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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File Number: 0-17204
INFINITY, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1070066
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(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
211 West 14th Street, Chanute, Kansas 66720
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Address of Principal Executive Offices, Including Zip Code
(316) 431-6200
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(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[x] Yes [ ] No
There were 11,592,563 shares of the Registrant's Common Stock outstanding as
of June 30, 1998.
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INFINITY, INC.
FORM 10-QSB
INDEX
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PART I. FINANCIAL INFORMATION NUMBER
ITEM 1. FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS 8
PART II: OTHER INFORMATION 11
2
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, MARCH 31,
1998 1998
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CURRENT ASSETS
Cash $ 274,583 $ 238,135
Accounts Receivable, less allowance for
doubtful accounts 446,324 281,330
Inventories 171,797 188,576
Prepaid Expenses 53,055 74,258
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TOTAL CURRENT ASSETS 945,759 782,299
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 3,941,740 4,040,268
OIL AND GAS PROPERTIES, at cost, less
accumulated amortization, using the full
cost method 4,767,119 4,527,768
INTANGIBLE ASSETS, at cost, less accumulated
amortization 207,483 235,129
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TOTAL ASSETS 9,862,101 9,585,464
LIABILITIES
CURRENT LIABILITIES
Accounts Payable 781,818 730,664
Accrued Expenses 302,515 237,195
Current portion of deferred revenue 60,000 90,000
Current portion of long-term debt 782,360 657,204
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TOTAL CURRENT LIABILITIES 1,926,693 1,715,063
LONG-TERM LIABILITIES
Long-term debt, less current portion above 2,285,340 2,439,990
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TOTAL LIABILITIES 4,212,033 4,155,053
STOCKHOLDER'S EQUITY
CAPITAL CONTRIBUTED
Common stock, par value $.0001, authorized
300,000,000 shares, issued and outstanding
11,592,563 shares; 11,313,396 shares 1,159 1,131
Additional paid-in-capital 10,057,265 9,768,231
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TOTAL CAPITAL CONTRIBUTED 10,058,424 9,769,362
RETAINED EARNINGS (DEFICIT) (4,408,356) (4,338,951)
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TOTAL STOCKHOLDERS' EQUITY 5,650,068 5,430,411
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 9,862,101 $ 9,585,464
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The consolidated balance sheet at March 31, 1998 has been derived from the
audited financial statements at that date.
See Notes to Financial Statements
3
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30,
1998 1997
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NET SALES $ 1,328,427 $ 1,168,692
COST OF GOODS SOLD 853,622 485,842
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GROSS PROFIT 474,805 682,850
OPERATING EXPENSES
Salaries 102,326 87,209
Taxes 49,269 56,938
Consulting fees 1,421 845
Professional Services 15,807 18,142
Research & Development - 235
Travel & Entertainment 12,859 6,180
Insurance 31,986 46,136
Advertising 4,674 2,999
Office Supplies & Expense 10,461 8,821
Telephone 21,752 18,449
Rent & Utilities 29,582 27,809
Depreciation & Amortization 210,141 168,435
Other Expenses 9,456 9,473
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TOTAL OPERATING EXPENSES 499,734 451,671
OPERATING INCOME (LOSS) (24,929) 231,179
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OTHER INCOME (EXPENSE)
Interest Income & Finance Charges 337 2,345
Interest Expense (66,813) (11,729)
Rent and Other Income 22,000 36,210
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TOTAL OTHER INCOME (EXPENSE) (44,476) 26,826
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NET INCOME (LOSS) $ (69,405) $ 258,005
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NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ 0.03
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Weighted Average Basic Shares Outstanding 11,396,912 9,986,044
See Notes to Financial Statements.
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended June 30,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (69,405) $ 258,005
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization 210,141 168,435
(Increase) decrease in operating assets
Accounts Receivable (164,994) (54,712)
Inventories 16,779 (2,393)
Prepaid Expenses 21,203 (47,420)
Increase (decrease) in operating liabilities
Accounts Payable 51,154 (43,125)
Accrued Expenses 65,320 (12,620)
Deferred revenue (30,000) (22,558)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 100,198 243,612
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (62,435) (67,101)
Investment in oil and gas properties (260,883) (585,683)
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NET CASH USED IN INVESTING ACTIVITIES (323,318) (652,784)
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CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable - (74,442)
Increase in long-term debt 125,156 106,295
Proceeds from issuance of common stock 289,062 450,319
Repayment of long-term debt (154,650) (81,485)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 259,568 400,687
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NET INCREASE (DECREASE) IN CASH 36,448 (8,485)
CASH, BEGINNING OF PERIOD 238,135 52,725
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CASH, END OF PERIOD $ 274,583 $ 44,240
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See Notes to Financial Statements.
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INFINITY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Summary of significant accounting policies
Organization - Infinity, Inc. (Infinity) was organized under the laws of the
State of Colorado on April 2, 1987, primarily for the purpose of engaging in
any lawful business, but intending to acquire business opportunities.
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of the following companies:
Parent Company
Infinity, Inc.
Wholly-Owned Subsidiaries
Infinity Research and Development, Inc.
Consolidated Industrial Services, Inc.
(incorporated during the year ended March 31, 1994)
L.D.C. Food Systems, Inc.
(acquired during the year ended March 31, 1994)
CIS Oil and Gas, Inc.
(incorporated during the year ended March 31, 1997)
Consolidated Pipeline, Inc.
(incorporated during the year ended March 31, 1997)
(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 11,396,912 and
9,986,044 for the three month periods ended June 30, 1998 and 1997,
respectively. Common stock equivalents are not included in the computation
because their inclusion would be anti-dilutive.
(3) Long-Term Debt
On February 6, 1998, the Company obtained a $4,000,000 credit facility from
The CIT Group/Credit Finance, Inc. (CIT). This facility is secured by
substantially all of the assets of its wholly owned subsidiary, Consolidated
Industrial Services, Inc. and is partially guaranteed by the Company's
President. The loan requires monthly interest payments at a rate per annum of
two percent over a bank prime rate. The facility was initially funded with
$2,700,000 which will be repaid in monthly principal payments of $45,000
through February 2001. Also available to the Company is a revolving line of
credit based on eighty percent of trade accounts receivable and a line of
credit of $1,000,000 based on the value of equipment purchased in the future.
Proceeds of this facility were used to refinance existing long-term debt, bank
lines of credit, and certain other equipment loans and will provide working
capital for the Company.
In connection with the agreement, the Company issued a warrant to The CIT
Group to purchase up to 150,000 shares of the Company's common stock at an
exercise price of $2.50 per share for three years from the date of the
agreement. A warrant allowing the previous lender to purchase 1,250,000
shares of common stock at an exercise price of $2.00 per share expired
unexercised as a result of this refinancing.
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INFINITY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(4) 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.
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Item 2. Management's Discussion and Analysis or Plan of Operations
Results of Operations
The oilfield services segment of the Company generated $1,256,489 in
revenues and $667,336 in cost of sales during the three months ended June 30,
1998, compared to $1,168,692 in revenues and $485,842 in cost of sales for the
three months ended June 30, 1997. The operating expenses incurred by the
oilfield services segment of the Company were $386,157 for the three months
ended June 30, 1998 and $349,621 for the three months ended June 30, 1997.
Net operating income declined to a profit of $202,996 for the three months
ended June 30, 1998 from a profit of $333,229 for the three months ended June
30, 1997. The reduced results are attributed to the Company's efforts to
increase revenues and accepting some contract work at reduced prices and to
the effect of depressed oil prices. Depreciation and amortization expense
included in operating expenses for the oilfield services division was $145,379
for the three months ended June 30, 1998 and $124,036 for the three months
ended June 30, 1997.
The environmental services segment of the Company generated $22,000
in rental income during the three months ended June 30, 1998 and $24,200 in
rental income during the three months ended June 30, 1997. This was offset by
depreciation and amortization expense of $40,513 and $41,067 for the same
respective periods. 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 initial payments
of $80,000 per year plus a percentage of revenues over certain levels.
The oil and gas production segment of the Company recorded revenue of
$71,938 and operating expense of $209,189 during the three months ending June
30, 1998, including depreciation and depletion expense of $21,532. This
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 thirty months, this segment invested $4,837,750
to acquire property rights, drill and complete thirty gas wells and construct
the related pipeline system to connect to the interstate transportation
system. The Company has been troubled by weather, pipeline and compressor
problems which have limited production of gas from the twenty completed wells.
The Company expects to improve these situations and improve production during
the second quarter of this year.
Expenses incurred in corporate activities were $50,162 for the three
months ended June 30, 1998, compared to $60,673 for the three months ended
June 30, 1997.
Liquidity and Capital Resources
As of June 30, 1998, the Company had a working capital deficit of
$980,934 compared to a working capital deficit of $932,764 at March 31, 1998.
The decrease in working capital is primarily due to the operating loss for the
quarter.
During the three month period ended June 30, 1998 cash generated by
operating activities was $100,198 compared to cash generated of $243,612 for
the three months ended June 30, 1997. The reduction in the amount of cash
generated was due to the reduced profitability of the oilfield service
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activities and the production problems experienced in the operation of the oil
and gas segment. An increase of $164,994 in accounts receivable was offset by
decreases in inventory and prepaid expenses and increases in accounts payable
and accrued expenses.
Net cash provided by operation of the oilfield services segment was
$348,375 for the three months ended June 30, 1998. Net cash provided by the
operation of the environmental services segment was $22,000 from rental income
and net cash used by corporate activities was $47,445 for the period. Net
cash used by the oil and gas segment was $115,717 for the period.
Cash flows from investing activities during the three months ended
June 30, 1998, were ($323,318) compared to ($652,784) for the comparable
period of 1997. The decrease is primarily due to reduced development activity
on the gas production properties.
The Company obtained $125,156 in long-term equipment financing debt
and obtained $289,062 from issuance of common stock during the three months
ended June 30, 1998. This cash received from financing activities was reduced
by the repayment of ($154,650) of long term debt.
On February 6, 1998, the Company obtained a $4,000,000 long-term
financing facility from The CIT Group/Credit Finance collateralized by
substantially all of the tangible property and equipment and accounts
receivable of its wholly-owned subsidiary, Consolidated Industrial Services,
Inc. This note requires monthly payments of interest at two percent over the
bank prime rate and monthly payments of principal in the amount of $45,000
until maturity, February 1998. The agreement also contains certain
restrictive covenants with respect to dividends, acquisitions and capital
expenditures. This note is further secured by the personal guarantee of the
Company's president. Proceeds from the note were used to refinance $2,500,000
in short-term borrowings and provide additional working capital for the
Company. This refinancing also allowed warrants representing 1,250,000 shares
of common stock to expire unexercised on May 6, 1998.
The Company presently has outstanding publicly traded warrants to
purchase shares of Common Stock which, if all were to be exercised, could
result in gross proceeds of approximately $1,400,000. The Company filed an
amendment to the registration statement relating to the warrants during 1997,
however, there is no assurance that the Company will be successful in
obtaining the exercise of any of the warrants. The Company also had 1,250,000
outstanding warrants, issued in conjunction with the long-term financing on
May 31, 1995, which expired unexercised on May 6, 1998 after the Company
completed refinancing of long-term debt.
The Company does not have any material commitments for capital
expenditures as of the filing of this Report. However, the Company is
required to drill a number of gas wells in its Raton Basin properties in order
to retain its rights to further develop these leased properties. The Company
intends to drill ten additional gas wells required to be drilled in
southeastern Colorado prior to December 31, 1998, and intends to drill at
least twenty-five additional wells during each of the next three years. This
pace of development will meet the requirements of all leases and allow the
Company to continue to develop the 41,000 acres covered by leases on the
properties. Financing for this future development will be necessary and is
expected to be obtained by borrowing based on the production and reserves of
the existing wells or from proceeds of common stock issued in the exchange of
existing warrants. However, there is no assurance that the Company will be
successful in obtaining such financing.
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Effective August 7, 1998, the Company entered into a joint business
venture with Evergreen Resources, Inc. to fully develop the gas production
properties in southeastern Colorado. Evergreen is successfully developing
properties adjacent to the property being developed by the Company. Under
this agreement, Evergreen will purchase a working interest in all existing
wells, as well as participate in new wells to be drilled. Evergreen will also
act as operator and provide its local resources to drill and complete new
wells on behalf of the two companies. In addition, Primero Gas Marketing
Group (a subsidiary of Evergreen) will purchase the existing gathering and
trunkline systems from the Company and will purchase the produced gas.
Primero will be responsible for all costs to enhance and operate the existing
system and to construct and operate all additional gathering, trunkline,
dehydration and compression facilities which may be required.
Management believes that the revenues being generated by gas sales,
together with the proceeds of additional development financing and from the
sale of common stock, will provide sufficient liquidity to meet the Company's
needs for the remainder of the fiscal year ended March 31, 1999. Additional
gas wells will be drilled and completed only when additional financing is
obtained specifically for that purpose.
Year 2000 Concerns
Management has addressed the concerns of potential year 2000
computing problems, both internally and with external parties, and believes
that significant additional costs will not be incurred because of this
circumstance.
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PART II - OTHER INFORMATION
Item 1. Legal Proceeding.
None
Item 2. Changes in Securities
During the quarter ended June 30, 1998, the Company issued securities
in a private transaction as follows:
On June 16, 1998, the Company issued 104,167 shares of its Common
Stock to Joe Conner in a private transaction upon the exercise of a Common
Stock Option issued to Mr. Conner in June 1993. The aggregate exercise price
paid was $125,000.
With respect to this transaction, the Company relied on Section 4(2)
of the Securities Act of 1933, as amended. The investor was given complete
information concerning the Company. The investor represented that he was
purchasing the shares for investment only and not for the purpose of resale or
distribution. The appropriate restrictive legend was placed on the
certificate and stop transfer instructions were issued to the transfer agent.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule Previously filed.
(b) Reports on Form 8-K. None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Amendment to be signed on its behalf by the undersigned thereunto
duly authorized.
INFINITY, INC.
Dated: August 21, 1998 By:/s/ Stanton E. Ross
Stanton E. Ross, President
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