UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

                        Commission File Number 001-32300

                               INFINITE GROUP INC.
        (Exact name of small business issuer as specified in its charter)

            Delaware                              13-4100476
            ---------                             ----------
  (State or other jurisdiction                (I.R.S. Employer
of incorporation or organization)             Identification No.)

                           595 Blossom Rd., Suite 309
                            Rochester, New York 14610
                            -------------------------
                     (Address of principal executive office)

                                 (585) 654-5525
                (Issuer's telephone number, including area code)

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period  that the issuer was  required  to file such  reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                                 Yes |_| No |X|

Number of shares  outstanding of each of the issuer's  classes of common equity,
as of the latest  practicable  date: As of July 15, 2005,  there were 19,206,965
shares of common stock outstanding.

Transitional Small Business Disclosure Format. Yes |_| No |X|


<PAGE>

                              INFINITE GROUP, INC.
                               FORM 10-QSB REPORT

                                  June 30, 2003

                                TABLE OF CONTENTS
                                                                            PAGE
PART I - FINANCIAL INFORMATION

  Item 1.  Consolidated Financial Statements

           Balance Sheets -June 30, 2003 (unaudited) and December 31, 2002     3

           Statements of Operations-(unaudited) for the three and six
           month periods ended June 30, 2003 and 2002                          4

           Statements of Cash Flows-(unaudited) for the six month
           periods ended June 30, 2003 and 2002                                5

           Notes to Consolidated Financial Statements                          6

  Item 2.  Management's Discussion and Analysis of Financial Conditions
           and Results of Operations                                          14

  Item 3.  Controls and Procedures                                            21

PART II - OTHER INFORMATION

  Item 1.  Legal Proceedings                                                  22

  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds        22

  Item 3.  Defaults Upon Senior Securities                                    23

  Item 4.  Submission of Matters to a Vote of Security Holders                23

  Item 5.  Other Information                                                  23

  Item 6.  Exhibits                                                           23

SIGNATURES                                                                    24

                           FORWARD-LOOKING STATEMENTS

Certain   statements   made  in  this  Quarterly   Report  on  Form  10-QSB  are
"forward-looking statements" within the meaning of Section 21E of the Securities
and Exchange Act of 1934  regarding the plans and  objectives of management  for
future  operations and market trends and expectations.  Such statements  involve
known and unknown  risks,  uncertainties  and other  factors  that may cause our
actual results,  performance or achievements to be materially different from any
future  results,  performance  or  achievements  expressed  or  implied  by such
forward-looking  statements.  The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties. Our
plans and objectives are based, in part, on assumptions  involving the continued
expansion  of  our  business.  Assumptions  relating  to the  foregoing  involve
judgments with respect to, among other things, future economic,  competitive and
market conditions and future business  decisions,  all of which are difficult or
impossible  to predict  accurately  and many of which are  beyond  our  control.
Although  we  believe  that  our  assumptions   underlying  the  forward-looking
statements are reasonable,  any of the assumptions  could prove  inaccurate and,
therefore,  there  can  be no  assurance  that  the  forward-looking  statements
included in this report will prove to be accurate.  In light of the  significant
uncertainties  inherent in the  forward-looking  statements included herein, the
inclusion of such information  should not be regarded as a representation  by us
or any other person that our  objectives  and plans will be achieved.  The terms
"we", "our", "us", or any derivative  thereof,  as used herein refer to Infinite
Group, Inc., a Delaware corporation.


                                       2
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

INFINITE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    JUNE 30,      DECEMBER 31,
                                                                      2003            2002
----------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>
ASSETS                                                            (UNAUDITED)
CURRENT ASSETS:
   Cash                                                           $     62,350    $     36,459
   Restricted cash                                                       7,044          25,118
   Accounts receivable, net of allowance                             1,046,334         923,043
   Inventories                                                          19,233         127,792
   Other current assets                                                 43,203          42,767
   Assets of discontinued operations                                   898,860         943,683
                                                                  ------------    ------------
Total current assets                                                 2,077,024       2,098,862

PROPERTY AND EQUIPMENT, NET                                          2,778,529       3,042,587

OTHER ASSETS:
   Note receivable                                                      73,897          73,897
   Intangible assets, net                                               57,044          60,225
                                                                  ------------    ------------
   Total other assets                                                  130,941         134,122
                                                                  ------------    ------------
Total assets                                                      $  4,986,494    $  5,275,571
                                                                  ============    ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
   Notes payable:
Bank                                                              $    409,351    $    428,276
Other                                                                   30,000              --
Related parties                                                         33,906          83,906
   Accounts payable                                                  1,325,270       1,317,136
   Accrued expenses                                                    678,385         691,332
   Current maturities of long-term obligations                       2,439,562       2,551,295
   Liabilities of discontinued operations                              953,513       1,400,203
                                                                  ------------    ------------
Total current liabilities                                            5,869,987       6,472,148
LONG- TERM OBLIGATION
   Notes payable-related parties                                       240,000              --
   Accrued pension expense                                           2,174,683       2,159,152
                                                                  ------------    ------------
Total liabilities                                                    8,284,670       8,631,300
                                                                  ------------    ------------

Commitments and contingencies

STOCKHOLDERS' DEFICIENCY:
   Common stock, $.001 par value, 20,000,000 shares authorized;
     9,274,077 (6,314,077 in 2002) issued and outstanding                9,274           6,314
   Additional paid-in capital                                       27,962,860      27,817,820
   Common  stock, authorized, not issued                                25,000              --
   Accumulated deficit                                             (28,280,776)    (28,081,158)
   Accumulated other comprehensive loss                             (3,014,534)     (3,098,705)
                                                                  ------------    ------------
Total stockholders' deficiency                                      (3,298,176)     (3,355,729)
                                                                  ------------    ------------
Total liabilities and stockholders' deficiency                    $  4,986,494    $  5,275,571
                                                                  ============    ============
See notes to consolidated financial statements.
</TABLE>


                                       3
<PAGE>

INFINITE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                       SIX MONTHS ENDED             THREE MONTHS ENDED
                                                            JUNE 30,                     JUNE 30,
                                                  --------------------------    --------------------------
                                                     2003            2002           2003           2002
----------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>            <C>            <C>
                                                                (As Restated)                 (As Restated)

SALES                                             $ 2,943,792      3,272,939    $ 1,530,544    $ 1,500,998
Cost of goods and services                          2,003,596      2,671,802        959,288      1,221,146
                                                  -----------    -----------    -----------    -----------
GROSS PROFIT                                          940,196        601,137        571,256        279,852

Costs and expenses:
General and administrative                          1,054,149      1,248,985        594,890        679,884
Depreciation and amortization                         318,207        449,279        155,695        251,184
Selling                                               120,117        149,082         71,617         68,595
Research and development                               26,554          1,816         24,622             --
                                                  -----------    -----------    -----------    -----------
 Total costs and expenses                           1,519,027      1,849,162        846,824        999,663
                                                  -----------    -----------    -----------    -----------
OPERATING LOSS                                       (578,831)    (1,248,025)      (275,568)      (719,811)
Other income (expense):
Interest expense:
   Related parties                                     (4,631)        (9,593)        (3,149)        (5,021)
   Others                                             (75,451)      (158,089)       (37,931)       (81,638)
Gain (loss) on disposition of assets                   11,243        137,418         11,243             --
Impairment Loss                                            --        (45,670)            --        (45,670)
Other                                                   3,800        (19,069)           888        (19,069)
Interest income                                           167          9,654            112          9,252
                                                  -----------    -----------    -----------    -----------
TOTAL OTHER INCOME (EXPENSE)                          (64,872)       (85,349)       (28,837)      (142,146)
                                                  -----------    -----------    -----------    -----------

Loss  from continuing operations before
 income tax expense                                  (643,703)    (1,333,374)      (304,405)      (861,957)
Income tax expense                                       (424)        (7,390)          (224)        (3,640)
                                                  -----------    -----------    -----------    -----------
LOSS FROM CONTINUING OPERATIONS                      (644,127)    (1,340,764)      (304,629)      (865,597)

Income (loss) from discontinued operations,
  (including $275,520 and $215,154 loss on
  disposal in the three and six months ended
  June 30, 2002, respectively)                        444,509       (101,815)       516,135       (176,827)
                                                  -----------    -----------    -----------    -----------
Net income (loss)                                 $  (199,618)    (1,442,579)   $   211,506    $(1,042,424)
                                                  ===========    ===========    ===========    ===========
Net income (loss) per share-Basic:
Loss from continuing operations                   $      (.09)   $     (0.23)   $      (.04)   $     (0.15)
Income (loss) from discontinued operations                .06          (0.02)           .07          (0.03)
                                                  -----------    -----------    -----------    -----------
Net income (loss)                                 $      (.03)   $     (0.25)   $       .03    $     (0.18)
                                                  ===========    ===========    ===========    ===========

Net income (loss) per share-Diluted:
Loss from continuing operations                   $      (.09)   $     (0.23)   $      (.04)   $     (0.15)
Income (loss) from discontinued operations                .06          (0.02)           .07          (0.03)
                                                  -----------    -----------    -----------    -----------
Net income (loss)                                 $      (.03)   $     (0.25)   $       .03    $     (0.18)
                                                  ===========    ===========    ===========    ===========

Weighted average number of shares outstanding:
Basic                                               6,724,022      5,709,693      7,129,462      5,886,792
                                                  ===========    ===========    ===========    ===========
Diluted                                             7,152,593      5,709,693      7,558,033      5,886,792
                                                  ===========    ===========    ===========    ===========
</TABLE>

See notes to consolidated financial statements.


                                                     4
<PAGE>

<TABLE>
<CAPTION>

INFINITE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                                                                     FOR THE SIX MONTHS ENDED
                                                                                             JUNE 30,
                                                                                    --------------------------
                                                                                        2003          2002
--------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>            <C>
                                                                                                  (As Restated)
OPERATING ACTIVITIES:
Net loss                                                                            $  (199,618)   $(1,442,579)
  Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
(Income) Loss from discontinued operations                                             (444,509)       101,815
Depreciation and amortization                                                           318,207        449,279
Amortization of discount on note payable                                                     --         25,475
Expenses satisfied via issuance of common stock                                          25,000        138,148
Gain on disposition of assets                                                           (11,243)      (137,418)
Impairment Loss                                                                              --         45,670
(Increase) decrease in:
  Accounts receivable, net                                                             (123,291)       806,414
  Other current assets                                                                     (436)        16,749
  Inventories                                                                           108,559         (1,441)
  Prepaid pension cost                                                                       --         35,000
Increase (decrease) in:
 Accounts payable and accrued expenses                                                   43,189       (413,559)
 Accrued pension obligations                                                             99,702             --
                                                                                    -----------    -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF CONTINUING OPERATIONS           (184,440)      (376,447)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS           42,641       (407,645)
                                                                                    -----------    -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                    (141,799)      (784,092)
                                                                                    -----------    -----------

INVESTING ACTIVITIES:
Decrease in restricted funds                                                             18,074         78,370
Purchase of property and equipment                                                      (39,726)      (118,867)
Proceeds from sale of property and equipment                                                 --        270,000
                                                                                    -----------    -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS            (21,652)       229,503
   NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS            --        990,602
                                                                                    -----------    -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                     (21,652)     1,220,105
                                                                                    -----------    -----------

FINANCING ACTIVITIES:
Net repayments of bank notes payable                                                    (18,925)       (23,165)
Proceeds from issuance of convertible note payable, net of costs                             --      1,374,000
Repayment of long-term obligations                                                     (111,733)      (290,315)
Repayments of notes payable-related parties                                             (20,000)       (23,000)
Proceeds from issuance of  long term obligations-related party                          240,000             --
Proceeds  from issuance of common stock, net of expenses                                100,000        256,132
                                                                                    -----------    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS                      189,342      1,293,652
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS               --     (1,634,714)
                                                                                    -----------    -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                     189,342       (341,062)
                                                                                    -----------    -----------
NET INCREASE (DECREASE) IN CASH                                                          25,891         94,951
Cash - beginning of period                                                               36,459         73,802
                                                                                    -----------    -----------
Cash - end of period                                                                $    62,350    $   168,753
                                                                                    ===========    ===========

Supplemental disclosure:
Cash paid for:
Interest                                                                            $   (76,351)   $  (145,739)
                                                                                    ===========    ===========
Income taxes                                                                        $      (424)   $      (110)
                                                                                    ===========    ===========
</TABLE>

See notes to consolidated financial statements.


                                                       5
<PAGE>

INFINITE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying  unaudited  consolidated financial statements of Infinite Group
Inc.  ("Infinite  Group  Inc." or the  "Company"),  included  herein  have  been
prepared by the  Company in  accordance  with  accounting  principles  generally
accepted in the United States of America for interim  financial  information and
with  instructions to Form 10-QSB.  Accordingly,  they do not include all of the
information and footnotes required by accounting  principles  generally accepted
in the United  States of  America  for  complete  financial  statements.  In the
opinion  of  management,   all  adjustments  considered  necessary  for  a  fair
presentation  have  been  included.   The  accompanying  unaudited  consolidated
financial  statements  should be read in conjunction with the Company's  audited
consolidated  financial statements and footnotes for the year ended December 31,
2002 and the notes  thereto  included  in the  Company's  Annual  report on Form
10-KSB filed with the United States Securities and Exchange Commission.  Results
of consolidated  operations for the six month period ended June 30, 2003 are not
necessarily indicative of the operating results to be attained in the year ended
December 31, 2003.  The  consolidated  financial  statements  herein include the
accounts  of the  Company  and  its  wholly  owned  subsidiaries.  All  material
inter-company accounts and transactions have been eliminated.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There are several  accounting  policies that we believe are  significant  to the
presentation of our consolidated  financial  statements.  These policies require
management  to make  complex or  subjective  judgments  about  matters  that are
inherently  uncertain.  Note 3 to our audited consolidated  financial statements
present  a  summary  of  significant  accounting  policies.  The  most  critical
accounting policies follow.

REVENUE RECOGNITION

In 2002 we generated  substantially  all of our revenue from  traditional  laser
manufacturing services, which included welding, machining, cutting, drilling and
engraving.  These  services  related to processes  performed  on the  customers'
parts. The services were performed based upon terms specified and agreed upon by
both  parties  prior to  commencement.  Sales  relating to these  services  were
recognized  at the  point  that  the  completed  product  was  delivered  to the
customer.

In 2003 we generated revenue from our traditional laser  manufacturing  services
and beginning in the second quarter of 2003, we commenced  providing services in
the field of information  technology  (IT)  consulting  services  through our IT
Services Group.

STOCK-BASED COMPENSATION

We disclose the pro forma  compensation  cost relating to stock options  granted
under employee  stock option plans,  based on the fair value of those options at
the date of grant.  This  valuation is determined  utilizing the  Black-Scholes,
option-pricing  model, which takes into account certain  assumptions,  including
the expected life of the option and the expected  stock  volatility and dividend
yield over this life.  These  assumptions  are made based on past experience and
expected future  results.  In the event the actual  performance  varies from the
estimated amounts, the value of these options may be misstated.


                                       6
<PAGE>

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Statement of Financial Accounting Standards (SFAS)
No.  141,  "Business  Combinations,"  and  SFAS No.  142,  "Goodwill  and  Other
Intangible  Assets." Under these new standards,  all acquisitions  subsequent to
June 30, 2001 must be accounted for under the purchase method of accounting.

SFAS No. 142 requires that goodwill be tested  annually for  impairment  using a
two-step process.  The first step was to identify a potential impairment and, in
transition,  this step must be measured as of the  beginning of the fiscal year.
The second  step of the  goodwill  impairment  test  measures  the amount of the
impairment  loss (measured as of the beginning of the year of the adoption),  if
any, and must be completed by the end of our fiscal year.  Any  impairment  loss
resulting from the transitional impairment tests are reflected as the cumulative
effect of a change in accounting principle.

We adopted the  provisions  of SFAS No. 142 in our first quarter ended March 31,
2002.  Goodwill in the amount of $88,769 at December  31,  2001,  relates to the
Laser Fare (LF) and Mound  subsidiaries.  Subsequent  to December 31, 2001,  the
assets of Mound were disposed of and  operations  were ceased,  resulting in the
write-down of goodwill  amounting to $17,584.  In addition the goodwill relating
to Laser Fare,  amounting to $71,185 was written off at December  31,  2002.  We
have allocated its intangible  assets to their  reporting  units.  The remaining
useful lives of the other intangibles have been evaluated and no changes will be
made.

SFAS No. 141 also  requires  that upon  adoption  of SFAS No.  142,  the Company
reclassify  the carrying  amounts of certain  intangibles  assets into or out of
goodwill,  based upon certain criteria.  We did not have any  reclassifications.
SFAS No. 142  supersedes APB No. 17,  "Intangible  Assets," and is effective for
fiscal years beginning after December 15, 2001. SFAS No. 142 primarily addresses
the accounting for goodwill and  intangible  assets  subsequent to their initial
recognition.  The  provisions  of SFAS No.  142  prohibit  the  amortization  of
goodwill and  indefinite-lived  intangible  assets;  require  that  goodwill and
indefinite-lived  intangible  assets be tested annually for  impairment,  and in
interim  periods if certain events occur  indicating  that the carrying value of
goodwill and / or  indefinite-lived  intangible assets may be impaired;  require
that reporting units be identified for the purpose of assessing potential future
impairments of goodwill;  and removes the 40-year limitation on the amortization
period of intangible assets that have finite lives.

In August 2001, the FASB issued SFAS No. 143,  "Accounting for Asset  Retirement
Obligations"  (SFAS  143).  SFAS  143  establishes   accounting   standards  for
recognition  and  measurement  of a liability for the costs of asset  retirement
obligations.  Under SFAS 143, the costs of retiring an asset will be recorded as
a liability  when the  retirement  obligation  arises,  and will be amortized to
expense over the life of the related asset.

In August 2001, the Financial  Accounting  Standards Board issued  Statement No.
144 (SFAS  144),  "Accounting  for the  Impairment  or  Disposal  of  Long-Lived
Assets", which provides guidance in the accounting for impairment of disposal of
long-lived  assets.  For long-lived asset to be held and used, the new rules are
similar to previous guidance,  which required the recognition of impairment when
the  undiscounted  cash  flows  will  not  recover  the  carrying  amount.   The
computation  of  fair  value  now  removes  goodwill  from   consideration   and
incorporates a probability-weighted cash flow estimation approach. Additionally,
assets  qualifying  for  discontinued  operations  treatment  have been expanded
beyond the former  major line of  business  or class of  customer  approach.  We
adopted the provisions of SFAS 144 in fiscal 2001 and utilized this guidance for
the disposal of the Plastics Group.  Accordingly,  the assets and liabilities of
the discontinued  operations are reflected as gross amounts, rather than net, in
the accompanying  balance sheet in accordance with SFAS 144. There was no impact
from the adoption of this standard on its impairment  tests of long lived assets
or its accounting for discontinued operations.


                                       7
<PAGE>

In April 2002,  the FASB issued SFAS 145  "Rescission  of SFAS No. 4, 44 and 64,
Amendment of SFAS No.13, and Technical  Corrections".  SFAS No. 145, among other
things, amends SFAS No. 4 and SFAS No. 64, to require that gains and losses from
the   extinguishments   of  debt  generally  be  classified   within  continuing
operations.  The  provisions  of SFAS No. 145 are  effective  for  fiscal  years
beginning  after May 15, 2002 and early  application  is  encouraged.  We do not
believe that the adoption of SFAS No. 145 will have a significant  impact on our
financial statements.

In June 2002, the FASB issued SFAS 146,  "Accounting  for Costs  Associated with
Exit or  Disposal  Activities."  SFAS 146  replaces  Emerging  Issues Task Force
("EITF") Issue 94-3,  "Liability  Recognition for Certain  Employee  Termination
Benefits and Other Costs to Exit an Activity".  This standard requires companies
to recognize  costs  associated  with exit or disposal  activities when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
This statement is effective for exit or disposal  activities  that are initiated
after  December  31,  2002.  We do not believe that the adoption of SFAS No. 146
will have a significant impact on our financial statements.

In February  2003,  the FASB issued  SFAS No. 148,  "Accounting  for Stock Based
Compensation: A Comparison of FASB Statement No. 123, Accounting for Stock-Based
Compensation,   and  Its  Related  Interpretations,   and  IASB  Proposed  IFRS,
Share-based  Payments." SFAS 148 amends SFAS 123 to provide  alternative methods
of  transition  for an entity that  voluntarily  changes to the fair value based
method of accounting for stock-based employee  compensation.  It also amends the
disclosure  provisions of that Statement to require  prominent  disclosure about
the effects on reported net income of an entity's  accounting  policy  decisions
with respect to stock-based compensation.  The statement also amends APB Opinion
No. 28, "Interim Financial Reporting", to require disclosure about those effects
in interim financial  information.  We have chosen not to voluntarily  change to
the fair value based method of accounting for stock-based employee  compensation
but have adopted the disclosure rules under SFAS 148.

NOTE 3. DISCONTINUED OPERATIONS AND RECLASSIFICATIONS

The  statements of operations  and cash flows for the three months periods ended
June 30, 2003 have been restated to account for the  discontinued  operations of
the  Photonics  Group,  consisting  of Infinite  Photonics,  Inc.  (IPI),  which
business was suspended in 2002 as a result of the loss of the DARPA contract and
for LF, which was sold as discussed below.

On October 30, 2002,  IPI received a Notice of Termination of its DARPA contract
for  the  government's   convenience  under  the  contract  provisions  entitled
Termination,  Federal Acquisition  Regulation (FAR) 52.249.6. The DARPA contract
had  provided  substantially  all of the  sales of the  Photonics  Group.  As of
December 31, 2004, the contract termination process was substantially  complete.
We have  been  reimbursed  for  substantially  all  costs  associated  with  the
termination.  The  termination  of the contract had a detrimental  effect on the
development of our technology. During 2002, all of our Photonics Group employees
were  released  and  the  operations  of the  Photonics  Group  ceased.  We also
determined  that our Photonics  Group  patents and property and  equipment  were
impaired,  and consequently  recorded impairment losses in the fourth quarter of
2002 of approximately $468,000 and $148,000 respectively,  which was included in
loss on disposal of  discontinued  operations in the  consolidated  statement of
operations for the year ended December 31, 2002.


                                       8
<PAGE>

On  December  31,  2003,  the  Company  and LF  entered  into an asset  purchase
agreement  with LFI,  Inc.  ("LFI")  relating to the  purchase by LFI of certain
assets and the  assumption  of certain  liabilities  of LF relating to the laser
engraving and medical products  manufacturing and assembly businesses of LF (the
"Purchase  Agreement").  The  principals  of LFI  are  former  employees  of LF,
including the former  chairman and chief executive  officer of the Company.  The
purchase price for the assets was assumed  liabilities of LF and/or the Company.
On December 31, 2004,  the Company  completed the sale of the remaining  assets,
including  the  assumption  of  certain  liabilities,  to an  affiliate  of LFI,
relating to all the remaining laser businesses of LF. The purchase price was the
assumed liabilities of LF plus the issuance of several notes by the buyer to LF.
LF recorded a loss on sale of approximately  $99,000 for the year ended December
31, 2003. LF  reclassified  the operating  assets and  liabilities to assets and
liabilities  held for sale at December 31, 2003. The balances of the assets held
for sale at  December  31,  2003 was  $2,919,154  with  related  liabilities  of
$781,847. During the year ended December 31, 2004, LF had income from operations
of approximately  $494,000,  (loss from operations of $417,000 in 2003) which is
included in loss from discontinued operations.

In accordance  with SFAS 144, the disposal of the  Photonics and Laser  segments
have been accounted for as a disposal of business segments and accordingly,  the
assets  and  liabilities  for IP and LF have  been  segregated  from  continuing
operations in the  accompanying  consolidated  balance  sheets and classified as
assets of  discontinued  operations  and  assets  held for sale.  The  operating
results  for  both  segments  are  segregated   and  reported  as   discontinued
operations.

      Certain  other  amounts  in  the  2002  financial   statements  have  been
reclassified to conform with the 2003 financial statements.

      The  following  is a summary of  financial  position  at June 30, 2003 and
December 31, 2002 and results of  operations  for the three and six months ended
June 30, 2003 and 2002 for the disposed Photonics (IP) and Plastics (O&W and EP)
segments:

                                           JUNE 30,    DECEMBER 31,
FINANCIAL POSITION                           2003        2002
                                          ----------   ----------
Current assets and total assets of
 discontinued operations                  $  898,860   $  943,683
                                          ==========   ==========

Liabilities of discontinued operations:
    Accounts payable and accrued
     expenses                             $  948,513   $1,395,203
    Unsecured note payable                     5,000        5,000
                                          ----------   ----------

    Total liabilities of discontinued
     operations                           $  953,513   $1,400,203
                                          ==========   ==========


                                            THREE MONTHS ENDED
                                                  JUNE 30,
                                          -----------------------
RESULTS OF OPERATIONS                        2003         2002
                                          ----------   ----------

Revenue from discontinued operations      $  606,924   $1,506,662
                                          ==========   ==========

Income from discontinued operations       $  516,135   $   98,693
Loss on disposal of discontinued
 operations                                       --     (275,520)
                                          ----------   ----------
Net income (loss) from discontinued
 operations                               $  516,135   $ (176,827)
                                          ==========   ==========


                                       9
<PAGE>

                                             SIX MONTHS ENDED
                                                  JUNE 30,
                                          -----------------------
RESULTS OF OPERATIONS                        2003         2002
                                          ----------   ----------

Revenue from discontinued operations      $  740,352   $1,941,844
                                          ==========   ==========

Income from discontinued operations       $  444,509   $  113,339

Loss on disposal of discontinued
 operations                                       --     (215,154)
                                          ----------   ----------
Net income (loss) from discontinued
 operations                               $  444,509   $ (101,815)
                                          ==========   ==========

NOTE  4. STOCK OPTION PLAN

As of June 30, 2003 the Company's  Stock Option Plans (the "Plan")  provided for
the grant of incentive or non-qualified stock options for the purchase of common
stock for up to 2,340,000 shares to employees,  directors and  consultants.  The
Plan is administered by the compensation  committee established by the Company's
board of directors, which determines the terms of options including the exercise
price, expiration date, number of shares and vesting provisions.

A summary of all stock option activity for the six months ended June 30, 2003 is
as follows:

                                                                    WEIGHTED
                                         NUMBER      EXERCISE       AVERAGE
                                       OF OPTIONS     PRICE      EXERCISE PRICE
                                       ----------   -----------  --------------

Outstanding at December 31, 2002          300,581   $1.38-$5.50  $         1.64
                                                    ===========  ==============
Options issued                          1,600,000   $.05 -.$.15  $          .06
                                                    ===========  ==============
Options expired                          (217,477)  $1.38-$5.50  $         1.53
                                       ----------   ===========  ==============
Outstanding at June 30, 2003            1,683,104   $.05-$ 2.50  $          .15
                                       ==========   ===========  ==============
Exercisable at June 30, 2003            1,583,104   $.05-$ 2.50  $          .15
                                       ==========   ===========  ==============

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123 -"Accounting for Stock-Based Compensation, "
and, accordingly,  does not recognize  compensation cost for stock option grants
under fixed awards. If the Company had elected to recognize  compensation  costs
based on the fair value of the options  granted at grant date as  prescribed  by
SFAS  No.123,  net income  (loss) and  income  (loss) per share from  continuing
operations would have increased as follows:


                                       10
<PAGE>

                                            THREE MONTHS ENDED
                                                  JUNE 30,
                                          -----------------------
RESULTS OF OPERATIONS                        2003         2002
                                          ----------   ----------

Net income (loss)-as reported (000's)     $      212   $   (1,042)

Total stock based employee compensation
 expense determined employee compensation
 expense determined under the fair value
 method for all awards (000's)            $       69   $        2
                                          ----------   ----------

Net income (loss)- pro forma (000's)      $      143   $   (1,044)
                                          ==========   ==========

Income (loss) per share as reported       $      .03   $     (.18)
                                          ==========   ==========
Income(loss) per share pro forma          $      .02   $     (.18)
                                          ==========   ==========


                                              SIX MONTHS ENDED
                                                  JUNE 30,
                                          -----------------------
RESULTS OF OPERATIONS                        2003         2002
                                          ----------   ----------

Net loss-as reported (000's)              $     (200)  $   (1,443)

Total stock based employee compensation
 expense determined employee compensation
 expense determined under the fair value
 method for all awards (000's)            $       76   $       71
                                          ----------   ----------

Net Loss- pro forma (000's)               $     (276)  $   (1,514)
                                          ==========   ==========

Loss per share as reported                $     (.03)  $     (.25)
                                          ==========   ==========
Loss per share pro forma                  $     (.04)  $     (.26)
                                          ==========   ==========

NOTE 5.  BUSINESS SEGMENTS

Prior to 2002,  the Company's  business were  organized,  managed and internally
reported as three segments.  The segments are determined based on differences in
products,  production  processes and internal  reporting.  During the year ended
December 31, 2001, the Company  approved of a plan to discontinue the operations
of the Plastics Group. During the fourth quarter of 2002, the Company's contract
with DARPA was terminated and as a result of the termination, management decided
to suspend the  activities  of the  Photonics  Group in 2002 and  liquidate  the
remaining assets. During the fourth quarter of the year ended December 31, 2003,
the Company approved the sale of the assets and certain liabilities of its Laser
Fare,  Inc.  subsidiary,  referred  to as  the  Laser  Group.  As a  result,  in
accordance  with FASB 144, the disposal of the  Plastics,  Photonics,  and Laser
segments  have  been  accounted  for  as  disposals  of  business  segments  and
accordingly,  the respective  assets  (liabilities)  have been  segregated  from
continuing  operations and classified as assets of  discontinued  operations and
the  operating  results for all three  segments are  segregated  and reported as
discontinued operations.

Beginning in 2003, the Company revised its business strategy and began operating
its newly formed IT Services Group.


                                       11
<PAGE>

All of the segments of the Company  operate  entirely  within the United States.
Revenues from customers in foreign countries are minimal.  Transactions  between
reportable  segments are recorded at cost. The Company  relies on  inter-segment
cooperation and management  does not represent that these segments,  if operated
independently, would report the results shown.

A summary  of  selected  consolidated  information  for the  Company's  industry
segments during the periods ended June 30, 2003 and 2002,  respectively,  is set
forth as follows:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------
                         Plastics      Photonics                    IT Services   Unallocated
                           Group         Group       Laser Group       Group       Corporate    Consolidated
------------------------------------------------------------------------------------------------------------
<S>                     <C>           <C>            <C>            <C>           <C>           <C>
Three Months ended June 30, 2003
------------------------------------------------------------------------------------------------------------
Sales to unaffiliated
customers               $         --  $          --  $ 1,439,763    $    90,781   $        --   $  1,530,544
------------------------------------------------------------------------------------------------------------
Operating (loss)        $         --  $          --  $    52,669    $  (328,237)  $        --   $   (275,568)
------------------------------------------------------------------------------------------------------------
Income (loss) from
discontinued operations $         --  $     516,135  $        --    $        --   $        --   $    516,135
------------------------------------------------------------------------------------------------------------

Three Months ended June 30, 2002
------------------------------------------------------------------------------------------------------------
Sales to
unaffiliated customers  $         --  $          --  $ 1,500,998    $        --   $        --   $  1,500,998
------------------------------------------------------------------------------------------------------------
Operating loss
including corporate
overhead allocation     $         --  $          --  $  (282,642)   $        --   $  (437,169)  $   (719,811)
------------------------------------------------------------------------------------------------------------
Income (loss) from
discontinued operations
including corporate
overhead allocation     $   (341,312) $      (6,589) $        --    $        --   $   171,074   $   (176,827)
------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------
                         Plastics      Photonics                    IT Services   Unallocated
                           Group         Group       Laser Group       Group      Corporate     Consolidated
------------------------------------------------------------------------------------------------------------

Six Months ended June 30, 2003
------------------------------------------------------------------------------------------------------------
Sales to
unaffiliated customers  $         --  $          --  $ 2,851,808    $    91,984   $        --   $  2,943,792
------------------------------------------------------------------------------------------------------------
Operating loss          $         --  $          --  $   (68,378)   $  (510,453)  $        --   $   (578,831)
------------------------------------------------------------------------------------------------------------
Income (loss) from
discontinued operations $         --  $     444,509  $        --    $        --   $        --   $    444,509
------------------------------------------------------------------------------------------------------------

Six Months ended June 30, 2002
------------------------------------------------------------------------------------------------------------
Sales to
unaffiliated customers  $         --  $          --  $ 3,272,939    $        --   $        --   $  3,272,939
------------------------------------------------------------------------------------------------------------
Operating loss
including corporate
overhead allocation     $         --  $          --  $  (653,914)   $        --   $  (594,111)  $ (1,248,025)
------------------------------------------------------------------------------------------------------------
Income (loss) from
discontinued operations
including corporate
overhead allocation     $   (248,763) $       8,770  $        --    $        --   $   138,178   $   (101,815)
------------------------------------------------------------------------------------------------------------
</TABLE>


                                                     12
<PAGE>

NOTE 6.  SUPPLEMENTAL CASH FLOW INFORMATION

      Non-cash  investing and  financing  transactions,  including  non-monetary
exchanges, consist of the following:

                                                           SIX MONTHS ENDED
                                                                JUNE 30,
                                                          -------------------
                                                            2003       2002
                                                          --------   --------

Conversion of legal fees outstanding to common
 stock                                                    $ 48,000   $     --
                                                          ========   ========
     Common stock, issued for prepaid services to
      be provided in future periods                       $     --   $750,000
                                                          ========   ========
     Conversion of long-term obligation and related
     accrued interest and fees to common stock,
      net of capitalized costs written off                $     --   $725,340
                                                          ========   ========
     Notes receivable issued in connection with
     the sale of assets                                   $     --   $180,000
                                                          ========   ========
     Conversion of long-term obligations -
      stockholders and related accrued interest
      to common stock                                     $     --   $129,600
                                                          ========   ========
     Value of detachable common stock warrants
      issued with long-term obligations                   $     --   $103,872
                                                          ========   ========
     Common stock warrants issued as satisfaction
      of accounts payable                                 $     --   $ 58,826
                                                          ========   ========

NOTE 7. EARNINGS PER SHARE

Basic income per share is based on the weighted  average number of common shares
outstanding during the periods  presented.  Diluted income 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 the stock options and stock warrants. 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 exercise.  In a loss year, 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.

As of June 30, 2002,  all  outstanding  stock options and warrants have not been
considered  common stock  equivalents  because their assumed  exercise  would be
anti-dilutive.


                                       13
<PAGE>

      The  following  table  sets  forth the  computation  of basic and  diluted
earnings per share as of:

                                               Six Months  Three Months
                                                 Ended         Ended
                                             June 30,2003  June 30, 2003

Numerator:
     Income available to common stockholders
      from discontinued operations             $  444,509   $  516,135
                                               ==========   ==========

     Weighted average shares outstanding        6,724,022    7,129,462
                                               ==========   ==========

Denominator for diluted income per share:
     Weighted average shares outstanding        6,724,022    7,129,462
     Common stock options and stock warrants      428,571      428,571
                                               ----------   ----------
     Weighted average shares and conversions    7,152,593    7,558,033
                                               ==========   ==========

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS

On January 3, 2003, our former president and chief executive  officer,  Clifford
G. Brockmyre II, resigned and was replaced by Michael S. Smith, one of our board
members. At the same time, we moved our corporate headquarters from Rhode Island
to Rochester,  New York. On May 6, 2003, Dr. Allan Robbins and Paul Delmore were
appointed to fill two existing vacancies on our board. Mr. Brockmyre remained on
our board of  directors  until  October 30, 2003 at which time he  resigned.  On
March 15, 2004, Brian Corridan resigned from our board.

In the fourth  quarter of 2003,  we decided to dispose of our Laser  Fare,  Inc.
subsidiary  (LF) and to  restructure  our  business.  We sold a  portion  of the
business of LF (primarily the medical and engraving business) as of December 31,
2003 and the remaining  business as of December 31, 2004,  although we continued
to operate the business during the disposal process.

The purchase  price for the assets  consisted of LFI's  assumption of certain of
our liabilities in the aggregate amount of approximately  $358,000.  On December
31, 2004, we sold the remaining assets of LF to Rolben  Acquisition  Corporation
(Rolben),  a company  affiliated  with LFI. The purchase price for the remaining
assets consisted of Rolben's  assumption of substantially all of the liabilities
of LF  and  the  delivery  of  promissory  notes  in  the  aggregate  amount  of
approximately  $2.1  million.  Because  certain  required  consents were not yet
obtained at December 31, 2004, we remained  obligated under several notes to UPS
Capital  Business  Credit  (UPS)  and the  Rhode  Island  Industrial  Facilities
Corporation (RIIFC) in the same amounts as the notes from Rolben.

During the second quarter of 2003, we commenced  providing services in the field
of  information  technology  (IT)  consulting  services  through our IT Services
Group.  We provide  business and technology  integration  and systems support to
government  clients. We focus on aligning business processes with technology for
delivery of solutions meeting the client's exact needs.

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED JUNE 30, 2003 AND 2002

We commenced the  operations of our IT services  Group in the second  quarter of
2003. The following  results  include the operations of our Laser Group for 2002
and 2003 and our IT Services Group  beginning in 2003.  The trends  suggested by
this table are not indicative of future operating results due to our decision to
sell the business of our Laser Group and focus on our IT Services Group.


                                       14
<PAGE>

<TABLE>
<CAPTION>

                                                                       Three Months Ended June 30,

                                                                  As a %                          As a %
                                                                  of Net             2002        of Net         Increase
                                                      2003       Revenues       (As Restated)   Revenues       (Decrease)
                                                  -----------    --------       ------------    ---------      ----------
<S>                                               <C>            <C>            <C>             <C>            <C>
Sales                                             $ 1,530,544       100.0%      $  1,500,998        100.0%            2.0%
Cost of sales                                         959,288        62.7          1,221,146         81.4           (21.4)
                                                  -----------------------       -------------------------      ----------
Gross profit                                          571,256        37.3            279,852         18.6           104.1
                                                  -----------------------       -------------------------      ----------
General and administrative                            594,890        38.9            679,884         45.3           (12.5)
Depreciation and amortization                         155,695        10.2            251,184         16.7           (38.0)
Selling                                                71,617         4.7             68,595          4.6             4.4
Research and development                               24,622         1.6                 --          0.0              --
                                                  -----------------------       -------------------------      ----------
Total operating expenses                              846,824        55.3            999,663         66.6           (15.3)
                                                  -----------------------       -------------------------      ----------
Operating loss                                       (275,568)      (18.0)          (719,811)       (48.0)          (61.7)
Other income (expense) and income taxes, net          (29,061)       (1.9)          (145,786)        (9.7)          (80.1)
                                                  -----------------------       -------------------------      ----------
Income (loss) from continuing operations             (304,629)      (19.9)          (865,597)       (57.7)          (64.8)
Income (loss) from discontinued operations            516,135        33.7           (176,827)       (11.8)         (391.9)
                                                  -----------------------       -------------------------      ----------
Net loss                                          $   211,506        13.8%      $ (1,042,424)       (69.4)%        (120.3)%
                                                  =======================       =========================      ==========
</TABLE>

      SALES

Sales  for the three  months  ended  June 30,  2003  were  relatively  unchanged
compared  to sales  for the  three  months  ended  June  30,  2002.  Sales  were
$1,439,763 from LF and $90,781 from IT Services Group for the three months ended
June 30, 2003.  Sales of $1,500,998 were from LF for the three months ended June
30, 2002.  The sales from the IT Services Group are a result of our new strategy
which was  implemented  in 2003.  Sales from LF  decreased  slightly in the 2003
period from the 2002 period.

On October 30, 2002, we received a notice of termination of our DARPA  contract.
The contract was terminated  for the U.S.  Government's  convenience.  The DARPA
contract had provided  substantially  all of the revenue of our Photonics Group.
As a result, we have terminated this line of business and have accounted for the
Photonics  Group as a disposal of  discontinued  operations in the  accompanying
financial statements.  Accordingly,  the statements of operations and cash flows
for 2002 have been restated to reflect the operations of the Photonics  Group in
income (loss) from discontinued operations.

      COST OF SALES AND GROSS PROFIT

Cost of sales represents the cost of labor, materials and overhead related to LF
and the cost of  employee  services  related to the IT Services  Group.  Cost of
sales for the three months ended June 30, 2003 decreased by $261,858 compared to
cost of sales  for the  three  months  ended  June 30,  2002.  Cost of sales was
$900,037  for LF and $59,251 for IT Services  Group for the three  months  ended
June 30,  2003.  Gross  profit was $539,726 or 37.5% for LF and $31,530 or 34.7%
for the IT Services  Group for the three  months  ended June 30,  2003.  Cost of
sales of  $1,221,146  was for LF for the three  months  ended June 30,  2002 and
resulted in a gross  profit of  $279,852 or 18.6%.  Gross  profit  increased  by
$259,874  for LF due to the mix of job  orders  and  fixed  costs  which did not
increase as sales increased.


                                       15
<PAGE>

      GENERAL AND ADMINISTRATIVE EXPENSES

General  and   administrative   expenses  include  corporate  overhead  such  as
compensation  and  benefits  for  administrative  and finance  personnel,  rent,
insurance,   professional  fees,  travel,  and  office  expenses.   General  and
administrative  expenses  in the second  quarter of 2003  decreased  in absolute
terms and as a percentage of sales  compared to the second  quarter of 2002. The
decrease was due to the relocation of  administrative  offices from Rhode Island
to Rochester,  New York in 2003 and an associated  reduction in employee related
expenses as we implemented  our new strategies.  We also realized  reductions in
our professional fees and other operating  expenses.  We anticipate that general
and  administrative  expenses will decrease as a percent of sales as we continue
to transition our business strategy.  However, we expect increases in accounting
and legal expenses in 2004 and 2005 due to our focus on completing audits of our
financial statements and related public information filings.

General  and  administrative  expense  includes  expenses of the Osley & Whitney
defined benefit  retirement plan of  approximately  $50,000 and income of $8,720
for the three months ended June 30, 2003 and 2002, respectively.

      DEPRECIATION AND AMORTIZATION

Depreciation and amortization  expense  decreased by $95,489 in the three months
ended June 30, 2003 compared to the three months ended June 30, 2002 principally
due to the write off or disposition of assets in connection  with the relocation
of our corporate  headquarters to Rochester,  New York. We are operating our new
corporate headquarters with less capital equipment.

      SELLING EXPENSES

For the three months ended June 30, 2003 we incurred  selling expenses of $5,079
associated with growing business in our IT Services Group. Selling expense at LF
was  relatively  unchanged  at $66,538 for the three  months ended June 30, 2003
compared to $68,595 for the three months ended June 30, 2002.

      RESEARCH AND DEVELOPMENT

For the three  months  ended June 30, 2003 we  continued  to incur  research and
development  expenses  associated with growing business in our IT Services Group
related to our biometrics  applications  and recorded $24,622 of expense for the
quarter  ended June 30,  2003.  These  expenses are  principally  related to the
development  of  an  access  control   terminal  and  related   software  called
TouchThru(TM).  TouchThru(TM) is a  self-contained  terminal  enabling  physical
access  control using  biometric  identification.  It  incorporates  fingerprint
matching technology licensed from Ultra-Scan  Corporation,  a private technology
company  headquartered  in Buffalo,  New York.  TouchThru(TM)  will be the first
biometric product we introduce,  and we intend to be in a position to market and
sell that product beginning in 2006. We plan to market and sell TouchThru(TM) in
a variety of  industries  and markets,  including  the federal,  state and local
government, health care, travel and general security, and access control.

      LOSS FROM OPERATIONS

For the  three  months  ended  June 30,  2003 our  operating  loss was  $275,568
compared to a $719,811 loss from  operations in the  comparable  period of 2002.
This is  primarily  attributable  to our focus on our new IT Services  Group and
reductions in general and administrative expenses offset in part by research and
development  expenses  of our  IT  Services  Group  related  to  our  biometrics
applications.


                                       16
<PAGE>

      OTHER EXPENSES

Other  income  and  expense   consists   principally  of  interest   expense  on
indebtedness  for the three  months ended June 30,  2003.  Interest  expense was
$41,080 for the three  months  ended June 30,  2003  compared to $86,659 for the
three months ended June 30,  2002.  The decrease in our interest  expense is due
primarily to repayment of notes  payable as a result of the  termination  of our
DARPA contract in 2002 and the continued amortization of notes payable of LF.

      INCOME (LOSS) FROM DISCONTINUED OPERATIONS

We recorded income from discontinued operations of $516,135 for the three months
ended June 30, 2003  compared to a loss of $176,827  for the three  months ended
June 30, 2002. This income is the result of the operations of the Plastics Group
and the Photonics Group which were reclassified as discontinued operations. This
is principally  due to the closing of the DARPA contract in the Photonics  Group
and the  settlement of  liabilities  for less than the full  carrying  values in
2003. The loss in 2002 was principally due to the discontinued operations of the
Plastics Group.

      NET INCOME (LOSS)

For the three months ended June 30, 2003, we recorded net income of $211,506, or
$.03 per share  consisting of a loss from  continuing  operations of $304,629 or
$(.04) per share and income from discontinued operations of $516,135 or $.07 per
share.  This compares to a net loss of $1,042,424 or $(.18) per share consisting
of a loss from continuing  operations of $865,597 or $(.15) per share and a loss
from  discontinued  operations  of  $176,827  or $(.03)  per share for the three
months ended June 30,  2002.  The  improvement  in net loss is  attributable  to
reductions in general and  administrative  expenses,  an improvement in the loss
from discontinued  operations by $692,962,  contributions provided by our new IT
Services Group, and a decrease in interest expense,  and increased gross profits
from LF's  business  which were  offset by  selling,  research  and  development
expenses of our IT Services Group.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2003 AND 2002

The following  table compares our statement of operations data for the first six
months of 2003 and 2002. We commenced the operations of our IT Services Group in
the second quarter of 2003. The following  results include the operations of our
Laser Group for 2002 and 2003 and our IT Services  Group  beginning in 2003. The
trends  suggested by this table are not indicative of future  operating  results
due to our  decision to sell the business of our Laser Group and focus on our IT
Services Group.


                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                        Six Months Ended June 30,

                                                                  As a %                          As a %
                                                                  of Net            2002         of Net         Increase
                                                      2003       Revenues       (As Restated)   Revenues       (Decrease)
                                                  -----------    --------       ------------    ---------      ----------
<S>                                               <C>            <C>            <C>             <C>            <C>
Sales                                              $2,943,792       100.0 %     $  3,272,939        100.0 %         (10.1) %
Cost of sales                                       2,003,596        68.1          2,671,802         81.6           (25.0)
                                                  -----------------------       -------------------------      ----------
Gross profit                                          940,196        31.9            601,137         18.4            56.4
                                                  -----------------------       -------------------------      ----------
General and administrative                          1,054,149        35.8          1,248,985         38.2           (15.6)
Depreciation and amortization                         318,207        10.8            449,279         13.7           (29.2)
Selling                                               120,117         4.1            149,082          4.6           (19.4)
Research and development                               26,554         0.9              1,816          0.1         1,362.2
                                                  -----------------------       -------------------------      ----------
Total operating expenses                            1,519,027        51.6          1,849,162         56.5           (17.9)
                                                  -----------------------       -------------------------      ----------
Operating loss                                       (578,831)      (19.7)        (1,248,025)       (38.1)          (53.6)
Other income (expense) and income taxes, net          (65,296)       (2.2)           (92,739)        (2.8)          (29.6)
                                                  -----------------------       -------------------------      ----------
Loss from continuing operations                      (644,127)      (21.9)        (1,340,764)       (41.0)          (52.0)
Income (loss) from discontinued operations            444,509        15.1          (101,815)        (3.1)          (536.6)
                                                  -----------------------       -------------------------      ----------
Net loss                                          $  (199,618)       (6.8) %    $ (1,442,579)       (44.1) %        (86.2) %
                                                  =======================       =========================      ==========
</TABLE>

      SALES

Sales for the six months ended June 30, 2003 decreased  $329,147 or 10% compared
to sales for the six  months  ended  June 30,  2002.  Sales of LF  decreased  by
$272,887 or 8.7% to  $2,851,808  for the six months ended June 30, 2003 compared
to the six months  ended June 30, 2002.  This  decrease was offset by sales from
the IT Services  Group of $91,984 for the six months  ended June 30,  2003.  The
sales  from the IT  Services  Group are a result of our new  strategy  which was
implemented  in 2003.  Sales from LF  declined  in the 2003 period from the 2002
period due to reductions in customer orders.

On October 30, 2002, we received a notice of termination of our DARPA  contract.
The contract was terminated  for the U.S.  Government's  convenience.  The DARPA
contract had provided  substantially  all of the revenue of our Photonics Group.
As a result, we have terminated this line of business and have accounted for the
Photonics  Group as a disposal of  discontinued  operations in the  accompanying
financial  statements.  Accordingly,  the statements of operations for 2002 have
been restated to reflect the operations of the Photonics  Group in income (loss)
from discontinued operations.

      COST OF SALES AND GROSS PROFIT

Cost of sales represents the cost of labor, materials and overhead related to LF
and the cost of  employee  services  related to the IT Services  Group.  Cost of
sales was $1,944,345 for LF and $59,251 for IT Services Group for the six months
ended  June 30,  2003.  Cost of sales for the six  months  ended  June 30,  2003
decreased  25% as  compared  to cost of sales for the six months  ended June 30,
2002.  Cost of sales as a percent of sales  improved  by 13.5% or  approximately
$668,206  from 81.6% for the six months ended June 30, 2002 to 68.1% for the six
months ended June 30, 2003.  The decrease in cost of sales as a percent of sales
is principally due to reductions in employees and related expenses at LF.

Gross  profit  was  $907,463  or 31.8%  for LF and  $32,733  or 35.6% for the IT
Services  Group  for the six  months  ended  June  30,  2003.  Cost of  sales of
$2,558,937  for the six months  ended June 30, 2002 was for LF and resulted in a
gross profit of $565,758 or 18.1%.

For the six months ended June 30, 2003,  we  continued to  experience  operating
losses due  primarily  to  continued  weakness in jet engine and  turbine  parts
revenue at LF. These losses have resulted in reductions in cash flow, continuing
defaults in our bank loan covenants and a negative working capital position.


                                       18
<PAGE>

      GENERAL AND ADMINISTRATIVE EXPENSES

General  and   administrative   expenses  include  corporate  overhead  such  as
compensation  and  benefits  for  administrative  and finance  personnel,  rent,
insurance,   professional  fees,  travel,  and  office  expenses.   General  and
administrative  expenses  for the six months  ended June 30, 2003  decreased  in
absolute  terms and as a percentage of sales compared to the first six months of
2002.  The decrease was due to the  relocation  of  administrative  offices from
Rhode  Island to  Rochester,  New York in 2003 and an  associated  reduction  in
employee related expenses as we implemented our new strategies. We also realized
reductions in our professional fees and other operating expenses.  We anticipate
that general and administrative  expenses will decrease as a percent of sales as
we continue to transition our business strategy. However, we expect increases in
accounting  and legal  expenses in 2004 and 2005 due to our focus on  completing
audits of our financial statements and related public information filings.

General and  administrative  expenses  also  decreased at LF due to cost cutting
measures implemented beginning in 2002.

General  and  administrative  expense  includes  expenses of the Osley & Whitney
defined benefit retirement plan of approximately  $100,000 and income of $17,440
for the six months ended June 30, 2003 and 2002, respectively.

      DEPRECIATION AND AMORTIZATION

Depreciation and amortization  expenses  decreased by $131,072 in the six months
ended June 30, 2003 compared to the six months ended June 30, 2002. This was due
to the write off or disposition  of assets in connection  with the relocation of
our  corporate  headquarters  to  Rochester,  New York. We are operating our new
corporate  headquarters with less capital equipment.  In addition,  depreciation
expense at LF decreased as assets came to the end of their depreciable lives.

      SELLING EXPENSES

For the six months  ended June 30, 2003 we incurred  selling  expenses of $5,079
associated with growing business in our IT Services Group. Selling expense at LF
decreased  by $34,044 to  $115,038  for the six  months  ended June 30,  2003 as
compared  to  the  six  months  ended  June  30,  2002  reflecting  minor  staff
reductions.

      RESEARCH AND DEVELOPMENT

For the six  months  ended  June  30,  2003  we  began  to  incur  research  and
development  expenses  associated with growing business in our IT Services Group
related to our biometrics  applications  and recorded $26,554 of expense for the
six months ended June 30, 2003.  These expenses are  principally  related to the
development  of  an  access  control   terminal  and  related   software  called
TouchThru(TM).  TouchThru(TM) is a  self-contained  terminal  enabling  physical
access  control using  biometric  identification.  It  incorporates  fingerprint
matching technology licensed from Ultra-Scan  Corporation,  a private technology
company  headquartered  in Buffalo,  New York.  TouchThru(TM)  will be the first
biometric product we introduce,  and we intend to be in a position to market and
sell that product beginning in 2006. We plan to market and sell TouchThru(TM) in
a variety of  industries  and markets,  including  the federal,  state and local
government, health care, travel and general security, and access control.


                                       19
<PAGE>

      LOSS FROM OPERATIONS

For the six months ended June 30, 2003 our operating loss was $578,831  compared
to a $1,  248,025 loss from  operations  for the six months ended June 30, 2002.
This  improvement is primarily  attributable to our focus on our new IT Services
Group and reductions in LF's cost of sales, general and administrative expenses,
depreciation  expense,  and selling expense,  offset by research and development
expenses   incurred  in  our  IT  Services   Group  related  to  our  biometrics
applications.

      OTHER INCOME (EXPENSES)

Other  income  and  expense   consists   principally  of  interest   expense  on
indebtedness  for the six  months  ended June 30,  2003.  Interest  expense  was
$80,080 for the six months ended June 30, 2003  compared to $167,682 for the six
months  ended  June 30,  2002.  The  decrease  in our  interest  expense  is due
primarily to repayment of notes  payable as a result of the  termination  of our
DARPA contract in 2002 and the continued amortization of notes payable of LF.

      INCOME (LOSS) FROM DISCONTINUED OPERATIONS

We recorded income from  discontinued  operations of $444,509 for the six months
ended June 30, 2003 compared to a loss of $101,815 for the six months ended June
30, 2002. The income for 2003 is due to the close out of the DARPA contract with
the  Photonics  Group and includes  settlement of balances due for less than the
full carrying  values.  The loss from  discontinued  operations  for 2002 is the
result of the  losses  from  discontinued  operations  of Osley &  Whitney,  the
Plastics Group and the Photonics Group.

      NET LOSS

For the six months  ended June 30,  2003,  we recorded a net loss of $199,618 or
$(.03) per share consisting of a loss from continuing  operations of $644,127 or
$(.09) per share and  income of  $444,509  or $.06 per share  from  discontinued
operations.  This  compares  to a net loss of  $1,442,579  or  $(.25)  per share
consisting  of a loss from  continuing  operations  of  $1,340,764 or $(.23) per
share and a loss of  $101,815 or $(.02) per share from  discontinued  operations
for the  six  months  ended  June  30,  2002.  The  improvement  in net  loss is
attributable to reductions in cost of sales as a percent of sales,  decreases in
general  and   administrative   expenses,   an  improvement  in  the  loss  from
discontinued  operations  by  $546,324  (from  a loss of  $101,815  to a gain of
$444,509),  contributions  provided by our new IT Services Group, and a decrease
in interest expense,  which were offset by research and development  expenses of
our IT Services Group related to our biometrics applications.

      LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2003 we had unrestricted  cash of $62,350,  substantially  all of
which was held by LF for its working capital needs.

At June 30,  2003 we had a working  capital  deficit of  $3,792,963  ($3,738,310
after  eliminating the assets and liabilities of our  discontinued  operations).
Approximately  $2,400,000  of this  deficit  is  caused  by bank  loan  covenant
violations  resulting  in the  classification  of all  related  debt with  these
financial institutions being classified current liabilities.

We have financed the activity of our new IT Services  Group through the issuance
of notes payable to related  parties and private  placements of common stock. In
the future,  we may issue  additional  debt or equity  securities to satisfy our
cash needs. Any debt incurred or issued may be secured or unsecured,  at a fixed
or variable  interest rates and may contain other terms and conditions  that our
board of directors  deems prudent.  Any sales of equity  securities may be at or
below current market prices.  We cannot assure you that we will be successful in
generating sufficient capital to adequately fund our liquidity needs.


                                       20
<PAGE>

RISK FACTORS

You should  consider  the risk  factors  included  in our Annual  Report on Form
10-KSB in evaluating our business and us. Additional risks and uncertainties not
presently known to us, which we currently deem immaterial or that are similar to
those faced by other  companies in our industry or business in general,  such as
competitive conditions,  may also impair our business operations.  If any of the
results of the risks occur,  our business,  financial  condition,  or results of
operations could be materially adversely affected.

ITEM 3.CONTROLS AND PROCEDURES

Evaluation of  Disclosure  Controls and  Procedures.  Our  management,  with the
participation  of the chief executive  officer and the chief financial  officer,
carried out an evaluation of the  effectiveness of our "disclosure  controls and
procedures"  (as defined in the  Securities  Exchange Act of 1934 (the "Exchange
Act") Rules  13a-15(e) and  15-d-15(e))  as of the end of the period  covered by
this report  (the  "Evaluation  Date").  Based upon that  evaluation,  the chief
executive  officer and the chief  financial  officer  concluded  that, as of the
Evaluation Date, our disclosure controls and procedures are effective, providing
them with  material  information  relating  to the  company  as  required  to be
disclosed in the reports we file or submit under the Exchange Act.

Changes in Internal Control over Financial  Reporting.  There were no changes in
our internal  controls over financial  reporting,  known to the chief  executive
officer or the chief financial  officer,  that occurred during our fiscal second
quarter that has  materially  affected,  or is  reasonably  likely to materially
affect, our internal control over financial reporting.


                                       21
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS.

We are the  plaintiff in a lawsuit filed in the Superior  Court;  State of Rhode
Island on August 13, 1999 captioned  Infinite  Group,  Inc. vs. Spectra  Science
Corporation  and Nabil  Lawandy.  In the action,  we assert that by fraud and in
breach of  fiduciary  duties owed,  Spectra and its  president,  Nabil  Lawandy,
caused us to sell to Spectra shares of Spectra's  Series A Preferred  stock at a
substantial  discount to fair market value.  We allege that in entering into the
transaction  we  relied  on  various  representations  made by  Spectra  and Mr.
Lawandy,  which were untrue at the time they were made.  In the action,  we seek
compensatory damages in the amount of $500,000 plus statutory interest, punitive
damages  as well as an award of  attorney's  fees and  costs.  One of  Spectra's
counterclaims  was  dismissed by the court in response to our motion for summary
judgment.  The trial was completed in February 2005. The jury returned a verdict
and judgment was entered in our favor in the amount of  approximately  $600,000.
We have  filed a notice of appeal  with  respect to the  damages  portion of the
verdict.  On June 1, 2005,  Spectra  voluntarily  dismissed  with  prejudice its
remaining  pending  counterclaim  against  us.  We have  entered  into an escrow
agreement  with  the  defendants  pursuant  to  which   approximately   $600,000
representing  the amount of the judgment has been  deposited.  Withdrawal of the
funds will be permitted only upon the date that judgment in the matter becomes a
final,  non-appealable  decision,  or earlier upon the written  agreement of all
parties.

We are the  respondent in an arbitration  proceeding  filed on December 10, 2002
captioned J. Terrence Feeley v. Infinite Group, Inc. Claimant, a former employee
and former  member of our board of directors,  alleges that the parties  entered
into  a  consulting  agreement  dated  June  27,  2002  relative  to  the  early
termination of claimant's employment requiring certain cash payments to be made.
Claimant  alleges that we have failed or refused to make such cash  payments and
have  breached  the  agreement  and seeks all monies  owed to him,  said  amount
alleged to be approximately  $130,000. We answered the claim by admitting that a
letter  agreement was entered into but denied all of the remaining  allegations.
We also filed a counterclaim in the arbitration  proceeding.  We filed a related
claim against Mr. Feeley in the Superior Court, State of Rhode Island on June 5,
2003. We claim that he breached certain provisions of his employment  agreement,
breached  fiduciary duties he owed to us and violated several  provisions of the
June 27, 2002 letter agreement.  We seek  compensatory  damages in amounts to be
shown at trial, and preliminary and permanent injunctive relief and other relief
as may be appropriate.

Mr.  Feeley's  arbitration  claims are pending  before the American  Arbitration
Association  and an arbitrator  selected by the parties.  Our claims against Mr.
Feeley are pending in the Rhode Island  Superior  Court. In January of 2004, the
parties agreed to stay  arbitration  proceedings and to mediate all the disputes
under procedures  available  through the Superior Court. To date,  neither party
has initiated mediation proceedings.

Other than the foregoing  proceeding,  we are not a party to any material  legal
proceeding.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

RECENT SALES OF UNREGISTERED SECURITIES

For the three and six months ended June 30, 2003, we issued 2,000,000 restricted
shares of common stock at $.05 per share in private placement  transactions.  In
addition,  we issued 960,000 restricted shares of common stock for conversion of
outstanding liabilities of $48,000.


                                       22
<PAGE>

These  transactions  were  exempt  from  registration,  as they  were  nonpublic
offerings  made pursuant to Sections 4(2) and 4(6) of the Act. All shares issued
in the  transactions  described  hereinabove  bore  an  appropriate  restrictive
legend.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

The  Company's LF subsidiary  had a $1,250,000  bank term  promissory  note that
required  monthly  principal and interest  payments  amounting to  approximately
$13,000  through  February  2011.  The  outstanding  balance as of June 30, 2003
amounted to $834,878 and bore  interest at the bank's prime rate plus 1.0%.  All
the assets of LF and the guarantee of the Company secured the note. We continued
to be in  violation  of certain  loan  covenants.  These  violations  related to
exceeding  certain  levels of the ratio of debt to  intangible  net  worth,  not
meeting the minimum  current ratio or the working  capital ratio,  and exceeding
capital expenditure limits.  Accordingly,  the entire outstanding portion of the
note was classified as current.

The  Company's LF subsidiary  had a $1,260,000  bank term  promissory  note that
required  monthly  principal and interest  payments  amounting to  approximately
$13,000  through  December  2014.  The  outstanding  balance as of June 30, 2003
amounted to $1,082,265  and bore interest at the bank's prime rate plus .75%. We
continued to be in violation of certain  covenants  under the term of this note.
Accordingly,  the  entire  outstanding  portion  of the note was  classified  as
current.

The  Company's  LF  subsidiary  is  obligated  under a capital  lease for the LF
operating facility. The lease provided for monthly payments to an escrow account
in  amounts  sufficient  to allow  for the  repayment  of the  principal  of the
underlying  tax-exempt  bonds together with interest at 7.25% through June 2012.
The  outstanding  balance  as of June 30,  2003  amounted  to  $485,000.  Annual
payments of  principal  were  $35,000 for fiscal  2003 and  increased  by $5,000
annually  through June 2012.  Under the terms of this capital lease, the Company
was  prohibited  from  paying  dividends  or making  other  cash  distributions.
According  to the terms of the lease  agreement,  the  Company  was  required to
comply  with  certain  covenants.  We  continued  to be in  violation  of  these
covenants.  Accordingly,  the entire outstanding  portion of this obligation has
been classified as current.

The  aggregate  amount of the  aforementioned  notes  payable and capital  lease
obligations classified as current liabilities was $2,402,143 at June 30, 2003.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         NONE.

ITEM 5.  OTHER INFORMATION.

         NONE.

ITEM 6.  EXHIBITS.

a.    Exhibits:


      Exhibit No.       Description
      ----------        --------------------------------------------------------
         31.1           Certification  of  Chief  Executive  Officer  and  Chief
                        Financial   Officer  pursuant  to  Section  302  of  the
                        Sarbanes-Oxley Act of 2002.

         32.1           Certification  of  Chief  Executive  Officer  and  Chief
                        Financial   Officer  pursuant  to  Section  906  of  the
                        Sarbanes-Oxley Act of 2002.


                                       23
<PAGE>

                                   SIGNATURES

      In accordance  with the  requirements  of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                                  Infinite Group Inc.
                                                  (Registrant)

Date: July 26, 2005                               /s/ Michael S. Smith
                                                  ------------------------------
                                                         Chief Executive Officer

Date: July 26, 2005                               /s/ Michael S. Smith
                                                  ------------------------------
                                                  Chief Financial Officer
                                                  (Principal Financial Officer)


                                       24