<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 June 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.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1070066
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
211 West 14th Street, Chanute, Kansas 66720
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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 2,957,911 shares of the Registrant's Common Stock outstanding as of
July 28, 1999.
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INFINITY, INC.
FORM 10-QSB
INDEX
Part I Financial Information Page Number
Item 1. Financial Information:
Condensed Consolidated Balance Sheets......... 3
Condensed Consolidated Statements
of Operations................................. 4
Condensed Consolidated Statements of Cash
Flows......................................... 5
Notes to Consolidated Financial Statements.... 6
Item 2. Management's Discussion and Analysis
or Plan of Operations........................... 7
Part II: Other Information............................... 9
2
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INFINITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 1999 March 31, 1999
------------- --------------
CURRENT ASSETS
Cash $ 1,142,996 $ 35,474
Accounts Receivable, less allowance
for doubtful accounts 318,700 548,756
Inventories 138,926 144,094
Prepaid Expenses 80,830 110,356
----------- -----------
TOTAL CURRENT ASSETS 1,681,452 838,680
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 3,285,430 3,281,310
INTANGIBLE ASSETS, at cost, less
accumulated amortization 126,713 136,543
INVESTMENT SECURITIES 11,334,375 9,000,000
----------- -----------
TOTAL ASSETS 16,427,970 13,256,533
LIABILITIES
CURRENT LIABILITIES
Accounts Payable 293,171 518,650
Accrued Expenses 309,593 287,254
Notes payable 2,083,104 300,000
Current portion of long-term debt 616,173 610,419
----------- -----------
TOTAL CURRENT LIABILITIES 3,302,041 1,716,323
LONG-TERM LIABILITIES
Long-term debt, less current portion
above 1,791,972 2,040,597
----------- -----------
TOTAL LIABILITIES 5,094,013 3,756,920
STOCKHOLDERS' EQUITY
CAPITAL CONTRIBUTED
Common stock, par value $.0001,
authorized 300,000,000 shares, issued
and outstanding 2,957,911 shares;
2,953,011 shares 295 295
Additional paid-in-capital 10,467,182 10,478,630
----------- -----------
TOTAL CAPITAL CONTRIBUTED 10,467,477 10,478,925
Accumulated Other Comprehensive Income 2,543,062 1,002,375
RETAINED EARNINGS (DEFICIT) (1,676,582) (1,981,687)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 11,333,957 9,499,613
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $16,427,970 $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
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INFINITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30,
1999 1998
----------- -----------
NET SALES $ 735,625 $ 1,328,427
COST OF GOODS SOLD 482,958 853,622
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GROSS PROFIT 252,667 474,805
OPERATING EXPENSES 642,827 499,734
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OPERATING INCOME (LOSS) (390,160) (24,929)
OTHER INCOME (EXPENSE)
Interest Income and other 12,203 337
Interest Expense (120,332) (66,813)
Rent and Other Income 9,706 22,000
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (98,423) (44,476)
----------- -----------
NET INCOME (LOSS) before income
taxes (488,583) (69,405)
INCOME TAX BENEFIT 793,688 -
----------- -----------
NET INCOME (LOSS) $ 305,105 $ (69,405)
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NET INCOME (LOSS) PER COMMON SHARE $ 0.10 $ (0.02)
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Weighted Average Basic and Diluted
Shares Outstanding 2,954,788 2,849,228
=========== ===========
See Notes to Consolidated Financial Statements.
4
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INFINITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended June 30,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 305,105 $ (69,405)
Adjustments to reconcile net loss
to net cash used in operating
activities
Depreciation and amortization 159,248 210,141
Deferred income taxes (793,688) -
(Increase) decrease in operating assets
Accounts Receivable 230,056 (164,994)
Inventories 5,168 16,779
Prepaid Expenses 29,526 21,203
Increase (decrease) in operating
liabilities
Accounts Payable (225,479) 51,154
Accrued Expenses 22,339 65,320
Deferred revenue - (30,000)
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (267,725) 100,198
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (153,538) (62,435)
Investment in oil and gas properties - (260,883)
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NET CASH USED IN INVESTING
ACTIVITIES (153,538) (323,318)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable (300,000) -
Increase in current financing 2,083,104 125,156
Proceeds from issuance of (repurchase
of) common stock (11,447) 289,062
Repayment of long-term debt (242,872) (154,650)
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NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,528,785 259,568
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NET INCREASE IN CASH 1,107,522 36,448
CASH, BEGINNING OF PERIOD 35,474 238,135
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CASH, END OF PERIOD $ 1,142,996 $ 274,583
=========== ===========
See Notes to Consolidated Financial Statements
5
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INFINITY, INC. AND SUBSIDIARIES
NOTES CONSOLIDATED 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 10KSB 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
months ended June 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.
(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 asset is carried on the balance sheet as an
available for sale security at its current market value. When the transaction
was completed the value was approximately $7.5 million, at March 31, 1999, the
value was approximately $9.0 million, and at June 30, 1999 the value was
approximately $11.3 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.
6
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Item 2. Management's Discussion and Analysis or Plan of Operations
Results of Operations
The oilfield services segment of the Company generated $705,320 in revenues
and $463,227 in cost of sales during the three months ended June 30, 1999,
compared to $1,256,489 in revenues and $667,336 in cost of sales for the three
months ended June 30, 1998. The operating expenses incurred by the oilfield
services segment of the Company were $391,836 for the three months ended June
30, 1999 and $386,157 for the three months ended June 30, 1998. Net operating
results declined to a loss of ($149,743) for the three months ended June 30,
1999 from a profit of $202,996 for the three months ended June 30, 1998. The
reduced results are attributed to the general lack of development and
production activity in the oil and gas industry brought on by unfavorable
weather conditions and depressed oil prices. Depreciation and amortization
expense included in operating expenses for the oilfield services division was
$143,307 for the three months ended June 30, 1999 and $145,379 for the three
months ended June 30, 1998.
The environmental services segment of the Company generated $30,306 in
revenue, $19,731 in cost of sales and $39,246 in operating costs during the
three months ended June 30, 1999 and $22,000 in rental income during the three
months ended June 30, 1998. These amounts were offset by depreciation and
amortization expense of $15,942 and $40,513 for the same respective periods.
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. As
a result of the abandonment, the Company recorded a non-cash charge in August
1998 of $585,000 which reduced the net carrying value of property and
equipment. The Company continues to operate and maintain these properties as
necessary to comply with applicable regulations.
The oil and gas production segment of the Company recorded revenue of $71,938
and operating expense of $209,189 during the three months ending June 30,
1998, including depreciation and depletion expense of $21,532. The Company's
production properties were sold effective December 31, 1998 so this segment
of the Company recorded no revenue and only $11,851 in operating expense
during the three months ending June 30, 1999. After the sale the Company
immediately began and continues to search for appropriate new development
opportunities.
Expenses incurred in corporate activities were $199,895 for the three months
ended June 30, 1999, compared to $50,162 for the three months ended June 30,
1998. The increase in corporate expenses resulted from increased legal, audit
and insurance expenses and costs associated with the search for new
development opportunities.
Liquidity and Capital Resources
As of June 30, 1999, the Company had a working capital deficit of $1,620,589
compared to a working capital deficit of $877,643 at March 31, 1999. The
decrease in working capital is primarily due to the operating losses incurred
during the quarter.
During the three month period ended June 30, 1999 cash used by operating
activities was ($267,725) as compared to cash generated of $100,198 for the
three months ended June 30, 1998. The reduction in the amount of cash
generated was due to the reduced profitability of the oilfield service
business and increased legal, audit and shareholder costs.
7
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Net cash used by operation of the oilfield services segment was ($6,436) for
the three months ended June 30, 1999 and net cash used by operation of the oil
and gas segment was ($11,851). Net cash used by the operation of the
environmental services segment was ($12,729) and net cash used by corporate
activities was ($199,895) for the period plus $120,332 in interest expense.
Cash flows used in investing activities during the three months ended June 30,
1999 were ($153,538) compared to ($323,318) for the comparable period of 1998.
The 1999 expenditures were purchases of equipment for the oilfield service
business. The decrease in expenditures is primarily due to the elimination of
development activity on the gas production properties which were sold
effective December 31, 1998.
The Company obtained $2,083,104 in financing, repaid $300,000 in bank debt and
spent $11,447 to repurchase company stock during the three months ended June
30, 1999. This cash received from financing activities was reduced by the
repayment of ($242,872) of long term debt.
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. 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 along with the capacity remaining on
equipment and bank credit lines, as described in the footnotes to the
consolidated financial statements, 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 and is seeking to expand the oilfield service
business. 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.
8
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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. Management has
evaluated this matter with legal counsel and does not believe that the
resolution of this matter will have a material impact on the Company's
operations or financial condition.
Item 2. Changes in Securities
During the quarter ended June 30, 1999, the Company issued securities
which were not registered under the Securities Act of 1933, as follows:
In May 1999, the Company issued a total of 12,500 shares of its common
stock to two consultants in exchange for services provided to the Company.
With respect to these transactions, the Company relied on Section 4(2) of
the Securities Act of 1933, as amended. The consultants 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.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K. The Company filed one report on Form 8-K dated
May 5, 1999, reporting information under items 4 and 7 concerning the
resignation of Mayer Hoffman McCann L.C. as the Company's auditors and the
engagement of Sartain Fischbein & Co. as the Company's new auditors.
9
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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: August 13, 1999 By:/s/ Stanton E. Ross
Stanton E. Ross, President
and Treasurer (principal financial
officer)
10
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EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages 3 and 4 of the Company's Form 10-QSB for the year to date, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 1,142,996
<SECURITIES> 11,334,375
<RECEIVABLES> 329,821
<ALLOWANCES> 11,121
<INVENTORY> 138,926
<CURRENT-ASSETS> 1,681,452
<PP&E> 6,337,781
<DEPRECIATION> 3,052,351
<TOTAL-ASSETS> 16,427,970
<CURRENT-LIABILITIES> 3,302,041
<BONDS> 0
<COMMON> 295
0
0
<OTHER-SE> 11,333,662
<TOTAL-LIABILITY-AND-EQUITY> 16,427,970
<SALES> 735,625
<TOTAL-REVENUES> 735,625
<CGS> 482,958
<TOTAL-COSTS> 482,958
<OTHER-EXPENSES> 642,827
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120,332
<INCOME-PRETAX> (488,583)
<INCOME-TAX> (793,688)
<INCOME-CONTINUING> 305,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 305,105
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
