the applicable conversion value for the Notes during
that period, subject to certain limitations; (3) if the Notes have been called
for redemption; or (4) upon the occurrence of specified corporate transactions.
The specified transactions include: (1) certain distributions to our common
stockholders of rights to acquire shares of our common stock at a discount; (2)
certain distributions to our common stockholders when the distribution has a per
share value in excess of 5% of the market price of our common stock; and (3) a
consolidation, merger or binding share exchange pursuant to which our common
stock will be converted into cash, securities or other property. Upon a "change
of control," as defined in the indenture, the holders can require us to
repurchase all or part of the Notes for cash equal to 100% of principal plus
accrued interest. A consolidation, merger, or binding exchange also may
constitute a "change of control" in certain instances. If the "change of
control" occurred prior to July 15, 2009, in certain instances, we may be
required to pay a "make whole premium" when repurchasing the Notes. The amount
of the "make whole premium" is set forth in the indenture.

We have a call option, pursuant to which we may redeem the Notes, in part or in
whole, for cash at any time on or after July 15, 2007 at a price equal to 100%
of the principal amount of the Notes, plus accrued interest plus a "premium" if
the redemption is prior to July 15, 2009, provided, however, the Notes are only
redeemable prior to July 15, 2009 if the market price of our common stock has
been at least 150% of the conversion price then in effect for at least 20
trading days during any 30 consecutive trading day period. The "premium"
referred to in the preceding sentence shall be in an amount equal to $173.83 per
$1,000 principal amount of Notes, less the amount of any interest actually paid
on such Notes prior to the redemption date.

The holders of the Notes may require that we purchase for cash all or a portion
of the Notes on July 15, 2009, 2014, and 2019 at a repurchase price equal to
100% of the principal amount of the Notes plus any accrued interest. There are
no financial covenants, other than a limitation on incurring of additional
indebtedness, as defined in the indenture. We are not restricted from paying
dividends, or issuing other securities, or repurchasing other securities issued
by us under the terms of the indenture.




Page 20




In July 2004, we established a $25,000,000, non-revolving loan facility,
available for use in connection with the acquisition of complementary
businesses. Advances can be made during the first three years of the term of the
facility and interest will be payable monthly in arrears at prime plus 3.0%. The
interest rate floor is 8.5%. Monthly principal payments equal to 2.5% of the
outstanding balance will commence at the conclusion of the draw period and
continue until March 2009 when any remaining balance will be due. Advances are
subject to satisfying certain acquisition criteria and the approval of the
lenders. We paid a 1.0% commitment fee at the closing of the loan and will pay
an unused facility fee at the rate of 0.75% per annum until we borrow more than
$10,000,000 on a cumulative basis. We may incur prepayment penalties if we
terminate the facility during the first 18 months or prepay any advance prior to
the one-year anniversary of the applicable borrowing date. As of September 30,
2004, there were no advances made under this facility. The facility and any
loans made under the facility are guaranteed by all of our subsidiaries, and any
such loans and the guarantees are secured by a first-priority interest on
substantially all of our assets, including the capital stock and assets of the
subsidiaries. The facility contains certain covenants including, but not limited
to: a maximum leverage ratio; minimum consolidated earnings before interest,
taxes, depreciation, and amortization; a minimum debt coverage ratio; and
limitations on indebtedness, capital expenditures, investments, loans, mergers
and acquisitions, stock issuances, and transactions with affiliates. In
addition, the terms of the facility limit our ability to pay dividends. We were
in compliance with such covenants at December 31, 2004.

On October 1, 2004, we borrowed $24,375,000 from the non-revolving loan facility
to pay a portion of the cost of the IHS acquisition. The amount borrowed
represents the full loan availability under the line. The $625,000 balance must
remain available in the event we are required to fund an Interest Reserve, as
that term is defined in the loan agreement. Monthly principal payments of
approximately $609,000 will begin on July 1, 2007, and a final payment of
$11,578,000 is scheduled to be made on March 15, 2009.

Aside from the repayment of approximately $40,000,000 in notes payable noted
above, financing activities during the Current Year also include the repayment
of approximately $3,764,000 of capital leases and the receipt of $8,159,000 from
the exercise of warrants and employee stock options.

The following table summarizes information about our contractual obligations as
of December 31, 2004 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 $ 24,375 $ - $ 10,969 $ 13,406 $ -
Convertible notes (1) 72,000 - - - 72,000
Interest on long-term debt 7,872 2,101 5,556 215 -
Interest on convertible
notes 57,720 3,000 8,640 5,760 40,320
Operating leases and
software licenses 64,497 9,633 24,819 9,887 20,158
Operating contracts for
disaster recovery
services 3,444 1,573 1,871 - -
Capital lease obligations 11,504 4,514 6,990 - -
Other long-term
liabilities reflected on
the Company's balance
sheet under GAAP (2) 150 - 150 - -
--------------- -------------- --------------- -------------- ---------------
Total contractual cash
obligations $ 241,562 $ 20,821 $ 58,995 $ 29,268 $ 132,478
=============== ============== =============== ============== ===============





Page 21



(1) Excludes the provision whereby the holders of the convertible notes may
require the Company to repurchase 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.

(2) Excludes Accrued Loss on Leased Facilities and Deferred Rent, as payments
are included under Operating Leases.


As of December 31, 2004, we had cash and equivalents of $26,311,000. On February
22, 2005, we filed a preliminary, or "shelf" registration statement with the
Securities and Exchange Commission. This registration statement will permit us
to sell equity or debt securities, in any combination, for up to $125,000,000.
We intend to use the net proceeds we expect to receive from the sale of the
securities to reduce our outstanding debt and to fund possible acquisitions and
investments. The exact timing and terms of this financing will depend upon
market conditions and other factors. There can be no assurance that such
financing will occur.

We believe that our cash and equivalents, current assets, and cash generated
from future operating activities will provide adequate resources to fund our
ongoing operating requirements for at least the next twelve months. We may need
to obtain additional financing to fund significant acquisitions or other
substantial investments.


EBITDA

EBITDA represents net income before interest, taxes, depreciation and
amortization. We present EBITDA because we consider such information an
important supplemental measure of our performance and believe it is frequently
used by securities analysts, investors and other interested parties in the
evaluation of companies with comparable market capitalization to us, many of
which present EBITDA when reporting their results. We also use EBITDA as one of
the factors used to determine the total amount of bonuses available to be
awarded to executive officers and other employees. Our credit agreement uses
EBITDA (with additional adjustments) to measure compliance with covenants such
as interest coverage and debt incurred. EBITDA is also used by prospective and
current lessors as well as potential lenders to evaluate potential transactions
with us. In addition, EBITDA is also widely used by us and other buyers to
evaluate and determine the price of potential acquisition candidates.

For the year ended December 31, 2004, our EBITDA was $21,560,000 compared to
$10,000,000 for the year ended December 31, 2003.

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.




Page 22




The following table reconciles EBITDA to net income for the Current and Prior
Year.

RECONCILIATION - IN THOUSANDS
- -----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
2004 2003
-------------------- --------------------
NET INCOME $ 19,963 $ 1,356
Add back (deduct):
Tax expense (benefit) (12,539) 42
Interest expense 5,457 2,498
Depreciation and amortization 8,679 6,104

---------------- ----------------
EBITDA $ 21,560 $ 10,000
================ ================

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.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL

Our Consolidated Financial Statements are prepared in accordance with U.S.
generally accepted accounting principles, 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 two to seven
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. In determining these
allowances, we evaluate a number of factors, including the credit risk of
customers, historical trends, and other relevant information. 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.

BUSINESS COMBINATIONS

Our current acquisitions and future acquisitions of businesses that we will
control will be accounted for under the purchase method of accounting. The
amounts assigned to the identifiable assets acquired and liabilities assumed in
connection with acquisitions will be based on estimated fair values as of the
date of the acquisition, with the remainder, if any, to be recorded as goodwill.
The fair values will be determined by our management, taking into consideration
information supplied by the management of acquired entities and other relevant
information. Such information will include valuations supplied by independent
appraisal experts for significant business combinations. The valuations will
generally be based upon future cash flow projections for the acquired assets,
discounted to present value. The determination of fair values requires
significant judgment both by management and by outside experts engaged to assist
in this process.




Page 23




GOODWILL, INTANGIBLE ASSETS AND PROPERTY AND EQUIPMENT

Significant assets acquired in connection with our acquisitions include customer
lists, customer relationships, property and equipment and goodwill.

Goodwill represents the excess of the purchase price over the fair value of the
assets acquired. Goodwill is not amortized. However, we are required to perform
impairment reviews at least annually and more frequently in certain
circumstances.

The goodwill impairment test is a two-step process, which requires management to
make judgments in determining what assumptions to use in the calculation. The
first step of the process consists of estimating the fair value of our reporting
unit based on a discounted cash flow model using revenue and profit forecasts
and comparing those estimated fair values with the carrying values, which
include the allocated goodwill. If the estimated fair value is less than the
carrying value, a second step is performed to compute the amount of the
impairment by determining an "implied fair value" of goodwill. The determination
of a reporting unit's "implied fair value" of goodwill requires the allocation
of the estimated fair value of the reporting unit to the assets and liabilities
of the reporting unit. Any unallocated fair value represents the "implied fair
value" of goodwill, which will then be compared to its corresponding carrying
value. We cannot predict the occurrence of certain future events that might
adversely affect the reported value of goodwill and/or intangible assets. Such
events include, but are not limited to, strategic decisions made in response to
economic and competitive conditions, the impact of the economic environment on
our customer base, and material negative change in relationship with significant
customers. The "implied fair value" of reporting unit will be determined by our
management and will generally be based upon future cash flow projections for the
reporting unit, discounted to present value. We will use outside valuation
experts when management considers that it would be appropriate to do so.
Intangibles subject to amortization, including customer lists and customer
relationships, are amortized over the estimated useful lives of the intangible
asset after consideration of historical results and anticipated results based on
our current plans. We take into consideration the history of contract renewals
in determining our assessment of useful life and the corresponding amortization
period. We analyze our customer lists on a case-by-case basis, with examination
of the history of contract renewals as well as other factors, such as material
changes to contract terms or significant new commitments where applicable. Such
estimates are based on management's judgment of its current relationship with
the relevant customers and its estimate of future economic. Changes to either of
these factors could result in an impairment charge, which could have a material
effect on our results of operation and financial condition.

Customer relationships are essential to our business. In determining the value
of these relationships, we discounted the expected returns for each contract
using a discounted cash flow analysis over the remaining terms of the contract.
We further estimate that it would be unlikely that a customer would terminate
its contract, due to the quality of service currently provided as well as the
lack of viable alternatives.

Property and equipment are initially stated at cost. Depreciation on property
and equipment is computed using the straight-line method over the estimated
useful lives of the property and equipment after consideration of historical
results and anticipated results based on our current plans. Our estimated useful
lives represent the period the asset is expected to remain in service assuming
normal routine maintenance. We will review the estimated useful lives assigned
to property and equipment when our business experience suggests that they may
have changed from our initial assessment. Factors that lead to such a conclusion
may include physical observation of asset usage, examination of realized gains
and losses on asset disposals and consideration of market trends such as
technological obsolescence or change in market demand.





Page 24




We will perform impairment reviews of property and equipment and intangibles
subject to amortization, when events or circumstances indicate that the value of
the assets may be impaired. Indicators include operating or cash flow losses,
significant decreases in market value or changes in the long-lived assets'
physical condition. When indicators of impairment are present, management
determines whether the sum of the undiscounted future cash flows estimated to be
generated by those assets is less than the carrying amount of those assets. In
this circumstance, the impairment charge is determined based upon the amount by
which the carrying value of the assets exceeds their fair value. The estimates
of both the undiscounted future cash flows and the fair values of assets require
the use of complex models which require numerous highly sensitive assumptions
and estimates.


DEFERRED TAXES

Our deferred tax assets are comprised primarily of net operating loss
carryforwards. A tax valuation allowance is established, as needed, to reduce
net deferred tax assets to the amount for which recovery is probable. Based on
our profitability in 2004 and our forecasts, we have determined it is more
likely than not that our net operating loss carry-forwards and other temporary
differences will be realized. Accordingly, we released the full valuation
allowance in the fourth quarter of 2004. Due to a lack of a history of
generating taxable income on SMS, we recorded a valuation allowance equal to
100% of its net deferred tax assets. In the event that we are able to generate
taxable earnings from SMS in the future and determine it is more likely than not
that we can realize our deferred tax assets, an adjustment to the valuation
allowance would be made which may increase goodwill in the period that such
determination was made.

STOCK-BASED COMPENSATION

To date, we have accounted for stock-based compensation by using the intrinsic
value based method in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO Employees, and
related interpretations. Accordingly, we have only recorded compensation expense
for any stock options granted with an exercise price that is less than the fair
market value of the underlying stock at the date of grant. Refer to the section
entitled "Recent Accounting Pronouncements" below for a discussion of the impact
of the recently issued Statement of Financial Accounting Standards ("SFAS") No.
123(R), SHARE-BASED PAYMENT, on our recording of stock-based compensation for
interim or annual reporting periods beginning on or after June 15, 2005.


RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 153, EXCHANGES OF NONMONETARY ASSETS,
which eliminated the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. SFAS No. 153 will be effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. We do not believe the adoption of SFAS No. 153 will have a material impact
on our operating results or financial position.

In December 2004, the FASB issued SFAS No. 123 (R), SHARED-BASED PAYMENT, which
establishes standards for transactions in which an entity exchanges its equity
instruments for goods or services. This standard requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. This
eliminates the exception to account for such awards using the intrinsic method
previously allowable under APB Opinion No. 25. SFAS 123(R) will be effective for
interim or annual reporting periods beginning on or after June 15, 2005.




Page 25




SFAS 123(R) permits public companies to adopt its requirements using one of the
following two methods:

1. A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the requirements of
SFAS 123(R) for all shared based payments granted after the effective date and
(b) based on the requirements of FASB 123 for all awards granted to employees
prior to the effective date of SFAS 123(R) that remain unvested on the effective
date.

2. A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under FASB 123 for purposes
of pro forma disclosures either (a) all prior periods presented or (b) prior
interim periods of the year of adoption.

We plan to adopt FASB 123(R) using the modified-prospective method.

As permitted by FASB 123, we currently account for shared-based payments to
employees using APB Opinion 25's intrinsic value method and, as such, generally
recognize no compensation cost for employee stock options. Accordingly, the
adoption of SFAS 123(R)'s fair value method will have a significant impact on
our results of operations, although it will have no impact on our overall
financial position. The impact of the adoption of SFAS 123(R) cannot be
predicted at this time because it will depend on levels of share-based payments
granted in the future. However, had we adopted SFAS 123(R) in prior periods, the
impact of that standard would have approximated the impact of FASB 123 as
described in the disclosure of pro forma net income and earnings per share in
Note 1 to our consolidated financial statements.

We have not determined what impact SFAS 123(R) might have on the nature of our
shared-based compensation to employees in the future.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


INTEREST RATE RISK

We are not significantly exposed to the impact of interest rate changes, foreign
currency fluctuations, or changes in the market values of our investments. We
primarily invest in money market mutual funds or certificates of deposit and
commercial paper issued only by major corporations and financial institutions of
recognized strength and security, and hold all such investments to term. We
generally invest in instruments of no more than 30 days maturity. Our debt is at
a fixed rate of interest, and the carrying amount of long-term debt approximates
fair value based on interest rates that are currently available to us with
similar terms and remaining maturities.

MARKET RISK

Our accounts receivable are subject, in the normal course of business, to
collection risks. We regularly assess these risks and have established policies
and business practices to protect against the adverse effects of collection
risks. As a result, we do not anticipate any material losses in this area.

FOREIGN CURRENCY RISKS

We have no significant foreign-source income, and bill foreign customers in U.S.
dollars only.





Page 26




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Consolidated Financial Statements and Notes thereto are set forth beginning
at page F-1 of this Report. Also included is Schedule II, Valuation and
Qualifying Accounts, which schedule is set forth at page S-1 of this report. All
other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are inapplicable and
therefore have been omitted.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.


ITEM 9A. CONTROLS AND PROCEDURES.

MANAGEMENT'S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The term disclosure controls and procedures is defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act. This term
refers to the controls and procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it
filed under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the Securities and Exchange Commission. An
evaluation was performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of the effectiveness of the Company's disclosure
controls and procedures as of December 31, 2004. Based on that evaluation, the
Company's management, including the CEO and CFO, concluded that the Company's
disclosure controls and procedures were effective as of December 31, 2004.
During the quarter ending on December 31, 2004, there was no change in the
Company's internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of the Company is responsible for establishing and maintaining
effective internal control over financial reporting, and for performing an
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2004. Internal control over financial reporting is defined in
Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of
1934 as a process designed by, or under the supervision of, the Company's
principal executive and principal financial officers and effected by the
Company's board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles.

Internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the Company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit the preparation of financial statements in accordance with
U.S. generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent
limitations. Because of the inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Accordingly, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.




Page 27




Management performed an assessment of the effectiveness of the Company's
internal controls over financial reporting as of December 31, 2004 using the
criteria set forth in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In conducting
such assessment, management of the Company has excluded from its assessment of
and conclusion on the effectiveness of internal control over financial
reporting, the internal controls of ITO Acquisition Corporation doing business
as Systems Management Specialists and a segment of Verizon Information
Technologies Inc. now known as Infocrossing Healthcare Services, Inc. which are
included in the 2004 consolidated financial statements of the Company and
constituted approximately $107 million or 49% of total assets, including
goodwill of approximately $66 million as of December 31, 2004, and approximately
$42 million or 40% of revenues for the year then ended. Management did not
assess the effectiveness of internal control over financial reporting at these
entitles because the Company acquired these entities in 2004. Refer to Note 2 to
the consolidated financial statements for further discussion of these
acquisitions and their impact on Infocrossing's consolidated financial
statements. Based on this assessment, management has determined that the
Company's internal control over financial reporting as of December 31, 2004 is
effective.

Management's assessment of the effectiveness of the Company's internal control
over financial reporting as of December 31, 2004 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their
report.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INFOCROSSING, INC. AND SUBSIDIARIES

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that
Infocrossing, Inc. and subsidiaries "(Infocrossing") maintained effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Infocrossing's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the Infocrossing's internal control over financial reporting
based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




Page 28




As indicated in the accompanying Management's Report on Internal Control Over
Financial Reporting, Infocrossing has excluded from its assessment of and
conclusion on the effectiveness of internal control over financial reporting as
of December 31, 2004, the internal controls of ITO Acquisition Corporation doing
business as Systems Management Specialists and a segment of Verizon Information
Technologies Inc. now known as Infocrossing Healthcare Services, Inc. which are
included in the 2004 consolidated financial statements of the Company and
constituted approximately $107 million or 49 %of total assets, including
goodwill of approximately $66 million as of December 31, 2004, and approximately
$42 million or 40% of revenues for the year then ended. Our audit of internal
control over financial reporting of Infocrossing also did not include an
evaluation of the internal control over financial reporting of the entities
referred to above.

In our opinion, management's assessment that Infocrossing maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria. Also, in our
opinion, Infocrossing maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2004, based on the COSO
criteria.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Infocrossing as of December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2004 and our report dated March 14,
2005 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

New York, New York
March 14, 2005


ITEM 9B. OTHER INFORMATION.

None.


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.


ITEM 11. EXECUTIVE COMPENSATION.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The information required by Item 201(d) of Regulation S-K is included above in
Part II, Item 5 of this Annual Report on Form 10-K.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The contents of Items 10 through 14 are incorporated by reference to a
Definitive Proxy Statement to be filed on or before May 2, 2005.


Page 29




PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a) 1. The financial statements and schedule required to be filed in
satisfaction of Item 8 are listed in the Index to Consolidated Financial
Statements and Schedule that appears as page F-1 of this report. Schedules
not required have been omitted

2. The exhibits required to be filed as a part of this Annual Report are
listed below.

EXHIBIT NO. DESCRIPTION
(a) Exhibits:


3.1A Company's Restated Certificate of Incorporation.


3.1B Certificate of Amendment to the Company's Certificate of
Incorporation, filed May 8, 2000, to increase the authorized shares
and to remove Article 11. , incorporated by reference to the Company's
report on Form 10-Q for the period ended April 30, 2000.


3.1C Certificate of Amendment to the Company's Certificate of
Incorporation, filed as of June 5, 2000, to change the name of the
Company to Infocrossing, Inc. , incorporated by reference to the
Company's report on Form 10-Q for the period ended April 30, 2000.


3.2 Amended and Restated Bylaws of the Company (incorporated herein by
reference to Exhibit 3.2 to the Company's Form 10-Q/A filed May 17,
2004.

4.1 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
Exhibit 4.2 to a Registration Statement No. 333-117340 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
Exhibit 4.4 to a Registration Statement No. 333-117340 on Form S-3
filed July 13, 2004.


4.3 Securities Purchase Agreement, dated as of March 24, 2004, by and
among the Company and certain purchasers of the Company's common
stock, incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed April 1, 2004.

4.4 Registration Rights Agreement, dated as of March 24, 2004, by and the
Company and certain purchasers of the Company's common stock,
incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K filed April 1, 2004.


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.




Page 30




EXHIBIT NO. DESCRIPTION


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 between the Company and the Warrantholders Party
thereto.


10.1 Purchase and Sale Agreement, dated as of September 1, 2004 between
Verizon Data Services, Inc. and the Company, incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K filed
October 14, 2004

10.2 Stock Purchase Agreement between the Company and ITO Holdings, LLC,
dated as of March 3, 2004, incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K filed April 7, 2004.

10.3 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.


10.4A Acquisition Loan Agreement dated July 29, 2004 between the Company,
various Lenders and CapitalSource Finance LLC as Agent for the Lenders
("Acquisition Loan Agreement"), incorporated by reference to Exhibit
10.7 to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2004.


10.4B Consent, Waiver and First Amendment to Acquisition Loan Agreement
dated as of October 1, 2004, incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K filed October 4, 2004.


10.4C Amended and Restated Consent, Waiver, and First Amendment to
Acquisition Loan Agreement, dated as of October 6, 2004, incorporated
by reference to Exhibit 10.16 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 2004.


10.4D Second Amendment to Acquisition Loan Agreement and Other Documents,
dated as of November 8, 2004, incorporated by reference to Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 2004.


10.4E Third Amendment to Acquisition Loan Agreement and Other Documents,
dated as of December 29, 2004.


10.5A Guaranty and Security Agreement dated as of July 29, 2004, between
the Company and certain of the Company's subsidiaries and
CapitalSource Finance LLC ("Security Agreement"), incorporated by
reference to Exhibit 10.8 to the Company's Quarterly Report on Form
10-Q for the period June 30, 2004.


10.5B Joinder to Security Agreement dated October 1, 2004.


10.6A Stock Pledge Agreement dated as of July 29, 2004, between the Company
and certain of the Company's subsidiaries and CapitalSource Finance
LLC ("Stock Pledge Agreement"), incorporated by reference to Exhibit
10.9 to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2004.


10.6B Addendum to Stock Pledge Agreement dated October 1, 2004.


10.7A 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.




Page 31




EXHIBIT NO. DESCRIPTION


10.7B 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.


10.7C 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.


10.7D 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
Finance LLC.


10.7E Master Assignment and Assumption Agreement, dated as of February 13,
2004, by and among by and among the Company, as borrower; certain
subsidiaries of the Company, as guarantors; Infocrossing Agent, Inc.,
as agent for assigning lenders named therein; assigning lenders named
therein; and CapitalSource Finance LLC.


10.8A 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.


10.8B 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.


10.9 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.

10.10 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.


10.11 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.


10.12A 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.


10.12B 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.


10.13A 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.


10.13B Settlement and Release Agreement dated as of October 15, 2004 by and
among the Company and Jim Cortens.

10.14 Employment Agreement, dated as of October 1, 2004, by and between a
subsidiary of the Company and Michael J. Luebke.




Page 32




EXHIBIT NO. DESCRIPTION


10.15A 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.


10.15B Amendment to 2002 Plan adopted by the Board of Directors on January
21, 2005.


10.15C Amendment to 2002 Plan approved at the Company's Annual Meeting of
Stockholders held on June 15, 2004.


10.15D Amendment to 2002 Plan adopted by the Board of Directors on April 1,
2004.


10.16A 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.


10.16B Amendment to 1992 Plan approved at the Company's Annual Meeting of
Stockholders held on June 22, 2001.


10.17 Stock Option Agreement under the Company's 2002 Stock Option and
Stock Appreciation Rights Plan, dated January 21, 2005, between the
Company and Zach Lonstein, incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K filed November 5, 2004.


10.18A Lease dated June 2, 1997 between the Company and Leonia Associates,
LLC.


10.18B First Amendment of Lease between the Company and Leonia Associates,
LLC, dated January 16, 1998.


10.18C Second Amendment of Lease between the Company and Leonia Associates,
LLC, dated as of September 9, 1999.


10.18D 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.


10.18E Fourth Amendment of Lease between the Company and Leonia Associates,
LLC, dated as of April 19, 2004.


10.19A 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.


10.19B 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.

10.20A Lease Agreement between Birch Windell, LLC (Landlord) and ITO
Acquisition Corp (Tenant) dated as of December 19, 2002

10.20B First Amendment to Lease between Global Brea, LLC and ITO
Acquisition Corporation

10.21A 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.


10.21B Eleventh Floor Option Agreement between the Company, GHG, and RSL,
dated as of November 30, 1999, with related notice of exercise dated
December 2, 1999, incorporated by reference to Exhibit 10.6B to the
Company's 10-K for the fiscal year ended October 31, 2000.


10.28A* 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.

10.28B* 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.




Page 33




EXHIBIT NO. DESCRIPTION


10.29* 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.

10.30* 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.

10.31* 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.

10.32* 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.


14. Code of Ethics, incorporated by reference to Appendix B to the
Company's Proxy Statement for the Annual Meeting of June 15, 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.



* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.

(b) Reports on Form 8-K

Pursuant to Item 1.01 of Form 8-K, on September 1, 2004 we announced we had
entered into a Purchase and Sale Agreement (the "Purchase Agreement") with
Verizon Data Services Inc. ("Seller"), to acquire for $43.5 million in cash
a segment of the healthcare business of Verizon Information Technologies
Inc., which is a wholly owned subsidiary of Seller and which provides
managed care, Medicare and Medicaid processing services.

Pursuant to Item 2.01 of Form 8-K, on October 4, 2003 we reported the
completion on October 1, 2004 of the previously announced acquisition from
Verizon Data Services, Inc.

Pursuant to Item 7.01 of Form 8-K, on October 12, 2004 we announced that we
would hold a conference call at 4:00 pm on that date to discuss the
previously announced acquisition from Verizon Data Services, Inc.

Pursuant to Item 5.02(b) and (c) of Form 8-K, on November 5, 2004 we
announced the resignation of Patrick Dolan as Chief Executive Officer and
the assumption of those duties by Robert Wallach.

Pursuant to Item 5.02(d) of Form 8-K, on November 30, 2004 we announced the
election of Jeremiah Healy to our Board of Directors.

Pursuant to Item 2.01 of Form 8-K, on December 17, 2004 we amended Form 8-K
as filed on October 4, 2004 to add financial statements and pro forma
information.




Page 34





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

INFOCROSSING, INC.

March 16, 2005 /s/ ZACH LONSTEIN
---------------------------------------------
Zach Lonstein - Chief Executive Officer

March 16, 2005 /s/ WILLIAM J. McHALE
---------------------------------------------
William J. McHale - Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

March 16, 2005 /s/ ZACH LONSTEIN
---------------------------------------------
Zach Lonstein - Chairman of the Board of
Directors

March 16, 2005 /s/ PETER J. DaPUZZO
---------------------------------------------
Peter J. DaPuzzo - Director

March 16, 2005 /s/ JEREMIAH M. HEALY
---------------------------------------------
Jeremiah M. Healy - Director

March 16, 2005 /s/ KATHLEEN A. PERONE
---------------------------------------------
Kathleen A. Perone - Director

March 16, 2005 /s/ MICHAEL B. TARGOFF
---------------------------------------------
Michael B. Targoff - Director

March 16, 2005 /s/ ROBERT B. WALLACH
---------------------------------------------
Robert B. Wallach - Director

March 16, 2005 /s/ HOWARD L. WALTMAN
---------------------------------------------
Howard L. Waltman - Director



Page 35






INFOCROSSING, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE


Page No.
-----------

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets -
December 31, 2004 and 2003 F-3

Consolidated Statements of Operations -
Years ended December 31, 2004, 2003, and 2002 F-4

Consolidated Statements of Stockholders' Equity (Deficit) -
Years ended December 31, 2004, 2003, and 2002 F-5

Consolidated Statements of Cash Flows -
Years ended December 31, 2004, 2003, and 2002 F-6

Notes to Consolidated Financial Statements F-8

Schedule II: Valuation and Qualifying Accounts S-1




F - 1






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INFOCROSSING, INC. AND SUBSIDIARIES

We have audited the accompanying consolidated balance sheets of Infocrossing,
Inc. and subsidiaries (the "Company") as of December 31, 2004 and 2003, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2004. Our
audits also included the financial statement schedule listed in the Index at
Item 15 (a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Infocrossing, Inc.
and subsidiaries at December 31, 2004 and 2003, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Infocrossing,
Inc. and subsidiaries internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 14, 2005 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG, LLP

New York, New York
March 14, 2005




F - 2






INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31,
----------------------------------
ASSETS 2004 2003
--------------- ---------------

CURRENT ASSETS:
Cash and equivalents $ 26,311 $ 10,073
Trade accounts receivable, net of allowances for
doubtful accounts of $249 and $570, respectively 26,707 3,592
Due from related parties 238 226
Prepaid license fees 1,585 945
Deferred income taxes 1,260 -
Other current assets 4,650 1,780
------------ ------------
Total current assets 60,751 16,616

Property, equipment and purchased software 25,113 18,725
Deferred software, net 1,077 1,264
Goodwill 103,177 28,361
Other intangible assets, net 12,328 788
Deferred income taxes 11,715 -
Security deposits and other non-current assets 2,489 1,384
------------ ------------
TOTAL ASSETS $ 216,650 $ 67,138
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,041 $ 2,768
Current portion of long-term debt and capitalized lease obligations 3,683 2,559
Current portion of accrued loss on leased facilities 217 202
Accrued expenses 8,489 1,516
Income taxes payable 305 -
Current deferred revenue 1,267 1,356
------------ ------------
Total current liabilities 23,002 8,401

Notes payable, long-term debt and capitalized lease
obligations, net of current portion 100,432 25,732
Accrued loss on leased facilities, net of current portion 505 732
Deferred revenue, net of current portion - 42
Other long-term liabilities 1,474 1,430
------------ ------------
TOTAL LIABILITIES 125,413 36,337
------------ ------------
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
20,395,473 and 15,732,038 at December 31, 2004 and 2003, respectively 204 157
Additional paid-in capital 150,278 109,565
Accumulated deficit (56,107) (76,070)
------------ ------------
94,375 33,652
Less 618,969 and 594,990 shares at December 31, 2004 and 2003,
respectively, of common stock held in treasury, at cost (3,138) (2,851)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 91,237 30,801
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 216,650 $ 67,138
============ ============



See Notes to Consolidated Financial Statements.



F - 3






INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
2004 2003 2002
--------------- ---------------- ----------------

REVENUES $ 104,949 $ 55,228 $ 50,774
----------- ------------ -------------
COSTS and EXPENSES:
Costs of revenues, excluding
depreciation shown below 71,368 36,663 33,289
Selling and promotion costs 3,277 2,978 2,786
General and administrative
expenses 8,744 5,587 6,114
Leased facilities and office
closings - - (290)
Depreciation and amortization 8,679 6,104 5,981
----------- ------------ -------------
92,068 51,332 47,880
----------- ------------ -------------
INCOME FROM OPERATIONS 12,881 3,896 2,894
----------- ------------ -------------
Interest income (313) (103) (172)
Fees related to loans repaid 1,347 - -
Interest expense 4,423 2,601 2,137
----------- ------------ -------------
5,457 2,498 1,965
----------- ------------ -------------
INCOME BEFORE 7,424 1,398 929
INCOME TAXES
Income tax (benefit) expense (12,539) 42 (208)
----------- ------------ -------------
NET INCOME 19,963 1,356 1,137
Accretion and dividends on
redeemable
preferred stock - (6,877) (9,293)
----------- ------------ -------------
NET INCOME (LOSS) TO COMMON
STOCKHOLDERS $ 19,963 $ (5,521) $ (8,156)
=========== ============ =============

BASIC EARNINGS PER SHARE:
Net income (loss) to common
stockholders per share $ 1.12 $ (0.76) $ (1.52)
=========== ============ =============
Weighted average number of
common shares outstanding 17,827,006 7,279,786 5,352,757
=========== ============ =============

DILUTED EARNINGS PER SHARE:
Net income (loss) to common
stockholders per share $ 0.95 $ (0.76) $ (1.52)
=========== ============ =============
Weighted average number of
common share equivalents
outstanding 21,931,982 7,279,786 5,352,757
=========== ============ =============


See Notes to Consolidated Financial Statements.



F - 4






INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

ADDITIONAL TREASURY
COMMON PAID IN ACCUMULATED STOCK AT
SHARES PAR VALUE CAPITAL DEFICIT COST TOTAL
---------- ------------ ------------- --------------- ------------- -------------

Balances,
December 31, 2001 5,912 $ 59 $ 59,054 $ (62,393) $ (2,756) $ (6,036)

Exercises of stock options 54 1 289 - (95) 195
Accretion and dividends on
redeemable preferred
stock - - - (9,293) - (9,293)

Conversion of preferred
stock and exercise
of warrants 7 - 65 - - 65


Warrants issued - - 1,720 - - 1,720

Other - - 7 - - 7

Net income - - - 1,137 - 1,137
---------- -------- ----------- ------------ ---------- -----------
Balances,
December 31, 2002 5,973 $ 60 $ 61,135 $ (70,549) $ (2,851) $ (12,205)

Exercises of stock options 20 - 106 - - 106

Accretion and dividends on
redeemable preferred
stock - - - (8,091) - (8,091)

Vesting of a non-qualified
stock option - - 40 - - 40

Private stock offering 9,739 97 69,845 - - 69,942

Recapitalization of
preferred
stock and warrants - - (20,755) 1,214 - (19,541)

Cancellation of warrants on
repayment of debentures - - (806) - - (806)

Net income - - - 1,356 - 1,356
---------- -------- ----------- ------------ ---------- -----------
Balances,
December 31, 2003 15,732 $ 157 $ 109,565 $ (76,070) (2,851) $ 30,801

Exercises of stock options 346 4 1,952 - (287) 1,669

Exercises of warrants 1,141 11 6,479 - - 6,490

Vesting of a non-qualified
stock option - - 31 - - 31

Warrants issued - - 137 - - 137

Private stock offering 2,917 29 28,211 - - 28,240

Stock issued in connection
with acquisitions 259 3 2,936 - - 2,939

Tax credit for disqualifying
disposition of stock
options - - 967 - - 967

Net income - - - 19,963 - 19,963
---------- -------- ----------- ------------ ---------- -----------
Balances,
December 31, 2004 20,395 $ 204 $ 150,278 $ (56,107) (3,138) $ 91,237
========== ======== =========== ============ ========== ===========



See Notes to Consolidated Financial Statements.



F - 5






INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
--------------------------------------- --------------------
2004 2003 2002
------------------- ----------------- --------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,963 $ 1,356 $ 1,137
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization 8,679 6,104 5,981
Accretion of discounted debt 62 422 491
Unamortized fees relating to loans
repaid 1,097 - -
Non-employee option issued for
services 168 40 -
Deferred income taxes (12,550) - -
Reduction of accrued
loss on leased facilities - - (290)
Bad debt expense 329 144 228
Interest due on related party balances (12) (10) (11)

Changes in operating assets and
liabilities (net
of effect of acquisitions:

Decrease (increase) in:
Trade accounts receivable (10,985) 633 (550)
Prepaid license fees and other
current assets (2,138) (590) (122)
Security deposits and other non-
current assets (165) 84 1,539
Increase (decrease) in:
Accounts payable 4,242 (1,325) 2,179
Income taxes payable 437 (96) 96
Accrued expenses (2,057) (510) (5,956)
Payments on accrued loss on leased
facilities (156) (148) (3,257)
Deferred
revenue and other liabilities (598) (168) (221)
--------------- -------------- ----------------
Net cash provided by
operating activities 6,316 5,936 1,244
--------------- -------------- ----------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property and equipment (1,456) (1,419) (3,955)
Purchase of businesses, net of cash
acquired (88,593) (350) (19,896)
Purchases of auction-rate securities (64,200) - -
Redemptions of auction-rate securities 64,200 - -
Increase in deferred software costs (367) (138) (135)
--------------- -------------- ----------------
Net cash used in
investing activities (90,416) (1,907) (23,986)
--------------- -------------- ----------------



Continued on next page.


F - 6





INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31,
---------------------------------------- ------------------
2004 2003 2002
------------------ ------------------ ------------------

CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from a private equity
placement $ 28,240 $ 69,942 $ -
Proceeds from issuance of Debentures - - 10,000
Proceeds from sale of convertible notes 69,480
Proceeds from debt financing 39,375 - -
Redemption of preferred stock and
warrants - (56,321) -
Repayment of debentures and interest
accrued - (12,227) -
Repayments of debt and capitalized leases (43,764) (2,431) (4,726)
Payment of costs related to debt
financings (1,096) - -
Exercises of stock options and warrants 8,159 106 202
--------------- -------------- ---------------
Net cash provided by (used in) financing
activities 100,394 (931) 5,476
--------------- -------------- ---------------
Net cash provided by (used in)
continuing operations 16,294 3,098 (17,266)
CASH FLOWS FROM DISCONTINUED OPERATION:
Payments on portion of accrued loss on
leased facilities relating to
discontinued operation (56) (51) (52)
--------------- -------------- ---------------
Net increase (decrease)
in cash and equivalents 16,238 3,047 (17,318)
Cash and equivalents, beginning of year 10,073 7,026 24,344
--------------- -------------- ---------------
Cash and equivalents, end of year $ 26,311 $ 10,073 $ 7,026
=============== ============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,802 $ 981 $ 422
=============== ============== ===============
Income taxes $ 169 $ 132 $ 22
=============== ============== ===============
SUPPLEMENTAL DISCLOSURE OF
NON-CASH INVESTING ACTIVITIES:
Notes payable issued for a portion of
the redemption of the preferred
stock and warrants $ - $ 25,000 $ -
=============== ============== ===============
Common stock issued for a portion of
purchase price on acquisitions $ 2,939 $ - $ -
=============== ============== ===============
Equipment acquired subject to a capital
lease $ 5,942 $ 2,475 $ 1,278
=============== ============== ===============
SUPPLEMENTAL DISCLOSURE OF
NON-CASH FINANCING ACTIVITIES:
Treasury shares received in
payment of a stock option exercise 287 $ - $ 95
=============== ============== ===============
Preferred shares converted to common - $ - $ 65
=============== ============== ===============
Additional Debentures issued in lieu
of a cash payment of interest - $ 1,310 $ 600
=============== ============== ===============


See Notes to Consolidated Financial Statements.



F - 7



INFOCROSSING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Business - Infocrossing, Inc. and its wholly-owned subsidiaries (collectively,
the "Company") provides information technology and business process outsourcing
services to companies, institutions, and government agencies.

Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All intercompany
balances and significant intercompany transactions have been eliminated.

Cash and Equivalents - Cash and equivalents include all cash, demand deposits,
money market accounts, and debt instruments purchased with an original maturity
of three months or less.

Concentration of Credit Risk - Financial instruments that potentially subject
the Company to concentration of credit risk consist primarily of temporary cash
investments and trade receivables. The Company restricts investment of temporary
cash investments to financial institutions with high credit standing. Credit
risk on trade receivables is minimized as a result of the large and diverse
nature of the Company's customer base. The Company performs ongoing credit
evaluations of customers' financial condition, and generally does not require
collateral. The Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations.

Property, Equipment and Software- Property and equipment is stated at cost
except for assets acquired under capital leases, which are recorded at the net
present value of the minimum lease commitments. Depreciation is provided using
the straight-line method over the estimated useful lives. Leasehold improvements
and assets acquired under capital leases are amortized over the shorter of the
lease term or the estimated useful lives. Software that has been purchased is
included in Property and Equipment and is amortized using the straight-line
method over five years. The cost of internally developed software and product
enhancements, not reimbursed by customers, is capitalized as Deferred Software
Costs. Such assets are internal-use software, accounted for in accordance with
Statement of Position 98-1, "Accounting of the Costs of Computer Software
Developed or Obtained for Internal Use." The estimated useful lives of such
assets vary between three and five years, based upon the estimated useful life
of each particular software product. If the software has been developed for a
particular client, the useful life equals the term of the related customer
contract.

Goodwill, Other Intangible and Long-Lived Assets - Goodwill is the excess of
purchase price over the fair value of identified net assets of businesses
acquired. Goodwill and intangible assets deemed to have indefinite lives are no
longer amortized but instead are subject to annual impairment tests in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Long-Lived assets and
intangible assets subject to amortization are reviewed for impairment in
accordance with SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS. Other intangible assets, primarily acquired customer lists,
are amortized over their respective useful lives ranging from five to ten years
and reviewed for impairment whenever events or changes in circumstances such as
significant declines in revenues, earnings or cash flows or material adverse
changes in the business climate indicate that the carrying amount of an asset
may be impaired. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future estimated undiscounted
net cash flows expected to be generated by the assets. If the assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. As of December 31, 2004, no impairment has occurred.

Revenue Recognition - The Company's services are provided under a combination of
fixed monthly fees and time and materials billings. Contracts with clients range
from two to seven years. Revenue is recognized (1) after the Company has
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
the Company believes that collectibility is reasonably assured based on the
credit risk policies and procedures that the Company employs.




F - 8



Costs of Revenues - Costs of revenues include software licenses, operating
hardware leases, hardware maintenance, telecommunication services, and the cost
of customer service personnel, computer operators, programmers, and other
technical personnel.

Deferred Revenue - The Company records deferred revenue for amounts billed for
which the services have not yet been provided. Deferred revenue amounts are
recorded as revenue as the services are rendered.

Income Taxes - The Company accounts for income taxes pursuant to the liability
method whereby deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Any deferred tax assets recognized for net operating loss carryforwards
and other items are reduced by a valuation allowance when it is more likely than
not that the benefits may not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period that includes the enactment
date.

Earnings per Share - The Company computes earnings per share in accordance with
SFAS No. 128, "EARNINGS PER SHARE." Basic earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share adjusts basic earnings per share
for the effects of convertible securities, stock options and warrants and other
potentially dilutive financial instruments, only in the periods in which such
effect is dilutive. For the year ended December 31, 2004, the weighted average
number of shares used in calculating diluted earnings per share includes options
and warrants to purchase common stock and the effects of convertible securities
aggregating 4,104,976 shares. The calculation for 2004 also includes an increase
to net earnings equal to interest expense relating to the convertible debt,
adjusted for income taxes, of $906,000. The calculation of earnings per share
for the year ended December 31, 2004 excludes 1,145,100 shares related to stock
options and warrants because to include them in the calculation would be
antidilutive. Earnings per share for the years ended December 31, 2003 and 2002
excluded weighted average shares related to stock options and warrants of
594,026 and 2,921,972, respectively, because to include them in the calculations
for those years would have been antidilutive.

Comprehensive Income - SFAS No. 130, REPORTING COMPREHENSIVE INCOME establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The Company's
comprehensive net income (loss) is equal to its net income (loss) for all
periods presented.

Segments - The Company and its subsidiaries operate in one reportable segment of
providing information technology and business process outsourcing services.

Derivatives - The Company does not invest in derivatives for trading purposes
nor does it use derivative financial instruments to manage risks associated with
fluctuating interest rates.

Fair Value of Financial Instruments - At December 31, 2004 and 2003, the
carrying amounts of cash and equivalents, trade accounts receivable, accounts
payable, accrued expenses, accrued loss on leased facilities, customer deposits,
deferred revenue and other current liabilities approximate fair value due to the
short-term nature of these instruments. The carrying amounts of long-term debt
approximate fair value based on interest rates that are currently available to
the Company with similar terms and remaining maturities.

Use of Estimates - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the periods. Actual results could differ from those estimates. Interim
results are not necessarily indicative of results for a full year.

Reclassifications - Certain reclassifications were made to the prior years'
financial statements to conform to the current year presentation.




F - 9




Major Customers - For the years ended December 31, 2004, 2003 and 2002, one
client accounted for 13%, 23%, and 29%, respectively, of the Company's total
revenues. Also, for the year ended December 31, 2002, another client accounted
for 11% of the Company's total revenues.

Recently Issued Accounting Pronouncements - In December 2004, the FASB issued
SFAS No. 153, EXCHANGES OF NONMONETARY ASSETS, which eliminated the exception
for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. SFAS No. 153 will be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The Company
does not believe the adoption of SFAS No. 153 will have a material impact on its
operating results or financial position.

In December 2004, the FASB issued SFAS No. 123(R), SHARE-BASED PAYMENT, which
establishes standards for transactions in which an entity exchanges its equity
instruments for goods or services. This standard requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. This
eliminates the exception to account for such awards using the intrinsic method
previously allowable under APB Opinion No. 25. SFAS 123(R) will be effective for
interim or annual reporting periods beginning on or after June 15, 2005.

SFAS 123(R) permits public companies to adopt its requirements using one of the
following two methods:

1. A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of SFAS 123(R) for all 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 periods
presented or (b) prior interim periods of the year of adoption.

The Company plans to adopt SFAS 123(R) using the modified prospective method.

As permitted by SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION", the
Company currently accounts for share-based payments to employees using APB
Opinion 25's intrinsic value method and, as such, generally recognizes no
compensation cost for employee stock options. Accordingly, the adoption of SFAS
123(R)'s fair value method 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 (loss) and earnings (loss) per share below.

The Company has not determined what impact SFAS 123(R) might have on the nature
of its share-based compensation to employees in the future.




F - 10




Had compensation cost been determined in accordance with SFAS No. 123, the
Company's loss in thousands of dollars and basic and diluted earnings (loss) per
common share for the years ended December 31, 2004, 2003, and 2002,
respectively, would have been as follows:



YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2004 2003 2002
----------------- ---------------- -----------------

Net income (loss) to common stockholders:
As reported $ 19,963 $ (5,521) $ (8,156)
Stock compensation expense determined
under fair value method (2,739) (1,020) (2,044)
-------------- ------------- --------------
Pro forma $ 17,224 $ (6,541) $ (10,200)
============== ============= ==============

Basic net earnings (loss) to common
stockholders per share:
As reported $ 1.12 $ (0.76) $ (1.52)
Stock compensation expense (0.15) (0.14) (0.38)
-------------- ------------- --------------
Pro forma $ 0.97 $ (0.90) $ (1.90)
============== ============= ==============

Diluted net earnings (loss) to common
stockholders per equivalent share:
As reported $ 0.95 $ (0.76) $ (1.52)
Stock compensation expense (0.13) (0.14) (0.38)
-------------- ------------- --------------
Pro forma $ 0.82 $ (0.90) $ (1.90)
============== ============= ==============


The Pro forma income (loss) and pro forma basic and diluted earnings (loss) per
share for the years ended December 31, 2003 and 2002 have been restated to
properly account for forfeitures.

All incentive stock options under the Plan, other than those granted to any
person holding more than 10% of the total combined voting power of all classes
of outstanding stock, are granted at the fair market value of the common stock
at the grant date. The weighted average fair value of the stock options granted
during the years ended December 31, 2004, 2003 and 2002 was $6,093,000,
$595,000, and $689,000, respectively. The fair value of each stock option grant
is estimated on the date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants in 2004: a
risk-free interest rate of between 2.63% and 3.13%; expected lives of between
six months and three years; and expected volatility of between 35.7% and 41.13%.
The following weighted average assumptions were used for grants in 2003: a
risk-free interest rate of between 2.21% and 2.63%; expected lives of three
years; and expected volatility of between 41.13% and 53.0%. The assumptions used
in 2002 included a risk-free interest rate of 3.69%, expected lives ranging from
six months to five years, and expected volatility of 54.7%.





F - 11




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. ("VITI") from Verizon Communications Inc. (NYSE:
VZ). 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 IHS Acquisition was pursuant to a Purchase and Sale Agreement, dated as of
September 1, 2004, between Verizon Data Services, Inc. (VITI's parent) and the
Company. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to the tangible
and intangible assets acquired and the liabilities assumed based on their
respective fair values. In connection with the allocation of the purchase price,
goodwill of $25,357,000 and an intangible asset subject to amortization in the
amount of $10,320,000, relating to contract rights and customer relationships,
was recorded. The intangible asset is being amortized over its estimated useful
life of ten years. The goodwill related to the IHS Acquisition is deductible for
tax purposes.

IHS is engaged in the business of providing customers in the healthcare industry
with information technology outsourcing services, healthcare transaction
processing services, Health Insurance Portability and Accountability Act
consulting and implementation services, payer application solutions and Medicaid
fiscal agent services. Such customers mainly are located in Missouri, Florida,
Arizona, Alabama, Arkansas, North Dakota, Utah, and Montana.

The following table summarizes the preliminary fair values of the assets
acquired and the liabilities assumed at the date of the IHS Acquisition.

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 revenue (72)
Other current liabilities (91)
-----------
Total current liabilities (1,543)
-----------
Purchase price $ 45,386
===========





F - 12




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 ("Holdings") 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 "SMS
Acquisition"). Subsequent to the acquisition, SMS changed its name to
Infocrossing West, Inc. ("IFOX West"). 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 $40,648,000 and an intangible asset subject to amortization
in the amount of $1,650,000, relating to contract rights and customer
relationships, was recorded. In connection with an acquisition by SMS prior to
April 2004, the Company may have to pay contingent consideration for a period of
up to four years. Through December 31, 2004, such contingent consideration
totaled $281,000, which was recorded as additional goodwill.

IFOX West, headquartered in Orange County, California, provides computing
operations, business process outsourcing and managed application services to
clients primarily located in the western United States.

The following table summarizes the fair values of the assets acquired and the
liabilities assumed at the date of the SMS Acquisition.

APRIL 2, 2004
(IN THOUSANDS)

Trade accounts receivable $ 3,313
Other current assets 1,447
------------------
Total current assets 4,760
Property, equipment, and purchased software 4,033
Intangible assets subject to amortization 1,650
Other assets 793
Goodwill 40,648
------------------
Total assets acquired 51,884
------------------
Accrued expenses (7,983)
Current portion of capitalized lease obligations (1,529)
Other current liabilities (87)
------------------
Total current liabilities (9,599)
Long term liabilities (5,043)
------------------
Total liabilities assumed (14,642)
------------------
Purchase price, net of cash acquired of $330 $ 37,242
==================

In 2004, the Company acquired two additional businesses (the "Minor
Acquisitions") for $7,090,000 in cash, $116,000 in related acquisition costs and
123,193 shares of common stock of the Company valued at approximately
$1,500,000. The purchase price was allocated to tangible and intangible assets
acquired and liabilities assumed based on their respective fair values. As part
of the allocation, approximately $8,530,000 was allocated to goodwill and
$501,000 was allocated to an amortizable intangible asset (contract rights and
customer relationships) that are being amortized over its estimated useful life
of five years. The goodwill related to the Minor Acquisitions is deductible for
tax purposes.

The results of the aforementioned acquisitions are included with that of the
Company for the period subsequent to the respective acquisitions. The Company is
in the process of finalizing the fair value of certain assets, thus the
allocation of the purchase prices of the acquisitions above are subject to
adjustment.




F - 13




The following unaudited condensed combined pro forma information for the years
ended December 31, 2004 and 2003 give effect to the IHS Acquisition and the SMS
Acquisition as if they had occurred on January 1, 2003. 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,
nor to the Minor Acquisitions because the impact these acquisitions would have
on the pro forma information is not material.

PRO FORMA INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA)

YEARS ENDED DECEMBER 31,
-----------------------------------
2004 2003
---------------- ---------------

Revenues $ 149,552 $ 143,560
============ ===========

Net income (loss) $ 23,475 $ (835)
============ ===========

Net income (loss) to common stockholders $ 23,475 $ (7,712)
============ ===========
Basic net earnings (loss) to common
stockholders per share $ 1.33 (0.98)
============ ===========
Diluted net earnings (loss) to common
stockholders per equivalent share $ 1.12 $ (0.98)
============ ===========


3. PROPERTY, EQUIPMENT AND SOFTWARE

PROPERTY, EQUIPMENT AND PURCHASED SOFTWARE

Property, equipment and purchased software consists of the following (in
thousands):


DEPRECIABLE
DECEMBER 31, LIVES (YEARS)
------------------------------------------ --------------
2004 2003
-------------------- ------------------ --------------

Computer equipment $ 12,907 $ 11,220 5-7
Computer equipment acquired under
capital leases (Note 7) 19,445 10,118 *
Furniture and office equipment 1,566 1,271 7
Leasehold improvements 9,225 8,874 *
Purchased software 8,603 6,736 5
Vehicles 153 132 3
---------------- --------------
51,899 38,351
Less accumulated depreciation
and amortization, including
$8,630 and $5,011 attributable
to assets under capital
leases at December 31, 2004
and 2003, respectively (26,786) (19,626)
---------------- --------------
$ 25,113 $ 18,725
================ ==============


* Shorter of the useful life or the length of the lease.

Depreciation and amortization charged to operations was $7,194,000, $5,137,000
and $4,959,000 for the years ended December 31, 2004, 2003 and 2002,
respectively.




F - 14




DEFERRED SOFTWARE COSTS

Deferred software costs consist of the following (in thousands):


DECEMBER 31,
-----------------------------------
2004 2003
--------------- ----------------

Cost of internally-developed software $ 6,461 $ 6,094
and enhancements, including software
under development
Accumulated amortization (5,384) (4,830)
----------- ------------
$ 1,077 $ 1,264
=========== ============


Amortization of deferred software costs charged to operations was $554,000,
$616,000 and $590,000 for the years ended December 31, 2004, 2003 and 2002,
respectively.


4. GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL

Changes in Goodwill for the years ended December 31, 2004 and 2003 is as
follows:

YEAR ENDED DECEMBER 31,
-------------------------------------
2004 2003
---------------- -----------------
$ 28,361 $ 28,451
Goodwill, beginning of year
SMS Acquisition 40,929 -
IHS Acquisition 25,357 -
Minor Acquisitions 8,530 -
Other - (90)
------------ -------------
Goodwill, end of year $ 103,177 $ 28,361
============ =============

OTHER INTANGIBLE ASSETS

Other intangible assets consist of the following (in thousands):
DECEMBER 31,
-------------------------------------
2004 2003
---------------- -----------------
$ 14,851 $ 2,380
Acquired customer lists
Accumulated amortization (2,523) (1,592)
------------ -------------
$ 12,328 $ 788
============ =============

Amortization charged to operations was $931,000, $354,000 and $432,000 for the
years ended December 31, 2004, 2003 and 2002, respectively. Future amortization
expense related to customer lists is estimated as follows (in thousands):

Years ending December 31:
2005 $ 1,694
2006 1,449
2007 1,282
2008 1,259
2009 1,076
Thereafter 5,568
-----------
$ 12,328
===========




F - 15




5. ACCRUED EXPENSES

Accrued expenses consists of the following (in thousands):
DECEMBER 31,
--------------------------------
2004 2003
-------------- --------------
$ 1,585 $ 211
Payroll related accruals
Interest 1,690 67
Software licenses and maintenance 1,016 240
Hardware leases and maintenance 1,412 57
Professional fees 958 280
Outside processing 389 25
Other 1,439 636
---------- ----------
$ 8,489 $ 1,516
========== ==========


6. RELATED PARTY TRANSACTIONS

Due from related parties consists of the following (in thousands):
DECEMBER 31,
---------------------------
2004 2003
----------- ------------
Due from the Chairman, bearing interest
at the Prime Rate (5.25% at December 31,
2004) plus 1% per annum, repayable,
including accrued interest, on demand $ 94 $ 89
Due from other officers, bearing interest at
the Prime Rate, repayable, including
accrued interest, on demand 144 137
------- --------
Total due from related parties $ 238 $ 226
======= ========

In accordance with the Sarbanes-Oxley Act of 2002, no further advances are being
made to the Company's officers.

Effective January 1, 2005, the Company entered into employment agreements with
the Company's Chairman and Chief Executive Officer (the "Chairman); and the
Company's Vice Chairman, President and Chief Operating Officer (the "Vice
Chairman"), replacing prior agreements originally signed as of November 1, 1999.
The employment agreements each provide for, among other items: an initial annual
base salary of $455,815; increases at the greater of the Cost of Living Index or
as determined by the Compensation Committee of the Board of Directors; bonuses
at the discretion of, and related to the satisfaction of goals to be determined
by, the Board of Directors or the Compensation Committee; Company-paid medical,
life and other group benefits; and the use of a current model auto and
membership in a health club of the executive's choosing.

The Chairman's employment agreement provides for full-time employment for five
years, three years part-time employment at 75% of the base salary then in
effect, and two years of reduced part-time employment at 50% of the base salary
then in effect. The Vice Chairman's employment agreement provides for full-time
employment for two years, three years part-time employment at 75% of the base
salary then in effect, and two years of reduced part-time employment at 50% of
the base salary then in effect. During part-time periods, if they elect to
remain on the Board of Directors, they will remain as Chairman and
Vice-Chairman.




F - 16




The employment agreements provide for lifetime pension benefits of $180,000
annually for the Chairman and $120,000 annually for the Vice Chairman, which
will be paid beginning with the commencement of each executive's reduced
part-time employment period. The Company will also continue to provide medical,
life and disability benefits for life to the executives and their spouses. The
Company will pay for a $2 million life insurance policy for the Chairman, and a
$500,000 policy for the Vice Chairman. Each executive shall designate their
beneficiaries.

The Company may elect to defer compensation in excess of amounts deductible for
Federal income tax purposes (currently $1,000,000), to the earlier of (1) a tax
year where the compensation will be deductible, (b) the first anniversary of the
termination of employment of the executive, or (c) the date on which the
executive must pay Federal income tax on the amount.

The Chairman's employment agreement provides that no stock option awards will be
granted through December 31, 2006, except in the sole discretion of the Board of
Directors, or a duly authorized committee of the Board. The Vice Chairman's
agreement provides that no stock option awards will be granted through December
31, 2006. In August 2004, the Chairman and Vice Chairman had been granted fully
vested, nonqualifed options to acquire 500,000 and 350,000 shares, respectively,
of the Company's common stock at a price equal to the market price as of the
date of grant. The options were granted pursuant to the Company's 2002 Stock
Option and Stock Appreciation Rights Plan, as amended.

On January 21, 2005, the Chairman was awarded a fully vested, nonqualified
option to acquire 750,000 shares of the Company's common stock at $25.00 per
share (Note 9).



7. NOTES PAYABLE, CONVERTIBLE DEBT, AND CAPITALIZED LEASE OBLIGATIONS

Long-Term Debt consists of the following (in thousands):
DECEMBER 31,
------------------------------------
2004 2003
--------------- ----------------
Borrowing under a non-revolving $ 24,375 -
loan facility
Notes payable - 24,937
Convertible debt due 2024 69,542 -
Capitalized lease obligations 10,198 3,335
Other loans - 19
----------- -------------
104,115 28,291
Less current portion (3,683) (2,559)
----------- -------------
$ 100,432 25,732
=========== =============





F - 17




BORROWING UNDER A NON-REVOLVING LOAN FACILITY

In July 2004, the Company established a $25,000,000, non-revolving loan
facility, available for use in connection with the acquisition of complementary
businesses. Advances could be made during the first three years of the term of
the facility with interest paid monthly in arrears at prime plus 3.0%. The
interest rate floor is 8.5%. Monthly principal payments equal to 2.5% of the
initial outstanding balance will commence at the conclusion of the draw period
(as that term is defined in the agreement) and continue until March 2009 when
any remaining balance will be due. Advances were subject to satisfying certain
acquisition criteria and the approval of the lenders. The Company paid a 1.0%
commitment fee at the closing of the loan and paid an unused facility fee at the
rate of 0.75% per annum until it borrowed more than $10,000,000 on a cumulative
basis. The Company may incur prepayment penalties if it terminates the facility
during the first 18 months or prepays any advance prior to the one-year
anniversary of the applicable borrowing date. The facility and any loans made
under the facility are guaranteed by all of the Company's subsidiaries, and any
such loans and the guarantees are secured by a first-priority interest on
substantially all of the Company's 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 the Company's ability
to pay dividends. The Company was in compliance with such covenants at December
31, 2004.

On October 1, 2004, the Company borrowed $24,375,000 from the non-revolving loan
facility to pay a portion of the cost of the IHS acquisition. The amount
borrowed represents the full loan availability under the line. The $625,000
balance must remain available in the event the Company is required to fund an
Interest Reserve, as that term is defined in the loan agreement. Monthly
principal payments of approximately $609,000 will begin on July 1, 2007, and a
final payment of $11,578,000 is scheduled to be made March 15, 2009.

NOTES PAYABLE

On October 21, 2003, in connection with the redemption of the 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. On April 2, 2004, the term loan agreement was amended and
restated to provide an additional $15,000,000 used to fund a portion of the
purchase price of SMS. On June 30, 2004, the Company repaid the outstanding
balance on the term loans, and the unamortized balance of $1,097,000 in deferred
financing cost was written off.

CONVERTIBLE DEBT

On June 30, 2004, the Company completed a private offering of $60,000,000
aggregate principal amount of 4.0% Convertible Senior Notes due July 15, 2024
(the "Notes"). Approximately $40,000,000 of the net proceeds from this offering
was used to repay the notes payable described in the previous paragraph. The
remaining balance was used to fund acquisitions and for general corporate
purposes. On July 6, 2004, the initial purchaser exercised its option in full to
purchase an additional $12,000,000 of the Notes. Net proceeds after a discount
of $2,520,000 and approximately $591,000 of costs and fees were approximately
$68,889,000. The discount and loan costs are being amortized over the life of
the Notes using the interest method. At December 31, 2004, the unamortized
discount was $2,458,000 and unamortized loan costs was $576,000. Interest on the
Notes is payable semi-annually in arrears beginning on January 15, 2005.

Offers and sales of the Notes were made only in the United States to qualified
institutional buyers in transactions exempt from the registration requirements
of the Securities Act of 1933, as amended (the Securities Act"). The notes were
originally issued by us in a transaction exempt from the registration
requirements of the Securities Act and were immediately resold by the initial
purchaser in reliance on Rule 144A. The Notes and the shares of common stock
into which they may be converted may be resold pursuant to a registration
statement on Form S-3 that became effective in December 2004. the Company will
not receive any proceeds from any sales of common stock under this registration
statement.




F - 18




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. At the initial
conversion price of $15.36, the $72,000,000 of Notes would be convertible into
4,687,500 common shares. After the effective date of the Registration Statement
and prior to the end of the 18th month thereafter, if the market price of the
Company's common stock is less than 68.23% ($10.48 initially, subject to
adjustment) of the conversion price then in effect for at least 20 trading days
during any 30 consecutive trading day period, the conversion price shall
immediately be reduced by 17.38% (to $12.69 initially, subject to adjustment);
provided that (i) this 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 such reduction of the conversion price during the term of the Notes.

The holders may convert their Notes into shares of the Company's common stock,
initially at the conversion price of $15.36 per share, equal to a conversion
rate of approximately 65.1042 shares per $1,000 principal amount of Notes, prior
to the close of business on their stated maturity date under any of the
following circumstances: (1) during any fiscal quarter if the market price per
share of the Company's 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 the Company's common stockholders of
rights to acquire shares of the Company's common stock at a discount; (2)
certain distributions to the Company's common stockholders when the distribution
has a per share value in excess of 5% of the market price of the Company's
common stock; and (3) a consolidation, merger or binding share exchange pursuant
to which the Company's 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, the
Company 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.

The Company has a call option, pursuant to which the Notes may be redeemed, 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 the
Company's 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 the Company purchase for cash all or a
portion of the Notes on July 15, 2009, 2014, and 2019 at a repurchase price
equal to 100% of the principal amount of the Notes plus any accrued interest.
There are no financial covenants, other than a limitation on incurring of
additional indebtedness, as defined in the indenture. We are not restricted from
paying dividends, or issuing other securities, or repurchasing other securities
issued by us under the terms of the indenture.






F - 19




CAPITAL LEASE OBLIGATIONS

Assets subject to capital lease agreements are reflected in property and
equipment as capital leases. During the years ended December 31, 2004, 2003, and
2002, the Company entered into capital leases aggregating approximately
$5,942,000, $2,475,000, and $1,278,000, respectively, excluding those assumed in
business combinations.

The following is a schedule of future minimum lease payments under capital
leases, together with the present value of the net minimum lease payments
(amounts in thousands):

Years ending December 31:
2005 $ 4,514
2006 3,707
2007 2,514
2008 769
--------------
Total minimum lease payments 11,504
Less amount representing interest (1,306)
--------------
Present value of net minimum lease payments 10,198
Less current portion of obligations under capital leases 3,683
--------------
Long-term portion $ 6,515
==============



8. INCOME TAXES

The significant components of (benefit) provision for income taxes consists of
(in thousands):



YEARS ENDED DECEMBER 31,
--------------------------------------------------
2004 2003 2002
--------------- ------------- --------------

Current tax (benefit) provision:
Federal $ 60 $ - $ (250)
State and local (49) 42 42
Deferred benefit (12,550) - -
----------- --------- ----------
(Benefit) provision for
income taxes $ (12,539) $ 42 $ (208)
=========== ========= ==========





F - 20




A reconciliation of income taxes computed at the federal statutory rate to
(benefit) provision for income tax is as follows (in thousands):



YEARS ENDED DECEMBER 31,
-------------------------------------------------
2004 2003 2002
------------- ------------- -------------

Tax provision computed at the statutory rate $ 2,612 $ 468 $ 316
Increase (decrease) in taxes resulting from:
State and local income taxes,
net of federal income taxes 361 28 28
Non-deductible expenses 28 17 14
Benefit of tax credits - (471) (315)
Change in valuation allowance (15,207) - -
Other, net (333) - (251)
---------- --------- ----------
$ (12,539) $ 42 $ (208)
========== ========= ==========


Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):

DECEMBER 31,
---------------------------------------
2004 2003
----------------- ------------------
Deferred tax assets:
Accrued liabilities $ 1,211 $ 292
Allowance for doubtful accounts 132 149
Deferred rent 519 404
Net operating loss 15,342 15,835
Stock option exercise 967 -
Other 364 132
------------- --------------
18,535 16,812
------------- --------------
Deferred tax liabilities:
Depreciation and amortization (1,942) (1,080)
Intangible assets (709) -
Deferred software costs (447) (525)
------------- --------------
(3,098) (1,605)
------------- --------------
Net tax assets 15,437 15,207
Valuation allowance (2,462) (15,207)
------------- --------------
Net deferred taxes $ 12,975 $ -
============= ==============

In 2004, the Company recorded $967,000 of deferred taxes attributable to the
disqualifying disposition of stock options, directly increasing additional paid
in capital.




F - 21




As of December 31, 2003, the Company had established a valuation allowance of
approximately $15.2 million against its deferred tax assets. As of December 31,
2004, the Company believes that it is more likely than not that it will be able
to realize its deferred tax assets through expected future profits, and released
the entire valuation allowance that was established as of December 31,2003. At
December 31, 2004, the Company recorded a valuation allowance of approximately
$2.5 million against deferred tax assets related to approximately $5.9 million
of net operating loss carryforwards acquired in the SMS Acquisition due to the
uncertainty of realizing a tax benefit from that deferred tax asset.

At December 31, 2004, the Company had net operating loss carryforwards of
approximately $37 million 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 has federal alternative minimum tax credit
carryforwards of approximately $60,000 that do not expire.


9. STOCKHOLDERS' EQUITY

PREFERRED STOCK

The Company is authorized to issue up to 3,000,000 shares of preferred stock,
$0.01 par value. The preferred stock may be issued in one or more series, the
terms of which may be determined by the Board of Directors without further
action by the stockholders, and may include voting rights (including the right
to vote as a series on certain matters), preferences as to dividends and
liquidation conversion, redemption rights, and sinking fund provisions. At
December 31, 2004, no preferred shares are outstanding.

SERIES A PREFERRED STOCK

On May 10, 2000, the Company issued 157,377 shares in a private placement of
redeemable 8% Series A Cumulative Convertible Participating Preferred Stock with
an aggregate face value of $60 million (the "Series A Preferred Stock") and
warrants to purchase 2,531,926 shares of the Company's common stock at an
exercise price of $0.01 per share (the "Investor Warrants"). The Company
received $58,430,596 after payment of issuance costs and related legal fees.

The initial carrying values of the Investor Warrants ($28,180,132) and Series A
Preferred Stock ($30,250,464) were determined by apportioning an amount equal to
the proceeds from the private placement multiplied by the relative value of each
class of security as of the commitment date. The difference between the carrying
value and the face value of the Series A Preferred Stock was accreted as a
monthly charge against retained earnings using the interest method. Accumulated
and accrued unpaid dividends also increased the carrying value of the Series A
Preferred Stock through a charge to retained earnings.




F - 22




On October 21, 2003, the Company purchased and retired all the outstanding
Series A Preferred Stock and all the Investor Warrants for $80,000,000, using
$55,000,000 in cash from the proceeds of the first of two private stock
offerings discussed below and issuing $25,000,000 in notes payable (See Note 7).
The fair value of the Series A Preferred Stock and dividends payable thereon was
estimated at approximately $60,066,000, and a $630,000 adjustment was recorded
to accretion expense in the fourth quarter of 2003. The fair values of the
Series A Preferred Stock and the warrants were determined in the following
manner. The Company's fair value ("Enterprise Value") was calculated using a
discounted future cash flow model (ignoring the effects of the private placement
and the recapitalization) at approximately $128 million. Using the Black-Scholes
method and assuming a seven year life, a risk-free interest rate of 3.13%, and
volatility of 54.23%, the fair value of the warrants was calculated to be
approximately $21 million. The market value of the Company's common stock
outstanding immediately prior to the private stock offering was approximately
$42 million. The residual Enterprise Value of $65 million was attributed to the
Series A Preferred Stock. The fair values of the warrants and the Series A
Preferred Stock were then proportionally allocated to the $80 million
consideration, resulting in final fair values for the warrants and the Series A
Preferred Stock of $19.9 million and $60.1 million, respectively.

COMMON STOCK

The Company is authorized to issue up to 50,000,000 shares of common stock,
$0.01 par value. The holders of common stock are entitled to one vote per share.
There is no cumulative voting for the election of directors. Subject to the
prior rights of any series of preferred stock which may from time to time be
outstanding, holders of common stock are entitled to receive ratably any
dividends as may be declared by the Board of Directors of the Company out of
legally available funds, and upon the liquidation, dissolution, or winding up of
the Company, are entitled to share ratably in all assets remaining after the
payment of liabilities, and payment of accrued dividends and liquidation
preferences on the preferred stock outstanding, if any.

Holders of common stock have no preemptive rights, and have no rights to convert
their common stock into any other security.

PRIVATE STOCK OFFERINGS

On October 21, 2003, the Company sold 9,739,111 shares of common stock and five
year warrants to purchase 3,408,689 shares of common stock for a net aggregate
amount of approximately $69,942,000. The warrants have an exercise price of
$7.86 per share and expire in October 2008. The private stock offering was made
only to accredited investors in a transaction exempt from the registration
requirements of the Securities Act of 1933. The net proceeds of the private
stock offering were principally used to fund the redemption of preferred stock
and warrants discussed above, the repayment of outstanding debentures as noted
below, and to pay related fees and expenses. The remainder of the proceeds was
used for working capital purposes. On February 12, 2004, a Registration
Statement on Form S-3, filed by the Company on behalf of the private stock
offering investors as selling shareholders, was declared effective. The Company
will not receive any proceeds from any sales of stock under this registration
statement.

In 2004, holders of warrants to purchase 825,706 shares exercised their warrants
for cash, resulting in proceeds to the Company of approximately $6,490,000. In
addition, four holders exercised warrants to purchase 705,388 shares by
surrendering warrants for 389,412 shares in cashless exercises. The shares
underlying the surrendered warrants had, at the respective exercise dates,
market values equal to the exercise price of the total of the warrants,
$5,544,350 in the aggregate. The holders received net shares totaling 315,976.

On March 31, 2004, the Company sold 2,917,000 shares of common stock for a net
aggregate amount of approximately $28,240,000. The private stock offering was
made only to accredited investors in a transaction exempt from the registration
requirements of the Securities Act of 1933. The net proceeds of the private
stock offering were principally used to fund a portion of the purchase price of
IFOX West as described in Note 2. On June 10, 2004, a Registration Statement on
Form S-3, filed by the Company on behalf of the private stock offering investors
as selling shareholders, was declared effective. The Company will not receive
any proceeds from any sales of stock under this registration statement.




F - 23




PRIVATE SALE OF DEBENTURES WITH WARRANTS

In connection with the issuance in February 2002 of debentures, the Company
issued warrants (the "Debenture Warrants") to purchase up to 2,000,000 shares of
the common stock of the Company. The Debenture Warrants have an exercise price
of $5.86 per share and expire on January 31, 2007. Debenture Warrants to
purchase 62,500 shares of common stock could be cancelled by the Company for
each full month between the date the debentures were repaid and February 1,
2004. On October 21, 2003, the Company repaid the debentures and cancelled
Debenture Warrants to purchase 937,500 shares of common stock. The remaining
1,062,500 Debenture Warrants have not been exercised.

OTHER WARRANTS

In February 2001, the Company issued a warrant to purchase 65,000 shares of the
Company's common stock at $18.00 per share in settlement of any future
contingent consideration payable under an agreement to purchase the assets of a
business. This warrant has a ten year life. The fair value of the warrant of
$146,900, calculated using the Black-Scholes pricing model, was recorded as
additional goodwill relating to the related acquisition.

On June 5, 2000, the Company issued warrants to former debt holders to purchase
30,000 shares of the Company's common stock at $19.25 per share as consideration
for the settlement of all other potential equity interests in the Company held
by them. The warrants were immediately exercisable and expired unexercised on
June 5, 2004.

On January 13, 2004, the Company issued warrants to a new client to purchase
50,000 shares of the Company's common stock at $15.00 per share in connection
with the signing of a five-year contract. The warrants are immediately
exercisable and expire January 13, 2009. The fair value of the warrants of
$137,300, calculated using the Black-Scholes pricing model, is being amortized
over the term of the contract with the client.

STOCK OPTION PLANS

On June 25, 2002, the stockholders approved a Board of Directors resolution
establishing the Company's 2002 Stock Option and Stock Appreciation Rights Plan
(the "2002 Plan"). In September 1992, the Company had adopted the 1992 Stock
Option and Stock Appreciation Rights Plan (as subsequently amended and restated,
"the 1992 Plan") that provided for the granting of options to employees,
officers, directors, and consultants for the purchase of common stock. The
material features of the 1992 Plan and the 2002 Plan are substantially the same.
Incentive stock options may be granted only to employees and officers of the
Company, while non-qualified options may be issued to directors and consultants,
as well as to officers and employees of the Company.

Upon adoption of the 2002 Plan, the resolution of the Board of Directors
stipulated that no further grants be made pursuant to the 1992 Plan. The grants
previously made under the 1992 Plan will not be affected. The number of
authorized shares available in the 1992 Plan is equal to the total unexercised
options remaining at any time. At December 31, 2004, the number of unexercised
options in the 1992 Plan was 945,537.

The Board initially authorized 1,000,000 shares for grant under the 2002 Plan.
Both plans provide a maximum exercise period of ten years. Qualified options
granted to a 10% or greater stockholder shall have a maximum term of five years
under Federal tax rules. As a matter of practice, except with respect to a 10%
or greater stockholder, the typical exercise period for options granted under
the existing plan has been ten years from the date of grant. On June 15, 2004,
the Company's stockholders approved a proposal to increase the number of
authorized shares in the 2002 Plan to 3,000,000.

The Company's Board of Directors or a committee of the Board consisting of at
least two non-employee directors determine those individuals to whom options
will be granted, the number of shares of common stock which may be purchased
under each option, and (when necessary) the option exercise price. The Board or
the committee also determines the expiration date of the options (typically 10
years, except for 10% shareholders, which expire in 5 years), and the vesting
schedule of the options.




F - 24




The per share exercise price of an incentive stock option may not be less than
the fair market value of the common stock on the date the option is granted. The
per share exercise price of a non-qualified option shall be determined by the
committee, except that the Company will not grant non-qualified options with an
exercise price lower than 50% of the fair market value of common stock on the
day the option is granted.

In addition, any person who, on the date of the grant, already owns, directly or
indirectly, 10% or more of the total combined voting power of all classes of
stock outstanding, may only be granted an option if the exercise price of such
option is at least 110% of the fair market value of the common stock on the date
of the grant.

The Board or the committee may also grant "stock appreciation rights" ("SARs")
in connection with specific options granted under the plan. Each SAR entitles
the holder to either: (a) cash (in an amount equal to the excess of the fair
value of a share of common stock over the exercise price of the related
options); or (b) common stock (the number of shares of which is to be determined
by dividing the SARs cash value by the fair market value of a share of common
stock on the SAR exercise date); or (c) a combination of cash and stock. SARs
may be granted along with options granted under the 2002 Plan, and to holders of
previously granted options. No SARs have been granted under the either plan.

Activity in the Plan during the periods from January 1, 2002 through December
31, 2004 is as follows:



NUMBER OF EXERCISE PRICE RANGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------------- -------------------------- --------------------

Options outstanding, January 1, 2002 1,403,771 $3.25 - $37.78 $9.77
Options granted 252,100 $4.95 - $8.63 $6.37
Options exercised (53,885) $3.78 - $7.14 $5.38
Options cancelled (195,051) $4.38 - $27.25 $12.64
---------------
Options outstanding, December 31, 2002 1,406,935 $3.25 - $37.78 $8.93
Options granted 228,750 $6.27 - $9.91 $8.34
Options exercised (19,034) $4.50 - $7.71 $5.57
Options cancelled (85,897) $4.63 - $27.25 $11.64
---------------
Options outstanding, December 31, 2003 1,530,754 $3.25 - 37.78 $8.73
Options granted 1,844,750 $6.98 - $17.38 $13.66
Options exercised (345,668) $3.25 - $12.59 $5.66
Options cancelled (17,231) $4.86 - $29.98 $10.06
---------------
Options outstanding, December 31, 2004 3,012,605 $3.63 - $37.78 $12.10
===============




F - 25








ADDITIONAL INFORMATION REGARDING EXERCISE PRICE RANGES OF OPTIONS OUTSTANDING:
- ------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
WEIGHTED CONTRACTUAL EXERCISE
NUMBER OF AVERAGE LIFE NUMBER OF PRICE OF
EXERCISE PRICE OPTIONS EXERCISE REMAINING OPTIONS EXERCISABLE
RANGE OUTSTANDING PRICES (YEARS) EXERCISABLE OPTIONS
- -------------------- ---------------- ------------- --------------- -------------- ---------------

$3.63 - $5.44 157,173 $5.08 3.8 155,309 $5.08
$5.45 - $8.16 242,032 $7.02 6.7 197,151 $6.99
$8.17 - $12.23 1,532,500 $11.01 7.7 1,461,650 $11.05
$12.24 - $18.35 1,040,650 $15.48 9.3 591,216 $14.49
$18.36 - $27.53 32,750 $21.20 5.5 32,750 $21.20
$27.54 - $37.78 7,500 $34.80 5.1 7,500 $34.80
---------------- --------------
3,012,605 2,445,576
================ ==============



There were 2,445,576, 1,262,972, and 1,130,906 options exercisable at December
31, 2004, 2003, and 2002, respectively. At December 31, 2004, there are 903,794
options available for future grant.

At December 31, 2004, the Company has reserved 3,055,095 common shares for
issuance upon exercise of the following warrants: (i) 1,062,500 shares
exercisable at $5.86 per share expiring January 31, 2007; (ii) 65,000 shares
exercisable at $18.00 per share expiring September 16, 2010; (iii) 50,000 shares
exercisable at $15.00 per share expiring January 13, 2009; and (iv) 1,877,595
shares exercisable at $7.86 per share expiring October 20, 2008.

At December 31, 2004, the Company had reserved 4,687,500 shares for issuance
upon the potential exchange of the $72,000,000 outstanding convertible notes
(see Note 7). Total shares reserved for exchange of convertible debt and the
exercise of warrants and options (including options available for grant) is
11,658,994.

On January 21, 2005, the Chairman was awarded a fully vested, nonqualified
option to acquire 750,000 shares of the Company's common stock at $25.00 per
share. The average of the high and low prices for one share of the Company's
common stock on the date of the grant was $16.995. The award was made pursuant
to the 2002 Plan. The purpose of the grant is to mitigate the financial impact
on the Chairman for having provided options at $25.00 per share on 750,000
shares of the Company's common stock owned by him to the purchasers (including
their successors and assigns) of the Series A Preferred Stock.


10. COMMITMENTS AND CONTINGENCIES

LEASE OBLIGATIONS

Operating leases for facilities extend through December 31, 2019. Several of
these leases contain escalation clauses, which cause the amounts paid each year
to increase by a stated amount or percentage. The Company records as expense,
however, a fixed amount representing the average of these varying payments. The
difference between the cash payments and the expense recorded is deferred rent.
The Company leases space in buildings (the "Buckhead Facility") owned by the
former parent of Infocrossing Southeast, Inc. ("IFOX SE"). At February 5, 2002,
the Company occupied approximately 33,400 square feet. The lease agreement
permits the Company to reduce its use of this space for a pro-rata reduction in
rent. The Company has moved most of the operations of IFOX SE to its own
facility in the Atlanta metropolitan area, and occupies approximately 11,100
square feet in the Buckhead Facility as of December 31, 2004. This lease
agreement expires on January 31, 2006, unless the Company reduces its use of
this space to zero at an earlier date.



F - 26




The Company's obligation under certain of these leases are secured by a cash
deposit or a standby letter of credit, aggregating $618,000 at December 31, 2004
and $549,000 at December 31, 2003. The standby letter of credit is
collateralized by a cash investment that has been classified, along with the
cash deposit, as long-term assets. Total expense for occupancy costs was
approximately $3,989,000, $2,492,000 and $2,264,000 for the years ended December
31, 2004, 2003 and 2002.

The Company leases certain of its data center equipment, various items of office
equipment, and vehicles under standard commercial operating leases. The Company
also has fixed-term obligations for software licenses and for disaster recovery
services.

Approximate minimum future lease payments for real estate and other operating
leases, software licenses, and disaster recovery services are as follows (in
thousands):

Years ending December 31,
2005 $ 11,206
2006 10,068
2007 8,686
2008 7,936
2009 6,664
Thereafter 23,381
------------
$ 67,941
============

The Company sublet approximately 12,000 square feet in its California facility
through December 31, 2005. Income from this sublease will be approximately
$202,000 in 2005.


LEGAL PROCEEDINGS

On November 1, 2004, the Company was served with a summons and complaint in a
lawsuit commenced by two former employees of ITO Acquisition Corporation d/b/a
Systems Management Specialists, now known as Infocrossing West, Inc. ("West")
filed in the Superior Court of California, Orange County (Case No. 04CC10709).
Plaintiffs assert 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 assert that on numerous occasions they had received verbal
assurance of receiving the foregoing equity interests in West. The Company had
acquired West on April 2, 2004. Plaintiffs' employment with West terminated
shortly after the Company's acquisition of West. Plaintiffs maintain that they
are entitled to direct damages of at least $15 million plus punitive damages,
costs, attorneys' fees, and other relief as the court may award. In addition,
one of the plaintiffs also asserted a claim for unpaid commissions of
approximately $30,000. On November30, 2005, West filed an answer denying all of
plaintiffs' allegations. Discovery commenced recently.

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, the Company agreed to
cooperate with Holdings to determine the appropriate amount of commissions, if
any, which would be due and owing from West. West believes it is in its best
interest to resolve the commissions issue early in the litigation to avoid
needless and protracted proceedings and expenses relating to such a minor
dispute. Accordingly, Holdings has agreed that West will not be responsible for,
or asked to contribute to, attorney's fees and costs associated with the
resolution of the commissions claim.




F - 27




It is premature to give a proper evaluation of the probability of a favorable or
unfavorable outcome. While it is again premature to give a proper evaluation of
the potential liability, the Company believes that the above matters will be
resolved without any material adverse impact on the Company's financial
position, results of operations, or cash flows.


11. RETIREMENT PLANS

The Company maintains a 401(k) Savings Plan covering all eligible employees who
have attained the age of 21 years and worked at least 1,000 hours in a one-year
period. Plan participants may elect to contribute up to 100% of covered
compensation each year, to the IRS maximum. The Company may make matching
contributions at the discretion of the Board of Directors. The Company has not
made any matching contributions. The administrative costs of the Plans are borne
by the Company.

12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of the quarterly results of operations for the years
ended December 31, 2004 and 2003 (in thousands except per share data):



THREE MONTHS ENDED:
------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2004 2004 2004 2004
------------------ ------------------ ------------------- ------------------

Revenues $ 15,176 $ 24,611 $ 26,445 $ 38,717
============== ============== =============== ==============
Net income (loss) $ 775 $ (262) $ 2,041 $ 17,409
============== ============== =============== ==============
Net income (loss) per basic
common share $ 0.05 $ (0.01) $ 0.11 $ 0.91
============== ============== =============== ==============
Net income (loss) per
diluted common share $ 0.05 $ (0.01) $ 0.10 $ 0.68
============== ============== =============== ==============



THREE MONTHS ENDED:
------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2003 2003 2003 2003
------------------ ------------------ ------------------- ------------------

Revenues $ 13,129 $ 13,582 $ 14,114 $ 14,403
============== ============== =============== ==============
Net income (loss) $ 270 $ 105 $ 451 $ 530
============== ============== =============== ==============
Net loss to common
stockholders $ (2,178) $ (2,396) $ (2,105) $ 1,158
============== ============== =============== ==============
Net loss to common
stockholders per basic common
share $ (0.40) $ (0.45) $ (0.39) $ 0.09
============== ============== =============== ==============
Net loss to common
stockholders per
diluted common share $ (0.40) $ (0.45) $ (0.39) $ 0.08
============== ============== =============== ==============



F - 28







INFOCROSSING, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT END
PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
----------------- ---------------- --------------- ---------------- ----------------

ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
Year ended
December 31, 2004 $ 570 $ 329 $ - $ 650 (a) $ 249
============= ============ =========== ============ ============
Year ended
December 31, 2003 $ 1,051 $ 144 $ - $ 625 (a) $ 570
============= ============ =========== ============ ============
Year ended
December 31,2002 $ 1,009 $ 228 $ - $ 186 (a) $ 1,051
============= ============ =========== ============ ============

VALUATION ALLOWANCE
OFFSETTING NET
DEFERRED TAX ASSETS
Year ended
December 31, 2004 $ 15,207 $ 15,207 $ 2,462 $ - $ 2,462
============= ============ =========== ============ ============
Year ended
December 31, 2003 $ 15,799 $ - $ - $ 592 $ 15,207
============= ============ =========== ============ ============
Year ended
December 31,2002 $ 15,681 $ 118 $ - $ - $ 15,799
============= ============ =========== ============ ============



(a) Uncollectible accounts written off, net of recoveries.








S - 1




EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION

4.10 Warrant Agreement between the Company and the Warrantholders
Party thereto.

10.4E Third Amendment to Acquisition Loan Agreement and Other
Documents, dated as of December 29, 2004.

10.5B Joinder to Security Agreement dated October 1, 2004.

10.6B Addendum to Stock Pledge Agreement dated October 1, 2004.

10.7D 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 Finance LLC.

10.7E Master Assignment and Assumption Agreement, dated as of
February 13, 2004, by and among by and among the Company, as
borrower; certain subsidiaries of the Company, as
guarantors; Infocrossing Agent, Inc., as agent for assigning
lenders named therein; assigning lenders named therein; and
CapitalSource Finance LLC.

10.13B Settlement and Release Agreement dated as of October 15,
s2004 by and among the Company and Jim Cortens.

10.14 Employment Agreement, dated as of October 1, 2004, by and
between a subsidiary of the Company and Michael J. Luebke.

10.15B Amendment to 2002 Plan adopted by the Board of Directors on
January 21, 2005.

10.15C Amendment to 2002 Plan approved at the Company's Annual
Meeting of Stockholders held on June 15, 2004.

10.15D Amendment to 2002 Plan adopted by the Board of Directors on
April 1, 2004.

10.16B Amendment to 1992 Plan approved at the Company's Annual
Meeting of Stockholders held on June 22, 2001.

10.18A Lease dated June 2, 1997 between the Company and Leonia
Associates, LLC.

10.18B First Amendment of Lease between the Company and Leonia
Associates, LLC, dated January 16, 1998.

10.18C Second Amendment of Lease between the Company and Leonia
Associates, LLC, dated as of September 9, 1999.

10.18D 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.

10.18E Fourth Amendment of Lease between the Company and Leonia
Associates, LLC, dated as of April 19, 2004.

10.20A Lease Agreement between Birch Windell, LLC (Landlord) and
ITO Acquisition Corp (Tenant) dated as of December 19, 2002

10.20B First Amendment to Lease between Global Brea, LLC and ITO
Acquisition Corporation

21 List of Subsidiaries of Infocrossing

23 Consent of Independent Registered Public Accounting Firm

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.