Note 2. Management Plans - Capital Resources
The
Company reported net losses of $325,000 in 2016 and $195,191 and
$166,006 for the three months ended March 31, 2017 and 2016,
respectively, and stockholders’ deficiencies of $4,180,873
and $3,992,842 at March 31, 2017 and December 31, 2016,
respectively. Accordingly, there is substantial doubt about the
Company’s ability to continue as a going
concern.
Continue to Improve Operations and Capital Resources
The
Company's goal is to increase sales and generate cash flow from
operations on a consistent basis. The Company uses a formal
financial review and budgeting process as a tool for improvement
that has aided expense reduction and internal performance. The
Company’s business plans require improving the results of its
operations in future periods.
During
2016, the Company raised $500,000 of additional working capital to
build the infrastructure to market its new Nodeware cybersecurity
product. In consideration for providing the financing, the Company
paid the lender a fee of 2,500,000 shares of its common stock
valued at $37,500 on the date of the agreement.
On
September 30, 2016, the Company extended the scheduled maturity of
its $400,000 unsecured line of credit financing agreement (the
“LOC Agreement”) with a member of its board of
directors (“Board”) from December 31, 2017 to January
1, 2020. The Company also extended the maturity dates of notes
payable of $146,300 and $264,000 from January 1, 2017 to January 1,
2020.
In
August 2016, the Company completed a revised financing agreement
with its financial institution resulting in a reduction of its
financing rate and an increase in its advance rate.
The
Company believes the capital resources available under its
factoring line of credit, cash from additional related party and
third party loans and cash generated by improving the results of
its operations provide sources to fund its ongoing operations and
to support the internal growth of the Company. Although the Company
has no assurances, the Company believes that related parties, who
have previously provided working capital, and third parties will
continue to provide working capital loans on similar terms, as in
the past, as may be necessary to fund its on-going operations for
at least the next 12 months. If the Company experiences significant
growth in its sales, the Company believes that this may require it
to increase its financing line, finance additional accounts
receivable, or obtain additional working capital from other sources
to support its sales growth.
Note
3. Summary of Significant Accounting Policies
There
are several accounting policies that the Company believes are
significant to the presentation of its financial statements. These
policies require management to make complex or subjective judgments
about matters that are inherently uncertain. Note 3 to the
Company’s audited financial statements for the year ended
December 31, 2016 presents a summary of significant accounting
policies as included in the Company's Annual Report on Form 10-K as
filed with the SEC.
Reclassifications
- The Company reclassifies amounts in its
financial statements to comply with recently adopted accounting
pronouncements.
Fair Value of Financial Instruments
- The carrying amounts
reported in the balance sheets for cash, accounts receivable,
accounts payable, and accrued expenses approximate fair value
because of the immediate short-term maturity of these financial
instruments. The carrying value of notes payable and convertible
notes payable approximates the fair value based on rates currently
available from financial institutions and various
lenders.
Recent Accounting Pronouncements Not Yet Adopted -
In May
2014, the FASB issued Accounting Standards Update (ASU) No.
2014-09, Revenue from Contracts with Customers (Topic 606) which
provides new accounting guidance on revenue from contracts
with customers. The guidance requires an entity to recognize the
amount of revenue to which it expects to be entitled for the
transfer of promised goods or services to customers. The updated
guidance will replace most existing revenue recognition guidance in
U.S. GAAP when it becomes effective. This guidance is effective for
fiscal years and interim periods within those fiscal years
beginning after December 15, 2017 and will be required to be
applied retrospectively. Additional ASUs have been issued to amend
or clarify this ASU as follows:
●
ASU
No. 2016-12 “Revenue from Contracts with Customers (Topic
606): Narrow-Scope Improvements and Practical Expedients” was
issued in May 2016. ASU No. 2016-12 amends the new revenue
recognition standard to clarify the guidance on assessing
collectability, presenting sales taxes, measuring noncash
consideration, and certain transition matters.
●
ASU
No. 2016-10 “Revenue from Contracts with Customers (Topic
606): Identifying Performance Obligations and Licensing” was
issued in April 2016. ASU No. 2016-10 addresses implementation
issues identified by the FASB-International Accounting Standards
Board Joint Transition Resource Group for Revenue
Recognition.
●
ASU
No. 2016-08 “Revenue from Contracts with Customers (Topic
606) - Principal versus Agent Considerations (Reporting Revenue
Gross versus Net)” was issued in March
2016. ASU No. 2016-08 requires an entity to
determine whether the nature of its promise to provide goods or
services to a customer is performed in a principal or agent
capacity and to recognize revenue in a gross or net manner based on
its principal/agent designation.
The
Company does not believe this guidance will have a material effect
on the Company’s financial statements when
adopted.
In
February 2016, the FASB issued amended guidance for lease
arrangements to increase transparency and comparability by
providing additional information to users of financial statements
regarding an entity's leasing activities. The revised guidance
seeks to achieve this objective by requiring reporting entities to
recognize lease assets and lease liabilities on the balance sheet
for substantially all lease arrangements. The guidance, which is
required to be adopted in the first quarter of 2019, will be
applied on a modified retrospective basis beginning with the
earliest period presented. Early adoption is permitted. The Company
is evaluating the effect that this standard will have on its
financial statements and related disclosures.
Note 4. Sale of Certain Accounts Receivable
The
Company has available a financing line with a financial institution
(the Purchaser), which enables the Company to sell accounts
receivable to the Purchaser with full recourse against the Company.
Pursuant to the provisions of FASB ASC 860, the Company reflects
the transactions as a sale of assets and establishes an accounts
receivable from the Purchaser for the retained amount less the
costs and fees of the transaction and less any anticipated future
loss in the value of the retained asset.
Through
August 28, 2016, the retained amount was equal to 15% of the total
accounts receivable invoice sold to the Purchaser. The fee was
charged at prime plus 4% against the average daily outstanding
balance of funds advanced. On August 29, 2016, the Company
completed a revised financing agreement with the Purchaser. The
retained amount was revised to 10% of the total accounts receivable
invoice sold to the Purchaser. The fee is charged at prime plus
3.6% (effective rate of 7.6% at March 31, 2017) against the average
daily outstanding balance of funds advanced. The estimated future
loss reserve for each receivable included in the estimated value of
the retained asset is based on the payment history of the accounts
receivable customer and is included in the allowance for doubtful
accounts, if any. As collateral, the Company granted the Purchaser
a first priority interest in accounts receivable and a blanket
lien, which may be junior to other creditors, on all other
assets.
The
financing line provides the Company the ability to finance up to
$2,000,000 of selected accounts receivable invoices, which includes
a sublimit for one of the Company’s customers of $1,500,000.
During the three months ended March 31, 2017, the Company sold
approximately $1,242,000 ($1,541,000 - March 31, 2016) of its
accounts receivable to the Purchaser. As of March 31, 2017,
approximately $380,000 ($328,000 - December 31, 2016) of these
receivables remained outstanding. Additionally, as of March 31,
2017, the Company had approximately $157,000 available under the
financing line with the financial institution ($143,000 –
December 31, 2016). After deducting estimated fees, allowance for
bad debts and advances from the Purchaser, the net receivable from
the Purchaser amounted to $38,009, at March 31, 2017 ($31,462
– December 31, 2016), and is included in accounts receivable
in the accompanying balance sheets.
There
were no gains or losses on the sale of the accounts receivable
because all were collected. The cost associated with the financing
line totaled $11,208 for the three months ended March 31, 2017
($20,603 - March 31, 2016). These financing line fees are
classified on the statements of operations as interest
expense.
Note 5. Earnings per Share
Basic
earnings per share is based on the weighted average number of
common shares outstanding during the periods presented. Diluted
earnings per share is based on the weighted average number of
common shares outstanding, as well as dilutive potential common
shares which, in the Company’s case, comprise shares issuable
under convertible notes payable and stock options. The treasury
stock method is used to calculate dilutive shares, which reduces
the gross number of dilutive shares by the number of shares
purchasable from the proceeds of the options and warrants assumed
to be exercised. In a loss period, the calculation for basic and
diluted earnings per share is considered to be the same, as the
impact of potential common shares is anti-dilutive.
The
following table sets forth the computation of basic and diluted
loss per share for the three months ended:
|
Three
Months Ended March 31,
|
|
|
|
Numerator for basic
and diluted net loss per share:
|
|
|
Net
loss
|
$
(195,151
)
|
$
(166,006
)
|
Denominator for
basic and diluted net loss per share:
|
|
|
Weighted average
common shares outstanding
|
29,061,883
|
26,561,883
|
Basic and diluted
net loss per share
|
$
(.01
)
|
$
(.01
)
|
|
|
|
Anti-dilutive
shares excluded from net loss share calculation
|
28,470,795
|
28,339,229
|
Certain common shares issuable under stock options and convertible
notes payable have been omitted from the diluted net loss per share
calculation because their inclusion is considered anti-dilutive
because the exercise prices were greater than the average market
price of the common shares or their inclusion would have been
anti-dilutive.
Note 6. Software Purchase
On
February 6, 2015, the Company purchased all rights to cyber
security network vulnerability assessment reporting software (the
“Software”). Under the purchase agreement, the Company
agreed to pay the Seller the base purchase price of $180,000, of
which $100,000 was paid in cash at the closing and the remaining
$80,000 of which was paid by delivery at the closing of the
Company’s secured promissory note. As security for its
obligations under the promissory note, the Company granted the
Seller a security interest in the Software. After April 7, 2015,
the note accrues interest at 10% per annum. The remaining balance
of $20,000 was payable on the note on June 30, 2016 but was not
paid then although the balance was subsequently reduced during 2016
by $7,500. To date, the Seller has not taken any action to collect
the amount past due on the note or to enforce the security interest
in the Software. At March 31, 2017, the total principal amount
payable under the note is $12,500 with accrued interest payable of
$7,523 ($7,215 at December 31, 2016). The asset cost of $180,000 is
amortized over its estimated useful life. The remaining balance at
March 31, 2017 is $78,750 ($105,000 at December 31, 2016).
Amortization expense over the next nine months is expected to be
$78,750.
Under
the purchase agreement, in addition to the base purchase price, the
Company also agreed to pay the Seller a percentage of the licensing
fees paid to the Company for certain periods of time. The Company
has no plans to license this software and accordingly there were no
royalties earned or payable the three months ended March 31, 2017
and 2016.
Note 7. Notes Payable - Related Parties
The
balance of the note payable to a member of the Company’s
board of directors was $384,055 at March 31, 2017 ($386,065 at
December 31, 2016).
Principal and
interest are paid monthly using an amortization schedule requiring
annual principal payments of approximately $8,000 with all
remaining outstanding amounts due on January 1, 2020. The current
portion of approximately $8,000 is offset by the current portion of
deferred financing costs of approximately $8,000. The effective
rate of interest was 6.85% at March 31, 2017.
A 7% note payable of $25,000 due to a related party matures on
March 31, 2018 and is classified as a current liability in the
accompanying balance sheet at March 31, 2017.
Note 8. Stock Option Plans and Agreements
The
Company has approved stock options plans and agreements covering up
to an aggregate of 9,786,000 shares of common stock. Such options
may be designated at the time of grant as either incentive stock
options or nonqualified stock options. Stock based compensation
consists of charges for stock option awards to employees, directors
and consultants.
The
fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The following
assumptions were used for the three months ended March 31, 2017 and
2016:
|
|
|
Risk-free interest
rate
|
1.50
%
|
1.07
%
|
Expected dividend
yield
|
0
%
|
0
%
|
Expected stock
price volatility
|
100
%
|
100
%
|
Expected life of
options
|
|
|
The
Company recorded expense for options issued to employees and
independent service providers of $7,120 and $6,764 for the three
months ended March 31, 2017 and 2016, respectively.
At
March 31, 2017, there was approximately $10,700 of total
unrecognized compensation cost related to non-vested options. That
cost is expected to be recognized over a weighted average period of
approximately one year. The total fair value of shares that vested
during the three months ended March 31, 2017 was approximately
$4,000.
A
summary of all stock option activity for the three months ended
March 31, 2017 follows:
|
Number of Options Outstanding
|
Weighted Average Exercise Price
|
Remaining Contractual Term
|
Aggregate Intrinsic Value
|
Outstanding at
December 31, 2016
|
8,583,000
|
$
.12
|
|
|
Granted
|
150,000
|
$
.045
|
|
|
Expired
|
(22,500
)
|
$
.26
|
|
|
Forfeited
|
(12,500
)
|
$
.04
|
|
|
Outstanding at
March 31, 2017
|
8,698,000
|
$
.12
|
|
$
2,700
|
|
|
|
|
|
At March 31,
2017:
|
|
|
|
|
Vested or expected
to vest
|
6,310,000
|
$
.09
|
|
$
2,700
|
Exercisable
|
6,110,000
|
$
.09
|
|
$
2,700
|
Note 9. Related Party Accounts Receivable and Accrued Interest
Payable
Accrued
Interest Payable - Included in accrued interest payable is accrued
interest payable to related parties of $83,910 at March 31, 2017
($81,347 - December 31, 2016).
************
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
This
discussion contains forward-looking statements, the accuracy of
which involves risks and uncertainties. Our actual results could
differ materially from those anticipated in the forward-looking
statements for many reasons including, but not limited to, those
discussed under the heading “Forward Looking
Statements” above and elsewhere in this report. We disclaim
any obligation to update information contained in any
forward-looking statements.
The
following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction
with our financial statements and the notes thereto appearing
elsewhere in this report.
Business
Headquartered
in Pittsford, New York, Infinite Group, Inc. is a provider of
managed IT and virtualization services and a developer and provider
of cybersecurity tools and solutions to private businesses and
government agencies. As part of these services we:
●
|
design,
develop and market solutions and products that solve and simplify
network cybersecurity needs of small and medium sized enterprises
(SMEs), government agencies, and certain large commercial
enterprises. We are a master distributor for Webroot, a cloud based
security platform solution, where we market to and provide support
for over 350 reseller partners across North America;
|
●
|
provide
level 2 Microsoft and Hewlett Packard server and software-based
managed services supporting enterprise customers through our
partnership with Hewlett Packard Enterprise Company (HPE);
and
|
●
|
are an
Enterprise Level sales and professional services partner with
VMware selling virtualization licenses and solutions, and providing
virtualization services support to commercial and government
customers including the New York State and Local Government and
Education (SLED) entities and the New York State OGS (Office of
General Services). These activities take place in our professional
services organization (PSO).
|
Business Strategy
Our
strategy is to build our business by designing, developing, and
marketing IT security based products and solutions that fill
technology gaps in cybersecurity. During 2016, we brought one
product, Nodeware, to market. Nodeware is an automated, continuous
plug and play network vulnerability management system that consists
of hardware and software. It is intended to fill a need in the SBE
market. It assesses vulnerabilities in a computer network using
scanning technology to capture a comprehensive view of the security
exposure of a network and infrastructure. Nodeware is used to
eliminate security gaps for SMEs. We sell Nodeware in the
commercial sector through our current channel
partners.
Our
cybersecurity services business provides services and technical
resources to support both our channel partners and end
customers.
Our
goal is to expand our VMware business in both the public and
commercial sector by building VMware license sales volume and
services concurrently.
We are
working to expand our managed services business with our current
federal enterprise customer and with other customers of HPE. From
time to time we are in various stages of the proposal process with
potential enterprise customers including responding to requests for
information, quotations, draft statements of work, and
pricing.
Results of Operations
Comparison of the Three Months Ended March 31, 2017 and
2016
The
following table compares our statements of operations data for the
three months ended March 31, 2017 and 2016. The trends suggested by
this table are not indicative of future operating
results.
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
1,647,028
|
100.0
%
|
$
1,863,762
|
100.0
%
|
$
(216,734
)
|
(11.6
)%
|
Cost of
sales
|
1,168,531
|
70.9
|
1,384,599
|
74.3
|
(216,068
)
|
(15.6
)
|
Gross
profit
|
478,497
|
29.1
|
479,163
|
25.7
|
(666
)
|
(0.1
)
|
General and
administrative
|
296,804
|
18.0
|
359,881
|
19.3
|
(63,077
)
|
(17.5
)
|
Selling
|
317,054
|
19.3
|
222,481
|
11.9
|
94,573
|
42.5
|
Total costs and
expenses
|
613,858
|
37.3
|
582,362
|
31.2
|
31,496
|
5.4
|
Operating
loss
|
(135,361
)
|
(8.2
)
|
(103,199
)
|
(5.5
)
|
32,162
|
31.2
|
Interest
expense
|
(59,790
)
|
(3.6
)
|
(62,807
)
|
(3.4
)
|
(3,017
)
|
(4.8
)
|
Net
loss
|
$
(195,151
)
|
(11.8
)%
|
$
(166,006
)
|
(8.9
)%
|
$
(29,145
)
|
17.6
%
|
|
|
|
|
|
|
|
Net loss per share
- basic and diluted
|
$
(.01
)
|
|
$
(.01
)
|
|
$
.00
|
|
Sales
Our
managed service and virtualization project sales comprised
approximately 79% of our sales in 2017 and approximately 84% in
2016. Our 2017 commercial sales to small and medium sized
enterprises (SMEs), have grown to approximately 16% of our total
sales as compared to approximately 9% for 2016.
Sales of virtualization subcontract projects have continued to
decrease since 2015 because VMware has continued to assign fewer
projects to us. Our virtualization subcontract project sales
decrease of approximately 60% from 2016 to 2017 was offset in part
by sales growth of approximately 60% from our commercial SME
businesses during the three months ended March 31, 2017 as compared
to 2016. Our goal is to expand our VMware business in both the
public and commercial sector by building VMware license sales
volume and services concurrently directly with customers rather
than relying on subcontract project services. Our commercial SME
business continues to establish new relationships with channel
partners who purchase IT solutions from us. We began to close sales
of Nodeware with our channel partners during 2017. We expect future
sales from security assessments and related projects by our
cybersecurity personnel.
One of
our priorities is to increase sales. Accordingly, during 2016, we
hired additional commercial sales personnel to increase commercial
sales of Webroot, Nodeware and cybersecurity projects in the SME
market. Our investments in personnel began to generate commercial
SME operating income in 2016 continuing into 2017.
Cost
of Sales and Gross Profit
Cost of
sales principally represents the cost of employee services related
to our IT Services Group. In smaller amounts, we also incurred cost
of sales for third party software licenses for our commercial SME
partners. As virtualization project sales decreased, related
personnel cost of sales also decreased.
Our
gross profit remained relatively unchanged although sales decreased
by $216,734 or 11.6 %. This was due to gross profit earned by our
commercial SME business, which resells Webroot licenses and
provides related technical support.
General
and Administrative Expenses
General
and administrative expenses include corporate overhead such as
compensation and benefits for executive, administrative and finance
personnel, rent, insurance, professional fees, travel, and office
expenses. General and administrative expenses decreased by $63,077
or 17.5% in 2017 consisting of various expense items including
reductions in consulting expense of approximately $9,600 and
employee salaries and benefits of approximately
$24,100.
Selling
Expenses
The increase in selling expenses of $94,573 or 42.5% is due to the
addition of marketing employee salaries and benefits totaling
approximately $91,500 and approximately $30,500 for marketing
consultants and services as we launched Nodeware and expanded our
commercial SME marketing efforts. These increases were offset by a
reduction in consulting services of approximately
$22,800.
Operating
Loss
The $32,162 increase in our operating loss is principally
attributable to an increase in operating expenses of $31,496 for
the three months ended March 31, 2017 as compared to
2016.
Interest
Expense
The
decrease in intererst expense is principally attributable to a net
decrease in financing of our accounts receivable since the volume
of our financings decreased. This was offset by increased interest
expense associated with proceeds from a working capital note
payable that originated in 2016.
Net
Loss
The decrease is attributable to the items discussed above for the
three months ended March 31, 2017 as compared to
2016.
Liquidity and Capital Resources
At
March 31, 2017, we had cash of $28,756 available for working
capital needs and planned capital asset expenditures. During 2017,
we financed our business activities principally through cash flows
provided by operations and sales with recourse of our accounts
receivable. Our primary source of liquidity is cash provided by
collections of accounts receivable and our factoring line of
credit.
We
maintain an accounts receivable financing line of credit with an
independent financial institution that allows us to sell selected
accounts receivable invoices to the financial institution with full
recourse against us in the amount of $2,000,000, including a
sublimit for one major client of $1,500,000. This provides us with
the cash needed to finance certain of our on-going costs and
expenses. At March 31, 2017, we had financing availability, based
on eligible accounts receivable, of approximately $157,000 under
this line. We pay fees based on the length of time that the invoice
remains unpaid.
On
December 1, 2014, we entered into an unsecured line of credit
financing agreement (the “LOC Agreement”) with a member
of our board of directors. The LOC Agreement provides for working
capital of up to $400,000 through January 1, 2020. At March 31,
2017, we had $15,945 of availability under the LOC
Agreement.
At
March 31, 2017, we had a working capital deficit of approximately
$2,873,000 and a current ratio of .08. This increase in the working
capital deficit from $2,448,000 at December 31, 2016 is principally
due to the scheduled maturity on January 1, 2018 of a $265,000 note
payable due to a third party and $25,000 due on March 31, 2018 to a
related party.
At
March 31, 2017, we have current notes payable of $362,500 to third
parties, which includes convertible notes payable of $290,000. Also
included is $12,500 in principal amount of a note payable due on
June 30, 2016 but not paid. This note was issued in payment of
software we purchased in February 2016 and secured by a security
interest in the software. To date, the holder has not taken any
action to collect the amount past due on this note or to enforce
the security interest in the software.
At
March 31, 2017, we have current maturities of long-term obligations
of $1,080,999. Included in this balance is approximately $816,000
due to the Pension Benefit Guaranty Corporation (the PBGC) of which
$570,000 is due to the PBGC in accordance with the October 2011
Settlement Agreement. Payments are contingent upon our earning free
cash flow in excess of defined amounts which vary by year. No
amounts have been owed or paid on this obligation through March 31,
2017. However, if no amounts are obligated to be paid for 2017, we
anticipate that we will write off the balance when our agreement
with the PBGC is satisfied and, if so, realize a noncash gain at
that time. If this occurs, this will provide a contribution of
$570,000 to our net income and improve our working capital. Since
we are not current with our periodic payments to the PBGC, all
principal on our note payable of $246,000 was recorded as a current
liability at March 31, 2017. We have maturities of our long-term
notes to third parties of $265,000 due on January 1, 2018 and
$175,000 due on August 31, 2018. We plan to renegotiate the terms
of the notes payable, seek funds to repay the notes or use a
combination of both alternatives. Previously, we have extended
notes totaling $440,000 with the lenders. We cannot provide
assurance that we will be able to repay current notes payable or
obtain extensions of maturity dates for long-term notes payable
when they mature or that we will be able to repay or otherwise
refinance the notes at their scheduled maturities.
Our
objective is to improve our working capital position through
profitable operations. We believe the capital resources available
under our factoring line of credit, cash from additional related
party loans and cash generated by improving the results of our
operations will be sufficient to fund our ongoing operations and to
support the internal growth we expect to achieve for at least the
next 12 months. However, if we do not improve the results of our
operations in future periods, we expect that additional working
capital will be required to fund our business. There is no
assurance that in the event we need additional funds that adequate
additional working capital will be available or, if available, will
be offered on acceptable terms.
We
anticipate financing growth from acquisitions of other businesses,
if any, and our longer-term internal growth through one or more of
the following sources: cash from collections of accounts
receivable; additional borrowing from related parties; issuance of
equity; use of our existing accounts receivable credit facility; or
a refinancing of our accounts receivable credit
facility.
The
following table sets forth our cash flow information for the
periods presented:
|
Three Months Ended March 31,
|
|
|
|
Net cash (used)
provided by operating activities
|
$
(4,385
)
|
$
15,435
|
Net cash used by
investing activities
|
(1,506
)
|
(1,750
)
|
Net cash used by
financing activities
|
(7,789
)
|
(19,671
)
|
Net decrease in
cash
|
$
(13,680
)
|
$
(5,986
)
|
Cash
Flows (Used) Provided by Operating Activities
Net cash used by operations during the three months ended March 31,
2017 was $4,385. Our operating cash flow is primarily affected by
the overall profitability of our contracts and sales, our ability
to invoice and collect from our clients in a timely manner, and our
ability to manage our vendor payments. We bill our clients weekly
or monthly after services are performed, depending on the contract
terms. Our cash used by operating activities in 2017 included our
net loss of $195,151 for the three months ended March 31, 2017. Our
net loss was principally offset by non-cash expenses of $42,891 and
increases in current liabilities of $109,232 and decreases in
current assets, principally accounts receivable of approximately
$39,000.
We
continue to employ sales personnel to increase commercial SME sales
and cybersecurity assessment and virtualization project sales. Due
to the lengthy lead times typically needed to generate new sales in
these areas, we do not expect to realize a return from new sales
personnel for one or more quarters. As a result, we may experience
net losses from these investments in personnel until sufficient
sales are generated. We expect to fund the cost for sales personnel
from our operating cash flows and incremental borrowings, as
needed.
Cash
Flows Used by Investing Activities
Cash
used by investing activities was $1,506 for computer hardware and
software during the three months ended March 31, 2017. We expect to
continue to invest in computer hardware and software to update our
technology to support our business.
Cash
Flows Used by Financing Activities
Cash used by financing activities was $7,789 for the three months
ended March 31, 2017 consisting of principal payments of $5,779 to
related parties and $2,010 on other notes
payable.