<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ________, 19___ to ________, 19___.
Commission File Number: 0-17204
INFINITY, INC.
----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1070066
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
211 West 14th Street, Chanute, Kansas 66720
----------------------------------------------------------
Address of Principal Executive Offices, Including Zip Code
(316) 431-6200
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
X Yes ---- No
There were 3,057,911 shares of the Registrant's Common Stock outstanding as of
September 30, 1999.
<PAGE>
INFINITY, INC.
FORM 10-QSB
INDEX
Part I Financial Information Page Number
Item 1. Financial Information:
Condensed Consolidated Balance Sheets......... 3
Condensed Consolidated Statements
of Operations for the three months ended
September 30 ................................. 4
Condensed Consolidated Statements
of Operations for the six months ended
September 30 ................................. 5
Condensed Consolidated Statements of Cash
Flows......................................... 6
Notes to Consolidated Financial Statements.... 7
Item 2. Management's Discussion and Analysis
or Plan of Operations........................... 9
Part II: Other Information............................... 15
2
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
Sept. 30, 1999 March 31, 1999
-------------- --------------
CURRENT ASSETS
Cash $ 141,402 $ 35,474
Accounts Receivable, less allowance
for doubtful accounts 610,047 548,756
Inventories 156,057 144,094
Prepaid Expenses 95,174 110,356
----------- -----------
TOTAL CURRENT ASSETS 1,002,680 838,680
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 3,493,952 3,281,310
INVESTMENT SECURITIES 10,828,125 9,000,000
OIL AND GAS PROPERTIES, UNDEVELOPED
LEASEHOLD 633,024 -
DEPOSIT ON ASSET PURCHASE 168,760 -
INTANGIBLE ASSETS, at cost, less
accumulated amortization 169,733 136,543
----------- -----------
TOTAL ASSETS $16,296,274 $13,256,533
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 517,000 $ 518,650
Notes Payable 2,233,235 300,000
Accrued Expenses 419,919 287,254
Current portion of long-term debt 587,105 610,419
----------- -----------
TOTAL CURRENT LIABILITIES 3,757,259 1,716,323
LONG-TERM LIABILITIES
Long-term debt, less current portion
above 1,804,869 2,040,597
----------- -----------
TOTAL LIABILITIES 5,562,128 3,756,920
STOCKHOLDER'S EQUITY
CAPITAL CONTRIBUTED
Common stock, par value $.0001,
authorized 300,000,000 shares,
issued and outstanding 3,057,911
shares; 2,953,011 shares 306 295
Additional paid-in-capital 10,654,672 10,478,630
----------- -----------
TOTAL CAPITAL CONTRIBUTED 10,654,978 10,478,925
ACCUMULATED OTHER COMPREHENSIVE INCOME 2,208,937 1,002,375
RETAINED EARNINGS (DEFICIT) (2,129,769) (1,981,687)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 10,734,146 9,499,613
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $16,296,274 $13,256,533
=========== ===========
The consolidated balance sheet at March 31, 1999 has been derived from the
audited consolidated financial statements at that date.
See Notes to Consolidated Financial Statements.
3
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Sept. 30,
1999 1998
----------- -----------
NET SALES $ 1,230,730 $ 1,380,945
COST OF GOODS SOLD 677,601 799,885
----------- -----------
GROSS PROFIT 553,129 581,060
OPERATING EXPENSES 640,636 535,142
----------- -----------
OPERATING INCOME (LOSS) (87,506) 45,918
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income & Finance Charges 6,761 2,897
Interest Expense (199,110) (61,308)
Rent and Other Income (1,207) 6,666
Impairment of Asset Value - (585,000)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (193,556) (636,745)
----------- -----------
NET INCOME (LOSS) BEFORE INCOME
TAXES (281,062) (590,827)
INCOME TAX BENEFIT (EXPENSE) (172,125) -
----------- -----------
NET (LOSS) $ (453,187) $ (590,827)
----------- -----------
NET (LOSS) PER COMMON SHARE $ (0.15) $ (0.21)
----------- -----------
Weighted Average Basic Shares Outstanding 3,010,085 2,849,228
See Notes to Consolidated Financial Statements
4
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended Sept. 30,
1999 1998
----------- -----------
NET SALES $ 1,966,356 $ 2,709,372
COST OF GOODS SOLD 1,160,559 1,653,507
----------- -----------
GROSS PROFIT 805,797 1,055,865
OPERATING EXPENSES 1,283,463 1,034,876
----------- -----------
OPERATING INCOME (477,666) 20,989
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income & Finance Charges 18,964 3,234
Interest Expense (319,442) (128,121)
Rent and Other Income 8,499 28,666
Impairment of Asset Value - (585,000)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (291,979) (681,221)
----------- -----------
NET INCOME (LOSS) BEFORE INCOME
TAXES (769,645) (660,232)
----------- -----------
INCOME TAX BENEFIT (EXPENSE) 621,563 -
----------- -----------
NET (LOSS) $ (148,082) $ (660,232)
----------- -----------
NET (LOSS) PER COMMON SHARE $ (0.05) $ (0.23)
----------- -----------
Weighted Average Basic and Diluted
Shares Outstanding 2,982,587 2,849,228
See Notes to Consolidated Financial Statements
5
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended Sept. 30,
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (148,082) $ (660,232)
Adjustments to reconcile net
income/(loss) to net cash
provided by/(used in) operating
activities:
Depreciation and amortization 330,393 399,966
Accrued financing costs 168,764 -
Payment of expense with shares of
stock 18,750 -
Deferred income taxes (621,563) -
Impairment of asset value - 585,000
(Increase) decrease in operating assets
Accounts Receivable (61,291) 334,954
Inventories (11,963) 898
Prepaid Expenses 15,182 (24,731)
Increase (decrease) in operating
liabilities
Accounts Payable (1,650) 105,777
Accrued Expenses 31,186 70,066
Deferred revenue - (60,000)
----------- -----------
NET CASH PROVIDED BY/(USED IN)OPERATING
ACTIVITIES (280,274) 81,790
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (506,847) (145,845)
Investment in oil and gas properties (633,024) (350,195)
Investment in intangible assets (69,378) (20,976)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,209,249) (517,016)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable 1,865,951 -
Increase in long-term debt 85,333 339,650
Sale/(Repurchase) of Common Stock (11,458) 289,062
Repayment of long-term debt (344,375) (311,295)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,595,451 317,417
----------- -----------
NET INCREASE (DECREASE) IN CASH 105,928 (117,809)
CASH, BEGINNING OF PERIOD 35,474 238,135
----------- -----------
CASH, END OF PERIOD $ 141,402 $ 120,326
----------- -----------
Additional Cash Flow Information:
Deposit on Asset Purchase through
issuance of Common Stock $ 168,760 -
See Notes to Consolidated Financial Statements
6
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Basis of Presentation
Summary of issuer's significant accounting policies are incorporated by
reference to the Company's annual report on Form 10-KSB at March 31, 1999.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
and six month periods ended September 30, 1999 are not necessarily indicative
of the results that may be expected for the year ended March 31, 2000.
(2) Current Financing
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
borrowed $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% effective 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. As of September 30,
1999 the Company had accrued interest of $168,764 related to the financing
agreement.
(3) Investment Securities
The Company received 450,000 shares of common stock in Evergreen Resources,
Inc. as part of the payment for the sale of gas production properties
effective December 31, 1998. This stock will be available for sale in
January, 2000 and is carried on the balance sheet as an available for sale
security at its current market value. When the transaction was completed the
value of this stock was approximately $7.5 million, at March 31, 1999, the
value was approximately $9.0 million, at June 30, 1999 the value was
approximately $11.3 million, and at September 30, 1999 the value was
approximately $10.8 million. This change in market value, net of income
taxes, is reflected in Shareholders' Equity as Accumulated Other Comprehensive
Income. Gain or loss on this stock will be reflected in the Statement of
Operations when the stock is sold.
7
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
(4) Long Term Debt
Subsequent to September 30, 1999 the Company borrowed an additional $100,000
on its equipment line of credit with The CIT Group/Credit Finance, Inc. (CIT).
The proceeds from this additional borrowing were used to finance a portion of
the Powder River Cementers, LLC acquisition.
(5) Property Acquisitions
Effective August 16, 1999 the Company acquired Powder River Cementers, LLC, a
well cementing company located in Gillette, Wyoming for $394,638,including
acquisition costs, and 100,000 shares of Infinity common stock valued at
$168,760. Assets of this company included a cement truck, bulk cement truck
and a bulk cement blending and storage facility. In addition to the physical
assets, the Company acquired the rights to an agreement to provide cementing
services for up to 1,000 wells being drilled by a major operator in the basin.
Effective August 1, 1999, the Company acquired a working interest in a coal
bed methane property that contains 15,820 gross acres in the Green River Basin
of Wyoming. Capital expenditures, including acquisition costs, were $633,024
through September 30, 1999.
8
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
Results of Operations
The net loss for the quarter ended September 30, 1999, improved by $137,640 to
a net loss of $453,187 compared to a loss of $590,827 for the 1998 period.
For the six-month period ended September 30, 1999, the net loss improved by
$512,150 to a net loss of $148,082 compared to a net loss of $660,232 for the
comparable period in 1998.
The Company experienced a $27,931, or 5% decrease in gross profit to $553,129
in the three months ended September 30, 1999 from $581,060 for the three
months ended September 30, 1998. The decrease in gross profit during the
quarter was the result of a $150,215, or 11%, decrease in net sales, which was
partially offset by a $122,284, or 15%, decrease in cost of goods sold when
compared to same quarter of 1998.
For the six months ended September 30, 1999 the Company had $805,797 in gross
profit, a $250,068, or 24%, decrease from the $1,055,865 gross profit
recognized in the comparable 1998 period. The decrease in gross profit during
the six month period was the result of a $743,016, or 27%, decrease in net
sales, which was partially offset by a $492,948, or 30%, decrease in the cost
of goods sold when compared to the six month period ended September 30, 1998.
Operating expenses for the three months ended September 30, increased
$105,494, or 20%, from $535,142 in the 1998 period to $640,636 in the 1999
period. A majority of the increase in other operating expenses were
associated with: shareholder matters which increased by $71,005 as a result of
expenses incurred to attract new outside directors and to improve
communications with shareholders, or 343%, to $91,705 in the quarter ended
September 30, 1999 from $20,700 in the comparable 1998 period; consulting fees
that were $18,750 in the 1999 quarter; and, salaries that increased by
$29,984, or 23%, to $162,465 in the 1999 quarter compared to $132,481 in the
same period in 1998 as capabilities were expanded to evaluate opportunities
and activities in the environmental division increased.
For the six months ended September 30, 1999 other operating expenses increased
$248,587, or 24%, to $1,283,463 from $1,034,876 in the 1998 period. The
increase in other operating expenses was mainly due to: an $85,102 increase in
expenses incurred to attract new outside directors; an increase of $113,086 in
legal costs to settle issues related to the sale of the Raton Basin properties
in December of 1998; a $78,966, or 34%, increase in salaries due to improved
capabilities and the return of the operation of the environmental segment to
the Company; and a $35,889 increase in travel expenses as new opportunities
were pursued. These increases in other operating expenses were partially
offset by a $86,110 decrease in Depreciation, Depletion and Amortization
(DD&A) expense after the water treatment facility was written down and the gas
property was sold.
Interest expense for the quarter ended September 30, 1999 was $199,110
compared to $61,308 for the comparable period in 1998. For the six-month
period ended September 30, 1999 interest expense was $319,442 compared to
$128,121 for the same period of 1998. The increase in interest expense in
each period is primarily due to the increased debt associated with the
financing obtained in April 1999. (See Note 2 to the Consolidated Financial
Statements)
9
<PAGE>
During the quarter ended September 30, 1998 the Company recorded a $585,000
non-cash expense for impairment of asset value in accordance with Statement of
Accounting Standards No. 121 related to the abandonment by its lessee of the
water treatment facilities. The Company has not recognized any impairment in
the current period.
Income tax expense of $172,125 occurred in the three month period ended
September 30, 1999. This is a reduction in the $793,688 income tax benefit
recorded in the quarter ended June 30, 1999 resulting in a six-month tax
benefit of $621,563. This income tax benefit or expense reflects the change
in the expected reductions of future income tax payments created by an
accumulation of current and past operating losses.
OILFIELD SERVICES: The oilfield services segment of the Company generated
$1,227,819 in revenues and $647,636 in cost of sales during the quarter ended
September 30, 1999 compared to $1,255,847 in revenues and $730,992 in cost of
sales during the comparable period in 1998. The operating expenses incurred
by the oilfield services segment of the Company were $440,247 for the three
months ended September 30, 1999 and $422,129 for the three months ended
September 30, 1998. Operating income increased to $139,936 for the three
months ended September 30, 1999 from operating income of $129,472 for the
three months ended September 30, 1998. The expansion of the oilfield service
segment of the Company, effective August 16th with the acquisition of Powder
River Cementers, into the Gillette, Wyoming area generated $89,121 in revenues
and $30,824 in cost of sales. The Gillette operations also incurred $17,900
in operating expenses, resulting in the addition of $40,398 in net income for
the quarter ended September 30, 1999. (See Note 5 to the Consolidated
Financial Statements)
The oilfield services segment of the Company generated $1,933,139 in revenues
and $1,110,863 in cost of sales during the six months ended September 30,
1999, compared to $2,539,082 in revenues and $1,413,328 in cost of sales
during the six months ended September 30, 1998. The operating expenses
incurred by the oilfield services segment of the Company were $815,546 for the
six months ended September 30, 1999 and $793,286 for the six months ended
September 30, 1998. Operating income declined to a loss of $9,807 for the six
months ended September 30, 1999 from a profit of $332,468 for the six months
ended September 30, 1998. Extremely wet conditions in the service area during
April and May and depressed oil prices resulted in a greatly reduced demand
for oil field services during the six-month period ended September 30, 1999
compared to the same period ended September 30, 1998.
ENVIRONMENTAL SERVICES: The environmental service segment of the Company
incurred a $51,029 operating loss during the quarter ended September 30, 1999
compared to an operating loss of $13,620 for the same period in 1998. The
Company operates these properties at a minimum level of commercial activity
and recorded only $2,911 in revenue during the quarter ended September 30,
1999 compared to $40,001 in revenue during the comparable period of 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 in the quarter ended September 30, 1998 to reflect an impairment of
value of the long-lived assets. This charge reduced the carrying value of
property and equipment but did not affect the liquidity of the Company.
10
<PAGE>
The environmental services segment of the Company recorded $33,217 in revenue,
$49,696 in cost of sales, and operating expenses of $63,221, resulting in a
$79,700 loss during the six-month period ended September 30, 1999. For the
comparable period ended September 30, 1998 the segment showed $40,001 in
revenue, $17,666 in cost of sales, and $83,626 in operating expense. This
segment also recorded $28,666 of rental income for a net loss of $32,624
during the six month period ended September 30, 1998. The 1999 operating
expense included $31,844 in depreciation expense compared to $78,084 of
depreciation recorded in the 1998 expense. The reduction in depreciation was
mainly due to the write-down of the assets in accordance with Statement of
Accounting Standards No. 121 discussed previously.
OIL AND GAS PRODUCTION: The oil and gas production segment of the Company
recorded net revenue from gas sales of $130,289 and operating expenses of
$256,040 during the six months ending September 30, 1998, including $31,598 of
depletion and depreciation expense. 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. The Company's remaining interest in
the properties was sold to Evergreen Resources, Inc. effective December 31,
1998 so this segment of the Company has recorded no revenue during the
three-month period ended September 30, 1999. The Company has incurred
$21,964 in expenses associated with litigation related to operation of the
properties prior to the asset sale. Liability associated with any outstanding
litigation was transferred to the new owner at the time the properties were
sold and the Company expects no liability associated with these issues.
After the sale of its interest in the Raton Basin of Northern New Mexico and
Southern Colorado, the Company immediately began and continues to search for
new development opportunities. As a result of this search the Company
acquired a working interest in a coal bed methane property that contains
15,820 gross acres in the Green River Basin of Wyoming. This acreage has 40
to 90 feet of high volatile coal at depths between 1,500 to 3,200 feet with
gas contents estimated to be in the range of 430 standard cubic feet (scf) per
ton. A five well pilot project has already been planned and the Company hopes
to spud the first well during the fourth quarter of calendar year 1999. Based
on the results of the pilot project, the Company will plan development of the
acreage. The Company is also negotiating the acquisition of, or evaluating
several other prospects in the Green River Basin. Upon the successful
acquisition of additional acreage in the Green River Basin the Company intends
to redirect additional oil field service assets to the area in order to
service the development of the acreage.
CORPORATE ACTIVITIES: Expenses incurred in corporate activities were $366,195
for the six months ended September 30, 1999, compared to $131,593 for the six
months ended September 30, 1998. The $234,602 increase in corporate expenses
was primarily due to expenses incurred to attract new outside directors,
improving communications with shareholders and settling legal matters related
to the sale of the Raton Basin property in December 1998.
Liquidity and Capital Resources
As of September 30, 1999, the Company had a working capital deficit of
$2,754,580 compared to a working capital deficit of $877,643 at March 31,
1999. The increase in the working capital deficit is due to borrowing
$2,035,950 collateralized by the Evergreen stock, which is a non-current
asset. The funds provided by these borrowings were used for the acquisition
of capital assets and to pay current operating expenses.
11
<PAGE>
During the six months ended September 30, 1998 the Company incurred a cash
deficit from operating activities of $280,274 compared to cash generated of
$81,790 for the six months ended September 30, 1998.
Net cash provided by the operation of the oilfield services segment was
$288,703 for the six months ended September 30, 1999. Net cash used by the
operation of the environmental services segment, oil and gas segment, and
corporate activities was $47,816, $21,964 and $366,195, respectively.
Cash used in investing activities during the six months ended September 30,
1999, was $1,209,249 compared to $517,016 for the comparable period of 1998.
The 1999 activity included the $633,024 in expenditures related to the
acquisition of the Green River Basin acreage in Wyoming and $394,638 in costs
associated with the purchase of Powder River Cementers, LLC and startup of
operations in Gillette Wyoming. The Company also acquired approximately
$182,000 in other oil field service equipment during the six-month period in
1999. During the six month period ended September 30, 1998 the Company
invested an additional $350,195 in oil and gas properties that were sold in
December 1998 to Evergreen Resources, Inc. and $145,845 in oil field service
equipment. The Company also invested an additional $21,000 in intangible
assets.
The Company obtained $2,035,950 in financing, repaid $170,000 in bank debt and
obtained $85,334 in long-term debt on its equipment and receivable facilities
during the six months ended September 30, 1999. The cash received from
financing activities was reduced by the repayment of $344,375 of long-term
debt and by $11,458 used to repurchase Company stock. The company will
continue to look at opportunities to repurchase shares of Company stock at
favorable prices. In addition, the Company issued 112,500 shares of common
stock, valued at $187,510 to pay consulting fees and acquire Powder River
Cementers, LLC.
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 at that time. These shares are "restricted securities" and are not
eligible for resale under Rule 144 until January 2000. Under the agreement,
the Company borrowed $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% effective interest rate and the Company has recorded
$67,285 in interest expense related to these borrowings during the six month
period ended September 30, 1999. 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. The total expense
recognized on the Statement of Operations for the six months ended September
30, 1999 was $168,764.
Effective August 16, 1999 the Company acquired Powder River Cementers, LLC, a
well cementing company located in Gillette, Wyoming for $325,000 and 100,000
shares of Infinity common stock valued at $168,760. As a result of this
acquisition the Company began oil field service operations in the coal bed
methane development now taking place in the Powder River Basin of Wyoming.
Assets of this company included a cement truck, bulk cement truck and a bulk
cement blending and storage facility and an agreement to provide cementing
services on up to 1,000 wells for a major drilling operator in the basin.
Subsequent to the acquisition the Company has temporarily reassigned personnel
and equipment from its Eastern Kansas operations to handle the demand for
services.
12
<PAGE>
Subsequent to September 30, 1999 the Company entered into an agreement to
purchase the facilities that it currently occupies in Chanute and Ottawa,
Kansas and Bartlesville, Oklahoma for $210,000. Financing for the purchase
has been arranged through local sources at a rate of 8.5% for 84 months and
closing on the purchase is expected to occur prior to November 19th.
The Company acquired a working interest in a coal bed methane property that
contains 15,820 gross acres in the Green River Basin of Wyoming. Capital
expenditures, including acquisition costs, were $633,024 through September 30,
1999. The Company is obligated under the terms of its lease agreement on the
Green River Basin acreage to begin drilling its first well within 30 days of
obtaining the required permits and obtaining the agreement to participate by
owners of at least 75% of the working interest. The Company anticipates
drilling its first pilot well on the project prior to the end of fiscal year
2000. The Company believes that the resources resulting from borrowings based
on the Evergreen stock along with the capacity remaining on bank credit lines
will provide sufficient liquidity to meet the Company's working capital needs
for the project.
The Company has committed to fund a $750,000, 10% convertible debenture if the
authorizing company obtains an oil concession. Management believes that the
likelihood of the authorizing company obtaining the concession is fair and
that funds may need to be available prior to the end of the current fiscal
year, which ends March 31, 2000. In such event, the Company would borrow
funds based on the Evergreen stock to meet the commitment.
Management believes that the cash flow being generated by the increase in oil
field service sales, together with the proceeds of additional development
financing will provide sufficient liquidity to meet the Company's needs for
the remainder of the fiscal year ended March 31, 2000. The ability of the
Company to finance future projects will be dependent on the success of the
pilot project in the Green River Basin and the ability of the Company to
generate positive cash flow from its oilfield service segment.
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.
Forward Looking Statements
Statements that are not historical facts included in this Form 10-QSB are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements address activities, events or
developments that the Company expects, believes, projects, intends or
anticipates will or may occur, including such matters as future capital needs,
debt restructuring, pending legal proceedings, business strategies, expansion
and growth of the Company's operations, and cash flow. Factors that could
cause actual results to differ materially ("Cautionary Disclosures") are
13
<PAGE>
described throughout this Form 10-QSB. Cautionary Disclosures include, among
others: general economic conditions, the Company's ability to find, acquire,
market, develop and produce new properties, the results of debt restructuring
efforts, and pending legal proceedings. All written and oral forward-looking
statements attributable to the Company are expressly qualified in their
entirety by the Cautionary Disclosures. The Company disclaims any obligation
to update or revise any forward-looking statement to reflect events or
circumstances occurring hereafter or to reflect the occurrence of anticipated
or unanticipated events.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceeding.
In March 1999, Bluegreen Corporation of the Rockies (Bluegreen) filed a
complaint against the Company's subsidiary, CIS Oil and Gas, Inc. (COG) and H.
Huffman and Company (Huffman) in the U.S. District Court for the District of
Colorado. The subsidiary was served on June 29, 1999. The gas development
property that the Company sold effective December 31, 1998 was subleased from
Huffman who had leased the property from Bluegreen. Bluegreen alleges
breaches by Huffman and COG under this lease and claims damages and other
relief. COG answered the complaint and filed counterclaims against Bluegreen
for damages related to breaches of the same lease. COG also filed a third
party complaint for indemnification against Evergreen Resources, Inc. based
upon their assumptions of rights and responsibilities under this lease
pursuant to the sale agreement effective December 31, 1998. Subsequent to
September 30, 1999 all claims related to this action have been dismissed
without prejudice. In order to eliminate the statute of limitations
associated with these claims, the parties have put in place a tolling
agreement and any party may refile their claims at any time. However, the
Company believes that it still has no liability in relation to the claims and
that they will not have an impact on the liquidity of the Company.
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.
The court has ordered that all claims and defenses in this case be handled
through arbitration. At this time the parties are in the process of selecting
an arbitrator to handle the case.
Item 2. Changes in Securities
During the three month period ended September 30, 1999 the Company issued
securities that were not registered under the Securities Act of 1933 as
follows:
In August 1999, the Company issued a total of 100,000 shares of its common
stock to an escrow account to be delivered to the former owners of Powder
River Cementers, LLC upon the completion of certain performance criteria by
Powder River Cementers, a Division of Consolidated Industrial Services, a
subsidiary of Infinity, Inc.
With respect to this transaction, the Company relied on Section 4 (2) of the
Securities Act of 1933 as amended. The former owners were given complete
information concerning the Company. The appropriate restrictive legend was
placed on the certificates and stop transfer instructions were issued to the
transfer agent.
15
<PAGE>
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Three issues were presented to Stockholders of the Company by proxy for
consideration at the annual Stockholders meeting that was held October 6, 1999
at the Company's headquarters in Chanute, Kansas. These issues, all of which
were approved at the annual Stockholders meeting, were:
(a) The election of four (4) Directors of the Company to serve until the
next Annual Meeting of Shareholders and until their successors have been duly
elected and qualified;
(b) The ratification of the appointment of Sartain Fischbein & Co. as the
Company's independent auditors; and
(c) The approval of the Company's 1999 Stock Option Plan.
The following sets forth the votes cast for, against or withheld, as well as
the number of abstentions and broker non-votes, as to each of the matters
presented at the meeting:
Election of Directors:
Nominees For Withheld
Stanton E. Ross 2,241,273 59,448
Jeffrey L. Dale 2,288,212 12,509
George R. Jones 2,286,962 13,759
Leroy C. Richie 2,288,212 12,509
Appointment of Sartain Fischbein & Co.:
For Against Abstentions
2,287,793 3,825 19,103
Approval of 1999 Stock Option Plan:
For Against Abstentions Not Voted
2,092,131 194,454 14,136 -0-
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibit is being filed with this report:
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K. None
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
INFINITY, INC.
Dated: November 15, 1999 By /s/ Stanton E. Ross
Stanton E. Ross, President
By /s/ Jon D. Klugh
Jon D. Klugh, Chief Financial Officer
17
<PAGE>
<PAGE>
EXHIBIT METHOD OF FILING
- ------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet found on page 3 and consolidated statement
of operations found on page 5 of the Company's Form 10-QSB for the
year to date, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 141,402
<SECURITIES> 10,828,125
<RECEIVABLES> 621,499
<ALLOWANCES> 11,452
<INVENTORY> 156,057
<CURRENT-ASSETS> 1,002,679
<PP&E> 7,366,719
<DEPRECIATION> 3,239,743
<TOTAL-ASSETS> 16,296,274
<CURRENT-LIABILITIES> 3,757,259
<BONDS> 0
<COMMON> 305
0
0
<OTHER-SE> 10,733,840
<TOTAL-LIABILITY-AND-EQUITY> 16,296,274
<SALES> 1,966,356
<TOTAL-REVENUES> 1,966,356
<CGS> 1,160,559
<TOTAL-COSTS> 1,160,559
<OTHER-EXPENSES> 1,283,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (319,442)
<INCOME-PRETAX> (769,645)
<INCOME-TAX> (621,563)
<INCOME-CONTINUING> (148,082)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (148,082)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
