UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
☐ | 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: 0-21816
_________________________________________
INFINITE GROUP, INC. |
(Exact name of registrant as specified in its charter) |
_________________________________________
Delaware | 52-1490422 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
175 Sully’s Trail, Suite 202, Pittsford, New York | 14534 | |
(Address of principal executive offices) | (Zip Code) |
(585) 385-0610
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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. Yes ☒ No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated Filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of the latest practicable date. There were 29,461,883The Registrant had 33,961,124 shares of the issuer’s common stock, par value $.001 per share, outstanding as of November 14, 2017.
Infinite Group, Inc.
Quarterly Report on Form 10-Q
For the Period Ended June 30, 2022
Table of Contents
FORWARD-LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” regarding thestatements.” All statements other than statements of historical facts contained in this report, including among others, our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, and objectives of management for future operations and expected market growth and trends and expectations.are forward-looking statements. 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 words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “targets,” “potential,” “is likely,” “will,” “expect,” “seek” and similar expressions are intended to identify 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 ourthe 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. Therefore, you should not rely on any of these forward-looking statements. All forward-looking statements in this report are made only as of the date hereof or as indicated and represent our views as of the date of this report. We undertake no obligation to revisepublicly update or update publiclyrevise any forward-looking statements, for any reason. Seewhether as the result of new information, future events or otherwise, except as required by law. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in this report, our annual reportAnnual Report on Form 10-K for the fiscal year ended December 31, 2016, filed2021, and our other filings with the Securities and Exchange Commission (“SEC”(the “SEC”), for a more detailed discussion of uncertainties and risks that may have an impact on future results.. The terms “IGI”, the “Company”, “we”, “our”, “us”, or any derivative thereof, as used herein refer to Infinite Group, Inc., a Delaware corporation.
3 |
Table of Contents |
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
INFINITE GROUP, INC. | ||
BALANCE SHEETS | ||
September 30, | December 31, | |
2017 (Unaudited) | 2016 | |
ASSETS | ||
Current assets: | ||
Cash | $14,102 | $42,436 |
Accounts receivable, net of allowances of $40,000 – 2017; $70,000 – 2016 | 335,615 | 243,477 |
Prepaid expenses and other current assets | 8,286 | 16,076 |
Total current assets | 358,003 | 301,989 |
Property and equipment, net | 21,436 | 26,079 |
Software, net | 26,250 | 105,000 |
Deposits | 6,667 | 8,985 |
Total assets | $412,356 | $442,053 |
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||
Current liabilities: | ||
Accounts payable | $592,040 | $346,701 |
Accrued payroll | 336,724 | 219,454 |
Accrued interest payable | 744,596 | 671,437 |
Accrued retirement | 232,560 | 225,720 |
Accrued expenses - other | 61,623 | 81,754 |
Current maturities of long-term obligations | 1,255,999 | 836,999 |
Notes payable | 362,500 | 368,279 |
Notes payable and current portion long-term debt - related parties | 63,353 | 0 |
Total current liabilities | 3,649,395 | 2,750,344 |
Long-term obligations: | ||
Notes payable: | ||
Other | 720,141 | 1,150,225 |
Related parties | 572,615 | 534,326 |
Total liabilities | 4,942,151 | 4,434,895 |
Commitments | ||
Stockholders' deficiency: | ||
Common stock, $.001 par value, 60,000,000 shares authorized; 29,461,883 – 2017; 29,061,883 – 2016 shares issued and outstanding | 29,461 | 29,061 |
Additional paid-in capital | 30,603,416 | 30,562,618 |
Accumulated deficit | (35,162,672) | (34,584,521) |
Total stockholders’ deficiency | (4,529,795) | (3,992,842) |
Total liabilities and stockholders’ deficiency | $412,356 | $442,053 |
See notes to unaudited financial statements. |
INFINITE GROUP, INC. | ||||
STATEMENTS OF OPERATIONS (Unaudited) | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||
2017 | 2016 | 2017 | 2016 | |
Sales | $1,586,278 | $1,727,750 | $4,799,434 | $5,391,001 |
Cost of sales | 1,133,202 | 1,223,085 | 3,395,436 | 3,912,730 |
Gross profit | 453,076 | 504,665 | 1,403,998 | 1,478,271 |
Costs and expenses: | ||||
General and administrative | 290,142 | 297,346 | 867,097 | 947,978 |
Selling | 288,093 | 228,590 | 931,840 | 645,232 |
Total costs and expenses | 578,235 | 525,936 | 1,798,937 | 1,593,210 |
Operating loss | (125,159) | (21,271) | (394,939) | (114,939) |
Interest expense: | ||||
Related parties | (14,840) | (13,393) | (40,221) | (42,065) |
Other | (48,001) | (48,678) | (142,991) | (146,066) |
Total interest expense | (62,841) | (62,071) | (183,212) | (188,131) |
Net loss | $(188,000) | $(83,342) | $(578,151) | $(303,070) |
Net loss per share – basic and diluted | $(.01) | $.00 | $(.02) | $(.01) |
Weighted average shares outstanding – basic and diluted | 29,105,361 | 29,061,883 | 29,076,535 | 28,127,817 |
See notes to unaudited financial statements. |
INFINITE GROUP, INC. | ||||||||
BALANCE SHEETS | ||||||||
|
|
|
|
| ||||
ASSETS |
|
|
|
| ||||
|
|
|
|
| ||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
|
|
| |||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ | 1,594 |
|
| $ | 99,432 |
|
Accounts receivable, net of allowances of $9,710 as of June 30, 2022 and |
|
|
|
|
|
|
|
|
December 31, 2021, respectively |
|
| 650,403 |
|
|
| 727,297 |
|
Prepaid expenses and other current assets |
|
| 198,220 |
|
|
| 218,821 |
|
Total current assets |
|
| 850,217 |
|
|
| 1,045,550 |
|
|
|
|
|
|
|
|
|
|
Right of Use Asset Operating Lease, net |
|
| 684,552 |
|
|
| 41,490 |
|
Property and equipment, net |
|
| 30,982 |
|
|
| 41,138 |
|
Software, net |
|
| 421,224 |
|
|
| 417,650 |
|
Deposits |
|
| 10,144 |
|
|
| 6,937 |
|
Total assets |
| $ | 1,997,119 |
|
| $ | 1,552,765 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIENCY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 1,086,528 |
|
| $ | 536,863 |
|
Accrued payroll |
|
| 341,691 |
|
|
| 425,839 |
|
Accrued interest payable |
|
| 670,117 |
|
|
| 594,241 |
|
Accrued retirement |
|
| 280,958 |
|
|
| 275,422 |
|
Deferred revenue |
|
| 475,400 |
|
|
| 497,734 |
|
Accrued expenses other and other current liabilities |
|
| 154,729 |
|
|
| 167,310 |
|
Operating lease liability - Short-term |
|
| 73,030 |
|
|
| 42,347 |
|
Current maturities of long-term obligations |
|
| 765,000 |
|
|
| 765,000 |
|
Current maturities of long-term obligations - related parties |
|
| 295,000 |
|
|
| 190,000 |
|
Notes payable, net |
|
| 943,521 |
|
|
| 383,824 |
|
Notes payable - related parties |
|
| 229,000 |
|
|
| 229,000 |
|
Total current liabilities |
|
| 5,314,974 |
|
|
| 4,107,580 |
|
|
|
|
|
|
|
|
|
|
Long-term obligations: |
|
|
|
|
|
|
|
|
Notes payable: |
|
|
|
|
|
|
|
|
Other |
|
| 458,576 |
|
|
| 458,309 |
|
Related parties |
|
| 998,975 |
|
|
| 1,084,765 |
|
Operating lease liability - Long-term |
|
| 612,136 |
|
|
| 0 |
|
Total liabilities |
|
| 7,384,661 |
|
|
| 5,650,654 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficiency: |
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 60,000,000 shares authorized; 33,561,124 and 32,700,883 as of June 30, 2022 and December 31, 2021, respectively. shares issued and outstanding |
|
| 33,560 |
|
|
| 32,700 |
|
Additional paid-in capital |
|
| 31,747,693 |
|
|
| 31,336,772 |
|
Accumulated deficit |
|
| (37,168,795 | ) |
|
| (35,467,361 | ) |
Total stockholders' deficiency |
|
| (5,387,542 | ) |
|
| (4,097,889 | ) |
Total liabilities and stockholders' deficiency |
| $ | 1,997,119 |
|
| $ | 1,552,765 |
|
See notes to unaudited financial statements.
4 |
Table of Contents |
INFINITE GROUP, INC. | ||||||||||||||||||
STATEMENTS OF OPERATIONS (Unaudited) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenue |
| $ | 1,696,492 |
|
| $ | 1,797,504 |
|
| $ | 3,363,562 |
|
| $ | 3,621,846 |
| ||
Cost of revenue |
|
| 1,059,639 |
|
|
| 1,109,223 |
|
|
| 2,180,879 |
| �� |
| 2,182,138 |
| ||
Gross profit |
|
| 636,853 |
|
|
| 688,281 |
|
|
| 1,182,683 |
|
|
| 1,439,708 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
General and administrative |
|
| 613,317 |
|
|
| 541,711 |
|
|
| 1,217,300 |
|
|
| 1,006,103 |
| ||
Selling |
|
| 612,957 |
|
|
| 507,042 |
|
|
| 1,260,582 |
|
|
| 894,767 |
| ||
Total costs and expenses |
|
| 1,226,274 |
|
|
| 1,048,753 |
|
|
| 2,477,882 |
|
|
| 1,900,870 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Operating income (loss) |
|
| (589,421 | ) |
|
| (360,472 | ) |
|
| (1,295,199 | ) |
|
| (461,162 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest Income and Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest income |
|
| 10 |
|
|
| 1 |
|
|
| 18 |
|
|
| 3 |
| ||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Related parties |
|
| (22,728 | ) |
|
| (16,541 | ) |
|
| (46,142 | ) |
|
| (31,054 | ) | ||
Other |
|
| (221,061 | ) |
|
| (39,491 | ) |
|
| (360,111 | ) |
|
| (76,517 | ) | ||
Total interest expense |
|
| (243,789 | ) |
|
| (56,032 | ) |
|
| (406,253 | ) |
|
| (107,571 | ) | ||
Total other income (expense) |
|
| (243,779 | ) |
|
| (56,031 | ) |
|
| (406,235 | ) |
|
| (107,568 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net loss |
| $ | (833,200 | ) |
| $ | (416,503 | ) |
| $ | (1,701,434 | ) |
| $ | (568,730 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net loss per share – basic and diluted |
| $ | (0.03 | ) |
| $ | (0.01 | ) |
| $ | (0.05 | ) |
| $ | (0.02 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Weighted average shares outstanding – basic |
|
| 33,296,434 |
|
|
| 29,238,323 |
|
|
| 33,000,304 |
|
|
| 29,150,590 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Weighted average shares outstanding – diluted |
|
| 33,296,434 |
|
|
| 29,238,323 |
|
|
| 33,000,304 |
|
|
| 29,150,590 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
See notes to unaudited financial statements. |
5 |
Table of Contents |
INFINITE GROUP, INC. | ||||||||||||||||||||
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY (Unaudited) | ||||||||||||||||||||
Three and Six Months Ended June 30, 2022 and 2021 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Three and Six Months Ended June 30, 2022 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance - December 31, 2021 |
|
| 32,700,883 |
|
| $ | 32,700 |
|
| $ | 31,336,772 |
|
| $ | (35,467,361 | ) |
| $ | (4,097,889 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 923 |
|
|
| 0 |
|
|
| 923 |
|
Warrants issued |
|
| 0 |
|
|
| 0 |
|
|
| 148,334 |
|
|
| 0 |
|
|
| 148,334 |
|
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (868,234 | ) |
|
| (868,234 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2022 |
|
| 32,700,883 |
|
|
| 32,700 |
|
|
| 31,486,029 |
|
|
| (36,335,595 | ) |
|
| (4,816,866 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants |
|
| 860,241 |
|
|
| 860 |
|
|
| (860 | ) |
|
| 0 |
|
|
| 0 |
|
Stock based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 51,708 |
|
|
| 0 |
|
|
| 51,708 |
|
Warrants issued |
|
| 0 |
|
|
| 0 |
|
|
| 210,816 |
|
|
| 0 |
|
|
| 210,816 |
|
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (833,200 | ) |
|
| (833,200 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2022 |
|
| 33,561,124 |
|
| $ | 33,560 |
|
| $ | 31,747,693 |
|
| $ | (37,168,795 | ) |
| $ | (5,387,542 | ) |
Three and Six Months Ended June 30, 2021 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance - December 31, 2020 |
|
| 29,061,883 |
|
| $ | 29,061 |
|
| $ | 30,763,717 |
|
| $ | (33,898,548 | ) |
| $ | (3,105,770 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 28,248 |
|
|
| 0 |
|
|
| 28,248 |
|
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (152,227 | ) |
|
| (152,227 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2021 |
|
| 29,061,883 |
|
|
| 29,061 |
|
|
| 30,791,965 |
|
|
| (34,050,775 | ) |
|
| (3,229,749 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
| 250,000 |
|
|
| 250 |
|
|
| 57,875 |
|
|
| 0 |
|
|
| 58,125 |
|
Exercise of stock options |
|
| 284,000 |
|
|
| 284 |
|
|
| 14,646 |
|
|
| 0 |
|
|
| 14,930 |
|
Stock based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 81,920 |
|
|
| 0 |
|
|
| 81,920 |
|
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (416,503 | ) |
|
| (416,503 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2021 |
|
| 29,595,883 |
|
| $ | 29,595 |
|
| $ | 30,946,406 |
|
| $ | (34,467,278 | ) |
| $ | (3,491,277 | ) |
See notes to unaudited financial statements.
6 |
Table of Contents |
INFINITE GROUP, INC. | ||||||||||
STATEMENTS OF CASH FLOWS (Unaudited) | ||||||||||
|
|
|
|
|
|
| ||||
|
| Six Months Ended June 30, |
| |||||||
|
| 2022 |
|
| 2021 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
| ||||
Net loss |
| $ | (1,701,434 | ) |
| $ | (568,730 | ) | ||
Adjustments to reconcile net loss to net cash used |
|
|
|
|
|
|
|
| ||
by operating activities: |
|
|
|
|
|
|
|
| ||
Stock based compensation |
|
| 52,631 |
|
|
| 110,168 |
| ||
Depreciation and amortization |
|
| 117,686 |
|
|
| 87,551 |
| ||
Amortization of debt discount |
|
| 255,042 |
|
|
| 0 |
| ||
(Increase) decrease in assets: |
|
|
|
|
|
|
|
| ||
Accounts receivable |
|
| 76,894 |
|
|
| 157,170 |
| ||
Prepaid expenses and other assets |
|
| 17,394 |
|
|
| (26,730 | ) | ||
Increase (decrease) in liabilities: |
|
|
|
|
|
|
|
| ||
Accounts payable |
|
| 549,665 |
|
|
| 14,978 |
| ||
Deferred revenue |
|
| (22,334 | ) |
|
| 109,424 |
| ||
Accrued expenses |
|
| 12,014 |
|
|
| 98,469 |
| ||
Accrued retirement |
|
| 5,536 |
|
|
| 5,320 |
| ||
Net cash used by operating activities |
|
| (636,906 | ) |
|
| (12,380 | ) | ||
|
|
|
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
|
|
|
| ||
Purchase of property and equipment |
|
| (969 | ) |
|
| (8,722 | ) | ||
Capitalization of software development costs |
|
| (110,378 | ) |
|
| (121,175 | ) | ||
|
|
|
|
|
|
|
|
| ||
Net cash used by investing activities |
|
| (111,347 | ) |
|
| (129,897 | ) | ||
|
|
|
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
|
|
|
| ||
Gross proceeds from notes payable |
|
| 918,900 |
|
|
| 0 |
| ||
Less debt issuance costs |
|
| (53,445 | ) |
|
| 0 |
| ||
Proceeds from notes payable - related parties |
|
| 0 |
|
|
| 299,000 |
| ||
Repayment of notes payable - short-term |
|
| (215,040 | ) |
|
| 0 |
| ||
Proceeds from the exercise of common stock options |
|
| 0 |
|
|
| 14,930 |
| ||
Repayment of long-term obligations |
|
| 0 |
|
|
| (200,000 | ) | ||
|
|
|
|
|
|
|
|
| ||
Net cash provided by financing activities |
|
| 650,415 |
|
|
| 113,930 |
| ||
|
|
|
|
|
|
|
|
| ||
Net decrease in cash |
|
| (97,838 | ) |
|
| (28,347 | ) | ||
|
|
|
|
|
|
|
|
| ||
Cash - beginning of period |
|
| 99,432 |
|
|
| 32,313 |
| ||
|
|
|
|
|
|
|
|
| ||
Cash - end of period |
| $ | 1,594 |
|
| $ | 3,966 |
| ||
|
|
|
|
|
|
|
|
| ||
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
| ||
Cash payments for interest |
| $ | 54,826 |
|
| $ | 39,369 |
| ||
Right of use assets obtained in exchange for new operating lease liabilities |
| $ | 691,009 |
|
| $ | 0 |
|
See notes to unaudited financial statements.
7 |
Table of Contents |
INFINITE GROUP, INC.
STATEMENTS OF CASH FLOWS (Unaudited) | ||
Nine Months Ended September 30, | ||
2017 | 2016 | |
Cash flows from operating activities: | ||
Net loss | $(578,151) | $(303,070) |
Adjustments to reconcile net loss to net cash | ||
used by operating activities: | ||
Stock based compensation | 25,198 | 31,301 |
Depreciation and amortization | 106,909 | 65,875 |
Reduction of accounts receivable allowances | (30,000) | 0 |
(Increase) decrease in assets: | ||
Accounts receivable | (62,138) | (313,253) |
Prepaid expenses and other assets | 10,108 | (5,799) |
Increase (decrease) in liabilities: | ||
Accounts payable | 245,339 | (72,388) |
Accrued expenses | 170,298 | 281,349 |
Accrued retirement | 6,840 | 6,573 |
Net cash used by operating activities | (105,597) | (309,412) |
Cash flows from investing activities: | ||
Purchases of property and equipment | (5,608) | (4,073) |
Net cash used by investing activities | (5,608) | (4,073) |
Cash flows from financing activities: | ||
Proceeds from notes payable - related parties | 92,000 | 0 |
Proceeds from notes payable - other | 0 | 400,000 |
Repayments of notes payable - related parties | (3,350) | (5,984) |
Repayments of notes payable - other | (5,779) | (62,161) |
Net cash provided by financing activities | 82,871 | 331,855 |
Net (decrease) increase in cash | (28,334) | 18,370 |
Cash - beginning of period | 42,436 | 13,510 |
Cash - end of period | $14,102 | $31,880 |
Supplemental Disclosures of Cash Flow Information: | ||
Cash payments for interest | $89,986 | $106,760 |
See notes to unaudited financial statements. |
Notes to Financial Statements
-(Unaudited)Note 1. Basis of Presentation
The accompanying unaudited financial statements of Infinite Group, Inc. (“Infinite Group, Inc.” or the “Company”) included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (U.S.) ("GAAP"(“GAAP”) for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. The December 31, 20162021 balance sheet has been derived from the audited financial statements at that date but does not include all disclosures required by GAAP. The accompanying unaudited financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162021 filed with the U.S. Securities and Exchange Commission (SEC). Results of operations for the three and ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2017.
Note 2. Management Plans - Capital Resources
The Company reported net losses of $578,151$1,701,434 and $303,070$568,730 for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and stockholders’ deficiencies of $4,529,795$5,387,542 and $3,992,842$4,097,889 at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. Accordingly, there isThe Company had a working capital deficit of approximately $4.4 million at June 30, 2022. These factors raise substantial doubt about the Company’sentity’s ability to continue as a going concern.
The Company’s mission is to drive shareholder value by developing and bringing to market automated, cost effective, and innovative cybersecurity technologies. The Company’s strategy is to build its business by designing, developing, and marketing IT security-based products and solutions that fill technology gaps in cybersecurity.
The Company's goal is to increase sales and generate cash flow from operations on a consistent basis. The Company uses a formal financial review and budgeting process as a tool for improvement that has aided expense reduction and internal performance. The Company’s business plans require improving the results of its operations in future periods.
During June and July 2017,April 2022, the Company raised $32,000entered into a financing arrangement with Talos Victory Fund, LLC, for $296,000. Under the terms of additional working capital from related parties.
During May 2022, the Company completedentered into a financing arrangement with Mast Hill Fund, L.P. for $355,000. Under the terms of the loan, amortization payments are due beginning September 27, 2022, and each month thereafter with the final payment due on May 26, 2023.
As previously reported, on January 31, 2022, the Company, entered into a Stock Purchase Agreement (the “Pratum Agreement”), by and among the Company, the David A. Nelson, Jr. Living Trust (“Seller”), David A. Nelson, Jr. (the “Beneficiary” and, together with Seller, the “Seller Parties”); and Pratum, Inc., an officerIowa corporation (“Pratum”), whereby the Company agreed to acquire all of the issued and outstanding equity securities of the Company from the Seller Parties (the “Pratum Acquisition”). Pursuant to provide up to $100,000the terms of additional working capital. In consideration for providing the financing,Pratum Agreement, the Agreement could be terminated under certain circumstances, including, among other things, if the Pratum Acquisition does not close by March 31, 2022 (the “Outside Date”). On March 28, 2022, the Company, granted the officerSeller Parties, and Pratum entered into an agreement whereby the parties agreed to extend the Outside Date, as set forth in Section 2.1 of the Pratum Agreement, to May 15, 2022. On June 15, 2022, the Company, received notice of termination of the Pratum Agreement from the Seller Parties and Pratum pursuant to Section 8.1(a)(ii) of the Pratum Agreement on the basis that the Acquisition had not closed by the outside date of May 15, 2022, as amended.
During the first quarter of 2022, the Company filed an S-1 for a stock option for 400,000 sharespublic offering of its$15 million of common stock exercisable at $.04 per share,and redeemable warrants, which was expected to be used for the closing pricePratum Acquisition and working capital needs. Following the termination of the Company’s common stock on the grant date. Through September 30, 2017,Pratum Agreement the Company borrowedhas been reevaluating its capital needs and has outstanding $60,000 understructure of the offering. The completion of this financing.
The Company believes the capital resources generated by anticipated improving operational results due to reduction of expenses, increased bookings and deposits in our Services business, and an influx of new Nodeware orders under contract at June 30, 2022 as well as cash available under its factoring line of credit cashand from additional related partyparties and third-party loans, and cash generated by improving the results of its operationsif needed, provide sources to fund its ongoing operations and to support the internal growth of the Company. Although theThe Company has no assurances, the Company believes that related parties, who have previously provided working capital, and third parties will continuemay need to extend existing debt agreements in order to provide working capital loans on similar terms, as in the past, as may be necessary to fund its on-going operationsresources for at least the next 12 months.other purposes. If the Company experiences significant growth in its sales, the Company believes that this may require it to increase its financing line, finance additional accounts receivable, or obtain additional working capital from other sources to support its sales growth.
The Company plans to continue to evaluate alternatives which may include continuing to renegotiate the terms of other notes, seeking conversion of the notes to shares of common stock and seeking funds to repay the notes. The Company continues to evaluate repayment of our remaining notes payable based on its cash flow. These plans, in management’s opinion, will allow the Company to meet its obligations for a reasonable period of time from the date the financial statements are available to be issued.
8 |
Table of Contents |
Note 3. Summary of Significant Accounting Policies
There are several accounting policies that the Company believes are significant to the presentation of its financial statements. These policies require management to make complex or subjective judgments about matters that are inherently uncertain. Note 3 to the Company’s audited financial statements for the year ended December 31, 20162021 presents a summary of significant accounting policies as included in the Company'sCompany’s Annual Report on Form 10-K as filed with the SEC.
Reclassifications
Fair Value of Financial Instruments
- The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable, and accruedexpenses approximate fair value because of the immediate short-term maturity of these financial instruments. The carrying value of notes payable and convertible notes payable approximates the fair value based on rates currently available from financial institutions and various lenders.Revenue from Contracts with Customers (Topic 606) which provides new accounting guidance on
The Company’s total revenue recognized from contracts with customers.from customers was comprised of three major services: Managed support services, Cybersecurity projects, software and Other IT consulting services. The guidance requires an entity to recognizecategories depict how the nature, amount, timing, and uncertainty of revenue to which it expects to be entitledand cash flows are affected by economic factors. There were no material unsatisfied performance obligations at June 30, 2022 or 2021 for contracts with an expected original duration of more than one year. The following table summarizes the transferrevenue recognized by the major services:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Managed support services |
| $ | 1,115,607 |
|
| $ | 1,057,431 |
|
| $ | 2,204,614 |
|
| $ | 2,128,331 |
|
Cybersecurity projects and software |
|
| 580,885 |
|
|
| 689,073 |
|
|
| 1,158,948 |
|
|
| 1,391,515 |
|
Other IT consulting services |
|
| 0 |
|
|
| 51,000 |
|
|
| 0 |
|
|
| 102,000 |
|
Total sales |
| $ | 1,696,492 |
|
| $ | 1,797,504 |
|
| $ | 3,363,562 |
|
| $ | 3,621,846 |
|
Managed support services
Managed support services consist of promised goods orrevenue primarily from our subcontracts with Peraton (which purchased Perspecta in May 2021) for services to its end clients, principally a major establishment of the U.S. Government for which we manage one of the nation’s largest physical and virtual Microsoft Windows environments.
We generate revenue primarily from these subcontracts through fixed price service and support agreements. Revenues are earned and billed weekly and are generally paid within 45 days. The revenues are recognized at time of service.
Cybersecurity projects and software
Cybersecurity projects and software revenue includes the selling of licenses of Nodeware® and third-party software, principally Webroot™ as well as performing cybersecurity assessments, testing and consulting as a CISO (Chief Information Security Officer).
Nodeware® and Webroot™ software offerings consist of fees generated from the use of the respective software by our customers. The updated guidance will replace most existingRevenue is recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Substantially all customers are billed in the month of the service and is cancellable upon notice per the respective agreements. Substantially all payments are electronically billed, and the billed amounts are paid to the Company instantaneously via an online payment platform. If payments are made in advance, revenue recognition guidance in U.S. GAAPrelated to the term associated with our software licenses is recognized ratably over the contractual period.
Some of our customers have the option to purchase additional subscription and support services at a stated price. These options generally do not provide a material right as they are priced at our standalone selling price.
Cybersecurity assessments and testing services are considered distinct performance obligations when it becomes effective. This guidancesold stand alone or with other products. These contracts generally have terms of one year or less. For substantially all these contracts, revenue is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017 and will be required to be applied retrospectively. Additional ASUs have been issued to amend or clarify this ASU as follows:
In substantially all agreements, a 50% to 75% down payment is required before work is initiated. Down payments received are deferred until revenue is earned. Upon completion of performance obligation of service, payment terms are 30 days.
9 |
Table of Contents |
Other IT consulting services
Other IT consulting services consists of services such as project management and general IT consulting services.
We generate revenue via fixed price service agreements. These are based on periodic billings of a fixed dollar amount for recurring services of a similar nature performed according to the contractual arrangements with clients. The revenues are recognized at time of service.
Based on historical experience, the Company believes that collection is reasonably assured.
During the three and six months ended June 30, 2022, sales to one client, including sales under subcontracts for services to several entities, accounted for 65.8% and 65.5%, respectively, of total sales (58.8% and 58.1%, respectively for the three and six months ended June 30, 2021) and 20.7% of accounts receivable at June 30, 2022 (15.6% at December 31, 2021).
Capitalization of Software for Resale -The Company capitalizes the software development costs for software to be sold, leased, or otherwise marketed.Capitalization begins upon the establishment of technological feasibility of a customernew product or enhancements to an existing product, which is performedgenerally the completion of a working prototype that has been certified as having no critical bugs and is a release candidate. Costs incurred after the enhancement has reached technological feasibility and before it is released in a principal or agent capacitythe market are capitalized and are primarily labor costs related to recognize revenue in a gross or net mannercoding and testing. Amortization begins once the software is ready for its intended use, generally based on its principal/agent designation.
Leases - At contract inception, the Company does not believe this guidance will havedetermines whether the arrangement is or contains a material effectlease and determines the lease classification. The leaseterm is determined based on the Company’s financial statements when adopted.
Note 4. Sales and Cost of Sales
The Company has available a financing line with a financial institution (the Purchaser), which enables the Company to sell accounts receivable to the Purchaser with full recourse against the Company. Pursuant to the provisions of FASB ASC 860, the Company reflects the transactions as a sale of assets and establishes an accounts receivable from the Purchaser for the retained amount less the costs and fees of the transaction and less any anticipated future loss in the value of the retained asset.
The retained amount was revised tois 10% of the total accounts receivable invoice sold to the Purchaser. The fee is charged at prime plus 3.6% (effective rate of 7.85%8.35% at SeptemberJune 30, 2017)2022) against the average daily outstanding balance of funds advanced. The estimated future loss reserve for each receivable included in the estimated value of the retained asset is based on the payment history of the accounts receivable customer and is included in the allowance for doubtful accounts, if any. As collateral, the Company granted the Purchaser a first priority interest in accounts receivable and a blanket lien, which may be junior to other creditors, on all other assets.
The financing line provides the Company the ability to finance up to $2,000,000 of selected accounts receivable invoices, which includes a sublimit for one of the Company’s customers of $1,500,000. During the ninesix months ended SeptemberJune 30, 2017,2022, the Company sold $3,694,713approximately $1,062,000 ($4,524,2461,778,000 – Septemberfor the six months ended June 30, 2016)2021) of its accounts receivable to the Purchaser. As of SeptemberJune 30, 2017, $381,0002022, approximately $303,000 ($328,000148,000 - December 31, 2016)2021) of these receivables remained outstanding. Additionally, as of SeptemberJune 30, 2017,2022, the Company had approximately $104,000$1,000 available under the financing line with the financial institutionPurchaser ($143,000 –66,000 at December 31, 2016)2021). After deducting estimated fees, allowance for bad debts and advances from the Purchaser, the net receivable from the Purchaser amounted to $38,099,$38,000 at SeptemberJune 30, 20172022 ($31,462 –15,000 at December 31, 2016)2021), and is included in accounts receivable in the accompanying balance sheets.
There were no gains or losses on the sale of the accounts receivable because all were collected. The cost associated with the financing line totaled $35,944$22,306 for the ninesix months ended SeptemberJune 30, 20172022 ($53,063 - September 30, 2016) and $12,19613,967 – for the threesix months ended SeptemberJune 30, 2017 ($14,502 - September 30, 2016)2021). These financing line fees are classified on the statements of operations as interest expense.
Note 5. Capitalization of Software for Resale
As of June 30, 2022, there were $789,350 of costs capitalized ($678,973 as of December 31, 2021) and $368,126 of accumulated amortization ($261,323 as of December 31, 2021). During the three and six months ended June 30, 2022, there was $53,402 and $106,803 respectively, of amortization expense recorded ($39,844 and 74,794 respectively, for the three and six months ended June 30, 2021). Costs incurred prior to reaching technological feasibility are expensed as incurred. During the three and six months ended June 30, 2022, there was approximately $7,800 and $16,100, respectively, of labor amounts expensed related to these development costs ($46,900 and $87,700, respectively, for the three and six months ended June 30, 2021).
10 |
Table of Contents |
Note 6. Deferred Revenue and Performance Obligations
Deferred Revenue
Deferred revenue, which is a contract liability, consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s contracts with customers and is recognized as the revenue recognition criteria are met.
Revenue recognized during the three months ended June 30, 2022 and 2021, that was included in the deferred revenue balances at the beginning of the respective periods, was approximately $136,100 and $132,800, respectively. Revenue recognized during the six months ended June 30, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was approximately $278,300 and $210,300, respectively
Transaction Price Allocated to the Remaining Performance Obligations
Transaction price allocated to the remaining performance obligations represents all future, non-cancelable contracted revenue that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancelable amounts that will be invoiced and recognized as revenue in future periods.
As of June 30, 2022, total remaining non-cancelable performance obligations under the Company’s contracts with customers was approximately $704,000. The Company expects to recognize all of this revenue over the next 12 months.
Note 7. Debt Obligations
During the six months ended June 30, 2022, the Company entered into a financing arrangement (the “Second Mast Hill Loan”) with Mast Hill Fund, L.P. (“Mast Hill”), a Delaware limited partnership. In exchange for a promissory note, Mast Hill agreed to lend the Company $370,000, which bears interest at a rate of eight percent (8%) per annum, less $37,000 original issue discount. Under the terms of the Second Mast Hill Loan, payments of $44,400, including principal and interest, are due beginning June 15, 2022, and each month thereafter with the final payment due on February 15, 2023. As additional consideration for the Second Mast Hill Loan), the Company issued the “Lender” a 5-year warrant to purchase 925,000 shares of Company common stock at a fixed price of $0.16 per share, subject to price adjustments for certain actions, including dilutive issuances. The Company has granted the Lender customary “piggy-back” registration rights with respect to the shares issuable upon conversion of the promissory note and exercise of the warrant. No material relationship exists between the Company or its affiliates and Lender, other than in respect of the Loan. The Company evaluated the terms of the warrant under ASC 480 and ASC 815 and determined that they were to be treated as equity instruments. The value of the warrant (calculated using the Black-Scholes option pricing model to determine the estimated fair value of the warrant) of approximately $131,600 will be amortized to interest expense over the life of the Promissory Note and is recorded as a discount to the promissory note. Debt issuance costs of $54,650 were incurred and are being amortized to interest expense over the life of the Promissory Note and is recorded as a discount to the promissory note. At June 30, 2022, the Company deferred the June 15, 2022 payment per the terms of the Second Mast Hill Loan.
On April 12, 2022, the Company entered into a financing arrangement (the “Talos Loan”) with Talos Victory Fund, LLC (“Talos”), a Delaware limited liability company. In exchange for a promissory note, Talos agreed to lend the Company $296,000, which bears interest at a rate of eight percent (8%) per annum, less $29,600 original issue discount. Under the terms of the Talos Loan, payments of $35,520, including principal and interest, are due beginning August 12, 2022, and each month thereafter with the final payment due on April 12, 2023. As additional consideration for the Second Mast Hill Loan), the Company issued the “Lender” a 5-year warrant to purchase 740,000 shares of Company common stock at a fixed price of $0.16 per share, subject to price adjustments for certain actions, including dilutive issuances. The Company has granted the Lender customary “piggy-back” registration rights with respect to the shares issuable upon conversion of the promissory note and exercise of the warrant. No material relationship exists between the Company or its affiliates and Lender, other than in respect of the Loan. The Company evaluated the terms of the warrant under ASC 480 and ASC 815 and determined that they were to be treated as equity instruments. The value of the warrant (calculated using the Black-Scholes option pricing model to determine the estimated fair value of the warrant) of $74,000 will be amortized to interest expense over the life of the Promissory Note and is recorded as a discount to the promissory note. Debt issuance costs of $45,920 were incurred and are being amortized over a twelve-month period ending April 2023.
On May 27, 2022, the Company entered into a financing arrangement (the “Third Mast Hill Loan”) with Mast Hill. In exchange for a promissory note, Mast Hill agreed to lend the Company $355,000, which bears interest at a rate of eight percent (8%) per annum, less $35,500 original issue discount. Under the terms of the Third Mast Hill Loan, payments of $42,600, including principal and interest, are due beginning September 27, 2022, and each month thereafter with the final payment due on May 26, 2023. As additional consideration for the Second Mast Hill Loan), the Company issued the “Lender” a 5-year warrant to purchase 887,500 shares of Company common stock at a fixed price of $0.16 per share, subject to price adjustments for certain actions, including dilutive issuances. The Company has granted the Lender customary “piggy-back” registration rights with respect to the shares issuable upon conversion of the promissory note and exercise of the warrant. No material relationship exists between the Company or its affiliates and Lender, other than in respect of the Loan. The Company evaluated the terms of the warrant under ASC 480 and ASC 815 and determined that they were to be treated as equity instruments. The value of the warrant (calculated using the Black-Scholes option pricing model to determine the estimated fair value of the warrant) of approximately $113,400 will be amortized to interest expense over the life of the Promissory Note and is recorded as a discount to the promissory note. Debt issuance costs of $54,975 were incurred and are being amortized over a twelve-month period ending May 2023.
On June 30, 2022, the Company and Donald W. Reeve, a director of the Company, entered into two note modification agreements with respect to the Promissory Note originally dated December 30, 2020 and the Promissory Note originally dated May 25, 2021. There were two payments of principal of $100,000 each due June 1, 2022. The Modification agreements each extended the previously amended due dates from June 1, 2022 to September 1, 2022.
Note 8. Earnings Perper Share
Basic earnings per share is based on the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is based on the weighted average number of common shares outstanding, as well as dilutive potential common shares which, in the Company’s case, comprise shares issuable under convertible notes payable and stock options. The treasury stock method is used to calculate dilutive shares, which reduces the gross number of dilutive shares by the number of shares purchasable from the proceeds of the options and warrants assumed to be exercised. In a loss period, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.
11 |
Table of Contents |
The following table sets forth the computation of basic and diluted net loss per share.
Three months ended September 30, | Nine months ended September 30, | |||
2017 | 2016 | 2017 | 2016 | |
Numerator for basic and diluted net loss per share: | ||||
Net loss | $(188,000) | $(83,342) | $(578,151) | $(303,070) |
Denominator for basic and diluted net loss per share: | ||||
Weighted average common shares outstanding | 29,105,361 | 29,061,883 | 29,076,535 | 28,127,817 |
Basic and diluted net loss per share | $(.01) | $.00 | $(.02) | $(.01) |
Anti-dilutive shares excluded from net loss per share | 28,033,096 | 28,829,443 | 28,033,096 | 28,829,443 |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator for basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (833,200 | ) |
| $ | (416,503 | ) |
| $ | (1,701,434 | ) |
| $ | (568,730 | ) |
Basic and diluted net loss per share |
| $ | (0.03 | ) |
| $ | (0.01 | ) |
| $ | (0.05 | ) |
| $ | (0.02 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted shares |
|
| 33,296,434 |
|
|
| 29,238,323 |
|
|
| 33,000,304 |
|
|
| 29,150,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from net loss per share calculation |
|
| 23,951,234 |
|
|
| 23,148,234 |
|
|
| 23,951,234 |
|
|
| 23,148,234 |
|
Certain common shares issuable under stock options and convertible notes payable have been omitted from the diluted net loss per share calculation because their inclusion is considered anti-dilutive because the exercise prices were greater than the average market price of the common shares or their inclusion would have been anti-dilutive.
Note 9. Financing Agreement
The Company has approved stock option plans and agreements covering up to an aggregate of 8,209,00016,304,500 shares of common stock. PlanSuch options may be designated at the time of grant as either incentive stock options or nonqualified stock options. Stock based compensation consists of charges for stock option awards to employees, directors and consultants.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. 95,000 options were granted for the six months ended June 30, 2022. 575,000 options were granted for the six months ended June 30, 2021. The following assumptions were used for the ninesix months ended SeptemberJune 30, 2017 and 2016.
2017 | 2016 | |
Risk-free interest rate | 1.50% - 1.58% | .88% - 1.50% |
Expected dividend yield | 0% | 0% |
Expected stock price volatility | 100% | 100% |
Expected life of options | 2.75 to 3.0 years | 2.50 to 5.75 years |
Risk-free interest rate | 1.26%-3.35 | % | ||
Expected dividend yield | 0 | % | ||
Expected stock price volatility | 110%-130 | % | ||
Expected life of options (years) | 2.75 |
The Company recorded expense for options issued to employees and independent service providers of $15,294$51,708 and $23,364$52,631 for the three and six months ended June 30, 2022, respectively ($81,920 and $110,168 for the three and six months ended June 30, 2021).
360,000 options vested during the six months ended June 30, 2022.
The Company issued 750,000 performance-based stock options during 2021 at $0.245 per share to an executive of the Company. Certain revenue targets must be made to grant the options in three tranches of 250,000 shares each. In the three months ended SeptemberJune 30, 20172022, the Company amended the targets for these options and 2016, respectively, and $25,198 and $31,301recognized one third of the compensation in the amount of $45,275. The remaining unrecognized compensation expense for the nine months ended September 30, 2017 and 2016, respectively.
A summary of all stock option activity for the ninesix months ended SeptemberJune 30, 2017 follows.
Number of Options Outstanding | Weighted Average Exercise Price | Remaining Contractual Term | Aggregate Intrinsic Value | |
Outstanding at December 31, 2016 | 8,583,000 | $.12 | ||
Granted | 680,000 | $.04 | ||
Expired | (169,500) | $.41 | ||
Forfeited | (1,462,500) | $.15 | ||
Outstanding at September 30, 2017 | 7,631,000 | $.12 | 4.4 years | $4,900 |
At September 30, 2017: | ||||
Vested or expected to vest and exercisable | 6,693,000 | $.08 | 4.7 years | $4,900 |
|
| Number of |
|
| Weighted |
|
| Remaining |
| Aggregate |
| |||
|
| Options |
|
| Average |
|
| Contractual |
| Intrinsic |
| |||
|
| Outstanding |
|
| Exercise Price |
|
| Term |
| Value |
| |||
Outstanding at December 31, 2021 |
|
| 10,755,000 |
|
| $ | .08 |
|
|
|
|
|
| |
Granted |
|
| 95,000 |
|
|
| .13 |
|
|
|
|
|
| |
Expired |
|
| (347,500 | ) |
|
| .04 |
|
|
|
|
|
| |
Outstanding at June 30, 2022 |
|
| 10,502,500 |
|
| $ | .08 |
|
| 2.9 years |
| $ | 870,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2022- vested or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expected to vest |
| 9,992,500 |
|
| $ | .07 |
|
| 2.9 years |
| $ | 870,900 |
| |
Exercisable |
|
| 9,992,500 |
|
| $ | .07 |
|
| 2.9 years |
| $ | 870,900 |
|
Note 10. Warrants
On April 29, 2022, Mast Hill Fund, LP elected to purchase 1,400,000 warrant shares in a cashless exercise per the terms of the warrant agreement dated November 3, 2021. Based on the calculation per the agreement, 860,241 shares were issued to Mast Hill Fund, LP.
12 |
Table of Contents |
Note 11. Lease
Beginning on August 1, 2016, the Company leased its headquarters facility under an operating lease agreement that was scheduled to expire on June 30, 2022. Rent expense was $80,000 annually during the first year of the lease term and increased by 1.5% annually thereafter. The lease was terminated one month early, and a new lease agreement, at the existing headquarters location, commenced on June 1, 2022. The term of the new lease agreement is 84 months. The first year’s rent will be $118,487 and will increase by 2% annually thereafter.
Supplemental balance sheet information related to the leases on June 30, 2022 and December 31, 2021 is as follows:
Description |
| Classification |
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
|
|
| ||
Right of Use Asset - Lease, net |
| Other assets (non-current) |
| $ | 684,552 |
|
| $ | 41,490 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Liability - Short Term |
| Accrued liabilities |
|
| 73,030 |
|
|
| 42,347 |
|
Operating Lease Liability - Long Term |
| Other long-term liabilities |
|
| 612,136 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Lease Liability |
|
|
| $ | 685,166 |
|
| $ | 42,347 |
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate - Operating Lease |
|
|
|
| 7.0 | % |
|
| 6.0 | % |
Note 12. Related Party - Accrued Interest Payable
Included in accrued interest payable is accrued interest payableamounts due to related parties of $95,513approximately $134,000, at SeptemberJune 30, 20172022 ($81,347 -107,000 at December 31, 2016)2021).
Note 13. Subsequent Events
On July 29, 2022, the “Company and Andrew Hoyen (“Lender”), a director and executive officer of the Company, entered into a note modification agreement (the “Modification Agreement”) with respect to the Line of Credit Note and Agreement in the original principal sum of up to $100,000,dated July 18, 2017, issued by the Company to the Lender (the “Hoyen Note”). The Note and the Modification Agreement was approved by the disinterested members of the Company’s Board of Directors. The Modification Agreement extends the due date of the Note to July 31, 2023, on which date the current outstanding principal balance of $90,000 and accrued and unpaid interest will be due. Pursuant to the Modification Agreement, the Company agreed to repay to Lender $16,000 of the accrued interest on the Hoyen Note and off-set such repayment against the exercise on July 29, 2022 by Lender of certain options to acquire 400,000 shares of the Company’s common stock. The remaining accrued and unpaid interest on the Hoyen Note was $10,930 as of July 29, 2022. Except as set forth in the Modification Agreement, the terms of the Hoyen Note remain the same
On August 10, 2022, the Company received funding from a loan agreement with Stripe and Celtic Bank. The loan amount was $139,400 plus a fixed fee of $11,152. The repayment amount of $150,522 will be repaid at a repayment rate of 25% of the Company’s receivables automatically withheld by Stripe. There is no financing percentage. The repayment start date is August 15, 2022, with a minimum payment amount of $16,728 over every 60-day period. The final repayment date is February 6, 2024, if total repayment amount is not paid as of that date.
************
13 |
Table of Contents |
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsThis discussion contains forward-looking statements, the accuracy of which involves risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons including, but not limited to, those discussed under the heading “Forward Looking Statements” above and elsewhere in this report. We disclaim anyundertake no obligation to publicly update information contained inor revise any forward-looking statements.
The following Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the notes thereto appearing elsewhere in this report.
Overview
Impact of COVID-19
The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption. It has already disrupted global travel and supply chains and adversely impacted global commercial activity. Considerable uncertainty still surrounds COVID-19 and its potential long-term economic effects, as well as the effectiveness of any responses taken by government authorities and businesses. The travel restrictions, limits on hours of operations and/or closures of non-essential businesses, and other efforts to curb the spread of COVID-19 has continued to disrupt business activity globally. New strains and variants of the coronavirus continue to spread around the world. The ongoing rollout of vaccines around the globe is encouraging, but their long-term impact on the political environment, business environment, and the Company is still uncertain. Please see Part II Item 1A of this Report and our other filings with the SEC for additional information regarding certain risks associated with the COVID-19 pandemic.
During the first six months of 2022, our managed support services and software license revenues were minimally affected by the impact of the COVID-19 pandemic on our customers’ operational priorities. However, the many governmental restrictions that were in place in 2020 and 2021, which limited in-person and group meetings, constrained our ability to interact with new clients in the area of cybersecurity projects, and this has had a material impact on our 2022 cybersecurity project revenue. We are continuing to adapt our operations to meet the challenges of this uncertain and rapidly evolving situation, including remote working arrangements for our employees, limiting non-essential business travel, and utilizing virtual sales and marketing events. Our sales and marketing expenses increased during the first six months of 2022. We expect these expenses to continue to grow, but we expect these expenses will be lower compared to prior year periods pre-COVID-19 pandemic on travel and in-person marketing events. We will continue to actively monitor the nature and extent of the impact to our business, operating results, and financial condition.
14 |
Table of Contents |
Our Business
Headquartered in Pittsford, New York, Infinite Group, Inc.IGI is a provider of managed IT and virtualization services and a developer and provider of cybersecurity toolssoftware and solutions to private businessesrelated cybersecurity consulting, advisory, and managed information security services. We principally sell our software and services through indirect channels such as Managed Service Providers (“MSPs”), Managed Security Services Providers (“MSSPs”), agents and distributors and government agencies. As part ofcontractors, whom we refer to collectively as our channel partners. We also sell directly to end customers.
We believe our ability to succeed depends on how successful we are in differentiating ourselves in the cybersecurity market at a time when competition and consolidation in these markets are on the rise. Our strategy to differentiate our cybersecurity software and services we:
As part of these software and service offerings we:
· | Internally developed and brought to market Nodeware®, a patented SaaS solution that automates network asset identification, and cybersecurity vulnerability management and monitoring. Nodeware simply and affordably enhances security by proactively identifying, monitoring, and addressing potential cybersecurity vulnerabilities on networks, which creates enhanced security to safeguard against hackers and ransomware. Nodeware provides an economical solution for small and medium-sized enterprises as compared to more costly solutions focused on enterprise-sized customers and is designed to accommodate the varying network needs of our end customers’ organizations and networks. Nodeware’s flexibility allows it to span from a single network to several subnetworks, as well as accommodating larger, more complex organizations with more advanced network needs. Nodeware is sold as a SaaS solution and continuously releases enhancements, updates, and upgrades to stay current with security needs and changes in the market. Nodeware is also designed to be integrated into other technology platforms. We primarily sell Nodeware through our channel partners, with a small percentage being sold directly to end customers. We intend to continue to develop our intellectual property to serve as the core to our proprietary software and services. In addition to our proprietary software and services we also act as a master distributor for other cybersecurity software, principally Webroot a cloud-based endpoint security platform solution, where we market to and provide support for over 225 small channel partners across North America; |
· | Provide cybersecurity consulting and advisory services to channel partners and direct customers across different markets, including banking, manufacturing, supply chain, and technology. As part of our consulting and advisory services, we are contracted to support existing information technology and executive teams at both the customer and channel partner level and provide security leadership and guidance. We validate overall corporate and infrastructure cybersecurity with the goal of maintaining and securing the integrity of confidential client information, preserving the continuity of services, and minimizing potential data damage from threats and incidents; and |
· | Provide managed support services related to information security, principally as a subcontractor for Peraton, a large information technology provider and U.S. government contractor, by providing in-depth troubleshooting, backend analysis, and technical and security support, commonly referred to as Level 2 support, for mission critical technical infrastructure from the server level to the end user interface application in a critical government environment. |
15 |
Table of Contents |
Business Strategy
We have a threefold business strategy composed of:
· | providing differentiated cybersecurity software and services to small to mid-sized enterprises who lack the internal resources to focus on cybersecurity related matters by combining customized software and professional services; | |
· | designing, developing, and marketing cybersecurity SaaS solutions, including our Nodeware solution; and | |
· | identifying other cybersecurity companies to acquire as part of a strategic roll-up strategy. |
We believe our ability to succeed depends on how successful we brought oneare in differentiating ourselves in the market at a time when competition and consolidation in these markets is on the rise. Our software and services are designed to simplify the security needs of our customers and channel partners, with a focus on the small to mid-sized enterprises, and we believe our ability to integrate our product Nodeware™,and service offerings differentiates them from our competitors. In addition, we support our channel partners by providing recurring-revenue business models for both services and our cybersecurity SaaS solutions.
Cybersecurity is a constantly evolving field, so we devote significant efforts in developing proprietary software and services to market. Nodeware™meet our customer and channel partners’ evolving needs. These efforts have resulted in the development of our patented and patent-pending Nodeware solution. We expect to continue to make significant investments in developing other intellectual property to serve as the core to other proprietary software and services.
Historically, a significant portion of our revenues has been derived through our managed support services, however, we believe our cybersecurity SaaS solutions, including Nodeware, present an opportunity for significant growth. We believe that Nodeware’s ability to be deployed in an underserved market segment, across a wide variety of networks and the ability to integrate it into existing and new cybersecurity software and services, will allow us to significantly grow this segment of our business. Similarly, we believe Nodeware’s SaaS recurring revenue business model and its flexibility as a standalone or integrated solution makes it an attractive part of our channel partners’ portfolio of products. Accordingly, in 2021 we made significant investments in Nodeware sales and marketing to grow our team of cybersecurity sales and technical consultants. As a result, we believe we are seeing the pipeline growth expected from focused efforts, which we anticipate will convert to revenue growth in 2022 and beyond.
We believe the market for cybersecurity services for small and medium-sized enterprises is an automated, continuous plugfragmented and playdoes not currently meet the needs of this customer base. The market is fragmented and is beginning to consolidate, which is why we are seeking to strategically acquire other cybersecurity technology and services companies.
The following sections define specific components of our business strategy.
Nodeware®
Nodeware is a patented SaaS solution that automates network asset identification, and cybersecurity vulnerability management system that consists of hardware and software. It is intendedmonitoring. Nodeware simply and affordably enhances security by proactively identifying, monitoring, and addressing potential cybersecurity vulnerabilities on networks, which creates enhanced security to fillsafeguard against hackers and ransomware. Nodeware’s flexibility allows it to span from a need in the SME market. Itsingle network to several subnetworks, as well as accommodating larger, more complex organizations with more advanced network needs. Nodeware assesses vulnerabilities in a computer network using proprietary scanning technology to capture a comprehensive view of the security exposure of a network infrastructure. Users receive alerts and infrastructure. Nodeware™view network information through a proprietary, web enabled dashboard. Continuous and automated internal scanning and external on demand scanning are components of this offering. As described below, Nodeware has one patent and one patent pending. We intend to develop other intellectual property that serve as the core to other proprietary software and services to market through a channel of domestic and international partners and distributors.
Nodeware provides an economical solution for small and medium-sized enterprises as compared to costly solutions focused on enterprise sized customers, and is useddesigned to eliminateaccommodate the varying network needs of our end customers’ organizations and networks. Nodeware is sold as a SaaS solution and continuously releases enhancements, updates, and upgrades to stay current with security gaps for SMEs. We sell Nodeware™needs and changes in the commercial sectormarket. Nodeware is also designed to be integrated into other technology platforms. We primarily sell Nodeware through our current channel partners.
In June 2021, we created IGI CyberLabs, LLC, a wholly owned subsidiary, to support our Nodeware solution and continued software development. CyberLabs’s overarching mission is to drive sales of Nodeware, which we believe will drive monthly and annualized recurring revenue. CyberLabs will also drive product and platform enhancements across other current future subsidiaries as IGI’s strategic roll up of cybersecurity companies comes to fruition. This also enhances our ability to bring new cloud and SaaS cybersecurity related solutions to market through our growing channel partner relationships.
Cybersecurity Services
In addition to Nodeware, we provide cybersecurity consulting services that include incident response, security awareness training, cybersecurity risk management, IT governance and compliance, security assessment services, (CISOTaaS ™) and PenLogic™ penetration testing services offerings to channel partners and direct customers across different markets, including banking, manufacturing, supply chain, and technology, in North America. Our cybersecurity consulting projects leverage different technology platforms and processes, such as Nodeware, to create documentation and processes that a customer can use to continually improve overall IT governance and corporate security. We validate overall network and infrastructure security with the goal of maintaining the integrity of confidential client information, preserving the continuity of services, and minimizing potential data damage from cybersecurity threats and incidents. We continue to enhance our cybersecurity services based on feedback from customers and changes in the market.
Managed Support Services
We also provide managed support services related to information security, principally as a subcontractor for Peraton, a large information technology provider and U.S. government contractor, where we assume the responsibility for providing a defined set of cybersecurity services. These services typically include in-depth troubleshooting, backend analysis, and technical and security support, commonly referred to as Level 2 support, for mission critical technical infrastructure from the server level to the end user interface application in a critical government environment.
Intellectual Property
We believe that our intellectual property is an asset that will contribute to the growth and profitability of our business. We rely on a combination of patented, patent-pending and confidentiality procedures, trademarks and contractual provisions to establish and protect our intellectual property rights in the United States and abroad. We intend to rely on both registration and common law protection for our trademarks.
16 |
Table of Contents |
In May 2016, we filed a provisional patent application for our proprietary product, Nodeware, and launched it commercially in November 2016. In May 2017, we filed a utility patent application for Nodeware: U.S. Patent No. 10,999,307, was issued on May 4, 2021, for NETWORK ASSESSMENT SYSTEMS AND METHODS THEREOF U.S. Patent Application Serial No. 15/600,297, filed May 19, 2017, claiming priority of U.S. Provisional Patent Application Serial No. 62/338,904, filed May 19, 2016. The patent will remain in effect for four years from the publicdate of issue and commercial sectormay be extended for up to twenty years from the filing date. Therefore, the expiration date of the subject patent, assuming all milestones to extend are met, is July 19, 2037.
In December 2019, we filed a second provisional patent application and in December 2020 we filed the subsequent action on the patent on Nodeware. In 2020 and 2021, we created updates and improvements to the platform in response to COVID-19 needs and impact such as a downloadable Windows executable version along with Windows, Mac, and Linux Agents that could be downloaded to a remote PC or server. A number of enhancements related to data management, threat intelligence, and user functionality were part of these updates.
The efforts we have taken to protect our intellectual property may not be sufficient or effective. As a result of this uncertainty and overall significance to the financial statements, these costs have been expensed.
The U.S. patent system permits the filing of provisional and non-provisional patent applications. A non-provisional patent application is examined by building VMware license sales volumethe United States Patent and Trademark Office and can mature into a patent once that office determines that the claimed invention meets the standards for patentability.
Our current patent and trademark portfolio consists of a patent for the Nodeware solution and process for scanning for vulnerabilities and a pending patent covering the methodologies associated with identifying and cataloging the assets on or across any physical or cloud network, together with a registered trademark for the “Nodeware” name and other trademarks and tradenames associated with our company and products. We intend to continue to work to enhance our intellectual property position on the Nodeware solution and in other appropriate cybersecurity technology we generate.
Research and Development
Our research and development efforts are focused on ensuring our software and services concurrently. continually adapt to ever-evolving cybersecurity threats, developing new and improved functionality to meet our customers’ needs, and to enable robust and efficient integration with other industry solutions. Our research and development team is responsible for the design, development, testing and quality of our software, including Nodeware, and works to ensure that our software is available, reliable and stable.
We are workingbelieve the timely development of new features and the enhancement of our existing solution(s) that address continuously evolving cybersecurity risks is essential to maintaining our competitive position. Our research and development team works closely with our channel partners, customers, and internal teams to collect user feedback to enhance our development process to continually incorporate suggestions and feedback. We also believe our research and development teams’ focus on developing new products will help us expand our business and improve our market position. We invest substantial resources in research and development to ensure that the functionalities of Nodeware can be robustly and efficiently integrated with other industry solutions because we believe this is key to our ability to expand the presence of Nodeware and our managedother software and services business within the cybersecurity market. We utilize an agile development process to deliver numerous releases, fixes and feature updates on a regular basis and capitalize qualifying costs of developing larger scale projects. Our research and development team is primarily based in Pittsford, New York, and we maintain additional research and development capabilities in certain other locations who supplement our current federal enterprise customer. From timecore team.
In June 2021, we created IGI CyberLabs, LLC, a wholly owned subsidiary, to timesupport our Nodeware solution and continued software development. CyberLabs's overarching mission is to drive sales of our Nodeware solution, which we believe will drive monthly and annualized recurring revenue. CyberLabs will also drive product and platform enhancements in Nodeware and new cloud and SaaS cybersecurity related products that will be brought to market through our growing direct customer and channel partner relationships. We believe a continued focus on intellectual property development creates differentiation in the market for cybersecurity.
Costs incurred prior to reaching technological feasibility are in various stagesexpensed as incurred, and subsequently they are capitalized until product launch.
Results of Operations
Comparison of the proposal process with potential enterprise customers including responding to requests for information, quotations, draft statements of work, and pricing.
The following tables comparetable compares our statements of operations data for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016.2021. The trends suggested by this table are not indicative of future operating results.
Three Months Ended September 30, | ||||||
2017 vs. 2016 | ||||||
As a % of | As a % of | Amount of | % Increase | |||
2017 | Sales | 2016 | Sales | Change | (Decrease) | |
Sales | $1,586,278 | 100.0% | $1,727,750 | 100.0% | $(141,472) | (8.2)% |
Cost of sales | 1,133,202 | 71.4 | 1,223,085 | 70.8 | (89,883) | (7.3) |
Gross profit | 453,076 | 28.6 | 504,665 | 29.2 | (51,589) | (10.2) |
General and administrative | 290,142 | 18.3 | 297,346 | 17.2 | (7,204) | (2.4) |
Selling | 288,093 | 18.2 | 228,590 | 13.2 | 59,503 | 26.0 |
Total costs and expenses | 578,235 | 36.5 | 525,936 | 30.4 | 52,299 | 9.9 |
Operating loss | (125,159) | (7.9) | (21,271) | (1.2) | 103,888 | 488.4 |
Interest expense | (62,841) | (4.0) | (62,071) | (3.6) | 770 | 1.2 |
Net loss | $(188,000) | (11.9)% | $(83,342) | (4.8)% | $(104,658) | 125.6% |
Net loss per share - basic and diluted | $(.01) | $.00 | $(.01) |
Nine Months Ended September 30, | ||||||
2017 vs. 2016 | ||||||
As a % of | As a % of | Amount of | % Increase | |||
2017 | Sales | 2016 | Sales | Change | (Decrease) | |
Sales | $4,799,434 | 100.0% | $5,391,001 | 100.0% | $(591,567) | (11.0)% |
Cost of sales | 3,395,436 | 70.7 | 3,912,730 | 72.6 | (517,294) | (13.2) |
Gross profit | 1,403,998 | 29.3 | 1,478,271 | 27.4 | (74,273) | (5.0) |
General and administrative | 867,097 | 18.1 | 947,978 | 17.6 | (80,881) | (8.5) |
Selling | 931,840 | 19.4 | 645,232 | 12.0 | 286,608 | 44.4 |
Total costs and expenses | 1,798,937 | 37.5 | 1,593,210 | 29.6 | 205,727 | 12.9 |
Operating loss | (394,939) | (8.2) | (114,939) | (2.1) | 280,000 | 243.6 |
Interest expense | (183,212) | (3.8) | (188,131) | (3.5) | (4,919) | (2.6) |
Net loss | $(578,151) | (12.0)% | $(303,070) | (5.6)% | $(275,081) | 90.8% |
Net loss per share - basic and diluted | $(.02) | $(.01) | $(.01) |
| Three Months Ended June 30, | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2022 vs 2021 |
|
|
|
| ||||||
|
|
|
|
| As a % of |
|
|
|
|
| As a % of |
|
| Amount of |
|
| % Increase |
| ||||||
|
| 2022 |
|
| Sales |
|
| 2021 |
|
| Sales |
|
| Change |
|
| (Decrease) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sales |
| $ | 1,696,492 |
|
|
| 100.0 | % |
| $ | 1,797,504 |
|
|
| 100.0 | % |
| $ | (101,012 | ) |
|
| (5.6 | )% |
Cost of sales |
|
| 1,059,639 |
|
|
| 62.5 |
|
|
| 1,109,223 |
|
|
| 61.7 |
|
|
| (49,584 | ) |
|
| (4.5 | ) |
Gross profit |
|
| 636,853 |
|
|
| 37.5 |
|
|
| 688,281 |
|
|
| 38.3 | % |
|
| (51,428 | ) |
|
| (7.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 613,317 |
|
|
| 36.2 |
|
|
| 541,711 |
|
|
| 30.1 |
|
|
| 71,606 |
|
|
| 13.2 |
|
Selling |
|
| 612,957 |
|
|
| 36.1 |
|
|
| 507,042 |
|
|
| 28.2 |
|
|
| 105,915 |
|
|
| 20.9 |
|
Total cost and expenses |
|
| 1,226,274 |
|
|
| 72.3 |
|
|
| 1,048,753 |
|
|
| 58.3 |
|
|
| 177,521 |
|
|
| 16.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (589,421 | ) |
|
| (34.7 | ) |
|
| (360,472 | ) |
|
| (20.1 | ) |
|
| (228,949 | ) |
|
| (63.5 | ) |
Interest expense (net) |
|
| (243,779 | ) |
|
| (14.4 | ) |
|
| (56,031 | ) |
|
| (3.1 | ) |
|
| (187,748 | ) |
|
| (335.1 | ) |
Net loss |
| $ | (833,200 | ) |
|
| (49.1 | )% |
| $ | (416,503 | ) |
|
| (23.2 | )% |
| $ | (416,697 | ) |
|
| (100.0 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted |
| $ | (0.03 | ) |
|
|
|
|
| $ | (0.01 | ) |
|
|
|
|
| $ | (0.02 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2022 vs 2021 |
|
|
|
|
| |
|
|
|
|
|
| As a % of |
|
|
|
|
|
| As a % of |
|
| Amount of |
|
| % Increase |
| ||||
|
| 2022 |
|
| Sales |
|
| 2021 |
|
| Sales |
|
| Change |
|
| (Decrease) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
| $ | 3,363,562 |
|
|
| 100.0 | % |
| $ | 3,621,846 |
|
|
| 100.0 | % |
| $ | (258,284 | ) |
|
| (7.1 | )% |
Cost of sales |
|
| 2,180,879 |
|
|
| 64.8 |
|
|
| 2,182,138 |
|
|
| 60.2 |
|
|
| (1,259 | ) |
|
| (0.1 | ) |
Gross profit |
|
| 1,182,683 |
|
|
| 35.2 |
|
|
| 1,439,708 |
|
|
| 39.8 | % |
|
| (257,025 | ) |
|
| (17.9 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 1,217,300 |
|
|
| 36.2 |
|
|
| 1,006,103 |
|
|
| 27.8 |
|
|
| 211,197 |
|
|
| 21.0 |
|
Selling |
|
| 1,260,582 |
|
|
| 37.5 |
|
|
| 894,767 |
|
|
| 24.7 |
|
|
| 365,815 |
|
|
| 40.9 |
|
Total cost and expenses |
|
| 2,477,882 |
|
|
| 73.7 |
|
|
| 1,900,870 |
|
|
| 52.5 |
|
|
| 577,012 |
|
|
| 30.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (1,295,199 | ) |
|
| (38.5 | ) |
|
| (461,162 | ) |
|
| (12.7 | ) |
|
| (834,037 | ) |
|
| (180.9 | ) |
Interest expense (net) |
|
| (406,235 | ) |
|
| (12.1 | ) |
|
| (107,568 | ) |
|
| (3.0 | ) |
|
| (298,667 | ) |
|
| (277.7 | ) |
Net loss |
| $ | (1,701,434 | ) |
|
| (50.6 | )% |
| $ | (568,730 | ) |
|
| (15.7 | )% |
| $ | (1,132,704 | ) |
|
| (199.2 | )% |
17 |
Table of Contents |
Sales
Our managed support service sales increased by 5.5% from $1,057,431 during the three months ended SeptemberJune 30, 2017 and 2016, respectively, our:
Our cybersecurity projects and software sales, comprised approximately 78% and 87% of our total sales; and
Other IT consulting services sales declined during the three months ended June 30, 2022, decreasing by $51,000 from the same period in 2021. These same sales declined during the six months ended June 30, 2022 by $102,000 from the same period in 2021. The decline in other IT consulting services sales for the three and ninesix months ended SeptemberJune 30, 2017 compared2022 was due to $124,490 for the three and nine months ended September 30, 2016. Since we have determined that we act as an agent and not astermination of a principal in connection with these sales, only the gross profit is included in sales.
Cost of Sales and Gross Profit
Cost of sales principally represents compensation expense for our employees. Cost of sales decreased by 4.5% to $1,059,639 during the costthree months ended June 30, 2022 from $1,109,223 during the corresponding period of employee services related to our IT Services Group. We also incurred2021. The decrease in cost of sales for third party software licenses for our commercial SME partners. As virtualization projectduring the three months ended June 30, 2022 from 2021 was due to a reduction in headcount of marketing and sales personnel. Cost of sales decreased related personnel cost of sales also decreased.
18 |
Table of Contents |
Our gross profit decreased by $51,589 and $74,273, respectively, as our sales$51,428 to $636,853 from the three months ended June 30, 2021 to 2022. Gross profit decreased during these periods. Our gross profit margin improvedby $257,025 to $1,182,683 from 27.4%the six months ended June 30, 2021 to 29.3% for2022. In both periods, the nine month periods ended September 30, 2016 and 2017 principallydecrease was primarily due to the growth of our commercial SME sales.
General and Administrative Expenses
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 of $613,317 for the three months ended June 30, 2022 increased 13% from $541,711 for the same quarter of 2021. For the ninesix months ended SeptemberJune 30, 2017,2022, general and administrative expenses decreased consistingcosts were 21% higher than the same period in 2021, increasing to $1,217,300 from $1,006,103. These were primarily due to the increases to professional fees for legal, accounting and consulting services of various expense items including reductions in occupancy expenses, stock optionapproximately $108,000, for the comparative three-month periods, and $198,000 for the comparative six month period.
Selling Expenses
Selling expenses of approximately $8,900, and our accounts receivable allowance$612,957 for the three months ended June 30, 2022 increased 21% from $507,042 for the same quarter of $30,000.
Operating Income (Loss)
For the three months ended June 30, 2022 and 2021, operating loss was $589,421 and $360,472, respectively, as we launched Nodeware™ and expanded our commercial SME marketing efforts.
Interest Expense
Net interest expense of $243,779 for the three months ended June 30, 2022, increased 335% from expense of $56,031 for the same quarter of 2021. Net interest expense of $406,235 for the six months ended June 30, 2022, increased 278% from expense of $107,571 for the same period of 2021. The increase in interest expense is primarily attributable to the bridge loans taken in the last three quarters.
Net Loss
For the three months ended June 30, 2022 and 2021, net loss was $833,200 and $416,503, respectively, an increase in operating expenses of $52,299 and $205,727 for the three and nineloss by $416,696. For the six months ended SeptemberJune 30, 2017, respectively, as compared to 20162022 and a decrease in our gross profit.
Liquidity and Capital Resources
At SeptemberJune 30, 2017,2022, we had cash of $14,102 available for$1,594. At June 30, 2022, we had a working capital needsdeficit of approximately $4,400,000 and planned capital asset expenditures. a current ratio of 0.16.
During 2017, we financed2022, our business activities principally through cash flows provided by operations and sales with recourse of our accounts receivable. Our primary source of liquidity is cash provided by collections of accounts receivable and our factoring line of credit. We maintain an accounts receivable financing line of credit with an independent financial institution that allows us to sell selected accounts receivable invoices to the financial institution with full recourse against us in the amount of $2,000,000, including a sublimit for one major client of $1,500,000. This provides us with the cash needed to finance certain of our on-going costs and expenses. At SeptemberJune 30, 2017, we had financing availability,2022, based on eligible accounts receivable, of approximately $104,000we had $1,000 available under this line.arrangement. We expect sales during 2022 to generate additional accounts receivable eligible for factoring, that will support our operations. We pay fees based on the length of time that the invoices remaininvoice remains unpaid.
At SeptemberJune 30, 2017,2022, we had $17,285 of availability under the LOC Agreement. On June 29, 2017, we borrowed $20,000 under the terms of a demand note from this board member.
19 |
Table of Contents |
At June 30, 2022, we had current notes payable of approximately $944,000 to third parties, which includes convertible notes payable of $290,000.approximately $150,000. Also included is $12,500 in principal amount of a note payable due on SeptemberJune 30, 2016 but not paid.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.
Also included in the current notes payable are three Bridge Loans with Mast Hill Fund, L.P, which each bear interest at a rate of 8%. We plan to use the proceeds from the Bridge Loans to substantially enhance our marketing of CyberLab’s Nodeware solution, in order to significantly increase its growth. A total of approximately $658,000 was recorded as deferred note costs associated with these transactions. At SeptemberJune 30, 2017,2022, the unamortized balance of the deferred notes costs was approximately $385,000. See Note 6 of the 2021 Audited Financial Statements for more information regarding the first Bridge Loan. See our Form 8-K from February 15, 2022 for more information regarding the second Bridge Loan. See our Form 8-K from May 31, 2022 for more information regarding the third Bridge Loan. The gross notes payable to Mast Hill amount at June 30, 2022 was approximately $971,000.
Notes payable also includes a bridge loan from Talos Victory Fund, LLC., with an initial principal amount of $296,000, which bears interest at a rate of 8%. A total of approximately $129,000 was recorded as deferred note costs associated with the loan. As of June 30, 2022, the unamortized balance of the deferred note cost was approximately $101,000. See our Form 8-K from April 12, 2022, for more information regarding this loan. The gross note payable to Talos amount at June 30, 2022 was approximately $296,000.
We entered into unsecured lines of credit financing agreements (the “LOC Agreements”) with two related parties in previous years. The LOC Agreements provide for working capital of up to $100,000 through July 31, 2022 and $75,000 through January 2, 2023. At June 30, 2022, we havehad approximately $15,000 of availability under the LOC Agreements.
During the 2021, we issued demand notes to two board members for $55,000 in total. The demand notes bear a 6% interest rate. These were outstanding as of June 30, 2022.
At June 30, 2022, we had $765,000 of current maturities of long-term obligations to third parties. This is comprised of $1,262,352 (which includes current portion long-term debt – related parties of $6,353). Included in this balance is approximately $816,000 due to the Pension Benefit Guaranty Corporation (the PBGC) of which $570,000 is due to the PBGC in accordance with the October 2011 Settlement Agreement. Payments are contingent upon our earning free cash flow in excess of defined amounts which vary by year. No amounts have been owed or paid on this obligation through September 30, 2017. However, if no amounts are obligated to be paid for 2017, we anticipate that we will write off the balance when our agreement with the PBGC is satisfied and, if so, realize a noncash gain at that time. If this occurs, this will provide a contribution of $570,000 to our net income and improve our working capital. Since we are not current with our periodic payments to the PBGC, all principal on our note payable of $246,000 was recorded as a current liability at September 30, 2017. We have maturities of ourvarious notes including long-term notes to third parties of $265,000 due on January 1, 2018 (plus accrued interest of approximately $234,200), and $175,000approximately $500,000 due on AugustDecember 31, 2018. 2021 which have not been renewed or amended.
At June 30, 2022, we had $225,000 of current maturities of long-term obligations to related parties. $100,000 is due on September 1, 2022. $100,000 is due on January 1, 2023. $25,000 is due on June 30, 2023.
We plan to renegotiate the terms of the various notes payable, seek funds to repay the notes or use a combination of both alternatives. Previously, we have extended notes totaling $440,000 with these lenders. We cannot provide assurance that we will be able to repay current notes payable or obtain extensions of maturity dates for long-term notes payable when they mature or that we will be able to repay or otherwise refinance the notes at their scheduled maturities.
We have a note payable agreement for up to $500,000 with a related party. The note has an interest rate of 7.5% and is due on August 31, 2026. The balance was $499,000 at June 30, 2022.
During the first quarter of 2022, the Company filed an S-1 for a public offering of $15 million of common stock and redeemable warrants, which was expected to improve ourbe used for the Pratum Acquisition and working capital position through profitable operations. needs. Following the termination of the Pratum Agreement the Company has been reevaluating its capital needs and structure of the offering. The completion of this offering is not a certainty. Should the offering not proceed or be further delayed, or should it occour in a reduced format, the Company anticipates that it will scale down spending to reduce costs and to increase cash flow while continuing to grow the operations at a slower pace. We are currently revising our S-1 filing for $15 million and intend to refile in the third quarter of 2022.
The following table sets forth our cash flow information for the periods presented: |
|
|
|
|
|
| ||
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net cash used by operating activities |
| $ | (636,906 | ) |
| $ | (12,380 | ) |
Net cash used by investing activities |
|
| (111,347 | ) |
|
| (129,897 | ) |
Net cash provided by financing activities |
|
| 650,415 |
|
|
| 113,930 |
|
Net decrease in cash |
| $ | (97,838 | ) |
| $ | (28,347 | ) |
Cash Flows Used by Operating Activities
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 as well as collect down payments depending on the contract terms. The cash impact of our net loss of $1,701,434 for the six months ended June 30, 2022, was offset in part by non-cash expenses and credits of $425,359. In addition, the cash impact of our net loss was further offset by a decrease in accounts receivable and other assets of $94,288, a decrease in accrued payroll, deferred revenue and other expenses payable of $4,784, and an increase in accounts payable of $549,665 resulting in cash used by operating activities of $636,906.
We have increased our marketing of Nodeware to our IT channel partners who resell to their customers. We have made investments in our cyber security team for penetration testing, CISOTaaS and 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 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, incremental borrowings and funds from the planned offering described above, as needed.
20 |
Table of Contents |
Cash Flows Used by Investing Activities
In the quarters ended June 30, 2022 and 2021, we incurred capital expenditures for computer hardware as well as software development labor for the enhancements to Nodeware. The slight decrease from 2021 was primarily due to less development activities in 2022 that were capitalized. We expect to continue to invest in computer hardware and software to update our technology to support the growth of our business. We do not anticipate our continued investment to be significant.
Cash Flows Provided by Financing Activities
During the six months ended June 30, 2022, we received $865,455 from various bridge loans from the Mast Hill Fund L.P. and Talos Victory Fund, LLC. This is comprised of gross proceeds of $1,021,000 less debt issuance costs of $155,545. We also paid principal of $215,040 of principal on the Mast Hill Fund L.P. bridge loan established in November 2021.
Credit Resources
We maintain an accounts receivable financing line of credit from an independent financial institution that allows us to sell selected accounts receivable invoices to the financial institution with full recourse against us in the amount of $2,000,000, including a sublimit for one major client of $1,500,000. This provides us with the cash needed to finance certain costs and expenses. At June 30, 2022, we had financing availability, based on eligible accounts receivable, of approximately $1,000 under this line. We pay fees based on the length of time that the invoice remains unpaid. We also have approximately $16,000 of available credit under various lines of credit as of June 30, 2022.
During May 2019, we originated a line of credit note payable for a $500,000 with a related party and borrowed $499,000 and have $1,000 available to borrow for working capital. This agreement matures in August 2026.
During 2017, we originated two lines of credit with related parties totaling $175,000. At June 30, 2021, we had $15,000 available under these financing agreements. The maturity date of the $75,000 line of credit is January 2023, whereas the maturity date of the $100,000 line of credit has been extended to July 2023.
We believe the capital resources available under our factoring line of credit, cash from additional related party loans and cash generated by improving the results of our operations will be sufficient to fund our ongoing operations and to support the internal growth we expect to achieve for at least the next 12 months. However, if we do not improveThe funds from the resultsequity raise will allow us to support and accelerate the internal growth of our operations in future periods, we expect thatand offer additional working capital will be required to fund our business. There is no assurance that in the event we need additional funds that adequate additional working capital will be available or,opportunities if available, will be offered on acceptable terms.
We anticipate financing growth from acquisitions of other businesses, if any, and our longer-term internal growth through one or more of the following sources: issuance of equity; cash from collections of accounts receivable; additional borrowing from related and third and related parties; issuance of equity; use of our existing accounts receivable credit facility; or a refinancing of our accounts receivable credit facility.
Nine Months Ended September 30, | ||
2017 | 2016 | |
Net cash used by operating activities | $(105,597) | $(309,412) |
Net cash used by investing activities | (5,608) | (4,073) |
Net cash provided by financing activities | 82,871 | 331,855 |
Net (decrease) increase in cash | $(28,334) | $18,370 |
Item 3. Quantitative
and Qualitative Disclosures About MarketAs a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
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, the 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.Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.21 |
Table of Contents |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on us or our business.
Item 1A. Risk Factors
The COVID-19 pandemic could have a material adverse effect on our results of operations, financial position, and cash flows.
The COVID-19 pandemic has created significant uncertainty and economic disruption. Effects of the COVID-19 pandemic that may negatively impact our business in future periods include but are not limited to: limitations on the ability of our customers to conduct their business, purchase our products and services, and make timely payments; curtailed consumer spending; deferred purchasing decisions; delayed consulting services implementations; and decreases in cybersecurity services and software license revenues driven by channel partners. As a result of the COVID-19 pandemic, industry conventions and conferences that we anticipated participating in have been and continue to be canceled or altered. We believe this will negatively impact our 2022 result and has negatively impacted our ability to grow our business as quickly as we originally anticipated.
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and the Form S-1/A filed with the Securities and Exchange Commission on April 1, 2022 for comprehensive listings of the Company’s other risk factors. Except as set forth above, there are no material changes for the six months ended June 30, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the six months ended June 30, 2022, no options were exercised or shares issued.
On September 21, 2017, the Company entered into an unsecured line of credit financing agreement (the “LOC Note Agreement”) with a related party. The LOC Note Agreement provides for working capital of upApril 29, 2022, Mast Hill Fund, LP, elected to $75,000 through December 31, 2022. Borrowings bear interest at 6%. In consideration for providing the financing, the Company paid the lender a fee of 400,000exercise in full its warrant to purchase 1,400,000 shares of its common stock valued at $.04 per share or $16,000 in the aggregate, using the closing price of the Company’s common stock on a cashless basis per the dateterms of the warrant agreement was executed.
The issuancesecurities described above were issued in reliance upon the exemption from the registration requirements of this stock was exempt from registration under the Securities Act of 1933, as amended by virtue of(the “Securities Act”), as set forth in Section 4(a)(2) thereunder, as a transactionof the Securities Act relative to transactions by an issuer not involving any public offering.
Item 3. Defaults Upon Senior Securities.
The Company is in default on convertible notes to third parties of $150,000 due on December 31, 2016. The accrued interest on these notes was approximately $114,000 at June 30, 2022.
The Company is in default on long-term notes to third parties of $265,000 due on January 1, 2018. The accrued interest on these notes was approximately $234,000 at June 30, 2022.
The Company is in default on long-term notes to third parties of $500,000 due on December 31, 2021. The accrued interest on these notes was approximately $75,000 at June 30, 2022.
Item 6. Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K.
For the exhibits that are filed herewith or incorporated herein by reference, see the Index to Exhibits located below in this report. The Index to Exhibits is incorporated herein by reference.
22 |
Table of Contents |
SIGNATURES
Pursuant to the requirements 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.
Infinite Group, Inc. | |||
(Registrant) | |||
Date: August 15, 2022 | /s/ James Villa | ||
James Villa | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: August 15, 2022 | /s/ Richard Glickman | ||
Richard Glickman VP Finance and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer) |
Table of Contents |
INDEX TO EXHIBITS
Exhibit No. | Description | ||
Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. * | ||||
Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. * | ||||
101.INS | XBRL Instance Document.* | |||
101.SCH | XBRL Taxonomy Extension Schema Document.* | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.* | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document.* | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.* | |||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.* |
* Filed as an exhibit hereto.