INFINITE GROUP INC 10-K, filed Mar 30, 2021
INFINITE GROUP INC (IMCI)
10-K
2021-03-30
For: 2020-12-31
View Original
Added on
April 06, 2026
About this 10-K
INFINITE GROUP INC filed this 10-K on March 30, 2021, covering the fiscal year ended December 31, 2020.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Commission File Number 0-21816
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Infinite Group, Inc.
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175 Sully’s Trail, Suite 202
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Pittsford, NY 14534
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(585) 385-0610
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A Delaware Corporation
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IRS
Employer Identification Number: 52-1490422
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Securities
registered pursuant to Section 12(b) of the Act
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Common
Stock, $0.001 par value per share
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IMCI
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OTC
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(Title of each class)
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(Trading Symbol)
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(Name of each exchange on which registered)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes
☐ No ☒
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.
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Large
Accelerated filer ☐
Non-accelerated
filer ☐
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Accelerated filer
☐
Smaller
reporting company ☒
Emerging growth
company ☐
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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 has filed a report on
and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. ☒
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common stock of the registrant
held by non-affiliates of the registrant (based upon the closing
price on the Over the Counter Bulletin Board of $.09 on June 30,
2020 the last business day of the registrant’s most recently
completed second fiscal quarter) was approximately
$1,850,000.
As of March 24, 2021, 29,061,883 shares of the registrant's common
stock, $.001 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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INFINITE GROUP, INC.
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Form 10-K
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TABLE OF CONTENTS
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PART I
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Page
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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6
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Item
1B.
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Unresolved
Staff Comments
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9
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Item
2.
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Properties
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10
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Item
3.
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Legal
Proceedings
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10
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Item
4.
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Mine
Safety Disclosures
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10
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PART II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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10
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Item
6.
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Selected
Financial Data
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10
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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11
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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15
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Item
8.
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Financial
Statements and Supplementary Data
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15
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Item
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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15
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Item
9A.
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Controls
and Procedures
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15
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Item
9B.
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Other
Information
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15
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PART III.
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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16
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Item
11.
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Executive
Compensation
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17
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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18
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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21
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Item
14.
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Principal
Accountant Fees and Services
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22
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PART IV.
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Item
15.
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Exhibits
and Financial Statement Schedules
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22
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Signatures
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25
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FORWARD LOOKING STATEMENT INFORMATION
Certain
statements made in this Annual Report on Form 10-K are
“forward-looking statements” regarding the plans and
objectives of management for future operations and market trends
and expectations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
such forward-looking statements. The forward-looking statements
included herein are based on current expectations that involve
numerous risks and uncertainties. Our plans and objectives are
based, in part, on assumptions involving the expansion of our
business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive
and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which
are beyond our control. Although we believe that our assumptions
underlying the forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can be
no assurance that the forward-looking statements included in this
report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as
a representation by us or any other person that our objectives and
plans will be achieved. We undertake no obligation to revise or
update publicly any forward-looking statements for any reason.
Factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements
include, but are not limited to, the factors set forth herein under
the headings “Business,” “Risk Factors” and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations”. The terms
“we”, “our”, “us”, or any
derivative thereof, as used herein refer to Infinite Group, Inc., a
Delaware corporation.
2
PART I
Item 1. Business
Headquartered
in Pittsford, New York, Infinite Group, Inc. (IGI) is a developer
of cybersecurity software and a provider of cybersecurity related
services and managed information security related services to
commercial businesses and government organizations. As part of
these offerings we:
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as trusted advisor
and cybersecurity overlay, our focus is on key cybersecurity
services (virtual CISO, baseline risk assessments, compliance
review and assessment, incident response, penetration testing,
vulnerability assessments and other related consulting services) to
solve and simplify security for Managed Service Providers (MSPs),
small and medium sized enterprises (SMEs), government agencies, and
certain large commercial enterprises. Acting as the cybersecurity
overlay to both internal IT and third-party IT
organizations such as MSPs, VARs, MSSPs, we provide guidance and
structure for companies to meet compliance and have an overarching
cybersecurity plan. We work with both our channel partners and
direct customers to provide these services;
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have developed and
brought to market a SaaS based, patent pending automated asset
identification and vulnerability management and monitoring
solution, Nodeware®, which we sell through distribution and
channel partners. We are also master distributor for other
cybersecurity solutions such as Webroot, a cloud-based endpoint
security platform solution, where we market to and provide support
for over 300 reseller partners across North America;
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provide level 2
technical and security support across the application layer and
physical and virtual infrastructure including software-based
managed services supporting enterprise and federal government
customers through our partnership with Perspecta, and
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are an Enterprise
Level sales and professional services partner with VMware selling
virtualization licenses and solutions and providing virtualization
services support to commercial and government customers including
the New York State and Local Government and Education (SLED)
entities and the New York State Office of General Services (NYS
OGS).
Business Overview
As of
December 31, 2020, we had 60 full-time employees. We possess
certifications with our business and technology partners and our
personnel maintain numerous security and technical certifications
and qualifications. Our professionals are located at our
headquarters in Pittsford, New York and in the states of Colorado,
Florida, Georgia, Louisiana, Maryland, North Carolina, South
Carolina, Texas, Virginia and Washington.
We had
sales of approximately $7.2 million in 2020 and approximately $7.1
million in 2019. We generated operating income of approximately
$1,000 in 2020 as compared to approximately $329,000 in 2019. We
had net income of approximately $673,000 in 2020 and approximately
$48,000 in 2019. We recorded other income of approximately $967,000
in 2020 primarily from the forgiveness of our Payroll Protection
Plan loan. We derived approximately 65% of our sales in 2020 and
70% in 2019 from contracts as either a prime contractor or a
subcontractor.
During
2020, we derived approximately 61% of our sales from one prime
contractor, Perspecta (spun off from DXC Technology Company in
2018), including sales under subcontracts for services to its end
clients, principally a major establishment of the U.S. Government
(the U.S. Government Entity) for which we manage information
security in one of the nation’s largest physical and virtual
environments involving server and application security for the
Microsoft Windows environment. During 2019, the percentage was
approximately 63%. We have been providing this service to the U.S.
Government Entity under a long-standing subcontract, which has been
renewed annually since 2004. Our 24x7 team of experts supports
approximately 5,000 physical and virtual servers and 250,000 client
workstations from facilities in Maryland and Colorado. Operating 24
hours per day and seven days per week, we consistently meet or
exceed the requirements of our service level agreements. We refer
to this as our Advanced Server Management (ASM) team.
We
continued to grow our team of cybersecurity sales and technical
consultants as a result of growing demand and accelerated sales
growth in this segment of the market. This market segment of
cybersecurity accounts for over 20% of our sales as a result of our
direct and channel sales mix. We continue to drive development of
our cybersecurity business through growing and developing channel
marketing, programs, and relationships for Nodeware and
cybersecurity consulting. We believe our channel presence through
entities including large distribution and master agents have
created significant opportunities in both of these areas. This has
further reinforced our commitment to this business strategy and our
decision to leverage third party channels to bring new business and
customers and drive growth of our existing relationships to IGI
resulting in improved operating income.
We
provide subcontracted professional services to a select set of OEMs
and commercial entities that need additional skilled resources when
architecting and implementing solutions. We provide cloud computing
solutions that include public and private cloud architectures along
with hybrid scalable cloud hosting, server virtualization and
desktop virtualization solutions. Our experience with cloud and
virtualization computing related software has enabled us to take
advantage of a growing trend towards Managed IT Security Services,
particularly in the SME space. Sales to our principal client,
VMware, Inc., consisted of sales under subcontracts for services to
their end clients. During 2020, we provided professional services
to these clients and earned 3.5% of our sales.
3
Business Strategy
Our strategy creates differentiation in cybersecurity by combining
personalized and recurring professional services
to small to mid-sized enterprises who
lack the internal resources to focus on cybersecurity related
matters. Additionally, we have built growth businesses by
designing, developing, and marketing cybersecurity-based
software-as-a-service (SaaS). Products and solutions are spun off
from our technology platform to fill technology gaps in
cybersecurity. We brought a product platform to market that has two
patents pending and intend to develop other intellectual property
that serve as the core to other proprietary products and solutions
to market through a channel of domestic and international partners
and distributors. Our products, solutions, and services are
designed to simplify the security needs in customer and partner
environments, with a focus on the mid-tier Enterprise market and
below. We enable our partners by providing recurring revenue-based
business models for both recurring services and through our
automated and continuous security solutions. Products may be sold
as standalone solutions or integrated into existing environments to
further automate the management of security and related IT
functions. Our ability to succeed depends on how successful we are
in differentiating ourselves in the market at a time when
competition and consolidation in these markets is on the
rise.
Our
cybersecurity business is comprised of three components:
cybersecurity services, product development and deployment, and
integration of third-party security solutions into our security
offerings to our channel and customers. We provide cybersecurity
services and technical consulting resources to support both our
channel partners and end customers. For example, we sell our
proprietary product, Nodeware, through both our direct partners and
through other 3rd party partner distribution and agents so they can
either sell it as a standalone solution or part of other technical
services they provide to their customers. This enables the channel
partner to develop a base of recurring revenue. We have also
enabled Nodeware to be vertically integrated into other
cybersecurity platforms to create native offerings. We also provide
our cybersecurity services through our channel partners as a
cybersecurity overlay to the technical services they provide, which
also provides recurring revenue.
We are
working to expand our managed services business with our prime
partner, Perspecta, and the current federal enterprise customer and
its customers.
The
following sections define specific 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. Our
patent application is ready for examination by the U.S. patent
application examiner and in 2018, we have provided our first
defense of the patent application from the examiner. Nodeware is an
automated asset identification and vulnerability management and
monitoring solution that enhances security by proactively
identifying, monitoring, and addressing potential vulnerabilities
on both internal and external facing networks, creating a safeguard
against malicious intent to exploit known problems in a
customer’s network with simplicity and affordability.
Nodeware assesses vulnerabilities in a computer network using
scanning technology to capture a comprehensive view of the security
exposure of a network infrastructure. Users receive alerts and view
network information through a proprietary, web enabled dashboard.
Continuous and automated internal scanning and external on demand
scanning are components of this offering.
The
SaaS based platform has an agile and continuous development process
that is flexible to react to customer and market needs. In December
2019, we filed a second provisional patent application and in
December 2020 we filed the subsequent action on the institutional
patent on the Nodeware platform. In 2020, we created many new
feature updates and improvements to the platform in response to
COVID-19 needs and impact such as a downloadable Windows executable
version along with a Windows Agent 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 the 2020 continued evolution.
Nodeware
creates an opportunity for resellers, including managed service
providers, managed security service providers, distributors, and
value-added resellers to use a product that provides greater
visibility into the network security of an organization. We sell
Nodeware in the commercial sector through channel partners and
agents. In 2019 and 2020, we continued to expand our channel of
directresellers in addition to organizations like Telarus, SYNNEX
and Staples.
Intellectual Property
We
believe that our intellectual property is an asset that may
contribute to the growth and profitability of our business. We rely
on a combination of patent-pending and confidentiality procedures
and contractual provisions to establish and protect our
intellectual property rights in the United States and abroad. To
date, we have filed one patent application for our proprietary
product, Nodeware, in May 2017 and the second in December 2020 on
the platform. The efforts we have taken to protect our intellectual
property may not be sufficient or effective.
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 (USPTO) and can mature into a patent once the USPTO
determines that the claimed invention meets the standards for
patentability. Our patent application for Nodeware is ready for
examination by the U.S. patent application examiner. In 2018, 2019
and 2020, our Nodeware patent was reviewed by an auditor and we
continue to defend and address references to the patent to continue
its cycle through the process. We are awaiting on an auditor
assignment for the second provisional patent filed.
Technology and Product Development
Our
goal is to position our products and solutions to enable vertical
and other API-based integration with other solutions. We have a
technology and product development strategy aligned with our
business strategy. We continue to identify other technical partners
in the cybersecurity market to integrate Nodeware into; through
either API or full stack integration.
Cybersecurity Services
We
provide cybersecurity consulting services that include incident
response, security awareness training, risk management, IT
governance and compliance, security assessment services,
penetration testing, and virtual Chief Information Security Officer
(vCISO) offerings to channel partners and direct customers across
different vertical markets (banking, supply chain, manufacturing,
legal, etc.) in North America. Our cybersecurity projects leverage
different technology platforms and processes such as Nodeware to
create a living document that a customer can use to go forward on a
path of continuous improvement for its overall IT security. We
support both internal and external IT organizations with our
cybersecurity overlay that allows us to stay agnostic in the
process, especially for compliance while enabling the IT
organization to address the issues discovered. We validate overall
network security with the goal of maintaining the integrity of
confidential client information, preserving the continuity of
services, and minimizing potential data damage from attempted
threats and incidents. We continue to enhance our Cybersecurity
services when opportunities materialize and as the market
evolves.
Partner Agreements
Telarus Master Agent Agreement
SYNNEX distribution agreement. In 2019, we signed a
distribution agreement with SYNNEX Corporation (NYSE: SNX), a
leading business process services company, to bring Nodeware and
IGI’s full suite of cybersecurity services to the SYNNEX
reseller channel in the U.S. and Canada. SYNNEX resellers offer IGI
services and Nodeware to their customer base, helping them to
improve their security posture and reduce their cyber
risk.
Staples to sell Nodeware. In 2019, we also signed a
distribution agreement with Staples Inc. to sell its
Nodeware™ vulnerability management solution through the
Staples Business to Business(“B2B”) solutions division.
The entire Staples customer base will now have access to this
solution.
Staples to sell Cybersecurity services. In 2020, we added
our portfolio of cybersecurity services to the distribution
agreement with Staples Inc. through the Staples B2B solutions
division.
Certifications
Our
technical support personnel maintain leading edge certifications
and qualifications in the respective software applications. These
certifications are examples of our concerted effort to grow and
expand our virtualization practice. We believe that our
virtualization experience and expertise with VMware will offer
opportunities to increase sales, particularly in the cloud
computing market.
CISSP® - Certified Information Systems Security
Professionals. The CISSP certification is a credential for those
with technical and managerial competence, skills, experience, and
credibility to design, engineer, implement, and manage overall
information security programs to protect organizations from
increasingly sophisticated attacks. It is a globally recognized
standard of achievement. Certain of our employees in our cyber
security group have this certification.
GCIH - GIAC Certified Incident Handler. The GCIH
certification is a credential for incident handlers who manage
security incidents by understanding common attack techniques,
vectors and tools as well as defending against and/or responding to
such attacks when they occur. The GCIH certification focuses on
detecting, responding, and resolving computer security incidents
including:
●
the incident
reporting process;
●
malicious
applications and network activity;
●
common attack
techniques that compromise hosts;
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system and network
vulnerabilities; and
●
continuous process
improvement and the root causes of incidents.
Certain
of our employees in our cyber security group have this
certification.
CEH – Certified Ethical Hacker. The Certified Ethical
Hacker (CEH) program is a comprehensive ethical hacking
certification to help information security professionals grasp the
fundamentals of ethical hacking. The certification serves to assist
our consultants to systematically attempt to inspect network
infrastructures with the consent of its owner to find security
vulnerabilities which a malicious hacker could potentially exploit.
The course helps assess the security posture of an organization by
identifying vulnerabilities in the network and system
infrastructure to determine if unauthorized access is possible.
Certain of our employees in our cyber security group have this
certification.
Microsoft Gold Certified Partner. We are part of
Microsoft's Accredited Online Cloud Services program. We have been
certified in sales, pricing and technical delivery of Office 365
which combines the familiar Office desktop suite with cloud-based
versions of the next-generation communications and collaboration
services: Exchange Online, SharePoint Online and Lync Online. These
services are providing real world benefits to our clients while
allowing us to offer clear guidelines for transitioning new users
to hybrid-cloud-based solutions. We received certification for
Windows Intune which provides complete remote desktop support
capabilities enhancing our overall goal of providing complete
solutions for virtualization and cloud-based Software as a Service
(SaaS). What once required expensive hardware and time-consuming
deployments can now be delivered seamlessly, including web
conferencing, collaboration, document management, messaging,
customer relationship management and productive office web
applications all with lower total cost of ownership and quicker
return on investment. We believe our Microsoft competencies assist
our business development personnel when presenting solutions that,
if accepted, will increase our sales.
5
Perspecta Inc. Global Procurement Master Terms Agreement.
We are a member of a select group of
suppliers that enables Perspecta Inc. (spun off from DXC Technology
Company in 2018) to purchase products and services from us under a
global procurement master agreement and as specified in a statement
of work for each project. This relationship continues to evolve and
is something that is responsible for our long-term relationship
with the Federal customer mentioned previously. Perspecta has many
tools and resources to help us generate new sales streams, and
improve our mutual profitability, while at the same time adding
unique value for our joint clients. The program comprises practical
tools and services that we anticipate will help us in the key areas
of marketing and selling our solutions, optimizing the technology,
and collaborating with other organizations within our industry to
generate more revenue. Our global procurement master agreement with
Perspecta runs to January 2021.
Competition
As we
increase our focus in cybersecurity services and product
development, we face competition from several different vendors in
this evolving market. We compete with other IT professional
services firms, Managed Security Services Providers (MSSPs), and
cybersecurity product and software developers operating in the
Federal Government, state and local government and commercial
marketplace. We obtain a portion of our business based on proposals
submitted in response to requests from potential and current
clients, who typically also receive proposals from other firms. We
face competition in the commercial markets from other IT service
providers, MSSPs, and software development companies, large and
small. Many of our larger competitors, in general, have
substantially greater capital resources, research and development
staffs, sales, and marketing resources, facilities, and
experience.
Company Information Available on the Internet
We maintain a website at https://igicybersecrity.com.
Through a link to the Investor
Relations section of our website, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the Exchange Act), are available, free of charge, as soon as
reasonably practicable after we electronically file such material
with or furnish it to the Securities and Exchange Commission (SEC).
We also maintain a web site for our cybersecurity product,
Nodeware, and related services at https://www.nodeware.com.
The content of our websites shall not be deemed part of this
report.
Employees
As of December 31, 2020, we have 60 full-time employees, including
42 in information technology services, three in executive
management, three in accounting, finance and administration, three
in software development and ten in marketing and sales. We are not
subject to any collective bargaining agreements and we believe that
relations with our employees and independent contractors are good.
We believe that we are currently staffed at an appropriate level to
administratively implement and carry out our business plan for the
next 12 months. However, we expect to add positions in sales,
technical support, marketing and cybersecurity consulting to meet
growing demands.
Our
ability to develop and market our services, and to establish and
maintain a competitive position in our businesses will depend, in
large part, upon our ability to attract and retain qualified
technical, marketing and managerial personnel, of which there can
be no assurance.
We were
incorporated under the laws of the state of Delaware on October 14,
1986. Our principal corporate headquarters are located at 175
Sully’s Trail, Suite 202, Pittsford, NY 14534. Our business
is in the field of delivering cybersecurity services, licensing and
selling our cybersecurity solutions, including Nodeware, and
distributing third party software licenses.
Item 1A. Risk Factors
In
addition to the other information provided in our reports, you
should consider the following factors carefully in evaluating our
business and us. Additional risks and uncertainties not presently
known to us, which we currently deem immaterial or that are similar
to those faced by other companies in our industry or business in
general, such as competitive conditions, may also impair our
business operations. If any of the following risks occur, our
business, financial condition, or results of operations could be
materially adversely affected.
6
Risks Related to our Industry
System security risks, data protection breaches, cyberattacks, and
systems integration issues could disrupt our internal operations or
IT services provided to customers, and any such disruption could
reduce our revenue, increase our expenses, damage our
reputation.
We sell
cybersecurity services, third-party software as well as our
internally developed software, Nodeware. As a result, we have
been and will be a target of cyber-attacks designed to impede the
performance of our products, penetrate our network security or the
security of our cloud platform or our internal systems, or that of
our customers, misappropriate proprietary information and/or cause
interruptions to our services. For example, because Nodeware is a
network vulnerability management tool, a successful cyber-attack on
us may be perceived as a victory for the cyber attacker, thereby
increasing the likelihood that we may be a target of more
cyber-attacks, even absent financial motives. Further, if our
systems are breached as a result of third-party action, employee
error or misconduct, attackers could learn critical information
about how our primary product operates to help protect our
customers’ IT infrastructures from cyber risk, thereby making
our customers more vulnerable to cyber-attacks. In addition, if
actual or perceived breaches of our network security occur, they
could adversely affect the market perception of our Nodeware
product, negatively affecting our reputation, and may expose us to
the loss of our proprietary information or information belonging to
our customers, investigations or litigation and possible liability,
including injunctive relief and monetary damages. Such security
breaches could also divert the efforts of our technical and
management personnel. In addition, such security breaches could
impair our ability to operate our business and provide products to
our customers. If this happens, our reputation could be harmed, our
revenue could decline, and our business could suffer. We
monitor our network continuously with our Nodeware product as well
as other cybersecurity software.
We are
not aware of or identified an incident leading to a breach of our
internal or external facing systems. We have implemented
several proactive policies and procedures to mitigate any internal
incidents from outside forces. This includes deploying additional
monitoring software, phishing training, creating an internal
incident response team, and additional awareness through internal
communications around typical attempts that outside forces use.
While we have seen phishing attempts sent to certain email
addresses, we have mitigated those through the aforementioned
steps. Our internal security team has blocked the associated
addresses and/or domains of the senders and has enhanced email
security features to identify external emails. Overall, our
internal security posture continues to evolve as the market
evolves. We have a cyber insurance policy which will cover
certain expenses related to an attack, such as certain business
interruption costs associated with an incident.
We depend on prime contracts or subcontracts with the federal,
state and local governments for a substantial portion of our sales,
and our business would be seriously harmed if the government ceased
doing business with us or our prime contractors or significantly
decreased the amount of business it does with us or our prime
contractors.
We
derived approximately 70% of our sales in 2020 from contracts as
either a prime contractor or a subcontractor from government
contracts. We expect that we will continue to derive a substantial
portion of our sales for the foreseeable future from work performed
under government contracts, as we have in the past, and from
marketing efforts focused on commercial enterprises. If we or our
prime contractors were suspended or prohibited from contracting
with federal, state or local governments, or if our reputation or
relationship with the federal, state or local governments and
commercial enterprises were impaired, or if any of the foregoing
otherwise ceased doing business with us or our prime contractors or
significantly decreased the amount of business it does with us or
our prime contractors, our business, prospects, financial condition
and operating results would be materially adversely
affected.
Our business could be adversely affected by changes in budgetary
priorities of the federal, state and local
governments.
Because
we derive a significant portion of our sales from contracts with
federal, state and local governments, we believe that the success
and development of our business will continue to depend on our
successful participation in their contract programs. Changes in
federal, state and local government budgetary priorities could
directly affect our financial performance. A significant decline in
government expenditures, a shift of expenditures away from programs
which call for the types of services that we provide or a change in
government contracting policies, could cause U.S. Governmental
agencies as well as state and local governments to reduce their
expenditures under contracts, to exercise their right to terminate
contracts at any time without penalty, not to exercise options to
renew contracts or to delay or not originate new contracts. Any of
those actions could seriously harm our business, prospects,
financial condition or operating results. Moreover, although our
contracts with governmental entities may contemplate that our
services will be performed over a period of several years,
government entities usually must approve funds for a given program
each government fiscal year and may significantly reduce or
eliminate funding for a program. Significant reductions in these
appropriations could have a material adverse effect on our
business. Additional factors that could have a serious adverse
effect on our government contracting business include, but may not
be limited to:
●
changes in
government programs or requirements;
●
budgetary
priorities limiting or delaying government spending generally, or
by specific departments or agencies and changes in fiscal policies
or available funding, including potential governmental
shutdowns;
●
reductions in the
government's use of technology solutions firms;
●
a decrease in the
number of contracts reserved for small businesses, or small
business set asides, which could result in our inability to compete
directly for these prime contracts; and
●
curtailment of the
government uses of IT or related professional
services.
7
Risks Related to our Business and Financial Condition
Our results of operations may be negatively impacted by the
coronavirus outbreak.
In
December 2019, the 2019 novel coronavirus surfaced in China and the
virus has now spread to other countries, including the United
States and infections have been reported globally. The impacts of
the outbreak are unknown and rapidly evolving.
To
date, the outbreak has not had a material adverse impact on our
operations. However, the future impact of the outbreak is highly
uncertain and cannot be predicted and there is no assurance that
the outbreak will not have a material adverse impact on our
business, operations and the market for our securities. The extent
of the impact, if any, will depend on future developments,
including actions taken to contain the coronavirus. There can be no
assurance that our personnel will not be impacted by these pandemic
diseases and ultimately see our workforce productivity reduced or
incur increased medical costs / insurance premiums as a result of
these health risks.
In
addition, a significant outbreak of coronavirus could result in a
widespread global health crisis that could adversely affect global
economies and financial markets resulting in an economic
downturn.
We rely on one customer for a large portion of our
revenues.
We depend on one customer for a large portion of our revenue.
During 2020, sales to one customer, including sales under
subcontracts, accounted for 61.2% of total sales and 38.8% of
accounts receivable at December 31, 2020. The loss of this customer
could have a significant impact on our revenues and harm our
business and results of operations.
We are highly leveraged, which increases our operating deficit and
makes it difficult for us to grow.
At
December 31, 2020, we had current liabilities of approximately $3.1
million and long-term liabilities of $1.6 million and
stockholders’ deficiency of $3,105,770. We had a working
capital deficit of approximately $2.1 million and a current ratio
of .35. Working capital shortages may impair our business
operations and growth strategy, and accordingly, our business,
operations.
If we acquire businesses or business assets and do not successfully
integrate the acquisitions, our results of operations could be
adversely affected.
We may
grow our business by acquiring or investing in companies and
businesses and assets that we feel have synergy and will complement
our business plan. As such, we periodically evaluate potential
business combinations and investments in other companies and
assets. We may be unable to profitably manage businesses and assets
that we may acquire or invest in. We may fail to integrate these
businesses and assets successfully without incurring substantial
expenses, delays or other problems that could negatively impact our
results of operations.
Our investments in cybersecurity and other business initiatives may
not be successful.
We have
invested in and continue to invest in cybersecurity capabilities to
add new products and services to address the needs of our clients,
including our newly introduced product, Nodeware. Our investments
may not be successful or increase our revenues. If we are not
successful in creating value from our investments by increasing
sales, our financial condition and prospects could be
harmed.
If we fail to adequately manage the size of our business, it could
have a severe negative impact on our financial results or stock
price.
Our management believes that to be successful we must appropriately
manage the size of our business. This may mean reducing costs and
overhead in certain economic periods, and selectively growing in
periods of economic expansion. In addition, we will be required to
implement operational, financial and management information
procedures and controls that are efficient and appropriate for the
size and scope of our operations. The management skills and systems
currently in place may not be adequate and we may not be able to
manage any significant reductions or growth
effectively.
We may have difficulties in managing our growth.
Our
future growth depends, in part, on our ability to expand, train and
manage our employee base and provide support to an expanded client
base. We must also enhance and implement new operating and software
systems to accommodate our growth and expansion of IT product and
service offerings. If we cannot manage growth effectively, it could
have a material adverse effect on our results of operations,
business and financial condition. In addition, acquisitions,
investments and expansion involve substantial infrastructure costs
and working capital. We cannot provide assurance that we will be
able to integrate acquisitions, if any, and expansions efficiently.
Similarly, we cannot provide assurance that any investments or
expansion will enhance our profitability. If we do not achieve
sufficient sales growth to offset increased expenses associated
with our expansion, our results will be adversely
affected.
We depend on the continued services of our key
personnel.
Our
future success depends, in part, on the continuing efforts of our
senior executive officers. The loss of any of these key employees
may materially adversely affect our business.
8
Our future success depends on our ability to continue to retain and
attract qualified employees.
We
believe that our future success depends upon our ability to
continue to train, retain, effectively manage and attract highly
skilled technical, managerial, sales and marketing personnel. This
includes skills for our new initiatives in cybersecurity. Employee
turnover is generally high in the IT services industry. If our
efforts in these areas are not successful, our costs may increase,
our sales efforts may be hindered, and the quality of our client
service may suffer. Although we invest significant resources in
recruiting and retaining employees, there is often significant
competition for certain personnel in the IT services industry. From
time to time, we experience difficulties in locating enough highly
qualified candidates in desired geographic locations, or with
required specific expertise.
Risks Related to our Common Stock
The price of our common stock may be adversely affected by the
possible issuance of shares to third parties upon conversion of
outstanding notes.
We have four convertible notes outstanding to third parties that
are convertible into shares of common stock at prices ranging from
$.05 to $.25 per share. If these notes were converted into common
stock, the holders would receive approximately 5,025,000 shares of
our common stock or approximately 14.7% of our common stock outstanding as of March 25,
2021.
Our stock price is volatile and could be further affected by events
not within our control.
The
trading price of our common stock has been volatile and will
continue to be subject to volatility in the trading markets and
other factors.
The
closing market price for our common stock varied between a low of
$.03 and a high of $.15 in 2020. This volatility may affect the
price at which a stockholder could sell its shares of common stock,
and the sale of substantial amounts of our common stock could
adversely affect the price of our common stock. Our stock price is
likely to continue to be volatile and subject to significant price
and volume fluctuations in response to market and other factors,
including variations in our quarterly operating results and
announcement by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures, or capital
commitments.
Our common stock is currently
quoted on the Over The Counter (OTC) Bulletin Board. Because there
is a limited public market for our common stock, a stockholder may
not be able to sell shares when he or she wants.
We cannot assure you that an active
trading market for our common stock will ever
develop.
There
is limited trading in our common stock, and we cannot assure you
that an active public market for our common stock will ever
develop. The lack of an active public trading market means that a
stockholder may not be able to sell shares of common stock when
wanted, thereby increasing market risk. Until our common stock is
listed on an exchange, we expect that the shares will continue to
be quoted on the OTC Bulletin Board. However, an investor may find
it difficult to obtain accurate quotations regarding the common
stock’s market value. In addition, if we failed to meet the
criteria set forth in SEC regulations, various requirements would
be imposed by law on broker-dealers who sell our securities to
persons other than established customers and accredited investors.
Consequently, such regulations may deter broker-dealers from
recommending or selling our common stock, which may further affect
the shares liquidity. Moreover, our ability to obtain future
financing may be adversely affected by the consequences of our
common stock trading on the OTC Bulletin Board.
Our common stock may be considered a “penny stock” and
may be difficult to buy or sell.
The
Securities and Exchange Commission (SEC) has adopted regulations
which generally define “penny stock” to be an equity
security that has a market or exercise price of less than $5.00 per
share, subject to specific exemptions. The market price of our
common stock is currently below $5.00 per share and therefore may
be designated as a “penny stock” according to SEC
rules. This designation requires any broker or dealer selling these
securities to disclose certain information concerning the
transaction, obtain a written agreement from the purchaser and
determine that the purchaser is reasonably suitable to purchase the
securities. These rules may restrict the ability of brokers or
dealers to accept our share certificates into a customer account
and may affect the ability of our stockholders to sell their
shares.
Item 1B. Unresolved Staff Comments
Not
applicable.
9
Item 2. Properties
The
table below lists our facility location and square feet owned or
leased. Beginning on August 1, 2016, we lease our headquarters
facility under an operating lease agreement. Our rent expense is
$80,000 annually during the first year of the lease term and
increases by 1.5% annually thereafter. We have the right to
terminate the lease upon six months prior notice after three years
of occupancy.
|
At
December 31, 2020
|
Owned
|
Square Feet
Leased
|
Annual
Rent
|
Termination
Date
|
|
Pittsford, New
York
|
-
|
7,112
|
$84,908
|
June 30,
2022
|
We
believe our facility is in good operating condition. We do not own
or intend to invest in any real property and currently have no
policy with respect to investments or interests in real estate,
real estate mortgage loans or securities or interests in persons
primarily engaged in real estate activities.
Item 3. Legal Proceedings
We are not presently involved in any material legal
proceedings.
Item 4. Mine Safety Disclosures
Not
applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
Our
common stock is quoted on the OTC Bulletin Board under the symbol
IMCI. The following table sets forth, for the periods indicated,
the high and low closing bid quotations per share for our common
stock for each quarter within the last two fiscal years, as
reported by the OTC Bulletin Board. Quotations represent
interdealer prices without an adjustment for retail markups,
markdowns or commissions and may not represent actual
transactions:
|
|
Bid
Prices
|
|
|
Year Ended December
31, 2020
|
High
|
Low
|
|
|
|
|
|
First
Quarter
|
$.068
|
$.030
|
|
Second
Quarter
|
$.150
|
$.052
|
|
Third
Quarter
|
$.150
|
$.085
|
|
Fourth
Quarter
|
$.208
|
$.081
|
|
|
|
|
|
Year Ended December
31, 2019
|
High
|
Low
|
|
|
|
|
|
First
Quarter
|
$.024
|
$.005
|
|
Second
Quarter
|
$.030
|
$.010
|
|
Third
Quarter
|
$.085
|
$.018
|
|
Fourth
Quarter
|
$.059
|
$.028
|
At
March 24, 2021, we had 198 record stockholders and estimate that we
had approximately 1,200 beneficial stockholders.
Dividend Policy
We have
never declared or paid a cash dividend on our common stock. It has
been the policy of our board of directors (the Board) to retain all
available funds to finance the development and growth of our
business. The payment of cash dividends in the future will be
dependent upon our earnings and financial requirements and other
factors deemed relevant by our Board.
Item 6. Selected Financial Data
As a smaller reporting company, we are not required to provide the
information in response to this Item.
10
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Cautionary statement identifying important factors that could cause
our actual results to differ from those projected in
forward-looking statements.
Readers of this report are advised that this document contains both
statements of historical facts and forward-looking statements.
Forward-looking statements are subject to certain risks and
uncertainties, which could cause actual results to differ
materially from those indicated by the forward-looking statements.
Examples of forward-looking statements include, but are not limited
to (i) projections of sales, income or loss, earnings per share,
capital expenditures, dividends, capital structure, and other
financial items, (ii) statements of our plans and objectives with
respect to business transactions and enhancement of stockholder
value, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying other statements and
statements about our business prospects.
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.
Business
Headquartered
in Pittsford, New York, Infinite Group, Inc. (IGI) is a developer
of cybersecurity software and a provider of cybersecurity
consulting services to commercial businesses and government
organizations. As part of these offerings we:
●
focus on key
cybersecurity services (virtual CISO, compliance review and
assessment, incident response, penetration testing and
vulnerability assessments) to solve and simplify security for small
and medium sized enterprises (SMEs), government agencies, and
certain large commercial enterprises. We act as the security
overlay to both internal IT and third-party IT
(MSPs, VARs, MSSPs) organizations to provide guidance and structure
for companies to meet compliance and have an overarching
cybersecurity plan. We work with both our channel partners and
direct customers to provide these services;
●
developed and
brought to market our patent pending, automated vulnerability
management solution through our OEM business, Nodeware®, which
we sell through distribution and channel partners. We are also
master distributor for other security solutions such as Webroot, a
cloud-based endpoint security platform solution, where we market to
and provide support for over 300 reseller partners across North
America;
●
have developed and
brought to market our SaaS based automated asset identification and
vulnerability management and monitoring solution, Nodeware®,
which we sell through distribution and channel partners. We are
also master distributor for other security solutions like Webroot,
a cloud-based endpoint security platform solution, where we market
to and provide support for over 300 reseller partners across North
America; and
●
provide level 2
technical and security support across the application layer and
physical and virtual infrastructure including software-based
managed services supporting enterprise and federal government
customers through our partnership with Perspecta.
Business
Strategy
Our
strategy is to create differentiation in cybersecurity by combining
personalized and recurring professional services and build growth
businesses by designing, developing, and marketing
cybersecurity-based software-as-a-service (SaaS). Products and
solutions are spun off from our technology platform to fill
technology gaps in cybersecurity. We brought product to market that
has two patents pending and intend to develop other intellectual
property that serve as the core to other proprietary products and
solutions to market through a channel of domestic and international
partners and distributors. Our products, solutions and services are
designed to simplify the security needs in customer and partner
environments, with a focus on the mid-tier Enterprise market and
below. We enable our partners by providing recurring revenue-based
business models for both recurring services and through our
automated and continuous security solutions. Products may be sold
as standalone solutions or integrated into existing environments to
further automate the management of cybersecurity and related IT
functions. Our ability to succeed depends on how successful we are
in differentiating ourselves in the market at a time when
competition and consolidation in these markets is on the
rise.
Our
cybersecurity business is comprised of three components: managed
security services, product development and deployment, and
integration of third-party security solutions into our security
offerings to our channel and customers. We provide cybersecurity
services and technical consulting resources to support both our
channel partners and end customers. For example, we sell our
proprietary product, Nodeware, through both our direct partners and
through other 3rd party partner distribution and agents so they can
either sell it as a standalone solution or part of other technical
services they provide to their customers. This enables the channel
partner to develop a base of recurring revenue. We also provide our
cybersecurity services through our channel partners as a
cybersecurity overlay to the technical services they
provide.
We are working to expand our managed services business with our
prime partner, Perspecta, and the current federal enterprise
customer and its customers.
Business
Overview
We had
sales of approximately $7.2 million in 2020 and approximately $7.1
million in 2019. We generated operating income of approximately
$1,000 in 2020 as compared to approximately $329,000 in 2019. We
had net income of approximately $676,000 in 2020 and $48,000 in
2019. We recorded other income of approximately $967,000 in 2020
from primarily the forgiveness of our Payroll Protection Plan loan.
We derived approximately 65% of our sales in 2020 and 70% in 2019
from contracts as either a prime contractor or a
subcontractor.
11
Results of Operations - Comparison of the years ended December 31,
2020 and 2019
The
following table compares our statements of operations data for the
years ended December 31, 2020 and 2019.
|
|
Years Ended December
31,
|
|
||||
|
|
|
|
|
|
2020
vs. 2019
|
|
|
|
|
As a
% of
|
|
As a
% of
|
Amount
of
|
%
Increase
|
|
|
2020
|
Sales
|
2019
|
Sales
|
Change
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
Sales
|
$7,219,446
|
100.0%
|
$7,094,279
|
100.0%
|
$125,167
|
1.8%
|
|
Cost of
sales
|
4,177,268
|
57.9
|
4,422,533
|
62.3
|
(245,265)
|
(5.5)
|
|
Gross
profit
|
3,042,178
|
42.1
|
2,671,746
|
37.7
|
370,432
|
13.9
|
|
General and
administrative
|
1,696,415
|
23.5
|
1,334,051
|
18.8
|
362,364
|
27.2
|
|
Selling
|
1,344,472
|
18.6
|
1,008,558
|
14.2
|
335,914
|
33.3
|
|
Total operating
expenses
|
3,040,887
|
42.1
|
2,342,609
|
33.0
|
698,278
|
29.8
|
|
Operating
income
|
1,291
|
0.0
|
329,137
|
4.7
|
(327,846)
|
(99.6)
|
|
Other
income
|
967,007
|
13.4
|
0
|
0.0
|
967,007
|
- |
|
Interest expense,
net
|
(292,302)
|
(4.0)
|
(281,160)
|
(4.0)
|
11,142
|
4.0
|
|
Net
income
|
$675,996
|
9.4%
|
$47,977
|
0.7%
|
$628,019
|
1,309.0%
|
|
Net income per
share - basic
|
$.02
|
|
$.00
|
|
$.02
|
|
|
Net income per
share – diluted
|
$.02
|
|
$.00
|
|
$.01
|
|
Sales
For
2020 and 2019, our:
●
managed support
service and virtualization project sales comprised approximately
65% and 70% of our total sales, respectively;
●
cybersecurity
projects, Nodeware and commercial sales to small and medium sized
enterprises (SMEs), were approximately 32% and 22% of our total
sales, respectively; and
●
other IT consulting
services comprise the balance of our sales with 3% and 8%,
respectively.
Our
cybersecurity services business has grown by approximately $716,000
in revenues in 2020 versus 2019. We began to close sales of
Nodeware with our channel partners during 2017 and have seen
continued increases in sales in 2019 and 2020. Our commercial SME
business continues to establish new relationships with channel
partners who purchase cybersecurity solutions from us. We expect
continuing future sales from Nodeware sales, security assessments,
and related projects by our cybersecurity personnel.
Cost of Sales and Gross Profit
Cost of
sales principally represents the cost of employee services related
to our IT Services Group. In smaller amounts, we also incurred cost
of sales for third party software licenses for our commercial SME
partners.
Gross
profit increased by 13.9% while sales increased by 1.8% for 2020.
This was primarily due to higher gross profit margin in the
cybersecurity services group versus the other areas of
business.
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 increased in 2020
consisting of offsetting fluctuations in various expense items and
increases in salaries of approximately $222,000 and corporate
marketing expenses of $90,000.
Selling Expenses
The
increase in selling expenses in 2020 is principally due to the
increase of employee salaries, commissions and benefits totaling
approximately $186,000 due primarily to the growth to the cyber
security and Nodeware sales team. The remaining increase is
attributable to several smaller items including amortization of
development labor and consulting fees.
12
Operating Income
The
decrease in our operating income for 2020 is attributable to an increase in our general and
administrative expenses of $362,364 and our selling expenses of
$335,914 offset by the increase in gross profit of
$370,432.
Other Income
In
2020, we received a Paycheck Protection Plan (“PPP”)
loan which was subsequently forgiven. We recorded $963,516 of other
income at that time of forgiveness.
Interest Expense, net
Interest
expense includes interest on indebtedness, amortization of loan
fees, cost of stock options as part of debt agreements and fees for
financing accounts receivable invoices. The increase in interest
expense is principally attributable to stock option costs offset by
lower rates and less use of financing accounts receivable invoices
due to the availability of PPP.
Net Income
The
increase in net income is attributable to the items discussed above
for 2020 as compared to 2019.
Liquidity and Capital Resources
At
December 31, 2020, we had cash of $32,313 available for working
capital needs and planned capital asset expenditures. During 2020,
we financed our business activities through cash flows provided by
financing activities and sales with recourse of our accounts
receivable. Our primary source of liquidity is cash provided by
collections of accounts receivable, PPP loan and our factoring line
of credit. At December 31, 2020, we had approximately $362,000
available to borrow under this line. At December 31, 2020, we had a
working capital deficit of approximately $2,051,627 and a current
ratio of 0.35. Our objective is to improve our working capital
position through profitable operations, and we may continue to
borrow to provide cash for working capital.
At
December 31, 2020, we have current notes payable of approximately
$162,500 to third parties, which includes convertible notes payable
of approximately $150,000. Also included is $12,500 in principal
amount of a note payable due on June 30, 2016 but not paid by then.
This note was issued in payment of software we purchased in
February 2016 and secured by a security interest in the software.
To date, the holder has not taken any action to collect the amount
past due on this note or to enforce the security interest in the
software.
At
December 31, 2020, we also have an accrued liability for the
voluntary match portion of a former simple IRA plan, including
interest, of approximately $265,000. We do not anticipate
distributing this liability in the next year or two. Interest will
continue to accrue.
We have
current maturities of long-term obligations of approximately
$246,000 to the Pension Benefit Guaranty Corporation (the PBGC)
with all principal due on September 15, 2018, which has not been
extended. We are in
discussions with the PBGC and expect to reach an agreement to
settle this debt, for which we have available financing under our
existing credit facilities. We have maturities of our
long-term notes to third parties of $265,000 due on January 1,
2018, which has not been renewed or amended, and $500,000 due on
December31, 2021. The accrued interest on these notes and current
maturities is approximately $405,000 at December 31, 2020. These
notes have not been paid. We plan to renegotiate the terms of the
notes payable, offset with amounts owed to us, seek funds to repay
the notes or use a combination of the alternatives. At December 31,
2020, we have future cash receipts under contract related to the
projects identified in deferred assets in the amount of
approximately $565,000. Exclusive of these items and
adjusting for future cash receipts under contract, the working
capital would be approximately $120,000.
The following table summarizes our cash flow information for the
years presented, described below, and should be read in conjunction
with our financial statements appearing at Item 15, Page F-1, et
seq., of this report.
|
|
Years Ended December
31,
|
|
|
|
2020
|
2019
|
|
Net cash provided
by (used in) operating activities
|
$(413,755)
|
$29,572
|
|
Net cash used in
investing activities
|
(303,540)
|
(196,160)
|
|
Net cash provided
by financing activities
|
743,210
|
143,270
|
|
Net increase
(decrease) in cash
|
$25,915
|
$(23,318)
|
13
Cash Flows Used in Operating Activities
Our
operating cash flow is primarily affected by the overall
profitability of our contracts, our ability to invoice and collect
from our clients in a timely manner, and our ability to manage our
vendor payments. We bill our clients weekly or monthly after
services are performed, depending on the contract terms. Our net
income of $675,996 for 2020 was increased by non-cash expenses for
depreciation, amortization, bad debt expense and stock-based
compensation of $230,418 and decreased for non-cash adjustments for
forgiveness of debt of $963,516. In addition, an increase in
accounts payable and accrued expenses of $203,082 was offset by
increases in accounts receivable and other assets of $559,735
resulted in net cash used in operating activities of
$413,755.
We are
marketing Webroot and Nodeware to our IT channel partners who
resell to their customers. We are making investments in our cyber
security team for penetration testing, vCISO and other services.
Due to the lengthy lead times typically needed to generate these
new sales, we do not expect to realize a return from our sales and
marketing personnel for one or more quarters. As a result, we may
continue to experience small operating income or operating losses
from these investments in personnel until sufficient sales are
generated. We expect to fund the cost for the new sales personnel
from our operating cash flows and incremental borrowings, as
needed.
Cash Flows Used in Investing Activities
In 2020, we incurred capital expenditures for computer hardware as
well as software development labor for the enhancements to
Nodeware. We expect to continue to invest in computer hardware and
software to update our technology to support the growth of our
business.
Cash Flows Provided by Financing Activities
During
2020, we received $957,372 from the U. S. Small Business
Administration (“SBA”) as part of the Paycheck
Protection Plan enacted by Congress under the Coronavirus Aid,
Relief and Economic Security Act (“CARES Act”). We
received SBA forgiveness of this amount plus accrued interest of
$6,143 later in the year. We borrowed $50,000 from a related party
under the terms of a note payable. The note allows for up to
$500,000 credit and is due in August 2026. During 2019, we borrowed
$200,000 from the $500,000 credit note. During 2020, we made
principal payments of $96,635 to related party note holders and
$167,527 to a third party.
We plan
to evaluate alternatives which may include renegotiating the terms
of the notes, seeking conversion of the notes to shares of common
stock and seeking funds to repay the notes. We continue to evaluate
repayment of our notes payable based on our cash flow.
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 December
31, 2020, we had financing availability, based on eligible accounts
receivable, of approximately $362,000 under this line. We pay fees
based on the length of time that the invoice remains unpaid. We
also have approximately $265,000 of available credit under various
lines of credit as of December 31, 2020.
During
May 2019, we originated a line of credit note payable for a
$500,000 with a related party and borrowed $250,000 and have
$250,000 available to borrow for working capital. This agreement
matures in August 2026. We may borrow from the outstanding line of
credit to pay a portion the PBGC settlement amount.
During
2017, we originated two lines of credit with related parties
totaling $175,000. At December 31, 2020, we had $15,000 available
under these financing agreements which mature in July 2022 and
January 2023, respectively.
We
believe the capital resources available under our factoring line of
credit, cash from additional related party loans and cash generated
by improving the results of our operations as well as the extension
of approximately $574,000 of short term debt to long term will be
sufficient to fund our ongoing operations and to support the
internal growth we expect to achieve for at least the next 12
months.
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: cash from collections of accounts
receivable; additional borrowing from related and third parties;
issuance of equity; use of our existing accounts receivable credit
facility; or a refinancing of our accounts receivable credit
facility.
Critical Accounting Policies and Estimates
See Note 3 to the Financial Statements for a discussion of the
Company’s accounting policies and estimates including
Capitalization of Software for Resale and management’s
assessment of going concern.
14
Item 7A. 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 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of
this report beginning on page F-1.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) 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, our
chief executive officer and chief financial officer concluded that
as of the Evaluation Date, our disclosure controls and procedures
are effective to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act
(i) is recorded, processed, summarized and reported, within the
time periods specified in the SEC’s rules and forms and (ii)
is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate
to allow timely decisions regarding required
disclosure.
Our
management, including our chief executive officer and chief
financial officer, does not expect that our disclosure controls and
procedures or our internal controls will prevent all errors and all
fraud. Our disclosure controls and procedures are designed to
provide reasonable assurance of achieving their objectives, and our
chief executive officer and chief financial officer concluded that
our disclosure controls and procedures are effective at that
reasonable assurance level. Further, the design of a control system
must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within Infinite
Group have been detected.
(b) Management's Report on
Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act). Our management assessed the
effectiveness of our internal control over financial reporting as
of December 31, 2019. In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework (2013). Our management has concluded
that, as of December 31, 2020, our internal control over financial
reporting was effective based on these criteria.
This
Annual Report does not include an attestation report of our
Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s
registered public accounting firm pursuant to rules of the SEC that
permit the Company to provide only management’s report in
this Annual Report.
(c) Changes in Internal Control over Financial
Reporting
There
were no changes in our internal control over financial reporting
that occurred during the quarter ended December 31, 2020 that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other Information
Information required by this item is disclosed elsewhere
herein.
15
PART III
Item 10. Directors, Executive Officers, and Corporate
Governance
Set forth below are the names, ages and positions of our executive
officers and directors.
|
Name
|
Age
|
Position
|
Affiliated
Since
|
|
James Villa
(1)
|
63
|
Chief Executive
Officer
|
2003
|
|
Donald W. Reeve
(1)
|
74
|
Chairman of the
Board
|
2013
|
|
Andrew
Hoyen
|
50
|
President and Chief
Operating Officer
|
2014
|
|
Richard
Glickman
|
59
|
VP Finance and
Chief Accounting Officer
|
2019
|
________________________
(1) Member of the audit and compensation committees.
Each director is elected for a period of one year and serves until
his successor is duly elected and qualified. Officers are elected
by and serve at the will of our Board.
Background
The
principal occupation of each of our directors and executive
officers for at least the past five years is as
follows:
James Villa is our Chief Executive Officer and a director.
He became a director on July 1, 2008, our President on February 25,
2010 and our Chief Executive Officer on January 21, 2014. He is
also chairman of the audit and compensation committees. Mr. Villa
was our Acting Chief Executive Officer from December 31, 2010 to
January 21, 2014. Mr. Villa brings to the Board his experience with
us since 2003 as well as professional experience gained from his
services to a variety of public and privately held middle market
businesses.
Donald W. Reeve became a director on December 31, 2013. He
became Chairman of the Board on August 20, 2019. Since January
2013, he has been the principal partner at ReTech Services, LLC, a
management consulting practice. Since August 2013, Mr. Reeve has
been providing consulting services to us on a part time basis
without cash compensation. Previously, Mr. Reeve was Senior Vice
President and Chief Information Officer for Wegmans Food Markets, Inc. (Wegmans)
from May 1986 until his retirement in August 2012. In that
position, he managed an information technology staff of
approximately 300 professionals with responsibilities for
development, application and support services of computer
technology. Prior to May 1986 and since 1970, he held various
positions of increasing responsibility for Wegmans. He attended
Monroe Community College and SUNY Empire State College, earned an
associate's degree at Rochester Business Institute and is a veteran
of the U.S. Army. Mr. Reeve brings to the Board the experience of
managing the IT requirements for a growing company in a competitive
environment. Mr. Reeve provides strategic guidance to the Board and
our management as we continue to enter various commercial IT
markets.
Andrew Hoyen is our current
President and Chief Operating Officer. He was initially appointed
Chief Administrative Officer and Senior Vice President of Business
Development on October 1, 2014. In January 2016, he was appointed
Chief Operating Officer. On July 18, 2017, he was elected to the
board of directors In
September 2020 , he was named President in addition to his role as
Chief Operating Officer. Mr. Hoyen is responsible for
developing and implementing our strategic direction through
improved operations, sales and marketing, product development, and
overall collaboration across the enterprise. Previously, since
2011, he was Vice President of National Accounts at Toyota Material
Handling North America. Prior to that, from 2002 to 2011, he served
in several executive roles in operations, service and sales at
Eastman Kodak Company and their spin-off, Carestream Health. His
last position at Carestream Health was Vice President of Sales and
Service for the Northeast Region. He holds a Bachelor of Science
degree in biotechnology from Worcester Polytechnic Institute, a
Master of Public Health degree from State University of New York at
Albany and a Master of Business Administration degree from
Rochester Institute of Technology.
Committees of the Board of Directors
Our
Board has an audit committee and a compensation committee. The
audit committee reviews the scope and results of the audit and
other services provided by our independent registered public
accounting firm and our internal controls. The compensation
committee is responsible for the approval of compensation
arrangements for our officers and the review of our compensation
plans and policies. Each committee is comprised of Mr. Villa and
Mr. Reeve.
Audit Committee Financial Expert
Our
audit committee is comprised of Mr. Villa, as chairman, and Mr.
Reeve. The Board has determined that Mr. Villa qualifies as our
audit committee financial expert, as that term is defined in Item
407(d)(5) of Regulation S-K. Neither Mr. Villa nor Mr. Reeve is
independent for audit committee purposes under the definition
contained in Section 10A(m)(3) of the Exchange Act.
16
Code of Ethics
We have adopted a code of business conduct and ethics that applies
to our principal executive officer, principal financial officer and
other persons performing similar functions, as well as all
employees and directors. This code of business conduct and ethics is posted on
our website at www.igicybersecurity.com under Business Conduct
Guidelines.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section
16(a) of the Exchange Act requires our officers and directors, and
persons who own more than ten percent of a registered class of our
equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than
ten-percent stockholders are required by SEC regulation to furnish
us with copies of all Section 16(a) forms they file. Based solely
on review of the copies of such forms furnished to us, or written
representations that no Forms 5 were required, we believe that all
required Section 16(a) filings were timely made for the year ended
December 31, 2020. With respect to any of our former directors,
officers, and greater than ten-percent stockholders, we have no
knowledge of any known failure to comply with the filing
requirements of Section 16(a).
Item 11. Executive Compensation
The
Summary Compensation Table below includes, for each of the years
ended December 31, 2020 and 2019, individual compensation for
services to Infinite Group, Inc. paid to: (i) our Chief Executive
Officer, our Chief Financial Officer and (ii) the next most highly
paid executive officers whose total compensation exceeded $100,000
for the year ended December 31, 2020 (together, the Named
Executives).
|
Name and Principal
Position
|
Year
|
Salary
|
Option
Awards *
|
Total
|
|
James
Villa
|
2020
|
$238,664
|
$0
|
$238,664
|
|
Chief Executive
Officer
|
2019
|
$223,401
|
$5,575
|
$228,976
|
|
Andrew
Hoyen
|
2020
|
$225,078
|
$0
|
$225,078
|
|
President and Chief
Operating Officer
|
2019
|
$214,251
|
$8,875
|
$223,126
|
|
Richard
Glickman
|
2020
|
$114,235
|
$1,783
|
$116,018
|
|
VP Finance and
Chief Accounting Officer
|
2019
|
$97,308
|
$3,325
|
$100,633
|
_________________
* The
amounts in this column reflect the grant date fair value for stock
option awards granted during the year and do not reflect whether
the recipient has realized a financial gain from such awards such
as by exercising stock options. The fair value of the stock option
awards was determined using the Black-Scholes option pricing model.
See Note 3 to the financial statements in this report regarding
assumptions underlying valuation of equity awards.
17
Stock Options
The following table provides information with respect to the value
of all unexercised options previously awarded to our Named
Executives as of December 31, 2020.
|
Name
|
Number
of Securities Underlying Unexercised Options
-
Exercisable
|
Number of Securities Underlying Unexercised
Options - Unexercisable
|
Option Exercise Price
|
Option Expiration Date
|
|
James
Villa
|
500,000
|
-
|
$.115
|
1/20/2024
|
|
|
500,000
|
-
|
$.04
|
9/29/2021
|
|
|
250,000
|
-
|
$.05
|
12/22/2024
|
|
|
250,000
|
|
$.12
|
11/16/2025
|
|
|
|
|
|
|
|
Andrew
Hoyen
|
250,000
|
-
|
$.02
|
6/1/2026
|
|
|
500,000
|
-
|
$.04
|
9/29/2021
|
|
|
400,000
|
-
|
$.04
|
7/31/2022
|
|
|
100,000
|
-
|
$.04
|
7/17/2022
|
|
|
200,000
|
-
|
$.04
|
12/09/2024
|
|
|
250,000
|
-
|
$.05
|
12/22/2024
|
|
|
|
|
|
|
|
Richard
Glickman
|
200,000
|
-
|
$.02
|
7/23/2024
|
|
|
50,000
|
-
|
$.04
|
12/9/2024
|
|
|
25,000
|
-
|
$.12
|
7/12/2025
|
Employment Agreements
We do
not have any employment agreements with any of the Named
Executives.
Compensation of Directors
Effective
August 13, 2019, we established that in connection with rendering
services as a Board of Directors, each non-management Director may
receive compensation, as applicable to each Director, if approved
by the Board. Directors are reimbursed for the costs relating to
attending Board and committee meetings.
Effective
August 20, 2019, the Board resolved to compensate Donald W. Reeve
$12,000 annually as Chairman of the Board.
At
December 31, 2020, Donald W. Reeve held exercisable options
for:
●
600,000 shares of
our common stock at an exercise price of $.05 per share which
expires on November 30, 2024;
●
500,000 shares of
common stock at an exercise price of $.15 per share which expires
on September 4, 2023; and
●
800,000 shares of
common stock at an exercise price of $.04 per share which expires
on September 29, 2021; and
●
250,000 shares of
common stock at an exercise price of $.05 per share which expires
on December 22, 2024.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The following table sets forth information regarding the beneficial
ownership of our common stock, our only class of voting securities,
as of March 24, 2021 by:
●
each
person known to us to be the beneficial owner of more than 5% of
our outstanding shares;
●
each
director;
●
each
Named Executive named in the Summary Compensation Table above;
and
●
all
directors and executive officers as a group.
Except as otherwise indicated, the persons listed below have sole
voting and investment power with respect to all shares of common
stock owned by them. All information with respect to beneficial
ownership has been furnished to us by the respective stockholder.
The address of record of each individual listed in this table,
except if set forth below, is c/o Infinite Group, Inc., 175
Sully’s Trail, Suite 202, Pittsford, New York
14534.
18
|
Name of Beneficial Owner (1)
|
Shares
of Common Stock Beneficially Owned (1)
|
|
Percentage
of Ownership
|
|
Richard
Glickman
|
315,000
|
(3)
|
1.1%
|
|
Andrew
Hoyen
|
2,136,734
|
(4)
|
6.9%
|
|
Donald
W. Reeve
|
2,981,460
|
(5)
|
9.6%
|
|
James
Villa
|
7,198,326
|
(6)
|
20.3%
|
|
All
Directors and Officers (4 persons) as a group
|
12,631,520
|
(2)
|
31.7%
|
|
|
|
|
|
|
5% Stockholders:
|
|
|
|
|
Paul J.
Delmore
|
|
|
|
|
One America
Place
|
|
|
|
|
600 West Broadway,
28th Floor
|
|
|
|
|
San
Diego, CA 92101
|
2,545,151
|
(8)
|
8.8%
|
|
|
|
|
|
|
Harry A.
Hoyen
|
2,900,000
|
(9)
|
9.1%
|
|
Marblehead, OH
43440
|
|
|
|
|
|
|
|
|
|
James
Leonardo
|
2,500,000
|
|
8.6%
|
|
435
Smith Street
|
|
|
|
|
Rochester,
New York 14608
|
|
|
|
|
|
|
|
|
|
Allan M.
Robbins
|
1,500,000
|
(10)
|
5.1%
|
|
44 Hampstead
Drive
|
|
|
|
|
Webster, NY
14580
|
|
|
|
|
|
|
|
|
|
James
Witzel
|
1,760,678
|
(7)
|
5.8%
|
|
12677
Dundee Lane
|
|
|
|
|
Naples
, FL 34120
|
|
|
|
|
(1)
|
Pursuant
to the rules of the Securities and Exchange Commission, shares of
common stock include shares for which
the individual, directly or indirectly, has voting or shares voting
or disposition power, whether or not they are held for the
individual’s benefit, and shares which an individual
or group has a right to acquire within 60 days from March 25, 2021
pursuant to the exercise of options or upon the conversion of
securities are deemed to be outstanding for the purpose of
computing the percent of ownership of such individual or group, but
are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table. On
March 25, 2021, we had 29,061,883 shares of common stock
outstanding.
|
|
(2)
|
Assumes
that all currently exercisable options, which total 5,625,000
shares, and convertible securities, which total 5,136,326 shares,
owned by members of the group have been exercised.
|
|
(3)
|
Includes
275,000 shares subject to currently exercisable
options.
|
|
(4)
|
Includes
250,000 shares, which are issuable upon the conversion of a note in
the principal amount of $25,000 through March 24, 2021; and
1,700,000 shares subject to currently exercisable
options.
|
|
(5)
|
Includes
2,150,000 shares subject to currently exercisable
options.
|
|
(6)
|
Includes
4,886,326 shares, which are issuable upon the conversion of notes
to Northwest Hampton Holdings, LLC, whose sole member is James
Villa, including principal in the amount of $146,300 and accrued
interest in the amount of $98,016 through March 24, 2021; and
1,500,000 shares subject to currently exercisable
options.
|
|
(7)
|
Includes
328,371 shares, which are issuable upon the conversion of a note in
the principal amount of $9,000 and accrued interest in the amount
of $7,419 through March 24, 2021; and 848,000 shares subject to
currently exercisable options.
|
|
(8)
|
Includes
2,360,000 shares owned of record by Upstate Holding Group, LLC, an
entity wholly-owned by Mr. Delmore.
|
|
|
|
|
(9)
|
Consists
of 2,900,000 shares subject to currently exercisable
options.
|
|
(10)
|
Includes
500,000 shares subject to currently exercisable
options.
|
19
Securities Authorized for Issuance Under Equity Compensation
Plans
The
Company’s Board and stockholders approved a stock option
plans adopted in 2005, which has authority to grant options to
purchase up to an aggregate of 990,000 common shares at December
31, 2020. Since this plan has expired, no more options may be
granted.
The
2009 Plan was established in February 2009 to align the interests
of our employees, consultants, agents and affiliates with those of
our stockholders to incent them to increase their efforts on our
behalf and to promote the success of our business. Under the 2009
Plan up to 4,000,000 shares of common stock were authorized for
option grants. As of December 31, 2020, there are $3,427,000
options outstanding under the 2009 Plan. The 2009 Plan expired on
February 3, 2019; therefore, expired options after that date could
not be re-issued. Generally, the 2009 Plan is administered by the
compensation committee of the Board and provides (i) for the
granting of non-qualified stock options, (ii) that the maximum term
for options granted under the plan is 10 years and (iii) that the
exercise price for the options may not be less than 100% of the
fair market value of our common stock on the date of grant. Since
this plan has expired, no more options may be granted.
The
2019 Plan was established in August 2019 to align the interests of
our employees, consultants, agents and affiliates with those of our
stockholders to incent them to increase their efforts on our behalf
and to promote the success of our business. Under the 2019 Plan up
to 1,500,000 shares of common stock were authorized for option
grants. Generally, the 2019 Plan is administered by the
compensation committee of the Board and provides (i) for the
granting of non-qualified stock options, (ii) that the maximum term
for options granted under the plan is 10 years and (iii) that the
exercise price for the options may not be less than 100% of the
fair market value of our common stock on the date of grant. As of
December 31, 2020, an aggregate of 1,500 shares were available
under our 2019 stock option plan (the 2019 Plan) for option
grants.
The
2020 Plan was established in April 2020 to align the interests of
our employees, consultants, agents and affiliates with those of our
stockholders to incent them to increase their efforts on our behalf
and to promote the success of our business. Under the 2020 Plan up
to 1,500,000 shares of common stock were authorized for option
grants. Generally, the 2020 Plan is administered by the
compensation committee of the Board and provides (i) for the
granting of non-qualified stock options, (ii) that the maximum term
for options granted under the plan is 10 years and (iii) that the
exercise price for the options may not be less than 100% of the
fair market value of our common stock on the date of grant. As of
December 31, 2020, an aggregate of 560,000 shares were available
under our 2020 stock option plan (the 2020 Plan) for option
grants.
The
following table summarizes, as of December 31, 2020, the (i)
options granted under our option plans and (ii) all other
securities subject to contracts, options, warrants, and rights or
authorized for future issuance outside of our plans. The shares
covered by outstanding options or authorized for future issuance
are subject to adjustment for changes in capitalization stock
splits, stock dividends and similar events.
|
|
Equity Compensation Plan Table
|
||
|
|
Number of securities to be issued upon exercise of outstanding
options, warrants and rights
|
Weighted-average exercise price of outstanding options, warrants
and rights
|
Number of securities remaining available for future issuance under
equity compensation plans (excluding securities reflected in column
(a))
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity compensation
plans previously approved by security holders (1)
|
990,000
|
$.10
|
-
|
|
Equity compensation
plans not previously approved by security holders (2)
|
5,865,500
|
$.05
|
561,500
|
|
Individual option
grants that have not been approved by security holders
(3)
|
5,575,000
|
$.05
|
-
|
|
Total
|
12,430,500
|
$.05
|
561,500
|
___________________________
|
(1)
|
Consists
of grants under our 2005 Stock Option Plans of which all are
exercisable at December 31, 2020.
|
|
(2)
|
Consists
of grants under our 2009 Plan, 2019 Plan and 2020 Plan of which
5,320,500 are exercisable at December 31, 2020.
|
|
(3)
|
Consists
of individual option grants approved by the Board of which all are
exercisable at December 31, 2020.
|
20
Item 13. Certain Relationships and Related Transactions, and
Director Independence
Officers, Directors, and Equity Investment
On May
7, 2019, we entered into a note payable agreement for up to
$500,000 with Dr. Harry Hoyen. Dr. Harry Hoyen is the brother of
Mr. Andrew Hoyen, our current President, Chief Operating Officer
and member of our Board. The note has an interest rate of 7.5% and
is due on August 31, 2026. We borrowed $200,000 during the year
ended December 31, 2019 and $50,000 during the year ended December
31, 2020, which remains outstanding as of December 31, 2020. As
consideration for providing this financing, we granted a stock
option to purchase a total of 2,500,000 common shares at an
exercise price of $.02 and recorded interest expense of $14,250 in
2019 using the Black-Scholes option pricing model to determine the
estimated fair value of the option.
On July
12, 2018, we issued an unsecured demand note payable to Northwest
Hampton Holdings, LLC (Northwest) in the principal amount of
$70,000 with interest at 6% per annum. On June 19, and July 17,
2017, we issued unsecured demand notes payable to Northwest in the
principal amount of $12,000 with interest at 6% per annum. On
August 1, 2019, we paid $40,000 plus accrued interest to the
noteholder. On December 11, 2019, we paid $4,000 of principal only
to the noteholder. On March 31, 2020, we paid $4,000 plus accrued
interest to the noteholder. On July 31, 2020, we paid off the
remaining $34,000 plus accrued interest to the noteholder. Mr.
James Villa, our Chief Executive Officer, is the sole member of
Northwest.
On June
29, 2017, we issued an unsecured demand note payable to Mr. Donald
Reeve, a member of our board, in the principal amount of $20,000
with interest at 6% per annum. On December 31, 2020, we paid off
the principal plus accrued interest to the noteholder.
On July
18, 2017, we entered into an unsecured line of credit financing
agreement for $100,000 with Mr. Andrew Hoyen, our Chief Operating
Officer and member of our Board. The LOC Agreement provides for
working capital of up to $100,000 with interest at 6% due quarterly
through July 1, 2022. The principal balance owed was $90,000 at
December 31, 2020. In consideration for providing the financing,
Mr. Andrew Hoyen was granted an option to purchase 400,000 shares
of common stock at $.04 per share with
an estimated fair value of $9,960 using the Black-Scholes
option-pricing model. The option expires on July 31,
2022.
On
September 21, 2017, we entered into an unsecured line of credit
financing agreement for $75,000 with Dr. Harry Hoyen, a related
party. The LOC Agreement provides for working capital of up to
$75,000 with interest at 6% due quarterly through January 2, 2023.
The principal balance owed was $70,000 at December 31, 2020. In
consideration for providing the financing, Mr. Harry Hoyen was
granted an option to purchase 400,000 shares of common stock at
$.04 per share with an estimated fair
value of $4,080 using the Black-Scholes option-pricing
model. The option expires on January 2, 2023.
We are
obligated under a convertible note payable to Northwest. This
note’s maturity date was amended to January 1, 2024. At March
24, 2021, Northwest is the holder of a convertible note bearing
interest at 6% with principal of $146,300 and convertible accrued
interest of $98,016 and is convertible into shares of our common
stock at a conversion price of $.05 per share for a total of
4,886,326 shares. Principal of $203,324 was reduced by payments of
$53,700 during 2015 and $3,324 during 2014 on this note. Accrued
interest was reduced by a payment of $9,500 during
2020.
At
March 24, 2021, Mr. James Witzel, our former Chief Financial
Officer, is the holder of a convertible note bearing interest at
6%, with principal of $9,000 and convertible accrued interest of
$7,419 which matures on January 1, 2024 and is convertible into
shares of our common stock at a conversion price of $.05 per share
for a total 328,371 shares.
The
interest rates on the notes payable to Northwest and Mr. Witzel
(collectively, the Notes) are adjusted annually, on January
1st of each year, to a rate
equal to the prime rate in effect on December 31st of the
immediately preceding year, plus one and one quarter percent, but
in no event less than 6% per annum. The interest rate was 6% at
March 24, 2021. The Notes are secured by a security interest in all
our assets.
Generally, upon notice, prior to the maturity date, note holders
can convert all or a portion of the outstanding principal on the
Notes. However, the Notes are not convertible into shares of our
common stock to the extent conversion would result in a change of
control which would limit the use of our net operating loss
carryforwards; provided, however, this limitation will not apply if
we close a transaction with another third party or parties that
results in a change of control which will limit the use of our net
operating loss carryforwards. Prior to any conversion, the holders of the Notes
are entitled to convert their Notes, on a pari passu basis and upon
any such participation the requesting note holder shall
proportionately adjust his conversion request such that, in the
aggregate, a change of control, which will limit the use of our net
operating loss carryforwards, does not occur; provided, however,
the right to participate is only available to a noteholder if his
Note is then convertible into 5% or more of our common
stock.
On
February 12, 2015, we issued a note payable to Mr. Andrew Hoyen,
our current President and Chief Operating Officer, in the principal
amount of $25,000 with interest at 7% per annum which matured on
March 31, 2018. During, 2019, Mr. Hoyen extended the maturity date
to March 31, 2021. During, 2021, Mr. Hoyen extended the maturity
date to June 30, 2023. At the election of the holder, the principal
of the note is convertible into shares of our common stock at a
conversion price of $.10 per share for a total of 250,000
shares.
Director Independence
Our Board has determined that Donald Reeve is independent in
accordance with the NASDAQ’s independence standards. Our
audit and compensation committees consist of Mr. Villa and Mr.
Reeve, of which only Mr. Reeve is sufficiently independent for
compensation committee purposes under NASDAQ’s standards and
neither of them is sufficiently independent for audit committee
purposes under NASDAQ’s standards due to their respective
beneficial ownership of our common stock.
21
Item 14. Principal Accountant Fees and Services
The
aggregate fees billed by our principal accounting firm, Freed
Maxick CPAs, P.C. for the years ended December 31, 2020 and 2019
are as follows:
|
|
2020
|
2019
|
|
Audit
fees
|
$85,900
|
$80,000
|
Audit fees for 2020 and 2019 were for professional services
rendered for the audits of our annual financial statements and
reviews of the financial statements included in our Quarterly
Reports on Form 10-Q. There were no tax or other non-audit related
services provided by the independent accountants for 2020 and
2019.
As a matter of policy, each permitted non-audit service is
pre-approved by the audit committee or the audit committee’s
chairman pursuant to delegated authority by the audit committee,
other than de minimus non-audit services for which the pre-approval
requirements are waived in accordance with the rules and
regulations of the SEC.
Audit Committee Pre-Approval Policies and Procedures
The audit committee charter provides that the audit committee will
pre-approve audit services and non-audit services to be provided by
our independent auditors before the accountant is engaged to render
these services. The audit committee may consult with management in
the decision-making process but may not delegate this authority to
management. The audit committee may delegate its authority to
pre-approve services to one or more committee members, provided
that the designees present the pre-approvals to the full committee
at the next committee meeting.
Item 15. Exhibits and
Financial Statement Schedules
|
(a)
|
The following documents are filed as part of this
report:
|
(1)
Financial Statements – See the Index to the financial
statements on page F-1.
(b)
Exhibits:
Exhibit
No. Description
|
3.1
|
Certificate of Incorporation of the Company dated April 29, 1993.
(1)
|
|
3.5
|
By-Laws of the Company. (1)
|
|
4.1
|
Specimen Stock Certificate. (1)
|
|
10.3
|
Form of Stock Option Agreement. (1)
|
|
10.9
|
Modification Agreement No. 3 to Promissory Notes between Allan
Robbins and the Company dated October 1, 2005. (6)
|
22
|
10.22
|
Promissory
Note in favor of the PBGC dated October 17, 2011. (15)
|
|
101.INS
XBRL Instance Document. *
|
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document. *
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase Document. *
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase Document. *
|
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase Document. *
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase Document. *
|
* Filed
as an exhibit hereto.
**Management
contract or compensatory plan or arrangement.
#
Portions of this exhibit have been omitted pursuant to a request
for confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended. Omitted portions have been filed
separately with the SEC.
(1)
Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (File #33- 61856) and incorporated herein by
reference.
(2)
Incorporated by reference to Appendix II of the Company's DEF14A
filed on February 1, 2006.
(3)
Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997.
(4)
Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998.
(5)
Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2002.
(6)
Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2005.
(7)
Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2006.
(8)
Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2007.
(9)
Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2008.
(10)
Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2009.
(11)
Incorporated by reference to the Company's Quarter Report on Form
10-Q for the quarterly period ended June 30, 2010.
(12)
Incorporated by reference to the Company's Quarter Report on Form
10-Q for the quarterly period ended September 30,
2010.
23
(13)
Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2010.
(14)
Incorporated by reference to the Company's Current Report on Form
8-K filed on September 12, 2011.
(15)
Incorporated by reference to the Company's Current Report on Form
8-K filed on November 7, 2011.
(16)
Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2012.
(17)
Incorporated by reference to the Company's Current Report on Form
8-K filed on December 4, 2014.
(18)
Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2014.
(19)
Incorporated by reference to the Company's Quarter Report on Form
10-Q for the quarterly period ended September 30,
2015.
(20)
Incorporated by reference to the Company's Quarter Report on Form
10-Q for the quarterly period ended September 30,
2016.
(21)
Incorporated by reference to the Company's Quarter Report on Form
10-Q for the quarterly period ended June 30, 2017.
(22) Incorporated
by reference to the Company's Quarter Report on Form 10-Q for the
quarterly period ended September 30, 2017.
(23) Incorporated
by reference to the Company's Current report on Form 10-K for the
fiscal year ended December 31, 2017.
(24) Incorporated by reference to the Company's Current
Report on Form 8-K filed on May 16, 2019.
(25) Incorporated
by reference to the Company's Current Report on Form 8-K filed on
August 22, 2019.
(26) Incorporated
by reference to the Company's Current report on Form 10-K for the
fiscal year ended December 31, 2019.
(27) Incorporated
by reference to the Company's Quarter Report on Form 10-Q for the
quarterly period ended March 31, 2020.
Information
required by schedules called for under Regulation S-X is either not
applicable or is included in the financial statements or notes
thereto.
24
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
Infinite
Group, Inc.
|
|
|
|
|
|
|
|
|
Date:
March 30,
2021
|
By:
|
/s/
James Villa
|
|
|
|
|
James
Villa
|
|
|
|
|
Chief
Executive Officer
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
/s/
James Villa
|
|
|
|
|
James
Villa
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
March
30, 2021
|
|
|
|
|
|
|
/s/
Richard Glickman
|
|
|
|
|
Richard
Glickman
|
|
VP
Finance and Chief Accounting Officer
|
March
30, 2021
|
|
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Andrew Hoyen
|
|
|
|
|
Andrew
Hoyen
|
|
President
and Chief Operating Officer
|
March
30, 2021
|
|
|
|
|
|
|
/s/
Donald W. Reeve
|
|
|
|
|
Donald
W. Reeve
|
|
Chairman
of the Board
|
March
30, 2021
|
25
FINANCIAL STATEMENTS
INFINITE GROUP, INC.
DECEMBER 31, 2020
with
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
F-1
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Stockholders
Infinite Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Infinite Group,
Inc. (the Company) as of December 31, 2020 and 2019, and the
related statements of operations, changes in stockholders’
deficiency and cash flows, for the years then ended, and the
related notes to the financial statements (collectively, the
financial statements)]. In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2020 and 2019, and the results of
its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audit we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
As discussed in Note 2 to the financial statements, the Company has
negative working capital, which raises substantial doubt about the
entity’s ability to continue as a going concern. The ability
to continue to meet its obligations as they become due is dependent
on the Company generating operating cash flow to satisfy these
obligations, managing the date these obligations are settled, and
identifying alternative equity or long-term liability financing to
replace the current obligations. The Company has concluded that
management’s plans have alleviated this substantial doubt
about the ability to continue as a going concern.
We have identified
this item as a critical audit matter because certain estimates and assumptions used by the
Company in their plan to alleviate substantial doubt are subjective
and required a high degree of auditor
judgement.
Addressing the matter involved performing subjective procedures and
evaluating audit evidence in connection with forming our overall
opinion on the financial statements. The primary procedures we
performed include: obtaining an understanding of the process and
assumptions used by management to develop their plan, obtaining
executed agreements and documents to support this plan where
available, evaluating the reasonableness and consistency of
methodology and assumptions applied by management based on
historical facts, and evaluating the disclosures in the notes to
the financial statements.
We have not been able to determine the specific year that we began
serving as the Company’s auditor; however, we are aware that
we have served as the Company’s auditor since at least
1995.
Rochester, New York
March 30, 2021
|
INFINITE
GROUP, INC.
BALANCE
SHEETS
|
||
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
ASSETS
|
||
|
Current
assets:
|
|
|
|
Cash
|
$32,313
|
$6,398
|
|
Accounts
receivable, net
|
953,826
|
432,289
|
|
Prepaid expenses
and other current assets
|
96,483
|
65,285
|
|
Total current
assets
|
1,082,622
|
503,972
|
|
|
|
|
|
Right
of use asset – operating lease, net
|
120,777
|
195,441
|
|
Property
and equipment, net
|
48,199
|
5,915
|
|
Software,
net
|
354,905
|
184,676
|
|
Deposits
|
6,937
|
6,937
|
|
Total
assets
|
$1,613,440
|
$896,941
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
||
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$343,073
|
$217,777
|
|
Accrued
payroll
|
353,268
|
218,352
|
|
Accrued interest
payable
|
531,409
|
939,440
|
|
Accrued
retirement
|
264,675
|
254,348
|
|
Deferred
revenue
|
320,042
|
178,824
|
|
Accrued expenses
– other and other current liabilities
|
74,579
|
64,207
|
|
Current maturities
of long-term obligations
|
1,004,445
|
950,000
|
|
Operating lease
liability - Short-term
|
80,258
|
74,373
|
|
Current maturities
of long-term obligations - related parties
|
0
|
512,935
|
|
Notes
payable
|
162,500
|
332,500
|
|
Notes payable -
related parties
|
0
|
58,000
|
|
Total current
liabilities
|
3,134,249
|
3,800,756
|
|
|
|
|
|
Long-term
obligations:
|
|
|
|
Notes
payable:
|
|
|
|
Other
|
457,769
|
495,890
|
|
Related
parties
|
1,015,820
|
385,000
|
|
Accrued payroll
taxes(See Note 8)
|
69,025
|
0
|
|
Operating lease
liability - Long-term
|
42,347
|
122,605
|
|
|
|
|
|
Total
liabilities
|
4,719,210
|
4,804,251
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Stockholders'
deficiency:
|
|
|
|
Common stock, $.001
par value, 60,000,000 shares authorized; issued and outstanding:
29,061,883 shares
|
29,061
|
29,061
|
|
Additional paid-in
capital
|
30,763,717
|
30,638,173
|
|
Accumulated
deficit
|
(33,898,548)
|
(34,574,544)
|
|
Total
stockholders’ deficiency
|
(3,105,770)
|
(3,907,310)
|
|
Total
liabilities and stockholders’ deficiency
|
$1,613,440
|
$896,941
|
See notes to
audited financial statements.
|
INFINITE
GROUP, INC.
STATEMENTS
OF OPERATIONS
|
||
|
|
Years
Ended December 31,
|
|
|
|
2020
|
2019
|
|
Revenue
|
$7,219,446
|
$7,094,279
|
|
Cost of
revenue
|
4,177,268
|
4,422,533
|
|
Gross
profit
|
3,042,178
|
2,671,746
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
General and
administrative
|
1,696,415
|
1,334,051
|
|
Selling
|
1,344,472
|
1,008,558
|
|
Total costs and
expenses
|
3,040,887
|
2,342,609
|
|
|
|
|
|
Operating
income
|
1,291
|
329,137
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
Interest
income
|
786
|
0
|
|
Interest
expense:
|
|
|
|
Related
parties
|
(62,789)
|
(89,079)
|
|
Other
|
(230,299)
|
(192,081)
|
|
Total interest
expense
|
(293,088)
|
(281,160)
|
|
Other income
- (see Note 8)
|
967,007
|
0
|
|
Total other income
(expense)
|
674,705
|
(281,160)
|
|
|
|
|
|
Net
income
|
$675,996
|
$47,977
|
|
|
|
|
|
Net
income per share – basic and diluted
|
$.02
|
$.00
|
|
|
|
|
|
Weighted
average shares outstanding – basic
|
29,061,883
|
29,061,883
|
|
|
|
|
|
Weighted
average shares outstanding – diluted
|
43,450,086
|
29,811,883
|
|
|
||
See
notes to audited financial statements.
|
INFINITE
GROUP, INC.
STATEMENTS
OF CHANGES IN STOCKHOLDERS' DEFICIENCY
Years
Ended December 31, 2020 and 2019
|
|||||
|
|
|
Additional
|
|
|
|
|
|
Common
Stock
|
Paid-in
|
Accumulated
|
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2018
|
29,061,883
|
$29,061
|
$30,593,366
|
$(34,622,521)
|
$(4,000,094)
|
|
|
|
|
|
|
|
|
Stock based
compensation
|
0
|
0
|
44,807
|
0
|
44,807
|
|
Net
income
|
0
|
0
|
0
|
47,977
|
47,977
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2019
|
29,061,883
|
$29,061
|
$30,638,173
|
$(34,574,544)
|
$(3,907,310)
|
|
|
|
|
|
|
|
|
Stock based
compensation
|
0
|
0
|
125,544
|
0
|
125,544
|
|
Net
income
|
0
|
0
|
0
|
675,996
|
675,996
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2020
|
29,061,883
|
$29,061
|
$30,763,717
|
$(33,898,548)
|
$(3,105,770)
|
|
|
|
|
|
|
|
See
notes to audited financial statements.
|
INFINITE
GROUP, INC.
STATEMENTS
OF CASH FLOWS
|
||
|
|
Years
Ended December 31,
|
|
|
|
2020
|
2019
|
|
Cash
flows from operating activities:
|
|
|
|
Net
income
|
$675,996
|
$47,977
|
|
Adjustments to
reconcile net income to net cash
|
|
|
|
provided by
(used in) operating activities:
|
|
|
|
Stock based
compensation
|
125,544
|
44,807
|
|
Depreciation and
amortization
|
97,874
|
29,648
|
|
Bad debt
expense
|
7,000
|
0
|
|
Forgiveness of note
payable and interest
|
(963,516)
|
0
|
|
(Increase) decrease
in assets:
|
|
|
|
Accounts
receivable
|
(528,537)
|
(146,102)
|
|
Prepaid expenses
and other current assets
|
(31,198)
|
(62,649)
|
|
Increase (decrease)
in liabilities:
|
|
|
|
Accounts
payable
|
125,296
|
(149,759)
|
|
Accrued expenses
and other current liabilities
|
77,786
|
265,650
|
|
Net
cash provided by (used in) operating activities
|
(413,755)
|
29,572
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
Purchases of
property and equipment
|
(48,310)
|
(1,945)
|
|
Capitalization of
software development costs
|
(255,230)
|
(194,215)
|
|
Net
cash used in investing activities
|
(303,540)
|
(196,160)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Proceeds from note
payable
|
957,372
|
0
|
|
Proceeds from notes
payable - related parties
|
50,000
|
200,000
|
|
Repayments of notes
payable - related parties
|
(96,635)
|
(56,730)
|
|
Repayments of note
payable - short-term
|
(167,527)
|
0
|
|
Net
cash provided by financing activities
|
743,210
|
143,270
|
|
|
|
|
|
Net
increase (decrease) in cash
|
25,915
|
(23,318)
|
|
|
|
|
|
Cash - beginning of
year
|
6,398
|
29,716
|
|
|
|
|
|
Cash
- end of year
|
$32,313
|
$6,398
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
Cash payments
for:
|
|
|
|
Interest
|
$346,328
|
$152,908
|
|
|
|
|
|
Income
taxes
|
$0
|
$0
|
See
notes to audited financial statements.
INFINITE GROUP, INC.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
NOTE 1. - BASIS OF PRESENTATION & BUSINESS
The
accompanying financial statements consist of the financial
statements of Infinite Group, Inc. (the Company).
The
Company operates in one segment, the field of information
technology (IT) consulting services, with all operations based in
the United States. The primary consulting services are in the
cybersecurity industry. There were no significant sales from
customers in foreign countries during 2020 and 2019. All assets are
located in the United States.
Nodeware® - Nodeware
is an automated vulnerability management and network security
scanning solution that enhances security by proactively
identifying, monitoring, and addressing potential vulnerabilities
on networks, creating a safeguard against hackers and ransomware
with simplicity and affordability. Customers have the option to
purchase Nodeware to accommodate the varying network needs of their
organizations. Nodeware provides a value-based solution designed
for small and medium-sized enterprises (SMEs) with single subnet or
several subnets as well as accommodating larger organizations with
more advanced network needs. Nodeware continues to release
upgrades.
Nodeware
creates an opportunity for resellers, including managed service
providers, managed security service providers, distributors, and
value-added resellers. The Company sells Nodeware in the commercial
sector through its channel partners and agents.
Technology and Product Development - The
Company’s goal is to position its products and solutions to
enable vertical integration with other solutions. The Company has a
technology and product development strategy aligned with its
business strategy.
Cybersecurity Services - The Company
provides cybersecurity consulting services to channel partners and
direct customers across different vertical markets (banking,
healthcare, manufacturing, etc.). Its cybersecurity projects use
Nodeware to create a living document that a customer can use to go
forward on a path of continuous improvement for its overall IT
security. The Company validates overall network security with the
goal of maintaining the integrity of confidential client
information, preserving the continuity of services, and minimizing
potential data damage from attempted threats and
incidents.
NOTE 2. - MANAGEMENT PLANS
The
Company reported operating income of $1,291 in 2020 and $329,137 in
2019, net income of $675,996 in 2020 and $47,977 in 2019, and
stockholders’ deficiencies of $3,105,770 and $3,907,310 at
December 31, 2020 and 2019, respectively. The Company has a working
capital deficit of approximately $ 2.1 million at December 31,
2020. These factors raise initial doubt about the ability to
continue as a going concern. The Company has modified a significant
amount of the existing short-term liabilities, plans to restructure
certain remaining short term debt, is exploring additional sources
of financing, including debt and equity, and anticipates
significant growth of business. These plans, in management’s
opinion, will allow the Company to meet its obligations for the
twelve-month period from the date the financial statements are
available to be issued and alleviate the initial substantial
doubt.
Continue to Improve Operations and Capital Resources
The
Company expects to increase revenue and cash flow from operations
on a consistent basis based on recent demand for services and
products. The Company has renegotiated the terms of some of the
notes, using operational cash flow to pay down balances and
extending terms and expects to continue to renegotiate additional
obligations. These includes transactions during the first quarter
of 2021, where the Company has renegotiated the due dates of
approximately $446,000 of notes payable into 2023 and 2024. These
obligations have been reclassified as long-term in the accompanying
balance sheet.
During
2017, the Company originated lines of credit with related parties
totaling $175,000 and borrowed $140,000. During 2018, the Company
borrowed an additional $20,000. At December 31, 2020, the Company
had approximately $15,000 available under these financing
agreements.
During
2019, the Company borrowed $200,000 from a related party under the
terms of a note payable. In 2020, the Company borrowed $50,000 more
from this note payable. At December 31, 2020, the Company had
$250,000 available under this financing
agreement.
The
Company believes the capital resources generated by the improving
results of its operations as well as cash available under its
factoring line of credit and from additional related parties and
third-party loans, if needed, provide sources to fund its ongoing
operations and to support the internal growth of the Company. If
the Company experiences significant growth in its sales, the
Company believes that this may require it to increase its financing
line, finance additional accounts receivable, or obtain additional
working capital from other sources to support its sales
growth.
The
Company plans to continue to evaluate alternatives which may
include continuing to renegotiate the terms of other notes, seeking
conversion of the notes to shares of common stock and seeking funds
to repay the notes. The Company continues to evaluate repayment of
our remaining notes payable based on its cash flow. These plans, in
management’s opinion, will allow the Company to meet its
obligations for a reasonable period of time from the date the
financial statements are available to be issued.
NOTE 3. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable - Credit is granted to substantially all
customers throughout the United States. The Company carries its
accounts receivable at invoice amount, less an allowance for
doubtful accounts. On a periodic basis, the Company evaluates its
accounts receivable and establishes an allowance for doubtful
accounts, based on a history of past write-offs and collections and
current credit conditions. The Company’s policy is to not
accrue interest on past due receivables. Management determined that
an allowance of $10,089 for doubtful accounts was reasonably stated
at December 31, 2020 ($17,455 – 2019).
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentration of credit risk consist of cash
accounts in financial institutions. The cash accounts occasionally
exceed the federally insured deposit amount; however, management
does not anticipate nonperformance by financial institutions.
Management reviews the financial viability of these institutions on
a periodic basis.
Loan Origination Fees - The Company capitalizes the costs of
loan origination fees and amortizes the fees as interest expense
over the contractual life of each agreement and show as a reduction
of the debt.
Sale of Certain Accounts
Receivable - The Company has available a financing
line with a financial institution (the Purchaser). In connection
with this line of credit, the Company adopted FASB ASC 860
“Transfers and Servicing”. FASB ASC 860 provides
consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings.
The Company has a factoring line with the Purchaser which enables
the Company to sell selected accounts receivable invoices to the
Purchaser with full recourse against the Company.
These
transactions qualify for a sale of assets since (1) the Company has
transferred all of its right, title and interest in the selected
accounts receivable invoices to the financial institution, (2) the
Purchaser may pledge, sell or transfer the selected accounts
receivable invoices, and (3) the Company has no effective control
over the selected accounts receivable invoices since it is not
entitled to or obligated to repurchase or redeem the invoices
before their maturity and it does not have the ability to
unilaterally cause the Purchaser to return the invoices. Under FASB
ASC 860, after a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when
extinguished.
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 of the transaction
and less any anticipated future loss in the value of the retained
asset. The retained amount is equal to 10% of the total accounts
receivable invoice sold to the Purchaser. The fee is charged at
prime plus 3.6% (effective rate of 6.85% at December 31, 2020)
against the average daily outstanding balance of funds
advanced.
The
estimated future loss reserve for each receivable included in the
estimated value of the retained asset is based on the payment
history of the accounts receivable customer and is included in the
allowance for doubtful accounts, if any. As collateral, the Company
granted the Purchaser a first priority interest in accounts
receivable and a blanket lien, which may be junior to other
creditors, on all other assets.
The
financing line provides the Company the ability to finance up to
$2,000,000 of selected accounts receivable invoices, which includes
a sublimit for one of the Company’s customers of
$1,500,000. During the year ended December 31, 2020, the
Company sold approximately $1,749,697 ($4,742,933 - 2019) of its
accounts receivable to the Purchaser. As of December 31,
2020, $0 ($324,125 - 2019) of these receivables remained
outstanding. Additionally, as of December 31, 2020, the
Company had $362,000 available under the financing line with the
financial institution ($67,000 - 2019). After deducting
estimated fees and advances from the Purchaser, the net receivable
from the Purchaser amounted to $0 at December 31, 2020 ($32,412 -
2019) and is included in accounts receivable in the accompanying
balance sheets as of that date.
There
were no gains or losses on the sale of the accounts receivable
because all were collected. The cost associated with the financing
line was approximately $21,100 for the year ended December 31, 2020
($53,600 - 2019). These financing line fees are classified on the
statements of operations as interest expense.
Property and Equipment - Property and equipment are recorded at
cost and are depreciated over their estimated useful lives for
financial statement purposes. The cost of improvements to leased
properties is amortized over the shorter of the lease term or the
life of the improvement. Maintenance and repairs are charged to
expense as incurred while improvements are
capitalized.
Capitalization of Software for Resale -
The Company capitalizes the software development costs for software
to be sold, leased, or otherwise marketed. Capitalization begins
upon the establishment of technological feasibility of a new
product or enhancements to an existing product, which is generally
the completion of a working prototype that has been certified as
having no critical bugs and is a release candidate. Costs incurred
after the enhancement has reached technological feasibility and
before it is released in the market are capitalized and are
primarily labor costs related to coding and testing. Amortization
begins once the software is ready for its intended use, generally
based on the pattern in which the economic benefits will be
consumed. Costs associated with major upgrade releases begin
amortization in the month after release. The amortization period is
three years.
Accounting for the Impairment or Disposal of
Long-Lived Assets -
The Company follows provisions of FASB ASC 360 “Property,
Plant and Equipment” in accounting for the impairment of
disposal of long-lived assets. This standard specifies, among other
things, that long-lived assets are to be reviewed for potential
impairment whenever events or circumstances indicate that the
carrying amounts may not be recoverable. The Company determined
that there was no impairment of long-lived assets during 2020 and
2019.
Revenue Recognition -
The
Company’s revenues are generated under both time and material
and fixed price agreements. Managed Support services revenue
is recognized when the associated costs are incurred, which
coincides with the consulting services being provided. Time
and materials service agreements are based on hours worked and are
billed at agreed upon hourly rates for the respective position plus
other billable direct costs. Fixed price service agreements
are based on a fixed amount of periodic billings for recurring
services of a similar nature performed according to the contractual
arrangements with clients. These agreements are arrangements
for monthly or weekly support services. Under both types of
agreements, the delivery of services occurs when an employee works
on a specific project or assignment as stated in the contract or
purchase order. Based on historical experience, the Company
believes that collection is reasonably assured.
The
Company sells licenses of Nodeware and third-party software,
principally Webroot. Substantially all customers are invoiced
monthly at fixed rates for license fees and revenue is recognized
over time.
The
Company sold VMware software and service credits in 2019. Sales
were recorded upon receipt of the software or credits by the
customer. The Company did not take title to the software or
credits. Accordingly, the Company accounted for these as agent
sales and reduced its sales amount by the related cost of
sales.
The
Company’s total revenue recognized from contracts from
customers was comprised of three major services: Managed support
services, Cybersecurity projects and software and Other IT
consulting services. 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 December 31, 2020 or 2019 for contracts with an
expected original duration of more than one year. The following
table summarizes the revenue recognized by the major
services:
|
|
Years
Ended December 31,
|
|
|
|
2020
|
2019
|
|
Managed support
services
|
$4,669,570
|
$4,986,217
|
|
Cybersecurity
projects and software
|
2,285,876
|
1,569,972
|
|
Other IT consulting
services
|
264,000
|
538,090
|
|
Total
revenue
|
$7,219,446
|
$7,094,279
|
Managed support services
Managed
support services consist of revenue primarily from our subcontracts
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.
Cyber security projects and software
Cyber
security 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 vCISO (Virtual 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, revenues 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, testing and vCISO 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 either 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. For the year ended December 31,
2020, we recognized revenue of approximately $169,000 that was
included in the deferred revenue balance at the beginning of the
period presented. Deferred revenue that will be realized during the
succeeding 12-month period is approximately $311,000, and the
remaining deferred revenue of $10,000 is scheduled to be realized
in 2022.
Other IT consulting services
Other
IT consulting services consists of services such as project
management and general IT consulting services.
●
We generate revenue via fixed price service agreements. These
are based on periodic billings of a fixed dollar amount for
recurring services of a similar nature performed according to the
contractual arrangements with clients. The revenues are
recognized at time of service.
Based
on historical experience, the Company believes that collection is
reasonably assured.
During
2020, sales to one client, including sales under subcontracts for
services to several entities, accounted for 61.2% of total sales
(62.6% - 2019) and 38.8% of accounts receivable at December 31,
2020 (22.1% - 2019).
Revenue and Cost of Revenue - The
Company designates certain revenue of third-party software and
project credits as agent revenue where the Company does not have
the performance obligation to deliver the software or credits to
the end user. Accordingly, cost of revenue is recorded as a
reduction of revenue and only the gross profit is included in
revenue in the accompanying statements of operations. For the years
ended December 31, 2020 and 2019, the Company designated agent
revenue of $0 and $238,136, respectively. The related accounts
receivables and accounts payable are recorded on a gross basis in
the accompanying balance sheets.
Stock Options - The Company recognizes
compensation expense related to stock-based payments at the grant
date fair value of the awards. The Company uses the Black-Scholes
option pricing model to determine the estimated fair value of the
awards.
Income Taxes - The Company accounts for
income tax expense in accordance with FASB ASC 740 “Income
Taxes.” Deferred taxes are provided on an asset and liability
method whereby deferred tax assets are recognized for deductible
temporary differences, operating loss and tax credit carryforwards
and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some
portion or all the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of
enactment.
The
Company periodically reviews tax positions taken to determine if it
is more likely than not that the position would be sustained upon
examination. The Company did not have any material unrecognized tax
benefit at December 31, 2020 or 2019. The Company recognizes
accrued interest and penalties related to unrecognized tax benefits
in tax expense. During the years ended December 31, 2020 and 2019,
the Company recognized no interest and penalties.
The
Company files U.S. federal tax returns and tax returns in various
states. The tax years 2017 through 2020 remain open to examination
by the taxing jurisdictions to which the Company is
subject.
Fair Value of Financial Instruments
- The Company has determined
the fair value of debt and other financial instruments using a
valuation hierarchy. The hierarchy, which prioritizes the inputs
used in measuring fair value, consists of three
levels.
Level 1
uses observable inputs such as quoted prices in active
markets;
Level 2
uses inputs other than quoted prices in active markets that are
either directly or indirectly observable; and
Level 3
is defined as unobservable inputs in which little or no market data
exist and requires the Company to develop its own
assumptions.
The
hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level
3 measurements).
The
carrying amounts of cash, accounts receivable and accounts payable
and accrued expenses are reasonable estimates of their fair value
due to their short maturity. Based on the borrowing rates currently
available to the Company for loans similar to its term debt and
notes payable, the fair value approximates the carrying
amounts.
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 options and notes assumed to be exercised. In
a loss year, the calculation for basic and diluted earnings per
share is the same, as the impact of potential common shares is
anti-dilutive.
The
following table sets forth the computation of basic and diluted
loss per share as of December 31, 2020 and 2019:
|
|
Years ended December 31,
|
|
|
|
2020
|
2019
|
|
Numerator
for basic and diluted net income per share:
|
|
|
|
Basic
net income
|
$675,996
|
$47,977
|
|
Plus:
Interest expense saved on converted debt
|
27,068
|
0
|
|
Diluted
net income
|
$703,064
|
$47,977
|
|
Basic
and diluted net income per share
|
$.02
|
$.00
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
Basic
shares
|
29,061,883
|
29,061,883
|
|
Plus:
Stock options
|
6,215,883
|
750,000
|
|
Plus:
Convertible debt
|
9,422,320
|
0
|
|
Diluted
shares
|
44,700,086
|
29,811,883
|
|
|
|
|
|
Anti-dilutive
shares excluded from net income per share
|
2,715,000
|
29,195,736
|
Certain
common shares issuable under stock options and convertible notes
payable have been omitted from the diluted net income (loss) per
share calculation because their inclusion is considered
anti-dilutive because the exercise or conversion prices were
greater than the average market price of the common shares or their
inclusion would have been anti-dilutive.
Reclassifications - The Company reclassifies amounts in
its prior year financial statements to conform to the current
year’s presentation.
Use of Estimates - The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
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 13 for
further disclosure regarding lease accounting.
NOTE 4. - PROPERTY AND EQUIPMENT
Property and
equipment consists of:
|
|
|
December
31,
|
|
|
|
Depreciable
Lives
|
2020
|
2019
|
|
Software
|
3
years
|
$72,834
|
$34,934
|
|
Equipment
|
3 to 10
years
|
142,129
|
131,719
|
|
Furniture and
fixtures
|
5 to 7
years
|
17,735
|
17,735
|
|
|
232,698
|
184,388
|
|
|
Accumulated
depreciation
|
|
(184,499)
|
(178,473)
|
|
|
$48,199
|
$5,915
|
|
Depreciation
expense was $6,026 and $4,567 for the years ended December 31, 2020
and 2019, respectively.
NOTE 5. – CAPITALIZATION OF SOFTWARE FOR RESALE
As of
December 31, 2020, there was $449,445 ($194,215 in 2019) of costs
capitalized and $94,541 of accumulated amortization ($9,539 in
2019). During the year ended December 31, 2020 there was $85,002 of
amortization expense recorded ($9,539 in 2019). Future amortization
is expected to be $354,905 at a rate of $148,146, $140,276, $64,813
and $1,670 for the years 2021, 2022, 2023 and 2024 respectively.
Costs incurred prior to reaching technological feasibility are
expensed as incurred. Labor amounts expensed related to these
development costs amounted to approximately $159,700 and $58,000
during the year ended December 31, 2020 and 2019,
respectively.
NOTE 6. - NOTES PAYABLE - CURRENT
Notes
payable consist of:
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
Demand note
payable, 10%, secured by Software (A)
|
$12,500
|
$12,500
|
|
Demand note payable
to former director, 10%, unsecured (B)
|
0
|
30,000
|
|
Convertible demand
note payable to former director, 12%, unsecured (B)
|
0
|
40,000
|
|
Convertible notes
payable, 6% (C)
|
150,000
|
150,000
|
|
Convertible term
note payable, 7%, secured (D)
|
0
|
100,000
|
|
|
$162,500
|
$332,500
|
(A)
Demand Note payable, 10%, secured by
Software - During 2015, the Company issued a note in
connection with the purchase of Software.
(B)
Demand note payable to former director, 10%,
unsecured and Convertible demand note payable to former director,
12%, unsecured -
These notes were paid off in 2020 as part of the transaction noted
in Note 7 (F).
(C)
Convertible notes payable, 6%, maturity date of
December 31, 2016 - At December 31, 2020, the Company was
obligated to unrelated third parties for $150,000 ($150,000 - 2019)
(“The Notes”). The principal is unsecured and
convertible at the option of the holders into shares of common
stock at $.05 per share, subject to certain
limitations.
(D)
Convertible term note payable, 7%, secured,
maturity date of October 4, 2016 - The note bears interest at the rate of
7% per annum, payable monthly, and is secured by a subordinate lien
on all the Company’s assets. The note's principal is
convertible at the option of the holder into shares of the
Company’s common stock at $.10 per share, which was the price
of the Company's common stock on the closing date of the agreement.
Subsequent to December 31, 2020, the Company extended Maturity date
to January 1, 2024.
Notes
payable - related parties consist of:
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
Demand notes
payable to officer and director, 6%, unsecured
|
$0
|
$38,000
|
|
Demand note payable
to director, 6%, unsecured
|
0
|
20,000
|
|
|
$0
|
$58,000
|
Both
Notes payable – related parties were paid off in
2020.
NOTE 7. - LONG-TERM OBLIGATIONS
Notes Payable – Other consist of:
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
2016 note payable,
6%, unsecured, due December 31, 2021 (A)
|
$500,000
|
$500,000
|
|
Convertible note
payable, 6%, due January 1, 2020 (B)
|
0
|
264,000
|
|
Note payable, 10%,
secured, due January 1, 2018 (C)
|
265,000
|
265,000
|
|
Convertible term
note payable,12%, secured, due August 31, 2018 (D)
|
175,000
|
175,000
|
|
Term note payable -
PBGC, 6%, secured (E)
|
246,000
|
246,000
|
|
2020 note payable,
6%, unsecured, due August 24, 2024 (F)
|
166,473
|
0
|
|
Convertible term
note payable, 7%, secured (G)
|
100,000
|
0
|
|
Convertible notes
payable, 6%, due January 1, 2024 (H)
|
9,000
|
9,000
|
|
Accrued interest
due after 2021(I)
|
7,296
|
0
|
|
|
1,468,769
|
1,459,000
|
|
Less: deferred
financing costs
|
6,555
|
13,110
|
|
|
1,462,214
|
1,445,890
|
|
Less: current
maturities
|
1,004,445
|
950,000
|
|
|
$457,769
|
$495,890
|
(A)
2016 note payable, 6%, unsecured, due December
31, 2021 - On March 14, 2016, the Company entered into
an unsecured financing agreement with a third-party lender.
Borrowings bear interest at 6% with interest payments due
quarterly. Principal is due on December 31, 2021. Principal and
interest may become immediately due and payable upon the occurrence
of customary events of default. In consideration for providing the
financing, the Company paid the lender a fee of 2,500,000 shares of
its common stock valued at $37,500. These deferred financing costs
are recorded as a reduction of the principal owed and are amortized
over the life of the debt. As of December 31, 2020, the balance was
$493,445 (2019 - $486,890), representing principal outstanding less
issuance costs of $6,555 (2019-$13,110). The lender has piggy back
registration rights for these shares. The Company’s Chief
Executive Officer agreed to guarantee the loan obligations if he is
no longer an “affiliate” of the Company as defined by
Securities and Exchange Commission rules.
(B)
Convertible note payable, 6%, due January 1,
2020 - This note has the same terms as item (C) of Note 6
except it matured on January 1, 2020. This note was paid off as
part of the transaction noted in item (F) of this
note.
(C)
Note payable, 10%, secured, due January 1, 2018
- During the years ended December 31, 2004 and 2003, the
Company issued secured notes payable aggregating $265,000. These
borrowings bear interest at 10% and were due, as modified on
January 1, 2018. This note has not been further extended. The notes
are secured by a first lien on accounts receivable that are not
otherwise used by the Company as collateral for other borrowings
and by a second lien on accounts receivable.
(D)
Convertible term note payable, 12%, secured,
due August 31, 2018 -
The Company entered into a secured loan agreement during 2008 for
working capital. The loan bears interest at 12%, which is payable
monthly and was due, as modified on August 31, 2018 for an
aggregate of $175,000. During 2009, the note was modified for its
conversion into common shares at $.25 per share, which was the
closing price of the Company’s common stock on the date of
the modification. The note is secured by a subordinate lien on all
assets of the Company.
(E)
Term note payable - PBGC, 6%, secured
- On October 17, 2011, in
accordance with of the Settlement Agreement dated September 6, 2011
(the “Settlement Agreement”), the Company issued a
secured promissory note in favor of the Pension Benefit Guaranty
Corporation (the “PBGC”) for $300,000 bearing interest
at 6% per annum due in scheduled quarterly payments over a
seven-year period with a balloon payment of $219,000 due on
September 15, 2018.
(F)
2020 note payable, 6%, unsecured, due August
24, 2024 - The Company entered into a Promissory Note
agreement dated August 24, 2020 with a third-party Lender. The Note
represents the negotiated amount owed to the Lender after a payment
in the amount of $550,000 was made to settle previous notes and
interest held by the Lender See Note 6 and item (B) of this note.
The principal amount of the new note is $166,473. This note becomes
due on August 24, 2024.
(G)
Convertible term note payable, 7%, secured, due
January 1, 2024 - The note bears interest at the rate of 7%
per annum, payable monthly, and is secured by a subordinate lien on
all the Company’s assets. The note's principal is convertible
at the option of the holder into shares of the Company’s
common stock at $.10 per share, which was the price of the
Company's common stock on the closing date of the
agreement.
(H)
Convertible notes payable,
6%, due January 1, 2024 - The Company has a
note payable to a former related party in the amount of $9,000. The
note’s maturity was extended to January 1, 2024 from January
1, 2021. In consideration for this extension, the Company agreed to
issue the borrower 25,000 options with a 3-year term to purchase
common stock of Infinite Group Inc. exercisable at $0.10 (ten
cents) per share. Principal and accrued interest are convertible at
the option of the holder into shares of common stock at $.05 per
share. The note bears interest at 6.00% at December 31, 2020. The
rate is adjusted annually, on January 1st of each year, to the
prime rate in effect on December 31st of the immediately preceding
year, plus one and one quarter percent, and in no event, shall the
interest rate be less than 6% per annum. The rate effective as of
January 1, 2021 was 6.00%.
(I)
Accrued interest due after 2021 –
The accrued interest for items(H) above is not due until the due
date of the respective loan. The amount of accrued interest for
item (H) at December 31, 2020 is$7,296.
Notes Payable - Related Parties
Notes
payable - related parties consist of:
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
Note payable, up to
$500,000, 7.5%, due August 31, 2026 (A)
|
$250,000
|
$200,000
|
|
2020 Note payable,
6%, due January 1, 2024 (B)
|
328,000
|
0
|
|
Convertible notes
payable, 6% (C)
|
146,300
|
146,300
|
|
Note payable,
$400,000 line of credit, 8.35%, unsecured (D)
|
0
|
366,635
|
|
Convertible note
payable, 7%, due June 30, 2023 (E)
|
25,000
|
25,000
|
|
Note payable,
$100,000 line of credit, 6%, unsecured (F)
|
90,000
|
90,000
|
|
Note payable,
$75,000 line of credit, 6%, unsecured (G)
|
70,000
|
70,000
|
|
Accrued interest
due after 2021(H)
|
106,520
|
0
|
|
|
1,015,820
|
897,935
|
|
Less current
maturities
|
0
|
512,935
|
|
|
$1,015,820
|
$385,000
|
(A)
Note payable of up to $500,000, 7.5%, due
August 31, 2026 - On May 7, 2019, the Company entered into 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 Company borrowed $200,000 during the year ended December 31,
2019 and $50,000 during the year ended December 31, 2020, which
remains outstanding.
(B)
Note payable, 6%, due January 1, 2024 -
On December 30, 2020, the Company entered into a promissory note
agreement with a member of its Board. The interest payments are due
quarterly starting on April 1, 2021. Principal payments of $100,000
are to be made on January 1, 2022 and January 1, 2023 and a balloon
payment of $128,000 on January 1, 2024. This note replaced the note
in (D) below.
(C)
Convertible notes payable, 6% - The
Company has a note payable to a related party of $146,300 maturing
on January 1, 2024. This note’s maturity date was extended
from January 1, 2020. Principal and accrued interest are
convertible at the option of the holder into shares of common stock
at $.05 per share, subject to certain limitations. The notes bear
interest at 6.00% at December 31, 2020. The rate is adjusted
annually, on January 1st of each year, to
the prime rate in effect on December 31st of the immediately
preceding year, plus one and one quarter percent, and in no event,
shall the interest rate be less than 6% per annum. The rate
effective as of January 1, 2021 was 6.00%.
The
Company executed collateral security agreements with the note
holders providing for a subordinate security interest in all the
Company’s assets. Generally, upon notice, prior to the note
maturity date, the Company can prepay all or a portion of the
outstanding notes.
(D)
Note payable, $400,000 line of credit, 8.35%,
unsecured - On December 1, 2014, the Company entered into an
unsecured line of credit financing agreement with a member of its
Board. The LOC Agreement provides for working capital of up to
$400,000 through January 1, 2020. This line of credit agreement was
cancelled and replaced by the note payable noted in item (B) of
this note.
(E)
Convertible note payable, 7%, due June 30, 2023
- On February 12, 2015, the Company borrowed $25,000 from a
Company officer. The note is unsecured and matured on March 31,
2018 with principal convertible at the option of the holder into
shares of common stock at $.10 per share. In 2021, the Company
officer extended the due date to June 30, 2023.
(F)
Note payable, $100,000 line of credit, 6%,
unsecured - On July 18, 2017, the Company entered into an
unsecured line of credit financing agreement with an officer and
member of its Board. The LOC Agreement provides for working capital
of up to $100,000 with interest at 6% due quarterly through July 1,
2022. In consideration for providing the financing, the lender was
granted an option to purchase 400,000 shares of common stock at
$.04 per share. The option expires on July 17, 2022.
(G)
Note payable, $75,000 line of credit, 6%,
unsecured - On September 21, 2017, the Company entered into
an unsecured line of credit financing agreement with a related
party. The LOC Agreement provides for working capital of up to
$75,000 with interest at 6% due quarterly through January 2, 2023.
In consideration for providing the financing, the lender was
granted an option to purchase 400,000 shares of common stock at
$.04 per share. The option expires on January 2, 2023.
(H)
Accrued interest due after 2021 –
The accrued interest for item (C) and (E) above is not due until
the due date of the loan.
Long-Term
Obligations
As of
December 31, 2020, minimum future annual payments of long-term
obligations and amortization of deferred financing costs are as
follows:
|
|
Annual
|
Annual
|
|
|
|
Payments
|
Amortization
|
Net
|
|
Due Prior to
2021
|
$673,500
|
$0
|
$673,500
|
|
2021
|
500,000
|
6,555
|
493,445
|
|
2022
|
190,000
|
0
|
190,000
|
|
2023
|
205,500
|
0
|
205,500
|
|
2024
|
828,089
|
0
|
828,089
|
|
2025
|
0
|
0
|
0
|
|
2026
|
250,000
|
0
|
250,000
|
|
Total long-term
obligations
|
$2,647,089
|
$6,555
|
$2,640,534
|
NOTE 8. – CARES ACT
Paycheck Protection Program (“PPP”)
Loan - On April 10, 2020, the Company entered into a U. S.
Small Business Administration (“SBA”) Note Payable
agreement (the “Note”) with Upstate National Bank
(“Lender”) under the Paycheck Protection Program (15
U.S.C. § 636(a)(36)) enacted by Congress under the Coronavirus
Aid, Relief and Economic Security Act (the “Act”). The
Note provided funding for working capital to the Company in the
amount of $957,372 and was restricted to certain uses and could not
have been used to repay debt. The interest rate on the Note was
fixed at 1.00% and was accrued until forgiveness. The Act
(including the guidance issued by SBA and U.S. Department of the
Treasury related thereto) provided that all or a portion of this
Note could be forgiven upon request from Borrower to Lender,
subject to requirements in the Note and Act. The Company received
100% forgiveness of the loan during the fourth quarter of 2020.
Total amount forgiven was $963,516 including interest.
Deferral of employment tax deposits and
payments – The Act allowed employers to defer the
deposit and payment of the employer's share of Social Security
taxes through December 31, 2020. The amount deferred was $138,050.
The deferred deposits of the employer's share of Social Security
tax must be deposited by the following dates to be treated as
timely (and avoid a failure to deposit penalty):
●
On December 31,
2021, 50 percent of the eligible deferred amount ($69,025);
and
●
On December 31,
2022, the remaining amount.
NOTE 9. - STOCK AND STOCK OPTION PLANS
Preferred Stock - The Company’s
certificate of incorporation authorizes its Board to issue up to
1,000,000 shares of preferred stock. The stock is issuable in
series that may vary as to certain rights and preferences, as
determined upon issuance, and has a par value of $.01 per share. As
of December 31, 2020, and 2019, there were no preferred shares
issued or outstanding.
2005 Plan - The Company’s Board
and stockholders approved a stock option plans adopted in 2005,
which has authority to grant options to purchase up to an aggregate
of 990,000 common shares at December 31, 2020 and 2019. There are
no options to be granted under this plan.
2009 Plan - During 2009, the
Company’s Board approved the 2009 stock option plan, which
grants options to purchase up to an aggregate of 3,427,000 common
shares at December 31, 2020. There are no remaining options to
issue under this plan. Options issued to date are nonqualified
since the Company has decided not to seek stockholder approval of
the 2009 Plan.
2019 Plan - During 2019, the
Company’s Board approved the 2019 stock option plan, which
grants options to purchase up to an aggregate of 1,500,000 common
shares of which 1,500 common shares are available for grant at
December 31, 2020. Options issued to date are nonqualified since
the Company has decided not to seek stockholder approval of the
2019 Plan.
2020 Plan - During 2020, the
Company’s Board approved the 2020 stock option plan, which
grants options to purchase up to an aggregate of 1,500,000 common
shares of which 560,000 common shares are available for grant at
December 31, 2020. Options issued to date are nonqualified since
the Company has decided not to seek stockholder approval of the
2020 Plan.
NOTE 10. - STOCK OPTION AGREEMENTS AND TRANSACTIONS
The
Company grants stock options to its key employees and independent
service providers as it deems appropriate. Options expire from five
to ten years after the grant date.
Option Agreements - The Company's Board
approved stock option agreements with consultants and a member of
the Board of which options for an aggregate of 750,000 common
shares are outstanding at December 31, 2020 with an average
exercise price of $.12 per share. At December 31, 2020, options for
750,000 shares are vested. Options for 938,000 shares were
forfeited unvested in January 2019.
Loan Fees - On May 7, 2019, the Company
entered into 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 Company borrowed $200,000 in 2019 and $50,000
in 2020. The $250,000 remains outstanding as of December 31, 2020.
As consideration for providing this financing, the Company granted
a stock option to purchase a total of 2,500,000 common shares at an
exercise price of $.02 and recorded interest expense of $14,250
using the Black-Scholes option pricing model to determine the
estimated fair value of the option.
On
August 24, 2020, the Company entered into a note payable agreement
for $166,473 with a third party. The note has an interest rate of
6% and is due on August 24, 2024. As consideration for
providing this financing, the Company granted a stock option to
purchase a total of 500,000 common shares at an exercise price of
$.05 and recorded interest expense of $52,900 using the
Black-Scholes option pricing model to determine the estimated fair
value of the option.
On
November 17, 2020, the Company extended a note payable agreement of
$146,300 with a related party. The note has an interest rate of 6%
and is due on January 1, 2022. As consideration for providing this
extension of the financing, the Company granted a stock option to
purchase a total of 250,000 common shares at an exercise price of
$.12 and recorded interest expense of $15,450 using the
Black-Scholes option pricing model to determine the estimated fair
value of the option.
On
December 31, 2020, the Company extended a note payable agreement of
$9,000 with a third party. The note has an interest rate of 6% and
is due on January 1, 2024. As consideration for providing this
extension of the financing, the Company granted a stock option to
purchase a total of 25,000 common shares at an exercise price of
$.10 and recorded interest expense of $958 using the Black-Scholes
option pricing model to determine the estimated fair value of the
option.
The
fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model based on the following
assumptions. Volatility is based on the Company’s historical
volatility. The expected life of the options was determined using
the simplified method for plain vanilla options as stated in FASB
ASC 718 to improve the accuracy of this assumption while
simplifying record keeping requirements until more detailed
information about the Company’s exercise behavior is
available. The risk-free rate for the life of the option is based
on the U.S. Treasury yield curve in effect at the time of
grant.
The
following assumptions were used for the years ended December 31,
2020 and 2019.
|
|
2020
|
2019
|
|
Risk free interest
rate
|
0.17%
to 1.40%
|
1.38% to
2.55%
|
|
Expected dividend
yield
|
0%
|
0%
|
|
Expected stock
price volatility
|
100%
|
100%
|
|
Expected life of
options
|
1.75 to 3.01 years
|
2.75
to 3.90 years
|
The following is a
summary of stock option activity, including qualified and
non-qualified options for the years ended December 31, 2020 and
2019:
|
|
Number
of Options Outstanding
|
Weighted
Average Exercise Price
|
Remaining
Contractual Term
|
Aggregate
Intrinsic Value
|
|
Outstanding at
December 31, 2018
|
7,920,000
|
$.09
|
|
|
|
Granted
|
4,203,500
|
$.03
|
|
|
|
Expired
|
(275,000)
|
$.07
|
|
|
|
Forfeited
|
(938,000)
|
$.23
|
|
|
|
Outstanding at
December 31, 2019
|
10,910,500
|
$.05
|
|
|
|
Granted
|
1,880,000
|
$.07
|
|
|
|
Expired
|
(335,000)
|
$.15
|
|
|
|
Forfeited
|
(25,000)
|
$.05
|
|
|
|
Outstanding
at December 31, 2020
|
12,430,500
|
$.05
|
3.3
years
|
$480,400
|
|
|
|
|
|
|
|
Vested
or expected to vest at December 31, 2020
|
12,430,500
|
$.05
|
3.3
years
|
$480,400
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2020
|
11,885,500
|
$.05
|
3.3
years
|
$467,800
|
At
December 31, 2020, there was $0 of total unrecognized compensation
cost related to outstanding non-vested options.
The
weighted average fair value of options granted was $.07 and $.03
per share for the years ended December 31, 2020 and 2019,
respectively. The exercise price for all options granted equaled or
exceeded the market value of the Company’s common stock on
the date of grant with the exception of the 500,000 options granted
in consideration for providing the financing on August 24,
2020.
NOTE 11. - INCOME TAXES
The
components of income tax expense (benefit) consists of the
following:
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
Deferred:
|
|
|
|
Federal
|
$39,000
|
$49,000
|
|
State
|
(10,000)
|
6,000
|
|
|
29,000
|
55,000
|
|
Change in valuation
allowance
|
(29,000)
|
(55,000)
|
|
|
$0
|
$0
|
At
December 31, 2020, the Company had federal net operating loss
carryforwards of approximately $6,900,000 ($7,300,000 - 2019) and
various state net operating loss carryforwards of approximately
$3,200,000 ($3,200,000 - 2019) which expire from 2021 through
2040. These carryforwards exclude federal net operating loss
carryforwards from inactive subsidiaries and net operating loss
carryforwards from states that the Company does not presently
operate in. Utilization of the net operating loss
carryforwards may be subject to a substantial annual limitation due
to the ownership change limitations provided by the Internal
Revenue Code and similar state provisions. The annual limitation
may result in the expiration of the net operating loss
carryforwards before utilization.
At
December 31, 2020, a net deferred tax asset, representing the
future benefit attributed primarily to the available net operating
loss carryforwards and defined benefit plan expenses in the amount
of approximately $1,914,000 ($1,943,000 - 2019), had been fully
offset by a valuation allowance because management believes that
the statutory limitations on utilization of the operating losses
and concerns over achieving profitable operations diminish the
Company’s ability to demonstrate that it is more likely than
not that these future benefits will be realized before they
expire.
The
following is a summary of the Company's temporary differences and
carryforwards which give rise to deferred tax assets and
liabilities.
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
Deferred tax assets
(liabilities):
|
|
|
|
Net
operating loss carryforwards
|
$1,550,000
|
$1,650,000
|
|
Defined
benefit pension liability
|
60,000
|
60,000
|
|
Operating
Lease ROU
|
(30,000)
|
(48,000)
|
|
Operating
Lease Liability
|
30,000
|
48,000
|
|
Deferred
Revenue
|
11,000
|
0
|
|
Reserves
and accrued expenses payable
|
293,000
|
233,000
|
|
Gross
deferred tax asset
|
1,914,000
|
1,943,000
|
|
Deferred tax asset
valuation allowance
|
(1,914,000)
|
(1,943,000)
|
|
Net deferred tax
asset
|
$0
|
$0
|
The
differences between the U.S. statutory federal income tax rate and
the effective income tax rate in the accompanying statements of
operations are as follows:
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
Statutory U.S.
federal tax rate
|
21.0%
|
21.0%
|
|
|
|
|
|
Change in valuation
allowance
|
(4.2)
|
(115.6)
|
|
Net operating loss
carryforward expiration
|
13.4
|
71.5
|
|
State
taxes
|
(1.5)
|
12.8
|
|
Expired stock-based
compensation
|
1.0
|
3.1
|
|
Forgiveness of PPP
loan
|
(29.9)
|
0.0
|
|
Other permanent
non-deductible items
|
.2
|
7.2
|
|
Effective income
tax rate
|
0.0%
|
0.0%
|
NOTE 12. - EMPLOYEE RETIREMENT PLANS
Simple IRA Plan - Through December 31, 2012, the Company
offered a simple IRA plan as a retirement plan for eligible
employees who earned at least $5,000 of annual compensation.
Eligible employees could elect to contribute a percentage of their
compensation up to a maximum of $11,500. The accrued liability for
the simple IRA plan, including interest, was $264,675 and $254,348,
as of December 31, 2020 and 2019, respectively.
401(k) Plan - Effective January 1, 2013,
the Company began offering a defined contribution 401(k) plan in
place of the simple IRA plan. For 2020, 401(k) employee
contribution limits are $19,500 plus a catch-up contribution for
those over age 50 of $6,500. The Company can elect to make a
discretionary contribution to the Plan. No discretionary
contribution was approved for 2020 or 2019.
NOTE 13. - LEASE
Beginning on August
1, 2016, the Company leases its headquarters facility under an
operating lease agreement that expires on June 30, 2022. The
Company has the right to terminate the lease upon six months prior
notice after three years of occupancy. Rent expense is $80,000
annually during the first year of the lease term and increases by
1.5% annually thereafter.
Supplemental
balance sheet information related to the operating lease was as
follows:
|
|
December
31, 2020
|
|
Right of use asset
– lease, net
|
$120,777
|
|
Operating lease
liability - short-term
|
$80,258
|
|
Operating lease
liability - long-term
|
42,347
|
|
Total
operating lease liability
|
$122,605
|
|
|
|
|
Discount rate -
operating lease
|
6.0%
|
NOTE 14. - RELATED PARTY ACCRUED INTEREST PAYABLE
Accrued Interest Payable - Included in
accrued interest payable is accrued interest payable to related
parties of $62,114 at December 31, 2020 ($157,067 - 2019). An
additional $106,520 of accrued interest to related parties is due
to paid after 2021.
NOTE 15. - SUBSEQUENT EVENTS
To
date, the COVID-19 outbreak has not had a material adverse impact
on our operations. The extent of the impact of COVID-19 on the
Company's operational and financial results will depend on future
developments, including the duration and spread of the outbreak and
related governmental or other regulatory actions.
On
January 15, 2021, the Company extended a note payable agreement of
$175,000 with a third party. The note has an interest rate of 12%
and is due on January 1, 2024.
On
January 15, 2021, the Company extended a note payable agreement of
$100,000 with a third party. The note has an interest rate of 7%
and is due on January 1, 2024.
On
February 14, 2021, the Company extended a note payable agreement of
$146,300 and accrued interest of $97,102 with a related party. The
note has an interest rate of 6% and is due on January 1,
2024.
On February 14,
2021, the Company extended a note payable agreement of
$25,000
and accrued interest of $35,135 with a related party. The note has
an interest rate of 6% and is due on June 30,
2023
EXHIBIT 10.55
MODIFICATION AGREEMENT No. 7 TO
PROMISSORY
NOTES
This
MODIFICATION AGREEMENT is made as of February 14, 2021 between
Infinite Group, Inc., a Delaware corporation with offices at 175
Sully’s Trail Suite 202, Pittsford, NY 14534
(“Borrower”) and Northwest Hampton Holdings, LLC, a
New York limited liability company with an address at 308 Rock
Beach Road, Rochester, NY 14617
(“Lender”).
WHEREAS,
the Borrower has issued to Lender a note in the principal amount of
$203,323.70 dated December 31, 2003, which note has a principal
balance of $146,300.00 and an interest balance of $97,102.45 at
2/14/2021 (the “NWHH Note”); and
WHEREAS,
the parties desire to modify the terms and conditions of the NWHH
Note as follows:
NOW,
THEREFORE, the parties agree as follows:
1)
The Note is
modified to provide that the time at which the entire principal
balance and accrued and unpaid interest shall be due and payable is
January 1, 2024.
2)
Except as modified
by this Agreement, all of the terms, covenants and conditions of
the Notes shall remain the same.
In
witness whereof, Borrower and Lender have executed this Agreement
under the day and year first written above.
INFINITE
GROUP, INC.
___/s/
Andrew Hoyen____________________
By:
Andrew Hoyen, President
NORTHWEST
HAMPTON HOLDINGS, LLC
___/s/
James A. Villa_____________________
By:
James A. Villa, Sole Member
PROMISSORY NOTE
$328,000.00
Dated: December 30,
2020
FOR
VALUE RECEIVED, INFINITE GROUP,
INC., a corporation with offices at 175 Sully’s Trail,
Suite 202, Pittsford, NY 14534 (the “Borrower”), hereby
promises to pay to Donald Reeve, an individual residing at 7 Cross
Meadow Lane, Pittsford, NY 14534, (the “Lender”), the
principal sum of three hundred twenty-eight thousand Dollars
($328,000.00), plus interest at the annual rate of 6 percent (6%),
The interest payments are due quarterly. First payment to be made
on April 1, 2021 and every three (3) months thereafter until the
note is retired. Principal payments of one hundred thousand dollars
($100,000.00) are to be made on January 1, 2022 and January 1,
2023.
Term:
The
term of this note is thirty-six (36) months, due January 1, 2024.
The remaining balance of One hundred twenty-eight thousand Dollars
($128,000.00) will be due at that time.
Borrower shall have
the right, at its option and without prior notice to Lender, and
without penalty, to prepay all or any part of the outstanding
principal amount of this Note at any time.
Upon
the occurrence of any of the following events of default, the
entire indebtedness evidenced by this Note, including expenses of
collection, shall immediately become due and payable without
further notice, presentation or demand:
(i) The
failure to pay an installment within ten (10) days of its due date
following the Lender’s written notice of default and
demand;
(ii)
The bankruptcy of Borrower or the filing by Borrower of a voluntary
petition under any provision of the bankruptcy laws; the
institution of bankruptcy proceedings in any form against Borrower
which shall be consented to or permitted to remain undismissed or
unstayed for ninety (90) days; or the making by Borrower of an
assignment for the benefit of creditors;
(iii)
The taking of any judgment against Borrower, which judgment is not
paid in accordance with its terms, satisfied, discharged, stayed or
bonded within ninety (90) days from the entry thereof;
or
(iv)
The assignment of this Note by Borrower, provided, however, that
Borrower may assign this Note to any person or entity that
controls, is controlled by or is under common control with,
Borrower.
No
failure on the part of Lender to exercise, and no delay in
exercising, any of the rights provided for herein, shall operate as
a waiver thereof, nor shall any single or partial exercise by
Lender of any right preclude any other or future exercise thereof
or the exercise of any other right.
Lender
shall not, without the express prior written consent of Borrower,
assign, sell, gift or otherwise transfer this Note to any third
party, provided, however, that Lender may assign this Note to any
person or entity that controls, is controlled by or is under common
control with, Lender without the prior consent of
Borrower.
This
note and agreement shall be interpreted and construed according to,
and governed by, the laws of the State of New York, excluding any
laws that might direct the application of the laws of another
jurisdiction. All actions or suits in law or equity arising out of
or related to this Note and Agreement shall be litigated in Supreme
Court Monroe County, New York and shall not be
removed.
Borrower
agrees to pay all costs and expenses incurred by Lender in
enforcing this Note, including without limitation all reasonable
attorneys’ fees and expenses incurred by Lender.
IN WITNESS WHEREOF,
Borrower has caused this Note to be executed and delivered as of
the date set forth above.
INFINITE
GROUP, INC.
By:
_/s/ James A. Villa__________________
James
A. Villa, CEO
Date:
_December 30, 2020_______________
Donald
W. Reeve
By:
_/s/ Donald W. Reeve_______________
Donald
W. Reeve
Date: __December
30, 2020______________
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Infinite Group, Inc. (the
"Company") on Form 10-K for the fiscal year ending December 31,
2020 as filed with the Securities and Exchange Commission
(“SEC”) on the date hereof (the "Report"), I, James
Villa, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully
complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2)
The information
contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the
Company.
A
signed original of this written statement has been provided to the
Company and will be retained by the Company and furnished to the
SEC or its staff upon request.
Dated:
March 30, 2021
__/s/
James Villa____________
James
Villa
Chief
Executive Officer
(Principal
Executive Officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Infinite Group, Inc. (the
"Company") on Form 10-K for the fiscal year ending December 31,
2020 as filed with the Securities and Exchange Commission
(“SEC”) on the date hereof (the "Report"), I, Richard
Glickman, VP Finance and Chief Accounting Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully
complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2)
The information
contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the
Company.
A
signed original of this written statement has been provided to the
Company and will be retained by the Company and furnished to the
SEC or its staff upon request.
Dated:
March 30, 2021
__/s/
Richard Glickman____________
Richard
Glickman
VP
Finance and Chief Accounting Officer
(Principal
Financial and Accounting Officer)
EXHIBIT 31.1
CERTIFICATION
I,
James Villa, certify that:
1. I
have reviewed this annual report on Form 10-K of Infinite Group,
Inc.;
2.
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The
registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over
financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
b) Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
March 30, 2021
/s/
James Villa
-----------------------------------
James
Villa
Chief
Executive Officer
(Principal
Executive Officer)
EXHIBIT 31.2
CERTIFICATION
I,
James Villa, certify that:
1. I
have reviewed this annual report on Form 10-K of Infinite Group,
Inc.;
2.
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The
registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over
financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
b) Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
March 30, 2021
/s/
Richard Glickman
-----------------------------------
Richard
Glickman
VP
Finance and Chief Accounting Officer
(Principal
Financial Officer)