UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

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

                         Commission File Number 0-21816

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

              Delaware                                52-1490422
              ---------                               ----------
    (State or other jurisdiction                   (I.R.S. Employer
  of incorporation or organization)               Identification No.)

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

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

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

                                 Yes |_| No |X|

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

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


                                       1
<PAGE>

                               INFINITE GROUP INC.
                               FORM 10-QSB REPORT

                               Infinite Group Inc.

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

PART I - FINANCIAL INFORMATION

         Item 1.  Consolidated Financial Statements

                  Balance Sheet - September 30, 2003 (unaudited)
                  and December 31, 2002                                        3

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

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

                  Notes to Consolidated Financial Statements                   6

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

         Item 3.  Controls and Procedures                                     21

PART II - OTHER INFORMATION

         Item 1.  Legal Proceedings                                           22

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

         Item 3.  Defaults Upon Senior Securities                             23

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

         Item 5.  Other Information                                           23

         Item 6. Exhibits                                                     23

SIGNATURES                                                                    24

                           FORWARD-LOOKING STATEMENTS

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


                                       2
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

Item 1.  Financial Statements

INFINITE GROUP, INC.

Consolidated Balance Sheets
                                                    September 30,   December 31,
                                                       2003            2002
--------------------------------------------------------------------------------
ASSETS                                              (unaudited)
Current assets:
   Cash                                           $    163,766    $     36,459
   Restricted cash                                      25,507          25,118
   Accounts receivable, net of allowance             1,054,351         923,043
   Inventories                                          37,165         127,792
   Other current assets                                 46,752          42,767
   Assets of discontinued operations                   814,026         943,683
                                                  ------------    ------------
   Total current assets                              2,141,568       2,098,862

Property and equipment, net                          2,733,873       3,042,587

Other assets:
  Note receivable                                       73,897          73,897
  Other intangible assets, net                          65,945          60,225
                                                  ------------    ------------
        Total other assets                             139,842         134,122
                                                  ------------    ------------
                                                  $  5,015,283    $  5,275,571
                                                  ============    ============

LIABILITIES AND STOCKHOLDERS'  DEFICIENCY
Current liabilities:
Notes Payable:
   Bank                                           $    179,698    $    428,276
   Other                                                30,000              --
   Related parties                                     218,906          83,906
   Accounts payable                                  1,341,739       1,317,136
   Accrued expenses                                    785,725         691,332
   Current maturities of long-term obligations       2,404,431       2,551,295
   Liabilities of discontinued operations              908,442       1,400,203
                                                  ------------    ------------
        Total current liabilities                    5,868,942       6,472,148

Long-term obligations
   Bank notes payable                                   33,991              --
   Notes payable-related parties                       613,324              --
   Accrued pension expense                           2,182,449       2,159,152
                                                  ------------    ------------
        Total liabilities                            8,698,706       8,631,300
                                                  ------------    ------------
Commitments and contingencies

Stockholders' deficiency:
   Common stock, $.001 par value, 20,000,000
     shares authorized; 9,474,077 (6,314,077
     in 2002) issued and outstanding                     9,474           6,314
   Additional paid-in capital                       27,972,660      27,817,820
   Common stock, authorized, not issued                 50,000              --
   Accumulated deficit                             (28,743,108)    (28,081,158)
   Accumulated other comprehensive loss             (2,972,449)     (3,098,705)
                                                  ------------    ------------
       Total stockholders' deficiency               (3,683,423)     (3,355,729)
                                                  ------------    ------------
Total liabilities and stockholders' deficiency    $  5,015,283    $  5,275,571
                                                  ============    ============

See notes to consolidated financial statements.


                                       3
<PAGE>

INFINITE GROUP, INC.

Consolidated Statements of Operations (Unaudited)

<TABLE>
<CAPTION>
                                                            Nine Months Ended            Three Months Ended
                                                               September 30,                September 30,
                                                       --------------------------    --------------------------
                                                           2003          2002            2003          2002
---------------------------------------------------------------------------------------------------------------
                                                                     (As Restated)                 (As Restated)
<S>                                                    <C>            <C>            <C>            <C>
Sales                                                  $ 4,402,537    $ 4,745,572    $ 1,458,745    $ 1,472,633
Cost of goods and services                               3,032,232      3,702,000      1,028,637      1,030,198
                                                       -----------    -----------    -----------    -----------
Gross profit                                             1,370,305      1,043,572        430,108        442,435

Costs and expenses:
   General and administrative                            1,572,080      1,823,808        517,931        574,823
   Depreciation and amortization                           458,795        635,763        140,588        186,484
   Selling                                                 189,515        201,744         69,397         52,662
   Research and development                                 80,764          1,816         54,210             --
                                                       -----------    -----------    -----------    -----------
        Total costs and expenses                         2,301,154      2,663,131        782,125        813,969
                                                       -----------    -----------    -----------    -----------

Operating loss                                            (930,849)    (1,619,559)      (352,017)      (371,534)

Other income (expense):
   Interest expense:
       Related parties                                     (22,238)       (17,317)       (17,607)        (7,724)
       Others                                             (113,081)      (309,650)       (37,650)      (151,561)
   Gain on disposition of assets                            11,243        137,418             --             --
   Impairment loss                                              --        (45,670)            --             --
   Other income (expense)                                    5,487        (16,925)         1,688          2,215
   Interest income                                             221          9,725             54             --
                                                       -----------    -----------    -----------    -----------
       Total other income (expense)                       (118,368)      (242,419)       (53,495)      (157,070)
                                                       -----------    -----------    -----------    -----------

Loss from continuing operations before
  income tax expense                                    (1,049,217)    (1,861,978)      (405,513)      (528,604)
Income tax expense                                            (424)       (15,411)            --         (8,021)
                                                       -----------    -----------    -----------    -----------
Loss from continuing operations                         (1,049,641)    (1,877,389)      (405,513)      (536,625)
Income (loss) from discontinued operations,
   (including  $92,211 and $307,365 loss on
   disposal in the three and nine months ended 2002)       387,690       (272,566)       (56,819)      (170,751)
                                                       -----------    -----------    -----------    -----------
   Net loss                                            $  (661,951)   $(2,149,955)   $  (462,332)   $  (707,376)
                                                       ===========    ===========    ===========    ===========

Net loss per share-Basic:
Loss from  continuing operations                       $      (.14)   $      (.32)   $      (.05)   $      (.08)
  Income (loss) from discontinued operations                   .05           (.04)          (.01)          (.03)
                                                       -----------    -----------    -----------    -----------
  Net loss                                             $      (.09)   $      (.36)   $      (.06)   $      (.11)
                                                       ===========    ===========    ===========    ===========

Net income (loss) per share- Diluted:
   Income (loss) from discontinued operations          $       .05    $      (.04)   $      (.01)   $      (.03)
                                                       ===========    ===========    ===========    ===========

 Weighted average number of shares outstanding:
                           Basic                         7,668,934      5,896,504      7,687,729      6,270,125
                                                       ===========    ===========    ===========    ===========
                           Diluted                       7,918,934      5,896,504      7,687,729      6,270,125
                                                       ===========    ===========    ===========    ===========
</TABLE>

See notes to consolidated financial statements.

                                       4
<PAGE>


INFINITE GROUP, INC.

Consolidated Statements of Cash Flows (Unaudited)

<TABLE>
<CAPTION>
                                                                                       For the Nine Months Ended
                                                                                             September 30,
                                                                                      --------------------------
                                                                                          2003           2002
----------------------------------------------------------------------------------------------------------------
                                                                                                    (As Restated)
<S>                                                                                   <C>            <C>
Operating activities:
   Net loss                                                                           $  (661,950)   $(2,149,955)
  Adjustments to reconcile net loss to net cash used in operating activities:
      Loss from discontinued operations                                                  (387,690)       272,566
      Depreciation and amortization                                                       458,795        635,763
       Amortization of discount on note payable                                                --         37,073
       Expenses satisfied via issuance of common stock                                     50,000        194,943
       Gain loss on disposition of assets                                                 (11,243)      (137,418)
       Impairment Loss                                                                         --         45,670
      (Increase) decrease in:
         Accounts receivable, net                                                        (131,308)       682,786
         Inventories                                                                       90,627         25,633
         Other  current assets                                                             (3,985)        86,667
         Prepaid pension cost                                                                  --         55,000
      Increase (decrease) in:
        Accounts payable and accrued expenses                                             166,998       (273,172)
        Accrued pension obligations                                                       149,552             --
                                                                                      -----------    -----------
Net cash provided by (used in) operating activities of continuing operations             (280,204)      (524,444)
Net cash provided by (used in) operating activity of discontinued operations               25,586        143,754
                                                                                      -----------    -----------
Net cash provided by (used in) operating activities                                      (254,618)      (380,690)

Investing activities:
    Decrease (increase) in restricted funds                                                  (389)        60,320
    Purchase of property and equipment                                                    (91,360)      (128,301)
    Proceeds from sale of property and equipment                                               --        270,000
    Payments for intangibles                                                              (12,000)            --
                                                                                      -----------    -----------
    Net cash provided by (used in) investing activities                                  (103,749)       202,019
    Net cash provided by (used in) investing activities of discontinued operations             --      1,530,745
                                                                                      -----------    -----------
    Net cash provided by (used in) investing activities                                  (103,749)     1,732,764
                                                                                      -----------    -----------


Financing activities:
   Net repayments of bank notes payable                                                   (51,034)       (30,503)
   Proceeds from the issuance of notes payable-related parties                            165,000             --
   Proceeds from issuance of convertible notes payable, net of costs                           --      1,374,000
   Borrowing of notes payable-Related parties                                                  --        (32,906)
   Proceeds from issuance of Long-term obligations-related parties                        613,324             --
   Proceeds from issuance of common stock, net of expenses                                110,000        256,132
   Repayment of long- term obligations                                                   (351,616)      (326,464)
                                                                                      -----------    -----------

Net cash provided by (used in) financing activities of continuing operations              485,674      1,240,259

Net cash provided by (used in) financing activities of discontinued operations                 --     (2,663,400)
                                                                                      -----------    -----------

Net cash provided by (used in) financing activities                                       485,674     (1,423,141)
                                                                                      -----------    -----------
Net increase (decrease) in cash                                                           127,307        (71,067)
Cash  - beginning of period                                                                36,459         73,802
                                                                                      -----------    -----------

Cash  - end of period                                                                 $   163,766    $     2,735
                                                                                      ===========    ===========
Supplemental disclosure- Cash paid for:
   Interest                                                                           $  (111,547)   $  (366,269)
                                                                                      ===========    ===========
   Income taxes                                                                       $      (424)   $    (6,464)
                                                                                      ===========    ===========
</TABLE>

See notes to consolidated financial statements (unaudited).

                                       5
<PAGE>

INFINITE GROUP INC.

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

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

Note 2. Summary of Significant Accounting Policies

Critical Accounting Policies and Estimates

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

Revenue Recognition

In 2002 we  generated  substantially  our  entire  sale from  traditional  laser
manufacturing services, which included welding, machining, cutting, drilling and
engraving.  These  services  related to processes  performed  on the  customers'
parts. The services were performed based upon terms specified and agreed upon by
both  parties  prior to  commencement.  Sales  relating to these  services  were
recognized  at the  point  that  the  completed  product  was  delivered  to the
customer.  In 2003 we generated sale from our  traditional  laser  manufacturing
services and  beginning in the second  quarter of 2003,  we commenced  providing
services in the field of information technology (IT) consulting services through
our IT Services Group.

Stock-Based Compensation

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

                                       6
<PAGE>

Effect of New Accounting Pronouncements

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

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

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

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

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

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

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

                                       7
<PAGE>

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

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

Note 3. Discontinued Operations and Reclassifications

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

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

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

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

                                       8
<PAGE>

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

                                                 September 30, December 31,
Financial Position                                   2003         2002
                                                  ----------   ----------

Current assets and total assets of
  discontinued operations                         $  814,026   $  943,683
                                                  ==========   ==========

Liabilities of discontinued operations:
    Accounts payable and accrued expenses         $  903,442   $1,395,203
    Unsecured note payable                             5,000        5,000
                                                  ----------   ----------

    Total liabilities of discontinued
      operations                                  $  908,442   $1,400,203
                                                  ==========   ==========


                                                    Three Months Ended
                                                        September 30,
                                                 -------------------------
Results of Operations                               2003          2002
                                                 -----------   -----------

Revenue from discontinued operations             $        --   $ 2,277,123
                                                 ===========   ===========

Loss from discontinued operations                $   (56,819)  $   (78,540)

Loss on disposal of discontinued operations               --       (92,211)
                                                 -----------   -----------

Net loss from discontinued operations            $   (56,819)  $  (170,751)
                                                 ===========   ===========


                                                      Nine Months Ended
                                                         September 30,
                                                 -------------------------
Results of Operations                                2003          2002
                                                 -----------    ----------

Revenue from discontinued operations             $   740,352   $ 4,218,967
                                                 ===========   ===========

Income from discontinued operations              $   387,690   $   34, 799

Loss on disposal of discontinued
operations                                                --      (307,365)
                                                 -----------    ----------

Net income (loss) from discontinued operations   $   387,690   $  (272,566)
                                                 ===========   ===========

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


                                       9
<PAGE>

Note  4. Stock Option Plan

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

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

<TABLE>
<CAPTION>
                                                                                       Weighted
                                                Number             Exercise             Average
                                              Of Options            Price           Exercise Price
                                            ---------------- --------------------- ------------------

<S>                                             <C>             <C>      <C>            <C>
Outstanding at December 31, 2002                300,581         $ 1.38 - $5.50          $ 1.64
                                                                ==============          ======

Options issued                                 1,610,000          $ .05-$.15             $ .06
                                                                  ==========             =====

Options expired                                (223,006)        $ 1.38 - $5.50          $ 1.57
                                               ---------        ==============          ======

Outstanding at September 30, 2003              1,687,575        $ .05 -$ 2.50            $ .13
                                               =========        =============            =====

Exercisable at September 30, 2003              1,587,575         $ .05 -$2.50            $ .13
                                               =========         ============            =====
</TABLE>

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

                                             Three Months Ended
                                                September 30,
                                            --------------------
Results of Operations                         2003        2002
                                            --------    --------

Net loss-as reported (000's)                $   (462)   $   (707)
                                            --------    --------
Total stock based employee compensation
 expense determined employee compensation
 expense determined under the fair value
 method for all awards (000's)              $     --    $    136
                                            --------    --------
Net Loss- pro forma (000's)                 $   (462)   $   (843)
                                            ========    ========

Loss per share as reported                  $   (.06)   $   (.11)
                                            ========    ========
Loss per share pro forma                    $   (.06)   $   (.13)
                                            ========    ========


                                       10
<PAGE>

                                             Nine Months Ended
                                                September 30,
                                            --------------------
Results of Operations                          2003       2002
                                            --------    --------

Net loss-as reported (000's)                $   (662)   $ (2,150)

Total stock based employee compensation
 expense determined employee compensation
 expense determined under the fair value
 method for all awards (000's)              $     76    $    207
                                            --------    --------

Net Loss- pro forma (000's)                 $   (738)   $ (2,357)
                                            ========    ========

Loss per share as reported                  $   (.09)   $   (.36)
                                            ========    ========
Loss per share pro forma                    $   (.09)   $  (.40)
                                            ========    ========

Note  5.  Business Segments

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

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

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

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

                                       11
<PAGE>

<TABLE>
<CAPTION>
                                        Plastics      Photonics                    IT Services     Unallocated
                                         Group          Group       Laser Group       Group         Corporate    Consolidated
                                      -----------    -----------    -----------    -----------    -----------    ------------
<S>                                    <C>            <C>            <C>            <C>            <C>            <C>
Three Months ended September 30, 2003

Sales to unaffiliated customers        $        --    $        --    $ 1,061,853    $   396,892    $        --    $ 1,458,745

Operating loss                         $        --    $        --    $  (200,806)   $   151,211    $        --    $   352,017

Income from                            $        --    $   (56,819)   $        --             --    $        --    $   (56,819)
discontinued
operations

Three Months ended September 30, 2002

Sales to                               $        --             --    $ 1,472,633             --             --      1,472,633
unaffiliated
customers

Operating loss                         $        --             --    $  (131,139)   $        --    $  (240,395)   $  (371,534)
including corporate
overhead allocation

Income (loss) from                     $   (92,211)   $  (151,460)   $        --    $        --    $    72,920    $  (170,751)
discontinued
operations including
corporate overhead
allocation

Nine Months ended September 30, 2003

Sales to                               $        --    $        --    $ 3,913,660    $   488,877    $        --    $ 4,402,537
unaffiliated
customers

Operating loss                         $        --    $        --    $  (269,184)   $  (661,664)   $        --    $  (930,848)

Income (loss) from                     $        --    $   387,690    $        --    $        --    $        --    $   387,690
discontinued
operations

Nine Months ended September 30, 2002

Sales to                               $        --    $        --    $ 4,745,572    $        --    $        --    $ 4,745,572
unaffiliated
customers

Operating loss                         $        --    $        --    $  (785,053)   $        --    $  (834,506)   $(1,619,559)
including corporate
overhead allocation

Income (loss) from                     $  (340,974)   $  (142,690)   $        --    $        --    $   211,098    $  (272,566)
discontinued
operations including
corporate overhead
allocation
</TABLE>

                                       12
<PAGE>

Note 6.   Supplemental Cash Flow Information

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

<TABLE>
<CAPTION>
                                                                                Nine Months Ended
                                                                                  September 30,
                                                                                  2003      2002
                                                                               --------   --------
<S>                                                                            <C>        <C>
Demand note reclassed to long-term obligation                                  $197,544   $     --
                                                                               ========   ========

Conversion of legal fees outstanding to common stock                           $ 48,000   $     --
                                                                               ========   ========

Purchase of vehicle through long-term obligations                              $ 41,199   $     --
                                                                               ========   ========

Common stock, issued for prepaid services to be provided in future periods     $     --   $750,000
                                                                               ========   ========

Conversion  of long-term  obligation  and related  accrued  interest and
 fees to common stock, net of capitalized costs written off                    $     --   $725,340
                                                                               ========   ========

Notes receivable issued in connection with the sale of assets                  $     --   $180,000
                                                                               ========   ========

Conversion of long-term  obligations-  Stockholders and related
 accrued interest To common stock                                              $     --   $129,600
                                                                               ========   ========

Value of detachable common stock warrants Issued with long-term  obligations   $     --   $103,872
                                                                               ========   ========

Common stock warrants issued as satisfaction of accounts payable               $     --   $ 58,826
                                                                               ========   ========
</TABLE>

Note 7. Earnings Per Share

Basic income per share is based on the weighted  average number of common shares
outstanding during the periods  presented.  Diluted income per share is based on
the weighted  average number of common shares  outstanding,  as well as dilutive
potential  common shares which, in the Company's case,  comprise shares issuable
under the stock options and stock warrants. The treasury stock method is used to
calculate dilutive shares,  which reduces the gross number of dilutive shares by
the number of shares  purchasable from the proceeds of the options assumed to be
exercise.  In a loss year, the  calculation  for basic and diluted  earnings per
share is considered to be the same, as the impact of potential  common shares is
anti-dilutive.


                                       13
<PAGE>

The following table sets forth the computation of basic and diluted earnings per
share for the nine months ended September 30,2003

Numerator:
     Income from discontinued operations       $  387,690
                                               ==========

     Weighted average shares outstanding        7,668,934
                                               ==========

Denominator for diluted income per share:
     Weighted average shares outstanding        7,668,934
     Common stock options and stock warrants      250,000
                                               ----------

     Weighted average shares and conversions    7,918,934
                                               ==========

      For the three and nine months  ended  September  30, 2002 and three months
ended  September  30, 2003 all  outstanding  stock options and warrants have not
been considered common stock equivalents because their assumed exercise would be
anti-dilutive.

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

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

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

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

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

                                       14
<PAGE>

Results of operations

Comparison of Three Months ended September 30, 2003 and 2002

We commenced the  operations of our IT services  Group in the second  quarter of
2003. The following  results  include the operations of our Laser Group for 2002
and 2003 and our IT Services Group  beginning in 2003.  The trends  suggested by
this table are not indicative of future operating results due to our decision to
sell the business of our Laser Group and focus on our IT Services Group.
<TABLE>
<CAPTION>
                                                                    Three Months Ended September 30,
                                                  ------------------------------------------------------------------------
                                                                As a % of Net       2002       As a % of Net     Increase
                                                      2003        Revenues      (As Restated)    Revenues       (Decrease)
                                                      ----        --------       -----------     --------       ----------
<S>                                               <C>               <C>          <C>                <C>              <C>
Sales                                             $ 1,458,745       100.0 %      $ 1,472,633        100.0 %          (0.9)%
Cost of sales                                       1,028,637        70.5          1,030,198         70.0            (0.2)
                                                  ------------------------       --------------------------      ---------
Gross profit                                          430,108        29.5            442,435         30.0            (2.8)
                                                  ------------------------       --------------------------      ---------
General and administrative                            517,931        35.5            574,823         39.0            (9.9)
Depreciation and amortization                         140,588         9.6            186,484         12.7           (24.6)
Selling                                                69,397         4.8             52,662          3.6            31.8
Research and development                               54,210         3.7                 --          0.0              --
                                                  ------------------------       --------------------------      ---------
Total operating expenses                              782,125        53.6            813,969         55.3            (3.9)
                                                  ------------------------       --------------------------      ---------
Operating loss                                       (352,017)      (24.1)          (371,534)       (25.2)           (5.3)
Other income (expense) and income taxes, net          (53,495)       (3.7)          (165,091)       (11.2)          (67.6)
                                                  ------------------------       --------------------------      ---------
Loss from continuing operations                      (405,513)      (27.8)          (536,625)       (36.4)          (24.4)
Loss from discontinued operations                     (56,819)       (3.9)          (170,751)       (11.6)          (66.7)
                                                  ------------------------       --------------------------      ---------
Net loss                                          $  (462,332)      (31.7)%      $  (707,376)       (48.0)%         (34.6)%
                                                  =========================      ==========================      =========
</TABLE>

      Sales

Sales for the three months ended  September 30, 2003 were  relatively  unchanged
compared to sales for the three months  ended  September  30,  2002.  Sales were
approximately  $1,062,000  from LF and $397,000  from IT Services  Group for the
three months ended September 30, 2003.  Sales of $1,472,633 were from LF for the
three months ended  September 30, 2002. The sales from the IT Services Group are
a result  of our new  strategy  which was  implemented  in 2003.  Sales  from LF
declined by  approximately  $410,000 in the 2003 period from the 2002 period due
to reductions in customer orders.

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

      Cost of Sales and Gross Profit

Cost of sales represents the cost of labor, materials and overhead related to LF
and the cost of  employee  services  related to the IT Services  Group.  Cost of
sales for the three months ended  September  30, 2003 was  relatively  unchanged
compared to cost of sales for the three months ended September 30, 2003. Cost of
sales  was  approximately  $795,000  for LF and  approximately  $233,000  for IT
Services Group for the three months ended  September 30, 2002.  Gross profit was
approximately  $267,000 or 25.1% for LF and approximately  $164,000 or 41.2% for
the IT Services  Group for the three months ended  September  30, 2003.  Cost of
sales of $1,030,198 was for LF for the three months ended September 30, 2002 and
resulted in a gross profit of $442,435 or 30%. Gross profit  declined for LF due
to the mix of job  orders  and  fixed  costs  which  did not  decrease  as sales
declined.

                                       15
<PAGE>

      General and Administrative Expenses

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

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

      Depreciation and Amortization

Depreciation and amortization  expense  decreased by $45,856 in the three months
ended  September 30, 2003 compared to the three months ended  September 30, 2002
principally due to the write off or disposition of assets in connection with the
relocation  of  our  corporate  headquarters  to  Rochester,  New  York.  We are
operating our new corporate headquarters with less capital equipment.

      Selling Expenses

For the three months ended  September 30, 2003 we incurred  selling  expenses of
approximately  $19,000 associated with growing business in our IT Services Group
and recorded  approximately  $19,000 for the quarter.  Selling expense at LF was
relatively  unchanged  at  approximately  $50,000  for the  three  months  ended
September 30, 2003 compared to $52,662 for the three months ended  September 30,
2002.

      Research and Development

For the three months  ended  September  30, 2003 we began to incur  research and
development  expenses  associated with growing business in our IT Services Group
related to our biometrics  applications  and recorded $54,210 of expense for the
quarter ended September 30, 2003. These expenses are principally  related to the
development  of  an  access  control   terminal  and  related   software  called
TouchThru(TM).  TouchThru(TM) is a  self-contained  terminal  enabling  physical
access  control using  biometric  identification.  It  incorporates  fingerprint
matching technology licensed from Ultra-Scan  Corporation,  a private technology
company  headquartered  in Buffalo,  New York.  TouchThru(TM)  will be the first
biometric product we introduce,  and we intend to be in a position to market and
sell that product beginning in 2006. We plan to market and sell TouchThru(TM) in
a variety of  industries  and markets,  including  the federal,  state and local
government, health care, travel and general security, and access control.

      Loss From Operations

For the three months ended  September 30, 2003 our  operating  loss was $352,017
compared to a $371,534 loss from  operations in the  comparable  period of 2002.
This is  primarily  attributable  to our focus on our new IT Services  Group and
reductions in general and administrative expenses offset in part by research and
development  expenses  of our  IT  Services  Group  related  to  our  biometrics
applications.

                                       16
<PAGE>

      Other Expenses

Other  income  and  expense   consists   principally  of  interest   expense  on
indebtedness for the three months ended September 30, 2003. Interest expense was
$55,237 for the three months ended  September  30, 2003 compared to $159,000 for
the three months ended September 30, 2002. The decrease in our interest  expense
is due primarily to repayment of notes payable as a result of the termination of
our DARPA  contract in 2002 and the continued  amortization  of notes payable of
LF.

      Loss from Discontinued Operations

We recorded a loss from discontinued  operations of $56,819 for the three months
ended  September  30, 2003  compared to a loss of $170,751  for the three months
ended September 30, 2002. These losses are the result of  approximately  $70,000
recorded  in 2002 as a result of the sale of the Osley &  Whitney  building  and
land in the third quarter of 2002.  The operations of the Plastics Group and the
Photonics  Group were  reclassified  as  discontinued  operations  and loss from
discontinued  operations  of $100,751 was recorded in the third  quarter of 2002
and $56,819 in third quarter of 2003.

      Net Loss

For the three  months  ended  September  30,  2003,  we  recorded  a net loss of
$462,332 or $(.06) per share consisting of a net loss of $405,513, or $(.05) per
share from continuing  operations and a loss of $56,819 or $(.01) per share from
discontinued  operations.  This compares to a net loss of $707,376 or $(.11) per
share consisting of a net loss of $536,625,  or $(.08) per share from continuing
operations  and a loss  of  $170,751  or  $(.03)  per  share  from  discontinued
operations for the three months ended September 30, 2002. The improvement in net
loss is attributable to reductions in general and  administrative  expenses,  an
improvement in the loss from discontinued operations by $113,932,  contributions
provided by our new IT Services Group, and a decrease in interest expense, which
were offset by a smaller  gross profit from LF's  business  which were offset by
selling, research and development expenses of our IT Services Group.

Comparison of Nine Months ended September 30, 2003 and 2002

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

                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                     Nine Months Ended September 30,
                                                  ------------------------------------------------------------------------
                                                                As a % of Net       2002       As a % of Net      Increase
                                                      2003         Revenues      (As Restated)   Revenues        (Decrease)
                                                      ----         --------      ------------    --------        ----------
<S>                                               <C>               <C>          <C>                <C>              <C>
Sales                                             $ 4,402,537       100.0 %      $ 4,745,572        100.0 %          (7.2)%
Cost of sales                                       3,032,232        68.9          3,702,000         78.0           (18.1)
                                                  -------------------------      --------------------------       ---------
Gross profit                                        1,370,305        31.1          1,043,572         22.0            31.3
                                                  -------------------------      --------------------------       ---------
General and administrative                          1,572,080        35.7          1,823,808         38.4           (13.8)
Depreciation and amortization                         458,795        10.4            635,763         13.4           (27.8)
Selling                                               189,515         4.3            201,744          4.3            (6.1)
Research and development                               80,764         1.8              1,816          0.0         4,347.3
                                                  -------------------------      --------------------------       ---------
Total operating expenses                            2,301,153        52.3          2,663,131         56.1           (13.6)
                                                  -------------------------      --------------------------       ---------
Operating loss                                       (930,849)      (21.1)        (1,619,559)       (34.1)          (42.5)
Other income (expense) and income taxes, net         (118,791)       (2.7)          (257,830)        (5.4)          (53.9)
                                                  -------------------------      --------------------------       ---------
Loss from continuing operations                    (1,049,641)      (23.8)        (1,877,389)       (39.6)          (44.1)
Income (loss) from discontinued operations            387,690         8.8           (272,566)        (5.7)         (242.2)
                                                  -------------------------      --------------------------       ---------
Net loss                                           $ (661,951)      (15.0)%      $(2,149,955)       (45.3)%         (69.2)%
                                                  =========================      ==========================       =========
</TABLE>

      Sales

Sales for the nine  months  ended  September  30, 2003  decreased  approximately
$343,000 or 7.2%  compared to net sales for the nine months ended  September 30,
2002. Sales of LF including mound laser decreased by  approximately  $832,000 or
17.5% to  approximately  $3,913,000 for the nine months ended September 30, 2003
compared to the nine months ended  September 30, 2002.  This decrease was offset
by sales  from the IT  Services  Group of  approximately  $489,000  for the nine
months  ended  September  30, 2003.  The sales from the IT Services  Group are a
result of our new strategy which was implemented in 2003. Sales from LF declined
in the 2003 period from the 2002 period due to reductions in customer orders.

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

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

      Cost of Sales and Gross Profit

Cost of sales represents the cost of labor, materials and overhead related to LF
and the cost of  employee  services  related to the IT Services  Group.  Cost of
sales was $2,739,000 for LF and approximately $293,000 for IT Services Group for
the nine months  ended  September  30,  2003.  Cost of sales for the nine months
ended  September 30, 2003  decreased  18.1% as compared to cost of sales for the
nine  months  ended  September  30,  2002.  Cost of sales as a percent  of sales
improved by 9.1% or approximately  $670,000 from 78.0% for the nine months ended
September 30, 2002 to 68.9% for the nine months ended  September  30, 2003.  The
decrease in cost of sales as a percent of sales is principally due to reductions
in employees and related expenses at LF.

Gross  profit was  approximately  $1,174,000  or 30.0% for LF and  approximately
$196,000 or 40.1% for the IT Services Group for the nine months ended  September
30, 2002.  Cost of sales of $3,702,000  for the nine months ended  September 30,
2002 was for LF and resulted in a gross  profit of  $1,043,572  or 22.0%.  Gross
profit declined by 12.5% for LF due to the mix of job orders.

                                       18
<PAGE>

      General and Administrative Expenses

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

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

General  and  administrative  expense  includes  expenses of the Osley & Whitney
defined benefit retirement plan of approximately  $150,000 and income of $26,160
for the nine months ended September 30, 2003 and 2002, respectively.

      Depreciation and Amortization

Depreciation and amortization  expenses decreased by $176,968 in the nine months
ended  September 30, 2003 compared to the nine months ended  September 30, 2002.
This was due to the write off or  disposition  of assets in connection  with the
relocation  of  our  corporate  headquarters  to  Rochester,  New  York.  We are
operating  our new  corporate  headquarters  with  less  capital  equipment.  In
addition,  depreciation  expense at LF  decreased  as assets  came to the end of
their depreciable lives.

      Selling Expenses

For the nine months ended  September  30, 2003 we incurred  selling  expenses of
approximately $24,000 associated with growing business in our IT Services Group.
Selling  expense at LF  decreased by  approximately  $36,000 for the nine months
ended September 30, 2003 as compared to the nine months ended September 30, 2002
reflecting minor staff reductions.

      Research and Development

For the nine months  ended  September  30, 2003 we began to incur  research  and
development  expenses  associated with growing business in our IT Services Group
related to our biometrics  applications  and recorded $80,764 of expense for the
nine months ended September 30, 2003. These expenses are principally  related to
the  development  of an access  control  terminal  and related  software  called
TouchThru(TM).  TouchThru(TM) is a  self-contained  terminal  enabling  physical
access  control using  biometric  identification.  It  incorporates  fingerprint
matching technology licensed from Ultra-Scan  Corporation,  a private technology
company  headquartered  in Buffalo,  New York.  TouchThru(TM)  will be the first
biometric product we introduce,  and we intend to be in a position to market and
sell that product beginning in 2006. We plan to market and sell TouchThru(TM) in
a variety of  industries  and markets,  including  the federal,  state and local
government, health care, travel and general security, and access control.

                                       19
<PAGE>

      Loss from Operations

For the nine months ended  September  30, 2003 our  operating  loss was $930,849
compared  to a  $1,619,559  loss  from  operations  for the  nine  months  ended
September 30, 2002. This  improvement is primarily  attributable to our focus on
our new IT Services Group and reductions in general and administrative expenses,
depreciation  expense and selling  expense,  offset by research and  development
expenses   incurred  in  our  IT  Services   Group  related  to  our  biometrics
applications.

      Other Income (Expense)

Other  income  and  expense   consists   principally  of  interest   expense  on
indebtedness for the nine months ended September 30, 2003.  Interest expense was
$135,319 for the nine months ended  September  30, 2003 compared to $326,967 for
the nine months ended  September 30, 2002. The decrease in our interest  expense
is due primarily to repayment of notes payable as a result of the termination of
our DARPA  contract in 2002 and the continued  amortization  of notes payable of
LF.

      Income (Loss) from Discontinued Operations

We recorded income from discontinued  operations of $387,690 for the nine months
ended  September  30,  2003  compared to a loss of $ 272,566 for the nine months
ended  September  30,  2002.  The  income in 2003 is due to the close out of the
DARPA contract with the Photonics Group and includes  settlement of balances due
for less than the carrying  values.  The loss from  discontinued  operations for
2002 are the result of the  $70,000  recorded in 2002 as a result of the sale of
the Osley & Whitney  building  and land in the third  quarter of 2002 and losses
from discontinued  operations of the Osley & Whitney, the Plastics group and the
Photonics Group.

      Net Loss

For the  nine  months  ended  September  30,  2003,  we  recorded  a net loss of
$661,951,  or $(.14) per share from continuing operations and income of $387,690
or $.05  per  share  from  discontinued  operations  compared  to a net  loss of
$2,149,955,  or  $(.32)  per  share  from  continuing  operations  and a loss of
$272,566 $(.04) per share from discontinued operations for the nine months ended
September 30, 2002. The improvement in net loss is attributable to reductions in
cost of sales as a percent of sales,  decreases  in general  and  administrative
expenses,  an improvement in the loss from  discontinued  operations by $660,256
(from a loss of $272,566 to income of $387,690),  contributions  provided by our
new IT Services Group, and a decrease in interest expense,  which were offset by
research  and  development  expenses  of our IT  Services  Group  related to our
biometrics applications.

      Liquidity and Capital Resources

As of September 30, 2003 we had  unrestricted  cash of  approximately  $163,000,
substantially all of which was held by LF for its working capital needs.

At September 30, 2003 we had a working  capital  deficit of  $3,727,374  million
($3,632,958  after  eliminating the assets and  liabilities of our  discontinued
operations).  Approximately  $2,400,000  of this  deficit is caused by bank loan
covenant  violations  resulting in the classification of long term maturities as
current liabilities.

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

Risk Factors

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

                                       20
<PAGE>

Item 3.  Controls and Procedures

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

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

                                       21
<PAGE>

                                     PART II

                                OTHER INFORMATION

Item 1:  Legal Proceedings.

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

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

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

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

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

Recent Sales of Unregistered Securities

For the three and nine months ended  September 30, 2003,  we issued  200,000 and
2,200,000  restricted  shares  of  common  stock  at $.05 per  share in  private
placement  transactions,  respectively.  In addition, for the nine months ending
September  30, 2003,  we issued  960,000  restricted  shares of common stock for
concession of outstanding liabilities of $48,000.

                                       22
<PAGE>

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

Item 3.  Defaults Upon Senior Securities.

The  Company's LF subsidiary  had a $1,250,000  bank term  promissory  note that
required  monthly  principal and interest  payments  amounting to  approximately
$13,000 through February 2011. The outstanding  balance as of September 30, 2003
amounted to $812,783 and bore  interest at the bank's prime rate plus 1.0%.  All
the assets of LF and the guarantee of the Company secured the note. We continued
to be in  violation  of certain  loan  covenants.  These  violations  related to
exceeding  certain  levels of the ratio of debt to  intangible  net  worth,  not
meeting the minimum  current ratio or the working  capital ratio,  and exceeding
capital expenditure limits.  Accordingly,  the entire outstanding portion of the
note was classified as current.

The  Company's LF subsidiary  had a $1,260,000  bank term  promissory  note that
required  monthly  principal and interest  payments  amounting to  approximately
$13,000 through December 2014. The outstanding  balance as of September 30, 2003
amounted to $1,064,744  and bore interest at the bank's prime rate plus .75%. We
continued to be in violation of certain  covenants  under the term of this note.
Accordingly,  the  entire  outstanding  portion  of the note was  classified  as
current.

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

The  aggregate  amount of the  aforementioned  notes  payable and capital  lease
obligations  classified as current  liabilities  was $2,362,527 at September 30,
2003.

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

         None.

Item 5.  Other Information.

         None.

Item 6. Exhibits.

a. Exhibits:

Exhibit No.       Description
-----------       -----------

31.1              Certification  of Chief Executive  Officer and Chief Financial
                  Officer pursuant to Section 302 of the  Sarbanes-Oxley  Act of
                  2002.

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

                                       23
<PAGE>

                                   SIGNATURES

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

                                                  Infinite Group Inc.
                                                  (Registrant)

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

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


                                       24