UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30,2022June 30, 2023
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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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 |
| N/A |
| N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐☒
Indicate by check mark whether the registrant has submitted electronically 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 | ☒ | 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 453,263521,175 shares of the issuer’s common stock, par value $.001 per share, outstanding as of November 14, 2022.October 10, 2023.
Infinite Group, Inc.
Quarterly Report on Form 10-Q
For the Period Ended SeptemberJune 30, 20222023
Table of Contents
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Balance Sheets – | 4 | ||||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2 |
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.
3 |
Table of Contents |
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
INFINITE GROUP, INC.
BALANCE SHEETS
INFINITE GROUP, INC. | INFINITE GROUP, INC. | |||||||||||||||||
BALANCE SHEETS | BALANCE SHEETS | |||||||||||||||||
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ASSETS | ASSETS |
| ASSETS | |||||||||||||||
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| September 30, |
| December 31, |
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| June 30, |
| December 31, |
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|
| 2022 |
| 2021 |
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| 2023 |
| 2022 |
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| (Unaudited) |
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| (Unaudited) |
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Current assets: |
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Cash |
| $ | 6,584 |
| $ | 99,432 |
|
| $ | 17,339 |
| $ | 23,187 |
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Accounts receivable, net of allowances of $14,710 and $9,710, as of September 30, 2022 and December 31, 2021, respectively |
| 585,825 |
| 727,297 |
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Accounts receivable, net of allowances for expected credit losses of 32,692 |
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as of June 30, 2023 and $36,710 as of December 31, 2022, respectively |
| 212,890 |
| 406,005 |
| |||||||||||||
Prepaid expenses and other current assets |
|
| 177,475 |
|
|
| 218,821 |
|
|
| 462,260 |
|
|
| 144,218 |
| ||
Total current assets |
| 769,884 |
| 1,045,550 |
|
| 692,489 |
| 573,410 |
| ||||||||
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Right of Use Asset Operating Lease, net |
| 664,980 |
| 41,490 |
|
| 604,366 |
| 645,095 |
| ||||||||
Property and equipment, net |
| 25,436 |
| 41,138 |
|
| 11,640 |
| 19,996 |
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Software, net |
| 422,882 |
| 417,650 |
|
| 420,897 |
| 417,325 |
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Deposits |
|
| 10,144 |
|
|
| 6,937 |
|
|
| 10,144 |
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|
| 10,144 |
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Total assets |
| $ | 1,893,326 |
|
| $ | 1,552,765 |
|
| $ | 1,739,536 |
|
| $ | 1,665,970 |
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY | LIABILITIES AND STOCKHOLDERS' DEFICIENCY | LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||||||||||||
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Current liabilities: |
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Accounts payable |
| $ | 1,293,870 |
| $ | 536,863 |
|
| $ | 1,605,944 |
| $ | 1,687,579 |
| ||||
Accrued payroll |
| 346,658 |
| 425,839 |
|
| 420,602 |
| 386,289 |
| ||||||||
Accrued interest payable |
| 955,107 |
| 594,241 |
|
| 1,301,144 |
| 783,581 |
| ||||||||
Accrued retirement |
| 283,767 |
| 275,422 |
|
| 292,366 |
| 286,605 |
| ||||||||
Deferred revenue |
| 514,327 |
| 497,734 |
|
| 451,738 |
| 550,523 |
| ||||||||
Accrued expenses other and other current liabilities |
| 229,455 |
| 167,310 |
|
| 230,336 |
| 138,639 |
| ||||||||
Current maturities of long-term obligations |
| 549,000 |
| 515,000 |
| |||||||||||||
Operating lease liability - Short-term |
| 74,911 |
| 42,347 |
|
| 80,762 |
| 76,826 |
| ||||||||
Current maturities of long-term obligations |
| 765,000 |
| 765,000 |
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Current maturities of long-term obligations - related parties |
| 295,000 |
| 190,000 |
|
| 659,300 |
| 385,000 |
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Notes payable, net |
| 1,247,617 |
| 383,824 |
|
| 1,491,004 |
| 1,572,857 |
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Notes payable - related parties |
|
| 229,000 |
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| 229,000 |
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| 199,000 |
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| 229,000 |
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Total current liabilities |
| 6,234,712 |
| 4,107,580 |
|
| 7,281,196 |
| 6,611,899 |
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Long-term obligations: |
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Notes payable: |
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Other |
| 458,713 |
| 458,309 |
|
| 416,473 |
| 458,849 |
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Related parties |
| 974,664 |
| 1,084,765 |
|
| 499,000 |
| 886,876 |
| ||||||||
Operating lease liability - Long-term |
|
| 592,521 |
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| 0 |
| ||||||||||
Operating lease liability - long-term |
|
| 531,374 |
|
|
| 572,560 |
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Total liabilities |
| 8,260,610 |
| 5,650,654 |
|
| 8,728,043 |
| 8,530,184 |
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Commitments and contingencies |
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Stockholders' deficiency: |
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Common stock, $.001 par value, 60,000,000 shares authorized; 453,263 and 436,125 as of September 30, 2022 and December 31, 2021, respectively, issued and outstanding. |
| 453 |
| 436 |
| |||||||||||||
Common stock, $.001 par value, 60,000,000 shares authorized; 506,608 and 470,093 shares issued and outstanding, June 30, 2023 and December 31, 2022, respectively. |
| 507 |
| 470 |
| |||||||||||||
Additional paid-in capital |
| 31,888,350 |
| 31,369,036 |
|
| 32,324,991 |
| 32,164,334 |
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Accumulated deficit |
|
| (38,256,087 | ) |
|
| (35,467,361 | ) |
|
| (39,314,005 | ) |
|
| (39,029,018 | ) | ||
Total stockholders' deficiency |
|
| (6,367,284 | ) |
|
| (4,097,889 | ) |
|
| (6,988,507 | ) |
|
| (6,864,214 | ) | ||
Total liabilities and stockholders' deficiency |
| $ | 1,893,326 |
|
| $ | 1,552,765 |
|
| $ | 1,739,536 |
|
| $ | 1,665,970 |
|
See notes to unaudited financial statements.
4 |
Table of Contents |
INFINITE GROUP, INC.
STATEMENTS OF OPERATIONS(Unaudited)
INFINITE GROUP, INC. | INFINITE GROUP, INC. | |||||||||||||||||||||||||||||||
STATEMENTS OF OPERATIONS (Unaudited) | STATEMENTS OF OPERATIONS (Unaudited) | |||||||||||||||||||||||||||||||
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| Three Months Ended June 30, |
| Six Months Ended June 30, |
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| 2022 |
| 2021 |
| 2022 |
| 2021 |
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| 2023 |
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| 2022 |
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| 2023 |
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| 2022 |
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Revenue |
| $ | 1,712,212 |
| $ | 1,836,740 |
| $ | 5,075,774 |
| $ | 5,458,586 |
|
| $ | 1,783,476 |
| $ | 1,696,492 |
| $ | 3,547,469 |
| $ | 3,363,562 |
| ||||||
Cost of revenue |
|
| 1,060,872 |
|
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| 1,136,931 |
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| 3,241,751 |
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|
| 3,319,069 |
|
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| 998,215 |
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| 1,059,639 |
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| 1,964,421 |
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| 2,180,879 |
|
Gross profit |
| 651,340 |
| 699,809 |
| 1,834,023 |
| 2,139,517 |
|
| 785,261 |
| 636,853 |
| 1,583,048 |
| 1,182,683 |
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Costs and expenses: |
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General and administrative |
| 529,695 |
| 528,424 |
| 1,746,995 |
| 1,534,527 |
|
| 465,177 |
| 613,317 |
| 996,822 |
| 1,217,300 |
| ||||||||||||||
Selling |
|
| 713,173 |
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| 502,389 |
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| 1,973,755 |
|
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| 1,397,156 |
|
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| 761,365 |
|
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| 612,957 |
|
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| 1,454,475 |
|
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| 1,260,582 |
|
Total costs and expenses |
|
| 1,242,868 |
|
|
| 1,030,813 |
|
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| 3,720,750 |
|
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| 2,931,683 |
|
|
| 1,226,542 |
|
|
| 1,226,274 |
|
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| 2,451,297 |
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| 2,477,882 |
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Operating income (loss) |
| (591,528 | ) |
| (331,004 | ) |
| (1,886,727 | ) |
| (792,166 | ) | ||||||||||||||||||||
Operating loss |
| (441,281 | ) |
| (589,421 | ) |
| (868,249 | ) |
| (1,295,199 | ) | ||||||||||||||||||||
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Other Income and Expense |
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Interest income |
| 0 |
| 0 |
| 18 |
| 3 |
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Other income (expense) |
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Interest Income |
| 71,324 |
| 10 |
| 71,624 |
| 18 |
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Interest expense: |
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Related parties |
| (22,765 | ) |
| (19,293 | ) |
| (68,907 | ) |
| (50,348 | ) |
| (30,755 | ) |
| (22,728 | ) |
| (57,700 | ) |
| (46,142 | ) | ||||||||
Other |
|
| (472,999 | ) |
|
| (40,014 | ) |
|
| (833,109 | ) |
|
| (116,530 | ) |
|
| (688,133 | ) |
|
| (221,061 | ) |
|
| (1,188,491 | ) |
|
| (360,111 | ) |
Total interest expense |
| (495,764 | ) |
| (59,307 | ) |
| (902,016 | ) |
| (166,878 | ) |
| (718,888 | ) |
| (243,789 | ) |
| (1,246,191 | ) |
| (406,253 | ) | ||||||||
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Other income (expense) |
|
| 0 |
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|
| 120,505 |
|
|
| 0 |
|
|
| 120,505 |
| ||||||||||||||||
Debt forgiveness |
| 95,131 |
| 0 |
| 95,131 |
| 0 |
| |||||||||||||||||||||||
ERC tax refund |
|
| 1,662,698 |
|
|
| 0 |
|
|
| 1,662,698 |
|
|
| 0 |
| ||||||||||||||||
Total other income (expense) |
|
| (495,764 | ) |
|
| 61,198 |
|
|
| (901,998 | ) |
|
| (46,370 | ) |
|
| 1,110,265 |
|
|
| (243,779 | ) |
|
| 583,262 |
|
|
| (406,235 | ) |
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Net loss |
| $ | (1,087,292 | ) |
| $ | (269,806 | ) |
| $ | (2,788,725 | ) |
| $ | (838,536 | ) | ||||||||||||||||
Net profit (loss) |
| $ | 668,984 |
|
| $ | (833,200 | ) |
| $ | (284,987 | ) |
| $ | (1,701,434 | ) | ||||||||||||||||
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Net loss per share basic and diluted |
| $ | (2.41 | ) |
| $ | (0.67 | ) |
| $ | (6.28 | ) |
| $ | (2.14 | ) | ||||||||||||||||
Net profit (loss) per share – basic |
| $ | 1.35 |
| $ | (1.88 | ) |
| $ | (0.59 | ) |
| $ | (3.87 | ) | |||||||||||||||||
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Weighted average shares outstanding basic |
|
| 451,345 |
|
|
| 399,829 |
|
|
| 443,901 |
|
|
| 392,398 |
| ||||||||||||||||
Net profit (loss) per share – diluted |
| $ | 1.07 |
| $ | (1.88 | ) |
| $ | (0.59 | ) |
| $ | (3.87 | ) | |||||||||||||||||
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Weighted average shares outstanding diluted |
|
| 451,345 |
|
|
| 399,829 |
|
|
| 443,901 |
|
|
| 392,398 |
| ||||||||||||||||
Weighted average shares outstanding |
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| |||||||||||||||||||||||
– basic |
| 494,960 |
| 443,953 |
| 483,243 |
| 440,004 |
| |||||||||||||||||||||||
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Weighted average shares outstanding |
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– dilluted |
| 638,776 |
| 443,953 |
| 483,243 |
| 440,004 |
|
See notes to unaudited financial statements.
5 |
Table of Contents |
INFINITE GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY (Unaudited)
Three and Nine Months Ended September 30, 2022 and 2021
Three and Nine Months Ended September 30, 2022
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| Additional |
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| |||||||||
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| Common Stock |
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| Paid-in |
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| Accumulated |
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| |||||||||
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Total |
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Balance - December 31, 2021 |
|
| 436,125 |
|
| $ | 436 |
|
| $ | 31,369,036 |
|
| $ | (35,467,361 | ) |
| $ | (4,097,889 | ) |
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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 |
|
| 436,125 |
|
|
| 436 |
|
|
| 31,518,293 |
|
|
| (36,335,595 | ) |
|
| (4,816,866 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants |
|
| 11,470 |
|
|
| 11 |
|
|
| (11 | ) |
|
| 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 |
|
| 447,595 |
|
| $ | 447 |
|
| $ | 31,780,806 |
|
| $ | (37,168,795 | ) |
| $ | (5,387,542 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
| 5,668 |
|
|
| 6 |
|
|
| 16,994 |
|
|
| 0 |
|
|
| 17,000 |
|
Stock based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 90,550 |
|
|
| 0 |
|
|
| 90,550 |
|
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,087,292 | ) |
|
| (1,087,292 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2022 |
|
| 453,263 |
|
| $ | 453 |
|
| $ | 31,888,350 |
|
| $ | (38,256,087 | ) |
| $ | (6,367,284 | ) |
Three and Nine Months Ended September 30, 2021
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance - December 31, 2020 |
|
| 387,600 |
|
| $ | 387 |
|
| $ | 30,792,391 |
|
| $ | (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 |
|
| 387,600 |
|
|
| 387 |
|
|
| 30,820,639 |
|
|
| (34,050,775 | ) |
|
| (3,229,749 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
| 3,334 |
|
|
| 3 |
|
|
| 58,122 |
|
|
| 0 |
|
|
| 58,125 |
|
Exercise of stock options |
|
| 3,788 |
|
|
| 4 |
|
|
| 14,926 |
|
|
| 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 |
|
| 394,722 |
|
| $ | 394 |
|
| $ | 30,975,607 |
|
| $ | (34,467,278 | ) |
| $ | (3,491,277 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
| 27,135 |
|
|
| 27 |
|
|
| 81,873 |
|
|
| 0 |
|
|
| 81,900 |
|
Exercise of stock options |
|
| 0 |
|
|
| 0 |
|
|
| 7,296 |
|
|
| 0 |
|
|
| 7,296 |
|
Stock based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (269,806 | ) |
|
| (269,806 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2021 |
|
| 421,857 |
|
| $ | 421 |
|
| $ | 31,064,776 |
|
| $ | (34,737,084 | ) |
| $ | (3,671,887 | ) |
INFINITE GROUP, INC. | ||||||||||||||||||||
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY (Unaudited) | ||||||||||||||||||||
Six Months Ended June 30, 2023 and 2022 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Six Months Ended June 30, 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 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued |
|
| 30,000 |
|
|
| 30 |
|
|
| 26,671 |
|
|
| 0 |
|
|
| 26,701 |
|
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 668,984 |
|
|
| 668,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2023 |
|
| 506,608 |
|
| $ | 507 |
|
| $ | 32,324,991 |
|
| $ | (39,314,005 | ) |
| $ | (6,988,507 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 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 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 51,708 |
|
|
| 0 |
|
|
| 51,708 |
|
Warrants issued |
|
| 0 |
|
|
| 0 |
|
|
| 210,816 |
|
|
| 0 |
|
|
| 210,816 |
|
Cashless exercise of warrants |
|
| 11,470 |
|
|
| 11 |
|
|
| (11 | ) |
|
| 0 |
|
|
| 0 |
|
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (833,200 | ) |
|
| (833,200 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2022 |
|
| 447,482 |
|
| $ | 447 |
|
| $ | 31,780,806 |
|
| $ | (37,168,795 | ) |
| $ | (5,387,542 | ) |
See notes to unaudited financial statements.
6 |
Table of Contents |
INFINITE GROUP, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
INFINITE GROUP, INC. | INFINITE GROUP, INC. | |||||||||||||||||
STATEMENTS OF CASH FLOWS (Unaudited) | STATEMENTS OF CASH FLOWS (Unaudited) | |||||||||||||||||
|
|
|
|
|
| |||||||||||||
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||||
|
| 2022 |
| 2021 |
|
| 2023 |
|
| 2022 |
| |||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||||
Net loss |
| $ | (2,788,725 | ) |
| $ | (838,536 | ) |
| $ | (284,987 | ) |
| $ | (1,701,434 | ) | ||
Adjustments to reconcile net loss to net cash used by operating activities: |
|
|
|
|
| |||||||||||||
Adjustments to reconcile net loss to net cash used |
|
|
|
|
| |||||||||||||
by operating activities: |
|
|
|
|
| |||||||||||||
Stock based compensation |
| 143,181 |
| 117,464 |
|
| 26,159 |
| 52,631 |
| ||||||||
Depreciation and amortization |
| 178,471 |
| 136,533 |
|
| 124,154 |
| 117,686 |
| ||||||||
Amortization of debt discount |
| 453,892 |
| 0 |
|
| 635,960 |
| 255,042 |
| ||||||||
Increase in accounts receivable allowance |
| 5,000 |
| (0) |
| |||||||||||||
Forgiveness of indebtedness |
| (0) |
| (120,505 | ) | |||||||||||||
Amortization of common stock expensed for services |
| 8,517 |
| 0 |
| |||||||||||||
Bad debt recovery |
| (4,018 | ) |
| 0 |
| ||||||||||||
Foregiveness of debt |
| (95,131 | ) |
| 0 |
| ||||||||||||
(Increase) decrease in assets: |
|
|
|
|
|
|
|
|
|
| ||||||||
Accounts receivable |
| 136,472 |
| 221,406 |
|
| 197,132 |
| 76,894 |
| ||||||||
Prepaid expenses and other assets |
| 38,139 |
| 6,007 |
|
| (299,859 | ) |
| 17,394 |
| |||||||
Increase (decrease) in liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||||
Accounts payable |
| 757,007 |
| 172,175 |
|
| (81,635 | ) |
| 549,665 |
| |||||||
Deferred revenue |
| 16,593 |
| (55,270 | ) |
| (98,785 | ) |
| (22,334 | ) | |||||||
Accrued expenses |
| 352,521 |
| 268,450 |
|
| 663,654 |
| 12,014 |
| ||||||||
Accrued retirement |
|
| 8,345 |
|
|
| 8,020 |
|
|
| 5,761 |
|
|
| 5,536 |
| ||
Net cash used by operating activities |
| (699,104 | ) |
| (84,256 | ) | ||||||||||||
Net cash provided (used) by operating activities |
| 796,922 |
| (636,906 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| ||||||||
Purchase of property and equipment |
| (969 | ) |
| (12,437 | ) |
| (2,099 | ) |
| (969 | ) | ||||||
Sale of ERC claim |
| 1,413,294 |
| 0 |
| |||||||||||||
Capitalization of software development costs |
|
| (165,436 | ) |
|
| (180,374 | ) |
|
| (113,790 | ) |
|
| (110,378 | ) | ||
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net cash used by investing activities |
|
| (166,405 | ) |
|
| (192,811 | ) | ||||||||||
Net cash provided (used) by investing activities |
|
| 1,297,405 |
|
|
| (111,347 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
| ||||||||
Gross proceeds from notes payable |
| 1,171,552 |
| 0 |
| |||||||||||||
Proceeds from notes payable |
| 257,645 |
| 918,900 |
| |||||||||||||
Debt issuance costs |
| (166,697 | ) |
| 0 |
|
| (295,336 | ) |
| (53,445 | ) | ||||||
Proceeds from notes payable - related parties |
| 0 |
| 404,000 |
| |||||||||||||
Repayment of notes payable - short-term |
| (249,194 | ) |
| 0 |
| ||||||||||||
Proceeds from the exercise of common stock options |
| 17,000 |
| 96,830 |
| |||||||||||||
Repayment of long-term obligations |
|
| 0 |
|
|
| (200,000 | ) | ||||||||||
Repayment of ERC Claim Agreement |
| (1,662,698 | ) |
| 0 |
| ||||||||||||
Repayments of note payable-related parties |
| (30,000 | ) |
| 0 |
| ||||||||||||
Repayments of note payable-short-term |
|
| (369,786 | ) |
|
| (215,040 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net cash provided by financing activities |
|
| 772,661 |
|
|
| 300,830 |
| ||||||||||
Net cash provided (used) by financing activities |
|
| (2,100,175 | ) |
|
| 650,415 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net (decrease) increase in cash |
| (92,848 | ) |
| 23,763 |
| ||||||||||||
Net decrease in cash |
| (5,848 | ) |
| (97,838 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash - beginning of period |
|
| 99,432 |
|
|
| 32,313 |
|
|
| 23,187 |
|
|
| 99,432 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash - end of period |
| $ | 6,584 |
|
| $ | 56,076 |
|
| $ | 17,339 |
|
| $ | 1,594 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||||
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
| ||||||||
Cash payments for interest |
| $ | 91,521 |
|
| $ | 66,908 |
|
| $ | 248,549 |
|
| $ | 54,826 |
| ||
|
|
|
|
|
| |||||||||||||
Non-cash investing and financing activities: |
|
|
|
|
| |||||||||||||
Warrant issued in conjunction with debts |
| $ | 107,834 |
|
| $ | 359,150 |
| ||||||||||
Common stock issued via exercise of warrant |
| $ | 7 |
|
| $ | 11 |
| ||||||||||
Common stock issued in conjunction with services |
| $ | 30 |
|
| $ | 0 |
|
See notes to unaudited financial statements.
7 |
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, 20212022 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, 20212022 filed with the U.S. Securities and Exchange Commission (SEC). Results of operations for the three and ninesix months ended SeptemberJune 30, 20222023, 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 $2,788,725$284,987 and $838,536$1,701,434 for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, and stockholders’ deficiencies of $6,367,284$6,988,507 and $4,097,889$6,864,214 at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. The Company hadhas a working capital deficit of approximately $5.46$6.6 million at SeptemberJune 30, 2022. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year of issuance of the financial statements.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’sCompany'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.
At September 30, 2022, the Company is in default on principal and interest payments on the Mast Hill Fund, L.P. and Talos Victory Fund, LLC, financing arrangements. The noteholders have been notified of the failure to pay and have taken no action against the Company at this time.
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, a portion of the net proceeds of which was expected to be used for the Pratum Acquisition. Following the termination of the Pratum Agreement, the Company determined to proceed with the offering.
In October 2022, the Company filed an amended S-1 for a public offering of $15.3 million of common stock and redeemable warrants, which was expected to be used for working capital needs including software development and repayment of debt. The completion of this offering did not occur. The Company is reevaluating its capital needsplans to issue stock, restructure certain debt and anticipates that it will continue to scale down spending to reduce costs and to increase cash flow while continuing to grow the operations at a slower pace.significant growth of business.
The Company believes the capital resources generated by anticipatedthe 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 September 30, 2022its operations as well as cash available under its factoring line of credit and from additional funding from the publicrelated parties and private markets including related partythird-party loans, if needed, provide sources to fund its ongoing operations and to support the internal growth of the Company. The Company is evaluating and is in process of extendingmay 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 itsour remaining notes payable based on its cash flow. Therefore, unless
As a result, for the Companyforeseeable future, there is successful with some of these alternatives, the substantial doubt about ourthe Company’s ability to continue as a going concern will not be alleviated.concern.
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, 20212022 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 SeptemberJune 30, 20222023 or 20212022 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 September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Managed support services |
| $ | 1,138,418 |
|
| $ | 1,114,851 |
|
| $ | 3,343,032 |
|
| $ | 3,243,183 |
|
Cybersecurity projects and software |
|
| 573,794 |
|
|
| 704,889 |
|
|
| 1,732,742 |
|
|
| 2,096,403 |
|
Other IT consulting services |
|
| 0 |
|
|
| 17,000 |
|
|
| 0 |
|
|
| 119,000 |
|
Total sales |
| $ | 1,712,212 |
|
| $ | 1,836,740 |
|
| $ | 5,075,774 |
|
| $ | 5,458,586 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Managed support services |
|
| 1,122,084 |
|
|
| 1,115,607 |
|
|
| 2,248,882 |
|
|
| 2,204,614 |
|
Cybersecurity projects |
|
| 353,937 |
|
|
| 300,456 |
|
|
| 676,000 |
|
|
| 626,917 |
|
Software |
|
| 307,455 |
|
|
| 280,429 |
|
|
| 622,587 |
|
|
| 532,031 |
|
Total Revenue |
|
| 1,783,476 |
|
|
| 1,696,492 |
|
|
| 3,547,469 |
|
|
| 3,363,562 |
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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.
Other IT consulting servicesSoftware
Other IT consulting services consistsSoftware 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 ninesix months ended SeptemberJune 30, 2022,2023, sales to one client, including sales under subcontracts for services to several entities, accounted for 66.5% and 65.9%, respectively,63% of total sales (60.7%in both periods, (65% for both periods in 2022) and 59.0%, respectively for the three and nine months ended September 30, 2021) and 11.0%27% of accounts receivable at SeptemberJune 30, 2022 (15.6%2023 (27% at December 31, 2021)2022).
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Capitalization of Software for Resale - The Company capitalizes the software development costs for software to be sold, leased, or otherwise marketed.Capitalizationmarketed.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.
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 9.85%11.85% at SeptemberJune 30, 2022)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,expected credit losses, if any. As collateral, the Company granted the Purchaser a first priority interest in accounts receivable and a blanket lien, which may be junior to other creditors, on all other assets.
The financing line provides the Company the ability to finance up to $2,000,000 of selected accounts receivable invoices, which includes a sublimit for one of the Company’s customers of $1,500,000. During the ninesix months ended SeptemberJune 30, 2022,2023, the Company sold approximately $3,098,000$1,916,000 ($2,471,0001,062,000 – for the nine months ended SeptemberJune 30, 2021)2022) of its accounts receivable to the Purchaser. As of SeptemberJune 30, 2022,2023, approximately $228,000$343,000 ($148,000228,000 - December 31, 2021)2022) of these receivables remained outstanding. Additionally, as of SeptemberJune 30, 2022,2023, the Company had $0$20,000 available under the financing line with the Purchaser ($66,000144,000 at December 31, 2021)2022). After deducting estimated fees, allowance for bad debtsexpected credit losses and advances from the Purchaser, the net receivable from the Purchaser amounted to approximately $23,000$34,000 at SeptemberJune 30, 20222023 ($15,00023,000 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 $38,128$9,838 for the ninethree months ended SeptemberJune 30, 20222023 ($24,24712,195 – June 30, 2022). The cost associated with the financing line totaled $24,510 for the ninesix months ended SeptemberJune 30, 2021)2023 ($22,306 – June 30, 2022). These financing line fees are classified on the statements of operations as interest expense.
Note 5. Capitalization of Software for Resale
As of SeptemberJune 30, 2022,2023, there were $844,410was $1,007,817 of costs capitalized ($678,973894,027 as of December 31, 2021)2022) and $421,528$586,920 of accumulated amortization ($261,323472,702 as of December 31, 2021)2022). During the three and ninesix months ended SeptemberJune 30, 2022,2023, there was $53,402$49,389 and $160,205$110,218, respectively, of amortization expense recorded ($42,29153,402 and $117,085$106,803, respectively, for the three and ninesix months ended SeptemberJune 30, 2021)2022). Costs incurred prior to reaching technological feasibility are expensed as incurred. During the three and ninesix months ended SeptemberJune 30, 2022,2023, there was approximately $55,100$15,000 and $165,400, respectively, of labor amounts capitalized related to these development costs ($59,200 and $176,200, respectively, for the three and nine months ended September 30, 2021). During the three and nine months ended September 30, 2022, there was approximately $13,405 and $29,521,$21,700, respectively, of labor amounts expensed related to these development costs ($43,8007,800 and $131,500,$16,100, respectively for the three and nine months ended September 30, 2021)in 2022).
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.
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Revenue recognized during the three months ended SeptemberJune 30, 20222023 and 2021,2022, that was included in the deferred revenue balances at the beginning of the respective periods, was approximately $201,600$123,000 and $233,400,$136,000, respectively.
Revenue recognized during the ninesix months ended SeptemberJune 30, 20222023 and 20212022, that was included in the deferred revenue balances at the beginning of the respective periods was approximately $331,500$307,000 and $323,800,$278,000, 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 SeptemberJune 30, 2022,2023, total remaining non-cancelable performance obligations under the Company’s contracts with customers was approximately $1,068,000.$882,000. The Company expects to recognize $808,500all but approximately $90,000 of this revenue over the next 12 months.
Note 7. Debt Obligations
Mast Hill Loan #5 - On NovemberFebruary 3, 2021, the Company2023, Infinite Group, Inc. (the “Company”), as borrower, entered into a financing arrangement (the “First 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 HillLender agreed to lend the Company $448,000,$118,000.00, which bears interest at a rate of eight percent (8%) per annum, less $44,800$11,800.00 original issue discount. Under the terms of the First Mast Hill Loan, amortization payments of $53,760, including principalare due beginning June 3, 2023, and interest, came due on February 3, 2022, and continue for each month thereafter with the final payment due on November 3, 2022. Debt issuance cost of $69,960 were incurred and are being amortized over a twelve-month period ending October 2022. At September 30, 2022, the Company paid the first three payments per the terms of the First Mast Hill Loan. 7.50 per share. At September 30, 2022, the principal and accrued interest amount was approximately $302,000.
During the nine months ended September 30, 2022, the Company entered into a financing arrangement (the “Second Mast Hill Loan”) with Mast Hill Fund. In exchange for a promissory note, Mast Hill agreed to lend the Company $370,000, which bears interest at a rate of eight percent (8%) per annum, less $37,000 original issue discount. Under the terms of the Second Mast Hill Loan, payments of $44,400, including principal and interest, came due on June 15, 2022, and continue for each month thereafter with the final payment due on February 15, 2023.Debt issuance cost3, 2024. Additionally, in the event of $54,650 were incurred and are being amortized over a twelve-month period ending February 2023. At September 30, 2022,default under the Loan or if the Company is in default on principal and interest payments. Mast Hillelects to pre-pay the Loan, the Lender has been notified of the failureright to pay and has taken no action against the Company at this time. The principal or interest on this loan which is not paid when due shall bear interest at the rate 12% per annum. Per the Second Mast Hill Loan, upon the occurrence of default, this note shall become immediately due and payable, and the Company shall pay to Mast Hill, in full satisfaction of its obligations hereunder, an amount equal to the Principal Amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment multiplied by 115% or accept payment part in common stock and part in cash. The default provisions in the Second Mast Hill Loan allows for the conversion of all orconvert any portion or all of the then outstanding and unpaid principal and accrued interest into fully paid and non-assessable shares of Common Stockthe Company’s common stock at $7.50a conversion price of $2.00 per share. At September 30, 2022,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 financing, the Company issued Lender a 5-year warrant to purchase 59,000 shares of Company common stock at a fixed price of $2.00 per share, subject to price adjustments for certain actions, including dilutive 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 accruedexercise of the warrant. No material relationship exists between the Company or its affiliates and Lender, other than in respect of the Loan and similar loans between the Company and Lender entered into on November 3, 2021, February 11, 2022, May 31, 2022, and November 23, 2022, respectively. This loan was in default at June 30, 2023 and the amount of interest amountexpense recorded as penalties during the three months ended June 30, 2023 was approximately $450,000.$18,900.
The Company also entered into a financing arrangement (the “Talos Loan”) with Talos Victory Fund, LLC (“Talos”J.H. Darbie & Co., Inc. ( “Finder”), a Delaware limited liability company. In exchangeregistered broker-dealer, acted as a finder in connection with the Loan, and was paid a cash fee of $3,100 (2.92% of the gross proceeds of the Loan) and issued a 5-year warrant to purchase 3,098 shares of Company common stock at a fixed price of $2.40 per share (120% of the exercise price of the warrant issued in connection with the Loan), subject to price adjustments for a promissory note, Talos agreedcertain actions, including dilutive issuances, representing 7% warrant coverage on the gross proceeds of the Loan. The Company has granted the Finder customary “piggy-back” registration rights with respect to lendthe shares issuable upon exercise of the warrant.
Amended and Restated Line of Credit Note - On March 17, 2023, the Company, $296,000,as borrower, entered into an Amended and Restated Line of Credit Note and Agreement (the “New Note”) effective as of October 1, 2022, which bearsamended and restated that certain Line of Credit Note and Agreement dated March 14, 2016 (the “Original Note”) by and between the Company and 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 eightten percent (8%(10%) per annum, less $29,600 original issue discount. 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 Company under the New Note.
Under the terms of the Talos Loan,New Note, the Company 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 during the first quarter of 2023. The Company has also agreed to make quarterly interest payments of $35,520, including principal and interest, came due$6,250, commencing on August 12,December 31, 2022, and continue for each month thereafter with the final payment due on April 12, 2023. Debt issuance cost of $45,920 were incurredcontinuing through and are being amortized over a twelve-month period ending April 2023. Atincluding September 30, 2022, the Company is in default on principal and interest payments. Talos has been notified of the failure to pay and has taken no action against the Company at this time. The principal or interest on this loan which is not paid when due shall bear interest at the rate 12% per annum. Per the Talos Loan, upon the occurrence of default, this note shall become immediately due and payable, and the Company shall pay to Talos, in full satisfaction of its obligations hereunder, an amount equal to the Principal Amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment multiplied by 115% or accept payment part in common stock and part in cash. The default provisions in the Talos Loan allows for the conversion of all or any portion of the then outstanding and unpaid principal and accrued interest into fully paid and non-assessable shares of Common Stock at $7.50 per share. At September 30, 2022, the principal and accrued interest amount was approximately $354,000.2024.
The Company also entered into a financing arrangement (the “Third Mast Hill Loan”) with Mast Hill. In exchange for a promissory note, Mast Hill agreed to lendRevised Financing Arrangement - During March 2023, the Company $355,000, which bears interest at a rate of eight percent (8%) per annum, less $35,500 original issue discount. Under the terms of the Third Mast Hill Loan, payments of $42,600, including principal and interest, came due on September 27, 2022, and continue for each month thereafter with the final payment due on May 26, 2023. Debt issuance costs of $54,975 were incurred and are being amortized over a twelve-month period ending May 2023. At September 30, 2022, the Company is in default on the principal and interest payment. Mast Hill has been notified of the failure to pay and has taken no action against the Company at this time. The principal or interest on this loan which is not paid when due shall bear interest at the rate 12% per annum. Per the Third Mast Hill Loan, upon the occurrence of default, this note shall become immediately due and payable, and the Company shall pay to Mast Hill, in full satisfaction of its obligations hereunder, an amount equal to the Principal Amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment multiplied by 115% or accept payment part in common stock and part in cash. The default provisions in the First Mast Hill Loan allows for the conversion of all or any portion of the then outstanding and unpaid principal and accrued interest into fully paid and non-assessable shares of Common Stock at $7.50 per share. At September 30, 2022, the principal and accrued interest amount was approximately $419,000.
On August 8, 2022, Company entered into a revised financing arrangement (the “Celtic Bank Loan Agreement”) with Celtic Bank a Utah corporation. Pursuant to the Celtic Bank Loan Agreement, Celtic Bank agreed to lendwhich originally loaned the Company $139,400.00$139,400 with a one-time fixed loan fee of $11,152 for a total obligation of $150,552.$150,552 in 2022. Under the terms of the agreement,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 August 15, 2022,March 24, 2023, and consisted of 25%30% of the Company’s receivables processed through Stripe, Inc.’s payment processing platform and then due and owing to the Company or $16,728$18,696 over a sixty day period, whichever is higher. As of September 30, 2022, the outstanding balance was $124,267. Subsequent payments shall also consist of 25% of the Company’s receivables processed through Stripe, Inc.’s payment processing platform and then due and owing to the Company or $16,728 over a sixty daysixty-day period, whichever is higher, with the final payment due on February 6,September 14, 2024. The loan is subject to customary eventsAt June 30, 2023, the balance of default. No material relationship exists betweenthis revised financing arrangement was $105,696.
Extinguishment of Convertible Promissory Note - On April 12, 2023, the Company or its affiliatesentered 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 Lender, other thanapproximately $95,000 was recorded as forgiveness of debt in respect to the processingStatements of credit card payments through Stripe, Inc.’s payment processing platform, and the Celtic Bank Loan Agreement.Operations.
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Payment to Board Member – On September 6, 2022,April 11, 2023, the Company and Donald W. Reeve,paid off a directordemand note to one board member. The payment was for $30,000 plus $2,891 of accrued interest.
Obligations in Default – As of June 30, 2023, the Company entered into two note modification agreementsis in default with respect to the Promissory Note originallyMast Hill financing arrangements dated December 30, 2020November 3, 2021, February 11, 2022, May 31, 2022, and November 23, 2022 and February 3, 2023. Per the Promissory Note originally dated May 25, 2021. There were two payments of principal of $100,000 each due September 1, 2022. The Modification agreements each extended the previously amended due dates from September 1, 2022 to January 1, 2023.
On July 29, 2022, the “Company and Andrew Hoyen (“Lender”), a director and executive officer ofarrangements, the Company entered into a note modification agreement (the “Modification”) with respect tohas accrued approximately $130,000 and $347,000 in default and penalty interest expense during the Line of Credit Notethree months and Agreement in the original principal sum of up to $100,000.00, dated July 18, 2017, issued by the Company to the Lender (the “Hoyen Note”). The Note and the Modification Agreement was approved by the disinterested members of the Company’s Board of Directors. The Modification Agreement extends the due date of the Note to July 31,six months ended June 30, 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 5,334 shares of the Company’s common stock. The remaining accrued and unpaid interest on the Hoyen Note was $11,862 as of September 30, 2022. Except as set forth in the Modification Agreement, the terms of the Hoyen Note remain the same.respectively.
Note 8. Short-term Obligation
ERC Claim and Risk Participation Agreement – In January 2023, the Company filed for the 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.
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 and 1861 Acquisition LLC (the “Buyer”). On April 21, 2023, the 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 “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”).
During June 2023, the Company received checks for the ERC from the IRS. The amount received was the $1,662,698 plus $70,699 of interest. These checks were forwarded to the Buyer as per the Agreement. The Company recorded the Transferred Interests amount as other income and the interest as interest income and interest expense. In the Statements of Cash Flows the amounts received from the IRS were recorded as an operating activity and the amounts forwarded to the Buyer were recorded as a financing activity.
Note 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.
The following table sets forth the computation of basic and diluted net lossprofit (loss) per share for the three and ninesix months ended:ended June 30, 2023:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator for basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (1,087,292 | ) |
| $ | (269,806 | ) |
| $ | (2,788,725 | ) |
| $ | (838,536 | ) |
Basic and diluted net loss per share |
| $ | (2.41 | ) |
| $ | (0.67 | ) |
| $ | (6.28 | ) |
| $ | (2.14 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted shares |
|
| 451,345 |
|
|
| 399,829 |
|
|
| 443,901 |
|
|
| 392,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from net loss per share calculation |
|
| 311,977 |
|
|
| 302,717 |
|
|
| 311,977 |
|
|
| 302,717 |
|
12 |
Table of Contents |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Numerator for basic net profit (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net profit (loss) |
| $ | 668,984 |
|
| $ | (833,200 | ) |
| $ | (284,987 | ) |
| $ | (1,701,434 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) per share - basic |
| $ | 1.35 |
|
| $ | (1.88 | ) |
| $ | (0.59 | ) |
| $ | (3.87 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net profit (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) |
| $ | 681,001 |
|
| $ | (833,200 | ) |
| $ | (284,987 | ) |
| $ | (1,701,434 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) per share - diluted |
| $ | 1.07 |
|
| $ | (1.88 | ) |
| $ | (0.59 | ) |
| $ | (3.87 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 494,960 |
|
|
| 443,953 |
|
|
| 483,243 |
|
|
| 440,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
| 638,776 |
|
|
| 443,953 |
|
|
| 483,243 |
|
|
| 440,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per share calculations |
|
| 325,634 |
|
|
| 319,350 |
|
|
| 505,770 |
|
|
| 319,350 |
|
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 optionoptions plans and agreements covering up to an aggregate of 217,260249,113 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.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. 1,40347,600 options were granted forduring the ninesix months ended SeptemberJune 30, 2022. 23,2742023. 1,267 options were granted forduring the ninesix months ended SeptemberJune 30, 2021.2022. The following assumptions were used for the ninesix months ended SeptemberJune 30, 2022.2023:
Risk-free interest rate |
|
| % | ||
Expected dividend yield |
|
| 0 | % | |
Expected stock price volatility |
|
| 110 | % | |
Expected life of options (years) |
|
| 2.75 |
|
The Company recorded expense for options issued to employees and independent service providers of $91,153$26,159 for both the three and $143,784six months ended June 30, 2023, and $51,708 and $52,631, for the three and ninesix months ended SeptemberJune 30, 2022, respectively ($7,296 and $117,464 for the three and nine months ended September 30, 2021).respectively.
11,60532,600 options vested during the ninesix months ended SeptemberJune 30, 2022.2023.
The Company issued 10,00015,000 performance-based stock options during 2021the six months ended June 30, 2023 at $18.375$1.17 per share to an executive of the Company. Certain revenuebookings targets must be made to grantfor the options in three tranches of 3,334 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. In the three months ended September 30, 2022, the remainingto vest. The unrecognized compensation expense for these options in the amount of $90,550 was recognized due to likelihood of meeting the targets.
A summary of all stock option activity for the nine months ended September 30, 2022 follows:
|
| Number of |
|
| Weighted |
|
| Remaining |
| Aggregate |
| |||
|
| Options |
|
| Average |
|
| Contractual |
| Intrinsic |
| |||
|
| Outstanding |
|
| Exercise Price |
|
| Term |
| Value |
| |||
Outstanding at December 31, 2021 |
|
| 143,427 |
|
| $ | 5.85 |
|
|
|
|
|
| |
Granted |
|
| 1,403 |
|
|
| 9.49 |
|
|
|
|
|
| |
Exercised |
|
| (5,668 | ) |
|
| 3.00 |
|
|
|
|
|
| |
Expired |
|
| (7,106 | ) |
|
| 4.87 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Outstanding at September 30, 2022 |
|
| 132,506 |
|
| $ | 6.06 |
|
| 2.9 years |
| $ | 289,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2022- vested or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expected to vest |
|
| 132,056 |
|
| $ | 6.06 |
|
| 2.9 years |
| $ | 289,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
| 131,922 |
|
| $ | 6.06 |
|
| 2.9 years |
| $ | 289,700 |
|
Note 10. Warrants
On April 29, 2022, Mast Hill Fund, LP elected to purchase 18,667 warrant shares in a cashless exercise per the terms of the warrant agreement dated November 3, 2021. Based on the calculation per the agreement, 11,470 shares were issued to Mast Hill Fund, LP.
Note 11. Lease
Beginning on August 1, 2016, the Company leased its headquarters facility under an operating lease agreement that was scheduled to expire onis approximately $12,000 at June 30, 2022. Rent expense was $80,000 annually during the first year of the lease term and increased by 1.5% annually thereafter. The lease was terminated one month early, and a new lease agreement, at the existing headquarters location, commenced on June 1, 2022. The term of the new lease agreement is 84 months. The first year’s rent will be $118,487 and will increase by 2% annually thereafter.2023.
Supplemental balance sheet information related to the leases on September 30, 2022 and December 31, 2021 is as follows:
Description |
| Classification |
| September 30, |
|
| December 31, |
| ||
|
|
|
|
|
|
|
|
| ||
Right of Use Asset - Lease, net |
| Other assets (non-current) |
| $ | 664,980 |
|
| $ | 41,490 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Liability - Short Term |
| Accrued liabilities |
|
| 74,911 |
|
|
| 42,347 |
|
Operating Lease Liability - Long Term |
| Other long-term liabilities |
|
| 592,521 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Lease Liability |
|
|
| $ | 667,432 |
|
| $ | 42,347 |
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate - Operating Lease |
|
|
|
| 7.0 | % |
|
| 6.0 | % |
13 |
Table of Contents |
A summary of all stock option activity for the six months ended June 30, 2023 follows:
|
| 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 |
|
| (6,335 | ) |
|
| 3.85 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Outstanding at June 30, 2023 |
|
| 173,054 |
|
| $ | 5.14 |
|
| 2.9 years |
| $ | 0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2023- vested or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expected to vest |
|
| 158,054 |
|
| $ | 5.14 |
|
| 2.7 years |
| $ | 0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
| 158,054 |
|
| $ | 5.14 |
|
| 2.7 years |
| $ | 0.00 |
|
Note 11. Lease
Beginning on June 1, 2022, the Company leases its headquarters facility under an operating lease agreement that expires on May 31, 2029. Rent due is $118,487 annually during the first year of the lease term, and increases by 2.0% annually thereafter.
Upon entering the lease agreement, the Company recognized a right-of-use asset of $691,009 and a lease liability of $691,009.
Supplemental balance sheet information related to the lease on June 30, 2023 and December 31, 2022 is as follows:
|
|
| June 30, |
|
| December 31, |
| |||
Description |
| Classification |
| 2023 |
|
| 2022 |
| ||
Right of Use Asset – Lease, net |
| Other assets (non-current) |
| $ | 604,366 |
|
| $ | 645,095 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease liability – Short-term |
| Accrued liabilities |
|
| 80,762 |
|
|
| 76,826 |
|
Operating Lease liability – Long-term |
| Other long-term liabilities |
|
| 531,374 |
|
|
| 572,560 |
|
Total operating lease liability |
|
|
| $ | 612,136 |
|
| $ | 649,386 |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate – operating lease |
|
|
|
| 7.00 | % |
|
| 7.00 | % |
Note 12. Related Party Accrued Interest Payable
Included in accrued interest payable isare amounts due to related parties of approximately $152,200,$345,000, at SeptemberJune 30, 20222023 ($107,000299,000 at December 31, 2021)2022). An additional $111,364 of accrued interest to related parties is included with short and long-term debt and is due to be paid after September 30, 2023.
Note 13. Subsequent Events
On October 17, 2022,July 13, 2023, Donald Reeve, Chairman of the Board, and the Company, entered into a short term note wherein the Company borrowed $40,000 from Mr. Reeve. Interest will accrue monthly at a rate of Directors (the “Board”)10% per annum. The note was due in full with interest on August 14, 2023 and has been extended to a new term date of Infinite Group, Inc. (the “Company”) approved a 75 to 1 reverse stock splitSeptember 13, 2023. This note remains outstanding as of the Company’s issued and outstanding common stock and treasury stock, effective at 12:01 a.m. Eastern Time on October 19, 2022 (the “Effective Date”) (the “Reverse Stock Split”). On October 18, 2022, the Company filed a Certificate of Amendment to amend the Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect the Reverse Stock Split.filing date.
The Reverse Stock Split was previously approved by the Company’s shareholders at the Company’s January 26, 2022 annual meeting of stockholders and does not affect the total number of shares of Common Stock that the Company is authorized to issue.
The Reverse Stock Split was announced by FINRA (the Financial Industry Regulatory Authority) on October 18, 2022, and becomes effective at the commencement of trading on the Effective Date, whereupon theIn July 2023, warrants were exercised via a cashless exercise, resulting in 14,567 shares of common stock will begin trading on a split adjusted basis.being issued.
AsOn August 7, 2023, the Company received legal notice from a resultformer employee, that he is suing the Company for alleged violations of Oregon labor law, related to his July 2023 termination. The Company believes this lawsuit is without merit and will defend it vigorously.
14 |
Table of Contents |
On August 25, 2023, the Company, as borrower, entered into a business loan arrangement (the “Loan”) with WebBank (the “Lender”). In exchange for the Loan, Lender agreed to lend the Company $150,000.00, with a payment plan of $2,671.15 per week for 78 weeks effective August 28, 2023. The effective interest rate of the Reverse Stock Split, every seventy-five (75) sharesLoan is 46.8%. If Loan is prepaid, the unpaid portion of the issuedfinance charge of $58,350 will be due to Lender.
On September 14, 2023, the Company, as borrower, entered into a Financing and outstanding common stockSecurity Agreement ("Agreement") with Celtic Bank Corporation (the “Celtic”). In exchange for a line of credit (“LOC”), Celtic agreed to lend the Company $200,000.00, with a payment plan of $20,892.15 per month for 12 months effective October 16, 2023. The annual percentage rate of the CompanyLOC is 48.4%, If LOC is prepaid, the unpaid interest accrued will be converted into one (1) sharedue to Celtic. If an additional draw on the LOC is requested, a draw fee will be imposed.
On October 13, 2023, the Company received funding from a loan agreement with Stripe and Celtic Bank. The loan amount was $140,200 plus a fixed fee of common stock. Any and all fractional shares resulting$16,403. The repayment amount of $156,603 will be repaid at a repayment rate of 20% of the Company’s receivables automatically withheld by Stripe. There is no financing percentage. The repayment start date is October 19, 2023, with a minimum payment amount of $17,400 over every 60-day period. The final repayment date is April 25, 2025, if total repayment amount is not paid as of that date. This loan agreement also eliminates the remaining balance of $35,754 from the Reverse Split will be rounded up toprevious Stripe loan dated March 16, 2023, as the nearest whole share.
All share and per share data in the accompanying financial statements have been retroactively restated to reflect the effect of the reverse stock split.remaining balance was rolled into this new loan.
************
Table of Contents |
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 disruptedchanged 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. TheWhile 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 continuedhave been generally lifted, there continues to disruptbe 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 affectedimpacted 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, includingthese 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 monthstwo quarters of 2022. We2023, 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.
Our Business
Headquartered in Pittsford, New York, IGIInfinite 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 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:
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
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
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
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 Nodeware creates an opportunity for
In June 2021, we created IGI CyberLabs, LLC, a wholly owned subsidiary to support our Nodeware solution and continued software development.
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.
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.
Technology and Product Development
Our goal is to position our products and solutions to enable vertical and other Application Programming Interface (API) based integration, with other industry solutions. We have a technology and product development strategy aligned with our business strategy. We continue to identify other technical partners in the cybersecurity market to integrate Nodeware into, through either API or full stack integration.
Cybersecurity Services
Results of Operations Comparison of the Three and Six Months Ended June 30, 2023 and 2022 The following tables compare our statements of operations data for the three and six months ended June 30, 2023 and 2022. The trends suggested by this table are not indicative of future operating results.
Cost of Sales and Gross Profit
Cost of sales principally represents compensation expense for our employees. Cost of sales decreased by
Our gross profit
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
Selling Expenses
Selling expenses of
Operating Income (Loss)
For the three months ended Interest Expense Net interest expense of $647,564 for the three months ended June 30, 2023 increased 166% from expense of $243,779 for the same quarter of 2022. For the six months ended June 30, 2023, net interest expense of $1,174,567 represents an increase of $768,332 over the same period in 2022. The increase in interest expense is primarily attributable to the bridge loans entered into during 2022 and the Other Income For the three and six months ended June 30, 2023, other income included a one-time refund of taxes of $1,662,698 related to the approval of the Employee Retention Credit by the IRS as well as
Net
For the three months ended
Liquidity and Capital Resources
At
During
At
At
Also included in the current notes payable to third parties at June 30, 2023, are Notes payable to third parties at June 30, 2023, also includes a loan balance with Celtic Bank for $105,696. 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 until the loan is repaid. In the first six months of 2023, a total of approximately
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,
During
At
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
Cash Flows
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.
We
Cash Flows
Cash Flows Provided by (Used in) Financing Activities
During the
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
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, We believe the
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
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.
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
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31,
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the
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
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
The Company is in default on
The Company is in default on
The Company is in default on
The Company is in default on
The Company is in default on
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.
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.
* Filed as an exhibit hereto.
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