FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Six Month Period Ended June 30, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-21816
INFINITE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1490422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2364 Post Road, Warwick, RI 02886
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (401) 738-5777
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|X| No ___
As of August 14, 2002 there were 6,270,125 shares of the registrant's common
stock, par value $0.001 per share, outstanding.
Transitional Small Business Disclosure Format: Yes |_| No |X|
1
INFINITE GROUP, INC.
Form 10-QSB
INDEX
Page
----
PART I. Unaudited Consolidated Financial Statements
Item 1. Consolidated Balance Sheets- June 30, 2002 and December 31, 2001............2
Consolidated Statements of Operations - Three Months and Six Months
Ended June 30, 2002 and 2001................................................3
Consolidated Statements of Cash Flows -Six Months
Ended June 30, 2002 and 2001................................................4
Notes to Consolidated Financial Statements..................................5
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations........................................8
PART II. OTHER INFORMATION
Items 1-6 ............................................................................17
SIGNATURES ............................................................................18
1
INFINITE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2002 2001
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 587,833 $ 130,242
Restricted funds 906,845 86,318
Accounts receivable, net of allowance 1,154,581 1,498,463
Inventories 131,265 129,824
Other current assets 591,762 112,728
Assets of discontinued operations 631,606 2,566,674
------------ ------------
Total current assets 4,003,892 4,524,249
Property and equipment, net 4,207,252 4,463,122
Other assets:
Prepaid - other 453,500
Note receivable 150,000 --
Prepaid pension costs 869,673 904,673
Intangible assets, net 1,008,599 1,045,959
------------ ------------
Total other assets 2,481,772 1,950,632
------------ ------------
$ 10,692,916 $ 10,938,003
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable:
Bank $ 259,041 $ 282,206
Stockholders/ officers 101,906 124,906
Accounts payable 1,260,447 1,146,016
Accrued expenses 627,869 708,762
Current maturities of long-term obligations 289,878 841,878
Current maturities of long-term obligations - stockholders -- 120,000
Liabilities of discontinued operations 1,605,818 2,986,904
------------ ------------
Total current liabilities 4,144,959 6,210,672
Long term obligations 3,717,983 2,586,696
Stockholders' equity
Common stock, $.001 par value, 20,000,000
shares authorized 6,270,125 and 5,119,047
shares issued and outstanding 6,270 5,119
Additional paid-in capital 27,716,631 25,585,864
Accumulated deficit (24,892,927) (23,450,348)
------------ ------------
Total stockholders' equity 2,829,974 2,140,635
------------ ------------
$ 10,692,916 $ 10,938,003
============ ============
See accompanying notes to unaudited consolidated financial statements.
2
INFINITE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
(As Restated) (As Restated)
Sales $ 3,007,700 $ 2,018,750 $ 5,214,823 $ 4,088,133
Cost of goods sold 2,542,996 1,369,601 4,299,978 2,754,361
----------- ----------- ----------- -----------
Gross profit 464,704 649,149 914,845 1,333,772
Costs and expenses:
General and administrative 709,124 750,727 1,321,133 1,212,618
Depreciation and amortization 256,849 177,294 456,849 354,011
Selling 68,595 73,515 149,082 172,229
Research and development 17,722 184,114 86,788 184,114
----------- ----------- ----------- -----------
Total costs and expenses 1,052,290 1,185,650 2,013,852 1,922,972
----------- ----------- ----------- -----------
Operating loss (587,586) (536,501) (1,099,007) (589,200)
Other income (expense)
Interest expense:
Stockholder (5,021) (29,887) (9,593) (60,986)
Other (81,638) (105,984) (158,089) (230,728)
Gain (loss) on dispositions of assets (80,635) -- 56,782 --
Interest income 9,252 714 9,654 2,934
Other expense (17,636) -- (19,069) --
----------- ----------- ----------- -----------
Total other income (expense) (175,678) (135,157) (120,315) (288,780)
----------- ----------- ----------- -----------
Loss from continuing operations before
income tax expense (763,264) (671,658) (1,219,322) (877,980)
Income tax expense (3,640) -- (7,390) --
----------- ----------- ----------- -----------
Loss from continuing operations (766,904) (671,658) (1,226,712) (877,980)
Gain (loss) from discontinued operations, including
$275,520 and $215,154 loss on disposal in the three
and six months ended June 30, 2002 (Note 4) (275,520) 25,252 (215,867) (147,619)
----------- ----------- ----------- -----------
Net loss $(1,042,424) $ (646,406) $(1,442,579) $(1,025,599)
=========== =========== =========== ===========
Income (loss) per share - basic and diluted:
Continuing operations $ (0.13) $ (0.17) $ (0.21) $ (0.23)
Discontinued operations $ (0.05) $ 0.01 $ (0.04) $ (0.04)
----------- ----------- ----------- -----------
Net loss $ (0.18) $ (0.16) $ (0.25) $ (0.27)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding- basic and diluted 5,886,792 4,067,387 5,709,693 3,789,696
=========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
3
INFINITE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
June 30, June 30,
2002 2001
---- ----
(As Restated)
Operating activities:
Net loss $(1,442,579) $(1,025,599)
Adjustments to reconcile net loss to net cash
used in operating activities of continuing operations:
Loss from discontinued operations 215,867 147,619
Depreciation and amortization 456,849 354,011
Amortization of discount on note payable 25,475 17,217
Expenses satisfied via issuance of equity instruments 138,148 --
Gain on dispositions of assets (56,782) --
(Increase) decrease in assets:
Accounts receivable 343,882 (286,411)
Inventories (1,441) 35,452
Other current assets (4,314) (47,768)
Prepaid pension cost 35,000 20,000
Increase in liabilities:
Accounts payable and accrued liabilities 35,805 372,101
----------- -----------
Net cash used in operating activities of continuing operations (254,090) (413,378)
Net cash provided by operating activities of discontinued operations 27,775 253,323
----------- -----------
Net cash used in operating activities (226,315) (160,055)
Investing activities:
Decrease in restricted funds for asset addition, net 78,370 68,999
Purchase of property and equipment (247,750) (369,721)
Purchase of intangible assets (66,254) (261,990)
Proceeds from the sale of assets 270,000 --
----------- -----------
Net cash provided by (used in) investing activities of continuing operations 34,366 (562,712)
Net cash provided by (used in) investing activities of discontinued operations 990,602 (4,116)
----------- -----------
Net cash provided by (used in) investing activities 1,024,968 (566,828)
Financing activities:
Net (repayments) borrowings of bank notes payable (23,165) (133,814)
Proceeds from notes payable - stockholders/officers -- 90,000
Repayment of notes payable - stockholders/officers (23,000) --
Proceeds from the issuance of convertible notes payable, net of costs 1,374,000 --
Increase in restricted funds for financing proceeds, net (898,897) --
Repayments of long-term obligations (290,315) (207,077)
Repayments of long-term obligations - stockholder -- (7,229)
Proceeds from the issuance of common stock, net of expenses 256,132 907,648
----------- -----------
Net cash provided by financing activities of continuing operations 394,755 649,528
Net cash provided by (used in ) financing activities of discontinued operations (735,817) 5,886
----------- -----------
Net cash provided by (used in ) financing activities (341,062) 655,414
----------- -----------
Net increase (decrease) in cash and cash equivalents 457,591 (71,469)
Cash and cash equivalents - beginning of period 130,242 185,901
----------- -----------
Cash and cash equivalents - end of period $ 587,833 $ 114,432
=========== ===========
Supplemental continuing operations cash flow disclosures: Cash paid (received)
for:
Interest $ 145,739 $ 212,795
=========== ===========
Income taxes (110) 5,965
=========== ===========
See notes to unaudited consolidated financial statements.
4
INFINITE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Infinite Group, Inc.
(the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. The quarterly consolidated financial
statements are unaudited. Operating results for the six-month period ended June
30, 2002 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2002. For further information, refer to the
Company's amended Annual Report on Form 10-KSB/A for the year ended December 31,
2001, which includes audited financial statements and footnotes as of and for
the years ended December 31, 2001 and 2000.
NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
Following is the Company's accounting policy relating to accounts
receivable, disclosed beginning in 2002 in accordance with AICPA Statement of
Position 01-6 "Accounting by Certain Entities (Including Entities with Trade
Receivables) that Lend to or Finance the Activities of Others". There has been
no change in the Company's accounting policy resulting from this disclosure.
The Company carries its accounts receivable at cost less an allowance for
doubtful accounts. On a periodic basis, the Company evaluates its accounts
receivable and establishes an allowance for doubtful accounts, based on a
history of past write-offs and collections and current credit conditions.
The Company's policy is not to accrue interest on trade receivables after
the invoice becomes past due. A receivable is considered past due if payments
have not been received by the Company after a significant amount of time has
past after the invoice due date. After the Company has exhausted its collection
efforts on a past due accounts receivable, the Company will turn the account
over to collections. Once the account is turned over for collections, the
Company will write the account off as uncollectable. If a payment is made after
it has been turned over for collection and written-off, the Company will reapply
the payment to the amount written-off.
NOTE 3. - RECLASSIFICATIONS
Certain amounts in the 2001 financial statements have been reclassified to
conform with the 2002 financial statement presentation.
NOTE 4. - DISCONTINUED OPERATIONS
In the fourth quarter of 2001, the Company's Board of Directors resolved
to dispose of Osley & Whitney (O&W) and Express Pattern (EP). These two
subsidiaries represented the Company's Plastics Group segment. The formal plan
consisted of shutting down the operations of the O&W subsidiary and selling the
net assets of the EP subsidiary.
Effective November 30, 2001, the Company shut down the operations of O&W
and terminated all the employees. During 2002, the Company continued to
liquidate the assets of its Osley & Whitney (O&W) subsidiary following the
discontinuance of its operation in November 2001. During the first quarter of
2002, all of the inventory and equipment of O&W were sold at auction, resulting
in net proceeds of approximately $416,000 and a gain of approximately $27,000.
The O&W land and building were sold at auction in July 2002 for $650,000 and the
transaction closed on August 8, 2002, resulting in a net loss of approximately
$151,000, including estimated closing costs. The carrying value of the land and
building was reduced by this amount as of June 30, 2002. This closing completes
the liquidation of the O&W assets, resulting in a net obligation to the secured
lender, including accrued
5
interest and closing expenses, of approximately $200,000. The Company guaranteed
the obligation of O&W to the secured lender. Accordingly, the Company will
assume that remaining outstanding balance. The secured lender has tentatively
agreed to convert the balance into a term loan amortizing monthly based upon a
seven year amortization schedule, with a balloon payment due eighteen months
from issuance. It is anticipated that this transaction will be documented during
the third quarter of 2002.
In addition to the above transaction, during the quarter ended June 30,
2002, O&W recorded an additional reserve for uncollectable receivables and
recognized additional obligations to creditors in the aggregate amount of
$124,000.
On March 14, 2002, the Company sold the net assets of its Express Pattern
subsidiary for $725,000, consisting of $575,000 in cash (of which $300,000 was
paid to the O&W secured lender) and a five-year 8% subordinated $150,000 note,
due upon maturity with quarterly interest payments. The purchasers included a
former employee of Express Pattern and, the Company's chief operating officer,
who is a passive investor in the purchasing entity. The sale was negotiated at
"arm's length" by disinterested management with the former employee and his
financier. The gain resulting from this transaction amounted to approximately
$45,000.
In accordance with FAS 144, the disposal of the Plastics Group has been
accounted for as a disposal of a business segment and accordingly, the assets
and liabilities of O&W and EP have been segregated from the continuing
operations in the accompanying consolidated balance sheets as of June 30, 2002
and December 31, 2001 and classified as assets/liabilities of discontinued
operations. The operating results are segregated and reported as discontinued
operations in the accompanying consolidated statements of operations and cash
flows. The accompanying statement of operations and cash flows for the quarter
ended June 30, 2001 have been restated to present separately the operating
results and cash flows of these discontinued operations.
The following is the summary of the financial position as of June 30, 2002
and December 31, 2001 for the disposed Plastics segment (O&W and EP):
June 30, December 31,
2002 2001
---- ----
Current assets $ 21,606 $ 580,799
Property and equipment, net 610,000 1,985,875
---------- ----------
Assets of discontinued operations $ 631,606 $2,566,674
========== ==========
Secured bank obligations $ 814,221 $1,550,038
Accounts payable and accrued expenses 791,597 963,646
Capital lease obligations -- 473,220
---------- ----------
Liabilities of discontinued operations $1,605,818 $2,986,904
========== ==========
The following is a summary of the results of operations for the quarters
ending June 30, 2002 and 2001 for the disposed Plastics segment (O&W and EP):
Three Months Ended June 30,
2002 2001
---- ----
Revenue $ -- $1,839,484
========= ==========
Income from discontinued operations $ -- $ 15,252
Loss on disposal of discontinued operations (275,520) --
--------- ----------
Net (loss) income from discontinued
operations $(275,520) $ 15,252
========= ==========
Six Months Ended June 30,
2002 2001
---- ----
Revenue $ 317,453 $3,179,843
========= ==========
Loss from discontinued operations $ (713) $ (157,619)
Loss on disposal of discontinued operations (215,154) --
--------- ----------
Net loss from discontinued operations $(215,867) $ (157,619)
========= ==========
6
NOTE 5. - SALE OF ASSETS
On March 28, 2002, the Company sold all of the property and equipment of
its Mound Laser and Photonics Center subsidiary, including customer lists, to a
third party and ceased operations of this subsidiary. The sale price of $300,000
consisted of cash of $270,000 and a $30,000 promissory note, which bears
interest at 8% and is due in July 2002. This note receivable is included in
other current assets at June 30, 2002. The transaction resulted in a gain of
approximately $137,000.
NOTE 6. - LONG TERM OBLIGATIONS
On January 4, 2002, the Company entered into a securities purchase
agreement (the "Agreement") with the estate of a former stockholder of O&W (the
"Estate"), which was amended and restated during the quarter ended June 30,
2002. In accordance with the Agreement, as revised, the Estate purchased 379,253
shares of the Company's common stock, which were paid for by the cancellation of
certain indebtedness of the Company to the Estate amounting to $758,507 (the
"Indebtedness"). The Indebtedness related to past due consulting fees,
outstanding debt and related accrued interest owed to the Estate by the Company
at December 31, 2001, and fees incurred by the Estate relating to the Agreement.
The original provision of the Agreement, which provided the Company with an
option to repurchase certain of the shares and the Estate with the option to
sell certain of the shares back to the Company, was eliminated in the amended
and restated agreement. As a result, the Company is no longer obligated for the
Indebtedness and it has recorded the purchase of the securities as an increase
in equity in the accompanying balance sheet.
On February 5, 2002, the Company completed a $1 million debt financing
with an investor. The Company received $1 million in cash, less fees amounting
to $89,000, in exchange for its issuance of a $1 million two-year convertible
note bearing interest and fees at the annual rate of 15%, originally payable
quarterly and amended to monthly during the second quarter. The annual fees are
subject to reduction by 1% for every $100,000 in note principal amount
converted, up to an aggregate 10%. The outstanding principal and interest is due
in full on February 5, 2004. The note was originally convertible, upon the
Company's consent, into shares of the Company's common stock at a price of $2.25
per share. During the second quarter the note was modified to reduce the
conversion price to $2.00 per share and to provide for its convertibility into
shares of the Company's common stock at the option of the holder. In the event
of a default by the Company, the conversion price is subject to downward
adjustment. The proceeds from this note are held in a secured deposit account.
Withdrawals from this account are restricted to funding expenses for work under
the Defense Advanced Research Projects Agency (DARPA) contract and for the
growth of accounts receivable with commercial customers in the operation of the
Company's Photonics subsidiary. The account balance as of June 30, 2002 amounted
to $898,897 and is included in restricted funds in the accompanying balance
sheet. The note is secured by this restricted account, the accounts receivable
under the DARPA contract, and substantially all other assets of the Company and
its Infinite Photonics, Inc. subsidiary. In connection with this transaction,
detachable warrants to purchase 50,000 shares of the common stock of the Company
at $2.65 per share were issued to the investor. The exercise price of the
detachable warrants was reduced to $2.40 per share during the second quarter.
The warrants were immediately exercisable and expire five years from the date of
grant. A portion of the proceeds, amounting to approximately $53,000, was
allocated to the warrants and is reflected as additional paid-in capital and as
a note discount. The warrant value was determined using the Black-Scholes
option-pricing model. The note discount is being amortized to interest expense
over the term of the note.
On June 21, 2002, the Company completed an additional $500,000 debt
financing with the same investor. The Company received $500,000 in cash, less
fees amounting to $37,000, in exchange for its issuance of a $500,000 two-year
convertible note bearing interest and fees at the annual rate of 15% payable
monthly. The proceeds from this note are unrestricted. The annual fees are
subject to reduction by 1% for every $50,000 in note principal amount converted,
up to an aggregate 10%. This note is convertible into share of the Company's
common stock at the option of the holder at a price of $2.00 per share. In the
event of a default by the Company, the conversion price is subject to downward
adjustment. In connection with this transaction, detachable warrants to purchase
25,000 shares of the common stock of the Company at $2.40 per share were issued
to the investor. The warrants were immediately exercisable and expire five years
from the date of grant. A portion of the proceeds of the note amounting to
approximately $25,000 has been
7
allocated to the warrants and is reflected as additional paid-in capital and as
a note discount. The warrant value was determined using the Black-Scholes
option-pricing model. The note discount is being amortized to interest expense
over the term of the note.
NOTE 7. - STOCKHOLDERS' EQUITY
During the quarter ended March 31,2002, the Company issued 75,000 shares
of common stock to accredited investors at a price of $2.00 per share, resulting
in proceeds of $150,000.
During the quarter ended March 31, 2002, employee stock options were
exercised, resulting in the issuance of 3,786 shares of common stock. Total
consideration resulting from these exercised options amounted to $6,132.
The Company issued 24,100 shares of common stock during the quarter ended
March 31, 2002 as satisfaction of outstanding payroll related liabilities
amounting to $51,333. The fair market value of the shares issued equaled the
amount of the recorded liability.
During the quarter ended March 31, 2002, the Company granted warrants to
purchase 200,000 shares of common stock in satisfaction of outstanding
liabilities arising from consulting services amounting to $58,826. The warrants
are exercisable at $3.00 per share, vest immediately and expire three years from
the date of grant.
On June 18, 2002, the Company entered into an agreement with a consulting
firm to provide investor and public relations services over a two-year period.
Under the agreement, the consulting firm is required to expend up to $500,000 in
furtherance of the Company's investor and public relations programs. As
consideration for these services, the Company issued the consulting firm 500,000
shares of it common stock in a private placement transaction valued at $750,000,
which is being amortized ratably over the 24-month life of the agreement. The
prepaid consulting fees are included in other current assets and other
assets-prepaid other in the accompanying balance sheet at June 30, 2002.
During the quarter ended June 30, 2002, convertible notes payable to
former O&W shareholders, along with accrued interest and other outstanding
liabilities, aggregating $129,600, were converted into 68,936 shares of the
Company's common stock.
NOTE 8. - DIRECTOR / OFFICER RESIGNATION
On June 27, 2002, a director/officer of the Company retired, but continues
to be affiliated with the Company pursuant to a consulting agreement. This
agreement defines the services to be provided by the consultant as those similar
to when he was as employee and provides for payments aggregating $148,220 over
its term, which expires January 30, 2005. In addition, the agreement allows
591,619 outstanding Company stock options that the employee holds from when he
was an employee to remain exercisable through the term of the consulting
agreement. As a result of the change in grantee status, the Company is required
to recognize the value of the options as compensation expense over the remaining
vesting term of the options. The value of the options, utilizing the
Black-Scholes pricing model, aggregated approximately $504,000. Certain options
were fully vested as of June 30, 2002, resulting in compensation costs and an
increase in additional paid in capital of approximately $87,000 which is
recognized in the accompanying statement of operations and balance sheet as of
and for the six months ended June 30, 2002, respectively.
NOTE 9. - TERMINATION OF EQUITY LINE OF CREDIT
On July 23, 2002, the Company and Cockfield Holdings Limited (Cockfield)
agreed to terminate the equity line of credit agreement, which was previously
entered into on November 30, 2000. As a result of the termination, the Company
was released, and the Company released Cockfield, from any further obligation
under the terms. Unamortized capitalized costs associated with this transaction,
amounting to $67,269, were charged to expense during the quarter ended June 30,
2002 as a result of the termination.
As consideration for establishing the equity line of credit, the Company granted
Cockfield warrants to purchase up to 200,000 shares of our common stock. As
consideration for the services rendered by a placement agent in connection with
the equity line of credit, the Company granted the placement agent warrants to
purchase up to 100,000 shares of
8
our common stock. These warrants, covering 300,000 shares of our common stock,
are exercisable at any time prior to November 20, 2003, for $3.135 per share and
survived the termination of the agreement.
NOTE 10. - SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing transactions, including non-monetary
exchanges, consist of the following:
2002 2001
--------- ---------
Common stock, issued for prepaid services
to be provided in future periods $ 750,000 $ --
========= =========
Conversion of long-term obligation and related
accrued interest and fees to common stock,
net of capitalized costs written off $ 725,340 $ --
========= =========
Notes receivable issued in connection with
the sale of assets $ 180,000 $ --
========= =========
Conversion of long-term obligations -
stockholders and related accrued interest to
common stock $ 129,600 $ 119,131
========= =========
Value of detachable common stock warrants
issued with long-term obligations $ 103,872 $ --
========= =========
Common stock warrants issued as satisfaction
of accounts payable $ 58,826 $ --
========= =========
Satisfaction of obligations to stockholders and
related accrued interest in lieu of cash
payments as consideration for stock issued $ -- $ 532,340
========= =========
Acquisition of equipment in exchange for
services rendered $ -- $ 287,434
========= =========
NOTE 11. - BUSINESS SEGMENTS
The Company's businesses were organized, managed and internally reported
as three segments. The segments are determined based on differences in products,
production processes and internal reporting. During the year ended December 31,
2001, the Company approved of a plan to discontinue the operations of the
Plastics Group (see Note 4). Going forward, the Company's businesses are
organized, managed and internally reported as two segments.
All of the segments of the Company operate entirely within the United
States. Revenues from customers in foreign countries are minimal. Transactions
between reportable segments are recorded at cost. The Company relies on
inter-segment cooperation and management does not represent that these segments,
if operated independently, would report the results shown.
A summary of selected consolidated information for the Company's industry
segments during the periods ended June 30, 2002 and 2001, respectively, is set
forth as follows:
9
Laser Photonics Plastics Unallocated
Group Group Group Corporate Consolidated
----- ----- ----- --------- ------------
Three Months Ended June 30,2002
Sales to unaffiliated customers $ 1,465,208 $ 1,542,492 $ -- $ -- $ 3,007,700
=========== =========== ========== ========== ============
Operating loss, including corporate
overhead allocation $ (282,642) $ (10,874) $ -- $ (294,070) $ (587,586)
=========== =========== ========== ========== ============
Loss from discontinued operations $ -- $ -- $ (275,520) $ -- $ (275,520)
=========== =========== ========== ========== ============
Three Months Ended June 30, 2001
Sales to unaffiliated customers $ 1,898,951 $ 119,799 $ -- $ -- $ 2,018,750
=========== =========== ========== ========== ============
Operating income (loss), including
corporate overhead allocation $ 66,997 $ (271,147) $ -- $ (332,351) $ (536,501)
=========== =========== ========== ========== ============
Income (loss) from discontinued
operations, including corporate
overhead allocation $ -- $ -- $ (230,604) $ 255,856 $ 25,252
=========== =========== ========== ========== ============
Six Months Ended June 30, 2002
Sales to unaffiliated customers $ 2,994,254 $ 2,220,569 $ -- $ -- $ 5,214,823
=========== =========== ========== ========== ============
Operating income (loss), including
corporate overhead allocation $ (653,914) $ 4,386 $ -- $ (449,479) $ (1,099,007)
=========== =========== ========== ========== ============
Income (loss) from discontinued
operations, including corporate
overhead allocation $ -- $ -- $ (248,763) $ 32,896 $ (215,867)
=========== =========== ========== ========== ============
Six Months Ended June 30, 2001
Sales to unaffiliated customers $ 3,860,151 $ 227,982 $ -- $ -- $ 4,088,133
=========== =========== ========== ========== ============
Operating income (loss), including
corporate overhead allocation $ 175,007 $ (297,199) $ -- $ (467,008) $ (589,200)
=========== =========== ========== ========== ============
Income (loss) from discontinued
operations, including corporate
overhead allocation $ -- $ -- $ (601,932) $ 454,313 $ (147,619)
=========== =========== ========== ========== ============
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-QSB are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 regarding the plans and objectives of management
for future operations. You can identify these forward-looking statements by our
use of the words "believes," "anticipates," "plans," "expects," "may," "will,"
"intends," "estimates" and similar expressions, whether in the negative or
affirmative. Such statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of the
Company 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 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 its 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.
Factors that could cause actual results to differ materially from those
expressed or implied by forward -looking statements include, but are not limited
to, the factors set forth in "Certain Factors That May Affect Future Growth,"
under Part I, Item 1, of the Company's Annual Report on Form 10-KSB/A for the
year ended December 31, 2001 as filed with the Securities and Exchange
Commission. In light of the significant uncertainties inherent in the
forward-looking statements included herein particularly in view of our early
stage operations, the inclusion of such information should not be regarded by us
or any other person that the objectives and plans of the Company will be
achieved.
Overview
We have two business segments, our Laser Group and our Photonics Group.
Our Laser Group provides comprehensive laser-based materials and processing
services (cutting, welding, drilling and assembly) to aerospace, power
generation and medical device customers. Our Photonics Group develops and
markets our grating coupled surface emitting laser (GCSEL) diodes for source and
pump lasers and semiconductor optical amplifiers. Diode lasers and optical
amplifiers are very small semiconductor products used as the laser "light"
source in a variety of defense, telecommunications, material processing and
medical device applications.
Our Laser Group, which had been comprised of Laser Fare, Inc. (LF
-Smithfield, RI) and Mound Laser & Photonics Center, Inc. (MLPC- Miamisburg,
OH), provides comprehensive laser-based materials processing services to leading
manufacturers. In March 2002 we sold MLPC. Our Photonics Group, which includes
Infinite Photonics, Inc. (IP - Orlando, FL) and the Advanced Technology Group,
manufactures and markets our diodes. The operations of MetaTek, Inc. of
Albuquerque, NM and our Narragansett, RI office were merged into Infinite
Photonics, Inc in Orlando, FL.
During 2001 and the first quarter of 2002, we also had a Plastics Group,
which consisted of two subsidiaries, Express Pattern, Inc. (EP) and Osley &
Whitney, Inc. (O&W). Our Plastics Group provided rapid prototyping services and
proprietary mold building services. In November 2001 and December 2001, our
board of directors determined to dispose of O&W and EP, respectively. Our plan
consisted of closing and liquidating O&W and selling the assets of EP. The sale
of EP was consummated on March 14, 2002. The O&W equipment was sold in March
2202. The O&W land and building were sold at auction on July 16, 2002 for
$650,000. The sale closed on August 8, 2002. This closing completes the
liquidation of the O&W assets, resulting in a net obligation to the secured
lender, including accrued interest and closing expenses, of approximately
$200,000. The obligation of O&W to the secured lender was guaranteed by
Infinite. Accordingly, Infinite will assume that remaining outstanding balance.
The secured lender has tentatively agreed with us to convert the balance into a
term loan amortizing monthly based upon a seven year amortization schedule, with
a balloon payment due eighteen months from issuance. It is anticipated that this
note will be executed and delivered during the third quarter 2002.
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During 2001, we continued to experience operating losses, due primarily to
losses in the discontinued Plastics Group, continued weakness in jet engine and
turbine part revenues at our Laser Group, and start-up costs for our Photonics
Group. These losses resulted in reductions in cash flow and a negative working
capital position. We are currently focused on our two primary lines of business
and may from time to time consider additional capital from private equity
sources, strategic alliances, venture capital and investment banking sources.
Our financial statements included in this report have been prepared in
conformity with accounting principles generally accepted in the United States.
During 2001, there were a number of new accounting standards issued by the
Financial Accounting Standards Board, which we have determined, did not have a
material effect on our financial statements in 2001 or 2002. We believe that our
operations, as currently structured, together with our current financial
resources, will result in improved financial performance during the second half
of 2002.
Forward-looking strategy
Our business plan for 2002 includes the completion of our plan to dispose
of the Plastics Group, commenced in November 2001, and the ramp up of research,
engineering, manufacturing, marketing and administrative capability for our
Photonics Group.
Our Photonics Group is completing leasehold improvements to its
semiconductor laser diode manufacturing facilities in Orlando, Florida, which
will be completed during the third quarter of 2002. We have hired or transferred
(from our Narragansett, RI and Albuquerque, NM facilities), twelve research and
administrative personnel who are working on the DARPA contract and we are
actively interviewing for an additional 10-14 engineering, quality control,
manufacturing and administrative personnel. Equipment has started arriving at
the facility, and we expect to complete about $1.2 million in capital equipment
expansion by the end of 2002, primarily funded through operating leases. As a
result of these steps, we expect that our Photonics Group will have significant
research and manufacturing capacity by year-end. In addition, we closed on $1.5
Million of convertible notes with Laurus Master Fund, Ltd., which has been used
to fund the operations of the Photonics Group. We have completed the first
technical review with DARPA and believe we are on schedule to meet their
timetable for completion of that contract by the end of 2003.
Our Photonics Group is actively engaged in discussions with a number of
potential commercial customers to incorporate our technology in their next major
product updates planned for late 2002 or early 2003. Our marketing efforts are
aimed at customer education and in that regard our staff members have recently
presented papers at technical trade shows, such as the recent Photonics West and
Optical Fiber conferences, which are attended by representatives of leading
companies using diode devices. Additionally, we are actively exploring financing
alternatives for our Photonics Group, including through venture capital firms,
which in many cases, have portfolio companies that could be end users of our
products.
Finally, we are completing steps to further reduce corporate overhead
including facilities consolidation and other cost reduction measures. We believe
that the successful implementation of this plan will result in profitable
operations during the second half of 2002.
Liquidity and capital resources
We have financed our product development activities and operations through
a series of private placements of debt and equity securities. As of June 30,
2002, we had unrestricted cash and cash equivalents of approximately $588,000
available for our working capital needs and planned capital asset expenditures.
The increase in cash, cash equivalents and restricted funds resulted from
closing on a $1.0 million, two-year convertible note on February 5, 2002, a $.5
million, two-year convertible note on June 21, 2002, and prompt collection of
governmental accounts receivable by electronic transfer. The proceeds from the
first $1.0 million note are held as restricted funds available to fund certain
operations and sub-contractor payments under the DARPA contract of our Photonics
Group. Restricted funds available as of June 30, 2002 amounted to approximately
$900,000. During the quarter ended June 30, 2002, the Photonics Group revenues
exceeded Laser Group revenues. We anticipate continued improved revenue from our
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Photonics Group and positive results from additional expense containment
measures that have been implemented. We anticipate that our other strategies for
raising additional working capital through debt and/or equity transactions will
provide adequate liquidity to fund our operations. During the quarter ended June
30, 2002, additional private placements of our common stock yielded gross
proceeds of $100,000.
At June 30, 2002 we had a working capital deficit of approximately
$141,000, (and positive working capital of $833,000 after eliminating the assets
and liabilities of our discontinued operations). During the first six months of
2002, cash and cash equivalents have increased by $457,591 and restricted funds
have increased by $820,527, from the infusion of funds from the convertible
notes and prompt electronic payment to the restricted account by DARPA. Fast
collection of receivables from those electronic payments has also reduced our
accounts receivable by $343,882 in the first sixth months of 2002, and improved
our working capital position. In conjunction with our on-going business
expansion program, we are pursuing alternative sources of funding including
private placements, direct investment by strategic alliance partners, and
venture capital sources. To date we have arranged an asset based convertible
note that is available to fund sales volume increases and working capital needs
at our Photonics Group.
During 2002, we have expended approximately $126,000 and $122,000 on
capital acquisitions for our Photonics Group and Laser Group, respectively. We
anticipate spending an additional $900,000 in capital expenditures during the
balance of 2002, which we expect to be funded principally by operating leases.
As opportunities arise to acquire used equipment, some cash purchases may be
required.
Risk of Nasdaq Delisting. Our common stock is currently traded on the
Nasdaq SmallCap Market. In order to maintain this listing, we are required to
meet certain requirements relating to our stock price and net tangible assets of
$2.0 million (stockholders' equity, less unamortized goodwill). If we fail to
meet these requirements, our stock could be delisted. Last year we received a
series of letters from Nasdaq addressing our failure to satisfy the minimum net
tangible asset continued listing requirements for the SmallCap Market. On March
19, 2002, we received a letter from Nasdaq that we were in compliance with the
continued listing requirements. There is no assurance that we will continue to
meet the Nasdaq Small Cap listing requirement in future periods.
Results of Operations
Laser Group
Revenues from our Laser Group for the quarter ended June 30, 2002 were
$1,465,208 ($1,898,951 at June 30, 2001) with an operating loss for the period
of $282,642 (operating income of $66,997 at June 30, 2001). The decrease in
Laser Group revenues resulted from postponed orders for gas turbine parts used
for power generation and reduced or delayed orders for jet engine components.
Gross profit margin decreased in 2002 to 20% from 36% in 2001 due to increased
set-up costs with new customers to replace the postponed orders with other
customers and from the high fixed costs associated with our underutilized laser
workstations. With airline traffic and commercial demand for power generation
recovering from the tragedies of September 11, 2001, we expect a higher, but
indeterminate, proportion of those orders to return in the third and fourth
quarters of 2002.
Photonics Group
Revenues related to the Photonics Group in the quarter ended June 30, 2002
were $1,542,492, ($119,799 revenues at June 30, 2001) with an operating loss of
$10,874 ($271,147 at June 30, 2001). The increase of $1,531,618 in revenues for
the quarter ended June 30, 2002 compared to the quarter ended June 30, 2001 was
primarily due to commencing work on a $12.0 million DARPA contract signed on
January 23, 2002. Net profits are limited to approximately seven percent for
that government research contract. Non-governmental research and development on
commercial products of $17,722 accounted for the majority of the small operating
loss. We expect revenues attributable to our DARPA contract to continue to
increase significantly in 2002, but at the low net profit rate.
Although we are in active discussions with a number of commercial
accounts, DARPA represented over 90% of the revenues of the Photonics Group in
the first six months of 2002, and we expect Dey Laboratories to continue to
represent approximately 12% of the revenues of the Laser Group, followed by
slightly lower concentrations in revenues from General Electric (jet engine and
power generation parts) and United Technologies (jet engine and aerospace
13
parts). The recent tragedies of September 11, 2001 and the economic downturn
caused a decline in revenues of the Laser Group from both jet engine and power
generation parts.
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Consolidated revenues for the three months ended June 30, 2002 were
$3,007,700 on cost of sales of $2,542,996, resulting in a gross profit of
$464,704 for the quarter. Consolidated revenues for the three months ended June
30, 2001 were $2,018,750 on cost of sales of $1,369,601, resulting in a gross
profit of $649,149. The increase of $464,704 or 18.3% in consolidated revenues
for the quarter ended June 30, 2002, compared to the quarter ended June 30,
2001, was due to contract research and development revenues from DARPA in our
Photonics Group. This was offset by a reduction in revenues of $433,743 at the
Laser Group due to reduced orders for jet engine and power generation parts,
which directly impacted the reduction in gross margins of $184,445.
Research and development expenses were $17,722 for the three months ended
June 30, 2002, compared to $184,114 for the three months ended June 30, 2001.
Because we are in the contract research and development business and mark up our
services to reflect an anticipated profit on such services, the majority of our
research revenues and related costs are reflected in sales and cost of goods
sold, respectively. Research and development reflects only internal costs
associated with new product development efforts. During the quarter ended June
30, 2001, we expended $184,114 in development efforts primarily related to
research needed to support our filing of additional patent applications. Our
internal research and development efforts are focused on commercial applications
for diode lasers that we anticipate will be needed for the next generation of
telecommunications devices, and on commercial applications for the materials
processing and medical device industries. Subject to customer demand and funded
by discretionary cash flows, we anticipate that internal research and
development expenses will increase in the remainder of 2002, for expected GCSEL
product development efforts in our Photonics Group.
General and administrative expenses were $709,124 for the three months
ended June 30, 2002 as compared to $750,727 for the three months ended June 30,
2001. The decrease of approximately $41,603, or 5.5%, was primarily attributed
to a reallocation of human resources and related benefits (approximately
$100,000) related to the growth of the Infinite Photonics subsidiary,
cancellation of general insurance on our Mound subsidiary (approximately
$25,000), offset by approximately $87,000 in additional compensation expense
attributable to stock options of a former officer and director of the Company,
and amortization of investor and public relations costs (approximately $10,000).
Compensation expense for stock options, and investor and public relations costs
will increase through the remainder of 2002, as those costs are recognized over
the terms of their agreements. The expenses will approximate $57,000 and
$94,000, respectively, per quarter.
Selling expenses were $68,595 for the three months ended June 30, 2002 as
compared to $73,515 for the three months ended June 30, 2001, reflecting lower
commissions on lower jet engine and turbine parts revenues.
Depreciation and amortization expense totaled $256,849 for the three
months ended June 30, 2002 as compared to $177,294 for the three months ended
June 30, 2001. The increase was primarily due to depreciation expense for new
lasers acquired for medical device production and laser engineered net shaping
equipment (LENS) at our Laser Group, and increased depreciation of leasehold
improvements and equipment at our Photonics Group. Interest expense to
stockholder was $5,021 for the three months ended June 30, 2002 as compared to
$29,887 for the three months ended June 30, 2001. The decrease of $24,866 was
due primarily from the satisfaction of various stockholder obligations during
2001 and 2002. Other interest expense was $81,638 for the three months ended
June 30, 2002, compared to $105,984, reflecting reductions in outstanding bank
debt during the first quarter 2002, resulting from use of the proceeds from the
sale of two subsidiaries, the Mound Laser and Photonics Center and Express
Pattern, and the conversion of debt to former O&W shareholders to equity. We
expect interest expense to increase for the remainder of 2002 as a result of the
$500,000 convertible note issued on June 21, 2002.
Gain (loss) on sale of assets includes impairment loss amounting to
$80,635 for the three months ended ($0 for the three months ended June 30,
2001), and resulted from the write-off of intellectual property development that
we are no longer actively pursuing based on current quarterly impairment testing
of intangible assets under FAS 142. We
14
review our patent development efforts on a quarterly basis and test for possible
impairment, based on our assessment of the disallowance of patent applications
during the quarter (if any), the likelihood of continued develop of patent
claims by our scientists and legal counsel, and competitive technologies. There
were no disallowances by the U.S. Patent and Trademark office during the current
quarter.
The loss from continuing operations was $766,904 for the three months
ended June 30, 2002 as compared to a loss of $671,658 for the three months ended
June 30, 2001, including $275,520 loss on disposal in 2002, related to the sale
of land and building and additional reserves for uncollectable receivables at
the O&W subsidiary.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Consolidated revenues for the six months ended June 30, 2002 were
$5,214,823 on cost of sales of 4,299,978, resulting in a gross profit of
$914,845 for the quarter. Consolidated revenues for the six months ended June
30, 2001 were $4,088,133 on cost of sales of $2,754,361, resulting in a gross
profit of $1,333,772. The increase in consolidated revenues of $1,126,690 or
27.6%, and the decrease in consolidated gross profit of $418,927 or 31.4% for
the quarter ended June 30, 2002, compared to the quarter ended June 30, 2001,
was due to a general increase in revenues associated with contract research and
development revenues from DARPA, but with direct costs, overhead and general and
administrative expenses restricted by contract and Defense Federal Acquisition
Regulations (FAR's), to result in a net fee maximum of 6.7%. This increase in
consolidated revenues was offset by a reduction in revenues of $865,897 at the
Laser Group which also directly impacted the reduction in gross margins.
Research and development expenses were $86,788 for the six months ended
June 30, 2002, compared to $184,114 for the six months ended June 30, 2001.
Because we are in the contract research and development business and mark up our
services to reflect an anticipated profit on such services, the majority of our
research revenues and related costs are reflected in sales and cost of goods
sold, respectively. Research and development reflects only internal costs
associated with new product development efforts. During the six months ended
June 30, 2001, we expended $184,114 in development efforts primarily related to
research needed to support our filing of additional patent applications. Our
internal research and development efforts are focused on commercial applications
for diode lasers that we anticipate will be needed for the next generation of
telecommunications devices, and on commercial applications for the materials
processing and medical device industries. Subject to customer demand and funded
by discretionary cash flows, we anticipate that internal research and
development expenses will increase in the remainder of 2002, for expected
non-governmental commercial GCSEL product development efforts in our Photonics
Group.
General and administrative expenses were $1,321,133 for the six months
ended June 30, 2002 as compared to $1,212,618 for the three months ended June
30, 2001. The increase of approximately $108,515, or 8.9 % was primarily
attributed to a reallocation of human resources from administrative positions to
research, engineering and scientific positions related to the growth of the
Infinite Photonics subsidiary, offset by approximately $87,000 in additional
compensation expense attributable to stock options of a former officer and
director of the Company, and amortization of investor and public relations
costs. We expect compensation expense from these stock options and investor and
public relations costs to increase through the remainder of 2002, as those costs
are recognized over the terms of their respective agreements.
Selling expenses were $149,082 for the six months ended June 30, 2002 as
compared to $172,229 for the six months ended June 30, 2001, reflecting lower
commissions on lower jet engine and turbine parts revenues.
Depreciation and amortization expense totaled $456,849 for the six months
ended June 30, 2002 as compared to $354,011 for the three months ended June 30,
2001. The increase was primarily due to depreciation expense for new lasers
acquired for medical device production and laser engineered net shaping
equipment (LENS) at our Laser Group, and increased depreciation of leasehold
improvements and equipment at our Photonics Group. Interest expense to
stockholders was $9,593 for the six months ended June 30, 2002 as compared to
$60,986 for the three months ended June 30, 2001. The decrease of $51,393 was
due primarily from the satisfaction of various stockholder obligations during
2001 and 2002. Other interest expense was $158,089 for the six months ended June
30, 2002, compared to $230,728, reflecting reductions in outstanding bank debt
during the first quarter 2002, resulting from use of the
15
proceeds from the sale of two subsidiaries, the Mound Laser and Photonics Center
and Express Pattern, and the conversion of debt to former O&W shareholders to
equity. We expect interest expense to increase for the remainder of 2002 as a
result of a convertible notes for $1,500,000 closed during the first and second
quarters, at 15% interest.
Gain (loss) on sale of assets includes an approximate gain of $137,000 on
the sale of assets from our Mound Laser and Photonics subsidiary. This gain has
been offset by an impairment loss amounting $80,635 for the six months ended
June 30, 2002 ($0 for the three months ended June 30, 2001), and resulted from
the write-off of intellectual property development that we are no longer
actively pursuing based on current quarterly impairment testing of intangible
assets under FAS 142. We review our patent development efforts on a quarterly
basis and test for possible impairment, based on our assessment of the
disallowance of patent applications during the quarter (if any), the likelihood
of continued develop of patent claims by our scientists and legal counsel, and
competitive technologies. There were no disallowances by the U.S. Patent and
Trademark office during the current quarter.
The loss from continuing operations was $1,226,712 for the six months
ended June 30, 2002 as compared to a loss from continuing operations of $877,980
for the six months ended June 30, 2001. The net loss for the first six months
ended June 30, 2002, was $1,442,696 compared to a net loss of $1,025,599 in the
first six months of 2001, including a $215,154 loss from discontinued operations
in 2002, related to the sale of land and building at the O&W subsidiary, offset
by gain on the sale of related equipment in the first quarter 2002.
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Part II - Other information
Item 2(c): A description of all unregistered common stock sold by the registrant
since January 1, 2002 is as follows:
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Price per Consideration
Name(1) Purchase Date No. of Shares Common Share ($) (3)
-----------------------------------------------------------------------------------------------------
Estate of Ralph P. Lazarra 1/4/2002 379,253 $2.00 $758,506(4)
-----------------------------------------------------------------------------------------------------
IHC, Inc. 3/7/2002 30,000 $2.00 $60,000
-----------------------------------------------------------------------------------------------------
Allan J. Ligi 3/7/2002 35,000 $2.00 $70,000
-----------------------------------------------------------------------------------------------------
William M. Johnson 3/8/2002 10,000 $2.00 $20,000
-----------------------------------------------------------------------------------------------------
Jeff A. Bullington 3/31/2002 6,600 $2.13 $14,058
-----------------------------------------------------------------------------------------------------
Dr. Paul F. Jacobs 3/31/2002 1,600 $2.13 $3,408
-----------------------------------------------------------------------------------------------------
Thomas J. McDonald 3/31/2002 4,100 $2.13 $8,733
-----------------------------------------------------------------------------------------------------
Dr. Richard Stoltz 3/31/2002 6,800 $2.13 $14,484
-----------------------------------------------------------------------------------------------------
A. Donald Steinman 3/31/2002 3,700 $2.13 $7,881
-----------------------------------------------------------------------------------------------------
Dr. Oleg Smolski 3/31/2002 1,300 $2.13 $2,769
-----------------------------------------------------------------------------------------------------
John T. Monaghan 4/16/2002 36,766 $1.88 $69,120(4)
-----------------------------------------------------------------------------------------------------
Roger Beauregard 4/16/2002 32,170 $1.88 $60,480(4)
-----------------------------------------------------------------------------------------------------
Investor Relations Services, Inc. 6/18/2002 500,000 $1.50 (2)
-----------------------------------------------------------------------------------------------------
Allan J. Ligi 6/21/2002 100,000 $1.00 $100,000
-----------------------------------------------------------------------------------------------------
(1) The transaction was a private placement of securities pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
(2) In accordance with an Agreement with Investor Relations Services,
Inc. to provide us with investor and public relations services over
a two-year period. Under the agreement, Investor Relations Services
is required to expend up to $500,000 in furtherance of our investor
and public relations programs. In exchange for these services, we
issued Investor Relations Services 500,000 unregistered shares of
our common stock in a private placement transaction. These shares
were valued at $750,000 ($1.50 per share) and this expense will be
amortized as a general and administrative expense over the 24 month
period of the agreement.
(3) All proceeds received by the Company were used for working capital
purposes.
(4) Conversion of debt into shares of common stock.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K
None
17
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
August 16, 2002
INFINITE GROUP, INC.
By: ss/ Clifford G. Brockmyre
-------------------------
Clifford G. Brockmyre, President
And Chief Executive Officer
By: ss/ Bruce J. Garreau
--------------------
Bruce J. Garreau
Chief Financial Officer
(principal accounting officer)
18