UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, ~~D. C.~~D.C. 20549 ~~___________________~~

FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended: December 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Fiscal Year ended: December 31, 2004

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. ~~(Exact~~

(Exact Name of Small Business Issuer as Specified in its Charter) ~~Colorado 84-1070066 (State or of Incorporation) (I.R.S. Employer Identification Number) 211~~


Colorado		84-1070066
(State or of Incorporation)		(I.R.S. Employer Identification Number)

1401 West ~~14th~~Main Street, Suite C, Chanute, Kansas 66720 ~~(Address~~

(Address of Principal Executive Offices, Including Zip Code)

(620) 431-6200 ~~(Registrant's~~

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: ~~NONE~~ None

Securities registered pursuant to Section 12(g) of the Act: ~~COMMON STOCK~~Common Stock

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. Yes ~~[X]~~þ No ~~[ ]~~o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K, is not contained herein and will not be contained, to the best of ~~Registrant's~~Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ~~[ ]~~o

Indicate by check mark whether the registrant is an accelerated ~~filer(as~~filer (as defined in Rule 12B-2 of the Act). Yes ~~[ ]~~o No ~~[X] As of April 12, 2004, 9,396,091 of the Registrant's $0.0001 Par Value Common Stock were outstanding.~~þ

The aggregate market value of voting and non-voting common equity held by non-affiliates as of June 30, ~~2003~~2004 was approximately ~~$49,456,971~~$31,600,000 based upon a closing price of ~~$6.05~~$3.87 per share as reported on the NASDAQ National Market. As of March 23, 2005, 12,632,927 of the Registrant’s $0.0001 par value Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the ~~Registrant's~~Registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the ~~2004~~2005 Annual Meeting of Shareholders are incorporated by reference in Part III of this Report on Form 10-K.

TABLE OF CONTENTS


PART I		3
Item 1. and Item 2. Business and Properties		3
Item 3.	Legal Proceedings	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
PART II		31
Item 5.	Market for Registrant’s Common Equity and Related Shareholder Matters	31
Item 6.	Selected Financial Data	32
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 8.	Financial Statements	48
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	48
Item 9A.	Controls and Procedures	48
PART III		49
Item 10.	Directors and Executive Officers of the Registrant	49
Item 11.	Executive Compensation	49
Item 12.	Security Ownership of Certain Beneficial Owners and Management	49
Item 13.	Certain Relationships and Related Transactions	49
Item 14.	Principal Accountant Fees and Services	49
PART IV		49
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	49
Subsidiaries
Consent of Ehrhardt, Keefe, Steiner & Hottman, P.C.
Consent of Netherland Sewell and Assiciates, Inc.
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

FORWARD-LOOKING STATEMENTS

This report on Form 10-K, including information incorporated by reference, 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:


	•	Infinity’s business strategy and anticipated trends in Infinity’s business and its future results of operations;

	•	the ability of Infinity to make and integrate acquisitions and the completion of the Comanche and Nicaragua acquisitions;

	•	commencement and progress of exploration, drilling and completion activities in the Barnett Shale, Niobrara Shale, Caribbean shelf, Lower Marble Falls formation and the Forth Worth and Greater Green River Basins;

	•	availability of drilling rigs and other support equipment;

	•	the connection of Infinity’s wells to third party pipeline systems;

	•	the costs and results of dewatering operations, including drilling water disposal wells;

	•	the closure of wells and the costs associated therewith;

	•	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 in “Risk Factors”:


	•	fluctuations in oil and natural gas prices and production,

	•	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 development activities,

	•	an increase 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,

	•	a decline in demand for Infinity’s oil and gas production or oilfield services, and

	•	changes in general economic conditions.

PART I ~~ITEM 1. DESCRIPTION OF BUSINESS BUSINESS DEVELOPMENT~~


ITEM 1. AND ITEM 2.	*BUSINESS AND PROPERTIES*

GENERAL

Infinity, Inc. ~~("Infinity") was organized as a Colorado corporation on April 2, 1987.~~ (“Infinity, ~~is an independent energy company primarily engaged in~~” or the operation, development, production, exploration and acquisition of North American unconventional natural gas properties and providing oil field services in eastern Kansas, northeastern Oklahoma and the Powder River Basin of Wyoming. As used herein, "Infinity", "we" and "our" refer collectively to Infinity, Inc., its predecessors, subsidiaries and affiliates as to one or more of them as the context may require. The following table sets forth the operating subsidiaries of Infinity by type of business activity. Each of these subsidiaries is 100% owned. Additional information about the activities of each subsidiary follows:

Consolidated Oil Well Services, Inc. ("Consolidated") acquired assets necessary to provide oil field services in Eastern Kansas and Northeastern Oklahoma in January 1994. Consolidated expanded its operations into northeastern Wyoming with the acquisition of Powder River Cementers, LLC during September 1999. In November 2001 Consolidated expanded its operations into South Central Wyoming by leasing operating facilities near, and transferring service equipment to Rock Springs, Wyoming. Due to the decrease in the number of wells being drilled by an affiliated company, Consolidated closed its Rock Springs, Wyoming facility, terminated its lease on the operating facilities and transferred its service equipment to its other locations in December 2003. This entity provides fracturing, cementing, and acidizing services as well as trucking of fluids to its oil field customers. Infinity Oil and Gas of Kansas, Inc. ("Infinity-Kansas") owns a 31.25% interest through a capital contribution in the Little Bear Creek prospect in southwest Kansas. This prospect is an undeveloped, 5,120 acre river sand prospect operated by an unrelated third party, IGWT, Inc. Infinity-Kansas has invested approximately $56,000 in leasehold and approximately $187,000 in 3-D seismic and the drilling of three wells on the prospect during the years ended December 31, 2003 and 2002. None of the wells drilled to date have been economic and the operator is evaluating the results of drilling programs on adjacent acreage before taking any further action. The results of the drilling programs on the adjacent acreage should be available in the second quarter of 2004. Depending on the results of those programs there is a potential that that the operator will abandon the prospect and Infinity-Kansas will reclassify the $56,000 in leasehold investment to the full cost pool subject to depletion. Infinity-Kansas does not have investment in any other oil and gas prospects. Infinity Oil & Gas of Wyoming, Inc. ("Infinity-Wyoming"“Company”) is an independent energy company engaged in the acquisition, exploration, development ~~exploitation~~ and production of ~~crude~~natural gas and oil in the United States through our wholly-owned subsidiaries, Infinity Oil and Gas of Texas, Inc. (“Infinity-Texas”) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”). Our current operations are focused in the Fort Worth Basin of North Central Texas and in the Rocky Mountain region in the Greater Green River Basin in Southwest Wyoming and the Sand Wash and Piceance Basins in Northwest Colorado. Infinity is also pursuing an oil and gas exploration opportunity offshore Nicaragua in the Caribbean Sea. In addition, we provide oilfield services in Eastern Kansas, Northeast Oklahoma and Northeast Wyoming through our wholly-owned subsidiary, Consolidated Oil Well Services, Inc. (“Consolidated”).

From January 1, 2002 through December 31, 2004, we grew our production through exploration and development drilling exclusively in the Rocky Mountain region. During this period, we completed the drilling of 36 oil and gas wells with a success rate of 75% at our two projects in the Greater Green River Basin. Exploratory wells accounted for 25 wells, or 69%, of the total wells we drilled. Our total proved reserves as of December 31, 2004 were an estimated 9.2 billion cubic feet of gas equivalent (“Bcfe”) with a PV-10 Value (as defined below) of $24.0 million (after-tax PV-10 Value of $23.7 million). During 2004, we added approximately 2.8 Bcfe to proved reserves, produced approximately 1.2 Bcfe, and experienced negative revisions of approximately 1.1 Bcfe for a net increase of approximately 0.5 Bcfe.

Subsequent to December 31, 2004 and through March 23, 2005, we have completed the drilling of an additional six wells (four in the Fort Worth basin, and one each in the Sand Wash and Greater Green River basin). Activities subsequent to December 31, 2004 in the Fort Worth, Sand Wash and Greater Green River Basins were not taken into account in the proved reserve estimate as of December 31, 2004, but may be reflected in future estimates.

In accordance with our business strategy which is discussed below, we operate 100% of our projects with working interests that range between 50% and 100%.

Our corporate office is located at 1401 West Main Street, Suite C, Chanute, Kansas 66720. Our telephone number is (620) 431-6200. Our website ishttp://www.infinity-res.com. The information on the website does not constitute part of this Annual Report on Form 10-K.


	*Subsequent Events*


	Senior Secured Notes Facility

On January 13, 2005, we 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. 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 quarterly intervals and over a three-year period, commencing in the third quarter of 2005, Infinity has the option to sell additional notes (the “Additional Notes”), along with additional warrants, in amounts of 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 future 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 the financial performance of Consolidated and the SEC after-tax PV-10% value of our proved reserves.

In connection with the issuance of the Notes and Warrants, Infinity also entered into a registrations rights agreement with the Buyers pursuant to which Infinity agreed to file a shelf registration statement covering resales of the ordinary shares issuable upon exercise of the Warrants.

Infinity used approximately $9.2 million of the proceeds from the sale of the Notes and Warrants to repay all amounts outstanding pursuant to a Loan and Security Agreement between LaSalle Bank N.A. and Consolidated, a Credit Agreement between U.S. Bank National Association and Infinity-Wyoming, and certain other secured lending agreements, and those credit agreements have been terminated. Infinity is using the remainder of the proceeds to pay costs and expenses related to the sale of the Notes and Warrants and to fund its oil and gas exploration and development activities.


	Acquisition of Additional Acreage in the Fort Worth Basin

In February 2005, we entered into a definitive agreement for the acquisition of approximately 24,500 gross and net acres in Comanche County in the Fort Worth Basin of Texas, subject to customary closing conditions. The agreement, as amended, also provides for a right of first refusal on all acres acquired by the seller in Comanche County. We expect to close the Comanche transaction on or before April 19, 2005. Upon closing, including acreage previously owned, Infinity-Texas will own and operate approximately 67,500 gross acres (approximately 56,300 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’ existing 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.


	Redemption of All Subordinated Convertible Debt

Pursuant to requirements of the Senior Secured Notes Facility, on January 13, 2005, Infinity called for redemption the remaining $2.5 million of 8% Subordinated Convertible Notes due 2006 outstanding on February 28, 2005. During January and February 2005, the holders of all of the 8% subordinated convertible notes converted the debt and accrued interest into 517,296 shares of the Company’s common stock.

Based on the volume weighted average stock price for Infinity’s common stock from February 18, 2005 to February 24, 2005 and pursuant to requirements of the Senior Secured Notes Facility, on February 25, 2005, Infinity called for redemption the remaining $8.2 million of 7% Subordinated Convertible Notes due 2007 outstanding on April 22, 2005 at a redemption price of 102.8% plus accrued and unpaid interest. During 2005, through March 23, the holders of $5,950,538 of 7% subordinated convertible notes have converted the debt and accrued interest into 783,779 shares of the Company’s common stock. Approximately $5.6 million of principal amount remains outstanding as of March 23, 2005. The Company has cash available to redeem the remaining 7% notes should they not be presented for conversion prior to the redemption date.


	*Infinity-Texas*

Infinity-Texas is engaged in the acquisition, exploration, development and production of natural gas in the ~~continental United States.~~Fort Worth Basin of north central Texas. This subsidiary is a Delaware corporation with its headquarters located in Denver, Colorado.

Infinity-Texas was formed in June 2004 to acquire, explore, develop and produce natural gas from the Barnett Shale formation and other producing formations in the Fort Worth Basin. The Barnett Shale is a marine shale formation that is natural gas bearing at depths believed to range from 1,000 to 8,500 feet and is believed to be ubiquitous across the Fort Worth Basin. Though this area has been well known for natural gas production for many years, improvements in fracture techniques and the employment of horizontal drilling in recent years have generally improved the economics of producing this reservoir. The reserve profile from productive wells drilled in the Barnett Shale region is shorter-lived compared to the typical reserve profile from wells drilled by Infinity-Wyoming in the Rocky Mountain region. In addition, the predominance of leases in the region relate to fee acreage and therefore have relatively few operating restrictions and regulations, as compared to the typically federally-owned leases in the Rocky Mountain region that involve a higher degree of operating restrictions and regulations.

At December 31, 2004, Infinity-Texas had no proved reserves or production since no wells had been drilled, completed and hooked up for production at that point. During the three months ended December 31, 2004, Infinity-Texas drilled three gross (2.7 net) wells and completed one gross (0.9 net) well. Subsequent to December 31, 2004, Infinity-Texas has drilled an additional 2 wells (1.9 net) and completed four wells (3.7 net). It is anticipated that the initial wells will be connected to an existing third-party pipeline system during May 2005. Infinity-Texas operates all drilled wells and expects to operate future wells. Operating the oil and gas properties in which it owns an interest allows Infinity-Texas to exercise greater control over operating costs, capital expenditures and the timing of exploration, development and exploitation activities.


	*Infinity-Wyoming*

Infinity-Wyoming is engaged in the acquisition, exploration, development and production of natural gas, condensate and crude oil in the Rocky Mountain region in Wyoming and Colorado. This subsidiary is a Wyoming corporation with its headquarters located in Denver, Colorado.

Infinity-Wyoming was incorporated in January 2000 for the purpose of acquiring properties with the intent of exploring, ~~for~~developing and producing natural gas and coal bed methane. ~~Historically,~~To date, we have developed our proven oil and gas reserves and increased production primarily through acquiring additional oil and gas leaseholds and drilling wells to exploit and develop tight sand ~~and coalbed methane~~ properties. We believe the probability that such properties have hydrocarbons in place is relatively high and the viability of establishing commercially producible reserves is largely dependent on several factors, including: the market price for oil and gas; the costs of development, production and marketing; and determination of the amount of recoverable reserves and the rate at which such reserves can be extracted. To a lesser extent, we have added proved reserves through acquisition of properties with proved developed reserves.

At December 31, ~~2003,~~2004, Infinity-Wyoming had ~~8.7 billion cubic feet equivalent ("Bcfe") of~~total estimated proved reserves ~~having~~of 9.2 Bcfe with a ~~pretax present value based upon a discount rate~~PV-10 Value of ~~10%~~$24.0 million (after-tax PV-10 Value of ~~approximately $23.0 million based upon unescalated prices and costs.~~$23.7 million). This valuation reflected average wellhead prices of ~~$6.06~~$6.07 per ~~Mcf for~~thousand cubic feet (“Mcf”) of natural gas and ~~$31.34~~$40.25 per barrel ~~for~~of crude oil at year-end.

Approximately ~~95%~~97% of our proved oil and gas reserves were associated with tight sand properties on the Wamsutter Arch Pipeline Field in the Greater Green River Basin in ~~Wyoming.~~Southwest Wyoming (the “Pipeline Field”). The balance of our proved reserves ~~at the end of 2003~~ related to one ~~property~~proved undeveloped well location in the Sand Wash Basin in ~~Colorado.~~Colorado (the “Sand Wash Prospect”). The proved undeveloped location at the Sand Wash Prospect was drilling at December 31, 2004, was subsequently completed in early 2005, and had an initial flow rate of approximately 150 barrels of oil per day net to the company’s interest. Proved reserves at December 31, 2004 reflect only those quantities associated with a vertical wellbore.

At December 31, ~~2003,~~2004, Infinity-Wyoming operated 13all of the ~~15 properties that were assigned~~ proved developed oil and gas ~~reserves. Effective March 1,~~locations. During the year ended December 31, 2004, Infinity-Wyoming ~~assumed operations~~drilled five gross (4.0 net) wells and completed three gross (2.0 net) of ~~the two previously non-operated properties which contained proved developed oil~~such wells. Infinity-Wyoming also completed an additional eight gross (and net) wells drilled during 2003 and ~~gas reserves. An additional 11 properties were assigned proved undeveloped reserves at~~prior. Subsequent to December 31, ~~2003.~~2004, Infinity-Wyoming finished the drilling of three gross (and net) wells and completion of two of those wells, one each in the Sand Wash and Greater Green River Basins. Operating the oil and gas properties in which it owns an interest allows Infinity-Wyoming to exercise greater control over operating costs, capital expenditures and the timing of exploration, development and exploitation activities.

During ~~2003,~~2004, Infinity-Wyoming produced ~~1.4~~1.2 Bcfe of gas, comprised of ~~1.1~~1.0 Bcf of natural gas and ~~57,700~~34,000 barrels of crude oil. Approximately 98% of this production was from the Pipeline ~~field on~~Field and 2% of this production was from the ~~Wamsutter Arch~~Labarge Field in Big Piney area of the Greater Green River ~~Basin.~~Basin in Wyoming (the “Labarge Field”). Total revenue from product sales totaled ~~$6.6~~$6.3 million, comprised of natural gas sales of ~~$4.8~~$4.9 million, or ~~$4.47~~$5.12 per ~~mcf,~~Mcf, and crude oil sales of ~~$1.8~~$1.4 million, or ~~$30.51~~$41.15 per barrel. ~~CIS-Oklahoma, Inc. owns the real property~~


	*Nicaragua*

Since 1999, Infinity has pursued an oil and facilities that Infinity and Consolidated occupy in Chanute and Ottawa, Kansas, Bartlesville, Oklahoma and Gillette, Wyoming. In addition to the purchase of the original facilities, the Bartlesville, Oklahoma facility was expanded in 2002 with the completion of a new office and shop facility at a cost of approximately $438,000. These properties were purchased with the proceeds from and serve as collateral for loans that were established with a local bank. Infinitygas exploration opportunity offshore Nicaragua ~~Ltd. and Infinity Nicaragua Offshore Ltd. (the Infinity Nicaragua companies) are wholly owned subsidiaries of Infinity and incorporated~~ in the Bahamas. The Infinity Nicaragua companies together own a majority interest in Rio Grande Resources S.A. ("Rio Grande"). Rio Grande is a Nicaraguan company. Pursuant to Nicaraguan law, Nicaraguan companies mustCaribbean Sea. Over such time period, the relationships which have a minimum of three shareholders and there are three shareholders of Rio Grande. The Infinity Nicaraguan companies own 98.2% of Rio Grande. Rio Grande was awarded concessions to develop two offshore blocks in Nicaragua. Thebeen built with the Instituto Nicaraguense de Energia ~~("INE"~~(“INE”), the Nicaraguan governmental entity regulating oil and gas activities, refused to recognize the concessions awarded to Rio Grande and the Nicaragua Supreme Court declared them void. As a result, the Infinity Nicaragua companies currently hold no ownership interest in valid leases in Nicaragua and are no longer active subsidiaries of Infinity. However, the relationships that were built with INE and the geological and geophysical research that was done ~~helped~~allowed Infinity to become one of only six companies qualified to bid on offshore blocks in the first international bidding round held by INE in January 2003. Infinity was awarded the bid on 24 blocks of acreage, ~~comprised of over one~~comprising approximately 1.4 million acres, in May 2003, and ~~immediately~~ entered into negotiations with INE to finalize the initial exploration ~~plan~~and production contract for the ~~Tyra~~two underlying prospects (Tyra and ~~Perlas prospects.~~Perlas). Infinity anticipates the completion of the negotiations and ~~the assignment~~execution of the ~~concessions~~contract during ~~2004. For a discussion of the development of the Company's business~~2005.


	*Consolidated*

Consolidated acquired assets necessary to provide oilfield services in Eastern Kansas and ~~a description of the oil field service properties and oil and gas properties by geographic area, see "Item 2. Properties". BUSINESS ACTIVITIES Infinity is primarily engaged~~Northeast Oklahoma in ~~providing oil and gas well services through~~January 1994. Consolidated and in the identification, acquisition, and development of oil and gas properties through Infinity-Kansas and Infinity-Wyoming. Consolidated also operates a wastewater treatment facility on a limited basis. 2 expanded its operations into Northeast Wyoming during September 1999. Consolidated provides services associated with drilling and completion of oil and gas wells, including cementing, acidizing, fracturing, nitrogen pumping and water hauling. In April 2004, Consolidated ~~previously provided on-site remediation~~expanded its presence in the Mid-Continent region with the acquisition of substantially all of the assets and liabilities of Blue Star Acid Services, Inc., a provider of acid and cementing services in Eastern and Central Kansas and North Central Oklahoma, for ~~hazardous~~$1.2 million in cash and ~~non-hazardous waste, and operated a centralized water treatment facility~~the assumption of $0.2 million in liabilities. In September 2004, Consolidated sold selected assets in Eastern Kansas, including real property and facilities in Chanute, Kansas, to ~~treat brine~~an exploration and production company and customer for $4.1 million in cash. A wholly-owned subsidiary of Infinity, CIS Oklahoma, Inc. (“CIS”), owns the real property and facilities that we occupy in Ottawa and Thayer, Kansas; Bartlesville, Oklahoma; and Gillette, Wyoming and leases its Eureka facility.

BUSINESS STRATEGY

Our principal objective is to create shareholder value through the execution of a business strategy, the key elements of which include:


	•	Exploration and Production. We will seek to: (i) consummate acquisitions of early-stage oil and gas properties, acreage leaseholds and prospects; (ii) explore such properties or prospects to discover underlying, commercially-viable hydrocarbon resource bases; (iii) develop such hydrocarbon resource bases into proved and producing reserves; (iv) operate and produce hydrocarbons from such reserve bases; and (v) sell or otherwise monetize such reserve bases at attractive valuations. We will usually seek to operate our exploration and production projects with a maximum working interest and net revenue interest, with exceptions or adjustments being made in situations in which the risk or capital requirements to explore, develop and produce from a given project are deemed high enough to warrant a partner, which may bring to the given project greater financial and technical resources than we have or are willing to commit.

	•	Oilfield Services. We will seek to grow Consolidated through: (i) selected acquisitions in our existing operating areas and (ii) selected acquisitions in new geographical operating areas. We will seek to improve and increase our product and service offerings and increase our operating margins, utilizing increasing efficiencies of scale as they present themselves. Ultimately, as the proved and producing reserve base in our exploration and production operations reaches a point at which we believe no longer require cash flow contributions from our oilfield services operations, dependent upon industry conditions, we may explore potential opportunities to monetize our investment in Consolidated, which monetization may include: (i) a sale to an industry acquiror; (ii) a sale to a financial buyer or investor; or (iii) spin-off, split-off or other such corporate transaction with the intended consequence of Consolidated standing on its own as a separate publicly-traded entity.

We intend to finance our business strategies through employment of cash on hand, free cash flow from our operations, net proceeds from the sales of assets, and through external debt and equity capital raised in public and private offerings. Essentially all of our assets serve as collateral under the Senior Secured Notes Facility, and as such, any disposition of material assets would require the approval of the Buyers.

RISK FACTORS


	*We have a history of operating losses and we may be unable to achieve long-term profitability.*

We incurred a net loss in our fiscal years ended December 31, 2004, 2003 and 2002 of approximately $4.6 million, $9.9 million and $1.6 million, respectively. Our history of losses may impair our ability to obtain financing for drilling and other business activities at all or on favorable terms. It may also impair our ability to attract investors if we attempt to raise additional capital, to grow our business or for other business purposes, by selling additional debt or equity securities in a private or public offering.

Our ability to achieve a profit from operations on a long-term basis will largely depend on whether we are successful in exploring for and producing oil and gas from our existing properties. We face the following potential risks in developing our oil and gas properties:


	•	prices for oil and gas we produce may be lower than expected;

	•	the capital, equipment, personnel or services required to develop the leases for production may not be available;

	•	we may not find oil and gas reserves in the quantities anticipated;

	•	the reserves we find may not produce oil and gas at the rate anticipated;

	•	the costs of producing oil and gas may be higher than expected; and

	•	we may encounter one or more of many operating risks associated with drilling for and producing oil and gas.


	*Oil and gas prices are volatile, and declines in prices would hurt our ability to achieve profitable operations.*

Our future oil and gas revenue, operating results, profitability, future rate of growth and the carrying value of oil and gas properties will depend heavily on prevailing market prices for oil and gas. We expect the market for oil and gas to continue to be volatile for the foreseeable future. For the period from January 1, 2004 through December 31, 2004 we received revenue per barrel of oil as low as $33.35 in January 2004 and as high as $52.58 in October 2004. During that period, the Inside FERC, first of the month CIG Index, the pricing index on which our gas sales are based, fluctuated from a low of $4.17 per MMBtu or approximately $4.59 per Mcf in April 2004 to a high of $6.98 per MMBtu or approximately $7.68 per Mcf during November 2004. Based on fourth quarter 2004 production levels, each $1.00 decrease in the price of crude oil would reduce Infinity’s oil revenue by approximately $2,500 per month and if none of the gas produced were being sold under fixed price contracts, each $0.10 decrease in natural gas price would reduce Infinity’s gas revenue by approximately $7,500 per month.

Revenue generated from oilfield services provided by Consolidated is indirectly affected by the price of oil and gas. Consolidated has historically experienced higher revenue in periods of high oil and gas prices and lower revenue in periods of low oil and gas prices.

Most of our proved reserves are natural gas. Therefore, the volatility in the price of natural gas will have the greatest impact on our operations. Various factors beyond our control affect prices of oil and gas, including:


	•	worldwide and domestic supplies of oil and gas;

	•	political instability or armed conflict in oil or gas producing regions;

	•	the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil prices;

	•	production controls;

	•	the price and level of foreign imports;

	•	worldwide economic conditions;


	•	marketability of production;

	•	the level of consumer demand;

	•	the price, availability and acceptance of alternative fuels;

	•	the price, availability and capacity of commodity processing and gathering facilities, and pipeline transportation;

	•	weather conditions; and

	•	actions of federal, state, local and foreign authorities.

�� These external factors and the volatile nature of the energy markets generally make it difficult to estimate future prices of oil and gas. Significant declines in oil and natural gas prices for an extended period may cause various negative effects on our business, including:


	•	impairing our financial condition, cash flows and liquidity;

	•	limiting our ability to finance planned capital expenditures;

	•	reducing our revenue, operating income and profitability;

	•	reducing the carrying value of our oil and natural gas properties; and

	•	reducing demand for our oilfield service business.

A charge to earnings and book value would occur if there is a further ceiling write-down of the carrying value of Infinity’s oil and gas properties. Impairments can occur when oil and gas prices are depressed or unusually volatile. Once incurred, a ceiling write-down of oil and gas properties is not reversible at a later date when better industry conditions may exist. We review, on a quarterly basis, the carrying value of our oil and gas properties under the full cost accounting rules of the SEC. Under these rules, costs of proved oil and gas properties may not exceed the present value of estimated future net revenue adjusted for future cash flows related to asset retirement obligations from proved reserves, after giving effect to cash flow from hedges, discounted at 10%, net of taxes. Application of the ceiling test generally requires pricing future revenue at the unescalated prices in effect as of the end of each fiscal quarter, after giving effect to Infinity’s cash flow hedge positions, if any, and requires a write-down for accounting purposes if the ceiling is exceeded, even if prices were depressed for only a short period of time.

At December 31, 2004, the carrying amount of oil and gas properties subject to amortization exceeded the full cost ceiling limitation by approximately $8,900,000 based upon a natural gas price of approximately $6.07 per Mcf and an oil price of approximately $40.25 per barrel in effect at that date. However, due to significant subsequent price increases to approximately $6.53 per Mcf of gas and $54.55 per barrel of oil at the March 15, 2005 measurement date, the Company was only required to record a ceiling writedown of $4,100,000 in the quarter and year ended December 31, 2004. In 2003, the Company recorded a ceiling writedown of $2,975,000. A decrease in oil or gas prices, which continue to remain volatile, an increase in production costs, a decrease in estimated gas production in future periods, or the reclassification of development costs to properties subject to depletion without an increase in associated proved reserves could result in a ceiling write-down during future periods.


	*Prices may be affected by regional factors.*

The prices to be received for the natural gas production from our Wyoming, Colorado and Texas properties will be determined mainly by factors affecting the regional supply of and demand for natural gas, which include the degree to which pipeline and processing infrastructure exists in the region. Based on recent experience, regional differences could cause a negative basis differential of between $0.30 per Mcf and $1.50 per Mcf in Wyoming between the published indices generally used to establish the price received for regional natural gas production and the actual price received by us for our natural gas production.


	*Forward sales transactions may limit our potential gains or expose us to loss.*

To manage our exposure to price risks in the marketing of our natural gas, we enter into natural gas fixed price physical delivery contracts from time to time with respect to a portion of our current or future production. These transactions could limit our potential gains if natural gas prices were to rise substantially over the price established by the contracts. In addition, such transactions may expose us to the risk of financial loss in certain circumstances, including instances in which:


	•	our production is less than expected;

	•	the counterparties to our futures contracts fail to perform under the contracts; or

	•	our production costs on the hedged production significantly increase.


	*Exploration and development of our oil and gas projects will require large amounts of capital which we may not be able to obtain.*

Full exploration and development of Infinity’s properties could require drilling in excess of 1,000 production wells, 100 disposal wells to handle produced water, and the construction of 100 production facilities. This could require capital expenditures over time of in excess of $1 billion. Currently, our potential sources of financing for these activities are cash generated by operations, future sales of equity securities or subordinated debt securities, obtaining additional subordinated debt financing or the sale of additional senior secured debt securities under the terms of an existing securities purchase agreement. Under that agreement, we can borrow up to $15 million per twelve-month period for the next three years, commencing in the third quarter of 2005, depending on our satisfaction of certain closing conditions and on our maximum balance of notes outstanding, based generally on a combination of performance of Infinity’s oilfield service business and the after-tax PV-10 Value of Infinity’s proved reserves.

Future cash flows and the availability of financing are subject to a number of variables, such as:


	•	our oil and gas projects in the Fort Worth Basin of Texas, Greater Green River Basin of Wyoming, and Sand Wash and Piceance Basins of Colorado achieving a level of production that provides sufficient cash flow to support additional borrowings and to attract other forms of debt and equity capital;

	•	our success in locating and producing new reserves;

	•	prices of crude oil and natural gas;

	•	the level of production from existing wells; and

	•	amounts of necessary working capital and expenses.

Issuing equity securities to satisfy our financing or refinancing requirements could cause substantial dilution to existing shareholders. Debt financing could lead to:


	•	all or a substantial portion of our operating cash flow being dedicated to the payment of principal and interest;

	•	an increase in interest expense as the amount of debt outstanding increases or as variable interest rates increase;

	•	increased vulnerability to competitive pressures and economic downturns; and

	•	restrictions on our operations that may be contained in any contract entered into with lenders.

In order to reduce our capital needs, while continuing development of our oil and gas projects, we could enter into partnerships with another oil and gas company or companies in which we would maintain a carried or reduced working interest in the oil and gas properties. However, this would reduce our ownership and control over the projects and could significantly reduce our future revenue generated from gas production.

If projected revenue were to decrease due to lower oil and natural gas prices, decreased production or other reasons, and if we were not able to obtain the necessary capital, our ability to execute development plans or maintain production levels could be limited.


	*The covenants and debt service obligations of our Senior Secured Note Facility may adversely affect our cash flow and our ability to raise additional capital.*

Our Senior Secured Notes Facility is secured by a pledge of substantially all of our natural gas and oil properties and oilfield services business assets, is guaranteed by our subsidiaries and contains covenants that limit additional borrowings, dividends to shareholders, the incurrence of liens, investments, sales or pledges of assets, changes in control and other matters. The Senior Secured Notes Facility also requires that specified financial ratios be maintained. The restrictions of our Senior Secured Notes Facility may have adverse consequences on our operations and financial results including:


	•	it may be more difficult for us to satisfy our debt repayment obligations;

	•	covenant violations, if any, could result in accelerated payment terms on existing debt;

	•	the amount of our interest expense may increase because our borrowings are at a variable rate of interest, which, if interest rates increase, would result in higher interest expense;

	•	we will need to use a portion of our revenue to pay principal and interest on our debt which will reduce the amount of money we have to finance our operations and other business activities; and

	•	substantially all of our properties are pledged as collateral to lenders and failure to pay could result in foreclosure and loss of assets.

As of March 23, 2005, we had total long-term debt of approximately $37.8 million. Our level of debt could have important negative consequences to our business.

We may not be able to refinance our debt or obtain additional financing, particularly in view of the restrictions imposed by our Senior Secured Notes Facility on our ability to incur other debt and the fact that substantially all of our assets are currently pledged to secure obligations under that facility. Our overall level of long-term debt and our difficulty in obtaining additional debt financing may have adverse consequences on our operations and financial results including:


	•	any additional financing we obtain may be on unfavorable terms;

	•	we may have a higher level of debt than many of our competitors, which may place us at a competitive disadvantage;

	•	we may issue equity securities at an undesired or unanticipated point in time to repay indebtedness, causing additional dilution to our shareholders;

	•	we may be more vulnerable to economic downturns and adverse developments in our industry; and

	•	our debt level could limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate.


	*Information concerning our reserves, future net cash flow estimates, and potential future ceiling write-downs is uncertain.*

There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and their values. Actual production, revenue and reserve expenditures will likely vary from estimates.

Estimates of oil and natural gas reserves are projections based on available geologic, geophysical, production and engineering data. There are uncertainties inherent in the manner of producing and the interpretation of this data as well as the projection of future rates of production and the timing of development

expenditures. Estimates of economically recoverable oil and natural gas reserves and future net cash flows necessarily depend upon a number of factors including:


	•	the quality and quantity of available data;

	•	the interpretation of that data;

	•	the accuracy of various mandated economic assumptions; and

	•	the judgment of the persons preparing the estimate.

The most accurate method of determining proved reserve estimates is based upon a decline analysis method, which consists of extrapolating future reservoir pressure and production from historical pressure decline and production data. The accuracy of the decline analysis method generally increases with the length of the production history. Since our wells in Texas will begin producing this year, other (generally less accurate) methods such as volumetric analysis and analogy to the production history of wells of other operators in the same reservoir will be used, in conjunction with the decline analysis method to determine our estimates of proved reserves. As our wells are produced over time and more data is available, the estimated proved reserves will be redetermined on an annual basis and may be adjusted based on that data.

Actual future production, gas and oil prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable gas and oil reserves most likely will vary from our estimates. Any significant variance could materially affect the quantities and present value of our reserves. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development and prevailing gas and oil prices. Our reserves may also be susceptible to drainage by operators on adjacent properties.

In addition, investors should not construe the present value of future net cash flows as the current market value of the estimated oil and natural gas reserves attributable to our properties. The estimated discounted future net cash flows from proved reserves are based on prices and costs as of the date of the estimate, in accordance with applicable regulations, whereas actual future prices and costs may be materially higher or lower. Factors that will affect actual future net cash flows include:


	•	the amount and timing of actual production;

	•	the price for which that oil and gas production can be sold;

	•	supply and demand for oil and natural gas;

	•	curtailments or increases in consumption by natural gas and oil purchasers; and

	•	changes in government regulations or taxation.

As a result of these and other factors, we will be required to periodically reassess the amount of our reserves, which may require us to recognize a ceiling write-down of our oil and gas properties. Such factors could cause us to write down the value of our properties in future periods.

As of December 31, 2004, Infinity-Wyoming had approximately $6.9 million invested in unproved oil and gas properties not subject to amortization on its Labarge Field. During 2004, Infinity-Wyoming performed completion or recompletion operations on five wells in the Labarge Field.

For the period ended December 31, 2005, or during 2006, a portion of the investment in unproved oil and gas properties may be reclassified to the full cost pool subject to depletion and the ceiling test, following our required periodic evaluation of the fair value of our unproved properties. The amount of any such reclassification could be significant. We could be required to write down a portion of the full cost pool of oil and gas properties subject to amortization upon reclassification of the unproved oil and gas property costs.


	*The oil and gas exploration business involves a high degree of business and financial risk.*

The business of exploring for and developing oil and gas properties is an activity that involves a high degree of business and financial risk. Property acquisition decisions generally are based on assumptions about the quantity, quality, production costs, marketability, and sales price for the acreage or reserves being

acquired. Although available geological and geophysical information can provide information about the potential of a property, it is impossible to predict accurately the ultimate production potential, if any, of a particular property or well. Any decision to acquire a property is also influenced by our subjective judgment as to whether we will be able to locate the reserves, drill and equip the wells to produce the reserves, operate the wells economically, and market the production from the wells.

Our operations are dependent upon the availability of certain resources, including drilling rigs, steel casing, water, chemicals, and other materials necessary to support our development plans and maintenance requirements. The lack of availability of one or more of these resources at an acceptable price could have a material adverse affect on our business.

The successful completion of an oil or gas well does not ensure a profit on investment. A variety of factors may negatively affect the commercial viability of any particular well, including:


	•	defects in title;

	•	the absence of producible quantities of oil and gas;

	•	insufficient formation attributes, such as porosity, to allow production;

	•	water production requiring disposal; and

	•	improperly pressured reservoirs from which to produce the reserves.

In addition, market-related factors may cause a well to become uneconomic or only marginally economic, such as:


	•	availability and cost of equipment and transportation for the production;

	•	demand for the oil and gas produced; and

	•	price for the oil and gas produced.


	*Our business is subject to operating hazards that could result in substantial losses against which we may not be insured.*

The oil and natural gas business involves operating hazards, any of which could cause substantial losses, such as:


	•	well blowouts;

	•	craterings;

	•	explosions;

	•	uncontrollable flows of oil, natural gas or well fluids;

	•	fires;

	•	formations with abnormal pressures;

	•	pipeline ruptures or spills; and

	•	releases of toxic gas and other environmental hazards and pollution.

As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. This insurance has deductibles or self-insured retentions and contains certain coverage exclusions. Our insurance premiums can be increased or decreased based on the claims made by us under insurance policies. The insurance does not cover damages from breach of contract by us or based on alleged fraud or deceptive trade practices. Whenever possible, we obtain agreements from customers that limit our liability; however, insurance and customer agreements do not provide complete protection against losses and risks and losses could occur for uninsurable or uninsured risks, or in amounts in excess of existing insurance

coverage. The occurrence of an event that is not fully covered by insurance could harm our financial condition and results of operations.

In addition, we may be liable for environmental damage caused by previous owners of property we own or lease. As a result, we may face substantial potential liabilities to third parties or governmental entities that could reduce or eliminate funds available for exploration, development or acquisitions or cause us to incur losses. An event that is not fully covered by insurance — for instance, losses resulting from pollution and environmental risks that are not fully insured — could cause us to incur material losses.


	*We depend on successful exploration, development and acquisitions to maintain reserves and revenue in the future.*

In general, the volume of production from natural gas and oil properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Except to the extent we conduct successful exploration and development activities or acquire properties containing proved reserves, or both, our proved reserves will decline as reserves are produced. Our future natural gas and oil production is, therefore, highly dependent on our level of success in finding or acquiring additional reserves. The business of exploring for, developing or acquiring reserves is capital intensive. Recovery of our reserves, particularly undeveloped reserves, will require significant additional capital expenditures and successful drilling operations. To the extent cash flow from operations is reduced and external sources of capital become limited or unavailable, our ability to make the necessary capital investment to maintain or expand our asset base of natural gas and oil reserves would be impaired.


	*Exploratory drilling is an uncertain process with many risks.*

Exploratory drilling involves numerous risks, including the risk that we will not find commercially productive natural gas or oil reservoirs. The cost of drilling, completing and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations, including:


	•	unexpected drilling conditions;

	•	pressure or irregularities in formations;

	•	equipment failures or accidents;

	•	adverse weather conditions;

	•	defects in title;

	•	compliance with governmental requirements, rules and regulations; and

	•	shortages or delays in the availability of drilling rigs, the delivery of equipment and adequate trained personnel.

Our future drilling activities may not be successful, and we cannot be sure of our overall drilling success rate. Unsuccessful drilling activities would result in significant expenses being incurred without any financial gain.


	*Our business will depend on transportation facilities owned by others.*

The marketability of gas production will depend in part on the availability, proximity and capacity of pipeline systems owned by third parties. We generally deliver natural gas through gas gathering systems and gas pipelines that we do not own under interruptible or short-term transportation agreements. The transportation of our gas may be interrupted due to capacity constraints on the applicable system, for maintenance or repair of the system. Our ability to produce and market natural gas on a commercial basis could be harmed by any significant change in the cost or availability of markets, systems or pipelines.


	*The oil and gas industry is heavily regulated and we must comply with complex governmental regulations.*

Federal, state and local authorities extensively regulate the oil and gas industry and the drilling and completion of oil and gas wells. ~~The Cheyenne, Wyoming waste-water treatment facility operates on a limited basis. The Infinity-Kansas~~Legislation and ~~Infinity-Wyoming subsidiaries~~regulations affecting the industry are ~~engaged in~~under constant review for amendment or expansion, raising the ~~acquisition and development~~possibility of changes that may adversely affect, among other things, the pricing, production or marketing of oil and gas ~~properties. Infinity-Kansas'~~and oilfield services. Noncompliance with statutes and regulations may lead to substantial penalties and the overall regulatory burden on the industry increases the cost of doing business and, in turn, decreases profitability. Federal, state and local authorities regulate various aspects of oil and gas drilling, service and production activities, including the drilling of wells through permit and bonding requirements, the spacing of wells, the unitization or pooling of oil and gas properties, environmental matters, safety standards, the sharing of markets, production limitations, plugging and abandonment, and restoration.

Our operations are subject to complex and constantly changing environmental laws and regulations adopted by federal, state and local government authorities. Infinity estimates it will spend approximately $1.0 million to drill and equip one water disposal well to handle water produced from gas wells in 2005. It costs Infinity approximately $50,000 per year to operate each disposal well. In addition to the environmental costs that will be incurred by our oil and gas production operations, Consolidated will incur an estimated $50,000 in costs associated with operating within current environmental regulations this fiscal year. New laws or regulations, or changes to current requirements, could result in our incurring significant additional costs. We could face significant liabilities to government and third parties for discharges of oil, natural gas or other pollutants into the air, soil or water, and we could have to spend substantial amounts on investigations, litigation and remediation.

Although we believe that we are in substantial compliance with all applicable laws and regulations, we cannot be certain that existing laws or regulations, as currently interpreted or reinterpreted in the future, or future laws or regulations, will not harm our business, results of operations and financial condition. Laws and regulations applicable to us include those relating to:


	•	land use restrictions;

	•	drilling bonds and other financial responsibility requirements;

	•	spacing of wells;

	•	emissions into the air;

	•	unitization and pooling of properties;

	•	habitat and endangered species protection, reclamation and remediation;

	•	the containment and disposal of hazardous substances, oil field waste and other waste materials;

	•	the use of underground storage tanks;

	•	the use of underground injection wells, which affects the disposal of water from our wells;

	•	safety precautions;

	•	the prevention of oil spills;

	•	the closure of production facilities;

	•	operational reporting; and

	•	taxation.

Under these laws and regulations, we could be liable for:


	•	personal injuries;

	•	property and natural resource damages;


	•	releases or discharges of hazardous materials;

	•	well reclamation costs;

	•	oil spill clean-up costs;

	•	other remediation and clean-up costs;

	•	plugging and abandonment costs, which may be particularly high in the case of offshore facilities;

	•	governmental sanctions, such as fines and penalties; and

	•	other environmental damages.

Any noncompliance with these laws and regulations could subject us to material administrative, civil or criminal penalties or other liabilities.

Our oilfield service operations routinely involve the handling of significant amounts of waste materials, some of which are classified as hazardous substances. Our operations and facilities are subject to numerous environmental laws, rules and regulations, including laws concerning:


	•	the containment and disposal of hazardous substances, oilfield waste and other waste materials;

	•	the use of underground storage tanks; and

	•	the use of underground injection wells.

Compliance with and violations of laws protecting the environment may become more costly. Sanctions for failure to comply with these laws, rules and regulations, many of which may be applied retroactively, may include:


	•	administrative, civil and criminal penalties;

	•	revocation of permits; and

	•	corrective action orders.

In the United States, environmental laws and regulations typically impose strict liability. Strict liability means that in some situations we could be exposed to liability for cleanup costs and other damages as a result of our conduct, even if such conduct was lawful at the time it occurred, or as a result of the conduct of prior operators or other third parties. Cleanup costs, natural resource damages and other damages arising as a result of environmental laws and regulations, and costs associated with changes in environmental laws and regulations, could be substantial. From time to time, claims have been made against us under environmental laws. Changes in environmental laws and regulations may also negatively impact other oil and natural gas exploration and production companies, which in turn could reduce the demand for our oilfield services.

Large volumes of water produced from coalbed methane wells and discharged onto the surface in the Powder River Basin of Wyoming have drawn the attention of government agencies, gas producers, citizens and environmental groups which may result in new regulations for the disposal of produced water. Infinity intends to use injection wells to dispose of water into underground rock formations at certain of its fields and intends to discharge onto the surface where permissible. If our wells produce water of lesser quality than allowed under Colorado, Texas or Wyoming state law for surface discharge or injection into underground rock formations, Infinity could incur costs of up to $7.50 per barrel of water to dispose of the produced water. At December 2004 production rates, this would cost us an additional $100,000 per month in average water disposal costs. If our wells produce water in excess of the limits of its disposal facilities, we may have to drill additional disposal wells. Each additional disposal well could cost us up to $1.0 million.


	*The oil and gas industry is highly competitive.*

We operate in the highly competitive areas of oil and natural gas exploration, exploitation, acquisition, production and oilfield services with many other companies. We face intense competition from a large number of independent companies as well as major oil and natural gas companies in a number of areas such as:


	•	acquisition of desirable producing properties or new leases for future exploration;

	•	marketing our oil and natural gas production;

	•	arranging for growth capital on attractive terms; and

	•	seeking to acquire or secure the equipment, service, labor, other personnel and materials necessary to operate and develop those properties.

Many of our competitors have financial and technological resources substantially exceeding those available to us. Many oil and gas properties are sold in a competitive bidding process in which we may lack technological information or expertise or financial resources available to other bidders. We cannot be sure that we will be successful in acquiring and developing profitable properties in the face of this competition.


	*We may have difficulty managing growth in our business.*

Because of our small size, growth in accordance with our business plans, if achieved, will place a significant strain on our financial, technical, operational and management resources. As we expand our activities and increase the number of projects we are evaluating or in which we participate, there will be additional demands on our financial, technical and management resources. The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the recruitment and retention of experienced managers, geoscientists and engineers, could have a material adverse effect on our business, financial condition and results of operations and our ability to timely execute our business plan.


	*We depend on key personnel.*

The loss of key members of our management team, or difficulty attracting and retaining experienced technical personnel, could reduce our competitiveness and prospects for future success. Our success depends on the continued services of our executive officers and a limited number of other senior management and technical personnel. Loss of the services of any of these people could have a material adverse effect on our operations. We currently maintain “key man” life insurance on the lives of Stanton E. Ross and Stephen D. Stanfield in the amount of $250,000 each. We do not have employment agreements with any of our executive officers. Our exploratory drilling success and the success of other activities integral to our operations will depend, in part, on our ability to attract and retain experienced explorationists, engineers and other professionals. Competition for experienced explorationists, engineers and some other professionals is extremely intense. If we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed.

SIGNIFICANT PROJECT AND PROSPECT AREAS

This section is an explanation and detail of some of the relevant project groupings from our overall inventory of projects and prospects. Our operations are focused primarily in Fort Worth Basin of Texas and the Greater Green River and Sand Wash Basins in the Rocky Mountain region. Our other area of interest is in the Caribbean Sea, offshore Nicaragua.


	*Fort Worth Basin*

For purposes of presentation, we divide our Fort Worth Basin operations into two main property areas: Erath and Hamilton Counties, Texas and Comanche County, Texas.


	Erath and Hamilton Counties, Texas

At December 31, 2004, Infinity-Texas held leases on approximately 32,000 gross (approximately 27,000 net) acres in this area located in the southwest portion of the Fort Worth Basin in North Central Texas. Infinity-Texas currently seeks to explore for, develop and produce natural gas and natural gas liquids from the Barnett Shale, and possibly shallower formations. At March 23, 2005, Infinity-Texas operates five gross (4.6 net) wells in the area, all of which have been completed and are waiting installation of gathering and flow lines and hookup to a ~~partner operated~~third-party pipeline system. Infinity-Texas has an average 90% working interest and 72% net revenue interest in the acreage in this area.

Infinity-Texas expects to begin production from its initial wells as early as late April 2005. Based on initial drilling and completion efforts, Infinity-Texas has reserved a drilling rig as early as June 2005 and currently expects to drill approximately one horizontal well per month with accompanying completion operations to follow the drilling. Infinity-Texas also plans to drill a water disposal well in the area during 2005. Infinity-Texas believes it has a multi-year drilling inventory available to it in this area, adjusting for and reflective of spacing requirements and surface or lease restrictions. Dependent upon the success of early operations in 2005, Infinity-Texas may elect to accelerate drilling and completion operations in the area in 2006.


	Comanche County, Texas

In February 2005, Infinity-Texas signed a definitive agreement for the acquisition of leases on approximately 24,500 gross (and net) acres in this area, located approximately 30 miles southwest of the Erath and Hamilton County properties. The agreement, as amended, also provides for a right of first refusal on most of the acres acquired by the seller in Comanche County. We expect to close the Comanche transaction on or before April 19, 2005. Upon closing, Infinity-Texas expects to explore for natural gas and natural gas liquids from the Barnett Shale and Lower Marble Falls formations at varying depths between 2,400 and 2,700 feet. Infinity-Texas has a 100% working interest and 80% net revenue interest in the acreage in this area.

Infinity-Texas agreed to drill at least one test well on the Comanche acreage during the next twelve months. Dependent upon the availability of drilling rigs and other support equipment, Infinity-Texas expects to commence drilling operations during the second half of 2005.


	*Greater Green River Basin*

For purposes of presentation, we divide our Greater Green River ~~Sand~~Basin operations into two main property ~~in southwest Kansas. Infinity-Wyoming owns and operates the~~areas: Pipeline Field and Labarge ~~gas prospects~~Field.


	Pipeline Field

At December 31, 2004, Infinity-Wyoming held leases on approximately 22,000 gross acres (approximately 19,000 net acres) located on the Wamsutter Arch in the Greater Green River Basin of ~~southwest~~Southwest Wyoming. Infinity-Wyoming currently seeks to exploit hydrocarbons in the cretaceous-aged Upper Almond sand at varying depths between 2,800 and 3,600 feet. At December 31, 2004, Infinity-Wyoming operated

40 wells in the field, of which 19 were active producers, 13 were shut-in, one was waiting completion operations, three were water disposal wells, and four were waiting plugging and abandonment.

During 2004, Infinity-Wyoming produced approximately 929,800 Mcf of natural gas and 33,700 barrels of crude oil, or 1,131,800 thousand cubic feet of natural gas equivalent (“Mcfe”) from the field, compared to 1,051,200 Mcf of natural gas and 57,400 barrels of crude oil, or 1,395,700 Mcfe from the field during 2003. Production during 2004 represented a 19% decrease from 2003. Production has generally declined since peaking in the quarter ended March 31, 2003, when production reached 408,100 Mcfe.

Infinity-Wyoming plans to drill up to seven additional well locations in the field during 2005, subject to rig availability and the completion of an ongoing federal environmental assessment. Infinity-Wyoming believes it may have up to an additional 20 drilling locations available to drill, including the planned wells for 2005.


	Labarge Field

At December 31, 2004, Infinity-Wyoming held leases on approximately 12,000 gross (and 11,000 net) acres located on the northern extension of the Moxa Arch in Southwest Wyoming and held options on an additional approximately 18,000 gross acres. Infinity-Wyoming currently seeks to exploit hydrocarbons in the Cretaceous Upper Mesaverde coals at varying depths between 3,400 and 4,200 feet. At December 31, 2004, Infinity-Wyoming operated 12 wells in the field, of which five were active producers, five were shut-in, and two were water disposal wells.

Infinity-Wyoming produced approximately 24,000 Mcf of natural gas from the field during 2004, as compared to approximately 29,000 Mcf of natural gas during 2003. Production during 2004 represented a 17% decrease as compared to 2003. Production has generally declined since peaking in the quarter ended September 30, 2002, when production reached 20,600 Mcfe. Production at Labarge has continued to be uneconomic, despite modest completion and recompletion efforts in 2004 to re-establish economic production. The completed and recompleted wells from 2004 continue to undergo dewatering operations, which may increase the level of gas production.

Infinity-Wyoming is subject to an ongoing Bureau of Land Management environmental impact study (“EIS”) on the Labarge Field federal acreage. The EIS must be completed before Infinity-Wyoming can continue development of the acreage. The EIS was commenced in 2002 and was originally anticipated to be completed in six to eight months. Infinity-Wyoming currently anticipates that the EIS will be completed during 2005. Depending on the results of dewatering and and the availability of equipment, we may commence drilling and completion activities during the fourth quarter of 2005.


	*Northwest Colorado*

For purposes of presentation, we divide our Northwest Colorado operations into two main property areas: Sand Wash Prospect and Piceance Basin Prospect.


	Sand Wash Prospect

At December 31, 2004, Infinity-Wyoming held leases on approximately 104,000 gross acres (approximately 67,000 net acres) located in the Sand Wash Basin of Northwest Colorado and ~~Piceance Basins~~South Central Wyoming. Infinity-Wyoming currently seeks to explore and develop hydrocarbons in the fractured Niobrara calcareous shale between 5,500 and 6,500 feet. Secondary objectives include exploiting the Williams Fork and Iles coals at varying depths between 2,500 and 3,000 feet. Infinity-Wyoming continues to seek offers from other industry operators for interests in the acreage in exchange for cash and a carried interest in drilling operations. No assurance can be given that any such transactions will be consummated.

At December 31, 2004, Infinity-Wyoming operated four shut-in wells in the field which were completed in the coals. Drilling was in progress at one fractured Niobrara proved undeveloped location, which was subsequently completed as a producer in February 2005.

Infinity-Wyoming plans to drill one additional well targeting the fractured Niobrara shale during 2005, subject to rig availability, and conduct additional geological and geophysical studies to identify potential additional locations. As it pertains to the Williams Fork and Iles coals, Infinity-Wyoming suspended dewatering efforts of ~~Colorado. For a complete description~~two wells at the original pilot location in 2004 due to the onset of winter and the resultant substantial production of ice on the surface. No measurable gas production was achieved during 2004. Infinity-Wyoming will evaluate the results of the ~~properties~~dewatering process during 2004 prior to determining what additional operations, if any, to perform.


	Piceance Basin Prospect

At December 31, 2004, Infinity-Wyoming held leases on approximately 20,000 gross and net acres in the northeastern corner of the Piceance Basin in Northwest Colorado. Infinity-Wyoming originally sought to exploit the Williams Fork and Iles coals at varying depths between 1,000 and 3,000 feet. Under the terms of the lease agreement covering a substantial portion of the acreage, Infinity-Wyoming is required to drill and complete five wells by November 20, 2005, or relinquish the acreage to the seller. Infinity-Wyoming drilled one pilot wireline coring well during 2004 and the ~~activities related~~results of the ensuing core analysis and gas desorption analysis indicated coalbed methane gas content in the coals was below the level believed by management to ~~these properties see "Item 2. Description~~be commercial. In 2005, Infinity-Wyoming expects to re-evaluate its plans to explore for coalbed methane or other potential conventional and deeper formation targets at this prospect. Management believes it is unlikely that the drilling commitments will be met during 2005.


	*Nicaragua*

Since being awarded the two concessions in 2003, Infinity has negotiated a number of ~~Property -~~key terms and conditions of the exploration and production contract covering the approximate 1.4 million acre Tyra (approximately 823,000 acres in the north) and Perlas (approximately 566,000 acres in the south) concession areas offshore Nicaragua. The contract as currently negotiated, contemplates an exploration period of up to six years with four sub-phases and a production period of up to 30 additional years (with a potential five year extension). The contract is in final negotiations and is expected to be executed in 2005, following final approvals by the Nicaraguan government. Upon execution, the initial capital costs during the first twelve months, for which Infinity would post a performance bond, are expected to be up to approximately $800,000, with up to an additional $1,600,000 during the second twelve months, to cover costs of environmental studies, geological and geophysical analysis, acquisition of seismic data and other operational expenses.

Exploration offshore Nicaragua will focus on Eocene and Cretaceous carbonate reservoirs and Infinity’s management and consultants believe: (i) numerous analogies can be made between the Infinity concession block and production from fractured Cretaceous carbonates in Mexico, Venezuela and Guatemala and (ii) the presence of Cretaceous source rocks onshore Honduras and Nicaragua can be projected into the offshore Caribbean Shelf. Infinity plans to seek offers from another industry operator or operators for interests in the acreage in exchange for cash and a carried-interest in exploration and development operations. No assurance can be given that any such transactions will be consummated.


	*Other*

In February 2000, Infinity Oil and Gas ~~Interest~~of Kansas, Inc. (“Infinity-Kansas”) acquired a 100% working interest in ~~Leasehold Acreage." Specific information about~~a property in Eastern Kansas, through a joint venture with an operator in which a former director of Infinity is a partner and operations manager. Infinity-Kansas’ total investment in the ~~revenue, profitability~~property was approximately $1,100,000. In addition, Infinity-Kansas had an active oil lease in the Owl Creek Field in Woodson County, Kansas which was acquired for $510,000. Effective May 1, 2002, Infinity-Kansas sold its interest in oil and ~~assets~~gas properties in Eastern Kansas for $180,000 cash and a $1,620,000 note receivable due in May 2005. The issuer of ~~each business segment can be found~~the note has the option to return the underlying interests to Infinity-Kansas in ~~Note 14~~lieu of repaying the note receivable. Infinity-Kansas does not anticipate the return of the underlying interests based on its belief that the value of these interests currently exceeds the balance of the note receivable. Infinity-Kansas does not currently have any material investment in any other oil and gas prospects.

OILFIELD SERVICES

Consolidated provides numerous services associated with drilling and completion of oil and gas wells, including cementing, acidizing, fracturing, nitrogen pumping and water hauling. Consolidated provides these services out of service facilities it owns or leases in Ottawa, Eureka, and Thayer, Kansas; Bartlesville, Oklahoma; and Gillette, Wyoming. Due to the decrease in the number of wells being drilled and the schedule on which wells would be drilled by Infinity-Wyoming and an increase in service requests and equipment demand in other services areas, Consolidated ~~Financial Statements contained~~closed its Rock Springs, Wyoming facility, terminated its lease on the operating facilities and transferred its service equipment to its other locations in ~~this Form 10-K at page F-1. CUSTOMERS AND MARKETS Oil Field~~December 2003. In April 2004, Consolidated expanded its presence in Mid-Continent region with the acquisition of substantially all of the assets and liabilities of Blue Star Acid Services, Inc., a provider of acid and cementing services in Eastern and Central Kansas and North Central Oklahoma, for $1.2 million in cash and the assumption of $0.2 million in liabilities. In September 2004, Consolidated ~~provides~~sold selected assets from its ~~services~~Chanute, Kansas location, including real property and facilities, to an exploration and production company and customer, for $4.1 million in cash.

Consolidated operates a fleet of approximately 100 vehicles specifically designed to provide service to oil and gas ~~developers~~well operators working at depths ranging from 100 to 5,000 feet, as is usually the case in Eastern Kansas, Northeast Oklahoma, and ~~lease operators throughout eastern Kansas and northeast Oklahoma which includes the Forest City and Cherokee Basins and~~for coal bed methane development in the Powder River Basin of Wyoming. The service vehicles are part of the collateral for the Senior Secured Note Facility closed in January 2005.

Consolidated ~~also provides~~leases property near Cheyenne, Wyoming, which is the site of the brine water treatment facility. Rent on this land lease is $1,000 per year. The lease is for a term of twenty five years beginning July 1994, but may be terminated by Consolidated at any time on written notice. In February of 2003 Consolidated signed a letter of intent to sell these ~~services~~facilities and transfer the lease on the property to the new owner. However, the potential purchaser to the letter of intent was unable to finance the acquisition and the sale has not been completed. Consolidated is working with the potential purchaser to identify a structure which will allow the sale to be completed. We do not know when or if the sale might be completed.


	*Oil and Natural Gas Reserves*

Infinity-Wyoming engaged Netherland, Sewell & Associates, Inc., independent petroleum engineers, to prepare estimates of proved reserves, projected future production and related future net revenue for our properties as of December 31, 2004 and 2003. Estimates prepared by Netherland, Sewell & Associates, Inc. were based upon review of production histories and other geologic, economic, ownership, volumetric and engineering data. In estimating reserve quantities that are economically recoverable, oil and gas prices and estimated development and production costs as of December 31, 2004 were utilized. Activity subsequent to December 31, 2004 in the ~~Arkoma basin~~Fort Worth, Sand Wash and Greater Green River Basins was not taken into consideration in the proved reserve estimate as of eastern Oklahoma and provides well cementing services to water well drillers in Missouri, Kansas and Oklahoma. Consolidated provided services to approximately 400 customers during the calendar year ended December 31, ~~2003, to approximately 380 customers for the calendar year ended December 31, 2002 and to over 350 customers during the nine month transition period ended December 31, 2001.~~2004, but may be reflected in future estimates.

The following table sets ~~out information about Consolidated's major customers during each~~forth estimates as of ~~these periods:~~

~~Consolidated also provided services to Infinity-Wyoming which resulted in eliminated inter-company~~December 31, 2004 derived from the Netherland, Sewell & Associates, Inc. reserve report. The present value (discounted at 10 percent) of estimated future net revenue ~~of approximately $2.1 million~~before income taxes (“PV-10 Value”) shown in the ~~year ended December 31, 2002 and $0.5 million for~~table is not intended to represent the nine months ended December 31, 2001. The amount of revenue earned by Consolidated from inter-company sales was less than $20,000 during the year ended December 31, 2003. Consolidated has no long-term service contracts with any customers and we do not believe that a loss of any onecurrent market value of our ~~customers will have a prolonged material adverse effect on Consolidated's business. However, the loss of several customers in any location or a rapid, significant change in~~estimated proved oil and gas ~~prices~~reserves. For additional information concerning the present value of future net revenue from these proved reserves, see Note 19- Supplemental Oil and Gas Information (Unaudited) in the Notes to the ~~extent~~Consolidated Financial Statements.


	Developed		Undeveloped		Total

Natural gas (Mcf)		3,773,033		4,269,913		8,042,946
Crude oil (barrels)		117,031		76,546		193,577
Total (Mcfe)		4,475,219		4,729,189		9,204,408
Future net revenue before income taxes	$	18,037,000	$	16,545,500	$	34,582,500
Present value of future net revenue before income taxes	$	13,168,500	$	10,850,900	$	24,019,400

There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. The reserve data set forth herein represents only estimates. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that ~~customers curtail their~~cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment and the existence of development ~~activities could~~plans. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of such estimate. Accordingly, the reserve estimates are often different from the quantities of oil and gas that are ultimately recovered. Further, the estimated future net revenue from proved reserves and the present value thereof are based upon certain assumptions, including future geologic success, prices, production levels and costs that may not prove correct. Predictions about prices and future production levels are subject to great uncertainty and the meaningfulness of such estimates is highly dependent upon the accuracy of the assumptions upon which they are based. Oil and gas prices have fluctuated widely in recent years. There is no assurance that prices will not be materially higher or lower than the prices utilized in estimating the reserves.

The weighted average sales prices utilized for purposes of estimating our proved reserves and future net revenue therefrom as of December 31, 2004 were $6.07 per Mcf of natural gas and $40.25 per barrel of crude oil.


	*Production, Prices and Production Costs*

The following table sets forth Infinity’s net oil and gas production, average sales prices, and costs and expenses associated with such production during the years indicated.


		2004		2003		2002

Production:
	Natural gas (Mcf)		953,428		1,080,456		676,879
	Crude oil (barrels)		33,668		57,654		53,122
	Total (Mcfe)		1,155,436		1,426,380		995,611
Average daily production:
	Natural gas (Mcf)		2,612		2,960		1,854
	Crude oil (barrels)		92		158		145
	Total (Mcfe)		3,164		3,908		2,727
Average sales price per unit:
	Natural gas ($per Mcf)	$	5.12	$	4.47	$	1.88
	Crude oil ($per barrel)	$	41.15	$	30.51	$	17.14
	Total ($per Mcfe)	$	5.42	$	4.62	$	2.38
Production costs per Mcfe		$	2.28	$	2.05	$	1.83

Infinity owned 24 gross (22 net) producing wells and 5 gross (5 net) service wells as of December 31, 2004. Infinity owned an additional 28 gross (27.7 net) wells which were shut in, waiting completion or plugging and abandonment operations as of December 31, 2004.


	*Development, Exploration and Acquisition Capital Expenditures*

The following table sets forth certain information regarding the gross costs incurred in the purchase of proved and unproved properties and in development and exploration activities.


			2004		2003			2002

Property acquisition costs
	Proved		$	516,239	$	1,099,120		$	72,383
	Unproved			3,717,280		661,224			2,279,587

		Total property acquisition costs		4,233,519		1,760,344			2,351,970
Development costs				6,056,131		3,167,700			786,095
Exploration costs				5,294,148		3,491,953			11,955,351

Total costs			$	15,583,798	$	8,419,997	��	$	15,093,416


	*Drilling Activity*

The following table sets forth certain information regarding the wells completed during the years indicated. Frequently wells are spud or drilled in one period and completed in a subsequent period. In the table, “gross” refers to the total wells in which we have a ~~material adverse impact~~working interest and “net” refers to gross wells multiplied by our working interest therein.


			2004				2003				2002

			Gross		Net		Gross		Net		Gross		Net

Exploratory Wells
	Productive			3		2.9		—		—		13		13
	Nonproductive			—		—		—		—		9		9

		Total		3		2.9		—		—		22		22

Development Wells
	Service			—		—		1		1		2		2
	Productive			9		8.0		—		—		2		2
	Nonproductive			—		—		—		—		—		—

		Total		9		8.0		1		1		4		4

As of December 31, 2004, Infinity had an additional nine wells which were awaiting completion, including five wells waiting plugging and abandonment operations and four which were completed as producers by March 23, 2005.


	*Acreage Data*

The following table sets forth the gross and net acres of developed and undeveloped oil and gas leases held by Infinity-Texas and Infinity-Wyoming as of December 31, 2004. Developed acreage is acreage assigned to producing wells for the spacing unit of the producing formation.


			Developed
			Acreage				Undeveloped Acreage

			Gross		Net		Gross		Net

Fort Worth Basin				—		—		32,108		26,634
Greater Green River Basin
	Wamsutter Arch			4,000		3,840		18,210		15,490
	Labarge			1,763		1,763		9,967		9,436
Sand Wash Prospect				640		640		103,592		66,285
Piceance Basin Prospect				—		—		20,020		20,020

		Total		6,403		6,243		183,897		137,865

Infinity-Wyoming held options on an additional approximately 18,000 gross acres in the Labarge field as of December 31, 2004. The table does not reflect any reclassification of our ~~financial~~acreage to reflect the wells completed by Infinity-Texas and ~~operating results. 3~~ ~~EXPLORATION AND PRODUCTION~~Infinity-Wyoming after December 31, 2004.


	*Customers and Markets*


	Exploration and Production

Infinity-Wyoming sells gas from the Pipeline ~~project~~Field to Duke Energy Field Services ~~("Duke"~~(“Duke”). ~~A portion~~Approximately 55% of its gas iswas sold to Duke on a forward contract basis during the nine months ended December 31, 2004, with the remainder being sold at the Inside FERC, first of the month CIG Index, a published pricing index on which gas sales contracts in the Rocky Mountains are generally based. Infinity-Wyoming enters into the contracts to hedge its production when market conditions are deemed favorable in order to manage price fluctuations and achieve a more predictable cash flow. The following table identifies the ~~three~~ contracts that were in place during the year ended December 31, ~~2003 and the two contracts that were put in place subsequent to that date.~~ 2004:

~~DAILY BEGINNING ENDING CONTRACT CONTRACT DATE DATE VOLUME PRICE - ---------------- ------------------ ----------- -----------~~ ~~October 1, 2002 September 30, 2003 1,000 MMBTU $2.97/MMBTU November 1, 2002 March 31, 2003 1,000 MMBTU $3.00/MMBTU April 1, 2003 March 31, 2004 3,500 MMBTU $4.71/MMBTU~~

				Daily
Beginning Date		Ending Date		Contract Volume (1)		Contract Price

	April 1, 2004		March 31, 2005		2,000 ~~MMBTU $4.40/MMBTU~~ MMBtu	$	4.40/MMBtu
	April 1, 2005		March 31, 2006		2,000 ~~MMBTU $4.15/MMBTU~~ MMBtu	$	4.15/MMBtu


(1) ~~MMBTU~~	MMBtu of gas is equivalent to ~~1,000,000~~one million British thermal units (“Btu”), a standard measure of the heating value of the gas. The gas produced from the Pipeline project contains about ~~1,100 British Thermal Units ("BTU")~~1100 Btu per cubic foot of gas.)

Oil production from the Pipeline ~~wells~~Field is sold at the average daily NYMEX posted price less ~~$0.75~~$0.50 per barrel. For December ~~2003~~2004, this was a price of ~~$31.51~~$42.84 per barrel of oil.

The following table shows ~~the total sales of oil~~exploration and ~~gas~~ production revenue and the percentage of consolidated revenue that the value represented for each of the years ended December 31, 2004, 2003 and ~~2002 and nine month transition period ended December 31, 2001.~~

2002.


	Oil and Gas		Percentage of
Period	Revenue		Total Revenue

2004	$	6.3 million		30%
2003	$	6.6 million		36%
2002	$	2.4 million		22%

Based on the general demand for oil and natural gas, Infinity does not believe that a loss of any customer would have a material adverse effect on its business. ~~COMPETITION~~


	Oilfield Services

Consolidated provides its services to oil and gas developers and lease operators throughout Eastern Kansas and Northeast Oklahoma, which includes the Forest City and Cherokee Basins, and in the Powder River Basin of Northeast Wyoming. Consolidated also provides its services in the Arkoma basin of Eastern Oklahoma and provides well cementing services to water well drillers in Missouri, Kansas and Oklahoma.

Consolidated provided services to approximately 475 customers during 2004, to approximately 400 customers during 2003 and to approximately 380 customers during 2002. The following table sets out information about Consolidated’s major customers during each of these periods:


					Percent		Percent of
Customer		Area of Operation	Revenue		of Total		Oilfield Service

2004
	Qwest Cherokee LLC	Eastern Kansas/Northeast Oklahoma	$	2.1 million		10%		14%
		Northeast Wyoming	$	1.5 million		7%		10%
		Northeast Oklahoma	$	1.4 million		7%		10%

2003
		Northeast Oklahoma	$	1.1 million		6%		10%
		Eastern Kansas	$	0.9 million		5%		8%

2002
	Devon Energy	Eastern Kansas/Northeast Oklahoma	$	1.6 million		14%		18%

Consolidated also provided services to Infinity-Wyoming which resulted in eliminated inter-company revenue of approximately $2.1 million in 2002. The amount of revenue earned by Consolidated from inter-company sales was less than $20,000 during 2003. There were no inter-company sales during 2004. Consolidated has no long-term service contracts with any customers and we do not believe that a loss of any one of our customers will have a prolonged material adverse effect on Consolidated’s business. However, the loss of several customers in any location or a rapid, significant change in oil and gas prices to the extent that customers curtail their development activities could have a material adverse impact on our financial and operating results.


	*Competition*

Infinity and its subsidiaries compete in virtually all facets of their businesses with numerous other companies, including many that have significantly greater financial and other resources. Such competitors may be able to pay more for desirable oil and gas leases and to evaluate, bid for, and purchase a greater number of properties than the financial or personnel resources of Infinity permit. The ~~oil field~~oilfield service competitors may be able to invest more resources in research and development of new completion techniques and acquire additional equipment to allow them to dedicate resources to a customer in a way that Consolidated is unable to. ~~Consolidated's~~


	Exploration and Production

Infinity’s business strategy includes highly competitive oil and natural gas acquisition, exploration, development and production. There can be no assurance, however, that Infinity or its subsidiaries will be able to successfully acquire identified targets, or have the financing available for the acquisitions. We face intense competition from a large number of independent exploration and development companies as well as major oil and gas companies in a number of areas such as:


	•	Acquisition of desirable producing properties or new leases for future exploration;

	•	Marketing our oil and natural gas production; and


	•	Seeking to acquire the services, equipment, labor and materials necessary to explore, operate and develop those properties.

Many of our competitors have financial and technological resources substantially exceeding those available to Infinity. Many oil and gas properties are sold in a competitive bidding process in which we may lack technological information or expertise available to other bidders. We cannot be sure that we will be successful in acquiring and developing profitable properties in the face of this competition.


	Oilfield Services

Consolidated’s competition in ~~eastern~~Eastern Kansas consist mainly of Cudd Pumping ~~Services and Blue Star Acid~~ Services. In ~~northeastern~~Northeast Oklahoma, Consolidated competes with Cudd Pumping Services, BJ Services ~~Oklahoma Oil Well~~Company, Oilwell Fracturing Services, Inc. and several small local companies. Consolidated believes that its bulk materials facilities, experienced work force, and well maintained fleet of service vehicles puts it in a competitive position to maintain revenues in these locations. 4 Consolidated continues to see competition from three major service ~~companies:~~companies, Halliburton Company, BJ Services, and Schlumberger ~~throughout Wyoming;~~Ltd., and numerous smaller cementing companies in ~~northeastern~~Northeast Wyoming. Consolidated may be at a competitive disadvantage when compared to the major companies that are well established with substantial financial resources. These companies can redirect assets and manpower, much like Consolidated has done, to insure that resources to meet the growing demand are available. Some of the exploration and development companies in this area also have the resources available to develop their own service providers. ~~Consolidated's~~Consolidated’s ability to provide services that meet the market demand in a timely manner while providing quality service to the wells will be crucial to its ability to compete in this market. ~~Infinity's growth strategy includes~~


	*Delivery Commitments*

Effective September 2001, Infinity-Wyoming entered into a gas gathering and transportation contract with Duke in which Duke built gas gathering laterals and installed compression facilities to deliver gas produced from the ~~acquisition~~Pipeline Field to the Overland Trail Transmission pipeline. During 2002, the contract was amended to include additional compression and gathering facilities installed by Duke and delivery points for the additional production being generated by Infinity-Wyoming. Infinity-Wyoming pays a gathering fee of $0.40 per Mcf until 7,500,000 Mcf have been produced at which time the fee will be reduced to $0.25 per Mcf. Infinity-Wyoming was obligated to deliver 600,000 Mcf the first year, 1,600,000 Mcf the second year, 2,000,000 the third year, 1,800,000 the fourth year, and 1,500,000 in the fifth and final year of the contract. To date, Infinity-Wyoming has delivered approximately 3,137,000 Mcf under this contract. The Pipeline sales volumes will also be subject to a $0.15 per MMBtu charge for access onto the Overland Trail Transmission line. While Infinity-Wyoming has failed to deliver the volumes required under the terms of the contract, the pipeline operator has also not provided the compression and gathering capabilities they were required to provide under the contract. Management has received a verbal commitment from the operator that the volume commitments will be adjusted and management does not expect that there will be a contract shortfall under the renegotiated volumes.

Beginning April 1, 2003 and effective through March 31, 2004, Infinity-Wyoming had contracted to sell 3,500 MMBtu per day to Duke at a price of $4.71 per MMBtu, which equates to approximately $5.16 per Mcf. In 2004, Infinity-Wyoming entered into two additional contracts with Duke for the sale of 2,000 MMBtu per day. The first contract is for the period April 1, 2004 through March 31, 2005 and sets a price of $4.40 per MMBtu (approximately $4.84 per Mcf). The second contract is for the period beginning April 1, 2005 and ending March 31, 2006 and is for $4.15 per MMBtu (approximately $4.57 per Mcf). Infinity-Wyoming will receive the Colorado Interstate Gas (CIG) Pipeline first of the month index price for each Mcf of gas in excess of the contracted volume delivered onto the Overland Trail Transmission line. Infinity and its subsidiaries had no agreements or commitments at December 31, 2004, other than those shown above, to provide quantities of oil ~~and~~or gas properties. There can be no assurance, however, that Infinity or its subsidiaries will be able to successfully acquire identified targets, or have the financing available for the acquisitions. We operate in the highly competitive areas of oil and natural gas exploration, exploitation, acquisition and production with other companies. We face intense competition from a large number of independent companies as well as major oil and gas companies in a number of areas such as: - Acquisition of desirable producing properties or new leases for future exploration; - Marketing our oil and natural gas production; and - Seeking to acquire the equipment, labor and materials necessary to operate and develop those properties. Many of our competitors have financial and technological resources substantially exceeding those available to Infinity. Many oil and gas properties are sold in a competitive bidding process in which we may lack technological information or expertise available to other bidders. We cannot be sure that we will be successful in acquiring and developing profitable properties in the face of this competition. GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY General Infinity'sfuture.


	*Government Regulation of the Oil and Gas Industry*


	General

Infinity’s business is affected by numerous laws and regulations, including, among others, laws and regulations relating to energy, environment, conservation and tax. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and/or criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to Infinity, we cannot predict the overall effect of such laws and regulations on our future operations.

Infinity believes that its operations comply in all material respects with applicable laws and regulations and that the existence and enforcement of such laws and regulations have no more restrictive effect on our method of operations than on other similar companies in the energy industry.

The following discussion contains summaries of certain laws and regulations and is qualified as mentioned above.


	Federal Regulation of the Sale of Oil and Gas

Various aspects of ~~the Infinity's~~Infinity’s oil and natural gas operations are regulated by agencies of the federal government. The Federal Energy Regulatory Commission ~~("FERC"~~(“FERC”) regulates the transportation ~~and sale for resale~~ of natural gas in interstate commerce pursuant to the Natural Gas Act of 1938 ~~("NGA"~~(“NGA”) and the Natural Gas Policy Act of 1978 ~~("NGPA"~~(“NGPA”). In the past, the federal government has regulated the prices at which oil and gas could be sold. While ~~"first sales"~~“first sales” by producers of natural gas and all sales of crude oil, condensate and natural gas liquids can currently be made at uncontrolled market prices, Congress could reenact price controls in the future. Deregulation of wellhead sales in the natural gas industry began with the enactment of the NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act (the ~~"Decontrol Act"~~“Decontrol Act”). The Decontrol Act removed all NGA and NGPA price and non-price controls affecting wellhead sales of natural gas effective January 1, 1993.

Commencing in April 1992, the FERC issued ~~Orders~~Order Nos. 636, 636-A, 636-B, 636-C and 636-D ("(“Order No. ~~636"~~636”), which require interstate pipelines to provide transportation services separate, or ~~"unbundled,"~~“unbundled,” from the ~~pipelines'~~pipelines’ sales of gas. Also, Order No. 636 requires pipelines to provide open access transportation on a nondiscriminatory basis that is equal for all natural gas shippers. Although Order No. 636 does not directly regulate ~~Infinity's~~Infinity’s production activities, FERC has stated that it intends for Order No. 636 to foster increased competition within all phases of the natural gas industry. 5


	Regulation of Operations

Infinity conducts certain operations on federal oil and gas leases, which are administered by the ~~Minerals~~Bureau of Land Management ~~Service ("MMS"~~(“BLM”). Of Infinity-Wyoming’s Pipeline Field acreage, approximately 15,000 gross acres are leases that are administered by the Bureau of Land Management (“BLM”). Approximately 3,000 acres of 11,000 total acres of Infinity-Wyoming’s Labarge Field acreage, including acreage subject to options, are part of federal units for which Infinity-Wyoming is the operator for the development of the resources to certain depths. The Piceance Basin Prospect and Sand Wash Prospect acreage also include acreage that is administered by the BLM. Federal leases contain relatively standard terms and require compliance with detailed ~~MMS~~BLM regulations and orders, which are subject to change. Among other restrictions, the ~~MMS~~BLM has regulations restricting the flaring or venting of natural gas, and the ~~MMS~~BLM has proposed to amend such regulations to prohibit the flaring of liquid hydrocarbons and oil without prior authorization. Under certain circumstances, the ~~MMS~~BLM may require any company operations on federal leases to be suspended or terminated. Any such suspension or termination could materially and adversely affect ~~Infinity's~~Infinity’s financial condition, cash flows and operations.

The ~~MMS~~Minerals Management Service (“MMS”) administers the valuation , payment and reporting for royalties on oil and gas produced from federal leases. The BLM issued a final rule that amended its regulations

governing the valuation of ~~crude oil~~gas produced from federal leases. This rule, which ~~became~~becomes effective June 1, ~~2000, provides that~~2005, primarily affects the ~~MMS will collect royalties based on~~transportation allowance used to value the ~~market value~~federal royalty.

Exploration and production operations of Infinity-Texas and Infinity-Wyoming are subject to various types of regulation at the federal, state, and local levels. These regulations include requiring permits and drilling bonds for the drilling of wells and regulating the location of wells, the method of drilling and casing wells, and the surface use and restoration of properties upon which wells are drilled. Many states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil ~~produced~~and gas properties, the establishment of maximum rates of production from oil and gas wells and the regulation of spacing, plugging and abandonment of such wells. The operation and production of Infinity-Wyoming’s properties is subject to the rules and regulations of the Wyoming Oil and Gas Conservation Commission (WYOGCC) and the Colorado Oil and Gas Conservation Commission (COGCC). In addition a portion of the properties are on federal ~~leases. On August 20, 2003,~~lands and are subject to Onshore Orders 1 and 2, The National Historic Preservation Act (NHPA), National Environmental Policy Act (NEPA) and the ~~MMS issued a proposed rule that would change certain components~~Endangered Species Act. The operation and production of ~~its valuation procedures for~~Infinity-Texas’ properties is subject to the ~~calculation~~rules and regulations of ~~royalties owed for crude oil sales. The proposed changes included changing~~ the ~~valuation basis for transactions not at arm's-length from spot to NYMEX prices adjusted for locality and quality differentials, and clarifying the treatment~~Railroad Commission of transactions under a joint operating agreement. Final comments on the proposed rule were due on November 10, 2003. Infinity has no way of knowing whether the MMS will implement the proposed changes in a final rule or what effect such changes, if implemented, will have on Infinity's results of operations, However, we do not believe that this proposed rule would affect us any differently than other producers of crude oil.Texas (RRC).

Additional proposals and proceedings that might affect the oil and gas industry are pending before Congress, the FERC, ~~the~~BLM, MMS, state commissions and the courts. Infinity cannot predict when or whether any such proposals and proceedings may become effective. In the past, the natural gas industry has been heavily regulated. There is no assurance that the regulatory approach currently pursued by various agencies will continue indefinitely. Notwithstanding the foregoing, Infinity does not anticipate that compliance with existing federal, state and local laws, rules and regulations will have a material or significantly adverse effect upon the capital expenditures, earnings or competitive position of Infinity or its subsidiaries.


	Environmental and Land Use Regulation

Various federal, state and local laws and regulations relating to the protection of the environment affect our operations and costs. The areas affected include:


	•	unit production expenses primarily related to the control and limitation of air emissions, spill prevention and the disposal of produced water;

	•	capital costs to drill development wells resulting from expenses primarily related to the management and disposal of drilling fluids and other oil and natural gas exploration wastes;

	•	capital costs to construct, maintain and upgrade equipment and facilities;

	•	operational costs associated with ongoing compliance and monitoring activities; and

	•	exit costs for operations that we are responsible for closing, including costs for dismantling and abandoning wells and remediating environmental impacts.

The environmental and land use laws and regulations affecting oil and natural gas operations have been changed frequently in the past, and in general, these changes have imposed more stringent requirements that increase operating costs and/or require capital expenditures in order to remain in compliance. We believe that our business operations are in substantial compliance with current laws and regulations. Failure to comply with these requirements can result in civil and/or criminal fines and liability for non-compliance, clean-up costs and other environmental damages. It is also possible that unanticipated developments or changes in law could cause us to make environmental expenditures significantly greater than those we currently expect.

The following is a summary discussion of the framework of key environmental and land use regulations and requirements affecting our oil and natural gas exploration, development, production and transportation operations.

Discharges to Waters. The Federal Water Pollution Control Act of 1972, as amended (the “Clean Water Act”), and comparable state statutes impose restrictions and controls, primarily through the issuance of permits, on the discharge of produced waters and other oil and natural gas wastes into regulated waters and

wetlands. These controls have become more stringent over the years, and it is possible that additional restrictions will be imposed in the future, including potential restrictions on the use of hydraulic fracturing. These laws prohibit the discharge of produced waters and sand, drilling fluids, drill cuttings and other substances related to the oil and natural gas industry into onshore, coastal and offshore waters without a permit.

The Clean Water Act also regulates stormwater discharges from industrial properties and construction activities and requires separate permits and implementation of a stormwater management plan establishing best management practices, training, and periodic monitoring. Certain operations are also required to develop and implement “Spill Prevention, Control, and Countermeasure” plans or Facility Response Plans to address potential oil spills.

The Clean Water Act provides for civil, criminal and administrative penalties for unauthorized discharges of oil, hazardous substances and other pollutants. It also imposes substantial potential liability for the costs of removal or remediation associated with discharges of oil or hazardous substances. State laws governing discharges to water also provide varying civil, criminal and administrative penalties and impose liabilities in the case of a discharge of petroleum or its derivatives, or other hazardous substances into regulated waters.

Oil Spill Regulations. The Oil Pollution Act of 1990, as amended (the “OPA”), amends and augments oil spill provisions of the Clean Water Act, imposing potentially unlimited liability on responsible parties, without regard to fault, for the costs of cleanup and other damages resulting from an oil spill in U.S. waters. Responsible parties include (i) owners and operators of onshore facilities and pipelines and (ii) lessees or permittees of offshore facilities.

Air Emissions. Our operations are subject to local, state and federal regulations governing emissions of air pollution. Administrative enforcement actions for failure to comply strictly with air pollution regulations or permits are generally resolved by payment of monetary fines and correction of any identified deficiencies. Alternatively, regulatory agencies could require us to forego construction, modification or operation of certain air emission sources. Air emissions from oil and natural gas operations also are regulated by oil and natural gas permitting agencies including the MMS, BLM and state agencies.

We may generate wastes, including hazardous wastes that are subject to the federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes, although certain oil and natural gas exploration and production wastes currently are exempt from regulation under RCRA. The EPA has limited the disposal options for certain wastes that are designated as hazardous under RCRA (“Hazardous Wastes”). Furthermore, it is possible that certain wastes generated by our oil and natural gas operations that are currently exempt from treatment as Hazardous Wastes may in the future be designated as Hazardous Wastes, and therefore be subject to more rigorous and costly operating, disposal and clean-up requirements. State and federal oil and natural gas regulations also provide guidelines for the storage and disposal of solid wastes resulting from the production of oil and natural gas, both on- and off-shore.

Superfund. Under some environmental laws, such as the Comprehensive Environmental ~~Matters~~Response, Compensation, and Liability Act of 1980, also known as CERCLA or the Superfund law, and similar state statutes, responsibility for the entire cost of cleanup of a contaminated site, as well as natural resource damages, can be imposed upon any current or former site owners or operators, or upon any party who discharged one or more designated substances (“Hazardous Substances”) at the site, regardless of the lawfulness of the original activities that led to the contamination. CERCLA also authorizes the EPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the potentially responsible parties the costs of such action. Although CERCLA generally exempts petroleum from the definition of Hazardous Substances, in the course of our operations we may have generated and may generate wastes that fall within CERCLA’s definition of Hazardous Substances. We may also be an owner or operator of facilities at which Hazardous Substances have been released by previous owners or operators. We may be responsible under CERCLA for all or part of the costs to clean up facilities at which such substances have been released and for natural resource damages. We have not, to our knowledge, been identified as a potentially responsible party under CERCLA, nor are we aware of any prior owners or

operators of our properties that have been so identified with respect to their ownership or operation of those properties.

Abandonment and Remediation Requirements. Federal, state and local regulations provide detailed requirements for the abandonment of wells, closure or decommissioning of production and transportation facilities, and the environmental restoration of operations sites. The Colorado Oil and Gas Conservation Commission, Wyoming Oil and Gas Conservation Commission and the Texas Railroad Commission are the principal state agencies and BLM the primary federal agency responsible for regulating the drilling, operation, maintenance and abandonment of all oil and natural gas wells in the state. State and BLM regulations require operators to post performance bonds.


	Potentially Material Costs Associated with Environmental Regulation of Our Oil and Natural Gas Operations

Significant potential costs relating to environmental and land use regulations associated with our existing properties and operations include those relating to (i) plugging and abandonment of facilities, (ii) clean-up costs and damages due to spills or other releases and (iii) civil penalties imposed for spills, releases or non-compliance with applicable laws and regulations.

Infinity-Texas, Infinity-Wyoming, and Consolidated ~~Infinity-Kansas, and Infinity-Wyoming~~ currently own or lease properties that are being used for the disposal of drilling and produced fluids from exploration, development and production of oil and gas and for other uses associated with the oil and gas industry. Although these subsidiaries follow operating and disposal practices that itthey considers appropriate under applicable laws and regulations, hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by the subsidiaries or on or under other locations where such wastes were taken for disposal. Infinity could incur liability under the Comprehensive Environmental Response, Compensation and Liability Act or comparable state statutes for contamination caused by wastes it generated or for contamination existing on properties it owns or leases, even if the contamination was caused by the waste disposal practices of the prior owners or operators of the properties. In addition, it is not uncommon for landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of produced fluids or other pollutants into the environment.

The operations of Consolidated routinely involve the handling of significant amounts of ~~oil field~~oilfield related materials, some of which are classified as hazardous substances. ~~Consolidated's~~Consolidated’s transportation operations are regulated under the Federal Motor Carrier Safety Regulations of the Department of Transportation as administered by the Kansas Department of Transportation, Oklahoma Department of Transportation, and Wyoming Department of Transportation. The operation of salt-water disposal wells by Consolidated is regulated by the Kansas Department of Health and Environment. Consolidated will incur an estimated $100,000 in costs associated with operating within current environmental regulations this fiscal year primarily related to transportation of hazardous substances. ~~The Federal Water Pollution Control Act~~

During December 2004, Infinity-Wyoming produced an average of 1972 (the "FWPCA") imposes restrictions and strict controls regarding the discharge of wastes, including produced waters and other oil and gas wastes, into navigable waters. These controls have become more stringent over the years, and it is probable that additional restrictions will be imposed in the future. Permits must be obtained to discharge pollutants into state and federal waters. The FWPCA provides for 6 civil, criminal and administrative penalties for unauthorized discharges of oil and other hazardous substances and imposes substantial potential liability for the costs of removal or remediation. State laws governing discharges to water also provide varying civil, criminal and administrative penalties and impose liabilities in the case of a discharge of petroleum or its derivatives, or other hazardous substances, into state waters. In addition, the Environmental Protection Agency has adopted regulations that require many oil and gas production sites, as well as other facilities, to obtain permits to discharge storm water runoff. Exploration and production operations of Infinity-Wyoming and Infinity-Kansas are subject to various types of regulation at the federal, state, and local levels. Such regulations include requiring permits and drilling bonds for the drilling of wells, regulating the location of wells, the method of drilling and casing wells, and the surface use and restoration of properties upon which wells are drilled. Many states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and gas properties, the establishment of maximum rates of production from oil and gas wells and the regulation of spacing, plugging and abandonment of such wells. The operation and production of Infinity-Wyoming's properties is subject to the rules and regulations of the Wyoming Oil and Gas Conservation Commission (WYOGCC) and the Colorado Oil and Gas Conservation Commission (COGCC). In addition a portion of the properties are on federal lands and are subject to Onshore Orders 1 and 2, The National Historic Preservation Act (NHPA), National Environmental Policy Act (NEPA) and the Endangered Species Act. Infinity-Wyoming is producing up to 750430 barrels of water per day from ~~coal bed methane~~ wells that it operates. Infinity-Wyoming currently uses four injection wells to dispose of the water into underground rock formations and plans to continue to use this method for disposal of the water produced from its operated wells. If the future wells produce water of lesser quality than allowed under state law for injection in underground rock formations or at a volume greater than can be injected into the current disposal wells, Infinity-Wyoming could incur costs of up to $7.50 per barrel of water to dispose of the produced water. At current production rates, this would cost Infinity-Wyoming approximately an additional ~~$165,000~~$100,000 a month in water disposal costs. If ~~Infinity-Wyoming's~~Infinity-Wyoming’s wells produce water in excess of the limits of its permitted facilities, Infinity-Wyoming may have to drill additional disposal wells. Each additional disposal well could cost Infinity-Wyoming ~~up to $1,200,000.~~approximately $1,000,000. It costs Infinity-Wyoming approximately $50,000 per year to operate these disposal wells. ~~Bureau~~

Infinity-Texas utilizes significant quantities of ~~Land Management Of Infinity-Wyoming's Pipeline acreage,~~water in the fracture and stimulation of its wells in the Fort Worth Basin. Typically a high percentage of this water flows back and must be disposed of. Infinity-Texas

plans to drill a disposal well in Erath County, Texas during 2005. Each disposal well is expected to cost Infinity-Texas approximately 14,200 gross acres, are leases that the Company acquired through the auction process and are administered by the Bureau of Land Management ("BLM"). Approximately 3,080 acres of 11,200 total acres of Infinity-Wyoming's Labarge acreage are part of federal units for which Infinity-Wyoming is the operator for the development of the resources to certain depths. The Piceance and Sandwash Basin acreage also include acreage that is administered by the BLM. TITLE TO PROPERTIES$1,000,000.


	*Title to Properties*

As is customary in the oil and gas industry, only a preliminary title examination is conducted at the time Infinity acquires leases of properties believed to be suitable for drilling operations. Prior to the commencement of drilling operations, a thorough title examination of the drill site tract is conducted by independent attorneys. Once production from a given well is established, Infinity prepares a division order title ~~report~~opinion indicating the proper parties and percentages for payment or production proceeds, including royalties. ~~Infinity believes~~We believe that ~~the titles~~we have satisfactory title to ~~its leasehold~~all of our material assets. Although title to these properties ~~are good~~is subject to encumbrances in some cases, such as customary interests generally retained in connection with acquisition of real property, customary royalty interests and ~~defensible in accordance~~contract terms and restrictions, liens under operating agreements, liens related to environmental liabilities associated with ~~standards generally acceptable~~historical operations, liens for current taxes and other burdens, easements, restrictions and minor encumbrances customary in the oil and natural gas ~~industry. EMPLOYEES Infinity~~industry, we believe that none of these liens, restrictions, easements, burdens and ~~its subsidiaries currently have approximately 107 employees. Consolidated has 96 employees~~encumbrances will materially detract from the value of these properties or from our interest in its oil field services business, Infinity-Wyoming has 7 employees in its oil and gas exploration business, and Infinity has 4 employees in administrative positions. 7 ~~RISK FACTORS We have a history of operating losses and we may be unable to achieve long-term profitability. We incurred a loss in~~these properties or will materially interfere with our fiscal years ended December 31, 2003 and 2002 of approximately $9,925,000 and $1,557,000, respectively. Our losses may impair our ability to obtain financing for drilling and other business activities on favorable terms. It may also impair our ability to attract investors if we attempt to raise additional capital by selling additional securities in a private or public offering. If neededuse in the future, we may not be able to obtain additional capital for our business to grow. Our ability to achieve a profit from operations on a long-term basis will depend on whether we are successful in exploring for and producing oil and gas from our existing properties. We face the following potential risks in developing our oil and gas properties: - prices for oil and gas we produce may be lower than expected; - the capital required to develop the leases for production may not be available; - we may not find oil and gas reserves in the quantities anticipated; - the reserves we find may not produce oil and gas at the rate anticipated; - the cost of producing oil and gas may be higher than expected; and - there are many operating risks associated with drilling for and producing oil and gas. Oil and gas prices are volatile, and an extended decline in prices would hurt our ability to achieve profitable operations. Our future oil and gas revenues, operating results, profitability, future rate of growth and the carrying value of oil and gas properties will depend heavily on prevailing market prices for oil and gas. We expect the market for oil and gas to continue to be volatile. During the year ended December 31, 2003 we received revenue per barrel of oil as low as $28.12 in May 2003 and as high as $35.63 in February 2003. The Inside FERC, first of the month CIG Index, the pricing index on which our gas sales are based, fluctuated from a low of $3.14 per 1,000 cubic feet (MCF) in January 2003 to a high of $5.01 per MCF during March 2003. At March 15, 2004 production levels, each $1.00 decrease in the price of crude oil would reduce Infinity's oil revenue by approximately $3,000 per month and if none of the gas produced were being sold under fixed price contracts, each $0.10 decrease in natural gas price would reduce Infinity's gas revenue by approximately $10,000 per month. Revenue generated from oil field services provided by Consolidated has increased to as much as $1.6 million per month when oil prices have been above $31.50 per barrel compared to revenue of $400,000 to $450,000 per month when prices reached historic lows of approximately $8.00 per barrel of oil in 1998. Any substantial or extended decline in the price of oil or gas would reduce our cash flow and borrowing capacity, as well as the value and the amountoperation of our oil and gas reserves. Most of our proved reserves are natural gas. Therefore, the volatility in the price of natural gas will have the greatest impact on us. Various factors beyond our control affect prices of oil and gas, including: - worldwide and domestic supplies of oil and gas; - the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil prices; - production controls; - political instability or armed conflict in oil or gas producing regions; - the price and level of foreign imports; 8 - worldwide economic conditions; - marketability of production; - the level of consumer demand; - the price, availability and acceptance of alternative fuels; - the price, availability and capacity of commodity processing and gathering, and pipeline transportation; - weather conditions; and - actions of federal, state, local and foreign authorities. These external factors and the volatile nature of the energy markets generally make it difficult to estimate future prices of oil and gas. Significant declines in oil and natural gas prices for an extended period may cause various negative effects on our business, including: - impairing our financial condition, cash flows and liquidity; - limiting our ability to finance planned capital expenditures; - reducing our revenues and operating income; and - reducing the carrying value of our oil and natural gas properties. A charge to earnings and book value would occur if there is a further ceiling write down of the carrying value of Infinity-Wyoming's or Infinity-Kansas' oil and gas properties. Impairments can occur when oil and gas prices are depressed or unusually volatile. Once incurred, a ceiling write-down of oil and gas properties is not reversible at a later date. Infinity-Wyoming and Infinity-Kansas review, on a quarterly basis, the carrying value of their oil and gas properties under the full cost accounting rules of the Securities and Exchange Commission ("SEC"). Under these rules, costs of proved oil and gas properties may not exceed the present value of estimated future net revenues from proved reserves, after giving effect to cash flow from hedges, discounted at 10%, net of taxes less the liability for asset retirement obligations. Application of the ceiling test generally requires pricing future revenue at the un-escalated prices in effect as of the end of each fiscal quarter, after giving effect to the Company's cash flow hedge positions, and requires a write-down for accounting purposes if the ceiling is exceeded, even if prices were depressed for only a short period of time. Revenues may be affected by the gas prices in the Rocky Mountain Region. The prices to be received for the natural gas production from our Wyoming and Colorado properties will be determined mainly by factors affecting the regional supply of and demand for natural gas. Based on recent experience, regional differences could cause a negative basis differential of $0.30 per MCF (1,000 cubic feet) and $1.50 per MCF between the published indices generally used to establish the price received for regional natural gas production and the actual price received by Infinity for its natural gas production. Forward sales transactions may limit our potential gains or expose us to loss. To manage our exposure to price risks in the marketing of our natural gas, we enter into natural gas fixed price physical delivery contracts from time to time with respect to a portion of our current or future production. These transactions could limit our potential gains if natural gas prices were to rise substantially over the price established by the contracts.business. In addition, such transactions may expose us to the risk of financial loss in certain circumstances, including instances in which: - our production is less than expected; 9 - the counterparties to our futures contracts fail to perform under the contracts; or - our production costs on the hedged production significantly increase. Development of our oilwe believe that we have obtained sufficient rights-of-way grants and gas projects will require large amounts of capital which we may not be able to obtain. Full development of Infinity's properties would require drilling a maximum of 740 production wells, 160 disposal wells to handle produced water,permits from public authorities and the construction of 130 production facilities. This would require capital expenditures of approximately $600 million. Currently, our potential sources of financing for these activities are cash generated by operations, future sales of equity or debt securities, obtaining additional debt financing or additional borrowings on the existing line of credit with U.S. Bank through the expansion of our borrowing base. The additional borrowing base is dependent on a number of factors including the price of natural gas, our ability to hedge future production, cost of operations and proved reserves. Additional borrowings on the line of credit may not be available if the borrowing base cannot be expanded, and other financing may not be available to Infinity on terms that are acceptable. Future cash flows and the availability of financing are subject to a number of variables, such as: - our coalbed methane gas projects in the Green River Basin of Wyoming and Sandwash and Piceance Basins of Colorado achieving a level of production that provides sufficient cash flow to support additional borrowings; - our success in locating and producing new reserves; - prices of crude oil and natural gas; and - the level of production from existing wells. Issuing equity securities to satisfy our financing requirements could cause substantial dilution to existing shareholders. Debt financing could lead to: - a substantial portion of our operating cash flow being dedicated to the payment of principal and interest; - an increase in interest expense as the amount of debt outstanding increases or as variable interest rates increase; - Infinity being more vulnerable to competitive pressures and economic downturns; and - restrictions on our operations that may be contained in any contract entered into with lenders. We could also consider entering into a partnership with another oil and gas company or companies in which we would maintain a carried or reduced working interest in the oil and gas properties to provide the funds for future capital needs on the projects. However this would reduce our ownership and control over the projects and could significantly reduce our future revenues generated from gas production. If projected revenues were to decrease due to lower oil and natural gas prices, decreased production or other reasons, and if we were not able to obtain the necessary capital, our ability to execute development plans or maintain production levels could be limited. Our leverage and debt service obligations may adversely affect our cash flow and our ability to make payments on our long-term debt. As of December 31, 2003, we had total long-term debt of approximately $28.0 million and stockholders' equity of approximately $22.9 million. Our level of debt could have important consequences to our business, including the following: - it may be more difficultprivate parties for us to satisfy our debt repayment obligations; - future covenant violations, if any, could result in accelerated payment terms on existing debt; 10 - we may have difficulties borrowing money in the future for acquisitions, to meet our operating expenses or for other purposes; - the amount of our interest expense may increase because certain of our borrowings are at variable rates of interest, which, if interest rates increase, could result in higher interest expense; - we will need to use a portion of the money we earn to pay principal and interest on our debt which will reduce the amount of money we have to finance our operations and other business activities; - significantly all of our properties are pledged as collateral to lenders and failure to pay could result in foreclosure and loss of assets; - we may have a higher level of debt than some of our competitors, which may put us at a competitive disadvantage; - we may be more vulnerable to economic downturns and adverse developments in our industry; and - our debt level could limit our flexibility in planning for, or reacting to, changes inoperate our business ~~and the industry~~ in ~~which we operate. Information concerning our reserves, future net revenue estimates, and potential future ceiling write-downs are uncertain. There are numerous uncertainties inherent~~all material respects as described in estimating quantities of proved oil and natural gas reserves and their values. Actual production, revenues and reserve expenditures will likely vary from estimates. Estimates of oil and natural gas reserves, by necessity, are projections based on available geologic, geophysical, production and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Estimates of economically recoverable oil and natural gas reserves and future net cash flows necessarily depend upon a number of factors and assumptions based on existing conditions, all of which may vary considerably from actual future results and from one professional engineer to another. In addition, investors should not construe the present value of future cash flows as the current market value of the estimated oil and natural gas reserves attributable to our properties. The estimated discounted future net cash flows from proved reserves are based on prices and costs as of the date of the estimate, in accordance with applicable regulations, whereas actual future prices and costs may be materially higher or lower. Factors that will affect actual future net cash flows include: - the amount and timing of actual production; - the price for which that oil and gas production can be sold for - supply and demand for natural gas; - curtailments or increases in consumption by natural gas purchasers; and - changes in government regulations or taxation. As a result of these and other factors, we will be required to periodically reassess the amount of our reserves, which may require us to recognize a ceiling write-down of our oil and gas properties. Such factors could cause us to have to write down the value of some of our properties in future periods. Infinity-Wyoming has approximately $9.4 million invested in unproved oil and gas properties not subject to amortization on its Labarge project and expects to incur an additional $3.6 million in costs under an agreement to further develop the property. In order to further evaluate and develop the Labarge project, Infinity-Wyoming entered into an agreement with Schlumberger Technology Corporation ("Schlumberger") and Red Oak Capital Management LP ("Red Oak"). At the conclusion of the 2004 evaluation activity, a significant portion of the investment in unproved oil and gas properties will be reclassified to the full cost pool subject to depletion and the ceiling test. If 11 the 2004 evaluation and exploration activity at Labarge do not result in additional proved reserves, or if proved reserves are not significant, Infinity could be required to write-down a portion of the full cost pool of oil and gas properties subject to amortization upon reclassification of the Labarge unproved oil and gas property costs. The oil and gas exploration business involves a high degree of business and financial risk. The business of exploring for and developing oil and gas properties is an activity that involves a high degree of business and financial risk. Property acquisition decisions generally are based on assumptions about the quantity, quality, cost to produce, market availability and sales price for the reserves being acquired. Although available geological and geophysical information can provide information about the potential of a property, it is impossible to predict accurately the ultimate production potential, if any, of a particular property or well. Any decision to acquire a property is also influenced by our subjective judgment as to whether we will be able to locate the reserves, drill and equip the wells to produce the reserves, operate the wells economically, and market the production from the wells. The successful completion of an oil or gas well does not ensure a profit on investment. A variety of geophysical factors may negatively affect the commercial viability of any particular well, including: - the absence of producible quantities of oil and gas; - insufficient formation attributes, such as porosity, to allow production; - excess water production requiring disposal; and - improperly pressured reservoirs from which to produce the reserves. In addition, market-related factors may cause a well to become uneconomic or only marginally economic, such as: - availability of transportation for the production; - demand for the oil and gas produced; and - price for the oil and gas produced. Our business is subject to operating hazards that could result in substantial losses.this offering memorandum.


	*Operating Hazards and Insurance*

The oil and natural gas business involves a variety of operating ~~hazards~~risks, such ~~as: - well blowouts; - craterings; - explosions; - uncontrollable flows of oil, natural gas or well fluids; - fires; - formations~~as those described under “Risk Factors — Risks Related to Our Business — Our business involves significant operating risks.” In accordance with ~~abnormal pressures; - pipeline ruptures or spills; - pollution; and 12~~ ~~- releases of toxic gas and other environmental hazards and risks any of which could cause substantial losses. As protection against operating hazards,~~industry practice, we maintain insurance ~~coverage~~ against some, but not all, potential losses. This insurance has deductibles or self-insured retentions and contains certain coverage exclusions. Infinity's insurance premiums can be increased or decreased based on the claims made by Infinity under its insurance policies. The insurance does not cover damages from breach of contract by Infinity or based on alleged fraud or deceptive trade practices. Whenever possible, Infinity obtains agreements from customers that limit its liability; however, insurance and customer agreements do not provide complete protection against losses and risks and ~~losses could occur for uninsurable~~losses. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or ~~uninsured risks, or in amounts in excess of existing insurance coverage. The occurrence of an~~other event ~~that~~occurs and is not fully covered by insurance, could harm our financial conditions and results of operations. Our operations are dependent upon the availability of certain resources, including drilling rigs, water, chemicals, and other materials necessary to support our capital development plans and maintenance requirements. The lack of availability of one or more of these resources at an acceptable price could have a material adverse affect on our business. In addition, we may be liable for environmental damage caused by previous owners of property we own or lease. As a result, we may face substantial potential liabilities to third parties or governmental entities that could reduce or eliminate funds available for exploration, development or acquisitions or cause Infinity to incur losses. An event that is not fully covered by insurance -- for instance, losses resulting from pollution and environmental risks that are not fully insured -- could cause us to incur material losses. Exploratory drilling is an uncertain process with many risks. Exploratory drilling involves numerous risks, including the risk that we will not find any commercially productive natural gas or oil reservoirs. The cost of drilling, completing and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations, including: - unexpected drilling conditions; - pressure or irregularities in formations; - equipment failures or accidents; - adverse weather conditions; - compliance with governmental requirements, rules and regulations; and - shortages or delays in the availability of drilling rigs and the delivery of equipment. Infinity's future drilling activities may not be successful, and we cannot be sure of our overall drilling success rate. Unsuccessful drilling activities would result in significant expenses being incurred without any financial gain. Our business will depend on transportation facilities owned by others. The marketability of gas production will depend in part on the availability, proximity and capacity of pipeline systems owned by third parties. Federal and state regulation of gas and oil production and transportation, tax and energy policies, changes in supply and demand, pipeline pressures, and general economic conditionsit could adversely affect our ability to gather and transport natural gas. The oil and gas industry is heavily regulated and we must comply with complex governmental regulations. Federal, state and local authorities extensively regulate the oil and gas industry and the drilling and completion of oil and gas wells. Legislation and regulations affecting the industry are under constant review for amendment or expansion, raising the possibility of changes that may affect, among other 13 things, the pricing or marketing of oil and gas production. Noncompliance with statutes and regulations may lead to substantial penalties, and the overall regulatory burden on the industry increases the cost of doing business and, in turn, decreases profitability. State and local authorities regulate various aspects of oil and gas drilling and production activities, including the drilling of wells through permit and bonding requirements, the spacing of wells, the unitization or pooling of oil and gas properties, environmental matters, safety standards, the sharing of markets, production limitations, plugging and abandonment, and restoration. Infinity's operations are subject to complex and constantly changing environmental laws and regulations adopted by federal, state and local government authorities. Infinity-Wyoming estimates it will spend approximately $10,000 per well for containment facilities during drilling operations and approximately $3.6 million to obtain permits for, drilling and equipping up to three water disposal wells to handle water produced from oil and gas wells during the current fiscal year. It will cost Infinity-Wyoming approximately $50,000 per year to operate each disposal well. In addition to the environmental costs that will be incurred by our oil and gas production operations, Consolidated will incur an estimated $100,000 in costs associated with operating within current environmental regulations this fiscal year. New laws or regulations, or changes to current requirements, could result in Infinity having to incur significant additional costs. We could face significant liabilities to the government and third parties for discharges of oil, natural gas or other pollutants into the air, soil or water, and we could have to spend substantial amounts on investigations, litigation and remediation. Our well service operations routinely involve the handling of significant amounts of waste materials, some of which are classified as hazardous substances. Our operations and facilities are subject to numerous environmental laws, rules and regulations, including laws concerning: - the containment and disposal of hazardous substances, oilfield waste and other waste materials; - the use of underground storage tanks; and - the use of underground injection wells. Laws protecting the environment are becoming stricter. Sanctions for failure to comply with these laws, rules and regulations, many of which may be applied retroactively, may include: - administrative, civil and criminal penalties; - revocation of permits; and - corrective action orders. In the United States, environmental laws and regulations typically impose strict liability. Strict liability means that in some situations we could be exposed to liability for cleanup costs and other damages as a result of our conduct that was lawful at the time it occurred or conduct of prior operators or other third parties. Cleanup costs, natural resource damages and other damages arising as a result of environmental laws, and costs associated with changes in environmental laws and regulations, could be substantial. From time to time, claims have been made against us and our subsidiaries under environmental laws. Changes in environmental regulations may also negatively impact oil and natural gas exploration and production companies, which in turn could reduce the demand for our well services. Large volumes of water produced from coalbed methane wells and discharged onto the surface in the Powder River Basin of Wyoming have drawn the attention of government agencies, gas producers, citizens and environmental groups which may result in new regulations for the disposal of produced water. Infinity-Wyoming intends to use injection wells to dispose of water into underground rock formations. If our wells produce water of lesser quality than allowed under Wyoming state law for injection into underground rock formations, Infinity-Wyoming could incur costs of up to $7.50 per barrel of water to dispose of the produced water. At current production rates, this would cost Infinity an additional $165,000 a month in water disposal costs. If Infinity's wells produce water in excess of the limits of its disposal facilities, Infinity may have to drill additional disposal wells. Each additional disposal well could cost Infinity up to $1,200,000. 14 The oil and gas industry is highly competitive. We operate in the highly competitive areas of oil and natural gas exploration, exploitation, acquisition and production with other companies. We face intense competition from a large number of independent companies as well as both major and other independent oil and natural gas companies in a number of areas such as: - acquisition of desirable producing properties or new leases for future exploration; - marketing our oil and natural gas production; and - seeking to acquire the equipment, labor and materials necessary to operate and develop those properties. Many of our competitors have financial and technological resources substantially exceeding those available to Infinity. Many oil and gas properties are sold in a competitive bidding process in which we may lack technological information or expertise available to other bidders. We cannot be sure that we will be successful in acquiring and developing profitable properties in the face of this competition. We depend on key personnel. The loss of key members of our management team, or difficulty attracting and retaining experienced technical personnel, could reduce our competitiveness and prospects for future success. Infinity's success will depend on the continued services of its executive officers and a limited number of other senior management and technical personnel. Loss of the services of any of these people could have a material adverse effect on our operations. Infinity maintains "key man" life insurance on the lives of Stanton E. Ross and Jon D. Klugh, but only in the amount of $250,000 each. Infinity does not have employment agreements with any of its executive officers. Infinity's exploratory drilling success and the success of other activities integral to our operations will depend, in part, on our ability to attract and retain experienced explorationists, engineers and other professionals. Competition for experienced explorationists, engineers and some other professionals is extremely intense. If we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed. FORWARD-LOOKING STATEMENTS This report on Form 10-K, including information incorporated by reference, 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: - Infinity's growth strategies, - anticipated trends in Infinity's business and its future results of operations, - market conditions in the oil and gas industry, - the ability of Infinity to make and integrate acquisitions, - the availability of financing on acceptable terms, - the impact of governmental regulation, - the timing of engineering studies and permitting, and - world financial market conditions. 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: - fluctuations in oil and natural gas production, 15 - fluctuations in oil and natural gas prices, - 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 development activities, - increases in the cost of drilling and completing wells, - an increase in the cost of oil and gas production operations, - the availability, conditions and timing of required government approvals, - the availability, conditions and timing of third party financing, - an increase in materials, fuel and labor costs, - a decline in demand for Infinity's oil and gas production or oil field services, and - changes in general economic conditions. ITEM 2. DESCRIPTION OF PROPERTY BUSINESS PROPERTIES Infinity's headquarters are located at 211 West 14th Street, Chanute, Kansas 66720, along with the headquarters and some of the operating facilities of Consolidated. This facility and other Consolidated facilities in Bartlesville, Oklahoma and Ottawa, Kansas were purchased in November of 1999 by the CIS-Oklahoma, Inc. subsidiary. CIS-Oklahoma also acquired facilities in Gillette, Wyoming for $140,000 during 2001, which includes office and shop facilities for Consolidated's operations. Funds for the acquisitions were obtained through a loan from a local bank, secured by the Kansas and Wyoming oil field service facilities. The loan was for $350,000 for a period of seven years with an initial adjustable interest rate of 8.5% per annum based on Wall Street Prime plus 1%. Effective November 2003, the interest rate was reduced to 4.25%. Payments on this loan are currently $5,635 per month, including interest, with an outstanding loan balance of approximately $185,000 atus.


	*Employees*

On December 31, 2003. The shop and office facility that were built in Bartlesville, Oklahoma during 2001 for the operations of Consolidated were financed from cash flow and with a ten-year, 9.25% note with a local bank. The note had an outstanding balance of approximately $330,000 at December 31, 2003, requires monthly payments of approximately $4,900, and is collateralized by the Bartlesville, Oklahoma facility. Consolidated provides numerous services associated with drilling and completion of oil and gas wells, including cementing, acidizing, fracturing, nitrogen pumping and water hauling. Consolidated provides these services out of service facilities it owns in Chanute and Ottawa, Kansas; Bartlesville, Oklahoma; and Gillette, Wyoming. Due to the decrease in the number of wells being drilled and the schedule on which wells would be drilled by Infinity-Wyoming and an increase in service requests and equipment demand in other services areas, Consolidated closed its Rock Springs, Wyoming facility, terminated its lease on the operating facilities and transferred its service equipment to its other locations in December 2003. Consolidated operates a fleet of approximately 150 vehicles specifically designed to provide service to oil and gas well operators working at depths ranging from 100 to 5,000 feet as is usually the case in eastern Kansas, northeastern Oklahoma, and the coal bed methane development of the Powder River Basin of Wyoming. The service vehicles are part of the collateral for a revolving note, capital expenditures note and term loan due in January 2005 with outstanding balances on the revolving note, capital expenditures note and term loan of approximately $0.1 million, $0.4 million and $0.9 million, respectively at December 31, 2003. The capital expenditures and term loan require monthly payments totaling approximately $0.1 million per month. Consolidated has also purchased vehicles using financing from manufacturers. These loans and leases typically have terms of 12 to 60 months with interest rates ranging from 6.0% to 9.5%. As of December 31, 2003, Consolidated was making monthly payments of approximately $24,000 under these loans and leases. 16 Consolidated leases property near Cheyenne, Wyoming, which is the site of the brine water treatment facility. Rent on this land lease is $1,000 per year. The lease is for a term of twenty-five years beginning July 1994, but may be terminated by Consolidated at any time on written notice. In February of 2003 Consolidated signed a letter of intent to sell these facilities and transfer the lease on the property to the new owner. However, the potential purchaser to the letter of intent was unable to finance the acquisition and the sale has not been completed. Consolidated is working with the potential purchaser to identify a structure which will allow the sale to be completed. We do not know when the sale might be completed. Oil and Gas Interest in Leasehold Acreage Infinity-Wyoming engaged Netherland, Sewell & Associates, Inc., independent petroleum engineers to prepare estimates of proved reserves, projected future production and related future net revenue for our properties as of December 31, 2003. Estimates prepared by Netherland, Sewell & Associates, Inc. were based upon review of production histories and other geologic, economic, ownership, volumetric and engineering data. In estimating reserve quantities that are economically recoverable, oil and gas prices and estimated development and production costs as of December 31, 2003 were utilized. The following table sets forth estimates as of December 31, 2003 derived from the Netherland, Sewell & Associates, Inc. reserve report. The present value (discounted at 10 percent) of estimated future net revenue before income taxes shown in the table is not intended to represent the current market value of our estimated proved oil and gas reserves. For additional information concerning the present value of future net revenue from these proved reserves, see Note 19 - Supplemental Oil and Gas Information (Unaudited) in the Notes to the Consolidated Financial Statements.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the caption "Overview of Oil and Gas Production Activity" for a discussion of the variables that resulted in the reduction of reserves at December 31, 2003. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. The reserve data set forth herein represents only estimates. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment and the existence of development plans. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of such estimates. Accordingly, the reserve estimates are often different from the quantities of oil and gas that are ultimately recovered. Further, the estimated future net revenue from proved reserves and the present value thereof are based upon certain assumptions, including future geologic success, prices, production levels and costs that may not prove correct. Predictions about prices and future production levels are subject to great uncertainty and the meaningfulness of such estimates is highly dependent upon the accuracy of the assumptions upon which they are based. Oil and gas prices have fluctuated widely in recent years. There is no assurance that prices will not be materially higher or lower than the prices utilized in estimating the reserves of Infinity-Wyoming. The weighted average sales prices utilized for purposes of estimating our proved reserves and future net revenue therefrom as of December 31, 2003 were $6.06 per Mcf of natural gas and $31.34 per barrel of crude oil. As an operator of domestic oil and gas properties, Infinity-Wyoming annually files Department of Energy Form EIA-23, "Annual Survey of Oil and Gas Reserves," as required by Public Law 93-275. There are differences between the reserves as reported in Form EIA-23 and as reported herein. The differences are attributable to the fact that Form EIA-23 requires that an operator report total reserves attributable to wells that it operates; without regard to ownership (i.e. reserves are reported on a gross operated basis, rather than on a net interest basis). 17 Acreage The following table sets forth the gross and net acres of developed and undeveloped oil and gas leases held by Infinity-Wyoming as of December 31, 2003. Developed acreage is acreage assigned to producing wells for the spacing unit of the producing formation.

~~Leases covering 57,097 gross (45,705 net) undeveloped acres included as a part of the Sand Wash Basin prospect above expire during the year ending December 31,~~ 2004, and therefore the related capitalized costs were reclassified to the full cost pool at December 31, 2003. Infinity-Wyoming held options on an additional 26,330 gross acres as of December 31, 2003. Options on approximately 8,300 of such acres were relinquished on February 29, 2004, and therefore the related capitalized costs were reclassified to the full cost pool at December 31, 2003. Major properties Greater Green River Basin - Wamsutter Arch At December 31, 2003, Infinity-Wyoming held leases on approximately 19,000 net acres on the Wamsutter Arch in the Greater Green River Basin of South Central Wyoming. Infinity-Wyoming currently seeks to exploit hydrocarbons in the Cretaceous-aged Upper Almond sand at varying depths between 2,900 and 3,600 feet. At December 31, 2003, Infinity-Wyoming operated 36 wells in the field, of which 10 were active producers, 13 were shut-in, 6 were waiting completion operations, 3 were water disposal wells, and 4 were waiting plugging and abandonment. All six wells waiting completion at year end have been completed as producers during the first quarter of 2004. During March 2004, Infinity-Wyoming assumed operations of two additional wells in the field following the acquisition of additional working interests in those wells. During 2003, Infinity-Wyoming produced approximately 1,051,200 mcf of natural gas and 57,400 barrels of crude oil, or 1,395,700 mcfe from the field. Production during 2003 represented a 62% increase over 2002, but production has declined on a quarterly basis since the quarter ended March 31, 2003 when production reached 408,100 mcfe. At December 31, 2003, Infinity-Wyoming held options on an additional 8,300 gross acres in the field. The options were relinquished on February 29, 2004. Greater Green River Basin - Labarge At December 31, 2003, Infinity-Wyoming held leases on approximately 11,000 net acres located on the northern extension of the Moxa Arch in southwestern Wyoming. Infinity-Wyoming currently seeks to exploit hydrocarbons in the Cretaceous Upper Mesaverde coals at varying depths between 3,400 and 4,200 feet. At December 31, 2003, Infinity-Wyoming operated 12 wells in the field, of which 2 were active producers, 5 were shut-in, 3 were waiting completion operations, and 2 were water disposal wells. During 2003, Infinity-Wyoming produced approximately 29,000 mcf of natural gas and 300 barrels of crude oil, or 30,700 mcfe from the field. Production during 2003 represented a 27% decrease as compared to 2002, and production has declined on a quarterly basis since the quarter ended September 30, 2002 when production reached 20,600 mcfe. Production at Labarge has continued to be uneconomic. Infinity-Wyoming believes that this may be due in part to down-hole operational problems and as a result in December 2003, Infinity-Wyoming entered into an agreement with Schlumberger Technology Corporation and Red Oak Capital Management LLC for the further evaluation and development of the Labarge acreage. 18 Sand Wash Basin At December 31, 2003, Infinity-Wyoming held leases on approximately 112,000 net undeveloped acres in the Sand Wash Basin of northwest Colorado and south central Wyoming. This prospect seeks to exploit the Williams Fork and Iles coals at varying depths between 2,500 and 3,000 feet. Secondary objectives include hydrocarbons in the fractured Niobrara calcareous shale. Leases covering 57,097 gross (45,705 net) undeveloped acres included as a part of the Sand Wash Basin prospect expire during the year ending December 31, 2004. Infinity-Wyoming is currently seeking offers from other industry operators for interests in the acreage in exchange for cash and a carried-interest in drilling operations. No assurance can be given that any such transactions will be consummated on terms acceptable to Infinity-Wyoming. At December 31, 2003, Infinity-Wyoming operated 4 wells in the field, all of which were shut-in. Piceance Basin At December 31, 2003, Infinity-Wyoming held leases on approximately 20,000 net undeveloped acres in the northeastern corner of the Piceance Basin in northwestern Colorado. This prospect seeks to exploit the Williams Fork and Iles coals at varying depths between 1,000 and 3,000 feet. Under the terms of the lease agreement covering approximately 16,000 acres, Infinity-Wyoming is required to drill and complete five wells by November 20, 2005, or relinquish the acreage to the seller. Infinity-Wyoming is currently seeking offers from other industry operators for interests in the acreage in exchange for cash and a carried-interest in drilling operations. No assurance can be given that any such transactions will be consummated on terms acceptable to Infinity-Wyoming. Stanton County, Kansas Infinity-Kansas acquired a 31.25% interest in a 5,120 acre river sand prospect in Stanton County, Kansas for $56,000, or $35.00 per acre, in November 2001. Infinity-Kansas has incurred approximately $187,000 for the drilling of three exploratory wells and for a 3-D seismic study across the acreage. The three exploratory wells have been uneconomical and the operator of the property is evaluating the results of drilling programs on adjacent acreage before taking any further action. The results of the drilling programs on the adjacent acreage should be available in the second quarter of 2004. Depending on the results of those programs, there is a potential that that the operator will abandon the prospect and Infinity-Kansas will write off its investment in the additional acreage. Infinity-Kansas does not have investment in any other oil and gas prospects. Offshore Nicaragua During 2003 and into the first quarter of 2004, Infinity has renegotiated a number of key terms and conditions of the exploration contract covering the approximate 1,400,000-acre Tyra and Perlas concession areas offshore Nicaragua, including an extension of the exploration period from six to eight years with four sub-phases, and is awaiting final approvals by the Nicaraguan government. Upon approval, the initial capital cost during the first twelve months would be approximately $800,000, with an additional $1,600,000 during the second twelve months to cover the costs of environmental studies, geological and geophysical analysis, acquisition of seismic data and other operational expenses. Exploration offshore Nicaragua will focus on Eocene and Cretaceous carbonate reservoirs and Infinity's management and consultants believe (i) numerous analogies can be made between the Infinity concession block and production from fractured Cretaceous carbonates in Mexico, Venezuela and Guatemala, and (ii) the presence of Cretaceous source rocks onshore Honduras and Nicaragua can be projected into the offshore Caribbean Shelf. 19 Production The following table sets forth Infinity-Wyoming's net oil and gas production, average sales prices, and costs and expenses associated with such production during the periods indicated. Information presented for 2001 pertains to the nine-month transition period ended December 31, and includes results for Infinity-Kansas. Information presented for 2002 and 2003 pertains to the years ended December 31, and includes only the results for Infinity-Wyoming.

Infinity-Wyoming owned 14 gross (12 net) producing wells and 5 gross (5 net) service wells as of December 31, 2003. Infinity-Wyoming owned an additional 33 gross (33 net) wells which were shut in, waiting completion or plugging and abandonment as of December 31, 2003. Development, Exploration and Acquisition Expenditures The following table sets forth certain information regarding the costs incurred by Infinity in its development, exploration and acquisition activities during the periods indicated. Information presented for 2001 pertains to the nine-month transition period ended December 31. Information presented for 2002 and 2003 pertains to the years ended December 31.

Drilling Activity The following table sets forth certain information regarding the wells completed during the periods indicated. Frequently wells are spud or drilled in one period and completed in the subsequent period. Information presented for 2001 pertains to the nine-month transition period ended December 31. Information presented for 2002 and 2003 pertains to the years ended December 31. Certain 2002 and 2001 information has been restated to conform to the current year presentation. 20

As of December 31, 2003, Infinity-Wyoming had an additional thirteen wells which were awaiting completion, including four wells waiting plugging and abandonment operations and six others that were completed by March 19, 2004. Delivery Commitments Infinity-Wyoming entered into a gas gathering and transportation contract with Duke in which Duke will build gas gathering laterals and install compression facilities to deliver gas produced from the Pipeline wells to the Overland Trail Transmission pipeline. During 2002, the contract was amended to include additional compression and gathering facilities installed by Duke and delivery points for the additional production being generated by Infinity-Wyoming. Infinity-Wyoming will pay a gathering fee of $0.40 per MCF until 7,500,000 MCF have been produced at which time the fee is reduced to $0.25 per MCF. Infinity-Wyoming was obligated to deliver 600,000 MCF the first year, 1,600,000 MCF the second year and 2,000,000 the third and fourth years and 1,800,000 in the fifth and final year of the contract. To date, Infinity-Wyoming has delivered approximately 2,060,000 MCF on this contract. The Pipeline sales volumes will also be subject to a $0.15 per Million British Thermal Units (MMBTU) charge for access onto the Overland Trail Transmission line. While Infinity-Wyoming has failed to deliver the volumes required under the terms of the contract, the pipeline operator has also not provided the compression and gathering capabilities they were required to provide under the contract. Management has received a verbal commitment from the operator that the volume commitments will be adjusted and management does not believe there will be a contract shortfall under the renegotiated volumes. Beginning April 1, 2003 and effective through March 31, 2004, Infinity-Wyoming had contracted to sell 3,500 MMBTU per day to Duke at a price of $4.71 per MMBTU, which equates to $5.16 per MCF. Subsequent to December 31, 2003 Infinity-Wyoming entered into two additional contracts with Duke for the sale of 2,000 MCF per day. The first contract is for the period April 1, 2004 through March 31, 2005 and sets a price of $4.40 per MCF. The second contract is for the period beginning April 1, 2005 and ending March 31, 2006 and is for $4.15 per MCF. Infinity-Wyoming will receive the Colorado Interstate Gas (CIG) Pipeline first of the month index price for each MCF of gas in excess of the contracted volume delivered onto the Overland Trail Transmission line. Infinity and its subsidiaries ~~presently have no agreements or commitments, other than those shown above, to provide quantities of oil or gas~~had approximately 111 employees. Consolidated had 96 employees in ~~the future. ITEM 3.~~ its oilfield services business; Infinity-Texas and Infinity-Wyoming had 9 employees in their exploration and production business; and Infinity had 6 employees in executive and administrative positions.


ITEM 3.	*LEGAL PROCEEDINGS*

There are currently no pending material legal proceedings to which we are a party. ~~ITEM 4.~~


ITEM 4.	*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*

No matters were submitted to a vote of the ~~Company's~~Company’s shareholders during the fourth quarter of ~~2003. 21~~ 2004.

PART II ~~ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS~~


ITEM 5.	*MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS*

Principal Market and Price Range of Common Stock ~~Infinity's~~

Infinity’s Common Stock began trading on the Nasdaq Small-Cap Market on June 29, 1994, under the symbol ~~"IFNY." In August 2002, Infinity became listed on the Nasdaq National Market.~~“IFNY.” The following table sets forth the high and low closing sale prices for ~~Infinity's~~Infinity’s Common Stock as reported by the Nasdaq Stock Market. The closing price of the Common Stock on March ~~31, 2004~~23, 2005 was ~~$3.36.~~

~~APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK The number~~$10.45 per share.


Quarter Ended	High		Low

March 31, 2003	$	9.74	$	7.75
June 30, 2003		8.83		5.50
September 30, 2003		6.01		4.30
December 31, 2003		4.90		3.31

March 31, 2004	$	5.15	$	2.75
June 30, 2004		5.00		3.00
September 30, 2004		5.85		3.87
December 31, 2004		8.49		4.75

Approximate Number of Holders of Common Stock

At March 23, 2005, there were 235 record holders of ~~Infinity's~~Infinity’s $0.0001 par value Common ~~Stock at April 12, 2004, was 187 and the Company believes it has over 1,500 beneficial owners of such stock. DIVIDENDS~~Stock.

Dividends

Holders of common stock are entitled to receive such dividends as may be declared by ~~Infinity's~~Infinity’s Board of Directors. Infinity has not declared nor paid and does not anticipate declaring or paying anany dividends on its common stock in the near future. Any future determination as to the declaration and payment of dividends will be at the discretion of ~~Infinity's~~Infinity’s board of directors and will depend on then-existing conditions, including ~~Infinity's~~Infinity’s financial condition, results of operations, contractual restrictions, capital requirements, business prospects and such other factors as the board deems relevant. Pursuant to the terms of ~~the Loan Agreement with LaSalle Bank, N.A., Consolidated~~its Senior Secured Notes Facility, Infinity is prohibited from paying any dividends to Infinity during the term of the agreement and under the terms of the Loan Agreement with U.S. Bank National Association, Infinity-Wyoming is restricted in the amount of distributions it can make to Infinity, Inc. dividends.


ITEM 6.	*SELECTED FINANCIAL DATA*

The selected consolidated financial information presented below for the years ended December 31, 2004, 2003 and 2002, and March 31, 2001, ~~and 2000~~ and the nine month transition period ended December 31, 2001 is derived from the audited consolidated financial statements of ~~Infinity for all periods.~~Infinity. Infinity changed its fiscal year end to December 31 fiscal year end from a March 31 fiscal year end effective December 31, 2001. Certain reclassifications have been made to prior financial ~~statements~~data to conform ~~with~~to the current presentation. The table gives effect to the two-for-one split of ~~Infinity's~~Infinity’s common stock effective May 13, 2002 for all periods presented. 22


			For the Period Ended

			December 31,
															March 31,
			2004			2003			2002			2001			2001

			(In thousands, except per share amounts)
Statement of Operations Data
Revenue:
	Oil field service operations		$	14,721		$	11,634		$	8,570		$	9,854		$	8,476
	Exploration and production			6,267			6,589			2,368			1,759			376

		Total revenue		20,988			18,223			10,938			11,613			8,852

Expenses:
	Oil and gas service operations			7,890			6,223			4,621			5,154			4,666
	Oil and gas production expense			1,914			2,161			1,583			1,074			207
	Production taxes			722			759			238			66			14
	General and administrative expenses			5,462			5,311			4,647			2,789			2,460
	Depreciation, depletion and amortization			5,198			3,074			1,783			1,063			922
	Ceiling write-down of oil and gas properties			4,100			2,975			—			—			—

		Total expenses		25,286			20,503			12,872			10,146			8,269

Other income (expense)
	Interest expense/amortization of loan costs			(3,329	)		(7,794	)		(837	)		(1,866	)		(1,062	)
	Impairment of other assets			—			—			—			(600	)		—
	Gain (loss) on sale of assets			2,824			20			(34	)		5,128			2,780
	Other, net			170			129			104			1			176
Income (loss) before income taxes				(4,633	)		(9,925	)		(2,701	)		4,130			2,477
Income tax (expense) benefit				—			—			1,144			(1,590	)		(710	)

Net income (loss)			$	(4,633	)	$	(9,925	)	$	(1,557	)	$	2,540		$	1,767

Basic income (loss) per common share			$	(0.49	)	$	(1.23	)	$	(0.22	)	$	0.39		$	0.29
Diluted income (loss) per common share				(0.49	)		(1.23	)		(0.22	)		0.37			0.27
Statement of Cash Flows Data
Net cash provided by (used in):
	Operating activities		$	5,463		$	2,845		$	136		$	1,361		$	1,157
	Investing activities			(9,942	)		(6,902	)		(16,218	)		(3,232	)		(715	)
	Financing activities			6,804			3,917			16,283			2,381			(1,003	)
Balance Sheet Data
Cash and cash equivalents			$	3,052		$	727		$	867		$	666		$	155
Accounts receivable, net of allowance				3,493			1,767			1,514			1,600			1,488
Investment in securities				—			—			—			—			8,509
Net property and equipment				8,764			10,044			10,315			10,343			6,107
Net oil and gas properties				44,387			36,162			32,284			17,191			8,127
Net intangible assets				1,497			3,953			5,300			1,527			305
Total assets				64,048			55,266			53,130			33,097			26,013
Current portion of long-term debt			$	284		$	1,763		$	2,227		$	3,342		$	3,520
Accounts payable				4,001			2,645			2,876			2,591			1,879
Long-term debt, net of current portion				25,340			26,230			24,247			10,421			5,552
Stockholders’ equity				28,822			22,911			22,810			15,207			13,596

23 ~~ITEM 7. MANAGEMENT'S~~ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in ~~the~~ this Form 10-K. Infinity follows the full-cost method of accounting for oil and gas properties. See ~~"Organization~~“Organization and Summary of Significant Accounting Policies,"” included in Note 1 to the Consolidated Financial Statements.

Infinity and its operating subsidiaries Infinity-Texas, Infinity-Wyoming ~~Infinity-Kansas~~ and Consolidated are engaged in identifying and acquiring oil and gas acreage, exploring and developing acquired acreage, ~~and providing~~ oil and gas ~~well~~production, and providing oilfield services. ~~Infinity's~~Infinity’s primary ~~focus is on~~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 ~~Wyoming, Piceance~~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.

Overview of Oil and Gas Exploration and Production Activity

Infinity, through Infinity-Texas, expanded its exploration and production operations into the Fort Worth Basin of ~~Colorado~~Texas during the year ended December 31, 2004. The opportunity to operate in Texas was attractive to Infinity due to year-round access to exploration and development locations, ease of permitting, better weather, and less restrictive government and environmental laws and regulations. In addition, early results for other operators in the Fort Worth Basin were encouraging to Infinity-Texas, and its minority joint interest partners, who were experienced in other successful parts of the basin. Meanwhile, Infinity-Wyoming continued to explore and develop the various projects and prospects in the Rocky Mountains, but was hampered by weather, governmental and environmental restrictions and regulations, as well as various operational issues at the Labarge Field and Pipeline Field. Infinity-Wyoming began initial exploration efforts for coalbed methane in the Sand Wash ~~Basin of Wyoming~~ and ~~Colorado. Infinity's involvement in the wastewater disposal industry through~~Piceance Basins, and also commenced development drilling for oil at its ~~wastewater division has been scaled back significantly with only maintenance operations occurring at the Cheyenne, Wyoming facility.~~Sand Wash Prospect.

Infinity expects to ~~dispose~~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 restrictions. In addition to reducing and refinancing indebtedness, Infinity raised equity and debt capital during 2004 (and early 2005) to fund its exploration and production operations. Infinity expects to be able to continue to raise capital during 2005 and beyond to fund its exploration and production operations, although the timing, cost and amounts, if any, will depend upon general energy and capital markets conditions and the success of the Company’s operations.

Infinity-Wyoming has selected Netherland, Sewell and Associates, Inc. to prepare its December 31, 2004 and 2003 third party reserve evaluations. Results of these ~~facilities~~evaluations are disclosed in the “Supplemental Oil and ~~has signed a letter~~Gas Disclosures” in Infinity’s Consolidated Financial Reports and in the “Oil and Natural Gas Reserves” section of ~~intent to sell~~Item 1. and Item 2. Business and Properties. Another engineering firm prepared the ~~properties contingent upon the purchaser obtaining financing. OVERVIEW OF OIL FIELD SERVICE OPERATIONS~~reserve evaluation as of December 31, 2002.

Overview of Oilfield Service Operations

Consolidated continued to develop its business relationships as the largest ~~oil field~~oilfield service provider in ~~eastern~~Eastern Kansas and ~~northeastern~~Northeast Oklahoma by ~~servicing over 400~~serving approximately 475 customers during ~~the year ended December 31, 2003.~~2004. 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 ~~southeast~~Eastern Kansas and ~~northeast~~Northeast Oklahoma contributed to the overall increase in activity for Consolidated. During ~~the year ended December 31, 2003~~2004 Consolidated achieved several operational milestones: - provided services to over 400 customers, - achieved gross sales of $11.6 million, - subsidiary level earnings before interest, taxes, depreciation and amortization of approximately $2.8 million, and - subsidiary level income before taxes of over $1.0 million


	•	revenue of $14.7 million;

	•	subsidiary level earnings before interest, taxes, depreciation and amortization of approximately $6.5 million;

	•	provided services to approximately 475 customers;

	•	subsidiary level income before taxes of approximately $4.7 million; and

	•	the acquisition of a Kansas oilfield service provider and the divestiture of relatively low-margin assets and operations to a customer.

Consolidated is actively seeking opportunities through acquisitions or mergers to expand its service area, increase its market share or enhance the services it provides to its customers. At December 31, 2003, Consolidated had outstanding debt of approximately $2.9 million secured by its fleet of service trucks and real estate with an appraised market value in excess of $10.0 million. Management believes that it can use the excess value as collateral to quickly fund acquisitions as they might occur. OVERVIEW OF OIL AND GAS PRODUCTION ACTIVITY In the Fall of 2002, Infinity began working with First Albany Corporation to identify and evaluate strategic divestiture, financing and merger alternatives for Infinity. Infinity was approached about the possible sale of our interest in certain of Infinity-Wyoming's properties, the merger of Infinity with another public company, or the acquisition of Infinity by a third party. After several months of evaluation, Infinity was contacted about a potential merger. Management believed the potential merger would be beneficial and entered into detailed negotiations with the third party. After several months of negotiations and reaching what Infinity believed to be satisfactory terms for a merger, the third party withdrew from the discussions in April 2003. Infinity had believed that the merger would provide adequate resources for the future development of its assets and had focused its limited resources on completing the merger. Subsequently, when the negotiations were terminated, Infinity was not in a position to act timely on any alternatives to the merger and was limited on the resources it could immediately bring to the development of its properties. Facing deadlines under the Labarge farm out agreement for earning acreage through drilling wells while at the same time in detailed negotiations with the potential merger partner and with the anticipation that additional resources would be available upon the completion of the merger, Infinity-Wyoming drilled five production wells and one injection well on acreage it had acquired adjacent to the Labarge acreage it currently owned. When the merger negotiations were terminated, Infinity had outstanding unsecured past due payables associated with the drilling activities of approximately $1.8 million. Due to a lack of financial resources, the wells were not completed. Three of these wells have been included in the initial recompletion phase under the Schlumberger agreement. 24 As Infinity was unable to complete the merger and the fact that Infinity needed resources to continue development of its acreage, in June 2003, Infinity began discussions with several traditional lending institutions in order to develop a credit relationship that would recognize the value of Infinity-Wyoming's developing assets. The intent was to find a financial partner that would allow for future expansion as the assets were developed and to provide cash to pay Infinity's current outstanding payables. Understanding that the future success of development activities on its properties were dependent on its relationships with the service providers in the area of its operations, Infinity-Wyoming worked diligently to secure financing that would allow payment of its past due obligations.


	*Subsequent Events*


	Senior Secured Notes Facility

On ~~June 5, 2003 Infinity-Wyoming~~January 13, 2005, we entered into a ~~$3.8~~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 ~~loan~~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. The Notes are secured by essentially all of the assets of Infinity and its ~~interest~~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 quarterly intervals and over a three-year period, commencing in the ~~producing properties.~~third quarter of 2005, Infinity has the option to sell additional notes (the “Additional Notes”), along with additional warrants, in amounts of up to $15 million in any rolling twelve-month period and up to a maximum of $45 million. The ~~proceeds were~~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 future satisfaction of various closing conditions. The ability to issue Additional Notes or 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 (ii) the SEC after-tax PV-10% value of our proved reserves.

Infinity used ~~to pay $1.0~~approximately $9.2 million of the proceeds from the sale of Notes and Warrants to repay all amounts outstanding ~~bridge loan notes, outstanding payables related~~pursuant to ~~the development of the gas properties of Infinity-Wyoming,~~a Loan and ~~for additional development work on the properties. The loan was repaid on September 4, 2003 when Infinity-Wyoming entered~~Security Agreement between LaSalle Bank N.A. and Consolidated, a ~~credit agreement with~~Credit Agreement between U.S. Bank National Association ~~that provided~~and Infinity-Wyoming, and certain other secured lending agreements, and those credit agreements have been terminated. Infinity is using the remainder of the proceeds to pay costs and expenses related to the sale of the Notes and Warrants and to fund its oil and gas exploration and development activities.


	Acquisition of Additional Acreage in the Fort Worth Basin

In February 2005, we entered into a ~~three year, $25.0 million revolving line~~definitive agreement for the acquisition of ~~credit based principally~~approximately 24,500 gross and net acres in Comanche County in the Fort Worth Basin of Texas, subject to customary closing conditions. The agreement, as amended, also provides for a right of first refusal on all acres acquired by

the seller in Comanche County. We expect to close the Comanche transaction on or before April 19, 2005. Upon closing, including acreage previously owned, Infinity-Texas will own and operate approximately 67,500 gross acres (approximately 56,300��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’ existing acreage in Erath and Hamilton Counties, Texas. Infinity-Texas agreed to drill at least one test well on the ~~production~~Comanche acreage during the next twelve months.


	Redemption of All Subordinated Convertible Debt

Pursuant to requirements of the Senior Secured Notes Facility, on January 13, 2005, Infinity called for redemption the remaining $2.5 million of 8% Subordinated Convertible Notes due 2006 outstanding on February 28, 2005. During January and ~~reserves associated with Infinity-Wyoming's Pipeline project. The initial borrowing base~~February 2005, the holders of all of the 8% subordinated convertible notes converted the debt and accrued interest into 517,296 shares of the Company’s common stock.

Based on the ~~facility was $5.5 million.~~volume weighted average stock price for Infinity’s common stock from February 18, 2005 to February 24, 2005 and pursuant to requirements of the Senior Secured Notes Facility, on February 25, 2005, Infinity called for redemption the remaining $8.2 million of 7% Subordinated Convertible Notes due 2007 outstanding on April 22, 2005 at a redemption price of 102.8% plus accrued and unpaid interest. During 2005, through March 23, the holders of $5,950,538 of 7% subordinated convertible notes have converted the debt and accrued interest into 783,779 shares of the Company’s common stock. Approximately $5.6 million of principal amount remains outstanding as of March 23, 2005. The Company has cash on deposit in excess of the amount outstanding at March 23, 2005, should the remaining 7% notes not be presented for conversion prior to the redemption date.


	*2005 Operational and Financial Objectives*


	Exploration and Production

Infinity-Wyoming ~~immediately drew the full amount available~~plans to focus on ~~the facility~~increasing production through development of acreage. Infinity-Wyoming anticipates capital expenditures will be approximately $10 million to drill approximately eight wells, and ~~repaid the June 5 loan and began drilling six additional~~complete four wells ~~on its Pipeline acreage. All of these wells were completed subsequent to~~in progress at December 31, ~~2003~~2004, and ~~have began production. In 2003, Infinity faced several financing, development~~conduct additional geological and ~~operating issues associated with drilling, completing and operating its coal bed methane wells~~geophysical analysis on its acreage positions.

Infinity-Texas will focus on increasing its acreage position and commencing production in the ~~Greater Green River~~Fort Worth Basin of ~~Wyoming: - Limited~~central Texas. Infinity-Texas anticipates its capital ~~resources for the further development of the projects, - Production volumes on the Labarge property had declined dramatically after work was done on the~~expenditures will be approximately $30 million to acquire additional acreage, drill approximately fifteen wells, complete three wells in December 2002, - The disposal well on the Labarge property was experiencing increasing injection pressures, - Significant production was occurring from only a limited number of wells on the Pipeline acreage, and - Reservoir tests on the Almond coals in the Pipeline project were indicating permeability issues. Each of these issues potentially had a significant impact on Infinity-Wyoming's ability to develop the properties, attract potential partners for future development and to fund future development activities. Production from the original five wells drilled on the Labarge acreage continues to be uneconomical due to what management believes are down hole mechanical issues related to high parifin oil that was encountered in the wells and down hole treatments that were done in December 2002. The uneconomic results of these wells along with the lack of resources to address the mechanical issues on the wells has forced the reclassification of the reserves associated with the wells and the surrounding drilling locations from proved to probable and possible, resulting in a substantial reduction in Infinity-Wyoming's proved reservesprogress at December 31, ~~2003. In order to further evaluate~~2004, and ~~develop the Labarge project, Infinity-Wyoming entered into an agreement with Schlumberger and Red Oak. The agreement calls for re-completion of five existing wells and the drilling of up to 90~~conduct additional wells on the Labarge acreage over the next five years. The first 10 wells will be drilled in a bundle and the remaining 80 wells will be drilled in bundles of 20 wells. Schlumberger has the exclusive right to provide certain of its services on a risked basis and may withdraw its participation after the completion of any bundle of wells or after the re-completion of five of the 10 existing wells. Red Oak has the right to provide financing on a portion of the cost of drilling and completing the wells. Disclosure of the terms of this agreement is restricted by provisions in the agreement. Infinity-Wyoming has approximately $9.4 million invested in unproved oil and gas properties not subject to amortization on its Labarge project and expects to incur an additional $3.6 million during 2004 in costs under an agreement to further explore the property. At the conclusion of the 2004 evaluation and exploration activity, a significant portion of the investment in unproved oil and gas properties not subject to amortization will be reclassified to properties subject to depletion and the ceiling test. If the 2004 evaluations and exploration activity at Labarge do not result in additional proved reserves, or if proved reserves are not significant, Infinity could be required to write-down a portion of the full cost pool of oil and gas properties subject to amortization upon the reclassification of the Labarge unproved oil and gas property costs. Although operations at Pipeline continue to be profitable, production has not met management's expectations. Infinity-Wyoming has been unable to consistently produce gas from all of the wells in the project. However, certain wells have been very successful with production from those wells exceeding 1,500 MCF per day. Further evaluation of the geology associated with the successful wells indicates that these wells appear to be producing from the Almond Sand rather than from the Almond Coals. The Almond Sand is a geological sandstone formation that lays directly on top of the Almond Coals. This sandstone formation is much more porous than the Almond Coals allowing hydrocarbons trapped within the geological formation to be produced. However, the Almond Sand formation developed in channels through the geological formations and does not cover the entire area like coals traditionally cover. Drilling logs from the 25 Pipeline drilled wells and the further evaluation of additional seismic data have allowed Infinity-Wyoming to better define the area that contains the Almond Sand. Since management currently believes the Almond Sand to be the major gas producing formation, Infinity will be aggressively developing the remaining acreage where there is sufficient geological information to indicate the presence of the sand formation. The change in classification from a coal bed methane play to a conventional sand play has had a significant impact on the acreage from which hydrocarbons will be producible and accordingly on the reserves associated with the project. As a result, in 2004, management determined it was not economically beneficial to re-new an option on approximately 8,300 acres of undeveloped acreage. The above operational, geological and geophysical ~~financial,~~analysis on its acreage positions.

The ability of Infinity-Wyoming and ~~other issues resulted in significant revisions~~Infinity-Texas to ~~year end reserves. As~~complete these activities is dependent on a ~~result~~number of these revisions and other economic decisions, Infinity-Wyoming realized a $2,975,000 ceiling write-down during 2003. Infinity-Wyoming has selected Netherland, Sewell and Associates, Inc. to prepare its January 1, 2004 third party reserve evaluation. Results of this evaluation are disclosed in the "Supplemental Oil and Gas Disclosures" in Infinity's Consolidated Financial Reports and in the "Oil and Natural Gas Reserves" section of Item 2. Description of Properties. Wells, Chappel and Company, Inc. prepared the reserve evaluation for the periods ended December 31, 2002 and December 31, 2001. 2004 OPERATIONAL AND FINANCIAL OBJECTIVES Oil Fieldfactors including, but not limited to:


	•	The availability of the capital resources required to fund the activity. Infinity-Wyoming expects to generate approximately $4 million in cash flow from operations in 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 predict with accuracy an 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 ~~oil field~~oilfield service revenue during ~~2004~~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, - gain market share by providing complimentary services to our existing services, and - gain market share by eliminating competition.


	•	expand the services that are provided;

	•	expand the area that is serviced; and

	•	gain market share by providing complementary services to our existing services.

Revenues from ~~oil field~~oilfield services are expected to be between ~~$12.5~~$14 million and ~~$14.5 million with income before taxes of approximately $1.7 to $2.2 million from existing business.~~$15 million. Management expects that it ~~will~~could make acquisitions that will cost between ~~$1.2~~$10 million and ~~$2.0~~$20 million during ~~2004~~2005 and expects to fund the acquisitions through ~~financing secured by~~ the ~~acquired assets.~~issuance of subordinated debt or common stock. Excluding acquisitions and related capital expenditures, Consolidated also expects to have ~~other~~ capital expenditures of about ~~$1.0~~$2 million related to equipment and facilities. These capital expenditures would be financed through cash flow ~~or vendor financing. Oil~~ and ~~Gas Production Infinity-Wyoming will focus~~cash on increasing production through development of acreage and acquiring additional interest in wells within its Pipeline area of operations. Subsequent to December 31, 2003, Infinity-Wyoming completed six wells drilled during the fourth quarter of 2003 and acquired an additional 49% working interest in two existing wells and 960 acres of undeveloped leasehold adjacent to the Pipeline project. With the acquisition, Infinity-Wyoming assumed operations of the two wells. Infinity-Wyoming expects to drill two wells on the newly acquired acreage during 2004. Infinity-Wyoming anticipates capital expenditures will be approximately $0.5 million to drill the two wells. In the first quarter of 2004, Schlumberger began re-completion activities on two of the original Riley Ridge wells on the Labarge project by perforating additional areas of the well bore and re-fracing the wells. Schlumberger also began completion activities on one of the wells on the Thompson acreage that had been drilled in the fourth quarter of 2002. Depending on the results of these activities, Infinity-Wyoming, through the agreement, could drill an additional five to six wells on the Thompson acreage during 2004. Infinity-Wyoming also expects to complete the Environmental Impact Study ("EIS") on the Labarge acreage during the fourth quarter of 2004 or early in 2005. Management believes that it will require between $4.0 million and $4.5 million in capital to pay for the un-risked services for the drilling and completion work on wells drilled in 2004, if any, and the completion of the EIS. 26 The ability of Infinity-Wyoming 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 completed a private placement of 1,000,000 shares of Infinity common stock in January 2004 which generated proceeds of approximately $4.0 million (before offering costs) a portion of which will help fund the development activities. Infinity-Wyoming also expects to generate between $4.0 and $5.0 million in cash flow from operations in 2004. - The availability of third party contractors for drilling rigs and completion services. Infinity-Wyoming has reduced the impact this could have by contracting with Schlumberger to provide certain of these services for the development of the Labarge acreage. - The success of the completion efforts on the existing Labarge wells. If Schlumberger is not satisfied with, or successful in its efforts then they may elect not to risk their services and Red Oak may be unwilling to secure financing for the further development of the property. If this occurs, Infinity-Wyoming will be required to fund the all of the development activities and may not be able to do so on terms that are acceptable to management. Infinity, Inc. Activityhand.


	Corporate Activities

Infinity continues to negotiate the final ~~development~~exploration and production agreement with INE for the Perlas and Tyra blocks offshore Nicaragua. Management ~~believes that it should be able~~expects to complete the negotiations ~~sometime~~and execute the agreement in ~~2004.~~2005. Upon ~~completion of the negotiations,~~execution, Infinity ~~will~~would be required to post a performance bond of approximately $0.7 million for the initial work ~~to be done~~ on the leases which will include an environmental study and the development of geological information developed from additional seismic evaluation. Infinity ~~estimates the performance bond will approximate $0.7 million and that Infinity will~~expects to incur additional costs to complete the negotiations and finalize the leases of approximately $0.1 million.


	*Results of operations for the year ended December 31, 2004 compared to the year ended December 31, 2003*

Infinity incurred a net loss after taxes of $4.6 million, or $0.49 per diluted share, in 2004 compared to a net loss after taxes of $9.9 million, or $1.23 per diluted share, in 2003.

Infinity achieved total revenue of $21.0 million in 2004 compared to $18.2 million in 2003. The $2.8 million increase in revenue was attributable to a $3.1 million increase in oilfield service operations, partially offset by a $0.3 million decrease in oil and gas production revenue. Infinity earned a gross profit of $10.5 million during 2004, a $1.4 million, or 15% increase in gross profit from $9.1 million in 2003. Gross profit from exploration and production was $3.6 million during both 2004 and 2003.

General and administrative expenses for the year ended December 31, 2004 increased $0.2 million from $5.3 million in 2003 to $5.5 million in 2004. In 2003, Infinity incurred approximately $0.6 million in expenses associated with the detailed negotiations relating to a potential merger and the process leading up to negotiations in which Infinity solicited and reviewed strategic alternatives. Infinity and its subsidiaries also recognized additional depreciation, depletion and amortization (“DD&A”) expense of approximately $2.1 million during 2004, an increase to approximately $5.2 million compared to DD&A of approximately $3.1 million for 2003. The increase in DD&A was due to the increase in the depletion rate on and increased investment in oil and gas producing properties and the increase in the investment in Consolidated’s fleet in 2004. During 2004, Infinity-Wyoming also recognized a $4.1 million ceiling write-down of its oil and gas properties based on the full cost ceiling test for oil and gas properties subject to depletion, as compared to $3.0 million in 2003. As a result, Infinity recognized an operating loss of $4.3 million for 2004, compared to an operating loss of $2.3 million for 2003.

Interest expense and finance charges and amortization of loan costs decreased by $4.5 million to $3.3 million for 2004 compared to $7.8 million for 2003. The decrease was primarily due to the recognition in 2003 of $5.6 million of amortization of loan costs associated with the value of warrants and options granted in conjunction with obtaining new debt financing and the amortization of $0.6 million of cash loan costs paid when those same loans were obtained, compared to $2.1 million of amortization of loan costs in 2004. Infinity

also experienced a $0.3 million decrease in interest expense in 2004 compared to 2003 due to a decrease in average debt outstanding, lower interest rates on certain indebtedness and an increase in interest capitalized to undeveloped properties.


	Exploration and Production

The following table provides statistical information for the year ended December 31, 2004, 2003 and 2002 (due to rounding and other operating expenses the sum of the individual amounts presented may not equal the totals):


	2004		2003		2002

Production:
Natural gas (MMcf)		953.4		1,080.5		676.9
Oil (thousands of barrels)		33.7		57.7		53.1
Total (MMcfe)		1,155.4		1,426.4		995.6
Financial Data (in thousands):
Total revenue	$	6,267.5	$	6,589.3	$	2,367.7
Production expenses		1,913.7		2,161.7		1,582.8
Production taxes		722.2		758.8		237.9
Financial Data per Mcfe:
Total revenue		$5.42	$	4.62	$	2.38
Production expenses		1.66		1.52		1.59
Production taxes		0.63		0.53		0.24

During 2004, Infinity-Wyoming recorded approximately $1.4 million in revenue on the sale of 33,668 barrels of oil, (201,828 Mcfe) and approximately $4.9 million in revenue on gas sales of 953,428 Mcf from its Pipeline and Labarge projects. Infinity-Wyoming incurred $1.9 million in oil and gas production expenses and $0.7 million in production taxes to produce oil and gas during the year ended December 31, 2004. The total production expenses and production taxes of approximately $2.6 million equate to approximately $2.28 in lifting costs on total production of 1,155,436 Mcfe. The 19% decrease in equivalent production in 2004 as compared to 2003 was primarily a result natural declines in production rates for wells in the Pipeline field.

Infinity-Wyoming also incurred $0.7 million in general and administrative costs and $3.6 million in DD&A expense, or depletion expense of $3.06 per Mcf equivalent for 2004 compared to $0.92 per Mcf equivalent for 2003. DD&A costs for 2004 increased by $2.1 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. The higher depletion rate in 2004 was partially offset by lower oil and gas production in 2004 compared to 2003.

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 un-escalated 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 ~~pursuing~~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 December 31, 2004, the carrying amount of oil and gas properties subject to amortization exceeded the full cost ceiling limitation by approximately $8.9 million based upon a natural gas price of approximately $6.07 per Mcf and an oil price of approximately $40.25 per barrel in effect at that date. However, due to significant subsequent price increases to approximately $6.53 per Mcf of gas and $54.55 per barrel of oil at the March 15, 2005 measurement date, Infinity was required to record a ceiling writedown of $4.1 million in the quarter and year ended December 31, 2004. In 2003, the Company recorded a ceiling writedown of approximately $3.0 million.

During 2003 Infinity recorded $1.8 million in revenue on the sale of 57,654 barrels of oil, (345,924 Mcf equivalent) and $4.8 million in revenue on the sale of 1,080,456 Mcf of natural gas from its Pipeline and Labarge projects. Infinity-Wyoming incurred approximately $2.2 million in production expenses and $0.8 million in production taxes to produce the oil and gas during 2003. The total production expenses and production taxes of approximately $2.9 million equate to $2.05 in lifting costs on total Mcf equivalents of 1,426,380. Infinity-Wyoming also incurred approximately $0.8 million in general and administrative costs and $1.6 million in DD&A expense.


	Oilfield Services

Sales for 2004 increased 27% to $14.7 million from $11.6 million in 2003. Sales of cementing services increased by approximately $1.7 million due to the acquisition of ~~25,000 acres~~Blue Star Acid Services in April 2004 and by approximately $0.7 million due to an increase of 200 jobs at the Gillette, Wyoming camp. In 2004, the Chanute, Kansas camp cemented an additional 160 wells and generated an additional $0.7 million in revenue compared to its 2003 activity, prior to its sale in September 2004. 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


	2004					2003					Change

Job Type	Jobs		Revenue			Jobs		Revenue			Jobs			Revenue

	($ in millions, before discounts)
Cementing		3,059	$	8.2			1,955	$	4.8			1,104		$	3.4
Acidizing		1,260		1.4			1,201		1.4			59			—
Fracturing		790		6.0			1,015		6.1			(225	)		(0.1	)
Discounts and eliminations				(0.9	)				(0.7	)					(0.2	)

			$	14.7				$	11.6					$	3.1

The increase in the ~~Fort Worth Basin~~number of ~~Texas. Development opportunities~~cementing jobs performed reflects the increase in the number of wells being drilled in Eastern Kansas and Northeast Oklahoma as well as in Northeast Wyoming. As well testing is completed on the ~~acreage will target principally~~newly drilled wells, completion and stimulation activities such as acidizing and fracturing should increase. Management believes that the ~~Barnett Shale formation. As final terms~~increase in the number of wells cemented by Consolidated during the year 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 27% increase in the cost of goods sold of approximately $1.7 million. The increase in cost of goods sold was primarily due to the increase in materials of approximately $0.9 million, labor expense of approximately $0.4 million, and an increase in equipment operating costs and maintenance of approximately $0.4 million. General and administrative expenses for oilfield services of $2.8 million for 2004 was comparable to the same period in 2003.


	Corporate Activities

Infinity and its subsidiaries incurred approximately $2.1 million in expenses associated with corporate activities during 2004 and 2003.


	Other Income and Expenses

Other income and expense was a net expense of $0.3 million for 2004 compared to $7.6 million for 2003. Infinity recognized a $4.5 million decrease in interest expense of which $4.2 million was associated with the amortization of financing costs. There was also a $0.3 million decrease in interest expense in 2004 compared to 2003 period due to a decrease in average debt outstanding, lower interest rates on certain indebtedness and an increase in the amount of interest capitalized to undeveloped properties.


	Income Tax

Infinity reflected no net tax benefit or expense in 2004 and 2003. The net operating losses generated in 2004 and 2003 increased Infinity’s net deferred tax asset. Due to uncertainty as to the ultimate utilization of the ~~agreement have not~~net operating losses, the net deferred tax asset has been ~~reached Infinity cannot determine what~~fully reserved by a valuation allowance as described in Note 11 of the consolidated financial ~~resources might be required to complete the acquisition and exploration. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER~~statements.


	*Results of operations for the year ended December 31, 2003 compared to the year ended December 31, 2002*

Infinity incurred a net loss after taxes of $9.9 million, or $1.23 per fully diluted share, in ~~the year ended December 31,~~ 2003 compared to a net loss after taxes of $1.6 million, or $0.22 per fully diluted share in ~~the year ended December 31,~~ 2002.

Infinity achieved a $4.6 million increase in gross profit to $9.1 million in ~~the year ended December 31,~~ 2003 from $4.5 million for ~~the year December 31,~~ 2002. The increase in gross profit during ~~the period ended December 31,~~ 2003 compared to ~~the period ended December 31,~~ 2002 was the result of a $3.0 million, or approximately 36%, increase in ~~oil field~~oilfield service revenue to $11.6 million from $8.6 million. The increase in revenue was partially offset by a $1.6 million, or 35%, increase in ~~oil field~~oilfield service cost of services provided ~~(See "Oil Field Services"~~(see “Oilfield Services” discussion below). ~~Oil field~~Oilfield service revenue for ~~the year ended December 31,~~ 2002 was reduced by the elimination of $2.1 million of ~~oil field~~oilfield service sales that were provided to Infinity-Wyoming by Consolidated for the development of its oil and gas properties and the cost of services provided was reduced by $1.1 million for the cost of those services provided to Infinity-Wyoming. The oilfield service subsidiary provided minimal services to Infinity-Wyoming in ~~the period ended December 31,~~ 2003. Additionally, gross profit comparisons were affected by a $4.2 million, or approximately 178%, increase in sales of oil and gas from $2.4 million for ~~the period ended December 31,~~ 2002 to $6.6 million in ~~the period ended December 31,~~ 2003 with a corresponding increase of $0.6 million in oil and gas production costs and $0.5 million increase in production taxes in ~~the~~ 2003 ~~period (See "Oil~~(see “Oil and Gas ~~Production"~~Production” discussion below). 27 ~~Operating~~

General and administrative expenses for ~~the year ended December 31,~~ 2003 increased $0.7 million from $4.6 million in ~~the~~ 2002 ~~period~~ to $5.3 million in ~~the 2003 period.~~2003. In 2003, Infinity incurred approximately $0.6 million in expenses associated with the detailed negotiations relating to a potential merger, which negotiations were terminated in April 2003, and the process leading up to those negotiations in which Infinity solicited and reviewed strategic alternatives. Infinity and its subsidiaries also recognized additional ~~depreciation, depletion and amortization ("~~DD~~&A")~~&A expense of approximately $1.3 million during ~~the year ended December 31,~~ 2003, an increase to approximately $3.1 million for the period compared to DD&A of approximately $1.8 million for ~~the period ended December 31,~~ 2002. The increase in DD&A was due to the increase in the investment in ~~Consolidated's~~Consolidated’s fleet in 2002 and the increase in the depletion rate on the oil and gas producing properties. Infinity-Wyoming also recognized a $3.0 million ceiling write-down of its oil and gas properties based on the full cost ceiling test for oil and gas properties subject to depletion. As a result, Infinity recognized an operating loss of $2.3 million for ~~the period ended December 31,~~ 2003, compared to an operating loss of $1.9 million for ~~the period ended December 31,~~ 2002.

Interest expense and finance charges increased by $7.0 million to $7.8 million for ~~the year ended December 31,~~ 2003 compared to $0.8 million for ~~the year ended December 31,~~ 2002. The increase was primarily due to the recognition of $5.6 million of amortization of loan costs associated with the value of warrants and options granted in conjunction with obtaining ~~new~~ debt financing and the amortization of $0.6 million of cash loan costs paid when those same loans were obtained. Infinity also experienced a $0.9 million increase in interest expense in ~~the~~ 2003 period compared to ~~the~~ 2002 ~~period~~ due to the increase in debt outstanding, higher interest rates on certain ~~of the new~~ notes issued in 2003 and a decrease in the amount of interest that was capitalized to undeveloped properties as Infinity experienced a period of development inactivity during a significant portion of 2003.

Infinity recognized a deferred income tax benefit of $1.1 million in ~~the year ended December 31,~~ 2002. The net operating losses generated in ~~the year ended December 31,~~ 2003 increased ~~Infinity's~~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 as discussed in Note 11 of the consolidated financial statements. Therefore, Infinity has reflected no net tax expense or benefit for 2003.


	Exploration and Production

See the ~~year ended December 31, 2003. Oil Field Services Sales~~table above for ~~the year ended December 31,~~statistical information for 2003 increased to $11.6 million from $8.6 million, net of inter-company eliminations, in the year ended December 31, 2002. Infinity eliminated oil field services sales of $2.1 million from revenues for sales of services to Infinity-Wyoming during the year ended December 31, 2002. There were no material inter-company sales in 2003. Sales of cementing services from Consolidated's Bartlesville, Oklahoma camp increased by approximately $0.8 million and revenue from fracturing services from that camp increased by approximately $1.3 million in the year December 31, 2003 compared to the comparable period in 2002. The increase in revenue was primarily due to an increase in development activity during the second and third quarters of 2003 as customers moved from the evaluation of their prospects to the full scale development of their prospects in areas serviced from the Bartlesville facility. Revenue from cementing services provided from Consolidated's Gillette, Wyoming facility increased by approximately $1.3 million, due to the Powder River Basin of Wyoming becoming an active coal bed methane development play again. Crews from the Gillette facility cemented over 400 wells in the twelve months ended December 31, 2003 compared to 78 in the comparable period of 2002. The following table details the increase in gross revenue in millions of dollars, before discounts and inter-company eliminations, for the periods, based on the number and type of core service jobs performed2002 (due to rounding and other operating expenses the sum of the individual amounts presented may not equal the totals):

The increase in the number of cementing jobs performed reflects the increase in the number of wells being drilled in eastern Kansas and northeastern Oklahoma as well as in Wyoming. As well testing is completed on the newly drilled wells, completion and stimulation activities such as acidizing and 28 fracturing should increase. Management believes that the increase in the number of wells cemented by Consolidated during the year 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 an increase in the cost of goods sold of approximately $1.6 million. The increase in cost of goods sold was primarily due to the increase in materials of approximately $0.7 million, labor expense of approximately $0.4 million, and an increase in equipment operating costs and maintenance of approximately $0.3 million. General and administrative expenses for oil field services for 2003 were comparable to the same period in 2002. Oil and Gas Production.

During ~~the year ended December 31,~~ 2003, Infinity-Wyoming recorded approximately $1.8 million in revenue on the sale of 57,654 barrels of oil, (345,924 ~~MCF~~Mcf equivalents) and approximately $4.8 million in revenue on the gas sales of 1,080,456 ~~MCF~~Mcf from its Pipeline and Labarge projects. Infinity-Wyoming incurred ~~$1.4~~$2.1 million in ~~lease operating~~production expenses and $0.8 million in production taxes ~~and $0.7 million in transportation fees~~ to produce the oil and gas during ~~the year ended December 31,~~ 2003. The total production ~~expense, transportation~~expenses and production taxes of approximately $2.9 million ~~equates~~equate to approximately $2.04 in lifting costs on total ~~MCF~~Mcf equivalents of 1,426,380. Infinity-Wyoming also incurred $0.8 million in general and administrative costs and $1.6 million in DD&A expense, or approximately $1.63 per ~~MCF~~Mcf equivalent for the period. The general and administrative expense included approximately $0.2 million in costs associated with the detailed negotiations relating to a potential merger, which negotiations were terminated in May 2003, and the process leading up to those negotiations in which Infinity solicited and reviewed strategic alternatives. Excluding these costs, general and administrative expenses for Infinity-Wyoming were unchanged when compared to the prior year period. DD&A costs for the period increased by $1.3 million due to the increased depletion rate associated with the investment in developed oil and gas properties. The higher rate was the result of the increase in oil and gas production and the decrease in the proved reserves from 2002 to 2003.

Infinity also recognized in 2003 a ceiling write-down of its oil and gas properties under the full cost ceiling test of approximately $3.0 million. Under the full cost accounting rules of the SEC, 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, as adjusted for estimated asset retirement obligations, may not exceed the present value of estimated future revenue at the un-escalated prices in effect as of the end of each fiscal quarter, after giving effect to Infinity-Wyoming's cash flow hedge positions, and requires a write-down for accounting purposes if the ceiling is exceeded. Infinity-Wyoming is also required to evaluate the value of its approved oil and gas properties and adjust the value to the lower of the cost or market value of the properties. Due to the limited availability of capital for development of its properties, the decision not to re-new a portion of ~~Infinity-Wyoming's~~Infinity-Wyoming’s leases during 2004, and the condemnation of leases due to geological and geophysical evaluation, Infinity-Wyoming ~~reclassified~~re-classified approximately $5.0 million of its investment in oil and gas properties not subject to depletion to subject to amortization.

During ~~the year ended December 31,~~ 2002 Infinity-Wyoming recorded $0.9 million in revenue on the sale of 42,525 barrels of oil, (255,150 ~~MCF~~Mcf equivalent) and $1.3 million in revenue on the sale of 648,160 ~~MCF~~Mcf of natural gas from its Pipeline and Labarge projects. Infinity-Wyoming incurred approximately $1.1 million in lease operating expenses, $0.2 million in production taxes and $0.3 million in transportation fees to produce the oil and gas during ~~the period ended December 31,~~ 2002. The total production ~~expense, transportation~~expenses and production taxes of approximately $1.6 million ~~equates~~equate to $1.79 in lifting costs on total ~~MCF~~Mcf equivalents of 903,310. Infinity-Wyoming also incurred approximately $0.7 million in general and administrative costs and $0.2 million in DD&A expense, or approximately $1.00 per ~~MCF~~Mcf equivalent for the period. 29 The following table provides statistical information by field for production volumes, revenue and production costs for the year ended December 31, 2003 and 2002 (due to rounding and other operating expenses the sum of the individual amounts presented may not equal the totals):

The increase in production was primarily a result of the increased production time for wells in each period. Several wells began production in the third and fourth quarters of 2002. These wells produced for all of 2003 while producing for only a short period and at lower volumes during 2002.

Infinity-Kansas recorded net revenue of $0.2 million from its Kansas properties and operating expenses and production taxes of $0.2 million during ~~the year ended December 31,~~ 2002. Effective May 1, 2002 Infinity-Kansas sold its interest in the Owl Creek and Manson properties to West Central Oil, LLC for cash and a note receivable. Under the full cost method of accounting for oil and gas properties, Infinity and its subsidiaries did not recognize a gain or loss on the sale of its oil and gas properties since the sale did not have a material impact on the relationship between the oil and gas property values and the value of the reserves associated with those properties. Infinity reduced its investment in the remaining oil and gas properties by approximately $244,000 on the sale of the property.

During 2003, production, oil and gas prices, operating expenses and development expenditures for ~~Infinity-Wyoming's~~Infinity-Wyoming’s Labarge and Pipeline projects ~~have~~ varied from those estimated in reserve reports at December 31, 2002 and additional geological, geophysical, and engineering data ~~has become~~became available and ~~been~~was analyzed. Production at Labarge ~~continues~~continued to be ~~uneconomic. Infinity-Wyoming believes that this may be~~uneconomic, possibly due in part to down-hole operational problems and as a result in December 2003, Infinity-Wyoming entered into an agreement with Schlumberger and Red Oak for the further evaluation and development of the Labarge acreage. Additional information about that agreement was discussed in the "Overview of Oil and Gas Production Activity" section of "Management's Discussion and Analysis of Financial Conditions and Results of Operations."problems. Quantities of proved oil and gas reserves as evaluated by Netherland Sewell and Associates at December 31, 2003 were substantially less than our previous estimates which in turn resulted in a higher depletion rate for the last part of 2003.

The 58% increase in production during 2003 combined with the significant reduction in proved reserves at January 1, 2004 resulted in a $1.2 million increase in depletion of developed oil and gas properties in 2003 compared to the 2002 period. At current production levels of approximately 3,400 MCFE per day and proved reserves of 8,669,723 MCFE, Infinity-Wyoming will experience approximately a 14% depletion of its proved oil and gas property investment in 2004. 30

Infinity-Wyoming experienced a $0.3 million increase in administrative expenses in ~~the year ended December 31,~~ 2003 compared to ~~the year ended December 31,~~ 2002. This increase in administrative expense was primarily legal, accounting, and consulting fees associated with the detailed negotiations relating to a potential merger, which negotiations were terminated in May 2003, and the process leading up to those negotiations in which Infinity solicited and reviewed strategic alternatives.


	Oilfield Services

Sales for 2003 increased to $11.6 million from $8.6 million, net of inter-company eliminations, in 2002. Infinity eliminated oilfield services sales of $2.1 million from revenues for sales of services to Infinity-Wyoming during 2002. There were no material inter-company sales in 2003. Sales of cementing services from Consolidated’s Bartlesville, Oklahoma camp increased by approximately $0.8 million and revenue from fracturing services from that camp increased by approximately $1.3 million in 2003 compared to 2002. The increase in revenue was primarily due to an increase in development activity during the second and third quarters of 2003 as customers moved from the evaluation of their prospects to the full scale development of their prospects in areas serviced from the Bartlesville facility. Revenue from cementing services provided from Consolidated’s Gillette, Wyoming facility increased by approximately $1.3 million, due to increased coalbed methane development activity in the Powder River Basin of Wyoming. Crews from the Gillette facility cemented over 400 wells in 2003 compared to 78 in 2002. The following table details the increase in gross revenue in millions of dollars, before discounts and inter-company eliminations, for the periods, 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


	2003					2002					Change

Job Type	Jobs		Revenue			Jobs		Revenue			Jobs		Revenue

	($ in millions, before discounts)
Cementing		1,955	$	4.8			1,454	$	3.4			501	$	1.4
Acidizing		1,201	$	1.4			1,029	$	1.1			172	$	0.3
Fracturing		1,015	$	6.1			1,015	$	6.5			0	$	(0.4	)
Discounts and eliminations				(0.7	)				(2.4	)				1.7

			$	11.6				$	8.6				$	3.0

The increase in the number of cementing jobs performed reflects the increase in the number of wells being drilled in Eastern Kansas and Northeast Oklahoma as well as in Wyoming. The additional activity also led to an increase in the cost of goods sold of approximately $1.6 million. The increase in cost of goods sold was primarily due to the increase in materials of approximately $0.7 million, labor expense of approximately $0.4 million, and an increase in equipment operating costs and maintenance of approximately $0.3 million. General and administrative expenses for oilfield services for 2003 were comparable to 2002.


	Corporate Activities

Infinity and its subsidiaries incurred approximately $2.1 million in expenses associated with corporate activities during ~~the year ended December 31,~~ 2003 compared to approximately $1.9 million in ~~the period ended December 31,~~ 2002. Included in the $0.2 million increase was approximately $0.3 million in legal, accounting, and consulting fees associated with the detailed negotiations relating to a potential merger, which negotiations were terminated in May 2003, and the process leading up to those negotiations in which Infinity solicited and reviewed strategic alternatives.


	Other Income and Expenses

Other income and ~~expenses~~expense was a net expense of $7.6 million for ~~the year ended December 31,~~ 2003 compared to $0.8 million for ~~the year ended December 31,~~ 2002. Infinity recognized a $7.0 million increase in interest expense of which $6.0 million was associated with the amortization of financing costs. $5.4 million of the increase in amortization of loan costs ~~was associated with non-cash compensation~~ related to options and warrants granted in conjunction with obtaining new debt financing and the remainder of the increase was related to cash loan costs paid when those same loans were obtained. There was also a $0.9 million increase in interest expense in ~~the~~ 2003 ~~period~~ compared to ~~the~~ 2002 ~~period~~ due to the increase in debt outstanding, higher interest rates on ~~certain of the new~~ notes issued in 2003 and a decrease in the amount of interest that was capitalized to undeveloped properties as Infinity experienced a period of development inactivity during a significant portion of 2003.


	Income Tax

Infinity recognized a deferred tax benefit of approximately $1.1 million in ~~the year ended December 31,~~ 2002. The net operating losses generated in ~~the year ended December 31,~~ 2003 increased ~~Infinity's~~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 as described in Note 11 of the consolidated financial statements. Therefore, Infinity has reflected no net tax expense or benefit for ~~the year ended December 31,~~ 2003. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE NINE-MONTH TRANSITION PERIOD ENDED DECEMBER 31, 2001 Infinity incurred a net loss of $1.6 million, or $0.22 per fully diluted share, in the year ended December 31, 2002 compared to net income of $2.5 million, or $0.37 per fully diluted share in the nine-month transition period ended December 31, 2001. Infinity's gross profit decreased by $0.8 million to gross profit of $4.5 million in the year ended December 31, 2002 from $5.3 million for the nine-month transition period ended December 31, 2002. The decrease in gross profit during the period ended December 31, 2002 compared to the period ended December 31, 2001 was the result of a $1.3 million, or approximately 13%, decrease in oil field service revenue to $8.6 million from $9.9 million. The decrease in revenue was partially offset by a $0.5 million, or 10%, decrease in oil field service cost of services provided (See "Oil Field Services" discussion below). Oil field service revenue for the year ended December 31, 2002 was reduced by the elimination of $2.1 million of oil field service sales that were provided to Infinity-Wyoming by Consolidated for the development of its oil and gas properties and the cost of services provided was reduced by $1.1 million for those services provided to Infinity-Wyoming. In the nine-month transition period ended December 31, 2001, $0.5 million of oil field service revenue and $0.4 million in costs for providing those services were eliminated for inter-company sales. Additionally, gross profit comparisons were affected by a $0.7 million increase in production costs and taxes associated with a $0.6 million increase in revenue from the sale of oil and gas production in the year ended December 31, 2002 compared to the nine-month transition period ended December 31, 2001. (See "Oil and Gas Production" discussion below). 31 Operating expenses for the year ended December 31, 2002 increased $1.9 million from $2.8 million in the nine month transition period ended December 31, 2001 to $4.6 million in the 2002 period. Infinity and its subsidiaries also recognized depreciation, depletion and amortization ("DD&A") expense of approximately $1.8 million during the year ended December 31, 2002, an increase of approximately $0.7 million for the period compared to DD&A of approximately $1.1 million for the nine month period ended December 31, 2001. The increase in DD&A was due to the increase in the investment in Consolidated's fleet, the increase in depreciation associated with aviation assets and the increase in the depletion associated with the increased investment in oil and gas properties. Infinity recognized an operating loss $1.9 million for the period ended December 31, 2002 compared to operating income of $1.5 million for the nine month period ended December 31, 2001. Interest expense and finance charges decreased by $1.0 million to $0.8 million for the year ended December 31, 2002 compared to $1.9 million for the nine month period ended December 31, 2001. The decrease was primarily due to the increased capitalization of interest expense to undeveloped properties in the 2002 period while in 2001 Infinity had interest expense associated with the payoff of debt tied to investment stock that was sold during the 2001 period. During the nine-month transition period ended December 31, 2001, Infinity recognized a gain of $5.1 million on the sale of 225,000 shares of Evergreen Resources common stock. The gain on the sale of the Evergreen Resources stock was partially offset by $1.8 million in interest expense on the loans that were secured by the securities in the none-month transition period. Costs of $1.0 million were also incurred for unwinding the financing agreements secured by the Evergreen Resources common stock, which were capitalized to undeveloped properties of Infinity-Wyoming. Infinity recognized a deferred income tax benefit of $1.1 million, or 42.4% of the pre-tax loss, in the year ended December 31, 2002 compared to an income tax expense of $1.6 million, or 38.5% of pre-tax income in the nine-month transition period ended December 31, 2001. Oil Field Services During the year ended December 31, 2002, Consolidated generated $8.6 million in net revenue and cost of goods sold of $4.6 million compared to $9.9 million in net revenue and cost of goods sold of $5.2 million for the nine-month transition period ended December 31, 2001. Revenue for the year ended December 31, 2002 on sales to third parties was negatively impacted by environmental issues in the Powder River Basin of Wyoming which is serviced by the Gillette, Wyoming camp. Due to the requirement for an Environmental Impact Study across the Powder River Basin, very few drilling permits were issued for new wells. Consolidated performed approximately 770 less cement jobs in the 12 month period ended December 31, 2002 than in the nine-month transition period ended December 31, 2001. Because of the lack of drilling activities revenue from the Gillette, Wyoming, operations of Consolidated were reduced by $1.9 million from $2.3 million in the nine month transition period ended December 31, 2001 compared to $0.4 million in the year ended December 31, 2002. Cost of goods sold were reduced to $0.7 million for the year ended December 31, 2002, a $0.7 million decrease from $1.4 million in the nine month transition period ended December 31, 2001. Revenue for the period ended December 31, 2002 increased by $0.6 million at Consolidated's facilities in Kansas and Oklahoma while the cost of goods sold increased by $0.2 million due to the longer period recognized during 2002 compared to the nine-month transition period in 2001. For the year ended December 31, 2002 Consolidated also generated $2.1 million in revenue and $1.1 million in cost of goods sold related to inter-company sales to Infinity-Wyoming compared to inter-company sales and cost of goods sold for the nine-month transition period ended December 31, 2001 of $0.5 million and $0.4 million. The sales to Infinity-Wyoming are eliminated in the accompanying consolidated statement of operations. The following table details the change in gross revenue in millions of dollars, before discounts and inter-company eliminations, for the periods 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): 32

OIL FIELD SERVICE STATISTICS ($ IN MILLIONS, BEFORE DISCOUNTS) 2001 2002 (9 MONTH PERIOD) CHANGE ----------------- ----------------- ------------------- JOB TYPE JOBS REVENUE JOBS REVENUE JOBS REVENUE Cementing 1,002 $ 3.4 1,781 $ 5.2 (779) $ (1.8) Acidizing 773 1.1 665 0.9 108 0.2 Fracturing 981 6.5 776 4.6 205 1.9 Discounts

	Liquidity and Eliminations (2.4) (0.8) (1.6) -------- -------- --------- $ 8.6 $ 9.9 $ (1.3) ======== ======== ========= Capital Resources

Oil and Gas Production During the year ended December 31, 2002, Infinity-Wyoming recorded $0.9 million in revenue on the sale of oil and $1.3 million in revenue on the sale of natural gas from its Pipeline and Labarge projects. Infinity-Wyoming incurred approximately $1.0 million in lease operating expenses, $0.2 million in production taxes and $0.3 million in transportation fees to produce the oil and gas during the period ended December 31, 2002. The total production expense, transportation and production taxes of approximately $1.5 million equates to $1.70 in lifting costs on total MCF equivalents of 903,310. Infinity-Wyoming also incurred approximately $0.7 million in general and administrative costs and $0.2 million in DD&A expense, or approximately $1.00 per MCF equivalent for the period. Infinity-Wyoming began selling oil and gas production from its Pipeline project and generated $1.1 million in revenue and incurred operating and transportation expenses of approximately $0.6 million and production taxes of approximately $0.1 million for the nine-month transition period ended December 31, 2001. Due to the sporadic production associated with the new wells calculation of a per MCFE lifting or overhead cost for the nine-month transition period is meaningless. Statistics based on a per MCFE basis for the year ended December 31, 2002 can be found in the previous discussion comparing the 2003 operations to the 2002 operations. Infinity-Kansas recorded net revenue of $0.2 million for sales of oil production from its Kansas properties and operating expenses and production taxes of $0.2 million during the year ended December 31, 2002. Effective May 1, 2002 Infinity-Kansas sold its interest in the Owl Creek and Manson properties to West Central Oil, LLC for cash and a note receivable. During the nine-month transition period ending December 31, 2001, Infinity-Kansas recorded net revenue of $0.6 million from its Kansas properties and operating expenses and production taxes of $0.5 million. Infinity-Wyoming experienced a $0.2 million increase in administrative expense in the year ended December 31, 2002 compared to the nine-month transition period ended December 31, 2002. This increase in administrative expense was primarily related to an increase in costs associated with increased staffing such as auto expenses, computer services and rent. Corporate Activities Infinity and its subsidiaries incurred approximately $1.9 million in expenses associated with corporate activities during the year ended December 31, 2002 compared to approximately $0.8 million in the nine-month transition period ended December 31, 2001. Included in the $1.1 million increase in corporate costs were approximately $0.4 million in increased shareholder maintenance costs, $0.1 million increase in legal and accounting fees and $0.3 million in increased staffing costs including salaries, benefits, and travel costs. Other Income and Expense Other income and expense was a net expense of $0.8 million for the year ended December 31, 2002 compared to other income of approximately $2.7 million for the nine-month transition period ended December 31, 2001. Interest expense and finance charges decreased by $1.1 million to $0.8 million for the year ended December 31, 2002 compared to $1.9 million for the nine month period ended December 31, 2001. The decrease was primarily due to the increased capitalization of interest expense to undeveloped properties in the 2002 period and an increased expense associated with the payoff of debt associated with investment stock that was sold during the 2001 period. During the nine-month transition period ended December 31, 2001, Infinity recognized a gain of $5.1 million on the sale of 225,000 shares of Evergreen Resources common stock. The 33 gain on the sale of the Evergreen Resources stock was partially offset by $1.8 million in interest expense on the loans that were secured by the securities in the none-month transition period. Costs of $1.0 million were also incurred for unwinding the financing agreements secured by the Evergreen Resources common stock, which were capitalized to undeveloped properties of Infinity-Wyoming. Infinity recognized a deferred income tax benefit of $1.1 million, or 42.4% of the pre-tax loss, in the year ended December 31, 2002 compared to an income tax expense of $1.6 million, or 38.5% of the pre-tax income, in the nine-month transition period ended December 31, 2001. LIQUIDITY AND CAPITAL RESOURCES Infinity's

Infinity’s primary sources of liquidity are cash provided by operations and debt ~~financing,~~ and ~~the~~ equity ~~market. Infinity's~~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 ~~the oil field~~oilfield service ~~business.~~businesses.

As of December 31, ~~2003,~~2004, the Company had a working capital ~~deficit~~ of ~~$2.2~~$0.3 million, compared to a working capital deficit of ~~$3.0~~$2.2 million at December 31, ~~2002. The increase in the working~~2003. Working capital ~~was the result of~~increased by approximately $2.5 million due to an approximate $5.9 million increase in current assets due primarily to (i) a $2.3 million increase in cash; (ii) a $1.7 million increase in net accounts receivable; and (iii) an approximate $1.6 million increase in the current portion of ~~$0.2~~a note receivable, offset by an approximate $3.4 million ~~and a decrease~~increase in current liabilities ~~of $0.3 million. The~~due to (i) a $1.5 million increase in current assets was mainly due to an increase of $0.2 million in oil field service receivables and an increase of $0.1 million in oil and gas revenue receivables during the period. These increases in receivables were partially offset by a reduction in cash of approximately $0.1 million from December 31, 2003 to December 31, 2002. In addition to the increase in current assets, Infinity also reduced its current liabilities through payment of accounts payable ~~which resulted in~~and (ii) a net decrease of $0.2 million, repayments of long term debt and refinancing current notes into long term debt which resulted in a reduction in current liabilities of approximately $0.5 million. These decreases in current liabilities were partially offset by a $0.4$3.5 million increase in accrued ~~expenses associated with oil and gas revenues payable and production and severance taxes payable as production increased.~~liabilities; offset by (iii) a $1.4 million decrease in current portion of long-term debt.

During the year ended December 31, ~~2003, cash provided by operations was $2.8 million compared to~~2004, cash provided by operating activities ~~during the year ended December 31, 2002 of $0.1 million.~~was $5.5 million, compared to $2.8 million in 2003. The increase isin cash provided by operating activities of $2.7 million was primarily due to the $5.3 million decrease in net loss.

During 2004, Infinity used $9.9 million in investing activities, compared to $6.9 million used in 2003. The increase in ~~income/(loss) before non-cash expenses~~cash used in investing activities of $3.0 million was primarily attributable to a $6.0 million increase in exploration and production capital expenditures and a $1.7 million increase in oilfield services capital expenditures, partially offset by a $4.6 million increase in proceeds of sale of fixed assets.

During 2004, Infinity financing activities provided $6.8 million, compared to $3.9 million from financing activities during 2003. The increase in cash provided by financing activities of $2.9 million was due to an $8.5 million increase in proceeds from equity issuances, net of issuance costs, offset by a ~~loss before non-cash expenses of $0.7 million in 2002 to income of $2.3 million in 2003. There was also a $0.2~~$5.3 million decrease in ~~the amount of cash provided as~~proceeds from borrowings and a ~~result of the changes~~$0.3 million increase in ~~operating assets (accounts receivable, inventories and prepaid expenses) and operating liabilities (accounts payable and accrued expenses) during the 2003 period compared to the 2002 period.~~debt repayments.

Effective June 13, 2001, Infinity ~~utilized cash of approximately $0.5 million due to the change~~sold $6,475,000 in ~~operating assets and liabilities~~8% Subordinated Convertible Notes in ~~the year ended December 31, 2003 compared to generating $0.8 million in the comparable 2002 period.~~a private placement. During the year ended December 31, ~~2003,~~2004, $308,276 of the notes and interest accrued on those notes was converted into 63,179 shares of common stock, leaving an outstanding balance on the notes of $2,493,000 at December 31, 2004. The remaining notes and accrued interest were converted in their entirety by February 28, 2005 into 517,296 shares of the Company’s common stock.

Effective April 17, 2002, Infinity ~~used $6.9 million~~sold $12,540,000 in ~~investing activities by investing $5.7 million~~7% Subordinated Convertible Notes in ~~developing oil~~a private placement. Infinity issued $391,000 in additional notes for the payment of accrued interest due April 15, 2004 and ~~gas properties, $1.1 million~~$404,000 in property and equipment, and $0.2 million in other assets and intangibles. This compares to Infinity investing $14.4 million in oil and gas properties, $2.7 million in property and equipment, and $0.1 million in other assets and intangiblesadditional notes for the payment of accrued interest due October 15, 2004. In addition, during

the year ended December 31, ~~2002. Offsetting~~2004, $487,472 of the ~~use~~notes and interest accrued on notes were converted into 62,685 shares of common stock, leaving an outstanding balance on the notes of $11,516,698 at December 31, 2004. During 2005, through March 23, the holders of $5,950,538 of 7% have converted the debt and accrued interest into 783,779 shares of the Company’s common stock. The remaining notes are currently subject to redemption by Infinity on April 22, 2005 and the outstanding balance of the notes on March 23, 2005 was approximately $5.6 million. Infinity has cash available to redeem the remaining 7% notes should they not be presented for conversion prior to the redemption date.

Effective November 25, 2002, Infinity issued $3,000,000 in ~~investing activities~~notes to a stockholder. These notes were secured with a first or second priority security interest in ~~2002 was~~certain gas properties and accrued interest at 7% per annum. On January 15, 2004, Infinity issued 125,000 shares of common stock valued at $4.00 per share and paid $750,000 in cash, as partial payment on the ~~receipt of $0.8 million from the sale of marketable securities and $0.2 million from the sale of property and equipment and oil and gas properties.~~$3,000,000 bridge note. As a result Infinity used a total of $16.2 million in investing activities during the year ended December 31, 2002. Infinity received $11.5 million from financing activities and $0.8 million from the exercise of options which was used to pay $8.4 million in outstanding debt, to pay interest on convertible notes, and development costs related to its oil and gas properties during the year ended December 31, 2003. During the comparable period of 2002, Infinity received $21.7 million from financing activities (including the sale of the ~~7% convertible notes) and $1.9 million from~~private placement of common stock on November 15, 2004, the ~~exercise of options which~~note was ~~used to pay $7.4 million on outstanding debt and development exploration and development costs on its oil and gas properties.~~repaid in full during November 2004.

In January 2002, Consolidated established a ~~three year~~ term loan collateralized by substantially all of its ~~oil field~~oilfield service equipment, a revolving line of credit secured by the eligible receivables of Consolidated and a $1.0 million capital expenditures line of credit with LaSalle Bank, N.A. ~~The notes bear interest at 1% over the prime rate with the notes due January, 2005. At December 31, 2003~~(“LaSalle Bank”). Effective July 9, 2004, Consolidated ~~owed $1.4~~borrowed $5.4 million ~~on the notes to LaSalle 34~~ Bank. Principal payments of $80,626 and $15,626 are made monthly on the term loan and capital expenditures loan respectively. Consolidated expects to utilize the excess equity in its equipment that securesunder this loan to expand its borrowing base in order to fund future equipment needs and to provide working capital to the parent and affiliates. On July 3, 2003 Infinity borrowed $3.85 million to pay outstanding payables, $1.0 million outstanding on the 12% bridge loan notes that were issued in April 2003, and to pay for completion work on existing gas wells. These notes were repaid from the proceedsfacility. As a result of the ~~U.S. Bank National Association~~closing of the Senior Secured Notes Facility, ~~discussed below. On~~the indebtedness under the LaSalle facility was repaid in full on January 13, 2005.

In September 4, 2003, Infinity-Wyoming established a Secured Revolving Borrowing Base Credit Facility ~~("Facility") whereby~~with U.S. Bank National Association ("(“U.S. ~~Bank"~~Bank”) ~~will provided debt financing.~~. The ~~Facility provides~~facility provided for funding of up to $25.0 million. The total amount made available to Infinity-Wyoming under the Facility was based on an initial borrowing base determination which was in turn based on the volume of oil and gas production expected, the term and price of hedging contracts in place,million, and the costs associated with producing the oil and gas and associated general and administrative expense. The facility is subject to semi-annual borrowing base determinations based on the same criteria as the original determination. Infinity-Wyoming and U.S. Bank will each have the option to request one additional re-determination during each calendar year. U.S. Bank has the sole discretion on increasing the borrowing base if the semi-annual determination indicates that there is additional borrowing base available. The initial amount made available under the facility and drawn by the Company was $5.5 million. ~~Interest on the Facility accrues and is payable monthly at the rate~~At December 31, 2004 $5.0 million of debt under the U.S. Bank ~~Prime Rate plus 100 basis points. Interest~~facility is ~~currently 5% per annum on the Facility. The initial advance on the Facility~~reflected as long-term debt as it was used to repay $3.85 million in bridge loans issued in July 2003, $0.75 million notes issued in January, 2003, initial loan costs and legal fees associated with the negotiation and closing of the Facility, property development costs, and working capital. Subsequent to December 31, 2003 Infinity-Wyoming re-paid $0.4 million of the debt associated with this facility and requested a $0.3 million letter of credit to secure our gas marketing contracts. The loan is subject to various restrictive and financial covenants. At December 31, 2003, the Company was in violation of the working capital covenant. Subsequent to December 31, 2003, the Company was granted a waiver of the violation as of December 31, 2003 and through April 30, 2004 at which time management believes it will be in compliance and remain in compliance for the remainder of the year. Infinity's anticipated cash needs for 2004 do not contemplate any acceleration of all or part of the payment of the outstanding balance due to a future violation, if any. At December 31, 2003, Infinity had $2.8 million of 8% Subordinated Convertible Notes outstanding. During the year ended December 31, 2003 the holders of approximately $1.5 million of the notes, which are due in June 2006, converted their notes to common stock. Subsequent to December 31, 2003 an additional $0.1 million of the notes were converted, leaving approximately $2.7 million in notes outstanding at March 31, 2004. These notes accrue approximately $19,000 in interest monthly which is payable in June and December. There are no payment obligations, other than interest, on the notes until June 2006. Subsequent to December 31, 2003, in accordance with the provisions of the notes, the conversion price of the notes was adjusted to $4.88 per share of common stock. The original conversion price of $5.00 per share was adjusted in accordance with anti-dilution provisions of the note agreement upon the private placement of 1,000,000 shares of Infinity common stock for $4.00 per share. As of December 31, 2003 Infinity had $11.2 million in 7% Subordinated Convertible Notes Payable outstanding. Infinity issued $379,000 in additional notes in lieu of cash to pay accrued interest on the outstanding notes on October 15, 2003. There are no payment obligations, other than interest, on the notes until April of 2007. Including the additional $379,000 in notes issued on October 15, 2003, interest on these notes accrues at approximately $65,500 per month and is due in April and October. Due to current cash constraints, Infinity expects that it will issue additional notes in lieu of a cash interest payment on April 15, 2004. Subsequent to December 31, 2003 in accordance with the provisions of the notes, the conversion price of the notes was adjusted to $8.067 per share of common stock. The original conversion price of $8.625 per share was adjusted in accordance with anti-dilution provisions of the note agreement upon the private placement of 1,000,000 shares of Infinity common stock for $4.00 per share. In November 2002, Infinity borrowed $3.0 million from a stockholder in order to pay current payables. The bridge loan, which was originally due January 5, 2004 and had a 5.25% interest rate, was extended until January 30, 2005 and the interest rate was adjusted to 7% in September 2003. Subsequent to December 31, 2003, Infinity repaid $1,250,000 of this loan with $750,000 in cash and 125,000 shares of Infinity common stock valued at $4.00 per share. Interest on the loan is paid monthly with current payments being approximately $10,000 per month. In conjunction with the amendments to extend the due date, waive rights to early payment and subordinate to other lenders, Infinity issued options to purchase 375,000 shares of Infinity, Inc. common stock at $8.75 per share for five years during 2003. 35 Infinity, Inc. and its subsidiaries owe approximately $4.0 million for real estate and equipment loans secured by assets of Infinity and its subsidiaries. These notes mature in one to eighteen years and bear interest from 6.0% to 9.50% and have monthly payments of approximately $34,800. One of the notes requires a payment of 5% of the outstanding loan balance each January which resulted in a payment of approximately $123,000 in January of 2004. Infinity received proceeds from the issuance of common stock, upon the exercise of 146,169 options, of $0.8 million during the year ended December 31, 2003. Beginning in June of 2001 with the issuance of the 8% Subordinated Convertible Notes, Infinity has utilized stock options and warrants as an inducement to lenders to lend money to Infinity and its subsidiaries. The options and warrants are non-cash compensation and are valued using the Black-Scholes valuation model. The value is recorded as capitalized loan costs and amortized as interest expense using the effective interest method. When a loan is repaid, the loan costs associated with that loan are fully amortized in that period. Infinity has capitalized $7.0 million, $5.0 million, and $0.9 million of non-cash compensation during the years ended December 31, 2003 and 2002, and the nine month period ended December 31, 2001, respectively. In addition to the non-cash compensation, Infinity has capitalized $0.5 million, $1.0 million, and $0.7 million in cash loan costs in the respective periods which are also amortized to interest expense using the effective interest method. During the period ended December 31, 2003, Infinity recognized interest expense for the amortization of non-cash loan costs of $5.4 million and of cash loan costs of $0.6 million. Infinity also capitalized $2.7 million in amortization to undeveloped oil and gas properties as capitalized interest. Subsequent to December 31, 2003, Infinity repaid $1.25 million, or 42%, of $3.0 million loans due January 5, 2005.long-term credit facility. As a result of the ~~partial payment, Infinity will amortize 42%, or $0.7 million,~~closing of the ~~remaining unamortized loan costs, as interest expense~~Senior Secured Notes Facility, the indebtedness under the U.S. Bank facility was repaid in full on January ~~2004. The remaining unamortized loan costs will be amortized using the effective interest method.~~13, 2005.

Infinity expects to recognize approximately $0.2 million per month in interest expense during 2004 in association with amortization of capitalized loan costs based on loans currently outstanding. In the first quarter of 2004, Infinity-Wyoming completed six wells drilled during the fourth quarter of 2003 and acquired an additional 49% working interest in two existing wells and 960 acres of undeveloped leasehold adjacent to the Pipeline project at a cost of approximately $1.0 million. With the acquisition, Infinity-Wyoming assumed operations of the wells. In the first quarter of 2004, Schlumberger began re-completion activities on two of the original Riley Ridge wells on the Labarge project by perforating additional areas of the well bore and re-fracing the wells. Schlumberger also began completion activities on one of the wells on the Thompson acreage that had been drilled in the fourth quarter of 2002. Depending on the results of these activities, Infinity-Wyoming, through the agreement, could drill an additional five to six wells on the Thompson acreage during 2004. Infinity-Wyoming also expects to complete the Environmental Impact Study ("EIS") on the Labarge acreage during the fourth quarter of 2004 or early in 2005. Management believes that it will require between $4.0 million and $4.5 million in capital to pay for the un-risked services for the drilling and completion work on wells drilled in 2004, if any, and the completion of the EIS. Infinity anticipates it will incur approximately $1.6 million in interest on its current outstanding notes, incur $1.0 million in other corporate usage, and an additional $0.8 million related to the Nicaragua leases (when finalized) during 2004. Infinity, Inc. issued 1,000,000 shares of common stock in January of 2004 in a private placement for which it received net proceeds after offering costs of approximately $3.9 million. The net proceeds of this offering, after making a $750,000 payment on notes, ~~are being~~were used to pay costs associated with the completion of the Pipeline Field wells drilled in the fourth quarter of 2003, to pay for the ~~un-risked services associated with the~~ Labarge Field well completion activities, and for working capital. ~~Consolidated expects~~

Infinity issued 1,027,000 shares of common stock in November 2004 in a private placement for which it received net proceeds after offering costs of approximately $4.9 million. The net proceeds of this offering, after making a $1,750,000 payment on notes, were used to ~~generate approximately $3.6 million in operating cash flow from~~pay costs associated with the ~~oil field service business through~~initial drilling of the ~~next twelve months. The cash flow from this business segment is expected to be driven by an increase in business~~Fort Worth Basin wells drilled in the ~~Powder River Basin~~fourth quarter of ~~Wyoming as~~2004 and for working capital.


	Outlook for 2005

Depending on the availability of capital resources, the availability of third party contractors for drilling ~~activity increases as a result~~and completion services, and satisfaction of regulatory activities, Infinity could incur capital expenditures of approximately $42 million during 2005. Capital expenditures by operating entity would be approximately $30 million by Infinity-Texas; $10 million by Infinity-Wyoming; and $2 million by Consolidated. The Company could also make capital expenditures for acquisitions in excess of these amounts should appropriate opportunities arise.

Following the sale of the ~~completion~~Senior Secured Notes and Warrants to Buyers in January 2005, Infinity used approximately $9.2 million of the ~~Powder River environmental impact study~~proceeds to repay all amounts outstanding pursuant to the Loan and ~~an increase in oil field service operations in eastern Kansas~~Security Agreement between LaSalle Bank N.A. and ~~northeastern Oklahoma as customers move forward~~Consolidated, the Credit Agreement with ~~development activities~~U.S. Bank National Association and Infinity-Wyoming, and certain other secured lending agreements, and those credit agreements have been terminated. No principal on ~~leases that will be expiring within~~ the ~~next two years. 36~~ ~~Infinity-Wyoming~~Notes is ~~also expected to generate~~due until 2009. Following the repayment of debt and transaction expenses of approximately ~~$4.0 to $5.0~~$2.3 million, ~~in operating cash flow from~~Infinity had approximately $18.5 million available for oil and gas ~~production operations~~exploration and development expenditures. In addition, 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. 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. Management of the Company is of the opinion that it is reasonably likely that the Company will be eligible to sell $15 million in additional Notes and Warrants during the ~~same period. Infinity-Wyoming estimates production to be approximately 3,500 MCF per day~~second half of ~~gas and approximately 120 barrels~~2005.

In January 2005, Infinity called for the redemption of ~~oil per day through December 2004. Infinity-Wyoming has a contract in place to sell~~ the first 3,500 MMBTU per day at $4.71 per MMBTU through March, 2004, 2,000 MMBTU per day for $4.40 per MMBTU through March 2005, and 2,000 MMBTU per day through March 2006. The volumes represented by these contracts are subject to a $0.55 per MCF gathering and transportation fee. Infinity utilized a Henry Hub futures price of $5.67remaining 8% Subordinated Convertible Notes due 2006 outstanding on February 28, 2005. All $2.5 million outstanding on the ~~date~~8% notes converted into common stock prior to the redemption date.

In February 2005, Infinity has called for redemption of ~~its estimate~~the remaining 7% Subordinated Convertible Notes due 2007 outstanding on April 22, 2005. Approximately $5.6 million of ~~expected 2004 operating~~principal remains outstanding as of March 23, 2005. The Company has cash ~~flow, less $0.70 estimated pricing differential for location and $0.55 gathering and transportation fee for calculating the revenue for April 2004 until December 2004~~ on ~~estimated volumes~~deposit in excess of the ~~contracted volumes. Infinity-Wyoming also used an average~~amount outstanding at March 23, 2005, should the remaining 7% notes not be presented for conversion prior to the redemption date.

Depending on the market price for crude oil ~~price~~and natural gas during 2005, production levels from wells not yet placed on line, and continued demand for and acceptance of ~~$34.42 based on a NYMEX strip price less~~our oilfield service operations in the ~~$0.75 contract differential. Production expenses~~geographic areas we serve, Infinity would expect to generate at least $10 million from operating activities during 2005.

Through March 23, 2005, Infinity has received approximately $4 million in proceeds from the exercise of options and ~~overhead are expected~~warrants. Management expects to ~~comparable~~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 will have approximately $47.5 million available to it in ~~2004 to what was experienced in 2003. The following amounts represent management's current estimates~~2005 from the net proceeds from the sale of ~~certain expenses and sources~~Notes ($18.5 million), the sale of Additional Notes ($15.0 million), cash from ~~which actual expenditures~~operating activities (at least $10.0 million), and ~~cash may vary materially. There can be no assurance that Infinity will not be required~~proceeds from the exercise of options and warrants (at least $4.0 million), to obtain additional external financing in 2004. It does not include the Nicaragua lease which is not currently completed, nor acquisitions, capital expenditures, or other development and exploration activities that are not currently completed:

~~Depending on~~fund its success in negotiations and the availability of acquisition candidates, Consolidated anticipates making strategic acquisitions of approximately $1.2 million to $2.0 million over the next year and havingplanned capital expenditures of approximately ~~$1.0~~$42 million ~~related~~and redeem the 7% notes should none of the balance outstanding at March 23, 2005 be presented for conversion.

Should Infinity identify acquisition opportunities, or if it wishes to ~~equipment~~accelerate the exploration and ~~facilities. Management is also negotiating to increase~~development of its ~~borrowings through its existing facility with LaSalle Bank~~oil and gas properties beyond that currently anticipated, or a new facility with LaSalle Bank. Consolidated believes it will be able to borrow an additional $1.5 million on this facility, which, along with credit available to Consolidated through local sources and vendors will be sufficient to meet Consolidated's anticipated capital expenditure needs, including acquisitions, of approximately $3.0 million. 37 In addition to the acquisition in 2004 discussed above, Infinity-Wyoming expects to drill two wells on the newly acquired acreage during 2004 at a cost of approximately $0.5 million. To the extent the potential surplusif cash flow from ~~operations~~operating activities is not ~~available,~~at levels anticipated, or if Infinity ~~will be required~~is unable to ~~obtain~~sell additional debt or equity financing to complete these wells. Infinity-Wyoming could potentially have capital expenditures, subject to permitting requirements, of up to approximately $10.6 million as follows: - drillnotes and ~~complete eight wells in~~warrants under the Pipeline field for the development of reserves at a cost of $3.8 million; - complete five additional production wells and two disposal wells and install the related facilities on the Labarge acreage at a cost of approximately $4.2 million; - drill and complete an exploratory well and one disposal well and the related facilities on the Sand Wash Basin at a cost of $1.6 million; - drill and complete an exploratory well and one disposal well and the related facilities on the Antelope acreage at a cost of $1.0 million. In order to fund Infinity-Wyoming's potential additional capital expenditures of $10.6 million, Infinity-Wyoming will be required to pursue funding through the increase of the borrowing base on the U.S. BankSenior Secured Notes Facility, ~~or other conventional bank financing,~~Infinity may seek the forward sale of ~~its~~ oil and gas production, partnerships or strategic alliances for the development of its undeveloped acreage, ~~or through~~ the public or private offering of common or preferred equity or subordinated debt, market pursued by the parent. The amount of progress that Infinity-Wyoming will be able to make on the development of its properties will be dependent upon its ability to obtain the proper permits for the development andasset sales, or other joint interest or joint venture opportunities to fund ~~the development. Obtaining permits and sufficient funding to meet these additional capital expenditures cannot be assured. CRITICAL ACCOUNTING POLICIES AND ESTIMATES~~any cash shortfalls.


	*Critical Accounting Policies and Estimates*

Infinity believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. ~~Reserve Estimates Infinity's~~


	Reserve Estimates

Infinity’s estimated quantities of proved reserves at December 31, 2004 and 2003 were prepared by independent petroleum engineers Netherland, Sewell and Associates, Inc. and at December 31, 2002 ~~and 2001~~ were prepared by independent petroleum engineers Wells Chappell and Company, Inc. ~~Infinity's~~Infinity’s estimates of oil and natural gas reserves, by necessity, are projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulation of oil and natural gas that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. Estimates of economically recoverable oil and natural gas reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies and assumptions governing future oil and natural gas prices, future operating costs, severance, ~~ad-valorem~~ad valorem and excise taxes, development costs and work-over and remedial costs, all of which may in fact vary

considerably from actual results. For these reasons, estimates of the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected there from may vary substantially. Any significant variance in the assumptions could materially affect the estimated quantity and value of the reserves, which could affect the carrying value of ~~Infinity's~~Infinity’s oil and gas properties and the rate of depletion of the oil and gas properties. Actual production, revenues and expenditures with respect to ~~Infinity's~~Infinity’s reserves will likely vary from estimates, and such variances may be material. 38


	Oil and Gas Properties, Depreciation and Full Cost Ceiling Test

Infinity follows the ~~full-cost~~full cost method of accounting for oil and gas properties. Under this method, all productive and nonproductive costs incurred in connection with the exploration for and development of oil and gas reserves are capitalized. Such capitalized costs include lease acquisition, geological and geophysical work, delay rentals, drilling, completing and equipping oil and gas wells, and salaries, benefits and other internal ~~salary-related~~salary related costs directly attributable to these activities. The capitalized costs are amortized over the life of the reserves associated with the assets with the amortization being expensed as depletion in the period that the reserves are produced. This depletion expense is calculated by dividing the ~~period's~~period’s production volumes by the estimated volume of reserves associated with the investment and multiplying the calculated percentage by the capitalized investment. Costs associated with production and general corporate activities are expensed in the period incurred. Interest costs related to unproved properties and properties under development are also capitalized to oil and gas properties.

If the net investment in oil and gas properties less asset retirement obligations, exceeds an amount equal to the sum of (1) the standardized measure of discounted future net cash flows from proved reserves including the effect of cash flow hedges, and (2) the lower of cost or fair market value of properties in process of development and unexplored acreage, the excess is charged to expense as additional depletion. Infinity is required to review the carrying value of its oil and gas properties each quarter under the full cost accounting rules of the Securities and Exchange Commission. Under these rules, capitalized costs of proved oil and gas properties, ~~less~~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 taxes, may not exceed an amount equal to the sum of the present value of estimated future net revenues from proved reserves, discounted at 10%. Application of the ceiling test generally requires pricing future revenue at the un-escalated prices in effect as of the last day of the quarter, including the effects of cash flow hedges, and requires a ~~write-down~~write down for accounting purposes if the ceiling is exceeded. Unproved oil and gas properties are not amortized, but are assessed for impairment either individually or on an aggregated basis using a comparison of the carrying values of the unproved properties to net future cash flows. ~~Infinity recognized~~

A decline in prices received for oil and gas sales or an increase in operating costs subsequent to ~~December 31, 2003~~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. ~~Property, Equipment And~~


	Property, Equipment and Depreciation

Equipment utilized in the ~~oil field~~oilfield service business and to support operations on ~~Infinity's~~Infinity’s oil and gas properties is stated at cost. This equipment is depreciated using the ~~straight-line~~straight line method over the estimated useful lives of the assets of three to 30 years.


	Valuation of Tax Asset

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 is more likely than not to be realized in the form of a deferred tax valuations allowance. ~~OFF-BALANCE SHEET ARRANGEMENTS~~


	Off-Balance Sheet Arrangements

Infinity has no material off-balance sheet arrangements. ~~CONTRACTUAL OBLIGATIONS Infinity's~~


	Contractual Obligations

Infinity’s contractual obligations, including those of its consolidated subsidiaries, include long-term debt, equipment and operating leases and other non-current obligations. The following table lists ~~Infinity's~~Infinity’s significant contractual obligations at December 31, ~~2003.~~

2004.


	Payments Due by Period

	Total		<1 Year		1-3 Years		3-5 Years		>5 Years

	(In thousands)
8% subordinated convertible notes	$	2,493	$	—	$	2,493	$	—	$	—
7% subordinated convertible notes		11,517		—		11,517		—		—
Revolving credit facilities and term loans		9,288		3,150		5,980		103		55
Note payable to seller		2,326		124		216		194		1,792
Asset retirement obligations		635		—		—		—		635
Office lease		355		122		200		33		—
Non-current production and property taxes		469		469		—		—		—
Total contractual obligations	$	27,083	$	3,865	$	20,406	$	330	$	2,482

For purposes of this table, Infinity is assuming that the holders of the 7% and 8% subordinated convertible notes will not exercise the conversion feature. In addition periodic interest payments required under the credit facilities and the 7% and 8% subordinated convertible notes are not reflected in the table. In January 2005, the Company repaid the revolving credit facility and term loans using proceeds from the Senior Secured Notes facility. However, the table above reflects the original maturity of the debt.

This table does not reflect the obligations associated with the gas gathering contract ~~that Infinity-Wyoming has~~ related to ~~its~~the Pipeline property. That contract is subject to certain delivery commitments that Infinity-Wyoming has not met. However, the gas gatherer has also not been able to supply the additional system capacity to allow Infinity-Wyoming to meet its delivery obligations and, ~~therefore, discussions are under way to amend~~Infinity-Wyoming expects that the contract will be amended to ~~volumes~~reflect volume requirements that are consistent with deliveries. ~~Recently Issued Accounting Pronouncements Proposed~~


	Recently Issued Accounting Pronouncements

In December 2004, the FASB ~~Staff Positions ("FSP") No. FAS 141-a and FAS 142-a were recently~~ issued ~~with a comment deadline of April 16, 2004. These proposed FSPs would amend~~ SFAS No. ~~141, "Business Combinations"~~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. ~~142, "Goodwill~~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 ~~Intangible Assets"~~increase future cash provided by financing activities, to the extent of associated tax benefits that may be realized in ~~order~~the future.

The Company is required to ~~resolve a recent reporting issue. There is an inconsistency between~~adopt SFAS No. 123(R) in its third quarter of fiscal 2005, beginning July 1, 2005. Under SFAS No. 123(R), Infinity must determine the ~~recent Financial Accounting Standards Board ("FASB") consensus that such mineral rights should~~appropriate fair value model to be ~~considered tangible assets~~used for ~~accounting purposes~~valuing share-based payments, the amortization method for compensation cost, and the ~~characterization~~transition method to be used at date of ~~mineral rights~~adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive options, prior periods may be restated either as ~~intangible~~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 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. 141 and No. 142. Under~~153 specifies that a nonmonetary exchange has commercial substance if the ~~proposed FSPs, mineral rights would continue to be considered tangible assets for accounting purposes with disclosure~~future cash flows of the ~~amount~~entity are expected to change significantly as a result of the ~~mineral rights disclosed on the balance sheet or in the notes to the consolidated financial statements. Assuming that the proposed FSPs are finalized, the guidance would be~~exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005. The Company is currently evaluating the effect that the adoption of SFAS 153 will have on consolidated results of operations and financial condition but does not expect it to have a material impact.

Staff Accounting Bulletin (“SAB”) 106 was released in September 2004. SAB 106 expresses the SEC staff’s views on the interaction of SFAS No. 143 and the full cost method and provides guidance on computing the full cost ceiling as well as depreciation, depletion and amortization. SAB 106 also requires additional disclosures regarding how the application of SFAS No. 143 has affected the ceiling test and depreciation, depletion and amortization. The Company adopted SAB 106 during the fourth quarter ~~ended June 30,~~of 2004 and prior period amounts would also need to be disclosed in the consolidated financial statements. At December 31, 2003 and 2002, the Company has included $9,500,000 and $7,500,000, including capitalized interest, in oil and gas properties in the accompanying consolidated balance sheets of which approximately $3,972,000 and $684,000 respectively are subject to amortization. 39 ~~ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Infinity's~~experienced no significant impact on its depletion or ceiling test calculation.


ITEM 7A.	*QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET 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~~Infinity’s crude oil and natural gas production. Historically, prices received for gas production have been volatile and unpredictable. Pricing volatility is expected to continue. Gas price realizations ranged from a low of ~~$3.27~~$4.17 to a high of ~~$5.51~~$6.98 per ~~MCF~~Mcf during the year ended December 31, ~~2003.~~2004. Oil price realizations ranged from a low of ~~$27.37~~$33.35 per barrel to a high of ~~$35.08~~$52.58 per barrel during the period. ~~Infinity-Wyoming~~

Infinity periodically enters into fixed price contracts or hedging activities on a portion of its projected natural gas 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 oil and gas price fluctuations. Realized gains or losses from ~~Infinity-Wyoming's~~Infinity’s cash flow risk management activities are recognized in ~~gas~~ production revenues. In the year ended December 31, ~~2003,~~2004, the effect of Infinity-Wyoming hedging its gas production compared to if it had sold the gas on the spot market was ~~an increase~~a decrease in revenue of approximately ~~$133,000. At~~$0.6 million.

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 12-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 would have been in compliance with this hedging requirement at December 31, ~~2003 Infinity-Wyoming~~2004, had ~~a derivative asset of approximately $97,000.~~ the Notes been issued and outstanding on that date.


ITEM 8.	*FINANCIAL STATEMENTS.*

The consolidated financial statements and supplementary information filed as part of this Item 8 are listed under Part IV, Item 15, ~~"Exhibits,~~“Exhibits, Financial Statement Schedules, and Reports on Form ~~8-K"~~8-K” and contained in this Form 10-K at page F-1. ~~ITEM 9. CHANGE IN INDEPENDENT ACCOUNTANTS Infinity's previous auditor, Sartain Fischbein & Co., was dismissed as our independent auditor on January 24, 2002.~~


ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*

None.


ITEM 9A.	*CONTROLS AND PROCEDURES*

The reports on Infinity's financial statements for the fiscal years ended March 31, 2001 and 2000 prepared by Sartain Fischbein & Co. did not contain any adverse opinion or disclaimer of opinion nor were they qualified as to audit scope or accounting principles. In connection with the prior audits for the fiscal years ended March 31, 2001 and 2000, and from March 31, 2001 to January 25, 2002, there were no disagreements with Sartain Fischbein & Co. on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. The decision to change accountants was not considered separately by Infinity's Audit Committee but each member of the Audit Committee approved the decision. Effective January 24, 2002, Ehrhardt Keefe Steiner & Hottman P.C. was engaged as the Company's independent auditor. ITEM 9A. CONTROLS AND PROCEDURES Evaluation ofCompany maintains disclosure controls and procedures ~~Infinity's Chief Executive Officer and~~that are designed to ensure that information required to be disclosed in the ~~Chief Financial Officer evaluated the effectiveness of Infinity's disclosure controls and procedures as of December 31, 2003 in accordance with Rule 13a-15~~reports under the Securities Exchange ~~Act. Based on their evaluation, the Chief Executive Officer~~Act of 1934, as amended (“Exchange Act”) are communicated, processed, summarized and ~~Chief Financial Officer concluded that Infinity's disclosure controls and procedures enable Infinity to: - record, process, summarize and report~~reported within the time periods specified in the ~~Security and Exchange Commission's~~SEC’s rules and ~~forms, information~~forms. At the end of the Company’s fourth quarter of 2004, as required ~~to be disclosed~~ by ~~Infinity in~~Rules 13a-15 and 15d-15 of the ~~reports it files or submits~~Exchange Act, an evaluation was carried out under the ~~Exchange Act;~~supervision and ~~- accumulate~~with the participation of the Company’s management, including the Chief Executive Officer and ~~communicate to management, as appropriate to allow timely decisions regarding required~~Principal Financial and Accounting Officer, of the effectiveness of the design and operation of disclosure ~~information required to be disclosed by Infinity in the reports that it files or submits under the Exchange Act. 40~~ ~~Changes in internal control over financial reporting There were no changes in Infinity's internal control over financial reporting~~controls and procedures (as defined in Rule ~~13a-15(f)~~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 fourth quarter ~~ended December 31, 2003~~of 2004 that ~~have materially~~ affected, or ~~are~~were reasonably likely to materially affect, the ~~Company's~~Company’s internal control over financial reporting. 41

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 quarter of 2005 and intends to add additional accounting personnel 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.

PART III ~~ITEM 10:~~


ITEM 10:	*DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT*

Information regarding directors of Infinity is incorporated by reference to the section entitled ~~"Election~~“Election of ~~Directors"~~Directors” in our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2004 annual meeting of shareholders (the ~~"Proxy Statement"~~“Proxy Statement”). ~~ITEM 11:~~


ITEM 11:	*EXECUTIVE COMPENSATION*

Reference is made to the information set forth under the caption ~~"Executive~~“Executive Compensation and Other ~~Information"~~Information” in ~~our proxy statement,~~the Proxy Statement, which information (except for the report of the board of directors on executive compensation and the performance graph) is incorporated by reference in this report on Form 10-K. ~~ITEM 12:~~


ITEM 12:	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT*

Reference is made to the information set forth under the caption ~~"Security~~“Security Ownership of Principal Shareholders and ~~Management"~~Management” in ~~our proxy statement,~~the Proxy Statement, which information is incorporated by reference in this report on Form 10-K. ~~ITEM 13:~~


ITEM 13:	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS*

Reference is made to the information contained under the caption ~~"Certain Transactions"~~“Certain Transactions” contained in ~~our proxy statement,~~the Proxy Statement, which information is incorporated by reference in this report on Form 10-K. ~~ITEM 14:~~


ITEM 14:	*PRINCIPAL ACCOUNTANT FEES AND SERVICES*

Reference is made to the information contained under the caption ~~"Appointment~~“Appointment of Independent ~~Accountant"~~Accountant” contained in ~~our proxy statement,~~the Proxy Statement, which information is incorporated by reference in this report on Form 10-K. 42

PART IV ~~ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K~~


ITEM 15:	*EXHIBITS, FINANCIAL STATEMENT SCHEDULES*

(a) Documents filed as part of this report on Form 10-K or incorporated by reference. (1) Our consolidated financial statements are listed on the "index to Financial Statements" on Page F-1 to this report. (2) Financial Statement Schedules (omitted because not applicable or not required. Information is disclosed in the notes to the financial statements). (3) The following exhibits are filed with this report on Form 10-K or incorporated by reference.


	(1) Our consolidated financial statements are listed on the “Index to Consolidated Financial Statements” on Page F-1 to this report.

	(2) Financial Statement Schedules (omitted because not applicable or not required. Information is disclosed in the notes to the financial statements).

	(3) The following exhibits are filed with this report on Form 10-K or incorporated by reference.

EXHIBITS EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------- ----------------------------------------------------------------------- 3.1 Articles of Incorporation and Bylaws (1) 3.2 Articles and Amendment to Articles of Incorporation (1) 4.1 Form of 8% Convertible Subordinated Note (1) 4.2 Form of Trust Indenture for 8% Convertible Subordinated Notes with the Wilmington Trust Company (3) 4.3 Form of Placement Agent Warrant in connection with 8% Convertible Subordinated Notes (1) 4.4 Trust Indenture for 7% Convertible Subordinated Notes with Wilmington Trust Company (1) 4.5 Form of Placement Agent Warrants in connection with 7% Convertible Subordinated Notes (4) 4.6 Form of Warrant Agreement for 12% Bridge Note Financing (1) 10.1 Stock Option Plan (1) 10.2 1999 Stock Option Plan (2) 10.3 Assignment of Participation Agreement, Assignment of Participation Agreement, Conveyance, and Bill of Sale between Infinity Oil and Gas, Inc. and Infinity Oil and Gas of Wyoming, Inc. (2) 10.4 Participation Agreement between Wold Oil Properties, Inc. And Infinity Oil and Gas, Inc. (2) 10.5 Assignment of Oil and Gas Leases, Operating Rights and Record Title, Conveyance and Bill of Sale between Infinity Oil and Gas, Inc. And Infinity Oil and Gas of Wyoming, Inc. (2) 10.6 Joint Operating Agreement, Manson Lease, between Verde Oil Company and Infinity Oil and Gas of Kansas, Inc. (2) 10.7 2000 Stock Option Plan (1) 10.8 2001 Stock Option Plan (6) 10.9 Purchase and Sale Agreement dated November 3, 2000 between Antelope Energy Company, LLC, Coyote Exploration Company and Melange Associates, Inc. and Infinity Oil and Gas of Wyoming, Inc. (6) 10.10 Loan and Security Agreement between LaSalle Bank N.A. and Consolidated Oil Well Services, Inc. and related guaranties (1) 10.11 2002 Stock Option Plan (7) 10.12 2003 Stock Option Plan (8) 10.13 Form of Assignment of Overriding Royalty Interest for 12% Bridge Note Financing (5) 10.14 Credit agreement dated as of September 4, 2003 between Infinity Oil and Gas of Wyoming, Inc. and U.S. Bank National Association (5) 10.15 Joint Value Enhancement Agreement dated December 3, 2003 among Infinity Oil and Gas of Wyoming, Inc., Schlumberger Technology Corporation and Red Oak Capital Management LLC* 21 Subsidiaries of the Registrant 23.1 Consent of Ehrhardt, Keefe, Steiner & Hottman, P.C. 23.2 Consent of Netherland Sewell and Associates, Inc. 31.1 Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a_14(a) and Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley act of 2002). 31.2 Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a_14(a) and Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley act of 2002). 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. 43 Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) ____________________ (1) Incorporated by reference to our Registration Statement (No. 33-17416-D) (2) Incorporated by reference to our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2000. (3) Incorporated by reference to our Registration Statement on Form S-3 (File No. 333-69292). (4) Incorporated by reference to our Registration Statement on Form S-3 (File No. 333-96671). (5) Incorporated by reference to our Quarterly Report on Form 10-QSB for the quarter ended September 30, 2003. (6) Incorporated by reference to our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2001. (7) Incorporated by reference to our Annual Report on Form 10-KSB for the transition period ended December 31, 2001. (8) Incorporated by reference to our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002. * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. (b) Reports on form 8-K. Infinity filed a report on Form 8-K dated December 10, 2003 in which Infinity reported under Item 5 an agreement with Schlumberger Technology Corporation and Red Oak Capital Management LP to develop Infinity's Labarge Property. Infinity filed a report on Form 8-K dated November 14, 2003 in which Infinity reported under Item 7 and Item 12 the financial results for the third quarter of 2003. 44


Exhibit
Number		Description of Exhibits

	3.1	Articles of Incorporation and Bylaws(1)
	3.2	Articles and Amendment to Articles of Incorporation(1)
	3.3	Articles of Amendment to Articles of Incorporation(2)
	4.1	Form of 8% Convertible Subordinated Note(1)
	4.2	Form of Trust Indenture for 8% Convertible Subordinated Notes with the Wilmington Trust Company(3)
	4.3	Form of Placement Agent Warrant in connection with 8% Convertible Subordinated Notes(1)
	4.4	Trust Indenture for 7% Convertible Subordinated Notes with Wilmington Trust Company(1)
	4.5	Form of Placement Agent Warrants in connection with 7% Convertible Subordinated Notes(4)
	4.6	Form of Warrant Agreement for 12% Bridge Note Financing(1)
	4.7	Form of Common Stock Purchase Agreement for January 2004 private placement(5)
	4.8	Form of Registration Rights Agreement in connection with January 2004 private placement(5)
	4.9	Form of Common Stock Purchase Agreement for November 2004 private placement(6)
	4.10	Form of Registration Rights Agreement for November 2004 private placement(6)
	4.11	Securities Purchase Agreement for Senior Secured Notes with Promethean Asset Management LLC(7)
	4.12	Form of Initial Note for Senior Secured Notes (7)
	4.13	Form of Additional Note for Senior Secured Notes(7)
	4.14	Registration Rights Agreement in connection with Senior Secured Notes(7)
	4.15	Form of Warrant in connection with Senior Secured Notes(7)
	4.16	Form of Security Agreement for Senior Secured Notes(7)
	4.17	Form of Guaranty for Senior Secured Notes(7)
	4.18	Form of Mortgage for Senior Secured Notes(7)
	10.1	Stock Option Plan (1); 1999 Stock Option Plan (2); 2000 Stock Option Plan (1); 2001 Stock Option Plan (8); 2002 Stock Option Plan (9); 2003 Stock Option Plan (10); 2004 Stock Option Plan(11)
	10.2	Loan and Security Agreement between LaSalle Bank N.A. and Consolidated Oil Well Services, Inc. and related guaranties (1); Third Amendment to Loan and Security Agreement with LaSalle Bank N.A. (12); Fourth Amendment to Loan and Security Agreement with LaSalle Bank N.A.(13)
	10.3	Credit agreement dated as of September 4, 2003 between Infinity Oil and Gas of Wyoming, Inc. and U.S. Bank National Association (14); First Amendment of Credit Agreement with U.S. Bank(13)
	10.4	Promissory Note to Stanton E. Ross, dated June 11, 2004(13)
	21	Subsidiaries of the Registrant
	23.1	Consent of Ehrhardt, Keefe, Steiner & Hottman, P.C.
	23.2	Consent of Netherland Sewell and Associates, Inc.
	31.1	Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a_14(a) and Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley act of 2002).
	31.2	Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a_14(a) and Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley act of 2002).
	32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
	32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)


(1)	Incorporated by reference to our Registration Statement (No. 33-17416-D).

(2)	Incorporated by reference to our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2000.

(3)	Incorporated by reference to our Registration Statement on Form S-3 (File No. 333-69292).

(4)	Incorporated by reference to our Registration Statement on Form S-3 (File No. 333-96671).

(5)	Incorporated by reference to our Current Report on Form 8-K, filed with the SEC on January 21, 2004.

(6)	Incorporated by reference to our Current Report on Form 8-K, filed with the SEC on November 16, 2004.

(7)	Incorporated by reference to our Current Report on Form 8-K, filed with the SEC on January 14, 2005.

(8)	Incorporated by reference to our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2001.

(9)	Incorporated by reference to our Annual Report on Form 10-KSB for the transition period ended December 31, 2001.


(10)	Incorporated by reference to our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002.

(11)	Incorporated by reference to our Registration Statement on Form S-8 (File No. 333-117390).

(12)	Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.

(13)	Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.

(14)	Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.

SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Infinity has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. ~~INFINITY, INC.~~


	INFINITY, INC.


	By:	/s/Stanton E. Ross



	Stanton E. Ross
	President and Chief Executive Officer

Dated: April 14, 2004 By: /s/ Stanton E. Ross ------------------------------- Stanton E. Ross, PresidentMarch 30, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Infinity and in the capacities and on the dates indicated: Signature Capacity Date --------- -------- ---- /s/ Stanton E. Ross President, Treasurer April 14, 2004 - --------------------------- (Principal Executive Stanton E. Ross Officer) and Director /s/ Jon D. Klugh Chief Financial April 14, 2004 - --------------------------- Officer and Secretary Jon D. Klugh (Principal Financial and Accounting Officer) /s/ Robert O. Lorenz Director April 14, 2004 - --------------------------- Robert O. Lorenz /s/ Leroy C. Richie Director April 14, 2004 - --------------------------- Leroy C. Richie /s/ O. Lee Tawes Director April 14, 2004 - --------------------------- O. Lee Tawes 45 ~~TABLE~~


Signature	Capacity	Date


/s/Stanton E. Ross Stanton E. Ross	President and Chief Executive Officer (Principal Executive Officer) and Director	March 30, 2005

/s/James A. Tuell James A. Tuell	Executive Vice President (Principal Financial and Accounting Officer)	March 30, 2005

/s/Elliot M. Kaplan Elliot M. Kaplan	Director	March 30, 2005

/s/Robert O. Lorenz Robert O. Lorenz	Director	March 29, 2005

/s/Leroy C. Richie Leroy C. Richie	Director	March 30, 2005

O. Lee Tawes	Director	March , 2005

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


		Page

Report of Independent Registered Public Accounting Firm			F-2
Consolidated Financial Statements:
	Consolidated Balance Sheets — December 31, 2004 and 2003		F-3
	Consolidated Statements of Operations — For the Years Ended December 31, 2004, 2003 and 2002		F-4
	Consolidated Statements of Changes in Stockholders’ Equity — For the Years Ended December 31, 2004, 2003 and 2002		F-5
	Consolidated Statements of Cash Flows — For the Years Ended December 31, 2004, 2003 and 2002		F-7
Notes to Consolidated Financial Statements			F-9

F-1

REPORT OF CONTENTS ----------------- Page ---- Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . F-2 Financial Statements: Consolidated Balance Sheets - December 31, 2003 and 2002. . . . . F-3 Consolidated Statements of Operations - For the Years Ended December 31, 2003 and 2002 and the Nine Months Ended December 31, 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statements Changes in Stockholders' Equity - For the Years Ended December 31, 2003 and 2002 and the Nine Months Ended December 31, 2001 . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Cash Flows - For the Years Ended December 31, 2003 and 2002 and the Nine Months Ended December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . F-7 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-9 F-1 INDEPENDENT ~~AUDITORS' REPORT~~ REGISTERED

PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Infinity, Inc. and Subsidiaries

Chanute, Kansas

We have audited the consolidated balance sheets of Infinity, Inc. and Subsidiaries as of December 31, ~~2003~~2004 and ~~2002~~2003 and the consolidated statements of operations, changes in ~~stockholders'~~stockholders’ equity and cash flows for the years ended December 31, 2004, 2003 and ~~2002 and the nine months ended December 31, 2001.~~2002. These consolidated financial statements are the responsibility of the ~~Company's~~Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with ~~auditing~~ standards ~~generally accepted in~~of the ~~United States of America.~~Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial condition of Infinity, Inc. and Subsidiaries, as of December 31, ~~2003~~2004 and ~~2002,~~2003, and the results of their operations and their cash flows for the years ended December 31, 2004, 2003 and 2002, ~~and the nine months ended December 31, 2001,~~ in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2003, the Company changed its method of accounting for asset retirement ~~obligations~~obligations.


	/s/ Ehrhardt Keefe Steiner & Hottman PC

March 13, 2005, except for Notes 7, 8 and ~~effective April 1, 2001, the Company changed its method~~16

which are as of ~~accounting for derivative instruments. Ehrhardt Keefe Steiner & Hottman PC April 8, 2004~~ March 23, 2005

Denver, Colorado

F-2
INFINITY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, -------------------------- 2003 2002 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 727,134 $ 867,017 Accounts receivable, less allowance for doubtful accounts of $80,000 (2003) and $25,000 (2002) 1,766,642 1,514,159 Inventories 351,197 340,217 Prepaid expenses and other 222,625 257,575 Derivative asset 97,624 - ------------ ------------ Total current assets 3,165,222 2,978,968 Property and equipment, at cost, less accumulated depreciation 10,169,159 10,315,068 Oil and gas properties, using full cost accounting net of accumulated depreciation, depletion, amortization and write-down Subject to amortization 23,446,343 19,107,427 Not subject to amortization 12,815,834 13,176,850 Intangible assets, at cost, less accumulated amortization 3,952,989 5,299,881 Note receivable, less current portion 1,580,742 1,597,053 Other assets, net 135,989 655,022 ------------ ------------ Total assets $55,266,278 $53,130,269 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 1,762,777 $ 2,227,195 Accounts payable 2,645,277 2,875,900 Accrued expenses 966,769 889,894 ------------ ------------ Total current liabilities 5,374,823 5,992,989 Long-term liabilities Production taxes payable 229,889 79,632 Asset retirement obligations 520,638 - Long-term debt, less current portion 9,252,872 4,464,156 8% subordinated convertible notes payable 2,793,000 4,243,000 7% subordinated convertible notes payable 11,184,000 12,540,000 Note payable - related party 3,000,000 3,000,000 ------------ ------------ Total liabilities 32,355,222 30,319,777 ------------ ------------ Commitments and contingencies Stockholders' equity Common stock, par value $.0001, authorized 300,000,000 shares, issued and outstanding 8,204,032 (2003) and 7,558,462 (2002) shares 820 756 Additional paid-in-capital 32,720,904 22,870,449 Accumulated other comprehensive income (loss) 97,624 (77,301) (Accumulated deficit) retained earnings (9,908,292) 16,588 ------------ ------------ Total stockholders' equity 22,911,056 22,810,492 ------------ ------------ Total liabilities and stockholders' equity $55,266,278 $53,130,269 ============ ============ See notes to consolidated financial statements.
~~F-3~~
INFINITY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended For the Nine December 31, Months Ended -------------------------- December 31, 2003 2002 2001 ------------ ------------ ------------ Revenue Oil and gas service operations $11,634,457 $ 8,570,631 $ 9,853,624 Oil and gas sales 6,589,281 2,367,713 1,759,095 ------------ ------------ ------------ Total revenue 18,223,738 10,938,344 11,612,719 Cost of revenue Oil and gas service operations 6,222,919 4,620,663 5,154,495 Oil and gas production expenses 2,161,666 1,582,816 1,074,460 Oil and gas production taxes 758,827 237,876 66,290 ------------ ------------ ------------ Total cost of revenue 9,143,412 6,441,355 6,295,245 ------------ ------------ ------------ Gross profit 9,080,326 4,496,989 5,317,474 Operating expenses 5,311,080 4,647,062 2,789,026 Depreciation, depletion and amortization 3,074,247 1,782,586 1,010,811 Ceiling write-down of oil and gas properties 2,975,000 - - ------------ ------------ ------------ 11,360,327 6,429,648 3,799,837 ------------ ------------ ------------ Operating (loss) income (2,280,001) (1,932,659) 1,517,637 Other (expense) income Interest and other income 129,599 102,460 81,212 Amortization of loan costs (6,200,633) (234,680) (52,832) Interest expense (1,593,765) (602,350) (1,866,155) Impairment of other assets - - (600,050) Gain on sale of investments - - 5,128,280 Gain (loss) on sale of other assets 19,920 (33,665) (77,641) ------------ ------------ ------------ Total other (expense) income (7,644,879) (768,235) 2,612,814 ------------ ------------ ------------ (Loss) income before income taxes (9,924,880) (2,700,894) 4,130,451 Income tax benefit (expense) - 1,144,028 (1,590,056) ------------ ------------ ------------ Net (loss) income $(9,924,880) $(1,556,866) $ 2,540,395 ============ ============ ============ Basic (loss) earnings per share $ (1.23) $ (.22) $ .39 ============ ============ ============ Diluted (loss) earnings per share $ (1.23) $ (.22) $ .37 ============ ============ ============ Weighted average basic shares outstanding 8,047,688 7,202,844 6,501,104 ============ ============ ============ Weighted average diluted shares outstanding 8,047,688 7,202,844 6,965,922 ============ ============ ============ See notes to consolidated financial statements.
~~F-4~~
INFINITY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 AND THE NINE MONTHS ENDED DECEMBER 31, 2001 Accumulated (Accumulated Total Other Common Stock Additional Deficit) Compre- Compre- ------------------ Paid-in Retained hensive hensive Stockholders' Shares Amount Capital Earnings Loss Income(Loss) Equity --------- ------- ----------- ------------ ------------ ------------- ------------ Balance, March 31, 2001 6,449,874 $ 644 $11,416,720 $ (966,941) $ 3,145,975 $13,596,398 Issuance of common stock for cash upon the exercise of options 65,350 8 126,062 - - 126,070 Warrants granted in connection with 8% subordinated convertible notes - - 924,717 - - 924,717 Beneficial conversion feature - - 1,165,500 - - 1,165,500 Comprehensive loss: Net income - - - 2,540,395 $ 2,540,395 - 2,540,395 Embedded derivative liability - - - - - (1,793,426) (1,793,426) Other comprehensive income; unrealized holding gains in securities during the period, net of income taxes of $123,587 - - - - 238,690 238,690 238,690 Reclassification gains on sales of securities, net of taxes of $1,743,615 - - - - (3,384,665) (3,384,665) (3,384,665) Embedded derivative liability reclassified to earnings - - - - - 1,793,426 1,793,426 --------- ------- ----------- ------------ ------------ ------------- ------------ Comprehensive loss $ (605,580) ============ Balance, December 31, 2001 6,515,224 652 13,632,999 1,573,454 - 15,207,105 Issuance of common stock for cash upon the exercise of options and warrants 588,264 58 1,947,147 - - 1,947,205 Conversion of 8% subordinated convertible notes and accrued interest into common stock 454,974 46 2,274,813 - - 2,274,859 Warrants granted in connection with $2,000,000 bridge loan - - 1,347,728 - - 1,347,728 Warrants granted in connection with 7% subordinated convertible notes - - 1,386,044 - - 1,386,044 Warrants granted in connection with $3,000,000 bridge loan - - 2,281,718 - - 2,281,718 Comprehensive loss: Net loss - - - (1,556,866) $(1,556,866) - (1,556,866) Change in fair value of fixed price delivery contract, net of tax benefit of $60,712 - - - - (96,981) (96,981) (96,981) Reclassifications, net of income tax expense of $12,320 - - - - 19,680 19,680 19,680 --------- ------- ----------- ------------ ------------ ------------- ------------ Comprehensive loss $(1,634,167) ============ Balance, December 31, 2002 7,558,462 756 22,870,449 16,588 (77,301) 22,810,492 Issuance of common stock upon the exercise of options and warrants 146,169 15 824,219 - - 824,234 See notes to consolidated financial statements.
~~F-5~~
INFINITY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 AND THE NINE MONTHS ENDED DECEMBER 31, 2001 Accumulated (Accumulated Total Other Common Stock Additional Deficit) Compre- Compre- ------------------ Paid-in Retained hensive hensive Stockholders' Shares Amount Capital Earnings Loss (Loss) Equity --------- ------- ----------- ------------ ------------ --------- ------------- Conversion of 8% subordinated convertible notes and accrued interest into common stock 295,689 29 1,478,521 - - 1,478,550 Conversion of 7% subordinated convertible notes and accrued interest into common stock 203,712 20 1,756,996 - - 1,757,016 Options granted in connection with $1,050,000 of new bridge loans - - 1,050,000 - - 1,050,000 Options granted in connection with amendments and agreements related to a $3,000,000 bridge loan - - 2,493,329 - - 2,493,329 Warrants granted in connection with $4,850,000 of bridge loans - - 2,247,390 - - 2,247,390 Comprehensive loss: Net loss - - - (9,924,880) $(9,924,880) - (9,924,880) Change in fair value of fixed price delivery contract, net of tax expense of $151,573 - - - - 256,500 256,500 256,500 Reclassifications net of income tax benefit of $51,068 - - - - (81,575) (81,575) (81,575) --------- ------- ----------- ------------ ------------ --------- ------------- Comprehensive loss $(9,749,955) ============ Balance, December 31, 2003 8,204,032 $ 820 $32,720,904 $(9,908,292) $ 97,624 $(22,911,056) ========= ======= =========== ============ ========= ============= See notes to consolidated financial statements.
~~F-6~~
INFINITY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended For the Nine December 31, Months Ended --------------------------- December 31, 2003 2002 2001 ------------ ------------- ------------ Cash flows from operating activities Net (loss) income $(9,924,880) $ (1,556,866) $ 2,540,395 ------------ ------------- ------------ Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation, depletion, amortization, impairment and ceiling write-down 6,049,247 1,782,586 1,610,861 Amortization of loan costs included in interest expense 6,200,633 234,680 52,832 Deferred income taxes - (1,144,028) 1,590,056 Gain on sale of investments - - (5,128,280) (Gain) loss on sale of other assets (19,920) 33,665 77,641 Change in assets and liabilities (Increase) decrease in accounts receivable (252,483) 85,724 (111,393) (Increase) decrease in inventories (10,980) 9,999 (85,967) (Increase) decrease in prepaid expenses and other (12,234) (89,985) 4,541 Increase in accounts payable 32,758 284,657 712,671 Increase in accrued expenses 782,391 495,383 97,564 ------------ ------------- ------------ 12,769,412 1,692,681 (1,179,474) ------------ ------------- ------------ Net cash provided by operating activities 2,844,532 135,815 1,360,921 ------------ ------------- ------------ Cash flows from investing activities Purchase of property, equipment, and intangibles (1,089,863) (2,695,382) (3,432,959) Proceeds from the sale of investments and marketable securities - 750,000 8,871,017 Purchase of marketable securities - - (750,000) Proceeds from sale of property and equipment, oil and gas properties and other assets 104,911 235,000 143,808 Investment in oil and gas properties (5,743,649) (14,426,524) (7,845,918) Payments on note receivable 15,103 7,844 - Increase in other assets (188,093) (88,547) (217,459) ------------ ------------- ------------ Net cash used in investing activities (6,901,591) (16,217,609) (3,231,511) ------------ ------------- ------------ Cash flows from financing activities Proceeds from borrowings on long-term debt 11,452,861 21,749,993 7,393,047 Sale of common stock 824,234 1,947,205 126,070 Principal payments on long-term debt (8,359,919) (7,414,285) (5,137,987) ------------ ------------- ------------ Net cash provided by financing activities 3,917,176 16,282,913 2,381,130 ------------ ------------- ------------ Net (decrease) increase in cash and cash equivalents (139,883) 201,119 510,540 Cash and cash equivalents, beginning of period 867,017 665,898 155,358 ------------ ------------- ------------ Cash and cash equivalents, end of period $ 727,134 $ 867,017 $ 665,898 ============ ============= ============ See notes to consolidated financial statements.
~~F-7~~
INFINITY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Supplemental cash flow disclosures: For the Years Ended For the Nine December 31, Months Ended ---------------------- December 31, 2003 2002 2001 ---------- ---------- ---------- Cash paid for interest, net of amounts capitalized $1,589,606 $ 383,449 $2,171,029 ========== ========== ========== Non-cash transactions: Non-cash costs, including amortization of loan costs included in full cost pool for oil and gas properties $2,714,974 $2,056,283 $1,570,377 ========== ========== ========== Property and equipment acquired through capital leases or seller financed debt $ 967,975 $ - $2,437,138 ========== ========== ========== Oil and gas properties acquired through seller financed debt $ 263,381 $ 607,236 $ - ========== ========== ========== Stock-based compensation for options and warrants granted in connection with debt, recorded as loan costs $5,790,719 $5,015,490 $ 924,717 ========== ========== ========== Conversion of 8% subordinated convertible notes and accrued interest to common stock $1,478,550 $2,274,859 $ - ========== ========== ========== Conversion of 7% subordinated convertible notes and accrued interest to common stock $1,757,016 $ - $ - ========== ========== ========== Issuance of additional notes in lieu of cash interest payment on 7% subordinated convertible notes $ 379,000 $ - $ - ========== ========== ========== Sale of oil and gas property for note receivable $ - $1,620,000 $ - ========== ========== ========== Change in accumulated other comprehensive loss, net of income taxes $ 174,925 $ 77,301 $3,145,975 ========== ========== ========== Reclassify other assets to oil and gas properties not subject to amortization $ 707,126 $ - $ - ========== ========== ========== Asset retirement obligation upon adoption $ 503,365 $ - $ - ========== ========== ========== See notes to consolidated financial statements.
~~F-8~~

INFINITY, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS


				December 31, 2004			December 31, 2003

ASSETS
Current assets
	Cash and cash equivalents			$	3,051,986		$	727,134
	Accounts receivable, less allowance for doubtful accounts of $85,476 (2004) and $80,000 (2003)				3,493,448			1,766,642
	Current portion of note receivable				1,580,742			16,311
	Inventories				286,365			351,197
	Prepaid expenses and other				654,107			206,314
	Derivative asset				—			97,624

			Total current assets		9,066,648			3,165,222
Property and equipment, at cost, less accumulated depreciation					8,764,327			10,043,828
Oil and gas properties, using full cost accounting net of accumulated depreciation, depletion, amortization and ceiling write-down
		Subject to amortization			28,791,880			23,446,343
		Not subject to amortization			15,595,508			12,715,834
Intangible assets, at cost, less accumulated amortization					1,497,076			3,952,989
Note receivable, less current portion					—			1,580,742
Other assets, net					332,824			361,320

Total assets				$	64,048,263		$	55,266,278


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
	Note payable and current portion of long-term debt			$	283,978		$	1,762,777
	Accounts payable				4,001,364			2,645,277
	Accrued liabilities				4,496,412			966,769

			Total current liabilities		8,781,754			5,374,823
Long-term liabilities
	Production taxes payable				469,054			229,889
	Asset retirement obligations				635,023			520,638
	Long-term debt, less current portion				11,330,438			9,252,872
	8% subordinated convertible notes payable				2,493,000			2,793,000
	7% subordinated convertible notes payable				11,516,698			11,184,000
	Note payable — related party				—			3,000,000

			Total liabilities		35,225,967			32,355,222

Commitments and contingencies
Stockholders’ equity
	Common stock, par value $.0001, authorized 300,000,000 shares, issued and outstanding 10,628,196 (2004) and 8,204,032 (2003) shares				1,063			820
	Additional paid-in-capital				43,362,925			32,720,904
	Accumulated other comprehensive income				—			97,624
	Accumulated deficit				(14,541,692	)		(9,908,292	)

			Total stockholders’ equity		28,822,296			22,911,056

Total liabilities and stockholders’ equity				$	64,048,263		$	55,266,278

See Notes to Consolidated Financial Statements

F-3

INFINITY, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS


			For the Year Ended December 31,

			2004			2003			2002

Revenue
	Oilfield service operations		$	14,720,979		$	11,634,457		$	8,570,631
	Exploration and production			6,267,453			6,589,281			2,367,713

		Total revenue		20,988,432			18,223,738			10,938,344
Cost of revenue
	Oilfield service operations			7,890,375			6,222,919			4,620,663
	Oil and gas production expenses			1,913,735			2,161,666			1,582,816
	Oil and gas production taxes			722,157			758,827			237,876

		Total cost of revenue		10,526,267			9,143,412			6,441,355

Gross profit				10,462,165			9,080,326			4,496,989
General and administrative expenses				5,462,491			5,311,080			4,647,062
Depreciation, depletion, amortization and accretion				5,197,981			3,074,247			1,782,586
Ceiling write-down of oil and gas properties				4,100,000			2,975,000			—

				14,760,472			11,360,327			6,429,648

Operating loss				(4,298,307	)		(2,280,001	)		(1,932,659	)
Other income (expense)
	Interest and other income			169,937			129,599			102,460
	Amortization of loan costs			(2,097,329	)		(6,200,633	)		(234,680	)
	Interest expense and finance charges			(1,231,515	)		(1,593,765	)		(602,350	)
	Gain (loss) on sales of other assets			2,823,814			19,920			(33,665	)

		Total other expense		(335,093	)		(7,644,879	)		(768,235	)

Net loss before income taxes				(4,633,400	)		(9,924,880	)		(2,700,894	)
Income tax benefit				—			—			1,144,028

Net loss			$	(4,633,400	)	$	(9,924,880	)	$	(1,556,866	)

Basic and diluted net loss per share			$	(0.49	)	$	(1.23	)	$	(0.22	)

Weighted average shares outstanding (basic and diluted)				9,495,346			8,047,688			7,202,844

See Notes to Consolidated Financial Statements

F-4

INFINITY, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the years ended December 31, 2004, 2003 and 2002


								(Accumulated						Accumulated
		Common Stock				Additional		Deficit)			Total			Other
						Paid-In		Retained			Comprehensive			Comprehensive			Stockholders’
		Shares		Amount		Capital		Earnings			Loss			Income (Loss)			Equity

Balance, December 31, 2001			6,515,224	$	652	$	13,632,999	$	1,573,454						—		$	15,207,105
Issuance of common stock for cash upon the exercise of options and warrants			588,264		58		1,947,147		—						—			1,947,205
Conversion of 8% subordinated convertible notes and accrued interest into common stock			454,974		46		2,274,813		—						—			2,274,859
Warrants granted in connection with $2,000,000 bridge loan			—		—		1,347,728		—						—			1,347,728
Warrants granted in connection with 7% subordinated convertible notes			—		—		1,386,044		—						—			1,386,044
Warrants granted in connection with $3,000,000 bridge loan			—		—		2,281,718		—						—			2,281,718
Comprehensive loss:
	Net loss		—		—		—		(1,556,866	)	$	(1,556,866	)		—			(1,556,866	)
	Change in fair value of fixed price delivery contract, net of tax benefit of $60,712		—		—		—		—			(96,981	)	$	(96,981	)		(96,981	)
	Reclassifications, net of income tax expense of $12,320		—		—		—		—			19,680			19,680			19,680

											$	(1,634,167	)

Balance, December 31, 2002			7,558,462		756		22,870,449		16,588						(77,301	)		22,810,492

See Notes to Consolidated Financial Statements

F-5

INFINITY, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the year ended December 31, 2004, 2003 and 2002


									(Accumulated						Accumulated
			Common Stock				Additional		Deficit)			Total			Other
							Paid-In		Retained			Comprehensive			Comprehensive			Stockholders’
			Shares		Amount		Capital		Earnings			Loss			Income (Loss)			Equity

Balance, December 31, 2002				7,558,462	$	756	$	22,870,449	$	16,588					$	(77,301	)	$	22,810,492
Issuance of common stock upon the exercise of options and warrants				146,169		15		824,219		—						—			824,234
Conversion of 8% subordinated convertible notes and accrued interest into common stock				295,689		29		1,478,521		—						—			1,478,550
Conversion of 7% subordinated convertible notes and accrued interest into common stock				203,712		20		1,756,996		—						—			1,757,016
Options granted in connection with $1,050,000 of bridge loans				—		—		1,050,000		—						—			1,050,000
Options granted in connection with amendments and agreements related to a $3,000,000 bridge loan				—		—		2,493,329		—						—			2,493,329
Warrants granted in connection with $4,850,000 of bridge loans				—		—		2,247,390		—						—			2,247,390
Comprehensive loss:
	Net loss			—		—		—		(9,924,880	)	$	(9,924,880	)		—			(9,924,880	)
	Change in fair value of fixed price delivery contract, net of tax benefit of $151,573			—		—		—		—			256,500			256,500			256,500
	Reclassifications, net of income tax expense of $51,068			—		—		—		—			(81,575	)		(81,575	)		(81,575	)

		Comprehensive loss										$	(9,749,955	)

Balance, December 31, 2003				8,204,032		820		32,720,904		(9,908,292	)					97,624			22,911,056
Issuance of common stock in private equity placement financings, net of costs of $319,644				2,027,000		203		8,917,853		—						—			8,918,056
Issuance of common stock to partially repay related party debt				125,000		13		499,987		—						—			500,000
Issuance of common stock upon the exercise of options and warrants				146,300		15		428,432		—						—			428,447
Conversion of 8% subordinated convertible notes and accrued interest into common stock				63,179		6		308,276		—						—			308,282
Conversion of 7% subordinated convertible notes and accrued interest into common stock				62,685		6		487,473		—						—			487,479
Comprehensive loss:
	Net loss			—		—		—		(4,633,400	)		(4,633,400	)		—			(4,633,400	)
	Reclassifications, net of income tax expense of $(57,559)			—		—		—		—			(97,624	)		(97,624	)		(97,624	)

		Comprehensive loss										$	(4,731,024	)

Balance, December 31, 2004				10,628,196	$	1,063	$	43,362,925	$	(14,541,692	)				$	—		$	28,822,296

See Notes to Consolidated Financial Statements

F-6

INFINITY, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS


				For the Year Ended December 31,

				2004			2003			2002

Cash flows from operating activities
	Net loss			$	(4,633,400	)	$	(9,924,880	)	$	(1,556,866	)

	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation, depletion, amortization, accretion, impairment and ceiling write-down			9,297,981			6,049,247			1,782,586
		Amortization of loan costs included in interest expense			2,097,329			6,200,633			234,680
		Deferred income taxes			—			—			(1,144,028	)
		(Gain) loss on sales of other assets			(2,823,814	)		(19,920	)		33,665
	Change in assets and liabilities
		(Increase) decrease in accounts receivable			(1,686,806	)		(252,483	)		85,724
		(Increase) decrease in inventories			64,832			(10,980	)		9,999
		(Increase) decrease in prepaid expenses and other			(89,160	)		(12,234	)		(89,985	)
		Increase in accounts payable			1,525,618			32,758			284,657
		Increase in accrued liabilities			1,709,944			782,391			495,383

			Net cash provided by operating activities		5,462,524			2,844,532			135,815

Cash flows from investing activities
	Capital expenditures — exploration and production				(11,714,121	)		(6,273,692	)		(15,560,549	)
	Capital expenditures — oilfield services				(1,149,093	)		(459,820	)		(1,561,357	)
	Proceeds from sale of fixed assets — exploration and production				155,779			—			—
	Proceeds from sale of fixed assets — oilfield services				4,653,771			104,911			235,000
	Proceeds from sale of investments and marketable securities				—			—			750,000
	Acquisitions — exploration and production, net of cash acquired				(516,239	)		—			—
	Acquisitions — oilfield services, net of cash acquired				(1,188,469	)		—			—
	Payments on note receivable				16,311			15,103			7,844
	Increase in other assets				(199,813	)		(288,093	)		(88,547	)

			Net cash used in investing activities		(9,941,874	)		(6,901,591	)		(16,217,609	)

Cash flows from financing activities
	Proceeds from notes payable				295,000			—			—
	Proceeds from borrowings on long-term debt				5,844,558			11,452,861			21,749,993
	Proceeds from issuance of common stock				9,666,147			824,234			1,947,205
	Equity issuance costs				(319,644	)		—			—
	Repayment of notes payable				(663,540	)		—			—
	Repayment of long-term debt				(8,018,319	)		(8,359,919	)		(7,414,285	)

			Net cash provided by financing activities		6,804,202			3,917,176			16,282,913

Net increase (decrease) in cash and cash equivalents					2,324,852			(139,883	)		201,119
Cash and cash equivalents, beginning of period					727,134			867,017			665,898

Cash and cash equivalents, end of period				$	3,051,986		$	727,134		$	867,017

See Notes to Consolidated Financial Statements

F-7

INFINITY, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)


	For the Year Ended December 31,

	2004		2003		2002

Supplemental cash flow disclosures:
Cash paid for interest, net of amounts capitalized	$	436,380	$	1,589,606	$	383,449
Non-cash transactions:
Non-cash costs capitalized in the full cost pool for oil and gas properties		1,070,065		2,714,974		2,056,283
Property and equipment acquired through capital lease or assumption of debt		195,000		967,975		—
Oil and gas properties acquired through seller financed debt		—		263,381		607,236
Stock based compensation for options and warrants granted in connection with debt, recorded as loan costs		—		5,790,719		5,015,490
Conversion of 8% subordinated convertible notes and accrued interest to common stock		308,282		1,478,550		2,274,859
Conversion of 7% subordinated convertible notes and accrued interest to common stack		487,479		1,757,016		—
Issuance of common stock to partially repay related party debt		500,000		—		—
Issuance of additional notes in lieu of cash interest payment on 7% subordinated convertible notes		795,000		379,000		—
Sale of oil and gas property for note receivable		—		—		1,620,000
Warrants valuation recorded as offering cost		120,000		—		—

See Notes to Consolidated Financial Statements

F-8

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~(CONTINUED) Note 1 - Organization and Summary of Significant Accounting Policies - --------------------------------------------------------------------~~


Note 1 —	Organization and Summary of Significant Accounting Policies

The Company and its subsidiaries are engaged in ~~providing oil and gas production enhancement services in northeastern Oklahoma, eastern Kansas, and~~ the ~~Powder River Basin of Wyoming and in oil and gas~~acquisition, exploration, development and production ~~activities~~of natural gas and crude oil in ~~southeast Kansas, south central Wyoming,~~the United States and ~~northwestern Colorado. Effective with the period ended December 31, 2001,~~also in Nicaragua. In addition, the Company ~~elected to begin utilizing a December 31 year-end. Therefore,~~provides oilfield services in the ~~period ended December 31, 2001 represents a nine-month period~~Mid-Continent region and ~~the years ended December 31, 2002 and 2003 represent twelve-month periods. Basis of Presentation - -----------------------~~in Northeast Wyoming.


	*Basis of Presentation*

The consolidated financial statements include the accounts of Infinity, Inc. and its ~~wholly owned~~wholly-owned subsidiaries, Consolidated Oil Well Services, Inc., Infinity Oil and Gas of Wyoming, Inc., Infinity Oil and Gas of Texas, Inc., Infinity Oil and Gas of Kansas, Inc., CIS -— Oklahoma, Inc., Infinity Research and Development, Inc., L.D.C. Food Systems, Inc., Consolidated Pipeline Company, Inc., CIS Oil and Gas, Inc., Infinity Nicaragua, Ltd., and Infinity Nicaragua Offshore, Ltd. Infinity Nicaragua, Ltd., and Infinity Nicaragua Offshore, Ltd. own a 98.2% interest in Rio Grande Resources, SA, which is also consolidated. All significant intercompany balances and transactions have been eliminated in consolidation. ~~Reclassifications - -----------------~~


	*Reclassifications*

Certain ~~reclassifications~~amounts in the accompanying consolidated financial statements for prior periods have been ~~made~~reclassified to conform to the ~~balances for the nine months ended December 31, 2001 and the~~current year ended December 31, 2002 to make them comparable to those presented for the year ended December 31, 2003, none of which change the previously reported net income (loss). Accounts Receivable - --------------------presentation.


	*Accounts Receivable*

Revenue producing activities are conducted primarily in Kansas, Oklahoma, and Wyoming. The Company grants credit to all qualified customers which potentially subjects the Company to credit risk resulting from, among other factors, adverse changes in the industries in which the Company operates and the financial condition of its customers. ~~However, management regularly monitors its credit relationships~~We continuously monitor collections and ~~provides adequate allowances~~payments from our customers and maintain an allowance for ~~potential losses. Hedging Activities - -------------------~~doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified.


	*Hedging Activities*

The Company accounts for derivative instruments or hedging activities under the provisions of Statement of Financial Accounting Standards No 133, ~~"Accounting~~“Accounting for Derivative Instruments and Hedging ~~Activities" ("~~Activities” (“SFAS ~~No 133"~~No. 133”). SFAS NoNo. 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 ~~F-9~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~ 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~~Company’s exposure to the effects of commodity price is reduced. If the contract is not a hedge, changes in the fair value are recorded in the ~~Company's~~Company’s statement of operations currently. If a derivative financial instrument, such as the contracts discussed above, is settled before the date of the anticipated

F-9

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 years ended December 31, 2004, 2003 and 2002, the Company had fixed price delivery contracts that were designated as cash flow hedges as follows:

~~MMBTU Amount Per Effective Dates Per Day MMBTU - ------------------------------------ ------- -----------~~ April 1, 2002 - October 31, 2002 1,000 $ 1.80 October 1, 2002 - September 30, 2003 1,000 2.97 November 1, 2002 - March 31, 2003 1,000 3.00 April 1, 2003 - March 31,

MMBtu Amount
Effective Dates Per Day Per MMBtu

April 1, 2002 — October 31, 2002 1,000 $ 1.80
October 1, 2002 — September 30, 2003 1,000 2.97
November 1, 2002 — March 31, 2003 1,000 3.00
April 1, 2003 — March 31, 2004 3,500 4.71
During 2004, ~~3,500 4.71~~
~~During the years ended December 31,~~ 2003 and 2002, the Company reclassified out of other comprehensive income, income of approximately $155,000, income of approximately $133,000 and losses of approximately $32,000, respectively, on the contracts, which have been included in natural gas revenues in the accompanying consolidated statement of operations and in cash provided by operating activities in the accompanying consolidated statement of cash flows. ~~At December 31, 2003 and 2002, the Company had a derivative asset of approximately $98,000 and a derivative liability of $126,000, respectively, related to the financial hedges.~~ 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. ~~Upon~~

During 2004, the ~~adoption of SFAS No 133 during~~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 ended December 31, 2001, the Company recorded a derivative liability of approximately $1,800,000 related to certain of the Company's debt obligations which were tied to the market value of the Company's marketable securities. The adjustment was recorded as a reduction in accumulated other comprehensive income on April 1, ~~2001,~~2004 until March 31, 2005 is $4.40 per MMBtu and the ~~entire amount was transferred to earnings~~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 ~~April 2001, when the related debt instruments were satisfied. Revenue Recognition - --------------------~~SFAS No. 133.


	*Revenue Recognition*

The Company recognizes sales of oil when the product is delivered and recognizes enhancement service revenue when the services are performed. The Company uses the sales method for recording natural gas sales. This method allows for recognition of revenue which may be more or less than the ~~Company's~~Company’s share of pro-rata production from certain wells. During ~~the years ended December 31,~~2004, 2003 and 2002, ~~and the nine months ended December 31, 2001,~~ there were no material natural gas imbalances. ~~Environmental Costs - --------------------~~


	*Environmental Costs*

The Company expenses, on a current basis, recurring costs associated with managing hazardous substances and pollution in ongoing operations. The Company ~~F-10~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~ also accrues for costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and its proportionate share of the amount can be reasonably estimated. ~~Management Estimates - ---------------------~~


	*Management Estimates*

The preparation of consolidated financial statements in conformity with accounting principles generally accepted 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 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 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. ~~Inventories - -----------~~

F-10

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Inventories*

Inventories, consisting primarily of cement mix, sand, fuel and chemicals, are stated at the lower of cost or market. Cost has been determined on the first-in, first-out method. ~~Property and Equipment - ------------------------~~


	*Property and Equipment*

Depreciation and amortization are computed using the straight-line method over the following estimated useful lives:



Assets	Useful Lives ~~- --------------------------------- ------------~~

Buildings		30 years
Site improvements		15 years
Machinery, equipment and vehicles		5 ~~- 10~~– 20 years
Office furniture and equipment ~~5 -~~		3 – 10 years

~~Oil and Gas Properties - -------------------------~~


	*Oil and Gas Properties*

The Company follows the full cost method of accounting for oil and gas properties. Accordingly, all ~~productive~~costs associated with property acquisition, exploration, and ~~non-productive~~development activities are capitalized. Exploration and development costs ~~associated~~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 ~~of oil and gas reserves, including directly related internal costs,~~activities, are also capitalized. The Company capitalized $652,038, $49,221, ~~$1,444,238~~ and ~~$684,843~~$1,444,238 of internal costs during ~~the years ended December 31,~~2004, 2003 and 2002, ~~and the nine months ended December 31, 2001,~~ 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 unevaluated costs to costs subject to amortization without a corresponding increase in proved reserves could cause the Company to reduce the carrying amounts of our 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.

F-11

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. See Note 17 for additional discussion of unevaluated properties.

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 Securities and Exchange ~~Commission's~~Commission’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. In addition, the capitalized costs are subject to a "ceiling test," which basically limits such costs to the aggregate of the "estimated present value," F-11 INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) discounted at a 10-percent interest rate of future net revenues from proved reserves, adjusted for cash flow hedges, net of estimated future income taxes, based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties. For the period ended December 31, 2003 the Company had a ceiling write-down of $2,975,000. For purposes of calculating the ceiling test, the Company has elected to subtract the fair value of the estimated asset retirement obligation from the capitalized costs. Depreciation and depletion of proved oil and gas properties is computed on the units-of-production method based upon estimates of proved reserves with oil and gas being converted to a common unit of measure based on their relative energy content. Unproved oil and gas properties, including any related capitalized interest expense, are not amortized, but are assessed for impairment either individually or on an aggregated basis. At December 31, 2003, the Company reclassified approximately $5,029,000 from unproved oil and gas properties to oil and gas properties subject to amortization. Sales of proved and unproved properties are accounted for as adjustments of 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. Abandonments of properties are accounted for as adjustments of capitalized costs with no loss recognized. Capitalized Interest - ---------------------


	*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 ~~depreciation and~~ depletion. Interest is capitalized only for the period that activities are in progress to bring these projects to their intended use. Total interest costs incurred ~~for the years ended December 31,~~in 2004, 2003 and 2002 were $1,866,104, $1,976,001, and ~~the nine months ended December 31, 2001 were $1,976,001,~~ $1,612,469, ~~and $2,321,056 (including a $1,793,426 charge to interest expense upon payoff of certain debt during the nine-month period ended December 31, 2001),~~ respectively. Interest costs capitalized were $634,589, $382,236, and $1,010,119 ~~and $454,901~~ for ~~the years ended December 31,~~2004, 2003 and 2002, ~~and the nine months ended December 31, 2001,~~ respectively. ~~Long-Lived Assets - ------------------~~


	*Long-Lived Assets*

Long-lived assets to be held and used in the ~~Company's~~Company’s business are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When the carrying ~~amount~~amounts of ~~the~~ long-lived assets ~~exceeds~~exceed the discounted expected future cash flows, the Company records an impairment. ~~The Company recorded a $600,050 impairment during the nine months ended December 31, 2001 to write other assets down to estimated net realizable value.~~ No impairment was recorded during ~~the years ended December 31,~~2004, 2003 or 2002. ~~Transportation Costs - ---------------------~~


	*Transportation Costs*

The Company accounts for transportation costs under Emerging Issues Task Force ~~("EITF"~~(“EITF”) 00-10, ~~"Accounting~~“Accounting for Shipping and Handling Fees and Costs,"” whereby amounts paid for transportation costs are classified as an operating expense and not netted against natural gas revenues. ~~Intangible Assets - ------------------~~


	*Intangible Assets*

The Company ~~has~~ adopted SFAS NoNo. 142 ~~"Goodwill~~“Goodwill and Other Intangible Assets,"” effective January 1, 2001. As a result, the Company ~~no longer amortizes F-12~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~does not amortize goodwill, but instead, reviews goodwill for impairment on at least an annual basis. ~~Amortization costs for the nine months ended December 31, 2001 were $8,438.~~

Other intangibles are recorded at cost and are amortized on the straight-line basis over the contractual or estimated useful life of the asset, which ranges from one to five years orusing the effective interest method.

F-12

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Amortization of loan costs associated with debt obtained in connection with exploration and development projects that are not subject to current amortization isare capitalized to oil and gas properties. Amortization of loan costs isare capitalized only for the period activities are in progress to bring these projects to their intended use. Total loan amortization costs capitalized for ~~the years ended December 31,~~2004, 2003 and 2002 were $555,375, $2,714,974, and ~~the nine months ended December 31, 2001 were $2,714,974,~~ $2,023,373, ~~and $147,239,~~ respectively ~~(See~~(see Note 54 for total loan costs classified as intangibles). ~~Per Share Information - -----------------------~~


	*Per Share Information*

Basic earnings (loss) per common share are computed as net income (loss) divided by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share isare computed as net income (loss) divided by the weighted average number of common shares and potential common shares, using the treasury stock method, outstanding during the period. ~~Cash and Cash Equivalents - ----------------------------~~


	*Cash and Cash Equivalents*

For purposes of reporting cash flows, cash generally consists of cash on hand and demand deposits with financial institutions. At times, the Company maintains deposits in financial institutions in excess of federally insured limits. Management monitors the soundness of the financial institutions and believes the ~~Company's~~Company’s risk is negligible.

The Company considers all highly liquid investments with an original maturity of three months or less to be a cash equivalent. Investment Securities - ---------------------- Investment securities that are held for short-term resale are classified as trading securities and carried at fair value. Debt securities that management has the ability and intent to hold to maturity are classified as held-to-maturity and carried at cost, adjusted for amortization of premium and accretion of discounts using methods approximating the interest method. Other marketable securities are classified as available-for-sale and are carried at fair value, based on quoted market prices. Unrealized gains and losses on securities available-for-sale are reported as a component of comprehensive income, net of applicable income taxes. Costs of securities sold are recognized using the specific identification method. Stock Options - --------------


	*Stock Options*

The Company applies Accounting Principles Board Opinion NoNo. 25, ~~"Accounting~~“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~~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 NoNo. 123, ~~"Accounting~~“Accounting for Stock-Based ~~Compensation"~~Compensation”, the ~~Company's~~Company’s net ~~income (loss)~~loss and ~~earnings (loss)~~loss per share would have been as follows ~~(See~~(see Note 10): ~~F-13~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~


	For the Year Ended December 31,

	2004			2003			2002

Net loss as reported	$	(4,633,400	)	$	(9,924,880	)	$	(1,556,866	)
Deduct: Total stock-based employee compensation expense, determined under fair value based method for all awards, net of tax		(1,702,904	)		(26,244	)		(2,448,341	)

Pro forma net loss	$	(6,336,304	)	$	(9,951,124	)	$	(4,005,207	)

Basic and diluted loss per share as reported	$	(0.49	)	$	(1.23	)	$	(0.22	)
Basic and diluted loss per share-pro forma	$	(0.67	)	$	(1.23	)	$	(0.56	)

For options granted during ~~the year ended December 31,~~2004, 2003 and 2002, ~~and the nine months ended December 31, 2001,~~ the estimated fair value of the options granted utilizing the Black-Scholes pricing model under the ~~Company's~~Company’s plan was based on a weighted average risk-free interest rate of 1.5%, ~~1.5% and 8.0%,~~ expected option life of 10 years for 2004 and 5 years for 2003 and 2002, expected volatility of approximately 147%, 131%, ~~117%~~ and ~~83%~~117%, and no expected dividends.

The Company has adopted the disclosure requirements of SFAS No. 148, ~~"Accounting~~“Accounting for Stock-Based Compensation Transition ~~Disclosure"~~Disclosure” in its consolidated financial statements. This statement amends

F-13

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SFAS NoNo. 123, ~~"Accounting~~“Accounting for Stock-Based ~~Compensation"~~Compensation” to provide alternative methods of transition for an entity that voluntarily changes to the fair value method of accounting for stock-based compensation. In addition, SFAS No. 148 amends the disclosure provision of SFAS No. 123 to require more prominent disclosure about the effects of an ~~entity's~~entity’s accounting policy decisions with respect to stock-based employee compensation on reported net income. ~~The Company will continue~~

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, “Share-Based Payment”, which amends SFAS No. 123 and requires companies to ~~account for stock-based compensation using the methods detailed~~recognize in the ~~stock-based~~statement of operations the grant date fair value of stock options and other equity-based compensation ~~accounting policy as described earlier. Comprehensive Income (Loss) - -----------------------------~~to employees for fiscal periods after June 15, 2005.


	*Comprehensive Income (Loss)*

The Company has elected to report comprehensive income (loss) in the consolidated statement of ~~stockholders'~~stockholders’ equity. Comprehensive income (loss) is composed of net income (loss) and all changes to ~~stockholders'~~stockholders’ equity, except those due to investments by stockholders, changes in additional paid-in capital and distributions to stockholders. ~~Income Taxes - -------------~~


	*Income Taxes*

Income taxes are provided for the tax effects of the transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily 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~~carry-forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. ~~F-14~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

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 valuations allowance. ~~Asset Retirement Obligations - ------------------------------~~


	*Asset Retirement Obligations*

Effective January 1, 2003, the Company adopted the provisions of SFAS NoNo. 143, ~~"Accounting~~“Accounting for Asset Retirement Obligations."” SFAS NoNo. 143 requires the Company to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the Company capitalizes cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted each period towards its future value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company ~~will report~~reports a gain or loss upon settlement to the extent the actual costs differ from the recorded liability. Upon adoption of SFAS NoNo. 143, the Company recorded a discounted liability of approximately ~~$503,000~~$447,000 for future retirement obligations and increased net oil and gas properties by ~~approximately $503,000.~~the same amount. The adoption of SFAS NoNo. 143 had no material effect on earnings in all periods presented. The majority of the asset retirement obligation to be recognized relates to the projected costs to plug and abandon oil and gas wells. Liabilities are also recorded for compressor and field facilities. Recently Issued Accounting Pronouncements - -------------------------------------------- Proposed FASB Staff Positions ("FSP") No. FAS 141-a and FAS 142-a were recently issued with a comment deadline of April 16, 2004. These proposed FSPs would amend SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and Intangible Assets" in order to resolve a recent reporting issue. There is an inconsistency between the recent Financial Accounting Standards Board ("FASB") consensus that such mineral rights should be considered tangible assets for accounting purposes and the characterization of mineral rights as intangible assets in SFAS No. 141 and No. 142. Under the proposed FSPs, mineral rights would continue to be considered tangible assets for accounting purposes with disclosure of the amount of the mineral rights disclosed on the balance sheet or in the notes to the consolidated financial statements. Assuming that the proposed FSPs are finalized, the guidance would be effective for the quarter ended June 30, 2004 and prior period amounts would also need to be disclosed in the consolidated financial statements. At December 31, 2003 and 2002, the Company has included $9,500,000 and $7,500,000, including capitalized interest, in oil and gas properties in the accompanying consolidated balance sheets of which approximately $3,972,000 and $684,000 respectively are subject to amortization. In May 2003, the FASB issued SFAS No 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No 150 establishes standards for how an issuer measures certain financial instruments with characteristics of both liabilities and equity and requires that an issuer classify a financial instrument within its scope as a liability (or asset in some circumstances). SFAS No 150 was effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective and adopted by the Company on July 1, 2003. As the Company has no such instruments, the adoption of this statement did not have an impact on the Company's financial condition or results of operations. F-15

F-14

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~(CONTINUED) Note 2 - Continued Operations~~— (Continued)

The following table reflects the components of the change in the carrying amount of the asset retirement obligation.


	2004		2003

Asset retirement obligation at January 1	$	520,638	$	447,357
Liabilities incurred in the current period		93,349		56,008
Accretion expense		21,036		17,273

Asset retirement obligation at December 31	$	635,023	$	520,638


	*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 ~~Realization~~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.

The Company is required to adopt SFAS No. 123(R) in its third quarter of fiscal 2005, beginning July 1, 2005. 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 December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets ~~- ------------------------------------------------------- During 2003,~~— An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions”. SFAS No. 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 ~~had~~is currently evaluating the effect that the adoption of SFAS No. 153 will have on consolidated ~~losses from~~results of operations and financial condition but does not expect it to have a material impact.

Staff Accounting Bulletin (“SAB”) 106 was released in September 2004. SAB 106 expresses the SEC staff’s views on the interaction of ~~approximately $2,280,000,~~SFAS No. 143 and ~~a working capital deficit at December 31, 2003~~the full cost method and provides guidance on computing the full cost ceiling as well as depreciation, depletion and amortization. SAB 106 also requires additional

F-15

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

disclosures regarding how the application of ~~approximately $2,210,000. Subsequent to December 31, 2003,~~SFAS No. 143 has affected the ceiling test and depreciation, depletion and amortization. The Company ~~completed six wells drilled on its Pipeline acreage~~adopted SAB 106 during the fourth quarter of ~~2003~~2004 and acquired an additional 49% working interest in two existing wells and 960 acres of undeveloped leasehold adjacent to the Pipeline acreage. Capital expenditures associated with the development activities and acquisitions were approximately $1,000,000. The Company expects capital expenditures for unrisked servicesexperienced no significant impact on ~~the development of~~ its Labarge property under an agreement with Schlumberger Technology Corporation ("Schlumberger") and Red Oak Capital Management LP ("Red Oak") (See Note 12) related to the completion or recompletion of five existing wells and the drilling of five or six new wells to be approximately $3,700,000 to $4,150,000. The total unrisked services the Company anticipates it will incur is dependent on the results of the initial rework and drilling activities. Additional costs associated with the completion of the environmental impact study and leasehold maintenance on the Labarge property during 2004 are anticipated to be approximately $300,000. In addition to its capital expenditures requirements, management estimates requirements of $1,600,000 for interest on notes, $1,300,000 for general corporate purposes and approximately $100,000 for lease rentals and farmout expenses. Thus, in total, the Company could have requirements in 2004 of approximately $10,200,000 including the working capital deficit at December 31, 2003. In January 2004, the Company issued 1,000,000 shares of common stock through a private placement for which it received approximately $3,900,000 in proceeds net of offering costs (See Note 18). The Company paid approximately $750,000 in long term debt with proceeds from the offering, leaving approximately $3,150,000 available for meeting its current development and working capital needs. In addition to these funds, the Company expects to generate approximately $3,600,000 in cash flow from oil field services and between $4,000,000 and $5,000,000 in cash flow from oil and gas production activities during 2004. Management anticipates issuing approximately $800,000 new 7% subordinated convertible notes in lieu of cash payments due April 15 and October 15, 2004 for interest due on the 7% subordinated convertible notes. Management believes it will be able to fund its 2004 minimum requirements through proceeds from the January 2004 private placement, cash flow from operations and the exercise of its option to issue additional notes rather than expend cash to satisfy interest on the 7% subordinated convertible notes. Due to the timing of development activities on the Company's properties, the Company may not have the funds available to pay for the operations immediately and may be required to obtain short term loans to pay for the development activity. It is expected that these loans would then be repaid with cash flow from operations later in the year. The Company is restricted on the amount that can be distributed to it by its subsidiaries by terms of certain loan agreement. The terms of the loan agreements for the oil field services subsidiary allow for additional amounts to be distributed with consent of the lender. The Company believes it will be able to restructure the terms of this loan agreement to allow additional funds to be distributed, or obtain the necessary consent to allow the subsidiary to distribute adequate funds to meet its general corporate needs. Future reserve reductionsdepletion or ceiling write-downs could hinder the Company's ability to obtain future financing on terms acceptable to management or could result in reductions in the borrowing base on existing obligations. Note 3 - Accounts Receivable - --------------------------------test calculation.


Note 2 —	Accounts Receivable

Accounts receivable consists of the following: ~~F-16~~


		December 31,

		2004			2003

Accounts receivable oil field services		$	2,739,816		$	1,171,886
Revenue receivable oil and gas production			722,372			652,401
Other receivables			116,736			22,355

	Total receivables		3,578,924			1,846,642
	Less allowance for doubtful accounts		(85,476	)		(80,000	)

	Net receivables	$	3,493,448		$	1,766,642

INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, ------------------------ 2003 2002 ----------- ----------- ~~Accounts receivable oil field services $1,171,886 $ 943,459 Revenue receivable oil~~

Note 3 —	Property and gas production 652,401 504,752 Other receivables 22,355 90,948 ----------- ----------- Total receivables 1,846,642 1,539,159 Less allowance for doubtful accounts (80,000) (25,000) ----------- ----------- Net receivables $1,766,642 $1,514,159 =========== =========== Equipment

~~Note 4 - Property and Equipment - -------------------------------~~

Property and equipment consists of the following:


		December 31,

		2004			2003

Buildings, site costs and improvements		$	776,517		$	2,208,587
Machinery, equipment, vehicles and aircraft			13,779,444			15,758,828
Office furniture and equipment			257,253			276,135

	Total cost		14,813,214			18,243,550
	Less accumulated depreciation		(6,048,887	)		(8,199,722	)

	Net property and equipment	$	8,764,327		$	10,043,828

December 31, -------------------------- 2003 2002 ------------ ------------ Buildings, site costs and improvements $ 2,208,587 $ 2,207,245 Machinery, equipment, vehicles and aircraft 15,884,159 15,158,783 Office furniture and equipment 276,135 239,058 ------------ ------------ Total cost 18,368,881 17,605,086 Less accumulated depreciation (8,199,722) (7,290,018) ------------ ------------ Net property and equipment $10,169,159 $10,315,068 ============ ============

Note 4 —	Intangibles

~~Note 5 - Intangibles - -----------------------~~

Intangibles consist of the following:


	December 31,

	2004			2003

Loan costs	$	4,032,489		$	8,812,297
Non-compete		300,000			300,000
Goodwill		225,000			225,000
Other		55,870			55,870

		4,613,359			9,393,167
Less accumulated amortization		(3,116,283	)		(5,440,178	)

Net intangibles	$	1,497,076		$	3,952,989

During ~~the years ended December 31,~~2004, 2003 and 2002, ~~and the nine months ended December 31, 2001,~~ the Company recorded amortization expense related to intangibles, excluding amounts capitalized, of $2,100,351, $6,210,738, ~~$241,272~~ and ~~$75,763~~$241,272, respectively. Of the total amortization expense

F-16

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

related to intangibles, the Company recorded amortization of loan costs of $2,097,329, $6,200,633, and $234,680, and $52,832, respectively, of which $5,620,300, $204,172 and $38,785 were related to non-cash loan costs resulting from options, warrants and other non-cash compensation granted in connection with obtaining financing. F-17

~~F-18~~

Note 6 - Oil and Gas Properties - ------------------------------------- Properties Subject to Amortization - ------------------------------------- Pipeline In July 2000 (original purchase) and subsequent periods (additional purchases), the Company acquired 100% working interests and 82.5% net revenue interests in leaseholds in the Greater Green River Basin of Wyoming ("Pipeline") for approximately $3,666,000. The Company has incurred approximately $17,925,000 in exploration and development costs through December 31, 2003 to develop the Pipeline acreage. In July 2003, the Company granted a 4% over-riding royalty in the property to a lender in connection with obtaining bridge financing (See Note 9). The estimated fair value of the 4% over-riding royalty of approximately $825,000 was re-classified to loan cost. The leasehold costs associated with 11,660 net acres of the original 19,150 total net acreage position and all development and exploration costs incurred to date, totaling approximately $3,144,000 and $17,133,000, respectively, on the 11,660 net acres are subject to amortization. Labarge In March 2000 (original purchase) and subsequent periods (additional purchases), the Company acquired a 100% working interest and 80.0% net revenue interests in leaseholds in the Greater Green River Basin of Wyoming ("Labarge") for approximately $2,463,000. The Company has incurred approximately $13,463,000 in exploration and development costs through December 31, 2003 to develop the Labarge acreage. The original lessor on a portion of the acreage has a 30% participation election. If the original lessor chooses not to participate in the drilling and completion of a well, then the 100% working interest and the approximately 80% associated net revenue interest will remain with the Company until the well has generated earnings to recover the well costs plus a 300% non-consent penalty. In July 2003 the Company granted a 4% over-riding royalty in the property to a lender in connection with obtaining bridge financing (See Note 9). The estimated fair value of the 4% over-riding royalty of approximately $425,000 was re-classified as loan cost. The leasehold costs F-19 INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) associated with 1,763 net acres of the 11,199 total net acreage position and all development and exploration costs incurred to date, totaling approximately $223,000 and $5,879,000, respectively, on the 1,763 net acres are subject to amortization. The Company is required to perform certain Environmental Impact Study and Assessments on the Labarge and Pipeline properties. Management believes that the results of these studies will not have a material adverse impact on the continued development of these properties. Sand Wash During 2002 the Company acquired a working interest in leaseholds in the Sand Wash Basin of Colorado and Wyoming. The Company has incurred total leasehold and exploration costs of approximately $1,693,000 at December 31, 2003. The leases on approximately 57,000 gross acres of the total 161,000 gross acres expire in 2004 and, therefore, the Company has reclassified approximately $605,000 in leasehold costs and2004:


							Accumulated
	Non-cash		Cash		Total		Amortization			Net
Description of Notes or Agreement	Loan Costs		Loan Costs		Loan Costs		12/31/2004			Book Value

8% subordinated convertible notes	$	1,375,464	$	51,159	$	1,426,623	$	(1,270,968	)	$	155,655
7% subordinated convertible notes		2,178,944		72,605		2,251,549		(1,384,924	)		866,625
$25,000,000 development credit facility		—		166,506		166,506		(63,944	)		102,562
Various other financing arrangements		—		187,811		187,811		(8,333	)		179,478

Total	$	3,554,408	$	478,081	$	4,032,489	$	(2,728,169	)	$	1,304,320

Substantially all of the ~~exploration~~net book value of loan costs ~~totaling approximately $422,000, associated with that portion of the leaseholds as subject to amortization~~ at December 31, ~~2003. Other Properties In November 2001, the Company acquired~~2004 will expensed in 2005 as a ~~31.25% working interest in an oil and gas lease in southwest Kansas for approximately $56,000 and has incurred exploration costs~~result of approximately $187,000. The $187,000 in exploration costs were to drill three wells which resulted in three dry holes and therefore, these costs are included in oil and gas properties subject to amortization at December 31, 2003.debt repayments or conversion.

Note 5 — Notes Receivable

The Company also amortizes development and exploration costs of approximately $98,000 and the asset related to the asset retirement obligation of approximately $503,000. Total In total, the Company has approximately $3,972,000 in leasehold costs and $24,222,000 in exploration and development costs subject to amortization. At December 31, 2003 and 2002, the Company had accumulated depreciation, depletion, amortization and ceiling write-down of approximately $4,748,000 and $304,000, respectively. Sales of Proved Oil and Gas Properties In February 2000, the Company acquired a 100% working interest in a property in eastern Kansas, through a joint venture with an operator in which a former director of the Company is a partner and operations manager. The Company's total investment in the property was approximately $1,100,000. In addition, the Company had an active oil lease in the Owl Creek Field in Woodson County, Kansas which was acquired for $510,000. Effective May 1, 2002, the Company sold its interest in oil and gas properties in eastern Kansas for $180,000 cash and a $1,620,000 note receivable (See Note 7). The transaction resulted in a gain of approximately $244,000, which was recorded as a reduction in capitalized oil and gas property costs under the full cost accounting method. Ceiling Test The Company evaluates its properties subject to amortization under the full cost ceiling test on a quarterly basis. The ceiling test requires the Company to compare the unamortized capitalized cost plus the lower of cost or fair market value of the unproved properties, less any related deferred tax liability and F-20 INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) less the fair value of the asset retirement obligations with the ceiling. The ceiling is calculated using present value, discounted at 10% of future net revenue to be generated by the properties net of the estimated future income taxes, plus the lower of cost or fair market value of the unproved properties. If the capitalized cost of the properties exceeds the ceiling, then the Company is required to permanently write down the value of the property to the ceiling. During 2003, the Company experienced geological and geophysical, financial and other issues which resulted in significant revisions to the year end reserves. Therefore, during the fourth quarter of the year ended December 31, 2003, the Company had a ceiling write-down of $2,975,000, which is included in accumulated depreciation, depletion, amortization and write-down in the accompanying consolidated balance sheet. There were no ceiling write-downs in the year ended December 31, 2002 or the nine-month period ended December 31, 2001. Properties Not Subject to Amortization - ------------------------------------------ Pipeline At December 31, 2003, the Company had approximately $4,491,000 in costs associated with unproved Pipeline property. Options on approximately 8,300 acres were relinquished on February 29, 2004 and therefore, approximately $4,002,000 previously reflected as not subject to amortization was reclassified to subject to amortization at December 31, 2003. The Company currently has approximately $489,000 in undeveloped leasehold costs associated with the Pipeline property that are not subject to amortization. The development of the acreage and the reclassification of the associated leasehold costs to properties subject to amortization will be contingent upon the development of a future drilling plan. Labarge The Company has incurred approximately $2,210,000 of leasehold costs on the Labarge prospects, and approximately $7,188,000 of exploration costs (including $3,666,000 of capitalized interest and amortization of loan costs) on the Labarge prospect, which are not subject to amortization, as the Company has not completed the exploration and evaluation process on the related wells, which is expected to be completed in the initial phase of the Schlumberger agreement (See Note 12). The Company entered into an agreement with Schlumberger in December 2003 for the further development of the Labarge prospect. At the conclusion of the 2004 evaluation and exploration activity a significant portion of the investment in unproved oil and gas properties will be reclassified to the full cost pool subject to depletion and the ceiling test. If proved reserves are not found, or if proved reserves are not significant, the Company could be required to write-down a portion of the full cost pool of oil and gas properties. A significant portion of the remaining leasehold costs are anticipated to be reclassified and subject to amortization during the remaining four years of the agreement with Schlumberger. Reclassification of the remaining costs to properties subject to amortization will be contingent on the development of a future drilling plan. Sand Wash The Company has incurred leasehold costs of approximately $1,693,000 and initial exploration costs of $422,000 on approximately 161,000 gross acres it has in the Sand Wash Basin. The leases on approximately 57,000 gross acres under lease are due to expire in 2004 and therefore, the Company has classified approximately $605,000 in leasehold costs and all of the approximately $422,000 in exploration costs associated with that portion of the leasehold as subject to amortization at December 31, 2003. The Company has approximately $1,088,000 of leasehold costs associated with the Sand Wash leases which are classified as not subject to amortization. F-21 INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Reclassification of the remaining leasehold to properties subject to amortization will be contingent upon the development of a future drilling plan. Other Properties In November 2000, the Company acquired a 100% working interest in a coal bed methane property in northwestern Colorado for consideration of approximately $593,000. The Company has incurred approximately $199,000 of leasehold costs to acquire additional acreage, bringing the total leasehold costs to approximately $792,000 and has capitalized exploration costs of approximately $107,000 as of December 31, 2003. The lease requires the Company to drill a total of 5 wells before November 20, 2005. No wells have been drilled to date. A portion of the leasehold costs and the exploration costs associated with the drilling activity on these five wells is anticipated to be reclassified to properties subject to amortization in 2005. Reclassification of the remaining costs to properties subject to amortization will be contingent upon the development of a future drilling plan. The Company has additional leasehold costs of approximately $56,000 on an undeveloped, 5,120 acre river sand prospect in Kansas operated by an unrelated third party. The Company expects the reclassification of these costs to properties subject to amortization during 2004. Infinity was awarded the bid on 24 blocks of acreage, comprised of over one million acres in 2003, and immediately entered into negotiations with The Instituto Nicaraguense de Energia ("INE"), the Nicaraguan governmental entity that regulates oil and gas activities, to finalize the initial exploration plan for the Tyra and Perlas prospects. The Company has approximately $885,000 in undeveloped acreage costs associated with these prospects. Reclassification of the costs incurred to properties subject to amortization will be contingent upon the development of a future drilling plan after the terms of the lease are completed. Total In total, the Company has approximately $5,520,000 in leasehold costs and approximately $7,295,000 in exploration costs not subject to amortization. These properties are not subject to amortization and are being, or will be developed, completed and put into production when gas is located in apparent reasonable quantities. The geological structures on the Wyoming and Colorado properties are such that the amount of reserves cannot be evaluated with the engineering certainty necessary to be judged proven reserves. As drilling of a specific well is finished, a determination is made to complete the well and begin production or treat the well as unsuccessful. Costs of successful wells are added to the properties subject to amortization when the property is proven. Costs of unsuccessful wells are added to the properties subject to amortization when that determination is made. The Company reviews the carrying value of its properties not subject to amortization on at least an annual basis. The carrying value of the properties not subject to amortization may not exceed the fair market value of such properties. When the book value of an unevaluated property exceeds the fair market value of the property the excess book value over fair value of the property is reclassified into the properties subject to amortization. F-22 INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During the year ended December 31, 2003 the Company reclassified approximately $4,002,000 and $1,027,000 of unevaluated property cost to the properties subject to amortization associated with its Pipeline and Sand Wash properties, respectively. No reclassification based on the fair market value review was recorded during the year ended December 31, 2002 and the nine months ended December 31, 2001. Any cost related to exploratory dry wells is included in properties subject to amortization when that determination is made. Any costs associated with geophysical and geological costs that are not associated with specific unevaluated properties are included in the properties subject to amortization as incurred. The per equivalent MCF amount of depreciation, depletion and amortization incurred during the years ended December 31, 2003 and 2002 and nine months ended December 31, 2001 was $0.92, $1.11 and $2.56, respectively. Recovery of the above acquisition and development costs is dependent on a variety of factors including actual production results, market conditions, the success of future exploration and development activities on the properties, and the availability of future financing on terms acceptable to management. Capitalized Financing Costs - ----------------------------- From inception through December 31, 2003, the Company has capitalized the following financing costs related to properties not subject to amortization. As these properties are developed, the costs are transferred to properties subject to amortization:

~~Note 7 - Notes Receivable - ----------------------------- The Company issued~~received a three year note for $1,620,000 when it sold its Kansas producing properties in May 2002. The note had an outstanding balance as of December 31, ~~2003~~2004 and ~~2002~~2003 of approximately ~~$1,597,000~~$1,581,000 and ~~$1,612,000,~~$1,597,000, respectively. Interest accrues on the note at ~~7.0%~~8% per annum with quarterly payments, based on a 30 year amortization, of $35,000, including interest, due on the first day of November, February, May and August with a balloon payment due May 1, 2005. The note is collateralized by the oil producing properties that were sold. ~~F-23~~

Note ~~9 -~~6 — Accrued Liabilities

Accrued liabilities consist of:


	December 31,

	2004		2003

Production taxes payable — current portion	$	235,919	$	282,752
Oil and gas revenue payable to oil and gas property owners		130,308		158,318
Accrued interest		223,195		223,060
Other accrued liabilities, principally accrued drilling costs		3,906,990		302,639

	$	4,496,412	$	966,769

F-17

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 7 — Long-Term Debt ~~- ---------------------------~~and Convertible Notes Payable

Long term debt consists of the following:

~~F-25~~

~~Included~~


	December 31,

	2004		2003

8% subordinated convertible notes payable, due June 13, 2006	$	2,493,000	$	2,793,000
7% subordinated convertible notes payable, due April 22, 2007		11,516,698		11,184,000
$25,000,000 development credit facility with U.S. Bank, repaid in full and terminated on January 13, 2005		5,000,000		5,500,000
Bridge loan with related party; interest at 7%, repaid in full during 2004		—		3,000,000
Note payable to seller (for a 50% interest in an airplane), with interest at 7.25% due on a quarterly basis. The Company is required to make annual principal payments equal to 5% of the current outstanding principal until paid in full. The seller can call the note if the 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 $2,167,717		2,326,201		2,326,201
Various revolving credit and term loans with LaSalle Bank with interest at prime plus 1.25%, repaid in full and terminated on January 13, 2005		3,582,533		1,391,505
Various other collateralized notes repaid in full and terminated no later than January 31, 2005		546,058		1,797,943

	$	25,464,490	$	27,992,649

Maturities of long-term debt are as follows:


	Long-Term Debt
Year Ending December 31,	and Convertible Notes

2005	$	124,354
2006		2,603,495
2007		11,621,668
2008		99,721
2009		9,222,924
Thereafter		1,792,328

	$	25,464,490

Certain subordinated notes have converted in ~~equipment~~2005, as discussed below. However, the table above reflects the maturity of the convertible notes and the note payable to seller in accordance with their stated terms. All other borrowings under secured credit facilities and revolving and term loans were paid in full in January 2005 with proceeds from the Senior Secured Notes Facility discussed in Note 16 and the maturities for that debt have been presented in the ~~accompanying consolidated balance sheet as~~financial statements in accordance with the terms of ~~December 31, 2003 and 2002, are assets held under capital leases in~~ the ~~amount of approximately $297,000 net of accumulated amortization of approximately $70,000 and $41,000, respectively. Convertible Subordinated~~ Notes ~~- --------------------------------~~ due January 13, 2009.


	*Convertible Subordinated Notes*


	8% Convertible Subordinated Notes

Effective June 13, 2001, the Company sold $6,475,000 in 8% Subordinated Convertible Notes in a private placement in which C.E. Unterberg, Towbin acted as the placement agent. A director of the Company was an officer with C.E. Unterberg, Towbin. Interest on the notes ~~accrues~~accrued at a rate of 8% per annum and iswas payable

F-18

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in arrears on each December 15 and June ~~15 commencing December 15, 2001.~~15. The notes were originally convertible to one share of common stock at $5 per share and ~~mature~~matured on June 13, 2006. The notes are subordinated to substantially all the Company's other existing or future notes payable, capital leases, debentures, bonds or other such securities. In addition, the Company can redeem, at its option, all or a portion of the notes as follows: Redemption Price Percentage of Year Principal ------------------- ------------- 2004 103.2% 2005 and thereafter 101.6% If at any time the Company's stock price exceeds 300% of the conversion price for 20 consecutive days, the Company can redeem, at its option, all or a portion of the notes for the principal balance and accrued interest outstanding. If there is a change in control of the Company, the Company must redeem the notes at the rates noted above. F-26 ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

The Company incurred costs of $501,906 associated with the placement, which has been capitalized as loan costs and is 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 capitalized additional loan costs of $924,717 related to the fair value of the warrants as determined using the Black-Scholes pricing model assuming a five year life, weighted average risk-free interest rate of 8%, expected volatility of 80.66% and no expected dividend yield. ~~Proceeds from the offering were used in the development of the Company's oil and gas properties.~~

As the conversion feature of the convertible notes was below the market value of the stock on the date of issue, the Company recorded a discount of $1,165,500 related to the intrinsic value of the beneficial conversion feature. The notes ~~are~~were immediately convertible and therefore, the discount was immediately amortized. The Company capitalized the amortization of the beneficial conversion feature into oil and gas properties not subject to amortization as the debt was issued in order to continue exploration and development of projects that were not currently subject to amortization, and was not used for general operating purposes.

During 2004, 2003 and 2002, the holders of $300,000, $1,450,000 and $2,232,000 of 8% subordinated convertible notes converted the debt and accrued interest into 63,179, 295,689 and 454,974 shares of the ~~Company's~~Company’s common stock, respectively. ~~Subsequent to December 31, 2003,~~

On January 13, 2005, the Company called for redemption all of the remaining 8% subordinated convertible notes outstanding on February 28, 2005. During January and February 2005, the holders of ~~$130,000~~all $2,493,000 of 8% subordinated convertible notes converted the debt and accrued interest into ~~27,059~~517,296 shares of the ~~Company's~~Company’s common stock. Subsequent to December 31, 2003, the Company issued 1,000,000 shares of common stock at $4.00 per share in a private placement (See Note 18). The loan indenture contains 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. Therefore, the conversion price was adjusted to $4.88 per share. In connection with the adjustment of the conversion price, the Company recorded an approximately $54,000 charge related to the additional shares issuable at the new conversion price.


	7% Convertible Subordinated Notes

Effective April 22, 2002, the Company sold $12,540,000 in 7% Subordinated Convertible Notes in a private placement in which C.E. Unterberg, Towbin acted as the placement agent. A director of the Company ~~is also~~was an officer with C.E. Unterberg, Towbin. In addition, to the extent a holder of the ~~Company's~~Company’s 8% Subordinated Convertible Notes converted any of their notes and the accrued interest to stock, and purchased 7% Subordinated Convertible Notes, these parties would be related parties. Interest on the 7% subordinated notes accrues at a rate of 7% per annum and is payable in arrears on each April 15 and October 15. The Company can 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. In ~~December~~2004 and 2003, the Company issued $795,000 and $379,000 in new notes as payment for interest ~~due at that time. The Company expects it will issue additional notes in April and October 2004 as payment for interest then~~ due. The notes were originally convertible to one share of common stock at $8.625 per share and mature on April 22, 2007. ~~F-27~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~The loan indenture for the 7% notes contains 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 December 31, 2004, the conversion price was $7.766 per share. In connection with the adjustment of the conversion price, the Company recorded a charge of approximately $354,000 related to the additional shares issuable at the new conversion price.

The notes are subordinated to substantially all the ~~Company's~~Company’s other existing or future notes payable, capital leases, debentures, bonds or other such securities. In addition, after April 22, 2004, the Company can redeem, at its option, all or a portion of the notes as follows: Redemption Price Percentage of Year Principal ------------------- ------------- 2004 104.2% 2005 102.8% 2006 and thereafter 101.4% Currently if the Company's stock price exceeds 300% of the conversion price for 20 consecutive days, the Company can redeem, at its option, all or a portion of the notes for the principal balance and accrued interest outstanding. If there is a change in control of the Company, the Company must redeem the notes at the rates noted above if after April 22, 2004 or 101% of principal plus accrued interest if before April 22, 2004.

The Company incurred costs of $865,505 associated with the issuance of the 7% 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. ~~A portion of the proceeds from the offering was used in the development of the Company's oil~~

F-19

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2004 and gas properties. As the conversion feature of the 7% convertible notes was above the market value of the stock on the date of issue, the Company did not record a beneficial conversion feature. During 2003, the holders of $462,302 and $1,735,000 of the 7% subordinated convertible notes converted the debt and accrued interest into 62,685 and 203,712 shares of the ~~Company's~~Company’s common stock. ~~Subsequent to~~

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 2005, through March 23, the holders of $5,950,538 of 7% subordinated convertible notes at December 31, ~~2003,~~2004 have converted the ~~Company issued 1,000,000~~debt and accrued interest into 783,779 shares of the Company’s common stock at $4.00 per share in a private placement (See Note 18). The loan indenture for the 7% notes contains 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. Therefore, the conversion price was adjusted to $8.067 per share. In connection with the adjustment of the conversion price, the Company recorded an approximately $354,000 charge related to the additional shares issuable at the new conversion price. $25,000,000 Development Credit Facility - ------------------------------------------stock.


	*$25,000,000 Development Credit Facility*

In September 2003, the Company established a Secured Revolving Borrowing Base Credit Facility ~~("Facility"~~(“Facility”) with a bank. The Facility provides for funding of up to $25,000,000 with an initial borrowing base for the facility at $5,500,000. Borrowing base determinations are based on the volume of oil and gas production expected, the term and price of hedging contracts in place, and the costs associated with producing the oil and gas and associated general and administrative expense. The Facility is subject to semi-annual borrowing base determinations based on the same criteria as the original determination. The Company and the bank each have the option to request one additional F-28 INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) re-determination during each calendar year. The bank has the sole discretion regarding any increase in the borrowing base if the semi-annual determination indicates that there is additional borrowing base available. Interest on the ~~Facility accrues and is payable monthly~~amounts outstanding accrued at prime rate plus 1.0% ~~(totaling 5.0% at December 31, 2003)~~. The Company incurred $110,000 in loan costs and approximately $57,000 in legal costs to establish the ~~Facility.~~facility. These costs were capitalized as loan costs and ~~will be~~ amortized using the effective interest method. The ~~initial~~facility was repaid in full with proceeds were used to pay initial loan costs, repay $3,850,000 of new bridge loans obtained during 2003, for development of oil and gas properties and for working capital. The loan is subject to various restrictive and financial covenants. At December 31, 2003from the ~~Company was~~Senior Secured Notes Facility discussed in violation of the working capital covenant. Subsequent to December 31, 2003, the Company was granted a waiver of the violation as of December 31, 2003, and through April 30, 2004, when management believes it will be in, and stay in compliance for the remainder of 2004. This Facility limits the amount of cash distribution from Infinity Oil and Gas of Wyoming, Inc. ("Infinity-Wyoming") to Infinity, Inc.Note 16 to the ~~pro-rata share of tax expense generated by the net taxable income of Infinity-Wyoming~~Consolidated Financial Statements and ~~additional cash distributions of $300,000 per fiscal year. Bridge Loan and Related Agreements - Related Party - --------------------------------------------------~~terminated on January 13, 2005.


	*Bridge Loan and Related Agreements — Related Party*

On November 25, 2002, the Company obtained a $3,000,000 one year bridge loan from a related party with an annual interest rate at Wall Street prime plus 1.0% ~~in order to pay outstanding payables associated with the development of its oil and gas properties.~~. In March 2003, the note was extended to January 2004. In May 2003, the note was amended to extend the maturity to January 30, ~~2005 and to place requirements for accelerated payment should the Company raise in excess of $3,500,000 in debt or equity financing.~~2005. In June 2003, the loan agreement was amended to waive a portion of the accelerated payment requirements and to increase the interest rate to 7%. ~~The note holder was also granted a first priority security interest in the Company's Sand Wash property and a subordinated security interest in the Pipeline property.~~ The Company also entered into a consulting agreement with the related party in June 2003 under which the related party would facilitate a $3,850,000 bridge loan that was obtained and ~~paid off~~repaid in 2003 and other future financings, if any.

The table below sets forth information about options that were granted in conjunction with these transactions. All of the options issued were valued using the Black-Scholes pricing model assuming a five year life, weighted average risk free interest rate of 1.5%, expected volatility rates between 125% and 132% and no expected dividend yield. The option value was capitalized as loan costs and ~~is being~~was amortized using the effective interest method. The amortization is treated as interest in the ~~Company's~~Company’s consolidated statement of operations with a portion capitalized to the non-producing properties developed with the proceeds of the loan. ~~F-29~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following is a summary of the options granted in connection with the loan and related agreements:

~~Subsequent to December 31, 2003,~~


	Options		Option		Loan
Date of Grant	Granted		Price		Costs

November 25, 2002		320,000	$	8.75	$	2,281,718
May 23, 2003		150,000		8.75		730,130
June 18, 2003		125,000		8.75		642,841
June 26, 2003		225,000		8.75		1,120,358

		820,000			$	4,775,047

During 2004, the Company repaid ~~$1,250,000 of~~ the loan balance outstanding with ~~$750,000~~$2,500,000 in cash and the issuance of 125,000 shares of common stock valued at $4.00 per ~~share (See Note 19). Revolving Credit and Term Loans - ----------------------------------- In January 2002, the Company refinanced a portion~~share.


	*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 ~~its long-term debt. The Company entered into a financing agreement~~ $113,493 plus interest through November 2007,

F-20

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

with a ~~bank whereby~~final payment of the ~~Company executed~~remaining balance of the ~~following: - A $2,000,000 revolving credit~~ note ~~cross-collateralized by substantially all the Company's assets except oil and gas properties; with interest at prime plus 1.0%. The note is~~ due December 31, ~~2004. - An approximately $2,900,000 term note with~~2007. Amounts outstanding accrued interest at the prime rate plus ~~1.0%, due~~1.25% per annum. The credit facility was repaid in ~~monthly installments of $80,626 plus interest, through December 2004. The note is cross-collateralized by substantially all~~full with proceeds from the ~~assets of~~Senior Secured Notes Facility discussed in Note 16 to the ~~Company except oil~~Consolidated Financial Statements and gas properties. - A $1,000,000 capital expenditure line with interest at prime plus 1.0%, due in monthly installments of $15,626 plus interest through December 31, 2004 when unpaid principal and interest are due. The note is cross-collateralized by substantially all the assets of the Company except oil and gas properties. The Company borrowed $720,000 under the line. The notes require the Company to comply with certain financial and restricted covenants and are guaranteed by an officer of the Company up to $1,000,000. This facility limits the amount of distributions that can be made, other than through the normal course of business, to Infinity, Inc. and affiliated companies to $250,000 per fiscal year without the prior consent of the lender. 2003 Debt Paid in Full - --------------------------terminated on January 13, 2005.


	*2003 Debt Paid in Full*

In 2003, the Company issued 201,000 five year options and 462,500 five year warrants to purchase common stock at $8.75 per share and granted a 4% over-riding royalty in certain producing properties when it obtained three bridge loans totaling $5,900,000 with interest rates ranging from 2% per month to 12% per year. The Company capitalized loan costs of $3,297,390 for the options and warrants and $1,250,000 based on the estimated fair value for the 4% over-riding royalty conveyed. The Company used the Black-Scholes pricing model assuming a five year life, weighted average risk-free interest rates of 1.5% to 4%, expected volatility between ~~126.11 %~~126.11% and ~~131.96 %~~131.96% and no expected ~~F-30~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ dividend yield to calculate the fair value of the options and warrants at the date of grant. The Company repaid all of the loans during 2003 and all of the loan costs were fully amortized during the year. 2002 Debt Paid in Full - -------------------------- In March 2002, the Company issued five-year options to purchase 250,000 shares of common stock at $7.34 per share when it obtained a $2,000,000, bridge loan from a related party, with an annual interest rate of 8%, in order to pay outstanding payables associated with the development of its oil and gas properties. The Company capitalized loan costs of $1,347,728 related to the fair value of the options as determined using the Black-Scholes pricing model assuming a five year life, weighted average risk-free interest rate of 8%, expected volatility of 89.55% and no expected dividend yield. The loans were repaid in full in April 2002 with proceeds from the sale of the 7% subordinated convertible notes.

Note ~~10 - Stockholder's~~8 — Stockholders’ Equity ~~- ------------------------------ Stock Split - ------------~~


	*Stock Split*

In May 2002, the Company effected a 2:1 stock split effective May 13, 2002. All shares and per share amounts have been restated to give effect to the stock split. ~~Warrants and Options to Non-Employees - -----------------------------------------~~


	*Private Institutional Placements of Equity*

In January 2004, the Company issued 1,000,000 shares of common stock in exchange for $4,000,000. In November 2004, the Company issued 1,027,000 shares of common stock in exchange for $5,237,700. Costs associated with the issuances totaled $319,644.


	*Warrants and Options to Non-Employees*

The Company, in conjunction with a public stock offering in September 1988, issued Class A and Class B warrants to purchase 425,918 shares of common stock. The 223,496 Class A warrants have expired. During 2002, 163,264 shares of common stock were issued upon the exercise of Class B warrants for proceeds of $977,911. The remaining 39,158 Class B warrants expired in June 2002.

During 2001, in connection with the sale of $6,475,000 8% subordinated convertible ~~notes,~~notes; the Company granted 220,000 warrants to purchase the ~~Company's~~Company’s common stock at $5.99 per share. ~~The~~During February 2005, all of these warrants ~~expire in June 2006 (See Note 9).~~were exercised.

During 2002, in connection with the sale of $12,540,000, 7% subordinated convertible ~~notes,~~notes; the Company granted 200,000 warrants to purchase the ~~Company's~~Company’s common stock at $9.058 per share. The warrants expire in April 2007 ~~(See~~(see Note 9)7).

In connection with obtaining $5,000,000 of bridge loans in March and November 2002, the Company granted ~~570,000,~~ five year options to purchase the ~~Company's~~Company’s common ~~stock~~stock; 250,000 at $7.34 ~~(250,000~~and 320,000 at $8.75 per share (see Note 7). Subsequent to December 31, 2004 and through March 23, 2005, 77,850 of the ~~options) or~~$7.34 options and 191,000 of $8.75 ~~(320,000 of the options) per share (See Note 9).~~options were exercised.

During 2003, in connection with the issuance of $1,000,000 of bridge notes, which were paid in full in 2003, the Company granted 212,500 warrants to purchase the ~~Company's~~Company’s common stock at $8.75 per share. The warrants expire in April 2008 ~~(See~~(see Note 9)7). During February 2005, warrants on 8,000 shares were exercised under cashless exercise provisions resulting in the issuance of 2,257 shares of common stock.

F-21

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2003, in connection with the issuance of $3,850,000 in bridge notes which were paid in full in 2003, the Company granted 250,000 warrants to purchase the ~~Company's~~Company’s common stock at $8.75 per share. ~~Subsequent to December 31, 2003, the Company issued 1,000,000 shares of common stock at $4.00 per share in a private placement. (See Note 18).~~ The warrant agreement contains anti-dilution provisions that require the Company to adjust the exercise price and change the number of warrants outstanding if the Company sells stock at less than the exercise price. ~~Therefore, in~~During January and November 2004, the warrants ~~F-31~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ were increased by ~~17,500 warrants~~27,746, to ~~267,500~~277,746 warrants with an exercise price of ~~$8.18~~$7.88 per ~~share.~~share and the associated value of approximately $120,000 was recorded as offering costs. The warrants expire July 2, 2008 ~~(See~~(see Note 9)7).

In connection with obtaining $1,050,000 of bridge loans in January and April of 2003 (which were paid in full during 2003), the amendments of an existing $3,000,000 loan agreement, and a consulting contract to assist with the facilitation of a $3,850,000 loan agreement, the Company granted options to purchase the ~~Company's~~Company’s common shares at $8.75 per share ~~(See~~(see Note 9)7).

A summary of warrant and option activity with non-employees is as follows:


				Warrant/Option	Weighted Average
	Number of Shares			Price Per Share	Price Per Share

Outstanding, December 31, 2001		462,422		$3.22 - $6.00	$	5.75
Granted		770,000		7.34 - 9.06		8.37
Canceled or forfeited		(39,158	)	6.00		6.00
Exercised		(163,264	)	6.00		6.00

Outstanding, December 31, 2002		1,030,000		3.22 - 9.06		7.66
Granted		1,163,500		8.75		8.75
Exercised		(83,350	)	7.34		7.34

Outstanding, December 31, 2003		2,110,150		3.22 - 9.06		8.27
Granted		47,746		7.88 - 8.75		8.24

Outstanding, December 31, 2004		2,157,896		$3.22 - $9.06	$	8.17


	Number		Weighted Average				Number
Range of	Outstanding at		Remaining		Weighted Average		Exercisable at		Weighted Average
Exercise Prices	December 31, 2004		Contractual Life		Exercise Price		December 31, 2004		Exercise Price

$3.22		40,000		1 years	$	3.22		40,000	$	3.22
$5.99		220,000		2 years	$	5.99		220,000	$	5.99
$7.34 - 9.06		686,650		3 years	$	8.50		686,650	$	8.50
$7.88 - 8.75		1,191,246		4 years	$	8.55		1,191,246	$	8.55
$8.75		20,000		5 years	$	8.75		20,000	$	8.75

		2,157,896						2,157,896

The following is the weighted average fair value of warrants and options granted to non-employees:


	Weighted Average
Period Ending December 31,	Fair Value

2002	$	6.51
2003	$	4.98
2004	$	4.80

~~Period Ending December 31, Weighted Average Fair Value -------------------------- ---------------------------~~ ~~2001 (nine months) $ 9.50 2002 $ 6.51 2003 $ 4.98~~

	*Options Under Employee Option Plans*

~~F-32~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Options Under Employee Option Plans - ---------------------------------------~~

The Company has adopted stock option plans containing both incentive and non-statutory stock options. All options allow for the purchase of common stock at prices not less than the fair market value of such stock

F-22

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

at the date of grant. If the optionee owns more than 10% of the total combined voting power of all classes of the ~~Company's~~Company’s stock, the exercise price can not be less than 110% of the fair market value of such stock at the date of grant.

Options granted under the plans become exercisable immediately or as directed by the Board of Directors and generally expire five or ten years after the date of grant, unless the employee owns more than 10% of the total combined voting power of all classes of the ~~Company's~~Company’s stock, in which case they must be exercised within five years of the date of grant. Pursuant to the plans, an aggregate of ~~1,928,047~~2,338,047 options were available for grant. The Company granted 403,750, 10,000, ~~345,000,~~ and ~~330,000~~345,000 options to employees under the Plans during ~~the years ended December 31,~~2004, 2003 and 2002, ~~and the nine months ended December 31, 2001,~~ respectively. At December 31, ~~2003,~~2004, there were ~~95,720~~195,881 shares remaining available under the plans. During February 2005, the Company granted ten-year options on 165,000 shares at an exercise price of $8.50 per share.

A summary of stock option activity is as follows:

~~F-33~~


				Option Price	Weighted Average
	Number of Shares			Per Share	Price Per Share

Outstanding, December 31, 2001		1,049,600		$1.50 - $5.00	$	3.30
Granted		345,000		7.00 - 8.70		8.70
Canceled or forfeited		(6,200	)	3.00 - 5.00		3.59
Exercised		(247,500	)	1.50 - 5.00		1.93

Outstanding, December 31, 2002		1,140,900		1.50 - 8.70		5.23
Granted		10,000		8.75		8.75
Canceled or forfeited		(61,781	)	3.82 - 8.70		7.28
Exercised		(62,819	)	1.50 - 5.00		3.38

Outstanding, December 31, 2003		1,026,300		1.50 - 8.75		5.25
Granted		403,750		4.26		4.26
Canceled or forfeited		(118,500	)	3.00 - 8.75		7.22
Exercised		(146,300	)	1.50 - 5.00		2.92

Outstanding, December 31, 2004		1,165,250		$1.50 - $8.70	$	5.00


	Number		Weighted Average				Number
Range of	Outstanding at		Remaining		Weighted Average		Exercisable at		Weighted Average
Exercise Prices	December 31, 2004		Contractual Life		Exercise Price		December 31, 2004		Exercise Price

$1.50		111,000		1 year	$	1.50		111,000	$	1.50
$3.00-3.82		183,000		1 year	$	3.81		183,000	$	3.81
$5.00		264,000		2 years	$	5.00		264,000	$	5.00
$5.00		6,000		3 years	$	5.00		6,000	$	5.00
$8.70		237,500		3 years	$	8.70		237,500	$	8.70
$4.26		10,000		5 years	$	4.26		10,000	$	4.26
$4.26		353,750		10 years	$	4.26		353,750	$	4.26

		1,165,250						1,165,250

F-23

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is the weighted average fair value of warrants and options granted from stock option plans: Period Ending December 31, Weighted Average Fair Value --------------------------- ----------------------------- 2001 (nine months) $3.37 2002 $7.10 2003 $5.25to employees:


	Weighted Average
Period Ending December 31,	Fair Value

2002	$	7.10
2003	$	5.25
2004	$	4.22

Subsequent to December 31, ~~2003, 40,000~~2004, and through March 23, 2005, options on 62,700 shares were exercised for proceeds of approximately ~~$60,000. Options - -------~~$222,000.


	*Options*

The Company granted 177,500 options to employees outside its stock option plans prior to March 31, 2001 with exercise prices ranging from $1.55 to $4.00 and a weighted average price per share of $2.76. These options were exercised during 2002. ~~At December 31, 2003, the Company had no options to employees outside of the stock option plans. F-34~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Note ~~11-~~9 — Income Taxes ~~- ------------------------~~

The provision for income taxes consists of the following:


	For the Years Ended December 31,

	2004			2003			2002

Current income tax expense	$	—		$	—		$	—
Deferred income tax benefit		(1,784,000	)		(4,003,321	)		(1,226,874	)
Change in valuation allowance and other		1,784,000			4,003,321			82,846

Total income tax benefit	$	—		$	—		$	(1,144,028	)

The effective income tax rate varies from the statutory federal income tax rate as follows:


	For the Year Ended December 31,

	2004			2003			2002

Federal income tax rate		(34	)%		(34	)%		(34	)%
State income tax rate		(6	)		(6	)		(6	)
Other temporary and permanent differences		—			—			1
Change in valuation allowance and other		40			40			(3	)

Effective tax rate		0	%		0	%		(42	)%

F-24

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The significant temporary differences and ~~carry forwards~~carry-forwards and their related deferred tax asset (liability) and deferred tax asset valuation allowance balances are as follows:

~~F-35~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


			December 31,

			2004			2003

Deferred tax assets
	Accruals and other		$	132,000		$	741,000
	Net operating loss carry-forward			10,387,000			9,551,000

	Gross deferred tax assets			10,519,000			10,292,000

Deferred tax liabilities
	Property and equipment			4,694,000			4,872,000

	Gross deferred tax liabilities			4,694,000			4,872,000

	Net deferred tax asset			5,825,000			5,420,000
		Less valuation allowance		(5,825,000	)		(5,420,000	)

	Deferred tax asset		$	—		$	—

For income tax purposes, the Company has approximately ~~$24,807,000~~$26,979,000 of net operating loss carry-forwards expiring from 2015 through ~~2023.~~2024.

During 2004, 2003 and 2002, the Company realized certain tax benefits related to stock option plans in the amounts of $172,000, $164,000 and $232,000, respectively. Such benefits were recorded as a deferred tax asset as they increased the ~~Company's~~Company’s net operating losses and an increase in additional paid in capital. The recognition of the valuation allowance offset the impact of this benefit.

The Company has provided for a valuation allowance of ~~$5,420,000~~$5,825,000 due to the uncertainty of realizing the tax benefits from its net operating loss carry-forwards.

Note ~~12 -~~10 — Commitments and Contingencies ~~- --------------------------------------- Gas Gathering Contract - ------------------------~~


	*Gas Gathering Contract*

In June 2001, the Company entered into a long-term gas gathering contract, which expires in December 2008. This contract was amended April 4, 2003. Under the amended contract, the Company will pay gas gathering fees per thousand cubic feet ~~("MCF"~~(“Mcf”) delivered. The Company is obligated to pay a fee of $.40 per ~~MCF~~Mcf on the first 7,500,000 ~~MCF~~Mcf and $.25 per ~~MCF~~Mcf thereafter. Additionally, the Company has an annual volume ~~commitment for the first 3 years~~commitments starting September 1, 2001. The ~~Company's~~Company’s minimum volume for ~~the first three years is~~ (i) Year one 600,000 ~~MCF,~~Mcf, (ii) Year two 1,600,000 ~~MCF,~~Mcf, (iii) Year three 2,000,000 ~~MCF,~~Mcf, (iv) Year four 1,800,000 ~~MCF,~~Mcf, and (v) Year five 1,500,000 ~~MCF.~~Mcf. If the Company exceeds the minimum in any year, the excess reduces the following ~~year's~~year’s commitment. If the Company does not meet the minimum in any year, the shortfall is added to the following years and at the end of the three years, the Company ~~has~~was to pay ~~additional costs~~ for ~~the~~any shortfall. Through December 31, ~~2003,~~2004, the Company had delivered approximately ~~2,060,000 MCF.~~3,137,000 Mcf. While the Company has failed to deliver the volumes required under the contract, the pipeline operator has also not provided the compression and gathering capabilities it was required to provide under the contract. Management has received a verbal commitment from the operator that the volume commitments will be adjusted and management does not believe there will be a contract shortfall under the renegotiated volumes and therefore, anticipates no additional costs under the contract. ~~Financial Consulting Agreement - --------------------------------~~

F-25

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Lease Agreements*

We have certain lease agreements for the use of office space. The terms of the various leases extend through September 2009. The following is a schedule by year of future minimum lease obligations under operating lease arrangements at December 31, 2004:


Year Ending December 31,

2005	$	122,413
2006		111,795
2007		87,743
2008		18,675
2009		14,175

	$	354,801

Rental expense for these and other leases was $133,524, $142,926 and $103,824 for the years ended December 31, 2004, 2003 and 2002, respectively.


	*Financial Consulting Agreement*

In July 2003 the Company entered into aan eighteen month financial consulting agreement with a related party. The Company issued options to purchase 125,000 shares of common stock that were valued at approximately $1,094,000 using the Black-Scholes valuation model, as compensation for entering into the ~~agreement. (See~~agreement (see Note 9)7.) The related party helped facilitate the $3,850,000 bridge loan that was obtained in July 2003. Labarge Evaluation and Development Agreement - ------------------------------------------------ In December 2003, the Company entered into an agreement with both Schlumberger Technology Corporation and Red Oak Capital Management LLC to develop its Labarge coal bed methane project.


	*Regulations*

The agreement provides for the completion or recompletion of five to ten of the Company's existing well bores, the anticipated drilling of ten new wells in 2004, and the anticipated drilling of twenty wells in each of the years 2005 through 2008. F-36 INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Based on the success of the initial completion program, and after each yearly development phase, the project will be evaluated for continuation. Work on the existing well bores began in January 2004 and is expected to be completed in the second quarter of 2004. Schlumberger has the exclusive right to provide completion services and supplies for each development phase and Red Oak has the exclusive right to finance a portion of the cost of wells drilled in the 2004, 2005 and 2006 drilling phases. The Company will be required to finance approximately 50% of the drilling and other costs for each phase. Payment for the services provided by Schlumberger and Red Oak will be made from net proceeds, after operating costs from the wells completed or re-completed in each development phase. This method of payment for the services provided results in a substantial portion of the net profits from the wells included in each bundle being paid to Schlumberger and Red Oak until the obligation on each bundle is satisfied. The agreement is secured by a pledge of the wells completed or recompleted, and does not burden the ownership of or profits from any other assets of the Company. The Company has approximately $9,399,000 invested in unproved oil and gas properties not subject to amortization on the Labarge project and expects to incur approximately an additional $3,600,000 in costs during 2004 under the agreement to evaluate and explore the property. At the conclusion of the 2004 evaluation and exploration activity, a significant portion of the investment in unproved oil and gas properties will be reclassified to the full cost pool subject to depletion and the ceiling test. If proved reserves are not found or if reserves are not significant, the Company could be required to write-down a portion of the full cost pool of oil and gas properties. Regulations - ----------- The Company'sCompany’s oil and gas operations are subject to various Federal, state and local laws and regulations. The Company could incur significant expense to comply with new or existing laws and non-compliance could have a material adverse effect on the ~~Company's~~Company’s operations. ~~Environmental - -------------~~


	*Environmental*

The Company uses injection wells to dispose of water into underground rock formations. If future wells produce water of lesser quality than allowed under state laws or if water is produced at rates greater than can be injected, the Company could incur additional costs to dispose of its water.


	*Fixed Price Delivery Contracts*

The Company entered into fixed price delivery contracts for natural gas from April 1, 2004 through March 31, 2006. See Note ~~13 -~~1.

Note 11 — Retirement Plan ~~- -------------------------~~

The Company has a 401(k) plan covering substantially all of the employees of the oil field services subsidiary. There were no Company contributions made to the plan during ~~the year ended December 31,~~ 2003 and ~~2002 and the nine months ended December 31, 2001.~~2002. Effective January 1, 2004, the Company began matching, dollar for dollar, employee contributions up to 4% of ~~their~~ gross pay. ~~At the current rate~~The Company expensed $111,739 of ~~participation, this benefit will cost the Company approximately $105,000~~such contributions during 2004.

F-26

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note ~~14 -~~12 — Industry Segments ~~- ---------------------------~~

The Company reports segment information in accordance with SFAS NoNo. 131, “Disclosures about Segments of an Enterprise and Related Information”, which requires disclosure of information related to certain operating segments of the Company.

The ~~Company's~~Company’s operations have been classified into two industry segments: (i) Oil Field Services; and (ii) Oil and Gas Production. The Oil Field Services segment of the Company is directed at ~~maintaining~~services associated with the drilling and ~~enhancing production obtained from~~completion of oil and gas wells, including cementing, acidizing, fracturing, nitrogen pumping and ~~currently~~water hauling and has operations in Kansas, Oklahoma, and Wyoming. The Oil and Gas Production segment of the Company ~~has acquired interests~~is engaged in ~~undeveloped leaseholds~~the acquisition, exploration, development and production of natural gas and crude oil in ~~Wyoming,~~ Colorado, Texas and ~~Kansas~~Wyoming.

The Oil Field Services segment had eliminated inter-company sales of ~~which a portion have been developed into producing properties. F-37~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

approximately $2,100,000 in 2002 and less than $20,000 during 2003. There were no such sales in 2004.


	Oil Field		Oil & Gas			Corporate and
	Services		Production			Other			Total

Revenue
December 31, 2002	$	8,570,631	$	2,367,713		$	—		$	10,938,344
December 31, 2003		11,634,457		6,589,281			—			18,223,738
December 31, 2004		14,720,979		6,267,453			—			20,988,432
Depreciation, depletion, amortization and accretion
December 31, 2002		1,485,495		273,936			23,155			1,782,586
December 31, 2003		1,420,952		1,561,247			92,048			3,074,247
December 31, 2004		1,450,450		3,611,056			136,475			5,197,981
Ceiling write-down
December 31, 2002		—		—			—			—
December 31, 2003		—		2,975,000			—			2,975,000
December 31, 2004		—		4,100,000			—			4,100,000
Operating income (loss)
December 31, 2002		37,285		(299,079	)		(1,670,865	)		(1,932,659	)
December 31, 2003		1,411,218		(1,629,866	)		(2,061,353	)		(2,280,001	)
December 31, 2004		2,669,319		(4,823,147	)		(2,144,479	)		(4,298,307	)
Total assets, net
December 31, 2003		9,069,144		40,220,115			5,977,019			55,266,278
December 31, 2004		10,972,094		48,001,256			5,074,913			64,048,263
Capital expenditures
December 31, 2002		1,561,357		14,695,044			865,505			17,121,906
December 31, 2003		459,820		6,076,125			197,567			6,733,512
December 31, 2004		2,246,622		15,652,421			52,921			17,951,964

Note ~~15 -~~13 — Significant Customers ~~- -------------------------------~~

During ~~the nine months ended December 31, 2001,~~2004, the Company had oil field service sales to ~~two~~three unrelated third parties of approximately ~~$2,640,000,~~$4,980,000, representing approximately ~~23% of net sales. During the year ended December 31, 2002, the Company had oil field service sales to one unrelated third party of approximately $1,569,000, representing approximately 14%~~34% of net sales. In addition, during ~~2002,~~2004, the Company sold ~~89%~~approximately $6,209,000 or 99% of its oil and gas revenue to ~~three~~two unrelated ~~companies.~~customers.

F-27

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During ~~the year ended December 31,~~ 2003, the Company had oil field service sales to one unrelated third party of approximately $1,150,000, representing approximately 10% of net sales. In addition, during 2003, the Company sold approximately $6,453,000 or 98% of its oil and gas revenue, to two unrelated customers.

During 2002, the Company had oil field service sales to one unrelated third party of approximately $1,569,000, representing approximately 14% of net sales. In addition, during 2002, the Company sold approximately $2,107,000 or 89% of its oil and gas revenue to three unrelated companies.

Receivables outstanding ~~from the~~at December 31, 2004 and 2003 ~~and 2002~~from significant customer sales were approximately $1,879,000 and $529,000, or 53% and ~~$586,000,~~30% of total accounts receivable at such date, respectively. ~~F-38~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 16 - Fair Value of Financial Instruments - ---------------------------------------------~~


Note 14 —	Fair Value of Financial Instruments

The carrying value of the ~~Company's~~Company’s cash balance, accounts receivable, accounts payable and accrued ~~expenses~~liabilities represents the fair value of the ~~accounts as of December 31, 2003 and 2002.~~accounts. The fair value of the ~~Company's~~Company’s long-term debt with financial institutions and equipment financing companies approximates the carrying value because (i) interest rates are variable or (ii) the debt instruments were executed at rates comparable to current rates for similar notes. The fair value of the ~~Company's~~Company’s other long-term debt obligations cannot be determined due to the nature of the transactions which created the debt, and comparable market value information is not readily determinable without incurring excessive costs. See Note 97 for the terms of the long-term debt obligations. ~~Note 17 - Earnings Per Share - ---------------------------- At~~


Note 15 —	Earnings Per Share

For the years ended December 31, 2004, 2003 and 2002, all potential Company shares of common stock are anti-dilutive. At December 31, 2001, the following shows the amounts used in computing earnings per share and the effects on income and the weighted average number of shares of dilutive potential common stock:

As of December 31, 2004, 2003, ~~2002~~ and ~~2001,~~2002, the impact of 5,320,892, 4,991,746, ~~4,473,413~~ and ~~344,090,~~4,473,413, respectively, of potential shares of common stock were not included because their effect was anti-dilutive.

See Note ~~18- Subsequent Events - -------------------------- In~~8 and Note 16 regarding options and warrants issued in 2005.


Note 16 —	Subsequent Event


	*Senior Secured Notes Facility*

On January ~~2004,~~13, 2005, the Company ~~issued 1,000,000~~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 ~~$4.00~~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. 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 quarterly intervals and over a ~~private placement.~~three-year period, commencing in the third quarter of 2005, Infinity has the option to sell additional notes (the “Additional Notes”), along with additional warrants, in amounts of up to $15 million in any rolling twelve-month period and up to a maximum of $45 million. The ~~Company~~Additional Notes would have an initial maturity of 42 months (54 months if the maturity of the initial Notes is extended). The

F-28

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

issuance of Additional Notes is subject to Infinity’s future 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 the financial performance of Consolidated Oil Well Services, Inc. and the SEC after-tax PV-10% value of the Company’s proved reserves.

Infinity used ~~$750,000~~approximately $9.2 million of the proceeds from the ~~private placement, plus 125,000 shares~~sale of ~~common stock valued at $4.00 per share~~the Notes and Warrants to repay all amounts outstanding pursuant to a Loan and Security Agreement between LaSalle Bank N.A. and Consolidated, a Credit Agreement between U.S. Bank National Association and Infinity-Wyoming, and certain other secured lending agreements, and those credit agreements have been terminated. See Note 7 to the Consolidated Financial Statements. Infinity is using the remainder of the proceeds to pay ~~down a portion~~costs and expenses related to the sale of the ~~$3,000,000 bridge loan (See Note 9). In February 2004, the Company entered into a $250,000 note agreement with a bank. The proceeds of the loan were used~~Notes and Warrants and to ~~pay outstanding payables. The note bears interest at 6.25%~~fund its oil and ~~is due in 10 monthly installments of $25,000 plus interest. In addition, the Company financed $169,532 of 2003~~gas exploration and 2004 payables related to drilling wells at Pipeline, into a 1-year note payable. The note bears interest at 6.5% and is due in monthly installments of $14,623, including interest through February 2005. 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 is $4.40 per MMBTU and the price for the period April 1, 2005 until March 31, 2006 is $4.15 per MMBTU. F-39 INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Subsequent to obtaining the new contracts, the Company was required to obtain a $300,000 letter-of-credit with a bank. The Company paid back $400,000 on the $5,500,000 outstanding on its bank credit facility in order to allow for the letter-of-credit under the current borrowing base. In March, 2004 the Company acquired an additional working interest in two partner operated wells and 960 gross acres of leasehold immediately offsetting the Pipeline field. The purchase increased the Company's working interest in the wells to 50% from an approximate 1.5% interest at December 31, 2003 and the Company assumed operations on the properties. Note 19 - Supplemental Oil and Gas Information (Unaudited) - ---------------------------------------------------------- Proved Oil and Gas Reserves (Unaudited) - --------------------------------------------development activities.


Note 17 —	Supplemental Oil and Gas Information


	*Proved Oil and Gas Reserves (Unaudited)*

The following information was developed from reserve reports prepared by independent reserve engineers:


	Natural Gas			Crude Oil
	(Mcf)			(Barrels)

Proved reserves as of December 31, 2001		9,224,600			138,164
Sales or other deletions		—			(128,788	)
Revisions of previous estimates		(2,042,255	)		85,277
Extension, discoveries and other additions		89,284,734			141,169
Production		(676,879	)		(53,122	)

Proved reserves as of December 31, 2002		95,790,200			182,700
Revisions of previous estimates		(90,374,776	)		1,991
Extension, discoveries and other additions		3,175,927			66,102
Production		(1,080,456	)		(57,654	)

Proved reserves as of December 31, 2003		7,510,895			193,139
Purchases of reserves in place		1,476,067			—
Revisions of previous estimates		(1,230,288	)		16,535
Extension, discoveries and other additions		1,239,700			17,571
Production		(953,428	)		(33,668	)

Proved reserves as of December 31, 2004		8,042,946			193,577

F-29

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The 2003 revision to the previous estimate of reserves is due primarily to the following factors: - operational issues at the existing Labarge wells; - a lack of financial resources to rectify the operational issues on a timely basis or to complete exploration on other wells; and -


	•	operational issues at the existing Labarge wells;

	•	a lack of financial resources to rectify the operational issues on a timely basis or to complete exploration on other wells; and

	•	geological studies that indicate the producing Pipeline wells were producing from the sands rather than the coals thus leading the Company to change the classification of Pipeline from a coal play to a sand play.

Proved reserves are estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

There are uncertainties inherent in estimating quantities of proved oil and gas reserves, projecting future production rates, and timing of development expenditures. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.

All proved reserves are located in the United States. ~~F-40~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Proved Developed Oil and Gas Reserves - ------------------------------------------~~


	*Proved Developed Oil and Gas Reserves (Unaudited)*

The following information sets forth the estimated quantities of proved developed oil and gas reserves of the Company as of the end of each year.


			Crude Oil and
	Natural Gas		Condensate
Proved Developed Reserves	(Mcf)		(Barrels)

December 31, 2002		38,590,600		182,700
December 31, 2003		4,724,523		124,968
December 31, 2004		3,773,033		117,031

~~-------------- Crude~~

	Costs Incurred in Oil and ~~Natural~~ Gas ~~Condensate (MCF) (Barrels) ------------ --------------~~ Proved Developed Reserves ------------------------- December 31, 2001 4,112,300 138,864 December 31, 2002 38,590,600 182,700 December 31, 2003 4,724,523 124,968 Activities

~~Costs Incurred in Oil and Gas Activities - ----------------------------------------------~~

Costs incurred in connection with the ~~Company's~~Company’s oil and gas acquisition, exploration and development activities are shown below.

~~F-41~~


			For the Year Ended December 31,

			2004		2003		2002

Property acquisition costs
	Proved		$	516,239	$	1,099,120	$	72,383
	Unproved			3,717,280		661,224		2,279,587

		Total property acquisition costs		4,233,519		1,760,344		2,351,970
Development costs				6,156,131		3,167,700		786,095
Exploration costs				5,294,148		3,491,953		11,955,351

Total costs			$	15,683,798	$	8,419,997	$	15,093,416

F-30

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~Aggregate Capitalized Costs - -----------------------------~~— (Continued)


	*Aggregate Capitalized Costs*

Aggregate capitalized costs relating to the ~~Company's~~Company’s oil and gas producing activities, and related accumulated depreciation, depletion, amortization and ceiling write-down are as follows:


		As of December 31,

		2004			2003

Proved oil and gas properties		$	41,210,195		$	28,194,858
Unproved oil and gas properties			15,595,508			12,715,834

	Total		56,805,703			40,910,692
Less accumulated depreciation, depletion, and amortization and ceiling write-down			(12,418,315	)		(4,748,515	)

Net capitalized costs		$	44,387,388		$	36,162,177

For the Nine For the Years Ended Months Ended December 31, December 31, ------------ ------------ -------------- 2003 2002 2001 ------------ ------------ -------------- Proved oil and gas properties $28,194,858 $19,411,845 $ 5,009,661 Unproved oil and gas properties (1) 12,815,834 $13,176,850 12,404,906 ------------ ------------ -------------- Total 41,010,692 32,588,645 17,414,567 Less accumulated depreciation, depletion, amortization and ceiling write-down (4,748,515) (304,418) (223,706) ------------ ------------ -------------- Net capitalized costs $36,262,177 $32,284,277 $ 17,190,861 ============ ============ ==============

	*Costs Not Being Amortized*

~~(1) 2003 includes approximately $885,000 in unproved oil~~

Oil and gas ~~properties~~property costs not being amortized at December 31, 2004, by year that the costs were incurred are as follows:


Year Ended December 31,

2004	$	6,700,461
2003		1,644,654
2002 and prior		7,250,393

Total costs not being amortized	$	15,595,508

Unevaluated costs include $6,063,000 relating to our prospect in the Fort Worth Basin of North Central Texas. During 2004, the Company acquired interests in approximately 32,000 acres in the Fort Worth Basin of North Central Texas. In October 2004, the Company commenced the drilling of several exploratory gas wells. Approximately $3,600,000 associated with wells in progress is expected to be classified as evaluated during 2005.

Unevaluated costs include $6,933,000 relating to our Labarge prospect in Southwest Wyoming. Substantially all of the acreage in the prospect is subject to an ongoing Bureau of Land Management environmental impact statement (“EIS”). The EIS must be completed before the Company can continue development. Approximately $2,100,000 associated with wells in progress is expected to be classified as evaluated during 2005.

Unevaluated costs include approximately $925,000 relating to our concessions offshore Nicaragua. The Company expects to execute a definitive exploration and production contract covering the approximate 1,400,000 acres during 2005.

F-31

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Capitalized Financing Costs*

From inception through December 31, ~~2003,~~2004 the Company has capitalized the following financing costs related to properties not subject to amortization. As these properties are developed, the costs are transferred to properties subject to amortization:


	As of December 31,

	2004		2003

Beneficial conversion feature related to the 8% subordinated convertible notes	$	1,165,500	$	1,165,500
Capitalized interest		2,880,608		2,246,019
Capitalized amortization of loan costs		5,440,961		4,885,586

Total capitalized finance costs	$	9,487,069	$	8,297,105

December 31, ---------------------- 2003 2002 ---------- ---------- Beneficial conversion feature related to the 8% subordinated convertible notes $1,165,500 $1,165,500 Capitalized interest 2,246,019 1,863,783 Capitalized amortization of loan costs 4,885,586 2,170,612 ---------- ---------- Total capitalized finance costs $8,297,105 $5,199,895 ========== ==========

	*Oil and Gas Operations*

~~Oil and Gas Operations - -------------------------~~

Aggregate results of operations in connection with the ~~Company's~~Company’s oil producing activities are shown below:

~~F-42~~


	For the Year Ended December 31,

	2004			2003			2002

Revenue	$	6,267,453		$	6,589,281		$	2,367,713
Production costs and taxes		(2,635,892	)		(2,920,493	)		(1,820,692	)
Depreciation, depletion, amortization, accretion and ceiling write-down		(7,677,968	)		(4,442,097	)		(196,627	)

Results of operations from producing activities (excluding corporate overhead and interest costs)	$	(4,046,407	)	$	(773,309	)	$	350,394

Depletion per Mcf equivalent	$	3.06		$	0.92		$	1.11

F-32

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil - -------------------------------------------------------------------------------- and Gas Reserves (Unaudited) - -------------------------------— (Continued)


	*Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves (Unaudited)*

The following information is based on the ~~Company's~~Company’s best estimate of the required data for the Standardized Measure of Discounted Future Net Cash Flows as of December 31, 2004, 2003, ~~2002~~ and ~~2001~~2002, as required by SFAS NoNo. 69. The Statement requires the use of a 10 percent discount rate. This information isdoes not represent the fair market value nor ~~does it represent~~ the expected present value of future cash flows of the ~~Company's~~Company’s proved oil and gas reserves.


	As of December 31,

	2004			2003			2002

Future cash inflows	$	56,584,600		$	51,591,800		$	303,392,537
Future production costs		(18,552,100	)		(16,204,800	)		(109,060,912	)
Future development costs		(3,450,000	)		(2,912,800	)		(16,424,600	)
Future income tax expense		(399,302	)		(2,765,262	)		(59,269,174	)

Future net cash flows		34,183,198			29,708,938			118,637,851
10% annual discount for estimated timing on cash flows		(10,470,718	)		(8,887,283	)		(63,585,181	)

Standardized measure of discounted future cash flows	$	23,712,480		$	20,821,655		$	55,052,670

Future cash inflows are computed by applying a ~~year end weighted average~~year-end spot market gas price and oil price for the areas of production. The following table shows the prices that have been used for each ~~of the periods:~~

period:


	As of December 31,

	2004		2003		2002

Weighted average gas price per Mcf	$	6.07	$	6.06	$	3.11
Weighted average oil price per barrel	$	40.25	$	31.34	$	31.20

A subsequent decline in prices received for oil and gas sales from those used to compute cash inflows ($6.53 per Mcf and $54.55 per barrel at March 15, 2005) could result in a requirement that the Company recognize a ceiling write-down to oil and gas properties in a future period. See also Note 1 to the Consolidated Financial Statements.

Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the ~~Company's~~Company’s proved oil and gas reserves at December 31, 2004, 2003 ~~2002~~ and ~~2001~~2002 assuming continuation of existing economic conditions. ~~F-43~~

F-33

INFINITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following reconciles the change in the standardized measure of discounted future net cash flow:


	For the Year Ended December 31,

	2004			2003			2002

Beginning of period	$	20,821,655		$	55,052,670		$	5,622,483
Extensions, discoveries and other additions		2,911,800			9,004,500			77,054,495
Purchases of reserves in place		2,839,535			—			—
Sales and transfers		—			—			(547,245	)
Net change in sales and transfer prices, net of production costs		(4,117,528	)		76,822,907			371,265
Revision of previous quantity estimates		241,269			(170,455,255	)		(1,590,027	)
Development costs incurred during the period		5,023,365			976,462			786,095
Sales of oil and gas, net of production costs and taxes		(3,631,561	)		(3,678,788	)		(547,021	)
Changes in future development costs		(3,025,685	)		13,143,811			(252,092	)
Net change in income taxes		1,816,525			26,834,091			(25,423,043	)
Changes in production rates and other		(1,461,405	)		4,718,632			(1,337,938	)
Accretion of discount		2,294,510			8,402,625			915,698

End of period	$	23,712,480		$	20,821,655		$	55,052,670

Future income tax expenses are computed by applying the appropriate period-end statutory tax rates to the future pretax net cash flow relating to the ~~Company's~~Company’s proved oil and gas reserves, less the tax basis of the properties involved. The future income tax expenses do not give effect to tax credits, allowances, or the impact of general and administrative costs of ongoing operations relating to the ~~Company's~~Company’s proved oil and gas reserves. ~~F-44~~ ~~INFINITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Note ~~20 -~~18 — Quarterly Consolidated Financial Information (Unaudited) ~~- ------------------------------------------------------------------~~

The following table provides selected quarterly consolidated financial results for the years ended December 31, ~~2003~~2004 and ~~2002:~~

~~- ------------------- (1) Includes the following reclassifications of other revenue and other costs of revenue to interest and other income as reflected in the following table:~~

~~F-45~~ 2003.


	Quarter

	First			Second			Third			Fourth

	($ in thousands, except per share information)
2004
Total revenue	$	3,567		$	5,045		$	6,606		$	5,770
Gross profit	$	1,628		$	2,518		$	3,542		$	2,774
Net (loss) income	$	(1,765	)	$	(1,102	)	$	3,121		$	(4,887	)
(Loss) earning per share	$	(0.19	)	$	(0.12	)	$	0.33		$	(0.49	)
(Loss) earning per diluted share	$	(0.19	)	$	(0.12	)	$	0.29		$	(0.49	)
2003
Total revenue	$	3,605		$	5,003		$	5,241		$	4,375
Gross profit	$	1,450		$	2,706		$	2,764		$	2,160
Net (loss) income	$	(622	)	$	(224	)	$	(4,525	)	$	(4,554	)
(Loss) earning per share	$	(0.08	)	$	(0.03	)	$	(0.55	)	$	(0.57	)
(Loss) earning per diluted share	$	(0.08	)	$	(0.03	)	$	(0.55	)	$	(0.57	)

F-34

INFINITY, ~~INC~~INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company recorded full cost ceiling writedowns during the fourth quarters of 2004 and 2003, of $4,100,000 and $2,975,000, respectively.

Note ~~21 -~~19 — Schedule of Condensed Financial Information ~~- -----------------------------------------------------~~

The oil and gas production subsidiary of the Company that owns more than 25% of the net assets of the Company iswas restricted from distributing more than $300,000 to the parent at December 31, ~~2003~~2004 under the $25,000,000 development credit facility executed in September 2003. However as such credit facility was repaid in full and terminated on January 13, 2005; the restriction is no longer applicable. Accordingly, the condensed balance sheet, statement of operations and cash flow statement for the parent ~~are being~~have not been provided as of and for the period ended December 31, ~~2003. There were no restrictions on the distribution of dividends to the parent by the subsidiary in the prior two periods.~~ 2004.

F-35

EXHIBIT INDEX

~~INFINITY, INC. CONDENSED BALANCE SHEET December 31, 2003~~ ~~ASSETS Current assets Cash~~

Exhibit
Number		Description of Exhibits

	21	Subsidiaries of the Registrant
	23.1	Consent of Ehrhardt, Keefe, Steiner & Hottman, P.C.
	23.2	Consent of Netherland Sewell and ~~cash equivalents $ 22,019 Prepaid expenses~~Associates, Inc.
	31.1	Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a_14(a) and other 40,839 ------------- Total current assets $ 62,858 PropertyRule 15d-14(a) (Section 302 of the Sarbanes-Oxley act of 2002).
	31.2	Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a_14(a) and ~~equipment, at cost, less accumulated depreciation~~Rule 15d-14(a) (Section 302 of ~~$179,825 2,293,881 Oil and gas properties, not subject~~the Sarbanes-Oxley act of 2002).
	32.1	Certification of Chief Executive Officer Pursuant to ~~amortization 884,790 Intangible assets, at cost less accumulated amortization~~18 U.S.C. Section 1350 (Section 906 of ~~$9,716,459 3,534,449 Other assets 135,989 Cumulative investment in or advances~~the Sarbanes-Oxley Act of 2002)
	32.2	Certification of Chief Financial Officer Pursuant to subsidiaries 29,009,328 ------------- Total assets $ 35,921,295 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion18 U.S.C. Section 1350 (Section 906 of long-term debt $ 122,855 Accounts payable 371,867 Accrued expenses 240,187 ------------- Total current liabilities 734,909 Long-term liabilities Long-term debt, less current portion 2,203,346 8% subordinated convertible notes payable 2,793,000 7% subordinated convertible notes payable 11,184,000 Note payable - related party 3,000,000 ------------- Total liabilities $ 19,915,255 ------------- Commitments and contingencies Stockholders' equity Common stock, par value $.0001, authorized 300,000.000 shares, issued and outstanding 8,204,032 820 Additional paid-in-capital 32,720,904 Accumulated deficit (16,715,684) ------------- Total stockholders' equity $ 16,006,040 ------------- Total liabilities and stockholders' equity $ 35,921,295 =============

~~F-46~~

~~F-47~~

~~F-48~~

~~The debt of the parent at December 31, 2003 consisted of the following:~~

For additional information related to the terms of individual notes, see Note 9. During the period ended December 31, 2003, subsidiaries of the parent distributed approximately $1,861,000 to the parent. Distributions exceed the amounts allowed under debt agreement during 2003 as prior to September 2003, when the loan was executed, the subsidiary had no restrictions on cash distributions to the parent. The proceeds from these distributions were used to pay interest on outstanding debt and for working capital purposes. The parent also provides a corporate guarantee on the revolving credit and term notes held by oil well service subsidiary and the $25,000,000 development credit facility obtained by the oil and gas production subsidiary. F-49