##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 
 FORM 10-Q/A
 Amendment No. 2
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 INFINITY, INC.
  Colorado
    
    84-1070066(State of Incorporation)
    
    (I.R.S. Employer Identification Number)
   (720) 932-7800
  None
 Common Stock
  x o
  o x




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TABLE OF CONTENTS  Certification of Principal Executive Officer Pursuant to Section 302Certification of Principal Financial Officer Pursuant to Section 302Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906Calculation of the Maximum Notes Balance    Table of Contents  EXPLANATORY PARAGRAPH
  TABLE OF CONTENTS
 PART I Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Comprehensive Loss
    
    
    5Consolidated Statement of Changes in Stockholders Equity
    
    
    6Consolidated Statements of Cash Flows
    
    
    7Notes to Unaudited Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    28PART II Other InformationItem 1. Legal Proceedings
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30Signatures
    
    
    31Exhibits
    
    
    32Certification of Principal Executive OfficerCertification of Principal Financial OfficerCertification of Principal Executive Officer and Principal Financial OfficerCalculation of the Maximum Notes Balance
 2




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INFINITY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 ASSETSJune 30,
    
    
    December 31,2005
    
    
    2004(As Restated)(See Note 2)Current assetsCash and cash equivalents
    
    $
    4,573
    
    
    $
    3,052Accounts receivable, less allowance for doubtful accounts of $85
(2005 and 2004)
    
    
    4,675
    
    
    
    3,494Note receivable
    
    
    1,200
    
    
    
    1,581Inventories
    
    
    490
    
    
    
    286Prepaid expenses and other
    
    
    468
    
    
    
    654Total current assets
    
    
    11,406
    
    
    
    9,067Property and equipment, at cost, net of accumulated depreciation
    
    
    10,051
    
    
    
    8,764Oil and gas properties, using full cost accounting, net of accumulated
depreciation, depletion and amortizationProved
    
    
    45,921
    
    
    
    28,792Unproved
    
    
    18,259
    
    
    
    15,595Intangible assets, at cost, net of accumulated amortization
    
    
    2,194
    
    
    
    1,497Other assets, net
    
    
    334
    
    
    
    333Total assets
    
    $
    88,165
    
    
    $
    64,048LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesNote payable and current portion of long-term debt
    
    $
    118
    
    
    $
    284Accounts payable
    
    
    2,485
    
    
    
    4,001Accrued liabilities
    
    
    5,395
    
    
    
    4,274Accrued interest
    
    
    775
    
    
    
    223Current portion of asset retirement obligations
    
    
    208
    
    
    
    Total current liabilities
    
    
    8,981
    
    
    
    8,782Long-term liabilitiesProduction taxes payable
    
    
    224
    
    
    
    469Asset retirement obligations, less current portion
    
    
    1,312
    
    
    
    635Long-term debt, less current portion
    
    
    26,791
    
    
    
    11,330Derivative liabilities
    
    
    12,706
    
    
    
    Subordinated convertible notes payable
    
    
    
    
    
    
    14,010Total liabilities
    
    
    50,014
    
    
    
    35,226Commitments and contingenciesStockholders equityCommon stock, par value $.0001, authorized 300,000,000 shares,
issued and outstanding 13,330,539 (2005) and 10,628,196 (2004)
shares
    
    
    1
    
    
    
    1Additional paid-in-capital
    
    
    57,799
    
    
    
    43,363Accumulated deficit
    
    
    (19,649
    )
    
    
    (14,542
    )Total stockholders equity
    
    
    38,151
    
    
    
    28,822Total liabilities and stockholders equity
    
    $
    88,165
    
    
    $
    64,048
  3




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INFINITY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(As Restated)
    
    
    
    
    
    
    (As Restated)(See Note 2)
    
    
    
    
    
    
    (See Note 2)RevenueOilfield services
    
    $
    5,447
    
    
    $
    3,344
    
    
    $
    9,517
    
    
    $
    5,539Oil and gas
    
    
    2,204
    
    
    
    1,701
    
    
    
    3,649
    
    
    
    3,073Total revenue
    
    
    7,651
    
    
    
    5,045
    
    
    
    13,166
    
    
    
    8,612Cost of revenueOilfield services
    
    
    2,516
    
    
    
    1,857
    
    
    
    4,520
    
    
    
    3,278Oil and gas production expenses
    
    
    1,010
    
    
    
    523
    
    
    
    1,449
    
    
    
    926Oil and gas production taxes
    
    
    201
    
    
    
    195
    
    
    
    370
    
    
    
    351Total cost of revenue
    
    
    3,727
    
    
    
    2,575
    
    
    
    6,339
    
    
    
    4,555Gross profit
    
    
    3,924
    
    
    
    2,470
    
    
    
    6,827
    
    
    
    4,057General and administrative expenses
    
    
    1,356
    
    
    
    1,516
    
    
    
    2,636
    
    
    
    2,737Depreciation, depletion,
amortization and accretion
    
    
    1,797
    
    
    
    1,315
    
    
    
    3,384
    
    
    
    2,362Operating income (loss)
    
    
    771
    
    
    
    (361
    )
    
    
    807
    
    
    
    (1,042
    )Other income (expense)Amortization of loan discount and
costs
    
    
    (206
    )
    
    
    (431
    )
    
    
    (449
    )
    
    
    (1,070
    )Early extinguishment of debt
    
    
    (372
    )
    
    
    
    
    
    
    (1,276
    )
    
    
    (204
    )Interest expense
    
    
    (418
    )
    
    
    (310
    )
    
    
    (935
    )
    
    
    (589
    )Changes in derivative fair value
    
    
    5,012
    
    
    
    
    
    
    
    (2,901
    )
    
    
    Impairment of note receivable
    
    
    (396
    )
    
    
    
    
    
    
    (396
    )
    
    
    Loss on sales of other assets
    
    
    (91
    )
    
    
    (39
    )
    
    
    (91
    )
    
    
    (39
    )Other
    
    
    56
    
    
    
    39
    
    
    
    134
    
    
    
    77Total other income (expense)
    
    
    3,585
    
    
    
    (741
    )
    
    
    (5,914
    )
    
    
    (1,825
    )Net income (loss) before income taxes
    
    
    4,356
    
    
    
    (1,102
    )
    
    
    (5,107
    )
    
    
    (2,867
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    4,356
    
    
    $
    (1,102
    )
    
    $
    (5,107
    )
    
    $
    (2,867
    )Net income (loss) per share:Basic
    
    $
    0.33
    
    
    $
    (0.12
    )
    
    $
    (0.41
    )
    
    $
    (0.31
    )Diluted
    
    $
    0.31
    
    
    $
    (0.12
    )
    
    $
    (0.41
    )
    
    $
    (0.31
    )Weighted average shares outstanding:Basic
    
    
    13,159,575
    
    
    
    9,396,091
    
    
    
    12,385,310
    
    
    
    9,295,798Diluted
    
    
    13,528,198
    
    
    
    9,396,091
    
    
    
    12,385,310
    
    
    
    9,295,798
  4




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INFINITY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(As Restated)
    
    
    
    
    
    
    (As Restated)(See Note 2)
    
    
    
    
    
    
    (See Note 2)Net income (loss)
    
    $
    4,356
    
    
    $
    (1,102
    )
    
    $
    (5,107
    )
    
    $
    (2,867
    )Reclassifications, net of tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98Comprehensive income (loss)
    
    $
    4,356
    
    
    $
    (1,102
    )
    
    $
    (5,107
    )
    
    $
    (2,769
    )
  5




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INFINITY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
 Common Stock
    
    
    AdditionalPaid-in
    
    
    Accumulated
    
    
    Stockholders'Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance, December 31,
2004
    
    
    10,628,196
    
    
    $
    1
    
    
    $
    43,363
    
    
    $
    (14,542
    )
    
    $
    28,822Reclassification of
non-employee warrants
to derivative
liabilities *
    
    
    
    
    
    
    
    
    
    
    (6,090
    )
    
    
    
    
    
    
    (6,090
    )Reclassification of
non-employee warrants
from derivative
liabilities in
connection with
exercise *
    
    
    
    
    
    
    
    
    
    
    2,174
    
    
    
    
    
    
    
    2,174Issuance of common
stock upon the exercise
of options and warrants
    
    
    686,107
    
    
    
    
    
    
    
    4,179
    
    
    
    
    
    
    
    4,179Conversion of 8%
subordinated
convertible notes and
accrued interest into
common stock
    
    
    517,296
    
    
    
    
    
    
    
    2,524
    
    
    
    
    
    
    
    2,524Conversion of 7%
subordinated
convertible notes and
accrued interest into
common stock
    
    
    1,498,940
    
    
    
    
    
    
    
    11,656
    
    
    
    
    
    
    
    11,656Costs from previous
equity placement
financing
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Net loss *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,107
    )
    
    
    (5,107
    )Balance, June 30, 2005 *
    
    
    13,330,539
    
    
    $
    1
    
    
    $
    57,799
    
    
    $
    (19,649
    )
    
    $
    38,151
 
  6




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INFINITY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 For the Six Months Ended June 30,2005
    
    
    2004(As Restated)(See Note 2)Cash flows from operating activitiesNet loss
    
    $
    (5,107
    )
    
    $
    (2,867
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation, depletion, amortization and
accretion
    
    
    3,384
    
    
    
    2,362Amortization of loan discount and costs
    
    
    449
    
    
    
    1,070Expense related to early extinguishment of debt
    
    
    1,052
    
    
    
    204Changes in derivative fair value
    
    
    2,901
    
    
    
    Impairment of note receivable
    
    
    396
    
    
    
    Loss on sales of other assets
    
    
    91
    
    
    
    39Change in operating assets and liabilitiesIncrease in accounts receivable
    
    
    (1,201
    )
    
    
    (859
    )Increase in inventories
    
    
    (204
    )
    
    
    (15
    )(Increase) decrease in prepaid expenses and
other
    
    
    186
    
    
    
    (67
    )Decrease in accounts payable
    
    
    (1,472
    )
    
    
    (51
    )Increase in accrued liabilities and accrued
interest
    
    
    1,592
    
    
    
    1,053Net cash provided by operating activities
    
    
    2,067
    
    
    
    869Cash flows from investing activitiesCapital expenditures  exploration and production
    
    
    (21,342
    )
    
    
    (2,908
    )Capital expenditures  oilfield services
    
    
    (1,959
    )
    
    
    (235
    )Acquisitions  exploration and production
    
    
    
    
    
    
    (516
    )Acquisitions  oilfield services, net of cash
acquired
    
    
    
    
    
    
    (1,189
    )Proceeds from sale of fixed assets  exploration
and production
    
    
    133
    
    
    
    147Proceeds from sale of fixed assets  oilfield
services
    
    
    12
    
    
    
    13Increase in other assets
    
    
    
    
    
    
    (323
    )Receipts on note receivable
    
    
    4
    
    
    
    8Net cash used in investing activities
    
    
    (23,152
    )
    
    
    (5,003
    )Cash flows from financing activitiesProceeds from notes payable
    
    
    
    
    
    
    295Proceeds from borrowings on long-term debt
    
    
    30,000
    
    
    
    2,864Proceeds from issuance of common stock
    
    
    4,179
    
    
    
    4,060Debt and equity issuance costs
    
    
    (2,124
    )
    
    
    (30
    )Repayment of notes payable
    
    
    (160
    )
    
    
    (194
    )Repayment of long-term debt
    
    
    (9,289
    )
    
    
    (3,005
    )Net cash provided by financing activities
    
    
    22,606
    
    
    
    3,990Net increase (decrease) in cash and cash equivalents
    
    
    1,521
    
    
    
    (144
    )Cash and cash equivalents, beginning of period
    
    
    3,052
    
    
    
    727Cash and cash equivalents, end of period
    
    $
    4,573
    
    
    $
    583
  7




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INFINITY, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 For the Six Months Ended June 30,2005
    
    
    2004(As Restated)(See Note 2)Supplemental cash flow disclosures:Cash paid for interest, net of amounts capitalized
    
    $
    
    
    
    $
    588Non-cash transactions:Non-cash costs capitalized in the full cost pool
for oil and gas properties
    
    
    373
    
    
    
    241Property and equipment acquired through seller
financed debt, net
    
    
    
    
    
    
    195Conversion of subordinated convertible notes and
accrued interest to common stock
    
    
    14,181
    
    
    
    132Issuance of warrants in conjunction with the
issuance of debt  recorded as debt discount
    
    
    5,632
    
    
    
    Conversion option  recorded as debt discount
    
    
    257
    
    
    
    Issuance of common stock to partially repay
related party debt
    
    
    
    
    
    
    500Issuance of 7% Convertible Subordinated Notes in
lieu of cash interest payment
    
    
    
    
    
    
    391
  8




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INFINITY, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Nature of Operations, Basis of Presentation and Summary of Significant Accounting
Policies
 Nature of Operations
  Basis of Presentation
    Oil and Gas Properties
   9




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As ofJune 30,
    
    
    December 31,2005
    
    
    2004(in thousands)(As Restated)(See Note 2)Proved oil and gas properties
    
    $
    61,014
    
    
    $
    41,210Unproved oil and gas properties
    
    
    18,259
    
    
    
    15,595Total
    
    
    79,273
    
    
    
    56,805Less accumulated depreciation,
depletion, and amortization and
ceiling write-downs
    
    
    (15,093
    )
    
    
    (12,418
    )Net capitalized costs
    
    $
    64,180
    
    
    $
    44,387
   Income Taxes
  10




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Note 2  Restatement
 Accounting for Derivative Instruments and Hedging Activities Accounting for Derivative Financial Instruments Index to, and Potentially
Settled in, a Companys Own Stock
   Three Months Ended June 30, 2005
    
    
    Six Months Ended June 30, 2005As Previously
    
    
    
    
    
    
    
    
    
    
    As PreviouslyReported
    
    
    Adjustment
    
    
    As Restated
    
    
    Reported
    
    
    Adjustment
    
    
    As RestatedAmortization
of loan discount
and cost
    
    $
    (351
    )
    
    $
    145
    
    
    $
    (206
    )
    
    $
    (707
    )
    
    $
    258
    
    
    $
    (449
    )Changes in
derivative
liabilities
    
    $
    
    
    
    $
    5,012
    
    
    $
    5,012
    
    
    $
    
    
    
    $
    (2,901
    )
    
    $
    (2,901
    )Net income (loss)
    
    $
    (801
    )
    
    $
    5,157
    
    
    $
    4,356
    
    
    $
    (2,464
    )
    
    $
    (2,643
    )
    
    $
    (5,107
    )Basic net income
(loss) per share
    
    $
    (0.06
    )
    
    $
    0.39
    
    
    $
    0.33
    
    
    $
    (0.20
    )
    
    $
    (0.21
    )
    
    $
    (0.41
    )Diluted net income
(loss) per share
    
    $
    (0.06
    )
    
    $
    0.37
    
    
    $
    0.31
    
    
    $
    (0.20
    )
    
    $
    (0.21
    )
    
    $
    (0.41
    )
  As of June 30, 2005As PreviouslyReported
    
    
    Adjustment
    
    
    As RestatedOil and gas properties, unproved
    
    $
    18,899
    
    
    $
    (640
    )
    
    $
    18,259Total assets
    
    $
    88,805
    
    
    $
    (640
    )
    
    $
    88,165Derivative liabilities
    
    $
    
    
    
    $
    12,706
    
    
    $
    12,706Long-term debt, less current portion
    
    $
    18,941
    
    
    $
    7,850
    
    
    $
    26,791
 11




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Additional paid-in-capital
    
    $
    76,352
    
    
    $
    (18,553
    )
    
    $
    57,799Accumulated deficit
    
    $
    (17,006
    )
    
    $
    (2,643
    )
    
    $
    (19,649
    )Total stockholders equity
    
    $
    59,347
    
    
    $
    (21,196
    )
    
    $
    38,151
 Note 3  Stock Options
 Accounting for Stock Issued to
Employees Accounting for Stock-Based Compensation
 For
the Three MonthsEnded June 30,
    
    
    For the Six MonthsEnded June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands, except per share data)(As Restated)
    
    
    
    
    
    
    (As Restated)(See Note 2)
    
    
    
    
    
    
    (See Note 2)Net income (loss) as reported
    
    $
    4,356
    
    
    $
    (1,102
    )
    
    $
    (5,107
    )
    
    $
    (2,867
    )Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards
    
    
    (113
    )
    
    
    (1,528
    )
    
    
    (1,209
    )
    
    
    (1,528
    )Pro forma net income (loss)
    
    $
    4,243
    
    
    $
    (2,630
    )
    
    $
    (6,316
    )
    
    $
    (4,395
    )Net income (loss) per share as reported:Basic
    
    $
    0.33
    
    
    $
    (0.12
    )
    
    $
    (0.41
    )
    
    $
    (0.31
    )Diluted
    
    $
    0.31
    
    
    $
    (0.12
    )
    
    $
    (0.41
    )
    
    $
    (0.31
    )Pro forma income (loss) per share:Basic
    
    $
    0.32
    
    
    $
    (0.28
    )
    
    $
    (0.51
    )
    
    $
    (0.47
    )Diluted
    
    $
    0.30
    
    
    $
    (0.28
    )
    
    $
    (0.51
    )
    
    $
    (0.47
    )
  Note 4  Long-Term Debt
  As ofJune 30,
    
    
    December 31,2005
    
    
    2004(dollars in thousands)(As Restated)(See Note 2)Senior secured notes due
January 13, 2009, with
interest calculated at
3-Month LIBOR plus 6.75%
(10.28% as of July 1,
2005) due quarterly. The
balance at June 30, 2005
is net of discount of
$5,294
    
    $
    24,706
    
    
    $
    8% subordinated
convertible notes payable,
due June 13, 2006, which
were called for redemption
on February 28, 2005
    
    
    
    
    
    
    2,4937% subordinated
convertible notes payable,
due April 22, 2007, which
were called for redemption
on April 22, 2005
    
    
    
    
    
    
    11,517$25,000 development credit
facility with U.S. Bank,
repaid in full and
terminated on January 13,
2005
    
    
    
    
    
    
    5,000
 12




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As ofJune 30,
    
    
    December 31,2005
    
    
    2004(dollars in thousands)(As Restated)(See Note 2)Note payable to seller
(for a 50% interest in an
airplane), with interest
at 7.25% due on a
quarterly basis. The
Company is required to
make annual principal
payments equal to 5% of
the current outstanding
principal until paid in
full. The seller can call
the note if the sellers
bank calls its note for
the original purchase of
the airplane. The note is
collateralized by the
Companys 50% interest in
the airplane with a net
book value of $2,107 at
June 30, 2005
    
    
    2,203
    
    
    
    2,326Various revolving credit
and term loans with
LaSalle Bank with interest
at prime plus 1.25%,
repaid in full and
terminated on January 13,
2005
    
    
    
    
    
    
    3,582Various other notes repaid
in full and terminated no
later than January 31,
2005
    
    
    
    
    
    
    70626,909
    
    
    
    25,624Less current portion
    
    
    (118
    )
    
    
    (284
    )Long-term debt
    
    $
    26,791
    
    
    $
    25,340
 Senior Secured Notes Facility
   Accounting for Derivative Financial
Instruments Index to, and Potentially Settled in, a Companys Own Stock
 8% Convertible Subordinated Notes
   13




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##### Table of Contents



7% Convertible Subordinated Notes
    $25,000,000 Development Credit Facility
  Revolving Credit and Term Loans
  Capitalized Interest
  Note 5  Derivative Instruments and Hedging Activities
 Accounting for Derivative Instruments and
Hedging Activities
 14




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##### Table of Contents



Commodity Derivatives
  Effective Dates
    
    Bbls per Day
    
    
    Floor Price
    
    
    Ceiling PriceMay 1, 2005  December 31, 2005
    
    
    50
    
    
    $
    50.00
    
    
    $
    65.70January 1, 2006  June 30, 2006
    
    
    50
    
    
    $
    50.00
    
    
    $
    64.40
  Effective Dates
    
    Bbls per Day
    
    
    Floor Price
    
    
    Ceiling PriceOctober 1, 2005 
December 31, 2006
    
    
    50
    
    
    $
    52.50
    
    
    $
    74.00
  Other Derivatives
   Note 6  Fair Value of Financial Instruments
  15




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##### Table of Contents



Note 7  Earnings Per Share
  For the Three Months Ended June 30,2005
    
    
    2004(As Restated) (See Note 2)(in thousands, except per share amounts)Net
    
    
    
    
    
    
    Per Share
    
    
    Net
    
    
    
    
    
    
    Per ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    Loss
    
    
    Shares
    
    
    AmountBasic EPS:Net income (loss) and
share amounts
    
    $
    4,356
    
    
    
    13,159,575
    
    
    $
    0.33
    
    
    $
    (1,102
    )
    
    
    9,396,091
    
    
    $
    (0.12
    )Dilutive Securities:Stock Options and Warrants
    
    
    (133
    )
    
    
    368,623
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPS:Net income (loss) and
share amounts
    
    $
    4,223
    
    
    
    13,528,198
    
    
    $
    0.31
    
    
    $
    (1,102
    )
    
    
    9,396,091
    
    
    $
    (0.12
    )
 For the Six Months Ended June 30,2005
    
    
    2004(As Restated) (See Note 2)(in thousands, except per share amounts)Net
    
    
    
    
    
    
    Per Share
    
    
    Net
    
    
    
    
    
    
    Per ShareLoss
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic EPS:Net loss and share amounts
    
    $
    (5,170
    )
    
    
    12,385,310
    
    
    $
    (0.41
    )
    
    $
    (2,867
    )
    
    
    9,295,798
    
    
    $
    (.31
    )Dilutive Securities:Stock Options and Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPS:Net loss and share amounts
    
    $
    (5,170
    )
    
    
    12,385,310
    
    
    $
    (0.41
    )
    
    $
    (2,867
    )
    
    
    9,295,798
    
    
    $
    (.31
    )
  Note 8  Asset Retirement Obligations
 Accounting for Asset Retirement Obligations
 16




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##### Table of Contents



For the Six Months Ended June 30,2005
    
    
    2004(in thousands)Asset retirement obligations at beginning of period
    
    $
    635
    
    
    $
    521Accretion expense
    
    
    17
    
    
    
    10Liabilities incurred
    
    
    24
    
    
    
    19Revisions of estimates
    
    
    844
    
    
    
    Asset retirement obligations at end of period
    
    
    1,520
    
    
    
    550Less: current portion of asset retirement obligations
    
    
    (208
    )
    
    
    (--
    )Asset retirement obligations, less current portion
    
    $
    1,312
    
    
    $
    550
 Note 9  Sale of Note Receivable
  17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   FORWARD-LOOKING STATEMENTS
  
    
    potential expansion of the oilfield services business through acquisitions;
    
    completion of the negotiation and acquisition of offshore licenses in Nicaragua;
    
    expected capital expenditures and cash flow for the remainder of 2005;
    
    plans to raise external financing to finance a portion of 2005 activities;
    
    increased activity in the oilfield services business;
    
    planned increases in acreage position;
    
    Infinitys business strategy and anticipated trends in Infinitys business and its future results of operations;
    
    the ability of Infinity to make and integrate acquisitions and the completion of the Nicaragua acquisition;
    
    planned exploration, drilling and completion activities;
    
    the costs and results of dewatering operations, including drilling water disposal wells;
    
    demand for oilfield services;
    
    the availability of financing on acceptable terms;
    
    the impact of governmental regulation; and
    
    the timing of engineering and environmental impact studies and permitting.
  
    
    fluctuations in oil and natural gas prices and production;
    
    the ability of Infinity to make and integrate acquisitions and the completion of the Nicaragua acquisition;
    
    availability of drilling rigs, completion services and other support equipment;
    
    incorrect estimations of required capital expenditures;
    
    uncertainties inherent in estimating quantities of oil and gas reserves and projecting
future rates of production and timing thereof;
    
    delays or difficulties in development activities;
    
    increases in the cost of oil and gas drilling, completion and production and in materials, fuel and labor costs;
    
    the availability, conditions and timing of required government approvals and third party
financing, including failure to satisfy the maximum notes balance requirements under the
senior secured notes facility;
 18




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##### Table of Contents




    
    a decline in demand for Infinitys oil and gas production or oilfield services;
    
    delays in environmental and permitting factors; and
    
    changes in general economic conditions.
 Overview of Exploration and Production Activity
  
    
    Commenced production from the Fort Worth Basin in North central Texas and the Sand
Wash Basin in Northwest Colorado;
    
    Made capital expenditures of approximately $22 million, including $7 million in
leasehold acquisitions;
    
    Achieved a 46% increase in proved oil and gas reserve quantities to 13,400 MMcfe,
including extensions and discoveries of 5,060 MMcfe; and
    
    Achieved a 57% increase to $37.1 million in the standardized measure of discounted
future net cash flow from proved oil and gas properties.
   For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 302005
    
    
    2004
    
    
    2005
    
    
    2004Production:Natural gas (MMcf)
    
    
    219.4
    
    
    
    266.7
    
    
    
    430.9
    
    
    
    470.1Crude oil (thousands of barrels)
    
    
    19.5
    
    
    
    8.2
    
    
    
    28.6
    
    
    
    17.5Total (MMcfe)
    
    
    336.4
    
    
    
    315.9
    
    
    
    602.5
    
    
    
    575.1Financial Data (thousands of dollars):Total revenue
    
    $
    2,204
    
    
    $
    1,701
    
    
    $
    3,649
    
    
    $
    3,073Production expenses
    
    
    1,010
    
    
    
    523
    
    
    
    1,449
    
    
    
    926Production taxes
    
    
    201
    
    
    
    195
    
    
    
    370
    
    
    
    351Financial Data per Unit ($  per Mcfe):Total revenue
    
    $
    6.55
    
    
    $
    5.38
    
    
    $
    6.05
    
    
    $
    5.34Production expenses
    
    
    3.00
    
    
    
    1.66
    
    
    
    2.40
    
    
    
    1.61Production taxes
    
    
    0.60
    
    
    
    0.62
    
    
    
    0.61
    
    
    
    0.61
  19




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##### Table of Contents



Overview of Oilfield Service Operations
  
    
    record second quarter and six month revenue of $5.4 million and $9.5 million,
respectively;
    
    subsidiary level earnings before interest, taxes, depreciation and amortization of
approximately $3.7 million; and
    
    subsidiary level income before taxes of approximately $2.8 million.
   Oilfield Service Statistics  ($ in thousands, before discounts)
 Three Months Ended June 30,2005
    
    
    2004
    
    
    Change% Chg.Jobs
    
    
    Revenue
    
    
    Jobs
    
    
    Revenue
    
    
    Jobs
    
    
    In Jobs
    
    
    RevenueJob TypeCementing
    
    
    799
    
    
    $
    2,234
    
    
    
    772
    
    
    $
    2,058
    
    
    
    27
    
    
    
    3
    %
    
    $
    176Acidizing
    
    
    471
    
    
    
    482
    
    
    
    267
    
    
    
    274
    
    
    
    204
    
    
    
    76
    %
    
    
    208Fracturing
    
    
    383
    
    
    
    2,730
    
    
    
    165
    
    
    
    1,211
    
    
    
    218
    
    
    
    132
    %
    
    
    1,519Other
    
    
    
    
    
    
    217
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    196Discounts
    
    
    
    
    
    
    (216
    )
    
    
    
    
    
    
    (220
    )
    
    
    
    
    
    
    
    
    
    
    4Total
    
    
    
    
    
    $
    5,447
    
    
    
    
    
    
    $
    3,344
    
    
    
    
    
    
    
    
    
    
    $
    2,103
 Six Months Ended June 30,2005
    
    
    2004
    
    
    Change% Chg.Jobs
    
    
    Revenue
    
    
    Jobs
    
    
    Revenue
    
    
    Jobs
    
    
    In Jobs
    
    
    RevenueJob TypeCementing
    
    
    1,520
    
    
    $
    4,120
    
    
    
    1,185
    
    
    $
    3,055
    
    
    
    335
    
    
    
    28
    %
    
    $
    1,065Acidizing
    
    
    927
    
    
    
    884
    
    
    
    458
    
    
    
    517
    
    
    
    469
    
    
    
    102
    %
    
    
    367Fracturing
    
    
    581
    
    
    
    4,467
    
    
    
    303
    
    
    
    2,263
    
    
    
    278
    
    
    
    92
    %
    
    
    2,204Other
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    381Discounts
    
    
    
    
    
    
    (368
    )
    
    
    
    
    
    
    (329
    )
    
    
    
    
    
    
    
    
    
    
    (39
    )Total
    
    
    
    
    
    $
    9,517
    
    
    
    
    
    
    $
    5,539
    
    
    
    
    
    
    
    
    
    
    $
    3,978
 20




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##### Table of Contents



2005 Operational and Financial Objectives
 Exploration and Production
    
    
    The availability of the capital resources required to fund the activity. Infinity
expects to generate approximately $3 million in cash flow from operations from oil and
gas production activities during the remainder of 2005;
    
    The availability of third party contractors for drilling rigs and completion
services (although the Company has one rig under contract in the Fort Worth Basin); and
    
    The approval by regulatory agencies of applications for permits to drill in a timely
manner.
 Oilfield Services
  
    
    expand the services that are provided;
    
    expand the area that is serviced; and
    
    gain market share by providing services complementary to Consolidateds existing services.
  Corporate Activities
  Results of operations for the three months ended June 30, 2005 compared to the three months ended June 30, 2004
 Net Income (Loss)
  21




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##### Table of Contents



Revenue
  Cost of Revenue
  Gross Profit
  General and Administrative Expenses
  Depreciation, Depletion, Amortization and Accretion
  Other Income (Expense)
  22




---



##### Table of Contents



Results of operations for the six months ended June 30, 2005 compared to the six months ended June 30, 2004
 Net Loss
  Revenue
  Cost of Revenue
  Gross Profit
  General and Administrative Expenses
  Depreciation, Depletion, Amortization and Accretion
  Other Income (Expense)
  23




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##### Table of Contents



Liquidity and Capital Resources
      Senior Secured Notes Facility
   24




---



##### Table of Contents



Outlook for 2005
       Critical Accounting Policies and Estimates
  
    
    Remaining proved oil and gas reserves (reserve estimates),
 25




---



##### Table of Contents




    
    Timing of our future drilling activities,
    
    Accruals of operating costs, capital expenditures in progress, and revenue,
    
    Estimated useful life of equipment utilized in the oilfield service business,
    
    Estimated timing and cost related to asset retirement obligations.
 Recently Issued Accounting Pronouncements
     26




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Commodity Risk
    Delivery Dates
    
    MMBtu Per Day
    
    
    Fixed PriceApril 1, 2004  March 31, 2005
    
    
    2,000
    
    
    $
    4.40April 1, 2005  March 31, 2006
    
    
    2,000
    
    
    $
    4.15
   Effective Dates
    
    Bbls Per Day
    
    
    Floor Price
    
    
    Ceiling PriceMay 1, 2005  December 31, 2005
    
    
    50
    
    
    $
    50.00
    
    
    $
    65.70January 1, 2006  June 30, 2006
    
    
    50
    
    
    $
    50.00
    
    
    $
    64.40
  Effective Dates
    
    Bbls Per Day
    
    
    Floor Price
    
    
    Ceiling PriceOctober 1, 2005 
December 31, 2006
    
    
    50
    
    
    $
    52.50
    
    
    $
    74.00
   Interest Rate Risk
  27




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
     28




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##### Table of Contents



PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. CHANGES IN SECURITIES
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  (a)
    
    The election of five Directors of the Company to serve until the next Annual Meeting
and until their successors have been duly elected and qualified;(b)
    
    The reincorporation of Infinity, Inc. in the State of Delaware;(c)
    
    The establishment of a classified Board of Directors;(d)
    
    The approval of the Companys 2005 Equity Incentive Plan;(e)
    
    The ratification of the selection of Ehrhardt Keefe Steiner & Hottman P.C., as
Infinitys independent registered public accounting firm.
   Nominee
    
    For
    
    
    WithheldStanton E. Ross
    
    
    12,714,870
    
    
    
    135,827James A. Tuell
    
    
    12,709,754
    
    
    
    140,943Elliot M. Kaplan
    
    
    12,496,190
    
    
    
    354,507Robert O. Lorenz
    
    
    12,708,330
    
    
    
    142,367Leroy C. Richie
    
    
    12,709,154
    
    
    
    141,543
  For
    
    Against
    
    
    Abstain7,609,444
    
    
    482,514
    
    
    
    19,474
  For
    
    Against
    
    
    Abstain5,379,625
    
    
    2,414,418
    
    
    
    317,389
  For
    
    Against
    
    
    Abstain6,796,210
    
    
    979,860
    
    
    
    335,362
 29




---



##### Table of Contents



For
    
    Against
    
    
    Abstain12,776,755
    
    
    52,547
    
    
    
    21,395
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 (a)
    
    Exhibits.
 31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    Certification of Principal Executive Officer and Principal Financial Officer
pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act)99.1
    
    Calculation of the Maximum Notes Balance at June 30, 2005 under the Senior
Secured Notes Facility dated January 13, 2005
 30




---



##### Table of Contents



SIGNATURES
  Signature
    
    Capacity
    
    Date/s/ James A. Tuell

James A. Tuell
    
    President and Chief Executive Officer
(Principal Executive Officer)
    
    March 8, 2006/s/ Timothy A. Ficker

Timothy A. Ficker
    
    Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
    
    March 8, 2006
 31




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##### Table of Contents



31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    Certification of Principal Executive Officer and Principal Financial Officer
pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act)99.1
    
    Calculation of the Maximum Notes Balance at June 30, 2005 under the Senior
Secured Notes Facility dated January 13, 2005