<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ________, 19___ to ________, 19___.
Commission File Number: 0-17204
INFINITY, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1070066
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
211 West 14th Street, Chanute, Kansas 66720
----------------------------------------------------------
Address of Principal Executive Offices, Including Zip Code
(316) 431-6200
----------------------------------------------
(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 11,246,846 shares of the Registrant's Common Stock outstanding as
of December 31, 1997.
<PAGE>
INFINITY, INC.
FORM 10-QSB
INDEX
Part I Financial Information Page Number
Item 1. Financial Information:
Condensed Consolidated Balance Sheets.............. 3
Condensed Consolidated Statements of Operations.... 4
Condensed Consolidated Statements of Cash Flows.... 5
Notes to Financial Statements...................... 6
Item 2. Management's Discussion and Analysis or
Plan of Operations................................. 9
Part II: Other Information.................................. 13
2
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (Note)
Dec 31, 1997 March 31, 1997
CURRENT ASSETS
Cash $ 656,333 $ 52,725
Accounts Receivable, less allowance
for doubtful accounts 278,282 400,274
Inventories 196,198 197,731
Prepaid Expenses 24,096 18,220
TOTAL CURRENT ASSETS 1,154,909 668,950
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 3,994,476 4,192,684
OIL AND GAS PROPERTIES, using the full
cost method, less accumulated depletion 4,060,936 2,638,126
INTANGIBLE ASSETS, at cost, less
accumulated amortization 201,029 246,856
INVESTMENT in unconsolidated subsidiary - 82,545
TOTAL ASSETS 9,411,350 7,829,161
LIABILITIES
CURRENT LIABILITIES
Accounts Payable 688,251 988,026
Accrued Expenses 296,614 303,386
Current portion of deferred revenue 60,000 60,000
Notes payable 183,000 284,000
Current portion of long-term debt 316,089 318,643
TOTAL CURRENT LIABILITIES 1,543,954 1,954,055
LONG-TERM LIABILITIES
Long-term debt, less current
portion above 1,826,139 1,897,280
Note payable, related party 309,968 309,968
Deferred revenue, less current
portion above 137,506 167,936
TOTAL LIABILITIES 3,817,567 4,329,239
STOCKHOLDER'S EQUITY
CAPITAL CONTRIBUTED
Common stock, par value $.0001, authorized
300,000,000 shares, issued and outstanding
11,246,846 shares; 9,860,564 shares 1,125 986
Additional paid-in-capital 9,710,005 7,927,855
TOTAL CAPITAL CONTRIBUTED 9,711,130 7,928,841
RETAINED EARNINGS (DEFICIT) (4,117,347) (4,428,919)
TOTAL STOCKHOLDERS' EQUITY 5,593,783 3,499,922
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,411,350 $ 7,829,161
The consolidated balance sheet at March 31, 1997 has been derived from the
audited financial statements at that date.
See Notes to Financial Statements
-3-
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Dec 31,
1997 1996
NET SALES $ 1,062,950 $ 1,201,872
COST OF GOODS SOLD 683,318 632,825
GROSS PROFIT 379,632 569,047
OPERATING EXPENSES
Salaries 122,415 148,252
Taxes 54,533 45,634
Consulting fees 1,645 8,583
Professional Services 24,960 6,608
Research & Development 2,202 1,462
Travel & Entertainment 12,664 6,712
Insurance 40,765 57,589
Advertising 4,337 1,659
Office Supplies & Expense 13,058 11,471
Telephone 23,551 24,076
Rent & Utilities 33,679 30,999
Depreciation & Amortization 189,593 169,060
Other Expenses 13,296 21,949
TOTAL OPERATING EXPENSES 536,698 534,054
OPERATING INCOME (LOSS) (157,066) 34,993
OTHER INCOME (EXPENSE)
Interest Income & Finance Charges 1,142 29
Interest Expense (52,525) (69,973)
Rent and Other Income 28,426 16,556
Gain on sales of assets - 31,126
TOTAL OTHER INCOME (EXPENSE) (22,957) (22,262)
NET INCOME (LOSS) $ (180,023) $ 12,731
NET LOSS PER COMMON SHARE $ (0.02) $ 0.00
Weighted Average Shares Outstanding 10,591,523 9,453,315
See Notes to Financial Statements
4
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine months Ended Dec 31,
1997 1996
NET SALES $ 3,695,014 $ 3,899,613
COST OF GOODS SOLD 1,888,523 2,084,434
GROSS PROFIT 1,806,491 1,815,179
OPERATING EXPENSES
Salaries 315,385 493,343
Taxes 168,763 158,710
Consulting fees 3,115 32,238
Professional Services 51,610 51,917
Research & Development 2,437 4,638
Travel & Entertainment 26,317 27,779
Insurance 124,980 200,021
Advertising 7,895 7,430
Office Supplies & Expense 29,178 42,301
Telephone 64,199 79,780
Rent & Utilities 99,539 102,596
Depreciation & Amortization 543,644 505,941
Other Expenses 35,920 84,387
TOTAL OPERATING EXPENSES 1,472,982 1,791,081
OPERATING INCOME 333,509 24,098
OTHER INCOME (EXPENSE)
Interest Income & Finance Charges 1,967 5,168
Interest Expense (116,970) (209,414)
Rent and Other Income 93,066 16,556
Gain on sales of assets - 31,126
TOTAL OTHER INCOME (EXPENSE) (21,937) (156,564)
NET INCOME (LOSS) $ 311,572 $ (132,466)
NET LOSS PER COMMON SHARE $ 0.03 $ (.01)
Weighted Average Shares Outstanding 10,255,917 8,832,335
See Notes to Financial Statements
5
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended Dec 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (180,023) $ 12,729
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 189,593 169,060
Loss on sale of assets - (31,126)
(Increase) decrease in operating assets
Accounts Receivable 87,722 1,409
Inventories 1,488 2,931
Prepaid Expenses 1,468 5,698
Increase (decrease) in
operating liabilities
Accounts Payable (100,832) (39,344)
Accrued Expenses (18,375) 17,857
Deferred revenue (5,415) (5,167)
NET CASH PROVIDED BY OPERATING ACTIVITIES (24,374) 134,047
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (23,043) (43,219)
Proceeds of equipment sold - 96,548
Investment in oil and gas properties (550,555) (291,957)
Investment in intangible assets (45,095) (25,667)
NET CASH USED IN INVESTING ACTIVITIES (618,693) (264,295)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable 25,442 (96,000)
Increase in long-term debt - -
Proceeds from issuance of common stock 1,256,792 187,500
Repayment of long-term debt (90,657) (90,498)
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,191,577 1,002
NET INCREASE IN CASH 548,510 (129,246)
CASH, BEGINNING OF PERIOD 107,823 429,770
CASH, END OF PERIOD $ 656,333 $ 300,524
See Notes to Financial Statements
6
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended Dec 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 311,572 $ (132,466)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 543,644 505,941
Loss on sale of assets 42,978 (31,126)
(Increase) decrease in operating assets
Accounts Receivable 121,992 142,066
Inventories 1,533 24,292
Prepaid Expenses (5,876) 682
Increase (decrease) in operating liabilities
Accounts Payable (171,535) (79,072)
Accrued Expenses (6,772) (10,166)
Deferred revenue (30,430) (29,597)
NET CASH PROVIDED BY OPERATING ACTIVITIES 807,106 390,554
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (250,496) (128,670)
Proceeds of equipment sold - 96,548
Investment in oil and gas properties (1,501,930) (535,401)
Investment in intangible assets (58,669) (40,167)
NET CASH USED IN INVESTING ACTIVITIES (1,811,095) (607,690)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable (101,000) -
Increase in long-term debt 193,795 -
Proceeds from issuance of common stock 1,782,289 582,500
Repayment of long-term debt (267,487) (248,242)
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,607,597 334,258
NET INCREASE IN CASH 603,608 117,122
CASH, BEGINNING OF PERIOD 52,725 183,402
CASH, END OF PERIOD $ 656,333 $ 300,524
See Notes to Financial Statements
7
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INFINITY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
-----------------------------------------
(1) Summary of significant accounting policies
Organization - Infinity, Inc. (Infinity) was organized under the laws of the
State of Colorado on April 2, 1987, primarily for the purpose of engaging in
any lawful business, but intending to acquire business opportunities.
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of the following companies:
Parent Company
Infinity, Inc.
Wholly-Owned Subsidiaries
Infinity Research and Development, Inc.
Consolidated Industrial Services, Inc.
(incorporated during the year ended March 31, 1994)
L.D.C. Food Systems, Inc.
(acquired during the year ended March 31, 1994)
CIS Oil and Gas, Inc.
(incorporated during the year ended March 31, 1996)
Consolidated Pipeline, Inc.
(incorporated during the year ended March 31, 1996)
(2) Earning (loss) per share
Earnings or loss per share is based on the weighted average number of shares
outstanding. The number of shares used in the calculation was 10,255,917 and
8,832,335 for the nine month periods ended December 31, 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 December 31, 1997, the Company had $500,000 available under lines of credit
that expire in February 1998. These lines of credit are collateralized by
certain equipment and are guaranteed by the company's president. Interest
8
<PAGE>
accrues at 2% above the lender's corporate base rate. As of December 31,
1997, the company had $183,000 drawn on these lines of credit.
(5) Long-Term Debt
On May 31, 1995, the Company obtained $2,500,000 in long-term financing from
Seymour, Inc. (Seymour) collateralized by substantially all of the tangible
property and equipment of its wholly owned subsidiary, Consolidated Industrial
Services, Inc. The note required monthly payments of interest at 10% for a
period of nine months beginning July 1995. Thereafter, monthly payments of
principal and interest in the amount of $41,503 are due until maturity in June
1998. The agreement also contains certain restrictive covenants with respect
to dividends, acquisitions and capital expenditures. Proceeds from the note
were used to refinance $1,500,000 in short-term borrowings and provide
additional working capital for the Company.
In connection with the agreement, the Company issued a warrant to Seymour to
purchase up to 1,250,000 shares of the Company's common stock at an exercise
price of $2.00 per share. The warrant expires May 6, 1998, 90 days after the
full payment of all principal and interest due on the Seymour note.
(6) Subsequent Event
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 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 the debt to Seymour,
bank lines of credit, and certain other equipment loans and will provide
working capital for the Company.
(7) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included.
9
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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 $983,678 in
revenues and $583,692 in cost of sales during the three months ended December
31, 1997, compared to $1,137,676 in revenues and $588,879 in cost of sales for
the three months ended December 31, 1996. The operating expenses incurred by
the oilfield services segment of the Company were $379,085 for the three
months ended December 31, 1997 and $380,636 for the three months ended
December 31, 1996. Net operating income declined to a profit of $20,901 for
the three months ended December 31, 1997 from a profit of $168,161 for the
three months ended December 31, 1996. This decrease in revenue and the
corresponding decrease in net operating income were primarily caused by wet
and warm weather conditions which restricted the ability of this division to
work in the fields and generate the revenue.
For the nine months ended December 31, 1997, this segment generated
$3,464,525 in revenues and $1,660,532 in cost of sales, compared to $3,633,068
in revenues and $1,891,586 in cost of sales for the nine months ended December
31, 1996. The operating expenses incurred were $1,093,842 for the nine months
ended December 31, 1997 compared to $1,173,653 for the nine months ended
December 31, 1996. Net operating income improved to a profit of $710,151 for
the nine months ended December 31, 1997 from a profit of $544,079 for the nine
months ended December 31, 1996. The improved results are attributed to the
Company's continuing measures to control operating costs. Depreciation and
amortization expense included in operating expenses for the oilfield services
division was $372,107 for the nine months ended December 31, 1997 and $372,107
for the nine months ended December 31, 1996.
The environmental services segment of the Company generated $68,643
in rental income during the nine months ended December 31, 1997. This was
offset by depreciation and amortization expense of $129,045 for the same
period. The company also reported $95,000 in revenue from settlement of a
licensing agreement with BOC Gases regarding certain patents and patent
applications. This revenue was offset by the unamortized cost of those
patents and applications of $42,654. This segment of the Company, which
included all water treatment activities, generated $266,545 in revenues and
$190,444 in cost of sales during the nine months ended December 31, 1996.
Operating expenses incurred by this division were $245,535 for the nine months
ended December 31, 1996, including depreciation and amortization expense of
$123,820. In October 1996, the Company entered into five year management and
lease agreement that transferred operating responsibility for this segment to
an outside party. The Company will receive payments of $80,000 per year plus
a percentage of revenues over certain levels.
The oil and gas production segment of the Company recorded net
revenue from gas sales of $79,272 and operating expenses of $123,027 during
the three months ending December 31, 1997, including $16,244 of depletion and
depreciation expense. The Company also recorded net revenue from gas sales of
$135,489 and operating expenses of $235,629 during the nine months ending
December 31, 1997, including $33,425 of depletion and depreciation expense The
company first recorded revenues from these properties in July 1997 and the
properties remain under development. During the last two years, this segment
invested $4,060,936 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 acquired development rights to a total
of 41,000 acres in the Raton Basin in Colorado and is presently developing
additional wells that should begin production during the quarter ended June
30, 1998.
10
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Expenses incurred in corporate activities were $199,803 for the nine
months ended December 31, 1997, compared to $242,596 for the nine months ended
December 31, 1996. This reduction was substantially achieved in the area of
consulting fees, professional services and facility costs.
Liquidity and Capital Resources
As of December 31, 1997, the Company had a working capital deficit
of $389,045 compared to a working capital deficit of $1,285,105 at March 31,
1997. The increase in working capital is primarily due to the proceeds of
sales of common stock and refinancing of long term debt.
The Company presently has remaining outstanding publicly traded
warrants to purchase shares of Common Stock that, 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 in
September, 1997, which provided an expiration date of December 31, 1998 for
certain of the warrants. The Company received approximately $1,260,000 from
the exercise of other warrants which expired December 31, 1997. There is no
assurance that the Company will be successful in obtaining the exercise of the
remainder of the warrants.
In addition, the Company also issued warrants in conjunction with
the long-term financing on May 31, 1995 that, if exercised, would result in
gross proceeds of $2,500,000. These warrants can be exercised any time prior
to May 6, 1998, ninety days after the full payment of all interest and
principal due under this financing was made. There is no assurance that the
company that holds these warrants will choose to exercise the warrants
During the nine months ended December 31, 1997 cash generated by
operating activities was $807,106 compared to cash generated of $390,554 for
the nine months ended December 31, 1996. The improvement in the amount of
cash generated was due to improvement of the oilfield service activities and
the reduction of water treatment activities. A decrease of $171,535 in
accounts payable reduced the magnitude of this improvement.
Net cash provided by operation of the oilfield services segment was
$1,082,258 for the nine months ended December 31, 1997. Net cash provided by
the operation of the environmental services segment was $68,643 from rental
income and $95,000 from the patent settlement. Net cash used by corporate
activities was $190,736 for the nine month period and net cash used by
operation of the oil and gas development division was $66,715 for the nine
month period.
Cash flows from investing activities during the nine months ended
December 31, 1997, were ($1,811,095) compared to ($607,690) for the comparable
period of 1996. The increase is primarily due to the investment to develop
gas production properties of ($1,501,930).
The Company obtained $193,795 in long-term equipment financing debt
and obtained $1,782,289 from issuance of common stock during the nine months
ended December 31, 1997. This cash received from financing activities was
reduced by the repayment of ($267,487) of long term debt and reduction of the
bank lines of credit by $(101,000).
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 requires monthly interest payments
at a rate per
11
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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 when the remaining balance will be due. 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 the debt to Seymour, bank lines of credit, and certain other
equipment loans and will provide additional working capital for the Company.
Seymour, Inc., the creditor repaid by the CIT refinancing, also
holds a warrant that 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 May 6, 1998, ninety days after the promissory note was fully
paid.
The Company does not have any material commitments for capital
expenditures as of the filing of this Report. However, the Company is
required to drill a number of gas wells in its Raton Basin properties in order
to retain its rights to further develop these leased properties.
The Company recently drilled the ten additional gas wells required
to be drilled in southeastern Colorado prior to December 31, 1997, and intends
to drill at least twenty additional wells during each of the next three years.
This pace of development will meet the requirements of all leases and allow
the Company to continue to develop the 41,000 acres covered by leases on the
properties. Financing for this future development will be necessary and is
expected to be obtained by borrowing based on the production and reserves of
the existing wells, by pre-selling the gas produced by these wells, or from
proceeds of common stock issued on the exercise of outstanding warrants.
However, there is no assurance that the Company will be successful in
obtaining such financing.
PART II - OTHER INFORMATION
Item 1. Legal Proceeding. None
Item 2. Changes in Securities. Not Applicable
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None
(b) Reports on Form 8-K. None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
INFINITY, INC.
Dated: February 18, 1998 By: /s/ Stanton E. Ross
Stanton E. Ross, President
12
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EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- -------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages 3 and 4 of the Company's Form 10-QSB for the year to date, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 656,333
<SECURITIES> 0
<RECEIVABLES> 368,037
<ALLOWANCES> 89,755
<INVENTORY> 196,198
<CURRENT-ASSETS> 1,154,909
<PP&E> 10,245,191
<DEPRECIATION> 2,189,779
<TOTAL-ASSETS> 9,411,350
<CURRENT-LIABILITIES> 1,543,954
<BONDS> 0
<COMMON> 1,125
0
0
<OTHER-SE> 5,593,783
<TOTAL-LIABILITY-AND-EQUITY> 9,411,350
<SALES> 3,695,014
<TOTAL-REVENUES> 3,695,014
<CGS> 1,888,523
<TOTAL-COSTS> 1,888,523
<OTHER-EXPENSES> 1,472,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (116,970)
<INCOME-PRETAX> 311,572
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 311,572
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
