UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

FORM 10-Q

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017.2022.

[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission File Number:0-17204000-17204

AMERICAN NOBLE GAS INC

INFINITY ENERGY RESOURCES, INC.

(Exact name of registrant as specified in its charter)

DelawareNevada20-312642787-3574612

(State or other jurisdiction

of
incorporation or organization)

(I.R.S. Employer

Identification No.)

1190015612 College Blvd Suite 310, Overland Park, , Lenexa, KS 6621066219

(Address of principal executive offices) (Zip Code)

(913)948-9512

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of exchange on which registered

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] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of Exchange Act.

Large accelerated filer [  ]Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)Smaller reporting company [X]
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

IndicateAs of November 16, 2022, the numberregistrant had 21,924,515 shares of shares outstanding of each of the issuer’s classes of capital, as of the latest practicable date:common stock, $0.0001 par value per share outstanding.

ClassOutstanding at November 10, 2017
Common Stock, $0.0001 par value7,712,569

 

 

TABLE OF CONTENTS

Page
PART I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets: September 30, 2017 (unaudited)2022 (Unaudited) and December 31, 201620213
Condensed Statements of Operations: Three and nine months ended September 30, 20172022 and 20162021 (Unaudited)4
Condensed StatementStatements of Changes in Stockholders’ Deficit: NineThree and nine months ended September 30, 20172022 and 2021 (Unaudited)5
Condensed Statements of Cash Flows: Nine months ended September 30, 20172022 and 20162021 (Unaudited)6
Notes to Condensed Financial Statements (Unaudited)7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations2740
Item 3. Quantitative and Qualitative Disclosures About Market Risk3561
Item 4. Controls and Procedures3561
PART II - Other Information
Item 1. Legal Proceedings3662
Item 1A Risk Factors62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds3762
Item 3. Defaults Upon Senior Securities3763
Item 4. Mine Safety Disclosures3763
Item 5. Other Information3763
Item 6. Exhibits3763
Signatures38
Exhibits3964

2

 

PART I - FINANCIAL INFORMATION

AMERICAN NOBLE GAS INC

ITEM 1. FINANCIAL STATEMENTS

INFINITY ENERGY RESOURCES, INC.

Condensed Balance Sheets

 September 30, 2017  December 31, 2016  September 30, 2022  December 31, 2021 
  (unaudited)       (Unaudited)  
ASSETS                
Current assets:                
Cash and cash equivalents $6,936  $12,339  $17,096  $260,590 
Accrued receivable  16,608   10,998 
Prepaid expenses  16,172   13,090 
                
Total current assets  6,936   12,339   49,876   284,678 
Oil and gas properties and equipment:        
Oil and gas properties and equipment  1,243,402   913,425 
Accumulated depreciation, depletion and impairment  (188,463)  (92,502)
        
Property and equipment, net  1,054,939   820,923 
        
Investment in unconsolidated subsidiary – GMDOC, LLC  1,173,633    
                
Total assets $6,936  $12,339  $2,278,448  $1,105,601 
                
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current liabilities:                
Accounts payable $6,000,216  $5,965,329  $1,195,152  $975,842 
Accrued liabilities (including $788,520 due to related party at September 30, 2017 and December 31, 2016)  3,446,906   3,161,290 
Income tax liability  150,000   150,000 
Accrued interest  364,104   277,369 
Asset retirement obligations  1,716,003   1,716,003 
Secured convertible note payable-current  1,989,222   91,736 
Convertible notes payable-short term  1,325,000   1,285,000 
Accrued liabilities  1,175,464   1,159,403 
Accrued interest - related parties  1,284   643 
Convertible notes payable, net of unamortized discount  1,285,309   376,274 
        
Total current liabilities  14,991,451   12,646,727   3,657,209   2,512,162 
                
Secured convertible note payable-long term     49,592 
Derivative liabilities  105,079   183,430 
Total long-term liabilities  105,079   233,022 
Commitments and contingencies (Note 8)        
Asset retirement obligations  1,731,268   1,730,264 
Convertible promissory notes, net of unamortized discount - related parties  28,665   28,665 
        
Total liabilities  5,417,142   4,271,091 
Commitments and contingencies (Note 11)  -   - 
        
Stockholders’ deficit:                
Preferred stock; par value $.0001 per share, 10,000,000 shares authorized; No shares issued or outstanding as of September 30, 2017 and December 31, 2016      
Common stock, par value $.0001 per share, authorized 75,000,000 shares, issued and outstanding 7,712,569 shares at September 30, 2017 and December 31, 2016  771   771 
Preferred stock; par value $0.0001 per share, 10,000,000 shares authorized; Series A Convertible Preferred Stock – 27,778 shares authorized with stated/liquidation value of $100 per share, 25,526 and 22,076 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively  3   2 
Common Stock, par value $0.0001 per share, 500,000,000 shares authorized, 21,924,515 shares issued and outstanding at September 30, 2022 and 19,012,015 shares issued and outstanding at December 31, 2021  2,192   1,901 
Additional paid-in capital  109,080,273   109,080,273   117,184,170   115,522,952 
Accumulated deficit  (124,170,638)  (121,948,454)  (120,325,059)  (118,690,345)
Total stockholders’ deficit  (15,089,594)  (12,867,410)  (3,138,694)  (3,165,490)
Total liabilities and stockholders’ deficit $6,936  $12,339  $2,278,448  $1,105,601 

The accompanying notes are an integral part of these unaudited condensed financial statements.

3

 

INFINITY ENERGY RESOURCES, INC.AMERICAN NOBLE GAS INC

Condensed Statements of Operations
(Unaudited)

  Three months ended
September 30,
  Nine months ended
September 30,
 
  2017  2016  2017  2016 
             
Operating expenses:                
General and administrative expenses $103,531  $107,703  $365,906  $339,199 
Stock-based compensation           7,598 
Total operating expenses  103,531   107,703   365,906   346,797 
                 
Operating loss  (103,531)  (107,703)  (365,906)  (346,797)
                 
Other income (expense):                
Interest expense  (29,048)  (27,455)  (86,735)  (134,972)
Change in fair value of secured convertible note payable  (166,431)  (2,807)  (1,847,894)  (67,591)
Change in derivative fair value  40,186   50,062   78,351   167,830 
Total other income (expense)  (155,293)  19,800   (1,856,278)  (34,733)
                 
Loss before income taxes  (258,824)  (87,903)  (2,222,184)  (381,530)
Income tax expense (benefit)            
                 
Net loss $(258,824) $(87,903) $(2,222,184) $(381,530)
                 
Basic and diluted net loss per share:                
Basic $(0.03) $(0.01) $(0.29) $(0.06)
Diluted $(0.03) $(0.01) $(0.29) $(0.06)
Weighted average shares outstanding – basic and diluted  7,712,569   7,690,227   7,712,569   6,498,312 

(Unaudited)

  2022  2021  2022  2021 
  

Three months ended

September 30,

  

Nine months ended

September 30,

 
  2022  2021  2022  2021 
             
Revenues $43,034  $35,392  $111,903  $56,220 
                 
Operating expenses:                
Oil and gas lease operating expense  55,288   220,767   198,003   446,849 
Depreciation, depletion and amortization  34,292   30,834   95,961   61,668 
Accretion of asset retirement obligation  424   279   1,004   558 
Oil and gas production related taxes  55   1,626   164   2,592 
Other general and administrative expenses  283,312   294,440   1,131,456   738,419 
                 
Total operating expenses  373,371   547,946   1,426,588   1,250,086 
                 
Operating loss  (330,337)  (512,554)  (1,314,685)  (1,193,866)
                 
Other income (expense):                
Equity in earnings of unconsolidated subsidiary – GMDOC, LLC  209,297      323,633    
Interest expense  (217,872)  (5,724)  (643,662)  (40,163)
Gain on exchange and extinguishment of liabilities           86,602 
Change in derivative fair value           199 
                 
Total other income (expense)  (8,575)  (5,724)  (320,029)  46,638 
                 
Loss before income taxes  (338,912)  (518,278)  (1,634,714)  (1,147,228)
Income tax (expense) benefit            
                 
Net loss  (338,912)  (518,278)  (1,634,714)  (1,147,228)
                 
Convertible preferred stock dividends  (65,406)  (57,408)  (170,556)  (117,936)
                 
Net loss attributable to common stockholders $(404,318) $(575,686) $(1,805,270) $(1,265,164)
                 
Basic and diluted net loss per share:                
Basic $(0.02) $(0.03) $(0.09) $(0.07)
Diluted $(0.02) $(0.03) $(0.09) $(0.07)
Weighted average shares outstanding – basic and diluted  21,920,394   18,793,265   20,571,459   18,712,199 

The accompanying notes are an integral part of these unaudited condensed financial statements.

4

 

AMERICAN NOBLE GAS INC

INFINITY ENERGY RESOURCES, INC.

Condensed StatementStatements of Changes in Stockholders’ Deficit

Nine months ended September 30, 2017(Unaudited)

(Unaudited)

  Shares  Amount  Shares  Amount  Capital  Deficit  Deficit 
  Preferred Stock  Common Stock  Additional
Paid-in
  Accumulated  Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  Deficit  Deficit 
Balance, December 31, 2020    $   18,548,265  $1,855  $110,352,302  $(117,178,645) $(6,824,488)
                             
Cumulative effect of adoption of ASU 2020-06              (252,961)  92,061   (160,900)
                             
Stock-based compensation              81,250      81,250 
                             
Issuance of preferred stock with detachable warrants to purchase Common Stock  22,776   2         1,929,087      1,929,089 
                             
Issuance of warrants to purchase Common Stock pursuant to debt settlement agreements              1,605,178      1,605,178 
                             
Extinguishment of liabilities with related parties pursuant to debt settlement agreements              1,108,477      1,108,477 
                             
Accrual of Series A Convertible Preferred Stock dividends              (3,744)     (3,744)
                             
Net loss                 (203,624)  (203,624)
                             
Balance, March 31,
2021
  22,776   2   18,548,265   1,855   114,819,589   (117,290,208)  (2,468,762)
                             
Stock-based compensation              106,750      106,750 
                             
Issuance of Common Stock pursuant to debt settlement agreements        245,000   24   68,576      68,600 
                             
Accrual of preferred stock dividends              (56,784)     (56,784)
                             
Net loss                 (425,326)  (425,326)
                             
Balance, June 30,
2021
  22,776   2   18,793,265   1,879   114,938,131   (117,715,534)  (2,775,522)
                             
Stock-based compensation              157,749      157,749 
                             
Issuance of warrants to purchase Common Stock pursuant to issuance of debt              56,000      56,000 
                             
Accrual of preferred stock dividends              (57,408)     (57,408)
                             
Net loss                 (518,278)  (518,278)
                             
Balance, September 30, 2021  22,776  $2   18,793,265  $1,879  $115,094,472  $(118,233,812) $(3,137,459)
                             
Balance, December 31,
2021
  22,076  $2   19,012,015  $1,901  $115,522,952  $(118,690,345) $(3,165,490)
                             
Stock-based compensation -              229,906      229,906 
                             
Issuance of Common Stock pursuant to conversion of Series A Convertible Preferred Stock  (800)     250,000   25   (25)      
                             
Series A Convertible Preferred Stock dividends              (52,861)     (52,861)
                             
Net loss                 (554,634)  (554,634)
                             
Balance, March 31,
2022
  21,276   2   19,262,015   1,926   115,699,972   (119,244,979)  (3,543,079)
                             
Stock-based compensation -              378,341      378,341 
                             
Issuance of Common Stock in association with the issuance of convertible bridge notes payable        425,000   42   196,112      196,154 
                             
Issuance of restricted Common Stock as compensation        1,550,000   155   (155)      
                             
Issuance of detachable warrants to purchase Common Stock in association with issuance of convertible bridge note payable              136,574      136,574 
                             
Issuance of Series A Convertible preferred stock with detachable Common Stock purchase warrants  5,000   1         499,999      500,000 
                             
Issuance of Common Stock pursuant to conversion of Series A Preferred Stock  (1,900)  (1)  593,750   60   (59)      
                             
Series A Convertible Preferred Stock dividends              (52,289)     (52,289)
                             
Net loss                 (741,168)  (741,168)
                             
Balance, June 30,
2022
  24,376   2   21,830,765   2,183   116,858,495   (119,986,147)  (3,125,467)
Balance  24,376   2   21,830,765   2,183   116,858,495   (119,986,147)  (3,125,467)
                             
Stock-based compensation -              246,091      246,091 
                             
Issuance of Series A Convertible Preferred Stock with detachable Common Stock purchase warrants  1,450   2         144,998      145,000 
                             
Issuance of Common Stock pursuant to conversion of Series A Convertible Preferred Stock  (300)  (1)  93,750   9   (8)      
                             
Series A Convertible Preferred Stock dividends              (65,406)     (65,406)
                             
Net loss                 (338,912)  (338,912)
                             
Balance, September 30, 2022  25,526  $3   21,924,515  $2,192  $117,184,170  $(120,325,059) $(3,138,694)
Balance  25,526  $3   21,924,515  $2,192  $117,184,170  $(120,325,059) $(3,138,694)

  Common Stock  Additional Paid-in  Accumulated  Stockholders’ 
  Shares  Amount  Capital  Deficit  Deficit 
Balance, December 31, 2016  7,712,569  $771  $109,080,273  $(121,948,454) $(12,867,410)
                     
Net loss           (2,222,184)  (2,222,184)
                     
Balance, September 30, 2017  7,712,569  $771  $109,080,273  $(124,170,638) $(15,089,594)

The accompanying notes are an integral part of these unaudited condensed financial statements.

5

 

AMERICAN NOBLE GAS INC

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Cash Flows

(unaudited)

 Nine months ended
September 30,
  2022  2021 
 2017  2016  

For the Nine months Ended

September 30,

 
      2022  2021 
Cash flows from operating activities:                
Net loss $(2,222,184) $(381,530) $(1,634,714) $(1,147,228)
Adjustments to reconcile net loss to net cash used in operating activities:                
Equity in earnings of unconsolidated subsidiary – GMDOC, LLC  (323,633)   
Change in fair value of derivative liability     (199)
Stock-based compensation     7,598   854,338   345,749 
Change in fair value of derivative liability  (78,351)  (167,830)
Change in fair value of senior convertible note  1,847,894   67,591 
Amortization of debt discount     53,297 
Change in operations assets and liabilities:        
Increase in accounts payable and accrued liabilities  407,238   382,897 
Depreciation, depletion and amortization  95,961   61,668 
Accretion of asset retirement obligations  1,004   558 
Gain on settlement of litigation     (23,000)
Gain on exchange and extinguishment of liabilities     (179,407)
Loss on retirement of convertible note payable     115,805 
Expiration and charge-off of deposit to acquire oil and gas properties     75,000 
Amortization of discount on convertible note payable  579,263   30,016 
Change in operating assets and liabilities:        
Increase in accounts receivable  (5,610)  (25,545)
Increase in prepaid expenses  (3,082)  (16,590)
Increase in accounts payable  219,310   194,645 
Increase (decrease) in accrued liabilities     (112)
Increase in accrued interest  641   10,146 
Net cash used in operating activities  (43,403)  (37,977)  (216,522)  (558,494)
                
Cash flows from investing activities:              
Net cash provided by (used in) investing activities      
Investment in unconsolidated subsidiary – GMDOC, LLC  (850,000)   
Investment in Hugoton Gas Field participation agreement  (314,753)   
Investment in oil and gas properties and equipment  (15,224)  (900,000)
Net cash used in investing activities  (1,179,977)  (900,000)
                
Cash flows from financing activities:                
Proceeds from issuance of senior convertible note payable  40,000   35,000 
Cash dividends paid on preferred stock  (154,495)  (117,936)
Net proceeds from issuance of convertible notes payable  1,200,000   100,000 
Repayment of convertible note payable  (537,500)  (453,539)
Net proceeds from issuance of Series A Convertible Preferred Stock with detachable Common Stock purchase warrants  645,000   1,929,089 
Net cash provided by financing activities  40,000   35,000   1,153,005   1,457,614 
                
Net decrease in cash and cash equivalents  (5,403)  (2,977)  (243,494)  (880)
                
Cash and cash equivalents:                
Beginning  12,339   3,734   260,590   11,042 
Ending $6,936  $757  $17,096  $10,162 
Supplemental cash flow information:                
Cash paid for interest $  $  $63,759  $17,448 
Cash paid for taxes $  $  $  $ 
Supplemental noncash disclosures:        
Issuance of common stock for principal and interest payments on senior convertible note payable $  $231,819 
Warrant derivatives issued in connection with notes payable and extensions $  $851 
Issuance of common stock purchase warrants for debt issuance costs $  $1,212 
        
Supplemental disclosure of non-cash investing and financing activities:        
Conversion of Series A Convertible Preferred Stock to Common Stock $94  $ 
Issuance of restricted Common Stock $155  $ 
Issuance of restricted Common Stock attributable to issuance of convertible notes payable $196,154  $ 
Issuance of detachable Common Stock warrants attributable to issuance of convertible notes payable $136,574  $56,000 
Cumulative effect of adoption of ASU 2020-06 $  $160,900 
Issuance of convertible promissory notes pursuant to debt settlement agreements $  $28,665 
Issuance of detachable Common Stock purchase warrants pursuant to debt settlements agreements $  $1,605,178 
Capital contribution attributable to related party debt extinguishment $  $1,108,477 
Issuance of Common Stock pursuant to debt settlement agreements $  $68,600 
Assumption of asset retirement obligation related to purchase of oil and gas properties $  $13,425 

The accompanying notes are an integral part of these unaudited condensed financial statements.

6

 

AMERICAN NOBLE GAS, INC.

INFINITY ENERGY RESOURCES, INC.

Notes to Condensed Financial Statements

(unaudited)September 30, 2022

(Unaudited)

Note 1 – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies

Unaudited Interim Financial Information

Infinity Energy Resources,American Noble Gas, Inc. (collectively, “we,” “ours,” “us,” “Infinity” or the “Company”) has prepared the accompanying condensed financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These financial statements are unaudited and, in our opinion, include all adjustments consisting of normal recurring adjustments and accruals necessary for a fair presentation of our condensed balance sheets, statements of operations, statements of stockholders’ deficit and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2017the remainder of 2022 due to various factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed financial statements should be read in conjunction with the audited financial statements and accompanying notes in Item 8, “Financial Statements and Supplementary Data,” of our Annual Report on Form 10-K, filed with the SEC.

Name change

At the Company’s Annual Meeting of Stockholders held on October 13, 2021 the stockholders approved an amendment to the Company’s Certificate of Incorporation, as amended, changing the Company’s name from Infinity Energy Resources, Inc. to American Noble Gas Inc. “AMGAS,” the “Company,” “we,” “us” and “our” refers collectively to American Noble Gas Inc, (formerly Infinity Energy Resources, Inc.), its predecessors and subsidiaries or one or more of them as the context may require.

Reincorporation in Nevada

On December 7, 2021, pursuant to an Agreement and Plan of Merger, American Noble Gas, Inc., a Delaware corporation, merged with and into its wholly owned subsidiary, American Noble Gas Inc., a Nevada corporation (“AMGAS-Nevada” and/or the “Company”) with AMGAS-Nevada continuing as the surviving corporation. In conjunction with the merger, AMGAS-Nevada succeeded to the assets, continued the business and assumed the rights and obligations of the predecessor Delaware corporation existing immediately prior to the merger. The merger was consummated by the filing of a certificate of merger on December 7, 2021 with the Secretary of State of the State of Delaware and Articles of Merger with the Secretary of State of the State of Nevada. The Agreement and Plan of Merger and transactions contemplated thereby were adopted by the holders of a majority of the outstanding shares of the predecessor company’s common stock, par value $0.0001 per share, and/or Series A Convertible Preferred Stock, par value $0.0001 per share, on an as-converted common stock basis, by written consent in lieu of a special meeting of stockholders, in accordance with the Delaware General Corporation Law.

7

 

Pursuant to the Agreement and Plan of Merger, (i) each outstanding share of predecessor’s common stock automatically converted into one share of common stock, par value $0.0001 per share, of AMGAS-Nevada (the “Common Stock”), (ii) each outstanding share of the predecessor’s Series A Convertible Preferred Stock automatically converted into one share of Series A Convertible Preferred Stock, par value $0.0001 per share of AMGAS-Nevada (the “Series A Convertible Preferred Stock”), and (iii) each outstanding option, right or warrant to acquire shares of predecessor common stock converted into an option, right or warrant to acquire an equal number of shares of AMGAS-Nevada Common Stock under the same terms and conditions as the original options, rights or warrants.

Similar to the shares of predecessor common stock prior to the merger, the shares of Common Stock are quoted on the OTCQB tier operated by the OTC Markets Group Inc. under the symbol “IFNY”. In accordance with the Agreement and Plan of Merger, each outstanding certificate previously representing shares of the predecessor’s common stock or Series A Convertible Preferred Stock automatically represents, without any action of the predecessor’s stockholders, the same number of shares of Common Stock or Series A Convertible Preferred Stock, as applicable.

Pursuant to the Agreement and Plan of Merger, the directors and officers of the predecessor company immediately prior to the merger became the directors and officers of AMGAS-Nevada and continued their respective directorship or services with the Company on the same terms as their respective directorship or service with the predecessor registrant immediately prior to the merger.

As a result of the merger, the internal affairs of the Company ceased to be subject to the Delaware General Corporation Law or governed by the predecessor’s Delaware Certificate of Incorporation, as amended, and its bylaws. As of December 7, 2021, the effective date of the merger, the Company is now subject to the Nevada Revised Statutes and is governed by the Company’s Articles of Incorporation as filed in the State of Nevada and the Company’s Bylaws.

Quotation of Common Stock on OTCQB

Effective July 13, 2021, the Company’s Common Stock was approved for quotation on the OTCQB® Venture Market under the symbol “IFNY.”

8

Nature of Operations

The Company has assessed various opportunities and strategic alternatives involving the acquisition, exploration and development of oil and gas oil producing properties in the United States, including the possibility of acquiring businesses or assets that provide support services for the production of oil and gas in the United States.

As a result, we are now involved with the following oil and gas producing properties:

Central Kansas Uplift - On April 1, 2021, we completed the acquisition of the Central Kansas Uplift Properties, for a purchase price of $900,000. The Central Kansas Uplift Properties include the production and mineral rights/leasehold for oil and gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand Zone with an approximate depth of 3,600 feet.

We commenced rework of the existing production wells after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and other rare earth minerals/gases. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties’ existing oil and gas reserves while continuing the evaluation of the existence of new oil and gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

Hugoton Gas Field Farm-Out - On April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Company has joined three other parties to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement (collectively the “Hugoton JV”).

The Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing. The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.

The Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety of dissolved minerals including bromine and iodine. The Hugoton JV plans to target brine minerals with commercial quantities of bromine and iodine. The Company through the Hugoton JV is currently developing proprietary technology to recover brine minerals, particularly with respect to bromine, which is well underway and has demonstrated recovery efficiency and is expected to be available for use in existing and future development wells.

The Hugoton JV believes that its unconventional theory has not previously been targeted for exploration by historical operations in the field. The initial exploratory well was spud on May 7, 2022 near Garden City, Kansas, with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves. The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production on August 17, 2022. The Company is pursuingevaluating the explorationinitial flows of potentialboth natural gas and helium.

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Investment in GMDOC, LLC - On May 3, 2022, the Company entered into an operating agreement (the “Operating Agreement”) pursuant to which the Company acquired 17 (or 60.7143%) of 28 limited liability membership interests (the “Interests”) in GMDOC, LLC, a Kansas limited liability company (“GMDOC”), for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.

With respect to its cash capital contribution, the Company paid a non-refundable cash deposit for the membership interests in the amount of $50,000 on May 3, 2022. The Company paid the remainder of the cash contribution for the membership interests, or $800,000, on May 16, 2022. The remainder of the Company’s capital contribution, or $3,187,500, was financed by the Bank Loan (as defined below).

GMDOC had previously acquired 70% of the working interests (the “Acquisition”) in certain oil and gas resourcesleases (the “GMDOC Leases”) from Castelli Energy, L.L.C., an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis.

GMDOC is managed by two members: Darrah Oil Company, LLC, and Grand Mesa Operating Company, (collectively the “Managing Members”), which also serve as the operating companies under the GMDOC Leases.

COVID–19 Pandemic

The financial statements contained in this Quarterly Report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of and for the three and nine months ended September 30, 2022. Economies throughout the world continue to suffer disruptions by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the COVID-19 pandemic. In particular, the oil and gas market has been severely impacted by the negative effects of the COVID 19 pandemic because of the substantial and abrupt decrease in the Perlasdemand for oil and Tyra concession blocks offshore Nicaraguagas globally followed by the recent resurgence in oil and natural gas prices. In addition, the capital markets have experienced periods of disruption and our efforts to raise necessary capital in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which containfuture may be adversely impacted by the continuing effects of the COVID-19 pandemic and investor sentiment and we cannot forecast with any certainty when the lingering uncertainty caused by the COVID-19 pandemic will cease to impact our business and the results of our operations. In reading this Quarterly Report on Form 10-Q, including our discussion of our ability to continue as a total of approximately 1.4 million acres. The Company sold its wholly-owned subsidiary Infinity Oil and Gas of Texas, Inc.going concern set forth herein, in 2012 and its wholly-owned subsidiary, Infinity Oil and Gas of Wyoming, Inc., was administratively dissolved in 2009.each case, consider the additional uncertainties caused by the COVID-19 pandemic.

Going Concern

The Company has been pursuingincurred losses from operations, has a net stockholders’ deficit, incurred net cash used in operating activities and has a significant working capital deficit as of and for the nine months ended September 30, 2022 and for the year ended December 31, 2021. The Company must raise substantial amounts of debt and equity capital from other sources in the future in order to fund (i) the development of the Properties acquired on April 1, 2021; (ii) our obligations for exploration and development under the Hugoton Farmout Agreement; (iii) normal day-to-day operations and corporate overhead; and (iv) outstanding debt and other financial obligations as they become due, as described below. Some of the Company’s outstanding debt and other financial obligations are currently past due and the Company anticipates that other debt and financial obligations will become past due imminently. See Note 4. These are substantial operational and financial issues that must be successfully addressed during 2022 and beyond.

The Company has made substantial progress in resolving many of its existing financial obligations and acquiring oil and gas producing properties to deploy its new operational strategy during the nine months ended September 30, 2022 and for the year ended December 31, 2021.

The Company will have significant financial commitments executing its planned exploration and development of the Nicaraguan Concessions, which represents its principal assetProperties and onlythe Hugoton Gas Field. The Company may find it necessary to raise substantial amounts of debt or equity capital to fund such exploration and development project. On March 5, 2009 Infinity signed the contracts relating to its Nicaraguan Concessions. Infinity has conducted activities to develop geological information from the processing and evaluation of 2-D seismic data that was acquired for the Nicaraguan Concessions. The Company has identified multiple sites for exploratory drilling and intends to plan the initial exploratory well on the Perlas Block in order to determine the existence of commercial hydrocarbon reserves, subject to receipt from the Nicaraguan government of authorizations for the drilling of up to five wells, financing and satisfaction of other conditions. In order to meet its obligations under the Perlas Block of the Nicaraguan Concession, the Company had to drill its initial exploratory well during 2016, which did not occur. As a result of this and other defaults, the Company is in default of the Perlas development plan and may lose its rights under the Nicaraguan Concessions. The work plan on the Tyra block now requires the Company to shoot additional seismic prior to the commencement of exploratory drilling. The Company is seeking a waiver of the additional seismic mapping on the Tyra Block and extension of time to complete its initial well from the Nicaraguan government. The Company has not been able to pay the 2016 and 2017 area fees and training fees for both the Perlas and Tyra blocks as required under the Nicaraguan Concessions and is in technical default. The Company is attempting to negotiate extensions, waivers and/or new Perlas and Tyra Concession agreements with the Nicaraguan government at September 30, 2017 to cure such defaults. There can be no assurance whether it will be able to obtain such extensions, waivers and/or new agreements that will cure its various defaults under the Nicaraguan Concessions. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. There can be no assurance whether the Company will be able to cure its various defaults under the Nicaraguan Concessions and obtain adequate financing to fund the exploration and development of its Nicaraguan Concessions.

On May 7, 2015, the Company completed the private placement (the “May 2015 Private Placement”) of a $12.0 million principal amount Secured Convertible Note (the “Note”) and a common stock purchase warrant to purchase 1,800,000 shares of the Company’s common stock (the “Warrant”) with an institutional investor (the “Investor”). At the closing, the Investor acquired the Note by paying $450,000 in cash and issuing a promissory note, secured by cash, with a principal amount of $9,550,000 (the “Investor Note”).

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On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver a new convertible note (the “Replacement Note”) with respect to the remaining principal balance of $2,197,231 to replace the Convertible Note. The Replacement Note provides for a one-year maturity from May 7, 2017, a conversion price of $0.50 per share and is due in monthly installment payments through May 2018 either in cash or stock, among other terms. The Company plans to negotiate with the Investor regarding the issuance of the Replacement Note under the terms of the financing and taking into consideration that the Investor only funded $510,000 in the entire transaction, but there can be no assurance that it will be successful in this regard.

The Note was to mature on the three-year anniversary of its issuance, bore interest at 8% per annum, and was convertible at any time at the option of the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”). As a part of the May 2015 Private Placement, the Company issued a Warrant to the Investor giving it the right to purchase up to an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance for a period of seven years from the date of issuance. The Note ranked senior to the Company’s existing and future indebtedness and is secured by all the assets of the Company, excluding the Concessions. The proposed Replacement Note would have the same security interest as the Convertible Note.

In addition, the Company continues to seek offers from industry operators and other third parties for interests in the acreage in the Nicaraguan ConcessionsProperties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement.

Going Concern

As reflected in the accompanying statements of operations, the Company has had a history of losses. In addition, the Company has a significant working capital deficit, has notes payable that are in default and is currently experiencing substantial liquidity issues. In addition, the Company’s most significant asset and its primary business plan is the exploration and development of the Nicaraguan Concessions which are now in default and in risk of being terminated.

The Company has relied on raising debt and equity capital in recent years in order to fund its ongoing maintenance/expenditure obligations under the Nicaraguan Concession, for its day-to-day operations and its corporate overhead because it has generated no operating revenues or cash flows in recent history. The $1.0 million December 2013 Note (See Note 3) matured in April 2016 and is currently in technical default and two other notes payable with principal balances of $85,000 as of September 30, 2017 are now in default. The Company is seeking extensions of the maturity date for these notes payable; however, there There can be no assurance that it will be able to obtain such extensionsnew funding or what the final terms will be if the lenders agree to such extensions. The Company and its lenders are assessing the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of these notes.

The Company is in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of September 30, 2017, including (1) the drilling of at least one exploratory well on the Perlas Block during 2016; (2) the shooting of additional seismic on the Tyra Block during 2016; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment of the 2016 and 2017 area fees required for both the Perlas and Tyra which total $97,243; and (5) payment of the 2016 and 2017 training fees required for both the Perlas and Tyra totaling $175,000. The Company is seeking to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. There can be no assurance whether it will be able to extend, renew and/reach agreements with industry operators and other third parties or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to the Company. The Company has held meetings and is pursuing additional meetings with Nicaraguan Government officials in order to address the pending defaults.on what terms.

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The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund: (1) the annual training program and area fees for 2016 and 2017; (2) required letters of credit to the Nicaraguan Government; (3) the drilling of at least one exploratory well on the Perlas Block of the Nicaraguan Concessions during 2017; (4) the shooting of additional seismic on the Tyra Block of the Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement from the Nicaraguan government; (5) normal day-to-day operations and corporate overhead; and (6) outstanding debt and other financial obligations as they become due, including the $1.0 million December 2013 Note, and the two notes payable totaling $85,000, which are in technical default and the Replacement Note, if issued. These are substantial operational and financial issues that must be successfully addressed during 2017 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

The Company is seeking new outside sources of debt and equity capital in order to fund the substantial needs enumerated above; however, there can be no assurance that it will be able to obtain such capital or obtain it on favorable terms or within the timeframe necessary to cure the technical defaults existing on the Nicaraguan Concessions or to meet its ongoing requirements relative to drilling the exploratory wells. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products, and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects.

Due to the uncertainties related to thesethe foregoing matters, there exists substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financials are issued. The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and the series of related accounting standard updates that followed, using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity and did not change the Company’s amount and timing of revenues.

The Company’s revenues are primarily derived from its interests in the sale of oil and natural gas production. To date, such revenues have only included the sale of oil however the Company expects to begin generating revenues from the sale of natural gas and noble gases in the future. The Company recognizes revenue from its interests in the sales of oil and gas in the period that its performance obligations are satisfied. Performance obligations are satisfied when the customer obtains control of product, when the Company has no further obligations to perform related to the sale, when the transaction price has been determined and when collectability is probable. The sales of oil and gas are made under contracts which the third-party operators of the wells have negotiated with customers, which typically include variable consideration that is based on pricing tied to local indices and volumes delivered in the current month. The Company receives payment from the sale of oil and gas production from one to three months after delivery. At the end of each month when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in trade receivables, net in the balance sheets. Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received, however, differences have been and are insignificant. The Company’s oil is typically sold at delivery points under contracts terms that are common in our industry.

Convertible Instruments

In August 2020, the Financial Accounting Standards Board (“FASB”)issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” which is intended to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in Accounting Standards Codification (“ASC”) 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

The amendments in ASU 2020-06 are effective for public entities that meet the definition of an SEC filer, excluding smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

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The Company early adopted ASU 2020-06 effective January 1, 2021 and has applied its effects to the 3% convertible notes payable issued on March 31, 2021 and the 8% convertible notes payable issued on August 30, 2021 (see Note 4). The Company elected to adopt ASU 2020-06 using the modified retrospective method which enables entities to apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated deficit) on the first day of the period adopted. Therefore, this transition method applies the amendments in ASU 2020-06 to outstanding financial instruments as of the beginning of the fiscal year of adoption (January 1, 2021), with the cumulative effect of the change recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) as of the date of adoption. In accordance with the modified retrospective method, no adjustment was made to the comparative-period information including earnings (loss) per share.

The Company applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06). The convertible notes payable issued on August 19, 2020 was the only outstanding financial instrument effected by this new accounting standard as of January 1, 2021. Therefore, the application of ASU-2020-06 to this convertible note payable was used to determine the cumulative effect of the adoption of the new accounting standard. The cumulative effect of the adoption of the new accounting standard was recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) which resulted in an increase to the carrying value of convertible notes payable as of January 1, 2021 of $160,900, a decrease to additional paid in capital of $252,961 and a decrease to accumulated deficit of $92,061. See Note 4.

Prior to the adoption of ASU 2020-06, the Company applied the existing accounting standards for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion options. The accounting standards require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (i) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.

Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.

Management Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates with regardinclude, but are not limited to, the financial statements include the estimated carrying valueoil and gas reserves; depreciation, depletion and amortization of unproved properties, the estimatedproved oil and gas properties; future cash flows from oil and gas properties; impairment of long-lived assets; fair value of derivative liabilities, securedderivatives; asset retirement obligations, our control over equity method investments, fair value of equity compensation; warrants issued in connection with convertible note payable, stock-based awards and overriding royalty interests, anddebt; the realization of deferred tax assets.assets; fair values of assets acquired and liabilities assumed in business combinations.

ConcentrationsOil and gas properties

The Company’s business plan consistsCentral Kansas Uplift Properties - On April 1, 2021, we completed the acquisition of developing the Nicaraguan Concessions and it expects to be active in Nicaragua for the foreseeable future, given sufficient capital and curing the defaultsProperties, under the Nicaraguan Concessions. The political climate in Nicaragua could become unstable and subject to radical change over a short period of time. In the event of a significant negative change in political and economic stability in the vicinityterms of the Nicaraguan Concessions orAsset Purchase Agreement, for a purchase price of $900,000. The purchase of the inabilityProperties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the Company to obtain sufficient financing,acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Company might be forced to abandon or suspend its efforts and its rights under its Nicaraguan Concessions.Reagan Sand Zone with an approximate depth of 3,600 feet.

Foreign Currency

The United States dollar is the functional currency for the Company’s operations. Although the Company’s acquisition and exploration activities have been conducted in Nicaragua, a significant portion of the payments incurred for exploration activities are denominated in United States dollars. The Company expects that a significant portion of its required and discretionary expenditures in the foreseeable future will also be denominated in United States dollars. Any foreign currency gains and losses are included in the results of operations in the period in which they occur. The Company does not have any cash accounts denominated in foreign currencies.

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CashThe Company has performed workovers of the wells subsequent to the Properties purchase which was necessary to put the lease back into production status. Therefore, these tangible and Cash Equivalents

For purposes of reporting cash flows, cash consists of cash on hand and demand deposits with financial institutions. Althoughintangible workover costs were expensed as lease operating expenses rather than capitalized in the full cost pool through September 30, 2022. In addition, the Company had minimal cashis currently evaluating the Properties for oil and gas reserves and specifically the potential for noble gas reserves such as helium, argon and krypton. Based on these evaluations, the Company may redirect its efforts to the production of noble gases rather than crude oil on the Properties. These noble gas evaluation costs have also been expensed as lease operating costs through September 30, 2017 and December 31, 2016, it is the Company’s policy that all highly liquid investments2022.

Hugoton Gas Field Farm-Out -The first exploratory well commenced on May 7, 2022 near Garden City, Kansas with a maturitygoal to evaluate its unconventional theory of where substantial oil, natural gas and noble gases may be present in the Hugoton Gas Field. The initial well in which the Company has acquired a 40% participation together with three months or less when purchased would be cash equivalentsother venture partners was spud on May 7, 2022 with production casing set after testing and would be included alongcompletion logs identified at least two potential zones with cash as cashsubstantial gas and equivalents.helium reserves.

OilThe initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and Gas Properties

commenced commercial production on August 17, 2022. The Company followsis evaluating the initial flows of both natural gas and helium.

Full Cost Accounting

The accounting for, and disclosure of, oil and gas producing activities require that we choose between two GAAP alternatives: the full cost method or the successful efforts method. We adopted and use the full cost method of accounting, which involves capitalizing all exploration, exploitation, development and acquisition costs. Once we incur costs, they are recorded in the depletable pool of proved properties or in unproved properties, collectively, the full cost pool. Our unproved property costs, which include unproved oil and gas properties, properties under development, and major development projects, were zero through September 30, 2022, and are not subject to depletion. We review our unproved oil and gas property costs on a quarterly basis to assess for impairment and transfer unproved costs to proved properties as a result of extensions or discoveries from drilling operations or determination that no proved reserves are attributable to such costs. We expect these costs to be evaluated in one to seven years and transferred to the depletable portion of the full cost pool during that time. The full cost pool is comprised of intangible drilling costs, lease and well equipment and exploration and development costs incurred plus acquired proved and unproved leaseholds.

When we acquire significant amounts of undeveloped acreage, we capitalize interest on the acquisition costs in accordance with FASB ASC Subtopic 835-20 for Capitalization of Interest. We capitalize interest upon identification and development of shale resource opportunities in the Haynesville and Marcellus areas. When the unproved property costs are moved to proved developed and undeveloped oil and gas properties, or the properties are sold, we cease capitalizing interest.

Capitalized costs to acquire oil and natural gas properties are depreciated and depleted on a units-of-production basis based on estimated proved reserves. Capitalized costs of exploratory wells and development costs are depreciated and depleted on a units-of-production basis based on estimated proved developed reserves. Under this method, the sum of the full cost pool, excluding the book value of unproved properties, and all estimated future development costs are divided by the total estimated quantities of proved reserves. This rate is applied to our total production for the quarter, and the appropriate expense is recorded. Support equipment and other property, plant and equipment related to oil and gas producing activities, as well as property, plant and equipment unrelated to oil and gas producing activities, are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets.

Sales, dispositions and other oil and gas property retirements are accounted for as adjustments to the full cost pool, with no recognition of gain or loss, unless the disposition would significantly alter the amortization rate and/or the relationship between capitalized costs and Proved Reserves.

Pursuant to Rule 4-10(c)(4) of Regulation S-X, at the end of each quarterly period, companies that use the full cost method of accounting for explorationtheir oil and development activities. Accordingly, allgas properties must compute a limitation on capitalized costs, incurred inor ceiling test. The ceiling test involves comparing the acquisition, exploration,net book value of the full cost pool, after taxes, to the full cost ceiling limitation defined below. In the event the full cost ceiling is less than the full cost pool, we must record a ceiling test write-down of our oil and developmentgas properties to the value of properties (including coststhe full cost ceiling. The full cost ceiling limitation is computed as the sum of surrendered and abandoned leaseholds, delay lease rentals, dry holes and seismic costs) and the fairpresent value of estimated future costs of site restoration, dismantlement, and abandonment activities are capitalized. Overhead related to development activities is also capitalized duringnet revenues from our proved reserves by applying average prices as prescribed by the acquisition phase.

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 relative energy content, whereby capitalized costs, as adjusted forSEC Release No. 33-8995, less estimated future development costsexpenditures (based on current costs) to develop and estimated asset retirement costs, are amortized overproduce the total estimated proved reserve quantities. Investments in unproved properties, including capitalized interest and internal costs, are not depleted pending determination of the existence of proved reserves.

Unproved properties are assessed periodically (at least annually) to ascertain whether impairment has occurred. Unproved properties whose costs are individually significant are assessed individually by considering the primary lease terms of the properties, the holding period of the properties, geographic and geologic data obtained relating to the properties, and estimatedreserves, discounted future net cash flows from the properties. Estimated discounted future net cash flows are based on discounted future net revenues associated with probable and possible reserves, risk adjusted as appropriate. Where it is not practicable to assess individually the amount of impairment of properties for which costs are not individually significant, such properties are grouped for purposes of assessing impairment. The amount of impairment assessed is deducted from the costs to be amortized, and reported as a period expense when the impairment is recognized. All unproved property costs as of September 30, 2017 and December 31, 2016 relate to the Nicaraguan Concessions. In assessing the unproved property costs for impairment, the Company takes into consideration various information including: (i) the terms of the Concessions, (ii) the status of the Company’s compliance with the Nicaraguan Concessions’ requirements, (iii) the ongoing evaluation of the seismic data, (iv) the commodity prices for oil and gas products, (v) the overall environment related to oil and gas exploration and development projects for unproven targets in unproven regions of the world, (vi) the availability of financing for financial and strategic partners, and (vii) other factors that would impact the viability of a significant long-term oil and gas exploration and development project.

The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects. The Company has performed its impairment tests as of September 30, 2017 and December 31, 2016 and has concluded that a full impairment reserve should be provided on the costs capitalized for the Nicaraguan Concessions oil and gas properties. All costs related to the Nicaraguan Concessions from January 1, 2016 through September 30, 2017 have been charged to operating expenses as incurred.

Pursuant to full cost accounting rules, the Company must perform a “ceiling test” each quarter. The ceiling test provides that capitalized costs less related accumulated depletion and deferred income taxes for each cost center may not exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves using prices based on the arithmetic mean of the previous 12 months’ first-of month prices and current costs, including the effects of derivative instruments accounted for as cash flow hedges, but excluding the future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, and a discount factor ofat 10%;, plus (2) the cost of properties not being amortized if any; plus (3)and the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4)net of income tax effects relatedeffects.

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The ceiling test is computed using the simple average spot price for the trailing twelve-month period using the first day of each month. The trailing twelve-month reference price was $67.99 per barrel for the West Texas Intermediate oil at Cushing, Oklahoma through December 31, 2021. This reference price for oil is further adjusted for quality factors and regional differentials to differences in the book and tax basisderive estimated future net revenues. Under full cost accounting rules, any ceiling test write-downs of oil and gas properties. If capitalized costs exceed the ceiling, the excess must be charged to expense andproperties may not be reversed in futuresubsequent periods. As ofThere were no ceiling test write-downs through September 30, 20172022.

The ceiling test calculation is based upon estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves, in projecting the future rates of production and December 31, 2016,in the Company did not havetiming of development activities. The accuracy of any proved oilreserve estimate is a function of the quality of available data and gas properties,of engineering and all unproved property costs relategeological interpretation and judgment. Results of drilling, testing and production subsequent to its Nicaraguan Concessions.

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Proceedsthe date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the salesquantities of oil and gas propertiesthat are accountedultimately recovered.

Equity Method Investments

The Company uses the equity method of accounting for as adjustmentsequity investments if the investment provides the ability to capitalized costs with no gainexercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate share of the net income or loss recognized, unlessof these investees is included in our Condensed Statements of Operations. Judgment regarding the level of influence over each equity method investment includes considering key factors such adjustments would significantly alteras the relationship between capitalized costsCompany’s ownership interest, legal form of the investee, representation on the board of directors, participation in policy-making decisions and proved reservesmaterial intra-entity transactions.

The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of oilthe investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time and gas, inthe extent to which case the gain or loss would befair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than temporary is recognized in the determinationperiod identified.

The Company accounts for distributions received from equity method investees under the “nature of the Company’s net earnings/loss.distribution” approach. Under this approach, distributions received from equity method investees are classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities).

Issuance of Debt Instruments With Detachable Stock Purchase Warrants

Proceeds from the issuance of a debt instrument with stock purchase warrants (detachable call options) are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the warrants are recorded as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. Such issuances generally result in a discount (or, occasionally, a reduced premium) relative to the debt instrument, which is amortized to interest expense using the effective interest rate method.

Asset Retirement Obligations

The Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to its initial measurement, the asset retirement liability is required to be accreted each period. The Company’s asset retirement obligations consist of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties. Capitalized

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During April 2021, the Company acquired the Properties and assumed the related asset retirement obligation existing at the date of acquisition. The asset retirement obligation assumed for the Properties relates to the plug and abandonment costs when the wells acquired are depleted as a componentno longer useful. The Company determined the value of the full cost pool usingliability by obtaining quotes for this service and estimated the unitsincreased costs that the Company will face in the future. We then discounted the future value based on an intrinsic interest rate that is appropriate for us. If costs rise more than what we have expected there could be additional charges in the future; however, we monitor the costs of production method. Althoughthe abandoned wells and we will adjust this liability if necessary.

As of December 31, 2012, the Company had divested all of its domestic oil properties that containcontained operating and abandoned wells as of December 31, 2012, thein Texas, Colorado and Wyoming. The Company may have obligations related to the divestiture of certain abandoned non-producing domestic leasehold properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. Management believes the Company has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas oil and gas properties in 2011 and its sale of 100%100% of the stock in Infinity-Texas in 2012. The Company has recognized an additional liability of $734,897$734,897 related to its former Texas oil and gas producing properties (included in asset retirement obligations) to recognize the potential personal liability of the Company and its officers for the Infinity-Texas oil and gas properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. In addition, management believes the Company has been relieved from asset retirement obligations related to Infinity-Wyoming because of the sale of its Wyoming and Colorado oil and gas properties in 2008; however, the Company has recognized since 2012 an additional liability of $981,106$981,106 related to its former Wyoming and Colorado oil and gas producing properties (included in asset retirement obligations) to recognize the potential liability of the Company and its officers should the new owner not perform its obligations to reclaim abandoned wells in a timely manner.

Derivative InstrumentsStock-based compensation

The Company accounts for derivative instruments or hedging activities under the provisions of ASC 815Derivatives and Hedging. ASC 815 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. Changes in the fair value of derivatives that do not qualify for hedge treatment are recognized in earnings.

The purpose of hedging is to provide a measure of stability to the Company’s cash flows in an environment of volatile oil and gas prices and to manage the exposure to commodity price risk. As of September 30, 2017 and December 31, 2016 and during the periods then ended, the Company had no oil and natural gas derivative arrangements outstanding.

As a result of certain terms, conditions and features included in certain common stock purchase warrants issued by the Company (Notes 2, 3 and 6), those warrants are required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in operations.

Fair Value of Financial Instruments

The carrying values of the Company’s accounts receivable, accounts payable and accrued liabilities and short term notes represent the estimated fair value due to the short-term nature of the accounts.

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The carrying value of the Company’s debt under its line-of-credit with related party represents its estimated fair value due to its short-term nature, its rate of interest, associated fees and expenses and initially recorded discount.

In accordance with ASC Topic 820 —Fair Value Measurements and Disclosures(“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.

ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1Quoted prices in active markets for identical assets and liabilities.
Level 2Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities).
Level 3Significant unobservable inputs (including the Company’s own assumptions in determining the fair value.

The estimated fair value of the Company’s Note and various derivative liabilities, which are related to detachable warrants issued in connection with various notes payable, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, interest rates, the probability of both of the downward adjustment of the exercise price and the upward adjustment to the number of warrants as provided by the warrant agreement terms and non-performance risk factors, among other items. The fair values for the warrant derivatives as of September 30, 2017 and December 31, 2016 were classified under the fair value hierarchy as Level 3.

The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016:

September 30, 2017 Level 1  Level 2  Level 3  Total 
Liabilities:                
Senior convertible note payable $  $  $1,989,222  $1,989,222 
Derivative liabilities        105,079   105,079 
  $  $  $2,094,301  $2,094,301 

December 31, 2016 Level 1  Level 2  Level 3  Total 
Liabilities:                
Senior convertible note payable $  $  $141,328  $141,328 
Derivative liabilities        183,430   183,430 
  $  $  $324,758  $324,758 

There were no changes in valuation techniques or reclassifications of fair value measurements between Levels 1, 2 or 3 during the periods ended September 30, 2017 and December 31, 2016.

Net Income (Loss) per Share

Pursuant to FASB ASC Topic 260,Earnings per Share, basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common and common equivalent shares outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in which net losses are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect.

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Reclassifications

Certain amounts in the prior period were reclassified to conform to the current period’s financial statement presentation. These reclassifications had no effect on previously reported net loss or accumulated deficit.

Note 2 – Secured Convertible Note Payable

Secured Convertible Note (the “Note) payable consists of the following at September 30, 2017 and December 31, 2016:

  September 30, 2017  December 31, 2016 
Secured convertible note payable, at fair value $1,989,222  $141,328 
Less: Current maturities  (1,989,222)  (91,736)
         
Secured convertible note payable, long-term $  $49,592 

Following is an analysis of the activity in the secured convertible note during the nine months ended September 30, 2017:

  Amount 
Balance at December 31, 2016 $141,328 
Funding under the Investor Note during the period   
Principal repaid during the period by issuance of common stock   
Change in fair value of secured convertible note during the period  1,847,894 
     
Balance at September 30, 2017 $1,989,222 

On May 7, 2015, the Company completed the May 2015 Private Placement of a $12.0 million principal amount secured convertible note (the “Note”) and Warrant to purchase 1,800,000 shares of the Company’s common stock, $0.0001 par value. The placement agent for the Company in the transaction will receive a fee of 6% of cash proceeds, or $600,000, if and when the Company receives the full cash proceeds. It received $27,000 of such amount at the closing. In addition, the placement agent was granted a warrant to purchase 240,000 shares of common stock at $5.00 per share, which warrant is immediately exercisable.

The Note and Warrant were issued pursuant to a Securities Purchase Agreement, dated May 7, 2015, by and between the Company and the Investor. The May 2015 Private Placement was made pursuant to an exemption from registration under such Act. At the closing, the Investor acquired the secured convertible note by paying $450,000 in cash and issuing a secured promissory note, secured by cash, with an aggregate initial principal amount of $9,550,000 (the “Investor Note”).

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver a new convertible note (the “Replacement Note”) with respect to the remaining principal balance of $2,197,231 to replace the Convertible Note. The aggregate outstanding principal balance of $11,687,231 of the Convertible Note included an approximate $2.0 million original issue discount; however, the Investor funded only $510,000 under the Investor Note. The Company has recorded the fair value of the Convertible Note assuming that the remaining par value is $2,197,231 as asserted by the Investor, resulting in a change in the estimated fair value of $1,847,894 during the nine months ended September 30, 2017. The Replacement Note provides for a one-year maturity from May 7, 2017, a conversion price of $0.50 per share and is due in monthly installment payments through May 2018 either in cash or stock, among other terms. It is to be secured to the same extent as the Convertible Note. The Company plans to negotiate with the Investor regarding the issuance of the Replacement Note under the terms of the financing and taking into consideration the Investor’s minimal funding in the entire transaction, but there can be no assurance that it will be successful in this regard.

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Description of the Secured Convertible Note

The Note was secured to the Company’s existing and future indebtedness and is secured by all the assets of the Company, excluding the Nicaraguan Concessions, and to the extent and as provided in the related security documents.

The Note was convertible at any time at the option of the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”). The Note was to mature on the three-year anniversary of the issuance date thereof. If the Company issues or sells shares of its common stock, rights to purchase shares of its common stock, or securities convertible into shares of its common stock for a price per share that is less than the Conversion Price then in effect, the then current Conversion Price will be decreased to equal such lower price. The foregoing adjustments to the Conversion Price for future stock issues will not apply to certain exempt issuances, including issuances pursuant to certain employee benefit plans. In addition, the Conversion Price is subject to adjustment upon stock splits, reverse stock splits, and similar capital changes.

On the first business day of each month beginning on the earlier of the (i) effectiveness of a registration statement the Company files to register the shares of common stock issuable upon conversion of the Note or exercise of the Warrant, as defined below, or (ii) sixth month following the date of the Note through and including the maturity date (the “Installment Dates”), the Company will pay to the Note holder an amount equal to (i) one-thirtieth (1/30th) of the original principal amount of the Note (or the principal outstanding on the Installment Date, if less) plus (ii) the accrued and unpaid interest with respect to such principal plus (iii) the accrued and unpaid late charges (if any) with respect to such principal and interest. The Investor has the ability to defer or accelerate such monthly payments in its sole discretion.

Prior to the maturity date, the Note bore interest at 8% per annum (or 18% per annum during an event of default) with interest payable in cash or in shares of Common Stock monthly in arrears on the first business day of each calendar month following the issuance date.

Each monthly payment may be made in cash, in shares of the Company’s common stock, or in a combination of cash and shares of its common stock. The Company’s ability to make such payments with shares of its common stock will be subject to various equity conditions, including the existence of an effective registration statement covering the resale of the shares issued in payment (or, in the alternative, the eligibility of the shares issuable pursuant to the Note and the Warrant, as defined below, for sale without restriction under Rule 144 and without the need for the Company to remain current with its public filing obligations) and certain minimum trading price and trading volume. Such shares will be valued, as of the date on which notice is given by the Company that payment will be made in shares, at the lower of (1) the then applicable Conversion Price and (2) a price that is 80.0% of the arithmetic average of the three lowest weighted average prices of the Company’s common stock during the twenty-trading day period ending two trading days before the applicable determination date (the “Measurement Period”). If the Company elects to pay such monthly payment in shares of the Company’s stock it is required to pre-deliver shares of the Company’s common stock and is required to deliver additional shares, if any, to a true-up such number of shares to the number of shares required to be delivered on the applicable Installment Date pursuant to the calculation above.

At any time after the issuance date, the Company had the right to redeem all or any portion of the outstanding principal balance of the Note plus all accrued but unpaid interest and any other charges at a price equal to 125% of such amount provided that (i) the arithmetic average of the closing sale price of the common stock for any twenty (20) consecutive Trading Days equals or exceeds 200% of the Conversion Price and (ii) among other conditions, there is an effective registration statement covering the resale of the shares issued in payment or, in the alternative, the eligibility of the shares issuable pursuant to the Note and the Warrant for sale without restriction under Rule 144 and without the need for the Company to remain current with its public filing obligations. The Investor has the right to convert any or all of the amount to be redeemed into common stock prior to redemption.

Upon the occurrence of an event of default under the Note, the Investor may, so long as the event of default is continuing, require the Company to redeem all or a portion of its Note. Each portion of the Note subject to such redemption must be redeemed by the Company, in cash, at a price equal to the greater of (1) 125% of the amount being redeemed, including principal, accrued and unpaid interest, and accrued and unpaid late charges, and (2) the product of (I) the amount being redeemed and (II) the quotient determined by dividing (A) the greatest closing sale price of the shares of common stock during the period beginning on the date immediately preceding the event of default and ending on the date the holder delivers a redemption notice to the Company, by (B) the lowest Conversion Price in effect during such period.

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Subject to certain conditions, the Investor may also require the Company to redeem all or a portion of its Note in connection with a transaction that results in a Change of Control, as defined in the Note. The Company must redeem each portion of the Note subject to such redemption in cash at a price equal to the greater of (1) 125% of the amount being redeemed (including principal, accrued and unpaid interest, and accrued and unpaid late charges), and (2) the product of (I) the amount being redeemed and (II) the quotient determined by dividing (A) the greatest closing sale price of the shares of common stock during the period beginning on the date immediately preceding the earlier to occur of (i) the consummation of the Change of Control and (ii) the public announcement of such Change of Control and ending on the date the holder delivers a redemption notice to the Company, by (B) the lowest Conversion Price in effect during such period.

Description of the Warrant.

As a part of the May 2015 Private Placement, the Company issued a Warrant to the Investor giving it the right to purchase up to an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance and the exercise prices for the Warrant is subject to adjustment for certain events, such as stock splits and stock dividends. If the Company issues or sells shares of its common stock, rights to purchase shares of its common stock, or securities convertible into shares of its common stock for a price per share that is less than the exercise price then in effect, the exercise price of the Warrant will be decreased to equal such lesser price. Upon each such adjustment, the number of the shares of the Company’s common stock issuable upon exercise of the Warrant will increase proportionately. The foregoing adjustments to the exercise price for future stock issues will not apply to certain exempt issuances, including issuances pursuant to certain employee benefit plans. In addition, the Conversion Price is subject to adjustment upon stock splits, reverse stock splits, and similar capital changes. The Warrant will expire on the seventh (7th) anniversary of the date of issuance.

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9.99% Restriction on Conversion of Note and Exercise of Warrant

The Investor has no right to convert the Note or exercise the Warrant to the extent that such conversion or exercise would result in the Investor being the beneficial owner in excess of 9.99% of the Company’s common stock. The Company was required to hold a meeting of its shareholders to approve an increase in the number of its authorized shares to meet its obligations under the Purchase Agreement to have reserved 200% of the shares issuable upon conversion of the Note and exercise of the Warrant. The Company held its Annual Meeting of Shareholders on September 25, 2015 and the shareholders approved the reverse split of the Company’s common stock issued and outstanding shares, which satisfied this requirement.

Registration Rights Agreement

In connection with the May 2015 Private Placement, the Company and the Investor entered into a Registration Rights Agreement under which the Company is required, on or before 45 days after the closing of the May 2015 Private Placement, to file a registration statement with the Securities and Exchange Commission (the “SEC”) covering the resale of 130% of the shares of the Company’s common stock issuable pursuant to the Note and Warrant and to use its best efforts to have the registration declared effective as soon as practicable. The Company will be subject to certain monetary penalties, as set forth in the Registration Rights Agreement, if the registration statement is not filed or does not remain available for the resale (subject to certain allowable grace periods) of the Registrable Securities, as such term is defined in the Registration Rights Agreement. The Company filed the required registration statement on Form S-1 on June 19, 2015 and the Securities and Exchange Commission declared the Form S-1 effective on October 9, 2015 and has thereby satisfied this requirement.

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Participation Rights

If, during the period beginning on the closing date and ending on the four (4) year anniversary of the closing date, the Company offers, sells, grants any option to purchase, or otherwise disposes of any of its or its subsidiaries’ equity or equity equivalent securities (a “Subsequent Placement”), the Investor will have the right to participate for 50% of any such future Subsequent Placement.

Description of the Financial Accounting and Reporting

The Company elected to account for the Note on its fair value basis, therefore, the fair value of the Note, including its embedded conversion feature, were estimated together utilizing a binomial lattice model on its origination date and the Black-Scholes model at September 30, 2017. Such assumptions included the following:

  

Upon

Issuance

  

As of

September 30, 2017

 
       
Volatility – range  102.6%  294.2%
Risk-free rate  1.00%  1.62%
Contractual term  3.0 years   0.6 years 
Conversion price $5.00  $5.00 
Par value of note $540,000  $2,197,231 

The Company received $450,000 of proceeds at the date of issuance and after repayments and additional funding the net principal balance was $129,960 as of September 30, 2017. The fair market value of the Note was estimated to be $682,400 as of the issuance date, $141,328 at December 31, 2016 and $1,989,222 as of September 30, 2017. The net change in fair market value of the Note of $1,847,894 and $67,591 is included in change in fair value of senior secured convertible note payable in the accompanying statement of operations for the nine months ended September 30, 2017 and 2016, respectively.

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver the Replacement Note with respect to the remaining principal balance of $2,197,231 to replace the Convertible Note. The aggregate outstanding principal balance of $11,687,231 of the Convertible Note included an approximate $2.0 million original issue discount; however, the Investor funded only $510,000 under the Investor Note. The Company has recorded the fair value of the Convertible Notes assuming that the remaining par value is $2,197,231 as asserted by the Investor, resulting in a change in the estimated fair value of $1,847,894 during the nine months ended September 30, 2017. The Company plans to negotiate with the Investor regarding the issuance of the Replacement Note under the terms of the financing and taking into consideration the Investor’s minimal funding in the entire transaction, but there can be no assurance that it will be successful in this regard.

The Warrant issued to purchase 1,800,000 common shares in connection with the Note was treated as a derivative liability for accounting purposes due to its ratchet and anti-dilution provisions. The estimated fair value of the warrant derivative as of September 30, 2017 was $90,909, representing a change of $64,552 from December 31, 2016, which is included in changes in derivative fair value in the accompanying statement of operations for the nine months ended September 30, 2017. See Note 5.

The warrant to purchase 240,000 shares issued as part of the placement fee in connection with the Note was treated as a derivative liability for accounting purposes due to its ratchet and anti-dilution provisions. Changes in the fair value of the warrant derivative liability totaled $8,607 (decrease in the derivative liability) through September 30, 2017, which is included in changes in derivative fair value in the accompanying statement of operations for the nine months ended September 30, 2017. The warrant derivative liability balance related to such warrants was $12,121 and $20,728 as of September 30, 2017 and December 31, 2016, respectively. See Note 5.

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The Company is required to make monthly installment payments in the form of cash, common stock or a combination of both. The Holder has suspended such installments during the third and fourth quarters of 2016 and the nine months ended September 30, 2017.

Note 3 – Debt

Debt consists of the following at September 30, 2017 and December 31, 2016:

  September 30, 2017  December 31, 2016 
Convertible notes payable, short term:        
Note payable, (in default) $1,000,000  $1,000,000 
Note payable  200,000   200,000 
Note payable  40,000   - 
Note payable, (in default)  50,000   50,000 
Note payable (in default)  35,000   35,000 
Total notes payable, short-term $1,325,000  $1,285,000 

Line-of-Credit with Related Party

The Company entered into a line-of-credit facility on September 23, 2013 that provided it with borrowing capacity on a revolving basis up to a maximum of $50,000, which was increased to $75,000 at August 28, 2015 and an initial maturity of November 28, 2013. The line of credit was convertible to common stock at a rate of $5.00 per share. The entity providing the credit facility is owned by an officer of another corporation for which Infinity’s president and chairman of the board serves as president and chairman of the board. The facility was unsecured, bore interest at 8% per annum, and was paid off at its maturity in November 2016.

Note Payable – Short-term

On December 27, 2013 the Company borrowed $1,050,000 under an unsecured credit facility with a private, third-party lender. The facility is represented by a promissory note (the “December 2013 Note”) with an original maturity date of March 12, 2014.

In connection with the December 2013 Note, the Company granted the lender a warrant (the “Warrant”) exercisable to purchase 100,000 shares of its common stock at an exercise price of $15.00 per share. In connection with an extension to April 2015, the parties amended the date for exercise of the Warrant to be a period commencing April 7, 2015 and expiring on the third anniversary of such date. The Company issued no additional warrants to the lender in connection with the extension of the Note to the New Maturity Date. If the Company fails to pay the Note on or before its New Maturity Date, the number of shares issuable under the Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the Warrant remain the same. The Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized ratably through the original maturity date and each of the extended maturity dates.

In connection with an extension of the December 2013 Note to April 7, 2016, the Company agreed to enter into a definitive revenue sharing agreement with the lender to grant the lender under the revenue sharing agreement an irrevocable right to receive a monthly payment equal to one half of one percent (1/2%) of the gross revenue derived from the share of all hydrocarbons produced at the wellhead from the Nicaraguan Concessions and any other oil and gas concessions that the Company and its affiliates may acquire in the future. This percent increased to one percent (1%) when the Company did not pay the December 2013 Note in full by August 7, 2014. Therefore, the revenue sharing agreement is fixed at one percent (1%). The value of the one percent (1.0%) definitive revenue sharing agreement granted to the lender as consideration for the extension of the maturity date to December 7, 2014 was estimated to be $964,738. Such amount was recorded as a reduction of oil and gas properties and as a discount on the renewed note payable and amortized ratably over the extended term of the note.

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In connection with the extension of the maturity date of the December 2013 Note to April 7, 2016, the Company also (i) issued the lender 20,000 shares of restricted common stock; (ii) decreased the exercise price of the warrant to $5.00 per share and extended the term of the warrant to a period commencing on the New Maturity Date and expiring on the third anniversary of such date; and (iii) paid $50,000 toward amounts due under the December 2013 Note. The Company issued no additional warrants to the lender in connection with the extension of the Note to the New Maturity Date. If the Company fails to pay the December 2013 Note on or before its New Maturity Date, the number of shares issuable under the Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the warrant remain the same. The December 2013 Note may be prepaid without penalty at any time. The Note is subordinated to all existing and future senior indebtedness, as such terms are defined in the Note. The December 2013 Note is in technical default and the Company is seeking an extension of the maturity date of this Note from the holder; however, there can be no assurances such efforts will be successful. The Company and its lender are assessing the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of these notes.

The Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized ratably through the original maturity date and each of the extended maturity dates. The Company recognized the value of the 20,000 shares of common stock issued ($104,000) and the increased value of the outstanding warrants due to the decrease in their exercise price ($68,716) as an additional discount on the note payable to be amortized ratably over the extended term of the underlying note.

The discount recorded as of the December 27, 2013 origination date of the note and as a result of the amendments to the Note terms and extensions of the maturity date has been amortized ratably over the term and extended terms of the note and the remaining unamortized discount was $-0- as of September 30, 2017 and December 31, 2016. The related warrant derivative liability balance was $449 and $4,429 as of September 30, 2017 and December 31, 2016, respectively. See Note 5.

Other than the Note described above, during the nine months ended September 30, 2017 the Company had short-term notes outstanding with entities or individuals as follows:

On November 8, 2016 the Company borrowed a total of $200,000 from an individual under a convertible note payable with the conversion rate of $5.00 per share. The note requires no principal or interest payments until its maturity date of November 7, 2017 and bears interest at 8% per annum.  The note was not paid on its original maturity date. The Company is currently pursuing an extension from the Holder.
On April 20, 2017, the Company borrowed $40,000 under an unsecured credit facility with a private, third-party lender which is convertible at a rate of $5.00 per share. The note requires no principal or interest payments until its maturity date of April 19, 2018 and bears interest at 8% per annum.
On July 7, 2015 the Company borrowed a total of $50,000 from an individual under a convertible note payable with the conversion rate of $5.60 per share. The term of the note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the entity a warrant for the purchase of 5,000 shares of common stock at $5.60 per share for a period of five years from the date of the note. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the number of warrants automatically increases to 10,000 shares and the exercise price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted for as derivative liability. The Company recorded the estimated fair value of the warrant totaling $22,314 as a discount on note payable and as a derivative liability in the same amount, as of the origination date. On October 7, 2015, the note was extended for an additional 90 days or until January 7, 2016 and later to May 7, 2016 and ultimately to October 7, 2016. The Company is currently pursuing an additional extension from the Holder. The Company and its lender are assessing the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of these notes. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase 5,000 shares of common stock on each extension date at an exercise price of $5.60 per share, which warrants were immediately exercisable and expire in five years. The value of the 5,000 newly issued warrants issued on January 7, 2016 totaled $379 and $131 on May 7, 2016 both of which were amortized over the extension period (through October 7, 2016). The related warrant derivative liability balance was $942 and $1,654 as of September 30, 2017 and December 31, 2016, respectively. See Note 5.

 18

On July 15, 2015, the Company borrowed a total of $35,000 from an individual under a convertible note payable with the conversion rate of $5.60 per share. The term of the note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the entity a warrant for the purchase of 3,500 shares of common stock at $5.60 per share for a period of five years from the date of the note. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the number of warrants automatically increases to 7,000 shares and the exercise price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted for as a derivative liability. The Company recorded the estimated fair value of the warrant totaling $11,827 as a discount on note payable and as a derivative liability in the same amount, as of the origination date. On October 15, 2015, the note was extended for an additional 90 days or until January 15, 2016 and later to October 15, 2016. The Company is currently pursuing an additional extension from the Holder. The Company and its lender are assessing the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of these notes. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase an aggregate of 3,500 shares of common stock on each extension date at an exercise price of $5.60 per share, which warrants were immediately exercisable and expire in five years. The value of the 3,500 newly issued warrants on January 15, 2016 totaled $267 and $74 on May 15, 2016, both of which are being amortized over the extension period (through October 15, 2016). The related warrant derivative liability balance was $658 and $1,158 as of September 30, 2017 and December 31, 2016, respectively. See Note 5.

Note 4 – Stock Options

The Company applies ASC 718,Stock Compensation, which requires companies to recognize compensation expense for share-based payments based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the value of equity instruments issued under share-based compensation arrangements to be presented as financing cash inflows in the statement of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted and is estimated in accordance with the provisions of ASC 718.

Basic and Diluted Income (Loss) Per Share

Net income (loss) per share is calculated in accordance with FASB ASC 260, Earnings Per Share, for the periods presented. Basic net loss per share is based upon the weighted average number of shares of Common Stock outstanding. Diluted net earnings (loss) per share is based on the assumption that all dilutive convertible shares, warrants and stock options were converted or exercised or excluded from the calculations if their inclusion would be antidilutive. Dilution is computed by applying the if-converted/treasury stock method. Under this method, options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase shares of Common Stock at the average market price during the period. The Company has outstanding convertible notes payable and Series A Convertible Preferred Stock both of which are potentially dilutive. Such potential dilutive effect is included in diluted earnings (loss) per share at the beginning of the period (or at the time of issuance, if later) if they have a dilutive effect or such potentially dilutive securities are excluded from the calculations if their inclusion would be antidilutive.

The adoption of ASU 2020-06 requires the Company to assume share settlement when an instrument can be settled in cash or shares at the entity’s option. This applies both to convertible instruments and freestanding arrangements that could result in cash or share settlement. ASU 2020-06 also stipulates that an average market price for the period should be used in the computation of the diluted earnings (loss) per share denominator in cases when the exercise price of an instrument may change based on an entity’s share price or changes in the entity’s share price may affect the number of shares that would be used to settle a financial instrument. Lastly, an entity should use the weighted-average share count from each quarter when calculating the year-to-date weighted average share count for all potentially dilutive securities.

15

During the three and nine months ended September 30, 2022 and 2021, the Company had outstanding the following securities that were potentially dilutive: i) Series A Convertible Preferred Stock, ii) various convertible notes payable (see Note 4), iii) warrants to purchase Common Stock (see Note 7) and iv) options to purchase Common Stock. All potentially dilutive securities were excluded from the calculation of diluted income (loss) per share for the three and nine months ended September 30, 2022 and 2021 as all were considered anti-dilutive because of the net loss reported for the three and nine months ended September 30, 2022 and 2021.

Gain on Extinguishment of Liabilities / Troubled Debt Restructuring:

In accordance with ASC 470, the Company assesses restructuring of debt as troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grant a concession to the debtor that it would not otherwise consider. The Company records a gain on restructuring of payables when it transfers its assets to a creditor to fully settle a payable. The gain is measured by the excess of the carrying amount of the payable over the fair value of the assets transferred or fair value of equity interest granted.

Recent Accounting Pronouncements

Business Combinations - In October 2021, FASB issued ASU 2021-08 Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the impact of adopting this ASU on our condensed financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

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Note 2 – Oil and Gas Properties and Equipment

Oil and gas properties and equipment is comprised of the following at September 30, 2022 and December 31, 2021:

Schedule of Oil and Gas Properties and Equipment

  

September 30,

2022

  

December 31,

2021

 
Oil and gas production equipment $913,425  $913,425 
Proven developed and undeveloped oil and gas properties  15,224    
Hugoton Gas Field participation agreement initial well drilling and
completion costs subject to adjustment to actual costs
  314,753    
         
Subtotal  1,243,402   913,425 
Less: Accumulated depreciation, depletion and amortization  (188,463)  (92,502)
Oil and gas properties and equipment, net $1,054,939  $820,923 

Great Bend Properties - On April 1, 2021, the Company completed the previously announced acquisition of certain oil and gas properties and interests from Core Energy, LLC (“Core”), effective as of January 1, 2021 (the “Great Bend Properties Acquisition”). On December 14, 2020, the Company entered into an asset purchase and sale agreement (the “Agreement”) with Core Energy, as well as all of the members of Core, Mandalay LLC and Coal Creek Energy, LLC, to purchase certain oil and gas properties in the Central Kansas Uplift geological formation, covering over 11,000 contiguous acres, including, among other things, the production and mineral rights to and a leasehold interest in the Properties and all contracts, agreements and instruments. The Agreement provided for an aggregate purchase price consisting of $900,000 in cash at closing.

The following represents the purchase price allocation for the Great Bend Properties Acquisition for $900,000 in cash. The Great Bend Properties Acquisition qualifies as an asset acquisition. As such, the Company recognized the assets acquired and liabilities assumed at their fair values as of April 1, 2021, the date of closing. The fair value of the Properties acquired approximate the value of the consideration paid, and the asset retirement obligation to be assumed, which management has concluded approximates the fair value that would be paid by a typical market participant. As a result, neither goodwill nor a bargain purchase gain will be recognized related to the acquisition.

The Company determined the amount of the asset retirement obligation assumed to be $13,425 as of the date of acquisition. The obligation relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development, or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support wells at the conclusion of their useful lives.

The following table summarizes the allocation of the assets acquired and the liabilities assumed related to the Properties:

Schedule of Assets and Liabilities Properties Acquired

  Amount 
Properties, subject to depreciation, depletion and amortization $913,425 
Asset retirement obligation assumed  (13,425)
Total purchase price of the Properties $900,000 

Hugoton Gas Field Participation Agreement -On April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Company has joined three other parties in the Hugoton JV to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement.

The Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing. The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.

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The Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety of dissolved minerals including bromine and iodine.

The Hugoton JV believes that its unconventional theory has not previously been targeted for exploration by historical operations in the field. The initial exploratory well was spud on May 7, 2022 near Garden City, Kansas with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves. The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production on August 17, 2022. The Company is evaluating the initial flows of both natural gas and helium.

The Company has paid a total of $314,753 for its participation in the drilling and completion of the initial exploratory well. Such amount was an estimate and will be adjusted to actual drilling and completion cost expenditures when the well is connected to the pipeline and the production of gas commences.

Note 3 – Investment in unconsolidated subsidiary – GMDOC

A summary of the Company’s investment in unconsolidated subsidiary-GMDOC during the three and nine months ended September 30, 2022 follows:

Schedule of Investment Unconsolidated Subsidiary

  Three months ended  Nine months ended 
  September 30, 2022  September 30, 2022 
Investment in unconsolidated subsidiary-GMDOC,
at beginning of period
 $964,336  $ 
Purchase of membership interests in GMDOC     850,000 
Equity in earnings of GMDOC  209,297   323,633 
Distributions during period      
Impairment charges      
         
Investment in unconsolidated subsidiary-GMDOC
at end of period
 $1,173,633  $1,173,633 

The following table presents summarized balance sheet financial information of the Company’s unconsolidated subsidiary – GMDOC as of September 30, 2022 and December 31, 2021:

Schedule of Unconsolidated Subsidiary Balance Sheet Financial Information

  

September 30,

2022

  

December 31,

2021

 
Assets:        
Cash $591,067  $ 
Accrued revenue & prepaid expenses  490,002    
Oil and gas properties and equipment, net  7,439,743    
         
Total assets $8,520,812  $ 
         
Liabilities and Member’s Equity:        
Accounts payable and accrued liabilities $229,211  $ 
Mortgage note payable, net  5,493,214    
Asset Retirement Obligations  865,344    
Member’s equity  1,933,043    
         
Total liabilities and member’s equity $8,520,812  $ 

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The following table presents summarized income statement financial information of the Company’s unconsolidated subsidiary – GMDOC for the three and nine months ended September 30, 2022:

Schedule of Unconsolidated Subsidiary Financial Information

  Three months ended  Nine months ended 
  September 30, 2022  September 30, 2022 
       
Oil and gas revenues $929,505  $1,718,468 
Lease operating expenses  (300,881)  (545,157)
Production related taxes  (27,830)  (50,743)
Ad valorem taxes  (10,755)  (21,510)
Depreciation expense  (137,644)  (269,157)
Accretion of asset retirement obligation  (16,987)  (33,974)
General and administrative expenses  (4,187)  (105,847)
Interest expense  (86,497)  (159,037)
         
Net income  344,724   533,043 
AMGAS member’s percentage  60.7143%  60.7143%
         
Equity in earnings of unconsolidated subsidiary – GMDOC $209,297  $323,633 

The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee, GMDOC. Management’s judgment regarding its level of influence over the operations of GMDOC included considering key factors such as the Company’s ownership interest, legal form of the investee, its’ lack of participation in policy-making decisions and its’ lack of control over the day-to-day operations of GMDOC.

On May 3, 2022, the Company entered into the Operating Agreement pursuant to which the Company acquired 17 (or 60.7143%) of 28 limited liability membership Interests in GMDOC, for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.

With respect to its cash capital contribution, the Company paid a non-refundable cash deposit for the membership interests in the amount of $50,000 on May 3, 2022. The Company paid the remainder of the cash contribution for the membership interests, or $800,000, on May 16, 2022. The remainder of the Company’s capital contribution, or $3,187,500, was financed by the Bank Loan (as defined below).

GMDOC had previously acquired 70% of the working interests in the GMDOC Leases from Castelli Energy, L.L.C., an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres located in Central and Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis.

GMDOC is managed by two Managing Members, which also serve as the operating companies under the GMDOC Leases.

Pursuant to the terms of the Operating Agreement, each member agreed to pay GMDOC, as its capital contribution, $50,000 in cash per Interest, with the remainder to be financed, in part, by a loan to GMDOC from a commercial bank, secured by GMDOC’s property, in the aggregate amount of $6,045,000 (the “Bank Loan”). The principal of the Bank Loan is to be repaid in 84 varying monthly installments, ranging from $170,000 at the beginning to $40,500 at the end of the loan term, with the first installment on July 1, 2022. The Bank Loan bears a variable interest beginning at an initial rate of 6% per annum with one rate adjustment after 36 months subject to a 6% minimum interest rate. Initial working capital requirements was financed by a loan to GMDOC from the Managing Members, in the maximum aggregate amount of $400,000 (the “Member Loan”), which was repaid during the nine months ended September 30, 2022.

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Note 4 – Debt Obligations

Debt obligations are comprised of the following at September 30, 2022 and December 31, 2021:

Schedule of Debt Outstanding

  September 30, 2022  December 31, 2021 
Notes payable:        
 $28,665  $28,665 
3% convertible notes payable due March 30, 2026 (the 3% Notes) $28,665  $28,665 
8% convertible notes payable due October 29, 2022 (less discount of $27,191 and $273,726 as of September 30, 2022 and December 31, 2021, respectively) (the 8% Note and the October 8% Notes) (in default)  622,809   376,274 
8% Convertible promissory notes payable due September 15, 2022 (the June 2022 Note) (in default)  350,000    
8% Convertible promissory notes payable due June 29, 2022 (the May 2022 Notes) (in default)  312,500    
         
Total notes payable  1,313,974   404,939 
Less: Long-term portion  28,665   28,665 
Notes payable, short-term $1,285,309  $376,274 

Debt obligations become due and payable as follows:

Schedule of Debt Obligations Maturities

Years ended 

Principal

balance due

 
    
2022 (October 1, 2022 through December 31, 2022) $1,285,309 
2023   
2024   
2025   
2026  28,665 
2027   
Total $1,313,974 

3% Convertible Notes Payable

On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% convertible notes payable (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for fifty cents ($0.50) per share (the “3% Note Warrants”). The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026 (the “Maturity Date”). The 3% Notes are convertible as to principal and any accrued interest, at the option of the holder, into shares of Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.

An aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties. Such related parties were issued $25,777 principal balance of the 3% Notes and the 3% Note Warrants to purchase 5,155,454 shares of Common Stock in exchange for the extinguishment of their respective debt obligations. See Note 13.

The 3% Note Warrants were valued at $1,605,178 using the Black-Scholes methodology. The following assumptions were used in calculating the estimated fair value of the warrants as of March 31, 2021, their date of issuance:

Schedule of Fair Value of Warrants Estimated Valuation Assumptions

  

As of

March 31,

2021

 
    
Volatility – range  374.0%
Risk-free rate  0.92%
Contractual term  5.0 years 
Exercise price $0.50 
Number of warrants in aggregate  5,732,994 

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8% Convertible Notes Payable due October 29, 2022 (in default)

On August 30, 2021, the Company issued to an accredited investor (the “8% Note Investor”) an unsecured convertible note due October 29, 2022 (the “8% Note”), with an aggregate principal face amount of approximately $100,000. The 8% Note is, subject to certain conditions, convertible into an aggregate of 200,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five and one half-year Common Stock purchase warrant to purchase up to 200,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “8% Note Warrant”) which are immediately exercisable. The 8% Note Investor purchased the 8% Note and 8% Note Warrant from the Company for an aggregate purchase price of $100,000 and the proceeds were used for general working capital purposes. The Company also granted the 8% Note Investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the 8% Note Warrant and the conversion of the 8% Note unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.

On October 29, 2021, the Company issued to three accredited investors (the “October 8% Note Investors”) unsecured convertible notes payable due October 29, 2022 (the “October 8% Notes”), with an aggregate principal face amount of approximately $550,000. The October 8% Notes are, subject to certain conditions, convertible into an aggregate of 1,100,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued five and one half-year Common Stock purchase warrants to purchase up to 1,650,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “October 8% Note Warrants”) which are immediately exercisable. The October 8% Note Investors purchased the October 8% Notes and October 8% Note Warrants from the Company for an aggregate purchase price of $550,000 and the proceeds were used for general working capital purposes. The Company also granted the October 8% Note Investors certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the October 8% Note Warrants and the conversion of the October 8% Notes unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.

The 8% Note and the October 8% Notes all bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest. Fifty percent (50%) of the 8% Note and the October 8% Notes shall be mandatorily repaid in cash in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 and one-hundred percent (100%) of the underlying notes plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the 8% Note and the October 8% Notes, so long as the underlying notes remain outstanding, the Company cannot enter into any financing transactions pursuant to which the Company sells its securities at a price lower than $0.50 cents per share without the written consent of the 8% Note Investor.

The conversion of the 8% Note and the October 8% Notes and the exercise of the underlying warrants are each subject to beneficial ownership limitations such that the 8% Note Investor and the October 8% Note Investors may not convert the underlying notes or exercise the underlying warrants to the extent that such conversion or exercise would result in any of the investors being the beneficial owner in excess of 4.99% (or, upon election of the investors, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.

The Company, the 8% Note Investor and the October 8% Note Investors have agreed that for so long as the underlying warrants remain outstanding, the investors have the right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of such subsequent financing.

The underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors and customary indemnification rights and obligations of the parties thereto, as applicable.

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As described in Note 1, the Company elected to early adopt ASU 2020-06 using the modified retrospective method which enables entities to apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated deficit) on the first day of the period adopted.

The Company has applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06) and those entered into after January 1, 2021, including the 8% Note. As a result, the 8% Note and October 8% Notes were required to be separated into its debt and equity components based on their relative fair values because of the issuance of detachable warrants together with the 8% Note and the October 8% Notes. Accordingly, the Company allocated the proceeds of the 8% Note as follows:

Schedule of Proceeds from Debt Obligations

  Amount 
    
Proceeds allocated to the 8% 8% Note and the October 8% Notes $314,104 
Proceeds allocated to detachable warrants to purchase Common Stock  335,896 
     
Total proceeds $650,000 

The 8% Note and October 8% Notes were recorded at their par value less the discount established at its origination date. The note discount is amortized over the term of the convertible note utilizing the level-interest method. The following are the assumptions used in calculating the estimated grant-date fair value of the detachable warrants to purchase Common Stock granted in connection with the 8% Note and the October 8% Notes in August and October of 2021:

Schedule of Fair Value of Detachable Warrants to Purchase Common Stock Granted

  

As of
August 30, 2021

(issuance date)

  

As of
October 30, 2021

(issuance date)

 
       
Volatility – range  369.4%  367.7%
Risk-free rate  0.77%  1.18%
Contractual term  5.5 years   5.5 years 
Exercise price $0.50  $0.50 
Number of warrants in aggregate  200,000   1,650,000 

The following is a summary of activity relative to the 8% Note and October 8% Notes for the nine months ended September 30, 2022:

Schedule of Convertible Debt

  Amount 
Balance December 31, 2021 – 8% Note and October 8% Notes $376,274 
Amortization of discount during the period to interest expense  246,535 
     
Balance September 30, 2022 - 8% Note and October 8% Notes $622,809 

The remaining unamortized discount relative to the 8% Notes and the October 8% Notes was $27,191 and $273,726 as of September 30, 2022 and December 31, 2021 respectively.

 

In May 2006,The Company did not pay the principal balance due on the 8% Notes and the October 8% Notes upon their maturity on October 29, 2022 and the remaining balance remains due and payable and is therefore in technical default. The parties are negotiating a resolution to such technical default including an extension and a roll-over of the principal into other Company securities, although there can be no assurance that the parties will reach a mutually agreeable resolution. 

8% Convertible Notes Payable due September 15, 2022 (in default)

On June 8, 2022, the Company issued to an accredited investor an unsecured convertible note due September 15, 2022 (the “June 2022 Note”), with an aggregate principal face amount of $350,000. The June 2022 Note is, subject to certain conditions, convertible into an aggregate of 700,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five-year Common Stock purchase warrant to purchase up to 700,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “June 2022 Warrants”) which are immediately exercisable. The investor purchased the June 2022 Note and June 2022 Warrant from the Company for an aggregate purchase price of $350,000 and the proceeds were used for drilling and completion costs on the initial well drilled under the Hugoton Gas Field participation agreement and general working capital purposes. The Company also granted the investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares of Common Stock underlying the June 2022 Warrant and the conversion of the June 2022 Note unless the shares of the Company commence to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.

22

The June 2022 Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to the remaining principal amount of the underlying note and any accrued and unpaid interest.

The underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors and customary indemnification rights and obligations of the parties thereto, as applicable.

The Company has applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021 (the date of adoption of ASU 2020-06) and those entered into after January 1, 2021 including the June 2022 Note. As a result, the June 2022 Note was required to be separated into its debt and equity components based on their relative fair values because of the issuance of detachable warrants together with the June 2022 Note. Accordingly, the Company allocated the proceeds of the June 22 Note as follows:

Schedule of Proceeds from Debt Obligations

  Amount 
    
Proceeds allocated to 8% June 2022 Note $213,426 
Proceeds allocated to detachable warrants to purchase Common Stock  136,574 
     
Total proceeds $350,000 

The June 2022 Note was recorded at its par value less the discount established at its origination date. The note discount is amortized over the term of the convertible note utilizing the level-interest method. The following are the assumptions used in calculating the estimated grant-date fair value of the detachable warrants to purchase Common Stock granted in connection with the June 2022 Note:

Schedule of Fair Value of Detachable Warrants to Purchase Common Stock Granted

  

As of
June 8, 2022

(issuance date)

 
    
Volatility – range  344.7%
Risk-free rate  3.03%
Contractual term  5.0 years 
Exercise price $0.50 
Number of warrants in aggregate  700,000 

The following is a summary of activity relative to the June 2022 Note for the nine months ended September 30, 2022:

Schedule of Convertible Debt

  Amount 
Balance December 31, 2021 – June 2022 Note $ 
Proceeds allocated to the May 2022 Notes (defined below)  213,426 
Principal payments   
Amortization of discount during the period to interest expense  136,574 
     
Balance September 30, 2022 - June 2022 Notes $350,000 

The note has matured and therefore the remaining unamortized discount relative to the June 2022 Notes was $-0- as of September 30, 2022. The parties are negotiating a resolution to such technical default including an extension and a roll-over of the principal into other Company securities, although there can be no assurance that the parties will reach a mutually agreeable resolution.

23

8% Convertible Notes Payable due June 29, 2022 (in default)

The Company entered into a securities purchase agreement with two accredited investors (the “Investors”) for the Company’s 8% convertible notes payable due June 29, 2022(the “May 2022 Notes”), with an aggregate principal amount of $850,000. The May 2022 Notes are, subject to certain conditions, convertible into an aggregate of 2,125,000 shares of Common Stock, at a price of forty cents ($0.40) per share. The Company also issued an aggregate of 425,000 shares of Common Stock as commitment shares (“Commitment Shares” and, together with the May 2022 Notes and Conversion Shares, the “Securities”) to the Investors as additional consideration for the purchase of the May 2022 Notes. The closing of the offering of the Securities occurred on May 13, 2022, when the Investors purchased the Securities for an aggregate purchase price of $850,000. The Company has also granted the Investors certain automatic and piggy-back registration rights whereby the Company has agreed to register the resale by the Investors of the Conversion Shares. The proceeds of this offering of Securities were used to purchase the Company’s membership interests in GMDOC.

The May 2022 Notes bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time (subject to the occurrence of an event of default) in an amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to a) fifty percent (50%) of the then outstanding principal amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 but not greater than $3,000,000; or b) one hundred percent (100%) of the then outstanding principal amount equal to 120% of the principal amount of a May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of in excess of $3,000,000. In addition, pursuant to the May 2022 Notes, so long as such May 2022 Notes remain outstanding, the Company shall not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than the $0.40 per share conversion price, subject to certain adjustments, without the written consent of the Investors.

The conversion of the May 2022 Notes are each subject to beneficial ownership limitations such that the Investors may not convert the May 2022 Notes to the extent that such conversion or exercise would result in an Investor being the beneficial owner in excess of 4.99% (or, upon election of the Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.

Pursuant to the purchase agreement for the Securities, for a period of twelve (12) months after the closing date, the Investors have a right to participate in any issuance of the Company’s Common Stock, Common Stock equivalents, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of the subsequent financing.

The Company also entered into that certain registration rights side letter, pursuant to which, in the event the Company’s shares of Common Stock have not commenced trading on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date, and, thereafter, the Company agreed to file a registration statement under the Securities Act to register the offer and sale, by the Company, of Common Stock underlying the May 2022 Notes in the event that such notes are not repaid prior to such 120-day period.

The Company paid half of the May 2022 Notes principal balance upon its maturity on June 29, 2022 and an additional $112,500 in September 2022 and the remaining balance remains due and payable and is therefore in technical default. The parties are negotiating a resolution to such technical default including an extension and a roll-over of the principal into other Company securities, although there can be no assurance that the parties will reach a mutually agreeable resolution.

24

The Company has applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06) and those entered into after January 1, 2021 including the May 2022 Notes. As a result, the May 2022 Notes were required to be separated into its debt and equity components based on their relative fair values because of the issuance of commitment shares together with the May 2022 Notes. Accordingly, the Company allocated the proceeds of the May 2022 Notes as follows:

Schedule of Proceeds from Debt Obligations

  Amount 
    
Proceeds allocated to the May 2022 Notes $653,846 
Proceeds allocated to Commitment Shares  196,154 
     
Total proceeds $850,000 

The May 2022 Notes were recorded at their par value less the discount established at its origination date. The note discount is amortized over the term of each May 2022 Note (June 29, 2022) utilizing the level-interest method. The following is a summary of activity relative to the May 2022 Notes for the nine months ended September 30, 2022:

Schedule of Convertible Debt

  Amount 
Balance December 31, 2021 – May 2022 Notes $ 
Proceeds allocated to the May 2022 Notes  653,846 
Principal payments  (537,500)
Amortization of discount during the period to interest expense  196,154 
     
Balance September 30, 2022 - May 2022 Notes $312,500 

The remaining unamortized discount relative to the May 2022 Notes were $-0- as of September 30, 2022.

Note 5 – Accrued liabilities

Accrued liabilities consisted of the following at September 30, 2022 and December 31, 2021:

Schedule of Accrued Liabilities

  September 30, 2022  December 31, 2021 
Accrued rent $614,918  $614,918 
Accrued Nicaragua Concession fees  544,485   544,485 
Accrued preferred stock dividends payable (see Note 12)  16,061    
         
Total accrued liabilities $1,175,464  $1,159,403 

The accrued rent balances relate to unpaid rent for the Company’s previous headquarters in Denver, Colorado and represents unpaid rents and related costs for the period June 2006 through November 2008. The Company has not had any correspondence with the landlord for several years and will seek to settle and/or negotiate the matter when it has the financial resources to do so.

The accrued Nicaraguan Concession fees were accrued during the time the Concessions had lapsed and the Company was attempting to negotiate extensions to the underlying concessions with the Nicaraguan government which were unsuccessful. The Company abandoned all efforts to negotiate an extension to the Concessions effective January 1, 2020 and ceased the accrual of all related fees at that time.

25

Note 6 – Stock Options

Total stock-based compensation is comprised of the following for the three and nine months ended September 30, 2022 and 2021:

Schedule of Stock-based Compensation

  Three months ended
September 30,
  Nine months ended
September 30,
 
  2022  2021  2022  2021 
Stock-based compensation – stock option grants $  $76,499  $127,499  $101,999 
                 
Stock-based compensation – restricted stock grants  174,375   81,250   511,250   243,750 
                 
Stock-based compensation – warrants issued for services pursuant to USNG Letter Agreement (defined below)  71,716      215,589  $ 
                 
                 
Total stock-based compensation $246,091  $157,749  $854,338  $345,749 

The Company applies ASC 718, Stock Compensation, which requires companies to recognize compensation expense for share-based payments based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the value of equity instruments issued under share-based compensation arrangements to be presented as financing cash inflows in the statement of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted and is estimated in accordance with the provisions of ASC 718.

At the Company’s Annual Meeting of Stockholders held on September 25, 2015, the stockholders approved the 2006 Equity Incentive2015 Stock Option and Restricted Stock Plan (the “2006“2015 Plan”), and the Company reserved 500,000 shares for issuance under the 2015 Plan. At the Company’s Annual Meeting of Stockholders held on October 13, 2021, the stockholders approved the 2021 Stock Option and Restricted Stock Plan (the “2021 Plan”) and the Company reserved 5,000,000 shares for issuance under the 2021 Plan.

The 2021 Plan and the 2015 Plan provide for under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 47,0005,500,000 shares of the Company’s common stock areCommon Stock is reserved for issuance under the 20062021 Plan and the 2015 Plan. In June 2005, the Company’s stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 47,500 shares of the Company’s common stock were reserved for issuance under the 2005 and 2006 Plans; however, such Plans have now expired and no further issuances can be made. Options granted under the 20052021 Plan and 20062015 Plan allow for the purchase of common stockshares of Common Stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Company’s Board of Directors and generally expire ten years after the date of grant. The Company also has issued other stock options and restricted stock awards that are not pursuant to a formal plan with terms similar to the 20052021 and 20062015 Plans.

The Annual Meeting of Stockholders was held on September 25, 2015 and the stockholders approved the Infinity Energy Resources, Inc. 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”) and reserved 500,000 shares for issuance under the Plan.

As of September 30, 2017, 500,0002022, 5,500,000 shares were available for future grants under the 2021 Plan and the 2015 Plan as all other Plans have now expired.Plan.

 19

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of options granted, the Company aggregates option recipients into groups that have similar option exercise behavioral traits. Expected volatilities used in the valuation model are based on the expected volatility that would be used by an independent market participant in the valuation of certain of the Company’s warrants.based on historical volatility. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ from these estimates. There were no stock1,800,000 options granted during the nine months ended September 30, 2017.June 2021.

26

 

Stock option grants

The following table summarizes stock option activity for the nine months ended September 30, 2017:2022 and 2021:

  Number of Options  Weighted Average Exercise
Price Per
Share
  Weighted
Average
Remaining
Contractual
Term
  Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2016  393,450  $37.46   4.6 years  $ 
Granted              
Exercised              
Forfeited  (16,500)  (31.94)        
Outstanding at September 30, 2017  376,950  $37.82   4.1 years  $ 
Outstanding and exercisable at September 30, 2017  376,950  $37.82   4.1 years  $ 

Summary of Stock Option Activity

  Number of Options  

Weighted Average Exercise

Price Per

Share

  

Weighted

Average

Remaining
Contractual
Term

  

Aggregate

Intrinsic

Value

 
Outstanding at December 31, 2020  332,000  $41.86   1.28 years  $     
Granted  1,800,000   0.50         
Exercised              
Forfeited  (115,000)  (64.24)        
Outstanding at September 30, 2021  2,017,000  $3.67   8.75 years  $ 
Outstanding and exercisable at September 30, 2021  217,000  $30.00   1.03 years  $ 
                 
Outstanding at December 31, 2021  1,892,000  $1.93   9.07 years  $ 
Granted              
Exercised              
Forfeited  (450,000)  0.50         
Outstanding at September 30, 2022  1,442,000  $2.38   8.21 years  $ 
Outstanding and exercisable at September 30, 2022  1,442,000  $2.38   8.21 years  $ 

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s option plans as of September 30, 2022:

Summary of Exercise Prices and Weighted Average Remaining Contractual Life

   Outstanding options  Exercisable options
Exercise price per share  Number of options  Weighted average remaining contractual life  Number of options  Weighted average remaining contractual life
                  
$0.50   1,350,000   8.68 years   1,350,000   8.68 years
$30.00   92,000   1.28 years   92,000   1.28 years
                  
 Total   1,442,000   8.21 years   1,442,000   8.21 years

The following is the assumptions used in calculating the estimated grant-date fair value of the stock options granted during 2021:

Schedule of Stock Option Valuation Assumption

  

As of

June 4, 2021

(issuance date)

 
    
Volatility – range  286.6%
Risk-free rate  1.56%
Contractual term  10.0 years 
Exercise price $0.50 
Number of options in aggregate  1,800,000 

The Company recorded stock-based compensation expense in connection with the vesting of stock options granted aggregating $-0-$-0- and $7,598$76,499 for the three months ended September 30, 2022 and 2021, respectively, and $127,499 and $101,999 for the nine months ended September 30, 2022 and 2021, respectively.

The total grant date fair value of the 1,800,000 stock options issued during 2021 was $305,997 in total or $0.17 per share and there were no stock options granted during the nine months ended September 30, 2017 and 2016, respectively.2022.

The intrinsic value as of September 30, 20172022 related to the vested and unvested stock options as of that date was $-0. The$-0-. There is no unrecognized compensation cost as of September 30, 20172022 related to the unvested stock options as of that date was $-0-.date.

Note 5 – Derivative Instruments

Derivatives – Warrants Issued Relative to Notes Payable

The estimated fair value of the Company’s derivative liabilities, all of which are related to the detachable warrants issued in connection with various notes payable and the secured convertible note, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, interest rates, the probability of both the downward adjustment of the exercise price and the upward adjustment to the number of warrants as provided by the note payable and warrant agreement terms (Note 2 and 3) and non-performance risk factors, among other items (ASC 820,Fair Value Measurements (“ASC 820”) fair value hierarchy Level 3). The detachable warrants issued in connection with the secured convertible note (See Note 2), the December 2013 Note (See Note 3) and the two other short-term notes payable (See Note 3) contain ratchet and anti-dilution provisions that remain in effect during the term of the warrant while the ratchet and anti-dilution provisions of the other notes payable cease when the related note payable is extinguished. When the note payable containing such ratchet and anti-dilution provisions is extinguished, the derivative liability will be adjusted to fair value and the resulting derivative liability will be transitioned from a liability to equity as of such date. The derivative liability associated with the warrants issued in connection with the secured convertible note payable will remain in effect until such time as the underlying warrant is exercised or terminated and the resulting derivative liability will be transitioned from a liability to equity as of such date.

The Company has issued warrants to purchase an aggregate of 2,174,000 common shares in connection with various outstanding debt instruments which require derivative accounting treatment as of September 30, 2017. A comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of September 30, 2017 is as follows:

 2027

 

As of
September 30, 2017
Volatility – range207.7% - 294.2%
Risk-free rate1.62% - 2.16%
Contractual term0.5 - 4.6 years
Exercise price$5.00 - $5.60
Number of warrants in aggregate2,174,000

The following table provides

Restricted stock grants.

During May 2022, the Board of Directors granted 1,550,000 shares of restricted stock awards to our officers, directors and consultants. In addition, during August 2020 the Board of Directors granted 5,000,000 shares of restricted stock awards to our officers, directors and a consultant. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over a period of time generally corresponding to yearly anniversaries of the grant date. Unvested shares of restricted stock awards may be forfeited upon the termination of service of employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends.

A summary of all restricted stock activity under the changes in fair value, including net transfers in and/or out, ofequity compensation plans for the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs for both open and closed derivatives:

  Amount 
Balance at December 31, 2016 $183,430 
Warrants issued to originate or extend notes payable (recorded as discount on note payable) -Note 3   
Unrealized derivative gains included in other expense for the period  (78,351)
Transition of derivative liability to equity   
     
Balance at September 30, 2017 $105,079 

The warrant derivative liability consists of the following atnine months ended September 30, 20172022 and December 31, 2016:2021 is as follows:

Schedule of Restricted Stock Unit Activity

  

Number of

restricted

shares

  

Weighted

average

grant date

fair value

 
Nonvested balance, December 31, 2020  3,750,000  $0.13 
Granted      
Vested  (1,875,000)  (0.13)
Forfeited      
Nonvested balance, September 30, 2021  1,875,000  $0.13 
         
Nonvested balance, December 31, 2021  1,250,000  $0.13 
Granted  1,550,000   0.45 
Vested  (2,025,000)  (0.25)
Forfeited      
Nonvested balance, September 30, 2022  775,000  $0.45 

The Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted stock grants aggregating $174,375 and $81,250 during the three months ended September 30, 2022 and 2021, respectively, and $511,250 and $243,750 during the nine months ended September 30, 2022 and 2021, respectively.

The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of September 30, 2022, there were $348,750 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next six months in accordance with the respective vesting scale.

The nonvested balance of restricted stock vests as follows:

Schedule of Nonvested Restricted Stock Unit Activity

Years ended 

Number of

Shares

 
    
2022  387,500 
2023  387,500 

28

 

  September 30, 2017  December 31, 2016 
Warrant issued to holder of Secured convertible note (Note 2) $90,909  $155,461 
Warrant issued to placement agent (Note 2)  12,121   20,728 
Warrant issued to holder of December 2013 Note (Note 3)  449   4,429 
Warrants issued to holders of notes payable - short term (Note 3)  1,600   2,812 
Total warrant derivative liability $105,079  $183,430 

Note 67Warrants

The following table summarizes warrant activity for the nine months ended September 30, 2017:2022 and 2021:

Summary of Warrant Activity

  Number of Warrants  Weighted
Average
Exercise Price
Per Share
 
Outstanding and exercisable at December 31, 2016  2,517,771  $5.34 
Issued for extension of notes payable (Note 3)      
Issued for extension of line-of-credit (Note 3)      
Exercised/forfeited  (12,000)  25.00 
         
Outstanding and exercisable at September 30, 2017  2,505,771  $5.25 
  

Number of

Warrants

  

Weighted

Average

Exercise Price

Per Share

 
Outstanding and exercisable at December 31, 2020  1,528,380  $0.65 
Issued in connection with issuance of Series A Convertible Preferred Stock (see Note 12)  5,256,410   0.39 
Issued in connection with issuance of 3% Notes (see Note 4)  5,732,994   0.50 
Issued in connection with issuance of 8% convertible promissory
Note and the October 8% Notes (see Note 4)
  200,000   0.50 
Forfeited/expired  (47,000)  (5.22)
         
Outstanding and exercisable at September 30, 2021  12,670,784  $0.45 
         
Outstanding and exercisable at December 31, 2021  17,580,784  $0.47 
Issued in connection with issuance of Series A Convertible Preferred Stock (see Note 12)  2,149,999   0.30 
Issued in connection with issuance of 8% Note and October 8% Notes (see Note 4)  700,000   0.50 
Forfeited/expired      
         
Outstanding and exercisable at September 30, 2022  20,430,783  $0.45 

 2129

 

The weighted average term of all outstanding common stockCommon Stock purchase warrants was 4.14.0 years as of September 30, 2017.2022. The intrinsic value of all outstanding common stockCommon Stock purchase warrants and the intrinsic value of all vested common stockCommon Stock purchase warrants was zero as of September 30, 2017.2022 and December 31, 2021.

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase common shares as of September 30, 2022:

Summary of Warrant Range of Exercise Prices and Weighted Average Remaining Contractual Life

   Outstanding and exercisable warrants 
Exercise price per share  Number of warrants  Weighted average remaining contractual life 
$0.30   2,149,999   5.2 years 
$0.39   5,256,410   4.0 years 
$0.50   13,024,374   3.8 years 
           
 Total   20,430,783   4.0 years 

Warrants issued pursuant to USNG Letter Agreement

On November 9, 2021, the Company entered into a letter agreement (the “USNG Letter Agreement”) with U.S. Noble Gas, LLC (“USNG”), pursuant to which USNG provides consulting services to the Company for exploration, testing, refining, production, marketing and distribution of various potential reserves of noble gases and rare earth element/minerals on the Company’s recently acquired 11,000-acre oil and gas properties in the Otis Albert Field located on the Properties. The USNG Letter Agreement would cover all of the noble gases, specifically including helium, and rare earth elements/minerals potentially existing on Properties and the Company’s future acquisitions, if any, including the Hugoton Gas Field.

The USNG Letter Agreement also provides that USNG will supply a large vessel designed for flows up to 5,000 barrels of water per day at low pressures, known as a gas extraction/separator unit. The gas extraction/separator unit is a dewatering vessel that the Company may use for multiple wells in the future.

The USNG Letter Agreement requires the Company to establish a four-member board of advisors (the “Board of Advisors”) comprised of various experts involved in noble gas and rare earth elements/minerals. The Board of Advisors will help attract both industry partners and financial partners for developing a large helium, noble gas and/or rare earth element/mineral resources that may exist in the region where the Company currently operates. The industry partners would include helium, noble gas and/or rare earth element/mineral purchasers and exploration and development companies from the energy industry. The financial partners may include large family offices or small institutions.

Pursuant to the USNG Letter Agreement, the Company will pay USNG a monthly cash fee equal to $8,000 per month beginning at the onset of commercial helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that the Company receives cash receipts in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000 cash receipts threshold, therefore, there has been no payment or accrual liability relative to this cash fee provision as of September 30, 2022.

The USNG Letter Agreement has an initial term of 5 years, which shall thereafter continue for successive one-year periods, provided that there is no uncured breach, unless otherwise terminated by either party upon a written notice of intent to non-renew.

30

 

In consideration for the consulting services to be rendered and pursuant to the terms of the USNG Letter Agreement, the Company issued warrants to purchase, in the aggregate, 2,060,000 shares of its Common Stock at an exercise price of fifty cents ($0.50) to three of USNG’s principal consultants and four third-party service providers. The Company issued warrants to purchase, in the aggregate, 1,200,000 shares of Common Stock at fifty cents ($0.50) per share exercise price to three members of the Board of Advisors. The Company granted a total of 3,260,000 warrants to purchase its Common Stock with an exercise price of fifty cents ($0.50) per share in connection with the USNG Letter Agreement and the arrangements described therein. The warrants expire five yearsafter the date of the USNG Letter Agreement.

The fair value of the warrants to purchase Common Stock in consideration for services to be rendered under the USNG Letter Agreement with USNG is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the warrant, expected stock price volatility and expected dividends. These estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of warrants granted, the Company considered the historical pattern of warrant exercises behavioral traits and determined that the expected term should be 5 years. Expected volatilities used in the valuation model are based on the expected volatility based on historical volatility. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ from these estimates.

The following are the assumptions used in calculating the estimated grant-date fair value of the warrants issued pursuant to the USNG Letter Agreement granted on November 9, 2021:

Schedule of Warrants Valuation Assumption

  

As of

November 9, 2021

(issuance date)

 
    
Volatility – range  359.3%
Risk-free rate  1.08%
Expected term  5.0 years 
Exercise price $0.50 
Number of warrants in aggregate  3,260,000 

The Company recognized $71,716 and $215,589 of compensation expense relative to the 3,260,000 warrants to purchase Common Stock issued pursuant to the USNG Letter Agreement during the three and nine months ended September 30, 2022, respectively. There have been no exercises or forfeitures of the warrants to purchase Common Stock relative to the USNG Letter during the nine months ended September 30, 2022. The USNG warrants were not outstanding during the three and nine months ended September 30, 2021.

The total grant date fair value of the 3,260,000 warrants to purchase Common Stock issued pursuant to the USNG Letter Agreement on November 9, 2021 was $1,434,313 in total or $0.44 per share. Total unrecognized compensation costs related to the 3,260,000 warrants to purchase Common Stock issued pursuant to the USNG Letter Agreement, as of September 30, 2022 was $1,171,354 which will be amortized over the next forty-nine months.

Note 78Income Taxes

The effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due to the net operating loss history of the Company maintaining a full reserve on all net deferred tax assets during the nine months ended September 30, 2022 and 2021.

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The Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at September 30, 2022. Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it determined to continue to provide a 100% valuation allowance on its net deferred tax assets. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed.

For income tax purposes, the Company has net operating loss carry-forwards of approximately $66,270,000, which $62,980,000 in accordance with its 2021 federal income tax return as filed. Approximately $61,045,000 of such net operating loss carry-forwards expire from 20252028 through 2030. The Company has provided a 100% valuation allowance due2037 while $1,935,000 of such net operating loss carry-forwards have an indefinite carryforward period in accordance with the Tax Cuts and Jobs Act of 2017, as amended (the “Tax Cuts and Jobs Act”). In addition, the Tax Cuts and Jobs Act limits the usage of net operating loss carryforwards to the uncertainty80% of realizing the tax benefits from its net deferred tax asset.taxable income per year.

The Company has not completed the filing of its federal income tax returns for all tax years through 2021. The Federal income tax returns for the tax years 2012 through 2016. Therefore, all such tax returns are2021 remain open to examination by the U.S. Internal Revenue Service.

The Internal Revenue Code of 1986, as amended, contains provisions under Section 382 which limit a company’s ability to utilize net operating loss carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Current estimates prepared by the Company on a preliminary basis indicate that noManagement has completed its review of whether such ownership changes have occurred, and arebased upon such review, management believes that the Company is not currently not subject to an annual limitation butor the possibility of the complete elimination of the net operating loss carry-forwards. In addition, the Company may be further limited by additional ownership changes which may occur in the future.

Note 9 – Gain on Exchange and Extinguishment of Liabilities

During the three and nine months ended September 30, 2021, the Company recorded gains on the extinguishment of liabilities through the negotiation of settlements with certain creditors and through the operation of law as follows:

Schedule of Estimated Gain on Exchange and Extinguishment of Debt

  2022  2021  2022  2021 
  Three months ended
September 30,
  Nine months ended
September 30,
 
  2022  2021  2022  2021 
Gain (loss) on exchange and extinguishment
of liabilities:
            
Gain on exchange and
extinguishment of notes payable
 $  $  $  $55,230 
Gain on exchange and extinguishment of liabilities           124,177 
Gain from settlement of litigation (see Note 12)     

      23,000 
Loss from retirement of convertible note payable (see Note 4)           (115,805)
                 
Total gain on exchange and
extinguishment of liabilities
 $  $  $  $86,602 

Gain on exchange and extinguishment of notes payable On April 1, 2021, the Company and the holders of two notes payable aggregating $85,000 that were in default reached a settlement whereby the Company issued a total of 245,000 shares of Common Stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated Common Stock purchase warrants which totaled $123,830, as of April 1, 2021. The 245,000 shares issued to extinguish the debt obligations resulted in a gain of $55,230 which was recorded in the nine months ended September 30, 2021.

Gain on exchange and extinguishment of liabilities - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties), which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of the 3% Notes with the 3% Note Warrants. The 3% Notes allows for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on the Maturity Date. The 3% Notes are convertible as to principal and any accrued interest, at the option of holder, into shares of the Company’s Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.

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An aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties. Such related parties were issued $25,777 principal balance of the 3% Notes and the 3% Note Warrants in exchange for the extinguishment of their respective debt obligations. The Company recognized a gain on extinguishment of liabilities for the portion of the extinguishment with non-related parties. Furthermore, it recognized the portion of the gain on extinguishment of liabilities with related parties as a contribution of capital.

The gain on extinguishment of liabilities from the Debt Settlement Agreements was determined as follows:

Schedule of Gain on Extinguishment of Liabilities

  Amount 
    
Total accounts payable and accrued liabilities extinguished $2,866,497 
Less: Principal balance of 3% Notes issued  (28,665)
Less: Fair value of 3% Note Warrants  (1,605,178)
     
Total gain on extinguishment of liabilities $1,232,654 
Less: Related party amounts reported as a capital contribution  (1,108,477)
     
Gain on extinguishment of liabilities $124,177 

Loss from retirement of convertible note payable - On March 26, 2021, the Company exercised its right to retire a convertible note payable originally issued in August 2020 (the “August 2020 Note”) in conjunction with the issuance of March 2021 Series A Convertible Preferred Stock (see Note 12). In accordance with the prepayment provisions contained in the August 2020 Note, the Company paid all principal, accrued interest and the 15% prepayment premium as follows:

Schedule of Prepayment of Note

  Amount 
Principal balance at par $365,169 
Remaining discount included in principal balance  (44,883)
Accrued interest  17,448 
Prepayment premium (including remaining discount due to early retirement)  115,805 
     
Total payment to retire the August Note $453,539 

The prepayment premium was charged to non-operating expense as a loss from retirement of convertible note payable during the nine months ended September 30, 2021.

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Note 10 – Asset Retirement Obligations

The Company’s asset retirement obligations primarily relate to the Company’s portion of future plugging and abandonment costs for wells and related facilities. The following table presents the changes in the asset retirement obligations for the nine months ended September 30, 2022 and 2021:

Schedule of Assets Retirement Obligation

  Amount 
    
Asset retirement obligation at December 31, 2020 $1,716,003 
Additions  13,425 
Accretion expense during the period  558 
     
Asset retirement obligation at September 30, 2021 $1,729,986 
     
Asset retirement obligation at December 31, 2021 $1,730,264 
Additions   
Accretion expense during the period  1,004 
     
Asset retirement obligation at September 30, 2022 $1,731,268 

The $1,716,003 asset retirement obligation existing at December 31, 2020 and in years prior to 2020 represented the remaining potential liability for wells the Company had owned in Texas and Wyoming prior to their sales/disposal in 2012. The Company was not in compliance with then existing federal, state and local laws, rules and regulations for its previously owned Texas and Wyoming domestic oil and gas properties. All domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas were disposed of in 2012 and in years prior to 2012; however, the Company may remain liable for certain asset retirement costs should the new owners not complete their asset retirement obligations. Management believes the asset retirement obligations recorded relative to these Texas and Wyoming wells of $1,716,003 as of September 30, 2022 and December 31, 2021 are sufficient to cover any potential noncompliance liabilities relative to the plugging of abandoned wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas properties.

The Company assumed a $13,425 asset retirement obligation pursuant to an acquisition on April 1, 2021 and recorded $302 and $882 of accretion expense during the three and nine months ended September 30, 2022, respectively, related to the acquisition of the Properties as further described in Note 1. In addition, the Company drilled and completed its first Hugoton Gas Field well which was placed in service in August 2022. The Company recorded $122 and $122 of accretion expense during the three and nine months ended September 30, 2022, respectively related to the new Hugoton Gas Field well.

Note 811Commitments and Contingencies

The Company has not maintained insurance coverage on its U.S domestic oil and gas properties for several years. The Company is not in compliance with Federal and State laws regarding the U.S. domestic oil and gas properties. The Company’s known compliance issues relate to the Texas Railroad Commission regarding administrative filings and renewal permits relative to its Texas oil and gas properties that were sold in 2012. The ultimate resolution of these compliance issues could have a material adverse impact on the Company’s financial statements.

Nicaraguan Concessions

The Company is in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of September 30, 2017, including (1) the drilling of at least one exploratory well on the Perlas Block during 2016; (2) the shooting of additional seismic on the Tyra Block during 2016; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment of the 2016 and 2017 area fees required for both the Perlas and Tyra which total $97,243; and (5) payment of the 2016 and 2017 training fees required for both the Perlas and Tyra totaling $175,000. The Company is seeking to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. There can be no assurance whether it will be able to extend, renew and/or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to the Company. The Company has held meetings and is pursuing additional meetings with Nicaraguan Government officials in order to address the pending defaults.

The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund: (1) the annual training program and area fees for 2016 and 2017; (2) required letters of credit to the Nicaraguan Government; (3) the drilling of at least one exploratory well on the Perlas Block of the Nicaraguan Concessions during 2017; (4) the shooting of additional seismic on the Tyra Block of the Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement from the Nicaraguan government; (5) normal day-to-day operations and corporate overhead; and (6) outstanding debt and other financial obligations as they become due including the $1.0 million December 2013 Note, and the notes payable totaling $285,000, which currently are in technical default and resolution of the Replacement Note matter. These are substantial operational and financial issues that must be successfully addressed during 2017 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

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The Company is seeking new outside sources of debt and equity capital in order to fund the substantial needs enumerated above; however, there can be no assurance that it will be able to obtain such capital or obtain it on favorable terms or within the timeframe necessary to cure the technical defaults existing on the Nicaraguan Concessions or to meet its ongoing requirements relative to drilling the exploratory wells. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products, and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects.

The following charts set forth the minimum work programs required under for the Perlas and Tyra blocks comprising the Concessions in order for the Company to retain them unless it is successful in obtaining extensions, renewals or the renegotiation of the entire Concessions Agreements for the Perlas and Tyra blocks.

Minimum Work Program – Perlas

Block Perlas – Exploration Minimum Work Commitment and Relinquishments 
Exploration
Period (6 Years)
 Duration
(Years)
  Work Commitment Relinquishment  Irrevocable Guarantee 
Sub-Period1  2  - Environmental Impact Study - Acquisition & interpretation of 333km of new 2D seismic - Acquisition, processing & interpretation of 667km of new 2D seismic (or equivalent in 3D)  26km2 $443,100 
Sub-Period 2 Optional  1  - Acquisition, processing & interpretation of 200km2of 3D seismic  53km2 $1,356,227 
Sub-Period 3 Optional  1  - Drilling of one exploration well to the Cretaceous or 3,500m, whichever is Shallower  80km2 $10,220,168 
Sub-Period 4 Optional  2  - Drilling of one exploration well to the Cretaceous or 3,500m, whichever is shallower - Geochemical analysis  All acreage except areas with discoveries  $10,397,335 

Minimum Work Program – Tyra

Block Tyra – Exploration Minimum Work Commitment and Relinquishments 
Exploration
Period (6 Years)
 Duration (Years)  Work Commitment Relinquishment  Irrevocable Guarantee 
Sub-Period1  1.5  - Environmental Impact Study - Acquisition & interpretation of 667km of existing 2D seismic - Acquisition of 667km of new 2D seismic (or equivalent in 3D)  26km2  $408,450 
Sub-Period 2 Optional  0.5  - Processing & interpretation of the 667km 2D seismic (or equivatlent in 3D) acquired in the previous sub-period  40km2  $278,450 
Sub-Period 3 Optional  2  - Acquisition, processing & interpretation of 250km2 of new 3D seismic  160km2  $1,818,667 
Sub-Period 4 Optional  2  - Drilling of one exploration well to the Cretaceous or 3,500m, whichever is shallower - Geochemical analysis  All acreage except areas with discoveries  $10,418,667 

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Contractual and Fiscal Terms

Training ProgramUS $50,000 per year, per block
Area FeeYears 1-3$0.05 /hectare
Years 4-7$0.10 /hectare
Years 8 & forward0.15 /hectare
RoyaltiesRecovery Factor 0 – 1.5Percentage 5%
1.5 – 3.010%
>3.015%
Natural Gas RoyaltiesMarket value at production5%
Corporate TaxRate no higher than 30%
Social Contribution3% of the net profit (1.5% for each autonomous region)
Investment ProtectionICSID arbitration OPIC insurance

Revenue Sharing Commitments

On March 23, 2009, the Company entered into a Securities Purchase Agreement, dated effective as of March 23, 2009, with Offshore Finance, LLC, an accredited investor, to issue a subordinated promissory note in the aggregate principal amount of up to $1,275,000 and a one percent (1%) revenue sharing interest in the Nicaraguan Concessions. Off-Shore funded a total of $1,275,000 and subsequently converted the subordinated promissory note to common stock.

Under the Revenue Sharing Agreement (the “Revenue Agreement”), Infinity assigned to Off-Shore a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP will bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP will be paid to Off-Shore by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights in the Nicaraguan Concessions for Off-Shore. In connection with its dissolution Off-Shore assigned its RSP to its individual members.

On June 6, 2009, the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided. Infinity assigned to officers and directors a monthly payment equal to the revenue derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP will bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs.

The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights in the Nicaraguan Concessions for officers and directors.

The Company intends to seek joint venture or working interest partners (the “Farmout”) prior to the commencement of any exploratory drilling operations on the Nicaraguan Concessions. On September 8, 2009, the Company entered into a Revenue Sharing Agreement with Jeff Roberts to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing and assisting in the Farmout. Infinity assigned to Jeff Roberts a monthly payment equal to the revenue derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP will bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Jeff Roberts by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights in the Nicaraguan Concessions for Jeff Roberts.

In connection with the extension of the December 2013 Note with a $1,050,000 principal balance issued in December 2013, the Company entered into a Revenue Sharing Agreement in May 2014. Infinity assigned to the note holder a monthly payment equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions and any other oil and gas concessions that the Company and its affiliates may acquire in the future. The RSP will bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Nicaraguan Concessions. The Revenue Sharing Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions.

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Lack of Compliance with Law Regarding Domestic Properties

Infinity hasThe Company was not been in compliance with then existing federal, state and local laws, rules and regulations for its previously owned domestic oil and gas properties owned and thisdisposed of in 2012 and in years prior to 2012 and could have a material or significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of Infinity.the Company. All domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas were disposed of in 2012 and in years prior to September 30, 2017;2012; however, the Company may remain liable for certain asset retirement costs should the new owners not complete their obligations. Management believes the total asset retirement obligations recorded for these prior matters of $1,716,003$1,716,003 as of September 30, 20172022 and December 31, 20162021 are sufficient to cover any potential noncompliance liabilities relative to the plugging of abandoned wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas properties.

USNG Letter Agreement commitment

Pursuant to the USNG Letter Agreement (see Note 7), the Company will pay USNG a monthly cash fee equal to $8,000 per month beginning at the onset of commercial helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that the Company receives cash receipts in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not maintained insurance onyet achieved the domestic properties$25,000 cash receipts threshold, therefore there has been no payment or accrual liability relative to this cash fee provision as of September 30, 2022.

The USNG Letter Agreement has an initial term of 5 years, which shall thereafter continue for successive one-year periods, provided that there is no uncured breach, unless otherwise terminated by either party upon a numberwritten notice of years nor has it owned/produced any oil & gas properties for a number of years.intent to non-renew.

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Litigation

The Company is subject to numerousvarious claims and legal actions in which vendors are claiming breach of contract due to the Company’s failure to pay amounts due. The Company believes that it has made adequate provision for these claims in the accompanying financial statements.

The Company is currently involved in litigation as follows:

In October 2012, the State of Texas filed a lawsuit naming Infinity-Texas, the Company and the corporate officers of Infinity-Texas, seeking $30,000$30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties. The Company engaged in negotiations with the State of Texas in late 2012 and early 2013 and reached a settlement agreement that would reduce the aggregate liability, in this action and any extension of this action to other Texas wells, to $45,103,$45,103, which amount has been paid. Certain performance obligations remain which must be satisfied in order to finally settle and dismiss the matter.
Pending satisfactory performance of the performance obligations and their acceptance by the State of Texas, the Company’s officers have potential liability regarding the above matter, and the Company’s officers are held personally harmless by indemnification provisions of the Company. Therefore, to the extent they might actually occur, these liabilities are the obligations of the Company. Management estimates that the liabilities associated with this matter will not exceed $780,000,$780,000, calculated as $30,000 for each of the 26 Infinity-Texas operated wells.wells. This related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103,$45,103, is included in the asset retirement obligation on the accompanying balance sheets.sheets, which management believes is sufficient to provide for the ultimate resolution of this dispute.
Cambrian Consultants America, Inc. (“Cambrian”) filed an action in the District Court of Harris County, Texas, number CV2014-55719, on September 26, 2014 against Infinity Energy Resources, Inc.the Company resulting from certain professional consulting services provided for quality control and management of seismic operations during November and December 2013 on the Nicaraguan Concessions. Cambrian provided these services pursuant to a Master Consulting Agreement with Infinity,the Company, dated November 20, 2013, and has claimed breach of contract for failure to pay amounts due. On December 8, 2014, a default judgment was entered against the Company in the amount of $96,877$96,877 plus interest and attorney fees. The Company has included the impact of this litigation as a liability in its accounts payable. The Company will seekpayable, which management believes is sufficient to settleprovide for the default judgment when it has the financial resources to do so.ultimate resolution of this dispute.
Torrey Hills Capital, Inc. (“Torrey”) notified the Company by letter, dated August 15, 2014, of its demand for the payment of $56,000,$56,000, which it alleged was unpaid and owed under a consulting agreement dated October 18, 2013. The parties entered into a consulting agreement under which Torrey agreed to provide investor relations services in exchange for payment of $7,000$7,000 per month and the issuance of 15,000 shares of common stock.Common Stock. The agreement was for an initial three month-term with automatic renewals unless terminated upon 30 days’ written notice by either party. The Company made payments totaling $14,000$14,000 and issued 15,000 shares of common stockCommon Stock during 2013. The Company contends that Torrey breached the agreement by not performing the required services and that it had provided proper notice of termination to Torrey. Furthermore, the Company contends that the parties agreed to settle the dispute on or about June 19, 2014 under which it would issue 2,800 shares of common stockCommon Stock in full settlement of any balance then owed and final termination of the agreement. Torrey disputed the Company’s contentions and submitted the dispute to binding arbitration. The Company was unable to defend itself and the arbitration panel awarded Torrey a total of $79,594$79,594 in damages. The Company has accrued this amount in accounts payable as of September 30, 20172022 and December 31, 2016,2021, which management believes is sufficient to provide for the ultimate resolution of this dispute.
Joseph Ryan (“Ryan”) filed an action in the District Court of Johnson County, Kansas, number 20CV01493, on March 20, 2020 against the Company resulting from certain professional consulting services Ryan alleges he performed for Social, Environmental and Economic Impact Assessments during July 2012 through September 2015 on the Nicaraguan Concessions. Ryan alleges that such services were provided pursuant to oral agreements with the Company. Ryan claims breach of contract for failure to pay $12,000 amounts invoiced and due. On December 23, 2020, Ryan filed a Motion for Default Judgment for $12,000 in unpaid invoices plus legal, fees, statutory interest and any expert testimony fees.

 2535

 

On February 10, 2021, the parties agreed to a full and complete settlement of the matter with prejudice. The terms of the settlement required the Company to pay a total of $10,000 to extinguish accounts payable to Ryan totaling $33,000. As a result, the Company recorded a $23,000 gain from settlement of litigation during the nine months ended December 31, 2021 (see Note 9).

Note 12 – Stockholder’s Deficit

Series A Convertible Preferred Stock

As of September 30, 2022 and December 31, 2021, the Company is authorized to issue up to 10,000,000 preferred stock, par value $0.0001 per share.

The following summarizes the activity in Series A Convertible Preferred Stock for the nine months ended September 30, 2022 and 2021:

Schedule of Series A Convertible Preferred Stock Activity

Number of

Shares

Outstanding at December 31, 2020
Issued22,776
Converted to Common Stock
Outstanding at September 30, 202122,776
Outstanding at December 31, 202122,076
Issued6,450
Converted to Common Stock(3,000)
Outstanding at September 30, 202225,526

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On March 16, 2021, the Company approved and filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock (“COD”) with the Secretary of State of the State of Delaware. The COD provides for the issuance of up to 27,778 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share. Pursuant to the provisions of the COD, the Series A Convertible Preferred Stock is convertible, at the option of the holders thereof, at any time, subject to certain beneficial ownership limitations, into shares of Common Stock determined on a per share basis by dividing the $100 stated/liquidation value of such share of Series A Convertible Preferred Stock by the $0.32 per share conversion price, which conversion price is subject to certain adjustments. In addition, the COD provides for the payment of 10% per annum cumulative dividends, in (i) cash, or (ii) shares of Common Stock, to the holders of the Series A Convertible Preferred Stock based on the stated/liquidation value, until the earlier of (i) the date on which the shares of Series A Convertible Preferred Stock are converted to Common Stock or (ii) date the Company’s obligations under the COD have been satisfied in full. The shares of Series A Convertible Preferred Stock also (i) vote on an as-converted to Common Stock basis, subject to certain beneficial ownership limitations, (ii) are subject to mandatory conversion into Common Stock upon the closing of any equity financing transaction consummated after the original issue date, pursuant to which the Company raises gross proceeds of not less than $5,000,000, (iii) rank senior to the Common Stock and any class or series of capital stock created after the Series A Convertible Preferred Stock and (iv) have a special preference upon the liquidation of the Company.

March 2021 Issuance - On March 26, 2021, the Company entered into a securities purchase agreement with five (5) accredited investors providing for an aggregate investment of $2,050,000 by the investors for the issuance by the Company to them of (i) 22,776 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “March 2021 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 5,256,410 shares of Common Stock at an exercise price of thirty-nine ($0.39) per share, subject to customary adjustments thereunder. The March 2021 Series A Convertible Preferred Stock is convertible into an aggregate of up to 7,117,500 shares of Common Stock. Holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrants. Net proceeds from the issuance of March 2021 Series A Convertible Preferred Stock totaled $1,929,089 after deducting the placement agent fee and other expenses of the offering. The Company used the proceeds of the March 2021 Series A Convertible Preferred Stock offering to complete the acquisition and development of the Properties, to pay-off certain outstanding convertible notes payable (see Note 4) and for general working capital purposes.

The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the acquisition of the Properties, which occurred on April 1, 2021, to register the shares of Common Stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of the acquisition of the Properties, which occurred on April 1, 2021. The Company completed the required registration of these shares on Form S-1, which the Securities and Exchange Commission declared effective on August 4, 2021.

The holders of the March 2021 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its March 2021 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.

The Company has accrued and paid preferred dividends totaling $154,495 and $117,936 relative to the March 2021 Series A Convertible Preferred Stock which was charged to additional paid in capital during the nine months ended September 30, 2022 and 2021, respectively.

The holders of March 2021 Series A Convertible Preferred Stock exercised their rights to convert a total of 3,000 shares of March 2021 Series A Convertible Preferred Stock into 937,500 shares of Common Stock during the nine months ended September 30, 2022. There were no conversions during the nine months ended September 30, 2021.

On March 26, 2021, Ozark Capital, LLC acquired 1,111 shares of March 2021 Series A Convertible Preferred Stock (convertible into 347,188 shares of Common Stock), together with warrants to acquire 256,410 shares of Common Stock at fifty cents ($0.50) per share for a total cash of $100,000. Ozark Capital, LLC and its affiliates hold over 10% of the shares of the Company’s Common Stock as of September 30, 2022. Dividends paid to Ozark Capital, LLC were $2,800 and $2,800 for the three months ended September 30, 2022 and 2021, respectively and $8,279 and $5,753 for the nine months ended September 30, 2022 and 2021, respectively.

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All holders of the March 2021 Series A Convertible Preferred Stock, including Ozark Capital, LLC, have agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days’ advance notice to the Company.

June 2022 Issuance - On June 15, 2022, the Company entered into a securities purchase agreement with an accredited investor providing for an aggregate investment of $500,000 by the investor for the issuance by the Company of (i) 5,000 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “June 2022 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 1,666,667 shares of Common Stock at an exercise price of thirty cents ($0.30) per share, subject to customary adjustments thereunder. The June 2022 Series A Convertible Preferred Stock is convertible into an aggregate of up to 1,562,500 shares of Common Stock. The holder of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of the June 2022 Series A Convertible Preferred Stock totaled $500,000. The Company used the proceeds of the June 2022 Series A Convertible Preferred Stock offering to pay-off certain outstanding convertible notes payable (see Note 4) and for general working capital purposes.

The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the of the June 2022 Series A Preferred Stock, which occurred on June 15, 2022, to register the shares of Common Stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of the offering, which occurred on June 15, 2022.

The holder of the June 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its June 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.

The Company has accrued preferred dividends totaling $14,658 and $-0- relative to the June 2022 Series A Convertible Preferred Stock which was charged to additional paid in capital during the nine months ended September 30, 2022 and 2021, respectively.

August/September 2022 Issuances – During August and September 2022, the Company entered into a securities purchase agreements with three accredited investors providing for an aggregate investment of $145,000 by the investors for the issuance by the Company of (i) 1,450 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “August/September 2022 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 483,332 shares of Common Stock at an exercise price of thirty ($0.30) per share, subject to customary adjustments thereunder. The August/September 2022 Series A Convertible Preferred Stock is convertible into an aggregate of up to 453,125 shares of Common Stock. The holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of the August/September 2022 Series A Convertible Preferred Stock totaled $145,000. The Company used the proceeds of the August/September 2022 Series A Convertible Preferred Stock offering to pay-off certain outstanding convertible notes payable (see Note 4) and for general working capital purposes.

The holders of the August/September 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its August/September 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.

The Company has accrued preferred dividends totaling $1,403 and $-0- relative to the August/September 2022 Series A Convertible Preferred Stock which was charged to additional paid in capital during the nine months ended September 30, 2022 and 2021, respectively.

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Note 913Related Party Transactions

The Company’s Previous Chief Operating Officer was a non-controlling member of Core. On April 1, 2021, we completed the acquisition of the Properties, under the same terms of the Agreement which provided a purchase price of $900,000. The Company raised approximately $2.05 million on March 26, 2021, through the issuance of the March 2021 Series A Convertible Preferred Stock with detachable Common Stock purchase warrants. The funds raised pursuant to the March 2021 Series A Convertible Preferred Stock issuance were used to complete the acquisition of the Properties on April 1, 2021, to retire the outstanding convertible note payable and for working capital purposes.

The Company does not have any employees other than the CEOits Chief Executive Officer, Chief Operating Officer and CFO.Chief Financial Officer. In previous years, certain general and administrative services (for which payment is deferred) had been provided by the CFO’sCompany’s Chief Financial Officer’s accounting firm at its standard billing rates plus out-of-pocket expenses consisting primarily of accounting, tax and other administrative fees. The Company no longer utilizes the CFO’sits Chief Financial Officer’s accounting firm for such support services and was not billed for any such services during the nine monthsyears ended September 30, 2017December 31, 2021 and 2016. The amount2020. On March 31, 2021, the parties entered into a Debt Settlement Agreement whereby all amounts due to such firm for services totaling $762,407 were extinguished upon the issuance of $7,624 principal balance of the 3% Notes and the issuance of the 3% Note Warrants as further described in Notes 4, 10 and 14. Total amounts due to the CFO’s firm for services previously providedrelated party was $762,407 at$-0- as of September 30, 20172022 and December 31, 2016,2021.

The Company had accrued compensation to its officers and is includeddirectors in accrued liabilities at both dates.

On June 6, 2009,years prior to 2018. The Board of Directors authorized the Company to cease the accrual of compensation for its officers and directors, effective January 1, 2018. On March 31, 2021, the parties entered into a Revenue Sharing Agreement withDebt Settlement Agreements whereby all accrued amounts due for such services totaling $1,789,208 were extinguished upon the issuance of $17,892 principal balance of the 3% Notes and the issuance of the 3% Note Warrants as further described in Notes 4, 7 and 9. Total amounts due to the officers and directors for services provided. Infinity assignedrelated to officersaccrued compensation was $-0- as of September 30, 2022 and directors a monthly payment equal to the revenue derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP will bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions and does not create any rights in the Nicaraguan Concessions for officers and directors.December 31, 2021.

In connection with its subordinated loan, Offshore Finance, LLC was granted a one percent (1%) revenue sharing interest in the Nicaraguan Concessionsowed financing costs in connection with a subordinated loan provided previouslyto the Company which was subsequently converted to common stock.shares in 2014. The managing partner of Offshore and the Company’s CFOChief Financial Officer are partners in the accounting firm which the Company used for general corporate purposes in the past. On March 31, 2021, the parties entered into a Debt Settlement Agreement whereby all amounts due for such services totaling $26,113 were extinguished upon the issuance of $261 principal balance of the 3% Notes and the issuance of the 3% Note Warrants as further described in Notes 4, 7 and 9. Total amounts due to this related party was $-0- as of September 30, 2022 and December 31, 2021.

In connection with its dissolution, Offshore assigned its RSPthe Hugoton Gas Field Farmout Agreement, John Loeffelbein, the Company’s previous Chief Operating Officer, was granted a 3% carried interest through drilling in the Hugoton JV. Such carried interest was burdened only to its individual members, which includes the former managing partner of Offshore.three other partners in the Hugoton JV and not the Company’s interest. On April 18, 2022, John Loeffelbein resigned from his position as Chief Operating Officer with the Company.

Note 14 – Subsequent Events

As further described in Note 4 the Company has certain convertible notes payable that have matured and are in default as of September 30, 20172022. In addition, certain notes matured on October 29, 2022 and December 31, 2016,were not repaid and therefore are currently in default status. Following is the Company had accrued compensation to its officers and directorsoutstanding principal balance on matured convertible notes that are currently in default:

Schedule of $1,770,208 and $1,601,208, respectively.Outstanding Principal Balance on Matured Convertible Notes

  Amounts 
Notes payable, in default:    
Notes payable, in default $1,312,500
8% convertible notes payable due October 29, 2022 $650,000
8% Convertible promissory notes payable due September 15, 2022  350,000 
8% Convertible promissory notes payable due June 29, 2022  312,500 
     
Notes payable, in default $1,312,500

The Company entered intodid not pay the principal balance due on these Convertible Notes upon their maturity, therefore the remaining balance remains due and payable and is therefore in technical default. The parties are negotiating a line-of-credit facility on September 23, 2013 that provided it with borrowing capacity onforbearance/resolution to such technical defaults which include several alternatives. Such negotiations include i) a revolving basis up to a maximum of $50,000, which was increased to $75,000 at August 28, 2015 and an initial maturity of November 28, 2013. The line of credit was convertible to common stock at a rate of $5.00 per share. The entity providingreduction in the credit facility is owned by an officer of another corporation for which Infinity’s president and chairmanconversion price of the board serves as presidentunderlying convertible notes, ii) an extension and chairmana roll-over of the board. The facility was unsecured, bore interest at 8% per annum,principal into other Company securities, and was renewed at its maturity several times until it was paid in full on its extended maturity date on November 28, 2016. In consideration for the originationiii) a combination of the line of credit facility andalternatives. The Company can provide no assurance that the various renewals, the Company granted the lender common stock purchase warrants. On February 28, 2016, the Company extended the line-of-credit expiration date to May 28, 2016 and issuedparties will reach a warrant to purchase 10,000 common shares at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on February 28, 2021. On May 28, 2016, the Company extended the line-of-credit expiration date to August 28, 2016 and issued a warrant to purchase 10,000 common shares at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on May 28, 2021. On August 28, 2016, the Company extended the line-of-credit expiration date to November 28, 2016 and issued a warrant to purchase 10,000 common shares at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on August 28, 2021.mutually agreeable resolution.

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ITEMItem 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTSNote Regarding Forward Looking Statements

This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are intended to be covered by the safe harbors created thereby. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “intends,” and other variations of these words or comparable words. In addition,These statements include statements relating to trends in or expectations relating to the effects of our existing and any statements that refer to expectations, projections or other characterizations of events, circumstances or trendsfuture initiatives, strategies, investments, outlooks and that do not relate to historical matters are forward-looking statements. To the extent that there are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. The actualplans.

Actual results or events may differ materially from those anticipated and as reflected in forward-looking statements included herein. Factorsin this report. Therefore, you should not rely on any of these forward-looking statements. Important factors that maycould cause our actual results or eventsand financial condition to differ materially from those anticipatedindicated in the forward-looking statements included herein include, among others: our ability to successfully develop and operate our properties; changes in the risk factors described below.competitive environment in our industry and the markets we serve, and our ability to compete effectively; our cash needs and the adequacy of our cash flows and earnings; our ability to service our debt obligations; our ability to attract and retain qualified personnel; changes in applicable laws or regulations; litigation; public health epidemics or outbreaks (such as the novel strain of COVID-19 and related variants); accidents, equipment failures or mechanical problems; and other risks.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.

As used in this quarterly report, “AMGAS,” the “Company,” “we,” “us” and “our” refer collectively to American Noble Gas Inc, its predecessors and subsidiaries or one or more of them as the context may require.

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Readers

Overview

The Company has assessed various opportunities and strategic alternatives involving the acquisition, exploration and development of oil and gas oil producing properties in the United States, including the possibility of acquiring businesses or assets that provide support services for the production of oil and gas in the United States.

As a result, we are cautioned notnow involved with the following oil and gas producing properties:

Central Kansas Uplift - On April 1, 2021, we completed the acquisition of the Central Kansas Uplift Properties, for a purchase price of $900,000. The Central Kansas Uplift Properties include the production and mineral rights/leasehold for oil and gas properties, subject to place undue relianceoverriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the forward-looking statements contained herein,acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which speak only ascurrently produce from the Reagan Sand Zone with an approximate depth of 3,600 feet.

We commenced rework of the existing production wells after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and other rare earth minerals/gases. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties’ existing oil and gas reserves while continuing the evaluation of the existence of new oil and gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

Hugoton Gas Field Farm-Out - On April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Company has joined three other parties to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement (collectively the “Hugoton JV”).

The Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing. The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.

The Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety of dissolved minerals including bromine and iodine. The Hugoton JV plans to target brine minerals with commercial quantities of bromine and iodine. The Company through the Hugoton JV is currently developing proprietary technology to recover brine minerals, particularly with respect to bromine, which is well underway and has demonstrated recovery efficiency and is expected to be available for use in existing and future development wells.

The Hugoton JV believes that its unconventional theory has not previously been targeted for exploration by historical operations in the field. The initial exploratory well was spud on May 7, 2022 near Garden City, Kansas, with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves. The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production on August 17, 2022. The Company is evaluating the initial flows of both natural gas and helium.

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Investment in GMDOC, LLC - On May 3, 2022, the Company entered into an operating agreement (the “Operating Agreement”) pursuant to which the Company acquired 17 (or 60.7143%) of 28 limited liability membership interests (the “Interests”) in GMDOC, LLC, a Kansas limited liability company (“GMDOC”), for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.

With respect to its cash capital contribution, the Company paid a non-refundable cash deposit for the membership interests in the amount of $50,000 on May 3, 2022. The Company paid the remainder of the cash contribution for the membership interests, or $800,000, on May 16, 2022. The remainder of the Company’s capital contribution, or $3,187,500, was financed by the Bank Loan (as defined below).

GMDOC had previously acquired 70% of the working interests (the “Acquisition”) in certain oil and gas leases (the “GMDOC Leases”) from Castelli Energy, L.L.C., an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis.

GMDOC is managed by two members: Darrah Oil Company, LLC, and Grand Mesa Operating Company, (collectively the “Managing Members”), which also serve as the operating companies under the GMDOC Leases.

Name Change and Reincorporation Matters

At the Company’s Annual Meeting of Stockholders held on October 13, 2021, the stockholders approved an amendment to the Company’s Certificate of Incorporation, changing the Company’s name to American Noble Gas Inc. The stockholders also approved an amendment to the Company’s Certificate of Incorporation, removing the provision providing that any action taken by the stockholders by written consent in lieu of a meeting requires that all of the Company’s stockholders entitled to vote on such action consent in writing thereto. Finally, the stockholders approved the 2021 Stock Option and Restricted Stock Plan (the “2021 Plan”) and we reserved 5,000,000 shares of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”) for issuance under the 2021 Plan.

Reincorporation in Nevada

On December 7, 2021, pursuant to the Agreement and Plan of Merger, American Noble Gas, Inc., a Delaware corporation, merged with and into its wholly owned subsidiary, American Noble Gas Inc., a Nevada corporation (“AMGAS-Nevada” and/or the “Company”) with AMGAS-Nevada continuing as the surviving corporation. In conjunction with the merger, AMGAS-Nevada succeeded to the assets, continued the business and assumed the rights and obligations of the predecessor Delaware corporation existing immediately prior to the merger. The merger was consummated by the filing of a Certificate of Merger on December 7, 2021 with the Secretary of State of the State of Delaware and Articles of Merger with the Secretary of State of the State of Nevada. The Agreement and Plan of Merger and transactions contemplated thereby were adopted by the holders of a majority of the outstanding shares of the predecessor’s common stock, par value $0.0001 per share, and/or Series A Convertible Preferred Stock, par value $0.0001 per share, on an as-converted common stock basis, by written consent in lieu of a special meeting of stockholders, in accordance with the Delaware General Corporation Law.

Pursuant to the Agreement and Plan of Merger, (i) each outstanding share of the Predecessor’s common stock automatically converted into one share of Common Stock of AMGAS-Nevada, (ii) each outstanding share of the predecessor’s Series A Convertible Preferred Stock automatically converted into one share of Series A Convertible Preferred Stock, par value $0.0001 per share, of AMGAS-Nevada (the “Series A Convertible Preferred Stock”), and (iii) each outstanding option, right or warrant to acquire shares of predecessor common stock converted into an option, right or warrant to acquire an equal number of shares of AMGAS-Nevada Common Stock under the same terms and conditions as the original options, rights or warrants.

Similar to the shares of common stock of the Predecessor prior to the merger, the shares of Common Stock are quoted on the OTCQB tier operated by the OTC Markets Group Inc. under the symbol “IFNY”. In accordance with the Agreement and Plan of Merger, each outstanding certificate previously representing shares of the predecessor’s common stock or Series A Convertible Preferred Stock automatically represents, without any action of the predecessor’s stockholders, the same number of shares of Common Stock or Series A Convertible Preferred Stock, as applicable.

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Pursuant to the Agreement and Plan of Merger, the directors and officers of the predecessor immediately prior to the merger became the directors and officers of AMGAS-Nevada and continued their respective directorship or services with the Company on the same terms as their respective directorship or services with the predecessor immediately prior to the merger.

As a result of the merger, the internal affairs of the Company ceased to be subject to the Delaware General Corporation Law or governed by the predecessor’s Certificate of Incorporation, as amended, and its bylaws. As of December 7, 2021, effective date hereof. We believeof the informationmerger, the Company is now subject to the Nevada Revised Statutes and is governed by the Company’s Articles of Incorporation as filed in the State of Nevada and the Company’s Bylaws.

All references to the Company in this Quarterly Report on Form 10-Q refer to the predecessor prior to the merger, and AMGAS-Nevada subsequent to the merger.

2022 Operational and Financial Objectives

COVID–19 PANDEMIC

The financial statements contained in this report to be accurateQuarterly Report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of and for the date hereof. Changesthree and nine months ended September 30, 2022. Economies throughout the world have been and continue to suffer disruptions by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the COVID-19 pandemic. In particular, the oil and gas market has been severely adversely impacted by the effects of the COVID-19 pandemic because of the substantial and abrupt decrease in the demand for oil and gas globally followed by the recent resurgence in oil and natural gas prices. In addition, the capital markets have experienced periods of disruption and our efforts to raise necessary capital in the future may occur after that date,be adversely impacted by the continuing effects of the COVID-19 pandemic and investor sentiment and we cannot forecast with any certainty when the lingering uncertainty caused by the COVID-19 pandemic will not update that information except as required by law.

Factors that could cause or contributecease to impact our actualbusiness and the results differing materially from those discussed herein or forof our stock price to be adversely affected include, but are not limited to: (i) we have a history of losses, are experiencing substantial liquidity problems and our continuation as a going concern; (ii) we have substantial obligations to a number of third parties,operations. In reading this Quarterly Report on Form 10-Q, including our December 2013 in the original principal amountdiscussion of $1,050,000 due in April 2016, notes with total principal balance of $325,000 and the Replacement Note that we have been requested to execute in May 2017 and due May 2018, and there can be no assurance that we will be able to meet them; (iii) we require working capital for our operations and obligations for the next 12 months and capital to continue our exploration and development efforts on the Nicaraguan Concessions, including our defaults under the letter of credit and other requirements of the Nicaraguan Concessions to maintain our rights to the Concessions, and there can be no assurances we will be able to obtain the necessary waivers or revised compliance terms or do so on a basis favorable to us to maintain the Nicaraguan Concessions; (iv) we and our independent registered public accounting firm have concluded that there exists substantial doubt about our ability to continue as a going concern; (v) our Nicaraguan Concessions and planned future exploration activitiesconcern set forth herein, in each case, consider the additional uncertainties caused by the COVID-19 pandemic.

Corporate Activities

The Company’s 2022 operating objectives are in a country with a developing economy and are subjectfocused on: 1) raising the necessary funds to the risks of political and economic instability associated with such economies; (vi)finance exploration and development of the Hugoton Gas Field Farm-Out Venture, 2) raising the necessary funds to purchase our Nicaraguan Concessions will require large amountsmembership interest in GMDOC, 3) raising the funds necessary to explore and develop the Properties, including testing and evaluation of capital or a commercial relationship with an industry operator which we may not be ablenoble gas reserves in additional to obtain; (vii) we do not have sufficient resources to conduct required seismic mapping on our Nicaraguan Concessions; (viii) the oil and gas exploration business involves a high degree of business and financial risk; (ix) we will be subjectproducing zones, 4) raising the funds necessary to regulations affecting our activities withallow the Nicaraguan Concessions; (x) our operations may be adversely affected by changes in the fiscal regime of Nicaragua; (xi) we are continuingCompany to negotiate with our creditors and may face additional claims in the future; (xii) oil prices may be affected by regional factors; (xiii) any future production will be contingent on successful exploration, development and acquisitions to establish reserves and revenue in the future; (xv) thecompete for new oil and gas industry is highly competitive; (xvi) exploratory drilling is an uncertain process with many risks; (xvii) oilproperties that become available for acquisition purposes, and gas prices are volatile, and declines in prices would hurt5) funding our revenues and ability to achieve profitable operations; (xviii) our common stock is traded through the Pink Sheets, which may not have the visibility or liquidity that we seek for our common stock; (xix) we depend on key personnel; (xx) sufficient voting power by coalitions of a few of our larger stockholders to make corporate governance decisions that could have significant effect on usdaily operations and the other stockholders, including Amegy Bank, NA; (xxi)repayment of obligations that become due, or are in default and/or past due.

Recent financings –

Issuances of Series A Convertible Preferred Stock

March 2021 Issuance - On March 26, 2021, the Company entered into a securities purchase agreement with five (5) accredited investors providing for an aggregate investment of $2,050,000 by the investors for the issuance by the Company to them of (i) 22,776 shares of Series A Convertible Preferred Stock, with a stated/liquidation value of $100 per share (the “March 2021 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 5,256,410 shares of Common Stock at an exercise price of thirty-nine cents ($0.39) per share, subject to customary adjustments thereunder. The March 2021 Series A Convertible Preferred Stock is convertible into an aggregate of up to 7,117,500 shares of Common Stock. Holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of substantial amountsthe shares of our common stock that may haveCommon Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a depressive effect oncashless basis pursuant to the market priceformula provided in the warrants. Net proceeds from the issuance of March 2021 Series A Convertible Preferred Stock totaled $1,929,089 after deducting the placement agent fee and other expenses of the outstanding shares of our common stock, including sales of shares of common stock issued tooffering. The Company used the Investor holding the Warrants and upon its conversionproceeds of the Replacement Note, if it is issued; (xxii) possible issuance of common stock subjectMarch 2021 Series A Convertible Preferred Stock offering to optionscomplete the acquisition and warrants may dilute the interest of stockholders; (xxiii) our ability to comply with Sarbanes-Oxley Act of 2002 Section 404 as it may be required; (xxiv) our nonpayment of dividends and lack of plans to pay dividends in the future; (xxv) future sale or issuance of a substantial number of shares of our common stock that could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital; (xxvi) our additional securities available for issuance, which, if issued, could adversely affect the rightsdevelopment of the holders of our common stock; (xxvii) our stock price is likelyProperties, to be highly volatile due to a number of factors, including a relatively limited public float; (xxviii) indemnification of our officerspay-off certain outstanding convertible notes payable and directors; and (xxix) whether we will be able to find an industry or other financial partner to enable us to explore and develop our Nicaraguan Concessions and meet our other obligations.for general working capital purposes.

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The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following information shouldthe closing of the acquisition of the Properties, which occurred on April 1, 2021, to register shares of Common Stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be readdeclared effective within forty-five (45) days after the filing thereof, but in conjunction withany event no later than the Condensed Financial Statements and Notes presented elsewhere in this quarterly reportninetieth (90th) calendar day following the closing of the acquisition of the Properties, which occurred on April 1, 2021. The Company completed the required registration of these shares on Form 10-Q. See Note 1 –“NatureS-1, which the U.S. Securities and Exchange Commission (the “SEC”) declared effective on August 4, 2021.

The holders of Operations, Basis of Presentation and Summary of Significant Accounting Policies,”the March 2021 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its March 2021 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Condensed Financial Statements forCompany.

The holders of March 2022 Series A Convertible Preferred Stock exercised their rights to convert a total of 3,000 shares of March 2021 Series A Convertible Preferred Stock into 937,500 shares of Common Stock during the Three and Ninenine months ended September 30, 20172022. There were no conversions during the nine months ended September 30, 2021.

On March 26, 2021, Ozark Capital, LLC acquired 1,111 shares of March 2021 Series A Convertible Preferred Stock (convertible into 347,188 shares of Common Stock), together with warrants to acquire 256,410 common shares of Common Stock at fifty cents ($0.50) per share for a total cash of $100,000. Ozark Capital, LLC and 2016.

2017 Operational and Financial Objectives

Corporate Activities

The Nicaraguan Concessions represent our most substantial asset and is the focal point of our business plan. The Company is in default of various provisionsits affiliates hold over 10% of the 30-year Concession for bothshares of the Perlas and Tyra blocksCompany’s Common Stock as of September 30, 2017, as noted above.2022. Dividends paid to Ozark Capital, LLC were $2,800 and $2,800 for the three months ended September 30, 2022 and 2021, respectively and $8,279 and $5,753 for the nine months ended September 30, 2022 and 2021, respectively.

 

All holders of the March 2021 Series A Convertible Preferred Stock, including Ozark Capital, LLC, have agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days’ advance notice to the Company.

June 2022 Issuance - On June 15, 2022 the Company entered into a securities purchase agreement with an accredited investor providing for an aggregate investment of $500,000 by the investor for the issuance by the Company of (i) 5,000 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “June 2022 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 1,666,667 shares of Common Stock at an exercise price of thirty cents ($0.30) per share, subject to customary adjustments thereunder. The June 2022 Series A Convertible Preferred stock is convertible into an aggregate of up to 1,562,500 shares of Common Stock. The holder of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of the June 2022 Series A Convertible Preferred Stock totaled $500,000. The Company must raise substantial amounts of debt and equity capital from other sources inused the immediate future to fund its obligations under the Concessions. The most immediate funding needs include the following: (1) the annual training program and area fees for 2016 and 2017; (2) required letters of credit to the Nicaraguan Government; (3) the drilling of at least one exploratory well on the Perlas Blockproceeds of the Nicaraguan Concessions during 2017; (4)June 2022 Series A Convertible Preferred Stock offering to pay-off certain outstanding convertible notes payable and for general working capital purposes.

The Company also entered into that certain registration rights agreement, pursuant to which the shooting of additional seismic onCompany agreed to file a registration statement within forty-five (45) days following the Tyra Blockclosing of the Nicaraguan Concessions should it be unableoffering of the June 2022 Series A Convertible Preferred Stock, which occurred on June 15, 2022, to negotiate a waiverregister the shares of such requirement fromCommon Stock underlying the Nicaraguan government; (5) normal day-to-day operations and corporate overhead; and (6) outstanding debt and other financial obligations as they become due, including the $1.0 million December 2013 Note, and the notes payable totaling $285,000, which currently are in technical default and the notes payable aggregating $240,000 that will become due in November 2017 and April 2018. These are substantial operational and financial issues that the Company must successfully address during 2017 and 2018 or its ability to satisfy the conditions necessary to remain viable and maintain its Nicaragua Concessions will be in significant doubt.warrants. The Company is seeking new outside sourcesto use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of debtthe offering, which occurred on June 15, 2022.

The holder of the June 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its June 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.

There were no conversions during the nine months ended September 30, 2022 and equity2021.

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August/September 2022 Issuances – During August and September 2022, the Company entered into a securities purchase agreements with three accredited investors providing for an aggregate investment of $145,000 by the investors for the issuance by the Company of (i) 1,450 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “August/September 2022 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 483,332 shares of Common Stock at an exercise price of thirty cents ($0.30) per share, subject to customary adjustments thereunder. The August/September 2022 Series A Convertible Preferred Stock is convertible into an aggregate of up to 453,125 shares of Common Stock. The holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of the August/September 2022 Series A Convertible Preferred Stock totaled $145,000. The Company used the proceeds of the August/September 2022 Series A Convertible Preferred Stock offering to pay-off certain outstanding convertible notes payable and for general working capital purposes.

The holders of the August/September 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its August/September 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.

There were no conversions during the nine months ended September 30, 2022 and 2021.

Issuances of Convertible Notes Payable

8% Convertible Notes Payable due September 15, 2022 (in default) - On June 8, 2022, the Company issued to an accredited investor an unsecured convertible note payable due September 15, 2022 (the “June 2022 Note”), with an aggregate principal face amount of approximately $350,000. The June 2022 Note is, subject to certain conditions, convertible into an aggregate of 700,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five-year Common Stock purchase warrant to purchase up to 700,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “June 2022 Warrants”) which are immediately exercisable. The investor purchased the June 2022 Note and June 2022 Warrant from the Company for an aggregate purchase price of $350,000 and the proceeds were used for drilling and completion costs on the initial well drilled under the Hugoton Gas Field participation agreement and general working capital purposes. The Company also granted the investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares of Common Stock underlying the June 2022 Warrant and the conversion of the June 2022 Note unless the shares of the Company commence to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.

The June 2022 Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in ordercash in full or in part by the Company at any time in an amount equal to fund the substantial needs enumerated above; however,remaining principal amount of the underlying note and any accrued and unpaid interest.

The underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors and customary indemnification rights and obligations of the parties thereto, as applicable.

The Company did not pay the principal balance due on the June 2022 Note upon its maturity on September 15, 2022 and the remaining balance remains due and payable and is therefore in technical default. The parties are negotiating a resolution to such technical default including an extension and a roll-over of the principal into other Company securities, although there can be no assurance that itthe parties will be ablereach a mutually agreeable resolution.

8% Convertible Notes Payable due June 29, 2022 (in default) - The Company entered into a securities purchase agreement with two accredited investors (the “Investors”) for the Company’s 8% convertible notes payable due June 29, 2022 (the “May 2022 Notes”), with an aggregate principal amount of $850,000. The May 2022 Notes are, subject to obtain such capital or obtain it on favorable terms or withincertain conditions, convertible into an aggregate of 2,125,000 shares of Common Stock, at a price of forty cents ($0.40) per share. The Company also issued an aggregate of 425,000 shares of Common Stock as commitment shares (“Commitment Shares” and, together with the timeframe necessaryMay 2022 Notes and Conversion Shares, the “Securities”) to cure the technical defaults existing onInvestors as additional consideration for the Nicaraguan Concessions or to meet its ongoing working capital requirements. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regionspurchase of the world, is very challenging givenMay 2022 Notes. The closing of the depressed commodity pricesoffering of the Securities occurred on May 13, 2022, when the Investors purchased the Securities for oilan aggregate purchase price of $850,000. The Company has also granted the Investors certain automatic and gas products, and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments forpiggy-back registration rights whereby the Company has agreed to obtain adequate financingregister the resale by the Investors of the Conversion Shares. The proceeds of this offering of Securities was used to fundpurchase the exploration and development of its Nicaraguan projects.

During 2017 and 2018 we will also seek offers from industry operators and other third parties forCompany’s membership interests in the acreage in the Nicaraguan Concessions in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. Accordingly, we intend to finance our business strategy through external financing, which may include debt and equity capital raised in public and private offerings, joint ventures, sale of working or other interests, employment of working capital and cash flow from operations, if any, and net proceeds from the sales of assets.GMDOC.

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Our abilityThe May 2022 Notes bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time (subject to complete these activities is dependent onthe occurrence of an event of default) in an amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to a) fifty percent (50%) of the then outstanding principal amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 but not greater than $3,000,000; or b) one hundred percent (100%) of the then outstanding principal amount equal to 120% of the principal amount of a May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of in excess of $3,000,000. In addition, pursuant to the May 2022 Notes, so long as such May 2022 Notes remain outstanding, the Company shall not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than the $0.40 per share conversion price, subject to certain adjustments, without the written consent of the Investors.

The conversion of the May 2022 Notes are each subject to beneficial ownership limitations such that the Investors may not convert the May 2022 Notes to the extent that such conversion or exercise would result in an Investor being the beneficial owner in excess of 4.99% (or, upon election of the Investor, 9.99%) of the number of factors, including, butshares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not limited to:be effective until 61 days following notice to the Company.

Pursuant to the purchase agreement for the Securities, for a period of twelve (12) months after the closing date, the Investors have a right to participate in any issuance of the Company’s Common Stock, Common Stock equivalents, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of the subsequent financing.

 

The availability of the capital resources required to fund the activities;
The availability of third party contractors for completion services; and
The approval by regulatory agencies of applications for permits to conduct exploration activities in a timely manner.

The Company also entered into that certain registration rights side letter, pursuant to which, in the event the Company’s shares of Common Stock have not commenced trading on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date, and, thereafter, the Company agreed to file a registration statement under the Securities Act to register the offer and sale, by the Company, of Common Stock underlying the May 2022 Notes in the event that such notes are not repaid prior to such 120-day period.

The Company paid half of the May 2022 Notes principal balance upon its maturity on June 29, 2022 and an additional $112,500 in September 2022 the remaining balance remains due and payable and is therefore in technical default. The parties are negotiating a resolution to such technical default including an extension and a roll-over of the principal into other Company securities, although there can be no assurance that the parties will reach a mutually agreeable resolution.

8% Convertible Notes Payable due October 29, 2022 (in default) - On August 30, 2021, 2021, the Company issued to an accredited investor (the “8% Note Investor”) an unsecured convertible note payable due October 29, 2022 (the “8% Note”), with an aggregate principal face amount of approximately $100,000. The 8% Note is, subject to certain conditions, convertible into an aggregate of 200,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five and one half-year Common Stock purchase warrant to purchase up to 200,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “8% Note Warrant”) which are immediately exercisable. The 8% Note Investor purchased the 8% Note and 8% Note Warrant from the Company for an aggregate purchase price of $100,000 and the proceeds were used for general working capital purposes. The Company also granted the 8% Note Investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the 8% Note Warrant and the conversion of the 8% Note unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.

On October 29, 2021, the Company issued to three accredited investors (the “October 8% Note Investors”) unsecured convertible notes payable due October 29, 2022 (the “October 8% Notes”), with an aggregate principal face amount of approximately $550,000. The October 8% Notes are, subject to certain conditions, convertible into an aggregate of 1,100,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued five and one half-year Common Stock purchase warrants to purchase up to 1,650,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “October 8% Note Warrants”) which are immediately exercisable. The October 8% Note Investors purchased the October 8% Notes and October 8% Note Warrants from the Company for an aggregate purchase price of $550,000 and the proceeds were used for general working capital purposes. The Company also granted the October 8% Note Investors certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the October 8% Note Warrants and the conversion of the October 8% Notes unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.

The 8% Note and the October 8% Notes all bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest. Fifty percent (50%) of the 8% Note and the October 8% Notes shall be mandatorily repaid in cash in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 and one-hundred percent (100%) of the underlying notes plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the 8% Notes Note and the October 8% Notes, so long as the underlying notes remain outstanding, the Company cannot enter into any financing transactions pursuant to which the Company sells its securities at a price lower than $0.50 cents per share without the written consent of the 8% Note Investor.

The conversion of the 8% Note and the October 8% Notes and the exercise of the underlying warrants are each subject to beneficial ownership limitations such that the 8% Note Investor and the October 8% Note Investors may not convert the underlying notes or exercise the underlying warrants to the extent that such conversion or exercise would result in any of the investors being the beneficial owner in excess of 4.99% (or, upon election of the investors, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.

The Company, the 8% Note Investor and the October 8% Note Investors have agreed that for so long as the underlying warrants remain outstanding, the investors have the right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of such subsequent financing.

The Company did not pay the principal balance due on the 8% Notes and the October 8% Notes upon their maturity on October 29, 2022 and the remaining balance remains due and payable and is therefore in technical default. The parties are negotiating a resolution to such technical default including an extension and a roll-over of the principal into other Company securities, although there can be no assurance that the parties will reach a mutually agreeable resolution.

 

We3% Convertible Notes Payable due March 31, 2026 - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% convertible notes payable (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for fifty cents ($0.50) per share (the 3% Note Warrants”). The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026 (the “Maturity Date”). The 3% Notes are consideringconvertible as to principal and any accrued interest, at the acquisitionoption of domesticholder, into shares of the Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustments. The 3% Note Warrants were valued at $1,605,178 using the Black-Scholes methodology.

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Extinguishment of liabilities

Debt Settlement Agreements - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of the 3% Notes with detachable warrants to purchase the 3% Note Warrants. The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on the Maturity Date. The 3% Notes are convertible as to principal and any accrued interest, at the option of holder of the 3% Notes, into shares of the Common Stock at any time after the issue date and prior to the close of business on the business day preceding March 30, 2026 at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment. The 3% Note Warrants were valued at $1,605,178 using the Black-Scholes methodology.

Extinguishment of Convertible Note Payable - On March 26, 2021, the Company exercised its right to retire a convertible note payable originally issued in August 2020 (the “August 2020 Note”) in conjunction with the issuance of the March 2021 Series A Convertible Preferred Stock. In accordance with the prepayment provisions contained in the August 2020 Note, the Company paid $453,539 to retire all principal, accrued interest and the 15% prepayment premium.

Extinguishment of Notes Payable – On April 1, 2021, the Company and the holders of two notes payable aggregating $85,000 that were in default reached a settlement whereby the Company issued a total of 245,000 shares of Common Stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated Common Stock purchase warrants, which totaled $123,830, as of April 1, 2021. The extinguishment of the debt obligations resulted in a gain of $55,230, which was recorded in the year ended December 31, 2021.

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USNG Letter Agreement

On November 9, 2021, the Company entered into a letter agreement (the “USNG Letter Agreement”) with U.S. Noble Gas, LLC (“USNG”), pursuant to which USNG provides consulting services to the Company for exploration, testing, refining, production, marketing and distribution of various potential reserves of noble gases and rare earth element/minerals on the Company’s recently acquired 11,000-care oil and gas properties with both provenin the Otis Albert Field located on the Properties. The USNG Letter Agreement would cover all of the noble gases, specifically helium, and unproven reserves. We believerare earth elements/minerals potentially existing on the Properties and the Company’s future acquisitions, if any, including the Hugoton Gas Field.

The USNG Letter Agreement also provided that USNG would supply a large vessel designed for flows up to 5,000 barrels of water per day at low pressures, known as a gas extraction/separator unit. The gas extraction/separator unit is a dewatering vessel that the current distressed stateCompany may use for oilmultiple wells in the future.

The USNG Letter Agreement required the Company to establish a four-member board of advisors (the “Board of Advisors”) comprised of various experts in noble gas and rare earth elements/minerals. The Board of Advisors will help attract both industry partners and financial partners for developing a large helium, noble gas propertiesand/or rare earth element/mineral resources that may exist in the region where the Company currently operates. The industry partners would include helium, noble gas and/or rare earth element/mineral purchasers and exploration and development companies from the energy industry. The financial partners may include large family offices or small institutions.

Pursuant to the USNG Letter Agreement, the Company will pay USNG a $8,000 monthly cash fee beginning at the onset of commercial helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that the Company receives cash receipts in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000 cash receipts threshold, therefore, there has been no payment or accrual liability relative to this cash fee provision through September 30, 2022.

The USNG Letter Agreement has an initial term of 5 years, which shall thereafter continue for successive one-year periods, provided that there is no uncured breach, unless otherwise terminated by either party upon a written notice of intent to non-renew.

In consideration for the consulting services to be rendered and pursuant to the terms of the USNG Letter Agreement, the Company issued warrants to purchase, in the aggregate, 2,060,000 shares of Common Stock, at an exercise price of fifty ($0.50) to three of USNG’s principal consultants and four third-party service providers. The Company also issued warrants to purchase, in the aggregate, 1,200,000 shares of Common Stock at fifty cents ($0.50) per share exercise price to three members of the Board of Advisors. The Company granted a total of 3,260,000 warrants to purchase its Common Stock with an exercise price of fifty cents ($0.50) per share in connection with the USNG Letter Agreement and the resulting decline in valuations may yield an opportunity for us to accumulate undervalued domestic oil and gas assets at attractive prices and terms witharrangements described therein. The warrants expire five years after the objectivedate of achieving positive cash flows despite the decline in natural gas and crude oil commodity prices. We are seeking financing for such cash generating oil and gas properties at reasonable cost of capital. This initiative is intended to provide us with positive cash flows to address immediate working capital needs until the environment improves for exploration projects such as the Nicaraguan Concessions. No assurances can be given regarding our ability to identify, acquire and finance such domestic properties or whether such properties would provide positive cash flow.USNG Letter Agreement.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on our financial conditions, changes in theour financial conditions, or our results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.expenses except as follows:

Investment in Unconsolidated Subsidiary – GMDOC - On May 3, 2022, the Company entered into the Operating Agreement pursuant to which the Company acquired 17 (or 60.7143%) of 28 limited liability membership Interests in GMDOC, for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.

With respect to its cash capital contribution, the Company paid a non-refundable cash deposit for the membership interests in the amount of $50,000 on May 3, 2022. The Company paid the remainder of the cash contribution for the membership interests, or $800,000, on May 16, 2022. The remainder of the Company’s capital contribution, or $3,187,500, was financed by the Bank Loan (as defined below).

GMDOC had previously acquired 70% of the working interests in the GMDOC Leases from Castelli Energy, L.L.C, an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis.

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Pursuant to the terms of the Operating Agreement, each member agreed to pay GMDOC, as its capital contribution, $50,000 in cash per Interest, with the remainder to be financed, in part, by a loan to GMDOC from a commercial bank, secured by GMDOC’s property, in the aggregate amount of $6,045,000 (the “Bank Loan”). The principal of the Bank Loan is to be repaid in 84 varying monthly installments, ranging from $170,000 at the beginning to $40,500 at the end of the loan term, with the first installment on July 1, 2022. The Bank Loan bears a variable interest beginning at an initial rate of 6% per annum with one rate adjustment after 36 months subject to a 6% minimum interest rate.

For the Three Months Ended September 30, 20172022 and 20162021

Results of Operations

Revenue

The Company had nobegan generating revenues in either 2017 or 2016 as it focused solely onfrom the pursuitproduction and sale of crude oil since the acquisition of the exploration, development, financingProperties on April 1, 2021. Revenues totaled $43,034 and maintenance of the Nicaraguan Concessions.

Production and Other Operating Expenses (income)

The Company had no production related operating expenses in either 2017 or 2016. The Company sold its investment in Infinity-Texas in July 2012 and held no developed or undeveloped oil and gas properties in the United States in 2017 and 2016.

The Company has no current or planned domestic exploration and development activities at this time. It is not actively working on any domestic property, focusing instead on the exploration, development and financing of the Nicaraguan Concessions.

General and Administrative Expenses

General and administrative expenses of $103,531$35,392 for the three months ended September 30, 2017 decreased2022 and 2021, respectively. The $7,642 or 22% increase in revenues during the three months ended September 30, 2022 as compared to the same period in 2021 reflects the commencement of natural gas and helium sales from the initial Hugoton Gas Field which was connected to the pipeline on August 17, 2022. The Company expects its revenues to continue to improve as the market price of West Texas Intermediate (“WTI”) oil, which is the benchmark price the Company receives for the sale of its crude oil, remains strong and the Company increases the volume of natural gas and helium gas sold as it continues its drill and complete wells pursuant to its Hugoton Gas Field participation agreement.

During the three months ended September 30, 2022, our revenue was substantially impacted by $4,172,inflation, the COVID-19 pandemic and the Russian war in Ukraine, which has restricted the world supply of oil and gas and thereby increased the average WTI crude oil price. We expect this trend to continue during the remainder of 2022 and perhaps beyond.

Oil and Gas Lease Operating Expenses

The Company began generating revenues from the production and sale of crude oil since the acquisition of the Properties on April 1, 2021. Total oil and gas lease operating expenses totaled $55,288 and $220,767 for the three months ended September 30, 2022 and 2021, respectively. The decrease in oil and gas lease operating expenses during the three months ended September 30, 2022 as compared to the same period in 2021 is attributable to significant repairs and rework performed in the three months ended September 30, 2021 that did not recur in the 2022 period.

Upon completion of our acquisition of the Properties on April 1, 2021, we commenced rework of the existing production wells on the Properties in order to restore the three producing wells to full operational condition. All such rework costs were expensed as routine maintenance instead of capitalized to oil and gas properties and equipment under the full-cost method. In addition, we have performed certain exploration, including testing and evaluation for the existence of noble gas reserves on the Properties, including helium, argon and other rare earth minerals/gases. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the existing oil and gas reserves on the Properties while continuing the evaluation of the existence of new oil and gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

During the three months ended September 30, 2022, our oil and gas lease operating expenses have been substantially impacted by inflation, the COVID-19 pandemic and the Russian war in Ukraine, which has restricted the supply of production pipe and other materials used in the drilling and rework of oil and gas wells. In addition, experienced oil and gas service professionals have been in high demand in the oil and gas service sector and thereby increasing the cost of oil and gas well services. We expect this trend to continue during the remainder of 2022 and perhaps beyond.

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Depreciation, Depletion and Amortization

Depreciation, depletion and amortization expense totaled $34,292 and $30,834 during the three months ended September 30, 2022 and 2021, respectively. The Company began generating revenues from the production and sale of natural gas and helium from its Hugoton property on August 17, 2022 and crude oil resulting since the acquisition of the Properties on April 1, 2021, which was acquired for $900,000 cash plus the assumption of asset retirement obligations of $13,425. The Company allocated the purchase price of $913,425 to oil and gas properties and equipment, which is subject to depreciation, depletion and amortization as the acquisition qualified as an asset acquisition. The Company began generating revenues from the production and sale of natural gas and helium from its Hugoton property on August 17, 2022, which also marked the beginning of the related depreciation, depletion and amortization.

Accretion of Asset Retirement Obligation

Total expense for the accretion of asset retirement obligations was $424 and $279 for the three months ended September 30, 2022 and 2021, respectively. The Company determined the amount of the asset retirement obligation assumed to be $13,425 as of April 1, 2021, the date of the acquisition of the Properties. In addition, the Company commenced production from its initial Hugoton Gas Field well which began the accretion of its related asset retirement obligations. The obligation relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development, or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support wells at the conclusion of their useful lives.

Oil and Gas Production Related Taxes

Oil and gas production related taxes totaled $55 and $1,626 for the three months ended September 30, 2022 and 2021, respectively. Such taxes are deducted from gross oil and gas revenue by the crude oil purchaser upon payment to the Company and include primarily severance taxes imposed by the State of Kansas, and Kansas conservation assessment fees. Revenues totaled $43,034 for the three months ended September 30, 2022, which resulted in the deduction of $55 in production related taxes. Revenues totaled $35,392 for the three months ended September 30, 2021, which resulted in the deduction of $1,626 in production related taxes primarily due to severance taxes paid in 2021. During the three months ended September 30, 2021, the Company received a notice from the State of Kansas that exempted the Company from paying severance taxes due to the existing wells’ production levels. Therefore, production related taxes declined as a percentage of revenue during the three months ended September 30, 2022 as compared to the same period in 2021.

Other General and Administrative Expenses

Other general and administrative expenses were $283,312 for the three months ended September 30, 2022, a decrease of $11,128, or 4%, from $107,703 inother general and administrative expenses of $294,440 for the same period in 2016.three months ended September 30, 2021. The decrease in other general and administrative expenses is primarily attributable to a decrease of $20,570 in expenses attributablegeologist fees related to work performed in the Nicaraguan Concessions asthree months ended September 30, 2021 on the Properties that did not recur in the three months ended September 30, 2022.

Equity in earnings of unconsolidated subsidiary – GMDOC

The Company has ceased manyreported equity in earnings of unconsolidated subsidiary of $209,297 for the ancillary activities as it attemptsthree months ended September 30, 2022, compared to clarify the status of the Concession itself with the Nicaraguan Government.

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Stock-based compensation

Stock-based compensation expenses were $-0- for the three months ended September 30, 20172021. Such income resulted from the Company acquiring a 60.7143% membership interest in GMDOC in May 2022. The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee, GMDOC. Management’s judgment regarding its level of influence over the operations of GMDOC included considering key factors such as the Company’s ownership interest, legal form of the investee, its lack of participation in policy-making decisions and its lack of control over the day-to-day operations of GMDOC.

GMDOC had previously acquired 70% of the working interests in in the GMDOC Leases from Castelli Energy, L.L.C., an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis. GMDOC, LLC generated $209,297 of net income on approximately $929,000 of oil and gas revenues during the three months ended September 30, 2022. The Company owns a 60.7143% membership interest in such net income or $209,297 which it has reported as equity in earnings of unconsolidated subsidiary – GMDOC during the three months ended September 30, 2022.

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Interest Expense

Interest expense increased to $217,872 for the three months ended September 30, 2022, compared to $-0- during$5,724 for the same period in 2016. The Company has had minimal resources to pay employees, consultants and other service providers. Therefore, it has issued stock options to compensate and motivate its officers, directors and other service providers in previous years that vest generally over a two-year period. The Company did not grant any stock options in 2017 and 2016. All outstanding stock options were fully vested as ofthree months ended September 30, 2017 as all stock options became fully vested2021. The increase in January 2016. Therefore, there was no stock-based compensationinterest expense during the three months ended September 30, 2017 compared2022 was attributable to 2016.the issuance of the various convertible notes payable issued 2022 and in 2021 that were outstanding during the three months ended September 30, 2022 and not during the three months ended September 30, 2021.

Interest expenseIncome Tax

InterestThe Company recorded no income tax benefit (expense) in the three months ended September 30, 2022 and 2021. The Company has been in a cumulative tax loss position and has substantial net operating loss carryforwards available for its utilization at September 30, 2022. The Company has continued to carry a 100% reserve on its net deferred tax assets and therefore recorded no income tax expense remained virtuallyor benefit on its income (loss) before income taxes during the same at $27,455three months ended September 30, 2022 and 2021.

Net Loss

The Company reported a net loss of $338,912 for the three months ended September 30, 20162022, compared to $29,048a net loss of $518,278 for the three months ended September 30, 2017.2021. This represents a decrease in net loss of $179,366 for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Series A Convertible Preferred Stock Dividends

The Company’s current financial condition has made traditional bank loansCompany recorded $65,406 and customary financing terms unattainable; therefore,$57,408 for convertible preferred stock dividends in the three months ended September 30, 2022 and 2021, respectively. On March 26, 2021, the Company may find it necessary to continue with short-term borrowings with high effective interest rates especiallyissued and classified its Series A Convertible Preferred Stock as the notes currently in default are negotiated and extended.

Change in Fair Value of Secured Convertible Note

We issued the Secured Convertible Note in the May 2015 Private Placement and elected to account for and record such Noteequity securities on a fair value basis. On May 4, 2017, the Investor notifiedits balance sheet. During 2022, the Company that it elected to effect an Investor Optional Offset under Section 7(a)issued additional shares of the Investor NoteSeries A Convertible Preferred Stock, therefore, there were more shares of the full $9,490,000 principal amountSeries A Convertible Preferred Stock outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver the Replacement Note representing the remaining principal balance of $2,197,231 to replace the Convertible Note. The Company has recorded the fair value of the Convertible Notes assuming that the remaining par value is $2,197,231 as asserted by the Investor, resulting in a change in the estimated fair value of $166,431 during the three months ended September 30, 2017 compared to a change of $2,807 for the 2016 period. The Company plans to negotiate with the Investor regarding the issuance of the Replacement Note under the terms of the financing and taking into consideration that the Investor only funded $510,000 in the entire transaction, but there can be no assurance that it will be successful in this regard.

Change in Derivative Fair Value

The conversion feature of the promissory notes and the common stock purchase warrants issued in connection with short-term notes and the Secured Convertible Note outstanding during 2017 and 2016 are treated2022 as derivative instruments because the promissory notes and warrants contain ratchet and anti-dilution provisions. Accordingly, we adjusted the value of the outstanding derivative liabilities to their estimated fair value as of September 30, 2017 and 2016. The mark-to-market process resulted in a gain of $40,186 during the three months ended September 30, 2017 and a gain of $50,062 during the three months ended September 30, 2016. The decrease in the gain recognized is primarily the result of the smaller change in the closing market price of our common stock between the September 30, 2017 ($0.06 per share) and June 30, 2017 ($0.08 per share) compared to the correspondingsame period in 2016 ($0.032021. All shares of Series A Convertible Preferred Stock bear a cumulative dividend at September 30, 2016 versus $0.07 at June 30, 2016). Generally, the fair value of the derivative liability declines when the market value of the underlying common stock decreases compareda 10% rate based on its stated/liquidation value.

Net Loss Applicable to the derivatives exercise price.Common Stockholders

Income Tax

For income tax purposes, the Company has net operating loss carry-forwards of approximately $66,270,000 as of September 30, 2017, which expireThe Series A Convertible Preferred Stock issued in 2022 and 2021 have [dividend and distribution] preferences over our Common Stock and, therefore, such accrued dividend amounts have been deducted from 2025 through 2030. The Company has provided a 100% valuation allowance against the resulting deferred tax asset due to the uncertainty of realizing the tax benefits from its net operating loss carry-forwards.

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For the three months ended September 30, 2017 and 2016, the Company realized net losses and it anticipates operating losses and additional tax losses for the foreseeable future and does not believe that utilization of its tax loss carryforward is more likely than not. Therefore, because of the uncertainty as to the ultimate utilization of the Company’s loss carryforwards, any deferred tax asset at September 30, 2017 that resulted from anticipated benefit from future utilization of such carryforward has been fully offset by a valuation allowance.

Net loss

As a result of the above, we reported a net loss to report net loss applicable to common stockholders of $258,824$404,318 and $575,686 for the three months ended September 30, 2017 compared to a net loss of $87,903 for the three months ended September 30, 2016. This represents a deterioration of $170,921.2022 and 2021, respectively.

Basic and Diluted Net Loss Attributable to Common Stockholders per Share

Basic net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares of Common Stock outstanding during the period. Diluted net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of commonshares of Common Stock and common equivalent sharesdilutive Common Stock Equivalents outstanding during the period. Common share equivalentsStock Equivalents included in the diluted net loss attributable to common stockholders per share computation represent shares of Common Stock issuable upon the assumed conversion of convertible notes payable, Series A Convertible Preferred Stock and the assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in which net losses from continuing operationsattributable to common stockholders are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common share equivalentsCommon Stock Equivalents would have an anti-dilutive effect.

The Company incurred a net loss attributable to common stockholders during the three months ended September 30, 2022, and 2021, therefore all Common Stock Equivalents were considered anti-dilutive and excluded from diluted net loss attributable to common stockholders per share computations. The basic and diluted net loss attributable to common stockholders per share was $0.03were $(0.02) and $(0.03) for the three months ended September 30, 2017,2022 and 2021, respectively.

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Potential Common Stock Equivalents as of September 30, 2022 totaled 32,688,238 shares of Common Stock, which included 2,838,580 shares of Common Stock underlying the convertible notes payable, 7,976,875 shares of Common Stock underlying the conversion of Series A Convertible Preferred Stock, 20,430,783 shares of Common Stock underlying outstanding warrants and 1,442,000 shares of Common Stock underlying outstanding stock options.

For the Nine Months Ended September 30, 2022 and 2021

Results of Operations

Revenue

The Company began generating revenues from the production and sale of crude oil since the acquisition of the Properties on April 1, 2021. Revenues totaled $111,903 and $56,220 for the reasons previously noted.nine months ended September 30, 2022 and 2021, respectively. The basic$55,683 or 99% increase in revenues during the nine months ended September 30, 2002 as compared to the same period in 2021 reflects the commencement of natural gas and diluted loss per sharehelium sales from the initial Hugoton Gas Field which was $0.01connected to the pipeline on August 17, 2022 as well as the timing of the purchase of the Properties. The Company expects its revenues to continue to improve as the price of WTI oil remains strong and the Company increases the volume of natural gas and helium gas sold as it continues its drill and complete wells pursuant to its Hugoton Gas Field participation agreement.

During the nine months ended September 30, 2022, our revenue was substantially impacted by inflation, the COVID-19 pandemic and the Russian war in Ukraine, which has restricted the world supply of oil and gas and thereby increased the average WTI crude oil price. We expect this trend to continue during the remainder of 2022 and perhaps beyond.

Oil and Gas Lease Operating Expenses

The Company began generating revenues from the production and sale of crude oil since the acquisition of the Properties on April 1, 2021. Total oil and gas lease operating expenses totaled $198,003 and $446,849 for the three months ended September 30, 2016. All outstanding stock options2022 and warrants to purchase common stock were considered antidilutive2021, respectively. The decrease in oil and therefore excluded fromgas lease operating expenses during the calculation of diluted loss per share for the threenine months ended September 30, 20172022 as compared to the same period in 2021 is attributable to significant repairs and 2016 becauserework performed in the exercise pricenine months ended September 30, 2021 that did not recur in the 2022 period.

Upon completion of our acquisition of the stock options and warrants were substantially higher than market price in 2017 and 2016 andProperties on April 1, 2021, we commenced rework of the net loss reported for both periods. Potential shares of common stock as of September 30, 2017 that have been excluded from the computation of diluted net loss per share amounted to 2,882,721 shares, which included 2,505,771 outstanding warrants and 376,950 outstanding stock options.

For the Nine months Ended September 30, 2017 and 2016

Results of Operations

Revenue

The Company had no revenues in either 2017 or 2016 as it focused solelyexisting production wells on the pursuitProperties in order to restore the three producing wells to full operational condition. All such rework costs were expensed as routine maintenance instead of the exploration, development, financing and maintenance of the Nicaraguan Concessions.

Production and Other Operating Expenses (income)

The Company had no production related operating expenses in either 2017 or 2016. The Company sold its investment in Infinity-Texas in July 2012 and held no developed or undevelopedcapitalized to oil and gas properties inand equipment under the United States in 2017full-cost method. In addition, we have performed certain exploration, including testing and 2016.evaluation for the existence of noble gas reserves on the Properties, including helium, argon and other rare earth minerals/gases. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the existing oil and gas reserves on the Properties while continuing the evaluation of the existence of new oil and gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

 

During the nine months ended September 30, 2022, our oil and gas lease operating expenses have been substantially impacted by inflation, the COVID-19 pandemic and the Russian war in Ukraine, which has restricted the supply of production pipe and other materials used in the drilling and rework of oil and gas wells. In addition, experienced oil and gas service professionals have been in high demand in the oil and gas service sector and thereby increasing the cost of oil and gas well services. We expect this trend to continue during the remainder of 2022 and perhaps beyond.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization expense totaled $95,961 and $61,668 during the nine months ended September 30, 2022 and 2021, respectively. The Company has no current or planned domestic explorationbegan generating revenues from the production and development activities at this time. It is not actively workingsale of natural gas and helium from its Hugoton property on any domestic property, focusing instead onAugust 17, 2022 and crude oil since the exploration, development and financingacquisition of the Nicaraguan Concessions.Properties on April 1, 2021, which was acquired for $900,000 cash plus the assumption of asset retirement obligations of $13,425. The Company allocated the purchase price of $913,425 to oil and gas properties and equipment, which is subject to depreciation, depletion and amortization as the acquisition qualified as an asset acquisition. The Company began generating revenues from the production and sale of natural gas and helium from its Hugoton property on August 17, 2022, which also marked the beginning of the related depreciation, depletion and amortization.

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General

Accretion of Asset Retirement Obligation

Total expense for the accretion of asset retirement obligations was $1,004 and Administrative Expenses

General and administrative expenses of $365,906$558 for the nine months ended September 30, 2017 increased2022 and 2021, respectively. The Company determined the amount of the asset retirement obligation assumed to be $13,425 as of April 1, 2021, the date of the acquisition of the Properties. In addition, the Company commenced production from its initial Hugoton Gas Field well which began the accretion of its related asset retirement obligations. The obligation relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development, or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support wells at the conclusion of their useful lives.

Oil and Gas Production Related Taxes

Oil and gas production related taxes totaled $164 and $2,592 for the nine months ended September 30, 2022 and 2021, respectively. Such taxes are deducted from gross oil and gas revenue by $26,707, or 7.9%,the crude oil purchaser upon payment to the Company and include primarily severance taxes imposed by the State of Kansas, and Kansas conservation assessment fees. Revenues totaled $111,903 for the nine months ended September 30, 2022, which resulted in the deduction of $164 in production related taxes. Revenues totaled $56,220 for the nine months ended September 30, 2021, which resulted in the deduction of $2,592 in production related taxes primarily due to severance taxes paid in 2021. During the nine months ended September 30, 2021, the Company received a notice from $339,199 inthe State of Kansas that exempted the Company from paying severance taxes due to the existing wells’ production levels. Therefore, production related taxes declined as a percentage of revenue during the nine months ended September 30, 2022 as compared to the same period in 2016.2021.

Other General and Administrative Expenses

Other general and administrative expenses were $1,131,456 for the nine months ended September 30, 2022, an increase of $393,037, or 53%, from other general and administrative expenses of $738,419 for the nine months ended September 30, 2021. The increase in other general and administrative expenses is primarily attributable to an increase of $508,589 in Delaware Franchise taxesstock-based compensation due to the noncash compensation awarded to the Company’s executives, members of the Board of Directors, the USNG Letter Agreement which awarded compensatory warrants to advisory members of the Board of Advisors and another consultants in 2022 and in late 2021. The increase in professional feesstock-based compensation was offset by a $75,000 charge-off of one option to acquire a property during the nine months ended September 30, 2021 that did not recur in particular audit fees, relatedthe comparable period in 2022.

Equity in earnings of unconsolidated subsidiary – GMDOC

The Company reported equity in earnings of unconsolidated subsidiary of $323,633 for the nine months ended September 30, 2022, compared to the annual audit and various filings with the Securities and Exchange Commission.

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Stock-based compensation

Stock-based compensation expenses was $-0- for the nine months ended September 30, 2017 compared2021. Such income resulted from the Company acquiring a 60.7143% membership interest in GMDOC in May 2022. The Company uses the equity method of accounting for equity investments if the investment provides the ability to $7,598exercise significant influence, but not control, over operating and financial policies of the investee, GMDOC. Management’s judgment regarding its level of influence over the operations of GMDOC included considering key factors such as the Company’s ownership interest, legal form of the investee, its’ lack of participation in policy-making decisions and its’ lack of control over the day-to-day operations of GMDOC.

GMDOC had previously acquired 70% of the working interests in the GMDOC Leases from Castelli Energy, L.L.C., an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis. GMDOC, LLC generated $533,043 of net income on approximately $1,718,000 of oil and gas revenues during the same period in 2016.nine months ended September 30, 2022. The Company has had minimal resources to pay employees, consultants and other service providers. Therefore,owns a 60.7143% membership interest in such net income or $323,633 which it has issued stock options to compensate and motivate its officers, directors and other service providersreported as equity in previous years that vest generally over a two-year period. The Company did not grant any stock options in 2017 and 2016. All outstanding stock options are fully vested asearnings of unconsolidated subsidiary – GMDOC during the nine months ended September 30, 2017 as all stock options became fully vested in January 2016.2022.

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Interest expenseExpense

Interest expense decreasedincreased to $86,735$643,662 for the nine months ended September 30, 2017 as2022, compared to $134,972$40,163 for the nine months ended September 30, 2016.2021. The decrease is the result of the debt discount becoming fully amortizedincrease in early 2016 as $53,297 was amortized to interest expense in 2016 and $-0- on the 2017 period. The debt discount resulted from the issuance of detachable common stock purchase warrants in connection with short-term borrowings.

The Company’s current financial condition has made traditional bank loans and customary financing terms unattainable; therefore, the Company may find it necessary to continue with of short-term borrowings with high effective interest rates especially as the notes currently in default are negotiated and extended.

Change in Fair Value of Secured Convertible Note

We issued the Secured Convertible Note in the May 2015 Private Placement and elected to account for and record such Note on a fair value basis. On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver the Replacement Note representing the remaining principal balance of $2,197,231 to replace the Convertible Note. The Company has recorded the fair value of the Convertible Notes assuming that the remaining par value is $2,197,231 as asserted by the Investor, resulting in a change in the estimated fair value of $1,847,894 during the nine months ended September 30, 2017 as compared2022 was attributable to $67,591 in the comparable period in 2016. The Company plans to negotiate with the Investor regarding the issuance of the Replacement Note undervarious convertible notes payable issued in 2022 and in 2021 that were outstanding during the termsnine months ended September 30, 2022 and not during the nine months ended September 30, 2021.

Gain on Extinguishment of Liabilities

The Company reported a gain on exchange and extinguishment of liabilities of $-0- and $86,602 in the nine months ended September 30, 2022 and 2021, respectively.

On April 1, 2021, the Company and the holders of two notes payable aggregating $85,000 that were in default reached a settlement whereby the Company issued a total of 245,000 shares of Common stock in exchange for the extinguishment of the financingoutstanding principal, accrued interest and taking into consideration thatassociated Common Stock purchase warrants, which totaled $123,830, as of April 1, 2021. The 245,000 shares issued to extinguish the Investor only funded $510,000debt obligations resulted in a gain of $55,230 which was recorded in the entire transaction, but there can be no assurance that it will be successful in this regard.nine months ended September 30, 2021.

 

On March 31, 2021, the Company recorded a net gain on extinguishment of liabilities totaling $31,372, which was attributable to six transactions that extinguished outstanding liabilities as of that date. The Debt Settlement Agreements extinguished accounts payable and accrued liabilities with a total outstanding balance of $2,866,497, for the issuance of $28,665 in principal balance of the 3% Notes. Such 3% Notes were issued with the 3% Warrants, which were valued at $1,605,178. The transaction resulted in a total gain of $1,232,654 of which $124,177 was reported as a gain on extinguishment of liabilities and $1,108,477 was reported as a capital contribution during the nine months ended September 30, 2021. The $23,000 gain from settlement of litigation extinguished $33,000 of trade payables for a cash payment of $10,000. The loss of $115,805 is related to the early retirement of $365,169 principal balance of the August 2020 Note. There were no similar transactions during the nine months ended September 30, 2022.

Change in Derivative Fair Value

The conversion feature of the promissoryin certain outstanding notes payable and the common stockCommon Stock purchase warrants issued in connection with short-term notes and the Secured Convertible Note outstanding during 2017 and 2016 arethe nine months ended September 30, 2021 were treated as derivative instruments because the promissorysuch notes payable and warrants containcontained ratchet and anti-dilution provisions. Accordingly, we adjusted the value of the outstanding derivative liabilities to their estimated fair value as of September 30, 2017 and 2016. The mark-to-market process resulted in a gain of $78,351$199 during the nine months ended September 30, 2017 compared to a gain of $167,8302021. There were no similar derivatives outstanding during the nine months ended September 30, 2016. The decrease in the gain recognized is primarily the result of the change in the closing market price of our common stock between the September 30, 2017 ($0.06 per share)2022. All short-term notes and December 31, 2016 ($0.10 per share) compared to the corresponding period in 2016 ($0.03 at September 30, 2016 versus $0.16 at December 31, 2015). Generally, the fair value of thetheir related derivative liability declines when the market value of the underlying common stock decreases compared to the derivatives exercise price.warrants were terminated on April 1, 2021.

Income Tax

ForThe Company recorded no income tax purposes, the Company has net operating loss carry-forwards of approximately $66,270,000 as of September 30, 2017, which expire from 2025 through 2030. The Company has provided a 100% valuation allowance against the resulting deferred tax asset due to the uncertainty of realizing the tax benefits from its net operating loss carry-forwards.

Forbenefit (expense) in the nine months ended September 30, 20172022 and 2016, the2021. The Company realized net losses and the Company anticipates operating losses and additional tax losses for the foreseeable future and does not believe that utilization of itshas been in a cumulative tax loss carryforward is more likely than not. Therefore, because of the uncertainty as to the ultimate utilization of the Company’sposition and has substantial net operating loss carryforwards any deferred tax assetavailable for its utilization at September 30, 2017 that resulted from anticipated2022. The Company has continued to carry a 100% reserve on its net deferred tax assets and therefore recorded no income tax expense or benefit from future utilization of such carryforward has been fully offset by a valuation allowance.on its income (loss) before income taxes during the nine months ended September 30, 2022 and 2021.

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Net lossLoss

As a result of the above, weThe Company reported a net loss of $2,222,184$1,634,714 for the nine months ended September 30, 20172022, compared to a net loss of $381,530$1,147,228 for the nine months ended September 30, 2016.2021. This represents a deteriorationdecrease in net loss of $1,840,654.$487,486 for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

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Series A Convertible Preferred Stock Dividends

The Company recorded $170,556 and $117,936 in convertible preferred stock dividends in the nine months ended September 30, 2022 and 2021, respectively. On March 26, 2021, the Company issued and classified its Series A Convertible Preferred Stock as equity securities on its balance sheet. During 2022, the Company issued additional shares of Series A Convertible Preferred Stock, therefore, there were more shares of Series A Convertible Preferred Stock outstanding during the nine months ended September 30, 2022 as compared to the same period in 2021. All shares of Series A Convertible Preferred Stock bear a cumulative dividend at a 10% rate based on its stated/liquidation value.

Net Loss Applicable to Common Stockholders

The Series A Convertible Preferred Stock issued in 2021 and 2022 have dividend and/or distribution preferences over our Common Stock and, therefore, such accrued dividend amounts have been deducted from net loss to report net loss applicable to common stockholders of $1,805,270 and $1,265,164 for the nine months ended September 30, 2022 and 2021, respectively.

Basic and Diluted Net Loss Attributable to Common Stockholders per Share

Basic net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares of Common Stock outstanding during the period. Diluted net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of commonshares of Common Stock and common equivalent sharesdilutive Common Stock Equivalents outstanding during the period. Common share equivalentsStock Equivalents included in the diluted net loss attributable to common stockholders per share computation represent shares of Common Stock issuable upon the assumed conversion of convertible notes payable, Series A Convertible Preferred Stock and the assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in which net losses from continuing operationsattributable to common stockholders are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common share equivalentsCommon Stock Equivalents would have an anti-dilutive effect.

The Company incurred a net loss attributable to common stockholders during the nine months ended September 30, 2022, and 2021, therefore all Common Stock Equivalents were considered anti-dilutive and excluded from diluted net loss attributable to common stockholders per share computations. The basic and diluted net loss attributable to common stockholders per share was $0.29were $(0.09) and $(0.07) for the nine months ended September 30, 2017, for the reasons previously noted. The basic2022 and diluted loss per share was $0.06 for the nine months ended September 30, 2016. All outstanding stock options and warrants to purchase common stock were considered antidilutive and therefore excluded from the calculation of diluted loss per share for the nine months ended September 30, 2017 and 2016 because the exercise price of the stock options and warrants were substantially higher than market price in 2017 and 2016 and the net loss reported for both periods. 2021, respectively.

Potential shares of common stockCommon Stock Equivalents as of September 30, 2017 that have been excluded from the computation2022 totaled 32,688,238 shares of diluted net loss per share amounted to 2,882,721 shares,Common Stock, which included 2,505,7712,838,580 shares of Common Stock underlying the convertible notes payable, 7,976,875 shares of Common Stock underlying the conversion of Series A Convertible Preferred Stock, 20,430,783 shares of Common Stock underlying outstanding warrants and 376,9501,442,000 shares of Common Stock underlying outstanding stock options.

Liquidity and Capital Resources; Going ConcernConcern–

We have had a history of losses and have generated little or no operating revenues for a number of years, as we concentrated on the development of our Nicaraguan Concessions, which iswas a long-term, high-risk/reward exploration project in an otherwise unproven part of the world. We abandoned the Nicaraguan Concessions in early 2020 due to the challenging economic and political issues in Nicaragua and in the oil and gas industry in general. Subsequent to the abandoning of the Nicaraguan Concessions, we began assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of gas and oil properties in the United States, including the possibility of acquiring businesses or assets that provide support services for the production of oil and gas in the United States. As a result, we: 1) acquired the Properties, 2) entered into the Hugoton JV and 3) entered into the GMDOC venture.

The planned development of the development projects previously identified will require us to raise additional capital to accomplish our operating plan, which cannot be assured. Historically, we financed our operations through the issuance of redeemable preferred stockequity and various short and long-term debt financing that contained some level of detachable warrants to provide the holders with a level of equity participation should we be successful exploring our Nicaraguan Concessions.participation.

In the first quarter 2015, we were able to increase our line-of-credit to a maximum of $100,000, which provided us some liquidity, but were unable to obtain other sources of capital. On February 28, 2015, the short-term note holders of maturing debt exercised their right to convert principal balances totaling $475,000 and accrued interest totaling $28,630 into 100,726 shares of common stock at an exchange rate of $5.00 per share. In addition, on September 30, 2015, the lender who provides the line-of-credit facility converted a partial principal balance totaling $50,000 into 10,000 shares of common stock at a price of $5.00 per share. Such debt to equity conversions helped to reduce our near term cash needs.

In July 2015, the Company issued two promissory notes for total cash proceeds of $85,000. The promissory notes have maturity dates that have been extended several times and matured in October 2016 and are currently in default. In connection with the origination and extension of the notes, the Company issued warrants exercisable to purchase shares of common stock at an exercise price of $5.60 per share. The warrants are immediately exercisable and terminate five years from their dates of issuance. The Company is seeking an extension of the maturity date of these notes; however, there can be no assurance that it will be able to obtain such extensions or what the final terms will be if the lenders agree to such extensions. The Company and its lenders are assessing the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of these notes.

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In November 2016,Capital Raised

Historically, we have raised funds through various equity and debt instruments through private transactions. The following summarizes the sources of significant liquidity raised during the nine months ended September 30, 2022 and for the year ended December 31, 2021:

  

Nine months ended

September 30, 2022

 
Capital raised:    
Issuance of convertible notes payable together with the issuance of 425,000 shares of Common Stock $850,000 
Issuance of Series A Convertible Preferred Stock with detachable Common Stock purchase warrants  645,000 
Issuance of convertible notes payable with detachable Common Stock purchase warrants  350,000 
     
Total capital raised $1,845,000 

  Year ended December 31, 2021 
Capital raised:    
Issuance of Series A Convertible Preferred Stock with detachable Common Stock purchase warrants $1,929,089 
Issuance of convertible notes payable with detachable Common Stock purchase warrants  650,000 
     
Total capital raised $2,579,089 

The Company was able to raise liquidity during 2022 and 2021 through the issuance of debt and equity in private transactions with accredited investors. These financial instruments generally require the Company issued a $200,000 convertible promissory note which required no principal or interest payments until its November 2017 maturity date and bears 8% interest. The proceeds of this note were used to pay offregister the Company’s line-of-credit upon its maturity in November 2017 and for general working capital purposes. The Company is seeking an extensionCommon Stock underlying the conversion of the maturity date of this note.

On December 27, 2013,Series A Convertible Preferred Stock, the Company borrowed $1,050,000 underCommon Stock purchase warrants and the December 2013 Note, which is an unsecured credit facilityconvertible notes payable. These issuances generally provide the holders with a private, third-party lender. Effective April 7, 2015right to participate in future capital raises and require their approval for the Companyfuture issuance of securities at rates less than their purchase price. The holders have also agreed that the conversion of the Series A Convertible Preferred Stock, the convertible notes payable and the lender agreed to extend the maturity dateexercise of the December 2013 Note from April 7, 2015underlying warrants are generally subject to the earlier of (i) April 7, 2016 or (ii) the payment in fullbeneficial ownership limitations such that each holder of the Investor Note issued in the May 2015 Private Placement in the principal amount of $9,550,000 (the “New Maturity Date”). All other terms of the Note remained the same and the remaining principal balance was reduced to $1,000,000 as of September 30, 2016 after the $50,000 principal repayment required by the extension agreement.

The December 2013 Notefinancial instruments individually may be prepaid without penalty at any time. The December 2013 Note is subordinated to all existing and future senior indebtedness, as such terms are defined in the December 2013 Note. The December 2013 Note matured in April 2016 and is currently in technical default. The Company is seeking an extension of the maturity date; however, there can be no assurance that it will be able to obtain such extension or what the final terms will be if the lender agrees to such an extension. The Company and its lender are assessing the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of December 2013 Note.

On May 7, 2015, the Company completed the May 2015 Private Placement of $12.0 million Secured Convertible Note and a Warrant exercisable to purchase 1,800,000 shares of the Company’s common stock with an institutional investor. At the closing of the May 2015 Private Placement, the investor acquired the Convertible Note by paying $450,000 in cash and issuing the Investor Note, secured by cash, with a principal amount of $9,550,000. The Company used the initial proceeds from the closing to retire certain outstanding obligations, including the 2015 area and training fees of approximately $155,000 owed to the Nicaraguan government relating to its Nicaragua Concessions, and to provide additional working capital.

The Convertible Note was to mature on the three-year anniversary of its issuance, bore interest at 8% per annum, and was convertible at any time at the option of the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”). As a part of the May 2015 Private Placement, the Company issued a Warrant to the investor giving it the right to purchase up to an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance for a period of seven years from the date of issuance.

The investor has no right tonot convert the underlying Series A Convertible NotePreferred Stock, convertible notes payable or exercise the Warrantunderlying warrants to the extent that such conversion or exercise would result in any of the investorholders individually being the beneficial owner of in excess of 9.99%4.99% (or, upon election of the Company’s common stock. The Convertible Note ranks seniorholders, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the Company’s existing and future indebtedness and is secured by allissuance of the assetsshares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, excludingprovided that any increase in such limitation will not be effective until 61 days following notice to the Nicaraguan Concessions.Company.

On May 4, 2017, the Investor notified the Company that it electedWe will likely continue to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrenderingissue such convertible notes payable with detachable warrants to acquire Common Stock to fund our operational and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchangecapital expenditure plans for the satisfactionremainder of 2022.

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Capital Expenditures

As of September 30, 2022, we have: 1) acquired the Properties, 2) entered into the Hugoton JV and 3) entered into the GMDOC venture as more fully described elsewhere in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver the Replacement Note representing the remaining principal balance of $2,197,231 to replace the Convertible Note. this Quarterly Report on Form 10-Q.

Going Concern

The Company has recorded the fair valueincurred losses from operations, has a net stockholders’ deficit, incurred net cash used in operating activities and has a significant working capital deficit as of the Convertible Notes assuming that the remaining par value is $2,197,231 as asserted by the Investor, resulting in a change in the estimated fair value of $1,847,894 duringand for the nine months ended September 30, 2017. The Company plans to negotiate with the Investor regarding the issuance of the Replacement Note under the terms of the financing2022 and taking into consideration that the Investor only funded $510,000 in the entire transaction, but there can be no assurance that it will be successful in this regard.

WestPark Capital acted as placement agent for the Company in the May 2015 Private Placement and received a fee of 6% of cash proceeds, or $600,000, if and when the Company receives the full cash proceeds. It received $27,000 of such amount at the closing plus the reimbursement of legal fees totaling $7,500. The Company also issued WestPark a warrant exercisable to purchase 240,000 shares of common stock at a price of $5.00 per share. The warrant was exercisable from the date of issuance for a period of seven years.

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In summary, as of September 30, 2017, the following debt was outstanding: (i) $200,000 on our convertible promissory note, which was due November 7, 2017 and for which we are seeking an extension; (ii) $40,000 on our convertible promissory note, which is due April 19, 2018; (iii) the two promissory notes in the total principal amount of $85,000, which matured in October 2016 are currently in technical default and for which we are seeking extensions; (iv) the Replacement Note, if issued, with a fair value of $1,989,222, which is due in monthly installment payments through May 2018 either in cash or stock; and (v) theyear ended December 2013 Note in the principal amount of $1,000,000, which was due in April 2016 and is currently in technical default. We are seeking to extend the maturity date to cure the technical defaults; however, there can be no assurance that we will be able to obtain such extensions or what the final terms will be if the lenders agree to such extensions. We intend to seek additional capital through the sale of equity or short-term debt financing to provide the funds necessary to meet our obligations when they come due and to provide working capital to fund normal operations, although we can provide no assurances that we will be successful in this regard. Our current financial condition has made traditional bank loans and normal financing terms unattainable; therefore, we may find it necessary to continue with the type of short-term borrowings with high effective interest rates that we have used in the past.

The Company is in default of various provisions of the 30-year Concessions for both Perlas and Tyra blocks as of September 30, 2017, as noted earlier. The Company is currently pursuing meetings with Nicaraguan Government officials in order to address the pending defaults.

31, 2021. The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund: (1)fund (i) the annual training program and area fees for 2016 and 2017; (2) required letters of credit to the Nicaraguan Government; (3) the drilling of at least one exploratory well on the Perlas Blockdevelopment of the Nicaraguan Concessions during 2017; (4)Properties acquired on April 1, 2021; (ii) our obligations for exploration and development under the shooting of additional seismic on the Tyra Block of the Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement from the Nicaraguan government; (5)Hugoton Farmout Agreement; (iii) normal day-to-day operations and corporate overhead; and (6)(iv) outstanding debt and other financial obligations as they become due includingdue. Some of the $1.0 million December 2013 Note,Company’s outstanding debt and other financial obligations are currently past due and the two notes payable totaling $85,000, which currently are in technical default,Company anticipates that other debt and the Replacement Note, if issued.financial obligations will become past due imminently. These are substantial operational and financial issues that must be successfully addressed during 2017 or2022 and beyond.

The Company has made substantial progress in resolving many of its existing financial obligations during the Company’s abilitynine months ended September 30, 2022 and for the year ended December 31, 2021.

The Company will have significant financial commitments to satisfyexecute its planned exploration and development of the conditionsProperties and the Hugoton Gas Field. The Company may find it necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

The Company is seeking new outside sourcesraise substantial amounts of debt andor equity capital in order to fund such exploration and development activities and may seek offers from industry operators and other third parties for interests in the substantial needs enumerated above; however, thereProperties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. There can be no assurance that it will be able to obtain such capitalnew funding or obtain itbe able to reach agreements with industry operators and other third parties or on favorable terms or within the timeframe necessary to cure the technical defaults existing on the Nicaraguan Concessions or to meet its ongoing requirements relative to drilling the exploratory wells. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products, and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects.what terms.

Due to the uncertainties related to thesethe foregoing matters, there exists substantial doubt about the Company’s ability to continue as a going concern.concern within one year after the date the financials are issued. The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Cash and cash equivalents balances-

As of September 30, 2022, we had cash and cash equivalents with an aggregate balance of $17,096, a decrease from a balance of $260,590 as of December 31, 2021. Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the $243,494 net decrease in cash during the nine months ended September 30, 2022:

Operating activities:$216,522 of net cash used in operating activities. Net cash used in operating activities was $216,522 and $558,494 for the nine months ended September 30, 2022 and 2021, respectively, an improvement in net cash used in operating activities of $341,972. The decrease in net cash used in operating activities was primarily the result of an increase in non-cash expenses including the discount amortization on debt and stock-based compensation, and an increase in accounts payable reflected in our cash flows from operating activities for the nine months ended September 30, 2022 compared to the same period in 2021.

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Investing activities:$1,179,977 of net cash used in investing activities. Cash used in investing activities was $1,179,977 for the nine months ended September 30, 2022 compared to $900,000 for the nine months ended September 30, 2021. We utilized funds during 2022 to acquire our membership interest in GMDOC and to drill the initial exploratory well pursuant to the Hugoton Gas Field participation agreement. We utilized funds during 2021 to acquire the Properties.
Financing activities:$1,153,005 of net cash provided by financing activities. Cash provided by financing activities for the nine months ended September 30, 2022 was $1,153,005 compared to cash provided by financing activities of $1,457,614 for the nine months ended September 30, 2021. We raised a total of $1,200,000 from the issuance of convertible notes payable and $645,000 from the issuance of Series A Convertible Preferred Stock with detachable warrants during the nine months ended September 30, 2022. These financing cash inflows were offset by the repayment of $537,500 principal balance of convertible notes payable and the payment of dividends totaling $154,495 on the Series A Convertible Preferred Stock during the nine months ended September 30, 2022. The Company raised $1,929,089 through the issuance of Series A Convertible Preferred Stock and $100,000 in convertible notes payable, which was offset by the repayment of $453,539 principal balance of convertible debt and the payment of dividends totaling $117,936 on the Series A Convertible Preferred Stock during the nine months ended September 30, 2022.

The net result of these activities was a $243,494 decrease in cash and cash equivalents from $260,590 as of December 31, 2021 to $17,096 as of September 30, 2022.

Commitments:

Capital Expenditures. We had no material commitments for capital expenditures at September 30, 2022. However, we are required by the Hugoton Gas Field Farmout Agreement to drill at least three additional gas production wells in 2022 and 2023 in order to maintain the participation agreement. We drilled and completed the first Hugoton Gas Field production well in May 2022, which was connected to the pipeline and commenced production on August 17, 2022. We estimate that the expenses related to the drilling program to be approximately $300,000 for drilling and completion of each additional exploratory well.

Repayment of Debt. Debt obligations are comprised of the following at September 30, 2022:

  September 30, 2022 
Convertible notes payable:    
     
8% convertible notes payable due October 29, 2022 (less discount of $27,191 as of September 30, 2022) (the 8% Note and the October 8% Notes) (in default) $622,809 
8% convertible notes payable due September 15, 2022 (the June 2022 Note) (in default)  350,000 
8% convertible notes payable due June 29, 2022 (the May 2022 Notes) (in default)  312,500 
3% convertible notes payable (the 3% Notes)  28,665 
     
Total convertible notes payable  1,313,974 
Less: Long-term portion  28,665 
Convertible notes payable, short-term $1,285,309 

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Debt obligations become due and payable as follows:

Years ended 

Principal

balance due

 
    
2022 (October 1, 2022 through December 31, 2022) $1,285,309 
2023   
2024   
2025   
2026  28,665 
2027   
Total $1,313,974 

Open Litigation.

The information regarding certain legal proceedings in which we are involved as set forth in Note 11 – Commitments and Contingencies of the Notes to the Condensed Financial Statements (Part I, Item 1 of this Quarterly Report on Form 10-Q).

Contractual Obligations

USNG Letter Agreement - Pursuant to the USNG Letter Agreement, the Company is required to pay USNG a $8,000 monthly cash fee beginning at the onset of commercial helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that the Company receives cash receipts in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000 cash receipts threshold, therefore, there has been no payment or accrual liability relative to this cash fee provision through September 30, 2022.

Farmout Agreement to Explore and Develop Unconventional Gas and Brine Materials in the Hugoton Gas Field - On April 4, 2022, the Company acquired a 40% interest in a Farm-Out Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Farmout Agreement covers drilling and completion of up to 50 wells and the Company has joined three other entities in the Hugoton JV to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement Farm-Out Agreement.

The Hugoton JV will utilize Scout Energy Partner’s existing infrastructure assets, including water disposal, gas gathering and helium processing. In addition, the Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, located in Grant County, Kansas, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices. The first exploratory well was completed and commenced production on August 17, 2022 near Garden City, Kansas with encouraging initial flow rates of both natural gas and helium.

Inflation and Seasonality

Inflation has had a material effect on us during the past nine months ended September 30, 2022 and we do believe that inflation will continue to significantly impact our business during the remainder of 2022 and perhaps beyond. We do not believe that our business is seasonal in nature.

Our revenue from the sale of oil and gas has been substantially impacted by inflation, the COVID-19 pandemic and the Russian war in Ukraine, which has restricted the world supply of oil and gas and thereby increasing the average WTI crude oil price. We expect this trend to continue during the remainder of 2022 and perhaps beyond.

In addition, our oil and gas lease operating expenses have been substantially impacted by inflation, the COVID-19 pandemic and the Russian war in Ukraine, which has restricted the supply of production pipe and other materials used in the drilling and rework of oil and gas wells. In addition, experienced oil and gas service professionals have been in high demand in the oil and gas service sector and thereby increasing the cost of oil and gas well services. We expect this trend to continue during the remainder of 2022 and perhaps beyond.

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Critical Accounting Policies

A critical accounting policy is defined as one that is both material to the presentation of our condensed financial statements and requires management to make difficult, subjective, or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the condensed financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:

Note 1 – Going Concern Analysis - In accordance with Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements- Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, we are required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that our financials are issued. When management identifies conditions or events that raise substantial doubt about their ability to continue as a going concern it should consider whether its plans to mitigate those relevant conditions or events will alleviate the substantial doubt. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of management’s plans, the entity should disclose information that enables user of financial statements to understand the principal events that raised the substantial doubt, management’s evaluation of the significance of those conditions or events, and management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.

We performed the analysis and our overall assessment was there were conditions or events, considered in the aggregate, which raised substantial doubt about our ability to continue as a going concern within the next year, but such doubt was not adequately mitigated by our plans to address the substantial doubt as disclosed in Note 1 of the Notes to the Condensed Financial Statements (Part I, Item 1 of this Quarterly Report on Form 10-Q).

Note 2 – Oil and Gas Properties and Equipment – The allocation of the purchase price for the acquisition of the Properties and the estimated useful lives assigned to the related equipment purchased.

In addition, the accounting for, and disclosure of, oil and gas producing activities require that we choose between two alternatives under accounting principles generally accepted in the United States (“GAAP”): the full cost method or the successful efforts method. We adopted and use the full cost method of accounting, which involves capitalizing all exploration, exploitation, development and acquisition costs. Once we incur costs, they are recorded in the depletable pool of proved properties or in unproved properties, collectively, the full cost pool. Our unproved property costs, which include unproved oil and gas properties, properties under development, and major development projects, were zero through September 30, 2022, and are not subject to depletion. We review our unproved oil and gas property costs on a quarterly basis to assess for impairment and transfer unproved costs to proved properties as a result of extensions or discoveries from drilling operations or determination that no proved reserves are attributable to such costs. We expect these costs to be evaluated in one to seven years and transferred to the depletable portion of the full cost pool during that time. The full cost pool is comprised of intangible drilling costs, lease and well equipment and exploration and development costs incurred plus acquired proved and unproved leaseholds.

Note 3 – Investment in unconsolidated subsidiary – GMDOC - The Company’s investment in its unconsolidated subsidiary - GMDOC requires that the Company assess its control over the operations of GMDOC.

The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee, GMDOC. Management’s judgment regarding its level of influence over the operations of GMDOC included considering key factors such as the Company’s ownership interest, legal form of the investee, its’ lack of participation in policy-making decisions and its’ lack of control over the day-to-day operations of GMDOC.

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Note 4 – Debt Obligations – The Company has issued various debt and equity securities that require the Company to estimate the fair value of the debt, its embedded features and any related detachable warrants or other equity-related securities issued. Management must make significant assumption/estimates in order to allocate the proceeds of the issuance of the convertible debt securities between its debt and equity components.

Note 6 – Stock Options - The Company follows the fair value recognition provisions of Accounting Standards Codification (“ASC”) 718. Stock-based compensation expense is recognized in the financial statements for granted, modified, or settled stock options based on estimated fair values. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These estimates involve inherent uncertainties and the application of management judgment.

Note 7 – Warrants - The Company has issued various debt and equity securities (including detachable warrants) that require the Company to estimate the fair value of the debt, its embedded features and any related detachable warrants or other equity-related securities issued. Management must make significant assumption/estimates in order to allocate the proceeds of the issuance of the convertible debt securities between its debt and equity components.

Note 8 – Income Taxes - Accounting for income taxes requires significant estimates and judgments on the part of management. Such estimates and judgments include, but are not limited to, the effective tax rate anticipated to apply to tax differences that are expected to reverse in the future, the sufficiency of taxable income in future periods to realize the benefits of net deferred tax assets and net operating losses currently recorded and the likelihood that tax positions taken in tax returns will be sustained on audit.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

(Not Applicable)Applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934.Act. Based on their evaluation as of September 30, 2017,2022, the end of the period covered by this quarterly reportQuarterly Report on Form 10-Q, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in assuring that financial statement presentation and disclosure are in conformity with those which are required to be included in our periodic SEC filings.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.

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PART II -OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information regarding certain legal proceedings in which the Company is currentlyinvolved is set forth in Note 11, Commitments and Contingencies – Litigation of the Notes to the Condensed Financial Statements (Part I, Item 1 of this Quarterly Report on Form 10-Q), and such information is incorporated by reference into this Item 1.

In addition to such legal proceedings, we may become involved in litigation as follows:various other claims and threatened legal proceedings arising in the normal course of our businesses. At this time, we do not believe any material losses under such other claims and threatened proceedings to be probable. While the ultimate outcome of such legal proceedings cannot be predicted with certainty, it is in the opinion of management, after consultation with legal counsel, that the final outcome in such proceedings, in the aggregate, would not have a material adverse effect on our financial condition, results of operations or cash flows.

In October 2012 the State of Texas filed a lawsuit naming Infinity-Texas, the Company and the corporate officers of Infinity-Texas, seeking $30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties. The Company engaged in negotiations with the State of Texas in late 2012 and early 2013 and reached a settlement agreement that would reduce the aggregate liability, in this action and any extension of this to other Texas wells, to $45,103, which amount has been paid. Certain performance obligations remain which must be satisfied in order to finally settle and dismiss the matter.

Pending satisfactory performance of the performance obligations and their acceptance by the State of Texas, the officers have potential liability regarding the above matter, and the officers are held personally harmless by indemnification provisions of the Company. Therefore, to the extent they might actually occur, these liabilities are the obligations of the Company. Management estimates that the liabilities associated with this matter will not exceed $780,000, calculated as $30,000 for each of the 26 Infinity-Texas operated wells. This related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103, is included in the asset retirement obligation on the accompanying balance sheets.
Cambrian Consultants America, Inc. (“Cambrian”) filed an action in the District Court of Harris County, Texas, number CV2014-55719, on September 26, 2014 against Infinity Energy Resources, Inc. resulting from certain professional consulting services provided for quality control and management of seismic operations during November and December 2013 on the Nicaraguan Concessions. Cambrian provided these services pursuant to a Master Consulting Agreement with Infinity, dated November 20, 2013, and has claimed breach of contract for failure to pay amounts due. On December 8, 2014, a default judgment was entered against the Company in the amount of $96,877 plus interest and attorney fees. The Company has included the impact of this litigation as a liability in its accounts payable. The Company will seek to settle the default judgment when it has the financial resources to do so.
Torrey Hills Capital, Inc. (“Torrey”) notified the Company by letter, dated August 15, 2014, of its demand for the payment of $56,000, which it alleged was unpaid and owed under a consulting agreement, dated October 18, 2013. The parties entered into a consulting agreement under which Torrey agreed to provide investor relations services in exchange for payment of $7,000 per month and the issuance of 15,000 shares of common stock. The agreement was for an initial three month-term with automatic renewals unless terminated upon 30 days’ written notice by either party. The Company made payments totaling $14,000 and issued 15,000 shares of common stock during 2013. The Company contends that Torrey breached the agreement by not performing the required services and that it had provided proper notice of termination to Torrey. Furthermore, the Company contends that the parties agreed to settle the dispute on or about June 19, 2014 under which it would issue 2,800 shares of common stock in full settlement of any balance then owed and final termination of the agreement. Torrey disputed the Company’s contentions and submitted the dispute to binding arbitration. The Company was unable to defend itself and the arbitration panel awarded Torrey a total of $79,594 in damages. The Company has accrued this amount in accounts payable as of September 30, 2017 and December 31, 2016, which management believes is sufficient to provide for the ultimate resolution of this dispute.

ITEM 1A. RISK FACTORS

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As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of unregistered securities during the quarter that were not previously reported on a Current Report on Form 8-K except as set forth below.

August/September 2022 Issuances – During August and September 2022 the Company entered into a securities purchase agreements with three accredited investors providing for an aggregate investment of $145,000 by the investors for the issuance by the Company of (i) 1,450 shares of the August/September 2022 Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share; and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 483,332 shares of Common Stock at an exercise price of thirty cents ($0.30) per share, subject to customary adjustments thereunder. The Series A Convertible Preferred Stock is convertible into an aggregate of up to 453,125 shares of Common Stock. The holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of Series A Convertible Preferred Stock totaled $145,000. The Company used the proceeds of the August/September 2022 Series A Convertible Preferred Stock offering to pay-off the outstanding convertible notes payable and for general working capital purposes.

The holders of the August/September 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its August/September 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.

 

NoneThe Company has accrued preferred dividends totaling $1,403 and $-0- relative to the August/September 2022 Series A Convertible Preferred Stock which was charged to additional paid in capital during the nine months ended September 30, 2022 and 2021, respectively.

The Company did not engage in general solicitation or advertising with regard to the issuance and sale of the August/September 2022 Series A Convertible Preferred Stock and the related warrants. The investors who participated in the August/September 2022 Series A Convertible Preferred Stock offering represented that they are either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act, or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act, and purchased the August/September 2022 Series A Convertible Preferred Stock and any related warrants for investment and not with a view to distribution. The August/September 2022 Series A Convertible Preferred Stock and any related warrants were issued and sold by the Company in reliance upon the exemptions from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

8% Convertible Notes Payable due June 29, 2022 (the May 2022 Notes) (in default)

The Company has not resolved the various contingencies related to theis currently in default status ofon its Nicaraguan Concessions (See Note 8).May 2022 Notes. The Company continuespaid half of the May 2022 Notes principal balance upon its maturity on June 29, 2022 and an additional $112,500 in September 2022 and the remaining balance remains due and payable and is therefore in technical default. The parties are negotiating a resolution to attempt to negotiate extensions, waivers orsuch technical default including an extension and a new Concession agreement withroll-over of the Nicaraguan Government; however,principal into other Company securities, although there can be no assurance that the Companyparties will be successful in that regard. reach a mutually agreeable resolution.

8% Convertible Notes Payable due September 15, 2022 (the June 2022 Note) (in default)

The Company is currently pursuing meetings with Nicaraguan Government officials in orderdefault on its June 2022 Note. The June 2022 Note has matured and therefore the remaining unamortized discount relative to address the pending defaults.

On December 27, 2013 the Company borrowed $1,050,000 under an unsecured credit facility withJune 2022 Notes was $-0- as of September 30, 2022. The parties are negotiating a private, third-party lender which facility has an outstanding principal balance of $1,000,000. The facility is represented by a promissory note (the “Note”) that matured in April 2016, and is currently inresolution to such technical default. The Company is seekingdefault including an extension and a roll-over of the maturity date; however,principal into other Company securities, although there can be no assurance that itthe parties will be able to obtain an extension or what reach a mutually agreeable resolution.

8% Convertible Notes Payable due October 29, 2022 (the final terms will be if8% Note and the lender agrees to such extension. October 8% Notes) (in default)

The Company and its lender is assessingdid not pay the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of the Note.

During July 2015 the Company borrowed a total of $85,000 under an unsecured credit facility with two private, third-party lenders which facility has an outstanding principal balance of $85,000 as of September 30, 2017. The facility is represented by promissory notes that matured indue on these Convertible Notes upon their maturity on October 2016,29, 2022 and the remaining balance remains due and payable and is currentlytherefore in technical default. The Company is seekingparties are negotiating a resolution to such technical default including an extension and a roll-over of the maturity dates; however,principal into other Company securities, although there can be no assurance that itthe parties will be able to obtain extensions or what the final terms will be if the lenders agree to such extensions. The Company and its lenders are assessing the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of these notes.

On November 8, 2016 the Company borrowedreach a total of $200,000 from an individual under a convertible note payable with the conversion rate of $5.00 per share. The note requires no principal or interest payments until its maturity date of November 7, 2017 and bears interest at 8% per annum. The note was not paid on its original maturity date. The Company is currently pursuing an extension from the Holder.mutually agreeable resolution.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(c) Exhibits.

31.1Exhibit NumberDescription
3.1Articles of Incorporation filed with the Secretary of State of the State of Nevada on December 7, 2021 (Incorporated by reference to Exhibit 3.3 of the Current Report on Form 8-K filed by American Noble Gas Inc on December 13, 2021.)
3.2Bylaws of American Noble Gas Inc., adopted effective October 22, 2021 (Incorporated by reference to Exhibit 3.4 of the Current Report on Form 8-K filed by American Noble Gas Inc on December 13, 2021.)
31.1Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002. (Filed herewith.)
31.2Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002. (Filed herewith.)
3232.1*Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, (Sectionas Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act)Act of 2002. (Filed herewith.)
101.INSInline XBRL Instance Document.
101.SCHInline XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
101.LABInline XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
104Cover Page Interactive Data File (embedded within the Inline XBRL document)
* This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.

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SIGNATURES

In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SignatureAmerican Noble Gas Inc Capacity
 Date
By:
/s/ Stanton E. Ross Dated: November 17, 2022
Stanton E. Ross
Chief Executive Officer November  14 , 2017
Stanton E. Ross(Principal Executive Officer) 
 
By:/s/ Daniel F. Hutchins Dated: November 17, 2022
Daniel F. Hutchins
Chief Financial Officer November  14 , 2017
Daniel F. Hutchins(Principal Financial and Accounting Officer) 

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Index of Exhibits

31.1Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act)

 39