##### 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 March 31, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
  INFINITY, INC.
  Colorado
(State or of Incorporation)
    
    84-1070066
(I.R.S. Employer Identification Number)
 
 (720) 932-7800
 None
 Common Stock
 o þ
 o þ




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##### 



EXPLANATORY PARAGRAPH
   
 TABLE OF CONTENTS
 PART I Financial InformationItem 1.Financial StatementsConsolidated Balance Sheets  March 31, 2005 and December 31, 2004
    
    
    3Consolidated Statements of Operations  For the Three Months Ended March 31, 2005 and 2004
    
    
    4Consolidated Statements of Comprehensive Loss  For the Three Months Ended March 31, 2005 and 2004
    
    
    5Consolidated Statement of Changes in Stockholders Equity  For the Three Months Ended March 31, 2005
    
    
    6Consolidated Statements of Cash Flows  For the Three Months Ended March 31, 2005 and 2004
    
    
    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
    
    
    26Item 4. Controls and Procedures
    
    
    27PART II Other InformationItem 1.Legal Proceedings
    
    
    28Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3.Defaults Upon Senior Securities
    
    
    28Item 4.Submission of Matters to a Vote of Security Holders
    
    
    28Item 5.Other Information
    
    
    28Item 6.Exhibits
    
    
    28Signatures
    
    
    29ExhibitsCertification of Principal Executive Officer Pursuant to Section 302Certification of Principal Financial Officer Pursuant to Section 302Certification of Principal Executive Officer & Principal Financial Officer Pursuant to Section 906Calculation of the Maximum Notes Balance
  2




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INFINITY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 Mar. 31, 2005
    
    
    Dec. 31, 2004(As Restated)(See Note 2)ASSETSCurrent assetsCash and cash equivalents
    
    $
    12,477
    
    
    $
    3,052Accounts receivable, less allowance for doubtful
accounts of $85 (2005 and 2004)
    
    
    3,422
    
    
    
    3,494Note receivable
    
    
    
    
    
    
    1,581Inventories
    
    
    425
    
    
    
    286Prepaid expenses and other
    
    
    389
    
    
    
    654Total current assets
    
    
    16,713
    
    
    
    9,067Property and equipment, at cost, less accumulated depreciation
    
    
    9,584
    
    
    
    8,764Oil and gas properties, using full cost accounting net of
accumulated depreciation, depletion, amortizationSubject to amortization
    
    
    32,107
    
    
    
    28,792Not subject to amortization
    
    
    25,463
    
    
    
    15,595Intangible assets, at cost, less accumulated amortization
    
    
    2,722
    
    
    
    1,497Note receivable
    
    
    1,577
    
    
    
    Other assets, net
    
    
    333
    
    
    
    333Total assets
    
    $
    88,499
    
    
    $
    64,048LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesNote payable and current portion of long-term debt
    
    $
    159
    
    
    $
    284Accounts payable
    
    
    4,061
    
    
    
    4,001Accrued expenses
    
    
    5,491
    
    
    
    4,497Total current liabilities
    
    
    9,711
    
    
    
    8,782Long-term liabilitiesProduction taxes payable
    
    
    342
    
    
    
    469Asset retirement obligations
    
    
    660
    
    
    
    635Derivative liabilities
    
    
    17,718
    
    
    
    Long-term debt, less current portion
    
    
    26,468
    
    
    
    11,3308% subordinated convertible notes payable
    
    
    
    
    
    
    2,4937% subordinated convertible notes payable
    
    
    5,566
    
    
    
    11,517Total liabilities
    
    
    60,465
    
    
    
    35,226Commitments and contingenciesStockholders equityCommon stock, par value $.0001, authorized 300,000,000
shares, issued and outstanding 12,532,927 (2005) and
10,628,196 (2004) shares
    
    
    1
    
    
    
    1Additional paid-in-capital
    
    
    52,038
    
    
    
    43,363Accumulated deficit
    
    
    (24,005
    )
    
    
    (14,542
    )Total stockholders equity
    
    
    28,034
    
    
    
    28,822Total liabilities and stockholders equity
    
    $
    88,499
    
    
    $
    64,048
  3




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INFINITY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 For the Three MonthsEnded March 31,2005
    
    
    2004(As Restated)(See Note 2)RevenueOilfield service operations
    
    $
    4,070
    
    
    $
    2,195Exploration and production
    
    
    1,445
    
    
    
    1,371Total revenue
    
    
    5,515
    
    
    
    3,566Cost of revenueOilfield service operations
    
    
    2,004
    
    
    
    1,420Oil and gas production expenses
    
    
    439
    
    
    
    363Oil and gas production taxes
    
    
    169
    
    
    
    156Total cost of revenue
    
    
    2,612
    
    
    
    1,939Gross profit
    
    
    2,903
    
    
    
    1,627General and administrative expenses
    
    
    1,280
    
    
    
    1,262Depreciation, depletion, amortization and accretion
    
    
    1,586
    
    
    
    1,047Operating income (loss)
    
    
    37
    
    
    
    (682
    )Other income (expense)Interest and other income
    
    
    78
    
    
    
    39Amortization of loan discount and costs
    
    
    (243
    )
    
    
    (639
    )Early extinguishment of debt
    
    
    (904
    )
    
    
    (204
    )Interest expense
    
    
    (517
    )
    
    
    (279
    )Changes in derivative fair value
    
    
    (7,913
    )
    
    
    Loss on sales of other assets
    
    
    (1
    )
    
    
    Total other income (expense)
    
    
    (9,500
    )
    
    
    (1,083
    )Net loss before income taxes
    
    
    (9,463
    )
    
    
    (1,765
    )Income tax benefit
    
    
    
    
    
    
    Net loss
    
    $
    (9,463
    )
    
    $
    (1,765
    )Basic and diluted net loss per share
    
    $
    (0.81
    )
    
    $
    (0.19
    )Weighted average basic and diluted shares
outstanding
    
    
    11,619
    
    
    
    9,196
  4




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INFINITY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
 For the Three MonthsEnded March 31,2005
    
    
    2004(As Restated)(See Note 2)Net loss
    
    $
    (9,463
    )
    
    $
    (1,765
    )Reclassifications, net of tax expense
    
    
    
    
    
    
    98Comprehensive loss
    
    $
    (9,463
    )
    
    $
    (1,667
    )
  5




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INFINITY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
 AdditionalCommon Stock
    
    
    Paid-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
    
    
    603,656
    
    
    
    
    
    
    
    3,979
    
    
    
    
    
    
    
    3,979Conversion 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
    
    
    783,779
    
    
    
    
    
    
    
    6,095
    
    
    
    
    
    
    
    6,095Costs from previous
equity placement
financing
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Net loss*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,463
    )
    
    
    (9,463
    )Balance, March 31, 2005 *
    
    
    12,532,927
    
    
    $
    1
    
    
    $
    52,038
    
    
    $
    (24,005
    )
    
    $
    28,034
 
 *
    
    As Restated. See Note 2.  6




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INFINITY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 For the Three MonthsEnded March 31,2005
    
    
    2004(As Restated)(See Note 2)Cash flows from operating activitiesNet loss
    
    $
    (9,463
    )
    
    $
    (1,765
    )Adjustments to reconcile net loss to net cash provided
by operating activities:Depreciation, depletion, amortization and accretion
    
    
    1,586
    
    
    
    1,047Amortization of loan discount and costs
    
    
    243
    
    
    
    161Expense related to early extinguishment of debt
    
    
    681
    
    
    
    682Changes in fair value of derivative liabilities
    
    
    7,913
    
    
    
    Loss on sales of other assets
    
    
    1
    
    
    
    Change in assets and liabilities(Increase) decrease in accounts receivable
    
    
    72
    
    
    
    (232
    )Increase in inventories
    
    
    (139
    )
    
    
    (36
    )(Increase) decrease in prepaid expenses and other
    
    
    265
    
    
    
    (96
    )Increase (decrease) in accounts payable
    
    
    60
    
    
    
    (249
    )Increase in accrued liabilities
    
    
    728
    
    
    
    731Net cash provided by operating activities
    
    
    1,947
    
    
    
    243Cash flows from investing activitiesCapital expenditures  exploration and production
    
    
    (14,064
    )
    
    
    (1,997
    )Capital expenditures  oilfield services
    
    
    (1,080
    )
    
    
    (103
    )Proceeds from sale of fixed assets  exploration and
production
    
    
    133
    
    
    
    Proceeds from sale of fixed assets  oilfield services
    
    
    1
    
    
    
    2Acquisitions  exploration and production, net of
cash acquired
    
    
    
    
    
    
    (516
    )Payments on note receivable
    
    
    4
    
    
    
    4Increase in other assets
    
    
    
    
    
    
    (245
    )Net cash used in investing activities
    
    
    (15,006
    )
    
    
    (2,855
    )Cash flows from financing activitiesProceeds from notes payable
    
    
    
    
    
    
    275Proceeds from borrowings on long-term debt
    
    
    30,000
    
    
    
    390Proceeds from issuance of common stock
    
    
    3,979
    
    
    
    4,060Debt and equity issuance costs
    
    
    (2,124
    )
    
    
    (18
    )Repayment of notes payable
    
    
    (119
    )
    
    
    Repayment of long-term debt
    
    
    (9,252
    )
    
    
    (1,647
    )Net cash provided by financing activities
    
    
    22,484
    
    
    
    3,060Net increase in cash and cash equivalents
    
    
    9,425
    
    
    
    448Cash and cash equivalents, beginning of period
    
    
    3,052
    
    
    
    727Cash and cash equivalents, end of period
    
    $
    12,477
    
    
    $
    1,175
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INFINITY, INC. AND SUBSIDIARIES
 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 For the Three MonthsEnded March 31,2005
    
    
    2004(As Restated)(See Note 2)Supplemental cash flow disclosures:Cash paid for interest, net of amounts capitalized
    
    $
    
    
    
    $
    35Non-cash transactions:Non-cash costs capitalized in the full cost pool
for oil and gas properties
    
    
    175
    
    
    
    176Conversion of subordinated convertible notes and
accrued interest to common stock
    
    
    8,795
    
    
    
    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 2,106 shares of common stock in
cashless exercise of warrants during 2005
    
    
    
    
    
    
    
  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
  Summary of Significant Accounting Policies
   Oil and Gas Properties
   9




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As ofMarch 31,
    
    
    December 31,2005
    
    
    2004(in thousands)(As Restated)(See Note 2)Proved oil and gas properties
    
    $
    45,774
    
    
    $
    41,210Unproved oil and gas properties
    
    
    25,463
    
    
    
    15,595Total
    
    
    71,237
    
    
    
    56,805Less accumulated depreciation,
depletion, and amortization and
ceiling write-downs
    
    
    (13,667
    )
    
    
    (12,418
    )Net capitalized costs
    
    $
    57,570
    
    
    $
    44,387
    10




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Income Taxes
   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
   AsPreviouslyReported
    
    
    Adjustment
    
    
    As RestatedAmortization of loan discount and cost
    
    $
    (356
    )
    
    $
    113
    
    
    $
    (243
    )Change in derivative fair value
    
    
    
    
    
    $
    (7,913
    )
    
    $
    (7,913
    )Net loss
    
    $
    (1,663
    )
    
    $
    (7,800
    )
    
    $
    (9,463
    )Basic and diluted net loss per share
    
    $
    (0.14
    )
    
    $
    (0.67
    )
    
    $
    (0.81
    )
 11




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AsPreviouslyReported
    
    
    Adjustment
    
    
    As RestatedOil and gas properties, unproved
    
    $
    25,760
    
    
    $
    (297
    )
    
    $
    25,463Total assets
    
    $
    88,796
    
    
    $
    (297
    )
    
    $
    88,499Derivative liabilities
    
    $
    
    
    
    $
    17,718
    
    
    $
    17,718Long-term debt, less current portion
    
    $
    18,130
    
    
    $
    8,338
    
    
    $
    26,468Additional paid-in-capital
    
    $
    70,591
    
    
    $
    (18,553
    )
    
    $
    52,038Accumulated deficit
    
    $
    (16,205
    )
    
    $
    (7,800
    )
    
    $
    (24,005
    )Total stockholders equity
    
    $
    54,387
    
    
    $
    (26,353
    )
    
    $
    28,034
 Note 3  Stock Options
  For the Three MonthsEnded March 31,2005
    
    
    2004(in thousands)(As Restated)(See Note 2)Net loss as reported
    
    $
    (9,463
    )
    
    $
    (1,765
    )Deduct: Total stock-based employee
compensation expense, determined under fair
value based method for all awards, net of
tax
    
    
    (1,096
    )
    
    
    Pro forma net loss
    
    $
    (10,559
    )
    
    $
    (1,765
    )Basic and diluted loss per share as reported
    
    $
    (0.81
    )
    
    $
    (0.19
    )Basic and diluted loss per share-pro forma
    
    $
    (0.91
    )
    
    $
    (0.19
    )
  12




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Note 4  Long-Term Debt and Convertible Notes Payable
  As ofMarch 31,
    
    
    December 31,2005
    
    
    2004(dollars in thousands)(As Restated)(See Note 2)Senior secured notes (the
Notes) due January 13,
2009, with interest
calculated quarterly at
3-Month LIBOR plus 6.75%
(9.87% as of April 1,
2005) due on a quarterly
basis. The balance of
$30,000 at March 31, 2005
is net of discount of $5,617
    
    $
    24,383
    
    
    $
    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 have been
called for redemption on
April 22, 2005
    
    
    5,566
    
    
    
    11,517$25,000 development
credit facility with U.S.
Bank, repaid in full and
terminated on January 13,
2005
    
    
    
    
    
    
    5,000Note 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 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 $2,138
    
    
    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
    
    
    41
    
    
    
    70632,193
    
    
    
    25,624Less current portion
    
    
    (159
    )
    
    
    (284
    )Long-term debt
    
    $
    32,034
    
    
    $
    25,340
 Senior Secured Notes Facility
   13




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Accounting for Derivative Financial
Instruments Index to, and Potentially Settled in, a Companys Own Stock
 8% Convertible Subordinated Notes
    7% Convertible Subordinated Notes
     $25,000,000 Development Credit Facility
  14




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Revolving Credit and Term Loans
  Capitalized Interest
  Note 5  Derivative Instruments and Hedging Activities
  Commodity Derivatives
   MMBtu
    
    
    AmountEffective Dates
    
    Per Day
    
    
    Per MMBtuApril 1, 2003  March 31, 2004
    
    
    3,500
    
    
    $
    4.71
   15




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Other Derivatives
   Note 6  Fair Value of Financial Instruments
   Note 7  Earnings Per Share
   16




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Note 8  Subsequent Event
  17




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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;
    
    commencement of production in the Barnett Shale;
    
    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;
    
    planned exploration, drilling and completion activities in the Barnett Shale, Niobrara
Shale, Lower Marble Falls formation and the Forth Worth and Greater Green River Basins;
    
    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,
 18




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
    
    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 of
    
    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 notes balance borrowing base calculation
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 matters,
    
    start up difficulties and delays with new Barnett Shale wells and gathering and
transportation systems, and
    
    changes in general economic conditions.
 Overview of Exploration and Production Activity
   Overview of Oilfield Service Operations
  
    
    record first quarter revenue of $4.1 million;
    
    subsidiary level earnings before interest, taxes, depreciation and amortization of
approximately $1.3 million and
    
    subsidiary level income before taxes of approximately $0.9 million.
  19




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Subsequent Events
 Acquisition of Additional Acreage in the Fort Worth Basin
  Conversion and Redemption of All Subordinated Convertible Debt
  Default on Payment of Note Receivable
  2005 Operational and Financial Objectives
 Exploration and Production
    
    
    The availability of the capital resources required to fund the activity.
Infinity-Wyoming expects to generate approximately $3 million in cash flow from operations
during the remainder of 2005. Infinity-Texas expects to generate cash flow from operations in
2005 subsequent to the hook up of its initial wells in the Fort Worth basin; however
management is currently unable to provide an accurate estimate of this amount;
    
    The availability of third party contractors for drilling rigs and completion services;
    
    The completion of environmental studies by the Bureau of Land Management covering
federal acreage in the Pipeline and Labarge fields; and
    
    The approval by regulatory agencies of applications for permits to drill in a timely
manner.
 20




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Oilfield Services
  
    
    expand the services that are provided;
    
    expand the area that is serviced; and
    
    gain market share by providing services complementary to our existing services.
  Corporate Activities
  Results of operations for the three months ended March 31, 2005 compared to the three months ended March 31, 2004
     21




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Exploration and Production
  2005
    
    
    2004Production:Natural gas (MMcf)
    
    
    211.5
    
    
    
    203.4Crude oil (thousands of barrels)
    
    
    9.1
    
    
    
    9.2Total (MMcfe)
    
    
    266.1
    
    
    
    259.4Financial Data (in thousands of dollars):Total revenue
    
    $
    1,445
    
    
    $
    1,371Production expenses
    
    
    439
    
    
    
    363Production taxes
    
    
    169
    
    
    
    156Financial Data per Unit ($per Mcfe):Total revenue
    
    $
    5.43
    
    
    $
    5.28Production expenses
    
    
    1.65
    
    
    
    1.40Production taxes
    
    
    0.64
    
    
    
    0.60
      Oilfield Services
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Oilfield Service Statistics  ($ in millions, before discounts)
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2004
    
    
    ChangeJob Type
    
    Jobs
    
    
    Revenue
    
    
    Jobs
    
    
    Revenue
    
    
    Jobs
    
    
    % Chg.
    
    
    RevenueCementing
    
    
    721
    
    
    $
    2.1
    
    
    
    413
    
    
    $
    1.0
    
    
    
    308
    
    
    
    +75
    %
    
    $
    1.1Acidizing
    
    
    456
    
    
    
    0.5
    
    
    
    191
    
    
    
    0.2
    
    
    
    265
    
    
    
    +139
    %
    
    
    0.3Fracturing
    
    
    198
    
    
    
    1.6
    
    
    
    138
    
    
    
    1.0
    
    
    
    60
    
    
    
    +43
    %
    
    
    0.6Discounts and
eliminations
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )1,375
    
    
    $
    4.1
    
    
    
    742
    
    
    $
    2.2
    
    
    
    633
    
    
    
    +85
    %
    
    $
    1.9
   Corporate Activities
  Income Tax
  Liquidity and Capital Resources
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##### Table of Contents



Senior Secured Notes Facility
      24




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##### Table of Contents



Outlook for 2005
       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.
 25




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##### Table of Contents



Recently Issued Accounting Pronouncements
     
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Commodity Risk
    26




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##### Table of Contents



Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
     27




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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
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. 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 March 31, 2005 under the Senior Secured Notes Facility dated January 13, 2005
 28




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##### 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, Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    March 8, 2006
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##### Table of Contents



Index of 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 March 31, 2005
 30