INFINITY INC, 10KSB40, 1999-06-21

INFINITY INC
10KSB40, 1999-06-21
OIL & GAS FIELD SERVICES, NEC

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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the Fiscal Year ended: March 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ___________ to ___________

Commission File No. 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 (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)

211 West 14th Street, Chanute, Kansas 66720
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(Address of Principal Executive Offices, Including Zip Code)

Issuer's telephone number, including area code: (316) 431-6200

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock.

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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. Yes [X] No [ ]

As of June 1, 1999, 2,945,211 Shares of the Registrant's $.0001 Par Value
Common Stock were outstanding. The aggregate market value of voting stock
held by nonaffiliates of the Registrant was approximately $5,101,000.

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

State Issuer's revenues for its most recent fiscal year: $4,852,204

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PART I

ITEM 1. DESCRIPTION OF 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 wastewater 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. Remaining rights under this technology were sold to BOC in
September 1997.

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.

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 55 people.
Consolidated continued the oil field services business and 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 non-hazardous
wastewater from customers' sites to a 20,000 gallon per day wastewater
treatment facility constructed on COWS' 17.5 acre site in Chanute, Kansas.
This facility is the first centralized wastewater treatment facility in
Kansas.

Consolidated also built a wastewater and brine water treatment plant in
the Silo oil field near Cheyenne, Wyoming. This plant treats nonhazardous

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industrial wastewater 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
August 1998, the environmental services company abandoned these facilities,
and the Company resumed operations.

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
which was subsequently repaid. 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. During July 1997, the
Company agreed to cancel the remaining 10% common stock interest in IOG in
conjunction with the acquisition of a gas development property.

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. During the year ended
March 31, 1998, the Company drilled an additional ten wells and began
commercial gas production, and also acquired development rights to
approximately 17,000 additional acres of land in the Raton Basin. During the
summer of 1998, the Company entered into joint venture agreements with
Evergreen Resources, Inc. ("Evergreen") concerning the development of these
properties, and then, effective December 31, 1998, the Company sold all of its
interest in these properties to Evergreen. As a result of this sale, COG is
now inactive.

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. The pipeline system was sold to Evergreen during
1998. As a result, this subsidiary is now inactive.

Unless the context otherwise requires, Infinity, Inc. and its
subsidiaries, Consolidated, IRD, LDC, COG and CPI are referred to herein
collectively as the "Company."

At the close of business on March 24, 1999, the Company effected a
1-for-4 reverse split of its outstanding Common Stock. All share numbers and
per share amounts in this Report give effect to this reverse split.

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THE COMPANY

Infinity, Inc. (the "Company"), through its subsidiaries, is primarily
engaged in providing oil field services, and in developing and operating oil
and gas properties. The Company also operates wastewater treatment
facilities.

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. In 1996, these facilities were leased to and operated by an
unrelated environmental services company. In August 1998, the environmental
services company abandoned these facilities, and the Company resumed
operations.

The Company's CIS Oil & Gas, Inc. ("COG") subsidiary previously leased
mineral rights to approximately 41,000 acres of land in the Raton Basin area
of Southeastern Colorado, and drilled thirty (30) wells on this property.
Effective December 31, 1998, COG sold its interest in these properties. COG
is seeking additional properties to develop.

The Company's Infinity Research and Development, Inc. ("IRD") and LDC
Food Systems, Inc. ("LDC") subsidiaries developed two specialized water
treatment technologies: (1) thin film electrocoagulation and (2) chiller loop
filtration and ozone sanitation (or "chiller loop technology"). These
technologies were used by the Company to custom design and install custom
water treatment equipment. 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 was to pursue final regulatory approvals
and market the chiller loop technology to the food industry both nationally
and internationally. The license agreement ended with the sale of this
technology to BOC in September 1997.

BUSINESS OF CONSOLIDATED

The Company's Consolidated subsidiary, based in Chanute, Kansas, has been
organized into two divisions: Oil field Services and Waste Treatment
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. In August 1998, the environmental services
company abandoned these facilities and the Company resumed limited operations
of them.

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.

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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 wastewater treatment facility in Chanute, Kansas accepted
non-hazardous wastewaters from industrial generators for treatment and
disposal. The brine water treatment facility near Cheyenne, Wyoming accepted
non-hazardous oilfield and industrial wastewaters 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.("GPE"),
an environmental services company, to operate these water treatment divisions.
The initial term of the agreement was for five years and with minimum lease
payments to be received of $80,000 per year. In addition, the lease called
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. In
August 1998, GPE abandoned the leased facilities, and the Company resumed
limited operations of both facilities.

OIL AND GAS EXPLORATION BUSINESS

RATON BASIN

In January 1996, the Company acquired through lease the mineral rights to
approximately 24,000 gross 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 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 Company drilled 30 wells on this property and connected 19 of the 30
wells to the pipeline. Production from the 19 wells had started by June 30,
1997.

On July 31, 1997, the Company acquired the rights to a lease of 53.46% of
the mineral rights on approximately 17,000 gross acres near the 24,000 acre
block on which the Company had previously held mineral rights under lease.
This property is known as the Lorencito Property. The rights to the Lorencito
Property 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 required that the Company drill at least 15
wells on the property during each one-year period commencing June 22, 1998, to
maintain the rights to develop the property during the subsequent one-year
period.

During the three-year period that the Company held rights in the Raton
Basin it invested $5.5 million to acquire property rights to a total of 41,000
acres, drill thirty and complete twenty gas wells and construct the related

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pipeline system to connect to the interstate transportation system. The
Company was troubled by weather and pipeline and compressor problems which
limited production of gas from the twenty completed wells.

Effective June 24, 1998, the Company entered into a Development Agreement
with Evergreen Resources, Inc. ("Evergreen") pursuant to which Evergreen paid
the Company $62,500 and received a 35% interest in the Company's leases on the
17,000 acre Lorencito Property. Evergreen agreed to pay 35% of the costs of
drilling wells on this property and act as operator. Evergreen also agreed to
guaranty a credit facility for the Company's benefit to be used solely for
drilling, completing and equipping wells on this development.

Effective August 7, 1998, the Company entered into a joint business
venture with Evergreen to fully develop the gas production properties in
southeastern Colorado. Under this agreement, Evergreen agreed to purchase a
working interest in all existing wells, as well as participate in new wells to
be drilled. Evergreen also agreed to 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 Company (a subsidiary of Evergreen) agreed to
purchase the existing gathering and trunkline system from the Company and
purchase the produced gas.

By the end of 1998, Evergreen had run into many of the same problems that
the Company had encountered. The construction of the pipeline system,
landowner resistance, water disposal difficulties, and a changing political
environment suggested that the development of the Long Canyon Leases may have
to be done over a longer period of time even though the primary term of the
Long Canyon lease would expire on December 31, 1999. Based on these risks,
the Company entered into an agreement with Evergreen, effective December 31,
1998, to sell all of its rights in the properties in exchange for 450,000
shares of Evergreen common stock and payment of $1 million consisting of debt
assumption and cash. On the date the Company completed this transaction, the
market value of the Evergreen stock was approximately $7,500,000. The Company
will record a gain on the sale of approximately $3 million and will continue
to participate in the development in the Raton Basin through its ownership of
the Evergreen stock without having to make additional capital contributions.
The Company's interest will not be focused on a single property and its
associated problems, but will be spread throughout all properties owned by
Evergreen.

DRILLING OPERATIONS

The Company drilled thirty coal methane gas wells in the Raton Basin in
Southeastern Colorado. Fifteen of these wells were drilled during February
1996, five were drilled during December 1996, and ten more were drilled in
November 1997. The Company completed twenty wells and related gathering
systems and commenced production in April 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 30 of the development wells which the Company
drilled were completed and 19 were hooked up and produced gas.

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OIL AND GAS INTERESTS IN LEASEHOLD ACREAGE

The Company held oil and gas interests in the Raton Basin in Southeastern
Colorado as of March 31, 1998 as set forth below. Effective December 31,
1998, the Company sold all of its intersts in these properties. The following
table sets forth the gross and net undeveloped and developed acreage as of
March 31, 1998 and 1999:

1998 1999
---- ----
Undeveloped Acreage
Gross 35,560 -0-
Net 27,648 -0-

Developed Acreage
Gross 5,440 -0-
Net 5,440 -0-

GAS WELLS

At March 31, 1998, the Company had interests in 30 gross and 30 net gas
wells based on working interests in effect on that date. Effective December
31, 1998, the Company sold all of its interests in these properties.

The group which assigned the leases on this property to the Company had
an option to obtain a twenty-five percent working interest in these wells
within six months of the completion of groups of 20 wells. This option, if
exercised, would reduce the number of net wells to 22.5. 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 30 existing wells are connected to the pipeline and begin production and
the twenty-five percent back-in option is exercised, the Company will have 34
gross gas wells and 25.5 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 year ended 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, 1999, prior to the sale of the Company's
gas properties, the Company received an average selling price of $1.12 per Mcf
of gas sold and incurred average production costs of $1.86 per Mcf of gas
sold. During the year ended March 31, 1998, the Company received an average
selling price of $1.32 per Mcf of gas sold and incurred average production
costs of $1.63 per Mcf of gas sold.

During the year ended March 31, 1999, prior to the sale of the Company's
gas properties, the Company incurred operating expenses of $174,160 or $1.63
per Mcf of gas sold in conjunction with oil and gas production activities.
During the year ended March 31, 1998, the Company incurred operating expenses
of $170,841 or $.83 per Mcf of gas sold in conjunction with oil and gas
production activities.

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.

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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 IRD AND LDC

IRD and LDC developed water treatment systems which utilize two
specialized water treatment technologies in combination with conventional
water treatment equipment. These are known as the "thin film
electrocoagulation" and the "chiller loop" technologies. Both of these
technologies were leased or licensed to other companies to pursue additional
development, and the chiller loop technology was sold in September 1997.

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. Some of this technology is
now used in the Company's wastewater treatment operations.

ENVIRONMENTAL REGULATION

The wastewater 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.

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 wastewater 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 future joint venture arrangements with
environmental services companies.

There are several other companies, universities and research
organizations which actively engage in the research and development of

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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, 1999, the Company billed Thermal
Energy Corporation $1,141,000, which represented 24% of the Company's net
sales. During the fiscal year ended March 31, 1998, the Company billed Stroud
Oil Properties $501,000, which represented 10% of the Company's net sales.

PATENTS, TRADEMARKS AND PROPRIETARY PROTECTION

The Company, through its LDC subsidiary, owned the rights to two patents
issued by United States Patent and Trademark Office which name Louis D.
Caracciolo, Jr. as inventor. These patents were sold in September 1997.

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
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.

ITEM 2. DESCRIPTION OF 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 1999,
and contains the option to extend the lease for six additional one-year
periods and to purchase the facility during the term of the lease. The
Company does not plan to renew the lease or exercise the option to purchase.

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 up to twenty-five years beginning July 1994.

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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. During the year ended March 31, 1998,
the Company acquired interests in an additional 17,000 acres. Effective
December 31, 1998, the Company sold all of its interest in these properties.

ITEM 3. LEGAL PROCEEDINGS.

WILLIS BROTHERS ENERGY, L.L.C. LAWSUITS

In December 1997, the Company's COG subsidiary was named as a defendant
in a lawsuit filed by Willis Brothers Energy, L.L.C. ("Willis Brothers") in
the District Court of Las Animas County, Colorado. Also in December 1997, the
Company's COG subsidiary filed a lawsuit against Willis Brothers and others in
the District Court of Neosho County, Kansas. These lawsuits involve claims
and counterclaims relating to certain tasks Willis Brothers had contracted to
perform on COG's coal methane gas development project in the Raton Basin in
Colorado. In June 1998, COG entered into a settlement agreement with Willis
Brothers which provides that COG will pay Willis Brothers $85,000 to settle
this dispute. This liability was assumed by Evergreen effective December 31,
1998, and subsequently settled.

ALPHA ENERGY, INC. LAWSUIT

In February 1998, Alpha Energy, Inc. ("Alpha") filed a lawsuit in the
District Court of Las Animas County, Colorado, against COG and others in
connection with a contract dispute involving COG's coal methane gas project in
the Raton Basin in Colorado. Alpha is seeking to foreclose on a lien on the
project and receive damages from COG of $256,000 plus interest for breach of
contract and unjust enrichment. COG filed a counterclaim against Alpha for
breach of contract and negligent design. The Company's obligations to Alpha
were assumed by Evergreen effective December 31, 1998, and subsequently
settled.

GREAT PLAINS ENVIRONMENTAL, INC. LAWSUIT

On November 4, 1998, the Company's Consolidated Industrial Services, Inc.
("CIS") subsidiary filed a lawsuit in the District Court of Neosho County,
Kansas against Great Plains Environmental, Inc. ("GPE") and its principals in
connection with the termination of GPE's lease of CIS' wastewater treatment
facilities in Cheyenne, Wyoming and Chanute, Kansas. CIS is seeking damages
in excess of $500,000 for unpaid rent, costs related to CIS regaining control
of the facilities, missing equipment and tools, and attorneys' fees. CIS is
also seeking damages from certain principals of GPE under personal guarantees
from such persons, and for other reasons.

In January 1999, GPE and the other defendants filed an answer generally
denying the claims of CIS, and filed a counter-claim alleging that CIS had
locked GPE out of the facilities and misrepresented the condition of the
equipment at these facilities. GPE is seeking damages in excess of $500,000
from CIS. CIS has not yet filed an answer to the counter-claim.

This lawsuit has been scheduled for trial in September 1999.

There are no other pending material legal proceedings to which the
Company is a party.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On March 22, 1999, the Company held a Special Meeting of its Shareholders
at which the Company's shareholders approved up to a 1-for-5 reverse split of
the outstanding Common Stock of the Company. The voting on the proposal was
as follows (in pre-split shares of Common Stock):

For Against Abstain Broker Non-Votes

7,089,109 2,977,475 10,660 -0-

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

(a) PRINCIPAL MARKET OR MARKETS. The Company's Common Stock began
trading on the Nasdaq Small-Cap Market on June 29, 1994, under the symbol
"IFNY." The following table sets forth the high and low closing sale prices
for the Company's securities as reported by the Nasdaq Stock Market. The
prices shown give retroactive effect to the 1-for-4 reverse stock split which
became effective at the close of business on March 24, 1999.

QUARTER ENDED HIGH LOW
------------- ---- ---

June 30, 1997 $ 9.25 $6.50
September 30, 1997 $10.00 $8.75
December 31, 1997 $15.00 $8.375
March 31, 1998 $10.875 $7.50

June 30, 1998 $ 9.50 $6.75
September 30, 1998 $ 8.75 $4.00
December 31, 1998 $ 5.00 $2.50
March 31, 1999 $ 3.50 $1.00

(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The number of record
holders of the Company's $.0001 par value common stock at June 2, 1999, was
256 and the Company has over 350 beneficial owners of such stock.

(c) DIVIDENDS. 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 CIT Group/Credit Finance, Inc., the
Company's CIS subsidiary is prohibited from paying any dividends to the
Company during the term of that agreement. (See "ITEM 6. - LIQUIDITY AND
CAPITAL RESOURCES.")

(d) SALE OF UNREGISTERED SECURITIES. During the quarter ended March 31,
1999, the Company did not issue any securities which were not registered under
the Securities Act of 1933, as amended.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

RESULTS OF OPERATIONS

The oil field services segment of the Company generated $4,291,226 in
revenues and $2,578,695 in cost of sales during the year ended March 31, 1999,
compared to $4,411,131 in revenues and $2,171,648 in cost of sales for the
year ended March 31, 1998. The operating expenses incurred by the oil field
services segment of the Company were $1,552,180 for the year ended March 31,
1999, and $1,497,439 for the year ended March 31, 1998. Net operating income
for this segment declined to a profit of $160,351 for the year ended March 31,
1999, as compared to a profit of $742,044 for the year ended March 31, 1998.
The reduced results are attributed to the Company's effort to maintain
revenues by accepting contract work at reduced margins, the effect of
depressed oil prices and reduced activity in Colorado. Depreciation and
amortization expense included in operating expenses for the oil field services
division was $578,742 for the year ended March 31, 1999, and $543,570 for the
year ended March 31, 1998.

12
<PAGE>

The environmental services segment of the Company which includes all
water treatment activities, generated $187,243 in revenue during the year
ended March 31, 1998, compared to $389,662 in revenues and $185,300 in cost of
sales for the year ended March 31, 1999. Operating expenses incurred by the
environmental services division were $173,165 for the year ended March 31,
1998, and $243,115 for the year ended March 31, 1999, including depreciation
and amortization expense of $168,629 for the year ended March 31, 1998 and
$113,342 for the year ended March 31, 1999. The significant change 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, the management and lease agreement with the
environmental services company in October 1996, and the sale of patents to BOC
Gases in September 1997. 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 until resumption of operating activities when the facilities were
abandoned to the Company in August 1998.

In October 1996, the Company entered into a five year renewable
management and lease agreement that transferred operating responsibility for
this segment to an outside party. During August 1998, the outside party
abandoned this management and lease agreement and operating responsibility for
this segment was returned to the Company. As a result, in accordance with
Statement of Accounting Standards No. 121, the Company recorded a non-cash
charge of $585,000 to reflect an impairment of value of the long-lived assets.
This charge reduces the carrying value of property and equipment but does not
affect the liquidity of the Company.

The oil and gas production segment of the Company began commercial
production of coal methane gas in July 1997 and recorded revenue of $299,375
and expenses of $505,119 for the year ended March 31, 1998, while continuing
development of the property. Included in these expenses were $49,099 of
depreciation and depletion expense. During the year ended March 31, 1999,
prior to the sale of the properties at December 31, 1998, the Company recorded
revenue of $171,316 and expenses of $298,079, including $48,054 of
depreciation and depletion.

Expenses incurred in corporate activities were $259,369 for the year
ended March 31, 1998, and $373,101 for the year ended March 31, 1999. This
increase was substantially due to increased shareholder meeting and legal
expenses.

Operating income for the Company declined to a loss of $397,328 for the
year ended March 31, 1999, from an operating income of $156,112 for the year
ended March 31, 1998. This decline was due to depressed oil prices reducing
activity in our trade areas and increased legal costs.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 1999, the Company had a working capital deficit of
$(877,643) compared to a deficit of $(932,764) at March 31, 1998. The
improvement in working capital is primarily due to the reduction of accounts
payable enabled by the sale of the gas production property in December 1998.

During the year ended March 31, 1998, cash generated by operating
activities was $467,316 compared to cash generated of $176,020 for the year
ended March 31, 1999. The primary reason for the reduction was the decrease
in operating activity of the oil field service segment and operating losses of
the oil and gas segment.

13
<PAGE>

Net cash provided by the operation of the oil field services segment was
$739,093. Net cash generated by the operation of the environmental technology
segment was $74,589. Net cash used by the operation of corporate activities
was $(368,701) plus $258,476 of interest expense paid. Net cash used by the
operation of the oil and gas segment was $(78,709).

Cash used in investing activities during the year ended March 31, 1998
was $1,994,948 as compared to $636,565 for the year ended March 31, 1999. 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 $73,798 was spent in 1998 to pursue financing and lease
transactions.

During the year ended March 31, 1998, the Company received $1,840,521
from the sale of common stock, primarily through exercise of warrants and
options and completed refinancing of long-term debt totaling $2,700,000.
During the year ended March 31, 1999, the Company received $164,063 from the
sale of common stock, primarily through the exercise of warrants and options
and increased long and short term borrowings by $708,320.

On February 6, 1998, the Company's CIS subsidiary obtained a credit
facility for a total of $4,000,000. This facility provided $2,700,000 of
immediate equipment financing which will be amortized at a rate of $45,000 per
month until maturity at February 6, 2001. In addition, the facility provides
$1,000,000 available for additional equipment purchases and a revolving credit
line based on 80% of current accounts receivable. Interest is payable monthly
at a rate of prime plus 2%. This facility is secured by substantially all
oilfield service equipment and other assets of the CIS subsidiary. Further
security is provided by the personal guaranty of the Company's President which
guaranty is secured by the pledge of a portion of the President's stock in the
Company.

In October 1996, the Company entered into a five year renewable agreement
to lease wastewater treatment facilities in Chanute, Kansas and Cheyenne,
Wyoming to an outside party. During August 1998, these properties were
abandoned by the outside party and operating responsibility was returned to
the Company. Statement of Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of", requires that long-lived assets held and used by a company must
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable based on
cirumstances at the time of the review. For purposes of assessing impairment
under this standard, assets are required to be grouped at the lowest level for
which there are separately identifiable cash flows. Based on information
available at the time of the abandonment, the Company determined that
currently expected future cash flows from the Wyoming facility indicated that
an impairment existed. As a result, the Company recorded a non-cash charge of
$585,000 which is reflected as a reduction in the net carrying value of
property and equipment.

The Company does not have any material commitments for capital
expenditures as of the filing of this Report.

During the last three years, the oil and gas segment invested $5.5
million to acquire property rights to a total of 41,000 acres, drill thirty
and complete twenty gas wells and construct the related pipeline system to
connect to the interstate transportation system. The Company has been troubled
by weather and pipeline and compressor problems which have limited production

14
<PAGE>

of gas from the twenty completed wells. During August 1998, the Company
entered into an agreement with Evergreen Resources, Inc. under which Evergreen
purchased the gathering system, acquired an interest in the property and
assumed responsibility to manage, operate and develop the properties and
market and transport the produced gas.

In April 1999, the Company entered into a financing agreement
collateralized by 125,000 shares of the Evergreen stock held by it with a fair
value of $2,500,000. These shares are "restricted securities" and are not
eligible for resale under Rule 144 until January 2000. Under the agreement,
the Company may borrow up to $2,035,950. Borrowings are due April 2000. The
Company is obligated to pay back an amount equal to $2,181,250 so long as the
Evergreen stock is trading between $17.25 and $22.59 per share. This equates
to an approximate 7% effecive interest rate. Should the market price of the
Evergreen stock fall below $17.25 per share, the Company will repay the loan
at the trading price of the Evergreen stock times the 125,000 collateral
shares. If the price exceeds $22.59, the price per share in excess of $22.59
times the 125,000 collateralized shares will be an additional cost.

Management believes that the resources resulting from the sale of, or
borrowing based on, the Evergreen stock will provide sufficient liquidity to
meet the Company's working capital needs for the remainder of the fiscal year
ended March 31, 2000. The Company is negotiating to acquire property to
develop and operate additional gas wells. However, the Company presently has
no commitments for material capital expenditures.

YEAR 2000 CONCERNS

The Company 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. Along with third party providers, the Company performed an
evaluation of its computer hardware and software and determined that recent
enhancements and upgrades have brought its systems significantly into
compliance and existing support agreements are adequate to handle remaining
minor issues and any exceptions which may arise. Based on equipment analysis
and evaluations, the Company does not believe that significant operational
equipment modifications are necessary. The Company is communicating with
customers, vendors and business partners and anticipates that they will be
compliant by the year 2000 resulting in no material impact to the Company.

15
<PAGE>

ITEM 7. FINANCIAL STATEMENTS.

Please see pages F-1 through F-22.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

No response required.

16
<PAGE>

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The Directors and Executive Officers of the Company are as follows:

NAME AGE POSITIONS HELD
---- --- --------------

Stanton E. Ross 37 President, Treasurer and Director

John C. Garrison 47 Secretary and Director

Jeffrey L. Dale 37 Director

George R. Jones 70 Director

Leroy C. Richie 57 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.

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.

JEFFREY L. DALE. Mr. Dale has been a Director of the Company since
February 23, 1998. He is currently Partner and Operations Manager for Verde
Oil Company ("Verde"), a privately held, independent oil and gas company. Mr.
Dale has been employed by Verde since 1986. Verde, headquartered in San
Antonio, Texas, currently operates approximately 500 oil, gas and coalbed
methane wells. Mr. Dale has extensive experience in the drilling, completion
and operation of wells in the Mid-continent region of the U.S. and Canada.
Mr. Dale received a B.S. Degree in Geology from the University of North Dakota
in 1986.

GEORGE R. JONES. Mr. Jones has been a Director of the Company since June
1, 1999. Since 1986 he has been President of Stroud Oil Properties, Inc.
Earlier in his career, Mr. Jones served as Senior Supervisory Geologist with
Creole Petroleum, a subsidiary of Exxon Corporation. Stroud Oil Properties,
Inc. has extensive waterflood and coalbed methane experience. Recently,
Stroud Oil Properties, Inc. served as managing partner and part owner of

17
<PAGE>

Apache Canyon Gas, L.L.C., owner of a large leasehold in the Raton Basin of
Colorado producing in excess of 20 million cubic feet of gas per day. Mr.
Jones received a BS Degree in Geology from Kansas State University in 1948.

LEROY C. RICHIE. Mr. Richie has been a Director of the Company since
June 1, 1999. He has been President of Capitol Coating Technologies, Inc.
since April 1999. From September 1998 to April 1999 he was President of
Intrepid World Communications. Mr. Richie was formerly Vice President of
Chrysler Corporation and General Counsel for automotive legal affairs, where
he directed all legal affairs for that company's automotive operations from
1986 to 1997. He is currently a member of the Board of Directors of Kerr-
McGee Corporation, an Oklahoma City-based energy and chemical company. Before
joining Chrysler, he served as Director of the New York office of the Federal
Trade Commission. Mr. Richie received a BA Degree from City College of New
York in 1970 and a JD Degree from the New York University School of Law in
1973.

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
hold office until their death, or until they shall resign or have been removed
from office.

The Company has no nominating committee, but does have an audit committee
which presently consists of Jeffrey L. Dale and George R. Jones, and a
compensation committee which presently consists of Jeffrey L. Dale and Leroy
C. Richie.

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.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
director, officer or beneficial owner of more than 10% of the Company's common
stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year.

ITEM 10. EXECUTIVE COMPENSATION.

The following tables set forth information regarding executive
compensation for the Company's President and Chief Executive Officer. No
executive officer receivePu
d compensation in excess of $100,000 for any of the years ended March 31,
1999, 1998 and 1997:

18
<PAGE>

<TABLE>
<CAPTION>
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, 1999 $80,000 -0- $7,800* -0- -0- -0- $-0-
President and 1998 $70,000 -0- $7,800* -0- -0- -0- $-0-
Chief Executive 1997 $60,000 -0- $7,800* -0- 37,500 -0- $-0-
Officer
- -----------------
* Represents an automobile allowance.
</TABLE>

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- 41,667 / 0 $0 / $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.

1992 STOCK OPTION PLAN

In February 1992, the Board of Directors adopted a Stock Option Plan (the
"1992 Plan") which was approved by the Company's shareholders in March 1992.
The 1992 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

19
<PAGE>

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 1992 Plan may not exceed 208,333 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 1992 Plan at any time, provided that the Board may not amend the 1992 Plan
to materially increase the benefits accruing to participants under the 1992
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 25,000
shares at $8.00 per share. The options vested as to 6,250 shares on July 15,
1995; 6,250 shares on October 24, 1995; 6,250 shares on April 24, 1996; and
6,250 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 former President of
the Company's IRD subsidiary, to purchase up to 25,000 shares of Common Stock
at $8.00 per share. The options vested as to 3,125 shares immediately and as
to an additional 3,125 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 25,000 shares of common stock at a
price of $3.72 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 37,500, 6,250 and 6,250
shares, respectively, of common stock at $5.24 per share. The options for Mr.
Ross vested immediately and the options for Messrs. Appleby and Garrison
vested at a rate of 25% each quarter from the date of grant and expire five
years from the date of grant.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth, as of June 1, 1999, 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, each Officer and Director individually
and all Directors and Officers of the Company as a group. Each person listed
holds sole voting and investment power with respect to the shares shown,
except as noted.

20
<PAGE>

NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------- --------------------- --------

Stanton E. Ross 450,821 (1) 15.1%
211 West 14th Street
Chanute, KS 66720

John C. Garrison 32,500 (2) 1.1%
7211 High Drive
Prairie Village, KS 66208

Jeffrey L. Dale 375 --
1027 West 5th
Chanute, KS 66720

George R. Jones 23,500 0.8%
200 East 1st St., Suite 100
Wichita, KS 67202

Leroy C. Richie 5,000 0.2%
585 Shirley Road
Birmingham, MI 48009

All Directors and 507,196 16.8%
Executive Officers as
a Group (5 persons)
- ---------------------

(1) Includes 41,667 shares which may be purchased within 60 days under stock
options held by Mr. Ross.

(2) Includes 31,250 shares which may be purchased within 60 days under stock
options held by Mr. Garrison.

There are no known agreements, the operation of which may at a subsequent
date result in a change in control of the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Stanton E. Ross, President, Treasurer and a Director of the Company, made
loans to the Company to provide working capital which, as of March 31, 1997,
totaled $309,968. These loans were repaid in conjunction with the Company's
refinancing of its loans in February 1998.

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 required 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 was secured
by certain property, equipment and machinery described in the Security
Agreement. This loan was repaid on February 6, 1998.

In connection with the loan financing, the Company issued to Seymour
warrants to purchase up to 312,500 shares of the Company's common stock at an
exercise price of $8.00 per share. The warrants expire 90 days after the

21
<PAGE>

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, was President of
Seymour until 1997. These warrants expired unexercised on May 6, 1998.

On February 6, 1998, the Company's CIS subsidiary obtained credit
facility for a total of $4,000,000. This facility provided $2,700,000 of
immediate equipment financing which will be amortized at a rate of $45,000 per
month until maturity at February 6, 2001. In addition, the facility provides
$1,000,000 available for additional equipment purchases and a revolving credit
line based on 80% of current accounts receivable. Interest is payable monthly
at a rate of prime plus 2%. This facility is secured by substantially all
oilfield service equipment and other assets of the CIS subsidiary. Further
security is provided by the personal guaranty of Stanton E. Ross, the
Company's President, of up to $1,000,000, which guaranty is secured by the
pledge of 100,000 shares of the Company's Common Stock held by Mr. Ross.

22
<PAGE>

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS.

EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------

3 Articles of Incorporation Incorporated by reference to
and Bylaws Exhibit No. 3 to the Registrant's
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)

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

10.3 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)

10.4 Asset Purchase Agreement Incorporated by reference to
dated January 7, 1994, Exhibit No. 2 to the Registrant's
among Infinity, Inc., Con- Current Report on Form 8-K dated
solidated Industrial Ser- January 21, 1994
vices, Inc., Consolidated
Oil Well Services,
Inc. and Edsel E. Noland

10.5 Operating Lease with Great Incorporated by reference to
Plains Environmental, Inc. Exhibit 10.17 to Registrant's
Annual Report on Form 10-K
for the fiscal year ended
March 31, 1997

10.6 Purchase and Sale Agreement Incorporated by reference to
dated January 12, 1999, Exhibit 10.1 to Registrant's
between Evergreen Resources, Current Report on Form 8-K
Inc. and CIS Oil & Gas, Inc. dated January 13, 1999

23
<PAGE>

21 Subsidiaries of Registrant Incorporated by reference to
Exhibit 10.17 to Registrant's
Annual Report on Form 10-K
for the fiscal year ended
March 31, 1997

22.1 Consent of Mayer Hoffman Filed herewith electronically
McCann L.C.

22.2 Consent of Sartain Filed herewith electronically
Fischbein & Co.

27 Financial Data Schedule Filed herewith electronically

(b) REPORTS ON FORM 8-K. The Company filed a Report on Form 8-K dated
January 13, 1999 reporting information under Item 2-Acquisition or Disposition
of Assets and Item 7-Financial Statements, Pro Forma Financial Information and
Exhibits concerning the sale of the Company's gas properties to Evergreen
Resources, Inc.

24
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

Page

Independent Auditors' Report .................................. F-2

Independent Auditors' Report .................................. F-3

Financial Statements:

Consolidated Balance Sheet - March 31, 1999 ................. F-4

Consolidated Statements of Income -
Years Ended March 31, 1999 and 1998 ......................... F-5

Consolidated Statements Changes in Stockholders' Equity -
Years Ended March 31, 1999 and 1998 ......................... F-6

Consolidated Statements of Cash Flows -
Years Ended March 31, 1999 and 1998 ......................... F-7-F-8

Notes To Consolidated Financial Statements .................. F-9-F-22

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Infinity, Inc.

We have audited the consolidated balance sheet of Infinity, Inc. and
Subsidiaries as of March 31, 1999 and the consolidated statements of income,
changes in stockholders' equity and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides 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, 1999, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.

/s/ Sartain Fischbein & Co.

May 26, 1999
Tulsa, Oklahoma

F-2
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors

Infinity, Inc.

We have audited the consolidated statements of income, changes in
stockholders' equity and cash flows for the year ended March 31, 1998 of
Infinity, Inc. and Subsidiaries. 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
audit.

In our opinion, the consolidated financial statements of Infinity, Inc. and
Subsidiaries referred to above present fairly, in all material respects, the
results of their operations and their cash flows for the year ended March 31,
1998 in conformity with generally accepted accounting principles.

/s/ Mayer Hoffman McCann L.C.
MAYER HOFFMAN McCANN L.C.

Kansas City, Missouri
May 1, 1998

F-3
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999

ASSETS

Current Assets
Cash $ 35,474
Accounts receivable, less allowance for doubtful
accounts of $11,121 548,756
Inventories 144,094
Other current assets 110,356
-----------
Total Current Assets 838,680

Property and equipment, at cost, less
accumulated depreciation 3,281,310
Investment securities 9,000,000
Other assets 136,543
-----------
TOTAL ASSETS $13,256,533
===========

LIABILITIES

Current Liabilities
Note payable $ 300,000
Current portion of long-term obligations 610,419
Accounts payable 518,650
Accrued expenses 287,254
-----------
Total Current Liabilities 1,716,323

Long-Term Obligations, less current portion 2,040,597
-----------
TOTAL LIABILITIES 3,756,920
-----------
STOCKHOLDERS' EQUITY

Common stock, par value $.0001; authorized 300,000,000
shares, issued and outstanding 2,953,011 shares 295
Additional paid-in-capital 10,478,630
Accumulated other comprehensive income:
Unrealized gain on securities available for sale,
net of deferred income taxes of $516,375 1,002,375
Accumulated deficit (1,981,687)
-----------
TOTAL STOCKHOLDERS' EQUITY 9,499,613
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,256,533
===========

The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1999 1998
---- ----

Net Sales $4,852,204 $4,805,506

Cost of Sales 3,012,050 2,645,014
---------- ----------
Gross Profit 1,840,154 2,160,492

Operating Expenses 2,237,482 2,004,380
---------- ----------
Operating Income (Loss) (397,328) 156,112
---------- ----------
Other Income (Expense)
Interest income and other 37,599 98,018
Interest expense (258,476) (164,162)
Gain on sale of oil and gas properties 3,044,094 -
Impairment of water treatment facility assets (585,000) -
---------- ----------
Total Other Income (Expense) 2,238,217 (66,144)
---------- ----------
Income Before Income Taxes 1,840,889 89,968

Income Tax Benefit 516,375 -
---------- ----------
Net Income $2,357,264 $ 89,968
========== ==========
Basic and Diluted Earnings Per Share $ 0.81 $ 0.03
========== ==========

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999 AND 1998

<TABLE>
<CAPTION>
Accumulated
Common Stock Other
----------------- Additional Compre- Compre- Total
Shares Paid-in Accumulated hensive hensive Stockholders'
Issued Amount Capital Deficit Income Income Equity
--------- ------ ---------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
March 31, 1997 2,465,209 $247 $ 7,928,594 $(4,428,919) - $3,499,922

Issuance of common
stock for cash 363,218 36 1,840,485 - - 1,840,521

Comprehensive income

Net income - - - 89,968 $ 89,968 - 89,968

Other comprehensive
income - - - - - - -
----------
Comprehensive
income $ 89,968
--------- ---- ----------- ----------- ========== ---------- ----------
Balance,
March 31, 1998 2,828,427 283 9,769,079 (4,338,951) - 5,430,411

Issuance of common
stock for cash 43,751 4 164,059 - - 164,063

Stock issued for
investment in oil
and gas properties
and services,
recorded at market
value 80,833 8 545,492 - - 545,500

Comprehensive income

Net income - - - 2,357,264 $2,357,264 - 2,357,264

Other comprehensive
income; unrealized
holding gains on
securities during
period, net of
income taxes of
$516,375 in 1999 - - - - 1,002,375 1,002,375 1,002,375
----------
Comprehensive
income $3,359,639
--------- ---- ----------- ----------- ========== ---------- ----------
Balance,
March 31, 1999 2,953,011 $295 $10,478,630 $(1,981,687) $1,002,375 $9,499,613
========= ==== =========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1999 1998
---- ----
Cash Flows From Operating Activities
Net income $2,357,264 $ 89,968
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 602,619 638,863
Amortization 97,471 85,425
Depletion 44,448 49,099
Gain on sale of oil and gas properties (3,044,094) -
Impairment of water facility 585,000 -
Deferred income taxes (516,375) -
Decrease (increase) in assets:
Accounts receivable (267,426) 118,944
Inventories 44,482 9,155
Other current assets (36,098) (56,038)
Increase (decrease) in liabilities:
Accounts payable 348,670 (263,973)
Accrued expenses 50,059 (66,191)
Deferred revenue (90,000) (137,936)
---------- ---------
Net Cash Provided by Operating Activities 176,020 467,316
---------- ---------
Cash Flows From Investing Activities
Investment in property and equipment and intangibles (427,546) (441,494)
Proceeds from sale of oil and gas properties 250,000 -
Investment in oil and gas properties (459,019) (1,553,454)
---------- ---------
Net Cash Used in Investing Activities (636,565) (1,994,948)
---------- ---------
Cash Flows From Financing Activities
Repayment of related party note payable - (309,968)
Proceeds from issuance of common stock 164,063 1,840,521
Net change in short-term borrowings 300,000 (284,000)
Proceeds from long-term obligations 408,320 3,340,837
Repayment of long-term obligations (614,499) (2,874,348)
---------- ---------
Net Cash Provided by Financing Activities 257,884 1,713,042
---------- ---------
Net Increase (Decrease) in Cash (202,661) 185,410

Cash, beginning of year 238,135 52,725
---------- ---------
Cash, end of year $ 35,474 $ 238,135
========== ==========

The accompanying notes are an integral part of the consolidated financial
statements.

F-7
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED MARCH 31, 1999 1998
---- ----
SUPPLEMENTAL CASH FLOW DISCLOSURES

Cash paid for interest, net of amounts
capitalized $258,476 $255,005
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES
Seller financed notes payable issued in
exchange for property and equipment $ - $118,651
======== ========
Investment in oil and gas properties through
transfer of equity investment in
unconsolidated subsidiary $ - $ 82,545
======== ========
Investment in oil and gas properties
acquired with long-term obligations $ - $296,131
======== ========
Investment in oil and gas properties and services
performed in exchange for the issuance of common
stock $545,500 $ -
======== ========

During the year ended March 31, 1999, the Company sold its investment in
oil and gas properties for stock, cash and assumptions of debt. The
transaction was as follows:

Basis of oil and gas properties sold $5,487,839
----------
Sales Proceeds:
Cash proceeds 250,000
Assumptions of debt 800,683
Investment securities received at fair value 7,481,250
----------
Total Sales Proceeds 8,531,933
----------
Gain on sale $3,044,094
==========

The accompanying notes are an integral part of the consolidated financial
statements.

F-8
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(1) SUMMARY OF SIGNIFICANT ACCOUNTING PROCEDURES

Nature of Operations - The Company and its subsidiaries are engaged in
providing oil and gas production enhancement services and oil and gas
exploration, development and production activities, and waste water treatment.
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 consolidated 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 consolidated financial statements, and the reported accounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.

Inventories - 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.

F-9
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(1) SUMMARY OF SIGNIFICANT ACCOUNTING PROCEDURES (CONTINUED)

Property and Equipment - 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

Impairment of Long-lived Assets - Long-lived assets to be held and used in the
Company's business are reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be
recoverable. When required, impairment losses on assets to be held and used
are recognized based on the fair value of the assets. As a result of the
Company's review of long-lived assets in August 1998, a $585,000 impairment to
the water treatment facility assets was recorded.

Per Share Information - The computation of earnings per share in each year is
based on the weighted average number of common shares outstanding.

Cash - For purposes of reporting cash flows, cash generally consists of cash
on hand and demand deposits with financial institutions. At times, the
Company maintains deposits in financial institutions in excess of federally
insured limits. Management monitors the soundness of the financial
institutions and feels the Company's risk is negligible.

Investment Securities - Investment securities that are held for short-term
resale are classified as trading securities and carried at fair value. Debt
securities that management has the ability and intent to hold to maturity are
classified as held-to-maturity and carried at cost, adjusted for amortization
of premium and accretion of discounts using methods approximating the interest
method. Other marketable securities are classified as available-for-sale and
are carried at fair value, based on quoted market prices. Unrealized gains
and losses on securities available-for-sale are reported as a component of
comprehensive income, net of applicable income taxes.

F-10
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(1) SUMMARY OF SIGNIFICANT ACCOUNTING PROCEDURES (CONTINUED)

Income Taxes - Income taxes are provided for the tax effects of the
transactions reported in the consolidated financial statements and consist of
taxes currently due plus deferred taxes related primarily to differences
between the tax and financial basis of available-for-sale securities, property
and equipment and other assets, and net operating loss carryforwards. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.

Reclassifications of Prior Year Amounts

Certain reclassifications have been made to the balances for the year ended
March 31, 1998 to make them comparable to those presented for the year ended
March 31, 1999, none of which change the previously reported net income or
total assets.

(2) PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

Cost:
Site cost improvements $ 1,518,159
Machinery, equipment and vehicles 4,579,232
Office furniture and equipment 129,447
-----------
Total cost 6,226,838

Less accumulated depreciation (2,945,528)
-----------
Net property and equipment $ 3,281,310
===========

F-11
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(3) OIL AND GAS PROPERTIES

During the year ended March 31, 1999, the Company sold their entire investment
in oil and gas properties for cash, 450,000 shares of marketable equity
securities with a fair value of $7,481,250, and assumption of debt. The
following is a summary of the transaction:

Basis of oil and gas properties $5,487,839
----------
Sales Proceeds:
Cash proceeds 250,000
Assumptions of debt 800,683
Stock at fair value 7,481,250
----------
Total Sales Proceeds 8,531,933
----------
Gain on sale of investment in oil and gas properties $3,044,094
==========

During the year ended March 31, 1999, the Company paid a $30,000 deposit on an
option to buy oil and gas properties, which is included in other assets. The
option expires August 1, 1999.

Prior to the sale, the Company had followed the full cost method of accounting
for oil and gas properties. Amortization had been provided on the
unit-of-production method. The Company had capitalized interest on
expenditures made in connection with exploration and development projects that
were not subject to current amortization. Total interest incurred for the
year ended March 31, 1998 was $283,189, of which $119,027 had been
capitalized.

(4) INVESTMENT SECURITIES

Investment securities, which are considered available-for-sale, are as
follows:

Marketable equity securities, at cost $7,481,250
Unrealized holding gain 1,518,750
----------
$9,000,000
==========

F-12
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(5) NOTE PAYABLE

Note payable consists of a 1% above prime rate note payable to a bank, with
interest payable monthly, and outstanding principal and interest due August
1999; collateralized by investment securities with a fair market value of
$3,000,000 at March 31, 1999, assets of the Company's water treatment
division, and guaranteed by an officer of the Company.

(6) LONG-TERM OBLIGATIONS

Long term obligations consist of the following:

Term note; payable in monthly principal installments of $45,000
plus interest of 2% above prime until maturity, February 2001;
collateralized by substantially all of the assets of the
oilfield service division and is partially guaranteed by an
officer of the Company. In connection with the loan agreement,
the Company issued a three-year warrant to the lender to purchase
up to 37,500 shares of the Company's common stock at $10.00 per
share. Additionally, the lender has made available a $1,000,000
credit facility for future equipment purchases. $2,115,000

Various fixed rate notes collateralized by vehicles and
equipment with interest rates ranging from 8.75% to 15.5%;
payable in monthly installments of principal and interest,
with final payments due between January 2001 and January 2004. 292,216

Revolving credit note collateralized by eligible accounts
receivable, equipment and capital expenditures. Interest is
payable monthly at 2% above prime, with principal due February
2001. 243,800
----------
Total long-term obligations 2,651,016

Less current portion 610,419
----------
Non-current portion $2,040,597
==========

F-13
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(6) LONG-TERM OBLIGATIONS (CONTINUED)

Maturities of long-term obligations are as follows:

Years Ending March 31,
----------------------
2000 $ 610,419
2001 1,890,967
2002 58,604
2003 57,613
2004 33,413
----------
Total long-term debt $2,651,016
==========

(7) 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
---------------------- -------
2000 $42,000
2001 35,000
-------
Total $77,000
=======

The operating lease for certain real estate provides the Company with the
option to extend the lease for a five-year period and to purchase the leased
properties for approximately $496,000 during the lease term.

Total rent expense for all operating leases was approximately $72,000 and
$66,000 for the years ended March 31, 1999 and 1998, respectively.

F-14
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(8) COMMON STOCK

Reverse Stock Split - During the year ended March 31, 1999, the Company
effected a 1.4 reverse stock split. All references in the accompanying
consolidated financial statements to the number of shares and per share
amounts for all periods presented have been restated to reflect the reverse
stock split.

Warrants - The Company, in conjunction with a public stock offering, issued
Class A, Class B and underwriter warrants to purchase 212,959 shares of common
stock. Under the term of the warrant agreements, the Class A warrants are
subject to redemption by the Company, upon thirty days notice, at a price of
$.04 per warrant. The Class B warrants are subject to redemption by the
Company, upon thirty days notice, at a price of $.08 per warrant. During the
year ended March 31, 1998, 99,600 Class A and underwriter warrants were
exercised and 11,959 expired. Additionally, 208 Class B warrants were
exercised. The remaining Class B warrants expire on September 30, 1999.

The Company issued warrants to purchase 225,000 shares of Infinity common
stock during the year ended March 31, 1997 (1997 warrants). During the years
ended March 31, 1999 and 1998, 37,500 and 175,000 warrants were exercised,
respectively. The remaining warrants expire August 1, 2001

During the year ended March 31, 1998, in conjunction with a 1998 financing,
the Company issued warrants to purchase 37,500 shares of Infinity common
stock. The warrants expire on December 15, 2000.

During the year ended March 31, 1999, 312,500 warrants expired. These
warrants were originally issued in conjunction with a 1995 10% financing.

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 208,333 shares of common stock are available for issuance upon
the exercise of such options. At March 31, 1999, options to purchase 1,248
shares were available for grant under the plan.

F-15
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(8) COMMON STOCK (CONTINUED)

A summary of stock option and warrant activity is as follows:

Option/Warrant Weighted
Number of Price Average Price
Shares Per Share Per Share
--------- -------------- -------------

Outstanding, March 31, 1997 1,182,560 $2.40-$15.36 $7.33

Granted 146,000 9.52-10.00 9.88
Canceled or expired (14,059) 3.40-5.76 5.40
Exercised (275,708) 3.40-12.00 4.86
--------- ------------ -----
Outstanding, March 31, 1998 1,038,793 2.40-15.36 8.15

Granted - - -
Canceled or
forfeited (383,500) 8.00-10.00 8.37
Exercised (43,750) 3.52-5.24 3.77
--------- ------------ -----
Outstanding,
March 31, 1999 611,543 $2.40-$15.36* $8.26
========= ============ =====

* In May 1999, the exercise price of 175,000 options was reduced from $8.00
per share to 3.00 per share.

Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices March 31, 1999 Life Price March 31, 1999 Price
- -------- -------------- ----------- -------- -------------- --------

$2.40-$12.00 207,465 1 Year $9.67 207,465 $9.67
3.40-15.36 342,843 2 Years 8.12 342,843 8.12
3.52-15.36 61,235 3 Years 4.89 57,485 4.89
------- -------
611,543 607,793
======= =======

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

F-16
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(8) COMMON STOCK (CONTINUED)

Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share would have been $(92,878) and
$(0.03) for the year ended March 31, 1998. As no options or warrants were
granted during the year ended March 31, 1999, there is no effect on net income
or earnings per share.

For options granted during the year ended March 31, 1998, 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
5.68%, expected option life of 3.99 years, expected volatility of 34.00% and
no expected dividend yield.

Stock issued - During the year ended March 31, 1999, the Company issued 80,833
share of common stock in conjunction with the perfection of an interest in oil
and gas properties and consulting services at a fair value of $6.75 per share.
The resulting $545,500 was capitalized into oil and gas properties.

(9) INCOME TAXES

The provision for income taxes for the years ended March 31, 1999 and 1998
consists of the following:

1999 1998
---------- --------
Current income tax expense, net of benefit
from net operating losses of $1,600,000 in 1999 $ - $ -
Deferred income tax expense 629,478 42,987
Change in deferred tax asset valuation
allowance (1,145,853) (42,987)
---------- --------
Total income tax expense (benefit) $ (516,375) $ -
========== ========

The effective income tax rate varies from the statutory federal income tax
rate as follows:

1999 1998
---- ----
Federal income tax rate 34% 34%
Net operating losses - (34)
Change in valuation allowance (62) -
--- ---
Effective tax rate (28%) -%
=== ===

F-17
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(9) INCOME TAXES (CONTINUED)

The significant temporary differences and carryforwards and their related
deferred tax asset (liability) and deferred tax asset valuation allowance
balances as of March 31, 1999 are as follows:

Deferred tax assets:
Accruals and impairment $ 224,000
Net operating loss carryforward 1,200,000
Other 4,000
------------
Gross deferred tax assets 1,428,000
------------
Deferred tax liabilities:
Property and equipment (581,000)
Unrealized holding gains on available for sale securities (516,000)
------------
Gross deferred tax liabilities (1,097,000)
------------
Deferred tax asset valuation allowance (331,000)
------------
Net deferred taxes $ -
============

No deferred income tax assets have been recognized in the accompanying
consolidated financial statements due to uncertainties in connection with the
realization of the potential tax benefits associated with remaining net
operating loss carryforwards.

For income tax purposes, the Company has approximately $3,500,000 of net
operating loss tax carryforwards expiring in various years through 2013.

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 Art 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.

(10) RETIREMENT PLAN

The Company has a 401(k) plan covering substantially all of the employees of
the oil and gas production enhancement service division. There were no
Company contributions made to the plan during the years ended March 31, 1999
and 1998.

F-18
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(11) INDUSTRY SEGMENTS

The Company reports segment information in accordance with Financial
Accounting Standards Board Statement No. 131. This Statement, which is
effective for periods beginning after December 15, 1997, requires disclosure
of information related to certain operating segments of the Company and also
requires restatement of segment information for prior periods.

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 Services which includes development and application of
wastewater treatment technologies and disposal of solid waste byproducts.
Operations are conducted primarily in Wyoming and Kansas. Separate management
of each segment is required because each business unit is subject to different
marketing, labor force and asset utilization strategies. 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 1999 and 1998 is as
follows:

Environ-
Oil Field Oil & Gas mental
Services Production Services Corporate Consolidated
--------- ---------- -------- --------- ------------
Net Sales:
1999 $4,291,226 $ 171,316 $ 389,662 $ - $4,852,204
1998 4,411,131 299,375 95,000 - 4,805,506

Depreciation,
Amortization
and Depletion:
1999 578,742 48,054 113,342 4,400 744,538
1998 543,570 49,099 168,629 12,089 773,387

Operating Income
(Loss):
1999 160,351 (126,763) (57,815) (373,101) (397,328)
1998 742,044 (205,744) (120,819) (259,369) 156,112

F-19
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(11) INDUSTRY SEGMENTS (CONTINUED)

Environ-
Oil Field Oil & Gas mental
Services Production Technology Corporate Consolidated
--------- ---------- ----------- --------- ------------
Identifiable
Assets, Net:
1999 4,040,302 - 100,549 9,115,682 13,256,533
1998 3,891,463 4,553,579 913,925 226,498 9,585,465

Capital
Expenditures:
1999 427,546 459,019 - - 886,565
1998 484,449 1,896,291 - 2,000 2,382,740

(12) SIGNIFICANT CUSTOMERS

During the year ended March 31, 1999, the Company had sales to an unrelated
third party of approximately $1,141,000, representing approximately 24% of net
sales. During the year ended March 31, 1998, the Company had sales to a
different unrelated third party of approximately $501,000, representing
approximately 10% of net sales. Receivables outstanding from these sales were
approximately $90,000 at March 31, 1999.

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following assumptions were used in 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, 1999. 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, 1999.

F-20
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(14) EARNINGS PER SHARE

Basic earnings per share was computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
the periods. Diluted earnings per share reflects the potential dilution that
could occur if stock options and warrants were converted into common stock
under the treasury stock method.

The following shows the amounts used in computing earnings per share and the
effects on income and the weighted average number of shares of dilutive
potential common stock.

Weighted Average
Income Common Shares Earnings
Numerator Denominator Per Share
--------- ---------------- ---------
Basic earnings per share (1999):
Income available to common
stockholders $2,357,264 2,919,098 $0.81
========== ========= =====

All dilutive potential common shares are antidilutive in the year ended March
31, 1999.

Basic earnings per share (1998):
Income available to common
stockholders $ 89,968 2,628,574 $0.03
=====
Plus: Impact of assumed conversions
of warrants and options - 232,345
---------- ---------
Diluted earnings per share:
Income available to common
shareholders after assumed
conversions of dilutive securities $ 89,968 2,860,919 $0.03
========== ========= =====

For the year ended March 31, 1998, dilutive potential common shares of 212,667
were not included in the computation of diluted earnings per share because
their effect was antidilutive.

(15) LITIGATION

The Company is involved in several legal matters which have arisen during the
normal course of the Company's business, wherein the outcome is not readily
determinable. Management has accrued estimates for these matters and feels
that additional losses, if any, from such matters would not have a material
impact on the Company's consolidated financial statements.

F-21
<PAGE>

INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND 1998

(16) SUBSEQUENT EVENT

In April 1999, the Company entered into a financing agreement, collateralized
by marketable equity securities with a fair value of $2,500,000. Under the
agreement, the Company may borrow up to $2,035,950. Borrowings are due April
2000. The Company is obligated to pay back an amount equal to $2,181,250 so
long as the collateralized marketable equity securities are trading between
$17.25 and $22.59 per share. This equates to an approximate 7% effective
interest rate. Should the marketable equity securities price fall below
$17.25, the Company will repay the loan at the collateral's trading price
times the 125,000 collateral shares. If the price exceeds $22.59, the price
per share in excess of $22.59 times the 125,000 collateralized shares will be
an additional cost.

F-22
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

INFINITY, INC.

Dated: 6-18-99 By:/s/ Stanton E. Ross
Stanton E. Ross, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the company
and in the capacities and on the dates indicated.

SIGNATURE CAPACITY DATE
--------- -------- ----

/s/ Stanton E. Ross President, Treasurer, 6-18-99
Stanton E. Ross (Principal Financial
Officer) and Director

/s/ J.C. Garrison Secretary (Principal 6-17-99
John C. Garrison Accounting Officer)
and Director

/s/ Jeffrey L. Dale Director 6-17-99
Jeffrey L. Dale

/s/ George R. Jones Director 6-17-99
George R. Jones

/s/ Leroy C. Richie Director 6-18-99
Leroy C. Richie

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We hereby consent to the incorporation of our report dated May 1, 1998
appearing in the Annual Report of Form 10-KSB of Infinity, Inc. for the fiscal
year ended March 31, 1999 in the following Registration Statements on Form
S-8:

SEC File No. Name of Plan Date of Filing
------------ ------------ --------------

33-82142 Employee Stock Bonus Plan July 28, 1994
33-90878 Stock Option Plan March 31, 1995

/s/ Mayer Hoffman McCann L.C.
MAYER HOFFMAN McCANN L.C.

Kansas City, Missouri
June 16, 1999

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We hereby consent to the incorporation of our report dated May 26, 1999
appearing in the Annual Report of Form 10-KSB of Infinity, Inc. for the fiscal
year ended March 31, 1999 in the following Registration Statements on Form
S-8:

SEC File No. Name of Plan Date of Filing
------------ ------------ --------------

33-82142 Employee Stock Bonus Plan July 28, 1994
33-90878 Stock Option Plan March 31, 1995

/s/ Sartain Fischbein & Co.
SARTAIN FISCHBEIN & CO.

Tulsa, Oklahoma

June 17, 1999

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of income found on pages F-4 and F-5 of the
Company's Form 10-KSB for the fiscal year ended March 31, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 35,474
<SECURITIES> 9,000,000
<RECEIVABLES> 559,877
<ALLOWANCES> 11,121
<INVENTORY> 144,094
<CURRENT-ASSETS> 838,680
<PP&E> 6,226,838
<DEPRECIATION> 2,945,528
<TOTAL-ASSETS> 13,256,533
<CURRENT-LIABILITIES> 1,716,323
<BONDS> 0
0
0
<COMMON> 295
<OTHER-SE> 9,499,318
<TOTAL-LIABILITY-AND-EQUITY> 13,256,533
<SALES> 4,852,204
<TOTAL-REVENUES> 4,852,204
<CGS> 3,012,050
<TOTAL-COSTS> 3,012,050
<OTHER-EXPENSES> 2,237,482
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258,476
<INCOME-PRETAX> 1,840,889
<INCOME-TAX> (516,375)
<INCOME-CONTINUING> 2,357,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,357,264
<EPS-BASIC> 0.81
<EPS-DILUTED> 0.81

</TABLE>