INFINITE GROUP INC - Annual Report: 2020 (Form 10-K)

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

 

Infinite Group, Inc.

175 Sully’s Trail, Suite 202

Pittsford, NY 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 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.

 

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 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

 

INFINITE GROUP, INC.
Form 10-K
TABLE OF CONTENTS
PART I			Page
	Item 1.	Business	3
	Item 1A.	Risk Factors	6
	Item 1B.	Unresolved Staff Comments	9
	Item 2.	Properties	10
	Item 3.	Legal Proceedings	10
	Item 4.	Mine Safety Disclosures	10
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
	Item 6.	Selected Financial Data	10
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	15
	Item 8.	Financial Statements and Supplementary Data	15
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	15
	Item 9A.	Controls and Procedures	15
	Item 9B.	Other Information	15
PART III.
	Item 10.	Directors, Executive Officers and Corporate Governance	16
	Item 11.	Executive Compensation	17
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	18
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	21
	Item 14.	Principal Accountant Fees and Services	22
PART IV.
	Item 15.	Exhibits and Financial Statement Schedules	22
		Signatures	25

 

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.

 

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:

 

 

 

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.

 

 

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:

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.

 

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.

 

 

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:

 

 

 

 

 

 

 

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.

 

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.

 

 

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.

 

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:

 

 

  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.

 

 

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:

 

 

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.

 

 

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)

 

 

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.

 

 

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.

 

 

 

 

 

 

 

 

 

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.

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

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:

 

 

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:

 

 

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.

 

 

 

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.

 

 

 

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.

 

 

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.

 

 

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)

3.2	Certificate of Amendment of Certificate of Incorporation dated December 31, 1997. (3)

3.3	Certificate of Amendment of Certificate of Incorporation dated February 3, 1999. (4)

3.4	Certificate of Amendment of Certificate of Incorporation dated February 28, 2006. (6)

3.5	By-Laws of the Company. (1)

4.1	Specimen Stock Certificate. (1)

10.1	**2005 Stock Option Plan. (2)

10.2	**2009 Stock Option Plan. (9)

10.3	Form of Stock Option Agreement. (1)

10.4	Promissory Note dated August 13, 2003 in favor of Carle C. Conway. (5)

10.5	Promissory Note dated January 16, 2004 in favor of Carle C. Conway. (5)

10.6	Promissory Note dated March 11, 2004 in favor of Carle C. Conway. (5)

10.7	Promissory Note dated December 31, 2003 in favor of Northwest Hampton Holdings, LLC. (5)

10.8	Modification Agreement No. 3 to Promissory Notes between Northwest Hampton Holdings, LLC and the Company dated October 1, 2005. (6)

10.9	Modification Agreement No. 3 to Promissory Notes between Allan Robbins and the Company dated October 1, 2005. (6)

10.10

Modification Agreement to Promissory Notes between the Company and Carle C. Conway dated December 31, 2005. (6)

10.11

Modification Agreement to Promissory Note between Northwest Hampton Holdings, LLC and the Company dated December 6, 2005. (6)

10.12

Collateral Security Agreement between the Company and Northwest Hampton Holdings, LLC dated February 15, 2006. (6)

10.13

Collateral Security Agreement between the Company and Allan Robbins dated February 15, 2006. (6)

10.14

Purchase and Sale Agreement between the Company and Amerisource Funding, Inc. dated May 21, 2004. (7)

10.15

Account Modification Agreement between the Company and Amerisource Funding, Inc. dated August 5, 2005. (7)

10.16

Promissory Note dated June 13, 2008 in favor of Dan Cappa. (9)

10.17	Promissory Note between Northwest Hampton Holdings, LLC and the Company dated September 30, 2009. (10)
10.18	Modification Agreement to Promissory Notes between the Company and Carle C. Conway dated December 31, 2009. (10)
10.19	Demand Promissory Note between Allan M. Robbins and the Company dated August 13, 2010. (12)
10.20	Settlement Agreement between the Company and the PBGC, effective as of September 1, 2011. (14)
10.21	Agreement for Appointment of Trustee and Termination of Plan between the Company and the PBGC, effective as of November 1, 2011. (15)

10.22	Promissory Note in favor of the PBGC dated October 17, 2011. (15)
10.23	Modification Agreement to Promissory notes between the Company and Carle C. Conway dated December 31, 2012. (16)
10.24	Line of Credit Note Agreement between the Company and Donald W. Reeve dated December 1, 2014. (17)
10.25	Stock Option Agreement between the Company and Donald W. Reeve dated September 5, 2013. (18)
10.26	Stock Option Agreement between the Company and Donald W. Reeve dated December 1, 2014. (17)
10.27	Software Assets Purchase Agreement between the Company and UberScan, LLC and Christopher B. Karr and Duane Pfeiffer. (18) #
10.28	Promissory Note and Security Agreement between the Company and UberScan, LLC. (18)
10.29	Modification Agreement to Promissory Notes between the Company and Carle C. Conway dated December 31, 2014. (18)
10.30	Promissory Note between Andrew Hoyen and the Company dated February 12, 2015. (18)
10.31	Amendment to Promissory Note between the Company and Dan Cappa dated August 24, 2015. (19)
10.32	Amendment to Promissory Note between the Company and UberScan, LLC dated October 6, 2015. (19)
10.33	Amendment to Promissory Note between the Company and Allan Robbins dated December 31, 2015 (23)
10.34	Amendment to Promissory Note between the Company and Northwest Hampton Holdings, LLC dated December 31, 2015 (23)
10.35	Promissory Note between the Company and James Leonardo Managing Member of a Limited Liability Corporation to be formed dated March 14, 2016 (23)
10.36	Modification Agreement to Line of Credit Agreement between the Company and Donald W. Reeve dated September 30,2016 (20)
10.37	Stock Option Agreement between the Company and Donald W. Reeve dated September 30, 2016. (20)
10.38	Line of Credit and Note Agreement between the Company and Andrew Hoyen dated July 18, 2017 (21)
10.39	Stock option agreement between the Company and Andrew Hoyen dated July 18, 2017 for 400,000 common shares (21)
10.40	Stock option agreement between the Company and Andrew Hoyen dated July 18, 2017 for 100,000 common shares (21)
10.41	Line of Credit and Note Agreement between the Company and Harry Hoyen dated September 21, 2017 (22)
10.42	Amendment to Promissory Note between the Company and Allan Robbins dated November 30, 2016 (23)
10.43	Amendment to Promissory Note between the Company and Northwest Hampton Holdings, LLC dated December 8, 2016. (23)
10.44	Modification #1 to Line of Credit Note and Agreement between Harry Hoyen and the Company dated December 28, 2017. (23)
10.45	Stock option agreement between the Company and Harry Hoyen dated December 28, 2017 for 400,000 common shares. (23)
10.46	Note Payable Agreement between the Company and Harry A. Hoyen III IRA dated May 7, 2019 (24)
10.47	Stock option agreement between the Company and Harry A. Hoyen III dated May 14, 2019 (24)
10.48	**2019 Stock Option Plan (25)
10.49	Stock option agreement between the Company and Andrew Hoyen dated December 10, 2019. (26)
10.50	Stock Option Agreement between the Company and Donald W. Reeve dated December 23, 2019. (26)
10.51	Stock Option Agreement between the Company and James Villa dated December 23, 2019. (26)
10.52	Stock option agreement between the Company and Andrew Hoyen dated December 23, 2019. (26)
10.53	Small Business Administration Note Payable Agreement with Upstate Bank (27)
10.54	**2020 Stock Option Plan (27)
10.55	Amendment to Promissory Note between the Company and Northwest Hampton Holdings, LLC dated November 17, 2020. *
10.56	Promissory Note between Donald Reeve and the Company dated December 30, 2020. *
31.1	Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	Chief Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. *
32.1	Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. *
32.2	Chief Financial Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. *

 

101.INS XBRL Instance Document. *
101.SCH	XBRL Taxonomy Extension Schema Document. *
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document. *
101.LAB	XBRL Taxonomy Extension Label Linkbase Document. *
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document. *
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document. *

 

* Filed as an exhibit hereto.

**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.

(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.

(23) Incorporated by reference to the Company's Current report on Form 10-K for the fiscal year ended December 31, 2017.

 

 

Information required by schedules called for under Regulation S-X is either not applicable or is included in the financial statements or notes thereto.

 

 

 

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

 

 

 

 

 

 

 

 

FINANCIAL STATEMENTS

 

INFINITE GROUP, INC.

 

 

DECEMBER 31, 2020

with

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

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

 

 

 

 

 

 

 

 

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)

 

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