**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**





(Mark
      One)





x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 for the quarterly period ended: June 30, 2008





 ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934 for the transition period from _________ to __________




Commission
      file number: 0-21816





**INFINITE
      GROUP, INC.**


(Exact
      name of registrant as specified in its charter)





Delaware
            52-1490422(State
                or other jurisdiction of
            (IRS
                Employerincorporation
                or organization)
            Identification
                No.)





60
      Office
      Park Way


Pittsford,
      New York 14534


(Address
      of principal executive offices)





(585)
      385-0610


(Registrant's
      telephone number)





(Former
      name, former address and former fiscal year,


if
      changed since last report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes x No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                Accelerated filer ̈
              Non-accelerated
                filer ̈
            Accelerated
                filer ̈
              Smaller
                reporting companyx





Indicate
      by check mark whether the issuer is a shell company (as defined in Rule 12b-2
      of
      the Exchange Act).


Yes  ̈ No x





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date. There were a total of 24,800,328
      shares of the issuer’s common stock, par value $.001 per share, outstanding as
      of August 12, 2008.







INFINITE
      GROUP, INC.


**FORM
      10-Q REPORT**





TABLE
      OF
      CONTENTS




PAGEPART
                I – FINANCIAL INFORMATIONItem
                1.
            Consolidated
                Financial StatementsBalance
                Sheet – June 30, 2008 (Unaudited) and December 31, 2007
                (Audited)
            3Statements
                of Operations (Unaudited) for the three and six months ended June
                30, 2008
                and 2007
            4Statements
                of Cash Flows (Unaudited) for the six months ended June 30, 2008
                and
                2007
            5Notes
                to Consolidated Financial Statements – (Unaudited)
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            9Item 3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            15Item
                4T.
            Controls
                and Procedures
            15PART
                II – OTHER INFORMATIONItem 1A.
            Risk
                Factors
            16Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            16Item
                6.
            Exhibits
            16SIGNATURES
            16





**FORWARD-LOOKING
      STATEMENTS**




Certain
      statements made in this Quarterly Report on Form 10-Q are “forward-looking
      statements” 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. We undertake
      no obligation to revise or update publicly any forward-looking statements for
      any reason. The terms “we”, “our”, “us”, or any derivative thereof, as used
      herein refer to Infinite Group, Inc., a Delaware corporation, and its
      predecessors.


2


**PART
      I**


**FINANCIAL
      INFORMATION**


**Item
      1. Financial Statements**





**INFINITE
      GROUP, INC.**





**Consolidated
      Balance Sheets**


**June 30,**
              
              **December 31,****2008**
                **(Unaudited)**
              
              **2007**
                **(Audited)****ASSETS****Current
                  assets:**Cash
              
              **$**
              **131,160**
              
              $
              28,281Accounts
                  receivable, net of allowance of $35,000
              
              
              **751,160**
              
              
              669,607Prepaid
                  expenses and other current assets
              
              
              **60,918**
              
              
              59,381**Total
                  current assets**
              
              
              **943,238**
              
              
              757,269**Property
                  and equipment, net**
              
              
              **68,605**
              
              
              70,723**Other
                  assets –**security****deposits
              
              
              **12,641**
              
              
              19,523Total
                  assets
              
              **$**
              **1,024,484**
              
              $
              847,515**LIABILITIES
                  AND STOCKHOLDERS’ DEFICIENCY****Current
                  liabilities:**Accounts
                  payable
              
              **$**
              **399,795**
              
              $
              299,519Accrued
                  payroll
              
              
              **252,725**
              
              
              262,453Accrued
                  interest payable
              
              
              **255,403**
              
              
              269,530Accrued
                  pension and retirement
              
              
              **2,316,068**
              
              
              2,081,508Accrued
                  expenses – other
              
              
              **67,590**
              
              
              86,197****Current
                  maturities of notes payable
              
              
              **4,241**
              
              
              4,077Notes
                  payable
              
              
              **30,000**
              
              
              30,000Notes
                  payable-related parties
              
              
              **273,251**
              
              
              140,332**Total
                  current liabilities**
              
              
              **3,599,073**
              
              
              3,173,616**Long-term
                  obligations:**Notes
                  payable
              
              
              **233,543**
              
              
              29,706Notes
                  payable-related parties
              
              
              **900,624**
              
              
              1,091,624Accrued
                  pension expense
              
              
              **258,428**
              
              
              408,419Total
                  liabilities
              
              
              **4,991,668**
              
              
              4,703,365Commitments
                  and contingencies (note 6)**Stockholders’
                  deficiency:**Common
                  stock, $.001 par value, 60,000,000 shares authorized; 24,600,328
                  (23,614,965 – 2007) shares issued and outstanding
              
              
              **24,600**
              
              
              23,615Additional
                  paid-in capital
              
              
              **29,548,709**
              
              
              29,386,215Accumulated
                  deficit
              
              
              **(31,312,804**
              **)**
              
              (31,037,991
              )Accumulated
                  other comprehensive loss
              
              
              **(2,227,689**
              **)**
              
              (2,227,689
              )Total
                  stockholders’ deficiency
              
              
              **(3,967,184**
              **)**
              
              (3,855,850
              )Total
                  liabilities and stockholders’ deficiency
              
              **$**
              **1,024,484**
              
              $
              847,515
  See
        notes
        to consolidated financial statements.
  3
  **INFINITE
        GROUP, INC.**
  **Consolidated
        Statements of Operations (Unaudited)**
 
 **Three Months Ended**
              
              **Six Months Ended****June 30,**
              
              **June 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Sales**
              
              **$**
              **2,163,615**
              
              $
              1,812,262
              
              **$**
              **4,630,425**
              
              $
              3,944,669Cost
                  of services
              
              
              **1,652,404**
              
              
              1,343,342
              
              
              **3,368,676**
              
              
              2,751,949**Gross
                  profit**
              
              
              **511,211**
              
              
              468,920
              
              
              **1,261,749**
              
              
              1,192,720Costs
                  and expenses:General
                  and administrative
              
              
              **256,151**
              
              
              176,267
              
              
              **514,153**
              
              
              392,479Defined
                  benefit pension plan
              
              
              **50,031**
              
              
              73,493
              
              
              **98,992**
              
              
              189,018Selling
              
              
              **341,474**
              
              
              366,166
              
              
              **749,150**
              
              
              702,764Depreciation
              
              
              **9,369**
              
              
              8,810
              
              
              **18,323**
              
              
              18,117Research
                  and development
              
              
              **-**
              
              
              41,990
              
              
              **-**
              
              
              87,253Total
                  costs and expenses
              
              
              **657,025**
              
              
              666,726
              
              
              **1,380,618**
              
              
              1,389,631**Operating
                  loss**
              
              
              **(145,814**
              **)**
              
              (197,806
              )
              
              **(118,869**
              **)**
              
              (196,911
              )Other
                  income (expense):Interest
                  income
              
              
              **-**
              
              
              84
              
              
              **-**
              
              
              212Interest
                  expense:Related
                  parties
              
              
              **(32,025**
              **)**
              
              (34,654
              )
              
              **(64,377**
              **)**
              
              (70,279
              )Other
              
              
              **(44,917**
              **)**
              
              (30,746
              )
              
              **(90,952**
              **)**
              
              (59,721
              )****Total
                  interest expense
              
              
              **(76,942**
              **)**
              
              (65,400
              )
              
              **(155,329**
              **)**
              
              (130,000
              )Other
                  income
              
              
              **-**
              
              
              6,591
              
              
              **-**
              
              
              6,591****Total
                  other income (expense)
              
              
              **(76,942**
              **)**
              
              (58,725
              )
              
              **(155,329**
              **)**
              
              (123,197
              )Loss
                  before income tax expense
              
              
              **(222,756**
              **)**
              
              (256,531
              )
              
              **(274,198**
              **)**
              
              (320,108
              )Income
                  tax expense
              
              
              **-**
              
              
              -
              
              
              **(615**
              **)**
              
              (605
              )Net
                  loss
              
              **$**
              **(222,756**
              **)**
              $
              (256,531
              )
              **$**
              **(274,813**
              **)**
              $
              (320,713
              )Net
                  loss per share – basic and diluted
              
              **$**
              **(.01**
              **)**
              $
              (.01
              )
              **$**
              **(.01**
              **)**
              $
              (.01
              )Weighted
                  average number of shares outstanding - basic and diluted
              
              
              **24,482,371**
              
              
              23,188,372
              
              
              **24,128,522**
              
              
              22,803,805
  4
  **INFINITE
        GROUP, INC.**
  **Consolidated
        Statements of Cash Flows (Unaudited)**
 
 **For
                  the Six Months Ended****June
                  30,****2008**
              
              **2007****Operating
                  activities:**Net
                  loss
              
              **$**
              **(274,813**
              **)**
              $
              (320,713
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Stock
                  based compensation
              
              
              **116,812**
              
              
              132,453Depreciation
              
              
              **18,323**
              
              
              18,117Gain
                  on disposal of equipment
              
              
              **-**
              
              
              (6,591
              )Increase
                  in assets:Accounts
                  receivable
              
              
              **(81,553**
              **)**
              
              (33,080
              )Other
                  assets
              
              
              **(7,155**
              **)**
              
              (14,980
              )Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              **100,276**
              
              
              (29,051
              )Accrued
                  expenses
              
              
              **38**
              
              
              52,427Accrued
                  pension and retirement
              
              
              **84,569**
              
              
              147,282**Net
                  cash used in operating activities**
              
              
              **(43,503**
              **)**
              
              (54,136
              )**Investing
                  activities:**Purchase
                  of property and equipment
              
              
              **(16,205**
              **)**
              
              (5,365
              )Proceeds
                  from notes receivable
              
              
              **-**
              
              
              2,632**Net
                  cash used in investing activities**
              
              
              **(16,205**
              **)**
              
              (2,733
              )**Financing
                  activities:**Proceeds
                  from note payable
              
              
              **200,000**
              
              
              -Repayments
                  of notes payable
              
              
              **(1,999**
              **)**
              
              (6,055
              )Repayments
                  of note payable-related party
              
              
              **(52,081**
              **)**
              
              (5,454
              )Proceeds
                  from exercise of stock options
              
              
              **16,667**
              
              
              500**Net
                  cash provided by (used in) financing activities**
              
              
              **162,587**
              
              
              (11,009
              )Net
                  increase (decrease) in cash
              
              
              **102,879**
              
              
              (67,878
              )Cash
                  – beginning of period
              
              
              **28,281**
              
              
              73,786Cash
                  – end of period
              
              **$**
              **131,160**
              
              $
              5,908**Supplemental
                  disclosure:**Cash
                  paid for:Interest
              
              **$**
              **130,235**
              
              $
              100,856Income
                  taxes
              
              **$**
              **615**
              
              $
              605
  See
        notes
        to consolidated financial statements.
  5
  **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 (U.S.) for interim financial information and with
      instructions to Form 10-Q. Accordingly, they do not include all of the
      information and footnotes required by accounting principles generally accepted
      in the U.S. for complete financial statements. In the opinion of management,
      all
      adjustments considered necessary for a fair presentation have been included.
      All
      such adjustments are of a normal recurring nature. The accompanying unaudited
      consolidated financial statements should be read in conjunction with the
      Company’s audited consolidated financial statements and the notes thereto
      included in the Company’s Annual report on Form 10-KSB for the year ended
      December 31, 2007 filed with the U.S. Securities and Exchange Commission (SEC).
      Results of consolidated operations for the six months ended June 30, 2008 are
      not necessarily indicative of the operating results that may be expected for
      the
      year ending December 31, 2008. The consolidated financial statements herein
      include the accounts of the Company and its wholly owned subsidiaries. The
      subsidiaries are inactive. All material inter-company accounts and transactions
      have been eliminated.





**Note 2. Summary of Significant Accounting Policies**





There
      are
      several accounting policies that the Company believes are significant to the
      presentation of its consolidated financial statements. These policies require
      management to make complex or subjective judgments about matters that are
      inherently uncertain. Note 3 to the Company’s audited consolidated financial
      statements for the year ended December 31, 2007 presents a summary of
      significant accounting policies.





**Recent
      Accounting Pronouncements**





**Statement
      of Financial Accounting Standards No. 157, Fair Value
      Measurements**





Statement
      of Financial Accounting Standards No. 157, Fair Value Measurements - In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
      (SFAS No. 157). Among other requirements, SFAS No. 157 defines fair
      value and establishes a framework for measuring fair value and also expands
      disclosure about the use of fair value to measure assets and liabilities. The
      Company was required to adopt SFAS No. 157 on January 1, 2008. Subsequent
      to the Standard's issuance, the FASB issued an exposure draft that provides
      for
      a deferral for the implementation of SFAS 157 for non-financial assets and
      liabilities which are not measured at fair value on a recurring basis (at least
      annually) until fiscal years beginning after November 15, 2008. The Company
      is
      currently evaluating the impact of adopting SFAS 157.





**Financial
      Accounting Standards Board issued Statement of Financial Accounting Standards
      No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
      (“SFAS No. 159”)**





In
      February 2007, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits
      companies to elect to follow fair value accounting for certain financial assets
      and liabilities in an effort to mitigate volatility in earnings without having
      to apply complex hedge accounting provisions. The standard also establishes
      presentation and disclosure requirements designed to facilitate comparison
      between entities that choose different measurement attributes for similar types
      of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning
      after November 15, 2007. The Company did not adopt the provisions of SFAS No.
      159 in the first or second quarter of 2008.





**The
      Hierarchy of Generally Accepted Accounting Principles** **(“SFAS
      No. 162”)**





In
      May
      2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
      Accounting Principles. The purpose of this statement is to improve financial
      reporting by providing a consistent framework for determining applicable
      accounting principles to be used in the preparation of financial statements
      presented in conformity with accounting principles generally accepted in the
      United States of America. SFAS No. 162 will become effective 60 days after
      the
      SEC’s approval. The Company believes that the adoption of this standard on its
      effective date will not have a material effect on the consolidated financial
      statements.





**Note
      3. Stock Option Plans**





The
      Company’s board of directors and stockholders have approved stock options plans
      covering up to an aggregate of 5,241,833 shares. Such options may be designated
      at the time of grant as either incentive stock options or nonqualified stock
      options.


6


Stock
      based compensation includes expense charges related to all stock-based awards
      to
      employees, directors and consultants. Such awards include options, warrants
      and
      stock grants.





Effective
      January 1, 2006, the Company adopted the provisions of Statement of Financial
      Accounting Standards No. 123 (revised 2004), “Share-Based Payment”, (SFAS 123R)
      using the modified prospective transition method. The Company used volatility
      of
      50% when computing the value of stock options and warrants during the six months
      ended June 30, 2008 and 2007. Each option awarded in 2008 and 2007 has a ten
      year exercise term. The expected dividend yield is zero percent and the expected
      life of the options is ten years. The risk-free rate for periods within the
      contractual life of the option is based on the U.S. Treasury yield curve in
      effect at the time of grant and ranged from 3.74% to 4.10% for the six months
      ended June 30, 2008 and 4.56% to 4.75% for the six months ended June 30,
      2007.





The
      Company recorded expense for options, warrants and common stock issued to
      employees and independent service providers for the three months and six months
      ended June 30, 2008 and 2007 as follows. There was no impact from SFAS 123R
      on
      net loss per share for the three or six months ended June 30, 2008 and
      2007.





**Six Months**
              **ended**
              **June 30, 2008**
            
            Six Months
              ended
              June 30, 2007
            
            **Three Months**
              **ended**
              **June 30, 2008**
            
            Three Months
              ended
              June 30, 2007Employee
                stock options
            
            **$**
            **98,217**
            
            $
            83,059
            
            **$**
            **55,532**
            
            $
            44,815Consultants
                – common stock warrants
            
            
            **6,095**
            
            
            36,894
            
            
            **-**
            
            
            19,713Consultant
                – shares of common stock
            
            
            **12,500**
            
            
            12,500
            
            
            **-**
            
            
            12,500Total
                expense
            
            **$**
            **116,812**
            
            $
            132,453
            
            **$**
            **55,532**
            
            $
            77,028





A
      summary
      of all stock option activity for six months ended June 30, 2008
      follows:





**Number of**
              **Option****s**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Weighted-**
              **Average**
              **Remaining**
              **Contractual**
              **Term**
            
            **Aggregate**
              **Intrinsic Value**Outstanding
                at December 31, 2007
            
            
            4,914,500
            
            $
            .27Options
                granted
            
            
            295,000
            
            $
            .53Options
                expired
            
            
            (594,333
            )
            $
            .49Options
                exercised
            
            
            (66,667
            )
            $
            .25Outstanding
                at June 30, 2008
            
            
            4,548,500
            
            $
            .26
            
            
            6.9
                years
            
            $
            2,357,395Exercisable
                at June 30, 2008
            
            
            3,840,500
            
            $
            .22
            
            
            6.5
                years
            
            $
            2,157,782





The
      weighted average fair value of options granted during the six months ended
      June
      30, 2008 was approximately $.34 ($.37 during the six months ended June 30,
      2007). Options for 66,667 and 10,000 shares were exercised during the six months
      ended June 30, 2008 and 2007, respectively. The Company received aggregate
      proceeds of $16,667 and $500, respectively, and the options had an intrinsic
      value of $38,000 and $4,700, respectively.





A
      summary
      of nonvested stock option activity for the six months ended June 30, 2008
      follows:





**Number of**
              **Nonvested******
              **Options**
            
            **Weighted Average**
              **Fair Value**
              **at Grant Date**Nonvested
                outstanding at December 31, 2007
            
            
            662,333
            
            $
            .30Options
                granted
            
            
            295,000
            
            $
            .34Options
                vested
            
            
            (190,333
            )
            $
            .30Options
                forfeited
            
            
            (59,000
            )
            $
            .36Nonvested
                outstanding at June 30, 2008
            
            
            708,000
            
            $
            .39


7


At
      June
      30, 2008, there was approximately $148,000 of total unrecognized compensation
      cost related to non-vested options granted under the Company’s stock option
      plans. That cost is expected to be recognized over a weighted average period
      of
      one year. The total fair value of shares that vested during the six months
      ended
      June 30, 2008 was approximately $57,000.





**Note
      4. Supplemental Cash Flow Information**





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





**Six Months Ended**
              **June 30,****2008**
            
            **2007**Conversion
                of accrued interest payable under note to 850,000 shares of common
                stock
            
            **$**
            **42,500**
            
            $
            -Conversion
                of notes payable to 1,000,000 shares of common stock
            
            **$**
            **-**
            
            $
            50,000Issuance
                of 100,000 shares of common stock in exchange for consulting services
                to
                be provided over one year
            
            **$**
            **-**
            
            $
            50,000





During
      the six months ended June 30, 2008, warrants were exercised for 122,500 shares
      of common stock on a cashless basis resulting in the Company’s net issuance of
      68,696 shares of common stock. ****




**Note
      5. Earnings Per Share**





Basic
      net
      income (loss) per share is based on the weighted average number of common shares
      outstanding during the periods presented. Diluted income (loss) 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 stock options, stock warrants and convertible notes payable.
      Stock options and warrants with exercise prices that exceeded the average fair
      market value of common stock had an antidilutive effect and therefore, were
      excluded from the computation of net income (loss) per share. 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 assumed to be exercised. In a loss period, the calculation for basic
      and
      diluted net loss per share is considered to be the same, as the impact of
      potential common shares is anti-dilutive.





If
      the
      Company had generated earnings, common stock equivalents would have been added
      to the weighted average shares outstanding during the three and six months
      ended
      June 30, 2008 and 2007 as set forth below. These additional shares represent
      the
      assumed exercise of common stock options, warrants and convertible notes payable
      whose exercise price is less than the average common stock price during the
      period. The proceeds of the exercise are assumed to be used to purchase common
      stock for treasury and the incremental shares are added to the weighted average
      shares outstanding. In a loss period, the calculation for basic and diluted
      net
      loss per share is considered to be the same, as the impact of the potential
      issuance of common shares is anti-dilutive.





**Six Months Ended June 30,**
            
            **Three Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Common
                stock equivalents
            
            
            **19,680,827**
            
            
            19,452,855
            
            
            **19,717,604**
            
            
            19,056,808





**Note
      6.** **Employee
      Pension Plan**





Prior
      to
      December 30, 2002, the Company owned 100% of the common stock of Osley &
Whitney, Inc. (O&W). On December 30, 2002, the Company sold 100% of the
      O&W common stock to a third party, but continued to act as the sponsor of
      the O&W Plan. Although the Company continued to act as the sponsor of the
      O&W Plan after the sale, during 2007 it was determined that it had no legal
      obligation to do so.


8


During
      2007, the Company submitted information advocating that it had no legal
      obligation to act as the sponsor of the O&W Plan to the Department of
      Treasury (DOT) to ascertain whether they concurred or disagreed with this
      position. The DOT is presently reviewing this information. If the DOT does
      not
      concur with this position, the Company may become obligated for additional
      estimated excise taxes on accumulated unfunded O&W Plan contributions for
      the plan year ended December 31, 2006 of approximately $135,000, which has
      not
      been accrued because of the determination that the Company has no legal
      obligation and the Company’s belief that the likelihood is remote that it will
      be required to pay these excise taxes. Further, if the DOT does not concur
      with
      this position, the Company may be required to pay interest on these excise
      taxes
      and potentially incur additional excise taxes up to 100% of all required plan
      contributions. No such excise taxes have been assessed and no portion of this
      amount has been accrued at June 30, 2008 since the Company believes that the
      likelihood is remote that it will be required to pay these excise taxes. If
      the
      DOT does not concur with the Company’s position, the Company intends to pursue
      all appropriate further avenues to prevail in its position. During 2006, the
      Pension Benefit Guarantee Corporation placed a lien on all of the Company’s
      assets to secure the contributions due to the O&W Plan. This lien is
      subordinate to liens that secure accounts receivable financing and certain
      notes
      payable.




At
      June
      30, 2008 the Company had accrued liabilities of $2,497,087 related to the
      O&W Plan and accumulated other comprehensive loss of $2,227,689 which was
      recorded as a reduction of stockholders’ deficiency. The market value of the
      O&W Plan assets decreased from $3,387,749 at December 31, 2007 to $2,938,372
      at June 30, 2008. The decrease was due to investment losses of $196,576, benefit
      payments of $219,077 and expenses paid of $33,724.





Net
      periodic pension cost recorded in the accompanying statements of operations
      includes the following components of expense (benefit) for the periods
      presented.





**Six Months**
              **ended**
              **June 30, 2008**
            
            **Six Months**
              **ended**
              **June 30, 2007**
            
            **Three Months**
              **ended**
              **June 30, 2008**
            
            **Three Months**
              **ended**
              **June 30, 2007**Interest
                cost
            
            **$**
            **134,336**
            
            $
            160,693
            
            **$**
            **70,533**
            
            $
            84,821Expected
                return on plan assets
            
            
            **(145,372**
            **)**
            
            (137,055
            )
            
            **(72,686**
            **)**
            
            (68,527
            )Expected
                expenses
            
            
            **32,500**
            
            
            65,125
            
            
            **16,250**
            
            
            32,563Actuarial
                loss
            
            
            **54,910**
            
            
            32,500
            
            
            **27,455**
            
            
            16,250Net
                periodic pension cost
            
            **$**
            **76,374**
            
            $
            121,263
            
            **$**
            **41,552**
            
            $
            65,107





**Note
      7. Long-Term Obligations**





On
      June
      13, 2008, the Company issued a promissory note for $200,000 to an accredited
      investor. The note is unsecured, bears interest at the rate of 12% per annum,
      which is payable monthly, and is due on June 2, 2010. The proceeds of the note
      are being used for working capital purposes.





**Note
      8. Subsequent Event - Related Parties Consulting Agreement and Notes
      Payable**





In
      July
      2008, James Villa, President of Intelligent Consulting Corporation (ICC),
      was appointed to the Company’s board of directors to fill a vacancy.  The
      Company has contracted with ICC on a month-to-month basis to provide consulting
      services related to business development and business strategies, special
      projects and other general corporate matters for the Company.  During the
      six months ended June 30, 2008 and 2007 the Company paid ICC $67,674 and
      $65,694, respectively.  Mr. Villa is also the sole member of Northwest
      Hampton Holdings, LLC with which the Company has $362,624 of outstanding
      note **s** payable and $81,219 of accrued interest payable as of June 30,
      2008.





**Item
      2.**  **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**





**IT
      Consulting**




We
      are a
      provider of IT services to federal, state and local government and commercial
      clients. Our expertise includes managing leading edge operations and
      implementing complex programs in advanced server management, server
      virtualization, network services, wireless technology, human capital services,
      enterprise architecture, and earned value management. We focus on aligning
      business processes with technology for delivery of solutions meeting our
      clients’ exact needs and providing expert management services to the lifecycle
      of technology-based projects. We have a business development office in the
      Washington, D.C. metropolitan area.





We
      have
      several contract vehicles that enable us to deliver a broad range of our
      services and solutions to the U.S. Government. The quality and consistency
      of
      our services and IT expertise allow us to maintain long-term relationships
      with
      our major clients.


9





**Results
      of Operations**





**Comparison
      of Three and Six Month Periods ended June 30, 2008 and
      2007**





The
      trends suggested by the following tables are not indicative of future operating
      results.





The
      following table compares our statements of operations data for the three months
      ended June 30, 2008 and 2007.





Three Months Ended June 30,2008 vs. 2007As a % of
            
            
            
            As a % of
            
            Amount of
            
            % Increase2008
            
            Sales
            
            2007
            
            Sales
            
            Change
            
            (Decrease)Sales
            
            $
            2,163,615
            
            
            100.0
            %
            $
            1,812,262
            
            
            100.0
            %
            $
            351,353
            
            
            19.4
            %Cost
                of services
            
            
            1,652,404
            
            
            76.4
            
            
            1,343,342
            
            
            74.1
            
            
            309,062
            
            
            23.0Gross
                profit
            
            
            511,211
            
            
            23.6
            
            
            468,920
            
            
            25.9
            
            
            42,291
            
            
            9.0General
                and administrative
            
            
            256,151
            
            
            11.8
            
            
            176,267
            
            
            9.7
            
            
            79,884
            
            
            45.3Defined
                benefit pension plan
            
            
            50,031
            
            
            2.3
            
            
            73,493
            
            
            4.1
            
            
            (23,462
            )
            
            (31.9
            )Selling
            
            
            341,474
            
            
            15.8
            
            
            366,166
            
            
            20.2
            
            
            (24,692
            )
            
            (6.7
            )Depreciation
            
            
            9,369
            
            
            .4
            
            
            8,810
            
            
            .5
            
            
            559
            
            
            6.3Research
                and development
            
            
            -
            
            
            -
            
            
            41,990
            
            
            2.3
            
            
            (41,990
            )
            
            (100.0
            )Total
                costs and expenses
            
            
            657,025
            
            
            30.4
            
            
            666,726
            
            
            36.8
            
            
            (9,701
            )
            
            (1.5
            )Operating
                loss
            
            
            (145,814
            )
            
            (6.7
            )
            
            (197,806
            )
            
            (10.9
            )
            
            51,992
            
            
            (26.3
            )Interest
                expense, net
            
            
            (76,942
            )
            
            (3.6
            )
            
            (65,316
            )
            
            (3.6
            )
            
            (11,626
            )
            
            17.8Other
                income
            
            
            -
            
            
            -
            
            
            6,591
            
            
            .4
            
            
            (6,591
            )
            
            (100.0
            )Net
                loss
            
            $
            (222,756
            )
            
            (10.3)
            %
            $
            (256,531
            )
            
            (14.2)
            %
            $
            33,775
            
            
            (13.2)
            %Net
                loss per share - basic and diluted
            
            $
            (.01
            )
            
            
            
            $
            (.01
            )
            
            
            
            $
            .00





The
      following table compares our statements of operations data for the six months
      ended June 30, 2008 and 2007.





Six Months Ended June 30,2008 vs. 2007As a % of
            
            
            
            As a % of
            
            Amount of
            
            % Increase2008
            
            Sales
            
            2007
            
            Sales
            
            Change
            
            (Decrease)Sales
            
            $
            4,630,425
            
            
            100.0
            %
            $
            3,944,669
            
            
            100.0
            %
            $
            685,756
            
            
            17.4
            %Cost
                of services
            
            
            3,368,676
            
            
            72.8
            
            
            2,751,949
            
            
            69.8
            
            
            616,727
            
            
            22.4Gross
                profit
            
            
            1,261,749
            
            
            27.2
            
            
            1,192,720
            
            
            30.2
            
            
            69,029
            
            
            5.8General
                and administrative
            
            
            514,153
            
            
            11.1
            
            
            392,479
            
            
            9.9
            
            
            121,674
            
            
            31.0Defined
                benefit pension plan
            
            
            98,992
            
            
            2.1
            
            
            189,018
            
            
            4.8
            
            
            (90,026
            )
            
            (47.6
            )Selling
            
            
            749,150
            
            
            16.2
            
            
            702,764
            
            
            17.8
            
            
            46,386
            
            
            6.6Depreciation
            
            
            18,323
            
            
            .4
            
            
            18,117
            
            
            .5
            
            
            206
            
            
            1.1Research
                and development
            
            
            -
            
            
            -
            
            
            87,253
            
            
            2.2
            
            
            (87,253
            )
            
            (100.0
            )Total
                costs and expenses
            
            
            1,380,618
            
            
            29.8
            
            
            1,389,631
            
            
            35.2
            
            
            (9,013
            )
            
            (.6
            )Operating
                loss
            
            
            (118,869
            )
            
            (2.6
            )
            
            (196,911
            )
            
            (5.0
            )
            
            78,042
            
            
            (39.6
            )Interest
                expense, net
            
            
            (155,329
            )
            
            (3.4
            )
            
            (129,788
            )
            
            (3.3
            )
            
            (25,541
            )
            
            19.7Other
                income
            
            
            -
            
            
            -
            
            
            6,591
            
            
            .2
            
            
            (6,591
            )
            
            (100.0
            )Income
                tax expense
            
            
            (615
            )
            
            -
            
            
            (605
            )
            
            -
            
            
            (10
            )
            
            1.7Net
                loss
            
            $
            (274,813
            )
            
            (5.9)
            %
            $
            (320,713
            )
            
            (8.1)
            %
            $
            45,900
            
            
            (14.3)
            %Net
                loss per share - basic and diluted
            
            $
            (.01
            )
            
            
            
            $
            (.01
            )
            
            
            
            $
            .00


10




**Sales**





Sales
      for
      the three months ended June 30, 2008 were $2,163,615, an increase of $351,353
      or
      19.4% as compared to sales for the three months ended June 30, 2007 of
      $1,812,262. Sales for the six months ended June 30, 2008 were $4,630,425, an
      increase of $685,756 or 17.4% as compared to sales for the six months ended
      June
      30, 2007 of $3,944,669. A significant portion of this increase was a result
      of
      sales from new projects including the second phase of a significant server
      virtualization project for a major establishment of the U.S. Government which
      began in the third quarter of 2007 and was substantially completed in the second
      quarter of 2008. We use virtualization software provided by third party vendors
      such as VMware, to enable our clients to run multiple operating systems on
      one
      physical machine and therefore a broader, richer set of business
      applications.





We
      are
      actively pursuing opportunities to develop additional sales from new and
      existing target markets. In June 2008, we hired a new business development
      employee for our regional office in Jackson, Mississippi to pursue state and
      local government business opportunities within the Gulf Coast region. We are
      also channeling energies towards forming alliances with large systems
      integrators, who are mandated by federal policy to direct defined percentages
      of
      their work to small business subcontractors. In addition, we are currently
      working on proposals for contract awards that we believe will enhance our
      position as a government contractor.





**Cost
      of Services and Gross Profit**





Cost
      of
      services represents the cost of employee services related to the IT Services
      Group. Cost of services for the three months ended June 30, 2008 was $1,652,404
      or 76.4% of sales as compared to $1,343,342 or 74.1% of sales for the three
      months ended June 30, 2007. Gross profit was $511,211 or 23.6% of sales for
      the
      three months ended June 30, 2008 compared to $468,920 or 25.9% of sales for
      the
      three months ended June 30, 2007. Cost of services for the six months ended
      June
      30, 2008 was $3,368,676 or 72.8% of sales as compared to $2,751,949 or 69.8%
      of
      sales for the six months ended June 30, 2007. Gross profit was $1,261,749 or
      27.2% of sales for the six months ended June 30, 2008 compared to $1,192,720
      or
      30.2% of sales for the six months ended June 30, 2007.




The
      increase in the amount of gross profit in 2008 is due to increased sales volume
      which was offset by a change in the mix of our contracts as higher margin
      projects were completed and new lower margin projects were added during
      2008.





Although
      our objective is to maintain an overall gross margin of approximately 30%,
      in
      the future we may submit bids on new work with lower gross profit margins to
      generate opportunities for long-term, larger volume contracts and more stable
      sales.





**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
      three months ended June 30, 2008 were $256,151 which was an increase of $79,884
      or 45.3% as compared to $176,267 for the three months ended June 30, 2007.
      As a
      percentage of sales, general and administrative expense was 11.8% for the three
      months ended June 30, 2008 and 9.7% for the three months ended June 30, 2007.





General
      and administrative expenses for the six months ended June 30, 2008 increased
      by
      $121,674 or 31.0% from $392,479 for the six months ended June 30, 2007 to
      $514,153 for the six months ended June 30, 2008. As a percentage of sales,
      general and administrative expenses were 11.1% for the six months ended June
      30,
      2008 and 9.9% for the six months ended June 30, 2007.





General
      and administrative expenses increased beginning in July 2007 when we
      reclassified expenses associated with the reassignment of our consultant,
      Intelligent Consulting Corporation (ICC), from research and development to
      general and administrative expenses when the TouchThruTM development activities
      ended. We have contracted with ICC on a month-to-month basis to provide
      consulting services related to business development and business
      strategies, special projects and other general corporate matters. In addition,
      incentive compensation expense associated with our personnel recruiting began
      in
      the fourth quarter of 2007 as a result of recruiting new billable
      employees.





We
      anticipate that general and administrative expenses will increase as we continue
      to grow our business and incur travel and other expenses associated with
      managing a larger business. However, we expect that general and administrative
      expenses will decline as a percentage of sales as our sales increase.





**Defined
      Benefit Pension Plan Expenses**





Defined
      benefit pension plan expenses include expenses (including pension expense,
      professional services, and interest costs) associated with the Osley &
Whitney, Inc. Retirement Plan **(** O&W
      Plan) of $50,031 for the three months ended June 30, 2008 and $73,493 for the
      three months ended June 30, 2007, a decrease of $23,462. We incurred expenses
      of
      $98,992 and $189,018 for the six months ended June 30, 2008 and
      2007.





During
      the six months ended June 30, 2007, we incurred legal and professional fees
      in
      connection with advocating our legal position with the appropriate regulatory
      authorities. Fees in 2008 are substantially reduced since we are awaiting a
      response from the regulatory authorities to our submission of information in
      2007.


11


**Selling
      Expenses**





For
      the
      three months ended June 30, 2008, we incurred selling expenses of $341,474
      associated with growing the business in our IT Services Group as compared to
      $366,166 for the three months ended June 30, 2007, a decrease of $24,692 or
      6.7%. For the six months ended June 30, 2008 we incurred selling expenses of
      $749,150 associated with growing business in our IT Services Group compared
      to
      $702,764 for the six months ended June 30, 2007, an increase of $46,386 or
      6.6%.





The
      increase for the six months ended June 30, 2008 is principally due to the
      addition of sales and business development personnel in the third quarter of
      2007 to develop more new sales opportunities and to prepare proposals for new
      projects. In June 2007, we hired a new business development employee to focus
      efforts toward increasing sales in the server virtualization arena.





We
      experienced a decrease in consulting expense of $56,213 and $57,679 for the
      three and six months ended June 30, 2008, respectively, as a result of
      management’s decision to reduce the use and rate of compensation to independent
      consultants.





**Depreciation
      Expenses**





Depreciation
      expense was $9,369 and $8,810 for the three months ended June 30, 2008 and
      2007,
      respectively, and was $18,323 and $18,117 for the six months ended June 30,
      2008
      and 2007, respectively. In the normal course of business, certain assets, such
      as personal computers and related software, are upgraded and
      replaced.





**Research
      and Development Expenses**





For
      the
      three and six months ended June 30, 2007 we recorded $41,990 and $ 87,253 of
      research and development expenses. These expenses were principally related
      to
      the development of an access control terminal and related software called
      TouchThruTM. TouchThruTM 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. During the third quarter of 2007, we
      terminated development activities and related expenses for TouchThruTM and
      reassigned an independent consultant from these development efforts to other
      business activities. As a result, we incurred no research and development
      expenses in 2008.




**Operating
      Loss**





For
      the
      three months ended June 30, 2008 our operating loss was $(145,814) compared
      to
      an operating loss of $(197,806) for the three months ended June 30, 2007; an
      improvement of $51,992. This is attributable to an increase in sales of $351,353
      which contributed an additional $42,291 of gross profit and a decrease in
      operating expenses of $9,701.





For
      the
      six months ended June 30, 2008 our operating loss was $(118,869) compared to
      an
      operating loss of $(196,911) for the six months ended June 30, 2007; an
      improvement of $78,042. This is attributable to an increase in sales of $685,756
      which contributed an additional $69,029 of gross profit and a decrease in
      operating expenses of $9,013. We believe that our operations, as currently
      structured, together with our current financial resources, will result in
      improved financial performance in future years.





**Net
      Interest Expense**





Net
      interest expense consists of interest income offset by interest expense on
      indebtedness and fees for financing accounts receivable invoices. Net interest
      expense was $76,942 for the three months ended June 30, 2008 compared to net
      interest expense of $65,316 for the three months ended June 30, 2007. Net
      interest expense was $155,329 for the six months ended June 30, 2008 compared
      to
      net interest expense of $129,788 for the six months ended June 30, 2007. The
      increase in net interest expense of $11,626 and $25,541, for the three and
      six
      months ended June 30, 2008, respectively, was principally due to an increase
      in
      the length of term and volume of accounts receivable invoices that were financed
      in 2008. We incurred new indebtedness in June 2008 of $200,000 which was used
      for working capital purposes.





**Other
      Income**





For
      the
      three and six months ended June 30, 2007, we had other income of $6,591 as
      a
      result of the sale of certain equipment.





**Income
      Taxes**





Income
      tax expense was $0 for the three months ended June 30, 2008 and 2007,
      respectively. Income tax expense was $615 and $605 for the six months ended
      June
      30, 2008 and 2007, respectively, consisting of state taxes.


12


**Net
      Loss**




For
      the
      three months ended June 30, 2008, ** we
      recorded a net loss in the amount of $(222,756) or $(.01) per share compared
      to
      a net loss of $(256,531) or $(.01) per share for the three months ended June
      30,
      2007 *.* For the
      six months ended June 30, 2008, ** we
      recorded a net loss in the amount of $(274,813) or $(.01) per share compared
      to
      a net loss of $(320,713) or $(.01) per share for the six months ended June
      30,
      2007 *.*





**Stock-Based
      Compensation**





The
      following table provides pro forma non-GAAP financial data after adjustment
      for
      the impact that the adoption of SFAS 123R had on our financial statements
      including net loss. Pro forma data is calculated by adding back to net loss
      non-cash compensation expense recorded according to “Share-Based Payment”, (SFAS
      123R) which relates to stock options.





Pro
      forma
      data is provided to investors to supplement the results of operations reported
      in accordance with GAAP. Management believes pro forma data is useful to help
      investors analyze the operating trends of the business before and after the
      adoption of SFAS 123R and to assess the relative underlying performance of
      the
      business. Management believes that pro forma data provides an additional tool
      for investors to use in comparing its financial results with other companies
      in
      the industry. By excluding non-cash charges such as SFAS 123R stock-based
      compensation, investors can evaluate our operations and can compare our results
      on a more consistent basis to the results of other companies in the industry.
      Management also uses pro forma data to evaluate potential acquisitions,
      establish internal budgets, and evaluate performance of our business.





We
      consider pro forma data to be an important indicator of our operational strength
      and performance of our business and a useful measure of our historical and
      prospective operating trends. However, there are significant limitations to
      the
      use of pro forma data since it may exclude amounts that impact our profitability
      and operating cash flows. We believe that these limitations are offset by
      clearly identifying the difference between the two measures. Consequently,
      pro
      forma data should not be considered in isolation or as a substitute for net
      income (loss) presented in accordance with GAAP. Pro forma data, as presented
      by
      us, may not be comparable with similarly named measures provided by other
      entities.





Six
                Months Ended June 30,2008
            
            2008
            
            2008
            
            2007
            
            2007
            
            2007As
                Reported
            
            Adjustments
            
            Pro
                Forma
            
            As
                Reported
            
            Adjustments
            
            Pro
                FormaSales
            
            $
            4,630,425
            
            $
            -
            
            $
            4,630,425
            
            $
            3,944,669
            
            $
            -
            
            $
            3,944,669Cost
                of services
            
            
            3,368,676
            
            
            (50,988
            )
            
            3,317,688
            
            
            2,751,949
            
            
            (14,488
            )
            
            2,737,461Gross
                profit
            
            
            1,261,749
            
            
            50,988
            
            
            1,312,737
            
            
            1,192,720
            
            
            14,488
            
            
            1,207,208General
                and administrative
            
            
            514,153
            
            
            (9,382
            )
            
            504,771
            
            
            392,479
            
            
            (4,251
            )
            
            388,228Defined
                benefit pension plan
            
            
            98,992
            
            
            -
            
            
            98,992
            
            
            189,018
            
            
            -
            
            
            189,018Selling
            
            
            749,150
            
            
            (37,847
            )
            
            711,303
            
            
            702,764
            
            
            (64,320
            )
            
            638,444Depreciation
            
            
            18,323
            
            
            -
            
            
            18,323
            
            
            18,117
            
            
            -
            
            
            18,117Research
                and development
            
            
            -
            
            
            -
            
            
            -
            
            
            87,253
            
            
            -
            
            
            87,253Total
                costs and expenses
            
            
            1,380,618
            
            
            (47,229
            )
            
            1,333,389
            
            
            1,389,631
            
            
            (68,571
            )
            
            1,321,060Operating
                loss
            
            
            (118,869
            )
            
            98,217
            
            
            (20,652
            )
            
            (196,911
            )
            
            83,059
            
            
            (113,852
            )Interest
                expense, net
            
            
            (155,329
            )
            
            -
            
            
            (155,329
            )
            
            (129,788
            )
            
            -
            
            
            (129,788
            )Other
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            6,591
            
            
            -
            
            
            6,591Income
                tax expense
            
            
            (615
            )
            
            -
            
            
            (615
            )
            
            (605
            )
            
            -
            
            
            (605
            )Net
                loss
            
            $
            (274,813
            )
            $
            98,217
            
            $
            (176,596
            )
            $
            (320,713
            )
            $
            83,059
            
            $
            (237,654
            )





We
      recorded expense of $18,595 and $49,394 for equity instruments issued to
      consultants for the six months ended June 30, 2008 and 2007, respectively.





**Liquidity
      and Capital Resources**





At
      June
      30, 2008, we had cash of $131,160 available for our working capital needs and
      planned capital asset expenditures. Our primary liquidity needs are the
      financing of working capital and capital expenditures. Our primary source of
      liquidity is cash provided by operations and our $800,000 credit facility.
      At
      June 30, 2008, we had approximately $247,000 of availability under this line
      and
      could finance up to another approximately $226,000 based on eligible accounts
      receivable. During the six months ended June 30, 2008, cash used by operating
      activities was $43,503.


13




At
      June
      30, 2008, we had a working capital deficit of approximately $2.65 million and
      a
      current ratio of .26. Our objective is to improve our working capital position
      from profitable operations. The O&W Plan current liabilities have a
      significant impact on our working capital. Without the current liabilities
      of
      the O&W Plan of approximately $2.2 million, working capital would have been
      a deficit of approximately $417,000. If we incur operating losses or continue
      to
      incur net losses, we may continue to experience working capital shortages that
      impair our business operations and growth strategy. Based on current level
      of
      operations, we have sufficient cash flow and short-term financing sources,
      through sales with recourse of accounts receivable, to fund our payroll and
      accounts payable on a timely basis.




We
      have
      financed the activity of our IT Services Group through the issuance of notes
      payable to third parties, including related parties, private placements of
      common stock, and financing through sales with recourse of our accounts
      receivable. We generated $200,000 during June 2008 through a working capital
      loan from a third party.





We
      have
      used our common stock and common stock options and warrants to provide
      compensation to certain employees and consultants and to fund liabilities.





**Future
      Trends**





We
      believe that our operations, as currently structured, together with our current
      financial resources, will result in improved financial performance in future
      periods.





There
      is
      no assurance, that our current resources or cash flow from operations will
      be
      adequate to fund the liabilities under the O&W Plan if the DOT does not
      concur with our position or that we will be successful in raising additional
      working capital when necessary. Our failure to raise necessary working capital
      could force us to curtail operations, which would have a material adverse effect
      on our financial condition and results of operations.




**Cash
      Flows from Operating Activities**




During
      the three months ended June 30, 2008, cash used in operations was $43,503
      compared with cash used in operations of $54,136 for the six months ended June
      30, 2007. Our operating cash flow is primarily affected by the overall
      profitability of our contracts, our ability to invoice and collect from our
      clients in a timely manner, and our ability to manage our vendor payments.
      We
      bill our clients weekly or monthly after services are performed, depending
      on
      the contract terms. Our accounts receivable increased principally due to the
      growth of sales in the period. The increase in liabilities is primarily due
      to
      increased accounts payable and accrued pension and retirement expenses.




**Cash
      Flows from Investing Activities**




Cash
      used
      in investing activities for the three months ended June 30, 2008 was $16,205
      compared with $2,733 for the six months ended June 30, 2007. Cash used in
      investing activities was primarily for capital expenditures for computer
      hardware and software. We do not have any plans for significant capital
      expenditures in the near future.




**Cash
      Flows from Financing Activities**




Cash
      provided by financing activities was $162,587 for the six months ended June
      30,
      2008 due to $200,000 from a new working capital loan, $16,667 from the exercise
      of an option for common stock offset by principal payments of $54,080 on notes
      payable. In comparison, for the six months ended June 30, 2007 we used cash
      from
      financing activities of $11,009 principally for principal payments on notes
      payable. We anticipate that we will use approximately $4,200 through the next
      twelve months for funding current maturities of long-term debt
      obligations.




**Credit
      Agreement**




We
      have a
      line of credit of up to $800,000 with a financial institution that allows us
      to
      sell selected accounts receivable invoices to the financial institution with
      full recourse against us. We pay fees based on the length of time that the
      invoice remains unpaid. At June 30, 2008, we had approximately $247,000 of
      availability under this line and could finance up to another approximately
      $226,000 based on eligible accounts receivable.




We
      believe the capital resources available to us under our line of credit and
      cash
      from our operations are adequate to fund our ongoing operations and to support
      the internal growth we expect to achieve for at least the next 12 months.
      However, if we experience significant growth in our sales, we believe that
      this
      may require us to increase our financing line or obtain additional working
      capital from other sources to support our sales growth. We anticipate financing
      our external growth from acquisitions and our longer-term internal growth
      through one or more of the following sources: cash from operations; additional
      borrowing; issuance of equity; use of the existing revolving credit facility;
      or
      a refinancing of our credit facilities.


14


**Osley
      & Whitney, Inc. Retirement Plan**





As
      of
      December 31, 2004, we sold or closed all of our prior businesses. Currently,
      our
      sole business is providing IT consulting services. The following discussion
      of
      the O&W Plan relates to the business that was closed and sold and its
      current effect on our operations and financial position.





Prior
      to
      December 30, 2002, we owned 100% of the common stock of Osley & Whitney,
      Inc. (O&W). On December 30, 2002, we sold 100% of the common stock of
      O&W to a third party, but continued to act as the sponsor of the O&W
      Plan. Although we continued to act as the sponsor of the O&W Plan after the
      sale, during 2007 it was determined that we had no legal obligation to do so.





During
      2007, we submitted information advocating this position to the Department of
      Treasury (DOT) to ascertain whether they concur or disagree with this position.
      The DOT is presently reviewing this information. If the DOT does not concur
      with
      this position, we may become obligated for additional estimated excise taxes
      on
      accumulated unfunded O&W Plan contributions for the plan year ended December
      31, 2006 of approximately $135,000, which has not been accrued because of the
      determination of no legal obligation and our belief that the likelihood is
      remote that we will be required to pay these excise taxes. Further, if the
      DOT
      does not concur with this position, we may be required to pay interest on these
      excise taxes and potentially incur additional excise taxes up to 100% of all
      required plan contributions. No such excise taxes have been assessed and no
      portion of this amount has been accrued at June 30, 2008 since we believe that
      the likelihood is remote that we will be required to pay these excise taxes.
      If
      the DOT does not concur with this position, we intend to pursue all appropriate
      further avenues to prevail on our position.





If
      it is
      determined that we are responsible for O&W Plan deficiencies, then we will
      be required to make contributions for deficiencies in 2004 through 2008 and
      we
      will be required to fund O&W Plan deficiencies in future periods. We did not
      make any O&W Plan contributions in 2004, 2006, 2007 or 2008. During 2005, we
      made contributions valued at approximately $181,000. We currently do not have
      the funds available to make the required cash contributions which currently
      approximate $1.8 million. As a result of our legal position, we do not
      anticipate making any contributions to the Plan during the year ending December
      31, 2008. We recorded defined benefit pension expense (including professional
      services and interest costs) of $98,992 and $189,018 for the six months ended
      June 30, 2008 and 2007, respectively.





During
      2006, the Pension Benefit Guarantee Corporation placed a lien on all of our
      assets to secure the contributions due to the O&W Plan. This lien is
      subordinate to liens that secure accounts receivable financing and certain
      notes
      payable.





At
      June
      30, 2008, we had accrued liabilities of $2,497,087 related to the O&W Plan
      and accumulated other comprehensive loss of $2,227,689 which was recorded as
      a
      reduction of stockholders’ deficiency. The market value of the O&W Plan
      assets decreased from $3,387,749 at December 31, 2007 to $2,938,372 at June
      30,
      2008. The decrease was comprised of investment losses of $196,576, benefit
      payments of $219,077 and expenses paid of $33,724.





**Item
      3.**  **Quantitative** a **nd
      Qualitative Disclosures About Market Risk.**





As
      a
      smaller reporting company we are not required to provide the information
      required by this Item.




**Item
      4T. Controls and Procedures.**





Evaluation
      of Disclosure Controls and Procedures. Our
      management, with the participation of our president and our 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, our
      president and our chief financial officer concluded that, as of the Evaluation
      Date, our disclosure controls and procedures are effective to ensure that
      information required to be disclosed by us in the reports that we file or submit
      under the Exchange Act (i) is recorded, processed, summarized and reported,
      within the time periods specified in the SEC’s rules and forms and (ii) is
      accumulated and communicated to our management, including our president and
      our
      chief financial officer, as appropriate to allow timely decisions regarding
      required disclosure.





Changes
      in Internal Control over Financial Reporting. There
      were no changes in our internal controls over financial reporting that occurred
      during the period covered by this report that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.


15


**PART
      II**


**OTHER
      INFORMATION**




**Item
      1A. Risk Factors.**





You
      should consider the risk factors included in our Annual Report on Form 10-KSB
      for the year ended December 31, 2007 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
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds.**





On
      July
      10, 2008, we issued 200,000 unregistered shares of our common stock to an
      accredited investor upon conversion of $10,000 of principal on outstanding
      notes
      payable in accordance with the terms of such notes.





In
      June
      2008, we issued an aggregate of 68,696 unregistered shares of our common stock
      upon the cashless exercise of warrants by two accredited investors. ****





On
      April
      10, 2008, we issued 600,000 unregistered shares of our common stock to an
      accredited investor upon conversion of $30,000 of accrued interest payable
      on
      outstanding notes payable in accordance with the terms of such
      notes.





These
      transactions were exempt from registration, as they were nonpublic offerings
      or
      transactions made pursuant to Sections 4(2) and 4(6) of the Securities Act
      of
      1933, as amended. All shares issued in the transactions described hereinabove
      bore an appropriate restrictive legend.





**Item
      6.**  **Exhibits.**





Exhibit No.
            
            Description4.1
            
            Promissory
                Note, dated June 13, 2008, in the principal amount of $200,000, bearing
                interest in the amount of 12% per annum.*31.1
            
            Certification
                of President pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.*31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.*32.1
            
            Certification
                of President pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.*32.2
            
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.*





*
      Filed
      herewith




**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:
                August 12, 2008
            /s/
                Michael S. SmithMichael
              S.
              SmithChief
                Executive Officer(Principal
                Executive Officer)Date:
                August 12, 2008
            /s/
                James WitzelJames
                WitzelChief
                Financial Officer(Principal
                Financial Officer)


16