There were no changes in valuation techniques or reclassifications of fair value measurements between Levels 1, 2 or 3 during the periods ended September 30, 2017March 31, 2020 and December 31, 2016.2019.

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 September 30, 2017March 31, 2020 and December 31, 2016:2019:

Following is an analysis of the activity in the secured convertible noteNote during the ninethree months ended September 30, 2017:March 31, 2019:

Following is an analysis of the activity in the Note during the three months ended March 31, 2020:

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.the Securities Act of 1933, as amended (the “33 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 $1,847,894 during the nine months ended September 30, 2017.Investor. The Replacement Note providesprovided for a one-year maturity fromdate of May 7, 2017,2018, 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. It isThe Company did not repay the Replacement Note at its maturity and it was therefore in technical default. The Replacement Note was to be secured to the same extent as the Convertible Note. The Company plans to negotiate withand the Investor have negotiated a resolution of these outstanding matters regarding the default status and the issuance of the Replacement Note under the terms of the financingfinancing.

On May 23, 2019, the Company and takingthe Investor agreed to an omnibus resolution to these outstanding matters and entered into considerationthe 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 (the “Original Securities”), including: (i) the Convertible Note, subject to the Optional Offset (as defined in the Investor Note), with a current balance of $2,197,231; (ii) the related accrued interest under the Convertible Note, with a balance of $28,643; (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 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 minimal fundingownership 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 entire transaction, but there canNumber 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 no assurance that it will be successful in this regard.calculated according to the following formula:

DescriptionFor the purposes of the Secured Convertible Note

The Note was secured to the Company’s existing and future indebtedness and is secured by all the assetsSide-Letter Agreement, “Number of the Company, excluding the Nicaraguan Concessions, and to the extent andFully-Diluted Shares Outstanding” means, as provided in the related security documents.

The Note was convertible atof any time atof determination, the optionsum of (i) the holder into sharesaggregate number 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,issued and similar capital changes.

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

Prior to the maturity date, the Note bore interest at 8% per annum (or 18% per annum during an event of default) with interest payable in cash or in shares of Common Stock monthlyas 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 arrearseffect 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 first business dayaggregate maximum number of each calendar month followingshares of Common Stock issuable pursuant to any agreement (excluding any warrants to purchase Common Stock and all Rights issued pursuant to the issuance date.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).

Each monthly payment may be made in cash, in sharesNotwithstanding 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’s common stock, or inCompany shall issue the Investor an additional Right to acquire a combination of cash and shares of its common stock. The Company’s abilitywarrant (the “New Warrant”) exercisable for up 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 resale9.99% of the shares issued in payment (or, inof 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 alternative,Outstanding Warrants.

Pursuant to the eligibilitySide-Letter Agreement, the Company also agreed that from the execution date of the shares issuable pursuant to the Note and the Warrant, as defined below, for sale without restriction under Rule 144 and without the need forExchange Agreement until twelve (12) months from such date, 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,not raise capital at the lower of (1) the then applicable Conversion Price and (2) a price that is 80.0%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 Amendment No. 1 to Exchange Agreement (the “Amendment”). Following execution 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”). IfExchange Agreement on May 23, 2019, the Company elects to pay such monthly payment in sharesand the Investor became aware of the Company’s stock it is required to pre-deliver shares of the Company’s common stock and is required to deliver additional shares, if any, to a true-up such number of shares toan inadvertent error regarding the number of shares requiredof Common Stock to be delivered onissued to the applicable Installment DateInvestor pursuant to the calculation above.

At any time after the issuance date, theExchange Agreement. 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 withoutInvestor agreed to amend the need forExchange Agreement so it reflects the Company to remain current with its public filing obligations. The Investor has the right to convert any or allcorrect number of the amountshares of Common Stock to be redeemed into common stock priorissued and to redemption.

Upon the occurrence of an event of default under the Note,ensure that the Investor may, so long as the eventdoes not beneficially own in excess 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 price9.99% of the shares of common stock duringCommon Stock outstanding immediately following the period beginning oneffective date of the date immediately preceding the event of default and ending on the date the holder delivers a redemption noticeExchange Agreement. Pursuant to the Amendment, the Company by (B)and the lowest Conversion PriceInvestor agreed that the number of shares of Common Stock to be issued to the Investor would be an aggregate of 605,816 shares, instead of the 770,485 shares stated in effect during such period.the Exchange Agreement.

Consistent with the developments above, effective November 23, 2019 the parties finalized the reconciliation pursuant to the Side-Letter Agreement described above and the related issuance of the True-Up Shares. Pursuant to the provisions of the Side-letter Agreement the parties agreed to the issuance of an additional 567,348 common shares, par value $0.0001 per share and the issuance of a warrant to purchase 61,380 common shares at an exercise price of $0.50 per share and an expiration date of June 19, 2026.

Following is an analysis of gain on exchange of the debt and warrant obligations pursuant to the Exchange Agreement which was finalized on November 23, 2019:

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

Description of the Warrant.

As a part of the May 2015 Private Placement,In addition, the Company issued a Warrant to the Investor giving it the rightwarrant in May 2015 to purchase up to an aggregate of 1,800,000240,000 shares issued as part of the Company’s common stock atplacement fee in connection with the Note. The warrant contained an expiration date of May 7, 2022 and an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuanceshare and the exercise prices for the Warrant is subject to adjustment for certain events, such as stock splitsprice protection and stock dividends. If the Company issues or sells shares of its common stock, rights to purchase shares of its common stock, or securities convertible into shares of its common stock for a price per share that is less than the exercise price then in effect, the exercise price of the Warrant will be decreased to equal such lesser price. Upon each such adjustment, the number of the shares of the Company’s common stock issuable upon exercise of the Warrant will increase proportionately. The foregoing adjustments to the exercise price for future stock issues will not apply to certain exempt issuances, including issuances pursuant to certain employee benefit plans. In addition, the Conversion Price is subject to adjustment upon stock splits, reverse stock splits, and similar capital changes. The Warrant will expire on the seventh (7th) anniversary of the date of issuance.

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9.99% Restriction on Conversion of Note and Exercise of Warrant

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

Registration Rights Agreement

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

Participation Rights

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

Description of the Financial Accounting and Reporting

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

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

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

The Warrant issued to purchase 1,800,000 common shares in connection with the Notewarrant 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 September 30, 2017May 23, 2019, the date of the exchange agreement, was $90,909,$37,368 representing a change of $64,552$29,795 from December 31, 2016, which is included in changes in derivative fair value in the accompanying statement of operations for the nine months ended September 30, 2017. See Note 5.January 1, 2019.

The warrant to purchase 240,000 shares issued as partAs a result of the placement fee in connection withexchange agreement, the Note was treated as aCompany extinguished the derivative liability for accounting purposes dueof $37,368 attributable to its ratchetthe original warrant and anti-dilution provisions. Changes inrecognized 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 derivative liability totaled $8,607 (decrease in the derivative liability) through September 30, 2017, which is included in changes in derivative fair value in the accompanying statement of operations for the nine months ended September 30, 2017. The warrant derivative liability balance related to such warrants was $12,121 and $20,728 as of September 30, 2017 and December 31, 2016, respectively. See Note 5.

The Company is required to make monthly installment payments in the form of cash, common stock or a combination of both. The Holder has suspended such installments during the third and fourth quarters of 2016extinguished and the nine months ended September 30, 2017.new warrant issued to the holder was recorded as a gain on exchange of debt and warrant obligations effective June 4, 2019.

Note 3 – Debt

Debt consists of the following at September 30, 2017March 31, 2020 and December 31, 2016:2019:

Line-of-Credit with Related Party

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

Note Payable – Short-term

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

In connection with the December 2013 Note, the Company granted the lender a warrant (the “Warrant”) exercisable to purchase 100,000 shares of its common stock at an exercise price of $15.00 per share. In connection with an extension to April 2015, the parties amended the date for exercise of the Warrant to be a period commencing April 7, 2015 and expiring on the third anniversary of such date. The Company issued no additional warrants to the lender in connection with the extension of the Note to the New Maturity Date. If the Company failsfailed 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 remainremained the same. The Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized ratably through the original maturity date and each of the extended maturity dates. The warrant expired as of March 31, 2020 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 failsfailed 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 expired as of March 31, 2020 and December 31, 2019. 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 seeking an extensionpursuing a resolution to this default, including completing the extinguishment of the maturity date of this Note from the holder;note balance, accrued interest and revenue sharing agreement through an exchange agreement which is further described below; however, there can be no assurances such efforts will be successful. The Company and its lender are assessing the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of these notes.

The Warrant has beenwas 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 iswas revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The Warrant expired as of March 31, 2020 and December 31, 2019. The discount iswas 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 asOn July 29, 2019 the Company entered into a non-binding term sheet with the holder of the December 27, 2013 origination dateNote which has an unpaid principal balance of the note and as a result of the amendments to the Note terms and extensions of the maturity date has been amortized ratably over the term and extended terms of the note and the remaining unamortized discount was $-0-$1.0 million as of September 30, 2017March 31, 2020 and December 31, 2016.2019. The related warrant derivative liability balance was $449term sheet, if consummated, will resolve the default contingencies regarding the December 2013 Note through an exchange agreement. Under the proposed terms the Company will make a cash payment of $100,000 within 60 days of the execution of an Exchange Agreement and $4,429will issue 740,500 shares of common stock to the holder in exchange for and cancellation of the following obligations:

The term sheet is non-binding until such time as of September 30, 2017the cash payment is made and December 31, 2016, respectively. See Note 5.the common stock are issued to the holder and there can be no assurance that the Company will successfully complete the Exchange Agreement. The Company did not make the required $100,000 cash payment within the contractual 60-day time period and therefore the term sheet is not binding on the parties. The parties are attempting to resolve the payment default and otherwise complete the Exchange Agreement as described above.

Other than the Note described above, during the nine months ended September 30, 2017 the Company had short-termThe following notes outstanding with entities or individuals as follows:were extinguished on June 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. Under the exchange agreement the Company issued the individual a new warrant exercisable to purchase up to 570,000 shares of common stock at an exercise price of $0.50 per share with a termination date of June 19, 2026 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 on June 19, 2019:

Other than the December 2013 Note, at March 31, 2020 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 Plan and 2006 Plans;Plan; however, such Plansthe 2005 Plan and the 2006 Plan 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 Plan and 2006 Plans.Plan.

The

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

As of September 30, 2017,March 31, 2020, 500,000 shares were available for future grants under the 2015 Plan as allPlan. All other Plansplans 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 ninethree months ended September 30, 2017.March 31, 2020 and 2019.

The following table summarizes stock option activity for the ninethree months ended September 30, 2017:March 31, 2020:

The Company recorded stock-based compensation expense in connection with the vesting of options granted aggregating $-0- and $7,598$-0- during the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively.

The intrinsic value as of September 30, 2017March 31, 2020 related to the vested and unvested stock options as of that date was $-0.$-0-. The unrecognized compensation cost as of September 30, 2017March 31, 2020 related to the unvested stock options as of that date was $-0-.$-0-

Restricted stock grants. During 2019 the Board of Directors granted restricted stock awards to our new Chief Operating Officer. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over a period of time generally corresponding to yearly anniversaries of the grant date. Unvested shares of restricted stock awards may be forfeited upon the termination of service of employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends.

A summary of all restricted stock activity under the equity compensation plans for the three months ended March 31, 2020 is as follows:

The Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted granted aggregating $24,308 and $-0- during the three months ended March 31, 2020 and 2019, respectively.

The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of March 31, 2020, there were $49,418 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next seven months in accordance with the respective vesting scale.

The nonvested balance of restricted stock vests as follows:

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.date

The Company has issued warrants to purchase an aggregate of 2,174,00034,000 shares of common sharesstock, in connection with various outstanding debt instruments which require derivative accounting treatment as of September 30, 2017.March 31, 2020 and December 31, 2019. A comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of September 30, 2017March 31, 2020 and December 31, 2019 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 September 30, 2017 and December 31, 2016:

Note 6 – Warrants

The following table summarizes warrant activity for the ninethree months ended September 30, 2017:March 31, 2020:

The weighted average term of all outstanding common stock purchase warrants was 4.15.5 years as of September 30, 2017.March 31, 2020. 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 September 30, 2017.March 31, 2020.

Note 7 – Income Taxes

The effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due to the net operating loss history of the Company maintaining a full reserve on all net deferred tax assets during the three months ended March 31, 2020 and 2019. In addition, the Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017 which 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.

The Company has incurred operating losses in recent years and it continues to be in a three-year cumulative loss position at March 31, 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 $66,270,000,$66,950,000 in accordance with its 2019 Federal Income tax return as filed, which expire from 2025 through 2030. The Company has provided a 100% valuation allowance due to the uncertainty of realizing the tax benefits from its net deferred tax asset.2038.

The Company has notrecently completed the filing of its tax returns for the tax years 2012 through 2016.2019. Therefore, all such tax returns are open to examination by the Internal Revenue Service.

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

Note 8 – Commitments and Contingencies

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

Nicaraguan Concessions

The Company iswas in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of September 30, 2017,December 31, 2019, including (1) the drilling of at least one exploratory well on the Perlas Block during 2016;Block; (2) the shooting of additional seismic on the Tyra Block during 2016;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 20172019 area fees required for both the Perlas and Tyra which total $97,243;approximately $194,485; and (5) payment of the 2016, 2017, 2018 and 20172019 training fees required for both the Perlas and Tyra totaling $175,000.approximately $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. There can be no assurance whether it will be able to extend, renew and/or renegotiatedefaults; however, the Nicaraguan Concessions and whether any new terms will be favorable to the Company. The Company has held meetings and is pursuing additional meetings with Nicaraguan Government officials in order to address the pending defaults.

The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund: (1) the annual training program and area fees for 2016 and 2017; (2) required letters of credit to the Nicaraguan Government; (3) the drilling of at least one exploratory well on the Perlas Block of the Nicaraguan Concessions during 2017; (4) the shooting of additional seismic on the Tyra Block of the Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement from the Nicaraguan government; (5) normal day-to-day operations and corporate overhead; and (6) outstanding debtpolitical climate, domestic issues and other financial obligations as they become due includingfactors caused the $1.0 million December 2013 Note,Company to halt such efforts and to abandon the notes payable totaling $285,000, which currently areConcessions in technical default and resolution of the Replacement Note matter. These are substantial operational and financial issues that must be successfully addressed during 2017 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.2020.

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

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

Minimum Work Program – Perlas

Minimum Work Program – Tyra

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 September 30, 2017;December 31, 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 September 30, 2017March 31, 2020 and December 31, 20162019 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.

Binding Term Sheet to Acquire Domestic Oil and Gas Properties

On July 31, 2019 the Company acquired the Option from Core to purchase the production and mineral rights/leasehold for the Properties. The Company paid a nonrefundable deposit of $50,000 to bind the Option, which gave it the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the option prior to December 31, 2019 and the parties are negotiating for an extension of such option and a reduction of the purchase price, although there can be no assurance that the parties will reach an agreement to do so. The Company has expensed all costs related to the Option to acquire the Properties as of March 31, 2020 and December 31, 2019 as the Option expired on December 31, 2019.

The purchase was to 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 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 will for a period of nine 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 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, COO 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 ninethree months ended September 30, 2017March 31, 2020 and 2016.2019. The amount due to the CFO’s firm for services previously provided was $762,407 at September 30, 2017March 31, 2020 and December 31, 2016,2019 and is included in accrued liabilities at both dates.

On June 6, 2009,July 31, 2019 the Company entered intoacquired an Option from Core to purchase the production and mineral rights/leasehold for the Properties. The Company paid a Revenue Sharing Agreement withnonrefundable deposit of $50,000 to bind the officerspurchase option which gave it the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the option prior to December 31, 2019 and directors for services provided. Infinity assigned to officersthe parties are negotiating an extension of such Option and directors a monthly payment equal to the revenue derived from one percent (1%) of Infinity’s sharereduction of the hydrocarbons produced atpurchase price, although there can be no assurance that the wellhead from the Nicaraguan Concessions. The RSPparties will bear its proportionate share of all costs incurredreach an agreement 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.do so.

As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company had accrued compensation to its officers and directors of $1,770,208$1,829,208. The Board of Directors authorized the Company to cease compensation for its officers and $1,601,208, respectively.directors effective January 1, 2018.

Note 10–Subsequent Events

COVID – 19 PANDEMIC

The condensed financial statements contained in this Report as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of March 31, 2020. Continuing after such date, economies throughout the world continue to be severely disrupted by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the outbreak of the coronavirus (Covid-19). In particular, the oil and gas market has been severely impacted by the negative effects of the coronavirus because of the substantial and abrupt decrease in the demand for oil and gas globally. In addition, the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted by the outbreak of the virus and we cannot forecast with any certainty when the disruptions caused by it will cease to impact our business and the results of our operations. In reading this report on Form 10-Q, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties caused by the outbreak of Covid-19.

NICARAGUA CONCESSIONS

The Company has not resolved the various contingencies related to the default status of its Nicaraguan Concessions (See Note 8). The Company had 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; however, the political climate, domestic issues and other factors caused the Company to halt such efforts in 2020 and abandon the project relating to the Concessions.

DEBT OBLIGATIONS

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.

On July 29, 2019 the Company entered into a line-of-credit facility on September 23,non-binding term sheet with the holder of the December 2013 that provided it with borrowing capacity onNote which had an unpaid principal balance of $1.0 million as of December 31, 2019. The term sheet, if consummated, will resolve the default contingencies regarding the December 2013 Note through an exchange agreement. See Note 3, “Debt.”

OIL AND GAS PROPERTY ACQUISITION

On July 31, 2019 the Company acquired an Option from Core to purchase the production and mineral rights/leasehold for the Properties. The Company paid a revolving basis up to a maximumnonrefundable deposit of $50,000 to bind the purchase option which gave it the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was increasednot able to $75,000 at August 28, 2015exercise the option prior to December 31, 2019 and the parties are negotiating for an initial maturityextension of November 28, 2013. The line of credit was convertible to common stock atsuch Option and a rate of $5.00 per share. The entity providing the credit facility is owned by an officer of another corporation for which Infinity’s president and chairmanreduction of the board serves as president and chairman ofpurchase price, although there can be no assurance that the board. The facility was unsecured, bore interest at 8% per annum, and was renewed at its maturity several times until it was paid in full on its extended maturity date on November 28, 2016. In consideration for the origination of the line of credit facility and the various renewals,parties will reach an agreement to do so.

RELATED PARTY DEBT OBLIGATION

On May 13, 2020, the Company grantedborrowed $41,000 from its Chairman, CEO & President in the lender common stock purchase warrants. On February 28, 2016, the Company extended the line-of-credit expiration date to May 28, 2016form of an unsecured promissory note bearing 6% interest and issued a warrant to purchase 10,000 common shares at an exercise price of $5.00 per share, which warrantsdue on demand. The proceeds were immediately exercisable and expire on February 28, 2021. On May 28, 2016, the Company extended the line-of-credit expiration date to August 28, 2016 and issued a warrant to purchase 10,000 common shares at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on May 28, 2021. On August 28, 2016, the Company extended the line-of-credit expiration date to November 28, 2016 and issued a warrant to purchase 10,000 common shares at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on August 28, 2021.used for general working capital purposes.

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ITEM 2.Item 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, are experiencing substantial liquidity problems and our continuation as a going concern; (ii) we have substantial obligations to a number of third parties, including our December 2013 in the original principal amount of $1,050,000 due in April 2016, notes with total principal balance of $325,000 and the Replacement Note that we have been requested to execute in May 2017 and due May 2018, and there can be no assurance that we will be able to meet them; (iii) we require working capital for our operations and obligations for the next 12 months and capital to continue our exploration and development efforts on the Nicaraguan Concessions, including our defaults under the letter of credit and other requirements of the Nicaraguan Concessions to maintain our rights to the Concessions, and there can be no assurances we will be able to obtain the necessary waivers or revised compliance terms or do so on a basis favorable to us to maintain the Nicaraguan Concessions; (iv) we and our independent registered public accounting firm have concluded that there exists substantial doubt about our ability to continue as a going concern; (v) our Nicaraguan Concessions and planned future exploration 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 which we may not be able to obtain; (vii) we do not have sufficient resources to conduct required seismic mapping on our Nicaraguan Concessions; (viii) the oil and gas exploration business involves a high degree of business and financial risk; (ix) we will be subject to regulations affecting our activities with the Nicaraguan Concessions; (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 through the Pink Sheets, which may not have the visibility or liquidity that we seek for our common stock; (xix) we depend on key personnel; (xx) sufficient voting power by coalitions of a few of our larger stockholders to make corporate governance decisions that could have significant effect on 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 issued to the Investor holding the Warrants and upon its conversion of the Replacement Note, if it is issued; (xxii) possible issuance of common stock subject to options and warrants may dilute the interest of stockholders; (xxiii) our ability to comply with Sarbanes-Oxley Act of 2002 Section 404 as it may be required; (xxiv) our nonpayment of dividends and lack of plans to pay dividends in the future; (xxv) future sale or issuance of a substantial number of shares of our common stock that could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital; (xxvi) our additional securities available for issuance, which, if issued, could adversely affect the 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; and (xxix) whether we will be able to find an industry or other financial partner to enable us to explore and develop our Nicaraguan Concessions and meet our other obligations.

The following information should be read in conjunction with the Condensed Financial Statements and Notes presented elsewhereAs used in this quarterly report, on Form 10-Q. See Note 1 –“Nature“Infinity,” the “Company,” “we,” “us” and “our” refer collectively to Infinity Energy Resources, Inc., its predecessors and subsidiaries or one or more of Operations, Basis of Presentation and Summary of Significant Accounting Policies,” tothem as the Condensed Financial Statements for the Three and Nine months ended September 30, 2017 and 2016.context may require.

20172020 Operational and Financial Objectives

Corporate Activities

The Nicaraguan Concessions represent our most substantial assetCompany’s 2020 and is2019 objectives have focused on the focal pointresolution of our business plan.obligations in default and to acquire the Properties.

On May 13, 2020, the Company borrowed $41,000 from its Chairman, CEO & President in the form of an unsecured promissory note bearing 6% interest and due on demand. The proceeds were used for general working capital purposes.

During 2019, the Company raised $142,500 in cash through a private placement of 1,425,000 shares of common stock. It used the proceeds to pay the $50,000 nonrefundable deposit option (the “Option”) to acquire the Properties and for general working capital purposes. The Company isplans to continue to raise debt and equity capital during 2020 in order to meet its contractual obligations, in particular to acquire the Properties and to resolve the December 2013 Note. There can be no assurance it will be successful in this regard.

During 2019 and continuing into 2020, the Company has focused on resolving its outstanding obligations that are in default and in that regard has entered into exchange agreements with several holders of various provisionssuch obligations. During 2019 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 30-year ConcessionSenior Secured Convertible Note. These obligations were extinguished and exchanged for both the Perlasissuance of common stock and Tyra blocksnew warrants to purchase common stock. These were important developments which resolved obligations that were in default without involving the payment of cash. In addition, the Company recorded a gain of $2,445,700 during 2019 as a result of the exchange transactions.

In addition, the Company entered into term sheets with two entities that will, if consummated in a transaction, further the Company’s 2020 objectives to resolve obligations in default and to acquire the Properties.

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 $1.0 million as of September 30, 2017, as noted above.December 31, 2019. The term sheet, if consummated in a transaction, will resolve the default contingencies regarding the December 2013 Note through an exchange agreement.

On July 31, 2019 the Company acquired the Option from Core to purchase the production and mineral rights/leasehold for the Properties. The Company paid a nonrefundable deposit of $50,000 to bind the purchase option which gives it the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019 and the parties are negotiating for an extension and repricing of the purchase price under such Option. There can be no assurance that the parties will negotiate an extension and repricing, particularly in light of recent events including the coronavirus pandemic and its impact on the oil and gas industry.

The Option includes a provision permitting Core to exercise a buy-out clause and sell the Properties to a third-party purchaser prior to its 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 will for a period of nine 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 must raise substantial amountshas not resolved the contingencies regarding its various notes payable with an outstanding principal balance of debt$1,104,125 as of March 31, 2020 and equity capital from other sources in the immediate futureDecember 31, 2019 related to fund its obligations under the Concessions.their default status. The most immediate funding needs include the following: (1) the annual training program and area fees for 2016 and 2017; (2) required lettersCompany continues to pursue resolutions of credit to the Nicaraguan Government; (3) the drilling of at least one exploratory well on the Perlas Block of the Nicaraguan Concessions during 2017; (4) the shooting of additional seismic on the Tyra Block of the Nicaraguan Concessions should it be unablethese defaults including to negotiate a waiver of such requirement from the Nicaraguan government; (5) normal day-to-day operations and corporate overhead; and (6) outstanding debt and other financial obligations as they become due, including the $1.0 million December 2013 Note, and the notes payable totaling $285,000, which currently are in technical default and the notes payable aggregating $240,000 that will become due in November 2017 and April 2018. These are substantial operational and financial issues that the Company must successfully address during 2017 and 2018extensions, waivers or its ability to satisfy the conditions necessary to remain viable and maintain 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;note agreements; however, there can be no assurance that itthe Company will be ablesuccessful in that regard.

Due to obtain such capitalthe 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 financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts 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 working capital requirements. The current environment for oilamount and gas development projects, especially discoveries in otherwise undeveloped regionsclassification 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 forliabilities that might result should the Company be unable to obtain adequate financing to fund the exploration and development of its Nicaraguan projects.continue as a going concern.

During 2017 and 2018 we will also 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. Accordingly, we intend to finance our business strategy through external financing, which may include debt and equity capital raised in public and private offerings, joint ventures, sale of working or other interests, employment of working capital and cash flow from operations, if any, and net proceeds from the sales of assets.

Our ability to complete these activities is dependent on a number of factors, including, but not limited to:

We are considering the acquisition of domestic oil and gas properties with both proven and unproven reserves. We believe that the current distressed state for oil and gas properties and the resulting decline in valuations may yield an opportunity for us to accumulate undervalued domestic oil and gas assets at attractive prices and terms with the objective of achieving positive cash flows despite the decline in natural gas and crude oil commodity prices. We are seeking financing for such cash generating oil and gas properties at reasonable cost of capital. This initiative is intended to provide us with positive cash flows to address immediate working capital needs until the environment improves for exploration projects such as the Nicaraguan Concessions. No assurances can be given regarding our ability to identify, acquire and finance such domestic properties or whether such properties would provide positive cash flow.

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 September 30, 2017March 31, 2020 and 20162019

Results of Operations

Revenue

The Company had no revenues in either 20172020 or 2016 as2019 because it increasingly focused solely on the pursuitacquisition of domestic oil and gas properties, resulting in its Option for the exploration, development, financing and maintenance of the Nicaraguan Concessions.Properties on July 31, 2019.

Production and Other Operating Expenses (income)(Income)

The Company had no production related operating expenses in either 20172020 or 2016.2019. 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 20172020 and 2016.2019.

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

General and Administrative Expenses

General and administrative expenses of $103,531$63,453 for the three months ended September 30, 2017March 31, 2020 decreased by $4,172,$11,080, or 4%15%, from $107,703$74,533 in the same period in 2016.2019. The decrease in general and administrative expenses is primarily attributable to a decrease inthe abandonment of its Nicaraguan Concessions, which reduced SG&A expenses attributableby $38,892 offset by stock based compensation expense totaling $24,308 related to the Nicaraguan Concessions as the Company has ceased many of the ancillary activities as it attemptsrestricted stock granted to clarify the status of the Concession itself with the Nicaraguan Government.

Stock-based compensation

Stock-based compensation expenses were $-0- for the three months ended September 30, 2017 compared to $-0- during the same period in 2016. The Company has had minimal resources to pay employees, consultants and other service providers. Therefore, it has issued stock options to compensate and motivate its officers, directors and other service providers in previous years that vest generally over a two-year period. The Company did not grant any stock options in 2017 and 2016. All outstanding stock options were fully vested as of September 30, 2017 as all stock options became fully vested in January 2016. Therefore, there was no stock-based compensation expenseour newly appointed COO during the three months ended September 30, 2017 comparedMarch 31, 2020 and an increase in audit and legal fees associated with the Company’s regulatory filings with the Securities and Exchange Commission. The restricted stock granted to 2016.our new COO will continue be amortized through October 2020.

Interest expense

Interest expense remained virtually the same at $27,455decreased $6,616, or 23.1%, to $22,022 for the three months ended September 30, 2016 compared to $29,048March 31, 2020 from $28,638 for the three months ended September 30, 2017.March 31, 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 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 March 31, 2020.

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

Change in Fair Value of Secured Convertible Note

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

Change in Derivative Fair Value

The conversion feature of 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 20172020 and 20162019 are treated as derivative instruments because the promissory notes and warrants contain ratchet and anti-dilution provisions. Accordingly, we adjusted the value of the outstanding derivative liabilities to their estimated fair value as of September 30, 2017 and 2016. The mark-to-market process resulted in a gain of $40,186$710 during the three months ended September 30, 2017March 31, 2020 and a gainloss of $50,062$68,447 during the three months ended September 30, 2016.March 31, 2019. The decreaseloss recognized in the gain recognized2019 period is primarily the result of the smaller change inSide-Letter Agreement derivative issued pursuant to the closing market price of ourHudson Bay exchange agreement. Such side-letter provided anti-dilution protection to Hudson Bay, which required the Company to issue common stock between the September 30, 2017 ($0.06 per share) and June 30, 2017 ($0.08 per share) comparedwarrants to the corresponding period in 2016 ($0.03 at September 30, 2016 versus $0.07 at June 30, 2016). Generally, the fair value of the derivative liability declines when the market value of the underlyingpurchase common stock decreases compared to the derivatives exercise price.on its expiration date of November 23, 2019.

Income Tax

The Company recorded no income tax benefit (expense) in the three months ended March 31, 2020. The Company has been in a cumulative tax loss position and has substantial net operating loss carryforwards available to it at March 31, 2020. 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 March 31, 2020 and 2019.

For income tax purposes, the Company has net operating loss carry-forwards of approximately $66,270,000$66,950,000 as of September 30, 2017,its latest tax returns filed for the year ended December 31, 2019, which expire from 2025 through 2030.2038. 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.

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

Net loss

As a result of the above, wethe Company reported a net losslosses of $258,824$84,765 for the three months ended September 30, 2017March 31, 2020 compared to a net loss of $87,903$171,618 for the three months ended September 30, 2016.same period in 2019. This represents a deteriorationan improvement of $170,921.$86,853.

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 three months ended March 31, 2020 all of the common stock equivalents outstanding were anti-dilutive because of the net losses incurred during the period and 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 March 31, 2020 were excluded from the diluted weighted average shares outstanding and diluted income per share calculations. The basic and diluted loss per share was $0.03 for the three months ended September 30, 2017, for the reasons previously noted. The basic and dilutednet loss per share was $0.01 for the three months ended September 30, 2016. All outstanding stock optionsMarch 31, 2020 the basic and warrants to purchase common stock were considered antidilutive and therefore excluded from the calculation of diluted loss per share was $0.02 for the three months ended September 30, 2017 and 2016 becauseMarch 31, 2019 for the exercise price of the stock options and warrants were substantially higher than market price in 2017 and 2016 and the net loss reported for both periods.reasons previously noted. Potential shares of common stock as of September 30, 2017March 31, 2020 that have been excluded from the computation of diluted net loss per share amounted to 2,882,7211,107,380 shares, which included 2,505,771775,380 outstanding warrants and 376,950 outstanding stock options.

For the Nine months Ended September 30, 2017 and 2016

Results of Operations

Revenue

The Company had no revenues in either 2017 or 2016 as it focused solely 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 2017 or 2016. The Company sold its investment in Infinity-Texas in July 2012 and held no developed or undeveloped oil and gas properties in the United States in 2017 and 2016.

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

General and Administrative Expenses

General and administrative expenses of $365,906 for the nine months ended September 30, 2017 increased by $26,707, or 7.9%, from $339,199 in the same period in 2016. The increase in general and administrative expenses is primarily attributable to an increase in Delaware Franchise taxes and an increase in professional fees in particular audit fees, related to the annual audit and various filings with the Securities and Exchange Commission.

Stock-based compensation

Stock-based compensation expenses was $-0- for the nine months ended September 30, 2017 compared to $7,598 during the same period in 2016. The Company has had minimal resources to pay employees, consultants and other service providers. Therefore, it has issued stock options to compensate and motivate its officers, directors and other service providers in previous years that vest generally over a two-year period. The Company did not grant any stock options in 2017 and 2016. All outstanding stock options are fully vested as of September 30, 2017 as all stock options became fully vested in January 2016.

Interest expense

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

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

Change in Fair Value of Secured Convertible Note

We issued the Secured Convertible Note in the May 2015 Private Placement and elected to account for and record such Note on a fair value basis. On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver the Replacement Note representing the remaining principal balance of $2,197,231 to replace the Convertible Note. The Company has recorded the fair value of the Convertible Notes assuming that the remaining par value is $2,197,231 as asserted by the Investor, resulting in a change in the estimated fair value of $1,847,894 during the nine months ended September 30, 2017 as compared to $67,591 in the comparable period in 2016. The Company plans to negotiate with the Investor regarding the issuance of the Replacement Note under the terms of the financing and taking into consideration that the Investor only funded $510,000 in the entire transaction, but there can be no assurance that it will be successful in this regard.

Change in Derivative Fair Value

The conversion feature of the promissory notes and the common stock purchase warrants issued in connection with short-term notes and the Secured Convertible Note outstanding during 2017 and 2016 are treated as derivative instruments because the promissory notes and warrants contain ratchet and anti-dilution provisions. Accordingly, we adjusted the value of the outstanding derivative liabilities to their estimated fair value as of September 30, 2017 and 2016. The mark-to-market process resulted in a gain of $78,351 during the nine months ended September 30, 2017 compared to a gain of $167,830 during the nine months ended September 30, 2016. The decrease in the gain recognized is primarily the result of the change in the closing market price of our common stock between the September 30, 2017 ($0.06 per share) and December 31, 2016 ($0.10 per share) compared to the corresponding period in 2016 ($0.03 at September 30, 2016 versus $0.16 at December 31, 2015). Generally, the fair value of the derivative liability declines when the market value of the underlying common stock decreases compared to the derivatives exercise price.

Income Tax

For income tax purposes, the Company has net operating loss carry-forwards of approximately $66,270,000 as of September 30, 2017, which expire from 2025 through 2030. The Company has provided a 100% valuation allowance against the resulting deferred tax asset due to the uncertainty of realizing the tax benefits from its net operating loss carry-forwards.

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

Net loss

As a result of the above, we reported a net loss of $2,222,184 for the nine months ended September 30, 2017 compared to a net loss of $381,530 for the nine months ended September 30, 2016. This represents a deterioration of $1,840,654.

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 outstanding 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 $0.29 for the nine months ended September 30, 2017, for the reasons previously noted. The basic and diluted loss per share was $0.06 for the nine months ended September 30, 2016. All outstanding stock options and warrants to purchase common stock were considered antidilutive and therefore excluded from the calculation of diluted loss per share for the nine months ended September 30, 2017 and 2016 because the exercise price of the stock options and warrants were substantially higher than market price in 2017 and 2016 and the net loss reported for both periods. Potential shares of common stock as of September 30, 2017 that have been excluded from the computation of diluted net loss per share amounted to 2,882,721 shares, which included 2,505,771 outstanding warrants and 376,950332,000 outstanding stock options.

Liquidity and Capital Resources; Going Concern

We have had a history of losses and have generated little or no operating revenues for a number of years as we concentrated on development of our Nicaraguan Concessions, which iswas a long-term, high-risk/reward exploration project in an otherwise unproven part of the world. Historically, we financed our operations through the issuance of redeemable preferred stockequity and various short and long-term debt financing that contained some level of detachable warrants to provide the holders with a level of equity participation should we be successful exploring our Nicaraguan Concessions.participation.

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

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

Related Party Debt Obligation

On May 13, 2020, the Company borrowed $41,000 from its Chairman, CEO & President in the form of an unsecured promissory note bearing 6% interest and due on demand. The proceeds were used for general working capital purposes.

Private Placement of Common Stock

During 2019, the Company raised $142,500 in cash through a private placement of 1,425,000 shares of common stock. It used the proceeds to pay the $50,000 nonrefundable deposit for the Option relating to the Properties and for general working capital purposes.

Senior Secured Convertible Note

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

On May 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 in Note 3, “Debt.”

Short-Term Notes Extinguished

In November 2016, the Company issued a $200,000 convertible promissory note which requiredrequires no principal or interest payments until its November 2017 maturity date and bears 8% interest. The proceeds of this note were used to pay offretire the Company’s line-of-credit upon its maturity in November 20172016 and for general working capital purposes. The CompanyThis note was not retired at its maturity and is seeking an extension of the maturity date of this note.therefore in default.

On December 27, 2013,In April 2017, the Company borrowed $1,050,000$40,000 under the December 2013 Note, which is an unsecured credit facility with a private, third-party lender. Effectivelender which is convertible at a rate of $5.00 per share. The note required no principal or interest payments until its maturity date of April 7, 201519, 2018 and bears interest at 8% per annum. This note was not retired at its maturity and therefore is in default.

On June 19, 2019, the Company and the lender agreedholders 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 extendissue the maturityindividual a new warrant to purchase up to 570,000 shares of common stock 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 December 2013 Note from Aprilextinguishment of the two convertible notes and related accrued interest.

Short-Term Notes Outstanding

On July 7, 2015 toand July 15, 2015, the earlierCompany borrowed a total of (i) April 7, 2016 or (ii)$85,000 from two individuals under convertible notes payable with the payment in fullconversion rate of the Investor Note issued in the May 2015 Private Placement in the principal amount of $9,550,000 (the “New Maturity Date”). All other$5.60 per share. The original terms of the Note remained the samenotes were for a period of 90 days and the remaining principal balance was reduced to $1,000,000 as of September 30, 2016 after the $50,000 principal repayment required by the extension agreement.

The December 2013 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 December 2013 Note. The December 2013 Note matured in April 2016 and is currently in technical default. The Company is seeking an extension of the maturity date; however, there can be no assurance that it will be able to obtain such extension or what the final terms will be if the lender agrees to such an extension. The Company and its lender are assessing the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of December 2013 Note.

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

The Convertible Note was to mature on the three-year anniversary of its issuance,notes bore interest at 8% per annum, and was convertible at any time atannum. In connection with the optionnotes, the Company issued warrants for the purchase of the holder intoa total of 34,000 shares of the Company’s common stock at $5.00$5.60 per share (the “Conversion Price”). As a part of the May 2015 Private Placement, the Company issued a Warrant to the investor giving it the right to purchase up to an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance for a period of sevenfive years from the date of their issuance.

The investor has no rightnotes were not paid at maturity and now are in default. The Company is attempting to convert the Convertible Note or exercise the Warrantnegotiate a resolution to the extent that such conversion or exercise would result in the investor being the beneficial owner of in excess of 9.99% of the Company’s common stock. The Convertible Note ranks senior to the Company’s existing and future indebtedness and is secured by all of the assets of the Company, excluding the Nicaraguan Concessions.

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver the Replacement Note representing the remaining principal balance of $2,197,231 to replace the Convertible Note. The Company has recorded the fair value of the Convertible Notes assuming that the remaining par value is $2,197,231 as asserted by the Investor, resulting in a change in the estimated fair value of $1,847,894 during the nine months ended September 30, 2017. 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,default, but there can be no assurance that it will be successful in thisthat regard.

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

On May 21, 2018 the Company borrowed $13,125 under an unsecured promissory note with a private third-party lender which is convertible at a rate of $0.50 per share. During 2019 the Company borrowed an additional $56,000 from this same third-party lender under the same terms. In addition, during October 2019 the Company repaid $50,000 of principal on this note. The note is due on demand and bears interest at 8% per annum.

In summary, as of September 30, 2017,March 31, 2020, the following debt was outstanding: (i) $200,000 on our convertible promissory note, which was due November 7, 2017 and for which we are seeking an extension; (ii) $40,000 on our convertible promissory note, which is due April 19, 2018; (iii) the two promissory notes in the total principal amount of $85,000, which matured in October 2016 and are currently in technical default and for which we are seeking extensions; (iv) the Replacement Note, if issued, with a fair value of $1,989,222, which is due in monthly installment payments through May 2018 either in cash or stock; and (v)default; (ii) the December 2013 Note in the principal amount of $1,000,000, which was due in April 2016 and is currently in technical default. Wedefault for which the Company has entered into a term sheet with the objective of resolving the default and extinguishing the obligation; and (iii) $19,125 convertible promissory note, which is due on demand.

Capital Expenditures

On July 31, 2019 the Company acquired the Option to purchase the Properties. The Company paid the required nonrefundable $50,000 deposit which was required to bind the Option to acquire the Properties for $2.5 million by December 31, 2019 to complete the transaction. In addition, the Company funded lease extensions underlying the Option which totaled $26,415. The Company was unable to close on the Option prior to December 31, 2019 and the parties are seeking to extend the maturity date to cure the technical defaults; however, therenegotiating for an extension and repricing. There can be no assurance that weit will be able to do so or obtain such extensionsthe required financing or whatobtain it on terms favorable to the final terms will be ifCompany or its shareholders to acquire the lenders agree to such extensions. We intend to seek additional capital through the sale of equity or short-term debt financing to provide the funds necessary to meet our obligations when they come due and to provide working capital to fund normal operations, although we can provide no assurances that we will be successful in this regard. Our current financial condition has made traditional bank loans and normal financing terms unattainable; therefore, we may find it necessary to continueProperties. Accordingly, all costs associated with the type of short-term borrowings with high effective interest rates that we have used inoption to acquire the past.

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

The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund: (1) the annual training program and area fees for 2016 and 2017; (2) required letters of credit to the Nicaraguan Government; (3) the drilling of at least one exploratory welloption on the Perlas Block of the Nicaraguan Concessions during 2017; (4) the shooting of additional seismic on the Tyra Block of the Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement from the Nicaraguan government; (5) normal day-to-day operations and corporate overhead; and (6) outstanding debt and other financial obligations as they become due including the $1.0 million December 2013 Note,31, 2019 and the two notes payable totaling $85,000, which currently are in technical default, and the Replacement Note, if issued. These are substantial operational and financial issues that must be successfully addressed during 2017 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.extension remains unresolved at March 31, 2020.

The Company is seeking new outside sources of debt and equity capital in order to fund the substantial needs enumerated above; however,above. The Company is attempting to obtain extensions of the maturity dates for its debt or compromises of the debt. The Company has been successful in restructuring certain obligations that were in default during 2019. However, there can be no assurance that it will be able to obtain such capitaladditional funding, extensions or obtain itrestructurings or on favorable terms or within the timeframe necessary to cure the technical defaults existing on the Nicaraguan Concessions or to meet its ongoing requirements relative to drilling the exploratory wells. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products, and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects.what terms.

Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern.concern within one year after the date the financials are issued. The 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

(Not Applicable)

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on their evaluation as of September 30, 2017,March 31, 2020, the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are not effective in assuring that financial statement presentation and disclosure are in conformity with those which are required to be included in our periodic SEC filings.

Changes in Internal Control Over Financial Reporting

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

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

PART II -OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Companyinformation regarding certain legal proceedings in which we are involved as set forth in Note 8 – Commitments and Contingencies of the Notes to the Condensed Financial Statements (Part I, Item 1 of this Quarterly Report on Form 10-Q) is currentlyincorporated by reference into this Item 1.

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