10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2018

Commission file number: 0-21816

_________________________________________

INFINITE GROUP, INC.

(Exact name of registrant as specified in its charter)

_________________________________________

175 Sully’s Trail, Suite 202

Pittsford, New York 14534

(585) 385-0610

A Delaware Corporation

IRS Employer Identification Number: 52-1490422

_________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.001 par value per share	IMCI	OTC Bulletin Board
(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer ☐ Non-accelerated filer ☐ Accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There were 29,061,883 shares of the issuer’s common stock, par value $.001 per share, outstanding as of July 1, 2019.

Infinite Group, Inc.
Quarterly Report on Form 10-Q
For the Period Ended September 30, 2018
Table of Contents
PART I - FINANCIAL INFORMATION			PAGE
	Item 1. Financial Statements
		Balance Sheets – September 30, 2018 (Unaudited) and December 31, 2017	3
		Statements of Operations (Unaudited) for the three and nine months ended September 30, 2018 and 2017	4
		Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2018 and 2017	5
		Notes to Financial Statements – (Unaudited)	6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		13
	Item 4. Controls and Procedures		13
PART II - OTHER INFORMATION
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		13
	Item 6. Exhibits		13
SIGNATURES			13

FORWARD-LOOKING STATEMENTS

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” regarding the plans and objectives of management for future operations and market trends and expectations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving the expansion of our business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. See “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission (“SEC”), for a more detailed discussion of uncertainties and risks that may have an impact on future results. The terms “we”, “our”, “us”, or any derivative thereof, as used herein refer to Infinite Group, Inc., a Delaware corporation.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

INFINITE GROUP, INC. BALANCE SHEETS
	September 30,	December 31,
	2018 (Unaudited)	2017
ASSETS
Current assets:
Cash	$3,643	$73,734
Accounts receivable, net of allowances of $26,000 as of September 30, 2018 and $30,000 as of December 31, 2017	275,244	479,294
Prepaid expenses and other current assets	10,449	4,325
Total current assets	289,336	557,353
Property and equipment, net	9,470	18,349
Deposits	6,667	6,667
Total assets	$305,473	$582,369
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current liabilities:
Accounts payable	$352,554	$864,931
Accrued payroll	299,669	178,065
Accrued interest payable	872,614	773,367
Accrued retirement	242,003	234,886
Accrued expenses - other	85,526	63,109
Current maturities of long-term obligations	686,000	686,000
Current maturities of long-term obligations - related parties	34,350	29,660
Notes payable	362,500	362,500
Notes payable - related parties	102,000	32,000
Total current liabilities	3,037,216	3,224,518
Long-term obligations:
Notes payable:
Other	742,696	737,780
Related parties	678,125	658,635
Total liabilities	4,458,037	4,620,933
Commitments	0	0
Stockholders' deficiency:
Common stock, $.001 par value, 60,000,000 shares authorized; 29,061,883 shares issued and outstanding	29,061	29,061
Additional paid-in capital	30,591,896	30,591,896
Accumulated deficit	(34,773,521)	(34,659,521)
Total stockholders’ deficiency	(4,152,564)	(4,038,564)
Total liabilities and stockholders’ deficiency	$305,473	$582,369
See notes to unaudited financial statements.

3

INFINITE GROUP, INC. STATEMENTS OF OPERATIONS (Unaudited)
	Three Months Ended September 30,		Nine Months Ended September 30,
	2018	2017	2018	2017
Sales	$1,570,342	$1,586,278	$4,666,562	$4,799,434
Cost of sales	1,005,542	1,133,202	3,063,893	3,395,436
Gross profit	564,800	453,076	1,602,669	1,403,998
Costs and expenses:
General and administrative	261,401	290,142	848,735	867,097
Selling	223,367	288,093	677,677	931,840
Total costs and expenses	484,768	578,235	1,526,412	1,798,937
Operating income (loss)	80,032	(125,159)	76,257	(394,939)
Interest expense:
Related parties	(16,454)	(14,840)	(45,428)	(40,221)
Other	(47,578)	(48,001)	(144,829)	(142,991)
Total interest expense	(64,032)	(62,841)	(190,257)	(183,212)
Net income (loss)	$16,000	$(188,000)	$(114,000)	$(578,151)
Net income (loss) per share – basic and diluted	$.00	$(.01)	$.00	$(.02)
Weighted average shares outstanding – basic and diluted	29,061,883	29,105,361	29,061,883	29,076,535
See notes to unaudited financial statements.

4

INFINITE GROUP, INC. STATEMENTS OF CASH FLOWS (Unaudited)
	Nine Months Ended September 30,
	2018	2017
Cash flows from operating activities:
Net loss	$(114,000)	$(578,151)
Adjustments to reconcile net loss to net cash
used by operating activities:
Stock based compensation	0	25,198
Depreciation and amortization	19,315	106,909
Bad debt recovery	(4,000)	(30,000)
(Increase) decrease in assets:
Accounts receivable	208,050	(62,138)
Prepaid expenses and other assets	(6,124)	10,108
Increase (decrease) in liabilities:
Accounts payable	(512,377)	245,339
Accrued expenses	243,268	170,298
Accrued retirement	7,117	6,840
Net cash used by operating activities	(158,751)	(105,597)
Cash flows from investing activities:
Purchases of property and equipment	0	(5,608)
Net cash used by investing activities	0	(5,608)
Cash flows from financing activities:
Proceeds from issuance of notes payable - related parties	90,000	92,000
Repayments of notes payable - related party	(1,340)	(3,350)
Repayments of notes payable	0	(5,779)
Net cash provided by financing activities	88,660	82,871
Net decrease in cash	(70,091)	(28,334)
Cash - beginning of period	73,734	42,436
Cash - end of period	$3,643	$14,102
Supplemental Disclosures of Cash Flow Information:
Cash payments for interest	$79,354	$89,986
See notes to unaudited financial statements.

5

INFINITE GROUP, INC.

Notes to Financial Statements -(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited financial statements of Infinite Group, Inc. (“Infinite Group, Inc.” or the “Company”) included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (U.S.) ("GAAP") for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. The December 31, 2017 balance sheet has been derived from the audited financial statements at that date but does not include all disclosures required by GAAP. The accompanying unaudited financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission (SEC). Results of operations for the nine months ended September 30, 2018 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2018.

Note 2. Management Plans - Capital Resources

The Company reported net losses of $114,000and $578,151 for the nine months ended September 30, 2018 and 2017, respectively, and stockholders’ deficiencies of $4,152,564 and $4,038,564 at September 30, 2018 and December 31, 2017, respectively. Accordingly, and due to current working capital deficiencies, there is substantial doubt about the Company’s ability to continue as a going concern and this substantial doubt has not been alleviated.

The Company's goal is to increase sales and generate cash flow from operations on a consistent basis. The Company uses a formal financial review and budgeting process as a tool for improvement that has aided expense reduction and internal performance. The Company’s business plans require improving the results of its operations in future periods.

The Company believes the capital resources available under its factoring line of credit, cash from additional related party and third-party loans and cash generated by improving the results of its operations provide sources to fund its ongoing operations and to support the internal growth of the Company. Although the Company has no assurances, the Company believes that related parties, who have previously provided working capital, and third parties will continue to provide working capital loans on similar terms, as in the past, as may be necessary to fund its on-going operations for at least the next 12 months. If the Company experiences significant growth in its sales, the Company believes that this may require it to increase its financing line, finance additional accounts receivable, or obtain additional working capital from other sources to support its sales growth.

  Note 3. Summary of Significant Accounting Policies

There are several accounting policies that the Company believes are significant to the presentation of its financial statements. These policies require management to make complex or subjective judgments about matters that are inherently uncertain. Note 3 to the Company’s audited financial statements for the year ended December 31, 2017 presents a summary of significant accounting policies as included in the Company's Annual Report on Form 10-K as filed with the SEC.

Reclassifications - The Company reclassifies amounts in its financial statements to comply with recently adopted accounting pronouncements.

Fair Value of Financial Instruments - The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the immediate short-term maturity of these financial instruments. The carrying value of notes payable and convertible notes payable approximates the fair value based on rates currently available from financial institutions and various lenders.

Revenue - Effective January 1, 2018, the Company adopted Topic 606 using the modified retrospective approach and applied the guidance to those contracts which were not completed as of January 1, 2018. Adoption of Topic 606 did not impact the timing of revenue recognition in the Company’s financial statements for the current or prior periods. Accordingly, no adjustments have been made to opening accumulated deficit or prior period amounts.

The Company’s total revenue recognized from contracts from customers was comprised of three major services: Managed support services, Cybersecurity Projects and software and Other IT consulting services. The categories depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. There were no material unsatisfied performance obligations at June 30, 2018 or 2017 for contracts with an expected original duration of more than one year. The following table summarizes the revenue recognized by the major services:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2018	2017	2018	2017
Managed support services	$1,224,138	$1,219,370	$3,657,509	$3,764,613
Cybersecurity projects and software	295,138	290,325	865,449	896,965
Other IT consulting services	51,066	76,583	143,604	137,856
Total sales	$1,570,342	$1,586,278	$4,666,562	$4,799,434

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Managed support services

Managed support services consist of revenue primarily from our subcontracts for services to its end clients, principally a major establishment of the U.S. Government for which we manage one of the nation’s largest physical and virtual Microsoft Windows environments.

● We generate revenue primarily from these subcontracts through fixed price service and support agreements.  Revenues are earned and billed weekly and are generally paid within 45 days. The revenues are recognized at time of service.

Cybersecurity projects and software

Cybersecurity projects and software revenue includes the selling of licenses of Nodeware™ and third-party software, principally Webroot™ as well as performing cybersecurity assessments and testing.

● Nodeware™ and Webroot™ software offerings consist of fees generated from the use of the respective software by our customers. Revenue is recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Substantially all customers are billed in the month of the service and is cancellable upon notice per the respective agreements.  Substantially all payments are electronically billed, and the billed amounts are paid to the Company instantaneously via an online payment platform. If payments are made in advance, revenues related to the term associated with our software licenses is recognized ratably over the contractual period.

● Some of our customers have the option to purchase additional subscription and support services at a stated price. These options generally do not provide a material right as they are priced at our standalone selling price.

● Cybersecurity assessments and testing services are considered distinct performance obligations when sold stand alone or with other products. These contracts generally have terms of one year or less. For substantially all these contracts, revenue is recognized when the specific performance obligation is satisfied.  If the contract has multiple performance obligations, the revenue is recognized when the performance obligations are satisfied. Depending on the nature of the service, the amounts recognized are either based on an allocation of the transaction price to each performance obligation based on a relative standalone selling price of the products sold.

● In substantially all agreements, a 50% to 75% down payment is required before work is initiated. Down payments received are deferred until revenue is recognized. Upon completion of performance obligation of service, payment terms are 30 days.

Other IT consulting services

Other IT consulting services consists of services such as project management and general IT consulting services. 

● We generate revenue via fixed price service agreements.  These are based on periodic billings of a fixed dollar amount for recurring services of a similar nature performed according to the contractual arrangements with clients.  The revenues are recognized at time of service.

Based on historical experience, the Company believes that collection is reasonably assured.

During the nine months ended September 30, 2018, sales to one client, including sales under subcontracts for services to several entities, accounted for 71.4% of total sales (69.6% - 2017) and 27.9% of accounts receivable at September 30, 2018 (67.5% - December 31, 2017).

Recent Accounting Pronouncements Not Yet Adopted - In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Topic 842 (as amended by ASU’s 2018-01, 10, 11 and 20) amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. The new leasing standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018 (January 1, 2019 for the Company). The original guidance required application on a modified retrospective basis to the earliest period presented. ASU 2018-11, Targeted improvements to ASC 842, includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842 as the date of initial application of transition. The Company adopted the new standard on the effective date of January 1, 2019 by applying the new transition method allowed under ASU 2018-11 and will add approximately $266,000 to long-term assets, $69,000 to short-term liabilities and $197,000 to long-term liabilities at January 1, 2019.

Note 4. Sale of Certain Accounts Receivable

The Company has available a financing line with a financial institution (the Purchaser), which enables the Company to sell accounts receivable to the Purchaser with full recourse against the Company. Pursuant to the provisions of FASB ASC 860, the Company reflects the transactions as a sale of assets and establishes an accounts receivable from the Purchaser for the retained amount less the costs and fees of the transaction and less any anticipated future loss in the value of the retained asset.

The retained amount is 10% of the total accounts receivable invoice sold to the Purchaser. The fee is charged at prime plus 3.6% (effective rate of 8.85% at September 30, 2018) against the average daily outstanding balance of funds advanced. The estimated future loss reserve for each receivable included in the estimated value of the retained asset is based on the payment history of the accounts receivable customer and is included in the allowance for doubtful accounts, if any. As collateral, the Company granted the Purchaser a first priority interest in accounts receivable and a blanket lien, which may be junior to other creditors, on all other assets.

7

The financing line provides the Company the ability to finance up to $2,000,000 of selected accounts receivable invoices, which includes a sublimit for one of the Company’s customers of $1,500,000. During the nine months ended September 30, 2018, the Company sold approximately $3,890,000 ($3,695,000 - September 30, 2017) of its accounts receivable to the Purchaser. As of September 30, 2018, approximately $389,000 ($4,486 - December 31, 2017) of these receivables remained outstanding. Additionally, as of September 30, 2018, the Company had approximately $97,000 available under the financing line with the financial institution ($376,000 - December 31, 2017). After deducting estimated fees, allowance for bad debts and advances from the Purchaser, the net receivable from the Purchaser amounted to $38,904, at September 30, 2018 ($449 - December 31, 2017), and is included in accounts receivable in the accompanying balance sheets.

There were no gains or losses on the sale of the accounts receivable because all were collected. The cost associated with the financing line totaled $40,007 for the nine months ended September 30, 2018 ($35,944 - September 30, 2017). These financing line fees are classified on the statements of operations as interest expense.

Note 5. Earnings per Share

Basic earnings per share is based on the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is based on the weighted average number of common shares outstanding, as well as dilutive potential common shares which, in the Company’s case, comprise shares issuable under convertible notes payable and stock options. The treasury stock method is used to calculate dilutive shares, which reduces the gross number of dilutive shares by the number of shares purchasable from the proceeds of the options and warrants assumed to be exercised. In a loss period, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.

The following table sets forth the computation of basic and diluted loss per share:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2018	2017	2018	2017
Numerator for basic and diluted net loss per share:
Net income (loss)	$16,000	$(188,000)	$(114,000)	$(578,151)
Denominator for basic and diluted net loss per share:
Weighted average common shares outstanding	29,061,883	29,105,361	29,061,883	29,076,535
Basic and diluted net income (loss) per share	$.00	$(.01)	$.00	$(.02)
Anti-dilutive shares excluded from net loss share calculation	28,530,252	28,033,096	28,530,252	28,033,096

Certain common shares issuable under stock options and convertible notes payable have been omitted from the diluted net loss per share calculation because their inclusion is considered anti-dilutive because the exercise prices were greater than the average market price of the common shares or their inclusion would have been anti-dilutive.

Note 6. Notes Payable - Related Parties

On July 12, 2018, the Company borrowed $70,000 from an officer of the Company under the termsof an unsecured demand promissory note with interest at 6%.

The Company borrowed $20,000 from the unsecured line of credit financing agreement with a related party during the first quarter. The LOC Agreement was entered into on September 17, 2017 and provides for working capital of up to $75,000 with interest at 6% due quarterly through January 2, 2023. The balance is $70,000 at September 30, 2018.

A 7% note payable of $25,000 due to a related party matured on March 31, 2018 and is classified as a current liability in the accompanying balance sheet at September 30, 2018.

Note 7. Stock Option Plans and Agreements

The Company has approved stock options plans and agreements covering up to an aggregate of 8,273,000 shares of common stock. Such options may be designated at the time of grant as either incentive stock options or nonqualified stock options. Stock based compensation consists of charges for stock option awards to employees, directors and consultants.

8

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. No options were granted for the nine months ended September 30, 2018. The following assumptions were used for the nine months ended September 30, 2017.

Risk-free interest rate	1.50% - 1.58%
Expected dividend yield	0%
Expected stock price volatility	100%
Expected life of options	2.75 to 3.0 years

The Company recorded expense for options issued to employees and independent service providers of $0 and $25,198 for the nine months ended September 30, 2018 and 2017, respectively.

At September 30, 2018, there was approximately $7,300 of total unrecognized compensation cost related to non-vested options. That cost is expected to be recognized over a weighted average period of approximately one year. No options vested during the nine months ended September 30, 2018.

A summary of all stock option activity for the nine months ended September 30, 2018 follows:

	Number of Options Outstanding	Weighted Average Exercise Price	Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2017	8,031,000	$.10
Expired	(406,000)	$.26
Outstanding at September 30, 2018	7,625,000	$.09	3.5 years	$0
At September 30, 2018 - vested or
expected to vest and exercisable	6,687,000	$.07	3.9 years	$0

Note 8. Related Party Accounts Receivable and Accrued Interest Payable

Accrued Interest Payable - Included in accrued interest payable is accrued interest payable to related parties of $141,097 at September 30, 2018 ($104,862 - December 31, 2017).

Note 9. Subsequent Event

During the fourth quarter of 2018, the Company concluded that they have been legally released from a liability. Accordingly, a gain on settlement of debt in the amount of $83,250 has been recorded, representing the $30,000 principal balance, as well as $53,250 of accrued interest.

On May 7, 2019, the Company entered into a note payable agreement for up to $500,000 with a related party. The note has an interest rate of 7.5% and is due on August 31, 2026.  The Company borrowed $200,000 which remains outstanding. As consideration for providing this financing, the Company granted a stock option to purchase a total of 2,500,000 common shares at an exercise price of $.02 for a total expense of $14,250.

************

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion contains forward-looking statements, the accuracy of which involves risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons including, but not limited to, those discussed under the heading “Forward Looking Statements” above and elsewhere in this report. We disclaim any obligation to update information contained in any forward-looking statements.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the notes thereto appearing elsewhere in this report.

Business

Headquartered in Pittsford, New York, Infinite Group, Inc. is a provider of managed IT and virtualization services and a developer and provider of cybersecurity tools and solutions to private businesses and government agencies. As part of these services we:

●

design, develop and market solutions and products that solve and simplify network cybersecurity needs of small and medium sized enterprises (SMEs), government agencies, and certain large commercial enterprises. We are a master distributor for Webroot, a cloud based security platform solution, where we market to and provide support for over 350 reseller partners across North America;

●

provide level 2 Microsoft and Hewlett Packard server and software-based managed services supporting enterprise customers through our partnership with Perspecta, Inc.); and

●

are an Enterprise Level sales and professional services partner with VMware selling virtualization licenses and solutions and providing virtualization services support to commercial and government customers including the New York State and Local Government and Education (SLED) entities and the New York State Office of General Services (NYS OGS). These activities take place in our virtualization sales organization in conjunction with support from our professional services organization (PSO).

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Business Strategy

Our strategy is to build our business by designing, developing, and marketing IT security based products and solutions that fill technology gaps in cybersecurity. We sell our proprietary product, Nodeware, which is an automated vulnerability management solution that enhances security by proactively identifying, monitoring, and addressing potential vulnerabilities on networks, creating a safeguard against hackers and ransomware with simplicity and affordability. Nodeware creates an opportunity for resellers, including managed service providers, managed security service providers, distributors, and value-added resellers. We sell Nodeware in the commercial sector through its channel partners and agents.

Our cybersecurity services business provides services and technical resources to support both our channel partners and end customers.

Our goal is to expand our VMware business in both the public and commercial sector by building VMware license sales volume and services concurrently.

We are working to expand our managed services business with our current federal enterprise customer and its customers.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2018 and 2017

The following tables compares our statements of operations data for the three and nine months ended September 30, 2018 and 2017. The trends suggested by this table are not indicative of future operating results.

	Three Months Ended September 30,
					2018 vs. 2017
		As a % of		As a % of	Amount of	% Increase
	2018	Sales	2017	Sales	Change	(Decrease)
Sales	$1,570,342	100.0%	$1,586,278	100.0%	$(15,936)	(1.0)%
Cost of sales	1,005,542	64.0	1,133,202	71.4	(127,660)	(11.3)
Gross profit	564,800	36.0	453,076	28.6	111,724	24.7
General and administrative	261,401	16.6	290,142	18.3	(28,741)	(9.9)
Selling	223,367	14.2	288,093	18.2	(64,726)	(22.5)
Total costs and expenses	484,768	30.9	578,235	36.5	(93,467)	(16.2)
Operating income (loss)	80,032	5.1	(125,159)	(7.9)	205,191	163.9
Interest expense	(64,032)	(4.1)	(62,841)	(4.0)	1,191	1.9
Net income (loss)	$16,000	1.0%	$(188,000)	(11.9)%	$204,000	(108.5)%
Net income (loss) per share - basic and diluted	$.00		$(.01)		$.01

	Nine Months Ended September 30,
					2018 vs. 2017
		As a % of		As a % of	Amount of	% Increase
	2018	Sales	2017	Sales	Change	(Decrease
Sales	$4,666,562	100.0%	$4,799,434	100.0%	$(132,872)	(2.8)%
Cost of sales	3,063,893	65.7	3,395,436	70.7	(331,543)	(9.8)
Gross profit	1,602,669	34.3	1,403,998	29.3	198,671	14.2
General and administrative	848,735	18.2	867,097	18.1	(18,362)	(2.1)
Selling	677,677	14.5	931,840	19.4	(254,163)	(27.3)
Total costs and expenses	1,526,412	32.7	1,798,937	37.5	(272,525)	(15.1)
Operating income (loss)	76,257	1.6	(394,939)	(8.2)	471,196	119.3
Interest expense	(190,257)	(4.1)	(183,212)	(3.8)	7,045	3.8
Net loss	$(114,000	( 2.4)%	$(578,151)	(12.0)%	$464,151	(80.3)%
Net loss per share - basic and diluted	$.00		$(.02)		$.02

Sales

Our managed service and virtualization project and software license sales comprised approximately 79% of our sales in 2018 and 2017. Our 2018 commercial sales to SMEs, were approximately 18% of our total sales as compared to approximately 17% for 2017.

10

Sales of virtualization subcontract projects have continued to decrease since 2015 because VMware has continued to assign fewer projects to us. Our virtualization subcontract project sales decreased by approximately 22% for the nine months ended September 30, 2017 to 2018. Our virtualization sales increased by 11.1% for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. Our goal is to expand our VMware business in both the public and commercial sector by building VMware license sales volume and services concurrently directly with customers rather than relying on subcontract project services.

Sales of Nodeware through our channel partners and other IT projects comprised the balance of our sales.

Cost of Sales and Gross Profit

Cost of sales principally represents the cost of employee services related to our IT Services Group. In smaller amounts, we also incurred cost of sales for third party software licenses for our commercial SME partners. As virtualization project sales decreased, related personnel cost of sales also decreased.

Our gross profit improved by 24.7% for the three months ended September 30, 2018 as compared to 2017 and 14.2% for the comparable nine month periods. Sales decreased 1.0% and 2.8% for the three and nine months ended September 30, 2018 and 2017, respectively. We improved our gross profit margin from our managed services  due to less contractor use. This offset decreased gross profit margin from our virtualization projects. Other IT services contributed gross profit through improved utilization of our employees.

General and Administrative Expenses

General and administrative expenses include corporate overhead such as compensation and benefits for executive, administrative and finance personnel, rent, insurance, professional fees, travel, and office expenses. General and administrative expenses decreased by relatively small amounts for the periods due to reductions in professional fees and employee compensation.

Selling Expenses

The decrease in selling expenses is due to the reduction of employee salaries and benefits totaling approximately $93,000 and $247,000 for the three and nine months ended September 30, 2018, respectively. We revised our Nodeware and commercial SME marketing efforts to using more on-line and internet based marketing and selling techniques. We engaged a new marketing and lead generation consulting group in April 2018 resulting in consulting and third party marketing expenses increasing by $35,400 for the nine months ended September 30, 2018.

Operating Income (Loss)

The improvement in our operating income (loss) is principally attributable to an improved gross margin and decreases in selling expenses for the three and nine months ended September 30, 2018 as compared to 2017.

Interest Expense

The increase in interest expense is principally attributable to a net increase in long-term debt to fund our operations. The prime rate increased from 4.5% at December 31, 2017 to 5.25% on September 27, 2018. The interest rate changes increased our financing costs under our accounts receivable financing line and our line of credit payable to a related party.

Net Income (Loss)

The decrease is attributable to the items discussed above for the three and nine months ended September 30, 2018 as compared to 2017.

Liquidity and Capital Resources

At September 30, 2018, we had cash of $3,643 available for working capital needs and planned capital asset expenditures. During 2018, we financed our business activities principally through cash flows provided by operations, sales with recourse of our accounts receivable and borrowings from related parties. Our primary source of liquidity is cash provided by collections of accounts receivable and our factoring line of credit.We maintain an accounts receivable financing line of credit with an independent financial institution that allows us to sell selected accounts receivable invoices to the financial institution with full recourse against us in the amount of $2,000,000, including a sublimit for one major client of $1,500,000. This provides us with the cash needed to finance certain of our on-going costs and expenses. At September 30, 2018, we had financing availability, based on eligible accounts receivable, of approximately $97,000 under this line. We pay fees based on the length of time that the invoice remains unpaid.

We entered into unsecured lines of credit financing agreements (the “LOC Agreements”) with three related parties. The LOC Agreements provide for working capital of up to $400,000 through January 1, 2020, $100,000 through July 31, 2022 and $75,000 through January 2, 2023. At September 30, 2018, we had approximately $34,000 of availability under the LOC Agreements.

At September 30, 2018, we had a working capital deficit of approximately $2,748,000 and a current ratio of .10.

At September 30, 2018, we have current notes payable of $362,500 to third parties, which includes convertible notes payable of $290,000. Also included is $12,500 in principal amount of a note payable due on September 30, 2016 but not paid. This note was issued in payment of software we purchased in February 2016 and secured by a security interest in the software. To date, the holder has not taken any action to collect the amount past due on this note or to enforce the security interest in the software.

11

We have current maturities of long-term obligations of approximately $246,000 to the Pension Benefit Guaranty Corporation (the PBGC) with all principal due by September 15, 2018, which the due date has not been extended. We have maturities of our long-term notes to third parties of $265,000 due on January 1, 2018, which has not been renewed or amended and $175,000 due on August 31, 2018. Previously, we have extended certain notes totaling $440,000 with certain lenders.

We have a note payable of $25,000 due to our Chief Operating Officer which matured on March 31, 2018 and a note payable of $20,000 to a related party which matured on December 31, 2017. We plan to renegotiate the terms of the notes payable, seek funds to repay the notes or use a combination of both alternatives.

On July 12, 2018, we borrowed $70,000 from an officer of the Company under the terms of an unsecured demand promissory note with interest at 6%. The balance of this note is $82,000 at September 30, 2018.

We borrowed $20,000 from the unsecured line of credit financing agreement with a related party during the first quarter of 2018. The LOC Agreement was entered into on September 17, 2017 and provides for working capital of up to $75,000 with interest at 6% due quarterly through January 2, 2023. The balance is $70,000 at September 30, 2018.

We cannot provide assurance that we will be able to repay current notes payable or obtain extensions of maturity dates for long-term notes payable when they mature or that we will be able to repay or otherwise refinance the notes at their scheduled maturities.

We have maturities of our long-term debt to related parties in the amount of approximately $524,000 due on January 1, 2020 and for $9,000 due on January 1, 2021.

We have long-term obligations to third parties of $264,000 due on January 1, 2020 and $500,000 due on December 31, 2021.

We have an unsecured line of credit financing agreement with our Chief Operating Officer. It provides for working capital of up to $100,000 with an interest rate of prime plus 1.5% due quarterly through July 31, 2021. The balance is $90,000 at September 30, 2018.

The following table sets forth our cash flow information for the periods presented:

	Nine Months Ended September 30,
	2018	2017
Net cash used by operating activities	$(158,751)	$(105,597)
Net cash used by investing activities	0	(5,608)
Net cash provided by financing activities	88,660	82,871
Net decrease in cash	$(70,091)	$(28,334)

Cash Flows Used by Operating Activities

Our operating cash flow is primarily affected by the overall profitability of our contracts, our ability to invoice and collect from our clients in a timely manner, and our ability to manage our vendor payments. We bill our clients weekly or monthly after services are performed, depending on the contract terms. Our net loss of $114,000 for 2018 was offset in part by non-cash expenses and credits of $15,315. In addition, a decrease in accounts receivable and other assets of $201,926 was offset by decreases in accounts payable and accrued expenses of $261,992 resulting in a use of funds of $158,751.

We market Webroot and Nodeware to our IT channel partners who resell to their customers. We are making investments in expanding our sales of cyber security and virtualization projects and VMware licenses to commercial and SLED customers. Due to the lengthy lead times typically needed to generate these new sales, we do not expect to realize a return from our sales and marketing personnel for one or more quarters. As a result, we may continue to experience operating losses from these investments in personnel until sufficient sales are generated. We expect to fund the cost for the new sales personnel from our operating cash flows and incremental borrowings, as needed.

Cash Flows Used by Investing Activities

No cash was used by investing activities during the nine months ended September 30, 2018. We expect to continue to invest in computer hardware and software to update our technology to support our business.

Cash Flows Provided by Financing Activities

Cash provided by financing activities was $88,660 for the nine months ended September 30, 2018 consisting of $90,000 in borrowings from related parties offset by principal payments of $1,340 to a related party.

Credit Resources

We maintain an accounts receivable financing line of credit from an independent financial institution that allows us to sell selected accounts receivable invoices to the financial institution with full recourse against us in the amount of $2,000,000, including a sublimit for one major client of $1,500,000. This provides us with the cash needed to finance certain costs and expenses. At September 30, 2018, we had financing availability, based on eligible accounts receivable, of approximately $97,000 under this line. We pay fees based on the length of time that the invoice remains unpaid.

12

We believe the capital resources available under our factoring line of credit, cash from additional related party and third-party loans and cash generated by improving the results of our operations provide sources to fund the ongoing operations and to support our internal growth. Although we cannot give any assurances, we believe that related parties, who have previously provided working capital, and third parties will continue to provide working capital loans on similar terms, as in the past, as may be necessary to fund our on-going operations for at least the next 12 months. However, substantial doubt about our ability to continue as a going concern has not been alleviated. If we experience significant growth in sales, we believe that this may require us to increase our financing line, finance additional accounts receivable, or obtain additional working capital from other sources to support the sales growth.

We anticipate financing growth from acquisitions of other businesses, if any, and our longer-term internal growth through one or more of the following sources: cash from collections of accounts receivable; additional borrowing from related and third parties; issuance of equity; use of our existing accounts receivable credit facility; or a refinancing of our accounts receivable credit facility.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and chief financial officer concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  PART II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

In October 2018, we granted two employees common stock options to purchase 300,000 shares exercisable at an average price of $.02 per share. The grant of these stock options is exempt from registration under the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereunder, as a transaction by an issuer not involving any public offering.

Item 6. Exhibits

Exhibits required to be filed by Item 601 of Regulation S-K.

For the exhibits that are filed herewith or incorporated herein by reference, see the Index to Exhibits located below in this report. The Index to Exhibits is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Infinite Group, Inc. (Registrant)
Date: July 3, 2019	/s/ James Villa
	James Villa
	Chief Executive Officer
	(Principal Executive Officer)
Date: July 3, 2019	/s/ James Witzel
	James Witzel
	Chief Financial Officer
	(Principal Financial Officer)

13

	INDEX TO EXHIBITS
Exhibit No.	Description
31.1	Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	Chief Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. *
32.1	Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. *
32.2	Chief Financial Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS	XBRL Instance Document.*
101.SCH	XBRL Taxonomy Extension Schema Document.*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.*
* Filed as an exhibit hereto.

14

EX-31

EXHIBIT 31.1

CERTIFICATION

I, James Villa, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Infinite Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 3, 2019

                                                     /s/ James Villa

James Villa

Chief Executive Officer

(Principal Executive Officer)

EX-31

EXHIBIT 31.2

CERTIFICATION

I, James Witzel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Infinite Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 3, 2019

                                  /s/ James Witzel

 James Witzel

 Chief Financial Officer

(Principal Financial Officer)

EX-32

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the quarterly report of Infinite Group, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2018 as filed with the Securities and Exchange Commission (the "Report"), I, James Villa, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: July 3, 2019

/s/ James Villa

James Villa

Chief Executive Officer

(Principal Executive Officer)

A signed original of this certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the quarterly report of Infinite Group, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2018 as filed with the Securities and Exchange Commission (the "Report"), I, James Witzel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: July 3, 2019

 /s/ James Witzel

James Witzel

Chief Financial Officer

(Principal Financial and Accounting Officer)

A signed original of this certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Jul. 01, 2019
Document And Entity Information [Abstract]
Entity Registrant Name	INFINITE GROUP INC
Entity Central Index Key	0000884650
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Is Entity's Reporting Status Current?	No
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		29,061,883
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2018

XML

BALANCE SHEETS (Unaudited) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Current Assets
Cash	$ 3,643	$ 73,734
Accounts receivable, net of allowances of $26,000 as of September 30, 2018 and $30,000 as of December 31, 2017	275,244	479,294
Prepaid expenses and other current assets	10,449	4,325
Total current assets	289,336	557,353
Property and equipment, net	9,470	18,349
Deposits	6,667	6,667
Total assets	305,473	582,369
Current Liabilities
Accounts payable	352,554	864,931
Accrued payroll	299,669	178,065
Accrued interest payable	872,614	773,367
Accrued retirement	242,003	234,886
Accrued expenses - other	85,526	63,109
Current maturities of long-term obligations	686,000	686,000
Current maturities of long-term obligations - related parties	34,350	29,660
Notes payable	362,500	362,500
Notes payable - related parties	102,000	32,000
Total current liabilities	3,037,216	3,224,518
Long-term obligations:
Notes payable - other	742,696	737,780
Notes payable - related parties	678,125	658,635
Total liabilities	4,458,037	4,620,933
Commitments
Stockholders' deficiency:
Common stock, $.001 par value, 60,000,000 shares authorized; 29,061,883 shares issued and outstanding	29,061	29,061
Additional paid-in capital	30,591,896	30,591,896
Accumulated deficit	(34,773,521)	(34,659,521)
Total stockholders' deficiency	(4,152,564)	(4,038,564)
Total liabilities and stockholders' deficiency	$ 305,473	$ 582,369

XML

BALANCE SHEETS (Parenthetical) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Allowances for accounts receivable	$ 26,000	$ 30,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	60,000,000	60,000,000
Common stock, shares issued	29,061,883	29,061,883
Common stock, shares outstanding	29,061,883	29,061,883

XML

STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Statement [Abstract]
Sales	$ 1,570,342	$ 1,586,278	$ 4,666,562	$ 4,799,434
Cost of sales	1,005,542	1,133,202	3,063,893	3,395,436
Gross profit	564,800	453,076	1,602,669	1,403,998
Costs and expenses:
General and administrative	261,401	290,142	848,735	867,097
Selling	223,367	288,093	677,677	931,840
Total costs and expenses	484,768	578,235	1,526,412	1,798,937
Operating income (loss)	80,032	(125,159)	76,257	(394,939)
Interest expense:
Related parties	(16,454)	(14,840)	(45,428)	(40,221)
Other	(47,578)	(48,001)	(144,829)	(142,991)
Total interest expense	(64,032)	(62,841)	(190,257)	(183,212)
Net income (loss)	$ 16,000	$ (188,000)	$ (114,000)	$ (578,151)
Net income (loss) per share - basic and diluted	$ 0	$ (.01)	$ 0	$ (.02)
Weighted average shares outstanding - basic and diluted	29,061,883	29,105,361	29,061,883	29,076,535

XML

STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net loss	$ (114,000)	$ (578,151)
Adjustments to reconcile net loss to net cash used by operating activities:
Stock based compensation	0	25,198
Depreciation and amortization	19,315	106,909
Bad debt recovery	(4,000)	(30,000)
(Increase) decrease in assets:
Accounts receivable	208,050	(62,138)
Prepaid expenses and other assets	(6,124)	10,108
Increase (decrease) in liabilities:
Accounts payable	(512,377)	245,339
Accrued expenses	243,268	170,298
Accrued retirement	7,117	6,840
Net cash used by operating activities	(158,751)	(105,597)
Cash flows from investing activities:
Purchases of property and equipment	0	(5,608)
Net cash used by investing activities	0	(5,608)
Cash flows from financing activities:
Proceeds from notes payable - related parties	90,000	92,000
Repayments of notes payable - related parties	(1,340)	(3,350)
Repayments of notes payable	0	(5,779)
Net cash provided (used) by financing activities	88,660	82,871
Net decrease in cash	(70,091)	(28,334)
Cash - beginning of period	73,734	42,436
Cash - end of period	3,643	14,102
Supplemental Disclosures of Cash Flow Information:
Cash payments for interest	$ 79,354	$ 89,986

XML

1. Basis of Presentation

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

The accompanying unaudited financial statements of Infinite Group, Inc. (“Infinite Group, Inc.” or the “Company”) included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (U.S.) ("GAAP") for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. The December 31, 2017 balance sheet has been derived from the audited financial statements at that date but does not include all disclosures required by GAAP. The accompanying unaudited financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission (SEC). Results of operations for the nine months ended September 30, 2018 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2018.

XML

2. Management Plans - Capital Resources

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Management Plans - Capital Resources

The Company reported net losses of $114,000 and $578,151 for the nine months ended September 30, 2018 and 2017, respectively, and stockholders’ deficiencies of $4,152,564 and $4,038,564 at September 30, 2018 and December 31, 2017, respectively. Accordingly, and due to current working capital deficiencies, there is substantial doubt about the Company’s ability to continue as a going concern and this substantial doubt has not been alleviated.

The Company's goal is to increase sales and generate cash flow from operations on a consistent basis. The Company uses a formal financial review and budgeting process as a tool for improvement that has aided expense reduction and internal performance. The Company’s business plans require improving the results of its operations in future periods.

The Company believes the capital resources available under its factoring line of credit, cash from additional related party and third-party loans and cash generated by improving the results of its operations provide sources to fund its ongoing operations and to support the internal growth of the Company. Although the Company has no assurances, the Company believes that related parties, who have previously provided working capital, and third parties will continue to provide working capital loans on similar terms, as in the past, as may be necessary to fund its on-going operations for at least the next 12 months. If the Company experiences significant growth in its sales, the Company believes that this may require it to increase its financing line, finance additional accounts receivable, or obtain additional working capital from other sources to support its sales growth.

XML

3. Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

There are several accounting policies that the Company believes are significant to the presentation of its financial statements. These policies require management to make complex or subjective judgments about matters that are inherently uncertain. Note 3 to the Company’s audited financial statements for the year ended December 31, 2017 presents a summary of significant accounting policies as included in the Company's Annual Report on Form 10-K as filed with the SEC.

Reclassifications - The Company reclassifies amounts in its financial statements to comply with recently adopted accounting pronouncements.

Fair Value of Financial Instruments - The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the immediate short-term maturity of these financial instruments. The carrying value of notes payable and convertible notes payable approximates the fair value based on rates currently available from financial institutions and various lenders.

Revenue - Effective January 1, 2018, the Company adopted Topic 606 using the modified retrospective approach and applied the guidance to those contracts which were not completed as of January 1, 2018. Adoption of Topic 606 did not impact the timing of revenue recognition in the Company’s financial statements for the current or prior periods. Accordingly, no adjustments have been made to opening accumulated deficit or prior period amounts.

The Company’s total revenue recognized from contracts from customers was comprised of three major services: Managed support services, Cybersecurity Projects and software and Other IT consulting services. The categories depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. There were no material unsatisfied performance obligations at June 30, 2018 or 2017 for contracts with an expected original duration of more than one year. The following table summarizes the revenue recognized by the major services:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Managed support services	$	1,224,138	$	1,219,370	$	3,657,509	$	3,764,613
Cybersecurity projects and software		295,138		290,325		865,449		896,965
Other IT consulting services		51,066		76,583		143,604		137,856
Total sales	$	1,570,342	$	1,586,278	$	4,666,562	$	4,799,434

Managed support services

Managed support services consist of revenue primarily from our subcontracts for services to its end clients, principally a major establishment of the U.S. Government for which we manage one of the nation’s largest physical and virtual Microsoft Windows environments.

● We generate revenue primarily from these subcontracts through fixed price service and support agreements.  Revenues are earned and billed weekly and are generally paid within 45 days. The revenues are recognized at time of service.

Cybersecurity projects and software

Cybersecurity projects and software revenue includes the selling of licenses of Nodeware™ and third-party software, principally Webroot™ as well as performing cybersecurity assessments and testing.

● Nodeware™ and Webroot™ software offerings consist of fees generated from the use of the respective software by our customers. Revenue is recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Substantially all customers are billed in the month of the service and is cancellable upon notice per the respective agreements.  Substantially all payments are electronically billed, and the billed amounts are paid to the Company instantaneously via an online payment platform. If payments are made in advance, revenues related to the term associated with our software licenses is recognized ratably over the contractual period.

● Some of our customers have the option to purchase additional subscription and support services at a stated price. These options generally do not provide a material right as they are priced at our standalone selling price.

● Cybersecurity assessments and testing services are considered distinct performance obligations when sold stand alone or with other products. These contracts generally have terms of one year or less. For substantially all these contracts, revenue is recognized when the specific performance obligation is satisfied.  If the contract has multiple performance obligations, the revenue is recognized when the performance obligations are satisfied. Depending on the nature of the service, the amounts recognized are either based on an allocation of the transaction price to each performance obligation based on a relative standalone selling price of the products sold.

● In substantially all agreements, a 50% to 75% down payment is required before work is initiated. Down payments received are deferred until revenue is recognized. Upon completion of performance obligation of service, payment terms are 30 days.

Other IT consulting services

Other IT consulting services consists of services such as project management and general IT consulting services. 

● We generate revenue via fixed price service agreements.  These are based on periodic billings of a fixed dollar amount for recurring services of a similar nature performed according to the contractual arrangements with clients.  The revenues are recognized at time of service.

Based on historical experience, the Company believes that collection is reasonably assured.

During the nine months ended September 30, 2018, sales to one client, including sales under subcontracts for services to several entities, accounted for 71.4% of total sales (69.6% - 2017) and 27.9% of accounts receivable at September 30, 2018 (67.5% - December 31, 2017).

Recent Accounting Pronouncements Not Yet Adopted - In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Topic 842 (as amended by ASU’s 2018-01, 10, 11 and 20) amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. The new leasing standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018 (January 1, 2019 for the Company). The original guidance required application on a modified retrospective basis to the earliest period presented. ASU 2018-11, Targeted improvements to ASC 842, includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842 as the date of initial application of transition. The Company adopted the new standard on the effective date of January 1, 2019 by applying the new transition method allowed under ASU 2018-11 and will add approximately $266,000 to long-term assets, $69,000 to short-term liabilities and $197,000 to long-term liabilities at January 1, 2019.

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4. Sale of Certain Accounts Receivable

9 Months Ended

Sep. 30, 2018

Accounts Receivable, after Allowance for Credit Loss [Abstract]

Sale of Certain Accounts Receivable

The Company has available a financing line with a financial institution (the Purchaser), which enables the Company to sell accounts receivable to the Purchaser with full recourse against the Company. Pursuant to the provisions of FASB ASC 860, the Company reflects the transactions as a sale of assets and establishes an accounts receivable from the Purchaser for the retained amount less the costs and fees of the transaction and less any anticipated future loss in the value of the retained asset.

The retained amount is 10% of the total accounts receivable invoice sold to the Purchaser. The fee is charged at prime plus 3.6% (effective rate of 8.85% at September 30, 2018) against the average daily outstanding balance of funds advanced. The estimated future loss reserve for each receivable included in the estimated value of the retained asset is based on the payment history of the accounts receivable customer and is included in the allowance for doubtful accounts, if any. As collateral, the Company granted the Purchaser a first priority interest in accounts receivable and a blanket lien, which may be junior to other creditors, on all other assets.

The financing line provides the Company the ability to finance up to $2,000,000 of selected accounts receivable invoices, which includes a sublimit for one of the Company’s customers of $1,500,000. During the nine months ended September 30, 2018, the Company sold approximately $3,890,000 ($3,695,000 - September 30, 2017) of its accounts receivable to the Purchaser. As of September 30, 2018, approximately $389,000 ($4,486 - December 31, 2017) of these receivables remained outstanding. Additionally, as of September 30, 2018, the Company had approximately $97,000 available under the financing line with the financial institution ($376,000 - December 31, 2017). After deducting estimated fees, allowance for bad debts and advances from the Purchaser, the net receivable from the Purchaser amounted to $38,904, at September 30, 2018 ($449 - December 31, 2017), and is included in accounts receivable in the accompanying balance sheets.

There were no gains or losses on the sale of the accounts receivable because all were collected. The cost associated with the financing line totaled $40,007 for the nine months ended September 30, 2018 ($35,944 - September 30, 2017). These financing line fees are classified on the statements of operations as interest expense.

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5. Earnings Per Share

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Earnings Per Share

Basic earnings per share is based on the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is based on the weighted average number of common shares outstanding, as well as dilutive potential common shares which, in the Company’s case, comprise shares issuable under convertible notes payable and stock options. The treasury stock method is used to calculate dilutive shares, which reduces the gross number of dilutive shares by the number of shares purchasable from the proceeds of the options and warrants assumed to be exercised. In a loss period, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.

The following table sets forth the computation of basic and diluted loss per share:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018			2017
Numerator for basic and diluted net loss per share:
Net income (loss)	$	16,000	$	(188,000	)	$	(114,000	)	$	(578,151	)
Denominator for basic and diluted net loss per share:
Weighted average common shares outstanding		29,061,883		29,105,361			29,061,883			29,076,535
Basic and diluted net income (loss) per share	$	.00	$	(.01	)	$	.00		$	(.02	)
Anti-dilutive shares excluded from net loss share calculation		28,530,252		28,033,096			28,530,252			28,033,096

Certain common shares issuable under stock options and convertible notes payable have been omitted from the diluted net loss per share calculation because their inclusion is considered anti-dilutive because the exercise prices were greater than the average market price of the common shares or their inclusion would have been anti-dilutive.

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6. Notes Payable - Related Parties

9 Months Ended

Sep. 30, 2018

Notes Payable [Abstract]

Notes Payable - Related Parties

On July 12, 2018, the Company borrowed $70,000 from an officer of the Company under the terms of an unsecured demand promissory note with interest at 6%.

The Company borrowed $20,000 from the unsecured line of credit financing agreement with a related party during the first quarter. The LOC Agreement was entered into on September 17, 2017 and provides for working capital of up to $75,000 with interest at 6% due quarterly through January 2, 2023. The balance is $70,000 at September 30, 2018.

A 7% note payable of $25,000 due to a related party matured on March 31, 2018 and is classified as a current liability in the accompanying balance sheet at September 30, 2018.

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7. Stock Option Plans and Agreements

9 Months Ended

Sep. 30, 2018

Share-based Payment Arrangement [Abstract]

Stock Option Plans and Agreements

The Company has approved stock options plans and agreements covering up to an aggregate of 8,273,000 shares of common stock. Such options may be designated at the time of grant as either incentive stock options or nonqualified stock options. Stock based compensation consists of charges for stock option awards to employees, directors and consultants.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. No options were granted for the nine months ended September 30, 2018. The following assumptions were used for the nine months ended September 30, 2017.

Risk-free interest rate	1.50% - 1.58%
Expected dividend yield	0%
Expected stock price volatility	100%
Expected life of options	2.75 to 3.0 years

The Company recorded expense for options issued to employees and independent service providers of $0 and $25,198 for the nine months ended September 30, 2018 and 2017, respectively.

At September 30, 2018, there was approximately $7,300 of total unrecognized compensation cost related to non-vested options. That cost is expected to be recognized over a weighted average period of approximately one year. No options vested during the nine months ended September 30, 2018.

A summary of all stock option activity for the nine months ended September 30, 2018 follows:

	Number of Options Outstanding			Weighted Average Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2017		8,031,000		$	.10
Expired		(406,000	)	$	.26
Outstanding at September 30, 2018		7,625,000		$	.09	3.5 years	$	0
At September 30, 2018 - vested or
expected to vest and exercisable		6,687,000		$	.07	3.9 years	$	0

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8. Related Party Accounts Receivable and Accrued Interest Payable

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Related Party Accounts Receivable and Accrued Interest Payable

Accrued Interest Payable - Included in accrued interest payable is accrued interest payable to related parties of $141,097 at September 30, 2018 ($104,862 - December 31, 2017).

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9. Subsequent Event

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Event

During the fourth quarter of 2018, the Company concluded that they have been legally released from a liability. Accordingly, a gain on settlement of debt in the amount of $83,250 has been recorded, representing the $30,000 principal balance, as well as $53,250 of accrued interest.

On May 7, 2019, the Company entered into a note payable agreement for up to $500,000 with a related party. The note has an interest rate of 7.5% and is due on August 31, 2026.  The Company borrowed $200,000 which remains outstanding. As consideration for providing this financing, the Company granted a stock option to purchase a total of 2,500,000 common shares at an exercise price of $.02 for a total expense of $14,250.

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3. Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Reclassifications

Reclassifications - The Company reclassifies amounts in its financial statements to comply with recently adopted accounting pronouncements.

Fair Value of Financial Instruments

Fair Value of Financial Instruments - The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the immediate short-term maturity of these financial instruments. The carrying value of notes payable and convertible notes payable approximates the fair value based on rates currently available from financial institutions and various lenders.

Revenue

Revenue - Effective January 1, 2018, the Company adopted Topic 606 using the modified retrospective approach and applied the guidance to those contracts which were not completed as of January 1, 2018. Adoption of Topic 606 did not impact the timing of revenue recognition in the Company’s financial statements for the current or prior periods. Accordingly, no adjustments have been made to opening accumulated deficit or prior period amounts.

The Company’s total revenue recognized from contracts from customers was comprised of three major services: Managed support services, Cybersecurity Projects and software and Other IT consulting services. The categories depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. There were no material unsatisfied performance obligations at June 30, 2018 or 2017 for contracts with an expected original duration of more than one year. The following table summarizes the revenue recognized by the major services:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Managed support services	$	1,224,138	$	1,219,370	$	3,657,509	$	3,764,613
Cybersecurity projects and software		295,138		290,325		865,449		896,965
Other IT consulting services		51,066		76,583		143,604		137,856
Total sales	$	1,570,342	$	1,586,278	$	4,666,562	$	4,799,434

Managed support services

Managed support services consist of revenue primarily from our subcontracts for services to its end clients, principally a major establishment of the U.S. Government for which we manage one of the nation’s largest physical and virtual Microsoft Windows environments.

● We generate revenue primarily from these subcontracts through fixed price service and support agreements.  Revenues are earned and billed weekly and are generally paid within 45 days. The revenues are recognized at time of service.

Cybersecurity projects and software

Cybersecurity projects and software revenue includes the selling of licenses of Nodeware™ and third-party software, principally Webroot™ as well as performing cybersecurity assessments and testing.

● Nodeware™ and Webroot™ software offerings consist of fees generated from the use of the respective software by our customers. Revenue is recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Substantially all customers are billed in the month of the service and is cancellable upon notice per the respective agreements.  Substantially all payments are electronically billed, and the billed amounts are paid to the Company instantaneously via an online payment platform. If payments are made in advance, revenues related to the term associated with our software licenses is recognized ratably over the contractual period.

● Some of our customers have the option to purchase additional subscription and support services at a stated price. These options generally do not provide a material right as they are priced at our standalone selling price.

● Cybersecurity assessments and testing services are considered distinct performance obligations when sold stand alone or with other products. These contracts generally have terms of one year or less. For substantially all these contracts, revenue is recognized when the specific performance obligation is satisfied.  If the contract has multiple performance obligations, the revenue is recognized when the performance obligations are satisfied. Depending on the nature of the service, the amounts recognized are either based on an allocation of the transaction price to each performance obligation based on a relative standalone selling price of the products sold.

● In substantially all agreements, a 50% to 75% down payment is required before work is initiated. Down payments received are deferred until revenue is recognized. Upon completion of performance obligation of service, payment terms are 30 days.

Other IT consulting services

Other IT consulting services consists of services such as project management and general IT consulting services. 

● We generate revenue via fixed price service agreements.  These are based on periodic billings of a fixed dollar amount for recurring services of a similar nature performed according to the contractual arrangements with clients.  The revenues are recognized at time of service.

Based on historical experience, the Company believes that collection is reasonably assured.

During the nine months ended September 30, 2018, sales to one client, including sales under subcontracts for services to several entities, accounted for 71.4% of total sales (69.6% - 2017) and 27.9% of accounts receivable at September 30, 2018 (67.5% - December 31, 2017).

Recent Accounting Pronouncements Not Yet Adopted

Recent Accounting Pronouncements Not Yet Adopted - In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Topic 842 (as amended by ASU’s 2018-01, 10, 11 and 20) amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. The new leasing standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018 (January 1, 2019 for the Company). The original guidance required application on a modified retrospective basis to the earliest period presented. ASU 2018-11, Targeted improvements to ASC 842, includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842 as the date of initial application of transition. The Company adopted the new standard on the effective date of January 1, 2019 by applying the new transition method allowed under ASU 2018-11 and will add approximately $266,000 to long-term assets, $69,000 to short-term liabilities and $197,000 to long-term liabilities at January 1, 2019.

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3. Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Disaggregation of revenue

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Managed support services	$	1,224,138	$	1,219,370	$	3,657,509	$	3,764,613
Cybersecurity projects and software		295,138		290,325		865,449		896,965
Other IT consulting services		51,066		76,583		143,604		137,856
Total sales	$	1,570,342	$	1,586,278	$	4,666,562	$	4,799,434

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5. Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Schedule of earnings per share, basic and diluted

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018			2017
Numerator for basic and diluted net loss per share:
Net income (loss)	$	16,000	$	(188,000	)	$	(114,000	)	$	(578,151	)
Denominator for basic and diluted net loss per share:
Weighted average common shares outstanding		29,061,883		29,105,361			29,061,883			29,076,535
Basic and diluted net income (loss) per share	$	.00	$	(.01	)	$	.00		$	(.02	)
Anti-dilutive shares excluded from net loss share calculation		28,530,252		28,033,096			28,530,252			28,033,096

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7. Stock Option Plans and Agreements (Tables)

9 Months Ended

Sep. 30, 2018

Share-based Payment Arrangement [Abstract]

Schedule of share-based payment award, stock options, valuation assumptions

Risk-free interest rate	1.50% - 1.58%
Expected dividend yield	0%
Expected stock price volatility	100%
Expected life of options	2.75 to 3.0 years

Schedule of share-based compensation, stock options, activity

	Number of Options Outstanding			Weighted Average Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2017		8,031,000		$	.10
Expired		(406,000	)	$	.26
Outstanding at September 30, 2018		7,625,000		$	.09	3.5 years	$	0
At September 30, 2018 - vested or
expected to vest and exercisable		6,687,000		$	.07	3.9 years	$	0

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2. Management Plans - Capital Resources (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Net income (loss)	$ 16,000	$ (188,000)	$ (114,000)	$ (578,151)
Stockholders' deficiency	$ (4,152,564)		$ (4,152,564)		$ (4,038,564)

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3. Summary of Significant Accounting Policies (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Total sales	$ 1,570,342	$ 1,586,278	$ 4,666,562	$ 4,799,434
Managed Support Services
Total sales	1,224,138	1,219,370	3,657,509	3,764,613
Cybersecurity Projects and Software
Total sales	295,138	290,325	865,449	896,965
Other IT Consulting Services
Total sales	$ 51,066	$ 76,583	$ 143,604	$ 137,856

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5. Earnings Per Share (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Earnings Per Share [Abstract]
Net income (loss)	$ 16,000	$ (188,000)	$ (114,000)	$ (578,151)
Weighted average common shares outstanding	29,061,883	29,105,361	29,061,883	29,076,535
Basic and diluted net loss per share	$ 0	$ (.01)	$ 0	$ (.02)
Anti-dilutive shares excluded from net loss per share calculation	28,530,252	28,033,096	28,530,252	28,033,096

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7. Stock Option Plans and Agreements (Details)	9 Months Ended
	Sep. 30, 2017
Expected dividend yield	0.00%
Expected stock price volatility	100.00%
Minimum
Risk-free interest rate	1.50%
Expected life of options	2 years 9 months
Maximum
Risk-free interest rate	1.58%
Expected life of options	3 years

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7. Stock Option Plans and Agreements (Details 1)	9 Months Ended
	Sep. 30, 2018 USD ($) $ / shares shares
Share-based Payment Arrangement [Abstract]
Number of options outstanding, beginning | shares	8,031,000
Number of options expired | shares	(406,000)
Number of options outstanding, ending | shares	7,625,000
Number of options vested or expected to vest | shares	6,687,000
Number of options exercisable | shares	6,687,000
Weighted average exercise price outstanding, beginning | $ / shares	$ 0.10
Weighted average exercise price expired | $ / shares	0.26
Weighted average exercise price outstanding, ending | $ / shares	0.09
Weighted average exercise price vested or expected to vest | $ / shares	0.07
Weighted average exercise price exercisable | $ / shares	$ 0.07
Weighted-average remaining contractual term outstanding	3 years 6 months
Weighted-average remaining contractual term vested or expected to vest	3 years 10 months 24 days
Weighted-average remaining contractual term exercisable	3 years 10 months 24 days
Aggregate intrinsic value outstanding | $	$ 0
Aggregate intrinsic value vested or expected to vest | $	0
Aggregate intrinsic value exercisable | $	$ 0

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8. Related Party Accounts Receivable and Accrued Interest Payable (Details Narrative) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Related Party Transactions [Abstract]
Accrued interest payable, related parties, current	$ 141,097	$ 104,862