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 ~~June 30,2022~~March 31,2023

☐

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

For the transition period from ________ to ________

~~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: 000-21816

~~_________________________________________~~

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

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 every Interactive Data File required to be submitted 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~~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’s classes of common stock, as of the latest practicable date.

The Registrant had ~~33,961,124~~496,608 shares of the issuer’s common stock, par value $.001 per share, outstanding as of ~~August 5, 2022.~~May 8, 2023.

Infinite Group, Inc.

Quarterly Report on Form 10-Q

For the Period Ended ~~June 30, 2022~~March 31, 2023

Table of Contents


	~~PAGE~~

PART I - FINANCIAL INFORMATION			PAGE

Item 1.	Financial Statements		4

	Balance Sheets – ~~June 30, 2022~~March 31, 2023 (Unaudited) and December 31, ~~2021~~2022		4

	Statements of Operations (Unaudited) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~		5

	Statements of Stockholders’ Deficiency (Unaudited) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~		6

	Statements of Cash Flows (Unaudited) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~		7

	Notes to Financial Statements – (Unaudited)		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		2120

Item 4.	Controls and Procedures		2120

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		2221

Item 1A.	Risk Factors		2221

~~Item 2 Unregistered Sales of Equity Securities and Use of Proceeds~~	22

Item 3	Defaults Upon Senior Securities.		2221

Item 6. ~~Exhibits~~	Exhibits	22	21

SIGNATURES		23	22

Table of Contents

FORWARD-LOOKING STATEMENTS

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements.” 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, objectives of management and expected market growth and trends 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,~~“target,” “potential,” “is likely,” “will,” ~~“expect,” “seek”~~“expect” 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 the 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 publicly update or revise any forward-looking statements, whether 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 Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, and our other filings with the Securities and Exchange Commission (the “SEC”). The terms “IGI”, the “Company”, “we”, “our”, “us”, or any derivative thereof, as used herein refer to Infinite Group, Inc., a Delaware corporation.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. 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

INFINITE GROUP, INC.

BALANCE SHEETS

ASSETS

	March 31,			December 31,
	2023			2022
	(Unaudited)
Current assets:
Cash	$	981,096		$	23,187
Accounts receivable, net of allowances for expected credit losses of $31,100 as of March 31, 2023 and $36,710 as of December 31, 2022, respectively		378,385			406,005
Prepaid expenses and other current assets		471,069			144,218
Total current assets		1,830,550			573,410
Right of Use Asset Operating Lease, net		624,892			645,095
Property and equipment, net		16,845			19,996
Software, net		417,919			417,325
Deposits		10,144			10,144
Total assets	$	2,900,350		$	1,665,970

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
Accounts payable	$	1,841,881		$	1,687,579
Accrued payroll		297,906			386,289
Accrued interest payable		1,170,300			783,581
Accrued retirement		289,471			286,605
Deferred revenue		588,503			550,523
Accrued expenses other and other current liabilities		197,443			138,639
Current maturities of long-term obligations		799,000			515,000
Operating lease liability - Short-term		78,774			76,826
Current maturities of long-term obligations - related parties		659,300			385,000
Notes payable, net		1,801,950			1,572,857
Notes payable - related parties		229,000			229,000
Short-term obligation		1,413,294			0
Total current liabilities		9,366,822			6,611,899

Long-term obligations:
Notes payable:
Other		166,473			458,849
Related parties		499,000			886,876
Operating lease liability - long-term		552,247			572,560
Total liabilities		10,584,542			8,530,184

Commitments and contingencies

Stockholders' deficiency:
Common stock, $0.001 par value, 60,000,000 shares authorized; 476,608 and 470,093 shares issued and outstanding, March 31, 2023 and December 31, 2022, respectively.		477			470
Additional paid-in capital		32,298,320			32,164,334
Accumulated deficit		(39,982,989	)		(39,029,018	)
Total stockholders' deficiency		(7,684,192	)		(6,864,214	)
Total liabilities and stockholders' deficiency	$	2,900,350		$	1,665,970

See notes to unaudited financial statements.

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.

INFINITE GROUP, INC.

STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended March 31,
	2023			2022

Revenue	$	1,763,993		$	1,667,070
Cost of revenue		966,206			1,121,240
Gross profit		797,787			545,830

Costs and expenses:
General and administrative		531,645			612,818
Selling		693,110			638,790
Total costs and expenses		1,224,755			1,251,608

Operating loss		(426,968	)		(705,778	)

Interest expense
Interest expense:
Related parties		(26,945	)		(23,414	)
Other		(500,058	)		(139,042	)
Total interest expense		(527,003	)		(162,456	)

Net loss	$	(953,971	)	$	(868,234	)

Net loss per share basic and diluted	$	(2.02	)	$	(1.99	)

Weighted average shares outstanding basic		471,396			436,012

Weighted average shares outstanding diluted		471,396			436,012

See notes to unaudited financial statements.

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 )

INFINITE GROUP, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY (Unaudited)

Three Months Ended March 31, 2023 and 2022

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 )

Three Months Ended March 31, 2023

					Additional
	Common Stock				Paid-in			Accumulated
	Shares		Amount		Capital			Deficit			Total

Balance - December 31, 2022		470,093	$	470	$	32,164,334		$	(39,029,018	)	$	(6,864,214	)

Stock based compensation		0		0		26,159			0			26,159
Warrants issued		0		0		107,834			0			107,834
Cashless exercise of warrants		6,515		7		(7	)		0			0
Net loss		0		0		0			(953,971	)		(953,971	)

Balance - March 31, 2023		476,608	$	477	$	32,298,320		$	(39,982,989	)	$	(7,684,192	)

Three Months Ended March 31, 2022


					Additional
	Common Stock				Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total

Balance - December 31, 2021		436,012	$	436	$	31,369,036	$	(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		436,012	$	436	$	31,518,293	$	(36,335,595	)	$	(4,816,866	)

See notes to unaudited financial statements.

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

INFINITE GROUP, INC.

STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(953,971	)	$	(868,234	)
Adjustments to reconcile net loss to net cash used by operating activities:
Stock based compensation		26,159			923
Depreciation and amortization		67,918			58,495
Amortization of debt discount		209,204			93,478
Bad debt recovery		(5,610	)		0
(Increase) decrease in assets:
Accounts receivable		116,060			60,943
Prepaid expenses and other assets		(326,851	)		(21,222	)
Increase (decrease) in liabilities:
Accounts payable		154,301			323,829
Deferred revenue		37,980			(4,558	)
Accrued expenses		235,188			145,400
Accrued retirement		2,866			2,754
Net cash used by operating activities		(436,756	)		(208,192	)

Cash flows from investing activities:
Purchase of property and equipment		(2,099	)		0
Sales of ERC claim		1,330,464			0
Capitalization of software development costs		(61,423	)		(51,979	)

Net cash provided (used) by investing activities		1,266,942			(51,979	)

Cash flows from financing activities:
Proceeds from notes payable		257,645			370,000
Debt issuance costs		(45,931	)		(54,650	)
Repayments of note payable-short-term		(83,991	)		(49,766	)

Net cash provided by financing activities		127,723			265,584

Net increase in cash		957,909			5,413

Cash - beginning of period		23,187			99,432

Cash - end of period	$	981,096		$	104,845

Supplemental Disclosures of Cash Flow Information:
Cash payments for interest	$	66,159		$	25,711

Non-cash investing and financing activities:
Warrant issued in conjunction with debts	$	107,834		$	148,334
Common stock issued via exercise of warrant	$	7		$	0

See notes to unaudited financial statements.

Table of Contents

INFINITE GROUP, INC.

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”) 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, ~~2021~~2022 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, ~~2021~~2022 filed with the U.S. Securities and Exchange Commission (SEC). Results of operations for the three ~~and six months~~ ended ~~June 30, 2022~~March 31, 2023 are not necessarily indicative of the operating results that may be expected for the year ending December 31, ~~2022.~~2023.

Note 2. Management Plans - Capital Resources

The Company reported net losses of ~~$1,701,434~~$953,971 and ~~$568,730~~$868,234 for the ~~six~~three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively, and stockholders’ deficiencies of ~~$5,387,542~~$7,684,192 and ~~$4,097,889~~$6,864,214 at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The Company ~~had~~has a working capital deficit of approximately ~~$4.4~~$7.5 million at June 30, 2022. These factors raise substantial doubt about the entity’s ability to continue as a going concern within one year. The Company has plans to issue stock via an equity raise of $15 million in the third quarter of 2022, restructure certain debt and anticipates significant growth of business. These plans, in management’s opinion, will allow the Company to meet its obligations and alleviate the substantial doubt.March 31, 2023.

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~~Company’s goal is to increase sales and generate cash flow from operations on a consistent basis. The Company’s business plans require improving the results of its operations in future periods. The Company has renegotiated the terms of some certain obligations, using operational cash flow to pay down balances and extending terms, and provided financing with the issuance of new loans.

~~During April 2022, the~~The Company ~~entered into a financing arrangement with Talos Victory Fund, LLC, for $296,000. Under the terms~~plans to issue stock, restructure certain debt and anticipates significant growth of ~~the loan, amortization payments are due beginning August 12, 2022, and each month thereafter with the final payment due on April 12, 2023.~~

During May 2022, the Company entered 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 Iowa 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 the terms of the 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, the Seller 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 public offering of $15 million of common stock and redeemable warrants, which was expected to be used for the Pratum Acquisition and working capital 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 occur 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.business.

The Company believes the capital resources generated by ~~anticipated~~the 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~~its operations as well as cash available under its factoring line of credit and from additional related parties and third-party loans, if needed, provide sources to fund its ongoing operations and to support the internal growth of the Company. The Company may need to extend existing debt agreements in order to provide resources for 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~~flow..

As a result, there is substantial doubt about the ~~Company~~Company’s ability to ~~meet its obligations for~~continue as a ~~reasonable period~~going concern within one year of ~~time from the date~~issuance of the financial ~~statements are available to be issued.~~statements.

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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, ~~2021~~2022 presents a summary of significant accounting policies as included in the Company’s Annual Report on Form 10-K as filed with the SEC.

Reclassifications – It is the Company’s policy to reclassify prior year amounts to conform with the current year presentation.

Fair Value of Financial Instruments - The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable, and accrued expenses 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.

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Revenue

The Company’s total revenue recognized from contracts from customers was comprised of three major services: Managed support services, Cybersecurity projects, ~~software~~ and ~~Other IT consulting services.~~Software. The categories depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. There were no material unsatisfied performance obligations at ~~June 30, 2022~~March 31, 2023 or 2021 for contracts with an expected original duration of more than one year. The following table summarizes the revenue 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

	Three Months Ended
	March 31,
	2023		2022
Managed support services		1,126,797		1,089,008
Cybersecurity projects		322,064		326,461
Software		315,132		251,601
Total Revenue		1,763,993		1,667,070

Managed support services

Managed support services consist of revenue 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. Revenue 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 related 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 sold stand alone or with other products. These contracts generally have terms of one year or less. For substantially all these contracts, revenue is recognized when the specific performance obligation is satisfied. If the contract has multiple performance obligations, the revenue is recognized when the performance obligations are satisfied. Depending on the nature of the service, the amounts recognized are based on an allocation of the transaction price to each performance obligation based on a relative standalone selling price of the products sold.

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.

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~~Other IT consulting services~~Software

~~Other IT consulting services consists~~Software revenue includes the selling of licenses of Nodeware® and third-party software, principally Webroot™.

Nodeware and Webroot software offerings consist of fees generated from the use of the respective software by our customers. Revenue is recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. For Webroot, substantially all customers are billed in the month of the service and is cancellable upon notice per the respective agreements. The majority of Webroot billing is electronic, and those billed amounts are paid to the Company instantaneously via an online payment platform. For Nodeware, billings generally occur annually or monthly in advance of services ~~such as project management and general IT consulting services.~~for clients with recurring subscriptions. In some instances, billing is made monthly in arrears based on actual consumption in the prior month. For payments made in advance, revenue related to the term associated with our software licenses is recognized ratably over the contractual period.

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,~~March 31, 2023, sales to one client, including sales under subcontracts for services to several entities, accounted for ~~65.8% and 65.5%, respectively,~~64% of total sales ~~(58.8%~~(65% in 2022) and ~~58.1%, respectively for the three and six months ended June 30, 2021) and 20.7%~~37% of accounts receivable at ~~June 30, 2022 (15.6%~~March 31, 2023 (27% at December 31, ~~2021)~~2022).

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 new product or enhancements to an existing product, which is generally 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 the market are capitalized and are primarily labor costs related to coding and testing. Amortization begins once the software is ready for its intended use, generally based on the pattern in which the economic benefits will be consumed. Costs associated with major upgrade releases begin amortization in the month after release. The amortization period is three years. See Note 5 for further disclosure regarding capitalization of software for resale.

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Leases - At contract inception, the Company determines whether the arrangement is or contains a lease and determines the lease classification. The lease term is determined based on the non-cancellable term of the lease adjusted to the extent optional renewal terms and termination rights are reasonably certain. Lease expense is recognized evenly over the lease term. Variable lease payments are recognized as period costs. The present value of remaining lease payments is recognized as a liability on the balance sheet with a corresponding right-of-use asset adjusted for prepaid or accrued lease payments. The Company uses its incremental borrowing rate for the discount rate, unless the interest rate implicit in the lease contract is readily determinable. The Company has adopted the practical expedients to not separate non-lease components from lease components and to not present short-term leases on the balance sheet. See Note 11 for further disclosure regarding lease accounting.

Recently Adopted Accounting Guidance- In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments”, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The adoption of this new accounting standard increased the reserve by approximately $21,600 which was deemed immaterial to adjust beginning accumulated deficit.

Note 4. Sale of Certain Accounts Receivable

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 is 10% of the total accounts receivable invoice sold to the Purchaser. The fee is charged at prime plus 3.6% (effective rate of ~~8.35%~~11.35% at ~~June 30, 2022)~~March 31, 2023) 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 ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, the Company sold approximately ~~$1,062,000~~$1,090,000 ($~~1,778,000~~974,000 – ~~for the six months ended June 30, 2021)~~March 31, 2022) of its accounts receivable to the Purchaser. As of ~~June 30, 2022,~~March 31, 2023, approximately ~~$303,000~~$261,000 ($~~148,000~~228,000 - December 31, ~~2021)~~2022) of these receivables remained outstanding. Additionally, as of ~~June 30, 2022,~~March 31, 2023, the Company had ~~$1,000~~$101,000 available under the financing line with the Purchaser ($~~66,000~~144,000 at December 31, ~~2021)~~2022). After deducting estimated fees, allowance for bad debts and advances from the Purchaser, the net receivable from the Purchaser amounted to ~~$38,000~~approximately $26,000 at ~~June 30, 2022~~March 31, 2023 ($~~15,000~~23,000 at December 31, ~~2021)~~2022), 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 ~~$22,306~~$14,672 for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 ($~~13,967~~10,111 – ~~for the six months ended June 30, 2021)~~March 31, 2022). 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,~~March 31, 2023, there ~~were $789,350~~was $955,449 of costs capitalized ($~~678,973~~894,027 as of December 31, ~~2021)~~2022) and ~~$368,126~~$537,531 of accumulated amortization ($~~261,323~~472,702 as of December 31, ~~2021)~~2022). During the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, there was ~~$53,402 and $106,803 respectively,~~$64,484 of amortization expense recorded ($~~39,844 and 74,794 respectively, for the three and six months ended June 30, 2021)~~53,402 in 2022). Costs incurred prior to reaching technological feasibility are expensed as incurred. During the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, there was approximately ~~$7,800 and $16,100, respectively,~~$6,600 of labor amounts expensed related to these development costs ($~~46,900 and $87,700, respectively, for the three and six months ended June 30, 2021)~~7,800 in 2022).

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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,~~March 31, 2023 and 2022, ~~and 2021,~~ that was included in the deferred revenue balances at the beginning of the respective periods, was approximately ~~$136,100~~$205,000 and ~~$132,800,~~$178,600, 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,~~March 31, 2023, total remaining non-cancelable performance obligations under the Company’s contracts with customers was approximately ~~$704,000.~~$966,000. The Company expects to recognize all of this revenue over the next 12 months.

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Note 7. Debt Obligations

~~During the six months ended June 30, 2022, the Company~~Mast Hill Loan #5 - On February 3, 2023, Infinite Group, Inc. (the “Company”), as borrower, entered into a financing arrangement (the ~~“Second Mast Hill Loan”~~“Loan”) with Mast Hill Fund, L.P. ~~(“Mast Hill”~~(the “Lender”), a Delaware limited partnership. In exchange for a promissory note, ~~Mast Hill~~Lender agreed to lend the Company ~~$370,000,~~$118,000.00, which bears interest at a rate of eight percent (8%) per annum, less ~~$37,000~~$11,800.00 original issue discount. Under the terms of the ~~Second Mast Hill~~ Loan, amortization payments ~~of $44,400, including principal and interest,~~ are due beginning June ~~15, 2022,~~3, 2023, and each month thereafter with the final payment due on February ~~15, 2023.~~3, 2024. Additionally, in the event of a default under the Loan or if the Company elects to pre-pay the Loan, the Lender has the right to convert any portion or all of the outstanding and unpaid principal and interest into fully paid and non-assessable shares of the Company’s common stock at a conversion price of $2.00 per share. The conversion price is subject to adjustment under certain circumstances, including issuances of Company common stock below the conversion price. The Company is not required to issue additional shares to Lender in the event an adjustment to the conversion price occurs. Except for the option to convert the note in the event of a pre-payment, there is no pre-payment penalty associated with the promissory note. The Loan is subject to customary events of default, including cross-defaults on the Loan agreements and on other indebtedness of the Company, violations of securities laws (including Regulation FD), and failure to issue shares upon a conversion of the note. Amounts due under the Loan are subject to a 15% penalty in the event of a default. As additional consideration for the ~~Second Mast Hill Loan),~~financing, the Company issued ~~the “Lender”~~Lender a 5-year warrant to purchase ~~925,000~~59,000 shares of Company common stock at a fixed price of ~~$0.16~~$2.00 per share, subject to price adjustments for certain actions, including dilutive ~~issuances.~~issuances, representing 100% warrant coverage on the principal amount of the Loan. 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~~Loan and similar loans between the Company ~~evaluated~~and Lender entered into on November 3, 2021, February 11, 2022, May 31, 2022, and November 23, 2022, respectively.

J.H. Darbie & Co., Inc. ( “Finder”), a registered broker-dealer, acted as a finder in connection with the ~~terms~~Loan, and was paid a cash fee of $3,100 (2.92% of the ~~warrant under ASC 480 and ASC 815 and determined that they were to be treated as equity instruments. The value~~gross proceeds 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 NoteLoan) 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~~3,098 shares of Company common stock at a fixed price of ~~$0.16~~$2.40 per share (120% of the exercise price of the warrant issued in connection with the Loan), subject to price adjustments for certain actions, including dilutive ~~issuances.~~issuances, representing 7% warrant coverage on the gross proceeds of the Loan. The Company has granted the ~~Lender~~Finder 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~~

Amended and Restated Line of Credit Note - On March 17, 2023, the Company, as borrower, entered into an Amended and Restated Line of Credit Note and Agreement (the “New Note”) effective as of October 1, 2022, which amended and restated that certain Line of Credit Note and Agreement dated March 14, 2016 (the “Original Note”) by and between the Company ~~or its affiliates~~ and ~~Lender, other than in respect~~James V. Leonardo (the “Holder”). The New Note has a principal amount of $250,000 (the ‘Principal Amount”) and accrues interest on the unpaid Principal Amount at a rate of ten percent (10%) per annum. Also on March 17, 2023, James Villa, the Company’s Chief Executive Officer, entered into a personal guarantee with the Holder to personally guarantee the obligations of the ~~Loan. The~~ Company ~~evaluated~~under the New Note.

Under the terms of the ~~warrant under ASC 480~~New Note, the Company has agreed to make a one-time payment of $16,667 for interest accrued on the Original Note for the four-month period covering June 2022 through September 2022. The Company has also agreed to make quarterly interest payments of $6,250, commencing on December 31, 2022, and ~~ASC 815~~continuing through 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 Aprilincluding September 30, 2023.

~~On May 27, 2022,~~Revised Financing Arrangement - During March 2023, the Company entered into a revised financing arrangement ~~(the “Third Mast Hill Loan”)~~ with ~~Mast Hill. In exchange~~Celtic Bank which originally loaned the Company $139,400 with a one-time fixed loan fee of $11,152 for a ~~promissory note, Mast Hill agreed to lend the Company $355,000, which bears interest at a rate~~total obligation of ~~eight percent (8%) per annum, less $35,500 original issue discount.~~$150,552 in 2022. Under the terms of the ~~Third Mast Hill Loan,~~revised financing arrangement, the lender loaned the Company $155,800 with a one-time fixed loan fee of $12,464 for a total obligation of $168,264. The balance of the original loan of $27,559 was paid to the lender as part of the revised financing agreement. The lender payments became due on March 24, 2023, and consisted of ~~$42,600, including principal~~30% of the Company’s receivables processed through Stripe, Inc.’s payment processing platform and ~~interest, are~~then due ~~beginning September 27, 2022,~~ and ~~each month thereafter~~owing to the Company or $18,696 over a sixty-day period, whichever is higher, with the final payment due on September 14, 2024.

Extinguishment of Convertible Promissory Note- On April 12, 2023, the Company entered into an agreement with Talos Victory Fund to accept final payment in the amount of $200,000 on the convertible promissory note dated April 12, 2022. The debt was forgiven at that time and approximately $98,000 will be recorded as forgiveness of debt.

Obligations in Default– As of March 31, 2023, the Company is in default with the Mast Hill financing arrangements dated November 3, 2021, May ~~26,~~31, 2022, and November 23, 2022. Per the arrangements, the Company has accrued approximately $217,000 in default and penalty interest expense in the quarter ended March 31, 2023. ~~As additional consideration~~

Note 8. Short-term Obligation

ERC Claim and Risk Participation Agreement – In January 2023, the Company filed for the ~~Second Mast Hill Loan),~~Employee Retention Credit (“ERC”) for $1,662,698. The ERC is a refundable tax credit for businesses that continued to pay employees while sustaining a full or partial suspension of operations limiting commerce, travel or group meetings due to COVID-19 pandemic and orders from an appropriate governmental authority or had significant declines in gross receipts from March 13, 2020 to September 30, 2021. The Company sustained a partial suspension of operations during this time due to governmental orders. Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates. The Company did not record the calculated quarterly credits as income at December 31, 2022 because as of December 31, 2022 it was not reasonably certain the amounts would be collected.

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On March 29, 2023, Company, as seller, received $1,330,464 as a purchase price (the “Purchase Price”) for the sale of the Company’s rights, title and interest per a Risk Participation of ERC Claim Agreement, dated March 27, 2023 (“Agreement”) by and between the Company ~~issued~~and 1861 Acquisition LLC (the “Buyer”). On April 21, 2023, the ~~“Lender”~~Company received an additional $82,830 from the Buyer which was held in escrow.

The Agreement transferred all of the Company’s rights to receive any and all payments, proceeds or distributions of any kind (without set-off, deduction or withholding of any kind), including interest, from the United States Internal Revenue Service (the “IRS”) in respect of the employee retention credits duly and timely claimed by Seller on account of qualified wages paid by Seller and identified as a ~~5-year warrant~~“Claim for Refund” under Form 941-X Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund for the third (3rd) and fourth (4th) quarters of 2020, and the first (1st), second (2nd) and third (3rd) quarters of 2021 (the “Tax Refund Claim”) in the aggregate amount of $1,662,698 (“Transferred Interests”). Notwithstanding anything to ~~purchase 887,500 shares of~~the contrary contained in the Agreement, (i) the relationship between 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~~and Buyer under the ~~Lender customary “piggy-back” registration rights~~Agreement with respect to the ~~shares issuable upon conversion~~Transferred Interests is that of seller and purchaser, with the Company having irrevocably transferred to Buyer the right to receive from the Company 100% of the ~~promissory note and exercise of~~monies or property received by 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~~Tax Refund Claim in exchange for the Purchase Price, and (ii) the ~~Promissory Note originally dated May 25, 2021. There were two payments~~Agreement shall not constitute an assignment or transfer or agreement to assign or transfer all or any part of ~~principal~~the Company’s legal title in and to the Tax Refund Claim.

In the event that the IRS disallows all or a portion of ~~$100,000 each due June 1, 2022. The Modification agreements each extended~~ the ~~previously amended due dates~~ERC, the Buyer has the demand right to put all or a part of the disallowed portion back to the Company at a price equal to 85% of the impaired amount, plus interest at 10% per annum, calculated from ~~June 1, 2022 to September 1, 2022.~~the date of March 27, 2023 until payment is made.

Note 8.9. Earnings per 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.

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The following table sets forth the computation of basic and diluted net loss per share for the three months ended:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Numerator for basic and diluted net loss per share:
Net loss	$	(833,200	)	$	(416,503	)	$	(1,701,434	)	$	(568,730	)	$	(953,971	)	$	(868,234	)
Basic and diluted net loss per share	$	(0.03	)	$	(0.01	)	$	(0.05	)	$	(0.02	)	$	(2.02	)	$	(1.99	)

Weighted average common shares outstanding
Basic and diluted shares		33,296,434			29,238,323			33,000,304			29,150,590			471,396			436,012

Anti-dilutive shares excluded from net loss per share calculation		23,951,234			23,148,234			23,951,234			23,148,234			505,864			315,549

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 9.10. Stock Option Plans and Agreements

At the annual meeting of stockholders of the Company held on January 26, 2022; the Company’s stockholders voted to approve the Company’s 2021 Equity Incentive Plan (“2021 Plan”). The maximum number of shares of Common Stock available for grant and issuance under the 2021 Plan will be (a) 60,000, plus (b) any shares of Common Stock that are subject to options granted under the Prior Plans that expire, are forfeited or canceled or terminate for any other reason without the issuance of shares under the Prior Plans on or after January 26, 2022, plus (c) any shares of Common Stock that are subject to options granted under the Prior Plans that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any option under the Prior Plans on or after January 26, 2022.

The Company has approved stock ~~option~~options plans and agreements covering up to an aggregate of ~~16,304,500~~249,113 shares of common stock. Such 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.

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The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. ~~95,000~~47,600 options were granted for the ~~six~~three months ended ~~June 30, 2022. 575,000~~March 31, 2023. 134 options were granted for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. The following assumptions were used for the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023:

Risk-free interest rate	~~1.26%-3.35~~3.57% - 3.98%		%
Expected dividend yield		0	%
Expected stock price volatility	~~110%-130~~	110	%
Expected life of options (years)		2.75

The Company recorded expense for options issued to employees and independent service providers of ~~$51,708~~$26,159 and ~~$52,631~~$923 for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022, ~~respectively ($81,920 and $110,168 for the three and six months ended June 30, 2021).~~respectively.

~~360,000~~32,600 options vested during the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

The Company issued ~~750,000~~15,000 performance-based stock options during ~~2021~~2023 at ~~$0.245~~$1.17 per share to an executive of the Company. Certain ~~revenue~~bookings targets must be made ~~to grant~~for the options in three tranches of 250,000 shares each. In the three months ended June 30, 2022, the Company amended the targets for these options and recognized one third of the compensation in the amount of $45,275.to vest. The ~~remaining~~ unrecognized compensation expense for these options ~~was~~is approximately ~~$90,550~~$13,000 at ~~June 30, 2022.~~March 31, 2023.

A summary of all stock option activity for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 follows:

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.

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	Number of			Weighted		Remaining	Aggregate
	Options			Average		Contractual	Intrinsic
	Outstanding			Exercise Price		Term	Value
Outstanding at December 31, 2022		131,789		$	6.03
Granted		47,600			1.20
Expired		(5,334	)		3.00
Outstanding at March 31, 2023		174,055		$	4.82	3.1 years	$	0

At March 31, 2023- vested or
expected to vest		158,921		$	5.16	2.9 years	$	0
Exercisable		158,921		$	5.16	2.9 years	$	0

Note 11. Lease

Beginning on ~~August~~June 1, ~~2016,~~2022, the Company ~~leased~~leases its headquarters facility under an operating lease agreement that ~~was scheduled to expire~~expires on ~~June 30, 2022.~~May 31, 2029. Rent ~~expense was $80,000~~due is $118,487 annually during the first year of the lease term, and ~~increased~~increases by ~~1.5%~~2.0% annually thereafter. ~~The~~

Upon entering the lease ~~was terminated one month early,~~agreement, the Company recognized a right-of-use asset of $691,009 and a ~~new~~ lease ~~agreement, at the existing headquarters location, commenced on June 1, 2022. The term~~liability of ~~the new lease agreement is 84 months. The first year’s rent will be $118,487 and will increase by 2% annually thereafter.~~$691,009.

Supplemental balance sheet information related to the ~~leases~~lease on ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 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 %

		March 31,		December 31,
Description	Classification		2023		2022

Right of Use Asset – Lease, net	Other assets (non-current)	$	624,892	$	645,095

Operating Lease liability – Short-term	Accrued liabilities		78,774		76,826
Operating Lease liability – Long-term	Other long-term liabilities		552,247		572,560
Total operating lease liability		$	631,021	$	649,386

Discount rate – operating lease					7.0	%

Note 12. Related Party Accrued Interest Payable

Included in accrued interest payable is amounts due to related parties of approximately ~~$134,000,~~$323,000, at ~~June 30, 2022~~March 31, 2023 ($~~107,000~~185,000 at December 31, ~~2021)~~2022). ~~An additional $136,675 of accrued interest to related parties is included with short and long-term debt and is due to be paid after June 30, 2022.~~

Note 13. Subsequent Events

Extinguishment of Convertible Promissory Note- On ~~July 29, 2022, the “Company and Andrew Hoyen (“Lender”), a director and executive officer of~~April 12, 2023, the Company entered into ~~a note modification~~an agreement ~~(the “Modification Agreement”)~~ with ~~respect~~Talos Victory Fund to ~~the Line of Credit Note and Agreement~~accept final payment in the ~~original principal sum~~amount of up$200,000 on the convertible promissory note dated April 12, 2022. The debt was forgiven at that time and approximately $98,000 will be recorded as forgiveness of debt.

Payment to ~~$100,000,dated July 18, 2017, issued by~~Board Member– On April 11, 2023, the Company paid off a demand note to ~~the Lender (the “Hoyen Note”).~~one board member. The ~~Note and the Modification Agreement~~payment was ~~approved by the disinterested members~~for $30,000 plus $2,891 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 sameinterest.

Escrow Payment Received– On ~~August 10, 2022,~~April 21, 2023 the Company received ~~funding~~the $82,830 from ~~a loan agreement with Stripe and Celtic Bank. The loan amount~~1861 Acquisition LLC which 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%~~held in escrow as part 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.Risk Participation Agreement, dated March 27, 2023.

************

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This 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 undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The following Management’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.~~disruption on a global basis. It has already ~~disrupted~~changed traditional 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~~While 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~~have been generally lifted, there continues to ~~disrupt~~be a disruption in 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,~~2023, our managed support services, cybersecurity projects and software ~~license~~ revenues were minimally ~~affected~~impacted 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~~these changing priorities. While employees at our headquarters are physically present in the office, other locations have had to go fully remote ~~working arrangements for our employees, limiting non-essential business travel, and utilizing virtual sales and marketing events.~~due to the changing nature of IT work during the pandemic. Our sales and marketing expenses increased significantly during the first ~~six months~~quarter of ~~2022. We~~2023, and 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.~~grow. We will continue to actively monitor the nature and extent of the impact to our business, operating results, and financial condition.

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Our Business

Headquartered in Pittsford, New York, ~~IGI~~Infinite Group is a developer of cybersecurity software and related 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 contractors, 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 from our competitors is to combine customized software and professional services, and grow our business by designing, developing, and marketing cybersecurity software-as-a-service (“SaaS”) solutions that can be deployed in myriad environments. Software and services are initially developed in our wholly-owned subsidiary, IGI CyberLabs (“CyberLabs”), to fill technology gaps we identify, and then we bring these software and services to market through our existing channel partner and customer relationships. Our software and services are designed to simplify and manage the security needs of our customers and channel partners in a variety of environments. We focus on the small and medium-sized enterprises market. We support our channel partners by providing recurring-revenue business models for both services and through our cybersecurity SaaS solutions. Products may be sold as standalone solutions or integrated into existing environments to further automate the management of cybersecurity and related IT functions.

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 channel partners across North America;	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.

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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.

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;~~Nodeware; 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 are 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 and service offerings differentiates them from our competitors. In addition, we support our channel partners by providing ~~recurring-revenue~~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 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,~~solutions, 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~~2022 we made significant investments in ~~Nodeware~~IGI and CyberLabs 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.~~2023.

We believe the market for cybersecurity services for small and medium-sized enterprises is fragmented and does 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®

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].

Nodeware is ~~a patented SaaS solution that automates network~~an automated asset identification and ~~cybersecurity~~ vulnerability management and ~~monitoring. Nodeware simply and affordably~~monitoring solution that enhances security by proactively identifying, monitoring, and addressing potential ~~cybersecurity~~ vulnerabilities on both internal and external facing networks, ~~which creates enhanced security to~~creating a safeguard against ~~hackers~~malicious intent to exploit known problems in a customer’s network with simplicity and ~~ransomware. 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.~~affordability. 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 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.

The Cloud based SaaS platform has an agile and continuous development process that is flexible to react to customer and market needs. In December 2019, we filed a second provisional patent application and in December 2020 we filed the subsequent action on the institutional patent on the Nodeware ~~provides an economical solution for small~~platform. In 2020 and ~~medium-sized enterprises as compared~~2021, we created many new feature updates and improvements to ~~costly solutions focused on enterprise sized customers,~~the platform in response to COVID-19 needs and ~~is designed to accommodate the varying network needs of our end customers’ organizations and networks. Nodeware is sold~~impact such as a ~~SaaS solution~~downloadable Windows executable version along with Windows, Mac, and ~~continuously releases~~Linux Agents that could be downloaded to a remote PC or server. A number of enhancements ~~updates,~~related to data management, threat intelligence, and ~~upgrades to stay current with security needs and changes in~~user functionality were part of 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. 2020/21 continued evolution of Nodeware.

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Nodeware creates an opportunity for ~~our channel partners~~resellers, including managed service providers, managed security service providers, distributors, and value-added resellers to ~~sell and~~ use a product that provides greater visibility into the network security of an ~~end customer.~~organization. We sell Nodeware in the commercial sector through channel partners and agents. Since 2018, we have continued to expand our ~~portfolio~~channel of ~~channel partners,~~direct resellers, which now includes Telarus, TD SYNNEX, ~~Staples,~~ and ~~a growing list of MSPs, MSSPs, agents and distributors and government contractors.~~Staples.

In June 2021, we created IGI CyberLabs, LLC, a wholly owned subsidiary to support our Nodeware solution and continued software development. ~~CyberLabs’s~~Cyberlabs’ overarching mission is to drive sales of our Nodeware Cloud security platform, 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~~in Nodeware and continue to enhance our rapid scale Go-to-Market capabilities. Additionally, CyberLabs is chartered with development of ~~cybersecurity companies comes to fruition. This also enhances our ability to bring new~~ cloud and SaaS cybersecurity related ~~solutions~~products that will be brought 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.

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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 date of issue and may 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 the 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~~Technology and Product Development

Our ~~research~~goal is to position our products and development efforts are focused on ensuring our software and services continually adapt to ever-evolving cybersecurity threats, developing new and improved functionality to meet our customers’ needs, andsolutions to enable ~~robust~~vertical and ~~efficient~~other Application Programming Interface (API) based integration, with other industry solutions. ~~Our research~~We have a technology and product development ~~team is responsible for~~strategy aligned with our business strategy. We continue to identify other technical partners in the ~~design, development, testing and quality of our software, including~~cybersecurity market to integrate Nodeware ~~and works to ensure that our software is available, reliable and stable.~~into, through either API or full stack integration.

Cybersecurity Services

We ~~believe the timely development~~provide cybersecurity consulting services that include incident response, security awareness training, risk management, IT governance and compliance, security assessment services, penetration testing, and Chief Information Security Officer Team as a Service (CISOTaaS™) offerings to channel partners and direct customers across different vertical markets (banking, supply chain, manufacturing, healthcare, legal, etc.) in North America. Our cybersecurity projects leverage different technology platforms and processes such as Nodeware to create a living document that a customer can use to go forward on a path of ~~new features~~continuous improvement for its overall Information security. We support both internal 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~~external organizations with our ~~channel partners, customers,~~cybersecurity overlay that allows us to stay agnostic in the process, especially for compliance while enabling the IT organization to address the issues discovered. We validate overall network security with the goal of maintaining the integrity of confidential client information, preserving the continuity of services, and ~~internal teams to collect user feedback~~minimizing potential data damage from attempted threats and incidents. We continue to enhance our ~~development process to continually incorporate suggestions~~cybersecurity services when opportunities materialize and ~~feedback. We also believe our research and development teams’ focus on developing new products will help us expand our business and improve our~~as the 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 other software and services in 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 core team.evolves.

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 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 expensed as incurred, and subsequently they are capitalized until product launch.~~

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Results of Operations

Comparison of the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~

The following table compares our statements of operations data for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~2021.~~2022. The trends suggested by this table are not indicative of future operating results.

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 )%

~~Table of Contents~~

	Three Months Ended March 31,

													2023 vs 2022
				As a % of						As a % of			Amount of			% Increase
	2023			Sales			2022			Sales			Change			(Decrease)

Sales	$	1,763,993			100.0	%	$	1,667,070			100.0	%	$	96,923			5.8	%
Cost of sales		966,206			54.8			1,121,240			67.3			(155,034	)		(13.8	)
Gross profit		797,787			45.2			545,830			32.7	%		251,957			46.2
General and administrative		531,645			30.1			612,818			36.8			(81,173	)		(13.2	)
Selling		693,110			39.3			638,790			38.3			54,320			8.5
Total cost and expenses		1,224,755			69.4			1,251,608			75.1			(26,853	)		(2.1	)

Operating loss		(426,968	)		(24.2	)		(705,778	)		(42.3	)		278,810			39.5
Interest expense (net)		(527,003	)		(29.9	)		(162,456	)		(9.7	)		(364,547	)		(224.4	)
Net loss	$	(953,971	)		(54.1	)%	$	(868,234	)		(52.1	)%	$	(85,737	)		(9.9	)%

Net loss per share - basic and diluted	$	(2.02	)				$	(1.99	)				$	(0.03	)

Sales

Our managed support service sales increased by ~~5.5%~~3% from ~~$1,057,431~~$1,098,008 during the three months ended ~~June 30, 2021~~March 31, 2022 to ~~$1,115,607~~$1,126,797 during the corresponding period of ~~2022. For the six month period ended June 30, managed support service sales increased 3.6% from $2,128,331 in 2021 to $2,204,614 for the same period in 2022.~~2023. Managed support service sales comprised approximately ~~66%~~64% of our sales in ~~both the~~ three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, and approximately ~~59%~~65% for the same ~~two periods~~period in ~~2021.~~2022. The increase in our managed support service sales during the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 was due to additional projects requested by Perspecta, offset by the continued decline of virtualization subcontract projects assigned to us by VMWare due to projects coming to a conclusion in 2021. The decline in virtualization subcontract projects has been a trend occurring since 2015 that we expect to continue for the duration of 2022.Perspecta.

Our cybersecurity projects ~~and software sales, primarily to SMEs, decreased by 15.7% to $580,885 during~~remained flat, with a slight decrease of 1%, from $326,461 for the three months ended ~~June 30,~~March 31, 2022, ~~from $689,073 during the corresponding period of 2021. These same sales decreased by 16.7%~~ to ~~$1,158,948 during the six months ended June 30, 2022, from $1,391,515~~$322,064 for the ~~six-month~~same period ended June 30, 2021, respectively. The decrease is primarily due to a temporary decline in the number of cybersecurity projects, the mix of recurring versus one-time projects, and the completion of those projects for revenue recognition. This was offset primarily by the growth of 76% in Nodeware revenue for the six-month period ended June 30, 2022 over 2021. We expect the revenue to grow due to increased projects in the sales pipeline and completion of projects in the coming months.March 31, 2023.

~~Other IT consulting services~~Software sales, ~~declined during~~which includes the selling of licenses of Nodeware and third-party software Webroot, increased by 25% from the three months ended ~~June 30,~~March 31, 2022 ~~decreasing by $51,000 from~~to the same period in ~~2021. These same sales declined during~~2023. Sales for the ~~six months ended June 30,~~period in 2022 were $251,601 and increased by ~~$102,000 from~~$63,531 to $315,132 for the same period in ~~2021.~~2023. The ~~decline in other IT consulting services~~increase was primarily attributable to improving sales ~~for the three~~of Nodeware, and ~~six months ended June 30, 2022 was due~~slightly offset by decreasing sales of Webroot. We expect this trend to ~~the termination of a consulting contract, which occurred during the second quarter of 2021.~~continue throughout 2023 as we focus our resources on Nodeware.

Cost of Sales and Gross Profit

Cost of sales principally represents compensation expense for our employees. Cost of sales decreased by ~~4.5%~~14% to ~~$1,059,639~~$966,206 during the three months ended ~~June 30, 2022~~March 31, 2023 from ~~$1,109,223~~$1,121,240 during the corresponding period of ~~2021.~~2022. The decrease in cost of sales during the three months ended ~~June 30,~~March 31, 2023 from 2022 ~~from 2021~~was primarily due to a decrease in payroll and benefits of salaried employees who support our managed services and cybersecurity projects. This reduction of payroll was due to anormal attrition without replacement. There was no impact on performance, as we were able to absorb the staff reduction ~~in headcount of marketing~~with efficiency improvements to our processes and ~~sales personnel. Cost of sales decreased slightly during the six months ended June 30, 2022 from the same period in 2021, by 0.1%, decreasing from $2,182,138 to $2,180,879.~~tools.

~~Table of Contents~~

Our gross profit ~~decreased~~increased by ~~$51,428 to $636,853~~$251,957 from the three months ended ~~June 30, 2021~~March 31, 2022 to ~~2022. Gross profit decreased by $257,025 to $1,182,683 from the six months ended June 30, 2021 to 2022. In both periods, the decrease~~2023. The increase was primarily due to the decrease in ~~sales~~salary and benefits previously referenced above.

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~~$531,645 for the three months ended ~~June 30, 2022 increased~~March 31, 2023 decreased approximately 13% from ~~$541,711~~$612,818 for the same quarter of ~~2021. For the six months ended June 30, 2022, general and administrative costs were 21% higher than the same period in 2021, increasing to $1,217,300 from $1,006,103. These were~~2022. The decrease was primarily due to the ~~increases to professional fees for~~reduction in legal, accounting, and ~~consulting services~~other related fees associated with the S-1 filing in 2022, down approximately $125,000, partially offset by an increase in rent of approximately ~~$108,000,~~$15,000, for the comparative ~~three-month periods, and $198,000 for the comparative six~~three month ~~period.~~periods.

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Selling Expenses

Selling expenses of ~~$612,957~~$693,110 for the three months ended ~~June 30, 2022~~March 31, 2023 increased ~~21%~~approximately 9% from ~~$507,042~~$638,790 for the same quarter of ~~2021. The~~2022. Approximately half of the increase was due to an increase in ~~selling expenses is~~marketing spending, while the remainder was due to the hiring of additional salespeople during 2021 to sell our cybersecurity services and software, and investments in consultants and partners to identify and sell more of our services and software. The increase inless significant changes spread across several other selling expenses from the hiring of new personnel was approximately $109,000 higher for the three months ended June 30, 2022 as compared to 2021 and spending on consulting partners was approximately $22,000 higher for the same respective periods. For the six months ended June 30, 2022, Selling expenses of $1,260,582 increased 41% from $894,767 for the same period in 2021. This increase is primarily related to the hiring of additional salespeople during 2021 as well as investment in consultants and partners.avenues.

Operating Income (Loss)

For the three months ended ~~June 30,~~March 31, 2023 and March 31, 2022, ~~and 2021,~~ operating loss was ~~$589,421~~$426,968 and ~~$360,472,~~$705,778, respectively, for an ~~increase~~improvement in the loss by ~~$228,949. For the six months ended June 30, 2022, the operating loss was $1,295,199, an increase in the loss by $834,037 from $461,162 in the same period of 2021.~~$278,810. The ~~increase~~improvement in our operating loss from the previous year is principally attributable to the ~~decrease in sales,~~ growth of ~~our~~ sales ~~team~~by approximately $97,000, the reduction in cost of sales of approximately $155,000, the reduction of general and administrative expenses of approximately $81,000, partially offset by the ~~associated costs, and investment~~increase in ~~the growth~~selling expenses of ~~our business as well as professional fees incurred~~approximately $54,000, for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 as compared to ~~2021, as discussed above.~~2022.

Interest Expense

Net interest expense of ~~$243,779~~$527,003 for the three months ended ~~June 30, 2022,~~March 31, 2023 increased ~~335%~~224% from expense of ~~$56,031~~$162,456 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.~~2022. The increase in interest expense is primarily attributable to the bridge loans ~~taken in~~entered into during 2022 and the ~~last three quarters.~~first quarter of 2023 and penalty interest accrued on the defaulted loans of approximately $217,000.

Net Loss

For the three months ended ~~June 30,~~March 31, 2023 and March 31, 2022, ~~and 2021,~~ net loss was ~~$833,200~~$953,971 and ~~$416,503,~~$868,234, respectively, an increase in the loss by ~~$416,696. For the six months ended June 30, 2022 and 2021, net loss was $1,701,434 and $568,730, respectively.~~$85,737. The increase in ~~both comparable periods~~the loss is attributable primarily to the ~~selling, general and administrative,~~increased sales expenses and interest items discussed ~~above.~~above, partially offset by improved revenues, decreased cost of goods sold, and decreased general and administrative expenses for the three months ended March 31, 2023 as compared to 2022.

Liquidity and Capital Resources

At ~~June 30, 2022,~~March 31, 2023, we had cash of ~~$1,594.~~$981,096 available for working capital needs and planned capital asset expenditures. At ~~June 30, 2022,~~March 31, 2023, we had a working capital deficit of approximately ~~$4,400,000~~$7.5 million and a current ratio of ~~0.16.~~0.20.

During ~~2022,~~2023, 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 ~~June 30, 2022,~~March 31, 2023, based on eligible accounts receivable, we had ~~$1,000~~$101,000 available under this arrangement. We expect sales during ~~2022~~2023 to generate additional accounts receivable eligible for factoring, that will support our operations. We pay fees based on the length of time that the invoice remains unpaid.

At ~~June 30, 2022,~~March 31, 2023, we had current notes payable of $229,000 to related parties. $100,000 of this debt was ~~extended form June 1, 2022 and is now~~ due on ~~September~~January 1, ~~2022.~~2023. The remaining $129,000 are in the form of demand notes with an interest rate of 6%.

~~Table of Contents~~

At ~~June 30, 2022,~~March 31, 2023, we ~~had~~have current notes payable of approximately ~~$944,000~~$1,802,000 to third parties, which includes convertible notes payable of approximately $150,000. Also included is $12,500 in principal amount of a note payable due on June 30, 2016 but not paid by then. This note was issued in payment of software we purchased in February 2016 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 to third parties at March 31, 2023, are ~~three Bridge Loans~~five bridge loans with Mast Hill Fund, ~~L.P, which each~~L.P., for $1,649,902. All five loans bear interest at ~~a rate of~~ 8%. We plan to use the proceeds from the ~~Bridge Loans~~bridge loans to substantially enhance our marketing of ~~CyberLab’s~~CyberLabs’ Nodeware solution, in order to significantly increase its growth. A

Notes payable to third parties at March 31, 2023, also includes a loan balance with Talos Victory Fund, LLC., for $237,501. This loan bears interest at 8%.

Notes payable to third parties at March 31, 2023, also includes a loan balance with Celtic Bank for $156,492. This loan does not bear interest, and instead incurred a one-time fee of $12,464 at origination. The payments consist of 30% of the Company’s receivables processed through Stripe, Inc.’s payment processing platform.

In the first quarter of 2023, a total of approximately ~~$658,000~~$404,000 was recorded as deferred note ~~costs associated with these transactions.~~costs. At June 30, 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 MayMarch 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, 2022,2023, the unamortized balance of the deferred note ~~cost was~~costs for all notes payable to third parties approximately ~~$101,000.~~$654,000. See ~~our Form 8-K from April 12,~~Notes 5 and 6 of the 2022 Audited Financial Statements for more ~~information regarding this loan. The gross note payable to Talos amount at June 30, 2022 was approximately $296,000.~~information.

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,~~March 31, 2023, we had approximately $15,000 of availability under the LOC Agreements.

During the 2021, we issued demand notes to ~~two~~three board members for ~~$55,000~~$79,000 in total. The demand notes bear a 6% interest rate. These ~~were~~are outstanding as of ~~June 30, 2022.~~March 31, 2023. $30,000 of this amount was paid to one board member subsequent to March 31, 2023.

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~~At June 30, 2022, we had $765,000~~

We have $799,000 of current maturities of long-term obligations to third parties. This is comprised of various notes including long-term notes to third parties of $265,000 due on January 1, 2018 (plus accrued interest of approximately ~~$234,200)~~$254,000), and approximately ~~$500,000~~$250,000 due on ~~December 31, 2021 which have not been renewed or amended.~~September 30, 2023.

At ~~June 30, 2022,~~March 31, 2023, we ~~had $225,000~~have $659,300 of current maturities of long-term obligations to related parties. ~~$100,000 is due on September 1, 2022. $100,000 is~~$270,000 was due on January 1, ~~2023.~~2023, $25,000 is due on June 30, ~~2023.~~2023, $90,000 is due on July 31, 2023, and$274,300 is due January 1, 2024.

We plan to renegotiate the terms of the various notes payable, seek funds to repay the notes or use a combination of both alternatives. 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~~is $499,000 at ~~June 30, 2022.~~March 31, 2023.

~~During the first quarter of 2022,~~We also have a short-term obligation at March 31, 2023 for $1,413,294. This obligation is from the Company ~~filed an S-1 for~~entering into a ~~public offering~~Risk Participation of ~~$15 million~~ERC (Employee Retention Credit) Claim Agreement with 1861 Acquisition LLC. In the event that the IRS disallows all or a portion of ~~common stock and redeemable warrants, which was expected~~the ERC, the 1861 Acquisition LLC has the demand right to ~~be used~~put all or a part of the disallowed portion back to the Company at a price equal to 85% of the impaired amount, plus intertest at 10% per annum, calculated from the date of March 27, 2023 until payment is made.

The following table sets forth our cash flow information for the Pratum Acquisition and working capital 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.periods presented:

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 )

	Three Months Ended March 31,
	2023			2022
Net cash used by operating activities	$	(436,756	)	$	(208,192	)
Net cash provided (used) by investing activities		1,266,942			(51,979	)
Net cash provided by financing activities		127,723			265,584
Net increase in cash	$	957,909		$	5,413

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~~Our net loss of ~~$1,701,434~~$953,971 for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023 was offset in part by non-cash expenses and credits of ~~$425,359.~~$297,671. 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~~$210,791, an increase in accrued payroll, deferred revenue and other expenses payable of ~~$4,784,~~$276,034 and an increase in accounts payable of ~~$549,665~~$154,301 resulting in cash used by operating activities of ~~$636,906.~~$436,756.

We ~~have increased~~are increasing our marketing of Nodeware to our IT channel partners who resell to their customers. We ~~have made~~are making 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 delay before realizing a return from our sales and marketing ~~personnel for~~efforts, of one or more quarters. As a result, we may continue to experience operating income or operating losses from these ~~investments in personnel~~resource expenditures until sufficient sales are generated. We expect to fund the cost for the new ~~sales personnel~~expenditures from our operating cash flows, the equity raise and incremental borrowings, ~~and funds from the planned offering described above,~~ as needed.

~~Table of Contents~~

Cash Flows Used by Investing Activities

In the quarters ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we received approximately $1,330,000 for the aforementioned Risk Participation of ERC (Employee Retention Credit) Claim Agreement. We also 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.~~significant in these two categories.

Cash Flows Provided by Financing Activities

During the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, we received ~~$865,455~~$257,645 from various ~~bridge loans from the~~debt products, including a fifth Mast Hill Fund L.P. loan for $118,000, and ~~Talos Victory Fund, LLC. This is comprised of gross proceeds of $1,021,000 less debt issuance costs of $155,545.~~a restructured loan with Celtic Bank for 139,645. We also paid principal of ~~$215,040~~$83,991 on short term debt. There were debt issuance costs of ~~principal on~~$45,931 in the ~~Mast Hill Fund L.P. bridge loan established in November 2021.~~quarter.

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,~~March 31, 2023, we had financing availability, based on eligible accounts receivable, of approximately ~~$1,000~~$101,000 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.~~March 31, 2023.

Table of Contents

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,~~March 31, 2023, we had $15,000 available under these financing ~~agreements. The maturity date of the $75,000 line of credit is~~agreements which mature in January 2023 ~~whereas the maturity date of the $100,000 line of credit has been extended to~~and July ~~2023.~~2023, respectively.

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 for at least the next 12 months. The funds from the equity raise will allow us to support and accelerate the internal growth of our operations and offer additional opportunities if they arise.

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;~~equity: cash from collections of accounts receivable; additional borrowing from related and third parties; use of our existing accounts receivable credit facility; or a refinancing of our accounts receivable credit facility.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As 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.

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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 a comprehensive ~~listings~~listing of the Company’s other risk factors. ~~Except as set forth above, there~~There are no material changes for the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of ~~Proceeds~~.Proceeds.

During the ~~six~~three months ended ~~June 30, 2022, no options~~March 31, 2023, warrants were exercised, ~~or shares issued.~~

~~On April 29, 2022, Mast Hill Fund, LP, elected to exercise~~resulting in ~~full its warrant to purchase 1,400,000~~6,515 shares of common stock ~~on a cashless basis per the terms of the warrant agreement dated November 3, 2021. As a result of the cashless exercise, an aggregate of 860,241 shares were issued to Mast Hill Fund, LP.~~being issued.

The securities described above were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), as set forth in Section 4(a)(2) of the Securities Act relative to transactions by an issuer not involving any public offering, to the extent an exemption from registration was required. The recipients of the securities described in the transactions above acquired the securities for their own account for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof.

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~~is approximately ~~$114,000~~$119,800 at ~~June 30, 2022.~~March 31, 2023.

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~~is approximately ~~$234,000~~$254,000 at ~~June 30, 2022.~~March 31, 2023.

The Company is in default on ~~long-term notes~~a note payable to third parties of ~~$500,000~~$355,000 due on December 31, ~~2021.~~2022. The accrued interest on ~~these notes was~~the note is approximately ~~$75,000~~$92,000 at ~~June 30, 2022.~~March 31, 2023.

The Company is in default on a note payable to third parties of $566,000 due on March 22, 2023. The accrued interest on the note is approximately $104,000 at March 31, 2023.

The Company is in default on a note payable to third parties of $240,902 due on March 31, 2023. The accrued interest on the note is approximately $91,000 at March 31, 2023.

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.

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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: May 19, 2023		/s/ James Villa
		~~(Registrant)~~James Villa
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~August 15, 2022~~		~~/s/ James Villa~~May19, 2023
		~~James Villa~~
		~~Chief Executive Officer~~
		~~(Principal Executive Officer)~~

~~Date: August 15, 2022~~		/s/ Richard Glickman
		Richard Glickman
		Finance and Chief Accounting Officer
		VP Finance and Chief Accounting Officer ~~(Principal Financial Officer and Principal Accounting Officer)~~

Table of Contents

INDEX TO EXHIBITS

Exhibit No.		Description

31.1		Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. *
31.2		VP Finance Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. *
32.1		Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. *
32.2		VP Finance 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.

Table of Contents

~~INDEX TO EXHIBITS~~

~~Exhibit No.~~		~~Description~~

~~10.1~~		Stock Purchase Agreement, dated April 12, 2022, by and between Infinite Group, Inc. and Talos Victory Fund, LLC (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 15, 2022).
~~10.2~~		Promissory Note, issued April 12, 2022, by Infinite Group, Inc. to Talos Victory Fund, LLC (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 15, 2022).
~~10.3~~		Warrant, issued April 12, 2022, by Infinite Group, Inc. to Talos Victory Fund, LLC (incorporated herein by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 15, 2022).
~~10.4~~		Warrant, issued April 12, 2022, by Infinite Group, Inc. to J.H. Darbie & Co., Inc. (incorporated herein by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on April 15, 2022).
~~10.5~~		Stock Purchase Agreement, dated May 27, 2022, by and between Infinite Group, Inc. and Mast Hill Fund, L.P. (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 3, 2022).
~~10.6~~		Promissory Note, issued May 27, 2022, by Infinite Group, Inc. to Mast Hill Fund, L.P. (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 3, 2022).
~~10.7~~		~~Warrant, issued May 27, 2022, by Infinite Group, Inc. to Mast Hill Fund, L.P. (incorporated herein by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 3, 2022).~~
~~10.8~~		Warrant, issued May 27, 2022, by Infinite Group, Inc. to J.H. Darbie & Co., Inc. (incorporated herein by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 3, 2022).
~~10.9~~		Modification Agreement to Promissory Note originally dated December 30, 2020 between the Company and Donald Reeve dated June 30, 2022 (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 7, 2022).
~~10.10~~		Modification Agreement to Promissory Note originally dated May 25, 2021 between the Company and Donald Reeve dated June 30, 2022 (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 7, 2022).
~~31.1~~		Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. *
~~31.2~~		Principal Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. *
~~32.1~~		Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. *
~~32.2~~		Principal Financial 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.

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	%

	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	)%