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UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number: 0-17204
INFINITY, INC.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1070066
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
211 West 14th Street, Chanute, Kansas 66720
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(Address of principal executive offices including zip code)
(316) 431-6200
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 September 30, 1996, 9,277,228 shares of common stock, $.001 par value
per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
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INFINITY, INC.
FORM 10-QSB
INDEX
Page
PART I: FINANCIAL INFORMATION Number
Item 1. Financial Information:
Condensed Consolidated Balance Sheets................ 3
Condensed Consolidated Statements of Operations......4-5
Condensed Consolidated Statements of Cash Flows......6-7
Notes to Financial Statements........................8-10
Item 2. Management's Discussion and Analysis
or Plan of Operations................................11-14
PART II: OTHER INFORMATION.................................... 15
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1996 1996 (Note)
ASSETS
CURRENT ASSETS
Cash $ 429,770 $ 183,402
Accounts receivable, less allowance
for doubtful accounts 325,471 466,128
Inventories 187,618 208,979
Prepaid expenses 28,901 23,885
TOTAL CURRENT ASSETS $ 971,760 $ 882,394
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 4,419,340 4,633,976
OIL AND GAS PROPERTIES NOT SUBJECT TO
AMORTIZATION using the full cost method 906,174 662,730
INTANGIBLE ASSETS, at cost, less
accumulated amortization 248,788 271,082
$ 6,546,062 $ 6,450,182
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 474,436 $ 514,164
Accrued expenses 314,273 342,296
Current portion of deferred revenue 60,000 60,000
Notes payable 96,000 -
Current portion of long-term debt 328,724 287,913
TOTAL CURRENT LIABILITIES $ 1,273,433 $ 1,204,373
LONG-TERM LIABILITIES
Long-term debt, less current portion above $ 2,063,503 $ 2,262,058
Note payable, related party 309,968 309,968
Deferred revenue, less current portion above 181,778 206,208
TOTAL LIABILITIES $ 3,828,682 $ 3,982,607
STOCKHOLDERS' EQUITY
CAPITAL CONTRIBUTED
Common stock, par value $.0001, authorized
300,000,000 shares, issued and outstanding
9,277,228 shares; 8,731,395 shares $ 928 $ 873
Additional paid-in capital 7,510,413 7,115,468
TOTAL CAPITAL CONTRIBUTED $ 7,511,341 $ 7,116,341
RETAINED EARNINGS(DEFICIT) $(4,793,961) $(4,648,766)
TOTAL STOCKHOLDERS' EQUITY $ 2,717,380 $ 2,467,575
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,546,062 $ 6,450,182
The consolidated balance sheet at March 31, 1996 has been derived from the
audited financial statements at that date.
See Notes to Financial Statements.
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30,
1996 Restated 1995
NET SALES $ 1,437,705 $1,419,168
COST OF GOODS SOLD 800,693 1,022,556
GROSS PROFIT 637,012 396,612
OPERATING EXPENSES
Salaries 184,092 224,648
Taxes 59,350 154,220
Consulting fees 11,753 26,607
Professional services 18,173 21,353
Research & development 1,209 18,007
Travel & entertainment 11,557 30,248
Insurance 72,651 73,338
Advertising 5,100 3,199
Office supplies and expense 14,103 17,432
Telephone 30,981 33,061
Rent & utilities 34,930 38,891
Depreciation & amortization 170,151 173,354
Other expenses 29,316 37,374
TOTAL OPERATING EXPENSES $ 643,366 $ 851,732
OPERATING INCOME (LOSS) (6,354) (455,120)
OTHER INCOME (EXPENSE)
Interest income & finance charges 4,620 2,465
Interest expense (68,932) (70,402)
Gain (Loss) on sales of assets - (117,021)
TOTAL OTHER INCOME (EXPENSE) $ (64,312) $ (184,958)
NET INCOME (LOSS) $ (70,666) $ (640,078)
NET LOSS PER COMMON SHARE $ (0.01) $ (0.09)
See Notes to Financial Statements.
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended September 30,
1996 Restated 1995
NET SALES $ 2,697,741 $ 2,414,108
COST OF GOODS SOLD 1,451,609 1,797,199
GROSS PROFIT 1,246,132 616,909
OPERATING EXPENSES
Salaries 345,091 440,614
Taxes 113,076 242,854
Consulting fees 23,655 49,299
Professional services 45,309 72,403
Research & development 3,176 36,977
Travel & entertainment 21,067 55,982
Insurance 142,432 137,446
Advertising 5,771 6,201
Office supplies and expense 30,830 38,202
T elephone 55,704 62,936
Rent & utilities 71,597 82,830
Depreciation & amortization 336,881 342,002
O ther expenses 62,438 49,694
TOTAL OPERATING EXPENSES $ 1,257,027 $ 1,617,440
OPERATING INCOME (LOSS) (10,895) (1,000,531)
OTHER INCOME (EXPENSE)
Interest income & finance charges 5,140 5,120
Interest expense (139,440) (125,119)
Gain (Loss) on sales of assets - (117,021)
TOTAL OTHER INCOME (EXPENSE) $ (134,300) $ (237,020)
NET INCOME (LOSS) $ (145,195) $(1,237,551)
NET LOSS PER COMMON SHARE $ (0.01) $ (0.15)
See Notes to Financial Statements.
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended September 30,
1996 Restated 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (70,666) $ (640,378)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 170,151 173,354
Loss on Sale of Assets - 117,021
(Increase) decrease in operating assets
Accounts receivable 99,653 (270,443)
Inventories 17,899 3,938
Prepaid expenses (12,226) (11,014)
Increase (decrease) in operating liabilities
Accounts payable (105,947) 138,495
Accrued expenses (9,254) 22,457)
Deferred revenue (8,239) (12,774)
NET CASH USED IN OPERATING ACTIVITIES 81,371 (479,344)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchasing of property and equipment (23,142) (87,205)
Proceeds of equipment sold - 113,140
Investment in Oil and Gas Properties (45,902) -
Investment in intangible assets (8,155) (15,894)
NET CASH USED IN INVESTING ACTIVITIES (77,199) 10,041
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable - -
Increase in notes payable 16,000 -
Increase in long-term debt - 72,500
Proceeds from issuance of common stock 395,000 45,726
Repayment of long-term debt (79,292) (6,047)
NET CASH PROVIDED BY FINANCING ACTIVITIES 331,708 112,179
NET INCREASE (DECREASE) IN CASH 335,880 (357,124)
CASH, BEGINNING OF PERIOD 93,890 623,779
CASH, END OF PERIOD $ 429,770 $ 266,655
See Notes to Financial Statements.
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended September 30,
1996 Restated 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (145,195) $ (1,237,551)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 336,881 342,002
Loss on Sale of Assets - 117,021
(Increase) decrease in operating assets
Accounts receivable 140,657 (401,703)
Inventories 21,361 (13,057)
Prepaid expenses (5,016) 12,924
Increase (decrease) in operating liabilities
Accounts payable (39,728) 301,699
Accrued expenses (28,023) (86,625)
Deferred revenue (24,430) (22,423)
NET CASH USED IN OPERATING ACTIVITIES 256,507 (987,713)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchasing of property and equipment (85,451) (188,352)
Proceeds of equipment sold - 120,640
Investment in Oil and Gas Properties (243,444) -
Investment in intangible assets (14,500) (15,894)
NET CASH USED IN INVESTING ACTIVITIES (343,395) (83,606)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable - (28,632)
Increase in notes payable 96,000 -
Increase in long-term debt - 2,572,500
Proceeds from issuance of common stock 395,000 72,926
Repayment of long-term debt (157,744) (1,509,103)
NET CASH PROVIDED BY FINANCING ACTIVITIES 333,256 1,107,691
NET INCREASE (DECREASE) IN CASH 246,368 36,372
CASH, BEGINNING OF PERIOD 183,402 230,283
CASH, END OF PERIOD $ 429,770 $ 266,655
See Notes to Financial Statements.
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INFINITY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Infinity, Inc. (Infinity) was organized under the laws of the
State of Colorado on April 2, 1987, primarily for the purpose of engaging in
any lawful business, but intending to acquire business opportunities.
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of the following companies:
PARENT COMPANY
Infinity, Inc.
WHOLLY-OWNED SUBSIDIARIES
Infinity Research and Development, Inc.
Consolidated Industrial Services, Inc.
(incorporated during the year ended March 31, 1994)
L.D.C. Food Systems, Inc.
(acquired during the year ended March 31, 1994)
CIS Oil and Gas, Inc.
(incorporated during the year ended March 31, 1996)
OTHER SUBSIDIARIES
Infinity Oil and Gas, Inc.
(incorporated during the year ended March 31, 1996)
(2) EARNING (LOSS) PER SHARE
Loss per share is based on the weighted average number of shares outstanding.
The number of shares used in the calculation was 8,788,217, and 7,920,052 for
the six months ended September 30, 1996 and 1995, respectively. Common stock
equivalents are not included in the computation because their inclusion would
be anti-dilutive.
On November 30, 1993, the Company executed a 1 for 12 reverse stock split.
All share and per share amounts have been adjusted to reflect the reverse
split.
(3) ACQUISITIONS
On December 15, 1993, Infinity, Inc. acquired all of the outstanding stock of
L.D.C. Food Systems, Inc., a New Jersey corporation, in exchange for the
issuance of 74,405 shares of Infinity, Inc.'s common stock. This transaction
has been accounted for as a pooling-of-interests, and accordingly, prior
period financial statements have been restated as if the entities had been
combined since inception. Since both companies were development stage
enterprises prior to the acquisition, neither company had recorded revenues
prior to December 1993.
In January 1994, the Company's wholly-owned subsidiary, Consolidated
Industrial Services, Inc., purchased substantially all of the assets,
operating rights and liabilities of Consolidated Oil Well Services, Inc. The
consolidated statements of operations include the results of operations
related to this acquisition for the period subsequent to January 1, 1994.
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INFINITY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(4) SHORT-TERM BORROWINGS
At September 30, 1996, the Company's subsidiary, Consolidated Industrial
Services, Inc. (CIS), had a $100,000 line of credit available which expires
March 1997. The line of credit is collateralized by certain equipment with
interest at 2% above the lender's corporate base rate. As of September 30,
1996, CIS had $96,000 drawn on the line of credit.
(5) LONG-TERM DEBT
On May 31, 1995, the Company obtained $2,500,000 in long-term financing from
Seymour, Inc. (Seymour) collateralized by substantially all of the tangible
property and equipment of its wholly owned subsidiary, Consolidated Industrial
Services, Inc. The note required monthly payments of interest at 10% for a
period of six months beginning July 1995. Thereafter, monthly payments of
principal and interest in the amount of $41,503 are due until maturity, June
1998. The agreement also contains certain restrictive covenants with respect
to dividends, acquisitions and capital expenditures. Proceeds from the note
were used to refinance $1,500,000 in short-term borrowings and provide
additional working capital for the Company.
In connection with the agreement, the Company issued a warrant to Seymour to
purchase up to 1,250,000 shares of the Company's common stock at an exercise
price of $2.00 per share. The warrant expires 90 days after the payment of
all principal and interest due on the Seymour note.
During September 1995, the Company agreed to pay to the Federal Highway
Administration $72,500 in twenty four monthly installments of $3,116.14 to
settle a fine originally assessed by the Department of Transportation in the
amount of $233,100.
(6) COMMON STOCK AND STOCK OPTIONS
On April 24, 1995, the Company's Board of Directors authorized the issuance of
202,000 additional shares of the Company's common stock to various individuals
as compensation for services previously performed for the Company. The shares
were valued at $1.91 per share. The issuance of common stock satisfied a
liability of $390,000 included in accrued consulting expenses at March 31,
1995. The Board also granted stock options to various individuals to purchase
up to 900,000 shares of the Company's common stock at $2.00 per share. The
options expire 5 years from the date of grant. Included among the individuals
receiving common stock and stock options were two shareholders who each became
beneficial owners of approximately 6% of the Company's common stock.
In February 1996, the Company sold 766,667 shares of common stock in a
secondary offering. In conjunction with this offering, the Company issued
warrants which allow purchases of up to 766,667 additional shares of common
stock at $.60 per share. These warrants expire five years from the date of
grant.
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INFINITY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENT (UNAUDITED)
(7) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. 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.
(8) FINANCIAL STATEMENT
In connection with the Consolidated Oil Well Services, Inc. (COWS)
acquisition, the Company issued two notes totaling $2,000,000. The Company
repaid one note with a principal amount of $600,000 during the year ended
March 31, 1994. The principal amount of the second note, $1,400,000, together
with accrued interest, was originally due September 1994. The maturity date
was extended to December 1994, at which time the holder of the note agreed to
accept a payment of $750,000 and $100,000 in additional oil well service
credit in full satisfaction of the note and related accrued interest.
As a result of the note reduction, the original purchase price of the COWS
assets was decreased by $538,910 and the consolidated financial statements for
the year ended March 31, 1994 were retroactively restated to reflect this
adjustment. The effect of the adjustment, net of deferred income taxes, was
to decrease the total assets by $525,437, decrease total liabilities by
$549,688 and to increase stockholders' equity by $24,251. After further
review, the company determined that this note reduction should have been
recorded as a gain from refinancing. Accordingly, the consolidated financial
statements for the year ended March 31, 1995 were retroactively restated to
reflect this adjustment. The effect of this adjustment at March 31, 1995, net
of deferred income taxes, was to increase total assets and increase total
stockholders' equity by $471,546. The following table reconciles quarterly
prior year information, as previously reported, with information subsequent to
the adjustment for the gain on refinancing for the three month and six month
periods ended September 30, 1995.
Three Months Six Months
------------ ------------
Net (loss), as previously reported $(626,605) $(1,210,605)
Adjustment to depreciation expense (13,473) (26,946)
Net (loss), as restated $(640,078) $(1,237,551)
Net (loss) per share, as previously reported $ (.08) $ (.15)
Adjustment to depreciation expense $ ----- $ (.01)
Net (loss) per share, as restated $ (.08) $ (.16)
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Company was organized as a Colorado corporation on April 2, 1987,
for the purpose of searching for and acquiring a business combination
candidate. On March 10, 1992, the Company acquired Infinity Research &
Development, Inc., then named Phoenix Research & Development Corporation
("PRD"). This acquisition was accounted for as a reverse acquisition.
On December 15, 1993, Infinity, Inc. acquired all of the outstanding
stock of L.D.C. Food Systems, Inc., a New Jersey Corporation, in exchange for
the issuance of 74,405 shares of Infinity, Inc.'s common stock. This
transaction has been accounted for as a pooling-of-interests, and accordingly,
prior period financial statements have been restated as if the entities had
been combined since inception. Since both companies were development stage
enterprises prior to the acquisition, neither company had recorded revenues
prior to December 1993.
In January 1994, the Company's wholly-owned subsidiary, Consolidated
Industrial Services, Inc., purchased substantially all of the assets,
operating rights and certain liabilities of Consolidated Oil Well Services,
Inc. The consolidated statements of operations include the results of
operations related to this acquisition for the period subsequent to January 1,
1994.
In September, 1995, the Company's newly formed subsidiary, Infinity Oil
and Gas, Inc. began seeking joint interest partners and prospective properties
to expand the Company's activities to include exploration, development and
operation of gas producing properties.
In December, 1995, a newly formed wholly-owned subsidiary, CIS Oil and
Gas, Inc., entered into an agreement to develop and operate a coal methane gas
producing property in southeastern Colorado. Significant development activity
has occurred and revenues are expected from gas sales prior to March 31, 1997.
RESULTS OF OPERATIONS
The oil field services segment of the Company generated $1,259,875 in
revenues and $651,708 in cost of sales during the three months ended September
30, 1996, compared to $990,896 in revenues and $560,852 in cost of sales for
the three months ended September 30, 1995. The operating expenses incurred by
the oil field services segment of the Company were $421,638 for the three
months ended September 30, 1996 and $458,035 for the three months ended
September 30, 1995. Net operating income improved to a profit of $186,529 for
the three months ended September 30, 1996 from a loss of ($27,992) for the
three months ended September 30, 1995. The Company generated $2,414,642 in
revenues and $1,245,707 in cost of sales during the six months ended September
30, 1996, compared to $1,828,477 in revenues and $1,054,017 in cost of sales
for the six months ended September 30, 1995. Operating expenses were $793,018
for the six months ended September 30, 1996 and $881,381 for the six months
ended September 30, 1995. Net operating income improved to a profit of
$375,917 for the six months ended September 30, 1996 from a loss of ($106,992)
for the six months ended September 30, 1995. Depreciation and amortization
expense included in operating expenses for the oil field services division was
$125,430 for the three months ended September 30, 1996 and $127,132 for the
three months ended September 30, 1995, $248,071 for the six months ended
September 30, 1996, and $254,437 for the six months ended September 30, 1995.
The improved results of the oil field services segment are due primarily to
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increased activity in Colorado and Oklahoma. During the six months ended
September 30, 1996, revenues from Oklahoma and Colorado increased by
approximately $625,400 over 1995 amounts, approximately double the prior year
activity for those areas.
The environmental services segment of the Company which includes all
water treatment activities, generated $97,080 in revenues and $91,711 in cost
of sales during the three months ended September 30, 1996, compared to
$428,272 in revenues and $461,703 in cost of sales for the three months ended
September 30, 1995. Operating expenses incurred by the environmental services
division were $100,537 for the three months ended September 30, 1996, and
$250,960 for the three months ended September 30, 1995, including depreciation
and amortization expense of $44,067 for the three months ended September 30,
1996 and $42,595 for the three months ended September 30, 1995. Net operating
income improved to an operating loss of ($95,168) for the three months ended
September 30, 1996 from an operating loss of ($287,007) for the three months
ended September 30, 1995.
A significant reduction in revenues ($219,518) occurred because a
significant on site treatment project completed in 1995 did not recur in 1996.
In addition, substantial operations of the wastewater treatment plant in
Cheyenne, Wyoming were reduced causing revenue to decrease ($315,077) from
1995 levels. These amounts were offset by a revenue increase of $151,314 at
the Chanute wastewater treatment facility for the six months ended September
30, 1996, over the comparable period of 1995.
The environmental services segment of the Company generated $202,349 in
revenues and $147,417 in cost of sales during the six months ended September
30, 1996, compared to $585,631 in revenues and $743,181 in cost of sales for
the six months ended September 30, 1995. Operating expenses were $191,270 for
the six months ended September 30,1996 and $477,975 for the six months ended
September 30, 1995, including depreciation and amortization expense of $82,134
for the six months ended September 30, 1996 and $82,131 for the six months
ended September 30, 1995. Net operating income improved to an operating loss
of ($136,338) for the six months ending September 30, 1996 from an operating
loss of ($635,525) for the six months ended September 30, 1995. The
substantial decreases in cost of sales and operating expenses were the result
of a reduction in research and development activities and changes in the
operation of the wastewater treatment plant in Cheyenne, Wyoming.
Subsequent to September 30, 1996, the Company entered into a five year
management and lease agreement which transfers operating responsibility for
the environmental services division to an outside party. The Company will
receive initial payments of $80,000 per year plus a percentage of revenues
above certain levels.
The oil and gas production segment of the Company incurred expenses of
$43,064 during the three months ended September 30, 1996 and $88,015 during
the six months ended September 30, 1996. Corresponding expenses in the three
and six months ended September 30, 1995 were $21,442.
Expenses incurred in corporate activities were $78,380 for the three
months ended September 30, 1996, $118,979 for the three months ended September
30, 1995, $186,208 for the six months ended September 30,1996 and $236,643 for
the six months ended September 30, 1995. This reduction was substantially
achieved in the area of consulting fees, professional services and facility
costs.
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Other expenses increased primarily because of interest expense on
long-term debt of $139,440 for the six months ended September 30, 1996
compared to $125,119 for the six months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had a working capital deficit of
($301,673) compared to a working capital deficit of ($321,979) at March 31,
1996. The stability in working capital is primarily due to the improvement of
operating results and the use of proceeds of sales of common stock to develop
gas properties in southeastern Colorado.
The Company presently has outstanding warrants to purchase shares of
Common Stock which, if all were to be exercised, could result in gross
proceeds of approximately $2,465,616. The Company intends to file an
amendment to the registration statement relating to the warrants during the
next six months; however, there is no assurance that the Company will be
successful in obtaining the exercise of any of the warrants.
In addition, the Company also issued warrants in conjunction with the
long-term financing on May 31, 1995 which, if exercised, would result in gross
proceeds of $2,500,000. These warrants can be exercised any time prior to
August 31, 1998.
During the three month period ended September 30, 1996, cash generated by
operating activities was $81,371 compared to cash used of ($479,344) for the
three months ended September 30, 1995. During the six months ended September
30, 1996, cash generated by operating activities was $256,507, compared to
cash used of ($987,713) for the six months ended September 30, 1995. The
improvement in the amount of cash generated by operating activities is
primarily due to the reduction of $1,092,356 in the amount of the net loss for
the six months ended September 30, 1996 from the comparable period of 1995.
In addition, a decrease of $140,657 in accounts receivable contributed to this
improvement, offset by decreases in accounts payable and accrued expenses
totaling $67,751.
Net cash provided by operation of the oil field services segment was
$623,988 for the six months ended September 30, 1996. Net cash used by the
operation of the environmental services segment was ($54,204). Net cash used
by the operation of the oil and gas segment was ($63,634). Net cash used by
the operation of corporate activities was ($180,163) plus $139,440 of net
interest expense.
Net cash used in investing activities during the three months ended
September 30, 1996, was ($77,199) compared to $10,041 for the comparable
period of 1995. The change was primarily due to the receipt of proceeds of
equipment sales of $113,140 in 1995. Net cash used in investing activities
during the six months ended September 30, 1996 was ($343,395) compared to
($83,606) for the six months ended September 30, 1995. The increase is
primarily due to the investment to develop gas production properties of
$243,444 and lack of sales of surplus equipment in 1996.
The Company drew $96,000 on a bank line of credit during the six months
ended September 30, 1996 and received $395,000 from the issuance of common
stock in the exercise of options and warrants. This cash received from
financing activities was reduced by the repayment of ($157,744) of long term
debt. On May 31, 1995, the Company obtained $2,500,000 in long-term financing
from Seymour, Inc. (Seymour) collateralized by substantially all of the
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tangible property and equipment of its wholly owned subsidiary, Consolidated
Industrial Services, Inc. The note required monthly payments of interest at
10% for a period of six months beginning July 1995. Thereafter, monthly
payments of principal and interest in the amount of $41,503 are due until
maturity, June 1998. The agreement also contains certain restrictive
covenants with respect to dividends, acquisitions and capital expenditures.
Proceeds from the note were used to refinance $1,500,000 in short-term
borrowings and provide additional working capital for the Company.
Seymour, Inc. also holds a warrant which allows it to purchase up to
1,250,000 shares of the Company's common stock at a price of $2.00 per share.
This warrant is exercisable until ninety days after the promissory note is
fully paid.
The Company does not have any material commitments for capital
expenditures as of the filing of this Report. However, the Company is
required to drill a number of gas wells in its Raton Basin property in order
to retain its rights to further develop this leased property.
The Company intends to drill an additional five gas wells in southeastern
Colorado prior to December 31, 1996, and at least ten additional wells during
each of the next four years. This pace of development will meet lease
requirements to allow the Company to continue to develop the property.
Financing for this future development will be necessary and is expected to be
obtained by borrowing based on the production and reserves of the existing
wells or by pre-selling the gas produced by these wells. However, there is no
assurance that the Company will be successful in obtaining such financing.
In addition, a gathering system must be installed to transport gas
produced by the wells to the main pipeline. The Company intends to construct
and operate this system with the assistance of an outside party who
specializes in this aspect of the transportation business. This construction
will be primarily funded by proceeds of recent sales of common stock in the
exercise of existing warrants and options.
During the third and fourth quarters of the year ended March 31, 1996,
and continuing in subsequent months, the Company has made significant
reductions in operating expenses through reductions in personnel and
facilities. Expenses for research and development activities in the water
treatment areas have been contractually transferred to others under licensing
agreements, or reduced to only activities necessary for the Company's water
treatment service operations. Corporate and sales activities have been
consolidated into the operating facility in Chanute, Kansas, eliminating the
office in Lenexa, Kansas.
Operations of the Company have generated adequate cash flow to service
continuing operations during the fourth quarter of the year ended March 31,
1996, and the six months ended September 30, 1996. Management believes that
this level is suitable and adequate to service continuing operations and
obligations. Additional gas wells will be drilled and completed only when
additional financing is obtained specifically for that purpose.
During October 1996, the Company entered into a management and lease
agreement with another company which will operate the Chanute water treatment
facilities and the Wyoming brine water treatment plant. The initial term of
the lease is for five years with minimum lease payments to be received of
$80,000 per year. In addition, the lease calls for percentage rents at 4-1/2%
of revenues above a base level, and includes an option to extend the lease
-14-
<PAGE>
term for two additional years at $85,000 per year, and a second option to
extend the lease for an additional seven years at $90,000 per year.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule - Filed herewith
electronically
(b) Reports on Form 8-K - None.
-15-
<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.
INFINITY, INC.
By:/s/ Stanton E. Ross
Stanton E. Ross
President
Date: November 13, 1996
-16-
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages 3 and 4 of the Company's Form 10-QSB for the year to date, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 429,770
<SECURITIES> 0
<RECEIVABLES> 325,471
<ALLOWANCES> 0
<INVENTORY> 187,618
<CURRENT-ASSETS> 971,760
<PP&E> 4,419,340
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,546,062
<CURRENT-LIABILITIES> 1,273,433
<BONDS> 0
<COMMON> 928
0
0
<OTHER-SE> 2,716,452
<TOTAL-LIABILITY-AND-EQUITY> 6,546,062
<SALES> 1,437,705
<TOTAL-REVENUES> 1,437,705
<CGS> 800,693
<TOTAL-COSTS> 800,693
<OTHER-EXPENSES> 643,366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (68,932)
<INCOME-PRETAX> (70,666)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,666)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
