U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
Mark One
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934
For the transition period from period from ______ to _______
Commission File Number 0-21816
INFINITE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1490422
--------------------------------------------------------------------------------
(State or other jurisdiction (I.R. S. Employer
of organization) Identification No.)
2364 Post Road, Warwick, RI 02886
--------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(401) 738-5777
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
As of August 1, 2000 the Registrant has a total of 3,331,322 shares of Common
Stock, $.001 par value, outstanding. The aggregate market value of the voting
stock of the registrant held by non-affiliates of the registrant on August 1,
2000, based on the average bid and asked price on such date was $5,039,935.
Transitional Small Business Disclosure Format
Yes |_| No |X|
<PAGE>
INDEX
INFINITE GROUP, INC.
PART 1. FINANCIAL INFORMATION
Page
----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 1
Consolidated Statements of Operations - Three Months
And Six Months Ended June 30, 2000 and 1999 2
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 2000 and 1999 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 8
PART II. OTHER INFORMATION 16
Items
SIGNATURES 16
<PAGE>
INFINITE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 261,890 $ 328,094
Restricted funds 16,677 79,235
Accounts receivable, net of allowances 1,745,874 1,496,288
Inventories 535,088 536,554
Advance - stockholder 50,249 50,014
Other current assets 99,483 147,581
Note receivable -- 204,716
------------ ------------
Total current assets 2,709,261 2,842,482
Property and equipment, net 6,722,103 7,059,367
Other assets:
Cash surrender value of officer life insurance 61,546 61,546
Prepaid pension costs 769,101 769,101
Intangible assets, net 267,939 318,342
Other investment 295,000 250,000
Note receivable - stockholders -- 6,652
------------ ------------
Total other assets 1,393,586 1,405,641
------------ ------------
$ 10,824,950 $ 11,307,490
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable:
Bank $ 743,984 $ 893,957
Stockholder 65,000 40,000
Accounts payable and accrued expenses 2,074,235 1,852,483
Current maturities of long term obligations 903,637 1,042,159
Current maturities of notes payable - stockholder 22,520 21,572
------------ ------------
Total current liabilities 3,809,376 3,850,171
Long term obligations 4,476,405 5,198,680
Notes payable - stockholders 390,236 380,483
Stockholders' equity
Common stock, $.001 par value, 20,000,000
shares authorized 3,331,322, and 2,918,603 shares
issued; 2,987,228 and 2,368,528 shares 3,456 2,918
outstanding; 125,000 and -0- shares subscribed
Additional paid-in capital:
Common stock 21,401,407 20,564,179
Warrants 825,199 671,418
Accumulated deficit (18,970,894) (17,985,172)
------------ ------------
3,259,168 3,253,343
Less:
Treasury stock, 344,094 and 550,075 shares, at cost 860,235 1,375,187
Common stock subscription receivable 250,000 --
------------ ------------
Total stockholders' equity 2,148,933 1,878,156
------------ ------------
$ 10,824,950 $ 11,307,490
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
INFINITE GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 3,236,850 $ 2,685,738 $ 6,484,665 $ 3,921,740
Cost of goods sold 2,157,126 2,276,113 4,313,925 3,026,495
----------- ----------- ----------- -----------
Gross profit 1,079,724 409,625 2,170,740 895,245
Costs and expenses
Research and development 285,965 387,050 525,376 992,914
General and administrative expenses 709,619 809,544 1,336,525 1,303,532
Selling expenses 135,557 275,988 316,432 419,526
Depreciation and amortization 282,907 203,671 555,004 350,746
----------- ----------- ----------- -----------
Total costs and expenses 1,414,048 1,676,253 2,733,337 3,066,718
----------- ----------- ----------- -----------
Operating loss (334,324) (1,266,628) (562,597) (2,171,473)
Other income (expense)
Gain (loss) on sale of assets 800 -- (67,274) --
Interest and other income 5,200 20,704 5,200 38,056
Interest expense (200,869) (119,896) (361,051) (231,313)
----------- ----------- ----------- -----------
Total other income (expense) (194,869) (99,192) (423,125) (193,257)
----------- ----------- ----------- -----------
Loss from continuing operations (529,193) (1,365,820) (985,722) (2,364,730)
Gain on sale of business segment
(less applicable income taxes of $825,000) -- -- -- 4,170,315
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (529,193) (1,365,820) (985,722) 1,805,585
Extraordinary item -- (222,864) -- (222,864)
----------- ----------- ----------- -----------
Net income (loss) $ (529,193) $(1,588,684) $ (985,722) $ 1,582,721
=========== =========== =========== ===========
Income (loss) per share - basic:
Continuing operations $ (0.19) $ (0.62) $ (0.38) $ (1.04)
Disposed business segment: -- -- -- 1.84
Extraordinary item -- (0.10) -- (0.10)
----------- ----------- ----------- -----------
Net income (loss) per common share $ (0.19) $ (0.72) $ (0.38) $ 0.70
=========== =========== =========== ===========
Income from disposed business segment
per share - diluted $ -- $ -- $ -- $ 1.79
=========== =========== =========== ===========
Weighted average number of common
shares outstanding:
Basic 2,770,228 2,198,529 2,569,378 2,270,117
=========== =========== =========== ===========
Diluted 2,823,169 2,261,029 2,622,319 2,332,617
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
INFINITE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $(985,722) $(2,364,730)
Adjustments to reconcile net loss from continuing
operations to net cash used in continuing operations:
Depreciation and amortization 555,004 350,746
Loss on sale of assets 67,274 --
Amortization of discount on note payable 18,515 23,270
Expenses satisfied via issuance of equity -- 39,527
Asset write down and allowances 6,652 20,225
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (249,586) 362,509
Other current assets 48,098 44,795
Inventories 1,466 315,002
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 221,752 (687,746)
--------- -----------
Net cash used in continuing operations (316,547) (1,896,402)
Cash flows from investing activities:
Repayment of note receivable 204,716 --
Purchase of property and equipment (157,511) (1,229,663)
Purchase of investments (45,000) (298,701)
Increase in intangible assets -- (18,705)
Proceeds from the sale of of investment in Spectra Science Corp. -- 3,620,128
Proceeds from the sale of property and equipment 122,900 --
Advance to stockholder (235) (412)
Advance under note receivable -- (100,000)
--------- -----------
Net cash provided by investing activities 124,870 1,972,647
Cash flows from financing activities:
Net borrowings (repayments) of short-term debt 535,027 (280,723)
Borrowings of long-term obligations -- 984,026
Repayments of long-term obligations (714,298) (652,772)
Repayments of notes payable - stockholders (7,814) (69,315)
(Increase) decrease in restricted funds, net 62,558 60,069
Proceeds from the issuance of common stock 250,000 --
--------- -----------
Net cash provided by financing activities 125,473 41,285
--------- -----------
Net increase (decrease) in cash and cash equivalents (66,204) 117,530
Cash and cash equivalents - beginning of period 328,094 1,036,910
--------- -----------
Cash and cash equivalents - end of period $ 261,890 $ 1,154,440
========= ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
INFINITE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. - BASIS OF PRESENTATION
The accompanying financial statements of Infinite Group, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1999, which includes audited
financial statements and footnotes as of and for the years ended December 31,
1999 and 1998.
NOTE 2. - NOTES PAYABLE - STOCKHOLDER
During the quarters ended March 31, 2000 and June 30, 2000, the Company
incurred $255,000 and $104,000 of additional debt, payable to its President and
principal stockholder. The obligations accrued interest at the rate of 10-1/2%.
Including a loan of $40,000 incurred in December 1999, the principal balance of
$399,000 matured during the quarter ended June 30, 2000. Of these notes payable,
$248,285 was applied to the exercise price of warrants and options exercised by
the Company's President during the quarter and the balance, including accrued
interest, was satisfied by the issuance of common shares (see Note 5).
During the quarter ended June 30, 2000, the Company's President loaned
$325,000 to the Company evidenced by a note bearing interest at the rate of 11%
that matures in September 2000. A portion of this loan, in the amount of
$260,000, was satisfied during the quarter by the issuance of common shares
(see Note 5). The remaining balance amounting to $65,000 is included in note
payable stockholder at June 30, 2000.
NOTE 3. - EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," the Company has reported basic and diluted earnings per
share. The difference between the weighted average number of common shares
outstanding for the basic and diluted calculation represents the effect of
convertible debentures. The conversion of outstanding options and warrants were
not considered in the calculation of diluted income from disposed segment per
share since the average market price is less than the exercise price for all
exercisable securities during the periods ended June 30, 1999. The impact of
convertible debentures and the exercise of stock options is excluded from the
computation of loss per share from continuing operations because their assumed
conversion would be antidilutive.
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
INFINITE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 4. - CONVERTIBLE NOTES PAYABLE
During the quarter ended March 31, 2000, convertible notes payable to
former Osley and Whitney, Inc. shareholders, along with accrued interest
aggregating $146,540, were converted into 97,700 shares of the Company's common
stock. The excess of the fair market value of the common shares issued over the
principal and interest reduction, which amounted to $200,000, has been reflected
as additional purchase price consideration.
NOTE 5. - STOCKHOLDERS' EQUITY
During the quarter ended June 30, 2000, the Company's President exercised
62,019 incentive stock options and 128,000 common stock purchase warrants,
respectively, which had strike prices of $1.875 and $1.031, respectively. The
aggregate exercise price of $248,285 was paid by reducing Notes Payable -
Stockholder which became due during the quarter (see Note 2).
During the quarter ended June 30, 2000, the Company's President agreed to
accept 75,981 common shares (valued at $2.00 per share) in satisfaction of the
balance of the Notes Payable - Stockholder which became due during the quarter
(see Note 2).
During the quarter ended June 30, 2000, the Company's President agreed to
accept 130,000 common shares (valued at $2.00 per share) in satisfaction of a
portion of the Note Payable - Stockholder due September 2000 (see Note 2). As
additional consideration, the Company granted the President a five-year warrant
to purchase 25,000 common shares at $1.63 per share. The warrant was valued at
$40,000 which amount has been recorded as "additional paid in capital -
warrants" in the accompanying balance sheet.
During the quarter ended June 30, 2000, the Company sold, in a private
placement transaction, 250,000 common shares at a price of $2.00 per share,
resulting in proceeds of $500,000. As of June 30, 2000, $250,000 of this amount
has been received. The unpaid portion has been recorded as a stock subscription
receivable, which is due in four equal quarterly payments with interest at 10%
per annum, beginning on August 31, 2000. The receivable is shown as a reduction
of stockholders' equity in the accompanying balance sheet. In connection with
this transaction, the Company granted the purchaser a warrant to purchase 50,000
common shares at a price per share of $1.63, exercisable for a four year period
commencing May 31, 2001. A portion of the proceeds, amounting to $63,000, was
allocated to these warrants and recorded as additional paid-in capital -
warrants. This amount was based on the fair value of the warrant at the date of
grant, determined utilizing the Black-Schoeles pricing models. The Company also
granted the purchaser's designee a warrant to purchase 100,000 common shares at
a price of $2.00 per share, exercisable for a four year period commencing May
31, 2001, for services rendered in connection with the financing. This warrant
had a value of $124,000 at the date of grant, which is recorded as a stock
offering cost and additional paid-in capital - warrants.
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
INFINITE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 6. - BUSINESS SEGMENTS
The Company's businesses are organized, managed and internally reported as
two segments. The segments are determined based on differences in products,
production processes and internal reporting. All of the segments of the Company
operate entirely within the United States. Revenues from customers in foreign
countries are minimal.
Prior to April 1, 1999, the Laser segment was the primary segment. Revenue
from this segment accounted for 94% and 95% of total revenue in 1998 and the
first quarter of 1999, respectively. As a result, corporate expenses were
reported as part of the Laser Service segment. With the acquisition of O&W in
April 1999, the Plastics segment became a significant component of the Company's
consolidated financial statements. Based on the increased activity of the second
segment, general corporate activity is reported as a separate segment. Prior
periods were restated to conform with this presentation.
Transactions between reportable segments are recorded at cost. The Company
relies on intersegment cooperation and management does not represent that these
segments, if operated independently, would report the results shown.
A summary of selected consolidated information for the Company's industry
segments during the three and six month period ended June 30, 2000 and 1999 is
set forth as follows:
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
INFINITE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
Photonic
Material
Laser Spectra Plastics Unallocated
Group Science Group Corporate Eliminations Consolidated
----- ------- ----- --------- ------------ ------------
Three Months Ended June 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Sales from external customers $ 1,626,808 $ -- $ 1,610,042 $ -- $ -- $ 3,236,850
=========== =========== =========== ============ ============ ============
Operating loss $ (126,627) $ -- $ 24,138 $ (231,835) $ -- $ (334,324)
=========== =========== =========== ============ ============ ============
Identifiable assets $ 7,974,344 $ -- $ 3,717,931 $ 12,624,994 $(13,492,319) $ 10,824,950
=========== =========== =========== ============ ============ ============
Three Months Ended June 30, 1999
Sales from external customers $ 1,148,875 $ -- $ 1,536,863 $ -- $ -- $ 2,685,738
=========== =========== =========== ============ ============ ============
Operating loss $ (648,191) $ -- $ (361,089) $ (257,348) $ -- $ (1,266,628)
=========== =========== =========== ============ ============ ============
Extraordinary item $ -- $ -- $ -- $ 222,864 $ -- $ 222,864
=========== =========== =========== ============ ============ ============
Identifiable assets, as of
December 31, 1999 $ 8,871,591 $ -- $ 5,072,008 $ 10,922,806 $(13,558,915) $ 11,307,490
=========== =========== =========== ============ ============ ============
Six Months Ended June 30, 2000
Sales from external customers $ 3,324,389 $ -- $ 3,160,276 $ -- $ -- $ 6,484,665
=========== =========== =========== ============ ============ ============
Operating loss $ (191,430) $ -- $ 47,560 $ 418,727 $ -- $ 562,597
=========== =========== =========== ============ ============ ============
Identifiable assets $ 7,974,344 $ -- $ 3,717,931 $ 12,624,994 $(13,492,319) $ 10,824,950
=========== =========== =========== ============ ============ ============
Six Months Ended June 30, 1999
Sales from external customers $ 2,322,829 $ -- $ 1,598,911 $ -- $ -- $ 3,921,740
=========== =========== =========== ============ ============ ============
Operating loss $ (905,623) $ -- $ (703,152) $ (562,698) $ -- $ (2,171,473)
=========== =========== =========== ============ ============ ============
Net income from disposed business segment $ -- $ 4,170,315 $ -- $ -- $ -- $ 4,170,315
=========== =========== =========== ============ ============ ============
Extraordinary item $ -- $ -- $ -- $ 222,864 $ -- $ 222,864
=========== =========== =========== ============ ============ ============
Identifiable assets, as of
December 31, 1999 $ 8,871,591 $ -- $ 5,072,008 $ 10,922,806 $(13,558,915) $ 11,307,490
=========== =========== =========== ============ ============ ============
</TABLE>
7
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-QSB are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 regarding the plans and objectives of management
for future operations. You can identify these forward-looking statements by our
use of the words "believes," "anticipates," "plans," "expects," "may," "will,"
"intends," "estimates" and similar expressions, whether in the negative or
affirmative. Such statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Our plans and objectives are
based, in part, on assumptions involving judgements with respect to, among other
things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that its assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this report will prove to be accurate.
Factors that could cause actual results to differ materially from those
expressed or implied by forward -looking statements include, but are not limited
to, the factors set forth in "Certain Factors That May Affect Future Growth,"
under Part I, Item 1, of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999 as filed with the Securities and Exchange Commission. In
light of the significant uncertainties inherent in the forward-looking
statements included herein particularly in view of our early stage operations,
the inclusion of such information should not be regarded by us or any other
person that the objectives and plans of the Company will be achieved.
GENERAL
Our business has two business segments, the Laser and Photonics Group and
the Plastics Group. We sell products and services in the fields of material
processing, advanced manufacturing methods, high productivity production mold
building and laser-application technology. We have approximately 145 employees.
Our Laser and Photonics Group, comprised of Laser Fare (Smithfield, RI),
Mound Laser & Photonics Center (Miamisburg. OH) and the Advance Technology Group
(Narragansett, RI), provides comprehensive laser-based materials processing and
photonics services to leading manufacturers and contract research and
development.
Our Plastics Group, comprised of Osley & Whitney/ExpressTool (Westfield,
MA), Materials & Manufacturing Technologies (West Kingston, RI) and Express
Pattern (Buffalo Grove, IL), provides rapid prototyping services and proprietary
mold building services.
We were organized as a Delaware corporation on October 14, 1986. On
January 7, 1998, we changed our name from Infinite Machines Corp. to Infinite
Group, Inc. Our
8
<PAGE>
executive offices are located at 2364 Post Road, Warwick, RI 02886. We own
various trademark rights and hold federal trademark registration for our name
and the Infinite Group logo. "Infinite Group," "Laser Fare," "Osley & Whitney,"
"ExpressTool," and "Zyrkon" are registered trademarks of Infinite Group, Inc. We
maintain sites on the World Wide Web at www.infinite-group.com,
www.laserfare.com, www.mlpc.com, www.expresspattern.com and www.expresstool.com.
However, the information found on the web sites is not part of this report.
The laser and photonics group:
Our Laser Fare (LF) subsidiary is primarily engaged in contract laser
material processing; however it also develops new applications for industrial
lasers. Laser Fare has 23 high powered computer controlled lasers that are
capable of performing a wide variety of manufacturing with multi-axis
manipulation. Laser Fare also manufactures complete assemblies for selective
medical product companies. Approximately 75% of Laser Fare's sales come from
customers in the medical device, aerospace and power generation industries.
Customers include General Electric, United Technologies, Allied Signal,
Polaroid, Stryker Medical and Dey Laboratories. Through Laser Fare we also
provide a variety of value-add services, that include assembly, heat treating,
coating, testing and inspection. We quote orders through traditional sales
methods as well as through our Web site at www.laserfare.com. Laser Fare is
certified for overhaul and repair by the Federal Aviation Administration (FAA
No. LQFR37K), and as a Contract Manufacturer (Type E) by the Food and Drug
Administration (FDA No. 1287338).
Our Mound Laser and Photonics Center (MLPC) subsidiary specializes in
laser applications, photonics applications and materials processing, and
provides services within industry, government and education sectors. The midwest
location, a region long known for its expertise in materials and material
science, gives us a platform for growth into the automotive, aerospace, tool and
die and other local industries. Specialized services include growth of thin
films by pulsed laser deposition, application of lasers to chemistry and
photochemistry, spectroscopy, and applied optics. MLPC has applied for a
provisional patent on pulsed laser deposition. The combination of Laser Fare's
expertise in materials processing and MLPC's expertise in laser and photonics
applications creates a synergistic atmosphere for the advancement of laser
materials processing and the development and commercialization of new
laser-based technology.
In June 2000, our MLPC subsidiary was awarded a $100,000 Phase 1 Small
Business Innovative Research (SBIR) contract from the Air Force Research
Laboratory (AFRL). The SBIR is for work on the laser deposition of High
Temperature Superconductors (HTS). The work is based on recent developments at
our MLPC subsidiary in laser micromachining and fabrication technology. AFRL's
Materials and Manufacturing Directorate (AFRL/ML) possesses novel HTS process
technology and has developed complementary substrate preparation technology.
Our Advanced Technology Group (ATG) conducts research and development
programs for industrial and government sponsors. ATG has recently been awarded
9
<PAGE>
several contracts and subcontracts sponsored by the Defense Advanced Research
Project Agency (DARPA). DARPA is the central research and development
organization for the Department of Defense. It manages and directs selected
basic and applied research and development projects for the Department of
Defense, and pursues research and technology where risk and payoff are both very
high and where success may provide dramatic advances for traditional military
roles and missions and dual-use applications. As it effects ATG, these programs
have been focused on laser driven direct write technologies. Laser direct
technologies enable cost-effective manufacturing of engineered components
without the use of expensive tooling by directly depositing materials on
substrates with laser energy. Active and passive devices for electronic and
photonic applications can be manufactured this way as well as a wide variety of
sensors, Micro Electro Mechanical Systems ("MEMS") and actuators. These
technologies have applications across a broad range of industries that utilize
electronic and photonic materials (including telecommunications, automotive and
consumer electronics).
ATG has a consulting arrangement with Tensegra Inc. of Cambridge, MA.
Tensagra is creating technologies using synthetic biomimetic materials with the
mechanical responsiveness of living cells and tissues and applying these
technologies to medical, industrial and military applications. Our Advanced
Technology Group will utilize Laser Fare's and ExpressTool's proprietary
techniques to fabricate structures for Tensegra.
Triton Systems of Chelmsford, MA contracts with our Advanced Technology
Group to laser fabricate aerospace components from metal matrix composite
materials. These are strong lightweight materials that are used in aerospace
engines.
In May 2000, our Advance Technology Group was awarded a contract from MIOX
Corporation in support of their recent award from DARPA for small portable water
purification system that can be carried by a soldier in the field. The system
will provide filtered, desalinated, and disinfected water in sufficient quantity
to supply a single soldier, from natural water sources, including saltwater. We
will apply our knowledge of classical manufacturing and additive direct write
techniques to enable the cost effective manufacturing of these devices.
In June 2000, ATG was awarded a contract from the State University of New
York (SUNY) at Stony Brook in support of their recent award from DARPA for
thermally sprayed direct write sensors. The Center for Thermal Spray Technology
at SUNY-Stony Brook is a National Science Foundation Materials Research Science
and Engineering Center. The Center conducts both basic and applied research in
thermal spray materials and processes and has a broad base of industrial
support. It is recognized as a world leader in thermal spray technology. This
high energy direct write approach will create a new family of sensors and sensor
enabled MEMS that will be able to function in harsher environments than today
devices. Our successful completion of this work will open new markets for these
devices ranging from aerospace and automotive to telecommunications.
10
<PAGE>
The plastics group:
In April 1999, we acquired 100% of the outstanding capital stock of Osley
& Whitney, Inc. (O&W), a privately held Massachusetts corporation, from its
stockholders for approximately $1.5 million payable is cash and notes. O&W is a
fifty-year-old plastic injection moldbuilding company located in Westfield, MA
with approximately 54 employees. It serves a blue-ribbon clientele of
automotive, automotive aftermarket, consumer sporting goods, and office machine
companies including Polaroid, Pitney-Bowes, Hardigg Industries, and others, from
its 21,500-sq. ft. manufacturing facility. Our proprietary mold fabrication and
conformal cooling technologies lower the cost of molded parts, increase molding
capacity and provide shorter delivery times over conventional constructed molds.
This compliments our established expertise in the moldbuilding industry.
ExpressTool (ET) was integrated into our Westfield facility and separate
facilities in Warwick, RI were closed to reduce cost and improve productivity.
The ExpressTool process incorporates its conformal cooling and proprietary
thermal management for high production injection mold tooling to allow molds
used in the plastic fabrication industries to cool and eject parts up to 75%
faster than traditional molds. ET accepts 3-D design computer files directly
over the Internet from our customers who use such software as AutoCad, Pro-E,
Solidworks and Cadkey. ExpressTool is shipping mold inserts to such customers as
Cheeseborough Pond, 3M and GE Plastics among others. ET has achieved preferred
vendor status with Pitney Bowes, Hardigg Industries and others.
In April 1999, we formed Express Pattern (EP) located in Buffalo Grove, IL
to expand our midwest presence and provide plastic rapid prototyping services to
the metal casting industries. Express Pattern ships plastic prototype parts to
Allen-Bradley, Paradigm, Rolls-Royce Allison, Motorola, Hewlett-Packard and
others. In addition to quotations and prototype part production from traditional
blueprints, EP provides direct interface (including uploads over the internet)
from customer CAD software (such as AutoCad, Pro-E and others) to our
stereolithography systems and equipment. Express Pattern also provides similar
services to our other subsidiaries.
Also in April 1999, we acquired 100% of the outstanding stock of Materials
& Manufacturing Technologies, Inc. (MMT) of West Kingston, Rhode Island in
exchange for 20,000 shares of Infinite Group common stock. MMT has received a
patent, number 5,427,987, from the United States patent office on its work in
zirconium diboride materials. MMT has an exclusive licensing arrangement with
Texas A&M University (with rights to sub-license) for use of patents and
intellectual property owned by Texas A&M in the area of electrodes and parts
made from zirconium diboride/cooper (Zyrkon(TM)) composites. Zyrkon(TM)
composite electrodes have been shown to be superior to copper, tungsten/copper
and graphite electrodes in electrical discharge machining applications. In
addition, parts made from Zyrkon(TM) exhibit excellent abrasion resistance and
resistance to wear by electric arcs as well as high thermal conductivity and a
relatively low coefficient of thermal expansion. These properties indicate that
Zyrkon(TM) can be used to replace current material systems in applications as
varied as injection mold
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tooling, spot-welding, waste remediation electrodes, high-current switches and
heat sinks. The acquisition provides us with the ability to take advantage of
these material systems in our areas of expertise as well as providing us with
the ability to address new markets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its product development activities through a
series of private placements of debt and equity securities. As of June 30, 2000,
we had cash, cash equivalents and marketable debt securities of approximately $
261,890 available for our working capital needs and planned capital asset
expenditures.
While the majority of the revenues realized in the six months ending June
30, 2000 were attributed to Laser Fare and Osley & Whitney operations, we
anticipate improved revenue from other divisions and positive results from
additional expense containment measures that have been implemented. We are also
pursuing other strategies for raising working capital through debt and/or equity
transactions. On May 31, 2000, we completed a $500,000 private placement of
Common Stock, at a price of $2.00 per share, of which $250,000 was paid in cash
and the remainder is due in four equal installments (August 31, 2000, November
29, 2000, February 26, 2001 and May 26, 2001) with accrued interest at 10%. In
conjunction with the financing, we issued warrants to purchase 50,000 and
100,000 shares of Common Stock, respectively, at exercise prices of $1.625 and
$2.00 per share, respectively, exercisable commencing on the first anniversary
date of the warrant and expiring five years from the date of issuance.
On June 30, 1998, the Company's president and chief executive officer
loaned the Company an aggregate of $1.15 million. The note evidencing the loan
is for a term of ten years and bears interest at the rate of 9.0% for the first
twelve months and adjusts annually thereafter to a rate equal to the one-year
T-Bill rate plus 3%. Our president and chief executive officer also loaned the
Company $250,000 in the first quarter of 1998 pursuant to a one year note which
bore interest at a rate of 9.0%. This note was repaid during 1999. In
consideration for the loans, we granted the lender detachable warrants to
purchase 536,000 shares of our common stock exercisable at $5.60 per share. Half
of the warrants vested immediately and the remaining 50% vested in four equal
tranches; six, nine, twelve, and fifteen months from the anniversary date of the
loan. In April 1999, approximately $650,000 of the outstanding balance of the
loans was repaid. As of December 31, 1999, all warrants had vested. During the
quarter ended September 30, 1999, our president also loaned us an additional
$150,000 pursuant to a note that was convertible to common stock at $0.9375 per
share and bore interest at the prime interest rate. Subsequently, in December
1999, our president converted the note into 160,000 shares of common stock. In
consideration for the loan, we granted detachable warrants to purchase 128,000
shares of our common stock exercisable at $1.0375 per share. In December 1999,
our president loaned the company an additional $40,000 pursuant to a ninety day
promissory note which bore interest at a rate of 10% per annum. During the
quarter ended March 31, 2000, our president loaned us an additional $255,000
pursuant to ninety day promissory notes which bore interest at a rate of 10 1/2
% per annum. During the quarter ended June 30, 2000, our president loaned us an
additional $104,000
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pursuant to ninety day promissory bearing interest at a rate of 10 1/2% per
annum. In May 2000, our president converted all promissory notes outstanding
into 266,000 shares of common stock through the exercise of 62,019 incentive
stock options, 128,000 warrants and 75,981 treasury shares. In June 2000, our
president loaned us an additional $325,000 pursuant to a ninety day promissory
note which bears interest at a rate of 11% per annum. On June 6, 2000, he
converted $260,000 of that loan to 130,000 shares of Common Stock at $2.00 per
share. He received a warrant to purchase an additional 25,000 shares at $1.63
per share.
As of June 30, 2000 we had a working capital deficit of approximately
$1,100,115. In conjunction with our on-going business expansion program, we are
pursuing additional equity, alternative sources of funding from conventional
banking institutions and the availability of government funds in the form of
revenue bonds for the purchase of equipment and facilities, among others. There
is no assurance, however, that our current resources will be adequate to fund
our current operations and business expansion or that we will be successful in
raising additional working capital. Our failure to raise necessary working
capital could force us to curtail operations, which would have a material
adverse effect on our financial condition and results of operations.
Risk of Nasdaq Delisting. Our Common Stock is listed on the Nasdaq
SmallCap Market System and in connection therewith we are required to maintain
certain continued listing requirements including $2 million of net tangible
asset. At December 31, 1999 and at March 31, 2000, our net tangible assets were
$1,732,953 and $1,629,288, respectively. As a result, in April 2000, we received
notification from Nasdaq requesting submission by the Company of a plan to
achieve and sustain compliance with the Nasdaq SmallCap continued listing
requirements (the "Listing Requirements"). In May 2000, we submitted a plan,
which demonstrated both current compliance with the Listing Requirements and
continued compliance in foreseeable future periods. A response from Nasdaq to
our plan is outstanding. Our net tangible assets at June 30, 2000 were
$2,017,252. An additional $250,000 will be added to net tangible assets as a
stock subscription receivable is paid. Management believes that the Company will
continue to meet the Listing Requirements for the continued listing of our
Common Stock on the Nasdaq SmallCap Market. However, no assurance can be given
that we will continue to meet such requirements, or that Nasdaq will concur with
our plan. In the event that we do not meet the continued listing requirements,
our Common Stock will be subject to delisting from the Nasdaq SmallCap Market,
whereupon it would trade on the Nasdaq Electronic Bulletin Board. Such an event
would make it more difficult for shareholders to effect transactions in our
Common Stock.
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Results of Operatons
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Consolidated revenues for the three months ended June 30, 2000 were
$3,236,850 on cost of sales of $2,157,126, resulting in a gross profit of
$1,079,724 for the quarter. Consolidated revenues for the three months ended
June 30, 1999 were $2,685,738 on cost of sales of $2,276,113, resulting in a
gross profit of $409,625 for the three months ended June 30, 1999. The increase
of $551,112 or 20.5% in consolidated revenues for the quarter ended June 30,
2000 was due to increased revenues within both business segments.
Research and development expenses were $285,965 for the three months ended
June 30, 2000 as compared to $387,050 for the three months ended June 30,1999.
The decrease of $101,085, or 26.1%, was primarily attributable to cost
containment for research and development efforts in our plastics group as
separate ExpressTool facilities were integrated into our O&W operations.
General and administrative expenses were $709,619 for the three months
ended June 30, 2000 as compared to $809,544 for the three months ended June 30,
1999. The decrease of $99,925, or 12.3%, was primarily attributable to cost
reductions implemented by management.
Selling expenses were $135,557 for the quarter ended June 30, 2000, as
compared to $275,988 for the three months ended June 30, 1999. The decrease was
primarily attributable to productivity improvements such as quoting certain jobs
through our Internet websites.
Depreciation and amortization expenses were $282,907 for the second
quarter ended June 30, 2000, as compared to $203,671 for the three months ended
June 30,1999. The increase was primarily due to fixed asset additions in both
our laser and plastics groups.
Interest expense during the second quarter ending June 30, 2000 was
$200,869 as compared to $119,896 for the three months ended June 30, 1999. The
increase of $80,973, or 67.5%, was due to interest paid on the note payable to
our president, debt obligations related to the O&W acquisition and the increase
in the prime interest rates.
The loss from continuing operations was $529,193 for the three months
ended June 30, 2000, as compared to a loss of $1,365,820 for the three months
ended June 30, 1999. We had a consolidated net loss of $529,193 for the three
months ended June 30, 2000, as compared to the consolidated net loss of
$1,588,684 for the three months ended June 30, 1999.
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Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30, 1999
Consolidated revenue for the six months ended June 30, 2000 were
$6,484,665, with $3,324,389 of sales coming from the Laser Group and $3,160,276
of sales coming from the Plastics Group. Cost of sales totaled $4,313,925 and a
gross profit of $2,170,740 was realized for the period. For the six months ended
June 30, 1999, sales totaled $3,921,740 and consisted primarily of Laser Group
sales. Consolidated cost of sales was $3,026,495 for the first six months of
1999 and the Company realized a gross profit of $895,245 for the period. The
increase in consolidated revenues for the six months ended June 30, 2000 was due
to increased revenues within both business segments.
Research and development expenses were $525,376 during the six months
ended June 30, 2000 as compared to $992,914 during the six months ended June 30,
1999. The decrease of $467,538, or 47.1%, was primarily attributable to cost
containment for research and development efforts in our plastics group, as
separate ExpressTool facilities were integrated into our O&W operations.
General and administration expenses for the six months ended June 30, 2000
were $1,336,525 as compared to $1,303,532 for the six months ended June 30,
1999. The increase was primarily due to expenses for additional resources at our
Laser Group for engineers, training and for professional fees in the legal and
investor relations areas.
Selling expenses were $316,432 for the six months ended June 30, 2000 as
compared to $419,526 for the first six months of 1999. The decrease was
primarily attributable to reduced staffing and higher productivity of Internet
based quoting.
Depreciation and amortization expenses totaled $555,004 for the six months
ended June 30, 2000 as compared to $350,746 for the six months ended June 30,
1999. The increase was primarily due to fixed asset additions in both our laser
and plastics groups along with depreciation related to the O&W acquisition.
Interest expense was $361,051 and $231,313 during the six-month periods
ended June 30, 2000 and 1999 respectively. The increase in interest expense was
due to interest paid on the note payable to our president and chief executive
officer, Osley & Whitney bank note payable and the increase in prime interest
rates.
The loss from continuing operations was $985,722 for the six months ended
June 30, 2000 as compared to a loss of $2,364,730 for the six months ended June
30, 1999. We had a consolidated net loss of $985,722 for the six months ended
June 30, 2000 as compared to consolidated net income of $1,582,721 during the
six months ended June 30, 1999. The net income for six months ended June 30,
1999 was primarily attributed to the gain realized on the sale of the Company's
Spectra Science Series A Convertible Preferred Stock of approximately
$4,170,315, net of $825,000 in taxes.
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Part II - Other Information
Item 2 (c)
On May 31, 2000, we completed a private placement of 250,000 shares of Common
Stock to Neptune Capital, Inc. of La Jolla, CA at a price per share of $2.00,
yielding gross proceeds of $500,000. The purchase price was paid $250,000 in
cash with the balance due in four equal installments of $62,500 with accrued
interest at the rate of 10% per annum on August 31, 2000, November 29, 2000,
February 26, 2001 and May 26, 2001. In conjunction with the financing, five-year
warrants to purchase 50,000 and 100,000 shares of our Common Stock,
respectively, at $1.625 and $2.00, respectively, were issued to Neptune and its
designee. The securities were issued in reliance upon the exemptions afforded
pursuant to Sections 4(2) and 4(6) of the Securities Act of 1933, as amended.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
August 3, 2000
INFINITE GROUP, INC.
By: /s/ Clifford G. Brockmyre
----------------------------------------
Clifford G. Brockmyre, President
And Chief Executive Officer
By: /s/ Bruce J. Garreau
----------------------------------------
Bruce J Garreau
Chief Financial and Accounting
Officer
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