<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1997
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
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
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, 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 Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
x Yes --- No
There were 10,210,939 shares of the Registrant's Common Stock outstanding as
of September 30, 1997.
<PAGE>
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
Condensed Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan
of Operations 9
Part II: Other Information 13
2
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (Note)
Sept 30, 1997 March 31, 1997
CURRENT ASSETS
Cash $ 107,823 $ 52,725
Accounts Receivable, less allowance
for doubtful accounts 366,004 400,274
Inventories 197,686 197,731
Prepaid Expenses 25,564 18,220
TOTAL CURRENT ASSETS 697,077 668,950
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation
4,120,599 4,192,684
OIL AND GAS PROPERTIES, using the full
cost method, less accumulated depletion 3,475,389 2,638,126
INTANGIBLE ASSETS, at cost, less
accumulated amortization 180,118 246,856
INVESTMENT in unconsolidated subsidiary 50,000 82,545
TOTAL ASSETS 8,523,183 7,829,161
LIABILITIES
CURRENT LIABILITIES
Accounts Payable 787,847 988,026
Accrued Expenses 314,989 303,386
Current portion of deferred revenue 60,000 60,000
Notes payable 157,556 284,000
Current portion of long-term debt 2,077,159 318,643
TOTAL CURRENT LIABILITIES 3,397,551 1,954,055
LONG-TERM LIABILITIES
Long-term debt,
less current portion above 155,729 1,897,280
Note payable, related party 309,968 309,968
Deferred revenue,
less current portion above 142,921 167,936
TOTAL LIABILITIES 4,006,169 4,329,239
STOCKHOLDER'S EQUITY
CAPITAL CONTRIBUTED
Common stock, par value $.0001,
authorized 300,000,000 shares,
issued and outstanding 10,210,939
shares; 9,860,564 shares 1,021 986
Additional paid-in-capital 8,453,317 7,927,855
TOTAL CAPITAL CONTRIBUTED 8,454,338 7,928,841
RETAINED EARNINGS (DEFICIT) (3,937,324) (4,428,919)
TOTAL STOCKHOLDERS' EQUITY 4,517,014 3,499,922
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,523,183 $ 7,829,161
The consolidated balance sheet at March 31, 1997 has been derived from the
audited financial statements at that date.
See Notes to Financial Statements
3
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Sept 30,
1997 1996
---------- ----------
NET SALES $1,463,372 $1,437,705
COST OF GOODS SOLD 719,363 800,693
GROSS PROFIT 744,009 637,012
OPERATING EXPENSES
Salaries 105,761 184,092
Taxes 57,292 59,350
Consulting fees 625 11,753
Professional Services 8,508 18,173
Research & Development - 1,209
Travel & Entertainment 7,473 11,557
Insurance 38,079 72,651
Advertising 559 5,100
Office Supplies & Expense 7,299 14,103
Telephone 22,199 30,981
Rent & Utilities 38,051 34,930
Depreciation & Amortization 185,616 170,151
Other Expenses 13,151 29,316
TOTAL OPERATING EXPENSES 484,613 643,366
OPERATING INCOME (LOSS) 259,396 ( 6,354)
OTHER INCOME (EXPENSE)
Interest Income & Finance Charges (1,520) 4,621
Interest Expense (52,716) (68,933)
Rent and Other Income 28,430 -
TOTAL OTHER INCOME (EXPENSE) (25,806) (64,312)
NET INCOME (LOSS) $ 233,590 $ (70,666)
NET LOSS PER COMMON SHARE $ 0.02 $ (0.01)
Weighted Average Shares Outstanding 10,191,373 8,843,804
See Notes to Financial Statements
4
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended Sept 30,
1997 1996
---------- ----------
NET SALES $2,632,064 $2,697,741
COST OF GOODS SOLD 1,205,205 1,451,609
GROSS PROFIT 1,426,859 1,246,132
OPERATING EXPENSES
Salaries 192,970 345,091
Taxes 114,230 113,076
Consulting fees 1,470 23,655
Professional Services 26,650 45,309
Research & Development 235 3,176
Travel & Entertainment 13,653 21,067
Insurance 84,215 142,432
Advertising 3,558 5,771
Office Supplies & Expense 16,120 30,830
Telephone 40,648 55,704
Rent & Utilities 65,860 71,597
Depreciation & Amortization 354,051 336,881
Other Expenses 22,624 62,438
TOTAL OPERATING EXPENSES 936,284 1,257,027
OPERATING INCOME (LOSS) 490,575 (10,895)
OTHER INCOME (EXPENSE)
Interest Income & Finance Charges 825 5,140
Interest Expense (64,445) (139,440)
Rent and Other Income 64,640 -
TOTAL OTHER INCOME (EXPENSE) 1,020 (134,300)
NET INCOME (LOSS) $ 491,595 $ (145,195)
NET LOSS PER COMMON SHARE $ 0.05 $ (0.02)
Weighted Average Shares Outstanding 10,089,270 8,788,217
See Notes to Financial Statements
5
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended Sept 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES ----------- ---------
Net Income (Loss) $ 491,595 $(145,195)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 354,051 336,881
Loss on sale of assets 42,978 -
(Increase) decrease in operating assets
Accounts Receivable 34,270 140,657
Inventories 45 21,361
Prepaid Expenses (7,344) (5,016)
Increase (decrease) in operating liabilities
Accounts Payable (70,703) (39,728)
Accrued Expenses 11,603 (28,023)
Deferred revenue (25,015) (24,430)
NET CASH PROVIDED BY OPERATING ACTIVITIES 831,480 256,507
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (227,453) (85,451)
Investment in oil and gas properties (951,375) (243,444)
Investment in intangible assets (13,574) (14,500)
NET CASH USED IN INVESTING ACTIVITIES (1,192,402) (343,395)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable (126,442) 96,000
Increase in long-term debt 193,795 -
Proceeds from issuance of common stock 525,497 395,000
Repayment of long-term debt (176,830) (157,744)
NET CASH PROVIDED BY FINANCING ACTIVITIES 416,020 333,256
NET INCREASE IN CASH 55,098 246,368
CASH, BEGINNING OF PERIOD 52,725 183,402
CASH, END OF PERIOD $ 107,823 $ 429,770
See Notes to Financial Statements
6
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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)
Consolidated Pipeline, Inc.
(incorporated during the year ended March 31, 1996)
(2) EARNING (LOSS) PER SHARE
Earnings or loss per share is based on the weighted average number of shares
outstanding. The number of shares used in the calculation was 10,089,270 and
8,788,217 for the six month periods ended September 30, 1997 and 1996,
respectively. Common stock equivalents are not included in the computation
because their inclusion would be anti-dilutive.
(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.
(4) SHORT-TERM BORROWINGS
At September 30, 1997, the Company had $500,000 available under lines of
credit that expire in February 1998. These lines of credit are
collateralized by certain equipment and are guaranteed by the company's
president. Interest accrues at 2% above the lender's corporate base rate. As
of September 30, 1997, the company had $157,556 drawn on these lines of
credit.
7
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INFINITY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
(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 in 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.
(6) 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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
The oilfield services segment of the Company generated $1,312,154
in revenues and $612,351 in cost of sales during the three months ended
September 30, 1997, compared to $1,259,875 in revenues and $651,708 in cost of
sales for the three months ended September 30, 1996. The operating expenses
incurred by the oilfield services segment of the Company were $365,137 for the
three months ended September 30, 1997 and $421,638 for the three months ended
September 30, 1996. Net operating income for this segment improved to a
profit of $334,666 for the three months ended September 30, 1997 from a profit
of $186,529 for the three months ended September 30, 1996. For the six months
ended September 30, 1997, this segment generated $2,480,847 in revenues and
$1,076,840 in cost of sales, compared to $2,414,642 in revenues and $1,245,707
in cost of sales for the six months ended September 30, 1996. The operating
expenses incurred were $714,757 for the six months ended September 30, 1997
compared to $793,018 for the six months ended September 30, 1996. Net
operating income for this segment improved to a profit of $689,250 for the six
months ended September 30, 1997 from a profit of $375,917 for the six months
ended September 30, 1996. The improved results are attributed to the
Company's ability to increase sales while continuing measures to control
operating costs. Depreciation and amortization expense included in operating
expenses for the oilfield services division was $248,072 for the six months
ended September 30, 1997 and $248,071 for the six months ended September 30,
1996.
The environmental services segment of the Company generated $48,400 in
rental income during the six months ended September 30, 1997. This
was offset by depreciation and amortization expense of $78,084 for the same
period. The Company also reported $95,000 in revenue from settlement of a
licensing agreement with BOC Gases regarding certain patents and patent
applications. This revenue was offset by the unamortized cost of those
patents and applications of $42,654. This segment of the Company, which
included all water treatment activities, generated $202,349 in revenues and
$147,417 in cost of sales during the six months ended September 30, 1996.
Operating expenses incurred by this division were $191,270 for the six months
ended September 30, 1996, including depreciation and amortization expense of
$82,134. In October 1996, the Company entered into a five year management and
lease agreement that transferred operating responsibility for this segment to
an outside party. The Company will receive payments of $80,000 per year for
the first 5 years plus a percentage of revenues over certain levels.
The oil and gas production segment of the Company recorded net
revenue from gas sales of $56,217 and operating expenses of $112,602 during
the three months and six months ending September 30, 1997, including $17,181
of depletion and depreciation expense. The company first recorded revenues
from these properties in July 1997 and the properties remain under
development. During the last two years, this segment invested $3,492,570 to
acquire property rights, drill and complete twenty gas wells and construct the
related pipeline system to connect to the interstate transportation system.
The Company has acquired development rights to an additional 17,000 acres in
the Raton Basin, for a total of 41,000 acres, and is presently drilling
additional wells that should begin production during the first quarter of
1998.
Expenses incurred in corporate activities were $111,882 for the
six months ended September 30, 1997, compared to $186,208 for the six months
ended September 30, 1996. This reduction was substantially achieved in the
area of consulting fees, professional services and facility costs.
9
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had a working capital
deficit of $2,700,474 compared to a working capital deficit of $1,285,105 at
March 31, 1997. The decrease in working capital is primarily due to the
inclusion in current liabilities of the final payment on the note payable to
Seymour, Inc. This final payment is due June 1, 1998 in the amount of
$1,825,107. The Company is presently working to refinance this debt.
The Company presently has outstanding publicly traded warrants to
purchase shares of Common Stock that, if all were to be exercised, could
result in gross proceeds of approximately $2,800,000. The Company filed an
amendment to the registration statement relating to the warrants in September,
1997, which provided expiration dates of December 31, 1997 and December 31,
1998 for certain of the warrants. Subsequent to September 30, 1997, the
Company has received approximately $360,000 from the exercise of such
warrants, however, there is no assurance that the Company will be successful
in obtaining the exercise of the remainder of the warrants.
In addition, the Company also issued warrants in conjunction with
the long-term financing on May 31, 1995 that, if exercised, would result in
gross proceeds of $2,500,000. These warrants can be exercised any time prior
to ninety days after the payment of all interest and principal due under this
financing.
During the six months ended September 30, 1997 cash generated by
operating activities was $831,480 compared to cash generated of $256,507 for
the six months ended September 30, 1996. The improvement in the amount of
cash generated was due to improvement of the oilfield service activities and
the reduction of water treatment activities. A decrease of $70,703 in
accounts payable reduced the magnitude of this improvement.
Net cash provided by operation of the oilfield services segment
was $937,322 for the six months ended September 30, 1997. Net cash provided
by the operation of the environmental services segment was $24,200 from rental
income $95,000 from the patent settlement. Net cash used by corporate
activities was $105,839 for the six month period.
Cash flows from investing activities during the six months ended
September 30, 1997, were $(1,192,402) compared to $(343,395) for the
comparable period of 1996. The increase is primarily due to the investment
to develop gas production properties of $(951,375).
The Company obtained $193,795 in long-term equipment financing
debt and obtained $525,497 from issuance of common stock during the six months
ended September 30, 1997. This cash received from financing activities was
reduced by the repayment of $(176,830) of long term debt and reduction of the
bank lines of credit by $(126,442).
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.
10
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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 properties in order
to retain its rights to further develop these leased properties.
The Company is presently drilling the ten additional gas wells
required to be drilled in southeastern Colorado prior to December 31, 1997,
and intends to drill at least twenty additional wells during each of the next
three years. This pace of development will meet the requirements of all
leases and allow the Company to continue to develop the 41,000 acres covered
by leases on the properties. 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, by pre-selling the gas produced by these
wells, or from proceeds from the exercise of outstanding warrants to purchase
common stock. However, there is no assurance that the Company will be
successful in obtaining such financing.
Subsequent to September 30, 1997, the company received
approximately $360,000 from sales of common stock through the exercise of
warrants. The Company also could receive additional proceeds of approximately
$650,000 from the exercise of warrants that will expire December 31, 1997, and
approximately $1,200,000 from the exercise of warrants that will expire
December 31, 1998.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDING. None
ITEM 2.CHANGES IN SECURITIES
During the quarter ended September 30, 1997, the Company issued
securities in transactions which were not registered under the Securities Act
of 1933, as amended (the "Act"), as follows:
In August, 1997, the Company issued 50,000 shares of its Common
Stock in private transactions to two accredited investors for a total of
$92,187.50 in cash. With respect to these sales, the Company relied on
Section 4(2) of the Act. The purchasers are sophisticated investors and
represented that they were purchasing the shares for investment only and not
for the purpose of resale or distribution. The appropriate restrictive legend
was placed on the certificates and stop transfer instructions were issued to
the transfer agent.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES. Not Applicable
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)Exhibits. None
(b)Reports on Form 8-K. None
11
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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.
Dated: November 19, 1997 By/s/ Stanton E. Ross
Stanton E. Ross, President
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
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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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 107,823
<SECURITIES> 0
<RECEIVABLES> 455,759
<ALLOWANCES> 89,755
<INVENTORY> 197,686
<CURRENT-ASSETS> 697,077
<PP&E> 9,620,358
<DEPRECIATION> 2,024,370
<TOTAL-ASSETS> 8,523,183
<CURRENT-LIABILITIES> 3,397,551
<BONDS> 0
<COMMON> 1,021
0
0
<OTHER-SE> 4,515,993
<TOTAL-LIABILITY-AND-EQUITY> 8,523,183
<SALES> 2,632,064
<TOTAL-REVENUES> 2,632,064
<CGS> 1,205,205
<TOTAL-COSTS> 1,205,205
<OTHER-EXPENSES> 936,284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (64,445)
<INCOME-PRETAX> 491,595
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 491,595
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
