Note 2. Management Plans - Capital Resources
The Company reported net losses of $868,234 and $152,227 for the three months ended March 31, 2022 and 2021, respectively, and stockholders’ deficiencies of $4,816,866 and $4,097,889 at March 31, 2022 and December 31, 2021, respectively. The Company has a working capital deficit of approximately $3.85 million at March 31, 2022. Previously, this has raised substantial doubt about the entity’s ability to continue as a going concern within one year. The Company has plans to issue stock, restructure certain debt and anticipates significant growth of business. These plans, in management’s opinion, will allow the Company to meet its obligations and alleviate the substantial doubt.
The Company’s mission is to drive shareholder value by developing and bringing to market automated, cost effective, and innovative cybersecurity technologies. The Company’s strategy is to build its business by designing, developing, and marketing IT security-based products and solutions that fill technology gaps in cybersecurity.
The Company’s goal is to increase sales and generate cash flow from operations on a consistent basis. The Company’s business plans require improving the results of its operations in future periods. The Company has renegotiated the terms of certain obligations, using operational cash flow to pay down balances and extending terms, and provided financing with the issuance of new loans.
During February 2022, the Company entered into a financing arrangement with Mast Hill Fund, L.P. for $370,000. Under the terms of the Loan, amortization payments are due beginning June 15, 2022, and each month thereafter with the final payment due on February 15, 2023.
During the first quarter of 2022, the Company filed an S-1 for a public offering of $15 million of common stock and redeemable warrants, which is expected to be used for the acquisition discussed in Note 13 and working capital needs. The Company anticipates this offering to be completed during the second quarter of 2022. The completion of this offering is not a certainty. Should the offering not proceed or be delayed, or should it occur in a reduced format, the Company will scale down spending to reduce costs and to increase cash flow while continuing to grow the operations at a slower pace.
Subsequent to the quarter ended March 31, 2022, the Company entered into a financing arrangement with Talos Victory Fund, LLC. for $296,000. Under the terms of the Loan, amortization payments are due beginning August 12, 2022, and each month thereafter with the final payment due on April 12, 2023.
The Company believes the capital resources to be generated by the planned public offering noted above, the planned improvement to the Company’s results of future operations as well as cash available under its factoring line of credit and from additional related parties and third-party loans, if needed, provide sources to fund its ongoing operations and to support the internal growth of the Company.
In the event that the planned public offering is delayed, reduced in size, or does not occur, the Company’s plans may include the following:
| · | Negotiate, extend, convert debt to equity and/or restructure debt. |
| · | Immediately execute a significant downsized operating plan with the goal of providing free cash flow. |
| · | Create and execute an alternative equity transaction. |
| · | Pay down debt or offset debt with receivables and deposits |
| · | Reduce the planned expenses associated with the aggressive growth plan initiated in anticipation of the planned public offering. |
| · | Discontinue new software development activities and all related expenses except those necessary to complete sales and make most development costs variable by using contractors. |
The Company also plans to continue to evaluate alternatives which may include continuing to renegotiate the terms of other notes, seeking conversion of the notes to shares of common stock and seeking funds to repay the notes. The Company continues to evaluate repayment of our remaining notes payable based on its cash flow. These plans, in management’s opinion, will allow the Company to meet its obligations for a reasonable period of time from the date the financial statements are available to be issued.
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, 2021 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 – It is the Company’s policy to reclassify prior year amounts to conform with the current year presentation.
Fair Value of Financial Instruments - The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the immediate short-term maturity of these financial instruments. The carrying value of notes payable and convertible notes payable approximates the fair value based on rates currently available from financial institutions and various lenders.
Revenue
The Company’s total revenue recognized from contracts from customers was comprised of three major services: Managed support services, Cybersecurity projects and software and Other IT consulting services. The categories depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. There were no material unsatisfied performance obligations at March 31, 2022 or 2021 for contracts with an expected original duration of more than one year. The following table summarizes the revenue recognized by the major services:
| | Three Months Ended | |
| | March 31, | |
| | 2022 | | | 2021 | |
Managed support services | | $ | 1,089,008 | | | $ | 1,070,899 | |
Cybersecurity projects and software | | | 578,062 | | | | 702,443 | |
Other IT consulting services | | | 0 | | | | 51,000 | |
| | | | | | | | |
Total sales | | $ | 1,667,070 | | | $ | 1,824,342 | |
Managed support services
Managed support services consist of revenue primarily from our subcontracts with Peraton (which purchased Perspecta in May 2021) for services to its end clients, principally a major establishment of the U.S. Government for which we manage one of the nation’s largest physical and virtual Microsoft Windows environments.
We generate revenue primarily from these subcontracts through fixed price service and support agreements. Revenues are earned and billed weekly and are generally paid within 45 days. The revenues are recognized at time of service.
Cybersecurity projects and software
Cybersecurity projects and software revenue includes the selling of licenses of Nodeware® and third-party software, principally Webroot™ as well as performing cybersecurity assessments, testing and consulting as a CISO (Chief Information Security Officer).
| · | Nodeware® and Webroot™ software offerings consist of fees generated from the use of the respective software by our customers. Revenue is recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Substantially all customers are billed in the month of the service and is cancellable upon notice per the respective agreements. Substantially all payments are electronically billed, and the billed amounts are paid to the Company instantaneously via an online payment platform. If payments are made in advance, revenue related to the term associated with our software licenses is recognized ratably over the contractual period. |
| | |
| · | Some of our customers have the option to purchase additional subscription and support services at a stated price. These options generally do not provide a material right as they are priced at our standalone selling price. |
| | |
| · | Cybersecurity assessments and testing services are considered distinct performance obligations when sold stand alone or with other products. These contracts generally have terms of one year or less. For substantially all these contracts, revenue is recognized when the specific performance obligation is satisfied. If the contract has multiple performance obligations, the revenue is recognized when the performance obligations are satisfied. Depending on the nature of the service, the amounts recognized are based on an allocation of the transaction price to each performance obligation based on a relative standalone selling price of the products sold. |
| | |
| · | In substantially all agreements, a 50% to 75% down payment is required before work is initiated. Down payments received are deferred until revenue is earned. Upon completion of performance obligation of service, payment terms are 30 days. |
Other IT consulting services
Other IT consulting services consists of services such as project management and general IT consulting services.
| · | We generate revenue via fixed price service agreements. These are based on periodic billings of a fixed dollar amount for recurring services of a similar nature performed according to the contractual arrangements with clients. The revenues are recognized at time of service. |
Based on historical experience, the Company believes that collection is reasonably assured.
During the three months ended March 31, 2022, sales to one client, including sales under subcontracts for services to several entities, accounted for 65.3% of total sales (58.7% in 2021) and 22.6% of accounts receivable at March 31, 2022 (15.6% at December 31, 2021).
Capitalization of Software for Resale - The Company capitalizes the software development costs for software to be sold, leased, or otherwise marketed. Capitalization begins upon the establishment of technological feasibility of a new product or enhancements to an existing product, which is generally the completion of a working prototype that has been certified as having no critical bugs and is a release candidate. Costs incurred after the enhancement has reached technological feasibility and before it is released in the market are capitalized and are primarily labor costs related to coding and testing. Amortization begins once the software is ready for its intended use, generally based on the pattern in which the economic benefits will be consumed. Costs associated with major upgrade releases begin amortization in the month after release. The amortization period is three years. See Note 5 for further disclosure regarding capitalization of software for resale.
Leases - At contract inception, the Company determines whether the arrangement is or contains a lease and determines the lease classification. The lease term is determined based on the non-cancellable term of the lease adjusted to the extent optional renewal terms and termination rights are reasonably certain. Lease expense is recognized evenly over the lease term. Variable lease payments are recognized as period costs. The present value of remaining lease payments is recognized as a liability on the balance sheet with a corresponding right-of-use asset adjusted for prepaid or accrued lease payments. The Company uses its incremental borrowing rate for the discount rate, unless the interest rate implicit in the lease contract is readily determinable. The Company has adopted the practical expedients to not separate non-lease components from lease components and to not present short-term leases on the balance sheet. See Note 11 for further disclosure regarding lease accounting.
Note 4. Sale of Certain Accounts Receivable
The Company has available a financing line with a financial institution (the Purchaser), which enables the Company to sell accounts receivable to the Purchaser with full recourse against the Company. Pursuant to the provisions of FASB ASC 860, the Company reflects the transactions as a sale of assets and establishes an accounts receivable from the Purchaser for the retained amount less the costs and fees of the transaction and less any anticipated future loss in the value of the retained asset.
The retained amount is 10% of the total accounts receivable invoice sold to the Purchaser. The fee is charged at prime plus 3.6% (effective rate of 7.1% at March 31, 2022) 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, 2022, the Company sold approximately $974,000 ($667,000 – March 31, 2021) of its accounts receivable to the Purchaser. As of March 31, 2022, approximately $421,000 ($148,000 - December 31, 2021) of these receivables remained outstanding. Additionally, as of March 31, 2022, the Company had $9,000 available under the financing line with the Purchaser ($66,000 at December 31, 2021). After deducting estimated fees, allowance for bad debts and advances from the Purchaser, the net receivable from the Purchaser amounted to $38,000 at March 31, 2022 ($15,000 at December 31, 2021), 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 $10,111 for the three months ended March 31, 2022 ($5,693 – March 31, 2021). These financing line fees are classified on the statements of operations as interest expense.
Note 5. Capitalization of Software for Resale
As of March 31, 2022, there was $730,952 of costs capitalized ($678,973 as of December 31, 2021) and $314,725 of accumulated amortization ($261,323 as of December 31, 2021). During the three months ended March 31, 2022, there was $53,402 of amortization expense recorded ($34,950 in 2021). Costs incurred prior to reaching technological feasibility are expensed as incurred. During the three months ended March 31, 2022, there was approximately $7,800 of labor amounts expensed related to these development costs ($40,800 in 2021).
Note 6. Deferred Revenue and Performance Obligations
Deferred Revenue
Deferred revenue, which is a contract liability, consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s contracts with customers and is recognized as the revenue recognition criteria are met.
Revenue recognized during the three months ended March 31, 2022 and 2021, that was included in the deferred revenue balances at the beginning of the respective periods, was approximately $178,600 and $153,500, respectively.
Transaction Price Allocated to the Remaining Performance Obligations
Transaction price allocated to the remaining performance obligations represents all future, non-cancelable contracted revenue that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancelable amounts that will be invoiced and recognized as revenue in future periods.
As of March 31, 2022, total remaining non-cancelable performance obligations under the Company’s contracts with customers was approximately $708,000. The Company expects to recognize all of this revenue over the next 12 months.
Note 7. Debt Obligations
During the three months ended March 31, 2022, the Company entered into a financing arrangement (the “Second Mast Hill Loan”) with Mast Hill Fund, L.P. (the “Lender”), a Delaware limited partnership. In exchange for a promissory note, Lender agreed to lend the Company $370,000, which bears interest at a rate of eight percent (8%) per annum, less $37,000 original issue discount. Under the terms of the Second Mast Hill Loan, amortization payments are due beginning June 15, 2022, and each month thereafter with the final payment due on February 15, 2023. As additional consideration for the Second Mast Hill Loan), the Company issued the “Lender” a 5-year warrant to purchase 925,000 shares of Company common stock at a fixed price of $0.16 per share, subject to price adjustments for certain actions, including dilutive issuances. The Company has granted the Lender customary “piggy-back” registration rights with respect to the shares issuable upon conversion of the promissory note and exercise of the warrant. No material relationship exists between the Company or its affiliates and Lender, other than in respect of the Loan. The Company evaluated the terms of the warrant under ASC 480 and ASC 815 and determined that they were to be treated as equity instruments. The value of the warrant (calculated using the Black-Scholes option pricing model to determine the estimated fair value of the warrant) of approximately $131,600 will be amortized to interest expense over the life of the Promissory Note and is recorded as a discount to the promissory note.
On March 31, 2022, the Company and Donald W. Reeve, a director of the company, entered into two note modification agreements with respect to the Promissory Note originally dated December 30, 2020 and the Promissory Note originally dated May 25, 2021 (“2021 Note”). The Modification agreements each extended the due dates from March 31, 2022 to June 1, 2022.
Note 8. 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 net loss per share for the three months ended:
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
| Numerator for basic and diluted net loss per share: | | | | | | |
| Net loss | | $ | (868,234 | ) | | $ | (152,227 | ) |
| Basic and diluted net loss per share | | $ | (0.03 | ) | | $ | (0.01 | ) |
| | | | | | | | |
| Weighted average common shares outstanding | | | | | | | | |
| Basic and diluted shares | | | 32,700,883 | | | | 29,061,883 | |
| | | | | | | | |
| Anti-dilutive shares excluded from net loss per share calculation | | | 23,666,163 | | | | 22,703,772 | |
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 9. Stock Option Plans and Agreements
At the annual meeting of stockholders of the Company held on January 26, 2022; the Company’s stockholders voted to approve the Company’s 2021 Equity Incentive Plan (“2021 Plan”). The maximum number of shares of Common Stock available for grant and issuance under the 2021 Plan will be (a) 4,500,000, plus (b) any shares of Common Stock that are subject to options granted under the Prior Plans that expire, are forfeited or canceled or terminate for any other reason without the issuance of shares under the Prior Plans on or after January 26, 2022, plus (c) any shares of Common Stock that are subject to options granted under the Prior Plans that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any option under the Prior Plans on or after January 26, 2022.
The Company has approved stock options plans and agreements covering up to an aggregate of 16,294,500 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. 10,000 options were granted for the three months ended March 31, 2022. 385,000 options were granted for the three months ended March 31, 2021. The following assumptions were used for the three months ended March 31, 2022.
Risk-free interest rate | | | 1.26 | % |
Expected dividend yield | | | 0 | % |
Expected stock price volatility | | | 130 | % |
Expected life of options (years) | | | 2.75 | |
The Company recorded expense for options issued to employees and independent service providers of $923 and $28,248 for the three months ended March 31, 2022 and 2021, respectively.
35,000 options vested during the three months ended March 31, 2022.
The Company issued 750,000 performance-based stock options during 2021 at $0.245 per share to an executive of the Company. Certain revenue targets must be made to grant the options in three tranches of 250,000 shares each. The unrecognized compensation expense for these options is approximately $135,800 at March 31, 2022.
A summary of all stock option activity for the three months ended March 31, 2022 follows:
| | Number of | | | Weighted | | | Remaining | | Aggregate | |
| | Options | | | Average | | | Contractual | | Intrinsic | |
| | Outstanding | | | Exercise Price | | | Term | | Value | |
Outstanding at December 31, 2021 | | | 10,755,000 | | | $ | 0.08 | | | | | | |
Granted | | | 10,000 | | | | 0.13 | | | | | | |
Expired | | | (60,000 | ) | | | 0.12 | | | | | | |
Outstanding at March 31, 2022 | | | 10,705,000 | | | $ | 0.08 | | | 3.1 years | | $ | 973,100 | |
| | | | | | | | | | | | | | |
At March 31, 2022- vested or expected to vest | | | 9,955,000 | | | $ | 0.07 | | | 3.0 years | | $ | 973,100 | |
Exercisable | | | 9,955,000 | | | $ | 0.07 | | | 3.0 years | | $ | 973,100 | |
Note 10. Lease
Beginning on August 1, 2016, the Company leases its headquarters facility under an operating lease agreement that expires on June 30, 2022. Rent expense is $80,000 annually during the first year of the lease term and increases by 1.5% annually thereafter.
Supplemental balance sheet information related to the lease on March 31, 2022 and December 31, 2021 is as follows:
| | | | March 31, | | | December 31, | |
Description | | Classification | | 2022 | | | 2021 | |
Right of Use Asset – Lease, net | | Other assets (non-current) | | $ | 20,903 | | | $ | 41,490 | |
| | | | | | | | | | |
Operating Lease liability – Short-term | | Accrued liabilities | | | 21,332 | | | | 42,347 | |
Operating Lease liability – Long-term | | Other long-term liabilities | | | 0 | | | | 0 | |
Total operating lease liability | | | | $ | 21,332 | | | $ | 42,347 | |
Discount rate – operating lease | 6.0% |
A new lease agreement at the existing headquarters location will commence on June 1, 2022. The term of the agreement is for a period of 84 months. The first year’s rent will be $118,487 and will increase by 2% annually thereafter.
Note 11. Related Party Accrued Interest Payable
Included in accrued interest payable is amounts due to related parties of approximately $127,000, at March 31, 2022 ($107,000 at December 31, 2021). An additional $119,184 of accrued interest to related parties is due to be paid after March 31,2023
Note 12. Stock Purchase Agreement
On January 31, 2022, the Company entered into a Stock Purchase Agreement (the “Agreement”), by and among the Company; the David A. Nelson, Jr. Living Trust (“Seller”); David A. Nelson, Jr. (the “Beneficiary” and, together with Seller, the “Seller Parties”); and Pratum, Inc., an Iowa corporation (the “Pratum”) and security services firm that helps clients solve challenges and find the right balance between information security, IT support, and compliance. Pratum is based in Ankeny, Iowa.
Pursuant to the Agreement, the Company agreed to acquire all of the issued and outstanding equity securities of Pratum from the Seller Parties (the “Acquisition”) for an aggregate purchase price of $8,500,000 (the “Acquisition Consideration”), subject to customary purchase price adjustments for, among other things, indebtedness of Pratum as of the closing. $8,000,000 of the Acquisition Consideration will be paid to the Seller Parties at closing and $500,000 of the Acquisition Consideration will be deposited at closing with an escrow agent to be held in escrow for a period of six months. The escrow amount may be used to account for indemnification claims and any post-closing adjustment of the Acquisition Consideration.
The Agreement contains customary representations, warranties and covenants by each of the parties, and contains indemnification provisions under which the parties have agreed, subject to certain limitations, to indemnify each other against losses resulting from certain liabilities.
The closing of the Acquisition is subject to customary conditions, including, among others, (i) receipt of any necessary regulatory approvals and licenses, (ii) the absence of any litigation or governmental order that restrains, prevents or materially alters the transactions contemplated by the Agreement, (iii) the accuracy of the parties’ representations and warranties contained in the Agreement remaining true as of closing (subject to certain qualifications), (iv) Pratum’s and the Seller Parties’ material compliance with the covenants and agreements in the Agreement, and (v) the Buyer obtaining sufficient debt or equity financing to fund the Acquisition Consideration. The Company expects the transaction to close in the second quarter of 2022.
The Agreement also contains customary pre-closing covenants, including the obligation of Pratum and the Seller Parties to cause Pratum to conduct its business in all material respects in the ordinary course and to refrain from taking certain specified actions without the written consent of the Company.
The Agreement may be terminated under certain circumstances, including, among others if the Acquisition does not close by May 15, 2022. Additionally, either party may terminate the Agreement upon a breach by the other party of any representation, warranty, covenant or agreement made by such breaching party in the Agreement, such that the conditions related to the representations, warranties, covenants and agreements made by such breaching party would not be satisfied and such breach or condition is not curable or, if curable, is not cured 30 days after written notice of such breach.
Note 13. Subsequent Events
On April 12, 2022, Infinite Group, Inc. (the “Company”), as borrower, entered into a financing arrangement (the “Talos Loan”) with Talos Victory Fund, LLC (the “Talos”), a Delaware limited partnership. In exchange for a promissory note, Talos agreed to lend the Company $296,000, which bears interest at a rate of eight percent (8%) per annum, less $29,600 original issue discount. Under the terms of the Talos Loan, amortization payments are due beginning August 12, 2022, and each month thereafter with the final payment due on April 12, 2023. Additionally, in the event of a default under the Talos Loan or if the Company elects to pre-pay the Talos Loan, the Talos has the right to convert any portion or all of the outstanding and unpaid principal and interest into fully paid and non-assessable shares of the Company’s common stock at a conversion price of $0.10 per share. The conversion price is subject to adjustment under certain circumstances, including issuances of Company common stock below the conversion price. The Company is not required to issue additional shares to Talos in the event an adjustment to the conversion price occurs. Except for the option to convert the note in the event of a pre-payment, there is no pre-payment penalty associated with the promissory note. The Talos Loan is subject to customary events of default, including cross-defaults on the Talos Loan agreements and on other indebtedness of the Company, violations of securities laws (including Regulation FD), and failure to issue shares upon a conversion of the note. Amounts due under the Talos Loan are subject to a 15% penalty in the event of a default. As additional consideration for the financing, the Company issued Talos a 5-year warrant to purchase 740,000 shares of Company common stock at a fixed price of $0.16 per share, subject to price adjustments for certain actions, including dilutive issuances, representing 40% warrant coverage on the principal amount of the Talos Loan. The Company has granted the Talos customary “piggy-back” registration rights with respect to the shares issuable upon conversion of the promissory note and exercise of the warrant. No material relationship exists between the Company or its affiliates and Talos.
J.H. Darbie & Co., Inc. (“Finder”), a registered broker-dealer, acted as a finder in connection with the Talos Loan, and was paid a cash fee of $11,320 (4.25% of the gross proceeds of the Talos Loan) and issued a 5-year warrant to purchase 97,125 shares of Company common stock at a fixed price of $0.192 per share (120% of the exercise price of the warrant issued in connection with the Talos Loan), subject to price adjustments for certain actions, including dilutive issuances, representing 7% warrant coverage on the gross proceeds of the Talos Loan. The Company has granted the Finder customary “piggy-back” registration rights with respect to the shares issuable upon exercise of the warrant.
The Company entered into a new lease agreement at the existing headquarters location which will commence on June 1, 2022. The term of the agreement is for a period of 84 months. The first year’s rent will be $118,487 and will increase by 2% annually thereafter.
On April 29, 2022, Mast Hill Fund, LP elected to exercise in full its warrant to purchase 1,400,000 shares of common stock on a cashless basis per the terms of the warrant agreement dated November 3, 2021. As a result of the cashless exercise, an aggregate of 860,241 shares were issued to Mast Hill Fund, LP.
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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 undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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.
Overview
Impact of COVID-19
During the first three months of 2022, our managed support services, cybersecurity projects and software license revenues were negatively impacted by the impact of the COVID-19 pandemic due primarily to our customers’ operational priorities. We are also continuing to adapt our operations to meet the challenges of this uncertain and rapidly evolving situation, including remote working arrangements for our employees, limiting non-essential business travel, and utilizing virtual sales and marketing events. Our sales and marketing expenses increased during the first three months of 2022. We expect these expenses to continue to grow, but we expect these expenses will be lower compared to prior year periods pre-COVID-19 pandemic on travel and in-person marketing events. We will continue to actively monitor the nature and extent of the impact to our business, operating results, and financial condition.
Our Business
Headquartered in Pittsford, New York, Infinite Group is a developer of cybersecurity software and related cybersecurity consulting, advisory, and managed information security services. We principally sell our software and services through indirect channels such as Managed Service Providers (“MSPs”), Managed Security Services Providers (“MSSPs”), agents and distributors and government contractors, whom we refer to collectively as our channel partners. We also sell directly to end customers.
We believe our ability to succeed depends on how successful we are in differentiating ourselves in the cybersecurity market at a time when competition and consolidation in these markets are on the rise. Our strategy to differentiate our cybersecurity software and services from our competitors is to combine customized software and professional services, and grow our business by designing, developing, and marketing cybersecurity software-as-a-service (“SaaS”) solutions that can be deployed in myriad environments. Software and services are initially developed in our wholly-owned subsidiary, IGI CyberLabs (“CyberLabs”), to fill technology gaps we identify, and then we bring these software and services to market through our existing channel partner and customer relationships. Our software and services are designed to simplify and manage the security needs of our customers and channel partners in a variety of environments. We focus on the small and medium-sized enterprises market. We support our channel partners by providing recurring-revenue business models for both services and through our cybersecurity SaaS solutions. Products may be sold as standalone solutions or integrated into existing environments to further automate the management of cybersecurity and related IT functions.
As part of these software and service offerings we:
| · | Internally developed and brought to market Nodeware®, a patented SaaS solution that automates network asset identification, and cybersecurity vulnerability management and monitoring. Nodeware simply and affordably enhances security by proactively identifying, monitoring, and addressing potential cybersecurity vulnerabilities on networks, which creates enhanced security to safeguard against hackers and ransomware. Nodeware provides an economical solution for small and medium-sized enterprises as compared to more costly solutions focused on enterprise-sized customers and is designed to accommodate the varying network needs of our end customers’ organizations and networks. Nodeware’s flexibility allows it to span from a single network to several subnetworks, as well as accommodating larger, more complex organizations with more advanced network needs. Nodeware is sold as a SaaS solution and continuously releases enhancements, updates, and upgrades to stay current with security needs and changes in the market. Nodeware is also designed to be integrated into other technology platforms. We primarily sell Nodeware through our channel partners, with a small percentage being sold directly to end customers. We intend to continue to develop our intellectual property to serve as the core to our proprietary software and services. In addition to our proprietary software and services we also act as a master distributor for other cybersecurity software, principally Webroot a cloud-based endpoint security platform solution, where we market to and provide support for over 225 small channel partners across North America; |
| · | Provide cybersecurity consulting and advisory services to channel partners and direct customers across different markets, including banking, manufacturing, supply chain, and technology. As part of our consulting and advisory services, we are contracted to support existing information technology and executive teams at both the customer and channel partner level, and provide security leadership and guidance. We validate overall corporate and infrastructure cybersecurity with the goal of maintaining and securing the integrity of confidential client information, preserving the continuity of services, and minimizing potential data damage from threats and incidents; and |
| | |
| · | Provide managed support services related to information security, principally as a subcontractor for Peraton, a large information technology provider and U.S. government contractor, by providing in-depth troubleshooting, backend analysis, and technical and security support, commonly referred to as Level 2 support, for mission critical technical infrastructure from the server level to the end user interface application in a critical government environment. |
Business Strategy
We have a threefold business strategy composed of:
| · | providing differentiated cybersecurity software and services to small to mid-sized enterprises who lack the internal resources to focus on cybersecurity related matters by combining customized software and professional services; |
| | |
| · | designing, developing, and marketing cybersecurity SaaS solutions, including our Nodeware solution; and |
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| · | identifying other cybersecurity companies to acquire as part of a roll-up strategy. |
We believe our ability to succeed depends on how successful we are in differentiating ourselves in the market at a time when competition and consolidation in these markets is on the rise. Our software and services are designed to simplify the security needs of our customers and channel partners, with a focus on the small to mid-sized enterprises, and we believe our ability to integrate our product and service offerings differentiates them from our competitors. In addition, we support our channel partners by providing recurring-revenue business models for both services and our cybersecurity SaaS solutions.
Cybersecurity is a constantly evolving field, so we devote significant efforts in developing proprietary software and services to meet our customer and channel partners’ evolving needs. These efforts have resulted in the development of our patented and patent-pending Nodeware solution. We expect to continue to make significant investments in developing other intellectual property to serve as the core to other proprietary software and services.
Historically, a significant portion of our revenues has been derived through our managed support services, however, we believe our cybersecurity SaaS solutions, including Nodeware, present an opportunity for significant growth. We believe that Nodeware’s ability to be deployed in an underserved market segment, across a wide variety of networks and the ability to integrate it into existing and new cybersecurity software and services, will allow us to significantly grow this segment of our business. Similarly, we believe Nodeware’s SaaS recurring revenue business model and its flexibility as a standalone or integrated solution makes it an attractive part of our channel partners’ portfolio of products. Accordingly, in 2021 we made significant investments in Nodeware sales and marketing to grow our team of cybersecurity sales and technical consultants. As a result, we believe we are seeing the pipeline growth expected from focused efforts, which we anticipate will convert to revenue growth in 2022 and beyond.
We believe the market for cybersecurity services for small and medium-sized enterprises is fragmented and does not currently meet the needs of this customer base. The market is fragmented and is beginning to consolidate, which is why we are seeking to strategically acquire other cybersecurity technology and services companies.
The following sections define specific components of our business strategy.
Nodeware®
Nodeware is a patented SaaS solution that automates network asset identification, and cybersecurity vulnerability management and monitoring. Nodeware simply and affordably enhances security by proactively identifying, monitoring, and addressing potential cybersecurity vulnerabilities on networks, which creates enhanced security to safeguard against hackers and ransomware. Nodeware’s flexibility allows it to span from a single network to several subnetworks, as well as accommodating larger, more complex organizations with more advanced network needs. Nodeware assesses vulnerabilities in a computer network using proprietary scanning technology to capture a comprehensive view of the security exposure of a network infrastructure. Users receive alerts and view network information through a proprietary, web enabled dashboard. Continuous and automated internal scanning and external on demand scanning are components of this offering. As described below, Nodeware has one patent and one patent pending. We intend to develop other intellectual property that serve as the core to other proprietary software and services to market through a channel of domestic and international partners and distributors.
Nodeware provides an economical solution for small and medium-sized enterprises as compared to costly solutions focused on enterprise sized customers, and is designed to accommodate the varying network needs of our end customers’ organizations and networks. Nodeware is sold as a SaaS solution and continuously releases enhancements, updates, and upgrades to stay current with security needs and changes in the market. Nodeware is also designed to be integrated into other technology platforms. We primarily sell Nodeware through our channel partners, with a small percentage being sold directly to end customers. Nodeware creates an opportunity for our channel partners to sell and use a product that provides greater visibility into the network security of an end customer. Since 2018, we have continued to expand our portfolio of channel partners, which now includes Telarus, TD SYNNEX, Staples, and a growing list of MSPs, MSSPs, agents and distributors and government contractors.’
In June 2021, we created IGI CyberLabs, LLC, a wholly owned subsidiary to support our Nodeware solution and continued software development. Cyberlabs overarching mission is to drive sales of our Nodeware Cloud security platform, which will drive monthly and annualized recurring revenue. CyberLabs will also drive product and platform enhancements in Nodeware and continue to enhance our rapid scale Go-to-Market capabilities. Additionally, CyberLabs is chartered with development of cloud and SaaS cybersecurity related products that will be brought to market through our growing channel relationships.
Intellectual Property
We believe that our intellectual property is an asset that will contribute to the growth and profitability of our business. We rely on a combination of patented, patent-pending and confidentiality procedures, trademarks and contractual provisions to establish and protect our intellectual property rights in the United States and abroad. We intend to rely on both registration and common law protection for our trademarks.
In May 2016, we filed a provisional patent application for our proprietary product, Nodeware, and launched it commercially in November 2016. In May 2017, we filed a utility patent application for Nodeware: U.S. Patent No. 10,999,307, was issued on May 4, 2021, for NETWORK ASSESSMENT SYSTEMS AND METHODS THEREOF U.S. Patent Application Serial No. 15/600,297, filed May 19, 2017, claiming priority of U.S. Provisional Patent Application Serial No. 62/338,904, filed May 19, 2016. The patent will remain in effect for four years from the date of issue and may be extended for up to twenty years from the filing date. Therefore, the expiration date of the subject patent, assuming all milestones to extend are met, is July 19, 2037.
In December 2019, we filed a second provisional patent application and in December 2020 we filed the subsequent action on the patent on Nodeware. In 2020 and 2021, we created updates and improvements to the platform in response to COVID-19 needs and impact such as a downloadable Windows executable version along with Windows, Mac, and Linux Agents that could be downloaded to a remote PC or server. A number of enhancements related to data management, threat intelligence, and user functionality were part of these updates.
The efforts we have taken to protect our intellectual property may not be sufficient or effective. As a result of this uncertainty and overall significance to the financial statements, these costs have been expensed.
The U.S. patent system permits the filing of provisional and non-provisional patent applications. A non-provisional patent application is examined by the United States Patent and Trademark Office and can mature into a patent once that office determines that the claimed invention meets the standards for patentability.
Our current patent and trademark portfolio consists of a patent for the Nodeware solution and process for scanning for vulnerabilities and a pending patent covering the methodologies associated with identifying and cataloging the assets on or across any physical or cloud network, together with a registered trademark for the “Nodeware” name and other trademarks and tradenames associated with our company and products. We intend to continue to work to enhance our intellectual property position on the Nodeware solution and in other appropriate cybersecurity technology we generate.
Research and Development
Our research and development efforts are focused on ensuring our software and services continually adapt to ever-evolving cybersecurity threats, developing new and improved functionality to meet our customers’ needs, and to enable robust and efficient integration with other industry solutions. Our research and development team is responsible for the design, development, testing and quality of our software, including Nodeware, and works to ensure that our software is available, reliable and stable.
We believe the timely development of new features and the enhancement of our existing solution(s) that address continuously evolving cybersecurity risks is essential to maintaining our competitive position. Our research and development team works closely with our channel partners, customers, and internal teams to collect user feedback to enhance our development process to continually incorporate suggestions and feedback. We also believe our research and development teams’ focus on developing new products will help us expand our business and improve our market position. We invest substantial resources in research and development to ensure that the functionalities of Nodeware can be robustly and efficiently integrated with other industry solutions because we believe this is key to our ability to expand the presence of Nodeware and our other software and services in the cybersecurity market. We utilize an agile development process to deliver numerous releases, fixes and feature updates on a regular basis and capitalize qualifying costs of developing larger scale projects. Our research and development team is primarily based in Pittsford, New York, and we maintain additional research and development capabilities in certain other locations who supplement our core team.
In June 2021, we created IGI CyberLabs, LLC, a wholly owned subsidiary, to support our Nodeware solution and continued software development. CyberLabs’s overarching mission is to drive sales of our Nodeware solution, which we believe will drive monthly and annualized recurring revenue. CyberLabs will also drive product and platform enhancements in Nodeware and new cloud and SaaS cybersecurity related products that will be brought to market through our growing direct customer and channel partner relationships. We believe a continued focus on intellectual property development creates differentiation in the market for cybersecurity.
Costs incurred prior to reaching technological feasibility are expensed as incurred, and subsequently they are capitalized until product launch.
Cybersecurity Services
In addition to Nodeware, we provide cybersecurity consulting services that include incident response, security awareness training, cybersecurity risk management, IT governance and compliance, security assessment services, (CISOTaaS ™) and PenLogic™ penetration testing services offerings to channel partners and direct customers across different markets, including banking, manufacturing, supply chain, and technology, in North America. Our cybersecurity consulting projects leverage different technology platforms and processes, such as Nodeware, to create documentation and processes that a customer can use to continually improve overall IT governance and corporate security. We validate overall network and infrastructure security with the goal of maintaining the integrity of confidential client information, preserving the continuity of services, and minimizing potential data damage from cybersecurity threats and incidents. We continue to enhance our cybersecurity services based on feedback from customers and changes in the market.
Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The following table compares our statements of operations data for the three months ended March 31, 2022 and 2021. The trends suggested by this table are not indicative of future operating results.
| | Three Months Ended March 31, | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 2022 vs 2021 | | | | |
| | | | | As a % of | | | | | | As a % of | | | Amount of | | | % Increase | |
| | 2022 | | | Sales | | | 2021 | | | Sales | | | Change | | | (Decrease) | |
| | | | | | | | | | | | | | | | | | |
Sales | | $ | 1,667,070 | | | | 100.0 | % | | $ | 1,824,342 | | | | 100.0 | % | | $ | (157,272 | ) | | | (8.6 | )% |
Cost of sales | | | 1,121,240 | | | | 67.3 | | | | 1,072,916 | | | | 58.8 | | | | 48,324 | | | | 4.5 | |
Gross profit | | | 545,830 | | | | 32.7 | | | | 751,426 | | | | 41.2 | | | | (205,596 | ) | | | (27.4 | ) |
General and administrative | | | 612,818 | | | | 36.8 | | | | 464,392 | | | | 25.5 | | | | 148,426 | | | | 32.0 | |
Selling | | | 638,790 | | | | 38.3 | | | | 387,725 | | | | 21.3 | | | | 251,065 | | | | 64.8 | |
Total cost and expenses | | | 1,251,608 | | | | 75.1 | | | | 852,117 | | | | 46.7 | | | | 399,491 | | | | 46.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating loss | | | (705,778 | ) | | | (42.3 | ) | | | (100,691 | ) | | | (5.5 | ) | | | (605,087 | ) | | | (600.9 | ) |
Interest expense (net) | | | (162,456 | ) | | | (9.7 | ) | | | (51,536 | ) | | | (2.8 | ) | | | (110,920 | ) | | | (215.2 | ) |
Net loss | | $ | (868,234 | ) | | | (52.1 | )% | | $ | (152,227 | ) | | | (8.3 | )% | | $ | (716,007 | ) | | | 470.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss per share - basic and diluted | | $ | (0.03 | ) | | | | | | $ | (0.01 | ) | | | | | | $ | (0.02 | ) | | | | |
Sales
Our managed support service sales increased by 1.7% from $1,070,899 during the three months ended March 31, 2021 to $1,089,008 during the corresponding period of 2022. Managed support service sales comprised approximately 65% of our sales in three months ended March 31, 2022 and approximately 59% for the same period in 2021. The increase in our managed support service sales during the three months ended March 31, 2022 was due to additional projects requested by Perspecta offset by the continued decline of virtualization subcontract projects assigned to us by VMWare due to projects coming to a conclusion in 2021. The decline in virtualization subcontract projects has been a trend occurring since 2015 that we expect to continue for the duration of 2022.
Our cybersecurity projects and software sales, primarily to SMEs, decreased by 17.7% to $578,062 during the three months ended March 31, 2022 from $702,443 during the corresponding period of 2021. The decrease in cybersecurity projects and software sales during the three ended March 31, 2022 was primarily attributable to the timing of the completion of projects for revenue recognition as well as the loss of CISO TaaS customer. We expect the revenue to grow due to increased projects in the sales pipeline and completion of projects in the coming months as well as onboarding new CISO TaaS customers in the sales pipeline.
Other IT consulting services sales declined during the three months ended March 31, 2022, decreasing by $51,000. The decline in other IT consulting services sales was due to the termination of a consulting contract, which occurred during the second quarter of 2021.
Cost of Sales and Gross Profit
Cost of sales principally represents compensation expense for our employees. Cost of sales increased by 4.5% to $1,121,240 during the three months ended March 31, 2022 from $1,072,916 during the corresponding period of 2021. The increase in cost of sales during the three months ended March 31, 2022 from 2021 was due to an increase in payroll of salaried employees to support our cybersecurity projects and software team, partially offset by a reduction in headcount of hourly employees in supporting our managed support services.
Our gross profit decreased by $205,596 from the three months ended March 31, 2021 to 2022. The decrease was primarily due to the decrease in sales previously referenced above.
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 of $612,818 for the three months ended March 31, 2022 increased 32% from $464,392 for the same quarter of 2021. These were primarily due to the increases to professional fees for legal, accounting and consulting services of approximately $145,000 related to our public securities offering and Pratum acquisition, for the comparative three month periods.
Selling Expenses
Selling expenses of $638,790 for the three months ended March 31, 2022 increased 64.8% from $387,725 for the same quarter of 2021. The increase in selling expenses is due to the hiring of additional salespeople during 2021 to sell our cybersecurity services and software, and investments in consultants and partners to identify and sell more of our services and software. The increase in selling expenses from the hiring of new personnel was approximately $155,000 higher as compared to 2021, increased marketing expenses, primarily for Nodeware, of approximately $73,000, and spending on consulting partners, which was approximately $36,000 higher.
Operating Income (Loss)
For the three months ended March 31, 2022 and March 31, 2021, operating loss was $705,778 and $100,691, respectively, for an increase in the loss by $605,087. The increase in our operating loss from the previous year is principally attributable to the growth of our sales team and the associated costs, investment is the growth of our business as well as professional fees incurred for the three months ended March 31, 2022 as compared to 2021.
Interest Expense
Net interest expense of $162,456 for the three months ended March 31, 2022 increased 215% from an expense of $51,536 for the same quarter of 2021. The increase in interest expense is primarily attributable to the bridge loans from the fourth quarter of 2021 and first quarter of 2022.
Net Loss
For the three months ended March 31, 2022 and March 31, 2021, net loss was $868,234 and $152,227, respectively, an increase in the loss by $716,007. The increase is attributable primarily to the selling, general and administrative, and interest items discussed above for the three months ended March 31, 2022 as compared to 2021.
Liquidity and Capital Resources
At March 31, 2022, we had cash of $104,845 available for working capital needs and planned capital asset expenditures. At March 31, 2022, we had a working capital deficit of approximately $3,751,000 and a current ratio of 0.21.
During 2022, 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, 2022, based on eligible accounts receivable, we had $9,000 available under this arrangement. We expect sales during 2022 to generate additional accounts receivable eligible for factoring, that will support our operations. We pay fees based on the length of time that the invoice remains unpaid.
At March 31, 2022, we had current notes payable of $229,000 to related parties. $100,000 of this debt is due on June 1, 2022. The remaining $129,000 are in the form of demand notes with an interest rate of 6%.
At March 31, 2022, we have current notes payable of approximately $595,000 to third parties, which includes convertible notes payable of approximately $150,000. Also included is $12,500 in principal amount of a note payable due on June 30, 2016 but not paid by then. 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.
Also included in the current notes payable are two Bridge Loans with Mast Hill Fund, L.P, which each bear interest at a rate of 8%. We plan to use the proceeds from the Bridge Loans to substantially enhance our marketing of CyberLab’s Nodeware solution, in order to significantly increase its growth. A total of approximately $475,000 was recorded as deferred note costs associated with these transactions. At March 31, 2022, the unamortized balance of the deferred note costs was approximately $336,000. See Note 6 of the 2021 Audited Financial Statements for more information regarding the first Bridge Loan. See our Form 8-K from February 15, 2022 for more information regarding the second Bridge Loan. The gross notes payable amount at March 31, 2022 is approximately $768,000.
We entered into unsecured lines of credit financing agreements (the “LOC Agreements”) with two related parties in previous years. The LOC Agreements provide for working capital of up to $100,000 through July 31, 2022 and $75,000 through January 2, 2023. At March 31,2022, we had approximately $15,000 of availability under the LOC Agreements.
During the 2021, we issued demand notes to two board members for $55,000 in total. The demand notes bear a 6% interest rate. These are outstanding as of March 31, 2022.
We have $765,000 of current maturities of long-term obligations to third parties. This is comprised of various notes including long-term notes to third parties of $265,000 due on January 1, 2018 (plus accrued interest of approximately $214,200), and approximately $500,000 due on December 31, 2021 which have not been renewed or amended.
At March 31, 2022, we have $290,000 of current maturities of long-term obligations to related parties. $100,000 is due on June 1, 2022. $90,000 is due on July 1, 2022. $100,000 is due on January 1, 2023.
We plan to renegotiate the terms of the various notes payable, seek funds to repay the notes or use a combination of both alternatives. We cannot provide assurance that we will be able to repay current notes payable or obtain extensions of maturity dates for long-term notes payable when they mature or that we will be able to repay or otherwise refinance the notes at their scheduled maturities.
We have a note payable agreement for up to $500,000 with a related party. The note has an interest rate of 7.5% and is due on August 31, 2026. The balance is $499,000 at March 31, 2022.
During the first quarter of 2022, the Company filed an S-1 for a public offering of $15 million of common stock and redeemable warrants, which is expected to be used for the acquisition discussed in Note 13 and working capital needs. The Company anticipates this offering to close during the second quarter of 2022. The completion of this offering is not a certainty. Should the offering not proceed or be delayed, or should it occur in a reduced format, the Company will scale down spending to reduce costs and to increase cash flow while continuing to grow the operations at a slower pace.
The following table sets forth our cash flow information for the periods presented: | | | | | | |
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
Net cash provided (used) by operating activities | | $ | (208,192 | ) | | $ | 71,555 | |
Net cash used by investing activities | | | (51,979 | ) | | | (61,396 | ) |
Net cash provided by financing activities | | | 265,584 | | | | 0 | |
Net increase in cash | | $ | 5,413 | | | $ | 10,159 | |
Cash Flows Used by Operating Activities
Our operating cash flow is primarily affected by the overall profitability of our contracts, our ability to invoice and collect from our clients in a timely manner, and our ability to manage our vendor payments. We bill our clients weekly or monthly after services are performed as well as collect down payments depending on the contract terms. Our net loss of $868,234 for the three months ended March 31, 2022 was offset in part by non-cash expenses and credits of $152,896. In addition, our net loss was further offset by a decrease in accounts receivable and other assets of $39,721, an increase in accrued payroll, deferred revenue and other expenses payable of $143,596 and an increase in accounts payable of $323,829 resulting in cash used by operating activities of $208,192.
We are increasing our marketing of Nodeware to our IT channel partners who resell to their customers. We are making investments in our cyber security team for penetration testing, CISOTaaS and other services. Due to the lengthy lead times typically needed to generate these new sales, we do not expect to realize a return from our new sales and marketing personnel for a few months. As a result, we may continue to experience small operating income or operating losses from these investments in personnel until sufficient sales are generated. We expect to fund the cost for the new sales personnel from our operating cash flows, the equity raise and incremental borrowings, as needed.
Cash Flows Used by Investing Activities
In the quarters ended March 31, 2022 and 2021, we incurred capital expenditures for computer hardware as well as software development labor for the enhancements to Nodeware. The slight decrease from 2021 was primarily due to less development activities in 2022 that were capitalized. We expect to continue to invest in computer hardware and software to update our technology to support the growth of our business. We do not anticipate our continued investment to be significant.
Cash Flows Provided by Financing Activities
During the three months ended March 31, 2022, we received $315,350 from a bridge loan from the Mast Hill Fund L.P. We also paid principal of $49,766 of principal on the Mast Hill Fund L.P. bridge loan established in November 2021.
Credit Resources
We maintain an accounts receivable financing line of credit from an independent financial institution that allows us to sell selected accounts receivable invoices to the financial institution with full recourse against us in the amount of $2,000,000, including a sublimit for one major client of $1,500,000. This provides us with the cash needed to finance certain costs and expenses. At March 31, 2022, we had financing availability, based on eligible accounts receivable, of approximately $9,000 under this line. We pay fees based on the length of time that the invoice remains unpaid. We also have approximately $16,000 of available credit under various lines of credit as of March 31, 2022.
During May 2019, we originated a line of credit note payable for a $500,000 with a related party and borrowed $499,000 and have $1,000 available to borrow for working capital. This agreement matures in August 2026.
During 2017, we originated two lines of credit with related parties totaling $175,000. At December 31, 2021, we had $15,000 available under these financing agreements which mature in July 2022 and January 2023, respectively.
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 for at least the next 12 months. The funds from the equity raise will allow us to support and accelerate the internal growth of our operations and offer additional opportunities if they arise.
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: issuance of equity: cash from collections of accounts receivable; potential bridge loans, additional borrowing from related and third parties; use of our existing accounts receivable credit facility; or a refinancing of our accounts receivable credit facility.