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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2004

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 Issuer as Specified in its Charter)


Colorado
  
84-107006
(State of Other Jurisdiction of
Incorporation or Organization)
  
(IRS Employer Identification Number)

 
1401 West Main Street, Suite C
Chanute, Kansas 66720
(Address of Principal Executive Offices, Including Zip Code)

 
(620) 431-6200
(Issuer’s Telephone Number, Including Area Code)

 
211 w. 14th St.
Chanute, Kansas 66720
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)

Check whether the Registrant (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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
 
[_] Yes        [X]  No

There were 10,480,552 shares of the Registrant’s Common Stock outstanding as of November 15, 2004.


 
     
 
 

       
Page
  
Part I
  
Financial Information
  
Number
  
           
Item 1.
    
Financial Information:
        
               
 
    
Consolidated Balance Sheets 
    
3
  
               
   
Consolidated Statements of Operations 
    
4
  
               
   
Consolidated Statements of Comprehensive Income (Loss) 
    
6
  
               
   
Consolidated Statement of Changes in Stockholders’ Equity 
    
7
  
               
   
Consolidated Statements of Cash Flows 
    
8
  
               
 
    
Notes to Unaudited Consolidated Financial Statements 
    
10
  
               
Item 2.
    
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
    
17
  
               
 
    
Critical Accounting Policies 
    
29
  
               
Item 3.
    
Quantitative and Qualitative Disclosures about Market Risk
    
31
  
               
Item 4.
    
Controls and Procedures
    
31
  
               
Part II:
    
Other Information
        
               
Item 1.
    
Legal Proceedings
    
32
  
               
Item 2.
    
Changes in Securities and Use of Proceeds
    
32
  
               
Item 3.
    
Defaults Upon Senior Securities
    
32
  
               
Item 4.
    
Submission of Matters to a Vote of Security Holders
    
32
  
               
Item 5.
    
Other Information
    
32
  
               
Item 6.
    
Exhibits and Reports on Form 8-K
    
32
  
               
Signatures
          
33
  
               
Exhibits
          
34
  


 
     
 


INFINITY, INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
   
                               ASSETS
        
Sept. 30, 2004
 
Dec. 31, 2003 
 
Current assets   
  (unaudited)
     
         Cash and cash equivalents    $ 2,414,788   $ 727,134  
         Accounts receivable, less allowance for doubtful               
           accounts of $83,183 (2004) and $80,000 (2003)      3,642,058     1,766,642  
         Current portion of note receivable      1,584,938     16,311  
         Inventories      249,335     351,197  
         Prepaid expenses and other      646,330     206,314  
         Derivative asset      —     97,624  
         Total current assets 
    8,537,449     3,165,222  
Property and equipment, at cost, less accumulated               
         depreciation      9,289,136     10,169,159  
Oil and gas properties, using full cost accounting net               
         of accumulated depreciation, depletion, amortization               
           and ceiling write-down 
             
    Subject to amortization 
    27,849,851     23,446,343  
    Not subject to amortization 
    12,784,201     12,815,834  
Intangible assets, at cost, less accumulated amortization
     1,978,449     3,952,989  
Note receivable, less current portion      —     1,580,742  
Other assets, net      157,496     135,989  
Total assets    $ 60,596,582   $ 55,266,278  
 
         LIABILITIES AND STOCKHOLDERS’ EQUITY
              
Current liabilities               
         Notes payable    $ 337,288   $ —  
         Note payable – related party      1,750,000     —  
         Current portion of long-term debt      1,607,221     1,762,777  
         Accounts payable      1,767,807     2,645,277  
         Accrued expenses      1,988,817     966,769  
              Total current liabilities      7,451,133     5,374,823  
Long-term liabilities               
         Production taxes payable      353,645     229,889  
         Asset retirement obligations      555,014     520,638  
         Long-term debt, less current portion      10,233,466     9,252,872  
         8% subordinated convertible notes payable      2,643,000     2,793,000  
         7% subordinated convertible notes payable      11,575,000     11,184,000  
         Note payable – related party      —     3,000,000  
              Total liabilities      32,811,258     32,355,222  
Stockholders’ equity               
         Common stock, par value $.0001, authorized 300,000,000            
            shares, issued and outstanding 9,422,284 (2004) and               
         8,204,032 (2003) shares 
    942     820  
         Additional paid-in-capital      37,438,334     32,720,904  
         Accumulated other comprehensive income      —     97,624  
         Accumulated deficit      (9,653,952 )   (9,908,292 )
              Total stockholders’ equity      27,785,324     22,911,056  
Total liabilities and stockholders’ equity    $ 60,596,582   $ 55,266,278  

The consolidated balance sheet at December 31, 2003 has been derived from the audited consolidated financial statements at that date.
 
See Notes to Unaudited Consolidated Financial Statements
 
 
  3  


INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
   
Three Months Ended Sept. 30,
  
   
2004
  
2003
  
Revenue
          
Oil and gas service operations
  
$
4,842,799
  
$
3,678,867
  
Oil and gas sales
    
1,762,824
   
1,562,639
 
 
              
Total revenue
    
6,605,623
   
5,241,506
 
               
Cost of revenue
              
Oil and gas service operations
    
2,358,669
   
1,823,966
 
Oil and gas production expenses
    
497,844
   
489,785
 
Oil and gas production taxes
    
206,980
   
163,444
 
               
Total cost of revenue
    
3,063,493
   
2,477,195
 
               
Gross profit
    
3,542,130
   
2,764,311
 
               
Operating expenses
    
1,352,075
   
1,259,893
 
Depreciation, depletion and amortization
    
1,161,334
   
848,723
 
               
      Operating income
    
1,028,721
    
655,691
 
               
Other income (expense)
             
Interest and other income
    
34,300
    
35,961
 
Amortization of loan costs
    
(400,701
)
  
(4,658,145
)
Interest expense and finance charges
    
(327,874
)
  
(538,321
)
Gain (loss) on sales of assets
    
2,786,786
    
(23,392
)
Total other income (expense)
    
2,092,511
    
(5,183,897
)