UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 20182020

 

Commission File Number 0-21816

 

 

 

 

 

 

 

 

 

 

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

 

FORWARD LOOKING STATEMENT INFORMATION

 

Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” regarding the plans and objectives of management for future operations and market trends and expectations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving the expansion of our business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth herein under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The terms “we”, “our”, “us”, or any derivative thereof, as used herein refer to Infinite Group, Inc., a Delaware corporation.

 

PART I

 

Headquartered in Pittsford, New York, Infinite Group, Inc. (IGI) has evolved intois a developer of cybersecurity software and a provider of cybersecurity related services and managed information security related services to commercial businesses and government organizations that was built from our foundation of managed IT and virtualization services.organizations. As part of these offerings we:

 

As of December 31, 2018,2020, we had 5760 full-time employees and information technology independent contractors.employees. We possess certifications with our business and technology partners and our personnel maintain numerous security and technical certifications and qualifications. Our professionals are located at our headquarters in Pittsford, New York and in the states of Colorado, Florida, Idaho,Georgia, Louisiana, Maryland, North Carolina, South Carolina, Texas, Virginia and Virginia.Washington.

 

We had sales of approximately $6.4$7.2 million in 20182020 and 2017.approximately $7.1 million in 2019. We generated operating income of approximately $210,000$1,000 in 20182020 as compared to an operating loss of approximately $398,000$329,000 in 2017.2019. We had net income of $37,000approximately $673,000 in 2018 as compared to a net loss of $75,0002020 and approximately $48,000 in 2017.2019. We recorded other income of $83,250approximately $967,000 in 20182020 primarily from the write-offforgiveness of a note payable and accrued interest and $569,999 in 2017 when we had no further obligation to make certain debt payments.our Payroll Protection Plan loan. We derived approximately 78%65% of our sales in 20182020 and 79%70% in 20172019 from contracts as either a prime contractor or a subcontractor.

 

 

During 2018, with the objectiveWe continued to grow our team of acceleratingcybersecurity sales and technical consultants as a result of growing demand and accelerated sales growth we continuedin this segment of the market. This market segment of cybersecurity accounts for over 20% of our transition into becoming more cybersecurity focused with both cybersecurity servicessales as a result of our direct and product development further leveraging Nodeware, our first cybersecurity product.channel sales mix. We continue to seek to drive development of our cybersecurity business bythrough growing and developing channel marketing, programs, and relationships for Nodeware and hiring personnel who have the background to support this evolving business. We focus on developing our cybersecurity business through both our professional services and OEM businesses.consulting. We believe our channel presence through entities including large distribution and master agents have created significant opportunities in both of these areas. This has further reinforced our commitment to this business strategy and our decision to leverage third party channels to bring new business and customers and drive growth of our existing relationships to IGI. We continue to be a master reseller of Webroot through our channel program. During 2018, we maintained our sales of Webroot to commercial customers through our channel partners and continued to earnIGI resulting in improved operating income.

 

We provide subcontracted professional services to a select set of OEMs and commercial entities that need additional skilled resources when architecting and implementing solutions. We provide cloud computing solutions that include public and private cloud architectures along with hybrid scalable cloud hosting, server virtualization and desktop virtualization solutions. Our experience with cloud and virtualization computing related software has enabled us to take advantage of a growing trend towards Managed IT Security Services, particularly in security and the SME space. Sales to our principal client, VMware, Inc., consisted of sales under subcontracts for services to their end clients. During 2018,2020, we provided professional services to these clients and earned 7.5%3.5% of our sales.

 

 

Our strategy iscreates differentiation in cybersecurity by combining personalized and recurring professional services to build our businesssmall to mid-sized enterprises who lack the internal resources to focus on cybersecurity related matters. Additionally, we have built growth businesses by designing, developing, and marketing cybersecurity based services, productscybersecurity-based software-as-a-service (SaaS). Products and solutions thatare spun off from our technology platform to fill technology gaps in cybersecurity. We brought one patent pendinga product platform to market that has two patents pending and intend to bringdevelop other intellectual property that serve as the core to other proprietary products and solutions to market through a channel of domestic and international partners and distributors. Our products, solutions, and solutionsservices are designed to simplify the security needs in customer and partner environments, with a focus on the mid-tier Enterprise market and below. We enable our partners by providing recurring revenue basedrevenue-based business models for both recurring services and through our automated and continuous security solutions. Products may be sold as standalone solutions or integrated into existing environments to further automate the management of security and related IT functions. Our ability to succeed depends on how successful we are in differentiating ourselves in the market at a time when competition and consolidation in these markets is on the rise.

 

Our cybersecurity business is comprised of three components: managed securitycybersecurity services, product development and deployment, and integration of third-party security solutions into our security offerings to our channel and customers. We provide cybersecurity services and technical consulting resources to support both our channel partners and end customers. For example, we sell our proprietary product, Nodeware, through both our direct partners and through other 3rd party partner distribution and agents so they can either sell it as a standalone solution or part of other technical services they provide to their customers. This enables the channel partner to develop a base of recurring revenue. We have also enabled Nodeware to be vertically integrated into other cybersecurity platforms to create native offerings. We also provide our cybersecurity services through our channel partners as a cybersecurity overlay to the technical services they already provide,

 

We are working to expand our managed services business with our prime partner, Perspecta, and the current federal enterprise customer and its customers.

The following sections define specific strategic components of our business strategy.

 

 

WeIn May 2016, we filed a provisional patent application for our proprietary product, Nodeware and launched Nodeware version 1it commercially in November 2016. In May 2017, we filed a utility patent application for Nodeware. Our patent application is ready for examination by the U.S. patent application examiner and in 2018, we have provided our first defense of the patent application from the examiner. Nodeware is an automated asset identification and vulnerability management and monitoring solution that is designed to enhanceenhances security by proactively identifying, monitoring, and addressing potential vulnerabilities on both internal and external facing networks, creating a safeguard against malicious intent to exploit known problems in a customer’s network with simplicity and affordability. Customers have the option to purchase Nodeware or Nodeware Plus to accommodate the varying network needs of their organizations. Nodeware provides a value-based solution designed for SMEs with single subnet or several subnets, whereas Nodeware Plus can accommodate larger organizations with more advanced network needs.

 

The SaaS based platform has an agile and continuous development process that is flexible to react to customer and market needs. In December 2019, we filed a second provisional patent application and in December 2020 we filed the subsequent action on the institutional patent on the Nodeware 2.0 was releasedplatform. In 2020, we created many new feature updates and improvements to the market during 2017 providing the same solutionplatform in response to COVID-19 needs and impact such as a downloadable Windows executable version along with a setWindows Agent that could be downloaded to a remote PC or server. A number of new features, such as credentialedenhancements related to data management, threat intelligence, and uncredentialed vulnerability scanning. Nodeware scansuser functionality were part of the customer’s system through domain credentials without requiring an agent, providing a more comprehensive view of customer vulnerabilities. This level of access often results in the discovery of more missing patches or vulnerabilities that can then be addressed by following instructions available within the Nodeware interface.2020 continued evolution.

  

We believe Nodeware creates an opportunity for resellers, including managed service providers, managed security service providers, distributors, and value-added resellers.resellers to use a product that provides greater visibility into the network security of an organization. We sell Nodeware in the commercial sector through channel partners and agents. In 2018,2019 and 2020, we continued to expand our channel of resellers.directresellers in addition to organizations like Telarus, SYNNEX and Staples.

 

 

 

Our goal is to position our products and solutions to enable vertical and other API-based integration with other solutions. We have a technology and product development strategy aligned with our business strategy. We continue to seek to identify other technical partners in the cybersecurity market to integrate Nodeware in to;into; through either API or full stack integration.

 

We provide cybersecurity consulting services that include incident response, security awareness training, risk management, IT governance and compliance, security assessment services, penetration testing, and virtual Chief Information Security Officer (vCISO) offerings to channel partners and direct customers across different vertical markets (banking, healthcare,supply chain, manufacturing, legal, etc.) in North America. Our cybersecurity projects use leverage different technology platforms and processes such as Nodeware to create a living document that a customer can use to go forward on a path of continuous improvement for its overall IT security. We support both internal and external IT organizations with our cybersecurity overlay that allows us to stay agnostic in the process, especially for compliance while enabling the IT organization to address the issues discovered. We validate overall network security with the goal of maintaining the integrity of confidential client information, preserving the continuity of services, and minimizing potential data damage from attempted threats and incidents. We continue to enhance our Cybersecurity services when opportunities materialize and as the market evolves.

 

 

 

 

 

 

Our technical support personnel maintain leading edge certifications and qualifications in the respective software applications. These certifications are examples of our concerted effort to grow and expand our virtualization practice. We believe that our virtualization experience and expertise with VMware will offer opportunities to increase sales, particularly in the cloud computing market.

 

 

 

 

 

As we increase our focus in securitycybersecurity services and product development, we face competition from several different vendors in this evolving market. We compete with other IT professional services firms, Managed Security Services Providers (MSSPs), and cybersecurity product and software developers operating in the U.S.Federal Government, state and local government and commercial marketplace. We obtain a portion of our business based on proposals submitted in response to requests from potential and current clients, who typically also receive proposals from other firms. We face competition in the commercial markets from other IT service providers, MSSPs, and software development companies, large and small. Many of our larger competitors, in general, have substantially greater capital resources, research and development staffs, sales, and marketing resources, facilities, and experience.

 

 

 

 

 

Our ability to develop and market our services, and to establish and maintain a competitive position in our businesses will depend, in large part, upon our ability to attract and retain qualified technical, marketing and managerial personnel, of which there can be no assurance.

 

 

We were incorporated under the laws of the state of Delaware on October 14, 1986. Our principal corporate headquarters are located at 175 Sully’s Trail, Suite 202, Pittsford, NY 14534. Our business is in the field of delivering ITcybersecurity services, licensing and selling our cybersecurity product,solutions, including Nodeware, and sellingdistributing third party software licenses.

 

In addition to the other information provided in our reports, you should consider the following factors carefully in evaluating our business and us. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or that are similar to those faced by other companies in our industry or business in general, such as competitive conditions, may also impair our business operations. If any of the following risks occur, our business, financial condition, or results of operations could be materially adversely affected.

 

 

 

 

We sell cyber securitycybersecurity services, third-party software as well as our internally developed software, Nodeware.  As a result, we have been and will be a target of cyber-attacks designed to impede the performance of our products, penetrate our network security or the security of our cloud platform or our internal systems, or that of our customers, misappropriate proprietary information and/or cause interruptions to our services. For example, because Nodeware is a network vulnerability management tool, a successful cyber-attack on us may be perceived as a victory for the cyber attacker, thereby increasing the likelihood that we may be a target of more cyber-attacks, even absent financial motives. Further, if our systems are breached as a result of third-party action, employee error or misconduct, attackers could learn critical information about how our primary product operates to help protect our customers’ IT infrastructures from cyber risk, thereby making our customers more vulnerable to cyber-attacks. In addition, if actual or perceived breaches of our network security occur, they could adversely affect the market perception of our Nodeware product, negatively affecting our reputation, and may expose us to the loss of our proprietary information or information belonging to our customers, investigations or litigation and possible liability, including injunctive relief and monetary damages. Such security breaches could also divert the efforts of our technical and management personnel. In addition, such security breaches could impair our ability to operate our business and provide products to our customers. If this happens, our reputation could be harmed, our revenue could decline, and our business could suffer.  We monitor our network continuously with our Nodeware product as well as other cybersecurity software. 

 

We are not aware of or identified an incident leading to a breach of our internal or external facing systems.  We have implemented several proactive policies and procedures to mitigate any internal incidents from outside forces. This includes deploying additional monitoring software, phishing training, creating an internal incident response team, and additional awareness through internal communications around typical attempts that outside forces use. While we have seen phishing attempts sent to certain email addresses, we have mitigated those through the aforementioned steps. Our internal security team has blocked the associated addresses and/or domains of the senders and has enhanced email security features to identify external emails. Overall, our internal security posture continues to evolve as the market evolves.  We have a cyber insurance policy which will cover certain expenses related to an attack, such as certain business interruption costs associated with an incident.

 

 

We derived approximately 78%70% of our sales in 20182020 from contracts as either a prime contractor or a subcontractor with over 70% from government contracts. We expect that we will continue to derive a substantial portion of our sales for the foreseeable future from work performed under government contracts, as we have in the past, and from marketing efforts focused on commercial enterprises. If we or our prime contractors were suspended or prohibited from contracting with federal, state or local governments, or if our reputation or relationship with the federal, state or local governments and commercial enterprises were impaired, or if any of the foregoing otherwise ceased doing business with us or our prime contractors or significantly decreased the amount of business it does with us or our prime contractors, our business, prospects, financial condition and operating results would be materially adversely affected.

 

 

Because we derive a significant portion of our sales from contracts with federal, state and local governments, we believe that the success and development of our business will continue to depend on our successful participation in their contract programs. Changes in federal, state and local government budgetary priorities could directly affect our financial performance. A significant decline in government expenditures, a shift of expenditures away from programs which call for the types of services that we provide or a change in government contracting policies, could cause U.S. Governmental agencies as well as state and local governments to reduce their expenditures under contracts, to exercise their right to terminate contracts at any time without penalty, not to exercise options to renew contracts or to delay or not originate new contracts. Any of those actions could seriously harm our business, prospects, financial condition or operating results. Moreover, although our contracts with governmental entities may contemplate that our services will be performed over a period of several years, government entities usually must approve funds for a given program each government fiscal year and may significantly reduce or eliminate funding for a program. Significant reductions in these appropriations could have a material adverse effect on our business. Additional factors that could have a serious adverse effect on our government contracting business include, but may not be limited to:

 

 

 

 

 

 

 

AtIn December 31, 2018, we had current liabilities2019, the 2019 novel coronavirus surfaced in China and the virus has now spread to other countries, including the United States and infections have been reported globally. The impacts of approximately $2.9 millionthe outbreak are unknown and long-term liabilities of $1.4 million and stockholders’ deficiency of $4,000,094. Werapidly evolving.

To date, the outbreak has not had a working capital deficitmaterial adverse impact on our operations. However, the future impact of approximately $2.6 millionthe outbreak is highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have a current ratio of .11. For 2018, we had operating income of approximately $210,000 and used cash of approximately $130,000 for operating activities. Working capital shortages may impairmaterial adverse impact on our business, operations and growth strategy,the market for our securities. The extent of the impact, if any, will depend on future developments, including actions taken to contain the coronavirus. There can be no assurance that our personnel will not be impacted by these pandemic diseases and accordingly,ultimately see our business, operations,workforce productivity reduced or incur increased medical costs / insurance premiums as a result of these health risks.

In addition, a significant outbreak of coronavirus could result in a widespread global health crisis that could adversely affect global economies and financial condition will be materially adversely affected. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.

 

 

 

At December 31, 2020, we had current liabilities of approximately $3.1 million and long-term liabilities of $1.6 million and stockholders’ deficiency of $3,105,770. We had a working capital through the issuancedeficit of approximately $2.1 million and a current ratio of .35. Working capital shortages may impair our debtbusiness operations and equity securities.growth strategy, and accordingly, our business, operations.

 

 

We may grow our business by acquiring or investing in companies and businesses and assets that we feel have synergy and will complement our business plan. As such, we periodically evaluate potential business combinations and investments in other companies and assets. We may be unable to profitably manage businesses and assets that we may acquire or invest in. We may fail to integrate these businesses and assets successfully without incurring substantial expenses, delays or other problems that could negatively impact our results of operations.

 

 

We have invested in and continue to invest in cybersecurity capabilities to add new products and services to address the needs of our clients, including our newly introduced product, Nodeware. Our investments may not be successful or increase our revenues. If we are not successful in creating value from our investments by increasing sales, our financial condition and prospects could be harmed.

 

 

 

Our future growth depends, in part, on our ability to expand, train and manage our employee base and provide support to an expanded client base. We must also enhance and implement new operating and software systems to accommodate our growth and expansion of IT product and service offerings. If we cannot manage growth effectively, it could have a material adverse effect on our results of operations, business and financial condition. In addition, acquisitions, investments and expansion involve substantial infrastructure costs and working capital. We cannot provide assurance that we will be able to integrate acquisitions, if any, and expansions efficiently. Similarly, we cannot provide assurance that any investments or expansion will enhance our profitability. If we do not achieve sufficient sales growth to offset increased expenses associated with our expansion, our results will be adversely affected.

 

 

Our future success depends, in part, on the continuing efforts of our senior executive officers. The loss of any of these key employees may materially adversely affect our business.

 

 

We believe that our future success depends upon our ability to continue to train, retain, effectively manage and attract highly skilled technical, managerial, sales and marketing personnel. This includes skills for our new initiatives in cybersecurity. Employee turnover is generally high in the IT services industry. If our efforts in these areas are not successful, our costs may increase, our sales efforts may be hindered, and the quality of our client service may suffer. Although we invest significant resources in recruiting and retaining employees, there is often significant competition for certain personnel in the IT services industry. From time to time, we experience difficulties in locating enough highly qualified candidates in desired geographic locations, or with required specific expertise.

 

 

Risks Related to our Common Stock

 

 

 

 

 

The trading price of our common stock has been volatile and will continue to be subject to volatility in the trading markets and other factors.

 

The closing market price for our common stock varied between a low of $.01$.03 and a high of $.039$.15 in 2018.2020. This volatility may affect the price at which a stockholder could sell its shares of common stock, and the sale of substantial amounts of our common stock could adversely affect the price of our common stock. Our stock price is likely to continue to be volatile and subject to significant price and volume fluctuations in response to market and other factors, including variations in our quarterly operating results and announcement by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments.

 

 

There is limited trading in our common stock, and we cannot assure you that an active public market for our common stock will ever develop. The lack of an active public trading market means that a stockholder may not be able to sell shares of common stock when wanted, thereby increasing market risk. Until our common stock is listed on an exchange, we expect that the shares will continue to be quoted on the OTC Bulletin Board. However, an investor may find it difficult to obtain accurate quotations regarding the common stock’s market value. In addition, if we failed to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the shares liquidity. Moreover, our ability to obtain future financing may be adversely affected by the consequences of our common stock trading on the OTC Bulletin Board.

 

 

The Securities and Exchange Commission (SEC) has adopted regulations which generally define “penny stock” to be an equity security that has a market or exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is currently below $5.00 per share and therefore may be designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to accept our share certificates into a customer account and may affect the ability of our stockholders to sell their shares.

 

 

 

 

The table below lists our facility location and square feet owned or leased. Beginning on August 1, 2016, we lease our headquarters facility under an operating lease agreement. Our rent expense is $80,000 annually during the first year of the lease term and increases by 1.5% annually thereafter. We have the right to terminate the lease upon six months prior notice after three years of occupancy.

 

 

We believe our facility is in good operating condition. We do not own or intend to invest in any real property and currently have no policy with respect to investments or interests in real estate, real estate mortgage loans or securities or interests in persons primarily engaged in real estate activities.

 

 

 

 

 

 

 

Our common stock is quoted on the OTC Bulletin Board under the symbol IMCI. The following table sets forth, for the periods indicated, the high and low closing bid quotations per share for our common stock for each quarter within the last two fiscal years, as reported by the OTC Bulletin Board. Quotations represent interdealer prices without an adjustment for retail markups, markdowns or commissions and may not represent actual transactionstransactions:

 

 

At June 20, 2019,March 24, 2021, we had 201198 record stockholders and estimate that we had approximately 1,3001,200 beneficial stockholders.

 

 

We have never declared or paid a cash dividend on our common stock. It has been the policy of our board of directors (the Board) to retain all available funds to finance the development and growth of our business. The payment of cash dividends in the future will be dependent upon our earnings and financial requirements and other factors deemed relevant by our Board.

 

 

 

 

 

 

 

 

Headquartered in Pittsford, New York, Infinite Group, Inc. (IGI) is a developer of cybersecurity software and a provider of managed IT and virtualizationcybersecurity consulting services and a developer and provider of cybersecurity tools and solutions to privatecommercial businesses and government agencies.organizations. As part of these servicesofferings we:

 

Our strategy is to create differentiation in cybersecurity by combining personalized and recurring professional services and build our businessgrowth businesses by designing, developing, and marketing cybersecurity based services, productscybersecurity-based software-as-a-service (SaaS). Products and solutions thatare spun off from our technology platform to fill technology gaps in cybersecurity. We brought one patent pending product to market that has two patents pending and intend to bringdevelop other intellectual property that serve as the core to other proprietary products and solutions to market through a channel of domestic and international partners and distributors. Our products, solutions and solutionsservices are designed to simplify the security needs in customer and partner environments, with a focus on the mid-tier Enterprise market and below. We enable our partners by providing recurring revenue basedrevenue-based business models for both recurring services and through our automated and continuous security solutions. Products may be sold as standalone solutions or integrated into existing environments to further automate the management of securitycybersecurity and related IT functions. Our ability to succeed depends on how successful we are in differentiating ourselves in the market at a time when competition and consolidation in these markets is on the rise.

 

Our cybersecurity business is comprised of three components: managed security services, product development and deployment, and integration of third-party security solutions into our security offerings to our channel and customers. We provide cybersecurity services and technical consulting resources to support both our channel partners and end customers. For example, we sell our proprietary product, Nodeware, through both our direct partners and through other 3rd party partner distribution and agents so they can either sell it as a standalone solution or part of other technical services they provide to their customers. This enables the channel partner to develop a base of recurring revenue. We also provide our cybersecurity services through our channel partners as a cybersecurity overlay to the technical services they already provide

 

 

 

We had sales of approximately $6.4$7.2 million in 20182020 and 2017.approximately $7.1 million in 2019. We generated operating income of approximately $210,000$1,000 in 20182020 as compared to an operating loss of approximately $398,000$329,000 in 2017.2019. We had a net income of $37,000approximately $676,000 in 2018 as compared to a net loss of $75,0002020 and $48,000 in 2017.2019. We recorded other income of $569,999approximately $967,000 in 2017 when we had no further obligation to make certain debt payments.2020 from primarily the forgiveness of our Payroll Protection Plan loan. We derived approximately 78%65% of our sales in 20182020 and 79%70% in 20172019 from contracts as either a prime contractor or a subcontractor.

 

 

The following table compares our statements of operations data for the years ended December 31, 20182020 and 2017.2019.

 

 

 

For 20182020 and 2017, in each year,2019, our:

 

Our cybersecurity services business has grown by approximately $500,000 and $1.2 million, respectively. Since these are agent sales and are reported net of cost of sales, we recorded sales of $22,065 for 2018 and $48,308 for 2017.

 

 

Cost of sales principally represents the cost of employee services related to our IT Services Group. In smaller amounts, we also incurred cost of sales for third party software licenses for our commercial SME partners.

 

Gross profit increased by 13.7% although13.9% while sales decreasedincreased by 0.3%1.8% for 2018.2020. This was primarily due to increasedhigher gross profit earned by our managedmargin in the cybersecurity services business group. This was done by continued cost controls in this group especially related to reducing headcount.versus the other areas of business.

 

 

General and administrative expenses include corporate overhead such as compensation and benefits for executive, administrative and finance personnel, rent, insurance, professional fees, travel, and office expenses. General and administrative expenses decreasedincreased in 20182020 consisting of offsetting fluctuations in various expense items and reductionsincreases in salaries of approximately $37,600, stock option expense$222,000 and corporate marketing expenses of approximately $23,100, and professional fees of $26,900.$90,000.

 

 

The decreaseincrease in selling expenses in 20182020 is principally due to the reductionincrease of employee salaries, commissions and benefits totaling $276,788approximately $186,000 due primarily to reduced headcount in the commercial SME and SLED marketing teams and VMware team offset by growth to the cyber security and Nodeware sales team. The remaining increase is attributable to several smaller items including amortization of development labor and consulting fees.

 

 

 

 

On October 17, 2011, in accordance with the Settlement Agreement with the Pension Benefit Guaranty Corporation (the “PBGC”),In 2020, we became obligated to make annual future payments to the PBGC through December 31, 2017 equal toreceived a portionPaycheck Protection Plan (“PPP”) loan which was subsequently forgiven. We recorded $963,516 of our “Free Cash Flow” as defined in the Settlement Agreement, not to exceed $569,999. The annual obligation was contingent upon earning free cash flow in excess of defined amounts. At December 31, 2017, we had no further obligation to make payments. Accordingly, we wrote off the balance and recorded other income at that time of $569,999. In 2018, we wrote off a note and accrued interest to a debtholder in the amount of $83,250.forgiveness.

 

 

 

 

The increase in net income is attributable to the items discussed above for 20182020 as compared to 2017.2019.

 

 

At December 31, 2018,2020, we had cash of $29,716$32,313 available for working capital needs and planned capital asset expenditures. During 2018,2020, we financed our business activities through cash flows provided by operationsfinancing activities and sales with recourse of our accounts receivable. Our primary source of liquidity is cash provided by collections of accounts receivable, PPP loan and our factoring line of credit. At December 31, 2018,2020, we had no availabilityapproximately $362,000 available to borrow under this line. At December 31, 2018,2020, we had a working capital deficit of approximately $2,593,000$2,051,627 and a current ratio of .11.0.35. Our objective is to improve our working capital position through profitable operations, and we may continue to borrow to provide cash for working capital.

 

At December 31, 2018,2020, we have current notes payable of approximately $332,500$162,500 to third parties, which includes convertible notes payable of approximately $290,000.$150,000. Also included is $12,500 in principal amount of a note payable due on June 30, 2016 but not paid by then. This note was issued in payment of software we purchased in February 20152016 and secured by a security interest in the software. To date, the holder has not taken any action to collect the amount past due on this note or to enforce the security interest in the software.

 

 

 

 

 

Our operating cash flow is primarily affected by the overall profitability of our contracts, our ability to invoice and collect from our clients in a timely manner, and our ability to manage our vendor payments. We bill our clients weekly or monthly after services are performed, depending on the contract terms. Our net income of $37,000$675,996 for 2018 includes noncash other income and adjustments of $91,250. Our cash used in operating activities2020 was offsetincreased by non-cash expenses for depreciation, amortization, bad debt expense and stock-based compensation of $25,653.$230,418 and decreased for non-cash adjustments for forgiveness of debt of $963,516. In addition, a decreasean increase in accounts payable and accrued expenses of $304,051 and decreases$203,082 was offset by increases in accounts receivable and other assets of $202,526$559,735 resulted in net cash used in operating activities of $130,122.$413,755.

 

We are marketing Webroot and Nodeware to our IT channel partners who resell to their customers. We are making investments in expanding our virtualization sales of projectscyber security team for penetration testing, vCISO and VMware licenses to our customers.other services. Due to the lengthy lead times typically needed to generate these new sales, we do not expect to realize a return from our sales and marketing personnel for one or more quarters. As a result, we may continue to experience small operating income or operating losses from these investments in personnel until sufficient sales are generated. We expect to fund the cost for the new sales personnel from our operating cash flows and incremental borrowings, as needed.

 

 

 

 

During 2018,2020, we received $957,372 from the U. S. Small Business Administration (“SBA”) as part of the Paycheck Protection Plan enacted by Congress under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). We received SBA forgiveness of this amount plus accrued interest of $6,143 later in the year. We borrowed $70,000$50,000 from a related party under the terms of a demand note payable. The note allows for up to $500,000 credit and $20,000is due in August 2026. During 2019, we borrowed $200,000 from a related party under the terms of our LOC financing agreement.$500,000 credit note. During 2018,2020, we made principal payments of $3,350$96,635 to a related party note holder.holders and $167,527 to a third party.

 

We plan to evaluate alternatives which may include renegotiating the terms of the notes, seeking conversion of the notes to shares of common stock and seeking funds to repay the notes. We continue to evaluate repayment of our notes payable based on our cash flow.

 

 

 

During May 2019, we originated a line of credit note payable for a $500,000 with a related party and borrowed $200,000$250,000 and have $300,000$250,000 available to borrow for working capital. This agreement matures in August 2026. We may borrow from the outstanding line of credit to pay a portion the PBGC settlement amount.

 

During 2017, we originated two lines of credit with related parties totaling $175,000. At December 31, 2018,2020, we had $15,000 available under these financing agreements which mature in July 2022 and January 2023, respectively.

 

 

We plan to evaluate alternatives which may include renegotiatinganticipate financing growth from acquisitions of other businesses, if any, and our longer-term internal growth through one or more of the termsfollowing sources: cash from collections of accounts receivable; additional borrowing from related and third parties; issuance of equity; use of our notes, seeking conversion of the notes to shares of common stock and seeking funds to repay our notes. We continue to evaluate repaymentexisting accounts receivable credit facility; or a refinancing of our notes payable based on its cash flow.accounts receivable credit facility.

 

 

See Note 3 to the Financial Statements for a discussion of the Company’s accounting policies and estimates.estimates including Capitalization of Software for Resale and management’s assessment of going concern.

 

 

 

 

 

 

 

 

Our management, with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (the Exchange Act) Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the Evaluation Date). Based upon that evaluation, our chief executive officer and chief financial officer concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Infinite Group have been detected.

 

(b) Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018.2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Our management has concluded that, as of December 31, 2018,2020, our internal control over financial reporting was effective based on these criteria.

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 20182020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

PART III

 

 

 

 

 

 

 

The principal occupation of each of our directors and executive officers for at least the past five years is as follows: