SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

Mark One

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the Quarterly Period ended June 30, 1998

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
      1934

For the transition period from 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                    (I.R.S. Employer
            of organization)                          Identification No.)

                  2364 Post Road, Warwick, RI 02886
                  ---------------------------------
                  (Address of principal executive office)  (Zip Code)

                                 (401) 738-5777
              (Registrant's telephone number, including area code)

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 |_|

As of August 10, 1998 the Registrant have a total of 13,377,516 shares of Common
Stock, $.001 par value, outstanding.
<PAGE>

                                      INDEX

                              INFINITE GROUP, INC.

PART 1. FINANCIAL INFORMATION

                                                                            Page
                                                                            ----

Item 1.     Consolidated Financial Statements (Unaudited)

            Consolidated Balance Sheets
            June 30, 1998 and December 31, 1997                              1

            Consolidated Statements of Operations - Three and
            Six Months Ended June 30, 1998 and 1997                          2

            Consolidated Statements of Cash Flows - Six Months
            Ended June 30, 1998 and 1997                                     3

            Notes to Unaudited Consolidated Financial Statements           4-5

Item 2.     Management's Discussion and Analysis of Financial
            Conditions and Results of Operations                          6-13

PART II. OTHER INFORMATION

Items
 1-6        Not Applicable


SIGNATURES                                                                  14
<PAGE>

                              INFINITE GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                     June 30,      December 31,
                                                       1998            1997
                                                   ------------    ------------
ASSETS

Current Assets
  Cash and cash equivalents                        $  1,036,491    $    541,653
  Restricted funds                                       19,391          69,280
  Accounts receivable, net of allowance               1,027,250         954,378
  Inventories                                           212,518         150,389
  Other current assets                                  320,677         174,798
                                                   ------------    ------------
          Total current assets                        2,616,327       1,890,498

Property and equipment, net                           4,752,652       4,197,305

Other assets
  Notes receivable - stockholders                        76,973          87,642
  Inventoried parts                                      35,801          71,603
  Investment in subsidiary                                   --         437,375
  Investments                                           250,000              --
  Other intangible assets, net                          294,689         266,506
                                                   ------------    ------------
          Total other assets                       $    657,463    $    863,126
                                                   ------------    ------------

                                                   ------------    ------------
                                                   $  8,026,442    $  6,950,929
                                                   ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Notes payable                                    $  1,091,973    $    440,553
  Accounts payable and accrued expenses                 936,952         948,713
  Current maturities of long-term obligations           529,243         946,305
                                                   ------------    ------------
          Total current liabilities                   2,558,168       2,335,571

Long term obligations                                 2,871,559       2,663,302

Stockholders' equity
  Common stock, $.001 par value, 20,000,000
  shares authorized 13,326,165 and 12,616,483
  shares issued and outstanding                          13,326          12,616
  Additional paid-in capital                         20,692,388      19,236,206
  Accumulated deficit                               (18,108,999)    (17,296,766)
                                                   ------------    ------------
       Total stockholders' equity                     2,596,715       1,952,056
                                                   ------------    ------------
                                                   $  8,026,442    $  6,950,929
                                                   ============    ============

     See accompanying notes to unaudited consolidated financial statements.

                                        1
<PAGE>

                              INFINITE GROUP, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                 Three Months Ended June 30,      Six Months Ended June 30,
                                                    1998            1997            1998            1997
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>         
Sales                                           $  1,839,716    $  1,352,453    $  3,765,123    $  2,694,383
Cost of goods sold                                 1,160,793         722,013       2,225,839       1,553,044
                                                ------------    ------------    ------------    ------------
  Gross profit                                       678,923         630,440       1,539,284       1,141,339

Costs and expenses
  Operating expenses                                 (12,678)         41,215          53,675          73,423
  Research and development                           258,533         265,323         579,033         470,287
  General and administrative expenses                403,430         303,858         690,690         691,298
  Selling expenses                                   107,660         140,595         223,561         270,676
  Depreciation and amortization                      144,663         143,442         284,240         324,427
                                                ------------    ------------    ------------    ------------
    Total costs and expenses                         901,608         894,433       1,831,199       1,830,111

Operating loss                                      (222,685)       (263,993)       (291,915)       (688,772)

Other income (expense)
  Equity in loss of unconsolidated subsidiary       (158,997)       (343,188)       (437,375)       (731,792)
  Interest expense                                   (58,817)       (517,930)       (135,659)       (605,786)
  Interest and other income                          (40,056)            362         (32,775)          2,063
  Gain on sale of asset                               85,500              --          85,500          38,064
                                                ------------    ------------    ------------    ------------
    Total other income (expense)                    (172,370)       (860,756)       (520,309)     (1,297,451)
                                                ------------    ------------    ------------    ------------

Loss before provision for income taxes              (395,055)     (1,124,749)       (812,224)     (1,986,223)

Provision for income taxes                                --              --              --              --
                                                ------------    ------------    ------------    ------------

  Net loss                                      $   (395,055)   $ (1,124,749)   $   (812,224)   $ (1,986,223)
                                                ============    ============    ============    ============

Per share:
  Net loss per common share                     $      (0.03)   $      (0.14)   $      (0.07)   $      (0.24)
                                                ============    ============    ============    ============

  Weighted average number of common
  shares outstanding                              12,259,410       8,195,849      12,259,410       8,195,849
                                                ============    ============    ============    ============
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.


                                        2
<PAGE>

                              INFINITE GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          Six Months Ended    Six Months Ended
                                                              June 30,            June 30,
                                                                1998                1997
                                                          ----------------    ----------------
<S>                                                        <C>                  <C>           
Cash flows from operating activities:
  Net loss                                                 $  (812,224)         $(1,986,223)  
Ajustments to reconcile net cash used in operating                            
activities:                                                                   
  Depreciation and amortization                                296,518              310,928
  Interest expense attributable to convertible                                
    debentures discount                                             --              406,849
  Loss attributed to unconsolidated subsidiary                 510,875              731,792
  Gain on disposition of assets                                (85,500)             (38,064)
  Asset write down and allowances                               10,669               14,898
Changes in assets and liabilities:                                            
   (Increase) decrease in assets                                              
   Accounts receivable                                         (72,872)             (70,176)
   Other current assets                                       (145,879)             (61,167)
   Inventory and inventoried parts                             (26,327)               9,601
   Increase in liabilities:                                                   
   Dererred revenue                                                 --               87,000
   Accounts payable and accured expenses                        40,147             (332,400)
                                                           -----------          -----------
Net cash used in operating activities:                        (284,593)            (926,962)
                                                                              
Cash flows from investing activities:                                         
  Investment in Spectra Science Corp.                               --                   --
  Purchase of property and equipment                          (825,788)            (551,349)
  Purchase of investments                                     (250,000)                  --
  Increase in intangible assets                                (12,962)       
  Proceeds from the sale of technology and equipment                --              155,898
                                                           -----------          -----------
Net cash used in investing activities                       (1,088,750)            (395,451)
                                                                              
Cash flows from financing activities:                                         
  Proceeds from convertible debentures, net of expenses             --              968,000
  Net borrowings of short term debt                            318,291              403,187
  Borrowings of long-term obligations                        1,500,000                   --
  Repayments of long-term obligations                               --             (122,891)
  Proceeds from issuance of subsidary preferred                               
    stock, net of expenses                                          --             (200,000)
  Decrease in restricted funds, net                             49,889               52,814
                                                           -----------          -----------
Net cash provided by financing activities                    1,868,180            1,101,110
                                                           -----------          -----------
                                                                              
Net decrease in cash and cash equivalents                      494,837             (221,303)
Cash and cash equivalents - beginning of period                541,654              333,187
                                                           -----------          -----------
                                                                              
Cash and cash equivalents - end of period                  $ 1,036,491          $   111,884
                                                           ===========          ===========
                                                                              
Supplemental schedule of non-cash transactions:                               
  Issuance of common stock in connection with director                        
    compensation accrued in the previous period            $    21,876          $        --
                                                           ===========          ===========
                                                                              
  Conversion of notes payable and accrued interest                            
     to common stock                                       $   793,862          $        --
                                                           ===========          ===========
                                                                              
  Forgiveness of note payable as consideration for                            
    options exercised                                      $   106,743          $        --
                                                           ===========          ===========
                                                                              
  Net liabilities assumed in connection with acquisition                      
    of subsidiary                                          $    29,307          $        --
                                                           ===========          ===========
                                                                              
  Forgiveness of accrued interest in connection with                          
    conversion of notes payable                            $    30,032          $        --
                                                           ===========          ===========
                                                                              
  Discount for warrants attached to note payble            $   504,379          $        --
                                                           ===========          ===========
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.


                                        3
<PAGE>

NOTE 1. - BASIS OF PRESENTATION

      The accompanying unaudited financial statements of Infinite Group, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. For further information, refer to
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997,
which includes audited financial statements and footnotes as of and for the
years ended December 31, 1997 and 1996.

NOTE 2. - CHANGE IN REPORTING ENTITY

      Effective September 19, 1997, the Company's voting interest in Spectra
Science Corp. was reduced below 50%. Prior to this time, the Company's financial
statements were prepared on a consolidated basis which included Spectra Science
Corp. as a subsidiary. Effective with this change in interest, the operating
results of Spectra Science Corp. will be reported on the Company's financial
statements under the equity method. All comparative financial information has
been restated to reflect this change in reporting entity. There is no effect on
net income or earning per share for the current or any prior periods due to this
change.

NOTE 3. - BUSINESS ACQUISITIONS

      The Company acquired 100% of the stock of Mound Laser and Photonics Center
(MLPC) effective February 12, 1998. The addition of MLPC is expected to create
an opportunity for advancement in laser materials processing, as well as the
development and commercialization of new laser based technology. This
acquisition is expected to enhance Express Tool's and Spectra Science's
capabilities. In exchange for substantially all of the business and assets of
MLPC, the Company agrees to assume the obligations of MLPC incurred in the
ordinary course of business. The Company recorded Goodwill in the amount of
$29,307 in conjunction with this transaction.

NOTE 4. - STOCK OPTIONS EXERCISED

      In 1993, the Company issued 177,905 non-qualified stock options to an
officer/stockholder in connection with bridge financing notes. The options were
issued at the rate of one option for each $3 of note principal and were
exercisable over five years from the date of issuance at the per share price of
$.60. On February 25, 1998 these options were exercised by the stockholder.
Notes payable of $106,743, convertible into 42,597 shares of common stock were
canceled as consideration for the exercise price of the options.

NOTE 5. - CONVERSION OF STOCKHOLDER NOTES PAYABLE

      The former chairman and principal stockholder of the Company had advanced
funds to the Company under convertible secured notes which mature through
January 2000 with interest at 10%. The notes were convertible at rates between
$1.13 and $4.63 in principal for reach share of common stock. On February 25,
1998, $106,443 of note payable convertible into 42,597 shares of common stock
were canceled as consideration for options exercised by the stockholder. The
remaining notes of $794,162 plus accrued interest of $30,032 were converted into
506,777 shares of common stock on the same date.

NOTE 6. -  INVESTMENTS

      Investments represent 250,000 shares of common stock of Molecular
Geodesics, Inc. (MGI), purchased in April, 1998. The Company has a one year
consulting agreement with MGI. The Company receives $25,000 per month for the
performance of its services. The investment is recorded at fair market value


                                       4
<PAGE>

in accordance with Statement of Financial Accounting Standard 115, Accounting
For Certain Investments In Debt And Equity Securities. As of June 30, 1998 cost
approximates fair market value.

NOTE 7. - NOTE PAYABLE ISSUED WITH ATTACHED STOCK WARRANTS

      Effective June 30, 1998, the Company issued a $1,150,000 note payable to
its President. The note has a term of 15 years and bears interest at a rate of
9.0% for the first year. After the first year the rate is adjusted annually to a
rate equal to the one-year T-Bill rate plus 3.5%. The note is payable in equal
monthly principal installments of approximately $6,400 plus interest.
Additionally, the Company issued a second note in the amount of $250,000. The
note has a one year repayment term and bears interest at the rate of 9.0%.
Warrants to purchase 2,680,000 shares of common stock were attached to these
notes. One-half of the warrants are fully vested as of June 30, 1998. A note
discount was recorded in the amount of $504,379 for the value of the vested
warrants. This discount will be amortized over the fifteen year term of the
note. The remaining warrants will be recorded as they vest.

NOTE 8. - YEAR 2000 ISSUES

      Management does not anticipate material costs, problems or uncertainties
associated with the Year 2000 issue. The Company will rely upon third party
vendors of the software used internally to become Year 2000 compliant.


                                       5
<PAGE>

           MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
                           AND RESULTS OF OPERATIONS

                           FORWARD-LOOKING STATEMENTS

Certain statements made in this Quarterly Report on Form 10-QSB are
"forward-looking statements"(within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of the Company 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. The Company's plans
and objectives are based, in part, on assumptions involving judgements 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 the control of the
Company. Although the Company believes that its 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 particularly in view of the Company's early stage operations, the
inclusion of such information should not be regarded by the Company or any other
person that the objectives and plans of the Company will be achieved.

GENERAL

      Infinite Group, Inc., (the "Company") does business in the fields of
material processing, advanced manufacturing methods, high productivity
production tooling and laser-application technology. The Company is comprised of
four subsidiaries: Laser Fare, providing comprehensive laser-based materials
processing services to leading manufacturers; ExpressTool Corp., engaged in
commercialization of its new proprietary high productivity production tooling
(HTTP) technology; Mound Laser & Photonics Center, offering a full range of
laser material processing services in the Mid-West as well as specialized laser
and photonics services and applied research and development, and The Advance
Technology Group engaged in contract research and development. The Company is
also the largest shareholder of Spectra Science Corp., an entity engaged in
commercialization of its LaserPaint(TM) proprietary technology that allows
common disordered materials to be generators of laser light.

Laser Fare

      Laser Fare operations continue to be profitable on a stand-alone basis.
While primarily engaged in contract laser material processing, Laser Fare also
develops new applications for industrial lasers. Laser Fare's 20 high powered
lasers are capable of performing a wide variety of manufacturing processes with
laser operations requiring five


                                       6
<PAGE>

and six-axis manipulation. Laser Fare also manufactures complete assemblies for
selective medical product companies. Approximately 75% of Laser Fare's sales
come from customers in the medical device, aerospace and power generation
industries. Customers include General Electric, United Technologies, Allied
Signal, Polaroid, Stryker Medical and Dey Laboratories. Laser Fare's facilities
and equipment can support near term demands but will require additional
equipment and approximately 10,000 additional square feet of space to
accommodate anticipated new demand, as well as to expand the scope of services
it provides.

ExpressTool

      ExpressTool is commercializing its proprietary technology that uses
conformal cooling and proprietary thermal management for high production
injection mold tooling. Its technical capabilities allow molds, cavities and
other types of tools to be made more productive than is currently possible with
traditional methods. The Fortune 500 industrial companies that ExpressTool is
making molds for are demanding a reduction in the time required to bring new
products to market. ExpressTool's new technology not only answers the demand,
but also provides superior thermal management. Thus ExpressTool's molds are more
productive than conventional tools because of reduced cycle time, yielding a
major cost reduction for the user. Management is currently searching for
organizations having the needed capabilities that can be combined, through
acquisition or joint business arrangement, to integrate ExpressTool's new
technology with an established infrastructure and business base.

Mound Laser and Photonics Center

Mound Laser and Photonics Center ("MLPC") located in Miamisburg, Ohio was
acquired by the Company in February 1998. MLPC specializes in laser
applications, photonics applications and materials processing, and has activity
within industry, government and education sectors. The Midwest location, a
region long known for its expertise in materials and material science, gives the
Company a platform for growth into the automotive, aerospace, tool & die, and
other local industries. MLPC offers a wide range of materials processing
services with major emphasis on laser marking, as well as applied research and
development and more specialized laser and photonics services. Specialized
services include growth of thin films by pulsed laser deposition, application of
lasers to chemistry and photochemistry, spectroscopy, and applied optics. MLPC
has submitted a provisional patent on pulsed laser deposition, and is preparing
a second provisional patent on specific applications of the technology. The
combination of Laser Fare's expertise in materials processing and MLPC's
experience in laser and photonics applications creates a synergistic atmosphere
for the advancement of laser materials processing and the development and
commercialization of new laser-based technology that can significantly enhance
Laser Fare's, ExpressTool's and Spectra Science's capabilities.


                                       7
<PAGE>

Advanced Technology Group

      The Advanced Technology Group, ("ATG") performs technical consulting and
manages research and development programs for industrial customers. In addition
to being compensated for services performed, ATG obtains intellectual property
rights to the developments created under these services that provide future
opportunities for the Company. The Company's ExpressTool subsidiary is a prime
example of this.

      ATG entered into a one year consulting agreement with Molecular Geodesics,
Inc., ("MGI"), of Cambridge, MA. MGI is involved in creating technologies using
synthetic biomimetic materials with the mechanical responsiveness of living
cells and tissues and applying these technologies to medical, industrial and
military applications. MGI was awarded a $6.4 million Defense Advanced Research
Project Administration contract to develop "bioskins" for the 21st century
soldier for protection against chemical and biological weapons. ATG will assist
MGI in the creation, development, improvement and modification of manufacturing
techniques for tensegrity structures for medical and industrial applications to
support MGI's business. ATG will utilize ExpressTool's proprietary techniques to
fabricate structures for these "bioskins". ATG will receive as compensation for
the performance of its services, the sum total of $300,000 payable at $25,000
per month plus expenses.

      ATG was awarded a $500,000 Phase II follow-on contract by the United
States Air Force/Phillips Laboratory, Kirkland AFB, New Mexico in the second
quarter ending June 30, 1997. The contract focused on the continued development
of direct materials processing applications and the commercialization of novel
high power, high-brightness Laser diode technology, jointly developed by Laser
Fare and the A. F. Joffe Technical Institute, St. Petersburg, Russia. In April
1998, the Company entered into an agreement with The Laser Company (TLC) to
license the Company's high- brightness laser technology related to the Philips
contract for $1 million. The license agreement would allow the purchaser the
right to manufacture and sell products and services of this technology, and the
Company would retain the rights to materials processing applications of the
technology.

      In June 1998, ATG was awarded a two-year, $280,000 contract from Triton
Systems of Chelmsford, MA. The goal of the contract is to laser fabricate
aerospace components from metal matrix composite materials. These are strong
lightweight materials that are particularity useful in high temperature
environments. Triton Systems awarded this contract to Laser Fare's Advance
Technology Division as part of its SBIR program funded by the Phillips
Laboratory at Kirkland Air Force Base in New Mexico.

Spectra Science

      The Company owns 2,875,500 shares of Spectra Science Corp., ("Spectra")
stock and is its largest shareholder. Spectra Science was created to
commercialize a platform technology licensed from Brown University on an
exclusive worldwide basis. 


                                       8
<PAGE>

In addition Spectra is commercializing a number of internally developed
optically based technologies in the areas of product and document
authentication, textile coding, combinatorial chemistry, photodynamic therapy
and projection displays.

      LaserPaint(TM) materials used in conjunction with low cost and mature
silicon based detector technology can be used to create robust machine readable
coding capabilities for a large number of market opportunities where previous
approaches have failed or are impractical. Applications for Laser Paint(TM)
include document security, world currencies, plastics recycling, product
packaging, anti-counterfeiting of luxury products, textile coding and
combinatorial chemistry.

      Spectra has demonstrated the coding of paper products, including
banknotes, using its various technologies in the forms of security threads,
inks, and fiber additives. The rights to the use of Spectra Science technologies
for authentication and coding of currency and negotiable instruments have been
licensed by Crane & Co. In addition, Spectra has developed a number of specialty
phosphorescent materials which will be sold through Crane & Co. beginning in the
last quarter of 1998.

      Complementing the use of the technology for security applications, Spectra
has developed a product called LaserThread(TM) that can be used to code linen
and flat goods for the textile rental and services industry. Spectra, with its
partners Albany International Corporation, Lavatec, Inc., Engineered Yarns
Company and General Linen and Uniform Services, is in the late stages of
completing a fully automated sorting system for LaserThread(TM) coded linens.
The system potentially can reduce the labor required to sort these items by over
70%.

      As a part of the Spectra's strategy for product development and marketing,
Spectra has created a subsidiary in Georgia, Millennium Textiles, to manufacture
flat goods and garments coded with LaserThread(TM). This subsidiary allows
Spectra to access the multi-billion dollar textile rental market through the
sale of manufactured products, sales of LaserThread(TM) to other manufacturers,
as well as leasing and/or sales of reading and material handling systems.

      Peripheral to Spectra's focus on coding and authentication, Spectra
Science has programs in photodynamic therapy, (PDT) and large screen displays.
LaserPaint(TM) materials have been engineered to produce narrowband and
disposable plastic wavelength shifters that match the absorption of important
PDT drugs. Tests performed at Long Island Jewish Medical Center and the Ontario
Cancer Institute have proven the effectiveness of Spectra's low cost and
wavelength versatile light source with a number of drugs including the FDA
approved Photofin(R).

      In the areas of large screen displays, Spectra has developed a new lazing
display based on a novel approach that uses polymer-dispersed liquid crystals to
produce a laser output directly corresponding to a desired image. This concept
has generated significant external funding and is primarily under development at
Brown University. Spectra 


                                       9
<PAGE>

expects to develop an operative prototype by the end of 1998 to be used to
attract strategic corporate partners in the growing projection display market.

LIQUIDITY AND CAPITAL RESOURCES

      The Company has financed its product development activities through a
series of private placements of debt and equity securities. From inception,
through June 30, 1998, an aggregate of approximately $21.4 million, net of
expenses, has been provided by debt and equity offerings. As of June 30, 1998
the Company has cash, cash equivalents and marketable securities totaling
$1,036,491 available for its working capital needs and planned capital asset
expenditures.

      While the majority of the revenues realized in the three months ending
June 30, 1998, were attributed to Laser Fare, the Company anticipates improved
revenue from its other divisions, and expense containment measures continue to
be implemented. Management is also pursuing other strategies for raising
additional working capital through debt and equity transactions.

      On February 23, 1998, the former chairman and principal stockholder of the
Company, along with related parties of the principal stockholder, sold an
aggregate of 2,350,221 shares of common stock of the Company to Northeast
Hampton Holdings, LLC. Also, the principal stockholder sold his interest in
convertible secured notes with a principal balance of $900,605 to Northeast
Hampton Holdings, which in turn converted the notes in accordance with their
terms into 684,502 shares of common stock at an average conversion price of
$1.63 per share.

      On June 30, 1998, the Company's president and chief executive officer
loaned the Company an aggregate of $1.15 million. The note evidencing the loan
is for a term of fifteen years and bears interest at the rate of 9.0% for the
first twelve months and adjusts annually thereafter to a rate equal to the
one-year T-Bill rate plus 3%. The president and chief executive officer also
loaned the Company $250,000 earlier this year. In consideration for the loans,
the Company granted the lender warrants to purchase 2,680,000 shares of Company
Common Stock exercisable at $1.12 per share. Half of the warrants are
immediately vested and, provided that the loan remains outstanding, the
remaining 50% vest in four equal tranches; six, nine, twelve, and fifteen months
from the anniversary date of the loan. In the event the notes are prepaid within
such period, any unvested warrants are cancelable.

      The Board of Directors has given approval for management to vigorously
pursue other alternate sources of funding including conventional bank financing,
private placement of debt and/or equity securities, and application for
available governmental funds in the form of interest subsidized financing.
Management estimates that a total of $4.0 million in funds would satisfy its
cash requirements over the next eighteen months. The funds are for; acquisition
of a mold company; additional equipment and space to 


                                       10
<PAGE>

accommodate anticipated new demand; repayment of debt; and working capital.
There is no assurance, however, that management will be successful in raising
all or part of this amount on satisfactory terms or that it will be sufficient
to fund operations and scheduled debt repayment.

RESULTS OF OPERATIONS

Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997

      Consolidated revenues for the three months ended June 30, 1998 were
$1,839,716 and consisted primarily of laser division sales. Cost of sales
totaled $1,160,793, and a gross profit of $678,923 was realized for the quarter.
Consolidated revenues for the three months ended June 1997 were $1,352,453
consisting solely of laser division sales. Cost of sales totaled $722,013, and a
gross profit of $630,440 was realized for the three months ended June 30, 1997.

      Operating expenses for the three months ended June 30, 1998 were ($12,678)
as compared to $41,215 for the second quarter of 1997. This decrease was a
result of year end accrued legal and accounting expenses offsetting current
operating expenses. Research and Development expenses were $258,533 in the three
months ended June 30, 1998 as compared to $265,323 in the second quarter on
1997.

      General and administrative expenses were $403,430 for the three months
ended June 30, 1998 as compared to $303,858 for the second quarter of 1997. The
increase of $99,572 or 33% was primarily due to the addition of the Company's
mid-west subsidiary, Mound Laser and Photonic Center. Selling expenses were
$107,660 for the quarter ended June 30, 1998, as compared to $140,595 for the
second quarter of 1997. The decrease was primarily attributed to the transfer of
the Vice President of Sales from Laser Fare to the Company's ExpressTool
subsidiary.

      Depreciation and amortization expenses totaled $144,663 for the second
quarter of 1998, as compared to $143,442 for the second quarter of 1997.
Increased depreciation and amortization expense of $1,221 from the second
quarter of 1997, resulted primarily from additional capital equipment purchases.

      Interest expense during the second quarter ending June 30, 1998 was
$58,817 as compared to $517,930 for the second quarter of 1997. The decrease of
$459,113 was primarily due to the conversion of notes payable into common stock
in the first quarter of 1998. Interest and other income for the second quarter
of 1998 was $40,056 as compared to $362 for the second quarter of 1997. The
increase of $39,694 was primarily due a gain on sale of company asset.

      Equity in loss of unconsolidated subsidiary, Spectra Science, was $158,997
in the second quarter ending June 30, 1998 representing the remaining portion of
the Company's investment in and advances to Spectra Science being fully written
down after recognizing the Company's equity in the subsidiaries net losses.


                                       11
<PAGE>

      The Company has a consolidated net loss of $395,055 for the three months
ended June 30, 1998, as compared to the net loss of $1,124,749 for the three
months ended June 30, 1997. The $729,694 decrease in net loss is primarily
attributed to decrease of interest in the amount of $459,113 and reduction of
the Company's equity in the loss of its unconsolidated subsidiary Spectra
Science.

Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997

      Consolidated revenue for the six months ended June 30, 1998 were
$3,765,123 and consisted primarily of laser division sales. Cost of sales
totaled $2,225,839, and a gross profit of $1,539,284 was realized for the
period. For the six months ended June 30, 1997, sales totaled $2,694,383 and
consisted solely of laser division sales. Consolidated cost of sales was
$1,553,044 for the first six months of 1997 and the Company realized a gross
profit of $1,141,339 for that period.

      Operating expenses for the first six months ended June 30,1998 were
$53,675 as compared to $73,423 during the first six months of 1997. The decrease
is mainly attributed to cost reductions. Research & Development expenses were
$579,033 during the first six months ended June 30, 1998 as compared to $470,287
during the first six months ended June 30, 1997. The increase was primarily due
to the change in the equity method of accounting for the Company's investment in
Spectra Science from the consolidated method in 1997.

      General and administration expenses for the six months ended June 30, 1998
were $690,690 as compared to $691,298 for the six months ended June 30, 1997.
Selling expenses were $223,561 for the first six months ended June 30, 1998 as
compared to $270,676 for the first six months of 1997. The decrease is primarily
attributed to the transfer of the Vice President of Sales from Laser Fare to the
Company's ExpressTool subsidiary.

      Depreciation and amortization expenses totaled $284,240 for the first six
months of 1998 compared to $324,427 for the first six months of 1997. Decreased
depreciation and amortization expense of $40,187 or 12% from the six months of
1997 resulted primarily from depreciation and amortization of older equipment
becoming fully depreciated.

      Interest expense was $135,659 and $605,786 during the six-month periods
ended June 30, 1998 and 1997 respectively. The decrease in interest expense of
$470,127 was due primarily to the recognition of the discount attributed to the
beneficial conversion feature of convertible debentures for the six months ended
June 30, 1997. Interest and other income for the first six month period ended
June 30, 1998 amounted to $32,775 compared to $2,063 for the first six months
ending June 30, 1997. The decrease was primarily due to gain on sale of
technology for the period ended June 30, 1997.


                                       12
<PAGE>

      The Company had a consolidated net loss of $812,971 for the six months
ended June 30, 1998, as compared to a net loss of $1,986,223 during the six
months ended June 30, 1998.

Part II - Other Information

Not Applicable


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<PAGE>

                                   SIGNATURES

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

August 11, 1998                           INFINITE GROUP, INC.


                                          By: /s/ Clifford G. Brockmyre
                                              ----------------------------------
                                          Clifford G. Brockmyre, President
                                          And Chief Executive Officer


                                          By: /s/ Daniel T. Landi
                                              ----------------------------------
                                          Daniel T. Landi
                                          Chief Financial and Accounting
                                          Officer


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