##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 0-17204
 
 INFINITY ENERGY RESOURCES, INC.
  Delaware
(State of Incorporation)
    
    20-3126427
(I.R.S. Employer Identification Number)
 
 (720) 932-7800
 
 Common Stock
 None
 þ o
  o þ o
 o þ




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##### 



TABLE OF CONTENTS
 PART I Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statement of Changes in Stockholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    25PART II Other InformationItem 1.Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26Signatures
    
    
    27Exhibits
    
    
    28Form of Change in Control AgreementChange in Control AgreementWaiver and Amendment dated August 9, 2006 to Senior Secured Notes FacilityCertification of Principal Executive OfficerCertification of Principal Financial OfficerCertification Pursuant to Section 906Calculation of the Maximum Notes Balance at June 30, 2006
  2




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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,925
    
    
    $
    7,942Accounts receivable, less allowance for doubtful accounts of $134 (2006) and $85 (2005)
    
    
    5,873
    
    
    
    4,748Inventories
    
    
    592
    
    
    
    453Prepaid expenses and other
    
    
    309
    
    
    
    422Total current assets
    
    
    8,699
    
    
    
    13,565Property and equipment, at cost, net of accumulated depreciation
    
    
    12,270
    
    
    
    11,489Oil and gas properties, using full cost accounting, net of accumulated depreciation,
depletion and amortization and ceiling write-down:Proved
    
    
    52,430
    
    
    
    43,699Unproved
    
    
    25,995
    
    
    
    22,849Intangible assets, at cost, net of accumulated amortization
    
    
    2,217
    
    
    
    2,514Other assets, net
    
    
    1,402
    
    
    
    168Total assets
    
    $
    103,013
    
    
    $
    94,284LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Note payable
and current portion of long-term debt, net of discount
    
    $
    40,773
    
    
    $
    288Accounts payable
    
    
    13,359
    
    
    
    5,035Accrued liabilities
    
    
    5,120
    
    
    
    6,314Current portion of asset retirement obligations
    
    
    317
    
    
    
    284Total current liabilities
    
    
    59,569
    
    
    
    11,921Long-term liabilities:Production taxes payable and other
    
    
    343
    
    
    
    401Asset retirement obligations, less current portion
    
    
    1,183
    
    
    
    1,129Accrued interest
    
    
    1,346
    
    
    
    905Derivative liabilities
    
    
    11,596
    
    
    
    9,837Long-term
debt, net of discount, less current portion
    
    
    
    
    
    
    39,874Total liabilities
    
    
    74,037
    
    
    
    64,067Commitments and contingenciesStockholders equity:Preferred stock, par value $.0001 per share; 10,000,000 authorized shares, -0- shares
issued and outstanding
    
    
    
    
    
    
    Common stock, par value $.0001 per share; 75,000,000 authorized shares, 14,671,261
(2006) and 13,501,988 (2005) shares issued and outstanding
    
    
    1
    
    
    
    1Additional paid-in-capital
    
    
    65,744
    
    
    
    58,335Accumulated deficit
    
    
    (36,769
    )
    
    
    (28,119
    )Total stockholders equity
    
    
    28,976
    
    
    
    30,217Total liabilities and stockholders equity
    
    $
    103,013
    
    
    $
    94,284
  3




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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands, except share and per share amounts)RevenueOilfield services
    
    $
    9,299
    
    
    $
    5,447
    
    
    $
    17,749
    
    
    $
    9,517Oil and gas
    
    
    3,356
    
    
    
    2,204
    
    
    
    5,720
    
    
    
    3,649Total revenue
    
    
    12,655
    
    
    
    7,651
    
    
    
    23,469
    
    
    
    13,166Cost of revenueOilfield services
    
    
    4,132
    
    
    
    2,516
    
    
    
    8,005
    
    
    
    4,520Oil and gas production expenses
    
    
    1,138
    
    
    
    1,010
    
    
    
    2,281
    
    
    
    1,449Oil and gas production taxes
    
    
    34
    
    
    
    201
    
    
    
    235
    
    
    
    370Total cost of revenue
    
    
    5,304
    
    
    
    3,727
    
    
    
    10,521
    
    
    
    6,339Gross profit
    
    
    7,351
    
    
    
    3,924
    
    
    
    12,948
    
    
    
    6,827General and administrative expenses
    
    
    1,639
    
    
    
    1,356
    
    
    
    3,339
    
    
    
    2,636Depreciation, depletion, amortization
and accretion
    
    
    2,289
    
    
    
    1,797
    
    
    
    3,853
    
    
    
    3,384Ceiling write-down of oil and gas
properties
    
    
    2,500
    
    
    
    
    
    
    
    11,600
    
    
    
    Operating income (loss)
    
    
    923
    
    
    
    771
    
    
    
    (5,844
    )
    
    
    807Other income (expense)Financing costs:Interest expense
    
    
    (862
    )
    
    
    (418
    )
    
    
    (1,633
    )
    
    
    (935
    )Amortization of loan discount
and costs
    
    
    (541
    )
    
    
    (206
    )
    
    
    (981
    )
    
    
    (449
    )Early extinguishment of debt
    
    
    (88
    )
    
    
    (372
    )
    
    
    (210
    )
    
    
    (1,276
    )Change in derivative fair value
    
    
    3,304
    
    
    
    5,012
    
    
    
    (156
    )
    
    
    (2,901
    )Gain (loss) on sales of other assets
    
    
    (27
    )
    
    
    (91
    )
    
    
    267
    
    
    
    (91
    )Other
    
    
    (54
    )
    
    
    (340
    )
    
    
    (93
    )
    
    
    (262
    )Total other income (expense)
    
    
    1,732
    
    
    
    3,585
    
    
    
    (2,806
    )
    
    
    (5,914
    )Net income (loss)
    
    $
    2,655
    
    
    $
    4,356
    
    
    $
    (8,650
    )
    
    $
    (5,107
    )Net income (loss) per share:Basic
    
    $
    0.18
    
    
    $
    0.33
    
    
    $
    (0.61
    )
    
    $
    (0.41
    )Diluted
    
    $
    0.18
    
    
    $
    0.31
    
    
    $
    (0.61
    )
    
    $
    (0.41
    )Weighted average shares outstanding:Basic
    
    
    14,415,500
    
    
    
    13,159,575
    
    
    
    14,121,487
    
    
    
    12,385,310Diluted
    
    
    14,629,884
    
    
    
    13,528,198
    
    
    
    14,121,487
    
    
    
    12,385,310
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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
 AdditionalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance, December 31, 2005
    
    
    13,501,988
    
    
    $
    1
    
    
    $
    58,335
    
    
    $
    (28,119
    )
    
    $
    30,217Issuance of common stock upon conversion of senior
secured notes and settlement of accrued interest
    
    
    1,058,523
    
    
    
    
    
    
    
    6,704
    
    
    
    
    
    
    
    6,704Issuance of common stock upon the exercise of options
    
    
    105,750
    
    
    
    
    
    
    
    525
    
    
    
    
    
    
    
    525Employee stock options granted
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    150Other
    
    
    5,000
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    30Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,650
    )
    
    
    (8,650
    )Balance, June 30, 2006
    
    
    14,671,261
    
    
    $
    1
    
    
    $
    65,744
    
    
    $
    (36,769
    )
    
    $
    28,976
  5




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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 For the Six MonthsEnded June 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (8,650
    )
    
    $
    (5,107
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation, depletion, amortization and accretion
    
    
    3,853
    
    
    
    3,384Ceiling write-down of oil and gas properties
    
    
    11,600
    
    
    
    Amortization of loan discount and costs
    
    
    981
    
    
    
    449Non-cash early extinguishment of debt
    
    
    210
    
    
    
    1,052Current interest expense settled by stock issuance, net of amounts capitalized
    
    
    232
    
    
    
    Non-cash stock-based compensation expense
    
    
    181
    
    
    
    Changes in fair value of derivative instruments
    
    
    156
    
    
    
    2,901Unrealized loss (gain) on commodity derivative instruments
    
    
    124
    
    
    
    (23)Impairment of note receivable
    
    
    
    
    
    
    396(Gain) loss on sales of assets
    
    
    (267
    )
    
    
    91Change in operating assets and liabilities:Increase in accounts receivable
    
    
    (1,125
    )
    
    
    (1,201
    )Increase in inventories
    
    
    (139
    )
    
    
    (204
    )(Increase) decrease in prepaid expenses and other
    
    
    (324
    )
    
    
    186Increase
in accounts payable and accrued liabilities
    
    
    2,345
    
    
    
    143Net cash provided by operating activities
    
    
    9,177
    
    
    
    2,067Cash flows from investing activities:Capital expenditures  exploration and production
    
    
    (18,952
    )
    
    
    (21,342
    )Capital expenditures  oilfield services
    
    
    (3,532
    )
    
    
    (1,959
    )Proceeds from sale of fixed assets  exploration and production
    
    
    113
    
    
    
    133Proceeds from sale of fixed assets  oilfield services
    
    
    5
    
    
    
    12Proceeds from sale of fixed assets  corporate
    
    
    62
    
    
    
    Payments on note receivable
    
    
    
    
    
    
    4Increase in other assets
    
    
    (798
    )
    
    
    Net cash used in investing activities
    
    
    (23,102
    )
    
    
    (23,152
    )Cash flows from financing activities:Proceeds from borrowings on long-term debt
    
    
    8,000
    
    
    
    30,000Proceeds from issuance of common stock
    
    
    525
    
    
    
    4,179Debt and equity issuance costs
    
    
    (313
    )
    
    
    (2,124
    )Repayment of notes payable
    
    
    (304
    )
    
    
    (160
    )Repayment of long-term debt
    
    
    
    
    
    
    (9,289
    )Net cash provided by financing activities
    
    
    7,908
    
    
    
    22,606Net (decrease) increase in cash and cash equivalents
    
    
    (6,017
    )
    
    
    1,521Cash and cash equivalents, beginning of period
    
    
    7,942
    
    
    
    3,052Cash and cash equivalents, end of period
    
    $
    1,925
    
    
    $
    4,573
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INFINITY ENERGY RESOURCES, 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
  7




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##### Table of Contents



As ofJune 30,
    
    
    December 31,2006
    
    
    2005(in thousands)Proved oil and gas properties
    
    $
    98,957
    
    
    $
    75,484Unproved oil and gas properties
    
    
    25,995
    
    
    
    22,849Total
    
    
    124,952
    
    
    
    98,333Less accumulated depreciation, depletion, amortization and ceiling write-downs
    
    
    (46,527
    )
    
    
    (31,785
    )Net capitalized costs
    
    $
    78,425
    
    
    $
    66,548
    Derivative Instruments
 Accounting for Derivative Instruments
and Hedging Activities
 8




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##### Table of Contents



Income Taxes
  Comprehensive Income (Loss)
  Other Assets, Net
   Note 2  Stock Options
 Share-Based Payment Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
  9




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##### Table of Contents



Options Under Equity Incentive Plans
    Six Months Ended June 30,2006
    
    
    2005Expected term (in years)
    
    
    5.5 -- 10
    
    
    
    10Expected stock price volatility
    
    
    62%
    
    
    
    60% - 70%Expected dividends
    
    
    
    
    
    
    Risk-free rate
    
    
    4.98% - 5.07%
    
    
    
    4.00% - 4.13%Forfeiture rate
    
    
    
    
    
    
    
  Weighted Average
    
    
    Aggregate
    
    
    Weighted AverageExercise
    
    
    Intrinsic Value
    
    
    RemainingNumber of Options
    
    
    Price Per Share
    
    
    (in thousands)
    
    
    Contractual TermOutstanding at January 1, 2006
    
    
    1,383,250
    
    
    $
    6.52Granted
    
    
    340,000
    
    
    
    6.48Exercised
    
    
    (105,750
    )
    
    
    4.96Forfeited
    
    
    (1,500
    )
    
    
    8.70Outstanding at June 30, 2006
    
    
    1,616,000
    
    
    
    6.61
    
    
    $
    1,419
    
    
    7.0 yearsExercisable at June 30, 2006
    
    
    1,276,000
    
    
    
    6.65
    
    
    $
    1,260
    
    
    6.1 years
    Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2005(in thousands, except share amounts)Net income (loss) as reported
    
    $
    4,356
    
    
    $
    (5,107
    )Deduct: Total stock-based employee
compensation expense, determined under
fair value based method for all awards
    
    
    (113
    )
    
    
    (1,209
    )Pro forma net income (loss)
    
    $
    4,243
    
    
    $
    (6,316
    )
 10




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##### Table of Contents



Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2005(in thousands, except share amounts)Basic
    
    $
    0.33
    
    
    $
    (0.41
    )Diluted
    
    $
    0.31
    
    
    $
    (0.41
    )Pro forma net income (loss) per share:Basic
    
    $
    0.32
    
    
    $
    (0.51
    )Diluted
    
    $
    0.30
    
    
    $
    (0.51
    )
 Note 3  Asset Retirement Obligations
 Accounting for Asset Retirement Obligations
  For the Six Months EndedJune 30,2006
    
    
    2005(in thousands)Asset retirement obligations at beginning of period
    
    $
    1,413
    
    
    $
    635Accretion expense
    
    
    60
    
    
    
    17Liabilities incurred
    
    
    30
    
    
    
    24Liabilities Settled
    
    
    (3)
    
    
    
    Revisions of estimates
    
    
    
    
    
    
    844Asset retirement obligations at end of period
    
    
    1,500
    
    
    
    1,520Less: current portion of asset retirement obligations
    
    
    (317
    )
    
    
    (208
    )Asset retirement obligations, less current portion
    
    $
    1,183
    
    
    $
    1,312
 Note 4 Debt
  As ofJune 30,
    
    
    December 31,2006
    
    
    2005(in thousands)Senior Secured Notes, net of discount of $6,799 at June 30, 2006 and $7,417 at
December 31, 2005
    
    $
    40,701
    
    
    $
    37,583Note payable to seller (for a 50% interest in an airplane)
    
    
    
    
    
    
    2,203Other, principally capitalized lease obligations
    
    
    72
    
    
    
    37640,773
    
    
    
    40,162Less current portion
    
    
    (40,773
    )
    
    
    (288
    )Long-term
debt, net
    
    $
    
    
    
    $
    39,874
 Senior Secured Notes Facility
    11




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##### Table of Contents



Debt
Discount
  
    
    repayment or conversion of $2.5 million principal amount of Notes (plus prepayment
premiums discussed above and accrued interest) with a conversion period to begin or cash
payment due immediately;
    
    repayment or conversion of $2.0 million principal amount of Notes (plus prepayment
premiums discussed above and accrued interest) per month for nine of the next ten months
commencing October 1, 2006, with the conversion period to begin or cash payment due on the
first day of the month;
    
    repayment in cash of $9.0 million on each of January 15, 2007, April 15, 2007 and July
15, 2007;
    
    re-pricing of the exercise price of the outstanding Warrants from a weighted-average
exercise price of $9.81 per share to $5.00 per share and increasing the number of
Warrants from approximately 3.0 million to approximately 5.8 million;
    
    no additional notes or warrants can be sold under the Senior Secured Notes Facility.
   Debt Discount
 Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock
  Capitalized Interest
  Promissory Note to Seller
  Note 5  Derivative Instruments and Hedging Activities
  12




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##### Table of Contents



Commodity Derivatives
  Term of Arrangements
    
    Bbls per Day
    
    Floor Price
    
    Ceiling PriceOctober 1, 2005  December 31, 2006
    
    
    50
    
    
    $
    52.50
    
    
    $
    74.00July 1, 2006  March 31, 2007
    
    
    50
    
    
    $
    55.00
    
    
    $
    77.00January 1, 2007  June 30, 2007
    
    
    50
    
    
    $
    57.50
    
    
    $
    77.50April 1, 2007  September 30, 2007
    
    
    50
    
    
    $
    60.00
    
    
    $
    85.50July 1, 2007  December 31, 2007
    
    
    50
    
    
    $
    62.50
    
    
    $
    87.00
  MMBtuTerm of Arrangements
    
    per Day
    
    Floor Price
    
    Ceiling PriceMay 1, 2006  July 31, 2006
    
    
    1,000
    
    
    $
    4.50
    
    
    $
    8.00January 1, 2007  March 31, 2007
    
    
    1,000
    
    
    $
    7.50
    
    
    $
    12.00
   MMBtuTerm of Arrangements
    
    per Day
    
    Floor Price
    
    Ceiling PriceOctober 1, 2006  December 31, 2006
    
    
    1,000
    
    
    $
    6.00
    
    
    $
    10.55April 1, 2007  June 30, 2007
    
    
    1,000
    
    
    $
    6.00
    
    
    $
    10.55
 Other Derivatives
   13




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##### Table of Contents



Note 6  Fair Value of Financial Instruments
   Note 7  Earnings Per Share
  For the Three Months Ended June 30,2006
    
    
    2005(in thousands, except share and per share amounts)Net
    
    
    
    
    
    
    Per Share
    
    
    Net
    
    
    
    
    
    
    Per ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic EPS:Net income and share amounts
    
    $
    2,655
    
    
    
    14,415,500
    
    
    $
    0.18
    
    
    $
    4,356
    
    
    
    13,159,575
    
    
    $
    0.33Dilutive Securities:Stock Options and Warrants
    
    
    
    
    
    
    214,384
    
    
    
    
    
    
    
    (133
    )
    
    
    368,623Diluted EPS:Net income and share amounts
    
    $
    2,655
    
    
    
    14,629,884
    
    
    $
    0.18
    
    
    $
    4,223
    
    
    
    13,528,198
    
    
    $
    0.31
 For the Six Months Ended June 30,2006
    
    
    2005(in thousands, except share and per share amounts)Net
    
    
    
    
    
    
    Per Share
    
    
    Net
    
    
    
    
    
    
    Per ShareLoss
    
    
    Shares
    
    
    Amount
    
    
    Loss
    
    
    Shares
    
    
    AmountBasic EPS:Net loss and share amounts
    
    $
    (8,650
    )
    
    
    14,121,487
    
    
    $
    (0.61
    )
    
    $
    (5,107
    )
    
    
    12,385,310
    
    
    $
    (0.41
    )Dilutive Securities:Stock Options and Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPS:Net loss and share amounts
    
    $
    (8,650
    )
    
    
    14,121,487
    
    
    $
    (0.61
    )
    
    $
    (5,107
    )
    
    
    12,385,310
    
    
    $
    (0.41
    )
  14




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##### Table of Contents



Note 8  Subsequent Events
   15




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   FORWARD-LOOKING STATEMENTS
  
    
    expected capital expenditures and cash flow for the remainder of 2006;
    
    plans to raise external financing to repay debt and finance a portion of 2006 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;
    
    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.
  16




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##### Table of Contents




    
    fluctuations in oil and natural gas prices and production;
    
    availability of drilling rigs, completion services and other support equipment;
    
    incorrect estimates 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 exploration, exploitation and 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;
    
    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;
    
    inability to sell Consolidated or refinance the senior notes;
    
    possible inability to repay senior notes in cash, if required;
    
    inability to comply with provisions of senior notes in the
future;
    
    possible action by lenders on future defaults that could
result in increased interest or foreclosure.
 Overview of Exploration and Production Activity
  
    
    Drilled ten horizontal wells and four vertical wells targeting the Barnett Shale
formation;
    
    Increased production from the Fort Worth Basin in north
central Texas by approximately 110% as compared to the six months ended
December 31, 2005 (and increased production by 64% sequentially
over the three months ended March 31, 2006);
    
    Made capital additions of approximately $19.0 million, including costs for leasehold
additions, seismic acquisition and interpretation, and the drilling, completing and
equipping of wells;
  17




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##### Table of Contents



For the Three
    
    For the SixMonths Ended
    
    Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Production:Natural gas (MMcf)
    
    
    281.9
    
    
    
    219.4
    
    
    
    488.9
    
    
    
    430.9Crude oil (thousands of barrels)
    
    
    23.5
    
    
    
    19.5
    
    
    
    42.2
    
    
    
    28.6Total (MMcfe)
    
    
    422.8
    
    
    
    336.4
    
    
    
    742.3
    
    
    
    602.5Financial Data (thousands of dollars):Total revenue
    
    $
    3,356
    
    
    $
    2,204
    
    
    $
    5,720
    
    
    $
    3,649Production expenses
    
    
    1,138
    
    
    
    1,010
    
    
    
    2,281
    
    
    
    1,449Production taxes
    
    
    34
    
    
    
    201
    
    
    
    235
    
    
    
    370Financial Data per Unit ($  per Mcfe):Total revenue
    
    $
    7.94
    
    
    $
    6.55
    
    
    $
    7.71
    
    
    $
    6.05Production expenses
    
    
    2.69
    
    
    
    3.00
    
    
    
    3.07
    
    
    
    2.40Production taxes
    
    
    0.08
    
    
    
    0.60
    
    
    
    0.32
    
    
    
    0.61
  Overview of Oilfield Service Operations
  
    
    record quarterly revenue of $9.3 million;
    
    subsidiary level gross profit of approximately $5.2 million;
    
    provided services to 390 customers; and
    
    subsidiary level income before taxes of approximately $3.8 million.
  18




---



##### Table of Contents



(dollars in thousands)
 Three Months Ended June 30,2006
    
    
    2005
    
    
    ChangeJobs
    
    
    Revenue
    
    
    Jobs
    
    
    Revenue
    
    
    Jobs
    
    
    % Chg. In Jobs
    
    
    RevenueJob TypeCementing
    
    
    1,213
    
    
    $
    3,699
    
    
    
    799
    
    
    $
    2,234
    
    
    
    414
    
    
    
    52
    %
    
    $
    1,465Acidizing
    
    
    630
    
    
    
    695
    
    
    
    471
    
    
    
    482
    
    
    
    159
    
    
    
    34
    %
    
    
    213Fracturing
    
    
    500
    
    
    
    5,194
    
    
    
    383
    
    
    
    2,730
    
    
    
    117
    
    
    
    31
    %
    
    
    2,464Other
    
    
    
    
    
    
    259
    
    
    
    
    
    
    
    217
    
    
    
    
    
    
    
    
    
    
    
    42Discounts
    
    
    
    
    
    
    (548
    )
    
    
    
    
    
    
    (216
    )
    
    
    
    
    
    
    
    
    
    
    (332
    )Total
    
    
    
    
    
    $
    9,299
    
    
    
    
    
    
    $
    5,447
    
    
    
    
    
    
    
    
    
    
    $
    3,852
 Six Months Ended June 30,2006
    
    
    2005
    
    
    ChangeJobs
    
    
    Revenue
    
    
    Jobs
    
    
    Revenue
    
    
    Jobs
    
    
    % Chg. In Jobs
    
    
    RevenueJob TypeCementing
    
    
    2,183
    
    
    $
    6,854
    
    
    
    1,520
    
    
    $
    4,120
    
    
    
    663
    
    
    
    44
    %
    
    $
    2,734Acidizing
    
    
    1,217
    
    
    
    1,479
    
    
    
    927
    
    
    
    884
    
    
    
    290
    
    
    
    31
    %
    
    
    595Fracturing
    
    
    1,123
    
    
    
    9,787
    
    
    
    581
    
    
    
    4,467
    
    
    
    542
    
    
    
    93
    %
    
    
    5,320Other
    
    
    
    
    
    
    620
    
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    206Discounts
    
    
    
    
    
    
    (991
    )
    
    
    
    
    
    
    (368
    )
    
    
    
    
    
    
    
    
    
    
    (623
    )Total
    
    
    
    
    
    $
    17,749
    
    
    
    
    
    
    $
    9,517
    
    
    
    
    
    
    
    
    
    
    $
    8,232
 2006 Operational and Financial Objectives
 Exploration and Production
   
    
    The availability of the capital resources required to fund the activity;
    
    The availability of third party contractors for drilling rigs and completion services
(although the Company has one rig under contract); and
    
    The approval by regulatory agencies of applications for permits to drill in a timely
manner.
  Oilfield Services
  19




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##### Table of Contents



Corporate Activities
  Results of operations for the three months ended June 30, 2006 compared to the three months ended
June 30, 2005
 Net Income
  Revenue
  Cost of Revenue
  Gross Profit
  General and Administrative Expenses
  20




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##### Table of Contents



Depreciation, Depletion, Amortization and Accretion
  Ceiling Write-Down
  Other Income (Expense)
  Results of operations for the six months ended June 30, 2006 compared to the six months ended June
30, 2005
 Net Loss
  Revenue
  Cost of Revenue
  21




---



##### Table of Contents



Gross Profit
  General and Administrative Expenses
  Depreciation, Depletion, Amortization and Accretion
  Ceiling Write-Down
  Other Income (Expense)
  Liquidity and Capital Resources
   22




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##### Table of Contents



Waiver and Amendment Under Senior Secured Notes Facility
  
    
    repayment or conversion of $2.5 million principal amount of Notes (plus prepayment
premiums discussed above and accrued interest) with a conversion period to begin or cash
payment due immediately;
    
    repayment or conversion of $2.0 million principal amount of Notes (plus prepayment
premiums discussed above and accrued interest) per month for nine of the next ten months
commencing October 1, 2006, with the conversion period to begin or cash payment due on the
first day of the month;
    
    repayment in cash of $9.0 million on each of January 15, 2007, April 15, 2007 and July
15, 2007;
    
    re-pricing of the exercise price of the outstanding Warrants from a weighted-average
exercise price of $9.81 per share to $5.00 per share and increasing the number of
Warrants from approximately 3.0 million to approximately 5.8 million;
    
    no additional notes or warrants can be sold under the Senior Secured Notes Facility.
   Outlook for 2006
        23




---



##### Table of Contents



Critical Accounting Policies and Estimates
  
    
    Remaining proved oil and gas reserves (reserve estimates),
    
    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,
    
    Estimated realizability of deferred tax assets,
    
    Estimated fair value of stock based awards,
    
    Estimated fair value of derivative instruments.
 Recent Accounting Pronouncements
 Adoption of SFAS No. 123R, Share-Based Payment
 Share-Based Payment Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
  Six Months Ended June 30,2006
    
    
    2005Expected term (in years)
    
    
    5.5 -- 10
    
    
    
    10Expected stock price volatility
    
    
    62%
    
    
    
    60% - 70%Expected dividends
    
    
    
    
    
    
    Risk-free rate
    
    
    4.98% - 5.07%
    
    
    
    4.00% - 4.13%Forfeiture rate
    
    
    
    
    
    
    
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Commodity Risk
     Term of Arrangements
    
    Bbls per Day
    
    Floor Price
    
    Ceiling PriceOctober 1, 2005  December 31, 2006
    
    
    50
    
    
    $
    52.50
    
    
    $
    74.00July 1, 2006  March 31, 2007
    
    
    50
    
    
    $
    55.00
    
    
    $
    77.00January 1, 2007  June 30, 2007
    
    
    50
    
    
    $
    57.50
    
    
    $
    77.50April 1, 2007  September 30, 2007
    
    
    50
    
    
    $
    60.00
    
    
    $
    85.50July 1, 2007  December 31, 2007
    
    
    50
    
    
    $
    62.50
    
    
    $
    87.00
  MMBtuTerm of Arrangements
    
    per Day
    
    Floor Price
    
    Ceiling PriceMay 1, 2006  July 31, 2006
    
    
    1,000
    
    
    $
    4.50
    
    
    $
    8.00January 1, 2007  March 31, 2007
    
    
    1,000
    
    
    $
    7.50
    
    
    $
    12.00
 24




---



##### Table of Contents



MMBtuTerm of Arrangements
    
    per Day
    
    Floor Price
    
    Ceiling PriceOctober 1, 2006  December 31, 2006
    
    
    1,000
    
    
    $
    6.00
    
    
    $
    10.55April 1, 2007  June 30, 2007
    
    
    1,000
    
    
    $
    6.00
    
    
    $
    10.55
  Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
  
 PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  We have been unable to comply with certain requirements of our Senior Secured Notes Facility and
may not be able to meet our obligations under the Facility in the future or repay the Notes.
   Exploration and development of our oil and gas projects will require large amounts of capital which
we may not be able to obtain.
  The covenants and debt service obligations of our Senior Secured Note Facility may adversely affect
our cash flow and our ability to raise additional capital.
   
    
    additional covenant violations, if any, or violations of the terms of the Waiver and
Amendment could further accelerate our obligation to repay the existing Notes;
    
    the amount of our interest expense may increase because our borrowings are at a
variable rate of interest, which, if interest rates increase, would result in higher
interest expense;
    
    we will potentially need to use a significant portion of our cash flow to pay
principal and interest on our debt which will reduce the amount of cash we have to
finance our operations and other business activities; and
    
    substantially all of our properties are pledged as collateral to lenders and failure
to fulfill our obligations under the Notes Facility could result in foreclosure or the
implementation of bankruptcy proceedings.
  
    
    we may have a higher level of debt than many of our competitors, which may place us
at a competitive disadvantage;
    
    we may issue equity securities to repay indebtedness, causing additional dilution to
our stockholders;
    
    we may be more vulnerable to economic downturns and adverse developments in our
industry; and
    
    our debt level could limit our flexibility in planning for, or reacting to, changes
in our business and the industries in which we operate.
 
 ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 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;
 25




---



##### Table of Contents



(b)
    
    The approval of the Companys 2006 Equity Incentive Plan;(c)
    
    The ratification of the selection of Ehrhardt Keefe Steiner & Hottman PC, as Infinitys
independent registered public accounting firm.
   Nominee
    
    For
    
    WithheldStanton E. Ross
    
    
    10,807,611
    
    
    
    649,312James A. Tuell
    
    
    10,985,775
    
    
    
    471,148Elliot M. Kaplan
    
    
    10,920,807
    
    
    
    536,116Robert O. Lorenz
    
    
    10,920,682
    
    
    
    536,241Leroy C. Richie
    
    
    10,920,107
    
    
    
    536,816
  For
    
    Against
    
    Abstain3,880,878
    
    
    1,005,553
    
    
    
    153,474
  For
    
    Against
    
    Abstain11,368,739
    
    
    22,608
    
    
    
    65,576
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  10.1
    
    Form of Change in Control Agreement dated June 9, 2006
between Infinity and certain executive officers.10.2
    
    Change in Control Agreement dated June 9, 2006 between
Infinity, Consolidated and Stephen D. Stanfield.10.3
    
    Waiver and Amendment dated August 9, 2006 to Senior
Secured Notes Facility31.1
    
    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, 2006 under the Senior Secured Notes
Facility dated January 13, 2005
 26




---



##### Table of Contents



SIGNATURES
  Signature
    
    Capacity
    
    Date/s/ James A. Tuell
    
    President and Chief Executive Officer
    
    August 10, 2006James A. Tuell
    
    (Principal Executive Officer)/s/ Timothy A. Ficker
    
    Vice President, Chief Financial Officer
    
    August 10, 2006Timothy A. Ficker
    
    (Principal Financial and Accounting Officer)
 27




---



##### Table of Contents



Index of Exhibits
 10.1
    
    Form of Change in Control Agreement dated June 9, 2006
between Infinity and certain executive officers.10.2
    
    Change in Control Agreement dated June 9, 2006 between
Infinity, Consolidated and Stephen D. Stanfield.10.3
    
    Waiver and Amendment dated August 9, 2006 to Senior
Secured Notes Facility31.1
    
    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, 2006
 28