FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-21816
INFINITE GROUP, INC.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1490422
---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2364 Post Road, Warwick, RI 02886
---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (401) 738-5777
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
As of August 14, 2001 there were 4,370,718 shares of the registrant's common
stock, par value $0.001 per share, outstanding.
Transitional Small Business Disclosure Format: Yes |_| No |X|
INFINITE GROUP, INC.
Form 10-QSB
INDEX
Page
----
PART I. Unaudited Consolidated Financial Statements
Item 1. Consolidated Balance Sheets
June 30, 2001 and December 31, 2000 ...............................2
Consolidated Statements of Operations - Three and Six Months
Ended June 30, 2001 and 2000........................................3
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 2001 and 2000........................................4
Notes to Consolidated Financial Statements..........................5
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations................................8
PART II. OTHER INFORMATION
Items 1 - 6
None...............................................................14
SIGNATURES ...................................................................14
1
INFINITE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 231,390 $ 185,901
Restricted funds 16,736 85,735
Accounts receivable, net of allowance 1,803,547 1,827.275
Inventories 465,849 482,585
Advance - stockholder 53,454 50,249
Other current assets 127,628 104,003
------------ ------------
Total current assets 2,698,604 2,735,748
Property and equipment, net 7,050,918 7,169,794
Other assets:
Preferred stock investment 295,000 295,000
Prepaid pension costs 706,326 726,326
Intangible assets, net 655,643 416,002
Cash surrender value of officer life insurance -- 30,464
------------ ------------
Total other assets 1,656,969 1,467,792
------------ ------------
$ 11,406,491 $ 11,373,334
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable:
Bank $ 885,741 $ 945,695
Stockholders 58,330 48,946
Accounts payable and accrued liabilities 2,809,084 2,475,853
Current maturities of long-term obligations 1,125,282 3,037,365
Current maturities of long term obligations - stockholder 14,932 55,911
------------ ------------
Total current liabilities 4,893,369 6,563,770
Long term obligations 3,680,966 2,134,934
Long term obligations - stockholder 419,563 787,514
Stockholders' equity
Common stock, $.001 par value, 20,000,000
shares authorized 4,233,218 and 3,542,049
shares issued; 4,233,218 and 3,450,113
shares outstanding; 0 and 93,750 shares subscribed 4,233 3,636
Additional paid-in capital 23,828,281 22,653,410
Accumulated deficit (21,419,921) (20,352,590)
------------ ------------
2,412,593 2,304,456
Less:
Treasury stock, 0 and 91,936 shares, at cost -- (229,840)
Common stock subscription receivable -- (187,500)
------------ ------------
Total stockholders' equity 2,412,593 1,887,116
------------ ------------
$ 11,406,491 $ 11,373,334
============ ============
See accompanying notes to unaudited consolidated financial statements.
2
INFINITE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
Sales $ 3,858,234 $ 3,236,850 $ 7,267,976 $ 6,484,665
Cost of goods sold 2,543,783 2,157,126 4,924,270 4,313,925
----------- ----------- ----------- -----------
Gross profit 1,314,451 1,079,724 2,343,706 2,170,740
Costs and expenses
Research and development 510,904 285,965 702,648 525,376
General and administrative 846,290 709,619 1,417,363 1,336,525
Selling 167,234 135,557 346,717 316,432
Depreciation and amortization 266,993 282,907 532,630 555,004
----------- ----------- ----------- -----------
Total costs and expenses 1,791,421 1,414,048 2,999,358 2,733,337
----------- ----------- ----------- -----------
Operating loss (476,970) (334,324) (655,652) (562,597)
Other income (expense) Interest expense:
Stockholder (29,887) (23,830) (60,986) (48,425)
Other (140,263) (177,039) (311,895) (312,626)
Gain (loss) on dispositions of assets -- 800 -- (67,274)
Other income (expense) 714 5,200 2,934 5,200
----------- ----------- ----------- -----------
Total other income (expense) (169,436) (194,869) (369,947) (423,125)
----------- ----------- ----------- -----------
Net loss $ (646,406) $ (529,193) $(1,025,599) $ (985,722)
=========== =========== =========== ===========
Net loss per share - basic and diluted $ (0.16) $ (0.19) $ (0.27) $ (0.38)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding-basic and diluted 4,067,387 2,770,228 3,789,696 2,569,378
=========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
3
INFINITE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net loss $(1,025,599) $ (985,722)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 532,630 555,004
Loss on disposition of assets -- 67,274
Amortization of discount on note payable 17,217 18,515
Asset write down and allowances -- 6,652
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 23,728 (249,586)
Other current assets (26,830) 48,098
Inventories 16,736 1,466
Prepaid pension cost 20,000 --
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 394,167 221,752
----------- -----------
Net cash used in operating activities (47,951) (316,547)
----------- -----------
Cash flows from investing activities:
Collection of note receivable -- 204,716
Purchase of property and equipment (399,447) (157,511)
Proceeds from the sale of property and equipment -- 122,900
Investment in preferred stock -- (45,000)
Purchase of intangible assets (261,990) --
Advance to Stockholder -- (235)
Proceeds from cancellation of officer life insurance policy 30,464 --
----------- -----------
Net cash (used in) provided by investing activities (630,973) 124,870
----------- -----------
Cash flows from financing activities:
Net borrowings of notes payable 30,046 535,027
Repayments of long-term obligations (275,051) (714,298)
Repayments of long-term obligations - stockholder (7,229) (7,814)
Proceeds from the issuance of common stock, net of expenses 720,148 250,000
Collection of stock subscription receivable 187,500 --
Decrease in restricted funds, net 68,999 62,558
----------- -----------
Net cash provided by financing activities 724,413 125,473
----------- -----------
Net increase (decrease) in cash and cash equivalents 45,489 (66,204)
Cash and cash equivalents - beginning of period 185,901 328,094
----------- -----------
Cash and cash equivalents - end of period $ 231,390 $ 261,890
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
4
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 accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (including of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six-month period ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2001. For further information, refer to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2000, which includes audited
financial statements and footnotes as of and for the years ended December 31,
2000 and 1999.
NOTE 2. - RECLASSIFICATIONS
Certain amounts in the 2000 financial statements have been reclassified to
conform with the 2001 financial statement presentation.
NOTE 3. - PRONOUNCEMENTS ISSUED NOT YET ADOPTED
In July, 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, Business Combinations, and Statement 142, Goodwill
and Other Intangible Assets, which will potentially impact the Company's
accounting for its reported goodwill and other intangible assets.
Statement 141:
o Eliminates the pooling method for accounting for business combinations.
o Requires that intangible assets that meet certain criteria be reported
separately from goodwill.
o Requires negative goodwill arising from a business combination to be
recorded as an extraordinary gain.
Statement 142:
o Eliminates the amortization of goodwill and other intangibles that are
determined to have an indefinite life.
o Requires, at a minimum, annual impairment tests for goodwill and other
intangible assets that are determined to have an indefinite life.
Upon adoption of these Statements, the Company is required to:
o Re-evaluate goodwill and other intangible assets that arose from business
combinations entered into before July 1, 2001. If the recorded other
intangibles assets do not meet the criteria for recognition, they should
be reclassified to goodwill. Similarly, if there are other intangible
assets that meet the criteria for recognition but were not separately
recorded from goodwill, they should be reclassified from goodwill.
o Reassess the useful lives of intangible assets and adjust the remaining
amortization periods accordingly.
o Write-off any remaining negative goodwill.
The Company has not yet completed its full assessment of the effects of
these new pronouncements on its financial statements and so is uncertain as to
the impact. The standards generally are required to be implemented by the
Company in its 2002 financial statements.
5
NOTE 4. - CAPITAL LEASE OBLIGATION
During the quarter ended June 30, 2001, the Company was released from a
capital lease obligation and related accrued interest aggregating to $448,830
due to the Company's president. The Company's president contributed equipment
owned by him to the Company in exchange for 225,000 shares of common stock. This
equipment was subject to a lease accounted for as a capital lease. As a result,
no further payments are due under the lease.
NOTE 5. - NOTES PAYABLE - STOCKHOLDERS
During the quarter ended March 31, 2001, the Company issued an unsecured
short-term note payable to its president in the amount of $10,000. The note
bears interest at the rate of 10% and remains unpaid as of June 30, 2001.
During the quarter ended March 31, 2001, the Company issued short-term
notes payable to two stockholders, aggregating $80,000. The notes bear interest
at the rate of 10%. During the quarter ended June 30, 2001, one stockholder
agreed to accept 25,486 shares of the Company's common stock as satisfaction of
the note payable and accrued interest, aggregating $50,972. The other note
remains unpaid as of June 30, 2001.
In addition, during the quarter ended June 30, 2001, another stockholder
agreed to accept 16,268 shares of the Company's common stock as satisfaction of
the note payable and accrued interest, aggregating $32,536.
NOTE 6. - LONG TERM OBLIGATIONS
At December 31, 2000, the Company was in violation of certain bank debt
covenants on term loans outstanding at its Laser Fare subsidiary. Consequently,
the associated debt was classified as a current liability at December 31, 2000.
Subsequent to the filing of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2000, the Company received a bank waiver of the debt
covenant violations that existed at December 31, 2000. Accordingly, in the June
30, 2001 financial statements, the debt has been reclassified in accordance with
the required maturities per the term loan agreements.
In April 2001, the Company received notice that it was in default on a
principal and interest payment due April 16, 2001 in the amount of $342,240,
which is owed to a former shareholder of Osley & Whitney. The notice states that
the full outstanding principal and interest balance of $618,240 is due and
payable. The Company is currently in discussion with the noteholder to negotiate
payment terms for the outstanding balance. The entire amount is classified as a
current liability.
NOTE 7. - STOCKHOLDERS' EQUITY
During the quarter ended March 31, 2001, the Company issued from treasury
25,000 shares of common stock to an accredited investor at a price of $2.00 per
share, resulting in proceeds of $50,000. The Company also issued from treasury
21,737 shares of common stock in accordance with the equity line of credit
agreement resulting in proceeds of $50,474 net of expenses of $12,026. In
addition, various employees exercised stock options with exercise prices ranging
from $1.50 to $2.50 per share, resulting in the issuance of 4,645 shares of
common stock from treasury and proceeds of $9,160. The original cost of the
above shares issued from treasury exceeded the proceeds from issuances by
$18,823 in aggregate, resulting in a loss charged to accumulated deficit.
During the quarter ended June 30, 2001, the Company sold 306,028 shares of
the common stock to accredited investors at prices ranging from $1.88 to $2.00
per share, resulting in proceeds of $599,900. The Company issued 40,554 of these
shares of common stock from treasury with an original cost exceeding the
proceeds from issuances by $22,609, which was charged to accumulated deficit. In
connection with these transactions, the Company granted 35,400 warrants to
purchase common stock at prices ranging from $3.00 to $4.00 per share. The
warrants are exercisable on June 15, 2001 and expire on June 15, 2004. In
addition, employee stock options with exercise prices ranging from $1.88 to
$2.50 per share were exercised, resulting in the issuance of 1,228 shares of the
Company's common stock and proceeds of $2,875.
6
During the quarter ended June 30, 2001, convertible notes payable to
former Osley & Whitney, Inc. shareholders, along with accrued interest and other
outstanding liabilities, aggregating $119,131 were converted into 63,963 shares
of the Company's common stock.
NOTE 8. - BUSINESS SEGMENTS
Business segments are determined based on differences in products,
production processes and internal reporting. The Company's businesses were
previously organized, managed and internally reported as two segments. During
the quarter ended June 30, 2001, the Company formed Infinite Photonics, Inc., a
majority owned subsidiary. As a result of the formation of this entity a third
business segment was established. All of the segments of the Company operate
entirely within the United States. Revenues from customers in foreign countries
are minimal. Transactions between reportable segments are recorded at cost. The
Company relies on 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 periods ended June 30, 2001 and June 30, 2000, respectively,
is set forth as follows:
Laser Photonics Plastics Unallocated
Group Group Group Corporate Consolidated
----- ----- ----- --------- ------------
Three Months Ended June 30, 2001
Sales to unaffiliated customers $ 2,018,750 $ -- $ 1,839,484 $ -- $ 3,858,234
=========== =========== =========== =========== ===========
Operating income (loss) $ 92,695 $ (296,845) $ (218,074) $ (54,746) $ (476,970)
=========== =========== =========== =========== ===========
Three Months Ended June 30, 2000
Sales to unaffiliated customers $ 1,626,808 $ -- $ 1,610,042 $ -- $ 3,236,850
=========== =========== =========== =========== ===========
Operating income (loss) $ (126,627) $ -- $ 24,138 $ (231,835) $ (334,324)
=========== =========== =========== =========== ===========
Six Months Ended June 30, 2001
Sales to unaffiliated customers $ 4,088,133 $ -- $ 3,179,843 $ -- $ 7,267,976
=========== =========== =========== =========== ===========
Operating income (loss) $ 214,295 $ (336,487) $ (542,512) $ 9,052 $ (655,652)
=========== =========== =========== =========== ===========
Six Months Ended June 30, 2000
Sales to unaffiliated customers $ 3,324,389 $ -- $ 3,160,276 $ $ 6,484,665
=========== =========== =========== =========== ===========
Operating income (loss) $ (191,430) $ -- $ 47,560 $ (418,727) $ (562,597)
=========== =========== =========== =========== ===========
NOTE 9. - SUBSEQUENT EVENT
During July 2001, the Company sold 137,500 shares of its common stock to
accredited investors at prices ranging from $2.00 to $2.25 per share, resulting
in proceeds of $300,000.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-QSB are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 regarding the plans and objectives of management
for future operations. You can identify these forward-looking statements by our
use of the words "believes," "anticipates," "plans," "expects," "may," "will,"
"intends," "estimates" and similar expressions, whether in the negative or
affirmative. Such statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Our plans and objectives are
based, in part, on assumptions involving judgments with respect to, among other
things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that its assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this report will prove to be accurate.
Factors that could cause actual results to differ materially from those
expressed or implied by forward -looking statements include, but are not limited
to, the factors set forth in "Certain Factors That May Affect Future Growth,"
under Part I, Item 1, of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000 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.
OUR BUSINESS
Our business has three segments, the Laser Group, Photonics Group and the
Plastics Group. We sell products and services in the fields of material
processing, advanced manufacturing methods, GCSEL diode manufacturing and
laser-application technology. We have approximately 140 employees.
Our Laser Group, comprised of Laser Fare ("LF"-Smithfield, RI), Mound
Laser & Photonics Center ("MLPC"-Miamisburg, OH), and the Advanced Technology
Group ("ATG"-Narragansett, RI), provides comprehensive laser-based materials
processing services to leading manufacturers.
During 2000, we completed initial prototype testing of our proprietary
grating coupled surface emitting laser (GCSEL) diode technology and furthered
initial patent applications on the technology. Shortly after year-end, we formed
Infinite Photonics, Inc. ("IP" - Orlando, FL) to begin commercialization of the
technology for telecommunications, materials processing, medical and other
applications. Facilities are being developed in Orlando, FL. IP and MetaTek,
Inc. ("MT"- Albuquerque, NM) constitute the Photonics Group.
Our Plastics Group, comprised of Osley & Whitney/ ExpressTool
("OW"-Westfield, MA), Materials & Manufacturing Technologies ("MMT" - West
Kingston, RI) and Express Pattern ("EP" -Buffalo Grove, IL), provides rapid
prototyping services and proprietary mold building services.
We continue to experience operating losses in 2001, due primarily to
start-up costs at IP and operating losses at OW. Falling demand for plastic
products due to the rapid increase in petroleum prices in 2000, resulted in
reduced demand for our injection molds and O&W/EP profitability suffered. These
losses resulted in reductions in cash flow, increased borrowings from banks and
an increased negative working capital position. Management is focused on our
three primary lines of business and is actively pursuing additional capital
through the equity line of credit agreement, private equity sources, strategic
alliances, venture capital and investment banking sources.
8
During 2001, our management continues to investigate and implement
strategies aimed at developing the applied photonics segment of our business.
These included acquisition of intellectual property rights, filing of patents,
and additional expenditures for research and development of GCSEL technology and
products. We are currently involved in preliminary discussions with Fortune 500
companies and others, which would provide funding and additional revenue sources
for the formation of strategic partnerships. In March 2000, we formed a
strategic alliance with Cutting Edge Optronics, Inc., a subsidiary of TRW, for
prototype and pilot manufacture of our GCSEL laser diodes. In May 2001, we were
notified that the Defense Advanced Research Projects Agency (DARPA) had awarded
us a one-year $1.0 (subsequently increased to $1.3) Million contract in support
of our proprietary GCSEL development. In June 2001, the Air Force Research
Laboratory (AFRL) at Kirtland AFB, NM signed a cooperative research and
development agreement (CRADA) for development of scalable GCSEL.
We were incorporated under the laws of the state of Delaware on October
14, 1986. On January 7, 1998, we changed our name from Infinite Machines Corp.
to Infinite Group, Inc. Our principal executive offices are located at 2364 Post
Road, Warwick, RI 02886 and our facsimile number is (401) 738-6180. Our
subsidiaries are located in Rhode Island, Massachusetts, New Mexico, Ohio,
Florida and Illinois. We maintain sites on the World Wide Web at
www.infinite-group.com, www.laserfare.com, www.infinitephotonics.com,
www.mlpc.com and www.expresspattern.com. Information contained on any of our
websites do not constitute a part of this Form 10-QSB.
THE LASER GROUP
Our Laser Fare (LF) subsidiary is primarily engaged in contract laser
material processing; and develops new applications for industrial lasers. Laser
Fare has 25 high-powered computer controlled lasers that are capable of
performing a wide variety of manufacturing with multi-axis manipulation. Laser
Fare also manufactures stents and 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, Honeywell, Polaroid, Stryker
Medical and Dey Laboratories. Through Laser Fare we also provide a variety of
value-added services that include assembly, heat-treating, coating, testing and
inspection. We quote orders through traditional sales methods as well as through
our Web site at www.laserfare.com. Laser Fare is certified for overhaul and
repair by the Federal Aviation Administration (FAA No. LQFR37K), and as a
Contract Manufacturer (Type E) by the Food and Drug Administration (FDA No.
1287338).
Our Mound Laser and Photonics Center (MLPC) subsidiary specializes in
laser applications, photonics applications and materials processing, and
provides services within industry, government and education sectors. Specialized
services include: High Temperature Superconductor (HTS) applications; growth of
thin films by pulsed laser deposition (patent pending); and application of
lasers to chemistry, photochemistry, spectroscopy, and applied optics.
Our Advanced Technology Group (ATG) conducts research and development
programs for industrial and government sponsors. ATG has recently been awarded
several contracts and subcontracts sponsored by the Defense Advanced Research
Project Agency (DARPA). DARPA is the central research and development
organization for the Department of Defense (DoD). It manages and directs
selected basic and applied research and development projects for DoD, 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 commercial applications. As it affects ATG, these programs
have been focused on laser driven direct write and GCSEL technologies. Laser
direct write technologies enable cost-effective manufacturing of engineered
components without the use of expensive tooling by directly depositing materials
on substrates with laser energy. These laser and photonics technologies have
applications across a broad range of industries, including telecommunications,
materials processing, and automotive and consumer electronics.
9
THE PHOTONICS GROUP
Our newly formed Infinite Photonics subsidiary specializes in the
manufacturing and marketing of our proprietary GCSEL laser diodes. Our GCSEL
products can be fabricated for use as either a source laser (such as 1550nm) or
pump lasers (such as 980nm) for telecommunications, materials processing,
medical and other applications. We have obtained one patent; have nine patents
pending and an additional 10 patents under development for GCSEL and related
technologies. In addition to our research physicists and engineers, we have also
engaged researchers at the Photonics Research Center at the University of
Connecticut, the Ioffe Institute, and the School of Optics / Center for Research
and Education in Optics and Lasers ("CREOL") at the University of Central
Florida in Orlando on applications of our grating coupled surface emitting
lasers. Semiconductor diode wafers used in the manufacture of our GCSEL's are
processed through our strategic alliance partner, Cutting Edge Optronics, (a TRW
subsidiary) and we are qualifying a second source, as required by most major
telecommunications equipment manufacturers.
To date we have prototyped 980nm and 1550nm GCSEL diodes for use in
telecommunications and other commercial pump and source laser applications, and
tested them for continuous wave (CW) power, linewidth, divergence angle,
tunability and other characteristics necessary for commercial use. We compete
with companies producing traditional edge emitting laser diodes used in
telecommunications, such as Fabry-Perot (FB) and Distributed Feedback (DFB)
diode lasers, as well as Vertically Coupled Surface Emitting Lasers (VCSEL). We
believe our GCSEL's produce the best overall combination of: power and
divergence angle of emitted light; require lower cost or no cost collimating
optics; provide lower test, burn-in and packaging cost; and provide tunable
range over a greater number of available channels than current competitive FB,
DFB and VCSEL technology. We believe that our GCSEL's have:
o Higher CW power than currently commercially available FB, DFB
and VCSEL;
o Lower Divergence Angle than FB, DFB or VCSEL for the emitted
light (which reduces the cost and complexity, or eliminates,
collimating optics needed to focus into the fiber);
o Narrower Emission Linewidth allowing for more channels with
greater tunable range; and
o Surface Emitting qualities similar to VCSEL's (which allow for
lower cost testing on wafer, and simpler and less costly
coupling to fiber optics) over competitive edge emitting FB
and DFB.
In July 2001, we were certified by the Florida Governor's Office as a
Semiconductor Diode Facility and exempted from sales and use taxes under
Florida's Semiconductor, Defense and Space Technology Facility program. We are
in the process of establishing diode development facilities near UCF-CREOL in
Orlando. We are exploring numerous funding sources to ramp-up product
development, a second site manufacturing capability in Florida, and develop
additional sales, marketing and administrative infrastructure.
THE PLASTICS GROUP
O&W is a fifty-one-year-old plastic injection mold building company
located in Westfield, MA with approximately 42 employees. It serves a
blue-ribbon clientele of automotive, automotive aftermarket, consumer sporting
goods, and office machine equipment from its 21,500-sq. ft. manufacturing
facility. Our proprietary ExpressTool (ET) mold fabrication and conformal
cooling technologies lower the cost of molded parts, increase molding capacity
and provide shorter delivery times over conventional constructed molds and has
been integrated into our Westfield facility.
Express Pattern (EP) located in Buffalo Grove, IL expands our Midwest
presence and provides 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
10
internet) from customer CAD software (such as AutoCad, Pro-E and others) to our
laser-driven stereolithography systems and equipment. Express Pattern also
provides similar services to our other subsidiaries.
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, 2001,
we had cash and cash equivalents of approximately $231,000 available for our
working capital needs and planned capital asset expenditures.
While the majority of the revenues realized as of June 30, 2001 were
attributed to our LF and O&W operations, we anticipate improved revenue from our
other divisions and positive results from expense containment measures that have
been implemented. We anticipate that our equity line of credit, as well as other
strategies for raising additional working capital through debt and/or equity
transactions will provide improved liquidity. In the first quarter of 2001,
$250,469 of proceeds were received from the sale of equity comprised of (a) two
installment payments under the subscription agreement totaling $ 137,969, with
interest, (b) a drawdown under the equity line of credit of $62,500, and (c) a
private placement of $50,000. Additional private placements of $250,000 and
conversion of a capital lease obligation to our principal shareholder of
$448,830 to stockholders' equity were completed in April 2001. In June 2001 an
additional private placement of $400,000 was completed and the final installment
payment under a subscription agreement of $62,500, plus accrued interest, was
received.
As of June 30, 2001, we had a working capital deficit of $2,194,765. In
conjunction with our on-going business expansion program, we are pursuing
alternative sources of funding from conventional banking institutions as well as
exploring the availability of government funds 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 currently traded on the
Nasdaq SmallCap Market. In order to maintain this listing, we are required to
meet certain requirements relating to our stock price and our net tangible
assets. If we fail to meet these requirements, our stock could be delisted. Last
year we received a series of letters from Nasdaq addressing our failure to
satisfy the minimum net tangible asset continued listing requirements for the
SmallCap Market. As a result of transactions consummated after December 31,
2000, and during the quarter ended June 30, 2001, we received a letter from
Nasdaq that we were in compliance with the net tangible asset requirement at
that date.
11
Results of Operations
Laser group
Revenues from our laser material processing, value added services,
advanced technology consulting and laser services for the quarter ended June 30,
2001 were $2,018,750 ($1,626,808 at June 30, 2000) with a gross profit for the
period of $980,473 ($604,195 at June 30, 2000).
Photonics Group
There were no revenues from sale of grating coupled surface emitting
lasers in the quarters ended June 30, 2001 and 2000, respectively.
Plastics group
Revenues from our plastic mold building, conformal cooling and proprietary
thermal management of high production injection mold tooling, plastic rapid
prototyping services and electrodes and parts made from zirconium
diboride/copper (Zykron(TM)) composites for the quarter ended June 30, 2001 were
$1,839,484 ($1,610,042 at June 30, 2000) with a gross profit for the period of
$333,978 ($475,529 at June 30, 2000).
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
Consolidated revenues for the three months ended June 30, 2001 were
$3,858,234 on cost of sales of $2,543,783, resulting in a gross profit of
$1,314,451 for the quarter. 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. The increase of $621,384 or 19.2% in consolidated
revenues for the quarter ended June 30, 2001, compared to the quarter ended June
30, 2000, was due principally to revenue increases from, aerospace, contract R&D
and power generation parts.
Research and development expenses were $510,904 for the three months ended
June 30, 2001 as compared to $285,965 for the three months ended June 30, 2000.
The increase of $224,939 or 78.7%, was primarily attributed to development
efforts for the Infinite Photonics' GCSEL technology.
General and administrative expenses were $846,290 for the three months
ended June 30, 2001 as compared to $709,619 for the three months ended June 30,
2000. The increase of $136,671, or 19.3%, was primarily attributed to salary and
other administrative costs related to the formation of the Infinite Photonics
subsidiary.
Selling expenses were $167,234 for the three months ended June 30, 2001 as
compared to $135,557 for the three months ended June 30, 2000, reflecting
commissions on increased revenues
Depreciation and amortization expense totaled $ 266,993 for the three
months ended June 30, 2001 as compared to $282,907 for the three months ended
June 30, 2000. The reduction occurred primarily as a result of certain assets
becoming fully depreciated. Interest expense was $170,150 for the three months
ended June 30, 2001 as compared to $200,869 for the three months ended June 30,
2000. The decrease of $30,719 or 15.3% was due primarily to a reduction of
interest paid under a capital lease converted to equity by our president.
The loss from operations was $476,970 for the three months ended June 30,
2001 as compared to a loss of $334,324 for the three months ended June 30, 2000.
The increase of $ 142,646, or 43%, was primarily attributed to additional
research and development and start-up costs at Infinite Photonics.
12
Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30, 2000
Consolidated revenue for the six months ended June 30, 2001 were
$7,267,976 with $4,088,133 of sales coming from the Laser Group and $3,179,843
of sales coming from the Plastics Group. Cost of sales totaled $4,924,270 and a
gross profit of $2,343,706 was realized for the period. For the six months ended
June 30, 2000 sales 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. Consolidated
cost of sales was $4,313,925 for the first six months of 2000 and the Company
realized a gross profit of $2,170,740 for the period. The increase in
consolidated revenues for the six months ended June 30, 2000 was due to
increased revenues within the Laser and Plastics business segments.
Research and development expenses were $702,648 during the six months
ended June 30, 2001 as compared to $525,376 during the six months ended June 30,
2000. The increase of $177,272 or 33.7% was primarily attributed to development
efforts for the Infinite Photonics' GCSEL technology and related contract
research and development.
General and administration expenses for the six months ended June 30, 2001
were $1,417,363 as compared to $1,336,525 for the six months ended June 30,
2000. Cost containment savings in the first quarter approximately offset the
increase due to expenses for additional resources at our Infinite Photonics
segment during the second quarter.
Selling expenses were $346,717 for the six months ended June 30, 2001 as
compared to $316,432 for the first six months of 2000. The increase reflected
commissions paid on higher year over year sales volumes.
Depreciation and amortization expenses totaled $532,630 for the six months
ended June 30, 2001 as compared to $555,004 for the six months ended June 30,
2000. The reduction occurred primarily as a result of certain assets becoming
fully depreciated.
Interest expense was $372,881 and $361,051 during the six-month periods
ended June 30, 2001 and 2000 respectively. The increase in interest expense was
due to interest paid on the note payable to our president and chief executive
officer in the first quarter, an Osley & Whitney bank note payable, which was
partially offset by the reduction in interest paid under a capital lease.
We had a consolidated net loss of $1,025,599 for the six months ended June
30, 2001 as compared to consolidated net loss of $985,722 during the six months
ended June 30, 2000.
13
Part II - Other information
None
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 14, 2001
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 Officer
(principal accounting officer)
14