INFINITE GROUP INC 10-Q for FY2020 Q3
INFINITE GROUP INC (IMCI)
10-Q
2020-11-12
For: 2020-09-30
View Original
Added on
April 06, 2026
About this 10-Q
INFINITE GROUP INC filed this 10-Q on November 12, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.84M
- up 1.4% from $1.82M a year earlier
- Net loss
- $108.85K
- compared with a net loss of $93.07K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_________________________________________
FORM 10-Q
_________________________________________
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
for
the quarterly period ended September 30, 2020
Commission file number: 0-21816
_________________________________________
INFINITE GROUP, INC.
(Exact
name of registrant as specified in its charter)
_________________________________________
175
Sully’s Trail, Suite 202
Pittsford,
New York 14534
(585)
385-0610
A
Delaware Corporation
IRS Employer Identification Number: 52-1490422
_________________________________________
Securities
registered pursuant to Section 12(b) of the Act
|
Common
Stock, $0.001 par value per share
|
IMCI
|
OTC
|
|
(Title of each class)
|
(Trading Symbol)
|
(Name of each exchange on which registered)
|
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ☒
No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
|
Large
Accelerated filer ☐
Non-accelerated
filer ☐
|
Accelerated
filer ☐
Smaller
reporting company ☒
Emerging
growth company ☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
Indicate the number
of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date. There were 29,061,883
shares of the issuer’s common stock, par value $.001 per
share, outstanding as of November 10, 2020.
|
Infinite Group,
Inc.
|
|
|
Quarterly Report on
Form 10-Q
|
|
|
For
the Period Ended September 30, 2020
|
|
|
|
|
|
Table of
Contents
|
|
|
|
|
|
PART I - FINANCIAL
INFORMATION
|
PAGE
|
|
|
|
|
Item
1. Financial Statements
|
|
|
|
|
|
Balance Sheets
– September 30, 2020 (Unaudited) and December 31,
2019
|
3
|
|
|
|
|
Statements of
Operations (Unaudited) for the three and nine months ended
September 30, 2020 and 2019
|
4
|
|
|
|
|
Statements of
Stockholders’ Deficiency (Unaudited) for the three and nine
months ended September 30, 2020 and 2019
|
5
|
|
|
|
|
Statements of Cash
Flows (Unaudited) for the nine months ended September 30, 2020 and
2019
|
6
|
|
|
|
|
Notes to Financial
Statements – (Unaudited)
|
7
|
|
|
|
|
Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
|
11
|
|
|
|
|
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk
|
15
|
|
|
|
|
Item 4. Controls
and Procedures
|
16
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|
|
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PART II - OTHER
INFORMATION
|
|
|
|
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Item 1. Legal
Proceedings
|
16
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|
|
|
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Item 1A. Risk
Factors
|
16
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|
|
|
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Item 6.
Exhibits
|
16
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|
|
|
|
SIGNATURES
|
17
|
FORWARD-LOOKING STATEMENTS
Certain
statements made in this Quarterly Report on Form 10-Q 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. See
“Risk Factors” in our annual report on Form 10-K for
the year ended December 31, 2019, filed with the Securities and
Exchange Commission (“SEC”), for a more detailed
discussion of uncertainties and risks that may have an impact on
future results. The terms “we”, “our”,
“us”, or any derivative thereof, as used herein refer
to Infinite Group, Inc., a Delaware corporation.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
|
INFINITE
GROUP, INC.
BALANCE
SHEETS
|
||
|
|
September
30,
|
December
31,
|
|
|
2020
|
2019
|
|
|
(Unaudited)
|
|
|
ASSETS
|
||
|
Current
assets:
|
|
|
|
Cash
|
$206,704
|
$6,398
|
|
Accounts
receivable, net of allowances of $12,629 and $17,455,
respectively
|
930,470
|
432,289
|
|
Prepaid expenses
and other current assets
|
103,603
|
65,285
|
|
Total current
assets
|
1,240,777
|
503,972
|
|
Right
of use asset – lease, net
|
139,863
|
195,441
|
|
Property
and equipment, net
|
10,836
|
5,915
|
|
Software,
net
|
322,435
|
184,676
|
|
Deposits
|
6,937
|
6,937
|
|
Total
assets
|
$1,720,848
|
$896,941
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
||
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$268,792
|
$217,777
|
|
Accrued
payroll
|
508,310
|
218,352
|
|
Accrued interest
payable
|
622,950
|
939,440
|
|
Accrued
retirement
|
262,055
|
254,348
|
|
Deferred
revenue
|
340,052
|
178,824
|
|
Accrued expenses -
other
|
83,336
|
64,207
|
|
Operating lease
liability - short-term
|
78,750
|
74,373
|
|
Current maturities
of long-term obligations
|
695,000
|
950,000
|
|
Current maturities
of long-term obligations - related parties
|
529,225
|
512,935
|
|
Notes
payable
|
262,500
|
332,500
|
|
Notes payable -
related parties
|
20,000
|
58,000
|
|
Total current
liabilities
|
3,670,970
|
3,800,756
|
|
|
|
|
|
Long-term
obligations:
|
|
|
|
Notes
payable:
|
|
|
|
Paycheck Protection
Program loan (Note 5)
|
957,372
|
0
|
|
Other
|
658,280
|
486,890
|
|
Related
parties
|
360,000
|
394,000
|
|
Operating lease
liability - long-term
|
63,050
|
122,605
|
|
Total
liabilities
|
5,709,672
|
4,804,251
|
|
|
|
|
|
Stockholders'
deficiency:
|
|
|
|
Common stock, $.001
par value, 60,000,000 shares authorized; 29,061,883 shares issued
and outstanding
|
29,061
|
29,061
|
|
Additional paid-in
capital
|
30,744,394
|
30,638,173
|
|
Accumulated
deficit
|
(34,762,279)
|
(34,574,544)
|
|
Total
stockholders’ deficiency
|
(3,988,824)
|
(3,907,310)
|
|
Total liabilities
and stockholders’ deficiency
|
$1,720,848
|
$896,941
|
|
|
|
|
|
See
notes to unaudited financial statements.
|
||
|
INFINITE
GROUP, INC.
STATEMENTS
OF OPERATIONS
(Unaudited)
|
||||
|
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Sales
|
$1,844,549
|
$1,819,699
|
$5,447,505
|
$5,286,141
|
|
Cost of
sales
|
1,058,450
|
1,197,315
|
3,206,291
|
3,386,526
|
|
Gross
profit
|
786,099
|
622,384
|
2,241,214
|
1,899,615
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
General and
administrative
|
462,265
|
335,528
|
1,239,021
|
959,535
|
|
Selling
|
327,109
|
311,647
|
973,034
|
822,307
|
|
Total costs and
expenses
|
789,374
|
647,175
|
2,212,055
|
1,781,842
|
|
|
|
|
|
|
|
Operating
income (loss)
|
(3,275)
|
(24,791)
|
29,159
|
117,773
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
Interest
income
|
268
|
0
|
701
|
0
|
|
Interest
expense:
|
|
|
|
|
|
Related
parties
|
(13,737)
|
(20,890)
|
(46,383)
|
(69,659)
|
|
Other
|
(93,192)
|
(47,390)
|
(175,212)
|
(142,010)
|
|
Total interest
expense
|
(106,929)
|
(68,280)
|
(221,595)
|
(211,669)
|
|
Other
income
|
1,088
|
0
|
4,000
|
0
|
|
Total other income
(expense)
|
(105,573)
|
(68,280)
|
(216,894)
|
(211,669)
|
|
|
|
|
|
|
|
Net
loss
|
$(108,848)
|
$(93,071)
|
$(187,735)
|
$(93,896)
|
|
|
|
|
|
|
|
Net
loss per share – basic and diluted
|
$.00
|
$.00
|
$(.01)
|
$.00
|
|
|
|
|
|
|
|
Weighted
average shares outstanding – basic
|
29,061,883
|
29,061,883
|
29,061,883
|
29,061,883
|
|
|
|
|
|
|
|
Weighted
average shares outstanding – diluted
|
29,061,883
|
29,061,883
|
29,061,883
|
29,061,883
|
|
|
|
|
|
|
|
See notes to unaudited financial statements.
|
||||
|
|
|
|
|
|
INFINITE GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
(Unaudited)
Three and Nine Months Ended September 30, 2020 and
2019
Three and Nine Months Ended September 30, 2020
|
|
|
Additional
|
|
|
|
|
|
Common
Stock
|
Paid-in
|
Accumulated
|
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2019
|
29,061,883
|
$29,061
|
$30,638,173
|
$(34,574,544)
|
$(3,907,310)
|
|
|
|
|
|
|
|
|
Stock based
compensation
|
0
|
0
|
2,130
|
0
|
2,130
|
|
Net
loss
|
0
|
0
|
0
|
(6,062)
|
(6,062)
|
|
|
|
|
|
|
|
|
Balance
- March 31, 2020
|
29,061,883
|
$29,061
|
$30,640,303
|
$(34,580,606)
|
$(3,911,242)
|
|
|
|
|
|
|
|
|
Stock based
compensation
|
0
|
0
|
16,850
|
0
|
16,850
|
|
Net
loss
|
0
|
0
|
0
|
(72,825)
|
(72,825)
|
|
|
|
|
|
|
|
|
Balance
– June 30, 2020
|
29,061,883
|
$29,061
|
$30,657,153
|
$(34,653,431)
|
$(3,967,217)
|
|
|
|
|
|
|
|
|
Stock based
compensation
|
0
|
0
|
87,241
|
0
|
87,241
|
|
Net
loss
|
0
|
0
|
0
|
(108,848)
|
(108,848)
|
|
|
|
|
|
|
|
|
Balance
– September 30, 2020
|
29,061,883
|
$29,061
|
$30,744,394
|
$(34,762,279)
|
$(3,988,824)
|
Three and Nine Months Ended September 30, 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
|
260
|
0
|
260
|
|
Net
income
|
0
|
0
|
0
|
35,036
|
35,036
|
|
|
|
|
|
|
|
|
Balance
- March 31, 2019
|
29,061,883
|
$29,061
|
$30,593,626
|
$(34,587,485)
|
$(3,964,798)
|
|
|
|
|
|
|
|
|
Stock based
compensation
|
0
|
0
|
14,250
|
0
|
14,250
|
|
Net
loss
|
0
|
0
|
0
|
(35,861)
|
(35,861)
|
|
|
|
|
|
|
|
|
Balance
– June 30, 2019
|
29,061,883
|
$29,061
|
$30,607,876
|
$(34,623,346)
|
$(3,986,409)
|
|
|
|
|
|
|
|
|
Stock based
compensation
|
0
|
0
|
5,536
|
0
|
5,536
|
|
Net
loss
|
0
|
0
|
0
|
(93,071)
|
(93,071)
|
|
|
|
|
|
|
|
|
Balance
– September 30, 2019
|
29,061,883
|
$29,061
|
$30,613,412
|
$(34,716,417)
|
$(4,073,944)
|
|
See
notes to unaudited financial statements.
|
|
|
|
|
|
(Unaudited)
|
||
|
|
Nine
Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
$(187,735)
|
$(93,896)
|
|
Adjustments to
reconcile net loss to net cash
|
|
|
|
used by
operating activities:
|
|
|
|
Stock based
compensation
|
106,221
|
20,046
|
|
Depreciation and
amortization
|
63,792
|
15,372
|
|
Bad debt
expense
|
5,000
|
0
|
|
Change in
assets:
|
|
|
|
Accounts
receivable
|
(503,181)
|
(303,208)
|
|
Prepaid expenses
and other current assets
|
(38,318)
|
(72,320)
|
|
Change in
liabilities:
|
|
|
|
Accounts
payable
|
51,015
|
(71,689)
|
|
Accrued
expenses
|
(7,403)
|
189,253
|
|
Deferred
revenue
|
161,228
|
163,482
|
|
Accrued
retirement
|
7,707
|
7,406
|
|
Net
cash used by operating activities
|
(341,674)
|
(145,554)
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
Purchases of
property and equipment
|
(7,966)
|
(1,945)
|
|
Capitalization of
software development costs
|
(193,190)
|
0
|
|
|
|
|
|
Net
cash used by investing activities
|
(201,156)
|
(1,945)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Proceeds from note
payable
|
957,372
|
0
|
|
Proceeds from
issuance of notes payable - related party
|
0
|
200,000
|
|
Repayments of notes
payable – short-term
|
(167,526)
|
0
|
|
Repayments of notes
payable - related party
|
(46,710)
|
(50,050)
|
|
|
|
|
|
Net
cash provided by financing activities
|
743,136
|
149,950
|
|
|
|
|
|
Net
increase in cash
|
200,306
|
2,451
|
|
|
|
|
|
Cash - beginning of
period
|
6,398
|
29,716
|
|
|
|
|
|
Cash
- end of period
|
$206,704
|
$32,167
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
Cash payments for
interest
|
$314,513
|
$120,506
|
|
Cash payments for
taxes
|
$0
|
$0
|
|
|
||
|
See
notes to unaudited financial statements.
|
||
INFINITE GROUP, INC.
Notes to Financial Statements - (Unaudited)
Note 1. Basis of Presentation
The
accompanying unaudited financial statements of Infinite Group, Inc.
(“Infinite Group, Inc.” or the “Company”)
included herein have been prepared by the Company in accordance
with accounting principles generally accepted in the United States
of America (U.S.) ("GAAP") for interim financial information and
with instructions to Form 10-Q. Accordingly, they do not include
all the information and footnotes required by accounting principles
generally accepted in the U.S. for complete financial statements.
In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All such adjustments
are of a normal recurring nature. The December 31, 2019 balance
sheet has been derived from the audited financial statements at
that date but does not include all disclosures required by GAAP.
The accompanying unaudited financial statements should be read in
conjunction with the Company’s audited financial statements
and the notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2019 filed with the
U.S. Securities and Exchange Commission (SEC). Results of
operations for the three and nine months ended September 30, 2020
are not necessarily indicative of the operating results that may be
expected for the year ending December 31, 2020.
Note 2. Management Plans - Capital Resources
The
Company reported net losses of $187,735 and $93,896 for the nine
months ended September 30, 2020 and 2019, respectively, and
stockholders’ deficiencies of $3,988,824 and $3,907,310 at
September 30, 2020 and December 31, 2019, respectively.
Accordingly, and due to a current working capital deficit of
approximately $2.4 million, there is substantial doubt about the
Company’s ability to continue as a going concern within one
year of issuance of the financial statements.
The
Company's goal is to increase sales and generate cash flow from
operations on a consistent basis. The Company uses a formal
financial review and budgeting process as a tool for improvement
that has aided expense reduction and internal performance. The
Company’s business plans require improving the results of its
operations in future periods.
The
Company believes the capital resources available under its
factoring line of credit, cash from additional related party and
third-party loans and cash generated by improving the results of
its operations provide sources to fund its ongoing operations and
to support the internal growth of the Company. Although the Company
has no assurances, the Company believes that related parties, who
have previously provided working capital, and third parties will
continue to provide working capital loans on similar terms, as in
the past, as may be necessary to fund its on-going operations for
at least the next 12 months. 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.
Note
3. Summary of Significant Accounting Policies
There
are several accounting policies that the Company believes are
significant to the presentation of its financial statements. These
policies require management to make complex or subjective judgments
about matters that are inherently uncertain. Note 3 to the
Company’s audited financial statements for the year ended
December 31, 2019 presents a summary of significant accounting
policies as included in the Company's Annual Report on Form 10-K as
filed with the SEC.
Reclassifications - The Company reclassifies amounts in its
financial statements to comply with recently adopted accounting
pronouncements.
Fair Value of Financial Instruments - The carrying amounts
reported in the balance sheets for cash, accounts receivable,
accounts payable, and accrued expenses approximate fair value
because of the immediate short-term maturity of these financial
instruments. The carrying value of notes payable and convertible
notes payable approximates the fair value based on rates currently
available from financial institutions and various
lenders.
Revenue
-
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 September 30, 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:
|
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||
|
2020
|
2019
|
2020
|
2019
|
|
|
Managed support
services
|
$1,192,469
|
$1,275,274
|
$3,533,777
|
$3,769,274
|
|
Cybersecurity
projects and software
|
601,080
|
406,925
|
1,700,728
|
1,089,778
|
|
Other IT consulting
services
|
51,000
|
137,500
|
213,000
|
427,089
|
|
Total
sales
|
$1,844,549
|
$1,819,699
|
$5,447,505
|
$5,286,141
|
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.
Cybersecurity projects and software
Cybersecurity
projects and software revenue includes the selling of licenses of
Nodeware® and third-party software, principally Webroot™
as well as performing cybersecurity assessments and
testing.
●
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 and testing services are considered
distinct performance obligations when sold stand alone or with
other products. These contracts generally have terms of one year or
less. For substantially all these contracts, revenue is recognized
when the specific performance obligation is satisfied. If the
contract has multiple performance obligations, the revenue is
recognized when the performance obligations are satisfied.
Depending on the nature of the service, the amounts recognized are
based on an allocation of the transaction price to each performance
obligation based on a relative standalone selling price of the
products sold.
●
In substantially all agreements, a 50% to 75% down payment is
required before work is initiated. Down payments received are
deferred until revenue is recognized. Upon completion of
performance obligation of service, payment terms are 30
days.
Other IT consulting services
Other
IT consulting services consists of services such as project
management and general IT consulting services.
●
We generate revenue via fixed price service agreements. These
are based on periodic billings of a fixed dollar amount for
recurring services of a similar nature performed according to the
contractual arrangements with clients. The revenues are
recognized at time of service.
Based
on historical experience, the Company believes that collection is
reasonably assured.
During
the three and nine months ended September 30, 2020, sales to one
client, including sales under subcontracts for services to several
entities, accounted for 60.4% and 61.5%, respectively, of total
sales. (62.0% and 63.1%, respectively, in 2019) and 49.6% of
accounts receivable at September 30, 2020 (22.1% - December 31,
2019).
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. As of
September 30, 2020, there was $387,405 of costs capitalized
($194,215 as of December 31, 2019) and $64,969 of accumulated
amortization ($9,539 as of December 31, 2019). Of the $387,405,
there is $322,581 of costs being amortized and $64,824 that has not
yet been placed into service. The $64,824 represents Q3
capitalization of software development costs and is expected to be
placed into service during Q4 of 2020. During the three and nine
months ended September 30, 2020, there was $24,914 and $55,430,
respectively, of amortization expense recorded ($0 in 2019). During
the three and nine months ended September 30, 2020, there was
approximately $38,500 and $115,900, respectively, of labor amounts
expensed related to these development costs ($75,600 and $176,200,
respectively, in 2019).
Leases - In February 2016, the FASB issued amended guidance
for lease arrangements to increase transparency and comparability
by providing additional information to users of financial
statements regarding an entity's leasing activities. The new
standard requires entities to recognize a liability for their lease
obligations and a corresponding right-of-use asset, initially
measured at the present value of the lease payments. Subsequent
accounting depends on whether the agreement is deemed to be a
financing or operating lease. For operating leases, a lessee
recognizes its total lease expense as an operating expense over the
lease term. For financing leases, a lessee recognizes amortization
of the right-of-use asset as an operating expense over the lease
term separately from interest on the lease liability. The ASU
requires that assets and liabilities be presented and disclosed
separately, and the liabilities must be classified appropriately as
current and noncurrent. The ASU further requires additional
disclosure of certain qualitative and quantitative information
related to lease agreements. The ASU was effective for the Company
beginning on January 1, 2019, at which time we adopted the new
standard using the modified retrospective approach as of the date
of adoption. Upon
adoption, we recognized a right-of-use asset of $265,825 and a
lease liability of $265,825 related to the existing office lease
that is classified as an operating lease. Supplemental balance
sheet information related to the lease on September 30, 2020 and
December 31, 2019 is as follows:
|
Description
|
Classification
|
September
30, 2020
|
December
31, 2019
|
|
Right of use asset
– lease, net
|
Other
assets (non-current)
|
$139,863
|
$195,441
|
|
Operating lease
liability – short-term
|
Accrued
liabilities
|
78,750
|
74,373
|
|
Operating lease
liability – long-term
|
Other long-term
liabilities
|
63,050
|
122,605
|
Note 4. Sale of Certain Accounts Receivable
The
Company has available a financing line with a financial institution
(the Purchaser), which enables the Company to sell accounts
receivable to the Purchaser with full recourse against the Company.
Pursuant to the provisions of FASB ASC 860, the Company reflects
the transactions as a sale of assets and establishes an accounts
receivable from the Purchaser for the retained amount less the
costs and fees of the transaction and less any anticipated future
loss in the value of the retained asset.
The
retained amount is 10% of the total accounts receivable invoice
sold to the Purchaser. The fee is charged at prime plus 3.6%
(effective rate of 6.85% at September 30, 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 three months ended September 30, 2020, the Company sold
approximately $1,437,000 ($3,398,000 – September 30, 2019) of
its accounts receivable to the Purchaser. As of September 30, 2020,
approximately $153,000 ($324,000 - December 31, 2019) of these
receivables remained outstanding. Additionally, as of September 30,
2020, the Company had approximately $421,000 available under the
financing line with the financial institution ($67,000 - December
31, 2019). After deducting estimated fees, allowance for bad debts
and advances from the Purchaser, the net receivable from the
Purchaser amounted to $15,300, at September 30, 2020 ($32,400 -
December 31, 2019), and is included in accounts receivable in the
accompanying balance sheets.
There
were no gains or losses on the sale of the accounts receivable
because all were collected. The cost associated with the financing
line totaled $17,363 for the nine months ended September 30, 2020
($38,382- September 30, 2019). These financing line fees are
classified on the statements of operations as interest
expense.
Note 5: Debt Obligations
Four
debt obligations became due on January 1, 2020. The total amount of
two of these debt instruments is approximately $503,000 as of
September 30, 2020. The due dates have not been extended. This debt
is with related parties.
The
third debt obligation is due to a third party for approximately
$69,000.
The
fourth debt obligation of $334,000 plus accrued interest of
$382,473 was extinguished when the Company entered into a
Promissory Note agreement dated August 24, 2020 with a third party
Lender. The new Note represents the remaining amount owed due to
the Lender after a payment in the amount of $550,000 was made to
settle previous notes and accrued interest held by the Lender. The
principal amount of the new Note is $166,473. This note requires
semi-annual interest only payments at the rate of 6% and becomes
due on August 24, 2024. In connection with the extinguishment of
the past due obligation, the Company issued the lender an option to
purchase 500,000 shares of common stock at an exercise price of
$.05 per share. The value of this option was approximately $50,000
and is recorded as interest expense.
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”). The Note provides funding for working
capital to the Company in the amount of $957,372 and is restricted
to certain uses and cannot be used to repay debt. The interest rate
on the Note is fixed at 1.00% and the payments of principal and
interest shall be deferred to July 21, 2021. Interest shall
continue to accrue. The loan evidenced by the Note was made 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 Act (including the
guidance issued by SBA and U.S. Department of the Treasury related
thereto) provides that all or a portion of this Note may be
forgiven upon request from Borrower to Lender, subject to
requirements in the Note and Act. All remaining principal and
accrued interest is due and payable two (2) years from date of
Note. The Company believes it has used the funds per the Act and
will submit an application for 100% forgiveness of the loan during
the fourth quarter of 2020. However, based on the uncertainty of
the application review process, the full amount continues to be
recorded as a liability as of September 30, 2020.
The
Company paid off a demand note to a related party in the amount of
$34,000 during the third quarter.
Note 6. Earnings per Share
Basic
earnings per share is based on the weighted average number of
common shares outstanding during the periods presented. Diluted
earnings per share is based on the weighted average number of
common shares outstanding, as well as dilutive potential common
shares which, in the Company’s case, comprise shares issuable
under convertible notes payable and stock options. The treasury
stock method is used to calculate dilutive shares, which reduces
the gross number of dilutive shares by the number of shares
purchasable from the proceeds of the options and warrants assumed
to be exercised. In a loss period, the calculation for basic and
diluted earnings per share is considered to be the same, as the
impact of potential common shares is anti-dilutive.
The
following table sets forth the computation of basic and diluted net
loss per share for the three and nine months ended:
|
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Numerator for basic
and diluted net loss per share:
|
|
|
|
|
|
Net
loss
|
$(108,848)
|
$(93,071)
|
$(187,735)
|
$(93,896)
|
|
Basic and diluted
net loss per share
|
$.00
|
$.00
|
$(.01)
|
$.00
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding
|
|
|
|
|
|
Basic and diluted
shares
|
29,061,883
|
29,061,883
|
29,061,883
|
29,061,883
|
|
|
|
|
|
|
|
Anti-dilutive
shares excluded from net loss per share calculation
|
22,180,976
|
31,288,912
|
22,180,976
|
31,288,912
|
Certain common shares issuable under stock options and convertible
notes payable have been omitted from the diluted net loss per share
calculation because their inclusion is considered anti-dilutive
because the exercise prices were greater than the average market
price of the common shares or their inclusion would have been
anti-dilutive.
Note 7. Stock Option Plans and Agreements
The
Company has approved stock options plans and agreements covering up
to an aggregate of 12,717,000 shares of common stock. Such options
may be designated at the time of grant as either incentive stock
options or nonqualified stock options. Stock based compensation
consists of charges for stock option awards to employees, directors
and consultants.
On
April 15, 2020, the Company’s board of directors approved the
2020 stock option plan, which grants options to purchase up to an
aggregate of 1,500,000 common shares. As of September 30, 2020,
610,000 options to purchase shares remain unissued under the 2020
plan. Options issued to date are nonqualified since the Company has
decided not to seek stockholder approval of the 2020
Plan.
The
fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. 1,555,000 options
were granted for the nine months ended September 30, 2020 with a
weighted average fair value of $ .07 per option. 2,973,500 options
were granted for the nine months ended September 30, 2019. The
following assumptions were used during the nine months ended
September 30, 2020.
|
Risk-free interest
rate
|
0.18%-1.40%
|
|
Expected dividend
yield
|
0%
|
|
Expected stock
price volatility
|
100%
|
|
Expected life of
options
|
2.25-3.01
years
|
The
Company recorded expense for options issued to employees and
independent service providers of $34,341 and $53,318 for the three
and nine months ended September 30, 2020, respectively ($5,536 and
$11,332 in 2019). The Company recorded expense for options issued
for loan financing consideration of $52,900 for the three and nine
months ended September 30, 2020, respectively ($0 and $14,250 in
2019).
At
September 30, 2020, there was no unrecognized compensation cost
related to non-vested options and 125,000 options vested during the
nine months ended September 30, 2020.
A
summary of all stock option activity for the nine months ended
September 30, 2020 follows:
|
|
Number
of Options Outstanding
|
Weighted
Average Exercise Price
|
Remaining
Contractual Term
|
Aggregate
Intrinsic Value
|
|
Outstanding at
December 31, 2019
|
10,910,500
|
$.05
|
|
|
|
Granted
|
1,555,000
|
.07
|
|
|
|
Forfeited
|
(25,000)
|
.05
|
|
|
|
Expired
|
(335,000)
|
.15
|
|
|
|
Outstanding at
September 30, 2020
|
12,105,500
|
$.05
|
3.5
years
|
$713,300
|
|
|
|
|
|
|
|
At September 30,
2020 -
|
|
|
|
|
|
Vested or expected
to vest
|
12,105,500
|
$.05
|
3.5
years
|
$713,300
|
|
Exercisable
|
11,585,500
|
$.05
|
3.5
years
|
$689,300
|
Note 8. Related Party Accounts Receivable and Accrued Interest
Payable
Included
in accrued interest payable is amounts due to related parties of
$161,783 at September 30, 2020 ($157,067 - December 31,
2019).
Note 9. Subsequent Events
Subsequent
to September 30, 2020, the Company applied for forgiveness of the
Payroll Protection Program of approximately $957,000 using 100%
eligible payroll expenses. Given current guidance that is
available, the Company believes that it should be eligible to
achieve forgiveness of the full loan amount, but this income will
not be recognized until the eligible expenses are certified by the
Lender and the federal government. Any such forgiveness of
indebtedness, in accordance with the CARES Act, does not give rise
to federal taxable income, but these forgiven expenses may not also
be deducted for federal tax return purposes. If not forgiven, this
funding accrues interest at a rate of 1% per annum beginning on
April 10, 2020.
************
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
This
discussion contains forward-looking statements, the accuracy of
which involves risks and uncertainties. Our actual results could
differ materially from those anticipated in the forward-looking
statements for many reasons including, but not limited to, those
discussed under the heading “Forward Looking
Statements” above and elsewhere in this report. We disclaim
any obligation to update information contained in any
forward-looking statements.
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.
Impact of COVID-19 on Our Business
The
COVID-19 pandemic has resulted, and is likely to continue to
result, in significant economic disruption. It has already
disrupted global travel and supply chains and adversely impacted
global commercial activity. Considerable uncertainty still
surrounds COVID-19 and its potential long-term economic effects, as
well as the effectiveness of any responses taken by government
authorities and businesses. The travel restrictions, limits on
hours of operations and/or closures of non-essential businesses,
and other efforts to curb the spread of COVID-19 have significantly
disrupted business activity globally.
The
change in the economic environment is starting to have, and will
continue to have, an adverse economic impact on our small and
mid-size business customers and potential customers. We have seen,
and continue to see, affected businesses freeze and furlough
headcount, terminate employees, partially or completely shut down
business operations, and business failures. Impacted businesses may
also face liquidity issues, reduced budgets, or an inability to pay
for our services or the same level of our services. In the third
quarter of 2020, our revenue growth rate and new sales growth rate
increased slightly, and some potential customers continued to delay
decisions to purchase.
During
the first nine months of 2020, our managed support services,
cybersecurity projects and software license revenues were minimally
impacted by the impact of the COVID-19 pandemic on our
customers’ operational priorities. We are also continuing to
adapt our operations to meet the challenges of this uncertain and
rapidly evolving situation, including establishing remote working
arrangements for our employees, limiting non-essential business
travel, and transitioning towards virtual sales and marketing
events. These types of sales and marketing expenses decreased
during the first half of 2020, and we expect these expenses will be
lower compared to prior year periods due to the ongoing impact of
the COVID-19 pandemic on travel and in-person marketing
events. We will continue to actively monitor the nature and
extent of the impact to our business, operating results, and
financial condition.
Business
Headquartered
in Pittsford, New York, Infinite Group, Inc. is a provider of
managed IT and virtualization services and a developer and provider
of cybersecurity tools and solutions to private businesses and
government agencies. As part of these services we:
●
focus on key
security 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 layer to both
internal IT and third-party IT
(MSPs, VARs, MSSPs) organizations. 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 a
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;
●
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
●
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.
Business
Strategy
Our
strategy is to build our business by designing, developing, and
marketing cybersecurity-based services, products and solutions that
address the evolving landscape in cybersecurity for our channel and
customers. We have patent pending technology in the market and we
continue to develop other additional products and solutions that
can be added to our channel of domestic and international partners
and distributors. Our products and solutions 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 differentiate ourselves in the market at a time when
competition and consolidation in these markets is on the rise has
proven successful due to our increased cybersecurity
engagements.
Our
cybersecurity business is comprised of three components: managed
security services, product development and deployment, and
integration of third-party security solutions into our security
offerings to our channel and customers. We provide cybersecurity
services and technical consulting resources to support both our
channel partners and end customers. For example, we sell our
proprietary product, Nodeware, through both our direct partners and
through other 3rd party partner distribution and agents so they can
either sell it as a standalone solution or part of other technical
services they provide to their customers. This enables the channel
partner to develop a base of recurring revenue. We also provide our
cybersecurity services through our channel partners as a
cybersecurity overlay to the technical services they already
provide.
Our
goal is to maintain our base of opportunities in our VMware
business in both the public and commercial sector.
Opportunistically, we will continue to identify license and
services engagements as they arise.
We are
working to expand our managed services business with our prime
partner, Perspecta, and the current federal enterprise customer and
its customers.
Results of Operations
Comparison of the Three Months Ended September 30, 2020 and
2019
The
following table compares our statements of operations data for the
three months ended September 30, 2020 and 2019. The trends
suggested by this table are not indicative of future operating
results.
|
|
Three Months Ended
September 30,
|
|||||||
|
|
|
|
|
|
2020
vs. 2019
|
|||
|
|
|
As a
% of
|
|
As a
% of
|
Amount
of
|
%
Increase
|
|
|
|
|
2020
|
Sales
|
2019
|
Sales
|
Change
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$1,844,549
|
100.0%
|
$1,819,699
|
100.0
|
%
|
$24,850
|
1.4
|
%
|
|
Cost of
sales
|
1,058,450
|
57.4
|
1,197,315
|
65.8
|
|
(138,865)
|
(11.6)
|
|
|
Gross
profit
|
786,099
|
42.6
|
622,384
|
34.2
|
|
163,715
|
26.3
|
|
|
General and
administrative
|
462,265
|
25.1
|
335,528
|
18.4
|
|
126,737
|
37.8
|
|
|
Selling
|
327,109
|
17.7
|
311,647
|
17.1
|
|
15,462
|
5.0
|
|
|
Total costs and
expenses
|
789,374
|
42.8
|
647,175
|
35.6
|
|
142,199
|
22.0
|
|
|
Operating income
(loss)
|
(3,275)
|
(0.2)
|
(24,791)
|
(1.4)
|
|
21,516
|
(86.8)
|
|
|
Other
income
|
1,088
|
0.1
|
0
|
0.0
|
|
1,088
|
|
|
|
Interest expense,
net
|
(106,661)
|
(5.8)
|
(68,280)
|
(3.8)
|
|
38,381
|
56.2
|
|
|
Net
loss
|
$(108,848)
|
(5.9)%
|
$(93,071)
|
(5.1)
|
%
|
$(15,777)
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
- basic and diluted
|
$.00
|
|
$.00
|
|
|
$.00
|
|
|
|
|
Nine
Months Ended September 30,
|
|||||||
|
|
|
|
|
|
2020
vs. 2019
|
|||
|
|
|
As a
% of
|
|
As a
% of
|
Amount
of
|
%
Increase
|
|
|
|
|
2020
|
Sales
|
2019
|
Sales
|
Change
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$5,447,505
|
100.0%
|
$5,286,141
|
100.0
|
%
|
$161,364
|
3.1
|
%
|
|
Cost of
sales
|
3,206,291
|
58.9
|
3,386,526
|
64.1
|
|
(180,235)
|
(5.3)
|
|
|
Gross
profit
|
2,241,214
|
41.1
|
1,899,615
|
35.9
|
|
341,599
|
18.0
|
|
|
General and
administrative
|
1,239,021
|
22.7
|
959,535
|
18.2
|
|
279,486
|
29.1
|
|
|
Selling
|
973,034
|
17.9
|
822,307
|
15.6
|
|
150,727
|
18.3
|
|
|
Total costs and
expenses
|
2,212,055
|
40.6
|
1,781,842
|
33.7
|
|
430,213
|
24.1
|
|
|
Operating
income
|
29,159
|
0.5
|
117,773
|
2.2
|
|
(88,614)
|
75.2
|
|
|
Other
Income
|
4,000
|
0.1
|
0
|
0.0
|
|
4,000
|
|
|
|
Interest expense,
net
|
(220,894)
|
(4.1)
|
(211,669)
|
(4.0)
|
|
9,225
|
4.4
|
|
|
Net
loss
|
$(187,735)
|
(3.4)%
|
$(93,896)
|
(1.8)
|
%
|
$(93,839)
|
(99.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
- basic and diluted
|
$(.01)
|
|
$.00
|
|
|
$(.01)
|
|
|
Sales
Our
managed support service sales comprised approximately 65% of our
sales in 2020 and approximately 70% in 2019. Our cybersecurity
projects and software sales, primarily to SMEs, were approximately
31% of our total sales as compared to approximately 21% for
2019.
Sales
of virtualization subcontract projects have continued to decrease
since 2015 because VMware has continued to assign fewer projects to
us. Our virtualization subcontract project sales decrease of
approximately 57% from 2019 to 2020 was more than offset by sales
growth of approximately 56% from our cybersecurity projects and
software business during the nine months ended September 30, 2020
as compared to 2019. Our goal is to continue to grow our
cybersecurity projects and software business by using our expanding
salesforce as well as channel partners. We also hope to recapture
some of our VMware business in both the public and commercial
sector by building VMware license sales volume and services
concurrently directly with customers rather than relying on
subcontract project services. Other IT projects comprised the
balance of our sales.
Cost
of Sales and Gross Profit
Cost of
sales principally represents the cost of employee services related
to our IT Services Group. We have grown our cybersecurity projects
team to meet demand and terminated some support personnel in the
last year as part of efficiency measures. As virtualization project
sales decreased, related personnel cost of sales also
decreased.
Our
gross profit improved by $341,599 for the nine months ended
September 30, 2020 primarily due to improved cybersecurity projects
sales and better cost containment of salaries as
noted.
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 due
primarily to personnel increases and increases to professional fees
for marketing, legal and accounting services.
Selling
Expenses
The
increase in selling expenses is due to the hiring of salespeople
throughout 2019 to sell our cybersecurity services and software and
associated commissions due to the increased sales. The increase in
selling expenses from the hiring of new personnel was offset by
approximately $193,000 for capitalized labor relating to software
development costs.
Operating
Income (Loss)
The
decrease in our operating income from the previous year is
principally attributable to the growth of our sales team and the
associated costs as well as professional fees incurred for the nine
months ended September 30, 2020 as compared to 2019.
Interest
Expense
The
increase in interest expense is principally attributable to the
non-cash options expense issued for loan financing consideration of
$52,900 offset by the effect of decreasing interest rates from the
last year as well as the reduced need for factoring due to the
receipt of the Payroll Protection Plan loan (“PPP
Loan”).
Net
Loss
The
increase is attributable to the items discussed above for the three
and nine months ended September 30, 2020 as compared to
2019.
Liquidity and Capital Resources
At
September 30, 2020, we had cash of $206,704 available for working
capital needs and planned capital asset expenditures. At September
30, 2020, we had a working capital deficit of $2,430,193 and a
current ratio of .34.
During
2020, until we received
the PPP Loan, we financed our business activities principally
through cash flows provided by operations and sales with recourse
of our accounts receivable. Our primary source of liquidity is cash
provided by collections of accounts receivable and our factoring
line of credit. We maintain an accounts
receivable financing line of credit with an independent financial
institution that allows us to sell selected accounts receivable
invoices to the financial institution with full recourse against us
in the amount of $2,000,000, including a sublimit for one major
client of $1,500,000. This provided us with the cash needed to
finance certain of our on-going costs and expenses. At September
30, 2020, we had financing availability, based on eligible accounts
receivable, of approximately $421,000 under this line. We paid fees
based on the length of time that the invoice remained
unpaid.
On
April 10, 2020, we 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 provides funding for working capital to the Company in the
amount of $957,372 and is restricted to certain uses and cannot be
used to repay debt. The interest rate on the Note is fixed at 1.00%
and the payments of principal and interest shall be deferred to
July 21, 2021. Interest shall continue to accrue. The Act
(including the guidance issued by SBA and U.S. Department of the
Treasury related thereto) provides that all or a portion of this
Note may be forgiven upon request from Borrower to Lender, subject
to requirements in the Note and Act. All remaining principal and
accrued interest is due and payable two (2) years from date of
Note. The Company believes it has used the funds per the Act and
will submit an application for 100% forgiveness of the loan during
the fourth quarter of 2020. However, based on the uncertainty of
the application review process, the full amount continues to be
recorded as a liability as of September 30, 2020.
We
entered into unsecured lines of credit financing agreement (the
“LOC Agreements”) with three related parties in
previous years. The LOC Agreements provide for working capital of
up to $100,000 through July 31, 2022 and $75,000 through January 2,
2023. At September 30, 2020, we had $15,000 of availability under
these LOC Agreements.
At
September 30, 2020, we have current notes payable of $262,500 to
third parties, which includes convertible notes payable of
$250,000. Also included is $12,500 in principal amount of a note
payable due on June 30, 2016 but not paid. 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.
We have
$695,000 of current maturities of long-term obligations to third
parties. This is comprised of a long-term obligation of
approximately $246,000 to the Pension Benefit Guaranty Corporation
(the PBGC) with all principal due by September 15, 2018, which the
due date has not been extended. We also 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 $175,000 due on
August 31, 2018, which have not been renewed or amended. There is
also a separate note for $9,000 due on January 1,
2021.
We also
have current maturities of our long-term debt to related parties of
approximately $529,000 of which approximately $503,000 was due on
January 1, 2020 and has not been extended. Also included is a note
payable for $25,000 due to an officer of the Company which is due
on March 31, 2021. We also have a short-term note due to a related
party for $20,000.
We paid
off a demand note for $34,000 to a related party in the third
quarter.
We plan
to renegotiate the terms of the various notes payable, seek funds
to repay the notes or use a combination of both
alternatives. We cannot
provide assurance that we will be able to repay current notes
payable or obtain extensions of maturity dates for long-term notes
payable when they mature or that we will be able to repay or
otherwise refinance the notes at their scheduled
maturities.
We
cannot provide assurance that we will be able to repay current
notes payable or obtain extensions of maturity dates for long-term
notes payable when they mature or that we will be able to repay or
otherwise refinance the notes at their scheduled
maturities.
We have
a long-term obligations to a third party of $500,000 due on
December 31, 2021. We also have approximately $166,000 due to a
third party due on August 24, 2024.
We have
a LOC Agreement which was entered into on September 17, 2017 and
provides for working capital of up to $75,000 with interest at 6%
due quarterly through January 2, 2023. The balance is $70,000 at
September 30, 2020.
We have
an unsecured line of credit financing agreement with our Chief
Operating Officer. It provides for working capital of up to
$100,000 with an interest rate of prime plus 1.5% due quarterly
through July 31, 2022. The balance is $90,000 at September 30,
2020.
We have
a note payable agreement for up to $500,000 with a related party.
The note has an interest rate of 7.5% and is due on August 31,
2026. The balance is $200,000 at September 30, 2020.
The
following table sets forth our cash flow information for the
periods presented:
|
|
Nine
Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
Net cash used by
operating activities
|
$(341,674)
|
$(145,554)
|
|
Net cash used by
investing activities
|
(201,156)
|
(1,945)
|
|
Net cash provided
by financing activities
|
743,136
|
149,950
|
|
Net increase in
cash
|
$200,306
|
$2,451
|
Cash
Flows Used by Operating Activities
Our
operating cash flow is primarily affected by the overall
profitability of our contracts, our ability to invoice and collect
from our clients in a timely manner, and our ability to manage our
vendor payments. We bill our clients weekly or monthly after
services are performed as well as collect down payments depending
on the contract terms. Our net loss of $187,735 for 2020 was offset
in part by non-cash expenses of $175,013. In addition, an increase
in accounts receivable and other assets of $541,499, offset by an
increase in accrued payroll, deferred revenue and other expenses
payable of $161,532 and in accounts payable of $51,015 resulting in
cash used by operating activities of $341,674.
We
market Webroot and Nodeware to our IT channel partners who resell
to their customers. We continue to make investments in expanding
our sales of cyber security and Nodeware licenses to a growing
channel and direct commercial customers. Due to the time of
investment in cultivating relationships with our channel partners
and end customers needed to generate these new sales, we do not
expect to realize a return from our sales and marketing efforts for
one or more quarters. As a result, we may continue to experience
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 by Investing Activities
Cash
used by investing activities was $201,156 during the nine months
ended September 30, 2020. It was primarily for capitalization of
software development costs as well as computer hardware for new
employees.
Cash
Flows Provided by Financing Activities
Cash
provided by financing activities was $743,136 for the nine months
ended September 30, 2020 consisted of proceeds from the PPP Loan
offset by principal repayments to related parties and another
debtholder.
Credit Resources
We
received approximately $957,000 from the PPP Loan in the
2nd
quarter of 2020. The proceeds from the loan have been used for
payroll expenses as well as certain other allowable expenses. The
loan should be forgiven by the end of 2020 or early 2021. The
proceeds also allowed us to not factor our accounts receivable as
noted below.
We
believe the capital resources available currently as well as under
our factoring line of credit, cash from additional related party
and third-party loans and cash generated by improving the results
of our operations provide sources to fund our ongoing operations
and to support our internal growth. Although we have no assurances,
we believe that related parties, who have previously provided
working capital, and third parties will continue to provide working
capital loans on similar terms, as in the past, as may be necessary
to fund our on-going in the future, however, substantial doubt
about our ability to continue as a going concern has not been
alleviated. If we experience significant growth in our sales, we
believe that this may require us to increase our financing line,
finance additional accounts receivable, or obtain additional
working capital from other sources to support its sales
growth.
We plan
to evaluate alternatives which may include renegotiating the terms
of our notes, seeking conversion of the notes to shares of common
stock and seeking funds to repay our notes. We continue to evaluate
repayment of our notes payable based on our cash flow.
Item 3. Quantitative and
Qualitative Disclosures About Market Risk
As a
smaller reporting company, we are not required to provide the
information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our
management, with the participation of our chief executive officer
and chief financial officer, carried out an evaluation of the
effectiveness of our “disclosure controls and
procedures” (as defined in the Securities Exchange Act of
1934 (the “Exchange Act”) Rules 13a-15(e) and
15-d-15(e)) as of the end of the period covered by this report (the
“Evaluation Date”). Based upon that evaluation, the
chief executive officer and chief financial officer concluded that
as of the Evaluation Date, our disclosure controls and procedures
are effective to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act
(i) is recorded, processed, summarized and reported, within the
time periods specified in the SEC’s rules and forms and (ii)
is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate
to allow timely decisions regarding required
disclosure.
Changes in Internal Control over Financial Reporting. There
were no changes in our internal control over financial reporting
that occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are
not currently a party to any lawsuit or proceeding which, in the
opinion of management, is likely to have a material adverse effect
on us or our business.
Item 1A. Risk Factors
The COVID-19 pandemic could have a material adverse effect on our
results of operations, financial position, and cash
flows.
The
COVID-19 pandemic has created significant uncertainty and economic
disruption. Effects of the COVID-19 pandemic that may
negatively impact our business in future periods include, but are
not limited to: limitations on the ability of our customers to
conduct their business, purchase our products and services, and
make timely payments; curtailed consumer spending; deferred
purchasing decisions; delayed consulting services implementations;
and decreases in cybersecurity services and software license
revenues driven by channel partners.
Item 6. Exhibits
Exhibits
required to be filed by Item 601 of Regulation S-K.
For the
exhibits that are filed herewith or incorporated herein by
reference, see the Index to Exhibits located below in this report.
The Index to Exhibits is incorporated herein by
reference.
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
Infinite
Group, Inc.
(Registrant)
|
|
Date:
November 12, 2020
|
/s/
James Villa
|
|
|
James
Villa
|
|
|
Chief
Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
Date:
November 12, 2020
|
/s/
Donald Reeve
|
|
|
Donald
Reeve
|
|
|
Chairman
|
|
|
|
|
Date:
November 12, 2020
|
/s/
Richard Glickman
|
|
|
Richard
Glickman
|
|
|
VP
Finance and Chief Accounting Officer
|
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
INDEX TO EXHIBITS
|
|
Exhibit No.
|
Description
|
|
|
|
|
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.
|
|
EXHIBIT 31.1
CERTIFICATION
I,
James Villa, certify that:
1. I
have reviewed this quarterly report on Form 10-Q 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 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:
November 12, 2020
/s/
James Villa
James
Villa
Chief
Executive Officer
(Principal
Executive Officer)
EXHIBIT 31.2
CERTIFICATION
I,
Richard Glickman, certify that:
1. I
have reviewed this quarterly report on Form 10-Q 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 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:
November 12, 2020
/s/
Richard Glickman
Richard
Glickman
VP
Finance and Chief Accounting Officer
(Principal
Financial and Accounting Officer)
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 quarterly report of Infinite Group, Inc.
(the "Company") on Form 10-Q for the period ending September 30,
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: November 12, 2020
__/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 quarterly report of Infinite Group, Inc.
(the "Company") on Form 10-Q for the period ending September 30,
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: November 12, 2020
__/s/ Richard
Glickman
Richard Glickman
VP Finance and Chief Accounting Officer
(Principal Financial and Accounting Officer)