Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

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

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, Nodeware, Inc., 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 135 channel partners across North America;

15

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 Nodeware; and
-	identifying other cybersecurity companies to acquire as part of a strategic 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 across a wide variety of networks and the ability to integrate it into existing and new cybersecurity solutions, 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 2023 we made significant investments in IGI and Nodeware, Inc. 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 2024.

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®

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.

Nodeware is an automated asset identification and vulnerability management and monitoring solution that enhances security by proactively identifying, monitoring, and addressing potential vulnerabilities on both internal and external facing networks, creating a safeguard against malicious intent to exploit known problems in a customer's network with simplicity and affordability. Nodeware assesses vulnerabilities in a computer network using 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.

16

The Cloud based SaaS platform has an agile and continuous development process that is flexible to react to customer and market needs. In December 2019, we filed a second provisional patent application and in December 2020 we filed the subsequent action on the institutional patent on the Nodeware platform. In 2020 and 2021, we created many new feature 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 the 2020/21 continued evolution of Nodeware.

Nodeware creates an opportunity for resellers, including managed service providers, managed security service providers, distributors, and value-added resellers to use a product that provides greater visibility into the network security of an organization. We sell Nodeware in the commercial sector through channel partners and agents. Since 2018, we have continued to expand our channel of direct resellers, which now includes Telarus, SYNNEX, and Staples.

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.

On April 3, 2024. The Company formed Nodeware Inc. in the state of Delaware. It is a wholly owned subsidiary to support Nodeware's go to market.

On May 22, 2024, the Company formed Nodeware Inc. in the state of Nevada. It is a wholly owned subsidiary to support the Company's Nodeware solution.

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.

Technology and Product Development

Our goal is to position our products and solutions to enable vertical and other Application Programming Interface (API) based integration, with other industry solutions. We have a technology and product development strategy aligned with our business strategy. We continue to identify other technical partners in the cybersecurity market to integrate Nodeware into, through either API or full stack integration.

17

Cybersecurity Services

We provide cybersecurity consulting services that include incident response, security awareness training, risk management, IT governance and compliance, security assessment services, penetration testing, and Chief Information Security Officer Team as a Service (CISOTaaS™) offerings to channel partners and direct customers across different vertical markets (banking, supply chain, manufacturing, healthcare, legal, etc.) in North America. Our cybersecurity projects leverage different technology platforms and processes such as Nodeware to create a living document that a customer can use to go forward on a path of continuous improvement for its overall Information security. We support both internal and external organizations with our cybersecurity overlay that allows us to stay agnostic in the process, especially for compliance while enabling the IT organization to address the issues discovered. We validate overall network security with the goal of maintaining the integrity of confidential client information, preserving the continuity of services, and minimizing potential data damage from attempted threats and incidents. We continue to enhance our cybersecurity services when opportunities materialize and as the market evolves.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

The following tables compare our statements of operations data for the three and nine months ended September 30, 2024 and 2023. The trends suggested by this table are not indicative of future operating results.

		Three Months Ended September 30,
																		2024 vs 2023
						As a % of								As a % of				Amount of				% Increase
		2024				Sales				2023				Sales				Change				(Decrease)
Sales		$	1,635,958				100.0	%		$	1,707,711				100.0	%		$	(71,753	)			(4.2	)%
Cost of sales			944,914				57.8				1,005,043				58.9				(60,129	)			(6.0	)
Gross profit			691,044				42.2				702,668				41.1	%			(11,624	)			(1.7	)
General and administrative			453,407				27.7				620,180				36.3				(166,773	)			(26.9	)
Selling			499,869				30.6				665,571				39.0				(165,702	)			(24.9	)
Total cost and expenses			953,276				58.3				1,285,751				75.3				(332,475	)			(25.9	)
Operating loss			(262,232	)			(16.0	)			(583,083	)			(34.1	)			320,851				55.0
Interest expense (net)			(196,802	)			(12.0	)			(270,958	)			(15.9	)			74,156				27.4
Other income			71,736				4.4				-				-				71,736				-
Net loss		$	(387,298	)			(23.7	)%		$	(854,041	)			(50.0	)%		$	466,743				54.7	%
Net loss per share - basic and diluted		$	(0.74	)						$	(1.65	)						$	0.91

		Nine Months Ended September 30,
																		2024 vs 2023
						As a % of								As a % of				Amount of				% Increase
		2024				Sales				2023				Sales				Change				(Decrease)
Sales		$	4,842,422				100.0	%		$	5,255,180				100.0	%		$	(412,758	)			(7.9	)%
Cost of sales			2,842,848				58.7				2,969,464				56.5				(126,616	)			(4.3	)
Gross profit			1,999,574				41.3				2,285,716				43.5	%			(286,142	)			(12.5	)
General and administrative			1,349,433				27.9				1,617,002				30.8				(267,569	)			(16.5	)
Selling			1,294,277				26.7				2,120,046				40.3				(825,769	)			(39.0	)
Total cost and expenses			2,643,710				54.6				3,737,048				71.1				(1,093,338	)			(29.3	)
Operating loss			(644,136	)			(13.3	)			(1,451,332	)			(27.6	)			807,196				55.6
Interest expense (net)			(671,028	)			(13.9	)			(1,445,525	)			(27.5	)			774,497				53.6
Other Income			87,086				1.8				1,757,829				33.4				(1,670,743	)			-
Net loss		$	(1,228,078	)			(25.4	)%		$	(1,139,028	)			(21.7	)%		$	(89,050	)			(7.8	)%
Net loss per share - basic and diluted		$	(2.36	)						$	(2.30	)						$	(0.06	)

18

Sales

Our managed support service sales decreased by 1% from $1,127,707 during the three months ended September 30, 2023 to $1,113,968 during the corresponding period of 2024. For the nine month period ended September 30, managed support service sales decreased 3% from $3,376,589 in 2023, to $3,268,608 for the same period in 2024. Managed support service sales comprised approximately 68% of our sales during the three months ended September 30, 2024, and approximately 66% for the same period in 2023. For the nine months ended September 30, managed support service sales comprised approximately 67% of sales in 2024, and 64% for the same period in 2023. The change in our managed support service sales during the three and nine months ended September 30, 2024 was due to the termination of smaller projects during the third quarter of 2023.

Our cybersecurity projects revenue decreased by 28%, from $263,562 for the three months ended September 30, 2023, to $188,391 for the same period ended September 30, 2024. For the nine months ended September 30, 2024, cybersecurity projects decreased 36% to $598,332 from $939,563 in the same prior year period. These changes were due to less engagements in 2024.

Software sales, which includes the selling of licenses of Nodeware and third-party software Webroot, increased by 5% from the three months ended September 30, 2023 to the same period in 2024. Sales for the period in 2023 were $316,442 and increased by $16,157 to $332,599 for the same period in 2024. For the nine months ended September 30, 2023 and 2024, sales were $939,028 and $975,482, respectively, for an increase of 4%. The increase was primarily attributable to improving sales of Nodeware and slightly offset by decreasing sales of Webroot. We have expended significant sales and marketing resources on Nodeware in 2023 and 2024, while concurrently diverting resources from Webroot. We expect this trend to continue throughout 2024 and 2025 as we focus our resources on Nodeware.

Cost of Sales and Gross Profit

Cost of sales principally represents compensation expense for our employees of our managed support services and cybersecurity projects teams. Cost of sales decreased by 6% to $944,914 during the three months ended September 30, 2024 from $1,005,043 during the corresponding period of 2023. For the nine month periods ended September 30, 2023 and 2024, cost of sales decreased from $2,969,464 in 2023 to $2,842,848 in 2024; a decrease of 4%. The decrease in cost of sales during the three and nine months ended September 30, 2024 from 2023 was primarily due to a decrease in payroll and benefits of salaried employees who support our managed services and cybersecurity projects. This reduction of payroll was due to normal attrition without replacement. There was no impact on performance, as we were able to absorb the staff reduction with efficiency improvements to our processes and tools.

Our gross profit decreased by $11,624 for the three months ended September 30, 2023 to 2024, from $702,668 to $691,044. For the nine months ended September 30, 2024, gross profit of $1,999,574 represents a 13% decrease in gross profits for the same period in 2023 of $2,285,716. The decrease was due to the combination of decreased sales offset by the decrease in salary and benefits 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 $453,407 for the three months ended September 30, 2024 decreased approximately 27% from $620,180 for the same quarter of 2023. For the nine months ended September 30, 2024, general and administrative expenses were $1,349,433, down from $1,617,002 for the same period in 2023. The decrease was primarily due to the reduction in salaries and benefits in addition to lower rent due to downsizing the office space and marketing spending, with total year to date expenses in those categories down approximately $166,000 for the comparative nine month periods.

Selling Expenses

Selling expenses of $499,869 for the three months ended September 30, 2024 decreased approximately 25% from $665,571 for the same quarter of 2023. For the nine months ended September 30, 2024, selling expenses were $1,294,277; a decrease of 39% from $2,120,046 for the same period in 2023. For the three month period, approximately $54,000 of the decrease was due to reductions in number of trade shows attended as well as decreases in marketing of approximately $57,000. For the nine month period, approximately $305,000 of the decrease was due to a decrease in marketing and trade show spending and reductions in staffing and related benefits of approximately $240,000.

Operating Loss

For the three months ended September 30, 2024 and September 30, 2023, operating loss was $262,232 and $583,083, respectively, for an improvement in the loss by $320,851. For the nine months ended September 30, 2024 and September 30, 2023, the operating loss was $644,136 and $1,451,332, respectively. The improvement in our operating loss from the previous year is principally attributable to the reduction in cost of sales as referenced above, the reduction of general and administrative expenses as referenced above, and the decrease in selling expenses as referenced above.

19

Interest Expense

Net interest expense of $196,802 for the three months ended September 30, 2024 decreased significantly from expense of $270,958 for the same quarter of 2023. For the nine months ended September 30, 2024, net interest expense of $671,028 represents a decrease of $774,497 from the same period in 2023. The decrease in interest expense is primarily attributable to the bridge loans entered into during 2022 and the first quarter of 2023 and the associated amortization of the warrants associated with the debt of approximately $110,000 for the three months ended September 30, 2023 and approximately $425,000 for the nine months ended September 30, 2023 versus none in 2024. There was also approximately $337,000 of interest expense associated with the loan associated with the Employee Retention Credit for the nine months ended September 30, 2023.

Other Income

For the three months ended September 30, 2024, other income included gain on the extinguishment of debts in the amount of $71,736. For the nine months ended September 30, 2024, other income included $15,350 was for the partial termination of the lease agreement for the corporate office in addition to the gain on the extinguishment of debts. For the nine months ended September 30, 2023, other income included a one-time refund of taxes of $1,662,698 related to the approval of the Employee Retention Credit by the IRS as well as a gain of $95,131 related to debt forgiveness.

Net Loss

For the three months ended September 30, 2024, net loss was $387,298. For the same period in 2023, we showed a net loss of $854,041. For the nine months ended September 30, 2024 and September 30, 2023, the net loss was $1,228,078 and $1,139,028, respectively. The primary reasons for this approximate $467,000 improvement in the three month period was due to the effort to reign in operating expenses, the ending of debt amortization expenses and other income. For the nine month period the primary reason for the increase in loss was due to the larger other income amount in 2023 associated with the Employee Retention Credit in the second quarter of 2023.

Liquidity and Capital Resources

At September 30, 2024, we had cash of $22,481 available for working capital needs and planned capital asset expenditures. At September 30, 2024, we had a working capital deficit of approximately $9.2 million and a current ratio of 0.07.

During 2024, 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 September 30, 2023, based on eligible accounts receivable, we had $37,000 available under this arrangement. We expect sales during 2024 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.

We entered into four loan agreements and a revised financing arrangement during the nine month period ended September 30, 2024.

On February 16, 2024, we received funding from a future receivables purchase agreement with UFS West LLC. The purchase price amount was $150,000 with a fixed fee of $4,500 and a payment plan of $5,824 per week for 34 weeks effective February 23, 2024. In August 2024, US West LLC forgave the remaining payments on the subordinated business loan for $51,500. This forgiveness of debt resulted in a gain of approximately $29,900.

On March 14, 2024, we received funding from a subordinated business loan and security agreement with Agile Lending, LLC. The term loan amount was $185,500with a fixed fee of $10,500. A payment plan of $11,285 per week for 24 weeks effective March 18, 2024. In August 2024, Agile Lending LLC forgave the remaining payments on the subordinated business loan for $60,000. This forgiveness of debt resulted in a gain of approximately $43,600.

During June 2024, we entered into a revised financing arrangement with Celtic Bank for $150,500 with a one-time fixed loan fee of $17,157 for a total obligation of $167,657. In 2023, under the terms of the previous revised financing arrangement, the lender loaned us $140,200 with a one-time fixed loan fee of $16,403 for a total obligation of $156,603. The balance of the previous loan of $33,815 was paid to the lender as part of the revised financing agreement. The lender payments became due on June 11, 2024, and consisted of 20% of the Company's receivables processed through Stripe, Inc.'s payment processing platform. At September 30, 2024, the balance of this revised financing arrangement was $112,768.

On August 16, 2024, the Company entered into an amended and restated loan and security agreement (the "Agreement"), dated as of August 16, 2024, by and between the Company and the Company's President's brother, Harry Hoyen (the "Lender"), pursuant to which the Company may borrow up to an aggregate amount of $2,000,000 (the "Loan") at 8% per annum. Pursuant to the Agreement, on August 16, 2024, the Company borrowed $1,200,000 from the Lender and issued to the Lender a secured promissory note evidencing such portion of the Loan having a maturity date of August 16, 2028. The Agreement's payment plan is for 48 payments of $52,500 per month. Commencing on September 1, 2024, the Company may borrow up to an additional $800,000 from the Lender to be evidenced by another secured promissory note. Additional amounts of $80,000, $70,000, $550,000 and $50,000 were borrowed on October 15, 2024, October 16, 2024, November 13, 2024, and October 27, 2025 respectively.

20

At September 30, 2024, we had current notes payable of $139,000 to related parties. $40,000 of this debt was due on January 1, 2023. The remaining $99,000 are in the form of demand notes with an interest rate of 6%.

At September 30, 2024, we have current notes payable of approximately $1,957,000 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 which has not been 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.

Also included in the current notes payable to third parties at September 30, 2024, are five bridge loans with Mast Hill Fund, L.P., for $1,511,801. All five loans bear interest at an original rate of 8%. Since these loans are in default, the interest rate is 12%. We used the proceeds from the bridge loans to substantially enhance our marketing of Nodeware, Inc.'s Nodeware solution, in order to significantly increase its growth.

During the first nine months of 2024, approximately $17,000 was recorded as deferred note costs. At September 30, 2024, the unamortized balance of the deferred note costs for all notes payable to third parties was approximately $7,000. See Notes 5 and 6 of the 2023 Audited Financial Statements for more information.

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 September 30, 2024, we had approximately $15,000 of availability under the LOC Agreements.

During 2021, we issued demand notes to three board members for $79,000 in total. The demand notes bear a 6% interest rate. The amount outstanding as of September 30, 2024 is $49,000.

We have approximately $965,000 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 $294,000), approximately $284,000 due on January 1, 2024, approximately $166,000 due August 24, 2024, $250,000 due September 30, 2025 and approximately $89,000 due in the next 12 months on an 18 month loan agreement ending on February 17, 2025.

At September 30, 2023, we have $1,264,000 of current maturities of long-term obligations to related parties. $270,000 was due on January 1, 2023, $25,000 was due June 30, 2023, $90,000 was due on July 31, 2023,$274,300 is due January 1, 2024 and $604,223 due by September 30, 2025.

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 September 30, 2024.

The following table sets forth our cash flow information for the periods presented:

		Nine Months Ended September 30,
		2024				2023
Net cash provided by (used in) operating activities		$	(702,685	)		$	423,180
Net cash provided by (used in) investing activities			(149,708	)			1,241,308
Net cash provided by (used in) financing activities			849,401				(1,678,538	)
Net decrease in cash		$	(2,992	)		$	(14,050	)

Cash Flows Provided by (Used in) 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 $1,228,078 for the nine months ended September 30, 2024 was offset by non-cash expenses and credits of $223,331 and an addback of a gain of debt forgiveness of $71,736 and a gain on the partial termination of the lease of $15,350. In addition, our net loss was increased by an increase in accounts receivable and other assets of $315,637, and offset by increases in accounts payable, accrued payroll, and other expenses payable of $780,501 and a decrease in deferred revenue of $75,716 resulting in cash used in operating activities of $702,685.

21

We are continuing to increase 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 expect a delay before realizing a return from our sales and marketing efforts, of one or more quarters. As a result, we may continue to experience operating income or operating losses from these resource expenditures until sufficient sales are generated. We expect to fund the cost for the new expenditures from our operating cash flows, the equity raise and incremental borrowings, as needed.

Cash Flows Provided by (Used in) Investing Activities

During the nine months ended September 30, 2024, we incurred capital expenditures of $149,144 for software development labor for the enhancements to Nodeware. 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 in these two categories.

Cash Flows Provided by (Used in) Financing Activities

During the nine months ended September 30, 2024, we received $1,686,000 from various debt products, including a future receivables purchase agreement with UFS West LLC for $150,000 which is paid in 34 weekly installments, a subordinated business loan and security agreement with Agile Lending, LLC for $185,500 payable over 24 weeks, a restructured loan with Celtic Bank for $167,657, and an amended and restated loan and security with a related party for $1,200,000. We paid the principal of $734,349 on notes payable, and $102,250 of related party short term debt.

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 September 30, 2024, we had financing availability, based on eligible accounts receivable, of approximately $37,000 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 September 30, 2024.

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 September 30, 2024, we had $15,000 available under these financing agreements which matured in January 2023 and July 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.

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; additional borrowing from related and third parties; use of our existing accounts receivable credit facility; or a refinancing of our accounts receivable credit facility.