Note 2. Management Plans - Capital Resources
The
Company reported net income of $35,036 and a net loss of $87,000
for the three months ended March 31, 2019 and 2018, respectively,
and stockholders’ deficiencies of $3,964,798 and $4,000,094
at March 31, 2019 and December 31, 2018, respectively. Current
maturities of long-term obligations were approximately $1,490,000
and $720,000 at March 31, 2019 and December 31, 2018, respectively.
Accordingly, there is substantial doubt about the Company’s
ability to continue as a going concern and this substantial doubt
has not been alleviated.
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.
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, 2018 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.
Revenue -
Effective January 1, 2018, the Company adopted
Topic 606 using the modified retrospective approach and applied the
guidance to those contracts which were not completed as of January
1, 2018. Adoption of Topic 606 did not impact the timing of revenue
recognition in the Company’s financial statements for the
current or prior periods. Accordingly, no adjustments have been
made to opening retained earnings or prior period
amounts.
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, 2019 or 2018 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,
|
|
|
|
|
$
1,228,747
|
$
1,270,182
|
Cybersecurity
projects and software
|
310,608
|
283,056
|
Other IT consulting
services
|
148,439
|
41,280
|
Total
sales
|
$
1,687,794
|
$
1,594,518
|
Managed support services
Managed
support services consist of revenue primarily from our subcontracts
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 and
testing.
●
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, revenues 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 recognized.
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, 2019, sales to one client,
including sales under subcontracts for services to several
entities, accounted for 65.0% of total sales (69.9% - 2018) and
29.5% of accounts receivable at March 31, 2019 (10.5% - December
31, 2018).
Leases -
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 new
standard requires entities to recognize a liability for their lease
obligations and a corresponding right-of-use asset, initially
measured at the present value of the lease payments. Subsequent
accounting depends on whether the agreement is deemed to be a
financing or operating lease. For operating leases, a lessee
recognizes its total lease expense as an operating expense over the
lease term. For financing leases, a lessee recognizes amortization
of the right-of-use asset as an operating expense over the lease
term separately from interest on the lease liability. The ASU
requires that assets and liabilities be presented and disclosed
separately, and the liabilities must be classified appropriately as
current and noncurrent. The ASU further requires additional
disclosure of certain qualitative and quantitative information
related to lease agreements. The ASU was effective for the Company
beginning on January 1, 2019, at which time we adopted the new
standard using the modified retrospective approach as of the date
of adoption.
Upon
adoption, we recognized a right-of-use asset of $265,825 and a
lease liability of $265,825 related to the existing office lease
that is classified as an operating lease. A summary of the impact
to the Balance Sheet on January 1, 2019 and the balances as of
March 31, 2019 is as follows:
|
|
|
|
|
Right of Use Asset
– Lease, net
|
$
0
|
$
265,825
|
$
265,825
|
$
248,612
|
Operating Lease
liability – Short-term
|
$
0
|
$
68,848
|
$
68,848
|
$
70,196
|
Operating Lease
liability – Long-term
|
$
0
|
$
196,977
|
$
196,977
|
$
178,928
|
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 9.1% at March 31, 2019) 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, 2019, the Company sold
approximately $1,082,000 ($1,526,000 - March 31, 2018) of its
accounts receivable to the Purchaser. As of March 31, 2019,
approximately $286,000 ($363,000 - December 31, 2018) of these
receivables remained outstanding. Additionally, as of March 31,
2019, the Company had approximately $94,000 available under the
financing line with the financial institution ($0 - December 31,
2018). After deducting estimated fees, allowance for bad debts and
advances from the Purchaser, the net receivable from the Purchaser
amounted to $28,600, at March 31, 2019 ($36,213 - December 31,
2018), 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 $13,782 for the three months ended March 31, 2019
($12,576 - March 31, 2018). 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 net
income (loss) per share for the three months ended:
|
Three
Months Ended March 31,
|
|
|
|
Numerator for basic
and diluted net income (loss) per share:
|
|
|
Net
income (loss)
|
$
35,036
|
$
(87,000
)
|
Denominator for
basic and diluted net income (loss) per share:
|
|
|
Weighted average
common shares outstanding
|
29,061,883
|
29,061,883
|
Basic and diluted
net income (loss) per share
|
$
.00
|
$
.00
|
|
|
|
Anti-dilutive
shares excluded from net income (loss) per share
calculation
|
28,123,143
|
28,402,990
|
Certain common shares issuable under stock options and convertible
notes payable have been omitted from the diluted net income (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. Stock Option Plans and Agreements
The
Company has approved stock options plans and agreements covering up
to an aggregate of 7,265,000 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. 50,000 options were
granted for the three months ended March 31, 2019. No options were
granted for the three months ended March 31, 2018. The following
assumptions were used for the three months ended March 31,
2019.
Risk-free interest
rate
|
1.50
%
|
Expected dividend
yield
|
0
%
|
Expected stock
price volatility
|
100
%
|
Expected life of
options
|
|
The
Company recorded expense for options issued to employees and
independent service providers of $260 and $0 for the three months
ended March 31, 2019 and 2018, respectively.
At
March 31, 2019, there was no unrecognized compensation cost related
to non-vested options. No options vested during the three months
ended March 31, 2019.
A
summary of all stock option activity for the three months ended
March 31, 2019 follows:
|
Number
of Options Outstanding
|
Weighted
Average Exercise Price
|
Remaining
Contractual Term
|
Aggregate
Intrinsic Value
|
Outstanding at
December 31, 2018
|
7,920,000
|
$
.09
|
|
|
Granted
|
50,000
|
.05
|
|
|
Forfeited
|
(938,000
)
|
.23
|
|
|
Expired
|
(65,000
)
|
.18
|
|
|
Outstanding at
March 31, 2019
|
6,967,000
|
$
.07
|
|
$
2,000
|
|
|
|
|
|
At March 31, 2019 -
vested or
|
|
|
|
|
expected to vest
and exercisable
|
6,942,000
|
$
.06
|
|
$
2,000
|
Note 7. Related Party Accounts Receivable and Accrued Interest
Payable
Accrued
Interest Payable - Included in accrued interest payable is accrued
interest payable to related parties of $157,626 at March 31, 2019
($148,703 - December 31, 2018).
Note 8. Subsequent Event
Subsequent
to March 31, 2019, the Company entered into 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 Company
borrowed $200,000 which remains outstanding. As consideration for
providing this financing, the Company granted a stock option to
purchase a total of 2,500,000 common shares at an exercise price of
$.02 or a total expense of $14,250.
************
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:
●
focus on key
security services (virtual CISO, compliance review and assessment,
incident response, penetration testing, and vulnerability
assessments) to solve and simplify security for small and medium
sized enterprises (SMEs), government agencies, and certain large
commercial enterprises. We act as the security layer to both
internal IT and
third party IT
organizations. We work with both our channel partners and direct
customers to provide these services;
●
developed and
brought to market our automated vulnerability management solution
through our OEM business, Nodeware™, which we sell through
distribution and channel partners. We are also a master distributor
for other security solutions such as Webroot, a cloud-based
endpoint security platform solution, where we market to and provide
support for over 300 reseller partners across North
America;
●
provide level 2
technical and security support across the application layer and
physical and virtual infrastructure including software-based
managed services supporting enterprise and federal government
customers through our partnership with Perspecta; 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 Office of General Services (NYS
OGS). These activities take place in our virtualization sales
organization in conjunction with support from our professional
services organization (PSO).
Business Strategy
Our
strategy is to build our business by designing, developing, and
marketing cybersecurity based services, products and solutions that
fill technology gaps in cybersecurity. We brought one patent
pending product to market and intend to bring other proprietary
products and solutions to market through a channel of domestic and
international partners and distributors. Our products and solutions
are designed to simplify the security needs in customer and partner
environments, with a focus on the mid-tier Enterprise market and
below. We enable our partners by providing recurring revenue based
business models for both recurring services and through our
automated and continuous security solutions. Products may be sold
as standalone solutions or integrated into existing environments to
further automate the management of security and related IT
functions. 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
cybersecurity business is comprised of three components: managed
security services, product development and deployment, and
integration of third-party security solutions into our security
offerings to our channel and customers. We provide cybersecurity
services and technical consulting resources to support both our
channel partners and end customers. For example, we sell our
proprietary product, Nodeware, through both our direct partners and
through other 3rd party partner distribution and agents so they can
either sell it as a standalone solution or part of other technical
services they provide to their customers. This enables the channel
partner to develop a base of recurring revenue. We also provide our
cybersecurity services through our channel partners as a
cybersecurity overlay to the technical services they already
provide.
Our
goal is to maintain our base of opportunities in our VMware
business in both the public and commercial sector.
Opportunistically, we will continue to identify license and
services engagements as they arise.
We are
working to expand our managed services business with our prime
partner, Perspecta, and the current federal enterprise customer and
its customers. The following sections define specific strategic
components of our business strategy.
Results of Operations
Comparison of the Three Months Ended March 31, 2019 and
2018
The
following table compares our statements of operations data for the
three months ended March 31, 2019 and 2018. The trends suggested by
this table are not indicative of future operating
results.
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
1,687,794
|
100.0
%
|
$
1,594,518
|
100.0
|
%
|
$
93,276
|
5.8
|
%
|
Cost of
sales
|
1,057,170
|
62.6
|
1,079,154
|
67.7
|
|
(21,984
)
|
(2.0
)
|
|
Gross
profit
|
630,624
|
37.4
|
515,364
|
32.3
|
|
115,260
|
22.4
|
|
General and
administrative
|
277,605
|
16.4
|
299,486
|
18.8
|
|
(21,881
)
|
(7.3
)
|
|
Selling
|
253,306
|
15.0
|
241,198
|
15.1
|
|
12,108
|
5.0
|
|
Total costs and
expenses
|
530,911
|
31.4
|
540,684
|
33.9
|
|
(9,773
)
|
(1.7
)
|
|
Operating income
(loss)
|
99,713
|
5.9
|
(25,320
)
|
(1.6
)
|
|
125,033
|
493.8
|
|
Interest
expense
|
(64,677
)
|
(3.8
)
|
(61,680
)
|
(3.9
)
|
|
2,997
|
4.9
|
|
Net income
(loss)
|
$
35,036
|
2.1
%
|
$
(87,000
)
|
(5.5
)
|
%
|
$
122,036
|
140.3
|
%
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per share - basic and diluted
|
$
.00
|
|
$
.00
|
|
|
$
.00
|
|
|
Sales
Our
managed support service sales comprised approximately 73% of our
sales in 2019 and approximately 75% in 2018. Our cybersecurity
projects and software sales, primarily to SMEs, were approximately
18% of our total sales as compared to approximately 17% for
2018.
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 15% from 2018 to 2019 was offset in part by sales
growth of approximately 10% from our cybersecurity projects and
software business during the three months ended March 31, 2019 as
compared to 2018. Our goal is to expand our cybersecurity projects
and software business by using our expanding salesforce as well as
channel partners. We also hope to grow 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. Other IT projects
comprised the balance of our sales.
Cost
of Sales and Gross Profit
Cost of
sales principally represents the cost of employee services related
to our IT Services Group. We terminated multiple support personnel
in the last year. 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 improved by $115,260 primarily due to improved sales
and better cost containment of salaries as noted.
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 due
primarily to less professional fees for legal and accounting
services.
Selling
Expenses
The
increase in selling expenses is due to the hiring of salespeople in
late 2018 to sell our cybersecurity services and software as well
as a Marketing manager to enhance the Company’s marketing
activities.
Operating
Income (loss)
The
increase in our operating income from the previous year’s
operating loss is principally attributable to an improved gross
margin and decreases in other expenses for the three months ended
March 31, 2019 as compared to 2018.
Interest
Expense
The
increase in interest expense is principally attributable to the
increase in interest rates over the last year.
Net
Income (loss)
The
increase is attributable to the items discussed above for the three
months ended March 31, 2019 as compared to 2018.
Liquidity and Capital Resources
At
March 31, 2019, we had cash of $12,503 available for working
capital needs and planned capital asset expenditures. During 2019,
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, 2019, we had financing availability, based
on eligible accounts receivable, of approximately $94,000 under
this line. We pay fees based on the length of time that the invoice
remains unpaid.
We
entered into unsecured lines of credit financing agreement (the
“LOC Agreements”) with three related parties in
previous years. The LOC Agreements provide for working capital of
up to $400,000 through January 1, 2020, $100,000 through July 31,
2022 and $75,000 through January 2, 2023. At March 31, 2019, we had
approximately $38,000 of availability under the LOC
Agreements.
At
March 31, 2019, we had a working capital deficit of $3,409,000 and
a current ratio of .11.
At
March 31, 2019, we have current notes payable of $332,500 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.
We have
current maturities of long-term obligations to third parties of
$264,000 due on January 1, 2020. We also have current maturities of
long-term obligations of approximately $246,000 to the Pension
Benefit Guaranty Corporation (the PBGC) with all principal due by
September 15, 2018, which the due date has not been extended. We
have maturities of our long-term notes to third parties of $265,000
due on January 1, 2018, which has not been renewed or amended and
$175,000 due on August 31, 2018. Previously, we have extended
certain notes totaling $440,000 with certain lenders.
We also
have current maturities of our long-term debt to related parties in
the amount of approximately $524,000 due on January 1,
2020.
We have
a note payable of $25,000 due to our Chief Operating Officer which
matured on March 31, 2018 and a note payable of $20,000 to a
related party which matured on December 31, 2017. We plan to
renegotiate the terms of the notes payable, seek funds to repay the
notes or use a combination of both alternatives.
On July
12, 2018, we borrowed $70,000 from an officer of the Company under
the terms of an unsecured demand promissory note with interest at
6%. The balance of this note is $82,000 at March 31,
2019.
We
borrowed $20,000 from the unsecured line of credit financing
agreement with a related party during the first quarter of 2018.
The LOC Agreement was entered into on September 17, 2017 and
provides for working capital of up to $75,000 with interest at 6%
due quarterly through January 2, 2023. The balance is $70,000 at
March 31, 2019.
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
long-term obligations to third parties of $500,000 due on December
31, 2021. We have a long-term obligation of $9,000 to a related
party due January 1, 2021.
We have
an unsecured line of credit financing agreement with our Chief
Operating Officer. It provides for working capital of up to
$100,000 with an interest rate of prime plus 1.5% due quarterly
through July 31, 2021. The balance is $90,000 at March 31,
2019.
The
following table sets forth our cash flow information for the
periods presented:
|
Three
Months Ended March 31,
|
|
|
|
Net cash used by
operating activities
|
$
(15,203
)
|
$
(76,049
)
|
Net cash used by
investing activities
|
0
|
0
|
Net cash (used)
provided by financing activities
|
(2,010
)
|
19,330
|
Net decrease in
cash
|
$
(17,213
)
|
$
(56,719
)
|
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 income of $35,036 for 2019 was
offset in part by non-cash expenses and credits of $5,573. In
addition, a increase in accounts receivable and other assets of
$113,554, an increase in accrued payroll and other expenses payable
of $138,749 was offset by decreases in accounts payable of $81,007
resulting in a use of funds of $15,203.
We are
marketing Webroot and Nodeware to our IT channel partners who
resell to their customers. We have grown our sales team to sell our
various cybersecurity services and products including Nodeware and
Webroot. We are making investments in expanding our virtualization
sales of projects and VMware licenses to commercial and SLED
customers. Due to the lengthy lead times typically needed to
generate these new sales, we do not expect to realize a return from
our sales and marketing personnel for one or more quarters. As a
result, we may continue to experience 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 and incremental borrowings, as
needed.
Cash
Flows Used by Investing Activities
No cash
was used by investing activities during the three months ended
March 31, 2019. We expect to continue to invest in computer
hardware and software to update our technology to support our
business.
Cash
Flows (Used) Provided by Financing Activities
Cash
used by financing activities was $2,010 for the three months ended
March 31, 2019 consisted of principal repayments to a related
party.
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,
2019, we had financing availability, based on eligible accounts
receivable, of approximately $94,000 under this line. We pay fees
based on the length of time that the invoice remains
unpaid.
We
believe the capital resources available under our factoring line of
credit, cash from additional related party and third-party loans
and cash generated by improving the results of our operations
provide sources to fund the ongoing operations and to support our
internal growth. Although we cannot give any assurances, we believe
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 our
on-going operations for at least the next 12 months. However,
substantial doubt about our ability to continue as a going concern
has not been alleviated. If we experience significant growth in
sales, we believe that this may require us to increase our
financing line, finance additional accounts receivable, or obtain
additional working capital from other sources to support the sales
growth.
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 and third parties;
issuance of equity; use of our existing accounts receivable credit
facility; or a refinancing of our accounts receivable credit
facility.