<PAGE>
As filed with the Securities and Exchange Commission September 10, 1997
SEC Registration No. 333-_____
- ---------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
INFINITY, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 1389 84-1070066
(State or Other Jurisdic- (Primary Standard Industrial (IRS Employer Iden-
tion of Incorporation) Classification Code Number) tification Number)
211 West 14th Street, Chanute, Kansas 66720
(316) 431-6200
(Address and Telephone Number of Principal
Executive Offices and Principal Place of Business)
Stanton E. Ross, President
211 West 14th Street, Chanute, Kansas 66720
(316) 431-6200
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jon D. Sawyer, Esq.
Krys Boyle Freedman Scott & Sawyer, P.C.
600 Seventeenth Street, Suite 2700 South Tower, Denver, Colorado 80202
(303) 893-2300
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
- ----------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM
CLASS OF SECUR- TO BE OFFERING AGGREGATE AMOUNT OF
ITIES TO BE REGIS- PRICE OFFERING REGISTRATION
REGISTERED TERED PER UNIT(1) PRICE FEE
- ----------------------------------------------------------------------------
Common Stock 1,450,000 $2.3125 $3,353,125 $1,016.10
$.0001 Par Value Shares
(2)
- ----------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 by reference to the closing price of the Registrant's
Common Stock on September 3, 1997, as reported on the Nasdaq SmallCap Market.
(2) To be offered by Selling Shareholders.
<PAGE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
Pursuant to Rule 429, the Prospectus contained herein also relates to the
Registrant's previously filed Form S-18 Registration Statement, SEC
Registration No. 33-17416-D.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER 10, 1997
- ----------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY STATE.
INFINITY, INC.
1,450,000 Shares of Common Stock
and 851,901 Shares of Common Stock
Obtainable on Exercise of Warrants
Of the securities offered hereby, 1,450,000 shares of Common Stock
($.0001 par value), are being offered by certain shareholders (collectively
the "Selling Shareholders"). Also being offered hereby are the 851,901 shares
of Common Stock underlying the Class A, Class B and Underwriters' Warrants
(collectively referred to as the "Warrants"). Twelve Class A Warrants entitle
the holder to purchase one share of the Company's Common Stock at $1.80 per
share until December 31, 1997. Twelve Class B Warrants entitle the holder to
purchase one share of the Company's Common Stock at $3.00 per share until
September 30, 1998. Twelve Underwriters' Warrants entitle the holder to
purchase one share of Common Stock at $1.44 per share until December 31,
1997. None of the proceeds of the sale of the Common Stock by the Selling
Shareholders will be received by the Company. However, the Company will
receive proceeds to the extent that the Warrants are exercised.
The Selling Shareholders have advised the Company that they have not
engaged any person as an underwriter or selling agent for any of such shares,
but they may in the future elect to do so, and they will be responsible for
paying such a person or persons customary compensation for so acting. The
Selling Shareholders and any broker executing selling orders on behalf of any
Selling Shareholders may be deemed to be "underwriters" within the meaning of
the 1993 Act, in which event commissions received by any such broker may be
deemed to be underwriting commissions under the 1933 Act. The Company will
not receive any of the proceeds from the sale of the securities offered by the
Selling Shareholders.
It is anticipated that the sales of the 1,450,000 shares of Common Stock
being offered by the Selling Shareholders will be made through customary
brokerage channels either through broker-dealers acting as agents or brokers
for the sellers, or through broker-dealers acting as principals who may then
resell the shares in the over-the-counter market or otherwise, or at private
sales in the over-the-counter market or otherwise, at negotiated prices
related to prevailing market prices at the time of the sales, or by a
combination of such methods of offering. Thus, the period of distribution of
such shares may occur over an extended period of time. The Selling
Shareholders effecting their sales through registered broker-dealers will pay
or assume brokerage commissions or discounts incurred in the sale of their
shares.
<PAGE>
The Company's Common Stock is traded in the over-the-counter market and
is quoted on the Nasdaq Small Cap Market (Symbol: IFNY). On September 8,
1997, the closing price of the Company's Common Stock was $2.50. (See "MARKET
PRICES AND DIVIDENDS.")
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. PERSONS INVESTING IN
THESE SECURITIES SHOULD BE ABLE TO SUSTAIN A TOTAL LOSS OF THEIR INVESTMENT.
(SEE "RISK FACTORS.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- ----------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS
WARRANT DISCOUNTS AND TO THE
HOLDERS COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------
Per Share on Exercise of
Class A Warrants $ 1.80 -0- $ 1.80
Total $ 730,200.60 -0- $ 730,200.60
- ----------------------------------------------------------------------------
Per Share on Exercise of
Class B Warrants $ 3.00 -0- $ 3.00
Total $1,217,000.00 -0- $1,217,000.00
- ----------------------------------------------------------------------------
Per Share on Exercise of
Underwriters' Warrants $ 1.44 -0- $ 1.44
Total $ 58,416.48 -0- $ 58,416.48
- ----------------------------------------------------------------------------
(1) No discounts or commissions will be paid in connection with the exercise
of the warrants.
(2) Before deducting expenses of this offering estimated at $15,000.
The date of this Prospectus is ____________, 1997.
<PAGE>
The Company is subject to the reporting requirements of Section 13(a) and
to the proxy requirements of Section 14 of the Securities Exchange Act of
1934, as amended, and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information concerning the Company may be inspected or
copied at the public reference facilities at the Commission located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York, 7 World Trade Center, New York, New York 10048,
and in Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such documents can be obtained at
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the securities offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and the securities offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement may be inspected without
charge at the Commission's principal offices in Washington, D.C., and copies
of all or any part thereof may be obtained from the Commission upon the
payment of certain fees prescribed by the Commission. The Registration
Statement has been filed electronically through the Commission's Electronic
Data Gathering, Analysis and Retrieval System and may be obtained through the
Commission's Web site (http://www.sec.gov).
No person is authorized to give any information or to make any representation
other than those contained in this Prospectus, and if given or made such
information or representation must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities
offered by this Prospectus or an offer to sell or a solicitation of an offer
to buy the securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
<PAGE>
____________
TABLE OF CONTENTS
PAGE
Prospectus Summary .......................................... 1
Risk Factors ................................................ 3
Market Prices and Dividends ................................. 6
Use of Proceeds ............................................. 7
Management's Discussion and Analysis ........................ 9
Business .................................................... 15
Management .................................................. 25
Security Ownership of Management, Principal Shareholders
and Selling Shareholders .................................. 29
Transactions With Management and Others ..................... 31
Description of Securities ................................... 32
Plan of Distribution ........................................ 35
Legal Matters ............................................... 36
Experts ..................................................... 36
Index to Financial Statements ............................... 36
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
Infinity, Inc. (the "Company"), through its wholly-owned subsidiaries, is
engaged in providing oil field services and developing and operating oil and
gas properties.
The Company's Consolidated Industrial Services, Inc. ("Consolidated")
subsidiary provides services associated with drilling and completion of oil
and gas wells, including cementing, acidizing, fracturing, nitrogen pumping
and water hauling. Consolidated also provides on-site remediation services
for hazardous and non-hazardous waste.
The Company's CIS Oil and Gas, Inc. ("COG") subsidiary is engaged in oil
and gas exploration. During the year ended March 31, 1996 COG acquired rights
to approximately 24,000 acres of land in the Raton Basin in Southeastern
Colorado, and drilled fifteen wells to produce coal methane gas from this
property. During the year ended March 31, 1997, COG drilled an additional
five wells and built a pipeline system on the property to connect the wells to
the Colorado Interstate Gas pipeline. COG anticipates increasing gas
production from these wells and four preexisting wells during the current year
while it continues to develop the property.
The Company's Consolidated Pipeline, Inc. ("CPI") subsidiary operates the
Company's gas gathering pipeline system constructed to connect the wells on
the Raton property to the Colorado Interstate Gas pipeline.
The Company's offices are located at 211 West 14th Street, Chanute,
Kansas 66720. Its telephone number is (316) 431-6200.
OFFERING SUMMARY
Securities Offered: 1,450,000 Shares of Common Stock offered by
Selling Shareholders
851,901 Shares obtainable upon exercise of
Class A, Class B and Underwriters' Warrants
Common Stock Presently
Outstanding: 10,210,939 Shares
USE OF PROCEEDS
None of the proceeds of the sale of Common Stock offered by the Selling
Shareholders will be received by the Company. However, the Company will
receive proceeds to the extent that any of the Class A, Class B or
Underwriters' Warrants are exercised. Although there is no basis for
determining how many Class A, Class B or Underwriters' Warrants will be
exercised, the following tables show how any proceeds would be applied
assuming the Class A, Class B and Underwriters' Warrants are exercised:
CLASS A CLASS B UNDERWRITERS'
APPLICATION OF PROCEEDS WARRANTS WARRANTS WARRANTS
- ----------------------- -------- -------- -------------
Drilling and Completion
of Gas Wells $500,000 $1,000,000 -0-
Working Capital 215,000 217,000 $58,416
-------- ---------- -------
Total $715,200 $1,217,000 $58,416
<PAGE>
FINANCIAL SUMMARY
The following financial summary should be read in conjunction with the
financial statements and accompanying notes appearing elsewhere in this
Prospectus.
BALANCE SHEET DATA: AT JUNE 30, 1997 AT MARCH 31, 1997
- ------------------ ---------------- -----------------
Total Assets $ 8,233,624 $ 7,829,161
Current Assets 764,990 688,950
Current Liabilities 3,457,069 1,954,055
Long-Term Debt 568,309 2,375,184
Working Capital (Deficit) (2,692,079) (1,265,015)
Stockholders' Equity 4,208,246 3,499,922
Cash Dividends Per Common
Share -0- -0-
FOR THE THREE FOR THE YEARS ENDED
STATEMENT OF MONTHS ENDED JUNE 30, MARCH 31,
OPERATIONS DATA: 1997 1996 1997 1996
- ---------------- ----------- ------------ ----------- ------------
Net Sales $1,168,692 $1,260,036 $ 5,035,338 $ 4,907,070
Net Income (Loss) 258,005 (74,529) 219,847 (1,826,439)
Net Income (Loss)
Per Share .03 (.01) .02 (0.23)
-2-
<PAGE>
RISK FACTORS
An investment in the securities being offered by this Prospectus involves
a high degree of risk. In addition to the other information contained in this
Prospectus, prospective investors should carefully consider the risk factors
discussed below before purchasing the shares of Common Stock offered hereby.
This Prospectus contains and incorporates by reference forward-looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements. Reference is made in particular
to the description of the Company's plans and objectives for future
operations, assumptions underlying such plans and objectives and other
forward-looking statements included or incorporated in this Prospectus.
Factors which could cause such results to differ materially from those
described in the forward-looking statements include those set forth in the
risk factors below.
RISK FACTORS RELATING TO BUSINESS OF THE COMPANY
1. LIMITED OPERATING HISTORY AND ACCUMULATED DEFICIT. The Company
has had a limited operating history and has an accumulated deficit. The
likelihood of the success of the Company must be considered in light of the
problems which may be encountered in connection with the development of the
Company's business and the competitive environment in which the Company
operates. Accordingly, there can be no assurance that the Company will be
successful or achieve profitable operations on a long-term basis. (See
"BUSINESS" and "FINANCIAL STATEMENTS.")
2. WORKING CAPITAL DEFICIT; POSSIBLE NEED FOR ADDITIONAL FINANCING.
At June 30, 1997, the Company had a working capital deficit of $(2,692,079)
primarily due to a $2,500,000 note which is due in May 1998. Management has
had to devote a large percentage of their time seeking additional financing
and at times sacrificing time needed to manage the Company's ongoing
operations. Although the Company's operations have improved, the Company may
still need additional financing in order to develop its business.
3. RISKS ASSOCIATED WITH OIL AND GAS OPERATIONS. The Company has
recently started to devote a significant portion of its resources and
management attention to the exploration and development of oil and gas
properties. Such activities will be subject to a number of risks including,
but not limited to, the following:
A. COMPETITION FOR PROSPECTS. The Company is and will continue
to be an insignificant participant in the oil and gas business. Most of the
Company's competitors have significantly greater financial resources,
technical expertise and managerial capabilities than the Company and,
consequently, the Company will be at a competitive disadvantage in identifying
suitable prospects.
B. LEASEHOLD DEFECTS. Although evidence of title generally will
be obtained by the Company prior to any acquisition of oil and gas properties,
the Company will generally acquire leasehold interests in oil and gas
properties without first obtaining a title opinion. There can be no assurance
that losses will not result from title defects or from defects in the
assignment of leasehold rights and the like, which losses will be borne by the
Company to the extent of its interest therein. It is not anticipated that the
-3-
<PAGE>
Company will obtain title insurance on any of the leasehold interests it
obtains.
C. OIL AND GAS PRICES. The economics of oil and gas production
are greatly dependent upon the prices of oil and gas. Any significant
decrease in the market prices of oil or gas could materially affect the
profitability of the Company's oil and gas activities.
D. MARKETS. The marketing of natural gas and oil which may be
produced by the Company's properties will be affected by a number of factors
beyond the control of the Company. These factors include the extent of the
supply of oil or gas in the market, the availability of competitive fuels,
crude oil imports, the world-wide political situation, price regulation, and
other factors.
E. LIMITATION ON PRODUCTION. Among other matters, states may
regulate allowable rates of production, prevention of waste oil and gas
resources and similar matters. One effect of such regulation may be the
restriction on the amount of production allowed from the Company's
properties. Considering the current low market price for oil, no assurance
can be made that the allowable amount of production will be sufficient to
provide a profit to the Company.
F. GOVERNMENTAL REGULATION. The Company's operations may be
subject to numerous federal, state and local laws including, among other
things, regulation of the discharge of materials into the environment relating
to protection of the environment or otherwise affecting the Company's
operations. Such regulations could adversely affect the business of the
Company.
G. WEATHER INTERRUPTIONS. Activities of the Company may be
subject to periodic interruptions due to weather conditions. Weather-imposed
restrictions during certain times of the year on roads accessing properties
could adversely affect the ability of the Company to benefit from production
on such properties or could increase the costs of drilling new wells because
of delays.
4. RISKS ASSOCIATED WITH CURRENT DEVELOPMENT OF COAL METHANE GAS
PROPERTY. The Company is presently developing coal methane gas properties in
southeastern Colorado on which it has drilled 20 wells, and intends to drill
approximately 20 additional wells in the next year. The Company may need to
raise additional funds in order to further develop such properties, and there
can be no assurance that the Company will be able to do so on acceptable
terms.
5. RISKS RELATING TO OIL FIELD SERVICES OPERATIONS. The Company's
oil field services business is subject to a number of risks including, but not
limited to, the following:
A. INDUSTRY CONDITIONS. Demand for the Company's oil field
services depends primarily upon the level of spending by oil and gas companies
for exploration, production and development activities. These spending levels
tend to increase and decrease with increases and decreases in the commodity
prices for oil and gas, so that demand for the Company's oil field services is
affected to some degree by market prices for natural gas and crude oil, which
have historically been very volatile.
B. GEOGRAPHIC CONCENTRATION OF OPERATIONS. Most of the
Company's oil field services operations are located in Kansas, northern
-4-
<PAGE>
Oklahoma and southern Colorado. Because of this concentration, any regional
events that increase costs, reduce availability of equipment or supplies,
reduce demand or limit production will impact the Company more adversely than
if the Company were more geographically diversified.
6. LACK OF RELEVANT MANAGEMENT EXPERIENCE. Management has only
limited experience in developing and marketing new technologies and has
limited experience in managing oil and gas exploration companies of this
size. As a result of this lack of experience, combined with other factors,
the Company has experienced delays and cost overruns. This lack of experience
has also forced the Company to bring in consultants and to set up an advisory
board which has caused the Company to issue significant amounts of stock and
options as compensation for these persons. Recent licensing agreements, the
management agreement and operating lease on the water treatment projects, and
the recent addition of Don Appleby and the addition of outside consultants in
the oil and gas business are intended to help alleviate this concern.
7. COMPETITION. The Company is subject to competition from numerous
other new and established companies, many of which are better financed than
the Company. (See "BUSINESS -- Competition.")
RISK FACTORS RELATING TO THIS OFFERING
1. EXERCISE PRICES OF WARRANTS ARBITRARILY DETERMINED. The exercise
prices of the Warrants were established arbitrarily by the Company with no
established criteria of value. There is no direct relationship between the
exercise prices and the assets, book value, earnings or lack thereof,
shareholders' equity or any other recognized criterion of value.
2. SALES BY SELLING SHAREHOLDERS. Included in the Securities being
offered hereby are 1,450,000 shares of Common Stock being offered by the
Selling Shareholders who are not restricted as to the price or prices at which
they may sell the shares. To the extent that shares are sold below the then
current level at which the Company's shares are trading, the market price of
the Company's Common Stock may be adversely affected. Further, this offering
may depress the market price of the Company's Common Stock during the offering
term because of the large number of shares being offered and the absence of a
fixed offering price. The Company's ability to raise equity capital by
selling shares of its Common Stock for cash may be impaired because of this
offering by Selling Shareholders.
3. PUBLIC MARKET FOR COMPANY'S COMMON STOCK. Although there
presently exists a limited market for the Company's Common Stock, there can be
no assurance that a market can be sustained. The investment community could
show little or no interest in the Company in the future. As a result,
purchasers of the Company's securities may have difficulty in selling such
securities should they desire to do so.
4. DIVIDENDS. No dividend has been paid on the Common Stock since
inception and none is contemplated at any time in the foreseeable future.
(See "MARKET PRICES AND DIVIDENDS.")
5. SHARES ELIGIBLE FOR FUTURE SALE. Of the shares of the Company's
Common Stock outstanding, approximately 2,096,000 are "restricted securities"
and under certain circumstances may in the future be sold in compliance with
Rule 144 adopted under the Securities Act of 1933, as amended. Future sales
of those shares under Rule 144 could depress the market price of the Common
Stock in any market which may exist. Approximately 1,546,000 of the
-5-
<PAGE>
restricted shares are currently eligible for resale under Rule 144, and
550,000 of those shares are being offered for resale by this Prospectus.
6. OTHER WARRANTS AND OPTIONS OUTSTANDING. The Company presently has
outstanding other warrants and options to purchase an aggregate of 3,878,337
shares of the Company's Common Stock at prices ranging from $.60 to $3.84 per
share. The exercise of these warrants and options would have a dilutive
effect on other investors. In addition, the holders of such warrants and
options could resell the Common Stock received upon exercise either
immediately or one year after such exercise under Rule 144. Such resales
could depress the market price of the Common Stock in any market which may
exist. (See "DESCRIPTION OF SECURITIES.")
7. PREFERRED STOCK. The Company is authorized to issue 5,000,000
shares of Preferred Stock, no par value. The Preferred Stock may be issued in
series from time to time with such designations, rights, preferences and
limitations as the Board of Directors of the Company may determine by
resolution. The potential exists, therefore, that preferred stock might be
issued which would grant dividend preferences and liquidation preferences to
preferred shareholders over common shareholders. Unless the nature of a
particular transaction and applicable statutes require such approval, the
Board of Directors has the authority to issue these shares without shareholder
approval. The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company without any further action by
shareholders. The Company presently has no shares of Preferred Stock
outstanding. (See "DESCRIPTION OF SECURITIES.")
-6-
<PAGE>
MARKET PRICES AND DIVIDENDS
The Company's Common Stock began trading on the Nasdaq Small-Cap Market
on June 29, 1994, under the symbol "IFNY." Prior to that time, the Company's
Common Stock was traded on the over-the-counter market and was quoted on the
NASD's OTC Bulletin Board. The following table sets forth the high and low
sale prices for the Company's securities as reported by the Nasdaq Stock
Market.
QUARTER ENDED HIGH LOW
------------- ---- ---
June 30, 1995 $2.625 $1.781
September 30, 1995 $2.625 $1.453
December 31, 1995 $2.00 $0.50
March 31, 1996 $1.969 $0.594
June 30, 1996 $1.687 $0.875
September 30, 1996 $1.25 $0.75
December 31, 1996 $1.875 $1.125
March 31, 1997 $2.375 $1.25
June 30, 1997 $2.4375 $1.625
The number of record holders of the Company's $.0001 par value common
stock at June 17, 1997, was 264 and the Company has over 350 beneficial owners
of such stock.
Holders of common stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends have been paid
with respect to the Company's common stock and no dividends are anticipated to
be paid in the foreseeable future. Pursuant to the terms of the Loan
Agreement with Seymour, Inc., the Company is prohibited from paying any
dividends, without the prior written consent of Seymour, Inc., until all
principal and interest under the $2,500,000 loan have been paid. (See
"MANAGEMENT'S DISCUSSION AND ANALYSIS -- Liquidity and Capital Resources.")
-7-
<PAGE>
USE OF PROCEEDS
No proceeds from the sale of the 1,450,000 shares offered by the Selling
Shareholders will accrue to the Company.
The net proceeds to be realized from the exercise of the Warrants will
approximate $715,200 if all of the Class A Warrants are exercised (after
deducting the expenses of the offering estimated at $15,000), an additional
$1,217,000 if all of the Class B Warrants are exercised, and an additional
$58,416 if all of the Underwriters' Warrants are exercised. Management
anticipates the net proceeds from the Warrants will be used substantially as
follows and applied in the following order of priority:
CLASS A CLASS B UNDERWRITERS'
APPLICATION OF PROCEEDS WARRANTS WARRANTS WARRANTS
- ----------------------- -------- -------- -------------
Drilling and Completion
of Gas Wells $500,000 $1,000,000 -0-
Working Capital(1) 215,200 217,000 $58,416
-------- ---------- -------
Total $715,200 $1,217,000 $58,416
_______________
(1) Amounts allocated to working capital may be used for payment of accounts
payable, financing possible operating losses, and other general working
capital needs.
The amounts set forth above are only an estimate. The Company is unable
to predict precisely what amount will be used for any particular purpose. To
the extent the proceeds received are inadequate in any area of expenditures,
supplemental amounts may be drawn from working capital, if any. Conversely,
any amounts not required for proposed expenditures will be retained and used
for working capital. Should the proceeds actually received, if any, be
insufficient to accomplish the purposes set forth above, the Company may be
required to seek other sources to finance the Company's operations, including
individuals and commercial lenders.
Pending utilization, management intends to make temporary investment of
the proceeds in bank certificates of deposit, interest-bearing savings
accounts, prime commercial paper or government obligations. Such investment
in interest-bearing assets, if continued for an excessive period of time
within the definition of the Investment Company Act of 1940, could subject the
Company to classification as an "investment company" under the Act and to
registration and reporting requirements thereunder.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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. Accordingly, the
financial statements reflect the historical financial statements of PRD from
its inception on December 18, 1991, through March 10, 1992, and the
consolidated financial statements since that date.
On December 15, 1993, the Company acquired all of the outstanding stock
of LDC Food Systems, Inc. ("LDC"). This acquisition was accounted for as a
pooling of interests and the financial statements included in this Report
reflect the historical statements of LDC from its inception on April 20, 1990,
-9-
<PAGE>
through December 15, 1993, and the consolidated financial statements since
that date
On January 21, 1994, Consolidated Industrial Services, Inc. ("CIS")
(incorporated in November 1993 as a wholly-owned subsidiary of the Company),
acquired substantially all of the assets except for real estate holdings and
advances receivable, and assumed certain liabilities of Consolidated Oil Well
Services, Inc. This acquisition was accounted for as a purchase and the
financial statements subsequent to January 1, 1994, include the results of
operations of the acquired entity from that date. The total consideration
given for this purchase was $1,000,000 in cash, 555,556 shares of the
Company's common stock and promissory notes totaling $2,000,000. Prior to
March 31, 1994, $600,000 of the $2,000,000 amount had been paid, leaving
$1,400,000 still owed. During December 1994, the Company reached an agreement
with Consolidated Oil Well Services, Inc. ("COWS") whereby COWS accepted a
reduced payment of $850,000 in full settlement of the remaining $1,400,000
promissory note. The balance was paid $750,000 in cash and $100,000 in
deferred future oil well services.
In September 1995 and November 1995 the Company created Infinity Oil and
Gas Inc. and CIS Oil and Gas, Inc., respectively, as newly-formed
subsidiaries. Results of operations of these subsidiaries are included in the
consolidated financial statements since their respective inception dates.
In January 1997, the Company reorganized Consolidated Pipeline, Inc. as a
subsidiary. Results of operations of this subsidiary have been included in
the consolidated financial statements since the date of inception.
In February 1997, the Company's interest in Infinity Oil & Gas, Inc. was
reduced to ten percent of the outstanding common shares with the remaining
common shares owned by the officers of the former subsidiary. Results of
operations after the date of this transaction have been excluded from the
consolidated financial statements and the remaining investment in this former
subsidiary is carried as an investment on the cost basis.
The following discussion relates to the financial statements included in
this Prospectus.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 VS. THREE MONTHS ENDED JUNE 30, 1996
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.
-10-
<PAGE>
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 transferred 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.
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.
YEAR ENDED MARCH 31, 1997 VS. YEAR ENDED MARCH 31, 1996
The oil field services segment of the Company generated $4,688,793 in
revenues and $2,480,130 in cost of sales during the year ended March 31, 1997,
compared to $3,814,456 in revenues and $2,123,195 in cost of sales for the
year ended March 31, 1996. The operating expenses incurred by the oil field
services segment of the Company were $1,515,883 for the year ended March 31,
1997, and $1,641,931 for the year ended March 31, 1996. Net operating income
for this segment improved to a profit of $692,780 for the year ended March
31, 1997, as compared to a profit of $49,330 for the year ended March 31,
1996. The improved results are attributed to the Company being able to
significantly increase sales primarily in Colorado and Oklahoma while
continuing measures to control costs. Depreciation and amortization expense
included in operating expenses for the oil field services division was
$496,147 for the year ended March 31, 1997, and $490,517 for the year ended
March 31, 1996.
The environmental services segment of the Company which includes all
water treatment activities, generated $346,545 in revenues and $190,215 in
cost of sales during the year ended March 31, 1997, compared to $1,092,614 in
revenues and $1,204,543 in cost of sales for the year ended March 31, 1996.
Operating expenses incurred by the environmental services division were
$292,539 for the year ended March 31, 1997, and $839,868 for the year ended
March 31, 1996, including depreciation and amortization expense of $171,500
for the year ended March 31, 1997 and $157,539 for the year ended March 31,
1996. The significant drop in revenue, cost of sales and operating expenses
resulted from the reduction in water research and treatment activities
culminating in the license agreement with BOC Gases in January 1996 and the
management and lease agreement with the environmental services company in
October 1996. Since completion of these agreements, these activities have
operated to collect royalties and rent payments and maintain patent rights and
have incurred negligible expense other than depreciation and amortization.
-11-
<PAGE>
The oil and gas production segment of the Company was involved in the
development of the Raton Basin gas property during the year ended March 31,
1997, and incurred negligible operating expenses. Costs incurred in the
development of the wells and the related gathering system were capitalized and
will be amortized in future years as gas is produced and sold. Operating
expenses of $100,604 were incurred by this segment during the year ended March
31, 1996.
Expenses incurred in corporate activities were $274,291 for the year
ended March 31, 1997, and $435,447 for the year ended March 31, 1996. This
reduction was substantially achieved in the area of consulting fees and
professional services, and by closing the corporate office in Lenexa, Kansas.
Operating income for the Company improved to $282,280 for the year ended
March 31, 1997, from an operating loss of $(1,438,518) for the year ended
March 31, 1996. This improvement was due to strong growth in the oilfield
segment of the Company and the reduction in water treatment and research and
development activities. Combined sales grew nominally to $5,035,338 for the
year ended March 31, 1997, from $4,907,070 for the year ended March 31, 1996,
but cost of sales and operating expenses dropped to $2,670,345 and $2,082,713,
respectively, from $3,327,738 and $3,017,850, respectively, for the prior
year.
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.
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).
As of March 31, 1997, the Company had a working capital deficit of
$(1,285,105) compared to a deficit of $(321,979) at March 31, 1996. The
reduction in working capital is primarily due to the use of Company resources
to develop the gas properties including accounts payable at March 31, 1997,
which included development costs totaling $461,255. Production from 19 wells
had started by June 30, 1997.
During the year ended March 31, 1997, cash generated by operating
activities was $892,989 compared to cash used of $(713,140) for the year ended
-12-
<PAGE>
March 31, 1996. The primary reason for the improvement was the fact that the
Company had net income of $219,847 in the year ended March 31, 1997, as
compared to a net loss of $1,826,439 for the year ended March 31, 1996.
Net cash provided by the operation of the oil field services segment was
$1,188,927. Net cash generated by the operation of the environmental
technology segment was $104,942. Net cash used by the operation of corporate
activities was $(262,202) plus $104,942 of interest expense paid.
Cash used in investing activities during the year ended March 31, 1997,
was $1,800,988 as compared to $749,172 for the year ended March 31, 1996. The
majority of cash used in investing activities for both years was used to
develop the coal methane gas production in the Raton Basin in Southeastern
Colorado and to replace and upgrade equipment for oil field services. An
additional $57,140 was spent to pursue patent filings and financing and lease
transactions. These expenditures were offset by proceeds of selling surplus
equipment of $70,378.
During the year ended March 31, 1997, the Company received $812,500 from
the sale of common stock, through exercise of warrants and options and drew
$284,000 on a bank line of credit.
The Company presently has outstanding publicly-held warrants to purchase
shares of common stock, which if all were to be exercised, could result in
gross proceeds of approximately $2,800,000. (This does not include the
warrants to purchase 1,250,000 shares held by Seymour, Inc.)
At March 31, 1997, the Company's CIS subsidiary held a $300,000 revolving
line of credit with a maturity date of August 1997, and the interest rate of
2% over the lender's base corporate rate. The line of credit is secured by a
first lien on certain vehicles owned by CIS and accounts receivable.
On May 31, 1995, the Company obtained $2,500,000 of long-term financing
from Seymour, Inc., a manufacturer of equipment for the food processing
industry. This note payable requires monthly payments of interest at an
annual rate of 10% and monthly installments of principal beginning January 1,
1996. The remaining principal balance matures June 1, 1998. This note
payable is secured by a first lien on substantially all equipment and vehicles
of the Company's CIS subsidiary. 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 date of this Prospectus. However, the Company is
required to drill ten 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 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 or by preselling
the gas produced by these wells. However, there is no assurance that the
Company will be successful in obtaining such financing.
Management believes that the revenues being generated by gas sales
together with the proceeds from the sale of common stock will provide
sufficient liquidity to meet the Company's working capital needs for the
-13-
<PAGE>
remainder of the fiscal year ended March 31, 1998. Additional gas wells will
be drilled and completed only when additional financing is obtained
specifically for that purpose.
RECENT CHANGES IN ACCOUNTING RULES
The Financial Accounting Standards Board (the "FASB") recently adopted or
issued proposals and guidelines which may have a significant impact on the
accounting practices of commercial enterprises.
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") has been issued effective for both interim and annual periods
ending after December 15, 1997. SFAS No. 128 establishes standards for
computing and presenting earnings per share. The Company is required to adopt
the provisions of SFAS No. 128 in the quarter ending December 31, 1997. Under
the standards established by SFAS 128, earnings per share is measured at two
levels: basic earnings per share and diluted earnings per share. Basic
earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed by dividing net income by the weighted average number of
common shares after considering the additional dilution related to preferred
stock, convertible debt, options and warrants.
SFAS No. 130, "Reporting Comprehensive Income" will be adopted for the
year ending March 31, 1998. This statement provides accounting and reporting
standards to report a measure of all changes in equity of an enterprise that
results from recognized transactions and economic events of the period
Management believes adoption of SFAS No. 128 and 130 will not have a
material effect on the financial position or results of operations, nor will
adoption require additional capital resources.
The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Company keeps its
books and records and performs its financial accounting responsibilities. It
is intended only as a summary of some of the recent pronouncements made by the
FASB which are of particular interest.
-14-
<PAGE>
BUSINESS
BACKGROUND
Infinity, Inc. (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 August 17, 1988, the Company completed a public offering of Units
consisting of stock and warrants, for net proceeds of approximately $369,716.
On March 10, 1992, the Company acquired all of the outstanding stock of
Infinity Research and Development, Inc. ("IRD"), formerly named Phoenix
Research & Development Corporation, in exchange for the issuance of shares of
the Company's Common and Preferred Stock. IRD was incorporated under the laws
of the State of Missouri on December 18, 1991, for the purpose of acquiring
the rights to a technology to remove contaminants from waste-water, and to
manufacture and market products using this technology.
On December 15, 1993, the Company acquired all of the outstanding stock
of L.D.C. Food Systems, Inc. ("LDC"), a New Jersey corporation, in exchange
for the issuance of shares of the Company's Common Stock. LDC holds the
rights to patents relating to a poultry carcass chiller system for purifying
contaminated waste water from poultry processing operations. During the year
ended March 31, 1995, the Company obtained orders for two systems
incorporating this technology. During the year ended March 31, 1996 this
prototype system was sold to The BOC Group, Inc. ("BOC") in conjunction with a
licensing agreement under which BOC will complete the pursuit of necessary
government approvals and market the systems internationally to the food
industry.
On January 21, 1994, Consolidated Industrial Services, Inc.
("Consolidated"), a newly-formed, wholly-owned subsidiary of the Company,
acquired substantially all of the assets and operations, and assumed certain
liabilities, of Consolidated Oil Well Services, Inc. ("COWS") pursuant to an
Asset Purchase Agreement dated January 7, 1994 ("Agreement"), among the
Company, Consolidated, COWS and Edsel E. Noland, the President and sole
shareholder of COWS, for consideration valued at $5,000,000. The
consideration consisted of $1,000,000 in cash, 555,556 shares of the Company's
authorized but previously unissued Common Stock, and promissory notes from
Consolidated totaling $2,000,000. During the 3 months ended March 31, 1994,
$600,000 was paid toward the $2,000,000 in notes. During the year ended March
31, 1995, the remainder of the $2,000,000 in notes was settled.
COWS was established in 1957 by Edsel E. Noland, and has been engaged in
providing services to the oil and gas well industry in Kansas and portions of
surrounding states. This business has included providing fracturing,
cementing, acidizing, and nitrogen services as well as trucking of fluids. As
a result of the acquisition, Consolidated now operates approximately 130
pieces of oil field equipment, and employs approximately 70 people.
Consolidated continued the oil field services business acquired and expanded
such services to include on-site hazardous and non-hazardous waste
stabilization services for private industry and government agencies.
Consolidated uses some of the trucks acquired from COWS to haul waste water
from customers' sites to a 20,000 gallon per day waste water treatment
facility constructed on COWS' 17.5 acre site in Chanute, Kansas. This
facility is the first centralized waste water treatment facility in Kansas.
-15-
<PAGE>
Consolidated also built a waste water and brine water treatment plant in
the Silo oil field near Cheyenne, Wyoming. This plant treats nonhazardous
industrial waste water and the brine water which is a by-product of a
producing oil field to meet standards necessary for surface discharge.
During October 1996, the Company entered into a management and lease
agreement with an environmental services company which operates both the
Chanute, Kansas and the Cheyenne, Wyoming water treatment facilities.
In September 1995, Infinity Oil & Gas, Inc. ("IOG") was created to pursue
exploration and development opportunities in the oil and gas industry. The
Company owned 55% of the common shares of IOG for which it paid $550 and
during the year ended March 31, 1996, invested $120,000 in Preferred Stock.
From April 1, 1996 through February 1997, the Company invested an additional
$59,000 in preferred stock.
During February 1997, the Company and IOG agreed to the cancellation of
the Company's Preferred Stock and a portion of its Common Stock, reducing the
Company's ownership in IOG to 10% of its Common Stock. In exchange for such
cancellation, the Company received a promissory note in the amount of $50,000
due in full in February 2000 and bearing interest at 12% per annum, secured by
stock held in IOG's treasury. In addition, the Company will receive an
overriding royalty on certain oil and gas leases held by IOG known as the
"Redstone Project." The amount of the overriding royalty will be based on the
terms of the sale of the Redstone Project by IOG. In July 1997, the Company
agreed to the cancellation of its remaining 10% stock ownership in IOG in
connection with the acquisition of a mineral lease on 17,300 acres in Las
Animas County, Colorado from IOG.
In November 1995, CIS Oil and Gas, Inc. ("COG"), a wholly-owned
subsidiary, was created to acquire mineral rights and to develop and operate
properties. During the year ended March 31, 1996 COG acquired rights to
approximately 24,000 acres of land in the Raton Basin in Southeastern
Colorado, and drilled fifteen wells to produce coal methane gas from this
property. During the year ended March 31, 1997, the Company drilled an
additional five wells and built a pipeline system on the property to connect
the wells to the Colorado Interstate Gas pipeline. The Company anticipates
increasing gas production from these wells and four preexisting wells during
the coming year while it continues to develop the property. In July 1997, CIS
acquired mineral rights on 17,300 additional acres in the Raton Basin and
intends to develop this property as well.
In January 1997, Consolidated Pipeline, Inc. ("CPI"), a wholly-owned
subsidiary, was reorganized to operate the Company's gas gathering pipeline
system constructed to connect the wells on the Raton property to the Colorado
Interstate Gas pipeline.
Unless the context otherwise requires, Infinity, Inc. and its
subsidiaries, Consolidated, IRD, LDC, COG and CPI are referred to herein
collectively as the "Company."
On November 30, 1993, the Company effected a 1 for 12 reverse split of
its outstanding Common Stock. All financial information and share data in
this Report give retroactive effect to this reverse split.
THE COMPANY
Infinity, Inc. (the "Company"), through its subsidiaries, is engaged in
providing oil field services, and in developing and operating oil and gas
-16-
<PAGE>
properties. The Company also leases and licenses water treatment facilities
and technologies which it previously developed and operated.
The Company's CIS Oil & Gas, Inc. ("COG") subsidiary leases mineral
rights to approximately 24,000 acres of land in the Raton Basin area of
Southeastern Colorado, and has drilled twenty (20) wells on this property.
COG will continue to develop and operate this property while seeking
additional properties to develop. The Company's Consolidated Pipeline, Inc.
("CPI") subsidiary operates the pipeline used to transport gas produced in the
Company's Raton Basin property from the wells to the interstate carrier.
The Company's Consolidated Industrial Services, Inc. ("Consolidated")
subsidiary provides services associated with drilling and completion of oil
and gas wells, including cementing, acidizing, fracturing, nitrogen pumping
and water hauling. Consolidated previously provided on-site remediation
services for hazardous and non-hazardous waste, and operated a centralized
water treatment facility and facilities to treat brine water produced by oil
and gas wells. These facilities are now leased to and operated by an
unrelated environmental services company.
The Company's Infinity Research and Development, Inc. ("IRD") and LDC
Food Systems, Inc. ("LDC") subsidiaries have developed two specialized water
treatment technologies: (1) thin film electrocoagulation and (2) chiller loop
filtration and ozone sanitation (or "chiller loop technology"). These
technologies are being used by the Company to custom design and install custom
water treatment equipment. The Company believes that these technologies are
adaptable for use in the food processing, garment, textile, gas pipeline,
metal finishing and paint manufacturing industries. The Company developed,
manufactured and installed one system with the Company's chiller loop
technology, which was installed at a major poultry processing plant and
obtained final approval by the United States Department of Agriculture
(USDA). The Company sold this operating system to The BOC Group, Inc. ("BOC")
in February 1996 in conjunction with a licensing and marketing agreement under
which BOC will pursue final regulatory approvals and will market the chiller
loop technology to the food industry both nationally and internationally.
BUSINESS OF COG AND CPI
COG identifies and pursues development, exploration and operating
opportunities in the oil and gas industry. CPI operates the internal pipeline
which transports produced gas from each well on the Raton Basin property to
the interstate carrier.
RATON BASIN
The Company has acquired through lease the mineral rights to
approximately 24,000 acres of land in the Raton Basin of Southeastern
Colorado. This area has seen significant growth in activity in recent years
as several major companies in the energy exploration industry have started
development work. This activity was spurred by the completion through the
area of the Colorado Interstate Gas ("CIG") pipeline which provides a means to
sell gas produced in the area to eastern markets where prices are generally
higher than in the Rocky Mountain area.
The property leased by the Company is over several strata of known coal
deposits at depths of less than 1,200 feet. This allows the Company to drill
to these shallow levels to retrieve the coal methane gas using techniques
developed over many years in the coal fields of Southeastern Kansas where
available resources were relatively small. These techniques applied to these
-17-
<PAGE>
shallow wells in Colorado provide the Company with significant cost advantages
over other companies whose techniques are based on deeper wells and larger
resources.
The Company has drilled twenty wells on this property and has connected
19 of the 20 wells to the CIG pipeline. Production on all 19 wells had
started by June 30, 1997.
The Company anticipates drilling no fewer than ten additional wells in
1997 and no fewer than ten additional wells each year through the year 2000 to
maintain rights to develop the entire property.
Under current regulations this property could support more than 130
wells, so the Company anticipates that development will occur faster than
these minimum levels.
On July 31, 1997, the Company acquired the rights to a lease of 53.46%
of the mineral rights on approximately 17,300 additional acres near the 24,000
acre block described above. These rights were acquired from Infinity Oil &
Gas, Inc. ("IOG") which is no longer affiliated with the Company. The Company
paid $50,000 as an advance on the landowner royalty of 15% and granted IOG a
3% overriding royalty. The Company also agreed to cancel its 10% stock
ownership in IOG in connection with this transaction. The lease requires that
the Company drill at least 10 wells on the property in each of the first two
years and 20 wells during the third year to maintain rights to develop the
property. There are currently four gas wells on the property owned by Amoco
which are not operating. If the Company acquires these wells and sustains
production from them, the four wells will count toward the ten wells required
to be drilled in the first year. Up to 80 coal methane gas wells may be
drilled on the 17,300 acre block.
The Company's development of the additional 17,300 acre block may be
adversely impacted by the fact that another party holds the rights to the
remaining 46.54% of the mineral rights. The Company will use its best efforts
to work with the other interest holder, but there can be no assurance that the
Company will be successful in doing so. If the Company is unable to
satisfactorily obtain such cooperation, the Company may be required to apply
to the Colorado Oil and Gas Conservation Commission to request a forced
pooling of the property. If such an order were to be granted, the Company
would be required to pay all costs of drilling and completion of the wells and
only pay the other interest holder a one-eighth royalty on production until
the Company recovers its cost plus 200%, after which the other party would
also receive a 46.54% working interest in the property.
CURRENT DRILLING OPERATIONS
The Company has drilled twenty coal methane gas wells in the Raton Basin
in Southeastern Colorado. Fifteen of these wells were drilled during February
1996 and five were drilled during December 1996.
The Company completed these wells and related gathering systems and
commenced production in April 1997. The Company intends to drill a minimum of
an additional ten wells in this area by December 31, 1997.
The Company owned no oil or gas properties and had no drilling or
production activities prior to the drilling of the fifteen wells during the
year ended March 31, 1996. All twenty of the development wells which the
Company has drilled thus far were completed and nineteen are hooked up and are
producing gas.
-18-
<PAGE>
OIL AND GAS INTERESTS IN LEASEHOLD ACREAGE
The Company holds oil and gas interests in the Raton Basin in
Southeastern Colorado as of March 31, 1997 as follows:
Undeveloped Acreage
Gross 20,160
Net 20,160
Developed Acreage
Gross 3,840
Net 2,880
GAS WELLS
At March 31, 1997, the Company had both gross and net interests in twenty
gas wells based on working interests currently in effect.
The group which assigned the leases on this property to the Company has
an option to obtain a twenty-five percent working interest in these wells
within six months of the completion of twenty wells. This option, if
exercised, would reduce the number of net wells to 15. In addition, the
Company will receive a seventy-five percent working interest in four existing
wells when the wells are connected to the pipeline and begin production. If
all twenty-four existing wells are connected to the pipeline and begin
production and the twenty-five percent back-in option is exercised, the
Company will have 24 gross gas wells and 18 net gas wells.
PRODUCTION, PRICE AND COST DATA
The Company began acquisition and development activities relating to oil
and gas properties in January 1996. During the years ended March 31, 1996 and
March 31, 1997, no oil or gas had been produced by the Company, and average
selling prices and average production costs had not been established.
During the year ended March 31, 1997, the Company incurred no operating
expenses in conjunction with oil and gas production activities. Information
concerning the Company's reserves appears as Unaudited Supplemental
Information Pursuant to Oil and Gas Activities following the notes to
financial statements. Information regarding the Company's oil and gas
reserves was determined by Fairchild, Ansell & Wells, Inc., petroleum and
environmental consultants.
The Company presently has no agreements or commitments to provide
quantities of oil or gas in the future. The Company has not reported
information on oil or gas reserves to any federal agency or authority.
OTHER PROPERTIES
The Company continues to evaluate opportunities of both developed and
undeveloped properties where the experienced employees and specialized
equipment of Consolidated can enhance the value of the property. Potential
properties may be relatively shallow deposits to be recovered or could be
neglected fields which will benefit from some form of enhancement.
BUSINESS OF CONSOLIDATED
The Company's Consolidated subsidiary, based in Chanute, Kansas, has been
organized into two divisions: Oil field Services and Waste Treatment
-19-
<PAGE>
Services, including On-site Remediation, Wastewater Treatment and Brine Water
Treatment. In October 1996, operation of the waste treatment services
division was transferred to an environmental services company under a
management and lease agreement.
OIL FIELD SERVICES
The Oil Field Services Division is based on the business and operations
acquired from Consolidated Oil Well Services, Inc. in January 1994. This
division provides a number of services relating to the drilling and completion
of oil and gas wells, including cementing, acidizing, fracturing, nitrogen
pumping, and water hauling. Consolidated provides these services out of
service facilities located in Chanute and Ottawa, Kansas; Bartlesville,
Oklahoma; and Trinidad, Colorado, using a fleet of approximately 130 vehicles.
Consolidated also provides services and expertise to the Company's COG
and CPI subsidiaries in support of the exploration, development and operation
activities of these subsidiaries.
WASTE TREATMENT SERVICES
The On-site Remediation Services Division offered environmental
remediation services to companies which generate hazardous and non-hazardous
waste. The waste water treatment facility in Chanute, Kansas accepted
non-hazardous waste waters from industrial generators for treatment and
disposal. The brine water treatment facility near Cheyenne, Wyoming accepted
non-hazardous oilfield and industrial waste waters for treatment and
disposal. Each of these activities used technologies developed by the company
in addition to traditional methods.
In October 1996, in an effort to focus the Company on the oilfield
services and oil and gas production activities, the Company entered into a
management and lease agreement with Great Plains Environmental, Inc., an
environmental services company, to operate these water treatment divisions.
The initial term of the agreement is for five years and 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
options to extend the agreement for additional two and seven year terms.
BUSINESS OF IRD AND LDC
IRD and LDC developed water treatment systems which utilize two
specialized water treatment technologies in combination with conventional
water treatment equipment. Each of these technologies have been leased or
licensed to other companies to pursue additional development.
THIN FILM ELECTROCOAGULATION
Prior to the acquisition of LDC, IRD developed a thin film
electrocoagulation ("TFEC") wastewater treatment technology that accomplishes
the removal of suspended as well as soluble pollutants using sound
electrochemical and physical chemistry principles. This technology was
included in the management and lease agreements involving the water treatment
divisions.
CHILLER LOOP (OZONE SANITATION) TECHNOLOGY
LDC holds the rights to patent processes for use in treating poultry
industry waste water to allow for the reuse of the waste water. The Company
-20-
<PAGE>
believes that the chiller loop technology offers the following benefits:
1. Large poultry processing plants would be able to reuse a
greater portion of the water they use. Currently, such plants often use over
2 million gallons of water per day.
2. Waste products can be removed from waste water more
economically than the systems presently used in the industry.
3. The amount of biological contamination which occurs in the
processing of poultry is reduced.
The Company obtained a purchase order for one of these chiller loop
filtration and ozone sanitation systems. This first system was fabricated and
installed in a poultry processing facility in Gainesville, Georgia. The
Company sold this operating system to BOC Group, Inc. ("BOC") in February 1996
in connection with the license agreement described below, and BOC will pursue
the final approvals of the United States governmental regulatory agencies and
this customer.
LICENSE AGREEMENT WITH BOC GROUP, INC.
In January 1996, the Company entered into an Exclusive License
Agreement with BOC Group, Inc. ("BOC") pursuant to which BOC received the
exclusive right to make, use and sell products using technology based on a
patent and a patent application owned by the Company for the Chiller Loop
technology in the food and animal processing industry. In exchange for this
license, the Company will receive royalties on the sale of licensed products
using the patent and/or patent application technologies. Subsequently, the
license agreement was amended to expand the exclusive rights of BOC to include
all industries. The royalties will be from $8,000 to $15,000 per product,
depending on the technologies used, until 1998, and $5,000 to $10,000 per
product thereafter. In order to keep the license exclusive, BOC will be
required to sell at least ten licensed products per year with the year
starting when the first product is sold. As of June 30, 1997, BOC had not
sold any products. If less than ten licensed products are sold in a year, BOC
may make minimum royalty payments of $80,000 per year to keep the license
exclusive.
The Company retained the rights to make and sell products using the
technologies in the licensed fields to companies related to Seymour, Inc., an
affiliate of the Company.
ENVIRONMENTAL REGULATION
The waste water treatment services and systems operated by the Company's
licensee are designed to assist industrial, commercial and other entities in
complying with complex sets of federal and local environmental regulations.
These regulations are monitored by several levels of government including the
EPA, state regulatory agencies, and municipal authorities. Although the EPA
establishes maximum limits for discharge of pollutants into surface waters,
some states have more stringent requirements. There can be no assurance that
the Company's services or systems will be able to meet all of the standards
now or hereafter set by every regulatory authority.
In addition, demand for water treatment products is driven in part by the
increasingly stringent requirements for the discharge of pollutants. If
regulatory authorities decided to reverse the trend and reduce those
requirements, the Company's business could be adversely affected.
-21-
<PAGE>
COMPETITION
In the oil field services division the Company has only limited
competition in southeastern Kansas, whereas in northeastern Oklahoma and
Colorado the Company competes with Halliburton Services, a major oil field
services company, and two small local companies. If conditions in the
industry improve, it is likely that other companies could enter the markets
where the Company operates. When compared to Halliburton Services which is a
well established company with substantial financial resources, the Company may
be at a competitive disadvantage.
There are many companies in the waste water treatment industry, many of
which possess far greater financial resources, name recognition, manufacturing
capabilities and marketing experience than the Company. The Company intends
to compete with these companies through its management and lease agreement
with the environmental services company and through its licensing and
marketing agreement with BOC.
There are several other companies, universities and research
organizations which actively engage in the research and development of
products which may be competitive with those of the Company. All of these
potential competitors, in the future, may offer products which by reason of
price or effectiveness may be superior to any of the Company's existing or
future products.
MAJOR CUSTOMERS
During the fiscal year ended March 31, 1996, the Company had no
individual customer which accounted for more than 10% of the Company's net
sales. During the fiscal year ended March 31, 1997, the Company billed Stroud
Oil Properties $646,488 which represents 13% of the Company's net sales.
PATENTS, TRADEMARKS AND PROPRIETARY PROTECTION
The Company, through its LDC subsidiary, owns the rights to two patents
issued by United States Patent and Trademark Office which name Louis D.
Caracciolo, Jr. as inventor. The patents are entitled "Carcass Chiller and
Sterilizer" (U.S. Patent No. 4,827,727 issued May 9, 1989) and "Ozonation of
Containers" (U.S. Patent No. 4,874,435, issued October 17, 1989). The
duration of these patents is seventeen years from the date of issuance. In
addition, the Company has pursued additional patent applications in the
current year.
There can be no assurance that the patents held by the Company or
recently applied for are enforceable, particularly in view of the high cost of
patent litigation, nor can there be any assurance that the Company will derive
any competitive advantages therefrom. The patents may be insufficient to
prevent competitors from essentially duplicating the product by designing
around the patent aspects. In addition, there can be no assurance that the
Company's products will not infringe on patents owned by others, license to
which may not be available to the Company, nor that competitors will not
develop functionally similar products outside the protection of any patents
the Company has or may obtain. The Company has obtained no patent
infringement abatement insurance policies on its patents.
The Company does not presently hold any patents on the thin-film
electrocoagulation technology used in its waste-water treatment system. The
Company does not believe that this technology violates any patents held by
others, but there can be no assurance that claims of patent infringement will
-22-
<PAGE>
not be asserted against the Company in the future. The Company presently does
not carry insurance which would provide coverage for defense against such
claims.
EMPLOYEES
The Company and its subsidiaries currently have approximately 55
employees. The Company intends to hire additional employees as the
development of its business requires.
PROPERTY
The Company's headquarters is located in leased facilities at 211 West
14th Street, Chanute, Kansas 66720, along with operating facilities of
Consolidated's oil field services division.
The Company leases facilities in Chanute and Ottawa, Kansas, and
Bartlesville, Oklahoma, pursuant to a lease from Consolidated Oil Well
Services, Inc., a shareholder of the Company. The monthly rent is $3,534,
and the Company also pays all insurance, taxes and operating expenses of these
facilities. The lease expires on January 6, 2001. The lease provides the
Company with the option to extend the lease for one additional five year
period and to purchase these facilities for $496,135 during the term of the
lease. In the event the Company exercises this option, all rent paid under
the lease will be applied to the purchase price.
The Company leases facilities in Trinidad, Colorado. The monthly rent is
$1,000. The lease began in October 1994, currently expires in October 1997,
and contains the option to extend the lease for seven additional one-year
periods and to purchase the facility during the term of the lease. In the
event the Company exercises this option, all rent paid under the lease will be
applied to the purchase price up to a maximum of $60,000.
The Company also leases property near Cheyenne, Wyoming, which is the
site of the brine water treatment facility. Rent on this land lease is $1,000
per year for a term of twenty-five years beginning July 1994. This rent is
reimbursed under the management and lease agreement for the water treatment
facilities.
From May 20, 1994 until June 1996, the Company leased office space in
Lenexa, Kansas for which it paid $2,105 per month in base rent, and paid a
proportionate share of the taxes, insurance and common area charges of the
building. The lease expired in June 1996 and was not renewed.
During the year ended March 31, 1996, the Company acquired direct
interests in oil and gas leases on approximately 24,000 acres of land in the
Raton Basin in Southeastern Colorado, and in July 1997 acquired an interest in
an additional 17,300 acres in this area. The Company believes it has
satisfactory title to these properties based upon generally accepted industry
standards. Prior to the commencement of drilling specific sites, however, a
thorough examination is conducted and material defects, if any, are corrected
before proceeding with operations.
These properties acquired by the Company are leases which require certain
drilling activity to retain the Company's interest in the lease. The Company
must drill ten additional wells before December 31, 1997, and it must drill
ten additional wells during each of the subsequent three years in order to
earn the right to develop the entire acreage.
-23-
<PAGE>
LEGAL PROCEEDINGS
A former employee of Consolidated Oil Well Services, Inc. and
Consolidated Industrial Services, Inc. has alleged that he was unfairly
discharged in 1995, when the Company consolidated operations and closed one
location and has claimed damages in excess of $10,000. The Company is
contesting this claim and expects to be successful in its defense.
There are no other pending legal proceedings to which the Company is a
party.
-24-
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITIONS HELD
---- --- --------------
Stanton E. Ross 35 President, Treasurer and Director
Don W. Appleby 44 President of Subsidiary and Director
John C. Garrison 45 Secretary and Director
STANTON E. ROSS. Mr. Ross has been President, Treasurer and a Director
of the Company since March 1992, and serves as an officer and director of each
of the Company's subsidiaries. From 1991 until March 1992, he also founded
and served as President of Midwest Financial, a financial services corporation
involved in mergers, acquisitions and financing for corporations in the
Midwest. From 1990 to 1991, Mr. Ross was employed by Duggan Securities, Inc.,
an investment banking firm in Overland Park, Kansas, where he primarily worked
in corporate finance. From 1989 to 1990, he was employed by Stifel, Nicolaus
& Co., a member of the New York Stock Exchange, where he was an investment
executive. From 1987 to 1989, Mr. Ross was self-employed as a business
consultant. From 1985 to 1987, Mr. Ross was President and founder of Kansas
Microwave, Inc. which developed a radar detector product. From 1981 to 1985,
he was employed by Birdview Satellite Communications, Inc. which manufactured
and marketed home satellite television systems, initially as a salesman and
later as National Sales Manager.
DON W. APPLEBY. Mr. Appleby has served as President of the Company's IRD
subsidiary and as a Director of the Company since August 1995. He also served
as President of Seymour, Inc. from October 1992 to August 1997, and served as
Operations Manager for Seymour, Inc.'s equipment division from 1990 to 1992.
Seymour, Inc. is a 100 year old company which manufactures equipment for the
food processing industry. From 1989 to 1990, he was Vice President (with
responsibilities in finance and administration) of George E. Failing Company
which was engaged in the manufacture of drilling equipment. From 1987 until
1989, Mr. Appleby was Vice President and Chief Financial Officer for
Speedstar/AMCA International in Enid, Oklahoma, which was engaged in the
manufacture of drilling equipment. From 1975 to 1986, he was a Division
Manager for Parker Drilling Company, a large oil well drilling company. Mr.
Appleby received a BS/BA degree in Accounting/Finance from the University of
Tulsa in 1975. Mr. Appleby devotes approximately 25% of his time to the
business of the Company.
JOHN C. GARRISON. Mr. Garrison has served as Secretary of the Company
since August 1994, and as a Director since May 1995. He has been a Certified
Public Accountant in public practice providing financial management and
accounting services to a variety of businesses for over twenty years. Mr.
Garrison holds a Bachelor degree in Accounting from Kansas State University.
He devotes over 50% of his time to the business of the Company.
The Company's Directors hold office until the next annual meeting of the
shareholders and until their successors have been elected and qualified.
The Officers of the Company are elected by the Board of Directors at the
first meeting after each annual meeting of the Company's shareholders, and
-26-
<PAGE>
hold office until their death, or until they shall resign or have been removed
from office.
The Company has no audit, compensation or nominating committee.
The date of the next annual meeting of the Company will be determined by
the Company's Board of Directors in accordance with Colorado law.
EXECUTIVE COMPENSATION
The following tables set forth information regarding executive
compensation for the Company's President and Chief Executive Officer. No
executive officer received compensation in excess of $100,000 for any of the
years ended March 31, 1997, 1996 and 1995:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------- ----------------- -------
SECURI-
TIES
RE- UNDERLY-
OTHER STRICT- ING ALL
ANNUAL ED OPTIONS OTHER
NAME AND PRINCIPAL COMPEN- STOCK /SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION
- ------------------ ---- ------ ----- ------ -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanton E. Ross, 1997 $60,000 -0- $7,800* -0- 150,000 -0- $-0-
President and 1996 $60,000 -0- $7,800* -0- -0- -0- -0-
Chief Execu- 1995 $60,000 -0- $7,800* -0- -0- -0- -0-
- --------------------
* Represents an automobile allowance.
</TABLE>
-26-
<PAGE>
OPTION/SAR GRANTS IN FISCAL YEAR ENDED MARCH 31, 1997
PERCENT OF
TOTAL OPTIONS/
OPTIONS/ SARs GRANTED EXERCISE
SARs TO EMPLOYEES OR BASE EXPIRATION
NAME (NUMBER) IN FISCAL YEAR PRICE ($/SH) DATE
---- -------- -------------- ------------ ----------
Stanton E. Ross 150,000 35.7% $1.31 2001
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES
UNDERLYING VALUE OF UNEXER-
SHARES UNEXERCISED CISED IN-THE
ACQUIRED OPTIONS MONEY OPTIONS/
ON SARs AT FY-END SARs AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- -------------- ---------------
Stanton E. Ross -0- -0- 166,668 / 0 $123,231 / $0
Effective February 1, 1992, Stanton E. Ross, the Company's President,
entered into an employment agreement with the Company's subsidiary which
provides for a base salary of $60,000 per year, plus commissions based on
installations of the Company's products which result from the efforts of Mr.
Ross. Commissions of up to 10% of the sales price may be earned by Mr. Ross
under these arrangements. The term of this employment agreement was through
February 1, 1994, but may be automatically extended for additional one year
periods unless either party notifies the other at least 30 days prior to the
expiration date.
Effective May 31, 1995, the Company entered into a consulting agreement
with Don W. Appleby who is now a Director of the Company and President of a
subsidiary. The agreement was for a period of two years. Mr. Appleby
receives $1,500 per month for his services. Mr. Appleby also received certain
stock options in connection with this agreement. Mr. Appleby is now working
for the Company on a month-to-month basis. (See "-- Stock Option Plan"
below.)
STOCK OPTION PLAN
In February 1992, the Board of Directors adopted a Stock Option Plan (the
"Plan") which was approved by the Company's shareholders in March 1992. The
Plan allows the Board to grant stock options from time to time to employees,
officers and directors of the Company and consultants to the Company. The
Board has the power to determine at the time the option is granted whether the
option will be an Incentive Stock Option (an option which qualifies under
Section 422 of the Internal Revenue Code of 1986) or an option which is not an
Incentive Stock Option. However, Incentive Stock Options will only be granted
to persons who are employees or officers of the Company. Vesting provisions
are determined by the Board at the time options are granted. The total number
of shares of Common Stock subject to options under the Plan may not exceed
833,334, subject to adjustment in the event of certain recapitalizations,
reorganizations and so forth. The option price must be satisfied by the
payment of cash. The Board of Directors may amend the Plan at any time,
provided that the Board may not amend the Plan to materially increase the
-27-
<PAGE>
benefits accruing to participants under the Plan, or materially change the
eligible classes of participants without shareholder approval.
In April 1995, the Board of Directors granted Incentive Stock Options to
John C. Garrison, Secretary and Director of the Company, to purchase 100,000
shares at $2.00 per share. The options vest as to 25,000 shares on July
15,1995; 25,000 shares on October 24, 1995; 25,000 shares on April 24,1996;
and 25,000 shares upon certain events, which have now occurred. The options
expire five years from the date of vesting.
In August 1995, the Board of Directors granted Non-Qualified Stock
Options to Don W. Appleby, a Director of the Company and President of the
Company's IRD subsidiary, to purchase up to 100,000 shares of Common Stock at
$2.00 per share. The options vested as to 12,500 shares immediately and as to
an additional 12,500 shares every three months after the date of grant. The
options expire five years from the date of grant.
In November 1996, the Board of Directors granted stock options to Don
Appleby and John Garrison to each purchase 100,000 shares of common stock at a
price of $0.93 per share. These options were fully vested and were exercised
during the year.
In January 1997, the Board of Directors granted stock options to Stanton
Ross, Don Appleby and John Garrison to purchase up to 150,000, 25,000 and
25,000 shares, respectively, of common stock at $1.31 per share. The options
for Mr. Ross vested immediately and the options for Messrs. Appleby and
Garrison vest at a rate of 25% each quarter from the date of grant and expire
five years from the date of grant.
-28-
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT,
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, and as
adjusted for the sale of the shares offered by the Selling Shareholders and
the exercise of all of the Warrants, the stock ownership of each person known
by the Company to be the beneficial owner of five percent or more of the
Company's Common Stock, all Directors individually and all Directors and
Executive Officers of the Company as a group, and the Selling Shareholders.
Except as noted, each person has sole voting and investment power with respect
to the shares shown.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
-------------------
AFTER
PERCENTAGE NUMBER SALES BY AFTER
AMOUNT OF OF CLASS OF SELLING EXERCISE
NAME AND ADDRESS OF BENEFICIAL PRIOR TO SHARES SHARE- OF
BENEFICIAL OWNER OWNERSHIP SALES OFFERED HOLDERS WARRANTS
- ------------------- ---------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Stanton E. Ross 1,802,285<FN1> 17.5% -0- 17.5% 16.1%
211 West 14th Street
Chanute, KS 66720
John C. Garrison 112,500<FN2> 1.1% -0- 1.1% 1.0%
7211 High Drive
Prairie Village, KS 66208
Don W. Appleby 112,500<FN5> 1.1% -0- 1.1% 1.0%
3701 S.W. 36th
Topeka, KS 66614
All Directors and 2,027,285 19.2% -0- 19.2% 17.8%
Executive Officers as
a Group (3 persons)
Irving Strickstein 534,000<FN3> 5.2% 100,000 4.2% 3.9%
2267 Shankin Drive
Walled Lake, MI 48390
Seymour, Inc. 1,250,000<FN4> 11.0% -0- 11.0% 10.2%
4225 S.W. Kirklawn
Topeka, KS 66609
Gaines, Berland Inc. 900,000<FN6> 8.1% 900,000 -- --
6900 Jericho Turnpike
Syosset, NY 11791
Scott Strickstein 25,000 * 25,000 -- --
2267 Shankin Drive
Walled Lake, MI 48390
Tara Strickstein 25,000 * 25,000 -- --
2267 Shankin Drive
Walled Lake, MI 48390
-29-
<PAGE>
Robert Strickstein 25,000 * 25,000 -- --
2267 Shankin Drive
Walled Lake, MI 48390
Susan Sadley 25,000 * 25,000 -- --
2267 Shankin Drive
Walled Lake, MI 48390
Three Sticks Funds, L.P. 150,000 1.5% 150,000 -- --
Suite 1600
111 Congress Avenue
Austin, TX 78701
David J. Smith 75,000 * 75,000 -- --
Suite 860
150 2nd Avenue North
St. Petersburg, FL 33701
Apollo Capital Management 125,000 * 125,000 -- --
Group L.P.
Suite 860
150 2nd Avenue North
St. Petersburg, FL 33701
- ---------------------
<FN>
* Less than 1%.
<FN1>
Includes 166,668 shares which may be purchased within 60 days under stock
options held by Mr. Ross.
<FN2>
Represents 112,500 shares which may be purchased within 60 days under stock
options held by Mr. Garrison.
<FN3>
Includes 200,000 shares which may be purchased within 60 days under stock
options held by Mr. Strickstein.
<FN4>
Represents shares underlying warrants to purchase 1,250,000 shares of common
stock.
<FN5>
Represents 112,500 shares which may be purchased within 60 days under stock
options held by Mr. Appleby. Does not include 1,250,000 shares of common
stock underlying warrants held by Seymour, Inc. of which Mr. Appleby is
President.
<FN6>
Represents shares underlying warrants to purchase 900,000 shares of common
stock.
</FN>
</TABLE>
There are no known agreements, the operation of which may at a subsequent
date result in a change in control of the Company.
Except for Irving Strickstein, none of the selling shareholders have held
any office or position, or had any other material relationship with the
Company within the past three years. Mr. Strickstein is a beneficial owner of
over 5% of the Company's Common Stock and has been serving as a
consultant/advisor for the Company.
-30-
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Stanton E. Ross, President, Treasurer and a Director of the Company, has
made loans to the Company to provide working capital. As of March 31, 1997,
these amounts totaled $309,968. The notes bear interest at 9%. One note with
a principal amount of $9,968 was due in April 1996 and the other note with a
principal amount of $300,000 is due in June 1998. The notes are subordinated
to the Seymour, Inc. note. The $9,968 note has not been repaid at this date.
On April 24, 1995, the Company issued a total of 202,000 shares of its
common stock to three persons for services rendered during the last fiscal
year which were valued at a total of $386,200. These services include
assisting the Company develop its business plan, advice regarding allocation
of funds between the Company's two primary business segments, and
miscellaneous ongoing consulting services. Included among the persons
receiving stock were two shareholders who beneficially owned more than 5% of
the Company's Common Stock: Joe Conner who received 84,000 shares, and Irving
Strickstein who received 34,000 shares.
On April 24, 1995, the Company's Board of Directors also approved
granting 800,000 options to three persons who have agreed to serve as an
informal advisory board for the Company. The options are exercisable at $2.00
per share. The persons receiving the options were as follows:
Irving Strickstein 400,000(1)
Joe Conner 200,000
Mitch Fazekas 200,000
- ----------
(1) During the year ended March 31, 1997, the exercise price on 200,000 of
these options was reduced for a short time and Mr. Strickstein transferred
200,000 options to a non-affiliated person who exercised them at a price of
$.9375 per share.
On May 31, 1995, the Company closed on a Loan Agreement with Seymour,
Inc. ("Seymour") pursuant to which Seymour loaned the Company $2,500,000 to be
repaid over three years in accordance with the terms of a promissory note.
The promissory note requires interest only payments for the first six months
of the loan. Commencing January 1, 1996, and for the following thirty (30)
months, the Company must pay $41,503 per month assuming a 10% interest rate.
All unpaid principal and interest will be due on June 1, 1998, and this amount
is expected to be approximately $1,825,100. The promissory note is secured by
certain property, equipment and machinery described in the Security Agreement.
In connection with the loan financing, the Company issued to Seymour
warrants to purchase up to 1,250,000 shares of the Company's common stock at
an exercise price of $2.00 per share. The warrants expire 90 days after the
payment of all principal and interest on the promissory note. As a result of
its ownership of the warrants, Seymour is deemed to be a principal shareholder
of the Company. Don W. Appleby, who became a Director of the Company and a
President of a subsidiary of the Company in August 1995, is President of
Seymour.
-31-
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company consists of 300,000,000
shares of Common Stock, $.0001 par value. All shares have equal voting rights
and are not assessable. Voting rights are not cumulative, and, therefore, the
holders of more than 50% of the Common Stock of the Company could, if they
chose to do so, elect all the Directors.
Upon liquidation, dissolution or winding up of the Company, the assets of
the Company, after the payment of liabilities and any liquidation preferences
on outstanding preferred stock, will be distributed pro rata to the holders of
the Common Stock. The holders of the Common Stock do not have preemptive
rights to subscribe for any securities of the Company and have no right to
require the Company to redeem or purchase their shares. The shares of Common
Stock presently outstanding are, and the shares of Common Stock to be sold
pursuant to this offering will be, upon issuance, fully paid and
nonassessable.
Holders of Common Stock are entitled to share equally in dividends when,
as and if declared by the Board of Directors of the Company, out of funds
legally available therefor. The Company has not paid any cash dividends on
its Common Stock, and it is unlikely that any such dividends will be declared
in the foreseeable future.
CLASS A AND CLASS B WARRANTS
The Company has outstanding Class A and Class B Warrants which were
issued in connection with the Company's initial public offering which was
completed in August, 1988. Subject to redemption by the Company and to the
current registration statement requirement, both of which limitations are
described below, twelve (12) Class A Warrants may be exercised to purchase one
share of Common Stock through December 31, 1997, at a price of $1.80 per
share. Twelve (12) Class B Warrants may be exercised to purchase one share of
Common Stock through September 30, 1998, at a price of $3.00 per share. The
Class A and Class B Warrant expiration dates (and the period during which the
Warrants are exercisable) may be extended indefinitely, or the exercise price
thereof reduced, at the discretion of the Company, upon giving written notice
to the Warrant Agent and the warrantholders.
All or any number of the Class A or Class B Warrants can be called for
redemption at a redemption price of $.01 per Class A Warrant and at $.02 per
Class B Warrant by the Company at any time during their exercise term upon a
minimum of thirty (30) days' prior written notice mailed to the registered
holders of such Warrants, subject to the right of the holders of such Warrants
to exercise their purchase rights between the date of any notice of redemption
up to and including the redemption date given by the Company.
The Class A and Class B Warrants may not be exercised or redeemed unless
the Company maintains a current registration statement in effect during the
respective exercise or redemption periods of the Warrants. The Company has
undertaken to use its best efforts to file post-effective amendments to the
related registration statement to keep information on the Company current
during the period during which the Warrants may be exercised or redeemed.
-32-
<PAGE>
UNDERWRITERS' WARRANTS
In connection with the Company's initial public offering in September,
1988, the Company issued Underwriters' Warrants to purchase up to 40,567
shares of Common Stock at $1.44 per share. The expiration date of these
Warrants has been extended through December 31, 1997.
OTHER WARRANTS AND OPTIONS
During 1995, the Company issued warrants to purchase 1,250,000 shares of
its Common Stock to Seymour, Inc. These warrants are exercisable at $2.00 per
share and expire 90 days after the payment of all principal and interest is
paid by the Company on a $2,500,000 promissory note which is due on June 1,
1998.
During 1996, the Company issued warrants to purchase 900,000 shares of
Common Stock to Gaines, Berland Inc. These warrants are exercisable at $0.88
per share and expire on August 1, 2001.
During 1996, the Company also issued warrants to investors in a private
offering. As of the date of this Prospectus, warrants to purchase 41,667
shares at $.60 per share remain outstanding. These warrants expire on November
30, 1997.
As of the date of this Prospectus, the Company has outstanding options
granted under its Stock Option Plan and options granted outside of that Plan
to purchase an aggregate of 1,686,670 shares of the Company's Common Stock.
These options are exercisable at prices ranging from $0.60 to $3.84 per share.
TRANSFER AND WARRANT AGENT
American Securities Transfer, Inc., 1825 Lawrence Street, Suite 444,
Denver, Colorado 80202, serves as the Transfer Agent of the Company.
REPORTS TO STOCKHOLDERS
The Company plans to furnish its stockholders for each fiscal year with
an annual report containing financial statements audited by its independent
certified public accountants. Additionally, the Company may, in its sole
discretion, issue unaudited quarterly or other interim reports to its
stockholders when it deems appropriate.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock,
no par value. The Preferred Stock may be issued in series from time to time
with such designation, rights, preferences and limitations as the Board of
Directors of the Company may determine by resolution. The rights, preferences
and limitations of separate series of Preferred Stock may differ with respect
to such matters as may be determined by the Board of Directors, including,
without limitation, the rate of dividends, method and nature of payment of
dividends, terms of redemption, amounts payable on liquidation, sinking fund
provisions (if any), conversion rights (if any), and voting rights. The
potential exists, therefore, that preferred stock might be issued which would
grant dividend preferences and liquidation preferences to preferred
shareholders over common shareholders. Unless the nature of a particular
transaction and applicable statutes require such approval, the Board of
Directors has the authority to issue these shares without shareholder
approval. The issuance of Preferred Stock may have the affect of delaying or
-32-
<PAGE>
preventing a change in control of the Company without any further action by
shareholders.
The Company previously established Series A, Series B and Series C
Preferred Stock. However, these shares of preferred stock have now been
cancelled.
-34-
<PAGE>
PLAN OF DISTRIBUTION
RESALE OF COMMON STOCK
The 1,450,00 Shares offered hereby may be offered and sold from time to
time by the Selling Shareholders, or by pledgees, donees, transferees or other
successors in interest. Such offers and sales may be made from time to time
in the over-the-counter market, or otherwise, at prices and on terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. The Shares may be sold by one or more of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account; (c) an exchange distribution in accordance with the rules of such
exchanges; (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (e) privately negotiated transactions; and (f) a
combination of any such methods of sale. In effecting sales, brokers or
dealers engaged by the Selling Shareholders may arrange for other brokers or
dealers to participate. Brokers or dealers may receive commissions or
discounts from Selling Shareholders or from the purchasers in amounts to be
negotiated immediately prior to the sale. The Selling Shareholders may also
sell such shares in accordance with Rule 144 under the 1933 Act.
The Selling Shareholders and any brokers participating in such sales may
be deemed to be underwriters within the meaning of the 1933 Act. There can be
no assurance that the Selling Shareholders will sell any or all of the shares
of Common Stock offered hereunder.
All proceeds from such sales will be the property of the Selling
Shareholders who will bear the expense of underwriting discounts and selling
commissions, if any, and their own legal fees.
EXERCISE OF CLASS A AND CLASS B WARRANTS
The shares of the Company's Common Stock which may be purchased upon the
exercise of the outstanding Class A and Class B Warrants are being offered by
the Company on a "best efforts" basis. No commissions or fees will be paid to
anyone for the solicitation of the exercise of the Class A and Class B
Warrants.
Twelve Class A Warrants are exercisable to purchase one share of Common
Stock at a price of $1.80 per share until December 31, 1997, and twelve Class
B Warrants are exercisable to purchase one share of Common Stock at a price of
$3.00 per share until September 30, 1998.
Persons who wish to exercise their Class A and/or Class B Warrants must
deliver an executed Warrant with the form of Election to Purchase, duly
executed, accompanied with payment in check or money order payable to
Infinity, Inc. for the number of shares subscribed to American Securities
Transfer, Inc. (the "Warrant Agent"). All payments must be received by the
Warrant Agent prior to the termination of the exercise period, and Class A and
Class B Warrants not exercised prior to the termination of the exercise period
will expire. (See "DESCRIPTION OF SECURITIES.")
EXERCISE OF UNDERWRITERS' WARRANTS
The shares of the Company's Common Stock which may be purchased upon the
exercise of the outstanding Underwriters' Warrants are being offered by the
-35-
<PAGE>
Company on a "best efforts" basis. No commissions or fees will be paid to
anyone for the solicitation of the exercise of the Underwriters' Warrants.
Twelve Underwriters' Warrants are exercisable to purchase one share of Common
Stock at a price of $1.44 per share until December 31, 1997.
Persons who wish to exercise their Underwriters' Warrants must deliver an
executed Warrant with the form of Election to Purchase, duly executed,
accompanied with payment in check or money order payable to Infinity, Inc. for
the number of shares subscribed to the Company. All payments must be received
by the Company prior to the termination of the exercise period, and
Underwriters' Warrants not exercised prior to the termination of the exercise
period will expire.
LEGAL MATTERS
The legality of the securities of the Company offered will be passed on
for the Company by Krys Boyle Freedman Scott & Sawyer, P.C., 600 17th Street,
Suite 2700 South Tower, Denver, Colorado 80202.
EXPERTS
The financial statements of the Company included in this Prospectus, to
the extent and for the periods indicated in their report, have been audited by
Mayer Hoffman McCann L.C., Certified Public Accountants, and are included
herein in reliance on the authority of such firm as experts in accounting and
auditing in giving such reports.
-36-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Consolidated Balance Sheet as of June 30, 1997 (unaudited)
and March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Operations for the three months
ended June 30, 1997 and 1996 (unaudited) . . . . . . . . . . . . F-3
Consolidated Statements of Cash Flows for the three months
ended June 30, 1997 and 1996 (unaudited) . . . . . . . . . . . . F-4
Notes to Financial Statements (unaudited). . . . . . . . . . . . F-5
Independent Auditors' Report . . . . . . . . . . . . . . . . . . F-7
Consolidated Balance Sheets as of March 31, 1997 . . . . . . . . F-8
Consolidated Statements of Operations for the years ended
March 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . F-9
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1997 and 1996. . . . . . . . . . . . . . . F-10
Consolidated Statements of Cash Flows for the
years ended March 31, 1997 and 1996. . . . . . . . . . . . . . . F-11
Notes to Financial Statements. . . . . . . . . . . . . . . . . . F-13
-36-
<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
F-1
<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
RETAINED 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
F-2
<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)
----------- -----------
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
F-3
<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)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 243,612 175,136
----------- -----------
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
F-4
<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.
F-5
<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.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
INFINITY, INC.
We have audited the consolidated balance sheet of Infinity, Inc. and
Subsidiaries as of March 31, 1997 and the consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
March 31, 1997 and 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Infinity,
Inc. and Subsidiaries, as of March 31, 1997, and the results of their
operations and their cash flows for the years ended March 31, 1997 and 1996 in
conformity with generally accepted accounting principles.
/s/ Mayer Hoffman McCann L.C.
MAYER HOFFMAN MCCANN L.C.
Kansas City, Missouri
May 22, 1997, except for Note (17) for
which the date is May 28, 1997
F-7
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1997
A S S E T S
CURRENT ASSETS
Cash $ 52,725
Accounts receivable, less allowance for doubtful
accounts 400,274
Inventories 197,731
Other current assets 18,220
----------
TOTAL CURRENT ASSETS 668,950
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation 4,192,684
OIL AND GAS PROPERTIES NOT SUBJECT TO AMORTIZATION,
using the full cost method 2,638,126
INTANGIBLE ASSETS, at cost, less accumulated amortization 246,856
OTHER ASSETS 82,545
----------
TOTAL ASSETS $7,829,161
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable $ 988,026
Accrued expenses 303,386
Short-term borrowings 284,000
Current portion of long-term debt 318,643
Current portion of deferred revenue 60,000
----------
TOTAL CURRENT LIABILITIES 1,954,055
LONG-TERM LIABILITIES
Long-term debt, less current portion above 1,897,280
Notes payable, related party 309,968
Deferred revenue, less current portion above 167,936
----------
TOTAL LIABILITIES $4,329,239
S T O C K H O L D E R S' E Q U I T Y
CAPITAL CONTRIBUTED
Common stock, par value $.0001, authorized 300,000,000
shares issued and outstanding 9,860,564 shares $ 986
Additional paid-in-capital 7,927,855
----------
TOTAL CAPITAL CONTRIBUTED 7,928,841
RETAINED EARNINGS (DEFICIT) (4,428,919)
----------
TOTAL STOCKHOLDERS' EQUITY 3,499,922
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,829,161
See Notes to Financial Statements.
F-8
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31, 1997 and 1996
1997 1996
---------- ----------
NET SALES $5,035,338 $ 4,907,070
COST OF SALES 2,670,345 3,327,738
---------- -----------
GROSS PROFIT 2,364,993 1,579,332
OPERATING EXPENSES 2,082,713 3,017,850
---------- -----------
OPERATING INCOME (LOSS) 282,280 (1,438,518)
OTHER INCOME (EXPENSE)
Interest income and finance charges 7,405 9,541
Interest expense (135,419) (266,303)
Gain (loss) on disposal of assets 24,786 (131,159)
Rent income 40,795 --
---------- -----------
TOTAL OTHER INCOME (EXPENSE) (62,433) (387,921)
---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 219,847 (1,826,439)
INCOME TAXES -- --
---------- -----------
NET INCOME (LOSS) $ 219,847 $(1,826,439)
PER SHARE DATA
Net income (loss) $ 0.02 $ (0.23)
---------- -----------
Average shares outstanding 8,915,163 8,028,589
See Notes to Financial Statements
F-9
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL RETAINED TOTAL
SHARES PAID-IN EARNINGS STOCKHOLDERS'
ISSUED AMOUNT CAPITAL (DEFICIT) EQUITY
--------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, March 31,
1995 7,625,226 $ 763 $6,187,952 $(2,822,327) $ 3,366,388
Issuance of common
stock 1,106,169 110 927,516 -- 927,626
Net loss -- -- -- (1,826,439) (1,826,439)
--------- ----- ---------- ----------- -----------
Balance, March 31,
1996 8,731,395 873 7,115,468 (4,648,766) 2,467,575
Issuance of common
stock 1,129,169 113 812,387 -- 812,500
Net income -- -- -- 219,847 219,847
--------- ----- ---------- ----------- -----------
Balance, March 31,
1997 9,860,564 $ 986 $7,927,855 $(4,428,919) $ 3,499,922
</TABLE>
See Notes to Financial Statements.
F-10
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1997 and 1996
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 219,847 $(1,826,439)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Depreciation 599,079 587,753
Amortization 80,657 72,907
(Gain) loss on sale of property and
equipment (24,786) 131,159
Decrease (increase) in operating assets
Accounts receivable 65,864 (71,813)
Inventories 11,248 (47,911)
Equipment held for sale -- 294,252
Other current assets 5,665 14,860
Other non-current assets -- 3,887
Increase (decrease) in operating liabilities
Accounts payable 12,607 163,700
Accrued expenses (38,910) (5,686)
Deferred revenue (38,272) (29,809)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 892,989 (713,140)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment (259,423) (264,235)
Proceeds from sale of property and equipment 70,378 157,292
Investment in oil and gas properties (1,554,803) (616,755)
Investment in intangible assets (57,140) (25,474)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,800,988) (749,172)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of related party advances -- (28,632)
Proceeds from issuance of common stock 812,500 537,626
Net change in short-term borrowings 284,000 --
Proceeds from long-term debt -- 2,500,000
Repayment of long-term debt (319,178) (1,593,563)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 777,322 1,415,431
----------- -----------
NET DECREASE IN CASH (130,677) (46,881)
CASH, BEGINNING OF YEAR 183,402 230,283
----------- -----------
CASH, END OF YEAR $ 52,725 $ 183,402
See Notes to Financial Statements.
F-11
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1997 and 1996
(Continued)
1997 1996
----------- -----------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest, net of amounts
capitalized $ 104,942 $ 340,278
Noncash investing and financing
activities:
Notes payable issued in exchange for
property and equipment $ -- $ 121,721
Common stock issued in payment of
accrued expenses $ -- $ 390,000
Note payable assumed by lessee of
water treatment facilities $ 14,870 $ --
Equity investment in unconsolidated
subsidiary $ 82,545 $ --
Investment in oil and gas properties
through trade accounts payable $ 461,255 $ 82,681
See Notes to Financial Statements.
F-12
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) Summary of significant accounting policies
Nature of operations - The Company and its subsidiaries are engaged in
providing waste water treatment services, oil and gas production enhancement
services and oil and gas exploration, development and production activities.
The consolidated financial statements include the accounts of Infinity, Inc.
and its majority owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Revenue producing activities are conducted primarily in Kansas, Oklahoma,
Wyoming and Colorado. The Company grants credit to all qualified customers
which potentially subjects the Company to credit risk resulting from, among
other factors, adverse changes in the industries in which the Company operates
and the financial condition of its customers. However, management regularly
monitors its credit relationships and provides adequate allowances for
potential losses.
Revenue recognition - Generally, sales are recognized when products are
delivered or services are rendered.
Environmental costs - The Company expenses, on a current basis, recurring
costs associated with managing hazardous substances and pollution in ongoing
operations. The Company also accrues for costs associated with the remediation
of environmental pollution when it becomes probable that a liability has been
incurred and its proportionate share of the amount can be reasonably
estimated.
Management estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Estimates that may be particularly sensitive to changes in the near term
relate to the determination of oil and gas reserve quantities used for
purposes of depreciating and depleting costs associated with the development
of oil and gas properties. While management uses available information and
techniques to estimate oil and gas reserve quantities, inherent uncertainties
in, and the limited nature of, the data base upon which the estimates are
based may cause these estimates to change materially in the near term.
Inventory valuation - Inventories, consisting primarily of cement mix, sand,
fuel and chemicals, are stated at the lower of cost or market. Cost has been
determined on the first-in, first-out method. Market is based upon realizable
value less allowance for selling and distribution expenses and normal gross
profit.
Oil and gas properties - The Company follows the full cost method of
accounting for oil and gas properties. Accordingly, all costs associated with
acquisition, exploration and development of oil and gas reserves, including
directly related overhead costs, are capitalized.
F-13
<PAGE>
All capitalized costs of oil and gas properties are to be amortized on the
unit-of-production method using estimates of proved reserves. Investments in
unproved properties and major development projects are not amortized until
proved reserves associated with the projects can be determined or until
impairment occurs. If the results of an assessment indicate that the
properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized.
In addition, the capitalized costs are subject to a "ceiling test," which
limits such costs to the aggregate of the "estimated present value,"
discounted at a 10-percent interest rate of future net revenues from proved
reserves, based on current economic and operating conditions, plus the lower
of cost or fair market value of unproved properties.
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments
would significantly alter the relationship between capitalized costs and
proved reserves of oil and gas, in which case the gain or loss is recognized
in income. Abandonments of properties are accounted for as adjustments of
capitalized costs with no loss recognized.
Capitalized interest - The Company capitalizes interest on expenditures made
in connection with exploration and development projects that are not subject
to current amortization. Interest is capitalized only for the period that
activities are in progress to bring these projects to their intended use.
Total interest incurred for the years ended March 31, 1997 and 1996 was
$272,869 and $266,303, respectively. Interest costs capitalized was $137,450
and $ 0, respectively.
Depreciation and amortization - Depreciation and amortization are computed
using the straight-line method over the following estimated useful lives:
Assets Useful Lives
------ ------------
Site improvements 15 years
Machinery, equipment and vehicles 5 - 10 years
Office furniture and equipment 5 - 10 years
Technical data and rights 5 years
Organization and merger costs 5 years
Non-compete agreement 5 years
Loan costs Loan term
Goodwill 20 years
Intangible assets - Technical data and rights consist of certain legal fees
incurred in connection with the Company's "Thin Film Electrocoagulation"
technology to be used in the treatment of waste water, and "Chiller Loop"
technology to be used in the food processing industry. The carrying values of
these assets are periodically reviewed by the Company and impairments are
recognized when the expected future operating cash flows derived from such
intangible assets is less than their carrying value.
Organization and merger costs consist of costs incurred in connection with
acquisitions accounted for as a purchase. Costs incurred in connection with
acquisitions accounted for as pooling-of-interests have been expensed.
F-14
<PAGE>
Public offering costs - Costs and expenses incurred in connection with a
public offering of securities are deferred until the offering is complete, at
which time, such costs are charged against the proceeds of the offering as a
reduction of stockholders' equity. Costs incurred in connection with failed
public offerings are charged to operations.
Deferred revenue - Deferred revenue represents credits for future oil well
services granted to a stockholder of the Company in connection with an
acquisition. Revenues from these services are recognized when the services
are performed. The credits are scheduled to expire in March 1999 if not used
prior to that date.
Research and development costs - Research and development costs incurred in
connection with the Company's development of environmental control products
and services are expensed as incurred. Research and development expense
totaled $ 0 and $51,152 for the years ended March 31, 1997 and 1996,
respectively.
Per share information - The computation of income (loss) per share in each
year is based on the weighted average number of common shares outstanding.
Common stock equivalents are not included in the computation because their
inclusion would be anti-dilutive.
Cash - For purposes of reporting cash flows, cash generally consists of cash
on hand and demand deposits with financial institutions.
Reclassifications - Certain reclassifications have been made to the 1996
financial statements to conform with the 1997 presentation.
(2) Accounting changes
Accounting for impairment of long-lived assets - The Financial Accounting
Standards Board issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets." This Statement, which was effective for the Company on
April 1, 1996, established accounting standards for the impairment of
long-lived assets, certain intangibles, and goodwill related to those assets.
This Statement did not have a material effect on the consolidated financial
statements.
Accounting for stock-based compensation - Effective for the Company on April
1, 1996, SFAS No. 123, "Accounting for Stock-Based Compensation," requires
increased disclosure of compensation expense arising from both fixed and
performance stock compensation plans. Compensation is measured as the fair
value of the award at the date it is granted using an option-pricing model
that takes into account the exercise price and expected term of the option,
the current price of the underlying stock, its expected volatility, expected
dividends on the stock and the expected risk-free rate of return during the
term of the option. The compensation cost is recognized over the service
period, usually the period from the grant date to the vesting date. SFAS No.
123 encourages, rather than requires, companies to adopt a new method that
accounts for stock compensation awards based on their estimated fair value at
the date they are granted. Companies are permitted, however, to continue
accounting under APB Opinion 25, which requires compensation cost for
stock-based employee compensation plans be recognized based on the difference,
if any, between the quoted market price of the stock and the amount an
employee must pay to acquire the stock. The Company continues to apply APB
Opinion No. 25 in its financial statements and discloses proforma net income
and earnings per share in a footnote to the financial statements, determined
as if the Company applied the new method.
F-15
<PAGE>
(3) Property and equipment
Cost
Site improvements $ 2,100,217
Machinery, equipment and vehicles 3,697,915
Office furniture and equipment 102,204
-----------
Total cost 5,900,336
Accumulated depreciation (1,707,652)
-----------
Net property and equipment $ 4,192,684
The cost of property and equipment leased to others under operating leases at
March 31, 1997 totaled $1,318,569. Accumulated depreciation on such equipment
was $297,453 at March 31, 1997.
(4) Oil and gas properties not subject to amortization
The Company is currently conducting gas exploration and development activities
on acreage in Southeastern Colorado. At March 31, 1997, the Company had not
generated revenue from its gas producing properties proved reserves.
Consequently, the related acquisition and development costs are not subject to
amortization. The Company will begin to amortize these costs when oil and gas
production begins, which is currently estimated to be during the year ending
March 31, 1998. Costs incurred in connection with the Company's oil and gas
activities at March 31, 1997 consist of the following:
Acquisition costs $ 150,000
Development costs 2,350,676
Capitalized interest 137,450
----------
Total $2,638,126
The lease agreement requires certain drilling activity to retain the Company's
interest in the lease. The Company is committed to drill ten wells before
December 31, 1997 and ten additional wells during each of the subsequent three
years to earn the right to develop the entire acreage. As of March 31, 1997,
twenty production wells had been drilled.
Recovery of the above acquisition and development costs is dependent on a
variety of factors, including actual production results and market conditions.
(5) Intangible assets
Cost
Technical data and rights $ 67,919
Organization and merger costs 74,603
Non-compete agreement 300,000
Loan costs 28,532
Goodwill 25,000
----------
Total cost 496,054
Accumulated amortization (249,198)
----------
Net intangible assets $ 246,856
F-16
<PAGE>
(6) Other assets
At March 31, 1996 the Company owned a 55% equity interest in Infinity Oil and
Gas, Inc. (IOG) which is engaged in the exploration and development of oil and
gas properties. During the year ended March 31, 1997, the Company exchanged
45% of its equity interest in IOG for a 12%, $50,000 note receivable. Monthly
interest payments are to begin February 15, 1998 with the face amount due at
maturity, February 2000.
The Company's remaining 10% equity interest in IOG is valued on the cost basis
which approximates fair value. The Company's equity interest and note
receivable are included in other assets on the accompanying balance sheet as
follows:
Note receivable $ 50,000
10% Equity investment 32,545
----------
Total other assets $ 82,545
(7) Short-term borrowings
At March 31, 1997, the Company's subsidiary, Consolidated Industrial Services,
Inc. (CIS), had a $300,000 line of credit available which expires August
1997. The line of credit is collateralized by accounts receivable and certain
equipment with interest at 2% above the lender's corporate base rate.
(8) Long-term debt
10% note; payable in monthly installments
of $41,503 until maturity, June 1998; col-
lateralized by substantially all of the
assets of the Company's wholly owned sub-
sidiary, Consolidated Industrial Services,
Inc. The loan agreement contains, among other
items, certain restrictive covenants with
respect to dividends, acquisitions and capital
expenditures. In connection with the loan
agreement, the Company issued a warrant to the
lender to purchase up to 1,250,000 shares of the
Company's common stock at $2.00 per share. The
warrant expires 90 days after payment of all
principal and interest due on the note. $ 2,171,200
9.5% fixed rate note, payable in monthly in-
stallments of principal and interest until
maturity, January 2001; collateralized by a
company vehicle. 26,181
3% fixed rate note, payable to the Federal
Highway Administration in settlement of
Company violations of Department of
Transportation regulations; payable in monthly
installments of $3,116, including interest,
through maturity, September 1997. 18,542
-----------
Total long-term debt 2,215,923
Less: Current portion (318,643)
Non-current portion $ 1,897,280
-----------
F-17
<PAGE>
Maturities for long-term debt are as follows:
Years Ending March 31, Total
1998 $ 318,643
1999 1,883,577
2000 7,180
2001 6,523
-----------
Total long-term debt $ 2,215,923
(9) Operating Leases
The Company leases operating facilities under operating leases. The future
minimum rental payments required under operating leases that have initial or
remaining noncancellable lease terms in excess of one year are as follows:
Years Ending March 31, Total
1998 $ 54,408
1999 54,708
2000 56,508
2001 51,540
2002 29,400
Later Years 40,500
-----------
Total $ 287,064
Total rent expense for all operating leases was $63,329 and $103,388 for the
years ended March 31, 1997 and 1996, respectively.
The Company is a lessor of its water treatment facilities under an operating
lease which expires in 2001 with options to extend for additional two and
seven year periods. Additionally, the lessee has the right to exercise a
purchase option at the end of the initial five year period or at the end of
each of the two extension periods. Minimum rentals receivable under existing
leases as of March 31, 1997 are as follows:
Years Ending March 31, Total
1998 $ 66,667
1999 80,000
2000 80,000
2001 80,000
2002 60,000
-----------
Total $ 366,667
Total rental income was $40,795 and $ 0 for the years ended March 31, 1997 and
1996, respectively.
F-18
<PAGE>
(10) Common stock
Warrants - The Company, in conjunction with a 1988 public stock offering,
issued Class A, Class B and underwriter warrants to purchase 851,834 shares of
Infinity common stock. Under the terms of the warrant agreements, the Class A
warrants are subject to redemption by the Company, upon thirty days notice, at
a price of $.01 per warrant. The Class B warrants are subject to redemption by
the Company, upon thirty days notice, at a price of $.02 per warrant. The
Class A and B warrants expire September 30, 1997 and the underwriter warrants
expire September 22, 1997.
The Company issued warrants in conjunction with the 1995 10% financing (see
Note (8)), to purchase 1,250,000 shares of common stock (Seymour warrants).
The warrants expire 90 days after payment of all principal and interest due on
the 10% note.
The Company issued Class C warrants to purchase 766,668 shares of Infinity
common stock in conjunction with stock issuances during the year ended March
31, 1996. During the year ended March 31, 1997 725,001 warrants were
exercised. The remaining warrants expire on November 30, 1997.
During the year ended March 31, 1997 the Company issued warrants to purchase
900,000 shares of Infinity common stock (1997 warrants). The warrants expire
August 1, 2001.
At March 31, 1997, the following warrants were outstanding.
Number Number Exercise
Class of Warrants of Shares Price
----- ----------- --------- --------
A 4,868,000 405,667 $ 1.80
B 4,868,000 405,667 $ 3.00
C 41,667 41,667 $ 0.60
Underwriters warrants 486,000 40,500 $ 1.44
Seymour warrants 1,250,000 1,250,000 $ 2.00
1997 warrants 900,000 900,000 $ 0.88
Options - In 1992, the Company adopted a stock option plan containing both
incentive and nonstatutory stock options. All options allow for the purchase
of common stock at prices not less than the fair market value of such stock at
the date of grant. The option price under the incentive stock option
provisions of the plan if the optionee owns more than 10% of the total
combined voting power of all classes of the Company's stock will not be less
than 110% of the fair market value of such stock at the date of grant.
Options granted under the plan become exercisable immediately or as directed
by the Board of Directors and generally expire ten years after the date of
grant, unless the employee owns more than 10% of the total combined voting
power of all classes of the Company's stock, in which case they must be
exercised within five years of the date of grant. Pursuant to the plan, an
aggregate of 833,333 shares of common stock is available for issuance upon the
exercise of such options. At March 31, 1997, options to purchase 4,990 shares
were available for grant under the plan. A summary of stock option activity
is as follows:
F-19
<PAGE>
Weighted
Number of Option Price Average Price
Shares Per Share Per Share
----------- ------------ -------------
Outstanding, March 31, 1995 691,680 $0.60-$7.00 $ 2.19
Granted 1,300,000 0.85- 2.00 1.96
Canceled (16,666) 7.00 7.00
Exercised (137,507) 0.60- 1.20 0.78
--------- ----------- ------
Outstanding, March 31, 1996 1,837,507 $0.60-$6.00 $ 2.09
Granted 420,000 0.94- 1.31 1.13
Canceled (166,670) 1.20- 6.00 3.60
Exercised (404,167) 0.60- 2.00 1.46
--------- ----------- ------
Outstanding, March 31, 1997 1,686,670 $0.66-$3.84 $ 1.85
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 3/31/97 Life Price at 3/31/97 Price
- ---------- ----------- ----------- -------- ----------- --------
$2.88 8,334 1 year $ 2.88 8,334 $ 2.88
0.66-3.84 1,208,336 2 years 1.96 1,208,336 1.96
0.85-2.00 250,000 4 years 1.77 205,000 1.97
1.31 220,000 5 years 1.31 55,000 1.31
--------- ---------
1,686,670 1,476,670
The Company applies Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plan. Accordingly, no compensation cost has been recognized for the stock
option plan. Had compensation costs for the Company's plan been determined
based upon the fair value at the grant date for awards under the plan
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net income (loss) and earning (loss) per share would have been
respectively, $833 and $ 0 for the year ended March 31, 1997 and ($1,955,733)
and $(0.24) for the year ended March 31, 1996.
For options granted during the year ended March 31, 1997, the estimated fair
value of the options granted utilizing the Black-Scholes pricing model under
the Company's plan was based on a weighted average risk-free interest rate of
6.75%, expected option life of 3.68 years, expected volatility of 48.25% and
no expected dividend yield. For options granted during the year ended March
31, 1996, the estimated fair value of options granted under the Company's plan
was based on a weighted average risk-free interest rate of 6.03%, expected
option life of 4.38 years, expected volatility of 57.19% and no expected
dividend yield.
Employee stock bonus plan - The Company may award shares of common stock to
employees at the discretion of the Board of Directors. Pursuant to the plan,
an aggregate of 50,000 shares of common stock were initially available for
issuance. As of March 31, 1997, 40,000 shares of common stock were available
for issuance to employees.
F-20
<PAGE>
(11) Income taxes
The provision for income taxes for the years ended March 31, 1997 and 1996
consists of the following:
1997 1996
---------- ----------
Current income tax expense $ -- $ --
Deferred income tax expense (benefit) 85,409 (623,230)
Change in deferred tax asset valuation
allowance (85,409) 623,230
-------- ---------
Total income taxes $ -- $ --
The effective income tax rate varies from the statutory federal income tax
rate as follows:
1997 1996
---------- ----------
Federal income tax rate 34% 34%
Net operating losses for which no
tax benefit is currently available (34%) (34%)
--- ---
Effective tax rate --% --%
The significant temporary differences and carryforwards and their related
deferred tax asset (liability) and deferred tax asset valuation allowance
balances as of March 31, 1997 are as follows:
Deferred tax
Accounts receivable $ 30,517
Net operating loss carryforward 2,379,206
----------
Gross deferred tax debits 2,409,723
Deferred tax credits:
Property and equipment (463,609)
Intangible drilling costs (426,445)
----------
Gross deferred tax credits (890,054)
----------
Deferred tax asset valuation allowance (1,519,669)
----------
Total deferred taxes $ --
No deferred income taxes have been recognized in the accompanying financial
statements due to uncertainties in connection with the realization of the
potential tax benefits associated with the net operating loss carryforwards.
For Federal income tax purposes, the Company has tax carryforwards expiring
in the following manner:
F-21
<PAGE>
Net operating
losses expiring
March 31,
---------------
2004 $ 48,737
2005 36,931
2006 111,341
2007 20,382
2008 331,374
2009 852,463
2010 2,193,217
2011 2,225,708
2012 1,177,511
----------
Total $6,997,664
The availability of the net operating loss carryforwards for Federal income
tax purposes may be limited pursuant to provisions of the Internal Revenue
Code as amended by the Tax Reform Act of 1986. The potential limitation is
dependent on changes in stock ownership while a net operating loss exists, the
fair market value of the Company's stock at the date of stock ownership
changes and certain other factors.
(12) Retirement plan
The Company's wholly-owned subsidiary, Consolidated Industrial Services, Inc.,
has a 401(k) plan covering substantially all of its employees. There were no
Company contributions made to the plan during the years ended March 31, 1997
and 1996.
(13) Related party transactions
The Company had unsecured notes payable to an officer and stockholder of the
Company totaling $309,968 at March 31, 1997 and 1996, respectively. The notes
bear interest at 9% and are due June 1998; however, the notes are subordinated
to the 10% note described in Note (8). Interest expense of $27,897 was
recognized on these notes during the years ended March 31, 1997 and 1996,
respectively.
Consolidated Oil Well Services, Inc. (COWS) is owned by a minority stockholder
of Infinity, Inc. In connection with the Company's acquisition of COWS assets
in 1994, the Company is obligated to provide certain oil well services to this
stockholder. During the years ended March 31, 1997 and 1996, the fair value
of such services provided to the stockholder was $35,507 and $29,809,
respectively.
The Company leases certain real estate from COWS. The related amount charged
to operations for the years ended March 31, 1997 and 1996 was $42,408 and
$42,408, respectively.
(14) Industry segments
The Company's operations have been classified into three industry segments:
(I) Oil Field Services which includes operations in Kansas, Oklahoma and
Colorado directed at maintaining and enhancing production obtained from oil
and gas wells; (ii) Oil and Gas Production which includes exploration,
development and production of oil and gas reserves in Colorado; and (iii)
Environmental
F-22
<PAGE>
Technology which includes development and application of wastewater treatment
technologies including "electrocoagulation" and "chiller loop" technologies
and disposal of solid waste byproducts. Operations are conducted primarily
in Wyoming and Kansas. Operating income (loss) represents net sales less
direct costs and operating expenses before interest and finance charges.
Identifiable assets consist of assets specifically used in the operations of
each industry segment. Information concerning the Company's industry segments
in fiscal 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Environ-
Oil Field Oil & Gas mental
Services Production Technology Corporate Consolidated
--------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net Sales
1997 $4,688,793 $ - $ 346,545 $ - $ 5,035,338
1996 3,814,456 - 1,092,614 - 4,907,070
Operating Income
(Loss)
1997 692,780 - (136,209) (274,291) 282,280
1996 49,330 (100,604) (951,797) (435,447) (1,438,518)
Identifiable
Assets, Net
1997 3,878,901 2,771,718 1,144,982 33,560 7,829,161
1996 4,389,490 718,319 1,245,749 96,624 6,450,178
Capital
Expenditures
1997 256,695 2,007,697 2,728 - 2,267,120
1996 249,290 704,936 125,321 5,845 1,085,392
Depreciation and
Amortization
1997 496,147 - 171,500 12,089 679,736
1996 490,517 1,125 157,539 11,479 660,660
</TABLE>
15) Significant customers
During the year ended March 31, 1997, the Company provided services to Stroud
Oil Properties resulting in revenues of $646,488 which represents 13% of the
Company's net sales. Receivables outstanding from these sales were not
material at March 31, 1997. There were no significant concentrations of sales
to customers for the year ended March 31, 1996.
(16) Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure about the fair value of
financial instruments for which it is practicable to estimate fair value. The
following assumptions were used to estimating the fair value of the Company's
financial instruments.
The carrying amount of the Company's cash balances represent fair value as of
March 31, 1997. The fair value of the Company's long-term debt is estimated
based on the present value of estimated future cash flows using a discount
rate commensurate with the risks involved. However, the estimated fair value
was not materially different from the carrying amount at March 31, 1997.
F-23
<PAGE>
It was not practicable to estimate the fair value of the Company's related
party notes payable due to the lack of adequate "market" information with
which to base estimates of fair value for this financial instrument.
Information regarding the carrying amount, interest rate, repayment terms and
maturity is included in footnote (13).
(17) Subsequent event
On May 28, 1997, the Company raised $450,000 of equity through the sale of its
stock in a private offering to three investors.
F-24
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION (UNAUDITED)
Year Ended March 31, 1997
Capitalized Costs Relating to Oil and
Gas Producing Activities at March 31, 1997
Unproved oil and gas properties $ -
Proved oil and gas properties 1,914,860
Support equipment and facilities 723,266
----------
Total Capitalized Costs 2,638,126
Less accumulated depreciation, depletion and
amortization -
----------
Net capitalized costs $2,638,126
Costs Incurred in Oil and Gas Producing
Activities for the Year Ended March 31, 1997
Property acquisition costs
Proved $ -
Unproved -
Exploration costs -
Development costs 2,007,697
Results of Operations for Oil and
Gas Producing Activities for the
Year Ended March 31, 1997
The Company is currently conducting oil and gas exploration and development
activities in Southeastern Colorado. At March 31, 1997, the Company had not
commenced production from its oil and gas properties.
Reserve information
The following estimates of proved and proved developed reserve quantities and
related standardized measures of discounted net cash flow are estimates only,
and do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are
inherently imprecise. Accordingly, these estimates are expected to change as
future information becomes available. All of the Company's reserves are
located in the United States.
Proved reserves are estimated reserves of methane gas that geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those expected to be recovered
through existing wells, equipment, and operating methods.
F-25
<PAGE>
The standardized measure of discounted future net cash flows is computed by
applying year-end prices (with consideration of price changes only to the
extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the
proved reserves, less estimated future income tax expenses (based on year-end
statutory tax rates, with consideration for future tax rates already
legislated) to be incurred on pretax net cash flows less tax basis of the
properties and available credits, and assuming continuation of existing
economic conditions. The estimated future net cash flows are then discounted
using a rate of 10 percent a year to reflect the estimated timing of the
future cash flows.
Proved Developed and Undeveloped Reserves Gas (MMCF)
Beginning of year 4,409.526
Revisions of previous estimates 11,114.021
Extensions and discoveries 18,400.518
Production -
-----------
End of year 33,924.065
Proved Developed Reserves
Beginning of year 4,409.526
End of year 19,199.035
Standardized Measure of Discounted
Future Net Cash Flows at March 31, 1997
Future cash inflows $ 54,956,992
Future production costs including production
taxes (24,177,147)
Future development costs (1,860,000)
-----------
Future Net Cash Flows 28,919,845
10% annual discount for estimated timing of
cash flows (17,043,643)
-----------
Standardized Measures of Discounted
Future Net Cash Flows Relating to
Proved Oil and Gas Reserves $ 11,876,202
F-26
<PAGE>
The following reconciles the change in the standardized measure of discounted
future net cash flow during the year ended March 31, 1997:
Beginning of year $ 3,275,970
Sales of gas produced, net of production costs -
Net changes in prices and production costs (929,112)
Extensions, discoveries, and improved recovery,
less related costs 16,475,861
Development costs incurred during the year
which were previously estimated 160,000
Net change in estimated future development costs (1,850,000)
Revisions of previous quantity estimates 10,312,310
Net change from purchases and sales of minerals
in place -
Accretion of discount (15,568,827)
Net change in income taxes -
Other -
-----------
End of year $11,876,202
F-27
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other
arrangement under which any controlling person, Director or Officer of the
Company is insured or indemnified in any manner against any liability which he
may incur in his capacity as such, is as follows:
(a) The Company has the power under the Colorado Business Corporation
Act to indemnify any person who was or is a party or is threatened to be made
a party to any action, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a Director,
Officer, employee, fiduciary, or agent of the Company or was serving at its
request in a similar capacity for another entity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection therewith if he acted in good faith
and in a manner he reasonably believed to be in the best interest of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In case of an action
brought by or in the right of the Company such persons are similarly entitled
to indemnification if they acted in good faith and in a manner reasonably
believed to be in the best interests of the Company but no indemnification
shall be made if such person was adjudged to be liable to the Company for
negligence or misconduct in the performance of his duty to the Company unless
and to the extent the court in which such action or suit was brought
determines upon application that despite the adjudication of liability, in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnification. In such event, indemnification is limited to
reasonable expenses. Such indemnification is not deemed exclusive of any
other rights to which those indemnified may be entitled under the Articles of
Incorporation, Bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise.
(b) The Articles of Incorporation and Bylaws of the Company generally
allow indemnification of Officers and Directors to the fullest extent allowed
by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by
the Company, are as follows:
SEC Filing Fee ................................ $ 1,016.10
Printing Expenses ............................. 2,500.00
Accounting Fees and Expenses .................. 2,500.00
Legal Fees and Expenses ....................... 5,000.00
Blue Sky Fees and Expenses .................... 2,500.00
Miscellaneous ................................. 1,483.90
Total .................................... $15,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During its past three fiscal years, the Registrant issued securities
which were not registered under the Securities Act of 1933, as amended (the
"Act"), as follows.
II-1
<PAGE>
In July 1994, the Company sold an aggregate of 400,000 shares of Common
Stock in offshore transactions, as defined in Rule 902(i) of Regulation S, to
two foreign investors for a total of $400,000 in cash. In connection with
such sales, the Company complied with the requirements of Rule 903 of
Regulation S in that all sales were made in offshore transactions, no directed
selling efforts were made in the United States, the Company is a reporting
issuer, offering restrictions were implemented, offers and sales were not made
to any U.S. persons or for the account or benefit of any U.S. persons, and
40-day restricted periods were implemented.
From December 1994 through March 1995, the Company sold an aggregate of
358,000 shares of Common Stock to 19 sophisticated investors in a private
offering pursuant to Rule 506 of Regulation D under the Securities Act of
1933, as amended. The Company had reasonable grounds to believe that these
persons (1) were acquiring the shares for investment and not with a view to
distribution, and (2) had such knowledge and experience in financial and
business matters that they were capable of evaluating the merits and risks of
their investment and were able to bear those risks. Such persons had access
to pertinent information enabling them to ask informed questions. An
appropriate restrictive legend is noted on the certificates representing such
shares, and stop-transfer instructions have been noted in the Company's
transfer records.
In February 1995, the Company sold 260,000 shares of Common Stock in an
offshore transaction, as defined in Rule 902(i) of Regulation S, to one
foreign investor for a total of $260,000 in cash. In connection with such
sale, the Company also issued an aggregate of 32,000 shares of Common Stock to
one foreign investor as a finder's fee in an offshore transaction for services
valued at $32,000. In connection with such sales, the Company complied with
the requirements of Rule 903 of Regulation S in that all sales were made in
offshore transaction, no directed selling efforts were made in the United
States, the Company is a reporting issuer, offering restrictions were
implemented, offers and sales were not made to any U.S. persons or for the
account or benefit of any U.S. persons, and 40-day restricted periods were
implemented.
On March 29, 1995, the Company granted an option to purchase 100,000
shares of Common Stock at $1.50 per share through March 29, 1998, to Mark
Depew, a consultant to the Company, pursuant to the terms of a consulting
agreement with him.
On April 24, 1995, the Company issued an aggregate of 202,000 shares of
Common Stock to three persons for services valued at an aggregate of
$386,200. The Company also granted these persons options to purchase an
aggregate of 800,000 shares of Common Stock at $2.00 per share. (See
"TRANSACTIONS WITH MANAGEMENT AND OTHERS.")
In June 1995, the Company issued 41,667 shares of its Common Stock to Joe
Conner for $20,000 in cash upon the exercise of a stock option.
The sales described above were made in reliance on the exemption from
registration offered by Section 4(2) of the Securities Act of 1933. The
Company had reasonable grounds to believe that these persons (1) were
acquiring the shares for investment and not with a view to distribution, and
(2) had such knowledge and experience in financial and business matters that
they were capable of evaluating the merits and risks of their investment and
were able to bear those risks. Such persons had access to pertinent
information enabling them to ask informed questions. An appropriate
II-2
<PAGE>
restrictive legend is noted on the certificates representing such shares, and
stop-transfer instructions have been noted in the Company's transfer records.
During January and February 1996, the Company sold, in a private
offering, 766,666 Units, each Unit consisting of one share of Common Stock and
one warrant to purchase one share of Common Stock, at an offering price of
$.60 per Unit, for an aggregate of $460,000 in cash. Of the Units sold in
this offering, 200,000 Units were sold to Irving Strickstein who is beneficial
owner of over 5% of the Company's Common Stock. The remaining 566,668 Units
were sold to six foreign investors.
With regard to the sale to Mr. Strickstein, the Company relied on Section
4(2) of the Securities Act of 1933, as amended. The Units were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Company.
With regard to the sales made to foreign investors, the Company complied
with the requirements of Rule 903 of Regulation S in that all sales were made
in offshore transactions, no directed selling efforts were made in the United
States, the Company is a reporting issuer, offering restrictions were
implemented, offers and sales were not made to any U.S. persons or for the
account or benefit of any U.S. persons, and 40-day restricted periods were
implemented.
From August 1996 though October 1996, the Company sold an aggregate of
341,667 shares of its Common Stock to three foreign investors upon the
exercise of warrants at an exercise price of $.60 per share, for an aggregate
of $205,000 in cash. In connection with such sales, the Company complied with
the requirements of Rule 903 of Regulation S in that all sales were made in
offshore transactions, no directed selling efforts were made in the United
States, the Company is a reporting issuer, offering restrictions were
implemented, offers and sales were not made to any U.S. persons or for the
account or benefit of any U.S. persons, and 40-day restriction periods were
implemented.
In October 1996, the Company issued 200,000 shares of its Common Stock to
a sophisticated investor upon the exercise of an option, for a total of
$187,500 in cash. In connection with these issuances, the Company relied on
Section 4(2) of the Securities Act of 1933, as amended. The shares were
offered for investment only and not for the purpose of sale or distribution,
and the transfer thereof was appropriately restricted by the Company.
In January 1997, the Company sold 183,334 shares of its Common Stock to
two foreign investors pursuant to Regulation S under the Securities Act of
1933, as amended. The sales were made upon the exercise of warrants held by
these investors at an exercise price of $.60 per share for an aggregate of
$110,000 in cash. In connection with such sale, the Company complied with the
requirements of Rule 903 of Regulation S in that all sales were made in
offshore transactions, no directed selling efforts were made in the United
States, the Company is a reporting issuer, offering restrictions were
implemented, offers and sales were not made to any U.S. persons or for the
account or benefit of any U.S. persons, and 40-day restricted periods were
implemented.
In March 1997, the Company issued 200,000 shares of its Common Stock to
Irving Strickstein, a beneficial owner of over 5% of the Company's Common
Stock, upon the exercise of an option, for a total of $120,000 in cash. In
connection with this sale, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended. The shares were offered for investment
II-3
<PAGE>
only and not for the purpose of resale or distribution, and the transfer
thereof was appropriately restricted by the Company.
In May 1997, the Company sold 300,000 shares of its Common Stock to three
accredited investors at $1.50 per share for an aggregate of $450,000 in cash.
In August 1997, the Company sold an additional 50,000 shares to two accredited
investors at $1.84375 per share for an aggregate of $92,187.50 in cash. In
connection with these sales, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The
shares were offered for investment purposes only and not for the purpose of
resale or distribution and the transfer of the shares was restricted by the
Company. The Company filed a Form D with the Securities and Exchange
Commission with respect to this offering.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
3 Articles of Incorporation Incorporated by reference to
and Bylaws Exhibit No. 3 to the Registrant's
Form S-18 Registration Statement
(No. 33-17416-D)
3.1 Articles of Amendment to Incorporated by reference to
Articles of Incorporation Exhibit No. 3.1 to the Registrant's
Annual Report on Form 10-K for
the fiscal year ended March 31,
1992 (File No. 33-17416-D)
5 Opinion of Krys Boyle Filed herewith electronically
Freedman Scott & Sawyer,
P.C. regarding the legality
of the securities being
registered
10.1 Stock Option Plan Incorporated by reference to
Exhibit No. 10.1 to the Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1992
(File No. 33-17416-D)
10.2 Agreement Concerning the Incorporated by reference to
Exchange of Common Stock Exhibit No. 10 to Registrant's
Report on Form 8-K dated March
10, 1992 (File No. 33-17416-D)
10.4 Employment Agreement Incorporated by reference to
with Stanton E. Ross Exhibit No. 10.4 to the Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1992
(File No. 33-17416-D)
II-4
<PAGE>
10.5 Settlement Agreement Incorporated by reference to
and Mutual Release Exhibit No. 10.5 to the Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1992
(File No. 33-17416-D)
10.6 Asset Purchase Agreement Incorporated by reference to
dated January 7, 1994, Registrant's Current Report on
among Infinity, Inc., Con- Form 8-K dated January 21, 1994
solidated Industrial Ser- (File No. 0-17204)
vices, Inc., Consolidated
Oil Well Services,
Inc. and Edsel E. Noland
10.7 Employment Agreement with Incorporated by reference to
Thomas G. Holzbaur Exhibit 10.7 to the Registrant's
Annual Report on Form 10-KSB
for the fiscal year ended March 31,
1994 (File No. 0-17204)
10.8 Employment Agreement with Incorporated by reference to
Maitland DuBois Exhibit 10.8 to the Registrant's
Annual Report on Form 10-KSB for
the fiscal year ended March 31,
1994 (File No. 0-17204)
10.9 Agreement Concerning the Incorporated by reference to
Exchange of Common Stock Registrant's Current Report on
with L.D.C. Food Systems, Form 8-K dated December 15, 1993
Inc., et al. (File No. 0-17204)
10.10 Employment Agreement with Incorporated by reference to
Louis D. Caracciolo, Jr. Registrant's Current Report on
Form 8-K dated December 15, 1993
(File No. 0-17204)
10.11 Sublease Agreement on Incorporated by reference to
Lenexa, Kansas facility Exhibit 10.11 to the Registrant's
Annual Report on Form 10-KSB for
the fiscal year ended March 31,
1994 (File No. 0-17204)
10.12 Loan Agreement dated May 25, Incorporated by reference to
1995, between the Company Exhibit 10.1 to Registrant's
and Seymour, Inc. Current Report on Form 8-K dated
May 31, 1995 (File No. 0-17204)
10.13 Promissory Note dated Incorporated by reference to
May 25, 1995, payable to Exhibit 10.2 to Registrant's
Seymour, Inc. Current Report on Form 8-K dated
May 31, 1995 (File No. 0-17204)
10.14 Security Agreement dated Incorporated by reference to
May 25, 1995 Exhibit 10.3 to Registrant's
Current Report on Form 8-K dated
May 31, 1995 (File No. 0-17204)
II-5
<PAGE>
10.15 Exclusive License Agreement Incorporated by reference to
with BOC Group, Inc. Exhibit 10.15 to Registrant's
Annual Report on Form 10-K
for the fiscal year ended
March 31, 1996 (File No. 0-17204)
10.16 Consulting Agreement with Incorporated by reference to
Don Appleby Exhibit 10.16 to Registrant's
Annual Report on Form 10-K
for the fiscal year ended
March 31, 1996 (File No. 0-17204)
10.17 Agreement with H. Huffman Incorporated by reference to
& Co., et al. Exhibit 10.17 to Registrant's
Annual Report on Form 10-K
for the fiscal year ended
March 31, 1996 (File No. 0-17204)
10.18 Operating Lease with Great Incorporated by reference to
Plains Environmental, Inc. Exhibit 10.18 to Registrant's
Annual Report on Form 10-KSB
for the fiscal year ended
March 31, 1997 (File No. 0-17204)
10.19 Amendment to Exchange Incorporated by reference to
License Agreement with Exhibit 10.19 to Registrant's
BOC Group, Inc. Annual Report on Form 10-KSB
for the fiscal year ended
March 31, 1997 (File No. 0-17204)
21 Subsidiaries of the Incorporated by reference to
Registrant Exhibit 21 to Registrant's
Annual Report on Form 10-KSB
for the fiscal year ended
March 31, 1997 (File No. 0-17204)
23.1 Consent of Krys Boyle Contained in Exhibit 5
Freedman Scott & Sawyer,
P.C.
23.2 Consent of Mayer Hoffman Filed herewith electronically
McCann L.C., Certified
Public Accountants
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
II-6
<PAGE>
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer will:
(1) File, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:
(I)Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii)Reflect in the prospectus any facts or events which, individually or
in the aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii)Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2, and authorized this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Chanute, State of Kansas, on the 8th day of
September, 1997.
INFINITY, INC.
By/s/ Stanton E. Ross
Stanton E. Ross, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Stanton E. Ross President, Treasurer September 8, 1997
Stanton E. Ross Principal Financial
Officer) and Director
/s/ Don W. Appleby Director September 8, 1997
Don W. Appleby
/s/ John C. Garrison Secretary (Principal September 8, 1997
John C. Garrison Accounting Officer)
and Director
<PAGE>
OPINION OF KRYS BOYLE FREEDMAN & SAWYER, P.C.
KRYS BOYLE FREEDMAN & SAWYER, P.C.
ATTORNEYS AT LAW
Dominion Plaza, Suite 2700 South Tower
600 Seventeenth Street
Denver, Colorado 80202
Telephone Facsimile
(303) 893-2300 (303) 893-2882
September 10, 1997
Infinity, Inc.
211 West 14th Street
Chanute, Kansas 66720
Gentlemen:
We have acted as counsel to Infinity, Inc., a Colorado corporation (the
"Company"), in connection with the preparation and filing with the Securities
and Exchange Commission of a Registration Statement on Form SB-2 (the
"Registration Statement"), pursuant to which the Company is registering under
the Securities Act of 1933, as amended, a total of 851,901 shares (the
"Shares") of its common stock, $.00001 par value (the "Common Stock") for sale
upon the exercise of outstanding warrants and a total of 1,450,000 shares
being offered for resale by selling shareholders. This opinion is being
rendered in connection with the filing of the Registration Statement. All
capitalized terms used herein and not otherwise defined shall have the
respective meanings given to them in the Registration Statement.
In connection with this opinion, we have examined the Company's Articles
of Incorporation and Bylaws, both as currently in effect; such other records
of the corporate proceedings of the Company and certificates of the Company's
officers as we have deemed relevant; and the Registration Statement and the
exhibits thereto.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies.
Based upon the foregoing, and subject to the limitations set forth below,
we are of the opinion that the 1,450,000 Shares being offered for resale have
been duly and validly authorized by the Company and have been duly and validly
issued and are fully paid and non-assessable.
Based upon the foregoing and in reliance thereon, it is our opinion that
the 851,901 shares issuable upon exercise of the outstanding Class A, Class B
and Underwriter's Warrants will, upon the purchase, receipt of full payment,
issuance and delivery in accordance with the terms of the offering described
in such Registration Statement, be duly and validly authorized, legally
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We hereby further consent to the reference to us
under the caption "Legal Matters" in the prospectus included in the
Registation Statement.
Very truly yours,
KRYS BOYLE FREEDMAN & SAWYER, P.C.
By: /s/ Jon D. Sawyer
Jon D. Sawyer
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Infinity, Inc. on form
SB-2 of our report dated May 22, 1997, except for Note (17) for which the date
is May 28, 1997, appearing in the Prospectus, which is a part of this
Registration Statement and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ Mayer Hoffman McCann L.C.
MEYER HOFFMAN MCCANN L.C.
Kansas City, Missouri
September 8, 1997
