UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2018.2019.

For the transition period from __________ to __________.

Commission File Number:0-17204

INFINITY ENERGY RESOURCES, INC.

(Exact name of registrant as specified in its charter)

11900 College Blvd, Suite 310, Overland Park, KS 66210

(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:

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 the 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]

Indicate the number of shares outstanding of each of the issuer’s classes of capital, as of the latest practicable date:

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

INFINITY ENERGY RESOURCES, INC.

Condensed Balance Sheets

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

INFINITY ENERGY RESOURCES, INC.

StatementsStatement of Operations
(Unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Changes in Stockholders’ Deficit

Six Months Ended June 30, 2018

(unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Cash Flows

(unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Notes to Condensed Financial Statements

June 30, 20182019

(unaudited)

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

Unaudited Interim Financial Information

Infinity Energy Resources, 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, 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 20182019 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.

Nature of Operations

The Company is pursuingSince 2009 we had planned to pursue the exploration of potential oil and gas resources in the United States and in the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which contain a total of approximately 1.4 million acres. The CompanyWe sold itsour 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.

The Company has been pursuingWe also began assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of natural gas and oil properties in the Nicaraguan Concessions, which represents its principal asset and only exploration and development project. On March 5, 2009 Infinity signedUnited States, including the contracts relating to its Nicaraguan Concessions. Infinity conducted activities to develop geological information from the processing and evaluationpossibility of 2-D seismic dataacquiring businesses or assets that was acquiredprovide support services for the Nicaraguan Concessions. The Company identified multiple sites for exploratory drillingproduction of oil and intends to plangas in 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.United States. As a result, on July 31, 2019 we acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for oil & 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 option gives us the right to acquire the Properties for $2.5 million prior to December 31, 2019, provided we pay a non-refundable deposit by August 31, 2019.

The purchase will include the existing production equipment, infrastructure and ownership of this11 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 other defaults,two conventional vertical producing wells, which currently produce from the Company is in defaultReagan Sand zone with an approximate depth of 3,600 feet.

Weintend to complete the acquisition 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 seismicProperties prior to the commencementend of exploratory drilling.this year, subject to obtaining adequate financing. The Company is seekingOption includes a waiverprovision permitting Core to exercise a buy-out clause and sell the Properties to a third-party purchaser prior to our exercise of the additional seismic mappingOption. If such a sale occurs, we would be entitled to 10% of the proceeds of the sale on the Tyra Blockclosing date. In such event, Core willfor a period of six months following the buy-out find a project of like kind and extensionprovide us a first right of timerefusal to complete its initial well from the Nicaraguan government. The Company has not been able to pay the 2016, 2017 and 2018 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, waiversacquire such asset.

We must obtain new sources of debt and/or new Perlas and Tyra Concession agreements with the Nicaraguan government at June 30, 2018 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 inequity 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 warrantsubstantial needs enumerated above, as well as satisfying our existing debt obligations. We are attempting to purchase 1,800,000 sharesobtain extensions 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 amountmaturity date for our 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”) representing 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 currently in technical default. The Company is negotiating with the Investor a resolution of this matter 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, butdebt; however, there can be no assurance that itwe will be successful in this regard.

The Note wasable to mature ondo so or what the three-year anniversary of its issuance, bore interest at 8% per annum, and was convertible at any time atfinal terms will be if the option oflenders agree to such extensions. Further, we can provide no assurance that we will be able to obtain sufficient new debt/equity capital to exercise the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”). The Note is now in technical default and the Company has had discussions with the Holder regarding a resolution to the default. 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 Concessions in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement.

Option.

Going ConcernNicaragua

As reflectedWe began pursuing an oil and gas exploration opportunity offshore Nicaragua in the accompanying unaudited condensed statementsCaribbean Sea in 1999. Since such time, we built relationships with the Instituto Nicaraguense de Energia (“INE”) and undertook the geological and geophysical research that helped us to become one of operations,only six companies qualified to bid on offshore blocks in the Company has had a history of losses. In addition,first international bidding round held by INE in January 2003.

On March 5, 2009, we signed the Company has a significant working capital deficit, has notes payable that are in defaultcontracts granting us the Perlas and is currently experiencing substantial liquidity issues. In addition, the Company’s most significant asset and its primary business plan is the exploration and developmentTyra concession blocks offshore Nicaragua (the “Nicaraguan Concessions” or “Concessions”). Since our acquisition of the Nicaraguan Concessions, we have conducted an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data acquired over our Perlas and Tyra concession blocks. In April 2013, the Nicaraguan government formally approved our Environmental Impact Assessment, at which are nowtime we commenced significant activity under the initial work plan involving the acquisition of new seismic data on the two Nicaraguan Concessions. We undertook seismic shoots during late 2013 that resulted in defaultthe acquisition of new 2-D and in risk of being terminated.3-D seismic data and have reviewed it to select initial drilling sites for exploratory wells.

The Company hasWe relied on raising debt and equity capital to fund itsour ongoing maintenance/expenditure obligations under the Nicaraguan Concession, for itsour day-to-day operations and its corporate overhead because it haswe have generated no operating revenues or cash flows in recent years. The $1.0 million December 2013 Note (See Note 3) matured in April 2016 and is currently in technical default and fivethree other notes payable with principal balances of $338,125$148,625 as of June 30, 20182019 are now either due on demand or currently in default. The Company isWe had been seeking resolutions to these defaultdefaults, including extensions of the maturity date for these notes payable; however, there can be no assurance that itwe will be able to obtain such extensions or what the final terms will be if the lenders agree to such extensions.

The Company is also exploring the possibility of obtaining financing, conversion and/or compromise of existing indebtedness and satisfaction of other outstanding obligations to third parties and those relating to the Nicaraguan Concessions, through a possible combination or merger with a private entity involving the issuance of the Company’s equity, stock options and warrants. The Company and such entity are in discussions, conducting due diligence and exploring the feasibility of a possible transaction. They have not entered into negotiations regarding a definitive agreement. There can be no assurance that the parties will enter into a definitive agreement or ultimately close a transaction or on what terms.

The Company was in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of June 30, 2018,2019, including (1) the drilling of at least one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (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, 2017, 2018 and 20182019 area fees required for both the Perlas and Tyra which total approximately $139,000;$194,485; and (5) payment of the 2016, 2017, 2018 and 20182019 training fees required for both the Perlas and Tyra totaling approximately $250,000.$350,000. The Company ishad been seeking a resolution of these defaults including the ability to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. Theredefaults; however, the political climate and domestic issues have caused the Company to halt such efforts at this point pending additional information and evaluation of the situation. If the Company decides to continue its efforts regarding the Concessions, 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 CompanyIt 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, 2017 and 2018; (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 2018; (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 five notes payable totaling $338,125, which are either due on demand or currently in technical default and the Replacement Note, if issued.fund these requirements. These are substantial operational and financial issues that must be successfully addressed during 20182019 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 must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund the requirements noted above for the Concessions plus finance (i) the acquisition of the Properties under the Option; (ii) normal day-to-day operations and corporate overhead; and (iii) outstanding debt and other financial obligations as they become due, as described below. These are substantial operational and financial issues that must be successfully addressed during 2019.

The Company is seeking new outside sources of debt and equity capital to fund the substantial needs enumerated above, as well as satisfying its existing debt obligations.above. The Company is attempting to obtain extensions of the maturity datedates for its debt;debt or compromises of the debt. In addition, the Company will seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. The Company has restructured certain obligations that were in default during 2019; however, there can be no assurance that it will be able to do soobtain such funding, extensions or what the final terms will be if the lenders agree to such extensions.

The Company is also exploring the possibility of obtaining financing, conversion and/or compromise of existing indebtedness and satisfaction of other outstanding obligations to third parties and those relating to the Nicaraguan Concessions through a possible combination, merger or other transaction with a private entity involving the issuance of the Company’s equity, stock options and warrants to such entity or its owners (the “Merger Alternative”). The Company and such entity are in discussions, conducting due diligence and exploring the feasibility of a possible transaction. They have not entered into negotiations regarding a definitive agreement. There can be no assurance that the parties will enter into a definitive agreement or ultimately close a transactionadditional restructurings or on what terms.

Going Concern

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 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.

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 regard to the financial statements include the estimated carrying value of unproved properties, the estimated fair value of derivative liabilities, secured convertible note payable, stock-based awards and overriding royalty interests, and the realization of deferred tax assets.

Recently issued accounting pronouncements

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning January 1, 2019. The adoption of the standard had no impact on our financial position or results of operations for the three and six months ending June 30, 2019 and 2018.

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASC 842”). The guidance requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees and lessors. ASC 842 is effective for fiscal years beginning after December 15, 2018. The adoption of the standard had no impact on our financial position or results of operations for the three and six months ending June 30, 2019 and 2018.

The Company has evaluated all other recent accounting pronouncements, and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows.

Concentrations

The Company’s business plan consistshad consisted of developing the Nicaraguan Concessions in addition to potential domestic oil and gas projects and it expects to bemay become active in Nicaragua forin the foreseeable future, given sufficient capital and curing the defaults under the Nicaraguan Concessions and itits other financial obligations. The political climate in Nicaragua is currently unstable and is subject to radical change over a short period of time. In the event ofUnless there is a significant negativepositive change in political and economic stability in Nicaragua, the vicinityCompany may not pursue development of the Nicaraguan Concessions or ofConcessions. In the inability ofalternative it had acquired the CompanyOption to obtain sufficient financing,purchase the Company might be forced to abandon or suspend its efforts and its rights under its Nicaraguan Concessions.

Properties.

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.

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 June 30, 20182019 and December 31, 2017,2018, 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 follows the full cost method of accounting for exploration and development activities. Accordingly, all costs incurred in the acquisition, exploration, and development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and seismic costs) and the fair value of estimated future costs of site restoration, dismantlement, and abandonment activities are capitalized. Overhead related to development activities is also capitalized during 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 for estimated future development costs and estimated asset retirement costs, are amortized over 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 estimated 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 June 30, 20182019 and December 31, 20172018 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 June 30, 2019 and December 31, 2017 and June 30, 2018 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 June 30, 20182019 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 condensed balance sheet, and a discount factor of 10%; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties. If capitalized costs exceed the ceiling, the excess must be charged to expense and may not be reversed in future periods. As of June 30, 2019 and December 31, 2017 and June 30, 2018, the Company did not have any proved oil and gas properties, and all unproved property costs relate to its Nicaraguan Concessions.

Proceeds from the sales of oil and gas properties are accounted for as adjustments to capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss would be recognized in the determination of the Company’s net earnings/loss.

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 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 costs are depleted as a component of the full cost pool using the units of production method. Although the Company had divested all of its domestic oil properties that contain operating and abandoned wells as of December 31, 2012, 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% of the stock in Infinity-Texas in 2012. The Company has recognized an additional liability of $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 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 Instruments

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 condensed 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 June 30, 20182019 and December 31, 20172018 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, 5 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 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 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 June 30, 20182019 and December 31, 20172018 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, 20182019 and December 31, 2017:2018:

There were no changes in valuation techniques or reclassifications of fair value measurements between Levels 1, 2 or 3 during the six monthsperiods ended June 30, 20182019 and for the year ended December 31, 2017.2018.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. This method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. The tax benefits of tax loss carryforwards and other deferred taxes are recorded as an asset to the extent that management assesses the utilization of such assets to be more likely than not. Management routinely assesses the realizability of the Company’s deferred income tax assets, and a 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 inherent in the determination of future taxable earnings, including such factors as future operating conditions. When the future utilization of some portion of the deferred 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 deferred tax asset can be realized through application of a portion of tax loss carryforward, the Company will record that utilization as a deferred tax benefit and recognize a deferred tax asset in the same amount. There can be no assurance that facts and circumstances will not materially change and require the Company to adjust its deferred income tax asset valuation allowance in a future period. The Company recognized a deferred tax asset, net of valuation allowance, of $0 at June 30, 20182019 and December 31, 2017.2018.

The Company is potentially subject to taxation in many jurisdictions, and the calculation of income tax liabilities (if any) involves dealing with uncertainties in the application of complex income tax laws and regulations in various taxing jurisdictions. It recognizes certain income tax positions that meet a more-likely-than not recognition threshold. If the Company ultimately determines that the payment of these liabilities will be unnecessary, it will reverse the liability and recognize an income tax benefit. No liability for unrecognized tax benefit was recorded as of December 31, 2017.June 30, 2019. During the Sixsix months ended June 30, 2018 the Company determined that the payment of the certain liabilities related to the alternative minimum tax from prior years will be unnecessary, and therefore it reversed the liability and recognized an income tax benefit as described in the following section.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”),which significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018.

Under the Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior years totaling $150,000 which previously was reported as income taxes payable on the Company’s condensed balance sheet and the corresponding deferred tax asset was fully reserved based on all available evidence, the Company considered it more likely than not that all of the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it more likely than not that all the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income benefit of $150,000 during the six months ended June 30, 2018 as it reduced the corresponding income taxes payable to zero as of June 30, 2018. The Company will receive no cash from the elimination of this AMT tax credit carryforward because the Company had not previously paid the AMT tax but rather it recorded the income tax liability on the accompanying condensed balance sheet.

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.

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 June 30, 20182019 and December 31, 2017:2018:

Following is an analysis of the activity in the Note during the six months ended June 30, 2018:2019:

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 receivereceived 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.an institutional investor (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 hashad recorded the fair value of the ConvertibleReplacement Note assuming that the remaining par value iswas $2,197,231 as asserted by the Investor, resulting in a change in the estimated fair value of $1,905,109 during the year ended December 31, 2017.Investor. The Replacement Note providesprovided for a maturity date of May 7, 2018, a conversion price of $0.50 per share and iswas due in monthly installment payments through May 2018 either in cash or stock, among other terms. The Company did not repay the noteReplacement Note at its maturity date and the note is nowit was therefore in technical default. It isThe Replacement Note was to be secured to the same extent as the Convertible Note. The Company is currently negotiatingand the Investor have negotiated a resolution of this matter with the Investorthese outstanding matters regarding the default status of the note,and 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.

Description of the Secured Convertible Note

The Note is senior 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.financing.

On the first business day of each month beginning on the earlier of the (i) effectiveness of a registration statementMay 23, 2019, 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,Investor agreed to an omnibus resolution to these outstanding matters and entered into the Exchange Agreement and Side-Letter Agreement 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 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.

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.described below:

DescriptionExchange Agreement: Under the Exchange Agreement, the Investor exchanged all of its rights under the Warrant.

As a part oforiginal securities issued in the May 2015 Private Placement (the “Original Securities”), including: (i) the Company issued a WarrantConvertible Note, subject 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.

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 resultOptional Offset (as defined in the Investor beingNote), with a current balance of $2,197,231.00, (ii) 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 to the number of its authorized shares to meet its obligationsrelated accrued interest under the PurchaseConvertible Note, with a balance of $26,107.52, (iii) the Warrant, (iv) the Security and Pledge Agreement to have reserved 200% ofentered into by 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

InInvestor in connection with the May 2015 Private Placement, (v) the Guaranty made in favor of the Investor in connection with the May 2015 Private Placement, and (vi) the Registration Rights Agreement entered into by the Company and the Investor in connection with the May 2015 Private Placement, for 770,485 fully paid and nonassessable shares of Common Stock and certain rights (the “Rights”) to acquire additional securities in the future, which may be exercised for additional shares of Common Stock.

As a result of the exchange transactions described above, the Investor no longer owns any of the Original Securities, including any rights thereunder, and the Company cancelled the certificate(s) and other physical documentation evidencing the Investor’s ownership of the Original Securities.

Side-letter Agreement: Concurrent with the Exchange Agreement, the Company and the Investor also entered into a letter agreement, dated May 23, 2019 (the “Side-Letter Agreement”). The Side-Letter Agreement provides that on November 23, 2019, the Company will, if required under the Side-letter Agreement, issue additional shares of Common Stock to the Investor based on an increase in the Number of Fully-Diluted Shares Outstanding (as defined below) of the Company from the execution date of the Exchange Agreement to the six-month anniversary of the Exchange Agreement (the “True-Up Shares”). The issuance of the True-Up Shares, if any, shall provide the Investor with Rights to acquire additional Right Shares (as defined in the Exchange Agreement) to be calculated according to the following formula:

For the purposes of the Side-Letter Agreement, “Number of Fully-Diluted Shares Outstanding” means, as of any time of determination, the sum of (i) the aggregate number of issued and outstanding shares of Common Stock as of such time of determination, (ii) the aggregate maximum number of shares of Common Stock issuable on an as-converted and as-exchanged basis, as applicable (excluding any exercise of warrants to purchase Common Stock), pursuant to all capital stock and all other securities of the Company or any of its subsidiaries (excluding any warrants to purchase Common Stock and all Rights issued pursuant to the Exchange Agreement) outstanding as of such time of determination (or issuable pursuant to agreements in effect as of such time) that are at any time and under any circumstances (after issuance thereof, if applicable), directly or indirectly, convertible into or exchangeable for, or which otherwise entitles the holder thereof to acquire, Common Stock (assuming, for such purpose, that each such security is convertible or exchangeable, as applicable, at the lowest price per share for which one share of Common Stock is at any time, directly or indirectly, issuable upon the conversion or exchange, as applicable, of any such security and without regards to any limitations on conversion or exchange applicable thereto), and (iii) without duplication with clause (ii) above, the aggregate maximum number of shares of Common Stock issuable pursuant to any agreement (excluding any warrants to purchase Common Stock and all Rights issued pursuant to the Exchange Agreement) of any person with the Company or any of its subsidiaries in effect as of such time of determination (assuming, for such purpose, that the shares of Common Stock, directly or indirectly, issued pursuant to such agreement is issued at the lowest price per share for which one share of Common Stock is at any time, directly or indirectly, issuable pursuant to such agreement).

Notwithstanding the foregoing, if any warrants to purchase Common Stock are outstanding (or issuable upon conversion or exchange of securities outstanding) as of such six-month anniversary (each, an “Outstanding Warrant”), on such six-month anniversary, the Company shall issue the Investor an additional Right to acquire a warrant (the “New Warrant”) exercisable for up to 9.99% of the shares of Common Stock issuable upon exercise of all Outstanding Warrants as of such six-month anniversary (the “New Warrant Shares”). The New Warrant Shares shall be of like tenor to the Outstanding Warrants.

Pursuant to the Side-Letter Agreement, the Company also agreed that from the execution date of the Exchange Agreement until twelve (12) months from such date, the Company will not raise capital at a price that is below $0.10 per share of Common Stock (as adjusted for stock splits, stock dividends, stock combinations, recapitalizations and similar events) without the Investor’s consent.

On May 30, 2019, the Company and the Investor entered into a Registration RightsAmendment No. 1 to Exchange Agreement under which(the “Amendment”). Following execution of the Exchange Agreement on May 23, 2019, the Company is required, on or before 45 days afterand the closingInvestor became aware of an inadvertent error regarding the May 2015 Private Placement,number of shares of Common Stock to file a registration statement withbe issued to the SecuritiesInvestor pursuant to the Exchange Agreement. The Company and the Investor agreed to amend the Exchange Commission (the “SEC”) coveringAgreement so it reflects the resalecorrect number of 130%shares of Common Stock to be issued and to ensure that the Investor does not beneficially own in excess of 9.99% of the shares of Common Stock outstanding immediately following the Company’s common stock issuable pursuanteffective date of the Exchange Agreement. Pursuant to the NoteAmendment, the Company and Warrant andthe Investor agreed that the number of shares of Common Stock to use its best effortsbe issued to have the registration declared effective as soon as practicable. The Company willInvestor would be subject to certain monetary penalties, as set forthan aggregate of 605,816 shares, instead of the 770,485 shares stated 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 RightsExchange 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

TheAt inception, 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 originationat each periodic reporting date and the Black-Scholes model at June 30, 2018.

The Company received $450,000 of proceeds atthrough May 23, 2019 which was the date of issuance and after repayments and additional funding the net principal balance was $129,960 as of June 30, 2018 and December 31, 2017. The fair market value ofparties entered into the exchange agreement which extinguished the Note and related warrants as previously described. The Note was estimatedrevalued to be $682,400 as of the issuance date, $2,046,437 at December 31, 2017 and $2,197,231 as of June 30, 2018. The net change in fair market value of the Note of $150,794 is included in change inits estimated fair value of senior secured convertible note payableat each periodic reporting date with any changes in the accompanying condensedNote’s fair value being charged/credited to the statement of operations for the six months ended June 30, 2018.

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 Note assuming that the remaining par value is $2,197,231 as asserted by the Investor. The Company plans to negotiate with the Investor regarding the current default status, 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.operations.

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 June 30, 2018May 23, 2019, the date of the exchange agreement was $72,356,$116,731 representing a change of $18,163$59,639 from December 31, 2017, which is included in changes in derivative fair value in the accompanying condensed statement of operations for the six months ended June 30, 2018. 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 $2,422 (decrease in the derivative liability) through June 30, 2018, which is included in changes in derivative fair value in the accompanying condensed statement of operations for the six months ended June 30, 2018. The warrant derivative liability balance related to such warrants was $9,647 and $12,069 as of June 30, 2018 and December 31, 2017, respectively.2019. See Note 5.

The Company is required to make monthly installment paymentsExchange Agreement was treated an extinguishment of debt on the date it was entered May 23, 2019. Under the Exchange Agreement, the Investor exchanged all of its rights under the original securities issued in the formMay 2015 Private Placement, including: (i) the Convertible Note, subject to the Optional Offset (as defined in the Investor Note), with a current balance of cash, common stock $2,197,231.00, (ii) the related accrued interest under the Convertible Note, with an unpaid and accrued balance of $26,107.52, (iii) the Warrant with an estimated fair value of $116,731, (iv) the Security and Pledge Agreement entered into by the Company and the Investor in connection with the May 2015 Private Placement, (v) the Guaranty made in favor of the Investor in connection with the May 2015 Private Placement, and (vi) the Registration Rights Agreement entered into by the Company and the Investor in connection with the May 2015 Private Placement, for 605,816 fully paid and nonassessable shares of Common Stock and certain rights granted in the Side-Letter to acquire additional securities in the future, which may be exercised for additional shares of Common Stock. The Side-Letter rights/obligations represent a derivative and accordingly, its fair value was estimated and recorded at the date of Exchange Agreement and will continue to be revalued and adjusted to its estimated fair value at each periodic reporting date until it expires and/or a combinationthe underlying securities are issued to the Holder.

Following is an analysis of both. The Holder suspended such installmentsgain on exchange of the debt and warrant obligations pursuant to the Exchange Agreement during the thirdsix months ended June 30, 2019:

In addition, the Company issued a warrant in May 2015 to purchase 240,000 shares issued as part of the placement fee in connection with the Note. The warrant contained an expiration date of May 7, 2022 and fourth quartersan exercise price of 2016$5.00 per share and is subject to certain price protection and dilution provisions. Such warrant was treated as a derivative liability for accounting purposes due to its ratchet and anti-dilution provisions.

On June 4, 2019, the Company entered into an exchange agreement with the warrant holder to extinguish the original warrant including its certain price protection and dilution provisions, for a new warrant to purchase up to 50,000 common shares with a termination date of June 4, 2026 at an exercise price of $0.50 per share without any price protection or dilution provisions.

The estimated fair value of the original warrant derivative as of May 23, 2019, the date of the exchange agreement, was $37,368 representing a change of $29,795 from December 31, 2018, which is included in changes in derivative fair value in the accompanying condensed statement of operations for the six months ended June 30, 2019. See Note 5.

As a result of the exchange agreement, the Company extinguished the derivative liability of $37,368 attributable to the original warrant and recognized the estimated value of the new warrant of $7,985 as of June 4, 2019, the date of the exchange agreement. The resulting $29,383 difference been the estimated fair value of the old warrant extinguished and the suspension continued throughnew warrant issued to the holder has been recorded as a gain on exchange of debt and warrant obligations in the accompanying condensed statement of operations for the six months ended June 30, 2018.

2019.

Note 3 – Debt

Debt consists of the following at June 30, 20182019 and December 31, 2017:2018:

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 failed 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 remained 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 condensed 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 warrant expired as of June 30, 2019 and is no longer exercisable.

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.

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 failed 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 remainremained the same. The warrant has expired as of June 30, 2019 and is no longer exercisable. The December 2013 Note 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 Note. The December 2013 Note is in technical default and the Company is pursuing a resolution to this default including seeking an extensioncompleting the extinguishment of the maturity date of thisnote balance, accrued interest and revenue sharing agreement through an exchange agreement which is further described in Note (See Note 10) from the holder;10; 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 the December 2013 Note.

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 condensed statement of operations as change in derivative liability. The Warrant expired as of June 30, 2019 and can no longer be exercised. The discount ishas been 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 hasfollowing notes have been amortized ratably over the term and extended terms of the note and the remaining unamortized discount was $-0- as ofextinguished on June 30, 2018 and December 31, 2017. The related warrant derivative liability balance was $-0- and $31 as of June 30, 2018 and December 31, 2017, respectively. See Note 5.

Other than the December 2013 Note described above, during the six months ended June 30, 2018 the Company had short-term notes outstanding with entities or individuals as follows:19, 2019:

On June 19, 2019, the Company and the holder of these two convertible notes entered into an exchange agreement whereby the two convertible notes with an unpaid principal balance of $240,000 and related accrued interest totaling $45,020 were extinguished. The exchange agreement required the Company to issue the individual a new warrant to purchase up to 570,000 common shares with a termination date of June 19, 2026 at an exercise price of $0.50 per share without any price protection or dilution provisions in exchange for the extinguishment of the two convertible notes and related accrued interest. The Black-Scholes valuation of the warrant issued to the holder on June 19, 2019 totaled $62,564.

Following is an analysis of gain on extinguishment of the obligations pursuant to the Exchange Agreement during the six months ended June 30, 2019:

Other than the December 2013 Note and the two convertible notes which have been extinguished as described above, during the six months ended June 30, 2019 the Company had short-term notes outstanding with entities or individuals as follows:

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.

In May 2006, the Company’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 47,000 shares of the Company’s common stock are reserved for issuance under the 2006 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 2005 Plan and 2006 Plan allow for the purchase 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 not pursuant to a formal plan with terms similar to the 2005 and 2006 Plans.

TheAt 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 June 30, 2018,2019, 500,000 shares were available for future grants under the 2015 Plan as allPlan. All other Plans have now expired.

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. 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 stock options granted during the six monthsperiods ended June 30, 20182019 and 2017.December 31, 2018.

The following table summarizes stock option activity for the six months ended June 30, 2018:2019:

The Company recorded stock-based compensation expense in connection with the vesting of options granted aggregating $-0- and $-0- during the six months ended June 30, 20182019 and 2017,2018, respectively.

The intrinsic value as of June 30, 20182019 related to the vested and unvested stock options as of that date was $-0. The unrecognized compensation cost as of June 30, 20182019 related to the unvested stock options as of that date was $-0-.

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 34,000 and 2,074,000 shares of common stock, respectively in connection with various outstanding debt instruments which require derivative accounting treatment as of June 30, 2019 and December 31, 2018. A comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of June 30, 20182019 is as follows:

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs for both open and closed derivatives:

The warrant derivative liability consists of the following at June 30, 20182019 and December 31, 2017:2018:

Note 6 – Warrants

The following table summarizes warrant activity for the six months ended June 30, 2018:2019:

The weighted average term of all outstanding common stock purchase warrants was 3.55.0 years as of June 30, 2018.2019. The intrinsic value of all outstanding common stock purchase warrants and the intrinsic value of all vested common stock purchase warrants was zero as of June 30, 2018.

2019.

Note 7 – Income Taxes

The provision for income taxes consists of the following:

The effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due to the Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017. The Act significantly changed U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018.

Under the Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior years totaling $150,000 which previously was reported as income taxes payable on the Company’s condensed balance sheet and the corresponding deferred tax asset was fully reserved based on all available evidence, the Company considered it more likely than not that all of the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it more likely than not that all of the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income benefit of $150,000 during the six months ended June 30, 2018 as it reduced the corresponding income taxes payable to zero as of June 30, 2018. The Company will receive no cash from the elimination of this AMT tax credit carryforward as the Company had not previously paid the AMT tax rather it recorded the income tax liability on the accompanying condensed balance sheet.

The Company has incurred operating losses in recent years and it continues to be in a three-year cumulative loss position at June 30, 2018.2019. 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 $66,475,000,$66,845,000 at December 31, 2018, which expireexpires from 20282025 through 2037.2038.

The Company has not completed the filing of tax returns for the tax years 2012 through 2017.2018. Therefore, all such tax returns are open to examination by the Internal Revenue Service.

Note 8 – Commitments 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 condensed financial statements.

Nicaraguan Concessions

The Company was in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of June 30,December 31, 2018, including (1) the drilling of at least one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (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, 2017, 2018 and 20182019 area fees required for both the Perlas and Tyra which total approximately $139,000;$180,000; and (5) payment of the 2016, 2017, 2018 and 20182019 training fees required for both the Perlas and Tyra totaling approximately $250,000.$325,000. The Company ishad been seeking a resolution of these defaults including the ability to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. Theredefaults; however, the political climate and domestic issues have caused the Company to halt such efforts at this point pending additional information and evaluation of the situation. If the Company decides to continue its efforts respecting the Concessions, 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. It 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, 2017 and 2018; (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 2018; (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 five notes payable totaling $338,125, which are either due on demand or currently in technical default and the Replacement Note, if issued.fund these requirements. These are substantial operational and financial issues that must be successfully addressed during 20182019 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 and is pursuing the Merger Alternative;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

Minimum Work Program – Tyra

Block Tyra – Exploration Minimum Work Commitment and Relinquishments

Contractual and Fiscal Terms

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.

Lack of Compliance with Law Regarding Domestic Properties

Infinity has not been in compliance with existing federal, state and local laws, rules and regulations for its previously owned domestic oil and gas properties and this could have a material or significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of Infinity. All domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas were disposed of well prior to June 30, 2018;2019; 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 of $1,716,003 as of June 30, 20182019 and December 31, 20172018 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 has not maintained insurance on the domestic properties for a number of years nor has it owned/produced any oil & gas properties for a number of years.

Non-binding Term Sheet to Extinguish Note Payable in Default

On July 29, 2019 the Company entered into a non-binding term sheet with the holder of the December 2013 Note which has an unpaid principal balance of $1 million as of June 30, 2019. The term sheet, if consummated, will resolve the default contingencies regarding the December 2013 Note through an exchange agreement. Under the proposed terms the holder will exchange the following existing obligations:

The holder will receive the following consideration in exchange for the extinguishment of the existing obligations:

the Company will make a cash payment of $100,000 to the holder within 120 days of the execution of an Exchange Agreement and will issue common shares totaling 740,500 shares to the holder.

Upon completion of the $100,000 cash payment and issuance of 740,500 common shares contemplated by the proposed exchange agreement, the holder and the Company will proceed to cancel the certificate(s) and other physical documents evidencing the ownership of the existing obligations. The term sheet is non-binding until such time as the cash payment is made and the common shares are issued to the holder and there can be no assurance that the Company will successfully complete the exchange agreement.

Non-binding Term Sheet to Acquire Domestic Oil and Gas Properties

On July 31, 2019 the Company acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for oil & 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 option gives the Company the right to acquire the Properties for $2.5 million prior to December 31, 2019, provided it pays a non-refundable deposit by August 31, 2019.

The purchase will include 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 Companyintends to complete the acquisition of the Properties prior to the end of this year, subject to obtaining adequate financing. The Option includes a provision permitting Core to exercise a buy-out clause and sell the Properties to a third-party purchaser prior to our exercise of the Option. If such a sale occurs, the Company would be entitled to 10% of the proceeds of the sale on the closing date. In such event, Core willfor a period of six months following the buy-out find a project of like kind and provide the Company a first right of refusal to acquire such asset.

Litigation

The Company is subject to numerous 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 condensed financial statements.

The Company is currently involved in litigation as follows:

Note 9 – Related Party Transactions

The Company does not have any employees other than the CEO and CFO. In previous years, certain general and administrative services (for which payment is deferred) had been provided by the CFO’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’s accounting for such support services and was not billed for any such services during the six months ended June 30, 20182019 and 2017.2018. The amount due to the CFO’s firm for services previously provided was $762,407 at June 30, 20182019 and December 31, 2017,2018, and is included in accrued liabilities at both dates.

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.

In connection with its subordinated loan, Offshore Finance, LLC was granted a one percent (1%) revenue sharing interest in the Nicaraguan Concessions in connection with a subordinated loan provided previously which was subsequently converted to common stock. The managing partner of Offshore and the Company’s CFO are partners in the accounting firm which the Company used for general corporate purposes in the past. In connection with its dissolution, Offshore assigned its RSP to its individual members, which includes the former managing partner of Offshore.

As of June 30, 20182019 and December 31, 2017,2018, the Company had accrued compensation to its officers and directors of $1,829,208 and $1,829,208, respectively.$1,829,208. The Board of Directors has authorized the Company to cease compensation for its officers and directors effective January 1, 2018.

Note 10–Subsequent Events

The Company has not resolved the various contingencies related to the default status of its Nicaraguan Concessions (See Note 8). The Company continueshad been seeking a resolution of these defaults including the ability to attempt to negotiate extensions, waivers extend, renew and/or a new Concession agreementrenegotiate the terms of the Nicaraguan Concessions with the Nicaraguan Government;government to cure the defaults; however, the political climate and domestic issues have caused the Company to halt such efforts at this point pending additional information and evaluation of the situation.

On July 29, 2019 the Company entered into a non-binding term sheet with the holder of the December 2013 Note which has an unpaid principal balance of $1 million as of June 30, 2019. The term sheet, if consummated, will resolve the default contingencies regarding the December 2013 Note through an exchange agreement. Under the proposed terms the holder will exchange the following existing obligations:

The holder will receive the following consideration in exchange for the extinguishment of the existing obligations:

the Company will make a cash payment of $100,000 to the holder within 120 days of the execution of an Exchange Agreement and will issue common shares totaling 740,500 shares to the holder.

Upon completion of the $100,000 cash payment and issuance of 740,500 common shares contemplated by the proposed exchange agreement, the holder and the Company will proceed to cancel the certificate(s) and other physical documents evidencing the ownership of the existing obligations. The term sheet is non-binding until such time as the cash payment is made and the common shares are issued to the holder and there can be no assurance that the Company will be successfulsuccessfully complete the exchange agreement.

On July 31, 2019 the Company acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for oil & gas properties, subject to overriding royalties to third parties, in that regard. the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). The purchase option gives the Company the right to acquire the Properties for $2.5 million prior to December 31, 2019, provided it pays a non-refundable deposit by August 31, 2019.

The purchase will include 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 is pursuing meetings with Nicaraguan Government officialsintends to addresscomplete the pending defaults.acquisition of the Properties prior to the end of this year, subject to obtaining adequate financing. The Option includes a provision permitting Core to exercise a buy-out clause and sell the Properties to a third-party purchaser prior to our exercise of the Option. If such a sale occurs, the Company would be entitled to 10% of the proceeds of the sale on the closing date. In such event, Core willfor a period of six months following the buy-out find a project of like kind and provide the Company a first right of refusal to acquire such asset.

The Company has not resolved the contingencies regarding its various notes payable related to their default status as described in Notes 2 and 3.3 other than the December 2013 Note described above. The Company continues to pursue resolutions of these defaults including to negotiate extensions, waivers or new note agreements; however, there can be no assurance that the Company will be successful in that regard.

**********************

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, and Section 21E of the Securities Exchange Act of 1934, as amended, 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, any statements that refer to expectations, projections or other characterizations of events, circumstances or trends 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 actual results or events may differ materially from those anticipated and as reflected in forward-looking statements included herein. Factors that may cause actual results or events to differ from those anticipated in the forward-looking statements included herein include the risk factors described below.this report.

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.

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this quarterly report on Form 10-Q to be accurate as of the date hereof. Changes may occur after that date, and we will not update that information except as required by law.

Factors that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected include, but are not limited to: (i) we have a history of losses and are experiencing substantial liquidity problems; (ii) we have substantial obligations to a number of third parties, including but not limited to, our December 2013 Note in the original principal amount of $1,050,000 due in April 2016, which is in technical default, and the Replacement Note, which we are contesting; 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 meet our obligations under the Nicaraguan Concessions, and there can be no assurances we will be able to obtain it or do so on terms favorable to us; (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 activities are in a country with a developing economy and are subject to the risks of political and economic instability associated with such economies; (vi) exploration and development of our Nicaraguan Concessions will require large amounts of capital or a commercial relationship with an industry operator that we may not be able to obtain; (vii) we do not have sufficient resources to conduct required seismic mapping or drilling on our Nicaraguan Concessions, are in technical default on various requirements of the Concessions, may forfeit our rights to the Concessions unless we can renegotiate their requirements and terms; (viii) the oil and gas exploration business involves a high degree of business and financial risk; (ix) we will be subject to regulations affecting our activities with the Nicaraguan Concessions if we are able to conduct operations in such country; (x) our operations may be adversely affected by changes in the fiscal regime of Nicaragua; (xi) we are continuing 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) the oil and gas industry is highly competitive; (xvi) exploratory drilling is an uncertain process with many risks; (xvii) oil and gas prices are volatile, and declines in prices would hurt our revenues and ability to achieve profitable operations; (xviii) our common stock is traded on the OTCQB, 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 a significant effect on us and the other stockholders, including Amegy Bank, NA; (xxi) sale of substantial amounts of our common stock that may have a depressive effect on the market price of the outstanding shares of our common stock, including sales of shares of common stock that may be issued to the holder of the Replacement Note upon its conversion; (xxii) possible issuance of common stock subject to options and warrants may dilute the interest of stockholders; (xxiii) whether the Merger Alternative will result in a transaction; (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 rights of the holders of our common stock; (xxvii) our stock price is likely to be highly volatile due to a number of factors, including a relatively limited public float; (xxviii) indemnification of our officers and directors; (xxix) whether we will be able to renegotiate or extend the terms of the Nicaraguan Concessions, and on terms favorable to us, or otherwise maintain our interest in the Concessions; and (xxx) whether we will obtain an industry or other financial partner to enable us to explore and develop our Nicaraguan Concessions if we do obtain extensions or renegotiation of the terms of the Concessions.

The following information should be read in conjunction with the Financial Statements and Notes presented elsewhereAs used in this quarterly report, on Form 10-Q. See Note 1 –“Summary“Infinity,” the “Company,” “we,” “us” and “our” refer collectively to Infinity Energy Resources, Inc., its predecessors and subsidiaries or one or more of Significant Accounting Policies,” tothem as the Condensed Financial Statements for the Six Months Ended June 30, 2018.context may require.

20182019 Operational and Financial Objectives

Corporate Activities

The Company has focused on resolving its outstanding obligations that are in default in 2019 and in that regard has entered into exchange agreements with several holders of such obligations. In that regard the Company completed exchange agreements with the holders of the: i) Senior Secured Convertible Note with a principal balance of $2,197,231 and related warrant to purchase 1,800,000 shares of common stock, ii) notes payable with a principal balance of $240,000, and iii) the warrants to purchase 240,000 shares of common stock issued to the placement agent of the Senior Secured Convertible Note. These obligations were extinguished and exchanged for the issuance of common shares and new warrants to purchase common stock. These were important developments which resolved obligations that were in default without involving the payment of cash. These exchanges also will prepare the Company to begin acquiring domestic oil and gas exploration and development projects and build operating cash flows in support of the Company’s operational objectives.

Subsequent to June 30, 2019, the Company entered into term sheets with two entities that further the Company’s 2019 objectives to resolve obligations in default and to acquire domestic oil and gas exploration and development projects.

On July 29, 2019 the Company entered into a non-binding term sheet with the holder of the December 2013 Note which has an unpaid principal balance of $1 million as of June 30, 2019. The term sheet, if consummated, will resolve the default contingencies regarding the December 2013 Note through an exchange agreement. Under the proposed terms the holder will exchange the following existing obligations:

The holder will receive the following consideration in exchange for the extinguishment of the existing obligations:

the Company will make a cash payment of $100,000 to the holder within 120 days of the execution of an Exchange Agreement and will issue common shares totaling 740,500 shares to the holder.

Upon completion of the $100,000 cash payment and issuance of 740,500 common shares contemplated by the proposed exchange agreement, the holder and the Company will proceed to cancel the certificate(s) and other physical documents evidencing the ownership of the existing obligations. The term sheet is non-binding until such time as the cash payment is made and the common shares are issued to the holder and there can be no assurance that the Company will successfully complete the exchange agreement.

On July 31, 2019 the Company acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for oil & 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 option gives the Company the right to acquire the Properties for $2.5 million prior to December 31, 2019, provided the Company pays a non-refundable deposit by August 31, 2019.

The purchase will include 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 Companyintends to complete the acquisition of the Properties prior to the end of this year, subject to obtaining adequate financing. The Option includes a provision permitting Core to exercise a buy-out clause and sell the Properties to a third-party purchaser prior to our exercise of the Option. If such a sale occurs, the Company would be entitled to 10% of the proceeds of the sale on the closing date. In such event, Core willfor a period of six months following the buy-out find a project of like kind and provide the Company a first right of refusal to acquire such asset.

The Company has not resolved the contingencies regarding its various notes payable related to their default status as described in Notes 3 other than the December 2013 Note described above. The Company continues to pursue resolutions of these defaults including to negotiate extensions, waivers or new note agreements; however, there can be no assurance that the Company will be successful in that regard.

The Nicaraguan Concessions represent ourhave represented the Company’s most substantial assetassets and they arewere the focal point of ourits business plan.plan for the past ten years. The Company is in default of various provisions of the 30-year Concession for both the Perlas and Tyra blocks as of June 30, 2018, as noted above.

2019.

The Company wasis in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of June 30, 2018,2019, including (1) the drilling of at least one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (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, 2017, 2018 and 20182019 area fees required for both the Perlas and Tyra which total approximately $139,000;$194,485; and (5) payment of the 2016, 2017, 2018 and 20182019 training fees required for both the Perlas and Tyra totaling approximately $250,000.$350,000. The Company ishad been seeking a resolution of these defaults including the ability to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. Theredefaults; however, the political climate and domestic issues have caused the Company to halt such efforts at this point pending additional information and evaluation of the situation. If the Company decides to continue its efforts respecting the Concessions, 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 CompanyIt must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund: (1)fund these requirements. If the annual training program and area fees for 2016, 2017 andCompany decides to continue to pursue the 2018; (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 2018; (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 five notes payable totaling $338,125, which are either due on demand or currently in technical default and the Replacement Note, if issued. Thesethese are substantial operational and financial issues that must be successfully addressed during 20182019 and 2020 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

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 is seeking new outside sources of debt and equity capital to fund the substantial needs enumerated above, as well as satisfying its existing debt obligations. The Company is attempting to obtain extensions of the maturity date for its debt; however, there can be no assurance that it will be able to do so or what the final terms will be if the lenders agree to such extensions.

The Company is also exploring the possibility of obtaining financing, conversion and/or compromise of existing indebtedness and satisfaction of other outstanding obligations to third parties and those relating to the Nicaraguan Concessions through the Merger Alternative. The Company and such entity are in discussions, conducting due diligence and exploring the feasibility of a possible transaction. They have not entered into negotiations regarding a definitive agreement. There can be no assurance that the parties will enter into a definitive agreement or ultimately close a transaction or on what terms.

Due to the uncertainties related to these 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 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.

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 material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.

For the Three Months Ended June 30, 20182019 and 20172018

Results of Operations

Revenue

The Company had no revenues in either 20182019 or 20172018 because it focused solely on the pursuit of the exploration, development, financing and maintenance of the Nicaraguan Concessions.Concessions and the acquisition of domestic oil and gas properties.

Production and Other Operating Expenses (income)

The Company had no production related operating expenses in either 20182019 or 2017.2018. 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 20182019 and 2017.2018.

The Company has no current or planned domestic exploration and development activities. ItHowever, it is not actively working on any domestic property, focusing instead onpursuing the exploration, development and financing ofOption to acquire the Nicaraguan Concessions.Properties.

General and Administrative Expenses

General and administrative expenses of $40,721$54,614 for the three months ended June 30, 2018 decreased $91,791,2019 increased $13,893, or 69.3%33.9%, from $132,512$40,721 in the same period in 2017.2018. The decreaseincrease in general and administrative expenses is primarily attributable to the Board of Directors discontinuing compensation fora $6,000 increase in audit fees and $5,400 in legal fees associated with the Company’s officersregulatory filings with the Securities and directors effective January 1, 2018. This action was taken to improve the Company’s operations in advance of any capital raises or the Merger Alternative in 2018.Exchange Commission.

Interest expense

Interest expense decreased $7,473, or 25.6%, from $29,493 for the three months ended June 30, 2017 to $29,134 for the three months ended June 30, 2018. This minimal2018 to $21,661 for the three months ended June 30, 2019. The decrease is attributable to the Company amortizing less debt issuance discount in 2018 compared to 2017. Theexchange transactions that extinguished the Senior Secured Convertible Note with an approximate principal balance of $2.2 million and short-term notes payable with a principal balance totaling $240,000 during the three months ended June 30, 2019. Remaining interest expense is related to various short-term notes outstanding in both periods. These short-term notesperiods which have matured and for which the Company iswas seeking extensions as of June 30, 2018.2019.

The Company’s current financial condition has made traditional bank loans and customary financing terms unattainable; therefore, the Company will need to continue with these types of short-term borrowings with high effective interest rates.

Gain on exchange and extinguishment of debt and warrant obligations

The gain on exchange and extinguishment of debt and warrant obligations is attributable to exchange transactions that extinguished the Senior Secured Convertible Note with an approximate principal balance of $2.2 million, short-term notes payable with a principal balance totaling $240,000 and the warrant to purchase 240,000 shares of common stock issued to a placement agent during the three months ended June 30, 2019.

The Company and the holder of these obligations agreed to extinguish the existing obligations (which were in default) in exchange for the issuance of shares of common stock or new warrants exercisable to purchase common stock with no price or dilution protection. Upon exchange of the securities the existing obligations were cancelled and both holders signed agreements which released the Company of all obligations related to the old securities. As a result, the Company extinguished all of the original securities/obligations and recorded the issuance of the new obligations at their fair value on the date of exchange resulting in a total gain of $2,413,280 during the three months ended June 30, 2019.

Subsequent to June 30, 2019, the Company entered into an exchange agreement with respect to a note payable with a principal balance of $1 million, accrued interest approximating $481,000, a warrant to purchase 100,000 shares of common stock and a revenue sharing agreement for 1% of hydrocarbons produced on the Nicaraguan Concession. These obligations will be exchanged for the issuance of 740,500 shares of common stock and a cash payment of $100,000. The Company expects to conclude this exchange in the third quarter 2019 resulting in additional gains on exchange and extinguishment of debt and warrant obligation.

In addition, the Company is continuing to pursue the resolution of other obligations in default and otherwise outstanding through the exchange of common stock and warrants without price or dilution protection during the balance of 2019. Therefore, to the extent that it is successful in this regard, it believes that there will continue to be additional gains on exchange and extinguishment of debt and warrant obligations during the balance of 2019.

Change in Derivative Fair Value

The conversion feature of thein certain outstanding promissory notes and the common stock purchase warrants issued in connection with short-term notes and the Secured Convertible Note outstanding during 20182019 and 20172018 are treated as derivative instruments because the promissory notes and warrants contain ratchet and anti-dilution provisions. Accordingly, the Company adjusted the value of the outstanding derivative liabilities to their estimated fair value as of June 30, 20182019 and 2017.December 31, 2018. The mark-to-market process resulted in a gain of $5,639 during the three months ended June 30, 2019 and a gain of $18,418 during the three months ended June 30, 2018 and a2018. The gain recognized in the 2019 period is primarily the result of $38,808the exchange of certain obligations during the three months ended June 30, 2017. 2019 which extinguished the underlying derivatives and thereby reduced the associated gains/losses recognized.

Income Tax

The decreaseCompany recorded no income tax benefit (expense) in the gain recognized is primarilythree months ended June 30, 2019 and 2018. The Company has been in a cumulative tax loss position and has substantial net operating loss carryforwards available to it at June 30, 2019. The Company has continued to carry a 100% reserve on its net deferred tax assets and therefore recorded no income tax expense on its income before income taxes during the three months ended June 30, 2019 and likewise recorded no income tax benefit on its loss before income taxes for the three months ended June 30, 2018.

For income tax purposes, the Company has net operating loss carry-forwards of approximately $66,845,000 as of December 31, 2018, which expire from 2025 through 2038. 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.

Net income (loss)

As a result of the relatively stable closing marketabove, we reported net income of $2,342,644 for the three months ended June 30, 2019 compared to a net loss of $140,595 for the three months ended June 30, 2018. This represents an improvement of $2,483,239.

Basic and Diluted Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing the net 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) 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. In addition, in periods in which there is net income and the effect of including common share equivalents in the diluted per share calculations would be anti-dilutive (such as when the conversion or exercise price of the common stock betweenshare equivalents are higher than the December 31, 2017 ($0.06average closing market price per share) such anti-dilutive common share equivalents would also be excluded from the calculation of basic and diluted weighted average shares outstanding.

During the three months ended June 30, 2019 all of the common stock equivalents outstanding were anti-dilutive as their respective conversion or exercise prices were higher than the average closing market price per share during the period. Therefore, all of the common stock equivalents outstanding during the three months ended June 30, 2019 were excluded from the diluted weighted average shares outstanding and diluted income per share calculations. The basic and diluted net income per share was $0.29 for the three months ended June 30, 2019 the basic and diluted loss per share was $0.02 for the three months ended June 30, 2018 ($0.06for the reasons previously noted. Potential shares of common stock as of June 30, 2019 that have been excluded from the computation of diluted net income (loss) per share)share amounted to 1,277,563 shares, which included 945,563 outstanding warrants and 332,000 outstanding stock options.

For the Six Months Ended June 30, 2019 and 2018

Results of Operations

Revenue

The Company had no revenues in either 2019 or 2018 because it focused on the pursuit of the exploration, development, financing and maintenance of the Nicaraguan Concessions and the valueacquisition of domestic oil and gas properties.

Production and Other Operating Expenses (income)

The Company had no production related operating expenses in either 2019 or 2018. 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 2019 and 2018.

The Company has no current domestic exploration and development activities. However, it acquired the Option on the Properties on July 31, 2019.

General and Administrative Expenses

General and administrative expenses of $129,148 for the six months ended June 30, 2019 increased $16,993, or 15.1%, from $112,155 in the same period in 2018. The increase in general and administrative expenses is primarily attributable to a $9,000 increase in audit fees and $5,400 in legal fees associated with the Company’s regulatory filings with the Securities and Exchange Commission.

Interest expense

Interest expense decreased $7,826, or 13.5%, from $58,125 for the six months ended June 30, 2018 to $50,299 for the six months ended June 30, 2019. The decrease is attributable to the exchange transactions which extinguished the Senior Secured Convertible Note with an approximate principal balance of $2.2 million and short term notes payable with a principal balance totaling $240,000 during the six months ended June 30, 2019. Remaining interest expense is related to various short-term notes outstanding in both periods which have matured and for which the Company was seeking extensions as of June 30, 2019.

The Company’s current financial condition has made traditional bank loans and customary financing terms unattainable; therefore, the Company will need to continue with these types of short-term borrowings with high effective interest rates.

Gain on exchange and extinguishment of debt and warrant obligations

The gain on exchange and extinguishment of debt and warrant obligations is attributable to exchange transactions which extinguished the Senior Secured Convertible Note with an approximate principal balance of $2.2 million, short term notes payable with a principal balance totaling $240,000 and the warrant to purchase 240,000 shares of common stock issued to a placement agent during the six months ended June 30, 2019.

The Company and the holders of these obligations agreed to extinguish the existing obligations (which were in default) in exchange for the issuance of shares of common stock or new warrants to purchase common stock with no price or dilution protection. Upon exchange of the derivatives tendsecurities the existing obligations were cancelled and both holders signed agreements which released the Company of all obligations related to decline as the periodold securities. As a result, the Company extinguished all of time until termination declines.such original securities/obligations and recorded the issuance of the new obligations at their fair value on the date of exchange resulting in a total gain of $2,413,280 during the six months ended June 30, 2019.

Subsequent to June 30, 2019, the Company entered into an exchange agreement with respect to a note payable with a principal balance of $1.0 million, accrued interest approximating $481,000, a warrant to purchase 100,000 shares of common stock and a revenue sharing agreement for 1% of hydrocarbons produced on the Nicaraguan Concession. These obligations will be exchanged for the issuance of 740,500 shares of common stock and a cash payment of $100,000. The Company expects to conclude this exchange in the third quarter 2019 resulting in additional gains on exchange and extinguishment of debt and warrant obligation.

In addition, the Company is continuing to pursue the resolution of other obligations in default and otherwise outstanding through the exchange of common stock and warrants without price or dilution protection during the balance of 2019. Therefore, to the extent it is successful in this regard, it believes that there will continue to be additional gains on exchange and extinguishment of debt and warrant obligations during the balance of 2019.

Change in Fair Value of Secured Convertible Note

WeThe Company 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 NotesNote assuming that the remaining par value is $2,197,231 as asserted by the Investor. The change in the estimated fair value of $89,158 during the three months ended June 30, 2018 compared to a change of $1,678,807 for the 2017 period. The increased fair valueInvestor at June 30, 2018 reflects the accretion of value to the Note balance as it reached its maturity date in May 2018. 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 $510,000resulting change in the entire transaction, but there can be no assurance that it will be successful in this regard.

Income Tax

For the three months ended June 30, 2018 and 2017, the Company realized net losses and it anticipates operating losses and additional tax losses for the foreseeable future and thus it 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 June 30, 2018 that resulted from anticipated benefit from future utilization of such carryforward has been fully offset by a valuation allowance.

For income tax purposes, the Company has net operating loss carry-forwards of approximately $66,475,000 as of December 31, 2017, which expire from 2025 through 2037. 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.

Net loss

As a result of the above, we reported a net loss of $140,595 for the three months ended June 30, 2018 compared to a net loss of $1,802,004 for the three months ended June 30, 2017. This represents an improvement of $1,661,409.

Basic and Diluted Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstandingestimated fair value was $150,794 during the period. Diluted net loss per share is computed by dividing the net loss 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 from continuing operations 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.

The basic and diluted loss per share was $0.02 for the three months ended June 30, 2018, for the reasons previously noted. The basic and diluted loss per share was $0.23 for the three months ended June 30, 2017. 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 three months ended June 30, 2018 and 2017 because the exercise prices of the stock options and warrants were substantially higher than market price in 2018 and 2017 and the net loss reported for both years. Potential shares of common stock as of June 30, 2018 that have been excluded from the computation of diluted net loss per share amounted to 2,706,763 shares, which included 2,365,563 outstanding warrants and 341,200 outstanding stock options.

For the Six Months Ended June 30, 2018 and 2017

Results of Operations

Revenue

The Company had no revenues in either 2018 or 2017 because it focused on the pursuit 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 2018 or 2017. 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 2018 and 2017.

The Company has no current or planned domestic exploration and development activities. 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 $112,155 for the six months ended June 30, 2018 decreased $150,220, or 57.3%, from $262,375 in the same period in 2017. The decrease in general and administrative expenses is primarily attributable to the Board of Directors discontinuing compensation for the Company’s officers and directors effective January 1, 2018. This action was taken to improve the Company’s operations in advance of any capital raises or the Merger Alternative in 2018.

Interest expense

Interest expense increased from $57,687 for the six months ended June 30, 2017 to $58,125 for the six months ended June 30, 2018. TheThere was no change in fair value during the six months ended June 30, 2019 as the Convertible Note matured in May 2018.

On May 23, 2019 and as amended on May 30, 2019, the Company and the Investor agreed to an omnibus resolution to these outstanding matters and entered into the Exchange Agreement and Side-Letter Agreement as described below:

Exchange Agreement: Under the Exchange Agreement, the Investor exchanged all of its rights under the original securities issued in the May 2015 Private Placement, including: (i) the Convertible Note, subject to the Optional Offset (as defined in the Investor Note), with a current balance of $2,197,231.00, (ii) the related accrued interest expense is relatedunder the Convertible Note, with a balance of $26,107.52, (iii) the Warrant, (iv) the Security and Pledge Agreement entered into by the Company and the Investor in connection with the May 2015 Private Placement, (v) the Guaranty made in favor of the Investor in connection with the May 2015 Private Placement, and (vi) the Registration Rights Agreement entered into by the Company and the Investor in connection with the May 2015 Private Placement, for 605,816 fully paid and nonassessable shares of Common Stock and certain rights (the “Rights”) to various short-term notes outstandingacquire additional securities in both periods. These short-term notes have maturedthe future, which may be exercised for additional shares of Common Stock.

Upon consummation of the exchange transactions described above, the Investor no longer owns any of the Original Securities, including any rights thereunder, and the Company was seeking extensions ascancelled the certificate(s) and other physical documentation evidencing the Investor’s ownership of June 30, 2018.the Original Securities.

Side-letter Agreement: Concurrent with the Exchange Agreement, the Company and the Investor also entered into a letter agreement, dated May 23, 2019 (the “Side-Letter Agreement”). The Company’s current financial condition has made traditional bank loans and customary financing terms unattainable; therefore,Side-Letter Agreement provides that on November 23, 2019, the Company will, needif required under the Side-letter Agreement, issue additional shares of Common Stock to continuethe Investor based on an increase in the Number of Fully-Diluted Shares Outstanding of the Company from the execution date of the Exchange Agreement to the six-month anniversary of the Exchange Agreement (the “True-Up Shares”). The issuance of the True-Up Shares, if any, shall provide the Investor with these typesRights to acquire additional Right Shares to adjust their ownership to 9.99% of short-term borrowingsthe common shares and common share equivalents then outstanding. Any common share equivalents then outstanding and to be issued in conjunction with high effective interest rates.the Side-Letter Agreement will be issued in like tenor.

Change in Derivative Fair Value

The conversion feature of thein certain outstanding promissory notes and the common stock purchase warrants issued in connection with short-term notes and the Secured Convertible Note outstanding during 20182019 and 20172018 are treated as derivative instruments because the promissory notes and warrants contain ratchet and anti-dilution provisions. Accordingly, the Company adjusted the value of the outstanding derivative liabilities to their estimated fair value as of June 30, 20182019 and 2017.December 31, 2018. The mark-to-market process resulted in a loss of $62,808 during the six months ended June 30, 2019 and a gain of $21,001 during the six months ended June 30, 2018 and a gain of $38,165 during the six months ended June 30, 2017.2018. The decreaseloss recognized in the gain recognized2019 period is primarily the result of an overall increase in the relatively stable closing market pricevalue of theour common stock between the December 31, 2017 ($0.06 per share) and June 30, 2018 ($0.06 per share) and the value of the derivatives tend to decline as the period of time until termination declines.

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. The change in the estimated fair value of $150,794 during the six months ended June 30, 20182019 compared to a change of $1,681,463 for the 2017 period. The increased fair value at June 30, 2018 reflects the accretion of value to the Note balance as it reached its maturity date in May 2018. 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.

Income Tax

The Company recorded anno income tax benefit of $150,000(expense) in the six months ended June 30, 2018 as compared2019. The Company has been in a cumulative tax loss position and has substantial net operating loss carryforwards available to $-0- forit at June 30, 2019. The Company has continued to carry a 100% reserve on its net deferred tax assets and therefore recorded no income tax expense on its income before income taxes during the threesix months ended June 30, 20172019.

The Company recorded a tax benefit of $150,000 during the six months ended June 30, 2018. The income tax benefit recorded in 2019 is primarily due to the Tax Cuts and Jobs Act (the “Act”) that became law on December 22, 2017. The Act significantly changed U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in January 2018.

Under the Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior years totaling $150,000, which previously was reported as income taxes payable on the Company’s condensed balance sheet and the corresponding deferred tax asset was fully reserved based on all available evidence, because the Company considered it more likely than not that all the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it more likely than not that all of the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income benefit of $150,000 during the six months ended June 30, 2018 as it reduced the corresponding income taxes payable to zero as of June 30, 2018.

For income tax purposes, the Company has net operating loss carry-forwards of approximately $66,475,000$66,845,000 as of December 31, 2017,2018, which expire from 2025 through 2037.2038. 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.

Net lossincome (loss)

As a result of the above, we reported net income of $2,171,025 for the six months ended June 30, 2019 compared to a net loss of $150,073 for the six months ended June 30, 2018 compared to a net loss of $1,963,360 for the six months ended June 30, 2017.2018. This represents an improvement of $1,813,287.$2,321,098.

Basic and Diluted LossNet Income (Loss) per Share

Basic net lossincome (loss) per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net lossincome (loss) per share is computed by dividing the net lossincome (loss) 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 from continuing operations 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. In addition, in periods in which there is net income and the effect of including common share equivalents in the diluted per share calculations would be anti-dilutive (such as when the conversion or exercise price of the common share equivalents are higher than the average closing market price per share) such anti-dilutive common share equivalents would also be excluded from the calculation of basic and diluted weighted average shares outstanding.

During the six months ended June 30, 2019 all of the common stock equivalents outstanding were anti-dilutive as their respective conversion or exercise prices were higher than the average closing market price per share during the period. Therefore, all of the common stock equivalents outstanding during the six months ended June 30, 2019 were excluded from the diluted weighted average shares outstanding and diluted income per share calculations. The basic and diluted net income per share was $0.28 for the six months ended June 30, 2019 the basic and diluted loss per share was $0.02 for the six months ended June 30, 2018 for the reasons previously noted. The basic and diluted loss per share was $0.25 for the six months ended June 30, 2017. 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 six months ended June 30, 2018 and 2017 because the exercise prices of the stock options and warrants were substantially higher than market price in 2018 and 2017 and the net loss reported for both years. Potential shares of common stock as of June 30, 20182019 that have been excluded from the computation of diluted net lossincome (loss) per share amounted to 2,706,7631,277,563 shares, which included 2,365,563945,563 outstanding warrants and 341,200332,000 outstanding stock options.