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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ___________, 19___ to ___________, 19___.
Commission File Number: 0-17204
INFINITY, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1070066
------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
211 West 14th Street, Chanute, Kansas 66720
----------------------------------------------------------
Address of Principal Executive Offices, Including Zip Code
(316) 431-6200
-----------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
There were 2,989,737 shares of the Registrant's Common Stock outstanding as of
September 30, 2000.
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INFINITY, INC.
FORM 10-QSB
INDEX
Page
Number
------
Part I Financial Information
Item 1. Financial Information:
Condensed Consolidated Balance Sheets ................ 3
Condensed Consolidated Statements of Operations
for three months ended September 30, 2000 ............ 4
Condensed Consolidated Statements of Operations
for six months ended September 30, 2000 .............. 5
Condensed Consolidated Statements of
Comprehensive Income (Loss) .......................... 6
Condensed Consolidated Statements of Cash Flows ...... 7
Notes to Consolidated Financial Statements ........... 8
Item 2. Management's Discussion and Analysis or Plan of
Operations ........................................... 11
Part II: Other Information .................................... 16
2
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Sept. 30, 2000 March 31, 2000
-------------- --------------
(Unaudited)
CURRENT ASSETS
Cash $ 1,574,552 $ 716,309
Accounts Receivable, less allowance
for doubtful accounts 1,228,943 587,909
Inventories 203,760 203,998
Prepaid Expenses 221,704 366,281
----------- -----------
TOTAL CURRENT ASSETS 3,228,959 1,874,497
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 6,089,592 4,230,556
INVESTMENT SECURITIES 11,293,750 10,884,600
OIL AND GAS PROPERTIES, using full cost
accounting net of accumulated depreciation,
depletion and amortization 3,937,557 1,958,648
INTANGIBLE ASSETS, at cost, less
accumulated amortization 278,646 298,287
OTHER ASSETS 821,056 132,722
----------- -----------
TOTAL ASSETS $25,649,560 $19,379,310
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Current portion of long-term debt $ 2,794,995 $ 2,174,066
Accounts Payable 502,235 510,337
Deferred Income Tax 192,000 --
Accrued Expenses 352,254 301,200
----------- -----------
TOTAL CURRENT LIABILITIES 3,841,484 2,985,603
LONG-TERM LIABILITIES
Deferred Income Tax 994,000 --
Long-term debt, less current portion above 7,971,019 6,411,381
----------- -----------
TOTAL LIABILITIES 12,806,503 9,396,984
STOCKHOLDERS' EQUITY
CAPITAL CONTRIBUTED
Common stock, par value $.0001, authorized
300,000,000 shares, issued and outstanding
2,989,737 shares; 2,950,561 shares 299 295
Additional paid-in-capital 10,602,711 10,470,105
Accumulated other comprehensive income:
Unrealized gain on securities available
for sale, net of Deferred income taxes
of $2,002,812 and $985,014 3,887,813 2,246,211
Accumulated deficit (1,647,766) (2,734,285)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,843,057 9,982,326
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $25,649,560 $19,379,310
=========== ===========
The consolidated balance sheet at March 31, 2000 has been derived from the
audited financial statements at that date. See Notes to Consolidated
Financial Statements.
3
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Sept. 30,
-----------------------------
2000 1999
----------- -----------
REVENUES
Oil and Gas Service Operations $ 2,478,220 $ 1,227,819
Waste Water Treatment 3,151 2,911
Oil and Gas Sales 48,319 --
----------- -----------
TOTAL REVENUE 2,529,690 1,230,730
COST OF SALES
Oil and Gas Service Operations 1,154,982 647,636
Waste Water Treatment Facilities 47,342 29,965
Oil and Gas Production Expenses and Taxes 43,518 --
----------- -----------
COST OF SALES 1,245,842 677,601
----------- -----------
GROSS PROFIT 1,283,848 553,129
OPERATING EXPENSES 795,107 640,635
OPERATING INCOME (LOSS) 488,741 (87,506)
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income & Finance Charges 20,189 6,761
Interest Expense (159,135) (199,110)
Rent and Other Income 2,923 1,207
Gain on sale of assets and marketable
securities 1,750 --
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (134,273) (193,556)
----------- -----------
INCOME BEFORE INCOME TAXES 354,468 (281,062)
INCOME TAX BENEFIT (EXPENSE) (121,688) (172,125)
----------- -----------
NET INCOME (LOSS) $ 232,780 $ (453,187)
----------- -----------
NET INCOME PER COMMON SHARE $ 0.08 $ (0.15)
----------- -----------
NET INCOME PER DILUTED COMMON SHARE $ 0.07 $ (0.15)
----------- -----------
Weighted Average Basic Shares Outstanding 2,966,950 3,010,085
Weighted Average Diluted Shares Outstanding 3,235,981 3,010,085
See Notes to Consolidated Financial Statements.
4
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended Sept. 30,
-----------------------------
2000 1999
----------- -----------
REVENUES
Oil and Gas Service Operations $ 3,914,392 $ 1,933,139
Waste Water Treatment 4,453 33,217
Oil and Gas Sales 58,035 --
----------- -----------
TOTAL REVENUE 3,976,880 1,966,356
COST OF SALES
Oil and Gas Service Operations 1,998,431 1,110,863
Waste Water Treatment Facilities 61,142 49,696
Oil and Gas Production Expenses and Taxes 51,967 --
----------- -----------
COST OF SALES 2,111,540 1,160,559
----------- -----------
GROSS PROFIT 1,865,340 805,797
OPERATING EXPENSES 1,497,622 1,283,463
----------- -----------
OPERATING INCOME (LOSS) 367,718 (477,666)
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income & Finance Charges 27,387 18,964
Interest Expense (296,987) (319,442)
Rent and Other Income 11,387 8,499
Gain on sale of assets and marketable
securities 1,317,341 --
----------- -----------
TOTAL OTHER INCOME (EXPENSE) 1,059,128 (291,979)
----------- -----------
INCOME BEFORE INCOME TAXES 1,426,846 (769,645)
INCOME TAX BENEFIT (EXPENSE) (340,327) 621,563
----------- -----------
NET INCOME (LOSS) $ 1,086,519 $ (148,082)
----------- -----------
NET INCOME PER COMMON SHARE $ 0.37 $ (0.05)
----------- -----------
NET INCOME PER DILUTED COMMON SHARE $ 0.34 $ (0.05)
----------- -----------
Weighted Average Basic Shares Outstanding 2,960,091 2,982,587
Weighted Average Diluted Shares Outstanding 3,229,122 2,982,587
See Notes to Consolidated Financial Statements.
5
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS) (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Sept. 30 Ended Sept. 30
---------------------- -----------------------
2000 1999 2000 1999
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income (Loss) $ 232,780 $(453,187) $1,086,519 $ 148,082
Other Comprehensive Income (Loss):
Unrealized holding gains (losses)
on Securities, net of taxes of
$566,312 and ($172,125) (three
months ended 9/30/2000 and
9/30/1999 respectively) and
$1,294,594 and $621,563 (six
months ended 9/30/2000 and
9/30/1999 respectively) 1,099,313 (334,125) 2,513,036 1,206,562
Reclassifications, net of Deferred
Tax expense of $448,921 (six
months ended 9/30/2000) -- -- (871,434) --
---------- --------- ---------- ----------
Total Other Comprehensive Income 1,099,313 (334,125) 1,641,602 1,206,562
---------- --------- ---------- ----------
Comprehensive Income (Loss) $1,332,093 $(787,312) $2,728,121 $1,058,480
========== ========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
6
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INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended Sept. 30,
-----------------------------
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,086,519 $ (148,082)
Adjustments to reconcile net income
to net cash Provided by/(used in)
operating activities
Depreciation and amortization 404,450 330,393
Accrued financing costs -- 168,764
Payment of expense with shares of Stock 17,000 18,750
Deferred Income Taxes 340,327 (621,563)
Loss on Sale of Assets 3,014 --
(Gain) on Sale of Marketable Securities (1,320,355) --
(Increase) decrease in operating assets
Accounts Receivable (641,035) (61,291)
Inventories 238 (11,963)
Prepaid Expenses 144,577 15,182
Increase (decrease) in operating
liabilities
Accounts Payable (8,101) (1,650)
Accrued Expenses 51,054 31,186
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 77,688 (280,274)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Marketable Securities 3,398,480 --
Investment in oil and gas properties (1,986,730) (633,024)
Investment in other assets (688,334) --
Purchase of property and equipment (644,053) (506,847)
Investment in intangible assets -- (69,378)
Proceeds from Sale of property and equipment 157,561 --
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 236,924 (1,209,249)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable -- 1,865,951
Increase in borrowings on long-term debt 1,034,201 85,333
Proceeds from issuance of (repurchase
of) common stock 115,610 (11,458)
Repayment of long-term debt (606,180) (344,375)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 543,631 1,595,451
NET INCREASE (DECREASE) IN CASH 858,243 105,928
CASH, BEGINNING OF PERIOD 716,309 35,474
----------- -----------
CASH, END OF PERIOD $ 1,574,552 $ 141,402
=========== ===========
Additional Cash Flow Information:
Deposit on Asset Purchase through issuance
of Common Stock $ 168,760
Other Comprehensive Income net of
Income Taxes $ 2,538,789
Seller Financed Purchase of Fixed Assets $ 1,650,000
See Notes to Consolidated Financial Statements.
7
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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, 2000.
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, 2000 are not necessarily indicative
of the results that may be expected for the year ended March 31, 2001.
(2) 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 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 and at
March 31, 2000 the value was approximately $10.9 million. During June 2000,
the Company sold 125,000 shares of this stock for net proceeds of $3,398,480.
A pre-tax gain of $1,320,355 is recognized in the Company's Consolidated
Statement of Operations. At September 30, 2000 the value of the remaining
325,000 shares of Evergreen stock was approximately $11.3 million. This
change in market value, net of income taxes, is reflected in Shareholders'
Equity as Accumulated Other Comprehensive Income.
(3) Long Term Debt
Effective November 12, 1999 the Company entered into a financing
agreement collateralized by 100,000 shares of the Evergreen stock held by it
with a fair value of $1,950,000 at that time. Under the agreement, the Company
borrowed $1,652,596 with borrowings due November 7, 2001. The Company is
obligated to pay back an amount equal to $1,904,000 so long as the Evergreen
stock is trading between $19.04 and $27.51 per share. This equates to an
approximate 7.5% effective interest rate.
Effective March 7, 2000 the Company entered into an additional financing
agreement collateralized by 100,000 shares of the Evergreen stock held by it
with a fair value of $2,450,000 at that time. Under the agreement, the Company
borrowed $1,713,454 with borrowings due March 4, 2002. The Company is
obligated to pay back an amount equal to $2,021,000 so long as the Evergreen
stock is trading between $20.21 and $30.31 per share. This equates to an
approximate 8.3% effective interest rate.
Effective April 18, 2000 the Company entered into a third financing
agreement collateralized by 125,000 shares of the Evergreen stock held by it
with a fair value of $2,836,000 at that time. Under the agreement, the
Company borrowed $2,350,154 that was used to settle a financing agreement that
expired April 15, 2000. The Company is obligated to pay back $2,742,500 on
the termination date of April 15, 2002 as long as the price of the Evergreen
stock is trading between $21.94 and $32.91 per share. This equates to an
approximate 7.6% effective interest rate.
8
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
(3) Long Term Debt (continued)
The Company has accrued $244,164 in interest expense as additional debt
associated with the loans secured by the Evergreen Stock. Of this amount, the
Company has capitalized $104,417 associated with the investment in the Labarge
and Pipeline properties in Wyoming.
Effective July 31, 2000 the Company entered into an agreement to purchase
aviation assets. The agreement included a financing facility under which the
Company borrowed $1,650,000. The Company was not required to make a down
payment, pay any closing costs or pay any points associated with the financing
and was able to finance 100% of the cost of the agreement. The borrowings are
due in annual payments of $82,500 to be made on April 1 of each year through
2021. The financing will bear interest on the principal sum at the Wall
Street Journal floating published rate in effect at the beginning of each
calendar quarter. Interest will be paid on a quarterly basis. The agreement
gives the Company priority in scheduling usage and allows the aircraft manager
the ability to charter the aircraft to other parties. The Company will be
billed for its share of aircraft costs based on hours used, will share in the
net profits from charter activity as a 50% owner, and will receive a
proportionate share of any appreciation in the value of the assets upon
termination of the agreement.
(4) Earnings Per Share
Basic earnings per share were computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the periods. Diluted earnings per share reflect the potential
dilutions 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 for
the periods ending September 30, 2000 and the effects on income and the
weighted average number of shares of dilutive potential common stock.
Basic Common Earnings
Earnings Shares Per Share
-------- ------ ---------
Year to Date Basic earnings per share:
Six months ending September 30, 2000:
Income available to common stockholders $1,086,519 2,960,091 $0.37
Plus: Impact of assumed conversions of =====
warrants and options -- 269,031
---------- ---------
Diluted earnings per share:
Income available to common shareholders
after assumed conversions of dilutive
securites $1,086,519 3,229,122 $0.34
========== ========= =====
Quarter to Date Basic earnings per share:
Three months ending September 30, 2000:
Income available to common stockholders $ 232,780 2,966,950 $0.08
Plus: Impact of assumed conversions of =====
warrants and options -- 269,031
Diluted earnings per share: ---------- ---------
Income available to common shareholders
after assumed conversions of dilutive
securites $ 232,780 3,235,981 $0.07
========== ========= =====
9
<PAGE>
INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
(4) Earnings Per Share (Continued)
For the period ended September 30, 2000, dilutive potential common shares
of 165,795 were not included in the computation of diluted earnings per share
because their effect was antidilutive.
All dilutive potential common shares are anti-dilutive in the period
ended September 30, 1999.
(5) Stock Options
The Company granted 8,000 incentive stock options from the 1992 stock
option plan during the three months ended September 30, 2000. These options
were issued on August 15, 2000 with an exercise price of $6.00 per share.
Year to date as of October 31, 2000 employees had exercised 2,500 incentive
options that had been issued from the 1992 stock option plan and there were
439 options available for grant under the plan.
In 1999, the Company adopted a stock option plan that allows the grant of
incentive and non-qualified stock options. Options granted under the plan
vested at the time the plan was approved by the stockholders. The options
expire ten years after the date of grant, unless, an earlier expiration date
is set by the Board of Directors. However, incentive stock options granted to
an employee who owns more than 10% of the total combined power of all classes
of the Company's stock must be exercised within five years of the date of
grant. Pursuant to the plan, an aggregate of 140,000 shares of common stock
are available for issuance upon the exercise of such options. The Company
issued 73,250 incentive (3,000 of which were surrendered based on termination
clauses in the option plan) and 65,000 non-qualified options under the plan,
all of which are exercisable at $3.00 per share. On August 15, 2000 the
Company granted an additional 4,500 options at an exercise price of $6.00 per
share. As of October 31, 2000 options to purchase 250 shares were available
for grant under the plan and 37,450 of the options granted had been exercised.
On July 20, 2000 the Company's stockholders approved the 2000 Stock
Option Plan that authorized the issuance of stock options granted by the Board
of Directors on September 22, 1999. An aggregate of 140,000 shares of common
stock are available for issuance upon the exercise of the options distributed
under the plan. Incentive stock options to purchase 70,250 shares of common
stock were granted under the plan on September 22, 1999 at $3.00 per share.
On August 15, 2000 the Company granted an additional 4,000 options at an
exercise price of $6.00 per share. As of October 31, 2000, 3,000 of the
options granted under the plan have been exercised and 750 options remain
available for grant under the 2000 Stock Option Plan.
10
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
The net income for the quarter ended September 30, 2000 was $232,780
compared to a net loss of ($453,187) for the 1999 period.
The Company experienced a $730,719 increase in gross profit to $1.3
million in the quarter ended September 30, 2000 from $553,129 for the quarter
ended September 30, 1999. The increase in gross profit during the quarter was
the result of a $1.3 million , or 106%, increase in net sales, which was
partially offset by a $568,241, 84%, increase in cost of goods sold when
compared to the same quarter of 1999. The expansion of the service segment
through the acquisition of Powder River Cementers in August 1999 added
$506,213 in revenue and $290,698 in cost of goods sold and production
operations at the Company's Cherokee field project added $48,319 in revenue
and $43,518 in operating expenses for the quarter. An increase in oil field
service activity in all of the Company's other markets accounted for the
remaining increases in revenues and cost of goods sold.
Other operating expenses for the quarter ended September 30, increased
$154,472 from $640,635 in the 1999 period to $795,107 in the 2000 period. A
majority of the increase in other operating expenses was associated with a
$44,866 increase in depreciation associated with trucks utilized in oil field
service operations and a $62,761 increase in expenses related to shareholder
relations. There was also a $19,300 increase in insurance costs due to
increased oil field service operations and an $11,043 increase in
communication expenses.
Interest expense for the quarter ended September 30, 2000 decreased
$39,975 to $159,135 from $199,110 for the quarter ended September 30, 1999.
Actual interest accrued or paid for the quarter ended September 30, 2000 was
$273,591 of which $114,456 was capitalized to the investment associated with
the Labarge and Pipeline prospects and investment associated with other
assets.
The net income for the six month period ended September 30, 2000 was
$1,086,519 compared to a net loss of ($148,082) for the 1999 period. During
the six months ended September 30, 2000, the Company recognized a $1,320,355
pre-tax gain on the sale of 125,000 shares of Evergreen stock received when it
sold its interest in oil and gas producing properties in the Raton Basin of
Colorado effective December 31, 1998. Proceeds from the sale of these
securities are being used in the development of the Company's oil and gas
properties and in the acquisition of additional leasehold in the Greater Green
River Basin of Wyoming. During the six month period ended September 30, 1999
the Company had a deferred tax benefit of $621,563 related to the unrealized
gain on the Evergreen stock held by the Company offset by net operating loss
carryforwards.
The Company experienced a $1,059,543 increase in gross profit to
$1,865,340 in the six month period ended September 30, 2000 from $805,797 for
the six months ended September 30, 1999. The increase in gross profit during
the period was the result of a $1,981,253, or 102%, increase in net oil field
service sales, which was partially offset by a $887,568, or 80%, increase in
cost of goods sold for the oil field service segment when compared to the same
quarter of 1999. The expansion of the service segment through the acquisition
of Powder River Cementers in August 1999 added $813,843 in revenue and
$500,191 in cost of goods sold during the six month period while a general
increase in oil field service activity in all of the Company's other markets
resulted in increased sales of $1,270,526 (See "Related Party Transactions")
11
<PAGE>
and an increase in cost of goods sold of $387,377. Production operations at
the Company's Cherokee field project added $58,036 in revenue from oil sales
and $51,967 in production expenses for the six month period.
Other operating expenses for the six month period ended September 30,
increased $214,159, or 17%, from $1,283,463 in the 1999 period to $1,497,622
in the 2000 period. Personnel Costs associated with operations increased
$105,251, depreciation expense associated with the oil field service assets
increased by $90,023 due to recent capital additions, and shareholder
relations costs increased $79,275. These increases in other operating
expenses were partially offset by a $69,281 decrease in legal fees.
During the quarter ended June 30, 2000 the Company recorded a $1,320,355
pre-tax gain on the sale of 125,000 shares of Evergreen stock held for resale.
The Company still holds 325,000 of Evergreen stock that has been used as
collateral for the financing of long-term debt (See Note 3 to the Consolidated
Financial Statements).
Income tax expense of $340,327 was recorded in the six months ended
September 30, 2000 as a result of realized and unrealized gain on the
Evergreen stock held by the Company and positive net income from operations.
The expense in the six months ended September 30, 2000 compares to a $621,563
deferred tax benefit associated with the appreciation in value of the
Evergreen stock in the period ended September 30, 1999 offset by net operating
loss carry forwards.
OILFIELD SERVICES: The oilfield services segment of the Company
generated $2,520,170 (see "Related Party Transactions") in revenues, and
$1,154,981 in cost of sales during the quarter ended September 30, 2000
compared to $1,227,820 in revenues and $647,636 in cost of sales during the
comparable period in 1999. The growth of the oilfield service business in the
Gillette, Wyoming area generated $595,334 in revenues and $321,522 in cost of
sales for the quarter ended September 30, 2000. Revenues for the three months
ended September 30, 2000 from the other oil field service markets increased
$786,137 to $1,924,836 from $1,138,699 while the cost of goods sold for the
areas increased $216,647 to $833,459 from $616,812 compared to the same period
of 1999.
The operating expenses incurred by the oilfield services segment of the
Company were $548,461 for the three months ended September 30, 2000 and
$440,247 for the three months ended September 30, 1999, an increase of
$108,214. Increases in other operating expenses associated with the
development of operations in the Powder River Basin of Wyoming of $57,664, and
a $38,766 increase in the periods depreciation expense for the other operating
areas were the main cause for the increase in other operating expenses.
Operating income increased to $816,728 for the quarter ended September 30,
2000 from operating income of $139,936 for the period ended September 30,
1999. Other (Income) and expenses decreased slightly to $64,136 in the three
month period ended September 30, 2000 from $65,094 for the same period of
1999. The Oilfield Service segment generated net income before taxes of
$752,592 for the quarter ended September 30, 2000 compared to net income
before taxes of $74,842 for the 1999 period.
12
<PAGE>
The oilfield services segment of the Company generated $4,017,508 (see
"Related Party Transactions") in revenues, and $1,998,431 in cost of sales
during the six month period ended September 30, 2000 compared to $1,933,139 in
revenues and $1,110,863 in cost of sales during the comparable period in 1999.
The growth of the oilfield service business in the Gillette, Wyoming area
generated $902,964 in revenues and $531,015 in cost of sales for the six month
period ended September 30, 2000. Revenues for the six months ended September
30, 2000 from the other oil field service markets increased $1,270,526 to
$3,114,544 from $1,844,018 while the cost of goods sold for the areas
increased $387,377 to $1,467,416 from $1,080,039 compared to the same period
of 1999.
The operating expenses incurred by the oilfield services segment of the
Company were $1,085,319 for the six months ended September 30, 2000 and
$832,083 for the six months ended September 30, 1999. Increases in other
operating expenses associated with the operations in the Powder River Basin of
Wyoming of $186,761, and a $69,869 increase in the periods depreciation
expense for the other operating areas were the main cause for the increase in
other operating expenses. Operating income increased to $933,757 for the six
months ended September 30, 2000 from an operating loss of ($9,807) for the
period ended September 30, 1999. Other (Income) and expenses decreased
slightly to $126,825 in the six month period ended September 30, 2000 from
$129,751 for the same period of 1999. The Oilfield Service segment generated
net income before taxes of $806,932 for the six month period ended September
30, 2000 compared to a net loss before taxes of ($139,559) for the 1999
period.
ENVIRONMENTAL SERVICES: The environmental service segment of the Company
incurred a $40,833 operating loss during the six months ended September 30,
2000 compared to an operating loss of $79,700 for the same period in 1999.
The Company operates the facilities at a minimum level of activity and on July
31, 2000 began dismantling the wastewater treatment facility in Chanute,
Kansas. The Company has incurred expenses of approximately $35,000 to
dismantle the facilities, which it expects to offset through proceeds from the
sale of the equipment being removed.
OIL AND GAS PRODUCTION: The Operator of the Cherokee Basin property has
performed additional well bore stimulation through the use of the Company's
acidizing and fracturing services and will initiate the polymer augmented
water flood on the producing reservoir in order to increase gross production
to an estimated 200 barrels of oil per day, or 160 barrels per day to the
Company's revenue interest, by the end of the current fiscal year. Through
September 30, 2000 the Company has invested approximately $939,000 in the
development of the property that it originally paid $150,000 for, for a total
investment of 1,089,000.
Effective September 1, 2000 the Company purchased 16 producing leases
which encompass approximately 2000 acres in the Owl Creek Field, Woodson
County, Kansas. These leases contain 52 producing wells under a limited water
flood project. The Company acquired the leases for $510,000. An 80-acre
parcel of land covered by the leases was also acquired for an additional
$100,000. A majority of the production and gathering facilities are located
on this parcel of land, as well as a water supply well used for the water
flood project. With the acquisition of the land the Company acquired the
royalty interest on the 80 acres and now owns 100% of the revenue interest on
that acreage.
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The oil and gas production segment of the Company recorded net revenue
from oil sales from the Cherokee Basin and Owl Creek Field of $58,036 and
operating expenses of $51,967 during the six months ended September 30, 2000.
As of October 31, production from the Cherokee Basin has increased to 26 net
barrels per day and the Owl Creek Field is producing 42 net barrels a day.
CORPORATE ACTIVITIES: The Company incurred $243,816 in expenses during
the quarter ended September 30, 2000, a $28,371 increase from $215,445 in
expense during the same period of 1999. A $62,760 increase in costs
associated with shareholder relations was partially offset by a $23,433
decrease in personnel costs and an $18,750 decrease in consulting fees.
Expenses incurred in corporate activities were $384,203 for the six
months ended September 30, 2000, compared to $417,811 for the six months ended
September 30, 1999. The $33,608 decrease in corporate expenses was primarily
due to a $68,602 decrease in corporate related legal and accounting expenses,
a $27,927 decrease in interest expense, a $25,084 decrease in travel expenses,
and a $17,654 reduction in personnel costs. These decreases in expenses were
partially offset by a $79,275 increase in costs related to shareholder
relations.
RELATED PARTY TRANSACTIONS: The Company has eliminated $41,949 and
$103,116 from oil field service revenue and from investment in oil and gas
properties for the quarter and six month period ended September 30, 2000
respectively. This amount is revenue in excess of cost from completion and
stimulation services that were provided by Consolidated Oil Well Services,
Inc. to Verde Oil Company on the Manson Lease in the Cherokee Basin of Eastern
Kansas.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had working capital of $612,5256
compared to a working capital deficit of $1,111,106 at March 31, 2000. The
increase in the working capital is mainly due to the increase in cash
available after the liquidation of 125,000 shares of Evergreen Stock partially
offset by the current liability for taxes payable.
Net cash provided by the operating activities prior to changes in
operating assets of the oilfield services segment was $1,195,017 for the six
month period ended September 30, 2000. Net cash used in operating the
environmental services segment of the Company was $90,790, for the oil and gas
production segment was $1,263, and corporate activities used $572,010 for the
six month period. Including changes in operating assets the Company generated
$77,688 from operating activities for the six month period ended September 30,
2000 compared to cash used of $280,274 for the 1999 period.
Cash provided by investing activities during the six months ended
September 30, 2000, was $236,924 compared to cash used of $1,209,249 for the
comparable period of 1999. The 2000 activity included proceeds from the sale
of Evergreen stock of $3,398,480 and from the sale of real property and
equipment of $157,561. The Company had expenditures related to its oil and
gas properties, other assets and property and equipment of $1,986,730,
$688,334 and $644,053 respectively during the six month period ended September
30, 2000. During the same period of 1999, the Company had expenditures of
$633,024, $506,847, and $69,378 for the purchase of oil and gas properties,
property and equipment, and intangible assets respectively.
The Company obtained $2,684,201 in equipment financing and repaid
$606,180 in long term debt during the six month period ended September 30,
2000. The Company also received $115,610 from the issuance of stock through
the exercise of employee stock options.
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Subsequent to September 30, 2000 the Company received an additional
$525,000 for the exercise of 175,000 stock options which would have expired
October 31, 2000. Proceeds from the exercise will be used to acquire
additional coalbed methane leasehold interests and begin drilling activities
on the Pipeline Project. As part of the ongoing strategy to acquire
additional leasehold in the Green River Basin of Wyoming the Company purchased
an additional 2,311 acres of additional leasehold for $334,528.
The Company expects to make capital expenditures related to drilling up
to twenty wells on its Pipeline prospect at a cost of $2.5 million during the
third quarter of the current fiscal year. In addition, the Company plans to
expend an additional $750,000 for the expansion of service capabilities within
existing oil field service markets, to broaden the areas serviced, and to
enter into new markets.
Included in the Current Portion of Long Term Debt is the balance of the
Company's term loan secured by a majority of its rolling stock. The term loan
matures in February 2001 and will require payment of the balance remaining at
that time or extension of the term loan. The Company is currently exploring
financing options that will allow it to use its producing properties, rolling
stock and other assets to secure a line of credit sufficient to meet its
future drilling and service expansion projects and meet its current
obligations under the term loan.
Management believes that the cash flow generated by the increase in oil
field service sales, through borrowings secured by Company assets, or through
the sale of shares of Evergreen stock held by the Company will provide
sufficient liquidity to meet the Company's needs for the remainder of the
fiscal year ending March 31, 2001. The ability of the Company to finance
future projects will be dependent on the ability of the Company to generate
positive cash flow from its oilfield service segment and from oil revenues
generated by the Cherokee Basin and Owl Creek Field and on the ability of the
Company to complete the contract for the sale of a portion of its interest in
the Labarge property to a partner that has the resources to develop the
leasehold.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995), and information relating to the Company that is based on beliefs of
management of the Company, as well as assumptions made by and information
currently available to management of the Company. When used in this Report,
the words "estimate," "project," "believe," "anticipate," "intend," "expect"
and similar expressions are intended to identify forward-looking statements.
Such statements reflect the current views of the Company with respect to
future events based on currently available information and are subject to
risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company does not undertake any
obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
During the three month period ended September 30, 2000, the Company did not
issue any securities that were not registered under the Securities Act of
1933.
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 July 20, 2000
at the Company's headquarters in Chanute, Kansas. These issues, all of which
were approved, 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 2000 Stock Option Plan.
The following set 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 2,392,630 27,662
George R. Jones 2,407,704 12,588
Jeffrey L. Dale 2,370,170 50,122
Leroy C. Richie 2,407,627 12,665
Appointment of Sartain Fischbein & Co.:
For Against Abstentions
2,411,708 6,621 1,963
Approval of 2000 Stock Option Plan:
Broker
For Against Abstentions Non-Votes
2,121,363 289,672 9,257 -0-
ITEM 5. OTHER INFORMATION.
None.
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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.
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 3, 2000 By:/s/ Stanton E. Ross
Stanton E. Ross, President
By:/s/ Jon D. Klugh
Jon D. Klugh, Chief Financial Officer
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EXHIBIT METHOD OF FILING
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27. FINANCIAL DATA SCHEDULE Filed herewith electronically
