<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 June 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
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(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)
15323 West 95th Street, Lenexa, Kansas 66219
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(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)
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 10,160,939 shares of the Registrant's Common Stock outstanding as
of June 30, 1997.
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INFINITY, INC.
FORM 10-QSB
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
ITEM 1. FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets 3-4
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS 8
PART II: OTHER INFORMATION 10
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<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (Note)
JUNE 30, MARCH 31,
1997 1997
CURRENT ASSETS ----------- -----------
Cash $ 44,240 $ 52,725
Accounts Receivable, less allowance
for doubtful accounts 454,986 400,274
Inventories 200,124 197,731
Prepaid Expenses 65,640 18,220
----------- -----------
TOTAL CURRENT ASSETS 764,990 668,950
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 4,110,017 4,192,684
OIL AND GAS PROPERTIES NOT SUBJECT TO
AMORTIZATION, using the full cost method 3,047,883 2,638,126
INTANGIBLE ASSETS, at cost, less accumulated
amortization 228,189 246,856
INVESTMENT unconsolidated subsidiary 82,545 82,545
----------- -----------
TOTAL ASSETS 8,233,624 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
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<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES (Note)
JUNE 30, MARCH 31,
1997 1997
CURRENT LIABILITIES ----------- -----------
Accounts Payable 768,975 988,026
Accrued Expenses 290,766 303,386
Current portion of deferred revenue 60,000 60,000
Notes payable 209,558 284,000
Current portion of long-term debt 2,127,770 318,643
----------- -----------
TOTAL CURRENT LIABILITIES 3,457,069 1,954,055
LONG-TERM LIABILITIES
Long-term debt, less current portion above 112,963 1,897,280
Note payable, related party 309,968 309,968
Deferred revenue, less current portion above 145,378 167,936
----------- -----------
TOTAL LIABILITIES 4,025,378 4,329,239
STOCKHOLDERS' EQUITY
CAPITAL CONTRIBUTED
Common stock, par value $.0001, authorized
300,000,000 shares, issued and outstanding
10,160,939 shares; 9,860,564 shares 1,016 986
Additional paid-in-capital 8,378,144 7,927,855
----------- -----------
TOTAL CAPITAL CONTRIBUTED 8,379,160 7,928,841
RETAIN EARNINGS (DEFICIT) (4,170,914) (4,428,919)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,208,246 3,499,922
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,233,624 $ 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
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<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30,
1997 1996
----------- -----------
NET SALES $ 1,168,692 $ 1,260,036
COST OF GOODS SOLD 485,842 650,916
----------- -----------
GROSS PROFIT 682,850 609,120
OPERATING EXPENSES
Salaries 87,209 160,999
Taxes 56,938 53,726
Consulting fees 845 11,902
Professional Services 18,142 27,136
Research & Development 235 1,967
Travel & Entertainment 6,180 9,510
Insurance 46,136 69,781
Advertising 2,999 671
Office Supplies & Expense 8,821 16,727
Telephone 18,449 24,723
Rent & Utilities 27,809 36,667
Depreciation & Amortization 168,435 166,730
Other Expenses 9,473 33,122
----------- -----------
TOTAL OPERATING EXPENSES 451,671 613,661
OPERATING INCOME (LOSS) 231,179 ( 4,541)
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income & Finance Charges 2,345 519
Interest Expense (11,729) (70,507)
Rent and Other Income 36,210 --
----------- -----------
TOTAL OTHER INCOME (EXPENSE) 26,825 (69,988)
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES $ 258,005 $ (74,529)
PROVISION (BENEFIT) FOR INCOME TAXES - -
----------- -----------
NET INCOME (LOSS) $ 258,005 $ (74,529)
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NET INCOME (LOSS) PER COMMON SHARE $ 0.03 $ (0.01)
----------- -----------
Weighted Average Shares Outstanding 9, 986,044 8,731,395
See Notes to Financial Statements
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<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended June 30,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 258,005 $ (74,529)
Adjustments to reconcile net income (loss)
to net cash used in operating activities
Depreciation and amortization 168,435 166,730
(Increase) decrease in operating assets
Accounts Receivable (54,712) 41,004
Inventories (2,393) 3,462
Prepaid Expenses (47,420) 7,210
Increase (decrease) in operating
liabilities
Accounts Payable (43,125) 66,219
Accrued Expenses (12,620) (18,769)
Deferred revenue (22,558) (16,191)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 243,612 175,136
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (67,101) (62,309)
Investment in oil and gas properties (585,683) (197,542)
Investment in intangible assets 0 (6,345)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (652,784) (266,196)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable (74,442) 80,000
Increase in long-term debt 106,295 -
Proceeds from issuance of common stock 450,319 -
Repayment of long-term debt (81,485) (78,452)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 400,687 1,548
NET INCREASE (DECREASE) IN CASH (8,485) (89,512)
CASH, BEGINNING OF PERIOD 52,725 183,402
----------- -----------
CASH, END OF PERIOD $ 44,240 $ 93,890
See Notes to Financial Statements
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<PAGE>
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
9,986,044, and 8,731,395 for the periods ended June 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 June 30, 1997, the Company's subsidiary, Consolidated Industrial
Services, Inc. (CIS), had a $300,000 line of credit available which expires
February 1998. The line of credit is collateralized by certain equipment with
interest at 2% above the lender's corporate base rate. As of June 30, 1997,
CIS had $209,558 drawn on the line of credit.
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<PAGE>
(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.
(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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
The oilfield services segment of the Company generated $1,168,692 in
revenues and $485,842 in cost of sales during the three months ended June 30,
1997, compared to $1,154,767 in revenues and $593,999 in cost of sales for the
three months ended June 30, 1996. The operating expenses incurred by the
oilfield services segment of the Company were $349,621 for the three months
ended June 30, 1997 and $371,380 for the three months ended June 30, 1996.
Net operating income for this segment improved to a profit of $333,229 for the
three months ended June 30, 1997 from a profit of $189,388 for the three
months ended June 30, 1996. The improved results are attributed to the
Company being able to obtain an increase in sales while taking measures to
control operating costs. Depreciation and amortization expense included in
operating expenses for the oilfield services division was $124,036 for the
three months ended June 30, 1997 and $122,641 for the three months ended June
30, 1996.
The environmental services segment of the Company generated $24,200 in
rental income during the three months ended June 30, 1997. This was offset by
depreciation and amortization expense of $41,377 for the same period. This
segment of the Company, which included all water treatment activities,
generated $105,269 in revenues and $55,706 in cost of sales during the three
months ended June 30, 1996. Operating expenses incurred by this division were
$90,733 for the three months ended June 30, 1996, including depreciation and
amortization expense of $41,067. In October 1996, the Company entered into a
five year management and lease agreement which transfered operating
responsibility for this segment to an outside party. The Company will receive
annual payments of $80,000 plus a percentage of revenues over certain levels.
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<PAGE>
The oil and gas production segment of the Company recorded no revenue and
no operating expense during the three months ending June 30, 1997 since
properties were still under development. During the last eighteen months,
this segment invested $3,047,883 to acquire property rights, drill and
complete twenty gas wells and construct the related pipeline system to connect
to the interstate transportate system. The company expects to record revenue
from the production of gas during the second quarter of this year.
Expenses incurred in corporate activities were $60,673 for the three
months ended June 30, 1997, compared to $56,388 for the three months ended
June 30, 1996. No income tax expense has been recorded due to the
availability of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had a working capital deficit of
$2,692,079 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 presently has outstanding publicly traded warrants to
purchase shares of Common Stock which, if all were to be exercised, could
result in gross proceeds of approximately $2,800,000. The Company intends to
file an amendment to the registration statement relating to the warrants
during the next three 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 at a price of $2.00
per share any time prior to August 31, 1998 or ninety days after the
promissory note is paid in full, whichever is earlier.
During the three month period ended June 30, 1997 cash generated by
operating activities was $243,612 compared to cash generated of $175,136 for
the three months ended June 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. An increase of $102,132 in accounts
receivable and prepaid expenses and a decrease of $43,125 in accounts payable
reduced the magnitude of this improvement.
Cash flows from investing activities during the three months ended June
30, 1997, were ($652,784) compared to ($266,196) for the comparable period of
1996. The increase is primarily due to the investment to develop gas
production properties of ($585,683).
The Company obtained $106,295 in long-term equipment financing debt and
obtained $450,319 from issuance of common stock during the three months ended
June 30, 1997. This cash received from financing activities was reduced by
the repayment of ($81,485) of long term debt and reduction of the bank line of
credit by $(74,442).
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
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<PAGE>
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.
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 ten gas wells in its Raton Basin property by December 31,
1997 in order to retain its rights to further develop this leased property.
The Company intends to drill an additional ten gas wells in southeastern
Colorado prior to December 31, 1997, and at least ten additional wells during
each of the next three 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, by pre-selling the gas produced by these wells, or from proceeds of
common stock issued upon the exercise of existing warrants. However, there is
no assurance that the Company will be successful in obtaining such financing.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING. None
ITEM 2. CHANGES IN SECURITIES. Not Applicable
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
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exhcnage Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
INFINITY, INC.
Dated: August 18, 1997 By /s/ Stanton E. Ross
Stanton E. Ross, President
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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, 4 and 5 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 44,240
<SECURITIES> 0
<RECEIVABLES> 544,741
<ALLOWANCES> 89,755
<INVENTORY> 200,124
<CURRENT-ASSETS> 764,990
<PP&E> 9,015,320
<DEPRECIATION> 1,857,420
<TOTAL-ASSETS> 8,233,624
<CURRENT-LIABILITIES> 3,457,069
<BONDS> 0
<COMMON> 1,016
0
0
<OTHER-SE> 4,207,230
<TOTAL-LIABILITY-AND-EQUITY> 8,233,624
<SALES> 1,168,692
<TOTAL-REVENUES> 1,168,692
<CGS> 485,842
<TOTAL-COSTS> 485,842
<OTHER-EXPENSES> 451,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (11,729)
<INCOME-PRETAX> 258,005
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,005
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
