-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FzveYYy5tvZmEqgyg81+3JWejiCpwx0adDLdG+Qed7ebydhsdi8sKtY0K8035qQM wpDe699tFPs6Y1ATMJWHDg== 0001005477-00-003839.txt : 20000512 0001005477-00-003839.hdr.sgml : 20000512 ACCESSION NUMBER: 0001005477-00-003839 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFINITE GROUP INC CENTRAL INDEX KEY: 0000884650 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 521490422 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21816 FILM NUMBER: 625952 BUSINESS ADDRESS: STREET 1: 2364 POST RD STREET 2: 923 INCLINE WAY 8 CITY: WARWICK STATE: RI ZIP: 02886 BUSINESS PHONE: 4017385777 MAIL ADDRESS: STREET 1: 2364 POST ROAD STREET 2: 923 INCLINE WAY 8 CITY: WARWICK STATE: RI ZIP: 02886 FORMER COMPANY: FORMER CONFORMED NAME: INFINITE MACHINE CORP DATE OF NAME CHANGE: 19971015 10QSB 1 FORM 10-QSB 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 Fiscal Year Ended March 31, 2000 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 Identification No.) incorporation or organization) 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 May 1, 2000 there were 2,368,529 shares of common stock, par value $0.001 per share outstanding. The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant on May 1, 2000, based on the average bid and asked price on such date was $5,992,378. Transitional Small Business Disclosure Format: Yes |_| No |X| INFINITE GROUP, INC. Form 10-QSB INDEX Page PART I. Consolidated Financial Statements Item 1. Consolidated Balance Sheets (Unaudited) March 31, 2000 and December 31, 1999............................... 3 Consolidated Statements of Operations - Three Months Ended March 31, 2000 and 1999...................................... 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999...................................... 5 Notes to Unaudited Consolidated Financial Statements............... 6 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations..................... 9 PART II. OTHER INFORMATION Items 1-6 Not Applicable..................................................... 14 SIGNATURES.................................................................. 15 2 INFINITE GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2000 1999 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 172,974 $ 328,094 Restricted funds 130,794 79,235 Accounts receivable, net of allowances 1,650,916 1,496,288 Inventories 492,338 536,554 Note receivable 204,716 204,716 Advance - stockholder 50,014 50,014 Other current assets 114,767 147,581 ------------ ------------ Total current assets 2,816,519 2,842,482 Property and equipment, net 6,898,496 7,059,367 Other assets: Note receivable - stockholders -- 6,652 Other investment 295,000 250,000 Cash surrender value of officer life insurance 61,546 61,546 Prepaid pension costs 769,101 769,101 Intangible assets, net 307,348 318,342 ------------ ------------ Total other assets 1,432,995 1,405,641 ------------ ------------ $ 11,148,010 $ 11,307,490 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable: Bank $ 928,328 $ 893,957 Stockholder 295,000 40,000 Accounts payable and accrued expenses 1,860,468 1,852,483 Current maturities of long-term obligations 795,950 1,042,159 Current maturities of notes payable - stockholders 23,964 21,572 ------------ ------------ Total current liabilities 3,903,710 3,850,171 Long term obligations 5,092,362 5,198,680 Notes payable - stockholders 383,812 380,483 Stockholders' equity Common stock, $.001 par value, 20,000,000 shares authorized 3,016,304 and 2,918,604 shares issued; 2,466,229 and 2,368,529 shares outstanding 3,016 2,918 Additional paid-in capital: Common stock 20,910,580 20,564,179 Warrants/Options 671,418 671,418 Accumulated deficit (18,441,701) (17,985,172) 3,143,313 3,253,343 ------------ ------------ Less treasury stock, 550,075 shares, at cost 1,375,187 1,375,187 Total stockholders' equity 1,768,126 1,878,156 ------------ ------------ $ 11,148,010 $ 11,307,490 ============ ============
See accompanying notes to unaudited consolidated financial statements. 3 INFINITE GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2000 1999 ---- ---- Sales $ 3,290,826 1,236,002 Cost of goods sold 2,199,810 947,403 --------- --------- Gross profit 1,091,016 288,599 Costs and expenses Research and development 239,411 408,843 General and administrative expenses 626,906 493,988 Selling expenses 180,875 143,538 Depreciation and amortization 272,097 147,075 --------- --------- Total costs and expenses 1,319,289 1,193,444 Operating loss (228,273) (904,845) Other income (expense) Interest expense (160,182) (111,417) Loss on sale of assets (68,074) -- Interest and other income -- 17,352 --------- --------- Total other income (expense) (228,256) (94,065) ========= ========= Loss from continuing operations (456,529) (998,910) Gain on sale of disposed business segment (less applicable income taxes of $825,000) -- 4,170,315 Net income (loss) $ (456,529) 3,171,405 ========= ========= Income (loss) per share - basic: Contining operations (0.19) (0.39) Disposed business segment -- 1.61 --------- --------- Net income(loss) per share (0.19) 1.22 ========= ========= Income from disposed business segment per share - diluted -- 1.57 ========= ========= Weighted average number of common shares outstanding: Basic 2,368,529 2,591,311 ========= ========= Diluted 2,409,494 2,657,978 ========= ========= See accompanying notes to unaudited consolidated financial statements. 4 INFINITE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 2000 1999 ---- ---- Cash flows from operating activities: Net loss from continuing operations $ (456,529) $ (998,910) Adjustments to reconcile net loss from continuing operations to net cash used in continuing operations: Depreciation and amortization 272,097 147,075 Loss on disposition of assets 68,074 Amortization of discount on note payable 9,584 13,967 Expenses satisfied via issuance of equity 39,527 Asset write down and allowances 6,652 10,112 Changes in assets and liabilities: (Increase) decrease in assets: Accounts receivable (154,628) 320,033 Other current assets 32,814 67,641 Inventory and inventoried parts 44,216 35,414 Increase (decrease) in liabilities: Accounts payable and accrued expenses 7,985 (285,058) ----------- ----------- Net cash used in continuing operations (169,735) (650,199) Cash flows from investing activities: Purchase of property and equipment (91,206) (508,925) Proceeds from the sale of property and equipment 122,900 Purchase of investments (45,000) -- Increase in intangible assets -- (18,705) Proceeds from the sale of investment in Spectra Science Corp. -- 3,620,128 Advance to stockholder -- (646) Advance under note receivable -- (200,000) ----------- ----------- Net cash (used in) provied by investing activities (13,306) 2,891,852 Cash flows from financing activities: Net borrowings (repayments) of short-term debt 289,371 (89,000) Repayments of long-term obligations (206,028) (40,533) Repayments of notes payable - stockholders (3,863) -- Net borrowings from stockholder -- (7,792) Increase in restricted funds, net (51,559) (47,460) ----------- ----------- Net cash provided by (used in) financing activities 27,921 (184,785) ----------- ----------- Net increase (decrease) in cash and cash equivalents (155,120) 2,056,868 Cash and cash equivalents - beginning of period 328,094 1,010,736 ----------- ----------- Cash and cash equivalents - end of period $ 172,974 $ 3,067,604 =========== ===========
See accompanying notes to unaudited consolidated financial statements. 5 INFINITE GROUP, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE 1. - BASIS OF PRESENTATION The accompanying unaudited financial statements of Infinite Group, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. For further information, refer to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999, which includes audited financial statements and footnotes as of and for the years ended December 31, 1999 and 1998. In accordance with SAS 71, Interim Financial Information, the Company's interim financial statements and related notes have been reviewed by the Company's independent auditors. NOTE 2. - NOTES PAYABLE - STOCKHOLDERS During the quarter ended March 31, 2000, the Company incurred $255,000 of additional debt, payable to the President and principal stockholder, which is included in note payable - stockholder as of March 31, 2000 in the accompanying balance sheet. The obligation accrues interest at the rate of 10-1/2%, and may be prepaid at any time. The entire principal balance matures at various times from May 1, 2000 through June 30, 2000. NOTE 3. - EARNINGS PER SHARE In accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share," the Company has reported basic and diluted earnings per share. The difference between the weighted average number of common shares outstanding for the basic and diluted calculation represents the effect of convertible debentures. The conversion of outstanding options and warrants were not considered in the calculation of diluted income from disposed segment per share since the average market price is less than the exercise price for all excercisable securities during the quarter ended March 31, 1999. The impact of convertible debentures and the exercise of stock options is excluded from the computation of loss per share from continuing operations because their assumed conversion would be antidilutive. NOTE 4. - CONVERTIBLE NOTES PAYABLE During the quarter ended March 31, 2000, convertible notes payable to former Osley and Whitney, Inc. ("O&W") shareholders, along with accrued interest, aggregating $146,540 were converted into 97,700 common shares of the Company's common stock. The excess of the fair market value of the common shares issued over the principle and interest reduction which amounted to $200,000 has been reflected as additional purchase price consideration. 6 INFINITE GROUP, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE 5. - BUSINESS SEGMENTS The Company's businesses are organized, managed and internally reported as two segments. The segments are determined based on differences in products, production processes and internal reporting. All of the segments of the Company operate entirely within the United States. Revenues from customers in foreign countries are minimal. Prior to April 1, 1999, the Laser segment was the primary segment. Revenue from this segment accounted for 94% and 95% of total revenue in 1998 and the first quarter of 1999, respectively. As a result, corporate expenses were reported as part of the Laser Service segment. With the acquisition of O&W in April 1999, the Plastics segment became a significant component of the Company's consolidated financial statements. Based on the increased activity of the second segment, general corporate activity is reported as a separate segment. Prior periods were restated to conform with this presentation. Transactions between reportable segments are recorded at cost. The Company relies on intersegment 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 three months ended March 31, 2000 and 1999 is set forth as follows: 7 INFINITE GROUP, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ================================================================================
Photonic Material Laser Spectra Plastics Unallocated Group Science Group Corporate Eliminations ----- ------- ----- --------- ------------ Three Months Ended March 31, 2000 --------------------------------- Sales from external customers $ 1,697,581 $ -- $ 1,593,245 $ -- $ -- =========== =========== =========== ============ ============ Operating income (loss) $ (64,803) $ -- $ 23,422 $ (186,892) $ -- =========== =========== =========== ============ ============ Identifiable assets $ 5,473,632 $ -- $ 3,727,370 $ 1,947,008 $ -- =========== =========== =========== ============ ============ Three Months Ended March 31, 1999 --------------------------------- Sales from external customers $ 1,173,954 $ -- $ 62,048 $ -- $ -- =========== =========== =========== ============ ============ Operating loss $ (257,432) $ -- $ (342,063) $ (305,350) $ -- =========== =========== =========== ============ ============ Net income from disposed business segment $ -- $ 4,170,315 $ -- $ -- $ -- =========== =========== =========== ============ ============ Identifiable assets, as of December 31, 1999 $ 8,871,591 $ -- $ 5,072,008 $ 10,922,806 $(13,558,915) =========== =========== =========== ============ ============ Consolidated ------------ Three Months Ended March 31, 2000 --------------------------------- Sales from external customers $ 3,290,826 ============ Operating income (loss) $ (228,273) ============ Identifiable assets $ 11,148,010 ============ Three Months Ended March 31, 1999 --------------------------------- Sales from external customers $ 1,236,002 ============ Operating loss $ (904,845) ============ Net income from disposed business segment $ 4,170,315 ============ Identifiable assets, as of December 31, 1999 $ 11,307,490 ============
8 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-QSB contains or incorporates 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 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 judgements with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. 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 for the year ended December 31, 1999 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 will be achieved. GENERAL Our business has two segments, the Laser and Photonics Group and the Plastics Group. We sell products and services in the fields of material processing, advanced manufacturing methods, high productivity production mold building and laser-application technology. We have approximately 145 employees. Our Laser and Photonics Group, comprised of Laser Fare (Smithfield, RI), Mound Laser & Photonics Center (Miamisburg, OH) and the Advanced Technology Group (Narragansett, RI), provides comprehensive laser-based materials processing services to leading manufacturers. Our Plastics Group, comprised of Osley & Whitney/ExpressTool (Westfield, MA), Materials & Manufacturing Technologies (West Kingston, RI) and Express Pattern (Buffalo Grove, IL), provides rapid prototyping services and proprietary mold building services. 9 We were organized as a Delaware corporation on October 14, 1986. On January 7, 1998, we changed our name from Infinite Machines Corp. to Infinite Group, Inc. Our executive offices are located at 2364 Post Road, Warwick, Rhode Island 02886. We own various trademark rights and hold federal trademark registration for our name and the Infinite Group logo. "Infinite Group," "Laser Fare," "Osley & Whitney," "ExpressTool" and "Zyrkon" are registered trademarks of Infinite Group, Inc. We maintain sites on the World Wide Web at www.infinite-group.com, www.laserfare.com, www.mlpc.com, www.expresspattern.com and www.expresstool.com. However, the information found on our Web sites is not part of this report. The laser and photonics group Our Laser Fare (LF) subsidiary is primarily engaged in contract laser material processing; however it also develops new applications for industrial lasers. Laser Fare has 22 high powered computer controlled lasers that are capable of performing a wide variety of manufacturing processes with multi-axis laser manipulation. Laser Fare also manufactures complete assemblies for selective medical product companies. Approximately 75% of Laser Fare's sales come from customers in the medical device, aerospace and power generation industries. Customers include General Electric, United Technologies, Allied Signal, Polaroid, Stryker Medical and Dey Laboratories. Through Laser Fare we also provide a variety of value-added services that include assembly, heat treating, coating, testing and inspection. We quote orders through traditional sales methods as well as through our Web site at www.laserfare.com. Laser Fare is certified for overhaul and repair by the Federal Aviation Administration (FAA No. LQFR37K), and as a Contract Manufacturer (Type E) by the Food and Drug Administration (FDA No. 1287338). Our Mound Laser and Photonics Center (MLPC) subsidiary specializes in laser applications, photonics applications and material processing and provides services within industry, government and education sectors. The midwest location, a region long known for its expertise in materials and material science, gives us a platform for growth into the automotive, aerospace, tool and die and other local industries. Specialized services include growth of thin films by pulsed laser deposition, applications of lasers to chemistry and photochemistry, spectroscopy and applied optics. MLPC has applied for a provisional patent on pulsed laser deposition. The combination of Laser Fare's expertise in materials processing and MLPC's expertise in laser and photonics applications creates a synergistic atmosphere for the advancement of laser materials processing and the development and commercialization of new laser-based technology. Our Advanced Technology Group (ATG) manages research and development programs for industrial and government sponsors. ATG has recently been awarded several contracts and subcontracts sponsored by the Defense Advanced Research Project Agency (DARPA). DARPA is the central research and development organization for the Department of Defense. It manages and directs selected basic and applied research and development projects for the Department of Defense, and pursues research and technology where risk and payoff are both very high and where success may provide dramatic advances for traditional military roles and missions and dual-use applications. As it effects ATG, these programs have been focused on laser driven 10 direct write technologies. Laser direct technologies enable cost-effective manufacturing of engineered components without the use of expensive tooling by directly depositing materials on the substrate with laser energy. Active and passive devices for electronic and photonic applications can be manufactured this way as well as a wide variety of sensors and activators. These technologies have applications across a broad range of industries that utilize electronic and photonic materials (including telecommunications, automotive and consumer electronics). ATG has a consulting arrangement with Molecular Geodesics Inc. (MGI) of Cambridge, MA. MGI is creating technologies using synthetic biomimetic materials with the mechanical responsiveness of living cells and tissues and applying these technologies to medical, industrial and military applications. Our Advanced Technology Group will utilize Laser Fare's and ExpressTool's proprietary techniques to fabricate structures for MGI. Through ATG, Triton Systems of Chelmsford, MA contracts with our Laser Fare subsidiary to laser fabricate aerospace components from metal composite materials. These are strong lightweight materials that are used in jet engines. The plastics group In April 1999, we acquired 100% of the outstanding capital stock of Osley & Whitney, Inc. (O& W), a privately held Massachusetts corporation, from its stockholders for approximately $1.5 million in cash and notes. O&W is a fifty-year-old plastic injection moldbuilding company located in Westfield, MA with approximately 50 employees. It serves a blue-ribbon clientele of automotive, automotive aftermarket, consumer sporting goods and office machine companies, including Polaroid, Pitney-Bowes, Hardigg Industries and Titleist, from its 21,500 sq. ft. manufacturing facility. Our proprietary mold fabrication and conformal cooling technologies lower the cost of molded parts, increase molding capacity and provide shorter delivery times over conventionally constructed molds. This compliments our established expertise in the moldbuilding industry. During 1999, ExpressTool (ET) was integrated into our Westfield, MA facility and separate facilities in Warwick, RI were closed to reduce cost and improve productivity. The ExpressTool process incorporates its conformal cooling and proprietary thermal management for high production injection mold tooling to allow molds used in the plastic fabrication industries to cool and eject parts up to 75% faster than traditional molds. Additionally, they accept computer files directly from their customers who use such software as AutoCad, ProE and Cadkey to submit their 3D designs directly over the internet at www.expresstool.com. ExpressTool began shipping mold inserts to Cheseborough Pond, 3M, and GE Plastics and has achieved preferred vendor status with Pitney Bowes, FordVisteon and others. In April 1999, we formed Express Pattern (EP) located in Buffalo Grove, IL, to expand our midwest presence and provide plastic rapid prototyping services to the metal casting industries. Express Pattern ships plastic prototype parts to Allen-Bradley, Paradigm, Rolls-Royce Allison, Motorola, Hewlett-Packard and others. EP provides direct interface (including uploads over the interenet) from customer CAD software (such as AutoCad, ProE and others) to 11 our stereolithography systems and equipment. Express Pattern also provides similar services to our other subsidiaries. Also in April 1999, we acquired 100% of the outstanding stock of Materials & Manufacturing Technologies, Inc. (MMT) of West Kingston, Rhode Island in exchange for 20,000 shares of our common stock. MMT has received a patent, number 5,427,987, from the United States patent office on its work in zirconium diboride materials. MMT has an exclusive licensing arrangement with Texas A&M University (with rights to sub-license) for use of patents and intellectual property owned by Texas A&M in the area of electrodes and parts made from zirconium diboride/copper (Zyrkon(TM)) composites. Zyrkon(TM) composite electrodes have been shown to be superior to copper, tungsten/copper and graphite electrodes in electrical discharge machining applications. In addition, parts made from Zyrkon(TM) exhibit excellent abrasion resistance and resistance to wear by electric arcs as well as high thermal conductivity and a relatively low coefficient of thermal expansion. These properties indicate that Zyrkon(TM) can be used to replace current material systems in applications as varied as injection mold tooling, spot-welding, waste remediation electrodes, high-current switches and heat sinks. The acquisition provides us with the ability to take advantage of these material systems in our areas of expertise as well as providing us with the ability to address new markets. Liquidity and Capital Resources We have financed our product development activities through a series of private placements of debt and equity securities. As of March 31, 2000, we had cash, cash equivalents and marketable debt securities of approximately $172,974 available for our working capital needs and planned capital asset expenditures. While the majority of the revenues realized as of March 31, 2000 were attributed to our LF, O&W & EP operations, we anticipate improved revenue from our other divisions and positive results from additional expense containment measures that have been implemented. We are also pursuing other strategies for raising additional working capital through debt and/or equity transactions. On June 30, 1998, our president and chief executive officer loaned the company an aggregate of $1.15 million. The note evidencing the loan is for a term of ten years and bears interest at a rate of 9.0% for the first twelve months and adjusts annually thereafter to a rate equal to the one-year T-Bill rate plus 3.5% (8.64 % at December 31, 1999). Our president also loaned the company $250,000 in the first quarter of 1998 pursuant to a one year note which bore interest at a rate of 9.0%. This note was repaid during 1999. In consideration for the loans, we granted detachable warrants to purchase 536,000 shares of our common stock exercisable at $5.60 per share. Half of the warrants vested immediately and the remaining 50% vested in four equal tranches, six, nine, twelve, and fifteen months from the anniversary date of the loan. In April 1999, approximately $650,000 of the outstanding balance of the loans was repaid. As of December 31, 1999, all warrants had vested. During the quarter ended September 30, 1999, our president also loaned us an additional $150,000 pursuant to a note that was convertible to common stock at $0.9375 per share and bore interest at the prime interest rate. Subsequently, in 12 December 1999, our president converted the note into 160,000 shares of common stock. In consideration for the loan, we granted detachable warrants to purchase 128,000 shares of our common stock exercisable at $1.0375 per share. In December 1999, our president loaned the company an additional $40,000 pursuant to a ninety day promissory note which bears interest at a rate of 10% per annum. During the quarter ended March 31, 2000, our president loaned us an additional $255,000 pursuant to ninety day promissory notes which bear interest at a rate of 10 1/2 % per annum. As of March 31, 2000 we had a working capital deficit of approximately $1,087,191. In conjunction with our on-going business expansion program, we are pursuing additional equity, alternative sources of funding from conventional banking institutions and the availability of government funds in the form of revenue bonds for the purchase of equipment and facilities, among others. There is no assurance, however, that our current resources will be adequate to fund our current operations and business expansion or that we will be successful in raising additional working capital. Our failure to raise necessary working capital could force us to curtail operations which would have a material adverse effect on our financial condition and results of operations. Risk of Nasdaq Delisting. Our Common Stock is listed on the Nasdaq SmallCap Market System and in connection therewith the we required to maintain certain continued listing requirements including $2 million of net tangible asset. At December 31, 1999, our net tangible assets were $1,732,953. As a result, in April 2000, we received notification from Nasdaq requesting submission by the Company of a plan to achieve and sustain compliance with the Nasdaq SmallCap continued listing requirements (the "Listing Requirements"). In May 2000, we submitted a plan which demonstrated both current compliance with the Listing Requirements and continued compliance in foreseeable future periods. A response from Nasdaq to our plan is outstanding. Management believes that the Company will continue to meet the Listing Requirements for the continued listing of our Common Stock on the Nasdaq SmallCap Market. However, no assurance can be given that we will continue to meet such requirements, or that Nasdaq will concur with our plan.. In the event that we do not meet the continued listing requirements, our Common Stock will be subject to delisting from the Nasdaq SmallCap Market, whereupon it would trade on the Nasdaq Electronic Bulletin Board. Such an event would make it more difficult for shareholders to effect transactions in the our Common Stock. Results of Operations Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Consolidated revenues for the three months ended March 31, 2000 were $3,290,826, on cost of sales of $2,199,810, resulting in a gross profit of $1,091,016 for the quarter. Consolidated revenues for the three months ended March 31, 1999 were $1,236,002 on cost of sales of $947,403, resulting in a gross profit of $288,599 for the three months ended March 31, 1999. The increase of $2,054,824 or 166.2% in consolidated revenues for the quarter ended March 31,2000, compared to the quarter ended March 31, 1999, was primarily due to revenues 13 associated with the Osley & Whitney acquisition and the formation of Express Pattern, as well as increased Laser Group revenues (approximately $525,000). Research and development expenses were $239,411 for the three months ended March 31, 2000 as compared to $408,843 for the three months ended March 31, 1999. The decrease of $169,432 or 41.4%, was primarily attributed to cost containment for research and development efforts in our plastics group, as separate Express Tool facilities were integrated into our O&W Westfield operations. General and administrative expenses were $626,906 for the three months ended March 31, 2000 as compared to $493,988 for the three months ended March 31, 1999. The increase of $132,918 or 26.9% was primarily due to expenses for additional resources at our Laser Group for engineers, training and for professional fees in the legal and investor relations areas. Selling expenses were $180,875 for the three months ended March 31, 2000 as compared to $143,538 for the three months ended March 31, 1999. The increase of $37,337 or 26% was primarily attributed to increased sales employees at our plastics group. Depreciation and amortization expense totaled $272,097 for the three months ended March 31, 2000 as compared to $147,075 for the three months ended March 31, 1999. The increase of $125,022 or 85% was primarily due to fixed asset additions in both our laser and plastics groups along with depreciation related to the O&W acquisition. Interest expense was $160,182 for the three months ended March 31, 2000 as compared to $111,417 for the three months ended March 31, 1999. The increase of $48,765 or 43.8% was due to interest paid on the note payable to our president, and debt obligations related to the O&W acquisition. The loss from continuing operations was $456,529 for the three months ended March 31, 2000 as compared to a loss of $998,910 for the three months ended March 31, 1999. We had a consolidated net loss of $456,529 for the three months ended March 31, 2000 as compared to net income of $3,171,405 for the three months ended March 31, 1999. The net income for the three months ended March 31, 1999 was primarily attributed to the gain realized on the sale of the Company's Spectra Science Series A Convertible Preferred Stock of approximately $4,170,315, net of $825,000 in taxes. Part II - Other information Not Applicable 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d), the Securities Exchange Act of 1934, the company has duly caused this Report to be signed on May 10, 2000 on its behalf by the undersigned, thereunto duly authorized. INFINITE GROUP, INC. By:/s/ Clifford G. Brockmyre ------------------------------------ Clifford G. Brockmyre, President and Chief Executive Officer /s/ Bruce J. Garreau -------------------------------------- Bruce J. Garreau, Chief Financial and Accounting Officer EX-27 2 FDS --
5 This schedule contains summary financial information extracted from March 31,2000 10-QSB in it's entirety by referance to such financial statements 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 172,974 0 1,695,615 44,699 492,338 2,816,519 9,843,379 2,944,883 11,148,010 3,903,710 5,476,174 0 0 3,016 1,765,110 11,148,010 3,290,826 3,290,826 2,199,810 3,279,688 239,411 9,652 160,182 (456,529) 0 (456,529) 0 0 0 (456,529) (.19) (.19)
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