UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

FORM 10-Q

For the quarterly period ended SeptemberJune 30, 2017.2023

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)

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

(Address of principal executive offices) (Zip Code)

(913) 948-9512955-0532

(Registrant’s telephone number, including area code)

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

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.

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 August 10, 2023, the numberregistrant had 22,924,515 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.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTSAMERICAN NOBLE GAS INC

INFINITY ENERGY RESOURCES, INC.

Condensed Balance Sheets

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

AMERICAN NOBLE GAS, INC.

INFINITY ENERGY RESOURCES, INC.(formerly Infinity Energy Resources, Inc.)

Condensed Statements of Operations
(Unaudited)

(Unaudited)

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

AMERICAN NOBLE GAS INC

INFINITY ENERGY RESOURCES, INC.

Condensed StatementStatements of Changes in Stockholders’ Deficit

Nine months ended September 30, 2017(unaudited)

(Unaudited)

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

AMERICAN NOBLE GAS INC

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Cash Flows

(unaudited)

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

AMERICAN NOBLE GAS, INC.

INFINITY ENERGY RESOURCES, INC.

Notes to Unaudited Condensed Financial Statements

(unaudited)June 30, 2023

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 2023 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 for the year ended December 31, 2022, filed with the SEC.

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.

During the year ended December 31, 2022, the Company changed its strategy regarding the Central Kansas Uplift considering the reduced net cash flows from the sale of crude oil production. The reduction in net cash flows was attributable to lower spot crude oil prices during 2022 compared to 2021 and higher than anticipated operating costs related to the operation of the horizontal wells on the Properties. The Company has shut down the horizontal production wells as of June 30, 2023 and December 31, 2022 and is considering the reworking the conventional wells on the property to emphasize crude oil production that may be present behind casing pipe in the deeper producing zones. Accordingly, the Company has recorded an impairment charge of $712,812 to reduce the capitalized tangible and intangible costs related to its Central Kansas Uplift properties to zero as of June 30, 2023 and December 31, 2022.

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 (“Scout”) 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 and sales of natural gas, natural gas liquids and helium on August 17, 2022. The Company is pursuingcontinuing to evaluate the explorationinitial flows of both natural gas and helium to determine its plan for additional wells on the farmout and whether it should attempt to extend the time period before it has to drill additional wells in Hugoton Gas Field per the farm-out agreement.

The Company performed the ceiling test to assess potential impairment of the capitalized costs relative to its Hugoton Gas Field Project. The ceiling test indicated an impairment charge of $192,762 was required to reduce the total capitalized costs to $88,687 as of December 31, 2022. Accordingly, the Company has recorded an impairment charge of $192,762 to reduce the capitalized tangible and intangible costs related to its Hugoton Gas Field properties to $88,687 as of December 31, 2022. The Company recorded an addition to depreciation and amortization expense of $3,411 during the three months ended June 30, 2023.

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.

The Company paid the cash contribution for the membership interests of $850,000, during May 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 (“Castelli”). The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the PerlasOklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and Tyra concession blocks offshore Nicaragua in1.5 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 Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”“Managing Members”), which contain a total of approximately 1.4 million acres. The Company sold its wholly-owned subsidiary Infinity Oil and Gas of Texas, Inc. in 2012 and its wholly-owned subsidiary, Infinity Oil and Gas of Wyoming, Inc., was administratively dissolved in 2009.also serve as the operating companies under the GMDOC Leases.

Going Concern

The Company has been pursuingincurred losses from operations, has a stockholders’ deficit, incurred net cash used in operating activities and has a significant working capital deficit as of and for the three and six months ended June 30, 2023 and as of and for the year ended December 31, 2022. 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. Most of the Company’s outstanding debt and other financial obligations are currently past due and the Company must negotiate forbearance and/or restructuring agreements with the holders of such debt. These are substantial operational and financial issues that must be successfully addressed during 2023 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 period through June 30, 2023.

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”).

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/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 meetingsreach agreements 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 debtindustry operators 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 2017third parties or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.on what terms.

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 and natural gas however the Company expects to begin generating more substantial revenues from the sale of 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.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash consists of cash on hand and demand deposits with financial institutions. The Company’s policy is that all highly liquid investments with an original maturity of three months or less when purchased would be cash equivalents and would be included along with cash as cash and equivalents.

The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with several financial institutions if necessary to remain below the federally insured limit of $250,000 per bank. At June 30, 2023 and December 31, 2022, the uninsured balance amounted to $152,630 and $-0-, respectively.

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 Company early adopted ASU 2020-06 effective January 1, 2021 and applied ASU 2020-06 to all outstanding financial instruments as of January 1, 2021.

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.

Derivative Instruments

The Company accounts for derivative instruments or hedging activities under the provisions of ASC 815 Derivatives 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 earnings (loss) and are recognized in the statement of earnings 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 June 30, 2023 and December 31, 2022 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 4 and 11), those warrants were 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 payable, accrued liabilities and short-term notes represent the estimated fair value due to the short-term nature of the accounts.

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:

The estimated fair value of warrant derivative liabilities, which are related to detachable warrants issued in connection with the Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Convertible Preferred Stock”) 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, par value $0.001 per Share (the “Common Stock”) and current interest rates. The fair values for the warrant derivatives as of June 30, 2023 and December 31, 2022 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 June 30, 2023 and December 31, 2022:

Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis

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

Central Kansas Uplift Properties - On April 1, 2021, we completed the acquisition of the Properties, under the terms of the Asset Purchase Agreement, for a purchase price of $900,000. The Company’s businesspurchase 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.

The 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 intangible workover costs were expensed as lease operating expenses rather than capitalized in the full cost pool through December 31, 2022. In addition, the Company is 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 June 30, 2023.

Hugoton Gas Field Farm-Out -The first exploratory well commenced on May 7, 2022 near Garden City, Kansas with a goal 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 other venture partners was spud on May 7, 2022 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 continuing to evaluate the initial flows of both natural gas and helium to determine its plan consistsfor additional wells on the farmout and whether it should attempt to extend the time period before it has to drill additional wells in Hugoton Gas Field per the farm-out agreement.

Full Cost Accounting

The accounting for, and disclosure of, developingoil and gas producing activities require that we choose between two GAAP alternatives: the Nicaraguan Concessionsfull cost method or the successful efforts method. We adopted and it expectsuse 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 as of June 30, 2023 and December 31, 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 activeevaluated in Nicaragua forone to seven years and transferred to the foreseeable future, given sufficient capital and curing the defaults 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 vicinity of the Nicaraguan Concessions or of the inability of the Company to obtain sufficient financing, the Company might be forced to abandon or suspend its efforts and its rights under its Nicaraguan Concessions.

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 significantdepletable portion of the paymentsfull 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 explorationCapitalization of Interest. 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 denominated in United States dollars. The Company expectsrecorded 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 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.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash consists of cash on hand and demand deposits with financial institutions. Although the Company had minimal cash as of September 30, 2017 and December 31, 2016, it is the Company’s policy that all highly liquid investments with a maturity of three months or less when purchased would be cash equivalents and would be included along with cash as cash and equivalents.

Oil and Gas Properties

The Company followsuse 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.

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 $94.14 per barrel for the West Texas Intermediate oil at Cushing, Oklahoma through December 31, 2022. 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. AsWe recognized an impairment charge of September$905,574 as of June 30, 20172023 and December 31, 2016,2022 which is attributable to changing our strategy to exploring for noble gases and away from crude oil production at our Central Kansas Uplift properties which resulted in a large decrease in estimated future cash flows.

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 Company did not havefuture rates of production and in the timing 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.

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 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

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 InstrumentsIncome Taxes

The Company accountsuses the asset and liability method of accounting for derivative instruments or hedging activities under the provisions of ASC 815Derivatives and Hedging. ASC 815income taxes. This method 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 valuerecognition 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 accrueddeferred tax liabilities and short term notes representassets for the estimated fair value due to the short-term natureexpected future tax consequences of the accounts.

The carrying valuetemporary differences between financial accounting bases and tax bases 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 pricestax benefits of tax loss carryforwards and other relevant information generated by market transactions involving identical or comparabledeferred taxes are recorded as an asset to the extent that management assesses the utilization of such assets liabilities or a group of assets or liabilities, such as a business.

ASC 820 utilizes a fair value hierarchy that prioritizesto be more likely than not. Management routinely assesses the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

The estimated fair valuerealizability of the Company’s Notedeferred income tax assets, and various derivative liabilities, whicha valuation allowance is recognized if it is determined that deferred income tax assets may not be fully utilized in future periods. Management considers future taxable earnings in making such assessments. Numerous judgments and assumptions are related to detachable warrants issuedinherent in connection with various notes payable, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual termdetermination of future taxable earnings, including such factors as future operating conditions. When the future utilization of some portion of the instruments, estimated volatilitydeferred tax asset is determined not to be more likely than not, a valuation allowance is provided to reduce the recorded deferred tax asset. When the Company can project that a portion of the pricedeferred tax asset can be realized through application of a portion of tax loss carryforward, the Company’s common stock, interest rates, the probability of both of the downward adjustment of the exercise priceCompany will record that utilization as a deferred tax benefit 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 onrecognize a recurring basis as of September 30, 2017 and December 31, 2016:

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 includeddeferred tax asset 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.

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:

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

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 thereamount. There can be no assurance that it will be successful in this regard.

Description of the Secured Convertible Note

The Note was secured to the Company’s existingfacts 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 issuescircumstances 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,materially change 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 oradjust its deferred income tax asset valuation allowance in a portionfuture period. The Company recognized a deferred tax asset, net of its Note. Each portionvaluation allowance, of the Note$-0- at June 30, 2023 and December 31, 2022.

The Company is potentially subject to such redemption must be redeemed bytaxation in many jurisdictions, and the Company, in cash, at a price equal to the greatercalculation 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.

Subject to certain conditions, the Investor may also require the Company to redeem all or a portion of its Note in connectionincome tax liabilities (if any) involves dealing with a transaction that results in a Change of Control, as defineduncertainties in the Note. The Company must redeem each portionapplication of the Note subject to such redemptioncomplex income tax laws and regulations in cash atvarious taxing jurisdictions. It recognizes certain income tax positions that meet 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.more-likely-than not recognition threshold. If the Company issues or sells sharesultimately determines that the payment 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 Warrantthese liabilities will be decreased to equal such lesser price. Upon each such adjustment,unnecessary, it will reverse 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 priceliability and recognize an income tax benefit. No liability for future stock issues will not apply to certain exempt issuances, including issuances pursuant to certain employeeunrecognized tax 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.

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: