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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 March 31, 2005 OR  o
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-17204   INFINITY, INC.  Colorado
(State or of Incorporation)
    
    84-1070066
(I.R.S. Employer Identification Number)
 950 Seventeenth Street, Suite 800, Denver, Colorado 80202
(Address of Principal Executive Offices, Including Zip Code) (720) 932-7800
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock Check whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. þ o
 Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). o þ
 As of May 12, 2005, 13,302,388 shares of the Registrants $0.0001 par value Common Stock were
outstanding.




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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
    
    
    16Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26PART II Other InformationItem 1.Legal Proceedings
    
    
    27Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3.Defaults Upon Senior Securities
    
    
    27Item 4.Submission of Matters to a Vote of Security Holders
    
    
    27Item 5.Other Information
    
    
    27Item 6.Exhibits
    
    
    27Signatures
    
    
    28Exhibits
    
    
    29Certification of Principal Executive OfficerCertification of Principal Financial and Accounting OfficerCertification of Principal Executive Officer and Principal Financial and Accounting OfficerCalculation of the Maximum Notes Balance
 2




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INFINITY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS 
 CONSOLIDATED BALANCE
SHEETS
(UNAUDITED)
 Mar. 31, 2005
    
    
    Dec. 31, 2004(in thousands, except share and per share data)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
    
    
    25,495
    
    
    
    15,595Intangible assets, at cost, less accumulated amortization
    
    
    2,722
    
    
    
    1,497Note receivable
    
    
    1,577
    
    
    
    Other assets, net
    
    
    333
    
    
    
    333Total assets
    
    $
    88,531
    
    
    $
    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
    
    
    
    635Long-term debt, less current portion
    
    
    25,866
    
    
    
    11,3308% subordinated convertible notes payable
    
    
    
    
    
    
    2,4937% subordinated convertible notes payable
    
    
    5,566
    
    
    
    11,517Total liabilities
    
    
    42,145
    
    
    
    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
    
    
    70,591
    
    
    
    43,363Accumulated deficit
    
    
    (24,206
    )
    
    
    (14,542
    )Total stockholders equity
    
    
    46,386
    
    
    
    28,822Total liabilities and stockholders equity
    
    $
    88,531
    
    
    $
    64,048
 See Notes to Unaudited Consolidated Financial Statements 3




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INFINITY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 For the Three Months Ended March 31,2005
    
    
    2004(in thousands, except per share data)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
    
    
    (8,357
    )
    
    
    (843
    )Early extinguishment of debt
    
    
    (904
    )
    
    
    (517
    )Interest expense
    
    
    (517
    )
    
    
    (279
    )Loss on sales of other assets
    
    
    (1
    )
    
    
    Total other income (expense)
    
    
    (9,701
    )
    
    
    (1,083
    )Net loss before income taxes
    
    
    (9,664
    )
    
    
    (1,765
    )Income tax benefit
    
    
    
    
    
    
    Net loss
    
    $
    (9,664
    )
    
    $
    (1,765
    )Basic and diluted net loss per share
    
    $
    (0.83
    )
    
    $
    (0.19
    )Weighted average basic and diluted
shares outstanding
    
    
    11,619
    
    
    
    9,196
 See Notes to Unaudited Consolidated Financial Statements 4




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INFINITY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS 
 CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
 For the Three Months Ended March 31,2005
    
    
    2004(in thousands)Net loss
    
    $
    (9,664
    )
    
    $
    (1,765
    )Reclassifications, net of tax expense
    
    
    
    
    
    
    98Comprehensive loss
    
    $
    (9,664
    )
    
    $
    (1,667
    )
 See Notes to Unaudited Consolidated Financial Statements 5




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INFINITY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS 
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
 AdditionalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Equity(in thousands, except share data)Balance, December 31,
2004
    
    
    10,628,196
    
    
    $
    1
    
    
    $
    43,363
    
    
    $
    (14,542
    )
    
    $
    28,822Issuance 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
    
    
    
    
    
    
    
    6,095Issuance of warrants
to purchase 1,656,240
common shares
    
    
    
    
    
    
    
    
    
    
    6,529
    
    
    
    
    
    
    
    6,529Costs from previous
equity placement
financing
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Beneficial conversion
feature of senior
secured Notes
    
    
    
    
    
    
    
    
    
    
    8,108
    
    
    
    
    
    
    
    8,108Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,664
    )
    
    
    (9,664
    )Balance, March 31, 2005
    
    
    12,532,927
    
    
    $
    1
    
    
    $
    70,591
    
    
    $
    (24,206
    )
    
    $
    46,386
 See Notes to Unaudited Consolidated Financial Statements 6




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INFINITY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
 For the Three Months Ended March 31,2005
    
    
    2004(in thousands)Cash flows from operating activitiesNet loss
    
    $
    (9,664
    )
    
    $
    (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
    
    
    8,357
    
    
    
    161Expense related to early extinguishment of debt
    
    
    681
    
    
    
    682Loss 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
 See Notes to Unaudited Consolidated Financial Statements 7




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INFINITY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) For
the Three Months Ended March 31,2005
    
    
    2004(in thousands)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
    
    
    586
    
    
    
    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
    
    
    6,529
    
    
    
    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
    
    
    
    
    
    
    
 See Notes to Unaudited Consolidated Financial Statements 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 The Company and its subsidiaries are engaged in the acquisition, exploration, development and
production of natural gas and crude oil in the United States and the acquisition and exploration of
properties in Nicaragua. In addition, the Company provides oilfield services in the Mid-Continent
region and in Northeast Wyoming. Basis of Presentation The unaudited consolidated financial statements include the accounts of Infinity, Inc. and its
wholly-owned subsidiaries, including Infinity Oil and Gas of Wyoming, Inc. (Infinity-Wyoming),
Infinity Oil and Gas of Texas, Inc. (Infinity-Texas), Infinity Oil and Gas of Kansas, Inc.
(Infinity-Kansas) and Consolidated Oil Well Services, Inc. (Consolidated). All significant
intercompany balances and transactions have been eliminated in consolidation. Summary of Significant Accounting Policies The accompanying unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States for interim financial
information. Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting principles in the
United States have been condensed or omitted in this Quarterly Report on Form 10-Q pursuant to the
rules and regulations of the United States Securities and Exchange Commission (SEC). A summary
of Infinitys significant accounting policies is herein incorporated by reference from the Annual
Report on Form 10-K for the year ended December 31, 2004 of Infinity. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Certain reclassifications have been made to the prior period
to conform to the classifications used in the current period. These reclassifications did not have
an impact on previously reported results of operations. The results of operations for the three
months ended March 31, 2005 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2005. The accompanying unaudited consolidated financial statements
should be read in conjunction with Infinitys audited consolidated financial statements for the
year ended December 31, 2004. The preparation of unaudited consolidated financial statements in conformity with generally
accepted accounting principles in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the unaudited consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates with regard to the unaudited consolidated financial
statements include the estimated carrying value of unproved properties, the estimate of proved oil
and gas reserve volumes and the related present value of estimated future net cash flows and the
ceiling test applied to capitalized oil and gas properties and the realization of deferred tax
assets. Oil and Gas Properties The Company follows the full cost method of accounting for oil and gas properties.
Accordingly, all costs associated with property acquisition, exploration, and development
activities are capitalized. Exploration and development costs include dry hole costs, geological
and geophysical costs, direct overhead related to exploration and development activities, estimated
future costs of site restoration, dismantlement and abandonment activities, and other costs
incurred for the purpose of finding oil and gas reserves. Salaries and benefits paid to employees
involved in the acquisition, exploration and development of properties, as well as other internal
costs that can be directly identified with acquisition, exploration and development activities, are
also capitalized. The Company capitalized $220,000 and $95,000 of internal costs during the three
months ended March 31, 2005 and 2004, respectively. Costs associated with production and general
corporate activities are expensed in the period incurred. The Company performs an impairment analysis whenever events or changes in circumstances
indicate an assets carrying amount may not be recoverable. Cash flows used in this impairment
analysis are determined based upon estimates of proved oil and gas reserves, current prices, and
the costs to extract those reserves. Downward revisions in
estimated reserve quantities, increases in future cost estimates, depressed oil and gas
prices, or the reclassification of 9




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unevaluated costs to costs subject to amortization without a
corresponding increase in proved reserves could cause the Company to reduce the carrying amounts of
its properties. Under full cost accounting rules, capitalized costs, excluding the future cash
outflows associated with settling asset retirement obligations that have been accrued in the full
cost pool, less accumulated amortization and related deferred income taxes, may not exceed an
amount equal to the sum of the present value discounted at ten percent of estimated future net
revenue less estimated future expenditures to be incurred in developing and producing the proved
reserves, less any related income tax effects. If capitalized costs exceed the limit, the excess
must be charged to expense. This is referred to as the full cost ceiling limitation. The expense
may not be reversed in future periods. At the end of each quarter, a full cost ceiling limitation
calculation is made. At March 31, 2005, the full cost ceiling limitation exceeded the carrying amount of oil and
gas properties subject to amortization, based upon a natural gas price of approximately $6.91 per
Mcf and an oil price of approximately $52.50 per barrel in effect at that date. In the prior year
period, the Company did not record a ceiling writedown. A decline in prices received for oil and gas sales or an increase in operating costs
subsequent to the measurement date or reductions in estimated economically recoverable quantities
could result in a requirement that Infinity recognize an additional ceiling write-down of oil and
gas properties in a future period. Normal dispositions of oil and gas properties are accounted for
as adjustments of capitalized costs, with no gain or loss recognized. Aggregate capitalized costs relating to the Companys oil and gas producing activities, and
related accumulated depreciation, depletion, amortization and ceiling write-down are as follows: As ofMarch 31,
    
    
    December 31,2005
    
    
    2004(in thousands)Proved oil and gas properties
    
    $
    45,774
    
    
    $
    41,210Unproved oil and gas properties
    
    
    25,495
    
    
    
    15,595Total
    
    
    71,269
    
    
    
    56,805Less accumulated depreciation, depletion,
and amortization and ceiling write-downs
    
    
    (13,667
    )
    
    
    (12,418
    )Net capitalized costs
    
    $
    57,602
    
    
    $
    44,387
 Depletion of proved oil and gas properties is computed on the units-of-production method, with
oil and gas being converted to a common unit of measure based on their relative energy content,
whereby capitalized costs, as adjusted for future development costs and asset retirement
obligations, are amortized over the total estimated proved reserve quantities. The costs of wells
in progress and unevaluated properties, including any related capitalized interest, are not being
amortized. On a quarterly basis, such costs are evaluated for inclusion in the costs to be
amortized resulting from the determination of proved reserves, impairments, or reductions in value.
To the extent that the evaluation indicates these properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized. Abandonment of unproved properties
are accounted for as an adjustment to capitalized costs related to proved oil and gas properties,
with no losses recognized. Proceeds from the sales of oil and gas properties are accounted for as adjustments to
capitalized costs with no gain or loss recognized, unless such adjustments would significantly
alter the relationship between capitalized costs and proved reserves of oil and gas, in which case
the gain or loss is recognized in income. Expenditures for maintenance and repairs are charged to
production expense in the period incurred. The SECs full cost accounting rules prohibit recognition of income in current operations for
services performed by the Company on oil and natural gas properties in which the Company has an
interest, but rather require amounts to be treated as a reimbursement of costs with any excess of
fees over costs credited to the full cost pool and recognized through lower cost amortization only
as production occurs. 10




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Income Taxes Income taxes are provided for the tax effects of the transactions reported in the unaudited
consolidated financial statements and consist of taxes currently due plus deferred taxes related to
temporary differences between the tax and financial basis of property and equipment and other
assets, oil and gas properties, and net operating loss carry-forwards using enacted tax rates in
effect for the year in which the differences are expected to reverse. The deferred tax assets and liabilities represent the future tax return consequences of those
temporary differences, which will either be taxable or deductible when the assets and liabilities
are recovered or settled. The measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that are not expected to be realized based on available evidence that it
is more likely than not to be realized in the form of a deferred tax valuation allowance. The
Company has provided a valuation allowance equal to its deferred tax asset. Note 2  Derivative Instruments and Hedging Activities The Company accounts for derivative instruments or hedging activities under the provisions of
Statement of Financial Accounting Standards No 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS No. 133). SFAS No. 133 requires the Company to record derivative
instruments at their fair value. If the derivative is designated as a fair value hedge, the changes
in the fair value of the derivative and of the hedged item attributable to the hedged risk are
recognized in earnings. If the derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are recorded in other comprehensive income
(loss) and are recognized in the statement of operations when the hedged item affects earnings.
Ineffective portions of changes in the fair value of cash flow hedges, if any, are recognized in
earnings. The Company periodically enters into fixed price delivery contracts to manage price risk with
regard to a portion of its natural gas production. Fixed price delivery contracts that do not meet
certain requirements are accounted for using cash flow hedge accounting. Under this method,
realized gains and losses on qualifying hedges are recognized in gas revenues when the associated
revenue stream occurs and the resulting cash flows are reported as cash flows from operations. To
qualify as a hedge, these contracts must be designated as a cash flow hedge and changes in their
value must correlate with changes in the price of anticipated future production such that the
Companys exposure to the effects of commodity price is reduced. If the contract is not a cashflow
hedge, changes in the fair value are recorded in the Companys statement of operations currently.
If a derivative financial instrument accounted for using cashflow hedge accounting, such as the
contracts discussed above, is settled before the date of the anticipated transaction, the Company
carries forward the accumulated change in value of the contract and includes it in the measurement
of the related transaction. During the quarter ended March 31, 2004, the Company had a fixed price delivery contract that
was designated as a cash flow hedge as follows: MMBtu
    
    
    AmountEffective Dates
    
    Per Day
    
    
    Per MMBtuApril 1, 2003  March 31, 2004
    
    
    3,500
    
    
    $
    4.71
 During the three months ended March 31, 2004, the Company reclassified out of other
comprehensive income, income of approximately $155,000 on the contract, which have been included in
natural gas revenue in the accompanying unaudited consolidated statement of operations and in cash
provided by operating activities in the accompanying unaudited consolidated statement of cash
flows. The fair value of the fixed price delivery contracts was calculated using the twelve month
forecasted sales price for the Henry Hub gas delivery point less a historical differential for the
actual delivery point and the quantities and prices fixed in the contracts. During 2004, the Company entered into fixed price delivery contracts for 2,000 MMBtu per day
from April 1, 2004 until March 31, 2006. The price for the period April 1, 2004 until March 31,
2005 was $4.40 per MMBtu and the price for the period April 1, 2005 until March 31, 2006 is $4.15
per MMBtu. Sales under these fixed price contracts are accounted for as normal sales agreements
under the exemption in SFAS No. 133. During April 2005, the Company entered into a costless collar arrangement covering 12,250
barrels (50 barrels of crude oil per day) from May 1, 2005 through December 31, 2005 with a floor
price of $50.00 per barrel and a ceiling price of $65.70 per barrel. The derivative contract was
designated as a cash flow hedge. 11




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Note 3  Stock Options The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized for options granted to employees under the stock option
plans because the fair value of the stock equaled or was less than the option exercise price at the
date of grant. Had compensation costs for employee stock options under the Companys plan been
determined based upon the fair value at the grant date for awards under the plan consistent with
the methodology prescribed under SFAS No. 123, Accounting for Stock-Based Compensation, the
Companys net loss and loss per share would have been as follows: For the Three MonthsEnded March 31,2005
    
    
    2004(in thousands)Net loss as reported
    
    $
    (9,664
    )
    
    $
    (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
    
    $
    (10,760
    )
    
    $
    (1,765
    )Basic and diluted loss per share as reported
    
    $
    (0.83
    )
    
    $
    (0.19
    )Basic and diluted loss per share-pro forma
    
    $
    (0.93
    )
    
    $
    (0.19
    )
 Options on 165,000 shares of common stock were granted during February 2005 at a strike price
of $8.50 per share. The estimated fair value of the options granted utilizing the Black-Scholes
pricing model was based on a weighted average risk-free interest rate of 4.0%, expected option life
of 10 years, expected volatility of approximately 70%, and no expected dividends. 12




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##### Table of Contents



Note 4  Long-Term Debt and Convertible Notes Payable Long-term debt consists of the following: As ofMarch 31,
    
    
    December 31,2005
    
    
    2004(dollars in thousands)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 Company
is not required to make periodic
principal payments prior to maturity,
unless the outstanding balance exceeds
the maximum Notes balance. The Company
can redeem the Notes at any time with
cash at a premium or at par with stock,
priced at a discount to market. The
balance of $30,000 at March 31, 2005 is
net of discount of $6,219 associated
with the value of warrants issued in
conjunction with the Notes
    
    $
    23,781
    
    
    $
    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 collateralized notes
repaid in full and terminated no later
than January 31, 2005
    
    
    
    
    
    
    546$
    31,550
    
    
    $
    25,464
 Senior Secured Notes Facility On January 13, 2005, the Company entered into a securities purchase agreement (the Senior
Secured Notes Facility) with affiliates of Promethean Asset Management, LLC and Angelo, Gordon &
Co., L.P. (collectively, the Buyers), pursuant to which Infinity sold, and the Buyers purchased,
$30 million aggregate principal amount of senior secured notes (the Notes) due January 13, 2009
and five-year warrants to purchase 924,194 shares of common stock at an exercise price of $9.09 per
share and 732,046 shares of common stock at an exercise price of $11.06 per share (collectively,
the Warrants). The Notes have an initial maturity of 48 months subject to extension for an
additional twelve months upon the mutual agreement of Infinity and the Buyers. The Notes bear
interest at 3-month LIBOR (London Interbank Offered Rate) plus 675 basis points, adjusted the first
business day of each calendar quarter (9.87% effective April 1, 2005). The Notes are secured by
essentially all of the assets of Infinity and its subsidiaries and are guaranteed by each of
Infinitys active subsidiaries. The Notes are redeemable by Infinity for cash at any time during
the first year at 105% of par value, declining by 1% per year thereafter (101% during any extended
maturity period), together with any accrued and unpaid interest. Under certain circumstances,
Infinity has the option to repay the Notes with direct issuances of shares of registered common
stock in lieu of cash at a conversion rate equal to 95% of the weighted average trading price of
shares of the Companys common stock on the trading day preceding the conversion (the beneficial
conversion feature). The Company has allocated the proceeds from the sale of the Notes and Warrants based on their
relative fair values. The $7,512,000 estimated fair value of the warrants granted, utilizing the
Black-Scholes pricing model based on a weighted average risk-free interest rate of 4.0%, expected
life of 5 years, expected volatility of approximately 70%, and no expected dividends, resulted in
the recording of $6,529,000 as additional paid-in capital and debt discount. The discount will be
amortized over the 48 month initial maturity utilizing the effective interest rate. 13




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##### Table of Contents



Pursuant to EITF 98-5 and EITF 00-27, generally accepted accounting principles required that
the intrinsic value of the beneficial conversion feature, or difference between the carrying value
of the Notes ($23,471,000) and the market value of the common stock required to retire the entire
indebtedness assuming the Company repays the notes entirely through the issuance of common shares
($31,579,000) be recorded as additional paid-in capital and loan issuance costs. As the Notes were
convertible at their inception, the $8,108,000 beneficial conversion feature was immediately
expensed as amortization of loan costs in the three months ended March 31, 2005. Under certain circumstances at quarterly intervals and over a three year period, commencing in
the third quarter of 2005, Infinity has the option to sell Additional Notes, along with warrants,
in amounts up to $15 million in any rolling twelve-month period and up to a maximum of $45 million.
The Additional Notes would have an initial maturity of 42 months (54 months if the maturity of the
Initial Notes is extended). The issuance of Additional Notes is subject to Infinitys satisfaction
of various closing conditions. The ability to issue Additional Notes or the requirement to prepay
Notes prior to maturity will depend upon a maximum Notes balance calculated quarterly based
generally upon a combination of financial performance of Consolidated and the SEC after-tax PV-10%
value of the Companys proved reserves. The maximum Notes balance at March 31, 2005 exceeded
the Notes outstanding on that date. 8% Convertible Subordinated Notes Effective June 13, 2001, the Company sold $6,475,000 in 8% Subordinated Convertible Notes in a
private placement. Interest on the notes accrued at a rate of 8% per annum and was payable in
arrears on each December 15 and June 15. The notes were originally convertible to one share of
common stock at $5 per share and matured on June 13, 2006. The Company incurred costs of $502,000 associated with the placement, which was capitalized as
loan costs and was being amortized using the effective interest method. The Company also issued
warrants to purchase 220,000 shares of common stock at $5.99. The Company had capitalized
additional loan costs of $925,000 related to the fair value of the warrants. On January 13, 2005, the Company called for redemption all of the remaining 8% subordinated
convertible notes outstanding on February 28, 2005. The holders of all $2,493,000 of 8%
subordinated convertible notes at December 31, 2004 converted the debt and accrued interest into
517,296 shares of the Companys common stock. The remaining unamortized loan costs were expensed
as early extinguishment of debt. 7% Convertible Subordinated Notes Effective April 22, 2002, the Company sold $12,540,000 in 7% Subordinated Convertible Notes in
a private placement. Interest on the subordinated notes accrues at a rate of 7% per annum and is
payable in arrears on each April 15 and October 15. The Company could elect to pay the accrued
interest in cash or in the form of additional notes issued in increments of $1,000 with residual
interest due in cash. The notes were originally convertible to one share of common stock at $8.625
per share and matured on April 22, 2007. The loan indenture for the 7% notes contained
anti-dilution provisions that require the Company to adjust the conversion price of the notes if
stock is sold at a price less than the conversion price. At March 31, 2005, the conversion price
was $7.766 per share. The notes were subordinated to substantially all the Companys other existing or future notes
payable, capital leases, debentures, bonds or other such securities. The Company incurred costs of $866,000 associated with the issuance of the 7% subordinated
convertible notes, which have been capitalized as loan costs and are being amortized using the
effective interest method. The Company also issued warrants to purchase 200,000 shares of common
stock at $9.058. The Company capitalized additional loan costs of $1,386,044 related to the fair
value of the warrants as determined using the Black-Scholes pricing model assuming a five year
life, weighed average risk-free interest rate of 7%, expected volatility of 98.30% and no expected
dividend yield. On February 25, 2005, the Company called for redemption all of the remaining 7% subordinated
convertible notes outstanding on April 22, 2005 at a redemption price of 102.8% plus accrued and
unpaid interest. During the three months ended March 31, 2005, the holders of $5,951,000 of 7%
subordinated convertible notes at December 31, 2004 converted the debt and accrued interest into
783,779 shares of the Companys common stock. In April 2005, the holders of $5,528,000 of 7%
subordinated convertible notes at March 31, 2005 converted the debt and accrued interest into
715,161 shares of the Companys common stock, and the remaining balance of $38,000 plus accrued
interest was paid in
full on April 22, 2005. The unamortized loan costs associated
with the converted debt were
expensed to early 14




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##### Table of Contents



extinguishment of debt. The remainder of the unamortized loan costs will be
expensed in April, 2005. $25,000,000 Development Credit Facility In September 2003, the Company established a Secured Revolving Borrowing Base Credit Facility
(Facility) with a bank. Interest on the amounts outstanding accrued at prime rate plus 1.0%. The
Company incurred $110,000 in loan costs and approximately $57,000 in legal costs to establish the
facility. These costs were capitalized as loan costs and amortized using the effective interest
method. The facility was repaid in full with proceeds from the Senior Secured Notes Facility
discussed above and terminated on January 13, 2005. Revolving Credit and Term Loans Effective July 9, 2004, Consolidated borrowed $5,400,000 under an amended credit facility with
LaSalle Bank. The amended facility required monthly payments of $113,493 plus interest through
November 2007, with a final payment of the remaining balance of the note due December 31, 2007.
Amounts outstanding accrued interest at the prime rate plus 1.25% per annum. The credit facility
was repaid in full with proceeds from the Senior Secured Notes Facility discussed above and
terminated on January 13, 2005. Capitalized Interest The Company capitalizes interest costs to oil and gas properties on expenditures made in
connection with exploration and development projects that are not subject to current depletion.
Interest is capitalized only for the period that activities are in progress to bring these projects
to their intended use. Interest costs (including amortization of loan discount and costs)
capitalized in the three months ended March 31, 2005 and 2004 were $586,000 and $338,000,
respectively. Note 5  Fair Value of Financial Instruments The carrying value of the Companys cash, accounts receivable, accounts payable and accrued
liabilities represents the fair value of the accounts. Long-term debt at March 31, 2005, excluding
convertible notes, with a carrying value of approximately $26 million is estimated to have a fair
value between $29 million and $30 million . Convertible notes with a carrying value of $5,566,000,
would have a fair value of approximately $7,158,000 on an as-converted basis. See Note 4 for the
terms of the long-term debt obligations. Note 6  Earnings Per Share Basic loss per common share are computed as net income loss divided by the weighted average
number of common shares outstanding during the period. Diluted loss per common share are computed
as net loss divided by the weighted average number of common shares and potential common shares,
using the treasury stock method, outstanding during the period. For the three months ended March 31, 2005 and 2004, all potential Company shares of common
stock are anti-dilutive, therefore the impact of 5,256,000 and 5,028,000, respectively, of
potential shares of common stock were not included because their
effect was anti-dilutive. The potential shares of common stock at March 31, 2005 do not include
any shares that may be issued in the future should the Company elect
to repay Notes outstanding under the Senior Secured Notes Facility
with direct issuances of shares of registered common stock in lieu of
cash at a conversion rate equal to 95% of the weighted average
trading price of shares of the Companys common stock on the trading
day preceding conversion. Note 7  Subsequent Event Effective May 1, 2002, Infinity-Kansas sold its interest in oil and gas properties in Eastern
Kansas to West Central Oil, LLC (West Central) for $180,000 cash and a $1,620,000 note
receivable, secured by the oil and gas leases and real estate sold in the transaction. West
Central failed to repay the $1,576,000 principal owed on the note as scheduled on May 1, 2005. The
Company has mailed a letter to West Central demanding payment and indicating that if payment is not
received promptly, a foreclosure lawsuit will be filed to take judgment against West Central for
all amounts due under the note, including interest and collection costs, expenses and attorney
fees. Management believes that the value of the producing leaseholds exceeds the balance due on
the note receivable. 15




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##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS The following information should be read in conjunction with the Unaudited Consolidated
Financial Statements and Notes presented elsewhere in this Form 10-Q. Infinity follows the
full-cost method of accounting for oil and gas properties. See Nature of Operations, Basis of
Presentation and Summary of Significant Accounting Policies, included in Note 1 to the Unaudited
Consolidated Financial Statements. Infinity and its operating subsidiaries (Infinity Oil and Gas
of Texas, Inc., Infinity Oil & Gas of Wyoming, Inc., and Consolidated Oil Well Services, Inc., are
engaged in identifying and acquiring oil and gas acreage, exploring and developing acquired
acreage, oil and gas production, and providing oilfield services. Infinitys primary focuses are
on: (i) the acquisition, exploration and development of and production from its properties in the
Fort Worth Basin of North Central Texas and Greater Green River, Sand Wash and Piceance Basins of
Southwest Wyoming and Northwest Colorado; and (ii) providing oilfield services in the Mid-Continent
region and the Powder River Basin of Northeast Wyoming. Infinity has also been awarded a 1.4
million acre concession offshore Nicaragua in the Caribbean Sea which it intends to explore over
the next few years subject to consummation of the long-term exploration and production contract
governing such activity. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. The use of any statements containing the words
anticipate, intend, believe, estimate, project, expect, plan, should or similar
expressions are intended to identify such statement. Forward-looking statements include, among
other items:  
    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. Forward-looking statements inherently involve risks and uncertainties that could cause actual
results to differ materially from the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to the following (and the risks
described under Risk Factorsin our Annual Report on Form 10-K):  
    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 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 16




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##### Table of Contents




    changes in general economic conditions. Overview of Exploration and Production Activity Infinity, through Infinity-Texas, continued to expand its exploration and production
operations in the Fort Worth Basin of Texas during the three months ended March 31, 2005.
Meanwhile, Infinity-Wyoming continues to explore and develop the various projects and prospects in
the Rocky Mountains, but continues to be hampered by weather, governmental and environmental
restrictions and regulations, as well as various operational issues at the Labarge, Pipeline and
Sand Wash Fields. However, Infinity-Wyoming commenced oil production from its developmental well
drilled at its Sand Wash Basin prospect during the three months ended March 31, 2005. Infinity expects to continue to explore and develop its Fort Worth Basin acreage and its Rocky
Mountain projects and prospects. Infinity expects its Rocky Mountain projects to proceed more
slowly, due in part to governmental and environmental restrictions and regulations. Infinity
raised incremental debt and equity capital to fund its exploration and production operations, from
the net proceeds of the Senior Secured Notes Facility and from the proceeds of option and warrant
exercises during the three months ended March 31, 2005. In addition to expected increases in cash
flows from operating activities, Infinity
will require external financing
during 2005 and beyond to fund its exploration and production operations, although the
type, timing, cost and amounts of such financing, if any, will depend upon general energy and capital markets
conditions and the success of Infinitys operations. Overview of Oilfield Service Operations Consolidated continued to develop its business as the largest oilfield service provider in
Eastern Kansas and Northeast Oklahoma. The continued strong price of natural gas and crude oil and
the focus on development of the coal bed methane potential of the Cherokee basin in Eastern Kansas
and Northeast Oklahoma contributed to an overall increase in activity for Consolidated. During the
three months ended March 31, 2005, Consolidated achieved several operational milestones:  
    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. Consolidated is actively seeking opportunities, through acquisitions or mergers, to expand its
service area or enhance the services it provides to its customers. Subsequent Events Acquisition of Additional Acreage in the Fort Worth Basin In April 2005, we closed the acquisition of approximately 31,000 gross and net acres in
Comanche County in the Fort Worth Basin of Texas for $3.1 million. Following the acquisition,
Infinity-Texas owns and operates approximately 69,200 gross acres (approximately 60,700 acres net
to Infinitys interest) of leasehold in Erath, Hamilton and Comanche Counties, Texas. We believe
the Comanche County acreage offers prospective vertical and horizontal drilling and production
opportunities, targeting the Barnett Shale and Lower Marble Falls formations. The leased properties
are located approximately 30 miles southwest of Infinity-Texas acreage in Erath and Hamilton
Counties, Texas. Infinity-Texas agreed to drill at least one test well on the Comanche acreage
during the next twelve months. Conversion and Redemption of All Subordinated Convertible Debt Through April 22, 2005, the holders of $11.3 million of 7% subordinated convertible notes
converted the debt and accrued interest into 1,498,940 shares of the Companys common stock.
During the three months ended March 31, 2005, the holders of approximately $2.5 million of 8%
subordinated convertible notes converted the debt and accrued interest into 517,296 shares of the
Companys common stock. In April 2005, we redeemed approximately $38,000 of the  7% Subordinated Convertible Notes due 2007 that
remained outstanding  at a
redemption price of 102.8% plus accrued and unpaid interest. 17




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##### Table of Contents



Default on Payment of Note Receivable Effective May 1, 2002, Infinity-Kansas sold its interest in oil and gas properties in Eastern
Kansas to West Central Oil, LLC (West Central) for $180,000 cash and a $1,620,000 note
receivable, secured by the oil and gas leases and real estate sold in the transaction. West
Central failed to repay the $1,576,000 principal owed on the note as scheduled on May 1, 2005. The
Company has mailed a letter to West Central demanding payment and indicating that if payment is not
received promptly, a foreclosure lawsuit will be filed to take judgment against West Central for
all amounts due under the note, including interest and collection costs, expenses and attorneys
fee. Management believes that the value of the producing leaseholds exceeds the balance due on the
note receivable. 2005 Operational and Financial Objectives Exploration and Production Infinity-Wyoming plans to focus on increasing production through development and exploration
of acreage. Infinity-Wyoming anticipates remaining 2005 capital expenditures will be approximately
$5.0 million to drill up to eight wells, complete one well in progress at March 31, 2005, and
conduct additional geological and geophysical analysis on its acreage positions. Infinity-Texas plans to focus on increasing its acreage position and commencing production in
the Fort Worth Basin of central Texas. Infinity-Texas anticipates its remaining 2005 capital
expenditures will be approximately $20 million to acquire additional acreage, drill approximately
ten wells, complete one well in progress at March 31, 2005, and conduct additional geological and
geophysical analysis on its acreage positions. The ability of Infinity-Wyoming and Infinity-Texas to complete these activities is dependent
on a number of factors including, but not limited to:  
    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. Oilfield Services Consolidated expects to increase its oilfield service revenue during 2005 due to the increase
in the number of wells being drilled and completed by property owners in our service areas and
through strategic acquisitions. These acquisitions would be done in order to:  
    expand the services that are provided;
    expand the area that is serviced; and
    gain market share by providing services complementary to our existing services. Revenues from oilfield services are expected to be between $10 million and $12 million during
the remainder of 2005. Management expects that it could make acquisitions that will cost between
$10 million and $20 million during the remainder of 2005 and expects to fund the acquisitions
through
external financings, which may include
the issuance of subordinated debt or equity securities. Excluding acquisitions and related
capital expenditures, Consolidated also expects to have capital expenditures of about $1 million
related to equipment and facilities during the remainder of 2005. These capital expenditures would
be financed through cash flow and cash on hand. Corporate Activities Infinity continues to negotiate the final exploration and production agreement with INE for
the Perlas and Tyra blocks offshore Nicaragua. Management expects to complete the negotiations and
execute the agreement in 2005. Upon execution, Infinity would be required to post a performance
bond of approximately $0.7 million for the initial work on 18




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##### Table of Contents



the leases which will include an environmental study and the development of geological
information developed from additional seismic evaluation. Infinity expects to incur additional
costs to complete the negotiations and finalize the leases of approximately $0.1 million. Results of operations for the three months ended March 31, 2005 compared to the three months ended
March 31, 2004 Infinity incurred a net loss after taxes of $9.7 million, or $0.83 per diluted share, in the
three months ended March 31, 2005 compared to a net loss after taxes of $1.8 million, or $0.19 per
diluted share, in the prior year period. The increase in net loss, as discussed below, was
primarily due to $8.1 million of the non-cash charge related to the issuance of notes and
warrants in January 2005 pursuant to our Senior Secured Notes
Facility and the increase of $0.4
million of early extinguishment of debt costs attributable to previously unamortized loan costs on
the conversion of outstanding indebtedness into common stock and the early repayment of outstanding
indebtedness. Infinity achieved total revenue of $5.5 million in the three months ended March 31, 2005
compared to $3.6 million in the prior year period. The $1.9 million, or 55%, increase in revenue
was principally attributable to a $1.9 million increase in oilfield service operations. Infinity
earned a gross profit of $2.9 million during the three months
ended March 31, 2005, a $1.3 million,
or 78% increase in gross profit from $1.6 million in the prior year period. Gross profit from
oilfield services was $2.1 million during the three months ended March 31, 2005, a $1.3 million, or
167%, increase over the prior year period of $0.8 million. Gross profit from exploration and
production was $0.8 million during the three months ended March 31, 2005, a slight decrease from
the prior year period of $0.9 million. General and administrative expenses were unchanged at $1.3 million for the three months ended
March 31, 2005 and 2004. Infinity recognized additional depreciation, depletion and amortization
(DD&A) expense of approximately $0.6 million during the three months ended March 31, 2005, an
increase to approximately $1.6 million compared to DD&A expense of approximately $1.0 million for
the prior year period. The increase in DD&A expense was due to the increase in the depletion rate
on and increased investment in oil and gas producing properties and increased investment in
Consolidateds fleet. As a result, Infinity recognized an operating profit of $0.04 million in the
three months ended March 31, 2005, compared to an operating loss of $0.7 million in the prior year
period. Other income and expense was a net expense of $9.7 million in the three months ended March 31,
2005 compared to $1.1 million in the prior year period. Of the $8.6 million increase, as discussed
above, $7.5 million was due to increased amortization of loan discount and costs related to the
issuance of senior secured Notes and Warrants in January 2005, which resulted in a charge of (i)
$8.1 million related to the beneficial conversion feature of the Notes, (ii) $0.3 million related
to the amortization of debt discount in the amount of $6.5 million related to the value of the
Warrants issued, and (iii) $0.9 million due to the write-off of unamortized debt and loan issuance
costs from retired indebtedness. There was also a $0.2 million increase in interest expense in the
three months ended March 31, 2005, compared to the prior year period, due to an increase in average
debt outstanding and higher average interest rates, offset by an increase in the amount of interest
capitalized to undeveloped properties. 19




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##### Table of Contents



Exploration and Production The following table provides statistical information for the three months ended March 31, 2005
and 2004 (due to rounding and other operating expenses the sum of the individual amounts presented
may not equal the totals): 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
 During the three months ended March 31, 2005, Infinity-Wyoming recorded approximately $0.5
million in revenue on the sale of 9,100 barrels of oil (54,600 Mcf equivalent, Mcfe) and
approximately $1.0 million in revenue on gas sales of 211,500
Mcf. Infinity-Wyoming incurred $0.4
million in production expenses and $0.2 million in production taxes during the three months ended
March 31, 2005. Total production expenses and production taxes
of approximately $0.6 million
equate to approximately $2.29 in lifting costs on total production of 266,100 Mcfe. The 3% increase
in equivalent production in the three months ended March 31, 2005 as compared to the prior year
period was primarily a result of the sale of approximately 2,100 barrels of oil (12,600 Mcfe) in
the three months ended March 31, 2005 from the newly completed well in the Sand Wash Basin,
partially offset by natural declines in production rates for wells in the Pipeline field. Infinity-Wyoming incurred $1.3 million in DD&A expense, or depletion expense of $4.66 per Mcfe
in the three months ended March 31, 2005 compared to $2.49 per Mcfe in the prior year period. DD&A
costs in the three months ended March 31, 2005 increased by $0.6 million due to the increased
depletion rate associated with the increased investment in developed oil and gas properties without
a corresponding increase in proved reserve quantities. Under full cost accounting rules, Infinity reviews, on a quarterly basis, the carrying value
of its oil and gas properties. Under these rules, capitalized costs of proved oil and gas
properties may not exceed the present value of estimated future revenue at the unescalated prices
in effect as of the end of each fiscal quarter, and a write-down for accounting purposes is
required if the ceiling is exceeded. Infinity-Wyoming is also required to evaluate the value of its
unproved oil and gas properties and adjust the value to the lower of the cost or market value of
the properties. At March 31, 2005, the carrying amount of oil and gas properties subject to amortization
exceeded the full cost ceiling limitation based upon a natural gas price of approximately $6.91 per
Mcf and an oil price of approximately $52.50 per barrel in effect at that date. In the prior year
period, the Company did not record a ceiling writedown. During the three months ended March 31, 2004, Infinity-Wyoming recorded approximately $0.3
million in revenue on the sale of 9,200 barrels of oil, (55,200 Mcfe) and approximately $1.0
million in revenue on gas sales of 203,400 Mcf. Infinity-Wyoming incurred $0.4 million in
production expenses and $0.2 million in production taxes during the three months ended March 31,
2004. The total production expenses and production taxes of approximately $0.5 million equate to
approximately $2.00 in lifting costs on total production of 259,400 Mcfe. Oilfield Services Sales in the three months ended March 31, 2005 increased 85% to $4.1 million from $2.2 million
in the prior year period. Sales of cementing services increased by
approximately $1.1 million, due primarily
to the acquisition of Blue Star Acid Services in April 2004, which resulted in a increase of 195
jobs in the Eureka, Kansas camp, and due to increases of 181 jobs and 41 jobs, respectively, at the
Gillette, Wyoming and Ottawa, Kansas camps, offset by a decrease of 109 jobs in the Chanute, Kansas
camp, due to the September 2004 sale of substantially all of the operating assets of the Chanute
camp.Sales of acidizing services increased by approximately $0.3 million, due to the April 2004
Blue Star acquisition,
which resulted in a increase of 87 jobs in the Eureka camp, and due to increases of 133 jobs
and 45 jobs, respectively, at 20




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the Thayer / Chanute and Bartlesville, Oklahoma camps. Sales of
fracturing services increased by approximately $0.6 million, due to increases of 43 jobs and 17
jobs, respectively, at the Bartlesville and Thayer / Chanute camps. The following table details the increase in gross revenue in millions of dollars, before
discounts and inter-company eliminations, for the years shown, based on the number and type of core
service jobs performed (due to rounding the sum of the individual amounts presented may not equal
the totals): Oilfield Service Statistics($ 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
 The increase in the number of cement jobs performed reflects the increase in the number of
wells being drilled and completed in Eastern Kansas and Northeast Oklahoma as well as in Northeast
Wyoming. Furthermore, as well testing is completed on the newly drilled wells, completion and
stimulation activities such as acidizing and fracturing should continue to increase. Management
believes that the increase in the number of wells cemented by Consolidated during late 2004 and
early 2005, and the continued high prices for oil and natural gas, are good indicators of future
increases in its acidizing and fracturing activities as well. The additional activity also led to a 41% increase in the cost of goods sold of approximately
$0.6 million. The increase in cost of goods sold, which was a much lesser percentage than the 85%
increase in revenues, was primarily due to the increase in material, repair and maintenance and
labor costs, due to higher activity levels, and also an increase in fuel costs due to higher
activity levels and a higher cost per gallon. In particular, labor costs and fuel costs in the
three months ended March 31, 2005 increased 48% and 45%, respectively, from the prior year period.
General and administrative expenses for oilfield services of $0.6 million in the three months ended
March 31, 2005 was lower than the same period in the prior year period due to a decrease in
salaries and benefits and a decrease in the cost of corporate insurance. Depreciation and amortization expense
for oilfield services of $0.3 million in the three months ended March 31, 2005 was slightly less
than the prior year period as older equipment became more fully depreciated, offset by depreciation
from new additions. Corporate Activities General and administrative expenses were essentially unchanged at $1.3 million for the three
months ended March 31, 2005 and 2004. Income Tax Infinity reflected no net tax benefit or expense in the three months ended March 31, 2005 and
2004. The net operating losses generated in the three months ended March 31, 2005 and 2004
increased Infinitys net deferred tax asset. Due to uncertainty as to the ultimate utilization of
the net operating losses, the net deferred tax asset has been fully reserved by a valuation
allowance. Liquidity and Capital Resources Infinitys primary sources of liquidity are cash provided by operations and debt and equity
financing. Infinitys primary needs for cash are for the operation, development, production,
exploration and acquisition of oil and gas properties, for fulfillment of working capital
obligations, and for the operation and development through acquisitions of oilfield service
businesses. As of March 31, 2005, the Company had working capital of $7.0 million, compared to working
capital of $0.3 million at December 31, 2004. Working capital increased by approximately $6.7
million due to the Company generating 1.0 million from operations (prior to changes in working
capital components), and cash provided by financing activities of 21




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$22.5 million, offset by cash
used in investing activities of $15.0 million, the reclassification to non-current of the West
Central note receivable of $1.6 million and the satisfaction of $0.2 million of interest through
the issuance of common stock upon conversion of convertible notes. During the three months ended March 31, 2005, cash provided by operating activities was $1.9
million, compared to $0.2 million in the prior year period. The increase in cash provided by
operating activities of $1.7 million was primarily due to the $8.2 million increase in amortization
of loan discount and costs included in interest expense, the $0.9 million increase net changes in
operating assets and liabilities, and the $0.5 million increase in DD&A expense, offset by the $7.9
million increase in net loss. During the three months ended March 31, 2005, Infinity used $15.0 million in investing
activities, compared to $2.9 million used in the prior year period. The increase in cash used in
investing activities of $12.2 million was primarily attributable to a $11.5 million increase in
exploration and production capital expenditures and a $1.0 million increase in oilfield services
capital expenditures. During the three months ended March 31, 2005, cash provided by financing activities was $22.5
million, compared to $3.1 million provided by financing activities during the prior year period.
The increase in cash provided by financing activities of $19.4 million was principally due to the
net cash proceeds provided by the sale of $30 million of Senior Secured Notes, discussed
below, offset by the payment of issuance costs and debt repayment of $11.5 million during the three
months ended March 31, 2005. Senior Secured Notes Facility On January 13, 2005, the Company entered into a securities purchase agreement (the Senior
Secured Notes Facility) with affiliates of Promethean Asset Management, LLC and Angelo, Gordon &
Co., L.P. (collectively, the Buyers), pursuant to which Infinity sold, and the Buyers purchased,
$30 million aggregate principal amount of senior secured notes (the Notes) due January 13, 2009
and five-year warrants to purchase 924,194 shares of common stock at an exercise price of $9.09 per
share and 732,046 shares of common stock at an exercise price of $11.06 per share (collectively,
the Warrants). The Notes have an initial maturity of 48 months subject to extension for an
additional twelve months upon the mutual agreement of Infinity and the Buyers. The Notes bear
interest at 3-month LIBOR (London Interbank Offered Rate) plus 675 basis points, adjusted the first
business day of each calendar quarter (9.87% effective April 1, 2005). The Notes are secured by
essentially all of the assets of Infinity and its subsidiaries and are guaranteed by each of
Infinitys active subsidiaries. The Notes are redeemable by Infinity for cash at any time during
the first year at 105% of par value, declining by 1% per year thereafter (101% during any extended
maturity period), together with any accrued and unpaid interest. Under certain circumstances,
Infinity has the option to repay the Notes with direct issuances of shares of registered common
stock in lieu of cash at a conversion rate equal to 95% of the weighted average trading price of
shares of the Companys common stock on the trading day preceding the conversion. Under certain circumstances at quarterly intervals and over a three year period, commencing in
the third quarter of 2005, Infinity has the option to sell additional notes, along with warrants,
in amounts up to $15 million in any rolling twelve-month period and up to a maximum of $45 million.
The Additional Notes would have an initial maturity of 42 months (54 months if the maturity of the
Initial Notes is extended). The issuance of Additional Notes is subject to Infinitys satisfaction
of various closing conditions. The ability to issue Additional Notes or the requirement to prepay
Notes prior to maturity will depend upon a maximum Notes balance calculated quarterly based
generally upon a combination of financial performance of Consolidated and the SEC after-tax PV-10%
value of our proved reserves. The maximum Notes balance at March 31, 2005 exceeded the Notes
outstanding on that date. 22




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During the three months ended March 31, 2005, all $2.5 million of the 8% Subordinated
Convertible Notes outstanding as of December 31, 2004, and interest accrued on those notes, were
converted in their entirety into 517,296 shares of the Companys common stock. During the three months ended March 31, 2005, approximately $6.1 million of the 7%
Subordinated Convertible Notes and interest accrued on those notes were converted into 783,779
shares of common stock, leaving an outstanding balance of $5,566,000 at March 31, 2005. During
April 2005, with the exception of approximately of $38,000 of the notes balance, the remaining $5.5
million of the notes outstanding as of March 31, 2005 were converted into 715,161 shares of the
Companys common stock, for a total increase in shares of common stock in 2005, due to 7% note
conversions, of 1,498,940 shares. As a result of the closing of the Senior Secured Notes Facility, the $3.6 million outstanding
under the LaSalle Bank, N.A.facility at December 31, 2004, was repaid in full on January 13, 2005.
Also as a result of the closing of the Senior Secured Notes Facility, the $5.0 million outstanding
under the U.S. Bank National Association facility at December 31, 2004, was repaid in full on
January 13, 2005. Outlook for 2005 Depending on the availability of capital resources, the availability of third party
contractors for drilling and completion services, and satisfaction of regulatory activities,
Infinity could incur capital expenditures in the range of $23 million to $27 million during the
remainder of 2005.
If capital expenditures are in the middle of the anticipated range,
capital expenditures
by operating entity would be
approximately $18 million by Infinity-Texas; $5 million by Infinity-Wyoming; $1 million by
Consolidated and $1 million by Infinity, Inc. The Company could also make capital expenditures for
acquisitions in excess of these amounts should appropriate opportunities arise. At quarterly intervals and over a three year period, commencing in the third quarter of 2005,
Infinity has the option
under the Senior Secured Notes Facility
to sell additional notes, along with warrants, in amounts up to $15 million
in any rolling twelve-month period. The ability to issue additional notes will depend upon a
maximum notes balance calculated quarterly based generally upon a combination of financial
performance of Consolidated and the SEC after-tax PV-10% value of our proved reserves. The maximum
Notes balance or Free Cash Flow Amount as of March 31, 2005 was
in excess of $42 million. Depending on the market price for crude oil and natural gas during 2005, stabilized production
levels from wells placed on line during the three months ended March 31, 2005, and continued demand
for and acceptance of our oilfield service operations in the geographic areas we serve, Infinity
would expect to generate cash flow of at least $8 million from operating activities during the
remainder of 2005. During the second quarter of 2005, through May 6, 2005, Infinity has received approximately
$0.1 million in proceeds from the exercise of options and warrants. Management expects to receive
proceeds from additional exercises during 2005, but is unable to predict the amount or timing of
such proceeds. In summary, Infinity believes that it may have approximately $30 million available to it in
the remainder of 2005 from working capital at March 31, 2005
(approximately $7 million) external financing, which may include the sale
of additional notes under the Senior Secured Notes Facility ($15 million), cash from operating activities (at least $8 million) and
proceeds from the exercise of options and warrants (at least $0.1 million), to fund its planned
capital expenditures of between $23 million and $27 million during the remainder of 2005. Should Infinity identify acquisition opportunities, or if it wishes to accelerate the
exploration and development of its oil and gas properties beyond that currently anticipated, or if
cash flow from operating activities is not at levels anticipated, or if Infinity is unable to sell
additional notes and warrants under the Senior Secured Notes Facility, Infinity may seek the
forward sale of oil and gas production, partnerships or strategic alliances for the development of
its undeveloped acreage, the public or private offering of common or preferred equity or
subordinated debt, asset sales, or other joint interest or joint venture opportunities to fund any
cash shortfalls, or Infinity would decrease the level of its planned capital expenditures. Critical Accounting Policies and Estimates Infinitys Annual Report on Form 10-K for the year ended December 31, 2004, described the
accounting policies that we believe are critical to the reporting of our financial position and
results of operations and that require managements most difficult, subjective or complex
judgments. Our most significant judgments and estimates used in the preparation of its
consolidated financial statements are: 23




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
    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,. Recently Issued Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which is a revision
of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) is effective for public
companies for interim or annual periods beginning after June 15, 2005, supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows.
SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values, beginning with
the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro
forma disclosures, previously permitted under SFAS No. 123, no longer will be an alternative to
financial statement recognition. SFAS No. 123(R) also requires the tax benefits in excess of
recognized compensation expenses to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This requirement may serve to reduce the
Companys future cash provided by operating activities and increase future cash provided by
financing activities, to the extent of associated tax benefits that may be realized in the future. Under SFAS No. 123(R), Infinity must determine the appropriate fair value model to be used for
valuing share-based payments, the amortization method for compensation cost, and the transition
method to be used at date of adoption. The transition methods include prospective and retroactive
adoption options. Under the retroactive options, prior periods may be restated either as of the
beginning of the year of adoption or for all periods presented. The prospective method requires
that compensation expense be recorded for all unvested stock options and restricted stock at the
beginning of the first quarter of adoption of SFAS No. 123(R); the retroactive methods would record
compensation expense for all unvested stock options and restricted stock beginning with the first
period restated. Infinity is evaluating the requirements of SFAS No. 123(R), and expects that the
adoption of SFAS No. 123(R) will not have a material impact on consolidated results of operations
and earnings per share as all outstanding options are fully vested. In March 2005, the SEC issued Staff Accounting Bulletin (SAB) No. 107 which expressed the
views of the SEC regarding the interaction between SFAS No. 123(R) and certain SEC rules and
regulations. SAB No. 107 provides guidance related to the valuation of share-based payment
arrangements for public companies, including assumptions such as expected volatility and expected
term. In April 2005, the SEC approved a rule that delayed the effective date of SFAS No. 123(R)
for public companies. As a result, SFAS No. 123(R) will be effective for Infinity on January 1,
2006. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets  An
Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (SFAS 153). SFAS 153
eliminates the exception from fair value measurement for nonmonetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary
Transactions, and replaces it with an exception for exchanges that do not have commercial
substance. SFAS No.153 specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No.
153 is effective for the fiscal periods beginning after June 15, 2005. The Company is currently
evaluating the effect that the adoption of SFAS No. 153 will have on consolidated results of
operations and financial condition but does not expect it to have a material impact. 24




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Commodity Risk Infinitys major market risk exposure is in the pricing applicable to its oil and gas
production. Realized pricing is primarily driven by the prevailing price for crude oil and spot
prices applicable to Infinitys United States crude oil and natural gas production. Historically,
prices received for gas production have been volatile and unpredictable. Pricing volatility is
expected to continue. Excluding sales under a fixed price contract of $4.84 per Mcf, gas price
realizations ranged from a low of $5.81 to a high of $6.15 per Mcf during the three months ended
March 31, 2005. Oil price realizations ranged from a low of $43.12 per barrel to a high of $54.22
per barrel during that period. Infinity-Wyoming periodically enters into hedging activities on a portion of its projected
natural gas and crude oil production in accordance with its Energy Risk Management Policy. These
activities are intended to support cash flow at certain levels in order to manage
Infinity-Wyomings cash flow by reducing the exposure to gas price fluctuations. Realized gains or
losses from Infinity-Wyomings cash flow risk management activities are recognized in gas
production revenues. In the three months ended March 31, 2005, the effect of Infinity-Wyoming
selling a portion of its gas production under a fixed price contract, compared to if it had sold
the gas on the spot market was a decrease in revenue of approximately $0.2 million. During 2004, the Company entered into fixed price delivery contracts for 2,000 MMBtu per day
from April 1, 2004 until March 31, 2006. The price for the period April 1, 2004 until March 31,
2005 was $4.40 per MMBtu and the price for the period April 1, 2005 until March 31, 2006 is $4.15
per MMBtu. Sales under these fixed price contracts are accounted for as normal sales agreements
under the exemption in SFAS No. 133. During April 2005, the Company entered into a costless collar arrangement covering 12,250
barrels (50 barrels of crude oil per day) from May 1, 2005 through December 31, 2005 with a floor
price of $50.00 per barrel and a ceiling price of $65.70 per barrel. The derivative contract was
designated as a cash flow hedge. The Securities Purchase Agreement dated as of January 13, 2005 by and among Infinity and the
Buyers of the Notes includes a covenant that at each date that is the end of a quarterly or annual
period covered by a quarterly report on Form 10-Q or annual report on Form 10-K (a Determination
Date), at least 20% of the Companys estimate of its oil and gas production for the twelve-month
period commencing immediately after such Determination Date shall be protected from price
fluctuations using derivatives, fixed price agreements and/or volumetric production payments. It
is the opinion of management that the Company was in compliance with this hedging requirement at
March 31, 2005. Interest Rate Risk Infinitys exposure to changes in interest rates results from our $30 million in floating rate
debt. The result of a 10% fluctuation in the 3 month LIBOR would impact our interest expense,
before capitalization, by approximately $0.1 million per year. 25




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports under the Securities Exchange Act of 1934, as
amended (Exchange Act) are communicated, processed, summarized and reported within the time
periods specified in the SECs rules and forms. At the end of the Companys first quarter of 2005,
as required by Rules 13a-15 and 15d-15 of the Exchange Act, an evaluation was carried out under the
supervision and with the participation of the Companys management, including the Chief Executive
Officer and the Principal Financial and Accounting Officer, of the effectiveness of the design and
operation of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange
Act). Based upon that evaluation, the Chief Executive Officer and the Principal Financial and
Accounting Officer concluded that the design and operation of these disclosure controls and
procedures were effective as of that date. No changes in internal controls over financial reporting
identified in connection with its evaluation (as required by Rules 13a-15(d) and 15d-15(d) of the
Exchange Act) occurred during the first quarter of 2005 that materially affected, or were
reasonably likely to materially affect, the Companys internal control over financial reporting
other than the addition of additional accounting staff. Although the evaluation did not detect any material weaknesses or significant deficiencies in
the Companys system of internal accounting controls over financial reporting, management has
identified certain deficiencies in its reconciliation procedures, level of staffing, and inherent
limitations in its electronic data processing software. The Company has added additional accounting
staff during the first and second quarters of 2005 and intends to add an additional financial and
accounting officer during the second quarter of 2005 to address these deficiencies. The Company
will also assess the viability of replacing or enhancing its electronic data processing software in
2005. 26




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##### Table of Contents



PART II 
 ITEM 1. LEGAL PROCEEDINGS There are currently no pending material legal proceedings to which we are a party. 
 ITEM 2. CHANGES IN SECURITIES There were no changes in securities during the first quarter of 2005. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities during the first quarter of 2005. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Companys shareholders during the first quarter of
2005. 
 ITEM 5. OTHER INFORMATION None. 
 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 and Accounting Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200232
    Certification of Principal Executive Officer and Principal Financial and
Accounting 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 27




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SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to
be signed on its behalf by the undersigned thereunto duly authorized. Signature
    
    Capacity
    
    Date/s/ Stanton E. Ross
    
    President and Chief Executive Officer
    
    May 13, 2005Stanton E. Ross
    
    (Principal Executive Officer)/s/ James A. Tuell
    
    Executive Vice President
    
    May 13, 2005James A. Tuell
    
    (Principal Financial and
Accounting Officer)
 28




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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 and Accounting Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200232
    Certification of Principal Executive Officer and Principal Financial and
Accounting 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 29