SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission File Number 0-21816
Delaware 52-1490422
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(State or other (I.R.S. Employer Identification
jurisdiction of No.)
incorporation or
organization)
2364 Post Road, Warwick, RI 02886
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(Address of principal (Zip Code)
executive offices)
Issuer's telephone number (401) 738-5777
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Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on which
Title of each class registered
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None None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of class)
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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |X|
The issuer's revenues for the year ended December 31, 1998 were $7,396,105.
As of March 10, 1999 there were 2,125,496 outstanding shares of common stock, par value $0.001 per share. The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant on March 10, 1999, based on the average bid and asked price on such date was $3,023,682.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
Transitional Small Business Disclosure Format: Yes |_| No |X|
INFINITE GROUP, INC.
Form 10-KSB Annual Report
TABLE OF CONTENTS
Page
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PART I .......................................................... 2
Item 1. Business.................................................. 2
Item 2. Properties................................................ 9
Item 3. Legal Proceedings......................................... 9
Item 4. Submission of Matters to a Vote of Security Holders....... 10
PART II .......................................................... 10
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 10
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11
Item 7. Financial Statements and Supplementary Data............... 21
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures...................... 22
PART III .......................................................... 22
Item 9. Directors and Executive Officers.......................... 22
Item 10. Executive Compensation.................................... 25
Item 11. Security Ownership of Certain Beneficial Owners and
Management................................................ 30
Item 12. Certain Relationships and Related Transactions............ 31
Item 13. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................... 32
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FORWARD LOOKING STATEMENT INFORMATION
Certain statements made in this Annual Report on Form 10-K 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. 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. The Company's 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 the control of the Company. Although the Company believes 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. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the Company's early stage operations, the inclusion of such information should not be regarded as a statement by the Company or any other person that the objectives and plans of the Company will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth herein under the headings "Business," "Certain Factors That May Affect Future Growth" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
PART I
ITEM 1. BUSINESS
Infinite Group, Inc.'s (the "Company" or Infinite") primary business areas include laser material processing, high productivity production tooling, advanced manufacturing methods and laser-application technology. The Company has four operating groups:
o Laser Fare, providing comprehensive laser-based materials processing services to leading manufacturers;
o ExpressTool, engaged in commercialization of its new proprietary high productivity production tooling (HTTP) technology;
o Mound Laser & Photonics Center, offering a full range of laser material processing services in the Mid-West, as well as specialized laser and photonics services and applied research and development; and
o The Advanced Technology Group, engaged in contract research and development.
Laser Fare, Inc.
Laser Fare was a pioneer in the laser material processing business and has participated significantly in the development of the industry. Many laser-processing techniques were first developed at Laser Fare. The Company, and its key employees, are well known and highly regarded within the industry. Laser machining and welding was first used in industry in the early 1980's, mostly in the scientific and aerospace communities. Since that time capabilities have increased and awareness of the cost effectiveness of the process has become more widespread, increasing the market size. Approximately 75% of Laser Fare's sales come from customers in the land based turbines, medical devices and aerospace industries. Customers include General Electric Corporation, Pratt & Whitney, United Technologies Corporation, Allied Signal Corporation, Polaroid, Stryker Medical Corp. and Dey Laboratories.
Laser Fare, while primarily engaged in contract laser material processing such as laser machining, welding, engraving and marking, also develops new applications for industrial lasers. The company has 20 high powered computer laser machining centers which are used to perform a wide variety of manufacturing processes and is capable of laser operations requiring four and five-axis manipulation. Work done includes, but is not limited to, welding and drilling of gas turbine blade assemblies (Laser Fare is certified by major gas turbine producers and also by the FAA for repairs of turbine engine components), welding of automotive gear sets, welding of cutters used for arthroscopic surgery, cutting of lenses for sunglasses and engraving on decorative industrial and medical components. During 1998, Laser Fare also provided a variety of value-add services that include assembly, heat treating, coating, testing, and inspection. Laser Fare was awarded a multi-year contract in excess of $5 million by Dey
Laboratories to manufacture and supply for retail and hospital customers, Astech Peak Flow Meters which measure lung capacity for asthma patients.
New laser machines were acquired and others upgraded during 1998 providing Laser Fare with sufficient equipment to support planned near-term requirements as well as expand the scope of services it provides to existing and new customers.
Laser Fare, located in Smithfield, Rhode Island, operates in a modern industrial building of 17,000 square feet under a capital lease agreement with the Rhode Island Industrial Board and rents 8,000 additional square feet of manufacturing space in an adjacent building.
Laser Fare competes with a number of small, mostly privately owned businesses, and in some cases, with laser processing organizations internal to customer organizations. Laser Fare is successful in building its business based upon its reputation for quality, delivery performance, technical capability and sensitivity to its customers needs.
Laser Fare's sales volume has been increasing and management expects this trend to continue, however, there is no assurance that this will occur.
ExpressTool
ExpressTool is commercializing its proprietary technology that uses conformal cooling and proprietary thermal management for high productivity production injection mold tooling. ExpressTool's technical capabilities allow molds, cavities and other types of tools to be made more productive than is currently possible with traditional methods. The technology was developed over the last few years under a collaborative research and development agreement with a major industrial company. Express Tool has exclusive rights to the technology for all industries other than the markets its industrial partner competes in. The new proprietary technology can reduce the molding time of products by 20 to 30 percent by facilitating the use of high productivity production inserts for molds. A key to the reduction cycle time is the use of conformal cooling, which removes heat from molds more efficiently and uniformly than conventional methods. The patent-pending technology utilizes a unique composite fabrication method, which reduces part cycles and minimizes distortion, thus reducing costs and improving accuracy.
In August 1998, ExpressTool entered into an exclusive agreement with GE Plastics to test ExpressTool's new proprietary mold making technology that will substantially improve the productivity of plastic injection molding tools. The goal is to validate and accelerate the commercialization of the ExpressTool technology. It has been found that ExpressTool's molds, incorporating proprietary cooling techniques, permit more rapid molding cycles than conventional tools and with highly corrosive glass filled polymers, tool wear has been significantly reduced and are major benefits to the user. ExpressTool has had articles on its technology featured in leading industry publications including Modern Plastics, Injection Molding, Plastics Technology, Molding Systems,
and a smaller article in Appliance Manufacturer, which have addressed the technology and ExpressTool's relationship with G.E. Plastics.
The Company has had discussions with organizations having the needed capabilities that can be combined, through acquisition or some other business arrangement, to integrate ExpressTool's new technology with an established infrastructure and business base. These efforts have resulted in the establishment of a responsive network of competencies, either owned or strategically aligned, which allow ExpressTool to participate in projects having a wide range of scope and complexity. This planned outcome is the foundation and platform for ExpressTool's growth. It is anticipated that sales revenues in 1999 will increase rapidly with further customer acceptance, but there is no assurance these results will occur.
Mound Laser and Photonics Center
Mound Laser and Photonics Center ("MLPC"), located in Miamisburg, Ohio, was acquired by the Company in February 1998. MLPC specializes in laser applications, photonics applications and material processing, and provides services to the industrial, governmental and educational sectors. The Midwest location, a region long known for its expertise in materials and material science, gives the Company a platform for growth into the automotive, aerospace, tool and die, and other local industries. MLPC offers a wide range of materials processing services with major emphasis on laser marking, as well as applied research and development and more specialized laser and photonics services. Specialized services include growth of thin films by pulsed laser deposition, applications of lasers to chemistry and photochemistry, spectroscopy, and applied optics. MLPC has submitted provisional patents on pulsed laser deposition and specific applications of the technology. 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 that can significantly enhance Laser Fare's and ExpressTool's capabilities.
Advanced Technology Group
Advanced Technology Group ("ATG"), was created to take advantage of the technical know-how acquired with Laser Fare in the application of lasers for industrial requirements. Since its inception in 1993, ATG has been performing technical development and managing research and development programs for industrial customers. In addition to being compensated for services performed, ATG obtains intellectual property rights to the proprietary technology derivative of these services that provide future opportunities for the Infinite Group. The Company's ExpressTool subsidiary is a prime example of this.
During 1998, ATG entered into a contract with Molecular Geodesics Inc. ("MGI"), of Cambridge, MA. MGI is involved in creating technologies using biomimetic principals. These principals mimic the mechanical attributes of living cells
and tissues and apply these to medical, industrial and military applications. MGI was awarded a $6.4 million Defense Advanced Research Project Administration (DARPA) contract to develop "bioskins" for the 21st century soldier for protection against chemical and biological weapons. ATG will assist MGI in the creation, development, improvement and modification of manufacturing techniques for tensegrity structures. ATG will utilize ExpressTool's proprietary techniques to fabricate structures for these "bioskins." ATG will receive as compensation for the performance of its services, the sum of $300,000 payable at the rate of $25,000 per month, plus expenses.
In March 1997, ATG was awarded a two-year $500,000 Phase II follow-up contract by the United States Air Force/Phillips Laboratory, Kirkland AFB, New Mexico. The contract focused on the continued development of direct materials processing applications and the commercialization of high power, high-brightness laser diode technology, jointly developed by Laser Fare and the A. F. Joffe Technical Institute of St. Petersburg, Russia. [In April 1998, the Company entered into an agreement with The Laser Company ("TLC") to license the Company's high-brightness laser technology related to the Phillips contract. Under this contract, the Company received $10,000 during 1998 and may receive additional payments.
In June 1998, ATG was awarded a two-year, $280,000 contract from Triton Systems of Chelmsford, MA. The goal of the contract is to laser fabricate aerospace components from metal matrix composite materials. These are strong lightweight materials that are particularity useful in high temperature environments. Triton Systems awarded this contract to ATG as part of its SBIR program funded by the Phillips Laboratory at Kirkland Air Force Base in New Mexico.
ATG is involved in several smaller early stage programs which could potentially result in contracts in 1999, however, there is no assurance that any contract will materialize.
Sale of Spectra Science Interest
Infinite acquired a majority interest in Spectra Science Corporation ("Spectra") in August 1996, through the purchase of 2.7 million shares of Series A Preferred Stock in a cash transaction valued at $2.7 million. Spectra's operations comprised the Company's Photonic Materials business segment. In January 1997, Infinite purchased an additional 200,000 Shares of Series A Preferred Stock from Spectra for $200,000. During 1997, Spectra issued additional preferred stock to third-party investors, the effect of which reduced Infinite's voting interest in Spectra from 66% at December 31, 1996 to 34% at December 31, 1997. Further, its liquidation rights were subordinate to the Series C and B preferred shares subsequently issued. The Company accounted for its 34% investment under the equity method of accounting. Under the equity method, the Company recognized its share of earnings and losses of the subsidiary as accrued. Accordingly, the Company recognized as its equity in the losses of Spectra, after the common shareholders, 70% of Spectra's losses until its original investment had been reduced to zero, which occurred during the quarter ending June 30, 1998.
The Company's expectation when it acquired Spectra was that Laser Fare would provide manufacturing services for Spectra as Spectra developed new products and materials. This prospective relationship did not materialize. Accordingly, in December 1998, the Board of Directors of the Company made a decision to dispose of the Company's equity interest in Spectra and utilize the proceeds to retire debt obligations, fund expansion of Laser Fare and Express Tool and for general working capital purposes. During December 1998 and February 1999, the Company consummated the sale of 2,431,056 shares, or 85%, of its Spectra Series A Convertible Preferred Stock, yielding net proceeds of approximately $4.6 million, $1.0 million of which was received in December 1998 and the balance was received in February 1999. As a result of this transaction, the Company recognized a $1 million gain on the sale in fiscal 1998 and will recognize a $3.6 million gain on the sale in fiscal 1999.
In February 1999, the Company completed the divestiture of its equity interest in Spectra, through the sale of 611,194 shares of Series A Preferred Stock of Spectra (valued at $2.25 per share) in consideration for the retirement of 550,075 (post reverse-split) shares of the Company's common stock. As a result of this transaction the Company will recognize a gain of $1.375 million in the first quarter of 1999.
As a result of the Company's sale of its investment in Spectra, as more fully discussed in footnote 13 to the audited financial statements -- Income Taxes, and the resulting gain of approximately $3.17 million for income tax reporting purposes, there is the indication that the Company will be able to utilize a portion of its net operating loss carryforwards to eliminate the taxable gain. Accordingly, based upon the Company's current and estimated future taxable income, the Company has determined that it will realize a deferred tax benefit of $1.067 million attributed to the utilization of the net operating loss carryforwards that existed at January 1,1998. This deferred tax benefit has been included in income from continuing operations for the year ended December 31, 1998. At December 31,1998, $825,000 of the benefit has been reflected as a current deferred tax asset because it relates to the approximate $2.6 million of the taxable gain from the sale of Spectra that will be reported in fiscal 1999. The balance of the deferred tax benefit of $242,000 has been charged against the gain on the disposal of Spectra recognized in the results of operations for the year ended December 31, 1998.
CERTAIN FACTORS THAT MAY AFFECT FUTURE GROWTH
The following factors may affect the future growth of the Company and should be considered by any prospective purchaser of the Company's securities:
Accumulated Deficit; Recurring Losses. At December 31, 1998, the Company had an accumulated deficit of $17,418,652. The Company also experienced approximately $4,322,422 and $121,886 of net losses, respectively, during the years ended December 31, 1997 and 1998. No assurance can be given that the Company will not continue to incur net losses.
Vulnerability of Service Businesses. The Company's revenues are primarily generated by the services offered by the Company's divisions, namely, laser contract material processing services and laser consulting services. A substantial portion of these services are being rendered under short-term contracts which can be terminated or not renewed by the party or parties receiving the services. In addition, the business of providing services is always subject to interruptions by external factors, such as customer's eliminating products, unavailability of materials or customer's developing internal capacity to perform specialized laser services, which can further impair revenues. For all of these reasons there can be no assurance that the Company's revenues from its service businesses will improve or even that its existing revenues will be maintained.
Uncertainty of Laser Business. The Company's current laser business is subject to a number of risks including the need for additional financing to fund acquisitions and expansion, technical obsolescence of its processes and equipment, increased competition and dependence upon, and need for, qualified personnel. There is no assurance that the Company's current laser business will continue to operate profitable in future periods.
Dependence Upon, and Need for, Key Personnel; Possible Adverse Effect if Key Personnel Are Not Retained. The Company's success will depend, in large part, on its continued ability to attract and retain highly qualified engineering, marketing and business personnel. Competition for qualified personnel may be intense and the Company will be required to compete for such personnel with companies having substantially greater financial and other resources. The Company's inability to attract and retain such personnel could have a material adverse effect upon its business. Further, the Company is dependent on certain management personnel for the operation and development of its business, particularly Clifford G. Brockmyre, the President, Chief Executive Officer and a principal beneficial shareholder of the Company. The loss or a reduction in the time devoted by Mr. Brockmyre to the Company's business could have a material adverse effect on the Company's business.
Intense Competition and Rapid Technological Change. The Company is engaged in rapidly evolving and highly competitive fields. Competition is intense and expected to increase. Most of the companies in competition with the Company have substantially greater capital resources, research and development staffs, facilities and experience in the furnishing of services. These companies, or others, could undertake extensive research and development in laser technology and related fields which could result in technological changes not yet adopted by the Company. There can be no assurance that the Company's competitors will not succeed in developing technologies in these fields which will enable them to offer laser services more advanced and less costly than any offered by the Company or which could render the Company's technologies obsolete.
Lack of Technology Protection. The Company employs various methods, including confidentiality agreements with employees to protect its proprietary know-how. Such methods may not afford complete protection, however, and there can be no assurance that these agreements will not be breached, that the Company would have adequate remedies
for any breach or that the Company's trade secrets will not otherwise become known to or independently developed by competitors. With respect to patent applications filed by the Company, there can be no assurance that any patents will be granted, or that if granted such patents would provide the Company with meaningful protection from competition.
Loss Carryforward At December 31, 1998, the Company had approximately $13,096,000 in available federal net operating losses for federal tax reporting purposes which may be carried forward to offset future years taxable income subject to certain limitations. Due to a greater than 50% change in stock ownership during 1993 the utilization of net operating loss carryforward generated to the date of such change is limited. Moreover, other shareholder changes including the possible issuance by the Company of additional shares in one or more financings may further limit the utilization of the operating loss carryforward.
Risk of Nasdaq Delisting. The Company's Common Stock is listed on the Nasdaq SmallCap Market System and in connection therewith the Company is required to maintain continued listing requirements including $2 million of net tangible assets and a minimum bid price of $1.00. During 1998, the Company received notifications with respect with its failure to comply with certain of these requirements including the $1.00 minimum bid price requirement. In connection therewith, and pursuant to a hearing before Nasdaq's Qualification Listing Committee, the Company submitted a proposal setting forth a plan for compliance with the continued listing requirements which included effecting the 1-for-5 reverse stock split. The Company's compliance plan was approved by Nasdaq and in furtherance thereof the reverse split was consummated in February 1999. The Company believes that, as a result of the stock split and other recent transactions, it will continue to meet the minimum listing requirements for the continued listing of its Common Stock on the Nasdaq SmallCap Market. However, no assurance can be given that the Company will continue to meet such requirements. In the event that the Company does not meet the continued listing requirements, the Common Stock is subject to delisting from the Nasdaq SmallCap Market, whereupon it would trade on the Nasdaq Electronic Bulletin Board. Such an event would make it more difficult for shareholders to effect transactions in the Company's Common Stock.
"Penny Stock" Regulations May Impose Certain Restrictions on Marketability of Common Stock. The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) of less than $5.00 per share, subject to certain exceptions. If the Company's Common Stock is removed from listing on Nasdaq, the Common Stock may become subject to rules that impose additional sales practice requirements on broker-dealers who sell such Common Stock to persons other than established customers and accredited investors (generally, those persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of the Common Stock and have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell the Common Stock and accordingly the market for the Company's Common Stock.
Employees
As of December 31, 1998, the Company had 93 full-time employees. The Company's ability to develop, manufacture and market its products and service, and to establish and maintain a competitive position in its businesses will depend, in large part, upon its ability to attract and retain qualified technical, marketing and managerial personnel, of which there can be no assurance. The Company believes that its relations with its employees are good. None of the Company's employees are represented by a collective bargaining agreement.
ITEM 2. PROPERTIES
The Company entered into a new five-year lease of approximately 2,223 square feet for its corporate offices for a term starting March 1, 1998 and ending March 2002. The fixed annual rent for the premises is $31,122 for the first year, $33,342 for the second and third years and $35,568 for the fourth and fifth years. ExpressTool leases approximately 5700 square feet of office and laboratory space in Warwick, RI for a term starting August 1, 1998 and ending July 31, 2001. The annual rent is $76,950 per year.
Laser Fare acquired certain equipment and an operations facility with approximately 17,000 square feet located in Smithfield, Rhode Island, under a capital lease obligation. The interest rate on the underlying Industrial Revenue Bond ranges from 6.0% to 7.25%. Combined annual payments of principal and interest are approximately $115,200 during the first ten years of the lease and $55,200 per year thereafter through June 2012. As of June 1996, Laser Fare began renting an additional 8,000 square feet of manufacturing space at $2,300 per month.
Mound Laser and Photonics operates in a 4,069 square foot facility located in Miamisburg, Ohio. The annual rent under the lease agreement, which expires on December 31, 2003, is $30,948.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 3, 1998, the Company held its 1998 Annual Meeting of Stockholders pursuant to notice. At such meeting, the following directors were elected to hold such office until the 1999 Annual Meeting of Stockholders or until their successors are duly elected and qualified: Clifford G. Brockmyre, James P. Sherblom, Michael S. Smith, Paul Watson and William G. Lyons III (receiving 10,708,297 votes in favor, with and 125,666 abstentions). Further, the Company's 1998 Stock Option Plan was approved (10,427,804 votes in favor, 366,548 votes against and 39,611 abstentions) and the appointment of Freed Maxick, Sachs & Murphy, P. C. as the company's auditors for the 1998 fiscal year was ratified (10,662,177 votes in favor, 146,275 votes opposed and 25,511 abstentions). Finally, an amendment to the Company's Certificate of Incorporation authorizing a reverse split was approved (7,713,161 votes in favor, 570,425 votes against and 2,550,337 abstentions) and a proposal to amend the Company's Certificate of Incorporation to create three classes of Directors to serve for staggered terms did not receive the affirmative vote of greater than 50% of the outstanding shares of the Company's Common Stock (5,206,920 votes in favor, 129,658 votes against and 115,536 abstentions).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock (the "Common Stock") is quoted on the Nasdaq SmallCap Market System ("Nasdaq") under the symbol "IMCI". The following table sets forth the high and low bid prices of the Common Stock for the past two fiscal years by quarter as reported by Nasdaq. Quotations represent interdealer prices without an adjustment for retail markups, markdowns or commissions and may not represent actual transactions. On February 16, 1999, the Company effected a one-for-five reverse stock split of its Common Stock. As a result, for the twenty trading days commencing on February 16, 1999, the Company's Common Stock will be quoted on Nasdaq under the symbol "IMCID." The following historical information does not give effect to the reverse stock split.
Period High Low
-------------------- ---------------- ---------------
1997
First Quarter 2 1/16 1 9/16
Second Quarter 2 1/8 1 7/8
Third Quarter 1 11/16 1 3/16
Fourth Quarter 1 15/16 21/32
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1998 First Quarter 1 1/5 1 1/8 Second Quarter 1 15/16 Third Quarter 9/16 1/2 Fourth Quarter 1/2 5/16 |
The Company believes that, as of March 2, 1999, it has approximately 1,800 beneficial stockholders.
Dividend Policy
The Company does not expect to declare or pay any dividends in the foreseeable future. Instead, the Company intends to retain all earnings, if any, in order to expand its operations. The payment of dividends, if any, in the future is within the discretion of the Company's Board of Directors and will depend upon the Company's earnings, if any, its capital requirements and financial condition and other relevant factors. Under the terms of the Company's credit facilities, the Company is prohibited from paying dividends or making other cash distributions.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Identifying Important Factors That Could Cause the Company's Actual Results to Differ From Those Projected in Forward Looking Statements.
Pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers of this report are advised that this
document contains both statements of historical facts and forward looking
statements. Forward looking statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
indicated by the forward looking statements. Examples of forward looking
statements include, but are not limited to (i) projections of revenues, income
or loss, earnings per share, capital expenditures, dividends, capital structure
and other financial items, (ii) statements of the plans and objectives of the
Company or its management or Board of Directors, including product enhancements,
or estimates or predictions of actions by customers, suppliers, competitors or
regulatory authorities, (iii) statements of future economic performance, and
(iv) statements of assumptions underlying other statements and statements about
the Company and its business.
This report also identifies important factors which could cause actual results to differ materially from those indicated by the forward looking statements. These risks and uncertainties include the factors discussed under the heading "Certain Factors That May Affect Future Growth" beginning at page 6 of this report.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto appearing elsewhere in this report.
Overview
Infinite Group, Inc.'s (the "Company" or Infinite") primary business areas include laser material processing, high productivity production tooling, advanced manufacturing methods and laser-application technology. The Company has four operating groups:
o Laser Fare, providing comprehensive laser-based materials processing services to leading manufacturers;
o ExpressTool, engaged in commercialization of its new proprietary high productivity production tooling (HTTP) technology;
o Mound Laser & Photonics Center, offering a full range of laser material processing services in the Mid-West, as well as specialized laser and photonics services and applied research and development; and
o The Advanced Technology Group, engaged in contract research and development.
Laser Fare
Laser Fare has been successful in building its business based upon its reputation for quality, performance, technical capability and sensitivity to its customers needs and operations, and continue to be profitable on a stand-alone basis.
While primarily engaged in contract laser material processing, Laser Fare develops new applications for industrial lasers. The facilities 20 high powered computer based lasers are capable of performing a wide variety of manufacturing processes and are capable of laser operations requiring four and five-axis manipulation. Approximately 75 percent 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, and Stryker Medical. Laser Fare also provides a variety of value-add services, that include assembly, heat treating, coating, testing, and inspection. During 1998, Laser Fare was awarded a two-year contract in excess of $5 million by Dey Laboratories to manufacture and supply for retail and hospital customers, Astech Peak Flow Meters which measure lung capacity for asthma patients.
New laser machines were acquired and others were upgraded during 1998 providing Laser Fare with sufficient equipment to support near-term requirements. Laser Fare's facilities can support near term demands as well, however its five-year business and marketing plan demonstrates the need for additional manufacturing space, and, accordingly, it is currently seeking such additional space. Management believes that such expansion space will be available on terms and conditions reasonably acceptable to it.
Laser Fare's sales volume continues to increase and management expects this trend to continue; however; there is no assurance that sales volume will continue to increase.
ExpressTool
ExpressTool is commercializing its proprietary technology that uses conformal cooling and proprietary thermal management for high productivity production injection mold tooling. ExpressTool technical capabilities allow molds, cavities and other types of tools for plastic injection moldings to be more productive than molds made using conventional techniques. Most manufacturers are striving to reduce the time required to bring new products to market for competitive reasons. Building molds and other tools in many instances requires half or more of the total new product development cycle. ExpressTool's new proprietary technology can reduce the molding time of products by 20 to 30 percent by facilitating the use of high productivity production inserts for molds. A key to the reduction cycle time is the use of conformal cooling, which removes heat from molds more efficiently and uniformly than conventional methods. The patent-pending technology utilizes a unique composite fabrication method, which reduces part cycles and minimizes distortion, thus reducing cost and improving accuracy. ExpressTool is building molds using its proprietary processes for several Fortune 500 industrial companies.
In August 1998, ExpressTool entered into an exclusive agreement with GE Plastics to test ExpressTool's new proprietary mold making technology that will substantially improve the productivity of plastic injection molding tools. The goal of the agreement is to validate and accelerate the commercialization of the ExpressTool technology. It has been found that ExpressTool's molds, incorporating proprietary cooling techniques, permit more rapid molding cycles than conventional tools, a major benefit to the user.
ExpressTool has had articles on its technology featured in leading industry publications including Modern Plastics, Injection Molding, Plastics Technology, Molding Systems and a smaller article in Appliance Manufacturer which have addressed the technology and ExpressTool's relationship with GE Plastics.
The Company had discussions with organizations having the needed capabilities that can be combined, through acquisition or some other business arrangement, to integrate ExpressTool's new technology with an established infrastructure and business base. These efforts have resulted in the establishment of a responsive network of competencies, either owned or strategically aligned, which allows ExpressTool to participate in projects having a wide range of scope and complexity.
This planned outcome is the foundation and platform for ExpressTool growth. It is anticipated that sales in 1999 will increase with further customer acceptance; however, there is no assurance these results will occur.
Mound Laser and Photonics Center
Mound Laser and Photonics Center ("MLPC"), located in Miamisburg, Ohio was acquired by the Company in February 1998. MLPC specializes in laser applications, photonics applications and material processing, and provides services to the industrial, governmental and educational sectors. The Midwest location, a region long known for its expertise in materials and materials science, gives the Company a platform for growth into the automotive, aerospace, tool and die, and other local industries. MLPC offers a wide range of materials processing services with major emphasis on laser marking, as well as applied research and development and more specialized laser and photonics services. Specialized services include growth of thin film by pulsed laser deposition, applications of lasers to chemistry and photochemistry, spectroscopy, and applied optics. MLPC has submitted provisional patents on pulsed laser deposition and specific applications of the technology. 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 that can significantly enhance Laser Fare's and ExpressTool's capabilities.
Advanced Technology Group
Advanced Technology Group, ("ATG"), was created to take advantage of the technical know how built up during the early years of Laser Fare in the application of lasers toward the solution of industrial requirements. ATG has been performing technical consulting and managing research and development programs for industrial customers. In addition to being compensated for services performed, ATG obtains intellectual property rights to the developments created under these services that provide future opportunities for the Company. The ExpressTool subsidiary is a prime example of this.
During 1998, ATG entered into a one-year consulting agreement with Molecular Geodesics Inc. ("MGI"), of Cambridge, MA. MGI is involved in 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. MGI was awarded a $6.4 million DARPA (Defense Advanced Research Project Administration) contract to develop "bioskins" for the 21st century soldier for protection against chemical and biological weapons. ATG will assist MGI in the creation, development, improvement and modification of manufacturing techniques for tensegrity structures for medical and industrial applications to support MGI's business. ATG will utilize ExpressTool's proprietary technology to fabricate structures for these "bioskins." ATG will receive as compensation for the performance of its services, the sum of $300,000 payable at the rate of $25,000 per month, plus expenses.
In March 1997, ATG was awarded a two-year $500,000 Phase II follow-on contract by the United States Air Force/Phillips Laboratory, Kirkland AFB, New Mexico. The contract is focused on the continued development of direct materials processing applications and the commercialization of high power, high-brightness laser diode
technology, jointly developed by Laser Fare and the A. F. Joffe Technical Institute of St. Petersburg, Russia. In April 1998, the Company entered into an agreement with The Laser Company ("TLC") to license the Company's high-brightness laser technology related to the Phillips contract in exchange for royalty payments. The license agreement provides TLC the right to manufacture and sell products and services using this technology, and the Company retains the rights to materials processing applications of the technology.
In June 1998, ATG was awarded a two-year, $280,000 contract from Triton Systems of Chelmsford, MA. The goal of the contract is to laser fabricate aerospace components from metal matrix composite materials. These are strong lightweight materials that are particularity useful in high temperature environments. Triton Systems awarded this contract to ATG as part of its SBIR program funded by the Phillips Laboratory at Kirkland Air Force Base in New Mexico.
ATG is involved in several smaller early stage programs that may result in contracts in 1999, but there can no assurance that any contracts will materialize.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its product development activities through a series of private placements of debt and equity securities, and through the October 1993 public offering of its common stock. During the year ended December 31, 1998, an aggregate of approximately $1.65 million, net of expenses, was provided by debt offerings. In addition, approximately $900,000 of debt was retired in connection with the conversion of notes payable to Common Stock. As of December 31, 1998, and February 28, 1999 the Company had cash, cash equivalents and marketable debt securities of approximately $1.0 million and $3.8 million, respectively, available for its working capital needs and planned capital asset expenditures.
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 a rate of 9.0% for the first twelve months and adjusts annually thereafter to a rate equal to the one-year T-Bill rate plus 3.5%. The president and chief executive officer also loaned the Company $250,000 earlier in the year. This note is repayable over a term of one year and bears interest at a rate of 9.0%. In consideration for the loans, the Company granted the lender detachable warrants to purchase 536,000 shares of Company Common Stock exercisable at $1.12 per share. Half of the warrants are immediately vested and, provided the loan remains outstanding, the remaining 50% vest in four equal tranches; six, nine, twelve, and fifteen months from the anniversary date of the loan. In the event the notes are prepaid within such period, any unvested warrants are cancelable.
During December, 1998 and February 1999 the Company consummated the sale of 2,431,056 shares, or 85% of its Spectra series A Convertible Preferred Stock yielding
net proceeds to the Company of approximately $4.6 million, $1.0 million of which was received in December, 1998 and the balance received in February, 1999.
While revenues were realized in fiscal 1998 on a consolidated basis, substantially all the of revenues were attributed to Laser Fare. Through improved revenues being realized by the Company, operating cost reductions being implemented and reduction of interest costs through the conversion of debentures, net losses significantly decreased in 1998. At December 31, 1998 and February 28, 1999 the Company had working capital of approximately $1.0 million and $3.8 million, respectively. The Company believes that these funds, together with its credit facilities, will be sufficient to satisfy the Company's short term working capital needs. In connection with its on-going business expansion program, management is also pursuing alternative sources of funding from conventional banking institutions as well as exploring 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 the Company's current working capital will be adequate to fund its current operations and business expansion or that management will be successful in raising additional working capital.
RESULTS OF OPERATIONS
Industry Segments
Laser Fare, Inc.
Revenues from the laser material processing, value added services and advance technology consulting services from its Advanced Technology Group for the year ended December 31, 1998 were approximately $6,879,052 and provided a gross profit for the period of approximately $2,751,150.
ExpressTool
Revenue from initial molds produced using its conformal cooling and proprietary thermal management for high productivity production injection tooling for the year ended December 31, 1998 was approximately $442,906 and provided a gross profit of $56,245.
Mound Laser & Photonic Center
Revenue from materials processing services with major emphasis on laser marking, as well as applied research and development and more specialized laser and photonics services for the year ended December 31, 1998 was approximately $74,147 and provided a gross profit of $7,997.
Comparison of the Years Ended December 31, 1998 and 1997
In 1998, consolidated revenues were $7,396,105 on cost of sales of $4,760,733, resulting in a gross profit of $2,635,372 for the year. Consolidated revenues in 1997 were $5,448,575 on cost of sales of $3,376,353 resulting in a gross profit of $2,072,222.
Research and development expenses increased during 1998 to $1,060,021 from $770,758 in 1997, or an increase of $289,263 or 37.5 %. The increase is primarily attributed to the Company's ExpressTool subsidiary's continued investment in its proprietary injection mold tooling technology research and development.
General and administrative expenses decreased to $1,763,897 in 1998 from $1,820,663 in 1997, a decrease of $56,766 or 3.1%. The decrease is primarily attributed to continued cost reduction management.
Selling expenses of $427,889 in 1998 were attributed primarily to Laser Fare's materials processing marketing activity, including trade shows, conventions, brochures and other print materials. Selling expense of $470,723 in 1997 were primarily attributed to similar activities at Laser Fare.
For the year ended December 31, 1998, depreciation and amortization costs were $628,861 as compared to $741,112 for 1997. Amortization of deferred financing costs provided approximately $12,000 of the costs as compared to $187,000 in 1997. The decrease resulted from several conversions of convertible debentures to common stock in 1997, resulting in the write-off of the corresponding financing costs in that year. Amortization of purchased technology and goodwill totaled $50,760 and $49,426 for 1998 and 1997, respectively.
Interest expense was $373,405 during 1998, as compared to $804,873 in 1997, a decrease of $407,700 or 52.2%. Included in interest expense is a charge for convertible debenture discounts in the amount of $406,849 in 1997. This amount was zero in 1998 due to no debentures being issued. Interest income was $40,287 in 1998, as compared to $39,154 in 1997.
The decrease in losses of the disposed business segment, Spectra, from $1,958,520 for 1997 to $437,375 in 1998, was due to the Company's investment being fully written off during 1998.
The $1,067,000 deferred income tax benefit recognized in fiscal 1998 relates to the Company's ability to utilize the net operating loss carryforwards for income tax purposes to offset the estimated taxable gain on the sale of Spectra Science Corp. in fiscal 1998 and 1999. In fiscal 1997 and prior, a valuation allowance was recorded against the estimated deferred tax benefits associated with the net operating loss carryforwards because of the uncertainty as to the Company's ability to generate sufficient taxable income in the future to utilize the losses before their expiration.
Gain on the disposition of a discontinued segment of $831,500, net of income taxes, in 1998 was due to receipt of the first increment of funds from the sale of the Company's holdings in Spectra.
All of these factors contributed to the net loss of $121,886 in 1998 as compared to the net loss of $4,322,422 in 1997.
Comparison of the Years Ended December 31, 1997 and 1996
In 1997, consolidated revenues were $5,448,575 on cost of sales of $3,376,353, and gross profit in the amount of $2,072,222 realized during the year. Revenues and gross profit for the prior year period were $5,080,207 and $1,922,904, respectively.
Research and development expenses increased during 1997 to $770,758 from $125,354 in 1996 an increase of $645,404 or 514%. The increase was primarily due to research and development activity in the Company's ExpressTool subsidiary.
General and administrative expenses decreased to $1,820,663 in 1997 from $2,113,655 in 1996, a decrease of $292,992. The decrease is primarily attributed to reduction of litigation legal expense and continued cost reduction management.
Selling expenses of $470,723 in 1997 were attributed primarily to Laser Fare's materials processing marketing activity, including trade shows, conventions, brochures and other print materials. Selling expense of $511,208 in 1996 were primarily attributed to similar activities at Laser Fare.
For the year ended December 31, 1997, depreciation and amortization costs were $741,712 as compared to $1,006,784 for 1996. Amortization of deferred financing costs provided approximately $187,000 of costs as compared to $528,000 in 1996. Amortization of purchased technology and goodwill totaled $49,426. The decrease resulted from a reduction in the amount of convertible debentures issued and related conversions to common stock in 1997 as compared to 1996.
Interest expense was $804,873 during 1997, as compared to $1,815,465 in 1996, a decrease of $1,010,592 or 56%. Included in interest expense is a charge for convertible debenture discounts in the amount of $406,849 for 1997, compared to $1,393,555 in 1996. The decrease in this component of interest expense is due to a decrease in the issuance of convertible debentures in 1997 compared to 1996 and a significantly reduced level of borrowings during 1997. Interest income of $39,154 in 1997, as compared to $91,517 in 1996, represents a decrease of $52,363 or 57.2%.
Losses of a discontinued segment, Spectra Science Corp., were $1,958,520 in 1997, as compared to $504,105 in 1996. Spectra commenced operations in August 1996.
All of these factors contributed to the net loss of $4,322,422 in 1997 as compared to the net loss of $4,693,531 in 1996.
RECENT DEVELOPMENTS AND RELATED PRO FORMA
INFORMATION (unaudited)
Since December 31, 1998, the Company has consummated certain transactions which have had a material impact on the Company's financial condition. In addition, the Company anticipates certain transactions in the foreseeable period. Accordingly, the pro forma information set forth below, gives effect to the following events as if they had occurred as of January 31, 1999:
Sale of Spectra Holdings. During December 1998 and February 1999, the Company consummated the sale of 2,431,056 shares, or 85%, of its Spectra Series A Convertible Preferred Stock, yielding net proceeds of approximately $4.6 million, $1.0 million of which was received in December 1998 and the balance was received in February 1999. As a result of this transaction, the Company recognized a $1 million gain on the sale in fiscal 1998 and will recognize a $3.6 million gain on the sale in fiscal 1999.
Recapture of Treasury Shares. In February 1999, the Company completed the divestiture of its equity interest in Spectra, through the sale of 611,194 shares of Series A Preferred Stock of Spectra (valued at $2.25 per share) in consideration for the retirement of 550,075 (post reverse-split) shares of the Company's common stock. As a result of this transaction the Company will recognize a gain of $1.375 million in the first quarter of 1999.
Proposed Retirement of Debt. 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 a rate of 9.0% for the first twelve months and adjusts annually thereafter to a rate equal to the one-year T-Bill rate plus 3.5%. The president and chief executive officer also loaned the Company $250,000 earlier in the year. This note is repayable over a term of one year and bears interest at a rate of 9.0%. In consideration for the loans, the Company granted the lender detachable warrants to purchase 536,000 shares of Company Common Stock exercisable at $1.12 per share. Half of the warrants are immediately vested and, provided the loan remains outstanding, the remaining 50% vest in four equal tranches; six, nine, twelve, and fifteen months from the anniversary date of the loan. In the event the notes are prepaid within such period, any unvested warrants are cancelable. The Board of Directors intends at its next meeting to authorize the repayment of these loans. As a result thereof, warrants covering 134,000 shares will be cancelled.
The following unaudited proforma balance sheet of the Company at January 31, 1999 includes all adjustments to reflect the foregoing transactions:
Pro Forma Balance Sheet:
Proforma Adjustments Proforma January
January 31, --------------------------------- 31, 1999
ASSETS 1999 (unaudited) Debit Credit (unaudited)
---------------------------- ---------------- ----- ------ ----------------
Current assets $ 3,333,637 $ 3,621,881(2) $ 1,364,788(4) $ 4,765,730
825,000(3)
Property and equipment, net 4,442,338 4,442,338
Notes receivable--
stockholders 47,102 47,102
Other intangible assets,
net 342,565 342,565
Other investment 250,000 250,000
------------- ------------ ------------ -------------
$ 8,415,645 $ 3,621,881 $ 2,189,788 $ 9,847,735
============= ============ ============ =============
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Proforma Adjustments Proforma January
LIABILITIES AND January 31, --------------------------------- 31, 1999
STOCKHOLDER'S EQUITY 1999 (unaudited) Debit Credit (unaudited)
---------------------------- ----- ------ ----------------
Current liabilities $ 2,261,951 $ 260,237(4) $ 2,001,714
Long Term Obligations 2,301,682 2,301,862
Notes payable --
stockholders 601,955 1,104,551(4) 502,596(5)
Stockholders' equity 3,249,874 1,375,187(1) 1,375,187(1)
825,000(3) 3,621,881(2)
502,596(5) 5,544,159
------------- ------------ ---------- ------------
$ 8,415,652 $ 4,067,571 $5,499,664 $ 9,847,735
============= ============ ========== ============
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1 -- To record repurchase of Common Stock in exchange for Spectra shares.
2 -- To record sale of Spectra stock to Spectra insiders and outside third
parties.
3 -- To record tax effect of Spectra stock sale.
4 -- To record repayment of stockholder notes.
5 -- To write-off note discount relating to detachable warrants issued in
conjunction with stockholder notes.
YEAR 2000 COMPLIANCE
The Company is on schedule with a project that addresses the Year 2000 issue of computer systems and other equipment with embedded chips or processors not being able to properly recognize and process date-sensitive information after December 31, 1999. Many systems use only two digits rather than four to define the year and these systems will not be able to distinguish between the 1900 and the year 2000. This may lead to disruptions in the operations of business and government entities resulting from miscalculations or systems failures. The project is designed to ensure the compliance of all of the Company's applications, operating systems and hardware platforms, and to address the compliance of key business partners. Key business partners are those clients and vendors that have a material impact on the Company's operations. All phases of the project should be completed by mid 1999 thus minimizing the impact of the Year 2000 problem on the Company's operations.
In 1997 the Company began an initiative to update all computer systems so that it could attain competitive advantage. Early in 1998, the Company began to address the Year 2000 (Y2K) issue to insure all computer hardware and related software were Y2K compliant. As of September 30,1998, the Company's entire internal business computer programs and systems were Y2K compliant. The total additional cost of the required modifications to become Y2K compliant was approximately $100,000.
Y2K disruptions in client or vendor operations could result in one or more missing scheduled payments which could impact the Company's cash flow. Y2K disruptions of the operations of key vendors could impact the Company's ability to fulfill some of its contractual obligations. If one or more of these situations occur, the Company's results of operations, liquidity and financial condition could be materially and adversely affected. The Company is unable to determine the readiness of its key business partners or vendors at this time and therefore unable to determine whether the consequences of Y2K failures will have a material impact on the Company's results of operations, liquidity or financial conditions. However, as apart of the Y2K project, the Company is mailing a questionnaire to all of its clients and vendors requesting the status of their Y2K compliance on or before March 30, 1999. This is expected to significantly reduce the Company's level of uncertainty about the Y2K problem and reduce the possibility of significant interruptions of normal business operations.
ITEM 7. FINANCIAL STATEMENTS
Reference is made to the Financial Statements, the report thereon and notes thereto, commencing on page F-1 to this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
MANAGEMENT
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below are the names, ages and positions of the Company's directors, executive officers.
Affiliated
Name Age Position Since
------------------------ ------ ---------------------------- ----------
Clifford G. 57 Chairman of the Board, 1994
Brockmyre(1) President and Chief
Executive Officer
Michael S. Smith (2) 44 Director 1995
James P. Sherblom (2) 43 Director 1998
Daniel T. Landi 56 Chief Financial and 1994
Accounting Officer,
Secretary
Terence Feeley 48 President-- ATG 1994
Paul Jacobs, PhD 60 Vice President-- Technology 1997
ATG and Express Tool
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(1) This person may be deemed a parent and/or promoter of the Company as those
terms are defined in the Rules and Regulations promulgated under the
Securities Act of 1933, as amended.
(2) Member of the Audit and Compensation Committees.
Each Director is elected for a period of one year and serves until his successor is duly elected by the stockholders. Officers are elected by and serve at the will of the Board of Directors.
Background
The principal occupation of each director, executive officer and key employee for at least the past five years is as follows:
Clifford G. Brockmyre. Mr. Brockmyre has been a director of the Company since October 1994, its President since October 1995 and its Chief Executive Officer since January 1998. He has been involved with manufacturing since 1966. He took Quabbin from a nearly bankrupt job shop to an extremely profitable manufacturer with revenues of over $30 million in 1990. Mr. Brockmyre sold Quabbin in 1990 for $24 million to a Fortune 500 company. For over 27 years, he has been involved in the tooling, machining and manufacturing industries throughout the country. He is a member of the Licensing Executive Society, a member of the faculty of Mohawk Research's Commercialization Programs of the Department of Energy and Los Alamos National Laboratory and was the 1992 Chairman of the 3000+ corporation member National Tooling and Machining Association. He developed the laser manufacturing liaison to the National Laboratories at Los Alamos, Sandia and Oak Ridge for Laser Fare. The Department of Energy has set up Laser Fare as a model for technology transfer under its Small Business Initiative. Mr. Brockmyre was recently appointed by the Governor of Rhode Island to the State Economic Advisory Council.
Daniel T. Landi. Mr. Landi has been the Company's Chief Financial Officer since August 1994. Prior thereto, from January 1993 to June 1994 he was the Chief Financial Officer of a privately held aerospace research and development company, with primary responsible for business and strategic plans, financial structuring, funding, as well as establishing an operating infrastructure for the company, including business and financial systems. From June 1991 through 1992, Mr. Landi was a principal of Focused Management Consulting Group, a firm concentrating on acquisitions, mergers, joint ventures and start-up operations, including private placements and initial public offerings. Mr. Landi has extensive domestic and international experience in finance, accounting and information systems with his twenty-six years of progressive growth in overall business and senior financial management with IBM. Mr. Landi has a B.S. in Finance and an MBA from the University of Connecticut.
Michael S. Smith. Mr. Smith was elected to the Board of Directors in 1995 and is a member of the Audit and Compensation committees. He is the President and Chief Executive Officer of Micropub Systems International Inc., a brewery system manufacturer, and is a principal of International Capital and Management Inc., a merchant banking and venture capital firm. From October 1992 through January 1997, Mr. Smith was the Managing Director of Corporate Finance of H.J. Meyers & Co. an investment banking firm and was general counsel of such firm from May 1991 through May 1995. Mr. Smith serves on the Board of Directors of CSL Lighting Manufacturing, Inc. Mr. Smith was associated with the law firm of Harter, Secrest & Emery from 1987 until 1991. Mr. Smith received a B.A. from Cornell University and a J.D. from Cornell University School of Law.
James P. Sherblom. Mr. Sherblom was elected to the Board of Directors in October 1998 and is a member of the Audit and Compensation Committee. He is the President of Seaflower Associates, Inc., a venture capital firm which he founded in 1993. He serves as Chairman or director of numerous early stage biotechnology companies. He served as Chairman of The Board, President and Chief Executive Officer of TSI Corporation (formerly Transgenic Sciences, Inc.) from January 1989 to April 1993. From February 1984 to March 1989 he was Senior Vice President of Finance and Administration, Chief Financial Officer and Treasurer of Genzyme Corporation, a biopharmaceutical company. Mr. Sherblom received a BS from Yale University and an MBA degree with high distinction from Harvard University.
Terence Feeley. Mr. Feeley has been the President of the Laser Fare-Advanced Technology Group since 1994. He was the co-founder, President and CEO of Laser Fare prior to it being acquired by the Company. Mr. Feeley is the President of the Laser Institute of America, the author of over 50 papers on laser technology and the co-editor of three books in the area of laser based rapid manufacturing. Mr. Feeley received a BA in from the University of Rhode Island.
Paul Jacobs, Ph.D. Mr. Jacobs joined ExpressTool in 1996 as its Vice
President of Technology. Mr. Jacobs received a BS in Mechanical Engineering from
Union College and an MS, MA, and Ph.D., in Applied Physics from Princeton
University. He began his career as a senior physicist working on laser-based
optical systems at the Electro-Optical Systems Division of Xerox Corp. He became
Chief Scientist in 1985 and helped develop a tactical training system used by
the US Army. In 1989 he became convinced of the future of stereolithography and
joined 3D Systems as Manage of Process Development and in 1991 was appointed
Director of R&D. Mr. Jacobs became one of the leading authorities of SL
technical development. In 1992 Mr. Jacobs was the principal author and technical
editor of Rapid Prototyping & Manufacturing: Fundamentals of Stereolithography,
the first in the field. This was followed in 1996 by the highly acclaimed:
Stereolithography and Other RP&M Technologies: From Rapid Prototyping to Rapid
Tooling.
The Board of Directors has an Audit Committee and a Compensation Committee. The Audit Committee reviews the scope and results of the audit and other services provided by the Company's independent accountants and internal controls of the Company. The Compensation Committee is responsible for the approval of compensation arrangements for officers of the Company and the review of the Company's compensation plans and policies.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Officers, directors and greater
than ten-percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on review of the copies of such forms furnished to the Company, or written representations that no Forms 5 were required, the Company believes that all Section 16(a) filing requirements applicable to its officers and directors were complied.
Directors' Compensation
Directors do not receive any cash consideration for serving as directors of the Company. All directors are reimbursed for out-of-pocket expenses incurred in connection with their attendance at board meetings. In addition, pursuant to the Company's non-discretionary, non-employee directors' stock option plan, each non-employee director is entitled to receive options to purchase 2,500 shares of Common Stock upon becoming a director and at the end of each fiscal year during which he served as a director.
Limitation of Directors' Liability and Indemnification
The Delaware General Corporation Law (the "DGCL") authorizes corporations to limit or eliminate the personal liability of directors to corporations and their shareholders for monetary damages for breach of directors' fiduciary duty of care. The Company's Certificate of Incorporation limits the liability of Directors of the Company to the Company or its shareholders to the fullest extent permitted by Delaware law.
The Company's Certificate of Incorporation provides mandatory indemnification rights to any officer or Director of the Company who, by reason of the fact that he or she is an officer or Director of the Company, is involved in a legal proceeding of any nature. Such indemnification rights include reimbursement for expenses incurred by such officer or Director in advance of the final disposition of such proceeding in accordance with the applicable provisions of the DGCL. Insofar as indemnification for liabilities under the Securities Act may be provided to officers and Directors or persons controlling the Company, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
There is no pending litigation or proceeding involving a Director, officer, employee or agent of the Company in which indemnification by the Company will be required or permitted. The Company is not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.
ITEM 10. EXECUTIVE COMPENSATION
The Summary Compensation Table below includes, for each of the fiscal years ended December 31, 1998, 1997 and 1996, individual compensations for services to the Company in all capacities paid to the Chief Executive Officer and the other most highly paid executive officers of the Company in Fiscal 1998 whose salary and bonus exceeded
$100,000 (collectively, the "Named Executives"). All references to shares of the Company's Common Stock gives effect to the one-for-five reverse stock split effected on February 16, 1999.
Long-Term
Annual Compensation Compensation
------------------- ------------
Name and Principal Securities All Other
Position Year Actual Deferred Underlying Options Compensation
-------- ---- ------ -------- ------------------ ------------
Clifford G. Brockmyre 1998 $175,000 -- 339,038 --
President and Chief 1997 $175,000 4,038 --
Executive Officer 1996 $157,400 $ 75,000 60,000 --
Daniel T. Landi 1998 $110,000 -- 2,538 --
Chief Financial and 1997 $110,000 -- 2,308 --
Accounting Officer 1996 $100,000 -- -- --
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Employment Agreements
The Company has an employment agreement with Clifford G. Brockmyre, its
President and Chief Executive Officer, for a term expiring on June 30, 2000,
which provides for an annual salary of $175,000 and various benefits. In
addition to the compensation provided under the agreement, Mr. Brockmyre is
eligible to participate in the Company bonus plan and is eligible for other
bonuses as determined in the sole direction of the Board of Directors. The
agreement also provides, among other things, that, if Mr. Brockmyre is
terminated other than for cause (which is defined to include conviction of a
crime involving moral turpitude, engaging in activities competitive with the
Company, divulging confidential information, dishonesty or misconduct
detrimental to the Company or breach of a material term of the agreement), the
Company will pay to him a lump sum payment equal to the product of the sum of
(I) the highest annual rate of salary paid to Mr. Brockmyre, and (ii) the
highest annual bonus paid to or accrued to the benefit of Mr. Brockmyre during
the Employment Term (as defined in the agreement) multiplied by 2.99. The
agreement also provides for payments to Mr. Brockmyre in the event of his death
or permanent disability.
The Company has an employment agreement with Daniel T. Landi, its Chief Financial and Accounting Officer, for a term expiring on October 19, 2000, which provides for an annual salary of $110,000 and various benefits. Base Salary shall be subject to annual review and increase as determined by the Board of Directors. In addition to the compensation provided under the agreement, Mr. Landi is eligible to participate in all executive bonus and option plans established for senior executives of the Company
Stock Options
The following tables show certain information with respect to stock options granted in 1998 to Named Executives and the aggregate value at December 31, 1998 of all stock options granted to the Named Executives. All information contained in this
tables and the description of the Stock Option Plans which follow gives effect to the one-for-five reverse stock split effected on February 16, 1999. No Options were exercised by Named Executives during 1998.
Option Grants in Last Fiscal Year
Individual Grants
Number of Percent of Total
Shares Options/Granted to
Underlying Employees in Exercise Price Expiration
Name Options Granted Fiscal Year ($/Sh) Date
---- --------------- ----------- ------ ----
(#)
Clifford G. Brockmyre 2,019 6.2% $9.75 12/02/08
Clifford G. Brockmyre 2,109 3.9% $4.85 07/02/08
Daniel T. Landi 1,269 1.8% $9.75 12/02/08
Daniel T. Landi 1,269 1.2% $4.85 07/02/08
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Aggregate 1998 Year End Option Values
Number of Shares of Common
Stock
Underlying Unexercised Value of Unexercised
Options In-The Money Options at
At 12/31/98 (#) 12/31/98* ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
Clifford G. Brockmyre 24,346/6,731 $ 19,306/$5,338
Daniel T. Landi 4,769/4,077 $ 4,030/$3,445
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* Based on December 31, 1998 Nasdaq closing price of $1.875.
Stock Option Plans
In December 1991, the Board of Directors and stockholders of the Company adopted a stock option plan, which was amended in April 1993 (the "1993 Stock Option Plan"). In April 1994, the Board of Directors adopted the 1994 Stock Option Plan which was approved and adopted by the Company's stockholders at the 1994 Annual Meeting of Stockholders. In June 1995 the Board of Directors adopted the 1995 Stock Option Plan which was approved by the Company's stockholders at the 1995 Annual Meeting of Stockholders. In December 1996, the Board of Directors adopted the 1996 Stock Option Plan which was approved and adopted by the Company's stockholders at the 1996 Annual Meeting of Stockholders. In December 1997, the Board of Directors adopted the 1997 Stock Option Plan which was approved and adopted by the Company's
stockholders at the 1997 Annual Meeting of Stockholders. In December 1998, the Board of Directors adopted the 1998 Stock Option Plan which was approved and adopted by the Company's stockholder at the 1998 Annual Meeting of Stockholders. The 1993, 1994, 1995, 1996, 1997 and 1998 Option Plans are collectively referred to herein as the "Option Plans". The 1993, 1994, 1995, 1996, 1997 and 1998 Option Plans provide for the grant to employees, officers and consultants of options to purchase up to 50,000, 45,000, 51,000, 80,000, 120,000 and 100,000 shares of Common Stock, respectively, consisting of both incentive stock options within the meaning of Section 422 of the United States Internal Revenue Code of 1986 (the "Code") and non-qualified options. The Option Plans are intended to qualify under Rule 16b-3 of the Securities Exchange Act of 1934. Incentive stock options are issuable only to employees of the Company, while non-qualified options may be issued to non-employees, consultants, and others, as well as to employees of the Company.
The Option Plans are administered by the Compensation Committee of the Board of Directors, which determines those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of share of Common Stock that may be purchased under each option, and the option price. The members of this committee are ineligible to receive options under the Option Plans.
The per share exercise price of an incentive or non-qualified stock option may not be less than the fair market value of the Common Stock on the date the option is granted. The aggregate fair market value (determined as of the date the option is granted) of the shares of Common Stock for which incentive stock options are first exercisable by any individual during any calendar year may not exceed $100,000. No person who owns, directly or indirectly, at the time of the granting of an incentive stock option to him or her, more than 10% of the total combined voting power of all classes of stock of the Company shall be eligible to receive any incentive stock option under the Option Plans unless the option price is at least $110% of the fair market value of the Common Stock subject to the option, determined on the date of grant. Non-qualified options are not subject to this limitation.
No incentive stock option may be transferred by an optionee other than by will or the laws of descent and distribution, and during the lifetime of an optionee, the option will be exercisable only by him or her. In the event of termination of employment other than by death or disability, the optionee will have three months after such termination during which to exercise the option. Upon termination of employment of an optionee by reason of death or permanent total disability, the option remains exercisable for one year thereafter to the extent it was exercisable on the date of such termination. No similar limitation applies to non-qualified options.
In April 1993, the Board of Directors and stockholders of the Company adopted a non-discretionary non-employee directors' stock option plan (the "Directors' Plan") that provides for the grant to non-employee directors of non-qualified options to purchase up to 50,000 shares of Common Stock. Pursuant to the Directors' Plan, each new non-employee director of the Company is automatically granted, upon becoming a director, an
option to purchase 2,500 shares of Common Stock at the fair market value of such shares on the grant date. Each option vests one year from the date of grant. In addition, each non-employee director shall automatically be granted an option to purchase 2,500 shares at the fair market value of such shares on the date of grant, on the last day of each fiscal year during which he or she serves as a director of the Company. Such options shall vest one year from date of grant.
Options under the Option Plans and Directors' Plan must be granted within 10 years from the effective date of each respective plan. Incentive stock options granted under the plan cannot be exercised more than 10 years from the date of grant, except that incentive stock options issued to greater than 10% stockholders are limited to four-year terms. All options granted under the plans provide for the payment of the exercise price in cash or by delivery to the Company of shares of Common Stock already owned by the optionee having a fair market value equal to the exercise price of the options being exercised, or by a combination of such methods of payment. Therefore, an optionee may be able to tender shares of Common Stock to purchase additional shares of Common Stock and may theoretically exercise all of his stock options without making any additional cash investment.
Any unexercised options that expire or that terminate upon an optonnee's ceasing to be affiliated with the Company become available once again for issuance. As of February 16, 1999 the Company had outstanding incentive stock options to purchase 106,791 shares of Common Stock under the Option Plans and non-qualified options to purchase an aggregate of 1,500 shares of Common Stock to Michael S. Smith, and 500 shares of Common Stock to James P. Sherblom under the Directors' Plan. These options are exercisable at prices ranging from $1.875 to $12.50 per share.
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
None of the Directors serving on the Compensation Committee is an employee of the Company. No Director or executive officer of the Company is a director or executive officer of any other corporation that has a director or executive officer who is also a Director of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table, together with the accompanying footnotes, sets forth information, as of March 10, 1999, regarding stock ownership of all persons known by the Company to own beneficially 5% or more of the Company's outstanding Common Stock, all directors and nominees, and all directors and executive officers of the Company as a group. All stock ownership information has been adjusted to give effect to the Company's one-for-five reverse split effected February 16, 1999.
Name of Shares of Common Stock Percentage
Beneficial Owner (1) Beneficially Owned (2) of Class (3)
-------------------- ---------------------- ------------
Directors and Executive Officers
Clifford G. Brockmyre 496,105(4) 23.3%
Daniel T. Landi 8,846(5) *
Michael S. Smith 1,000(6) *
James P. Sherblom 66,000(7) 3.1%
All executive officers
and directors as a
group (5 persons) 678,874(8) 31.9%(9)
5% Stockholders
Northeast Hampton
Holdings, LLC(10) 497,106 23.4%
----------
|
* less than 1%
(1) Unless otherwise indicated below, each director, executive officer and
each 5% stockholder has sole voting and investment power with respect to
all shares beneficially owned. The address of Mr. Brockmyre is c/o
Infinite Group, Inc. 2364 Post Road, Warwick, RI 02886. The address of
Northeast Hamptons Holding, LLC is 1895 Mt. Hope Avenue, Rochester, New
York 14620.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants or upon the
conversion of securities are deemed to be outstanding for the purpose of
computing the percent of ownership of such individual or group, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
(3) Assumes that all currently exercisable options or warrants or convertible
notes owned by the individual have been exercised.
(4) Includes 20,000 shares owned by Mr. Brockmyre's wife as to which shares
Mr. Brockmyre disclaims beneficial ownership, 24,346 shares subject to
currently exercisable options and 335,000 shares subject to currently
exercisable warrants.
(5) Includes 7,769 shares subject to currently exercisable options.
(6) Includes 333 shares subject to currently exercisable options
(7) Includes 14,000 shares subject to currently exercisable options.
(8) Includes 447,558 shares subject to currently exercisable options, warrants
or convertible notes.
(9) Assumes that all currently exercisable options or warrants owned by
members of the group have been exercised.
(10) The information with respect to this stockholder was derived from the
Schedule 13D and Form 4's filed by the reporting person.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1998, the former chairman and principal shareholder of the Company, along with related parties of the principal shareholder, sold an aggregate of 470,044 shares of common stock of the Company to Northeast Hampton Holdings, LLC. Also, the principal stockholder sold his interest in the above convertible secured notes with a principal balance of $900,605 to Northeast Hampton Holdings. Northeast Hampton Holdings, in turn, forgave $106,743 of the notes payable as consideration for 35,581 shares of common stock issued in connection with the exercise of stock options. The remaining $793,862 of principal outstanding was converted into 101,355 shares of common stock at an average conversion price of $8.15 per share.
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 fifteen 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 3.5%. The president and chief executive officer also loaned the Company $250,000 earlier this year. In consideration for the loans, the Company granted the lender detachable warrants to purchase 536,000 shares of Company Common Stock exercisable at $5.60 per share. Half of the warrants are immediately vested and, provided that the loan remains outstanding, the remaining 50% are exercisable in four equal allotments; six, nine, twelve, and fifteen months from the anniversary date of the loan. In the event the notes are prepaid within such period, any unexercisable warrants are cancelable.
In May, 1998 the Company entered into an agreement with James P. Sherblom pursuant to which Mr. Sherblom agreed to act as Senior Financial Advisor to the Company. In consideration for such services, the Company granted to Mr. Sherblom a non-qualified stock option to purchase 48,000 (post-split) shares of Company's Common Stock at the fair market value on the date of the agreement. The options vest with respect to 2,000 shares per month over a 24-month period. The Agreement is terminable by either party on 30 days' notice, in which event any unvested options would be forfeited. In October 1998, Mr. Sherblom became a Director of the Company.
The Company believes the foregoing transactions which involved affiliates were on terms no less favorable to the Company than could have been obtained from unaffiliated third parties. As a matter of Policy, in order to reduce the risks of self-
dealing or a breach of the duty of loyalty to the Company, all transactions between the Company and any of its officers, directors or principal stockholders are for bona fide purposes and are approved by a majority of the disinterested members of the Board of Directors.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
The Exhibits listed below are filed as part of this Report.
3.1 Restated Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment of Certificate of Incorporation dated January 7,
1998. (8)
3.3 Certificate of Amendment of Certificate of Incorporation dated February
16, 1999.*
3.4 By-Laws of the Company. (1)
4.1 Specimen Stock Certificate. (1)
10.1 1993 Stock Option Plan. (1)
10.2 1993 Non-Employee Directors' Stock Option Plan. (1)
10.3 Form of Stock Option Plan (3)
10.4 Form of Stock Option Agreement. (1)
10.5 Stock Acquisition Agreement between the Company and HGG Laser Fare Inc.
(2)
10.6 Lease Agreement between Rhode Island Industrial Facilities Corporation and
HGG Laser Fare, Inc. for certain equipment and operating facility in
Smithfield, Rhode Island. (4)
10.7 Stock Sale Agreement, dated December 31, 1995, with respect to the sale of
FTD Infinite.(5)
10.8 Loan Agreement between HGG Laser Fare, Inc. and First National Bank of New
England and dated December 21, 1995.(5)
10.9 Spectra Acquisition Corp. - Series A Convertible Stock Purchase Agreement
dated August 23, 1996 (7)
|
10.10 Spectra Acquisition Corp. -Stockholders' Agreement dated August 23, 1996
10.14 Employment Agreement between Clifford G. Brockmyre and the Company dated
July 1, 1996. (8)
10.12 Employment Agreement between Daniel T Landi and the Company dated October
20, 1997. (8)
10.13 Employment Agreement between Larry R. Dosser and the Mound Acquisition,
Inc. dated February 12, 1998. (8)
10.14 Mound Acquisition Agreement dated February 12, 1998. (8)
10.15 Supply Agreement between Laser Fare, Inc. and Dey Laboratories, L.P. dated
October 20, 1997. (8)
10.16 Form of Stock Repurchase Agreements dated February 19, 1999 between the
Company and Clearwater Funds.*
10.17 Form of Loan Agreements and Warrant between the Company and Clifford G.
Brockmyre.*
10.18 Form of Spectra Science Corporation Stock Sale Agreement.*
21 Subsidiaries of the Company.(6)
27 Financial Data Schedule.*
Reports on Form 8-K
None
CONSOLIDATED
FINANCIAL STATEMENTS
INFINITE GROUP, INC.
DECEMBER 31, 1998
INFINITE GROUP, INC.
CONTENTS
Page
Independent Auditor's Report........................................... F-2
Consolidated Financial Statements:
Balance Sheets..................................................... F-3
Statements of Operations........................................... F-4
Statements of Stockholders' Equity................................. F-5
Statements of Cash Flows........................................... F-6
Notes to Consolidated Financial Statements............................. F-7
|
[LETTERHEAD OF FREED MAXICK SACHS & MURPHY, PC]
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Infinite Group, Inc.
We have audited the consolidated balance sheets of Infinite Group, Inc. as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Infinite Group, Inc. as of December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.
FREED MAXICK SACHS & MURPHY, P.C.
Buffalo, New York
March 12, 1999
INFINITE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
ASSETS 1998 1997
---------- ----------
Current assets:
Cash and cash equivalents $1,010,736 $ 541,653
Restricted funds 78,125 69,280
Accounts receivable, net of allowances 1,093,414 954,378
Inventories 193,412 150,389
Deferred tax asset 825,000 --
Advance - stockholder 50,383 --
Other current assets 182,567 174,798
---------- ----------
Total current assets 3,433,637 1,890,498
Property and equipment, net 4,442,338 4,197,305
Other assets:
Notes receivable - stockholders 47,102 87,642
Other intangible assets, net 342,565 266,506
Other investment 250,000 --
Investment in disposed subsidiary -- 437,375
Inventoried parts -- 71,603
---------- ----------
639,667 863,126
---------- ----------
$8,515,642 $6,950,929
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable:
Bank $ 522,757 $ 370,553
Stockholders 231,031 70,000
Accounts payable and accrued expenses 1,171,329 948,713
Current maturities of long term obligations 307,628 242,340
Current portion of notes payable -
stockholders 29,206 703,965
---------- ----------
Total current liabilities 2,261,951 2,335,571
Long term obligations 2,301,862 2,466,662
Notes payable - stockholders 601,955 196,640
Stockholders' equity
Common stock, $.001 par value, 20,000,000
shares authorized, 2,673,334 and 2,523,298
shares issued and outstanding 2,673 2,523
Additional paid-in capital:
Common stock 20,210,268 19,246,299
Warrants 555,585 --
Accumulated deficit (17,418,652) (17,296,766)
---------- ----------
Total stockholders' equity 3,349,874 1,952,056
---------- ----------
$8,515,642 $6,950,929
========== ==========
|
See notes to consolidated financial statements
INFINITE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
====================================================================================
Years Ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Sales $ 7,396,105 $ 5,448,575 $ 5,080,207
Cost of goods sold 4,760,733 3,376,353 3,157,303
----------- ----------- -----------
Gross profit 2,635,372 2,072,222 1,922,904
Cost and expenses
Research and development 1,060,021 770,758 125,354
General and administrative expenses 1,763,897 1,820,663 2,113,655
Selling expenses 427,889 470,723 511,208
Depreciation and amortization 628,861 741,712 1,006,784
Litigation settlement loss -- -- 649,000
----------- ----------- -----------
Total costs and expenses 3,880,668 3,803,856 4,406,001
----------- ----------- -----------
Operating loss (1,245,296) (1,731,634) (2,483,097)
Other income (expense)
Interest income 40,287 39,154 91,517
Interest expense (373,405) (804,873) (1,815,465)
Gain (loss) on dispositions of assets (5,635) 38,457 --
Other 1,038 94,994 20,003
----------- ----------- -----------
Total other income (expense) (337,715) (632,268) (1,703,945)
----------- ----------- -----------
Loss from continuing operations before
income taxes (1,583,011) (2,363,902) (4,187,042)
Income tax benefit (provision) 1,067,000 -- (2,384)
----------- ----------- -----------
Loss from continuing operations (516,011) (2,363,902) (4,189,426)
Disposed business segment:
Loss from operations of disposed
business segment (437,375) (1,958,520) (504,105)
Gain on sale of business segment
(less applicable income taxes of
$242,000) 831,500 -- --
----------- ----------- -----------
394,125 (1,958,520) (504,105)
----------- ----------- -----------
Net loss $ (121,886) $(4,322,422) $(4,693,531)
=========== =========== ===========
Loss per share:
Continuing operations (0.19) (1.14) (3.17)
Disposed business segment:
Loss from operations (0.17) (0.94) (0.38)
Gain on sale 0.31 -- --
----------- ----------- -----------
Net loss (0.05) (2.08) (3.55)
=========== =========== ===========
Weighted average number of common
shares outstanding $ 2,643,750 $ 2,076,153 $ 1,322,104
=========== =========== ===========
|
See notes to consolidated financial statements
INFINITE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
====================================================================================================================================
Additional
Paid-In Additional
Common Stock Capital Paid-In
---------------------- Common Capital Accumulated
Shares Amount Stock Warrants Deficit Total
--------- --------- ----------- --------- ------------ -----------
Balance - December 31, 1995 5,490,189 $ 5,490 $ 8,779,209 $ -- $(8,280,813) $ 503,886
Retroactive effect of reverse
stock split (4,392,151) (4,392) 4,392 -- -- --
Issuance of common stock in
connection with debenture conversions 588,199 588 5,942,927 -- -- 5,943,515
Issuance of common stock in
connection with warrant conversions 34,750 35 173,721 -- -- 173,756
Issuance of common stock in
connection with note conversions 13,298 13 124,987 -- -- 125,000
Issuance of common stock in
connection with employee options exercised 2,348 3 18,841 -- -- 18,844
Issuance of common stock in
connection with acquisition of license 2,000 2 29,998 -- -- 30,000
Net loss -- -- -- -- (4,693,531) (4,693,531)
--------- --------- ----------- --------- ------------ -----------
Balance - December 31, 1996 1,738,633 1,739 15,074,075 -- (12,974,344) $ 2,101,470
Issuance of common stock in
connection with private offering 384,615 384 1,669,616 -- -- 1,670,000
Issuance of common stock in
connection with debenture conversions 321,717 322 2,048,898 -- -- 2,049,220
Issuance of common stock in
connection with judgement settlement 32,389 32 174,968 -- -- 175,000
Issuance of common stock in
connection with promissory note conversions 30,087 30 150,403 -- -- 150,433
Issuance of common stock in
connection with earn-out agreement 9,727 10 94,221 -- -- 94,231
Issuance of common stock in
connection with liquidated damages 6,130 6 34,118 -- -- 34,124
Net loss -- -- -- -- (4,322,422) (4,322,422)
--------- --------- ----------- --------- ------------ -----------
Balance - December 31, 1997 2,523,298 2,523 19,246,299 -- (17,296,766) 1,952,056
Issuance of common stock in
connection with note payable conversions 101,355 101 823,793 -- -- 823,894
Issuance of common stock in
connection with stock options excercised 35,581 36 106,707 -- -- 106,743
Issuance of common stock in
connection with services performed for
the Company 13,100 13 33,469 -- -- 33,482
Detachable stock warrants
issued with note payable -- -- -- 529,902 -- 529,902
Stock warrants issued in exchange for services -- -- -- 25,683 -- 25,683
Net loss -- -- -- -- (121,886) (121,886)
--------- --------- ----------- --------- ------------ -----------
Balance - December 31, 1998 2,673,334 $ 2,673 $20,210,268 $ 555,585 $(17,418,652) $ 3,349,874
========= ========= =========== ========= ============ ===========
|
See notes to consolidated financial statements
INFINITE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================================================
Years Ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
Net loss from continuing operations $ (516,011) $(2,363,902) $(4,189,426)
Adjustments to reconcile net loss from
continuing operations to net cash used in continuing operations:
Depreciation and amortization 628,861 741,712 1,006,784
Interest expense attributed to convertible
debentures discount -- 406,849 1,393,555
Amortization of discount on note payable 27,306 -- --
Expenses satisfied via issue of debt or equity 37,290 140,971 --
(Gain) loss on dispositions of assets 5,635 (38,457) --
Asset write-downs and allowances 40,540 44,616 549,591
Deferred tax benefit (1,067,000) -- --
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (139,036) (298,507) 166,019
Other current assets 37,231 (25,586) (60,526)
Inventories and inventoried parts 28,580 39,318 119,115
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 278,023 270,285 7,417
Litigation settlement payable -- (350,000) 649,000
----------- ----------- -----------
Net cash used in continuing operations (638,581) (1,432,701) (358,471)
Net cash used in disposed business segment -- -- (319,451)
----------- ----------- -----------
Total cash used in operating activities (638,581) (1,432,701) (677,922)
Cash flows from investing activities:
Purchase of property and equipment (830,170) (947,811) (662,659)
Purchase of technology and other intangibles (109,611) -- (153,934)
Proceeds from sale of technology and equipment 13,500 155,898 --
Investment in susidiary - Spectra Acquisition Corp. -- (200,000) (2,700,000)
Purchase of net assets of Spectra Science Corp. -- -- (1,654,000)
Proceeds from sale of investment in
Spectra Science Corp. 955,000 -- --
Cash of unconsolidated subsidiary -- (814,604) --
Advance to stockholder (50,383) -- --
Investment in Molecular Geodesics, Inc. (250,000) -- --
----------- ----------- -----------
Net cash used in investing activities (271,664) (1,806,517) (5,170,593)
Cash flows from financing activities:
Net borrowings (repayments) of short-term debt 383,235 190,553 (220,000)
Borrowings of long-term obligations 125,000 -- 75,453
Repayments of long-term obligations (253,819) (194,794) (161,075)
Proceeds from notes payable - stockholders 1,150,000 -- --
Repayment of notes payable - stockholders (16,243) -- --
(Increase) decrease in restricted funds, net (8,845) (679) 1,754
Proceeds from convertible debentures, net of expenses -- 968,000 3,730,000
Proceeds from issuances of common stock,
net of expenses -- 1,670,000 259,472
Proceeds from issuance of subsidiary preferred stock -- -- 3,286,000
----------- ----------- -----------
Net cash provided by financing activities 1,379,328 2,633,080 6,971,604
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 469,083 (606,138) 1,123,089
Cash and cash equivalents - beginning of year 541,653 1,147,791 24,702
----------- ----------- -----------
Cash and cash equivalents - end of year $ 1,010,736 $ 541,653 $ 1,147,791
=========== =========== ===========
|
See notes to consolidated financial statements
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. - PRINCIPLES OF CONSOLIDATION AND BUSINESS
The accompanying consolidated financial statements include the financial statements of Infinite Group, Inc. (IGI) and each of its wholly owned subsidiaries; HGG Laser Fare, Inc. (LF), Express Tool, Inc. (ET) and Mound Laser and Photonics Center, Inc. (MLPC) (collectively "the Company"). All significant intercompany accounts and transactions have been eliminated. The 1996 consolidated financial statements include its formerly majority owned subsidiary, Spectra Science Corp. (SSC) (see Note 4).
Since the Company's acquisition of HGG Laser Fare, Inc. in 1994, the Company's operations have primarily consisted of consulting for advanced laser technologies, pursuing the potential of new technology toward commercialization, and expanding the subsidiary's material processing business which includes laser welding, machining, drilling and engraving. LF formed a subsidiary, Express Tool, Inc., in 1996 for the purpose of commercializing technology developed by LF, primarily rapid tooling technology used in the manufacturing sector. During 1998, LF acquired a second subsidiary, MLPC, which specializes in laser applications, photonics applications and materials processing. In 1996, the Company acquired a majority interest in Spectra Science Corporation, a company specializing in research of advanced laser technologies in the areas of, among other things, product identification, anti-counterfeiting methods and medical procedures. The Company has adopted a plan to dispose of this business segment during 1999. (See Note 4).
NOTE 2. - FINANCIAL CONDITION
In 1996, the Company acquired a majority interest in SSC. SSC was created to commercialize two technologies, LaserPaint(TM) and the direct patterning on glass by lasers, licensed on an exclusive worldwide basis from Brown University. The Company envisioned that its LF subsidiary would provide the manufacturing services for SSC as SSC developed new products and materials. Since the Company's investment in SSC in 1996, SSC's markets have grown divergent from those of LF. Accordingly, on December 2, 1998 the Company made a decision to sell its investment in SSC (See Note 4) which resulted in a gain of approximately $6.0 million and the infusion of approximately $4.7 million in cash. The Company will utilize the proceeds to retire outstanding debt and for working capital to fund its internal growth.
During 1998, management continued to investigate and implement strategies aimed at developing the laser services and rapid tooling segments of the Company's business. These included ET expending approximately $1 million in research and development funds for developing and marketing technology for high productivity injection mold tooling processes initially developed by LF. Expanded efforts on the commercialization of these technologies continued in 1998, which management expects will be continued in 1999. The Company is currently involved in discussions with a number of Fortune 500 companies for the formation of strategic partnerships for the further development and manufacturing of tools and related molds which would provide funding and additional revenue sources.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. - FINANCIAL CONDITION (CONTINUED)
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. However, the Company has sustained substantial operating losses in recent years and has used a significant amount of working capital in its operations. Management believes that its operations as restructured, together with its current financial resources will result in profitable operations in fiscal 1999.
NOTE 3. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Standards Changes - Effective January 1, 1998 the Company adopted SFAS 128, Earnings Per Share, which requires dual presentation of basic and diluted earnings per share on the face of the income statement.
Effective Fiscal 1998 the Company adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for the way public companies report information about operating segments in both interim and annual financial statements and related disclosures. The adoption did not change the Company's reportable segments.
Cash Equivalents - Cash equivalents include money market funds.
Restricted Funds - Restricted funds represent escrow funds set aside pursuant to a capital lease financing arrangement to meet scheduled payments. These funds are held in cash deposit and treasury trust accounts.
Inventories - Inventories of the Company consist of the following:
December 31,
------------------------------
1998 1997
---- ----
Raw materials $100,316 $ 59,800
Work-in-process 93,096 90,589
-------- --------
$193,412 $150,389
======== ========
|
Inventories are stated at the lower of cost (first-in, first-out) or market.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment - Additions to property and equipment are recorded at cost and depreciated over their estimated useful lives utilizing both accelerated and straight-line methods. The cost of improvements to leased properties are amortized over the shorter of the lease term or the life of the improvement. Maintenance and repairs are charged to expenses as incurred while improvements are capitalized.
Inventoried Parts - Spare parts and supplies are stated principally at cost.
Other Intangible Assets - Other intangible assets consist primarily of goodwill and deferred financing costs. Goodwill represents the excess of the purchase price over the fair values of net tangible assets of acquired businesses and is amortized using the straight-line method over ten years. Deferred financing costs are amortized using the straight-line method over the terms of the debt instruments, which range from two to fifteen years.
The Company periodically reviews the recoverability of the carrying value of its intangible assets. In determining whether there is an impairment, the Company compares the sum of the expected future net cash flows (undiscounted and without interest charges) to the carrying amount of the asset. In addition, the Company will consider other significant events or changes in the economic and competitive environments that may indicate the remaining estimated useful life of its intangibles may warrant revision. At December 31, 1998, the Company believes that no impairment of intangibles existed.
Investment in Subsidiary - The Company accounted for its 34% investment in its subsidiary, SSC, under the equity method of accounting for 1998 and 1997. Under the equity method, the Company recognizes its share of earnings and losses of the subsidiary as accrued. Advances and distributions are recorded directly in the investment account.
The Company's investment consists of approximately 70% of the Series A preferred shares outstanding (see Note 4) which have voting rights equivalent to the remaining shareholders, but its liquidation rights are subordinate to other outstanding preferred shares. Accordingly, the Company recognized as its equity in the losses, after the common shareholders, 70% of SSC's losses until its original investment had been reduced to zero, which occurred during fiscal 1998.
Other Investment - The other investment represents a 7% preferred Series A stock investment in Molecular Geodesics Inc. which is recorded at cost.
Reverse Stock Split - On February 16, 1999, the Company effected a one for five reverse stock split of the Company's $.001 par value common stock. This transaction was given retroactive effect in the accompanying financial statements and related footnotes.
Revenue Recognition - Revenue from job contract work is recognized as the units are shipped, and consulting revenues are recognized as the consulting services are provided. Revenue from research contracts is recognized over the life of the contract as costs are incurred, or as contract milestones are met.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development Costs - All costs related to sponsored research and development are expensed as incurred. Research and development expense was $1,060,021, $770,758 and $125,354 for the years ended December 31, 1998, 1997 and 1996, respectively. The Company is a party to certain contracts under which it is obligated to perform research and development activities for others and also has entered into sub-contract arrangements with third parties for performance of these activities. The terms of the agreements provide for payment of fees for the services and in certain instances provides terms for licensing and/or royalty fees. During the periods presented, the amounts earned and incurred under the agreements were not significant to the Company's overall operations.
Advertising - The Company expenses advertising costs as incurred. Advertising expense was approximately $69,000, $76,000 and $109,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Income Taxes - The Company and its wholly owned subsidiaries file consolidated federal income tax returns. The Company's deferred tax asset and liability have been determined in accordance with the provisions of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Concentration of Credit Risk - Credit is granted to substantially all LF customers throughout the United States. LF maintains adequate reserves for potential credit losses and such losses have been minimal and within management's estimates. The allowance for doubtful accounts was $34,195 and $48,329 at December 31, 1998 and 1997, respectively.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalent accounts in financial institutions. Although the cash accounts exceed the federally insured deposit amount, management does not anticipate non-performance by the financial institutions. Management reviews the financial viability of these institutions on a periodic basis.
Net Loss Per Common Share - Net loss per common share is based upon the weighted average number of common shares outstanding during the periods. Outstanding stock options, warrants and convertible debentures have not been considered common stock equivalents because their assumed exercise would be anti-dilutive.
Reclassifications - Certain amounts for 1997 and 1996 have been reclassified to conform to the 1998 presentation.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Estimates - The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts.
Fair Value of Financial Instruments - The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable are reasonable estimates of their fair value due to their short maturity. Based on the borrowing rates currently available to the Company for loans similar to its term debt and notes payable, the fair value approximates its carrying amount.
Accounting for Stock Issued to Employees - The Company accounts for its stock option plans under APB Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation expense is recognized. In 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123) for disclosure purposes; accordingly, no compensation expense has been recognized in the results of operations for its stock option plans as required by APB Opinion No. 25.
NOTE 4. - DISPOSAL OF A BUSINESS SEGMENT
On August 26, 1996, IGI acquired an 82% equity interest in Spectra Science Corp. (SSC). The aggregate consideration paid for shares of Series A preferred stock was $2,700,000. In 1997, IGI acquired an additional 200,000 Series A preferred shares for consideration in the amount of $200,000. The preferred shares are voting shares convertible into common shares on a one-for-one basis at the option of IGI at any time. Mandatory conversion is required upon a public offering of at least $3.00 per share with proceeds to SSC of at least $12 million. No shares have been converted through December 31, 1998.
Following is a summary of financial position and results of operations of
SSC:
Financial Position
December 31,
------------------------------
1998 1997
----------- ------------
Current assets $4,165,817 $5,808,524
Property and equipment, net 1,110,914 870,797
Intangibles, net 486,799 688,625
Other 18,600 2,602
---------- ----------
Total assets $5,782,130 $7,370,548
========== ==========
Current liabilities $1,231,373 $ 386,190
Notes payable 160,003 --
Stockholders' equity 4,390,754 6,984,358
---------- ----------
Total liabilities and stockholders'
equity $5,782,130 $7,370,548
========== ==========
|
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. - DISPOSAL OF A BUSINESS SEGMENT (CONTINUED)
Results of Operations
Years Ended December 31,
------------------------
1998 1997
-------------- --------------
Revenues $ 3,726,073 $ 618,188
============ ==========
Net loss $ (2,810,979) $(2,814,191)
============ ===========
|
In September 1997, SSC issued approximately 1,650,000 shares of Series B preferred stock to third party investors for $1.50 per share, for a total aggregate consideration of approximately $2,300,000, net of issuance costs. This transaction decreased IGI's ownership interest in SSC to 43%. In November 1997, SSC issued approximately 1,778,000 shares of Series C preferred stock for $2.25 per share, for a total aggregate consideration of approximately $3,966,000, net of issuance costs. This transaction decreased IGI's ownership interest in SSC to 34%. The Series B and C preferred shares have identical voting rights to that of the Company's Series A preferred shares, but the Series B and C shares have preferential liquidation rights. As a result of these transactions, IGI's share of equity in the underlying net assets of SSC at December 31, 1997 exceeded its investment account by approximately $1,674,000. This change in interest gain has not been recognized in the accompanying financial statements due to the Company's subordinated liquidation rights to the Series B and C preferred shareholders whose investments gave rise to the gain.
As discussed in Note 2, on December 2, 1998 the Board of Directors approved a plan to dispose of the Company's investment in SSC, which represented its photonic materials business segment. Subsequently, in December 1998, the Company entered into two separate agreements to sell its remaining 2,875,500 preferred shares of SSC, which had a recorded book value of zero under the equity method of accounting. The first agreement called for an aggregate of 2,431,056 shares to be sold at a price of $2.25 per share to two unrelated shareholders of SSC.
On December 31, 1998, 444,444 of the shares were sold pursuant to the first agreement at the price of $2.25 per share, resulting in a gain of approximately $832,000, net of income taxes. The terms of the agreement provided for a deadline of February 15, 1999 for the purchase of the remaining 1,986,612 shares. If the second purchase did not occur, the Company was obligated to continue to offer the shares for sale at $2.25 per share to accredited investors until March 31, 1999. On February 28, 1999, the agreement was amended to include the sale of 1,342,279 shares for $2.25 to the two shareholders of SSC, and 477,583 shares were repurchased by SSC at a price of $1.26 per share for an aggregate cash consideration to the Company of approximately $3,600,000. This transaction resulted in a gain of approximately $3,600,000, which will be recorded in the first quarter of 1999. The resulting gain on the disposal and the prior operating results of SSC have been reported under the heading "Disposed Business Segment" in the accompanying statement of operations.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. - DISPOSAL OF A BUSINESS SEGMENT (CONTINUED)
In February 1999, the Company consummated a transaction pursuant to which it repurchased 550,075 (2,750,377 prior to the reverse split (see Note 11)) shares of its common stock for treasury in exchange for 611,194 shares of SSC stock valued at $1,375,187, or $2.25 per share. This transaction resulted in the recognition of a gain on the exchange of approximately $1,375,000 in the first quarter of fiscal 1999.
NOTE 5. - NOTES RECEIVABLE - STOCKHOLDERS
The promissory notes mature through December 2004 with interest at 6%, payable quarterly, and are collateralized by shares of the Company's common stock held by the stockholders. A valuation allowance of $271,350 ($230,900 - 1997) was recorded based on management's estimate of the net fair value of the notes.
NOTE 6. - PROPERTY AND EQUIPMENT
Property and equipment consists of:
December 31,
Depreciable ------------------------
Lives 1998 1997
------------------- ---------- -----------
Land N/A $ 100,000 $ 100,000
Building and leaseholds 18 - 40 years 988,070 942,785
Machinery and equipment 5 - 10 years 4,725,135 3,986,164
Furniture and fixtures 5 - 7 years 552,340 530,075
---------- -----------
6,365,545 5,559,024
Accumulated depreciation
and amortization (1,923,207) (1,361,719)
---------- -----------
$4,442,338 $ 4,197,305
========== ===========
|
Included above is the following property and equipment held under capital leases:
December 31,
-----------------------------
1998 1997
----------- -----------
Land $ 100,000 $ 100,000
Building and leaseholds 725,762 725,762
Machinery and equipment 1,180,178 1,180,178
----------- -----------
2,005,940 2,005,940
Accumulated depreciation
and amortization (645,196) (488,200)
----------- -----------
$ 1,360,744 $ 1,517,740
=========== ===========
|
Depreciation charges for assets under capital leases are included in depreciation and amortization expense and amounted to $156,996, $157,368 and $144,857 in 1998, 1997 and 1996, respectively.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. - OTHER INTANGIBLE ASSETS
Other assets consists of the following:
December 31,
----------------------------
1998 1997
------------ ----------
Goodwill $ 273,972 $ 244,665
Deferred financing costs 229,452 90,873
---------- ----------
503,424 335,538
Accumulated amortization (160,859) (69,032)
---------- ----------
$ 342,565 $ 266,506
========== ==========
|
NOTE 8. - NOTES PAYABLE
Notes payable consists of the following:
December 31,
----------------------------
1998 1997
---------- ----------
Bank revolving demand notes (a) $ 522,757 $ 370,553
Notes payable, principal
stockholders(b) 231,031 70,000
---------- ----------
$ 753,788 $ 440,553
========== ==========
|
(a) Bank revolving demand notes - A demand note that provides for borrowings of up to $400,000 that bears interest at a rate of prime plus .50% (8.25% at December 31, 1998). As of December 31, 1998 there is $397,757 ($370,553 - 1997) outstanding on the line. A second demand note that provides for borrowings of up to $125,000 that bears interest at a rate of prime plus .75% (8.50% at December 31, 1998). As of December 31, 1998 there was $125,000 ($-0- - 1997) outstanding on the line. Both notes are secured by all of the assets of LF and the guarantee of the Company.
(b) Note payable, principal stockholders - The 1998 amount consists of a one year promissory note issued to the current principal stockholder in the amount of $250,000. Interest payments are due monthly at the rate of 9%. Principal payments are made as cash flow allows with the remaining unpaid principal due in April 1999.
The 1997 amount consists of funds advanced to the Company from the former principal stockholder of the Company under a secured demand note which bears interest at a rate of 10%. The note was repaid in full during the year ended December 31, 1998.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. - LONG TERM OBLIGATIONS
Long-term obligations consists of the following:
1998 1997
---------- ----------
Convertible debentures (a) $ 100,000 $ 100,000
Capital lease obligations (b) 1,176,072 1,331,646
Term notes (c) 1,333,418 1,277,356
---------- ----------
2,609,490 2,709,002
Less current maturities 307,628 242,340
---------- ----------
Total long-term obligations $2,301,862 $2,466,662
========== ==========
|
(a) Convertible debentures - Through December 31, 1996, the Company issued $1,241,000 of convertible subordinated debentures due July 2000 with interest at 7%. The notes were convertible into common stock at a rate equal to 80% of the prevailing market price of the Company's common stock. Through December 31, 1996, debenture holders converted $1,141,000 of outstanding principal to 121,627 shares of common stock. In 1998 or 1997, there were no debentures, of this series, issued or converted to common stock.
Interest expense has been recognized on the beneficial conversion feature of the above convertible debentures issued by the Company. The intrinsic value of the conversion feature is calculated at the date of issue as the difference between the conversion price and the fair value of the Company's common stock, multiplied by the number of shares into which the debentures are convertible. This discount resulting from the allocation of the proceeds increases the effective interest rate of the security that is charged to interest expense. The amortization period of the interest discount is from the date of the issuance of the security to the date it first becomes convertible. For the debentures issued during 1997 and 1996 of $1,100,000 and $5,241,000, respectively, interest expense recognized for the beneficial conversion feature was $406,849 and $1,393,555 for the years ended December 31, 1997 and 1996, respectively.
(b) Capital lease obligations - The Company is obligated under a capital lease for an operating facility. The lease provides for monthly payments in amounts sufficient to allow for the repayment of the principal of the underlying tax-exempt bonds together with interest at rates ranging from 6% to 7.25%. Combined payments of principal and interest are approximately $9,600 per month through June 2002 and $4,600 per month thereafter through June 2012.
The Company is also the lessee of machinery and equipment under capital leases which expire in 1999 and 2001. The aggregate monthly payments under these leases amount to approximately $5,400 including interest at rates ranging from 8.25% to 9.25%.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. - LONG TERM OBLIGATIONS (CONTINUED)
(c) Term notes - A $1,250,000 term promissory note due in February 2011 bearing interest at prime plus 1% (8.75% at December 31, 1998). The outstanding balance as of December 31, 1998 amounted to $1,130,366 ($1,177,356 - 1997). The note is currently being repaid with monthly principal and interest payments amounting to approximately $13,000. This note is secured by substantially all of the assets of LF and is guaranteed by the Company. The note contains restrictive covenants, which, among other things, restricts the amount of capital expenditures of LF to $100,000.
A $125,000 bank term promissory note due in July 2006, bearing interest at prime plus 1% (8.75% at December 31, 1998). The outstanding balance as of December 31, 1998 amounted to $120,199 ($-0- - 1997). The note is currently being repaid with monthly principal and interest payments amounting to approximately $1,800. The note is secured by substantially all assets of LF and the guarantee of the Company.
Two term promissory notes aggregating to $30,100, payable to the previous shareholders of MLPC, due in February 2001 payable in monthly installments of $971 including interest at the rate of 10%. The aggregate outstanding balance at December 31, 1998 amounted to $22,619 ($-0- - 1997).
A term promissory note due September 1999 payable in monthly installments of $7,019, including interest at 10%. The note was executed in April 1997 as partial satisfaction of the litigation settlement recorded in 1996. The outstanding balance as of December 31, 1998 amounted to $60,234 ($100,000 - 1997).
Minimum future annual payments of long-term obligations as of December 31, 1998 for each of the next five years and in the aggregate are:
1999 $ 382,624
2000 428,381
2001 296,974
2002 267,573
2003 130,719
Thereafter 1,697,365
----------
Total minimum payments 3,203,636
Less:
Amount representing interest
on capital leases 594,146
----------
2,609,490
Less current maturities 307,628
Total long-term obligations $2,301,862
==========
|
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - NOTES PAYABLE - STOCKHOLDERS
The 1998 balance consists of a ten-year term promissory note to the current chairman and principal stockholder. The note is currently being repaid with monthly installments of $10,838, including interest at the one year Treasury Bill rate plus 3.5%, adjusted annually, (9.0% at December 31, 1998). The note matures in June 2008 when the remaining unpaid principal of approximately $715,000 is due. Detachable warrants to purchase 536,000 (2,680,000 shares prior to reverse stock split - see Note 11) of common stock at a price of $5.60 ($1.12 prior to the reverse stock split) were issued with this note. One half or 268,000 of the warrants are fully exercisable upon issuance of the note and the remaining warrants being exercisable in four equal allotments of 67,000 through September 30, 1999. An additional 67,000 warrants became exercisable on December 31, 1998. The warrants expire five years from the date of issuance. At December 31, 1998, $529,902 of the proceeds of the note have been allocated to the warrants which are exercisable at December 31, 1998 and is reflected as additional paid-in capital - warrants in the accompanying balance sheet. The note payable balance has been shown net of the discount allocated to the warrants. This discount is being amortized to interest expense over the term of the note. The unamortized discount at December 31, 1998 is $502,596. If the note is repaid before its maturity the remaining unexercisable warrants are cancelable.
The 1997 note payable balance consists of funds advanced to the Company from the former chairman and principal stockholder of the Company under convertible secured notes which matured through January 2000 with interest at 10%. The notes were convertible at rates between $5.65 and $23.15 in principal for each share of common stock. During 1998, notes amounting to $106,743 were forgiven as consideration for stock options exercised by the former chairman and the remaining notes totaling $793,862 plus accrued interest of $30,032 were converted to 101,355 shares of common stock.
Minimum future annual maturities of the note payable as of December 31, 1998 for each of the next five years and in the aggregate are:
1999 $ 29,206
2000 31,945
2001 34,942
2002 38,220
2003 41,805
Thereafter 957,639
---------
Total payments 1,133,757
Less unamortized note discount (502,596)
---------
Note payable balance after discount 631,161
Less current maturities 29,206
---------
Total long-term note payable $ 601,955
=========
|
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. - STOCKHOLDERS' EQUITY
A. Reverse Stock Split
On February 16, 1999, the Company effected a one for five reserve stock split of the Company's $.001 par value common stock. This transaction was given retroactive effect in the accompanying financial statements and related footnotes.
B. Preferred Stock
The certificate of incorporation authorizes the Board of Directors to issue up to 1,000,000 shares of Series Preferred Stock. The stock is issuable in series which may vary as to certain rights and preferences and has a par value of $.01 per share.
C. Common Stock
In connection with the acquisition of LF in June 1994, the terms of the purchase agreement provided that up to an additional 104,000 shares may be issued to the former owners of LF if certain earning levels of LF are achieved. Through December 31, 1997, an aggregate of 27,627 shares were earned at recorded share prices of $8.45 and $9.70, which resulted in the recognition of additional aggregate goodwill in the amount of $245,263.
In 1996, $4,241,000 in principal and $58,938 of related accrued interest of subordinated convertible debentures were converted to 588,199 shares of common stock.
In 1996, warrants, notes and stock options were exercised in amounts totaling $317,600 for which 50,396 shares of common stock were issued. In addition, a license to utilize various technology was acquired from Brown University in exchange in part for 2,000 shares of common stock issued at a value of $30,000.
In 1997, the Company issued 32,389 shares of common stock, at a discounted value of $175,000, to the Company's principal stockholder in connection with the partial settlement by the principal stockholder of certain litigation on behalf of the Company.
In 1997, the Company issued 384,615 shares of common stock in exchange for aggregate consideration in the amount of $1,670,000.
In 1997, $1,600,000 in principal and $42,375 of related accrued interest of subordinated convertible debentures were converted to 321,717 shares of common stock.
In 1997, $147,000 in principal and $10,100 of related accrued interest of convertible notes payable were converted to 30,087 shares of common stock.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. - STOCKHOLDERS' EQUITY (CONTINUED)
In 1998, $793,862 in principal and $30,032 of related accrued interest of convertible notes payable were converted to 101,355 shares of common stock.
In 1998, stock options were exercised in amounts totaling $106,743 for which 35,581 shares of common stock were issued.
In 1998, 13,100 shares of common stock valued at $33,482 were issued as consideration for services performed for the Company.
D. Warrants
In connection with two private placement offerings of its common stock, the Company issued to the underwriter and the placement agent, warrants to purchase up to an aggregate of 6,361 shares of common stock of the Company. The placement agent's warrants were exercisable for a five-year term commencing on the closing date of the initial offering of September 23, 1993 at an exercise price of 120% of the offering's per share price, or $12.10 per warrant. The warrants expired unexercised during the year ended December 31, 1998.
In connection with the issuance of bridge financing notes in 1993 and the conversion of officer/stockholder advances to notes, the noteholders were issued common stock purchase warrants. The warrants issued to the officer/stockholder were issued at the rate of one warrant for each $15 of note principal and exercisable over five years from the date of issuance at the per share price of $8.65. The warrants attached to the bridge financing notes were issued at the rate of one warrant for each $20 of note principal and are exercisable over five years from the date of issuance at the per share exercise price of $5.00. The warrants expired during the year ended December 31, 1998 and none were exercised.
In connection with the Company's public stock offering in 1993, 180,000 warrants were issued and were outstanding at December 31, 1997. The warrants were exercisable at $30.00 per share through March 1997 and at $35.00 per share through their expiration in September 1998. In connection with the sale of the warrants, the Company issued to the underwriter warrants to purchase up to an aggregate of 18,000 warrants at $62.00 per unit. The warrants expired during the year ended December 31, 1998 and none were exercised.
In connection with the issuance of convertible debentures in 1997, the Company issued warrants to the placement agent to purchase up to an aggregate of 10,775 shares of common stock of the Company. The warrants are exercisable for a five-year term commencing February 1997 at an exercise price of $10.30 per share. No warrants were exercised through December 31, 1998.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. - STOCKHOLDERS' EQUITY (CONTINUED)
In connection with issuance of notes payable to the current principal stockholder during 1998, 536,000 detachable warrants were issued (see Note 10).
In connection with services provided for the Company during 1998, warrants to purchase 190,000 shares of common stock at prices ranging from $2.50 to $5.00 were issued. The warrants expire at various times through 2003. The value assigned to the warrants, amounting to $25,683, has been reflected as additional paid-in capital - warrants in the accompanying balance sheet.
NOTE 12. - STOCK OPTION PLANS
A. Employee Stock Option Plans
The Company has granted options to key employees to purchase shares of the Company's common stock under stock option plans adopted in 1991, 1994, 1995, 1996, 1997 and 1998 authorizing the granting of options to purchase an aggregate of 446,000 shares. Such options may be designated at the time of grant as either incentive stock options or nonqualified stock options. All options granted are to have a term of ten years or such shorter term as may be provided at the time of grant, are exercisable in equal annual increments as stipulated at the time of grant, and vest over periods of three to five years from the date of grant.
In 1997, the Company adopted an All Employee Incentive Stock Option Plan whereby all full-time employees of the Company who meet certain eligibility requirements will be granted stock options based on a calculation equal to 1-1/2 options per dollar of biweekly base salary. The option grant dates are January 2 and July 1. All options granted are to have a term of ten years and become exercisable in equal annual installments over three years. The options are only exercisable so long as the optionee continues to be an employee of the Company.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. - STOCK OPTION PLANS (CONTINUED)
The following is a summary of stock option activity under these plans
for the past three years:
Number Weighted
of Shares Average
Under Option Exercise Price
------------ --------------
Outstanding at December 31, 1995 81,153 $ 8.85
Granted 20,000 8.75
Exercised (2,349) 8.00
Forfeited (1,637) 13.75
-------
Outstanding at December 31, 1996 97,167 $ 8.75
Granted 51,433 8.75
Forfeited (1,372) 7.80
-------
Outstanding at December 31, 1997 147,228 $ 8.75
Granted 118,772 5.20
Forfeited (21,821) 7.90
-------
Outstanding at December 31, 1998 244,179 $ 8.60
======= ======
Exercisable at December 31, 1998 106,791 7.15
======= ======
|
The average fair value of options granted under this plan were $4.60, $7.75 and $7.85 per share for the years ended December 31, 1998, 1997 and 1996, respectively.
Exercise prices for options outstanding at December 31, 1998 range from $2.50 per share to $13.75. The weighted average remaining contractual life on the options outstanding at December 31, 1998 is 8.0 years.
B. Non-Qualified Stock Options
In 1993, the Company issued 35,581 non-qualified stock options to an officer/stockholder in connection with bridge financing notes. The options were issued at the rate of one option for each $15 of note principal and were exercisable over five years from the date of issuance at the per share price of $3. The options were exercised during the year ended December 31, 1998. Convertible notes payable in the amount of $106,743 were forgiven as consideration.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. - STOCK OPTION PLANS (CONTINUED)
On October 28, 1996, the Company entered into three non-qualified stock option agreements with the president of the Company authorizing the granting of options to purchase an aggregate of 60,000 shares. The options are exercisable in 20,000 increments if the average closing price of the Company's common stock exceeds $35.00, $50.00 and $65.00 per share, respectively, for a thirty consecutive day period prior to December 31, 1999. The options become exercisable in August 2005 if the prior conditions are not met. The options expire ten years from the date of grant. The exercise price of the options are $6.875 per share, which equaled the market price of the shares at the date of grant. The fair value of options granted under this plan during the year ended December 31, 1996 was $6.15 per share. No shares were exercisable at December 31, 1998.
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123 - "Accounting for Stock-Based Compensation," and, accordingly, does not recognize compensation cost. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, net loss and loss per share from continuing operations would have increased as follows:
1998 1997 1996
---------- ------- ---------
Net loss from continuing
operations - as reported $ 516 $ 2,364 $ 4,189
Net loss from continuing
operations - pro forma $ 952 $ 2,655 $ 4,716
Loss per share from continuing
operations - as reported $ .19 $ 1.14 $ 3.17
Loss per share from continuing
operations - pro forma $ .36 $ 1.28 $ 3.57
|
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model based on the following weighted-average assumptions:
1998 1997 1996
---------- ------- ---------
Expected dividend yield 0% 0% 0%
Expected stock price volatility 93% 89% 92%
Risk-free interest rate 5.1% 6.3% 6.5%
Expected life of options 10 Years 10 Years 10 Years
|
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. - STOCK OPTION PLANS (CONTINUED)
C. Directors' Stock Option Plan
In April 1993, the Board of Directors and stockholders of the Company adopted a non-discretionary outside directors' stock option plan that provides for the grant to non-employee directors of non-qualified stock options to purchase up to 10,000 shares of common stock. In 1998, a total of 1,500 options were granted. At December 31, 1998, there were 5,500 options outstanding (4,000 - 1997) to directors under this plan. These options are exercisable at prices ranging from $1.875 to $15.00 per share.
NOTE 13. - INCOME TAXES
The Company recognizes deferred taxes using the asset and liability method and recognizes future tax benefits measured by enacted tax rates attributed to deductible temporary differences, available net operating tax loss carryforwards, and tax credits to the extent that realization of such benefits is more likely than not. The income tax provision for the year ended December 31, 1996 consisted entirely of state income taxes currently payable.
At December 31, 1998, the Company had federal net operating loss carryforwards of approximately $13,096,000 and state net operating loss carryforwards of approximately $5,400,000 which expire through 2013. Due to a greater than 50% change in stock ownership during 1993, the utilization of net operating loss carryforwards generated to the date of such change is limited.
At December 31, 1998, the Company also had approximately $123,000 in research and development and state investment tax credit carryforwards which will expire through 2013. At December 31, 1997, a net deferred tax asset, representing the future benefit attributed primarily to the available net operating loss carryforwards, in the amount of approximately $4,632,000 had been fully offset by a valuation allowance because management believed that the regulatory limitations on utilization of the operating losses and concerns over achieving profitable operations diminish the Company's ability to demonstrate that it is more likely than not that these future benefits will be realized.
As discussed further in footnote 4, during 1998, the Company entered into an agreement to sell its investment in Spectra Science Corp. The total gain, which will be realized for book and income tax reporting purposes, amounts to approximately $6.07 million and $3.17 million, respectively. The difference in the gain is attributed to the Company's equity interest in the losses of SSC that were utilized to reduce the Company's cost basis for financial reporting purposes but not for income tax reporting purposes. As a result of the gain that will be realized on the sale for income tax purposes, there is the indication that the Company will be able to utilize its net operating loss carryforwards to eliminate the taxable gain. Accordingly, the Company has reassessed the likelihood of realization of its net deferred tax assets and has determined that a reduction in the beginning of year valuation allowance is required.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. - INCOME TAXES (CONTINUED)
Based upon the Company's current and estimated future taxable income, the Company has determined that it is probable that the Company will realize a deferred tax asset of $1,067,000 attributed to the utilization of the net operating loss carryforwards. The valuation allowance at January 1, 1998 has been reduced by this amount. The resulting deferred tax benefit of $1,067,000 has been included in income from continuing operations, of which $825,000 will be realized in fiscal 1999 and has been reflected as a current deferred tax asset at December 31, 1998. The balance of deferred tax benefit of $242,000 has been realized in fiscal 1998, due to the current year loss from continuing operations which has been utilized to offset the 1998 taxable gain on the sale of SSC of approximately $604,000. The tax avoided of $242,000 has been charged against the gain on the disposal of SSC.
A summary of the Company's temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:
December 31,
--------------------------
1998 1997
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 4,773,000 $ 4,703,000
Equity method investment 972,000 --
Reserves and other 452,000 345,000
----------- -----------
6,197,000 5,048,000
Deferred tax liabilities:
Property and equipment (618,000) (416,000)
----------- -----------
Net deferred tax asset 5,579,000 4,632,000
Valuation allowance (4,754,000) (4,632,000)
----------- -----------
Net current deferred tax asset $ 825,000 $ --
=========== ===========
|
NOTE 14. - EMPLOYEE PENSION AND PROFIT-SHARING PLANS
LF has a qualified salary reduction profit sharing 401(k) plan for eligible employees. Participants may defer up to 20% of their compensation each year up to the dollar limit set by the Internal Revenue Code. LF's contribution to the profit-sharing plan is discretionary. During 1998, a $17,366 ($11,650 - 1997) contribution was made to the profit-sharing plan.
The Company maintains an executive incentive performance plan for employees qualifying as corporate executives. Incentive awards are payable in cash or common stock of the Company as determined by the employee. The maximum award attainable under the plan cannot exceed between 50% to 100% of the employee's base salary. There were no earnings under the plan for 1998, 1997 and 1996.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. - COMMITMENTS
A. Lease Commitments
The Company utilizes certain equipment, vehicles and facilities under operating leases which expire at various dates through 2003. Rent expense under operating leases for the years ended December 31, 1998, 1997 and 1996, was approximately $288,000, $128,000 and $207,000, respectively.
The minimum operating lease payments required to be paid subsequent to 1998 are as follows:
1999 $ 175,786
2000 169,211
2001 114,286
2002 66,516
2003 36,876
----------
$ 562,675
==========
|
B. Employment Contract
The President and Chief Executive Officer of the Company is covered under an employment agreement with a term expiring in 2000. The agreement provides for minimum aggregate annual salary of $175,000 and, under certain circumstances, for a severance payment based upon a multiple of past annual compensation.
C. Restricted Stock Grant
The Company, in 1997, issued 10,000 shares of common stock to a director-consultant pursuant to a restricted stock agreement. The agreement provided that the shares would vest ratably over a three year period with the unvested portion subject, upon the occurrence of certain events, to either forfeiture or accelerated vesting. During 1997 the risk of forfeiture lapsed with respect to 5,000 shares and an expense in the amount of $21,875 was recognized. During 1998, the risk of forfeiture lapsed with respect to the remaining 5,000 shares and an expense was recognized in the amount of $6,250.
NOTE 16. - RELATED PARTY TRANSACTIONS
Interest expense incurred under notes issued to the Company's principal stockholders and former chairman, a family trust, the Company's CEO, and the wife of the Company's CEO amounted to $102,179, $105,327 and $99,907, for the years ended December 31, 1998, 1997 and 1996, respectively. The 1998 amount includes $27,306 relating to the amortization of a note discount (see Note 10).
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
1998 1997 1996
------------ ----------- -----------
Interest $360,664 $712,875 $ 407,800
======== ======== =========
Taxes $ 6,144 $ 4,385 $ 6,773
======== ======== =========
|
During 1998, 35,581 shares of common stock were issued in connection with the exercise of non-qualified stock options. The consideration received for these shares was the forgiveness of $106,743 of convertible notes payable. Also, 101,355 shares of common stock were issued in connection with the conversion of notes payable from the former principal shareholder. In addition, a note payable in the amount of $70,000 and corresponding accrued interest of $3,500 was repaid with 24,500 shares of SSC. The Company also recorded $529,902 of additional paid-in capital for detachable warrants issued with a note payable to the current principal stockholder. In connection with the acquisition of MLPC, the Company also recorded goodwill of approximately $29,000 relating to the excess of the net liabilities assumed over the assets acquired of approximately $5,000.
During 1997, convertible debentures in the amount of $1,600,000 as well as $42,375 of related accrued interest, were converted in to 321,717 shares of common stock of the Company. In addition, convertible notes payable in the amount of $140,000 as well as $10,433 of related accrued interest were converted in to 30,087 shares of common stock. The Company also issued 9,727 shares of common stock with a value of $94,228 to the former owners of LF pursuant to the earn-out provisions of the purchase agreement. The Company also issued 32,389 shares of common stock at a discounted value of $175,000 to the principal stockholder of the Company in connection with partial settlement of the 1996 litigation settlement.
During 1996, convertible debentures in the amount of $4,366,000 were converted into 601,497 shares of common stock of the Company. In addition, accrued interest on a note payable to one of the Company's officers was converted into principal in the amount of $51,859. The Company also entered into a capital lease obligation for the acquisition of equipment in the amount of $250,000. The Company also refinanced short and long-term obligations in the amount of $1,627,370. The Company issued 2,000 shares of common stock valued at $30,000 for acquisition of a technology license from Brown University.
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. - BUSINESS SEGMENTS
Effective Fiscal 1998 the Company adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for the way public companies report information about operating segments in both interim and annual financial statements as well as related disclosures. The adoption did not change the Company's reportable segments. Prior periods have been restated to conform with the reporting requirements of this statement.
The Company's businesses are currently 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.
In 1995, the Company had one primary operating segment, Laser Services, which involves contract laser material processing services and laser technology consulting services. This is the result of the suspended operation of the Rotary Engine Development segment at that time.
In 1996, the Company began operating in two new segments following the acquisition and creation of the two new subsidiaries: Rapid Tooling and Manufacturing, and Photonic Materials Processing. Operations in the Rapid Tooling and Manufacturing segment involve marketing proprietary high productivity production injection mold tooling techniques developed by the Advanced Technology Group of LF. Operations in the Photonic Materials Processing segment involve commercialization and expansion of platform photonic technologies; LaserPaint(TM), a patented discovery which allows almost any material to be a generator of laser light; direct laser micro patterning of glass; and "Quantum Dot Phosphors" which holds promise for better high brightness, high definition video displays. During 1998, the Company decided to discontinue and sell its photonic materials processing segment (see Note 4).
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 1998, 1997 and 1996 is set forth as follows:
INFINITE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. - BUSINESS SEGMENTS (CONTINUED)
===================================================================================================================================
Rotary Rapid
Engine Laser Photonic Tooling and
Development(1) Service(2) Materials(3) Manufacturing Eliminations Consolidated
-------------- ---------- ------------ ------------- ------------ ------------
1998
Sales to unaffiliated customers $ -- $ 6,953,199 $ $ 442,906 $ -- $ 7,396,105
Intersegment sales -- -- -- -- -- --
---------- ------------ ------------ ------------ ------------ -----------
Total revenue $ -- $ 6,953,199 $ -- $ 442,096 $ -- $ 7,396,105
========== ============ ============ ============ ============ ===========
Operating loss $ $ (441,083) $ -- $ (1,167,198) $ 362,985 $(1,245,296)
========== ============ ============ ============ ============ ===========
Net income from disposed business
segments $ -- $ $ 394,125 $ -- $ -- $ 394,125
============ ============ ============ ============ ===========
Interest income $ -- $ 40,287 $ -- $ -- $ -- $ 40,287
========== ============ ============ ============ ============ ===========
Interest expense $ -- $ 334,873 $ -- $ 38,532 $ -- $ 373,405
========== ============ ============ ============ ============ ===========
Income tax benefit $ -- $ 1,067,000 $ -- $ -- $ -- $ 1,067,000
========== ============ ============ ============ ============ ===========
Identifiable assets $ $ 8,026,057 $ -- $ 489,585 $ -- $ 8,515,642
========== ============ ============ ============ ============ ===========
Depreciation and amortization $ $ 553,775 $ -- $ 46,475 $ 28,611 $ 628,861
========== ============ ============ ============ ============ ===========
Capital expenditures $ -- $ 754,045 $ -- $ 76,125 $ -- $ 830,170
========== ============ ============ ============ ============ ===========
1997
Sales to unaffiliated customers $ -- $ 5,335,446 $ -- $ 113,129 $ -- $ 5,448,575
Intersegment sales -- 300,000 -- -- (300,000) --
---------- ------------ ------------ ------------ ------------ -----------
Total revenue $ -- $ 5,635,446 $ -- $ 113,129 $ (300,000) $ 5,448,575
========== ============ ============ ============ ============ ===========
Operating loss $ -- $ (939,882) $ -- $ (1,052,778) $ 261,026 $(1,731,634)
========== ============ ============ ============ ============ ===========
Income (loss) from discontinued
operations $ -- $ -- $ (1,958,520) $ -- $ -- $(1,958,520)
========== ============ ============ ============ ============ ===========
Interest income $ -- $ 39,154 $ -- $ -- $ -- $ 39,154
========== ============ ============ ============ ============ ===========
Interest expense $ -- $ 781,105 $ -- $ 23,768 $ -- $ 804,873
========== ============ ============ ============ ============ ===========
Identifiable assets $ -- $ 6,167,917 $ 437,375 $ 345,637 $ -- $ 6,950,929
========== ============ ============ ============ ============ ===========
Depreciation and amortization $ -- $ 704,123 $ -- $ 16,842 $ 20,747 $ 741,712
========== ============ ============ ============ ============ ===========
Capital expenditures $ -- $ 636,436 $ -- $ 318,270 $ -- $ 954,706
========== ============ ============ ============ ============ ===========
1996
Sales to unaffiliated customers $ -- $ 5,080,207 $ -- $ -- $ -- $ 5,080,207
Intersegment sales -- 36,650 -- -- (36,650) --
---------- ------------ ------------ ------------ ------------ -----------
Total revenue $ -- $ 5,116,857 $ -- $ -- $ (36,650) $ 5,080,207
========== ============ ============ ============ ============ ===========
Operating loss $ (95,797) $ (2,518,080) $ -- $ (110,537) $ 241,317 $(2,483,097)
========== ============ ============ ============ ============ ===========
Income (loss) from discontinued
operations $ -- $ -- $ (504,105) $ -- $ -- $ (504,105)
========== ============ ============ ============ ============ ===========
Interest income $ -- $ 91,517 $ -- $ -- $ -- $ 91,517
========== ============ ============ ============ ============ ===========
Interest expense $ -- $ 1,815,465 $ -- $ -- $ -- $ 1,815,465
========== ============ ============ ============ ============ ===========
Identifiable assets $ 34,833 $ 5,718,537 $ 2,883,781 $ 49,994 $ (27,476) $ 8,659,669
========== ============ ============ ============ ============ ===========
Depreciation and amortization $ 16,087 $ 970,966 $ -- $ 5,595 $ 14,136 $ 1,006,784
========== ============ ============ ============ ============ ===========
Capital expenditures $ -- $ 251,664 $ 347,485 $ 57,915 $ -- $ 657,064
========== ============ ============ ============ ============ ===========
|
(1) Includes parent holding company, 1996.
(2) Includes parent holding company, 1997 and 1998.
(3) Represents SSC (see Note 4).
INFINITE GROUP, INC.
(FORMERLY INFINITE MACHINES CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. - FOURTH QUARTER ADJUSTMENTS
There were no material adjustments recognized in the fourth quarter of fiscal 1998 and 1997.
The fourth quarter for the year ended December 31, 1996 reflected net adjustments which decreased the operating results of the Company by approximately $1,689,000. Approximately $649,000 is attributed to a litigation settlement, $29,000 was charged off in recognition of inventory adjustments, notes and other receivables were adjusted by a valuation allowance of $504,000, a bonus was accrued to the President of the Company in the amount of $75,000, and approximately $432,000 of deferred costs were charged to expense upon conversion of debentures.
NOTE 20. - SUBSEQUENT EVENT
In February, 1999 the Company disposed of its remaining preferred stock interest in Spectra Science Corp. (see Note 4).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d), the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on March 15, 1999 on its behalf by the undersigned, thereunto duly authorized.
INFINITE GROUP, INC.
By: /s/ Clifford G. Brockmyre -------------------------------- Clifford G. Brockmyre, President |
Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Company and in the capacities indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Clifford G. Brockmyre ------------------------- Director, President and Clifford G. Brockmyre Chief Executive Officer March 15, 1999 /s/ Daniel T. Landi ------------------------- Chief Financial and March 15, 1999 Daniel T. Landi Accounting Officer /s/ Michael S. Smith ------------------------- Director March 15, 1999 Michael S. Smith /s/ James P. Sherblom ------------------------- Director March 15, 1999 James P. Sherblom |
Certificate of Amendment to the Certificate of Incorporation of Infinite Group, Inc.
The undersigned, being the President and Secretary of Infinite Group, Inc. (the "Corporation") hereby certifies that:
FIRST: The name of the Corporation is Infinite Group, Inc.
SECOND: The Certificate of Incorporation was filed with the Secretary of State on October 14, 1986.
THIRD: The Amendment of the Certificate of Incorporation of the Corporation effected by this Certificate of Amendment is to effectuate a one-for-five reverse split. Prior to this amendment, the Corporation had 20,000,000 shares of common stock, $.001 par value per share authorized, of which 13,326,000 shares of common stock, $.001 par value per share, were issued and outstanding. Upon the reverse split becoming effective, the Corporation will have 20,000,000 shares of common stock, $.001 par value per share authorized, of which approximately 2,665,200 shares of common stock, $.001 par value per share, will be issued and outstanding. Fractional shares which result from the reverse split shall be rounded upward to the nearest whole share.
FOURTH: To accomplish the foregoing amendment, Article FOURTH is hereby amended and restated as follows:
"FOURTH: The total number of shares of stock which the corporation shall have authority to issue is twenty-one million (21,000,000) shares of which twenty million (20,000,000) shares shall be Common Stock with a par value of each of $.001 per share and one million (1,000,000) shares shall be Preferred Stock with a par value of $.01 per share.
Additional designations of powers, the rights and preferences and the qualifications, limitations or restrictions with respect to each class of stock of the corporation shall be determined by the Board of Directors from time to time.
In furtherance of a one-for-five reverse stock split effective on February 16, 1999 at 7:00 a.m. Eastern Standard Time, every five shares of common stock issued and outstanding at that time shall be converted into one share of common stock, par value $.001 per share, for each stockholder of record on the close of business on February 12, 1999. Fractional shares shall be rounded upward to the nearest whole share.
No holder of any shares of the stock of the corporation, whether now or hereafter authorized and issued, shall be entitled as of right to purchase or subscribe for (1) any unissued stock of any class, or (2) any additional shares of any class to be issued by reason of any increase of the authorized capital stock of the corporation of any class, or (3) bonds, certificates of indebtedness, debentures or other securities convertible into stock of the corporation, or carrying any right to purchase stock of any class, but any such unissued stock or such additional authorized issue of any stock or of other securities convertible into stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such person, firms, corporations or associations and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its discretion."
FIFTH: The foregoing amendment was adopted by the directors and stockholders of the Corporation at duly called meetings of the board and stockholders, respectively, in accordance with the provisions of ss.242 of the General Corporation Law.
IN WITNESS WHEREOF, this Certificate is subscribed on the 3rd day of February, 1999 by the undersigned who affirm under penalties of perjury that the statements contained herein are true and correct.
COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT dated as of the 19th day of February, 1999 by and among CLEARWATER FUND IV, LLC ("Seller") and INFINITE GROUP, INC. (the "Company" or "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the holder of a 2,493,277 shares of Common Stock, $.001 par value, of the Company (the "Securities"); and
WHEREAS, the Company desires to acquire the Securities from Seller, and Seller is willing to sell the Securities to the Company, all upon the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby unconditionally acknowledged, the parties hereto do hereby agree as follows:
1. Purchase and Sale. Upon the terms and subject to the conditions hereinafter set forth, Purchaser hereby purchases the Securities from the Seller and the Seller hereby sells the Securities to Purchaser, for the "Purchase Price" (as hereinafter defined). The Purchase Price shall consist of 554,062 shares of Series A Convertible Preferred Stock of Spectra Science Corporation (the "Spectra Stock").
2. Closing. The closing of the transaction contemplated hereby shall be deemed to have occurred on the date hereof. On the date hereof, Seller shall cause to be delivered to the Company certificates representing the Securities duly endorsed for transfer to the Company. The Company shall deliver to Spectra Science Corporation ("Spectra") the certificate(s) representing the Spectra Stock duly endorsed for transfer to the Seller with instructions for reissuance in accordance with the written instructions of Seller.
3. Representations and Warranties of Seller. Seller hereby represents and warrants to the Purchaser as follows:
(a) Seller owns the Securities being sold hereunder and hereby transfers same to Purchaser, free and clear of any liens, pledges, security interests or encumbrances of any kind or nature whatsoever.
(b) Seller is not party to or bound by any agreement which prohibits the sale by Seller to Purchaser of the Securities to be sold by Seller hereunder.
(c) All action on the part of Seller necessary for the authorization, execution, delivery and performance of this Agreement has been properly taken and obtained and this Agreement constitutes a legally binding obligation of Seller enforceable in accordance with its terms.
(d) Seller is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D under the Securities Act of 1933, as amended. Seller is acquiring the Spectra Stock for investment and not with a view to the sale or distribution thereof. Seller is aware that the shares of Spectra Stock are restricted securities within the meaning of the Act and the rules and regulations of thereunder, and acknowledges and understands that the Securities may not be offered or sold, directly or indirectly, unless registered or exempt from registration under the Act. Seller further acknowledges that the Spectra Stock shall be subject to the Shareholders' Agreement between Seller, Spectra and certain other shareholders of Spectra.
(e) Seller hereby acknowledges that it is an existing Shareholder of Spectra and that it is acquiring the Spectra Stock based upon its personal knowledge of Spectra's business, assets and financial affairs without any representations or warranties whatsoever with respect to the business, assets or financial affairs of Spectra by the Company. Seller has had an opportunity to meet with management of Spectra in furtherance of its due diligence investigation with respect to this transaction.
4. Representations and Warranties of Company. Purchaser hereby represents and warrants to the Seller as follows:
(a) Seller owns the Securities being sold hereunder and hereby transfers same to Purchaser, free and clear of any liens, pledges, security interests or encumbrances of any kind or nature whatsoever; except for those restrictions and other encumbrances set forth in the Shareholders' Agreement (the "Shareholders' Agreement") among, inter alia, Seller and Spectra.
(b) The Company has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement; this Agreement constitutes the valid and binding obligation of the Company enforceable in accordance with its terms.
5. Indemnity. Each party (the "Indemnifying Party") hereto does hereby indemnify and hold harmless the other parties (the "Indemnified Parties") to this Agreement against and from any and all loss, liability, claim, damage and expense (including, without limitation, attorneys' fees and disbursements) incurred as a result of a misrepresentation, or breach of an agreement or warranty, made by the Indemnifying Party whether made orally or contained herein or in any other document furnished by the Indemnifying Party to any of such persons in connection with this transaction. The parties acknowledges that this obligation will survive the purchase of Securities hereunder.
6. Sole and Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, superseding and terminating any and all prior or contemporaneous oral and prior written agreements or understandings between or among the parties hereto with respect to the subject matter of this Agreement. This Agreement may not be modified or amended, nor may any right hereunder be waived, except by a written instrument which expressly refers to this Agreement, states that it is a modification or amendment of this Agreement and is signed by the party to be bound thereby, or in the case of a waiver, by the party granting the waiver. No course of conduct or dealing or trade usage or custom and no course of performance shall be relied on or referred to by any party to contradict, explain or supplement any provision of this Agreement, it being acknowledged by the parties to this Agreement that this Agreement is intended to be, and is, the complete and exclusive statement of the agreement of the parties hereto with respect to its subject matter.
7. Severability. If any term or provision of this Agreement shall, to any extent, be or is determined to be invalid or unenforceable, the remaining terms and provisions thereof shall nevertheless continue in full force and effect.
8. Counsel. Each of the parties hereto has been represented by counsel, or had the opportunity to be so represented, in connection with the negotiation, execution and delivery of this Agreement and each of the parties hereto shall bear their respective costs and expenses (including counsel fees) incurred in connection with the execution, delivery and performance of this Agreement.
9. Notices. All notices provided for, and other communications required under, this Agreement shall be in writing and shall be sent by certified or registered mail, or international equivalent, return receipt requested, or may be delivered by hand or overnight courier service against receipt or sent by facsimile transmission or other similar means of communication if receipt is acknowledged or transmission is confirmed as provided in this Paragraph 9 and addressed to the parties as follows:
(a) If to Seller, to it at:
Clearwater Fund IV, LLC
611 Druid Road East, Suite 200
Clearwater, FL 34616
Attn: Hans F. Heye, Managing Member
(b) If to the Company, to it at:
Infinite Group, Inc.
2364 Post Road
Warwick, RI 02886
Attn: Clifford C. Brockmyre, CEO
With a copy to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, NY 10022-2605
Attn: Kenneth S. Rose, Esq.
Any party hereto may, by like notice, change the address or telecopier number to which notice shall thereafter be sent.
10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements executed and to be performed wholly within such State. Each of the parties hereto hereby(i) irrevocably consents and agrees that any legal or equitable action or proceeding arising under or in connection with this Agreement shall be brought exclusively in any Federal or state court in the County of New York, State of New York, (ii) by execution and delivery of this Agreement, irrevocably submits to and accepts, with respect to such party and its properties and assets, generally and unconditionally, the jurisdiction of the aforesaid courts, and (iii) waives any defense that such forum is an inconvenient forum for such purpose.
11. Non-Assignability. This Agreement shall not be assigned without the written consent of all of the parties hereto.
12. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, personal representatives and permitted assigns.
13. Counterparts. This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
14. Further Assurances. Each of the parties hereto agrees at their own expense to take such further action as is reasonably necessary in order to fulfill the intent of the parties with respect to the transfer of the Securities and the Spectra Stock pursuant hereto.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written.
CLEARWATER FUND IV, LLC
INFINITE GROUP, INC.
COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT dated as of the 19th day of February, 1999 by and among CLEARWATER OFFSHORE FUND, LTD ("Seller") and INFINITE GROUP, INC. (the "Company" or "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the holder of a 257,100 shares of Common Stock, $.001 par value, of the Company (the "Securities"); and
WHEREAS, the Company desires to acquire the Securities from Seller, and Seller is willing to sell the Securities to the Company, all upon the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby unconditionally acknowledged, the parties hereto do hereby agree as follows:
1. Purchase and Sale. Upon the terms and subject to the conditions hereinafter set forth, Purchaser hereby purchases the Securities from the Seller and the Seller hereby sells the Securities to Purchaser, for the "Purchase Price" (as hereinafter defined). The Purchase Price shall consist of 57,133 shares of Series A Convertible Preferred Stock of Spectra Science Corporation (the "Spectra Stock").
2. Closing. The closing of the transaction contemplated hereby shall be deemed to have occurred on the date hereof. On the date hereof, Seller shall cause to be delivered to the Company certificates representing the Securities duly endorsed for transfer to the Company. The Company shall deliver to Spectra Science Corporation ("Spectra") the certificate(s) representing the Spectra Stock duly endorsed for transfer to the Seller with instructions for reissuance in accordance with the written instructions of Seller.
3. Representations and Warranties of Seller. Seller hereby represents and warrants to the Purchaser as follows:
(a) Seller owns the Securities being sold hereunder and hereby transfers same to Purchaser, free and clear of any liens, pledges, security interests or encumbrances of any kind or nature whatsoever.
(b) Seller is not party to or bound by any agreement which prohibits the sale by Seller to Purchaser of the Securities to be sold by Seller hereunder.
(c) All action on the part of Seller necessary for the authorization, execution, delivery and performance of this Agreement has been properly taken and obtained and this Agreement constitutes a legally binding obligation of Seller enforceable in accordance with its terms.
(d) Seller is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D under the Securities Act of 1933, as amended. Seller is acquiring the Spectra Stock for investment and not with a view to the sale or distribution thereof. Seller is aware that the shares of Spectra Stock are restricted securities within the meaning of the Act and the rules and regulations of thereunder, and acknowledges and understands that the Securities may not be offered or sold, directly or indirectly, unless registered or exempt from registration under the Act. Seller further acknowledges that the Spectra Stock shall be subject to the Shareholders' Agreement between Seller, Spectra and certain other shareholders of Spectra.
(e) Seller hereby acknowledges that it is an existing Shareholder of Spectra and that it is acquiring the Spectra Stock based upon its personal knowledge of Spectra's business, assets and financial affairs without any representations or warranties whatsoever with respect to the business, assets or financial affairs of Spectra by the Company. Seller has had an opportunity to meet with management of Spectra in furtherance of its due diligence investigation with respect to this transaction.
4. Representations and Warranties of Company. Purchaser hereby represents and warrants to the Seller as follows:
(a) Seller owns the Securities being sold hereunder and hereby transfers same to Purchaser, free and clear of any liens, pledges, security interests or encumbrances of
any kind or nature whatsoever; except for those restrictions and other encumbrances set forth in the Shareholders' Agreement (the "Shareholders' Agreement") among, inter alia, Seller and Spectra.
(b) The Company has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement; this Agreement constitutes the valid and binding obligation of the Company enforceable in accordance with its terms.
5. Indemnity. Each party (the "Indemnifying Party") hereto does hereby indemnify and hold harmless the other parties (the "Indemnified Parties") to this Agreement against and from any and all loss, liability, claim, damage and expense (including, without limitation, attorneys' fees and disbursements) incurred as a result of a misrepresentation, or breach of an agreement or warranty, made by the Indemnifying Party whether made orally or contained herein or in any other document furnished by the Indemnifying Party to any of such persons in connection with this transaction. The parties acknowledges that this obligation will survive the purchase of Securities hereunder.
6. Sole and Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, superseding and terminating any and all prior or contemporaneous oral and prior written agreements or understandings between or among the parties hereto with respect to the subject matter of this Agreement. This Agreement may not be modified or amended, nor may any right hereunder be waived, except by a written instrument which expressly refers to this Agreement, states that it is a modification or amendment of this Agreement and is signed by the party to be bound thereby, or in the case of a waiver, by the party granting the waiver. No course of conduct or dealing or trade usage or custom and no course of performance shall be relied on or referred to by any party to contradict, explain or supplement any provision of this Agreement, it being acknowledged by the parties to this Agreement that this Agreement is intended to be, and is, the complete and exclusive statement of the agreement of the parties hereto with respect to its subject matter.
7. Severability. If any term or provision of this Agreement shall, to any extent, be or is determined to be invalid or unenforceable, the remaining terms and provisions thereof shall nevertheless continue in full force and effect.
8. Counsel. Each of the parties hereto has been represented by counsel, or had the opportunity to be so represented, in connection with the negotiation, execution and delivery of this Agreement and each of the parties hereto shall bear their respective costs and expenses (including counsel fees) incurred in connection with the execution, delivery and performance of this Agreement.
9. Notices. All notices provided for, and other communications required under, this Agreement shall be in writing and shall be sent by certified or registered mail, or international equivalent, return receipt requested, or may be delivered by hand or overnight
courier service against receipt or sent by facsimile transmission or other similar means of communication if receipt is acknowledged or transmission is confirmed as provided in this Paragraph 9 and addressed to the parties as follows:
(a) If to Seller, to it at:
Clearwater Offshore Fund, Ltd.
611 Druid Road East, Suite 200
Clearwater, FL 34616
Attn: Hans F. Heye, Managing Member
(b) If to the Company, to it at:
Infinite Group, Inc.
2364 Post Road
Warwick, RI 02886
Attn: Clifford C. Brockmyre, CEO
With a copy to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, NY 10022-2605
Attn: Kenneth S. Rose, Esq.
Any party hereto may, by like notice, change the address or telecopier number to which notice shall thereafter be sent.
10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements executed and to be performed wholly within such State. Each of the parties hereto hereby(i) irrevocably consents and agrees that any legal or equitable action or proceeding arising under or in connection with this Agreement shall be brought exclusively in any Federal or state court in the County of New York, State of New York, (ii) by execution and delivery of this Agreement, irrevocably submits to and accepts, with respect to such party and its properties and assets, generally and unconditionally, the jurisdiction of the aforesaid courts, and (iii) waives any defense that such forum is an inconvenient forum for such purpose.
11. Non-Assignability. This Agreement shall not be assigned without the written consent of all of the parties hereto.
12. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, personal representatives and permitted assigns.
13. Counterparts. This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
14. Further Assurances. Each of the parties hereto agrees at their own expense to take such further action as is reasonably necessary in order to fulfill the intent of the parties with respect to the transfer of the Securities and the Spectra Stock pursuant hereto.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written.
CLEARWATER OFFSHORE FUND, LTD
INFINITE GROUP, INC.
LOAN AGREEMENT
INFINITE GROUP, INC., a Delaware corporation, with its principal office at 2364 Post Road, Warwick, RI 02886 (hereinafter referred to as "Borrower"), and CLIFFORD G. BROCKMYRE, having an address at 335 West Beach Road, Charlstown, RI 02813 (hereinafter referred to as "Lender"), hereby enter into this Loan Agreement ("Agreement") dated as of June 26, 1998.
SECTION 1. CERTAIN DEFINITIONS
1.1 The following terms used in this Agreement will have the meanings given below:
Claims and Expenses Any and all claims, lawsuits of any kind,
judgments, losses, damages, liabilities,
penalties, costs and reasonable expenses
arising out of transactions contemplated
under this Agreement or under the Collateral
Documents, including all "Legal Costs and
Expenses" (defined below) incurred in
connection therewith.
Collateral Documents The Note and the Warrant.
Loan Defined in Section 2.1.
Loan Amount $1,150,000.00.
Loan Closing and the
Loan Closing Date Defined in Section 2.2.
Legal Costs and Expenses Any and all reasonable attorneys' fees and
disbursements, court costs and other
litigation expenses.
Maturity Date June 26, 2008.
Note Defined in Section 2.2.
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Shares Borrower's shares of common stock, par value
$.001 per share.
Warrant The warrant to be issued to the Lender
pursuant to Section 3 of this Agreement.
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SECTION 2. THE LOAN
2.1 Simultaneously with the execution of this Agreement, Lender is making a loan (the "Loan") to Borrower in the principal amount of $1,150,000 US Dollars, receipt of which is hereby acknowledged by Borrower.
2.2 The Loan is evidenced by a promissory note ("the Note") made by Borrower payable to Lender, which is being executed and delivered to Lender contemporaneously herewith (such loan and delivery being hereinafter called the "Loan Closing" and the date thereof being hereinafter called the "Loan Closing Date"). A copy of the Note is attached to this Agreement as Exhibit 1.
2.3 The Note is payable in accordance with its provisions which include, inter alia:
(a) interest at the rate of 9% per annum on the unpaid balance of the Note adjusted as described on Rider A hereto (the "Interest Rate Adjustment");
(b) equal monthly payments of $10,838.23 commencing on July 1, 1998 and on the first day of each month thereafter to and including June 1, 2008 (which monthly payments shall include both principal and interest), adjusted annually to give effect to the Interest Rate Adjustment;
(c) a final payment equal to all unpaid principal and accrued interest payable on June 26, 2008;
(d) the right to Borrower, exercisable at any time prior to the Maturity Date to prepay, without penalty, all or part (each such payment being a minimum of $10,000 or covering the unpaid balance of the Note) of the unpaid principal amount and accrued interest thereon of the Note; and
(e) the principal of the Note and accrued interest thereon shall become immediately due and payable upon the occurrence of an Event of Default.
2.4 The obligation of Lender to make the Loan shall be conditioned on the satisfaction of Lender that the representations and warranties of Borrower contained in this Agreement and in the Collateral Documents are true, complete and correct. Borrower understands and agrees that any investigation by Lender shall in no way limit the responsibility of the Borrower for such representations and warranties being true, complete and correct.
2.5 Notwithstanding any provision in this Agreement or in the Note, in no event shall the interest rate applicable to the Loan exceed that permitted by the laws or governmental regulations applicable to Lender, Borrower or the Loan that limit rates of interest that may be charged or collected by Lender. If any payment hereunder or under the Note shall be found to constitute a payment of interest in excess of that permitted under the laws or governmental regulations applicable to Lender, Borrower or the Loan that limit rates of interest that may be charged or collected by Lender, then the amount of such excess payment shall be refunded to Borrower.
SECTION 3. WARRANT
3.1 Simultaneously with the Closing hereunder Borrower has delivered to Lender a warrant, a copy of which is attached hereto as Exhibit 3 (the "Warrant"), to purchase up to 2,680,000 Shares, at an exercise price equal to $1.12 per share.
3.2 In the event of any change in the number of outstanding Shares by reason of any reclassification, recapitalization, split-up, combination, merger, exchange of Shares, stock dividend or the like, which has occurred prior to the issuance date of any of the Warrant referred to in Section 3.1, the number of Shares to which such Warrant shall apply and the price per share at which such Warrant shall be exercisable shall be correspondingly adjusted.
SECTION 4. USE OF PROCEEDS
4.1. The proceeds of the Loan will be used by Borrower for working capital purposes.
SECTION 5. CLOSING DOCUMENTS
5.1 Simultaneously with the execution and delivery of this Agreement, the Loan is being funded and Borrower is delivering or has delivered to Lender the following documents, duly executed and (where required) witnessed or notarized:
(a) the Note;
(b) Secretary's Certificate of Borrower as to resolutions of its Board of Directors authorizing (i) the borrowing hereunder, (ii) the issuance of the Warrants, and (iii) the execution and delivery of this Agreement, the Collateral Documents and the transactions contemplated hereby and thereby; and
(c) the Warrant.
SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
6.1 To induce Lender to make the Loan hereunder, Borrower represents and warrants to and agrees with Lender that:
(a) Borrower is a corporation duly and validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in such other jurisdictions where the ownership of property or the nature of the business conducted by it requires such qualification, except insofar as the failure to so qualify would not materially and adversely affect Borrower.
(b) Borrower has the requisite corporate authority and power to enter into this Agreement, to borrow money as contemplated hereby, to issue the Note and the Warrant and to execute and deliver each of those documents required and described in this Agreement. The execution and delivery of this Agreement, the Collateral Documents and the Warrant have been duly authorized by Borrower and this Agreement, the Collateral Documents and the Warrants are enforceable against Borrower in accordance with their terms.
SECTION 7. CERTAIN AFFIRMATIVE COVENANTS
7.1 So long as any amount due to Lender pursuant to the Note, this Agreement or any of the other Collateral Documents is outstanding, the Borrower will do and comply with the following:
(a) Borrower will promptly make all payments of the principal and interest on the Note when due; and
(b) Borrower will comply with the terms and conditions of this Agreement and of those contained in each Collateral Document.
SECTION 8. CERTAIN NEGATIVE COVENANTS
8.1 So long as any amount due to Lender pursuant to the Note, this Agreement or any of the other Collateral Documents is outstanding, except with the prior written consent of Lender (whose consent, except as otherwise indicated below, may be refused without explanation and without any legal recourse by Borrower), Borrower will not:
(a) engage in any line of business materially different from those which Borrower is now engaged in; or
(b) become a party to any merger or consolidation with any corporation, company or entity of any kind whatsoever, or sell substantially all of its assets, or otherwise liquidate or dispose of its business.
SECTION 9. IRREGULAR PAYMENT
9.1 Lender may accept late payments and partial payments even though marked "payment in full" or words of similar import, without losing any of its rights under this Agreement or under the Note.
SECTION 10. DELAY IN ENFORCEMENT
10.1 Lender may delay in enforcing its rights under this Agreement or a Collateral Document without losing or prejudicing such rights.
SECTION 11. NO BROKER
11.1 Borrower represents and warrants to Lender that it has not dealt with any broker or finder, whether or not licensed, in connection with this Agreement or the loan transactions under this Agreement. Lender represents and warrants that it has not dealt with any broker or finder.
SECTION 12. LOAN EXPENSES
12.1 Borrower agrees and acknowledges that Lender is simultaneously entering into a series of loan agreements with First National Bank of New England and Borrower agrees to pay, promptly after demand is made, all reasonable out-of-pocket expenses incurred by Lender in connection with the making, amending, perfection, enforcement or payment or liquidation of such loan agreements and the Loan which is the subject of this Agreement, including (but not limited to) Lender's legal fees and disbursements, title fees, title insurance fees, bank consultant fees, appraisal fees, mortgage recording fees and mortgage taxes, bank attorneys' fees and any other expense incurred, or to be incurred by Lender in connection with his loans from First National Bank of New England the proceeds of which are being used to fund the Loan.
SECTION 13. NOTICES
13.1 Unless otherwise expressly provided elsewhere in this Agreement, any notice, request, consent, election, demand or other communication ("notice") to be given or made by the parties under this Agreement must be in writing and either:
(a) delivered by hand, telecopier or overnight delivery by Federal Express or other recognized carrier; or
(b) sent by certified or registered mail, return receipt requested, postage prepaid.
13.2 Each notice to be given to Lender or Borrower will be addressed to it at its address set forth in the preamble on page 1 of this Agreement.
13.3 A copy of each notice must be sent simultaneously and in like manner to:
Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue, Suite 902 New York, New York 10022 Attn: Kenneth S. Rose, Esq.
Fax: 212-838-9190
13.4 Borrower and Lender may, by notice to the others, change the address to which future notices are to be sent or add or change a person to whom a notice or a copy of a notice is to be sent.
13.5 Unless otherwise provided elsewhere in this Agreement, each notice shall be considered to be given on:
(a) the date delivered by hand or telecopier (unless it is not a business day or is not received before 5:30 P.M., in which case the notice shall be considered given on the next business day after being sent);
(b) the next business day after being sent by overnight courier;
(c) the third full business day following the date of mailing postage prepaid in the United States Mail.
However, a notice of a change of address of person pursuant to Section 13.4 shall not be deemed given until received.
13.6 A notice that is mailed must be deposited into an official mail depository maintained by the United States Postal Service or (if mailed outside the United States) by an equivalent postal authority.
13.7 Failure to accept a notice is deemed receipt of it and does not invalidate the notice or excuse the performance of an obligation.
SECTION 14. ENTIRE AGREEMENT
14.1 All prior and contemporaneous statements, representations, promises, understandings, agreements, projections and opinions, whether written or oral made to each other with regard to this transaction, are merged in this Agreement and the Collateral Documents. This Agreement and the Collateral Documents constitute the entire agreement of the parties.
SECTION 15. CHANGES AND WAIVERS
15.1 A provision of this Agreement will be considered to have been changed or waived only if the change or waiver is expressly made in writing signed by the party to be charged.
15.2 The failure to insist on strict performance of any provision will not mean that the provision has been waived or that the right to insist thereafter on strict performance of that or any other provision has been waived.
SECTION 16. PARTIES TO COOPERATE
16.1 Each party will reasonably cooperate with the other to close the transactions that are the subject of this Agreement.
16.2 In furtherance of such cooperation, each party will obtain, execute and deliver such documents as are in its possession or control and are reasonably necessary in order to close or effectuate or confirm any provisions of this Agreement.
SECTION 17. GOVERNING LAW
17.1 The laws of the State of Rhode Island will govern this Agreement and the interpretation and enforcement of its provisions, without regard to legal principles of conflict of laws.
SECTION 18. WAIVER OF JURY TRIAL; VENUE
18.1 THE BORROWER AND THE LENDER EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE COLLATERAL DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY, RELATED PERSON, PARTICIPANT, OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY COLLATERAL DOCUMENT OR ANY PROVISIONS HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE COLLATERAL DOCUMENTS.
18.2 THE BORROWER AGREES THAT IT WILL NOT ASSERT AGAINST THE LENDER ANY CLAIM FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE COLLATERAL DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
18.3 WITH RESPECT TO ANY CLAIM OR ACTION ARISING UNDER THIS AGREEMENT OR THE COLLATERAL DOCUMENTS, THE BORROWER HEREBY (A) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF RHODE ISLAND AND THE UNITED STATES DISTRICT COURT LOCATED IN THE STATE OF RHODE ISLAND, AND (B) IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE COLLATERAL DOCUMENTS BROUGHT IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY. NOTHING IN THIS AGREEMENT WILL BE DEEMED TO PRECLUDE THE LENDER FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY OTHER JURISDICTION.
SECTION 19. INVALID PROVISIONS SEVERED
19.1 The invalidity or unenforceability of any provision of this Agreement shall not affect the validity of the other provisions, which shall be enforced to the fullest extent permitted by law.
SECTION 20. CAPTIONS; EXHIBITS; AND GRAMMAR
20.1 The paragraph captions are for convenience only. They are not part of the text of this Agreement and are not to be used to interpret its provisions.
20.2 All Schedules and Exhibits to this Agreement are incorporated in, and are part of, this Agreement as fully as though set forth herein.
20.3 The use of the singular includes the plural and the use of any gender includes any other gender whenever required by the sense of this Agreement.
SECTION 21. REIMBURSEMENT FOR ENFORCEMENT
21.1 In the event Borrower fails to perform any of its obligations under this Agreement or under any Collateral Document, then Borrower shall pay any and all Claims and Expenses incurred by the Lender in enforcing or establishing its rights hereunder or thereunder.
SECTION 22. NO NEGATIVE CONSTRUCTION AGAINST DRAFTING PARTY
22.1 The parties acknowledge that they are sophisticated and are represented by experienced, knowledgeable attorneys. The parties agree that the normal rules of construction to resolve ambiguities against the party whose counsel drafted this Agreement shall not be followed in the interpretation of this Agreement. Consequently, no negative inference or interpretation shall be made by a court in enforcing the provisions of this Agreement against the party whose attorney drafted this Agreement.
SECTION 23. NO OTHER PARTIES
23.1 The representations, warranties and agreements of Borrower contained herein are intended solely for the benefit of Lender and/or its assignees, and shall confer no rights hereunder, whether legal or equitable, in any other third person, and no other person shall be entitled to rely thereon.
SECTION 24. COUNTERPARTS
24.1 This Agreement may be signed in counterpart, each of which will be deemed an original document. All counterparts will constitute one document which may be sufficiently evidenced by one such counterpart. Each counterpart will be binding on the signatory to such counterpart notwithstanding that it is not signed by both signatories to this Agreement.
SECTION 24. INDEMNIFICATION
24.1 Borrower agrees to indemnify Lender, its officers, directors, principals and affiliates from and against any Claims and Expenses incurred or suffered by them or any of them arising out of the transactions contemplated hereunder, except for any of the foregoing which are solely the result of Lender's gross negligence or willful misconduct.
SECTION 25. SUCCESSORS AND ASSIGNS
25.1 This Agreement shall bind Borrower and its successors.
25.2 This Agreement shall be binding upon and shall inure to the benefit of Lender, its successors and assigns.
SECTION 26. LENDER'S RIGHT TO TRANSFER AND ASSIGN
26.1 Lender has the right, in its sole and absolute discretion, without consent or affecting the obligations of Borrower, to transfer and assign participation interests in its rights under this Agreement and the Collateral Documents.
IN WITNESS WHEREOF Borrower and Lender have executed this Agreement and affixed their seals as of the date first above stated.
INFINITE GROUP, INC.
RIDER A
INTEREST RATE ADJUSTMENT
The interest rate under this Loan Agreement and the Note shall be fixed for twelve (12) months from the date of this Agreement. The rate shall adjust annually thereafter on each one (1) year anniversary to a rate, determined by Lender, of the one-year Treasury Bill Index plus three and one-half percent (3 1/2%). The rate hereunder shall not increase by more than two percent (2%) in any year and more than six percent (6%) over the life of the Loan. Each year Lender shall adjust the monthly payment to reamortize the loan over the original term of one hundred and twenty (120) months.
LOAN AGREEMENT
INFINITE GROUP, INC., a Delaware corporation, with its principal office at 2364 Post Road, Warwick, RI 02886 (hereinafter referred to as "Borrower"), and CLIFFORD G. BROCKMYRE, having an address at 335 West Beach Road, Charlstown, RI 02813 (hereinafter referred to as "Lender"), hereby enter into this Loan Agreement ("Agreement") dated as of April 15, 1998.
SECTION 1. CERTAIN DEFINITIONS
1.1 The following terms used in this Agreement will have the meanings given below:
Claims and Expenses Any and all claims, lawsuits of any kind,
judgments, losses, damages, liabilities,
penalties, costs and reasonable expenses
arising out of transactions contemplated
under this Agreement or under the Collateral
Documents, including all "Legal Costs and
Expenses" (defined below) incurred in
connection therewith.
Collateral Documents The Note.
Loan Defined in Section 2.1.
Loan Amount $250,000.00.
Loan Closing and the
Loan Closing Date Defined in Section 2.2.
Legal Costs and Expenses Any and all reasonable attorneys' fees and
disbursements, court costs and other
litigation expenses.
Maturity Date April 14, 1999.
Note Defined in Section 2.2.
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SECTION 2. THE LOAN
2.1 Simultaneously with the execution of this Agreement, Lender is making a loan (the "Loan") to Borrower in the principal amount of $250,000 US Dollars, receipt of which is hereby acknowledged by Borrower.
2.2 The Loan is evidenced by a promissory note ("the Note") made by Borrower payable to Lender, which is being executed and delivered to Lender contemporaneously herewith (such loan and delivery being hereinafter called the "Loan Closing" and the date thereof being hereinafter called the "Loan Closing Date"). A copy of the Note is attached to this Agreement as Exhibit 1.
2.3 The Note is payable in accordance with its provisions which include, inter alia:
(a) interest at the rate of 9% per annum on the unpaid balance of the Note;
(b) equal monthly payments of $1,406.55, plus any amounts due on the revolving credit facilities in the aggregate principal amount of $50,000.00 between Lender and Bank of Western Massachusetts, commencing on May 1, 1998 and on the first day of each month thereafter to and including April 1, 1999 (which monthly payments shall include both principal and interest);
(c) a final payment equal to all unpaid principal and accrued interest payable on April 14, 1999;
(d) the right to Borrower, exercisable at any time prior to the Maturity Date to prepay, without penalty, all or part (each such payment being a minimum of $1,000 or covering the unpaid balance of the Note) of the unpaid principal amount and accrued interest thereon of the Note; and
(e) the principal of the Note and accrued interest thereon shall become immediately due and payable upon the occurrence of an Event of Default.
2.4 The obligation of Lender to make the Loan shall be conditioned on the satisfaction of Lender that the representations and warranties of Borrower contained in this
Agreement and in the Collateral Documents are true, complete and correct. Borrower understands and agrees that any investigation by Lender shall in no way limit the responsibility of the Borrower for such representations and warranties being true, complete and correct.
2.5 Notwithstanding any provision in this Agreement or in the Note, in no event shall the interest rate applicable to the Loan exceed that permitted by the laws or governmental regulations applicable to Lender, Borrower or the Loan that limit rates of interest that may be charged or collected by Lender. If any payment hereunder or under the Note shall be found to constitute a payment of interest in excess of that permitted under the laws or governmental regulations applicable to Lender, Borrower or the Loan that limit rates of interest that may be charged or collected by Lender, then the amount of such excess payment shall be refunded to Borrower.
SECTION 3. USE OF PROCEEDS
3.1. The proceeds of the Loan will be used by Borrower for working capital purposes.
SECTION 4. CLOSING DOCUMENTS
4.1 Simultaneously with the execution and delivery of this Agreement, the Loan is being funded and Borrower is delivering or has delivered to Lender the following documents, duly executed and (where required) witnessed or notarized:
(a) the Note; and
(b) a Secretary's Certificate of Borrower as to resolutions of its Board of Directors authorizing (i) the borrowing hereunder, and (ii) the execution and delivery of this Agreement, the Collateral Documents and the transactions contemplated hereby and thereby.
SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
5.1 To induce Lender to make the Loan hereunder, Borrower represents and warrants to and agrees with Lender that:
(a) Borrower is a corporation duly and validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in such other jurisdictions where the ownership of property or the nature of the business conducted by it requires such qualification, except insofar as the failure to so qualify would not materially and adversely affect Borrower.
(b) Borrower has the requisite corporate authority and power to enter into this Agreement, to borrow money as contemplated hereby, to issue the Note and to execute and deliver each of those documents required and described in this Agreement. The execution and delivery of this Agreement and the Collateral Documents have been duly authorized by Borrower and this Agreement and the Collateral Documents are enforceable against Borrower in accordance with their terms.
SECTION 6. CERTAIN AFFIRMATIVE COVENANTS
6.1 So long as any amount due to Lender pursuant to the Note, this Agreement or any of the other Collateral Documents is outstanding, the Borrower will do and comply with the following:
(a) Borrower will promptly make all payments of the principal and interest on the Note when due; and
(b) Borrower will comply with the terms and conditions of this Agreement and of those contained in each Collateral Document.
SECTION 7. CERTAIN NEGATIVE COVENANTS
7.1 So long as any amount due to Lender pursuant to the Note, this Agreement or any of the other Collateral Documents is outstanding, except with the prior written consent of Lender (whose consent, except as otherwise indicated below, may be refused without explanation and without any legal recourse by Borrower), Borrower will not:
(a) engage in any line of business materially different from those which Borrower is now engaged in; or
(b) become a party to any merger or consolidation with any corporation, company or entity of any kind whatsoever, or sell substantially all of its assets, or otherwise liquidate or dispose of its business.
SECTION 8. IRREGULAR PAYMENT
8.1 Lender may accept late payments and partial payments even though marked "payment in full" or words of similar import, without losing any of its rights under this Agreement or under the Note.
SECTION 9. DELAY IN ENFORCEMENT
9.1 Lender may delay in enforcing its rights under this Agreement or a Collateral Document without losing or prejudicing such rights.
SECTION 10. NO BROKER
10.1 Borrower represents and warrants to Lender that it has not dealt with any broker or finder, whether or not licensed, in connection with this Agreement or the loan transactions under this Agreement. Lender represents and warrants that it has not dealt with any broker or finder.
SECTION 11. LOAN EXPENSES
11.1 Borrower agrees to pay, promptly after demand is made, all reasonable out-of-pocket expenses incurred by Lender in connection with the making, amending, perfection, enforcement or payment or liquidation of the Loan which are the subject of this Agreement, including (but not limited to) Lender's legal fees and disbursements, title fees, title insurance fees and any other expense incurred, or to be incurred by Lender in connection with his loans from the Bank of Western Massachusetts, the proceeds of which are being used to fund the Loan.
SECTION 12. NOTICES
12.1 Unless otherwise expressly provided elsewhere in this Agreement, any notice, request, consent, election, demand or other communication ("notice") to be given or made by the parties under this Agreement must be in writing and either:
(a) delivered by hand, telecopier or overnight delivery by Federal Express or other recognized carrier; or
(b) sent by certified or registered mail, return receipt requested, postage prepaid.
12.2 Each notice to be given to Lender or Borrower will be addressed to it at its address set forth in the preamble on page 1 of this Agreement.
12.3 A copy of each notice must be sent simultaneously and in like manner to:
Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue, Suite 902 New York, New York 10022 Attn: Kenneth S. Rose, Esq.
Fax: 212-838-9190
12.4 Borrower and Lender may, by notice to the others, change the address to which future notices are to be sent or add or change a person to whom a notice or a copy of a notice is to be sent.
12.5 Unless otherwise provided elsewhere in this Agreement, each notice shall be considered to be given on:
(a) the date delivered by hand or telecopier (unless it is not a business day or is not received before 5:30 P.M., in which case the notice shall be considered given on the next business day after being sent);
(b) the next business day after being sent by overnight courier;
(c) the third full business day following the date of mailing postage prepaid in the United States Mail.
However, a notice of a change of address of person pursuant to Section 12.4 shall not be deemed given until received.
12.6 A notice that is mailed must be deposited into an official mail depository maintained by the United States Postal Service or (if mailed outside the United States) by an equivalent postal authority.
12.7 Failure to accept a notice is deemed receipt of it and does not invalidate the notice or excuse the performance of an obligation.
SECTION 13. ENTIRE AGREEMENT
13.1 All prior and contemporaneous statements, representations, promises, understandings, agreements, projections and opinions, whether written or oral made to each other with regard to this transaction, are merged in this Agreement and the Collateral Documents. This Agreement and the Collateral Documents constitute the entire agreement of the parties.
SECTION 14. CHANGES AND WAIVERS
14.1 A provision of this Agreement will be considered to have been changed or waived only if the change or waiver is expressly made in writing signed by the party to be charged.
14.2 The failure to insist on strict performance of any provision will not mean that the provision has been waived or that the right to insist thereafter on strict performance of that or any other provision has been waived.
SECTION 15. PARTIES TO COOPERATE
15.1 Each party will reasonably cooperate with the other to close the transactions that are the subject of this Agreement.
15.2 In furtherance of such cooperation, each party will obtain, execute and deliver such documents as are in its possession or control and are reasonably necessary in order to close or effectuate or confirm any provisions of this Agreement.
SECTION 16. GOVERNING LAW
16.1 The laws of the State of Rhode Island will govern this Agreement and the interpretation and enforcement of its provisions, without regard to legal principles of conflict of laws.
SECTION 17. WAIVER OF JURY TRIAL; VENUE
17.1 THE BORROWER AND THE LENDER EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE COLLATERAL DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY, RELATED PERSON, PARTICIPANT, OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY COLLATERAL DOCUMENT OR ANY PROVISIONS HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE COLLATERAL DOCUMENTS.
17.2 THE BORROWER AGREES THAT IT WILL NOT ASSERT AGAINST THE LENDER ANY CLAIM FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE
COLLATERAL DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
17.3 WITH RESPECT TO ANY CLAIM OR ACTION ARISING UNDER THIS AGREEMENT OR THE COLLATERAL DOCUMENTS, THE BORROWER HEREBY (A) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF RHODE ISLAND AND THE UNITED STATES DISTRICT COURT LOCATED IN THE STATE OF RHODE ISLAND, AND (B) IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE COLLATERAL DOCUMENTS BROUGHT IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY. NOTHING IN THIS AGREEMENT WILL BE DEEMED TO PRECLUDE THE LENDER FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY OTHER JURISDICTION.
SECTION 18. INVALID PROVISIONS SEVERED
18.1 The invalidity or unenforceability of any provision of this Agreement shall not affect the validity of the other provisions, which shall be enforced to the fullest extent permitted by law.
SECTION 19. CAPTIONS; EXHIBITS; AND GRAMMAR
19.1 The paragraph captions are for convenience only. They are not part of the text of this Agreement and are not to be used to interpret its provisions.
19.2 All Schedules and Exhibits to this Agreement are incorporated in, and are part of, this Agreement as fully as though set forth herein.
19.3 The use of the singular includes the plural and the use of any gender includes any other gender whenever required by the sense of this Agreement.
SECTION 20. REIMBURSEMENT FOR ENFORCEMENT
20.1 In the event Borrower fails to perform any of its obligations under this Agreement or under any Collateral Document, then Borrower shall pay any and all Claims and Expenses incurred by the Lender in enforcing or establishing its rights hereunder or thereunder.
SECTION 21. NO NEGATIVE CONSTRUCTION AGAINST DRAFTING PARTY
21.1 The parties acknowledge that they are sophisticated and are represented by experienced, knowledgeable attorneys. The parties agree that the normal rules of construction to resolve ambiguities against the party whose counsel drafted this Agreement shall not be followed in the interpretation of this Agreement. Consequently, no negative inference or interpretation shall be made by a court in enforcing the provisions of this Agreement against the party whose attorney drafted this Agreement.
SECTION 22. NO OTHER PARTIES
22.1 The representations, warranties and agreements of Borrower contained herein are intended solely for the benefit of Lender and/or its assignees, and shall confer no rights hereunder, whether legal or equitable, in any other third person, and no other person shall be entitled to rely thereon.
SECTION 23. COUNTERPARTS
23.1 This Agreement may be signed in counterpart, each of which will be deemed an original document. All counterparts will constitute one document which may be sufficiently evidenced by one such counterpart. Each counterpart will be binding on the signatory to such counterpart notwithstanding that it is not signed by both signatories to this Agreement.
SECTION 24. INDEMNIFICATION
24.1 Borrower agrees to indemnify Lender, its officers, directors, principals and affiliates from and against any Claims and Expenses incurred or suffered by them or any of them arising out of the transactions contemplated hereunder, except for any of the foregoing which are solely the result of Lender's gross negligence or willful misconduct.
SECTION 25. SUCCESSORS AND ASSIGNS
25.1 This Agreement shall bind Borrower and its successors.
25.2 This Agreement shall be binding upon and shall inure to the benefit of Lender, its successors and assigns.
SECTION 26. LENDER'S RIGHT TO TRANSFER AND ASSIGN
26.1 Lender has the right, in its sole and absolute discretion, without consent or affecting the obligations of Borrower, to transfer and assign participation interests in its rights under this Agreement and the Collateral Documents.
IN WITNESS WHEREOF Borrower and Lender have executed this Agreement and affixed their seals as of the date first above stated.
INFINITE GROUP, INC.
PROMISSORY NOTE
$1,150,000.00 Warwick, RI June 26, 1998
INFINITE GROUP, INC., a Delaware corporation (the "Maker"), FOR VALUE RECEIVED, hereby promises to pay to the order of CLIFFORD G. BROCKMYRE (the "Holder"), at the office of the Maker at 2364 Post Road, Warwick, RI 02886, the principal amount of ONE MILLION ONE HUNDRED FIFTY THOUSAND DOLLARS ($1,150,000.00) in lawful money of the United States of America. The unpaid principal balance of this Note shall bear interest at the rate of nine (9%) percent per annum adjusted as described on Rider A hereto. Interest and principal on the Note shall be payable as follows:
(i) $10,838.23 on the first day of each month beginning in August 1998 through and including June 2008 (which payments represent interest only), adjusted as described on Rider A hereto.
(ii) the remaining unpaid principal and accrued interest shall be payable on June 26, 2008.
Upon the occurrence of any "Event of Default" (as defined in the Loan
Agreement referred to below), the amounts then due and payable under this Note
(including the entire principal and accrued interest if such payments are
accelerated at the election of the Holder) shall bear interest equal to the
lesser of (a) the maximum amount permitted to be charged under applicable law or
(b) fifteen percent (15%) per annum from the due date thereof until paid in
full.
If this Note, or any payment hereunder, falls due on a Saturday, Sunday or a Rhode Island public holiday, this Note shall be made on the next succeeding business day and such additional time shall be included in the computation of any interest payable hereunder.
If any payment due hereunder is not paid when due, the Maker agrees to pay all reasonable costs of collection, including reasonable attorney's fees, all of which shall be added to the amount due hereunder. In addition, if this Note is referred by Holder to any attorney for collection, the Maker shall pay all reasonable attorney fees incurred by Holder therefor.
This Note is referred to in, and arises out of the transactions contemplated by, a loan agreement (the "Loan Agreement"), dated as of June 26, 1998 by and among the Maker and the Holder. This Note is subject to the terms and conditions of the Loan Agreement.
The Maker may prepay, without penalty, all or part (each such payment being a minimum of $10,000 or covering the unpaid balance on the Note) of the unpaid principal amount of this Note and accrued interest thereon.
UPON THE OCCURRENCE OF AN EVENT OF DEFAULT (AS DEFINED IN THE LOAN AGREEMENT), THEN, AND IN ANY SUCH EVENT, THE HOLDER, BY WRITTEN NOTICE TO THE MAKER, MAY DECLARE THE ENTIRE BALANCE OF THE UNPAID PRINCIPAL OF AND ACCRUED INTEREST ON THIS NOTE TO BE DUE, WHEREUPON THE SAME AND ANY OTHER AMOUNTS DUE HEREUNDER SHALL IMMEDIATELY BECOME DUE AND PAYABLE WITHOUT PRESENTATION, DEMAND, PROTEST OR OTHER NOTICE OF ANY KIND, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED BY THE MAKER.
This Note has been executed and delivered and shall be construed and enforced in accordance with the laws of the State of Rhode Island, including, but not limited to, matters of construction, validity and performance.
INFINITE GROUP, INC.
RIDER A
INTEREST RATE ADJUSTMENT
The interest rate under this Note shall be fixed for twelve (12) months
from the date of the Note. The rate shall adjust annually thereafter on each one
(1) year anniversary to a rate, determined by Lender, of the one-year Treasury
Bill Index plus three and one-half percent (3 1/2%). The rate hereunder shall
not increase by more than two percent (2%) in any year and more than six percent
(6%) over the life of the Loan. Each year lender shall adjust the monthly
payment to reamortize the loan over the original term of one hundred and twenty
(120) months.
PROMISSORY NOTE
$250,000.00 Warwick, RI April 15, 1998
INFINITE GROUP, INC., a Delaware corporation (the "Maker"), FOR VALUE RECEIVED, hereby promises to pay to the order of CLIFFORD G. BROCKMYRE (the "Holder"), at the office of the Maker at 2364 Post Road, Warwick, RI 02886, the principal amount of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) in lawful money of the United States of America. The unpaid principal balance of this Note shall bear interest at the rate of nine (9%) percent per annum. Interest and principal on the Note shall be payable as follows:
(i) $1,406.55, plus any amounts due on the revolving credit facilities in the aggregate principal amount of $50,000.00 between Lender and Bank of Western Massachusetts, on the first day of each month beginning in May 1998 through and including March 1999 (which payments represent both interest and principal); and
(ii) the remaining unpaid principal and accrued interest shall be payable on April 14, 1999.
Upon the occurrence of any "Event of Default" (as defined in the Loan
Agreement referred to below), the amounts then due and payable under this Note
(including the entire principal and accrued interest if such payments are
accelerated at the election of the Holder) shall bear interest equal to the
lesser of (a) the maximum amount permitted to be charged under applicable law or
(b) fifteen percent (15%) per annum from the due date thereof until paid in
full.
If this Note, or any payment hereunder, falls due on a Saturday, Sunday or a Rhode Island public holiday, this Note shall be made on the next succeeding business day and such additional time shall be included in the computation of any interest payable hereunder.
If any payment due hereunder is not paid when due, the Maker agrees to pay all reasonable costs of collection, including reasonable attorney's fees, all of which shall be added to the amount due hereunder. In addition, if this Note is referred by Holder to any attorney for collection, the Maker shall pay all reasonable attorney fees incurred by Holder therefor.
This Note is referred to in, and arises out of the transactions contemplated by, a loan agreement (the "Loan Agreement"), dated as of April 15, 1998 by and among the Maker and the Holder. This Note is subject to the terms and conditions of the Loan Agreement.
The Maker may prepay, without penalty, all or part (each such payment being a minimum of $1,000 or covering the unpaid balance on the Note) of the unpaid principal amount of this Note and accrued interest thereon.
UPON THE OCCURRENCE OF AN EVENT OF DEFAULT (AS DEFINED IN THE LOAN AGREEMENT), THEN, AND IN ANY SUCH EVENT, THE HOLDER, BY WRITTEN NOTICE TO THE MAKER, MAY DECLARE THE ENTIRE BALANCE OF THE UNPAID PRINCIPAL OF AND ACCRUED INTEREST ON THIS NOTE TO BE DUE, WHEREUPON THE SAME AND ANY OTHER AMOUNTS DUE HEREUNDER SHALL IMMEDIATELY BECOME DUE AND PAYABLE WITHOUT PRESENTATION, DEMAND, PROTEST OR OTHER NOTICE OF ANY KIND, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED BY THE MAKER.
This Note has been executed and delivered and shall be construed and enforced in accordance with the laws of the State of Rhode Island, including, but not limited to, matters of construction, validity and performance.
INFINITE GROUP, INC.
THIS WARRANT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS SPECIFIED IN SECTION 11 HEREOF. NEITHER THE RIGHTS REPRESENTED BY THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE HEREOF (COLLECTIVELY, THE "SECURITIES") HAVE BEEN REGISTERED FOR OFFER OR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE LAW, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED, ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT, OR UNLESS THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN WHOLE OR IN PART NOR THE WARRANT EXERCISED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 2 AND SECTION 11 HEREOF.
INFINITE GROUP, INC.
WARRANT TO PURCHASE 2,680,000 SHARES OF COMMON STOCK
JUNE 30, 1998
Infinite Group, Inc. a Delaware corporation (the "Company"), hereby certifies that, for value received, Clifford G. Brockmyre, the registered holder hereof, or its registered assigns ("Investor"), is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after June 30, 1998 but not after 5:00 P.M., New York time, on the Expiration Date (as defined herein), Two Million Six Hundred and Eighty Thousand (2,680,000) fully paid nonassessable shares (the "Warrant Shares") of Common Stock (as defined herein) of the Company (as adjusted from time to time as provided in this Warrant) at an initial purchase price of U.S. $1.12 per share in lawful money of the United States. This Warrant shall be exercisable as follows: (a) with respect to 1,340,000 Warrant Shares from and after the date hereof; (b) with respect to an additional 335,000 Warrant Shares from and after December 31, 1998, provided that the Company shall not have repaid its loan of even date hereof to Investor (the "Loan") by such date; (c) with respect to an additional 335,000 Warrant shares from and after March 31, 1999, provided that the Company shall not have repaid the Loan by such date; (d) with respect to an additional 335,000 Warrant shares from and after June 30, 1999, provided that the Company shall not have repaid the Loan by such date; (e) with respect to an additional 335,000 Warrant shares from and after September 30, 1999, provided that the Company shall not have repaid the Loan by such date;
Section 1. (a) Definitions. The following words and terms as used in this Warrant shall have the following meanings:
"Common Stock" means (a) the Company's common stock and (b) any capital stock into which such "Common Stock" shall have been changed or any capital stock resulting from a reclassification of such "Common Stock."
"Expiration Date" means June 30, 2003.
"Warrant Exercise Price" shall initially be U.S. $1.12 per share and shall be adjusted and readjusted from time to time to the extent as provided for in this Warrant.
(b) Other Definitional Provisions. (i) Except as otherwise specified herein, all references herein (A) to any person other than the Company, shall be deemed to include such person's successors and assigns, (B) to the Company shall be deemed to include the Company's successors and (C) to any applicable law defined or referred to herein, shall be deemed references to such applicable law as the same may have been or may be amended or supplemented from time to time.
(ii) When used in this Warrant, the words "herein," "hereof," and "hereunder," and words of similar import, shall refer to this Warrant as a whole and not to any provision of this Warrant, and the words "Section," "Schedule," and "Exhibit" shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires the neuter gender includes the masculine or feminine, and the singular number includes the plural, and vice versa.
Section 2. Exercise of Warrant. (a) Subject to the terms and conditions hereof, this Warrant may be exercised, in whole or in part, at any time during normal business hours on or after the opening of business on the date hereof and prior to the close of business on the Expiration Date. The rights represented by this Warrant may be exercised by the holder hereof then registered on the books of the Company, in whole or from time to time in part (except that this Warrant shall not be exercisable as to a fractional share) by (i) delivery of a written notice, in the form of the Subscription Notice attached as Exhibit A hereto, of such holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which the Warrant is being exercised (plus any applicable issue or transfer taxes) in cash or by certified or official bank check or otherwise as permitted by Section 2(c) hereof, for the number of Warrant Shares as to which this Warrant shall have been exercised, and (iii) the surrender of this Warrant, properly endorsed, at the principal office of the Company in Warwick, Rhode Island (or at such other agency or office of the Company as the Company may designate by notice to the holder hereof); provided, that if such Warrant Shares are to be issued in any name other than that of the registered holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 11 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), a certificate or certificates for the Warrant Shares so purchased, registered in the name of, or as directed by, the holder, shall
be delivered to, or as directed by such holder within a reasonable time, not exceeding 15 days, after such rights shall have been so exercised.
(b) Unless the rights represented by this Warrant shall have expired or have been fully exercised, the Company shall issue a new Warrant identical in all respects to the Warrant exercised except (x) it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under the Warrant exercised, less the number of Warrant Shares with respect to which such Warrant was exercised, and (y) the holder thereof shall be deemed to have become the holder of record of such Warrant Shares immediately prior to the close of business on the date on which the Warrant was surrendered and payment of the amount due in respect of such exercise and any applicable taxes was made, irrespective of the date of delivery of such share certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are properly closed, such person shall be deemed to have become the holder of such Warrant Shares at the opening of business on the next succeeding date on which the stock transfer books are open.
(c) Payment of the Warrant Exercise Price may be made, where permitted by law, by any of the following methods:
(1) In cash or by certified or official bank check;
(2) by the Company's cancellation of indebtedness of the Company to the holder of the Warrant;
(3) by waiver of compensation due or accrued to holder of the Warrant for services rendered;
(4) provided that a public market for the Company's stock exists, through a "same day sale" commitment from the holder of the Warrant and a broker-dealer that is a member of the National Association of Securities Dealers, Inc. (an "NASD Dealer") whereby the holder of the Warrant irrevocably elects to exercise the Warrant and to sell a portion of the Warrant Shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such Warrant Shares to forward the exercise price directly to the Company; or
(5) provided that a public market for the Company's stock exists, through a "margin" commitment from the holder of the Warrant and an NASD Dealer whereby the holder of the Warrant irrevocably elects to exercise this Warrant and to pledge the Warrant Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such Warrant Shares to forward the exercise price directly to the Company.
Section 3. Covenants as to Common Stock. The Company covenants and agrees that all Warrant Shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of the rights then represented by this Warrant.
Section 4. Adjustment of Warrant Exercise Price Upon Stock Splits.
Dividends. Distributions and Combinations; and Adjustment of Number of Shares.
(a) In case the Company shall at any time subdivide its outstanding shares of
Common Stock into a greater number of shares or issue a stock dividend or make a
distribution with respect to outstanding shares of Common Stock payable in
Common Stock, the Warrant Exercise Price in effect immediately prior to such
subdivision or stock dividend or distribution shall be proportionately reduced
and, conversely, in case the outstanding shares of Common Stock of the Company
shall be combined into a smaller number of shares, the Warrant Exercise Price in
effect immediately prior to such combination shall be proportionately increased
in each case by multiplying the then effective Warrant Exercise Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action and the denominator of which shall
be the number of shares of Common Stock outstanding immediately after such
action, and the product so obtained shall thereafter be the Warrant Exercise
Price.
(b) Upon each adjustment of the Warrant Exercise Price as provided above in this Section 4, the registered holder of this Warrant shall thereafter be entitled to purchase, at the Warrant Exercise Price resulting from such adjustment, the number of shares obtained by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price after such adjustment.
Section 5. Notice of Adjustment of Warrant Exercise Price and Sale of Company. Upon any adjustment of the Warrant Exercise Price, the Company shall give notice thereof to the registered holder of this Warrant, which notice shall state the Warrant Exercise Price in effect after such adjustment and the increase, or decrease, if any, in the number of shares purchasable at the Warrant Exercise Price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. In the event of a merger, consolidation or reorganization of the Company with or into another corporation or corporations in which the Company is not the surviving entity (other than a mere reincorporation transaction), a sale of all or substantially all of the assets of the Company, or a transaction in which the Company issues shares representing more than fifty percent (50%) of the voting power in the Company immediately after giving effect to such transaction, the Company shall give notice thereof to the registered holder of this Warrant at least three (3) business days prior to the consummation of such transaction.
Section 6. Computation of Adjustments. Upon each computation of an adjustment in the Warrant Exercise Price and the number of shares which may be subscribed for and purchased upon exercise of this Warrant, the Warrant Exercise Price shall be computed to the
nearest cent (i.e., fractions of .5 of a cent, or greater, shall be rounded to the next highest cent) and the number of shares which may be subscribed for and purchased upon exercise of this Warrant shall be calculated to the nearest whole share (i.e., fractions of less than one half of a share shall be disregarded and fractions of one half of a share, or greater, shall be treated as being a whole share).
Section 7. No Change in Warrant Terms on Adjustments. Irrespective of any adjustment in the Warrant Exercise Price or the number of shares of Common Stock issuable upon exercise hereof, this Warrant, whether theretofore or thereafter issued or reissued, may continue to express the same price and number of shares as are stated herein and the Warrant Exercise Price and such number of shares specified herein shall be deemed to have been so adjusted.
Section 8. Taxes. The Company shall not be required to pay any tax or taxes attributable to the initial issuance of the Warrant Shares or any transfer involved in the issue or delivery of any certificates for Warrant Shares of Common Stock in a name other than that of the registered holder hereof or upon any transfer of this Warrant.
Section 9. Warrant Holder Not Deemed a Shareholder. No holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the Warrant Shares which he is then entitled to receive upon the due exercise of this Warrant.
Section 10. No Limitation on Corporate Action. No provisions of this Warrant and no right or option granted or conferred hereunder shall in any way limit, affect or abridge the exercise by the Company of any of its corporate rights or powers to recapitalize, amend its Certificate of Incorporation, reorganize, consolidate or merge with or into another corporation, or to transfer all or any part of its property or assets, or the exercise of any other of its corporate rights and powers.
Section 11. Transfer; Opinions of Counsel: Restrictive Legends.
(a) Prior to any sale, transfer or other disposition of this Warrant or the Warrant Shares, the holder thereof will give ten (10) business days' notice to the Company of such holder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer and, if such transfer is not registered under the Securities Act of 1933, as amended ("Securities Act"), shall be accompanied by an opinion, addressed to the Company and reasonably satisfactory in form and substance to it, of counsel (reasonably satisfactory to the Company) for such holder, stating whether, in the opinion of
such counsel, such transfer will be a transaction exempt from registration under the Securities Act.
(b) If such sale, transfer or other disposition may in the opinion of such counsel be effected without registration under the Securities Act, such holder shall thereupon be entitled to the terms of the notice delivered by such holder to the Company. If in the opinion of such counsel such transfer may not be effected without registration under the Securities Act, such holder shall not be entitled to so transfer this Warrant, or the Warrant Shares unless the Company shall have filed a registration statement relating to such proposed transfer and such registration statement has become effective under the Securities Act; provided, however, notwithstanding the foregoing, the Company shall under no circumstances be obligated to file such a registration statement relating to the transfer of this Warrant or the Warrant Shares.
(c) Any Warrant Shares issued pursuant to the exercise of this Warrant may bear one or more of the legends in similar form to the legend set forth on this Warrant.
Section 12. Exchange of Warrant. This Warrant is exchangeable upon the surrender hereof by the holder hereof at such officer or agency of the Company, for new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder from time to time me after giving effect to all the provisions hereof, each of such new Warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by said holder hereof at the time of such surrender.
Section 13. Lost,. Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on such terms as to indemnity or otherwise as it may in its discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.
Section 14. Representations of Holder. The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant for its own account for investment and not with a view to, or sale in connection with, any distribution hereof or of any of the shares of Common Stock or other securities issuable upon the exercise thereof, nor with any present intention of distributing any of the same. Investor represents that it is an "accredited investor" as such term is defined under Regulation D of the Securities Act. Upon exercise of this Warrant, the holder will confirm in writing, in form reasonably satisfactory to the Company, the holder's investment intent.
Section 15. Notice. All notices and other communications under this Warrant shall (a) be in writing (which shall include communications by telecopy), (b) be (i) sent by registered or certified mail, postage prepaid, return receipt requested, by telecopier, or (ii) delivered by
hand, (c) be given at the following respective addresses and telecopier numbers and to the attention of the following persons:
(i) if to the Company, to it at:
Infinite Group, Inc. 2364 Post Road Warwick, RI 02886 Telephone: (401) 738-5777 Telecopier: (401) 738-6180
with a copy to:
Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, New York 10022-2605 Attention: Kenneth S. Rose, Esq.
Telephone: (212) 838-5030
Telecopier: (212) 838-9190
(ii) if to Investor, to it at the address set forth below Investor's signature on the signature page hereof;
or at such other address or telecopier number or to the attention of such other person as the party to whom such information pertains may hereafter specify for the purpose in a notice to the other specifically captioned "Notice of Change of Address", and (d) be effective or deemed delivered or furnished (i) if given by mail, on the fifth Business Day after such communication is deposited in the mail, addressed as above provided, (ii) if given by telecopier, when such communication is transmitted to the appropriate number determined as above provided in this Section and the appropriate answer back is received or receipt is otherwise acknowledged, and (iii) if given by hand delivery, when left at the address of the addressee addressed as above provided, except that notices of a change of address, telecopier or telephone number, shall not be deemed furnished, until received.
Section 16. Registration Rights.
(a) The Company shall be obligated to the owners of the Warrants and the Warrant Shares, to file a Registration Statement as follows:
Whenever during the four-year period beginning on June 30, 1999 and ending
on June 30, 2003 the Company proposes to file with the Commission a Registration
Statement (other than as to securities issued pursuant to an employee benefit
plan or as to a transaction subject to Rule 145 promulgated under the Act or
which a Form S-4 Registration Statement could be used), it shall, at least ten
(10) days prior to each filing, give written notice of such proposed filing to
the Warrantholder and each holder of Warrant Shares, at their respective
addresses as they appear on the records of the Company, and shall offer to include and shall include in such filing any proposed disposition of the Warrant Shares upon receipt by the Company, not less than five (5) days prior to the proposed filing date, of a request therefor setting forth the facts with respect to such proposed disposition and all other information with respect to such person reasonably necessary to be included in such Registration Statement. In the event that the managing underwriter, if any, for said offering advises the Company in writing that the inclusion of such securities in the offering would be detrimental to the offering, the Company shall have no obligation to include such securities in such registration statement.
(b) Except as set forth in the last sentence of this paragraph, all fees, disbursements and out-of-pocket expenses (other than Warrantholder's brokerage fees and commissions and legal fees of counsel to the Warrantholder, if any) in connection with the filing of any Registration Statement under this Section 16 (or obtaining the opinion of counsel and any no-action position of the Commission with respect to sales under Rule 144) and in complying with applicable securities and Blue Sky laws shall be borne by the Company. The Company at its expense will supply any Warrantholder and any holder of Warrant Shares with copies of such Registration Statement and the prospectus included therein and other related documents and opinions and no-action letters in such quantities as may be reasonably requested by the Warrantholder or holder of Warrant Shares.
Section 17. Indemnification. In the event any of the Warrant Shares (for purposes of this Section 17, the "Registrable Securities") are included in a Registration Statement filed by the Company with the Securities and Exchange Commission (a "Registration Statement"):
(a) To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities, and
(ii) the directors, officers, partners, employees, agents and each person who
control any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any, (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to the restrictions set forth in
Section 17(c) with respect to
the number of legal counsel, the Company shall reimburse the Investors and each
such underwriter or controlling person, promptly as such expenses are incurred
and are due and payable, for any reasonable legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 17(a): (i) shall not apply
to a Claim arising out of or based upon a Violation which occurs in reliance
upon and in conformity with information furnished in writing to the Company by
any Indemnified Person expressly for use in connection with the preparation of
the Registration Statement or any such amendment thereof or supplement thereto;
(ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, if such corrected prospectus was timely made
available to the Indemnified Person by the Company, and the Indemnified Person
was promptly advised in writing not to use the incorrect prospectus prior to the
use giving rise to a Violation and such Indemnified Person, notwithstanding such
advice, used it. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall
survive any permitted transfer of the Registrable Securities by the Investor
pursuant to this Warrant.
(b) In connection with any Registration Statement of the Company in which an Investor is participating, each such Investor agrees severally and not jointly to indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 17(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act, and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder or underwriter within the meaning of the 1933 Act or the 1934 Act (collectively, an "Indemnified Party"), against any Claim to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and subject to Section 17(c) such Investor will reimburse any legal or other expenses (promptly as such expenses are incurred and are due and payable) reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 17(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Warrant for only that amount as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to this Warrant. Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 17(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented.
(c) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 17 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 17, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The indemnifying party shall pay for only one separate legal counsel
for the Indemnified Persons or the Indemnified Parties, as applicable, and such
legal counsel shall be selected by Investors holding a majority-in-interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates (with the approval of the Initial Investor if it holds Registrable
Securities included in such Registration Statement), if the Investors are
entitled to indemnification hereunder, or the Company, if the Company is
entitled to indemnification hereunder, as applicable. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 17,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action.
Section 18. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged, or terminated only by an instrument in writing signed by the party or holder hereof against which enforcement of such change, waiver, discharge or termination is sought.
The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning hereof This Warrant shall be governed by and interpreted under the laws of the State of New York.
Section. 19. Date. The date of this Warrant is June 30, 1998. This Warrant, in all events, shall be wholly void and of no effect after the close of business on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 11 shall
continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.
INFINITE GROUP, INC.
AGREED TO AND ACCEPTED
Address: 335 West Beach Road
Charlstown, RI, 02813
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH REGISTERED HOLDER DESIRES TO EXERCISE THIS WARRANT
INFINITE GROUP, INC.
The undersigned hereby exercises the right to purchase Warrant Shares covered by this Warrant according to the conditions thereof and herewith makes payment of U.S. $___________, the aggregate Warrant Exercise Price of such Warrant Shares in full.
The undersigned represents that it is purchasing the Warrant Shares for its own account for investment and not with a view to, or sale in connection with, any distribution hereof, nor with any present intention of distributing the same. The undersigned represents that it is an "accredited investor" as such term is defined under Regulation D of the Securities Act of 1933, as amended ("Securities Act"). The Warrant Shares may not be sold, pledged, transferred, hypothecated, or otherwise disposed of except pursuant to an effective registration thereof under the Securities Act, or unless the Company shall have received an opinion of counsel satisfactory to the Company that such registration is not required.
INVESTOR
Number of Warrant Shares Being Purchased:
Dated:___________, _____.
CONFIDENTIAL
February 23, 1999
Infinite Group, Inc.
300 Metro Center Boulevard
Warwick, Rhode Island 02886
Attention: Mr. Clifford G. Brockmyre
RE: Purchase of 2,875,500 Shares of Series A Convertible Preferred Stock of Spectra Science Corporation
Ladies and Gentlemen:
The parties to this letter agreement are also parties to an earlier agreement dated December 29, 1998 (the "Agreement") among Spectra Science Corporation (the "Company"), Infinite Group, Inc. ("Infinite" or the "Seller"), Crane & Co., Inc. ("Crane") and Pillar Investment Limited, as representative of the Pillar Group (as defined in the Agreement). The Agreement sets forth the terms of the proposed purchase of 2,875,500 shares of the Company's Series A Convertible Preferred Stock, par value $.01 per share (the "Shares") from the Seller.
The purpose of this letter is to confirm, notwithstanding contrary provisions of the Agreement, the following:
A. The Shares shall be sold by Infinite in the following amounts, for the following purchase prices, and to the following Purchasers:
(i) Crane: 666,667 Shares, for an aggregate purchase price of $1,500,000.75.
(ii) Pillar Group: 1,120,056 Shares, for an aggregate purchase price of $2,520,126.00; 444,444 of which Shares were previously purchased on the First Closing Date for $999,999, and 675,612 of which Shares are being purchased on the Second Closing Date for an aggregate purchase price of $1,520,127.
(iii) The Company: 477,583 Shares for an aggregate purchase price of $601,754.58.
(iv) Clearwater Fund IV, LLC ("Clearwater"): 611,194 Shares, to be transferred by Infinite to Clearwater in exchange for certain shares of Infinite held by Clearwater, as previously agreed between Infinite and Clearwater.
B. The Second Closing Date shall be no later than February 26, 1999.
C. Section 7 of the Agreement, which provides that the Seller shall bear the reasonable attorney's fees of Warner & Stackpole LLP not in excess of $15,000, is hereby amended to provide (a) that each party shall bear its own costs with respect to the transaction, and (b) that reasonable attorney's fees and expenses of Warner & Stackpole LLP shall be borne by the Company.
All other provisions of the Agreement not inconsistent with the foregoing shall remain in full force and effect.
If the foregoing accurately represents the terms of our mutual agreement, please acknowledge below, send an executed copy by facsimile transmission to Kenneth S. Boger, Esq., Warner & Stackpole LLP (fax number 617-951-9151), 75 State Street, Boston, MA 02109 not later than 10:00 AM on February 26, 1999, and send an original executed copy to Mr. Boger by overnight mail.
Very truly yours,
SPECTRA SCIENCE CORPORATION
Agreed and Acknowledged: CRANE & CO., INC.
By:
--------------------------------
Name:
Title:
PILLAR INVESTMENTS LIMITED,
as representative of each member of
the Pillar Group pursuant to power of
attorney
By:
--------------------------------
Name:
Title:
INFINITE GROUP INC.
By:
--------------------------------
Name:
|
Title:
| ARTICLE 5 |
| This schedule contains summary financial information extracted from Infinite Group, Inc. and is qualified in its entirety by reference to such financial statements. |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD START | JAN 01 1998 |
| PERIOD END | DEC 31 1998 |
| CASH | 1,010,736 |
| SECURITIES | 0 |
| RECEIVABLES | 1,127,609 |
| ALLOWANCES | 34,195 |
| INVENTORY | 193,412 |
| CURRENT ASSETS | 3,433,637 |
| PP&E | 6,365,545 |
| DEPRECIATION | 1,923,207 |
| TOTAL ASSETS | 8,515,642 |
| CURRENT LIABILITIES | 2,261,951 |
| BONDS | 2,903,817 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 2,673 |
| OTHER SE | 3,349,874 |
| TOTAL LIABILITY AND EQUITY | 8,515,642 |
| SALES | 7,396,105 |
| TOTAL REVENUES | 7,396,105 |
| CGS | 4,760,733 |
| TOTAL COSTS | 3,880,668 |
| OTHER EXPENSES | 337,715 |
| LOSS PROVISION | 52,450 |
| INTEREST EXPENSE | 373,405 |
| INCOME PRETAX | (1,583,011) |
| INCOME TAX | (1,067,000) |
| INCOME CONTINUING | (516,091) |
| DISCONTINUED | 394,125 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (121,886) |
| EPS PRIMARY | (.05) |
| EPS DILUTED | (.05) |