UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended SeptemberJune 30, 2017.2020.

For the transition period from __________ to __________.

Commission File Number:0-17204

INFINITY ENERGY RESOURCES, INC.

(Exact name of registrant as specified in its charter)

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

(Address of principal executive offices) (Zip Code)

(913) 948-9512

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

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

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

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

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

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

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

INFINITY ENERGY RESOURCES, INC.

Condensed Balance Sheets

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

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INFINITY ENERGY RESOURCES, INC.

Condensed Balance SheetsStatements of Operations
(Unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Stockholders’ Deficit

(unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of OperationsCash Flows

(Unaudited)(unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Condensed Statement of Changes in Stockholders’ Deficit

Nine months ended September 30, 2017

(Unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Cash Flows

(unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Notes to Condensed Financial Statements

June 30, 2020

(unaudited)

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

Unaudited Interim Financial Information

Infinity Energy Resources, Inc. (collectively, “we,” “ours,” “us,” “Infinity” or the “Company”) has prepared the accompanying condensed financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These financial statements are unaudited and, in our opinion, include all adjustments consisting of normal recurring adjustments and accruals necessary for a fair presentation of our condensed balance sheets, statements of operations, statements of stockholders’ deficit and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 20172020 due to various factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed financial statements should be read in conjunction with the audited financial statements and accompanying notes in Item 8, “Financial Statements and Supplementary Data,” of our Annual Report on Form 10-K, filed with the SEC.

Nature of Operations

The Company is pursuingSince 2009, we had planned to pursue the exploration of potential oil and gas resources in the United States and in the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which contain a total of approximately 1.4 million acres. The CompanyWe sold itsour wholly-owned subsidiary, Infinity Oil and Gas of Texas, Inc. in 2012 and its wholly-owned subsidiary, Infinity Oil and Gas of Wyoming, Inc., was administratively dissolved in 2009.

The Company has been pursuingWe also began assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of natural gas and oil properties in the Nicaraguan Concessions, which represents its principal asset and only exploration and development project. On March 5, 2009 Infinity signedUnited States, including the contracts relating to its Nicaraguan Concessions. Infinity has conducted activities to develop geological information from the processing and evaluationpossibility of 2-D seismic dataacquiring businesses or assets that was acquiredprovide support services for the Nicaraguan Concessions. The Company has identified multiple sites for exploratory drillingproduction of oil and intends to plangas in the initial exploratory well on the Perlas Block in order to determine the existence of commercial hydrocarbon reserves, subject to receipt from the Nicaraguan government of authorizations for the drilling of up to five wells, financing and satisfaction of other conditions. In order to meet its obligations under the Perlas Block of the Nicaraguan Concession, the Company had to drill its initial exploratory well during 2016, which did not occur.United States. As a result, on July 31, 2019, we acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for oil & gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). We paid a nonrefundable deposit of this$50,000 to bind the Option, which provided us 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 other defaults, the Company is in defaultparties are negotiating for an extension of such Option and a reduction of the Perlas development plan and may lose its rights under the Nicaraguan Concessions. The work plan on the Tyra block now requires the Company to shoot additional seismic prior to the commencement of exploratory drilling. The Company is seeking a waiverpurchase price of the additional seismic mapping on the Tyra Block and extension of time to complete its initial well from the Nicaraguan government. The Company has not been able to pay the 2016 and 2017 area fees and training fees for both the Perlas and Tyra blocks as required under the Nicaraguan Concessions and is in technical default. The Company is attempting to negotiate extensions, waivers and/or new Perlas and Tyra Concession agreements with the Nicaraguan government at September 30, 2017 to cure such defaults.Properties. There can be no assurance whether itthat the parties will be able to obtain such extensions, waivers and/or new agreements that will curenegotiate an extension and acceptable reduced price, particularly in light of recent events including the coronavirus pandemic and its various defaults underimpact on the Nicaraguan Concessions. The current environment for oil and gas development projects, especially discoveries inindustry.

If the parties agree to extend, reprice or otherwise undeveloped regionscomplete the acquisition, the purchase will include the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand zone with an approximate depth of 3,600 feet.

We intend to complete the acquisition of the world, is very challenging givenProperties prior to the depressed commodity pricesend of 2020, subject to successful renegotiations and obtaining adequate financing. The Option includes a provision permitting Core to exercise a buy-out clause and sell the Properties to a third-party purchaser prior to our exercise of the Option. If such a sale occurs, we would be entitled to 10% of the proceeds of the sale on the closing date. In such event, Core will for oila period of nine months following the buy-out find a project of like kind and gas products and the resulting industry-wide reduction inprovide us a first right of refusal to acquire such asset.

We must obtain new sources of debt and/or equity capital expenditure budgets for exploration and development projects. There can be no assurance whether the Company will be able to cure its various defaults under the Nicaraguan Concessions and obtain adequate financing to fund the exploration and development of its Nicaraguan Concessions.

On May 7, 2015, the Company completed the private placement (the “May 2015 Private Placement”) of a $12.0 million principal amount Secured Convertible Note (the “Note”) and a common stock purchase warrantsubstantial needs enumerated above, as well as satisfying our existing debt obligations. We are attempting to purchase 1,800,000 sharesobtain extensions of the Company’s common stock (the “Warrant”) with an institutional investor (the “Investor”). At the closing, the Investor acquired the Note by paying $450,000 in cash and issuing a promissory note, secured by cash, with a principal amount of $9,550,000 (the “Investor Note”).

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

COVID–19 PANDEMIC

The Note wascondensed financial statements contained in this quarterly report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of June 30, 2020. Economies throughout the world have been and continue to mature onbe severely disrupted by the three-year anniversary of its issuance, bore interest at 8% per annum, and was convertible at any time at the optioneffects of the holder into sharesquarantines, business closures and the reluctance of individuals to leave their homes as a result of the Company’s common stock at $5.00 per share (the “Conversion Price”). As a partoutbreak of the May 2015 Private Placement,coronavirus (Covid-19). In particular, the Company issued a Warrant tooil and gas market has been severely impacted by the Investor giving it the right to purchase up to an aggregate of 1,800,000 sharesnegative effects of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance for a period of seven years from the date of issuance. The Note ranked senior to the Company’s existing and future indebtedness and is secured by all the assetscoronavirus because of the Company, excludingsubstantial and abrupt decrease in the Concessions. The proposed Replacement Note would have the same security interest as the Convertible Note.

demand for oil and gas globally. In addition, the Company continuescapital markets have been disrupted and our efforts to seek offers from industry operatorsraise necessary capital will likely be adversely impacted by the outbreak of the virus and other third parties for interestswe 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 quarterly 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 acreage inadditional uncertainties caused by the Nicaraguan Concessions in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement.outbreak of Covid-19.

Going ConcernNicaragua

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

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

The Company hasWe relied on raising debt and equity capital in recent years in order to fund itsour ongoing maintenance/expenditure obligations under the Nicaraguan Concession, for itsour day-to-day operations and its corporate overhead because it haswe have generated no operating revenues or cash flows in recent history.years. The $1.0 million December 2013 Note (See Note 3) matured in April 2016 and is currently in technical default and twothree other notes payable with principal balances of $85,000$145,125 as of SeptemberJune 30, 20172020 are now either due on demand or currently in default. The Company is seeking extensions ofIn January 2020, we abandoned the maturity date for these notes payable; 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.Concessions.

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

The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund: (1)fund 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(i) acquisition of the Nicaraguan Concessions during 2017; (4)Properties under the shooting of additional seismic on the Tyra Block of the Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement from the Nicaraguan government; (5)Option; (ii) normal day-to-day operations and corporate overhead; and (6)(iii) outstanding debt and other financial obligations as they become due, including the $1.0 million December 2013 Note, and the two notes payable totaling $85,000, which are in technical default and the Replacement Note, if issued.as described below. 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;above. The Company is attempting to obtain extensions of the maturity dates for its debt or compromises of the debt. In addition, the Company will seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. The Company has restructured certain obligations that were in default during 2019; however, there can be no assurance that it will be able to obtain such capitalfunding, extensions or obtain itadditional restructurings or on favorable terms or within the timeframe necessary to cure the technical defaults existing on the Nicaraguan Concessions or to meet its ongoing requirements relative to drilling the exploratory wells. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products, and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects.what terms.

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

Management Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates with regard to the financial statements include the estimated carrying value of unproved properties, the estimated fair value of derivative liabilities, secured convertible note payable, stock-based awards and overriding royalty interests, and the realization of deferred tax assets.

Concentrations

The Company’s business plan consists of developing the Nicaraguan Concessions and it expects to be active in Nicaragua for the foreseeable future, given sufficient capital and curing the defaults under the Nicaraguan Concessions. The political climate in Nicaragua could become unstable and subject to radical change over a short period of time. In the event of a significant negative change in political and economic stability in the vicinity of the Nicaraguan Concessions or of the inability of the Company to obtain sufficient financing, the Company might be forced to abandon or suspend its efforts and its rights under its Nicaraguan Concessions.

Foreign Currency

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

Cash and Cash Equivalents

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

Oil and Gas Properties

The Company follows the full cost method of accounting for exploration and development activities. Accordingly, all costs incurred in the acquisition, exploration, and development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and seismic costs) and the fair value of estimated future costs of site restoration, dismantlement, and abandonment activities are capitalized. Overhead related to development activities is also capitalized during the acquisition phase.

Depletion of proved oil and gas properties is computed on the units-of-production method, with oil and gas being converted to a common unit of measure based on relative energy content, whereby capitalized costs, as adjusted for estimated future development costs and estimated asset retirement costs, are amortized over the total estimated proved reserve quantities. Investments in unproved properties, including capitalized interest and internal costs, are not depleted pending determination of the existence of proved reserves.

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

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

Pursuant to full cost accounting rules, the Company must perform a “ceiling test” each quarter. The ceiling test provides that capitalized costs less related accumulated depletion and deferred income taxes for each cost center may not exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves using prices based on the arithmetic mean of the previous 12 months’ first-of month prices and current costs, including the effects of derivative instruments accounted for as cash flow hedges, but excluding the future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, and a discount factor of 10%; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties. If capitalized costs exceed the ceiling, the excess must be charged to expense and may not be reversed in future periods. As of September 30, 2017 and December 31, 2016, the Company did not have any proved oil and gas properties, and all unproved property costs relate to its Nicaraguan Concessions.

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

Asset Retirement Obligations

The Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to initial measurement, the asset retirement liability is required to be accreted each period. The Company’s asset retirement obligations consist of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties. Capitalized costs are depleted as a component of the full cost pool using the units of production method. Although the Company had divested all of its domestic oil properties that contain operating and abandoned wells as of December 31, 2012, the Company may have obligations related to the divestiture of certain abandoned non-producing domestic leasehold properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. Management believes the Company has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas oil and gas properties in 2011 and its sale of 100% of the stock in Infinity-Texas in 2012. The Company has recognized an additional liability of $734,897 related to its former Texas oil and gas producing properties (included in asset retirement obligations) to recognize the potential personal liability of the Company and its officers for the Infinity-Texas oil and gas properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. In addition, management believes the Company has been relieved from asset retirement obligations related to Infinity-Wyoming because of the sale of its Wyoming and Colorado oil and gas properties in 2008; however, the Company has recognized since 2012 an additional liability of $981,106 related to its former Wyoming and Colorado oil and gas producing properties (included in asset retirement obligations) to recognize the potential liability of the Company and its officers should the new owner not perform its obligations to reclaim abandoned wells in a timely manner.

Derivative Instruments

The Company accounts for derivative instruments or hedging activities under the provisions of ASC 815Derivatives and Hedging. ASC 815 requires the Company to record derivative instruments at their fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in the condensed statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges, if any, are recognized in earnings. Changes in the fair value of derivatives that do not qualify for hedge treatment are recognized in earnings.

The purpose of hedging is to provide a measure of stability to the Company’s cash flows in an environment of volatile oil and gas prices and to manage the exposure to commodity price risk. As of SeptemberJune 30, 20172020 and December 31, 20162019 and during the periods then ended, the Company had no oil and natural gas derivative arrangements outstanding.

As a result of certain terms, conditions and features included in certain common stock purchase warrants issued by the Company (Notes 2, 3, 5 and 6), those warrants are required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in operations.

Fair Value of Financial Instruments

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

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

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

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

The estimated fair value of the Company’s Note and various derivative liabilities, which are related to detachable warrants issued in connection with various notes payable, (See Note 5 - Derivative Instruments) were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, par value $0.001 per share (the “Common Stock”), interest rates, the probability of both of the downward adjustment of the exercise price and the upward adjustment to the number of warrants as provided by the warrant agreement terms (See Note 5 - Derivative Instruments) and non-performance risk factors, among other items. The fair values for the warrant derivatives as of SeptemberJune 30, 20172020 and December 31, 20162019 were classified under the fair value hierarchy as Level 3.

The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of SeptemberJune 30, 20172020 and December 31, 2016:2019:

There were no changes in valuation techniques or reclassifications of fair value measurements between Levels 1, 2 or 3 during the periods ended SeptemberJune 30, 20172020 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

The Company’s Senior Secured Convertible Note Payable in the principal amount of $12.0 million, issued in May 2015 (the “Note) payable consists“Note”), was paid off and all related liabilities extinguished in 2019, therefore there was no balance outstanding as of the following at SeptemberJune 30, 20172020 and December 31, 2016:2019.

InInvestor in connection with the May 2015 Private Placement, for 770,485 fully paid and nonassessable shares of Common Stock and certain rights (the “Rights”) to acquire additional securities in the future, which may be exercised for additional shares of Common Stock.

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

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

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

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

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

On May 30, 2019, the Company and the Investor entered into a Registration RightsAmendment No. 1 to Exchange Agreement under which(the “Amendment”). Following execution of the Exchange Agreement on May 23, 2019, the Company is required, on or before 45 days afterand the closingInvestor became aware of an inadvertent error regarding the May 2015 Private Placement,number of shares of Common Stock to file a registration statement withbe issued to the SecuritiesInvestor pursuant to the Exchange Agreement. The Company and the Investor agreed to amend the Exchange Commission (the “SEC”) coveringAgreement so it reflects the resalecorrect number of 130%shares of Common Stock to be issued and to ensure that the Investor does not beneficially own in excess of 9.99% of the shares of Common Stock outstanding immediately following the Company’s common stock issuableeffective date of the Exchange Agreement. Pursuant to the Amendment, the Company and the Investor 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 the Exchange Agreement.

Consistent with the developments above, effective November 23, 2019, the parties finalized the reconciliation pursuant to the NoteSide-Letter Agreement described above 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)related issuance of the Registrable Securities, as such term is defined inTrue-Up Shares. Pursuant to the Registration Rights Agreement. The Company filedprovisions of the required registration statement on Form S-1 onSide-Letter Agreement, the parties agreed to the issuance of an additional 567,348 shares of Common Stock and the issuance of a warrant to purchase 61,380 shares of Common Stock at an exercise price of $0.50 per share, with an expiration date of June 19, 20152026.

Following is an analysis of gain on exchange of the debt and warrant obligations pursuant to the Securities and Exchange Commission declared the Form S-1 effectiveAgreement, which was finalized on October 9, 2015 and has thereby satisfied this requirement.November 23, 2019:

Participation Rights

Prior to the finalization of the Side-Letter Agreement, the estimate of the gain on exchange of debt and warrant obligations related to the Note as of June 30, 2019 was $2,161,441.

If, duringIn addition, the period beginning onCompany issued the closing date and ending on the four (4) year anniversaryPlacement Agent Warrant in May 2015 to purchase 240,000 shares of Common Stock issued as part of the closing date, the Company offers, sells, grants any option to purchase, or otherwise disposes of any of its or its subsidiaries’ equity or equity equivalent securities (a “Subsequent Placement”), the Investor will have the right to participate for 50% of any such future Subsequent Placement.

Description of the Financial Accounting and Reporting

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

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 sharesplacement fee in connection with the NoteNote. The Placement Agent Warrant contained an expiration date of May 7, 2022 and an exercise price of $5.00 per share and is subject to certain price protection and dilution provisions. Such warrant was treated as a derivative liability for accounting purposes due to its ratchet and anti-dilution provisions.

On June 4, 2019, the Company entered into an exchange agreement with the Placement Agent to extinguish the Placement Agent Warrant, including its certain price protection and dilution provisions, for a new warrant to purchase up to 50,000 shares of Common Stock 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 warrantPlacement Agent Warrant derivative as of September 30, 2017May 23, 2019, the date of the exchange agreement with the Placement Agent, 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 connectionexchange agreement with the Note was treated as aPlacement Agent, the Company extinguished the derivative liability for accounting purposes dueof $37,368 attributable to its ratchetthe Placement Agent 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 such exchange agreement. The resulting $29,383 difference between the estimated fair value of the Placement Agent Warrant extinguished and the new warrant derivative liability totaled $8,607 (decrease inissued to the derivative liability) through September 30, 2017, which is included in changes in derivative fair value inPlacement Agent was recorded as a gain on exchange of debt and warrant obligations, effective June 4, 2019.

A summary of the accompanying statementestimated gain on exchange and extinguishment of operationsdebt and warrant obligations as of and for the ninesix months ended SeptemberJune 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 5.2019 follows:

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

Note 3 – Debt

Debt consists of the following at SeptemberJune 30, 20172020 and December 31, 2016:2019:

Line-of-Credit with Related Party

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”“December 2013 Warrant”) exercisable to purchase 100,000 shares of its common stockCommon Stock at an exercise price of $15.00 per share. In connection with an extension to April 2015, the partiesCompany and such lender amended the date for exercise of the December 2013 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 December 2013 Note to the Newnew April 2015 maturity date (the “New Maturity Date.Date”). If the Company failsfailed to pay the December 2013 Note on or before itsthe New Maturity Date, the number of shares issuable under the December 2013 Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the December 2013 Warrant remainremained the same. The December 2013 Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized ratably through the original maturity date and each of the extended maturity dates.

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

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

The Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized ratably through the original maturity date and each of the extended maturity dates. The December 2013 Warrant expired as of June 30, 2020 and is no longer exercisable.

In connection with an additional extension of the December 2013 Note to April 7, 2016, the Company agreed to enter into a definitive revenue sharing agreement with the lender (the “Revenue Sharing Agreement”) 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 percentage 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 December 2013 Note and amortized ratably over the extended term of such note. Such prospective Revenue Sharing Agreement is void with the abandonment of the Nicaraguan Concessions.

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 December 2013 Warrant to $5.00 per share and extended the term of the December 2013 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 December 2013 Note to the New Maturity Date. If the Company failed to pay the December 2013 Note on or before the New Maturity Date, the number of shares issuable under the December 2013 Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the warrant remained the same. The Company failed to make the required payment previously described and the reset of the terms of the December 2013 Warrant occurred, however such warrant expired in [month] 2019 unexercised. 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 is in default and the Company is pursuing a resolution to this default, including completing the extinguishment of the 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 December 2013 Warrant was treated as a derivative liability whereby the value of the December 2013 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 was 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 December 2013 Warrant expired in 2019 and is not deemed outstanding as of June 30, 2020 and December 31, 2019. The discount was 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 stockCommon 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 payableDecember 2013 Note to be amortized ratably over the extended term of such note.

On July 29, 2019, the underlying note.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 June 30, 2020 and December 31, 2019. The term sheet, if consummated, will resolve the default contingencies regarding the December 2013 Note through an exchange agreement. Under the proposed terms, the Company will make a cash payment of $100,000 within 60 days of the execution of an exchange agreement and will 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 the cash payment is made and the shares of Common Stock are issued to the holder and there can be no assurance that the Company will successfully complete such 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 continues not to be binding on the parties. The parties have continued efforts to resolve the payment default and otherwise enter into an exchange agreement as described above.

Other notes payable

The discount recorded as of the December 27, 2013 origination date of the note and as a result of the amendments to the Note terms and extensions of the maturity date has been amortized ratably over the term and extended terms of the note and the remaining unamortized discount was $-0- as of September 30, 2017 and December 31, 2016. The related warrant derivative liability balance was $449 and $4,429 as of September 30, 2017 and December 31, 2016, respectively. See Note 5.following notes were extinguished on June 19, 2019:

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

On June 19, 2019, the Company and the holder of these two convertible notes entered into an exchange agreement whereby such notes with an unpaid principal balance of $240,000 and related accrued interest totaling $45,020 were extinguished. Under such 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 and without any price protection or dilution provisions in exchange for the extinguishment of such 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 such exchange agreement on June 19, 2019:

Other than the December 2013 Note, at June 30, 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 June 2005, the Company’s stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”), under which both incentive and non-statutory stock options were available for grant to employees, officers, non-employee directors and consultants. An aggregate of 47,500 shares of Common Stock were reserved for issuance under the 2005 Plan and 2006 Plan; however, the 2005 Plan and the 2006 Plan have now expired and no further issuances can be made. 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 becould have been granted to employees, officers, non-employee directors and consultants. An aggregate of 47,000 shares of the Company’s common stock are reserved for issuance under the 2006 Plan. In June 2005, the Company’s stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 47,500 shares of the Company’s common stock were reserved for issuance under the 2005 and 2006 Plans; however, such Plans have now expired and no further issuances can be made. Options granted under the 2005 Plan and 2006 Plan allow for the purchase of common stockCommon 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.

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

As of SeptemberJune 30, 2017,2020, 500,000 shares were available for future grants under the 2015 Plan as allPlan. All other PlansCompany plans have now expired.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of options granted, the Company aggregates option recipients into groups that have similar option exercise behavioral traits. Expected volatilities used in the valuation model are based on the expected volatility that would be used by an independent market participant in the valuation of certain of the Company’s warrants. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ from these estimates. There were no stock options granted during the ninesix months ended SeptemberJune 30, 2017.2020 and 2019.

The following table summarizes stock option activity for the ninesix months ended SeptemberJune 30, 2017:2020:

The Company recorded stock-based compensation expense in connection with the vesting of options granted aggregating $-0- and $7,598$-0- during the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.

The intrinsic value as of SeptemberJune 30, 20172020 related to the vested and unvested stock options as of that date was $-0.$-0-. The unrecognized compensation cost as of SeptemberJune 30, 20172020 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 six months ended June 30, 2020 is as follows:

The Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted granted aggregating $48,616 and $-0- during the six months ended June 30, 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 June 30, 2020, there were $25,110 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 warrantwarrants while the ratchet and anti-dilution provisions of the other notes payable cease when the related note payable is extinguished. When the noterelated notes payable containing such ratchet and anti-dilution provisions is extinguished, the derivative liability will be adjusted to fair value and the resulting derivative liability will be transitioned from a liability to equity as of such date. The derivative liability associated with the warrants issued in connection with the secured convertible note payable will remain in effect until such time as the underlying warrant is exercised or terminated and the resulting derivative liability will be transitioned from a liability to equity as of such date.

The Company has issued warrants to purchase an aggregate of 2,174,000 common34,000 shares of Common Stock, in connection with various outstanding debt instruments which require derivative accounting treatment as of SeptemberJune 30, 2017.2020 and December 31, 2019. A comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of SeptemberJune 30, 20172020 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 ninesix months ended SeptemberJune 30, 2017:2020:

The weighted average term of all outstanding common stock purchase warrants was 4.15.4 years as of SeptemberJune 30, 2017.2020. 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 SeptemberJune 30, 2017.2020.

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 six months ended June 30, 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 June 30, 2020. 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 as of June 30, 2020, 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. TheTherefore, the Company iswas not in compliance with Federal and State laws regarding the U.S. domestic oil and gas properties.properties it previously owned. 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 SeptemberJune 30, 2017,2020, 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 including the $1.0 million December 2013 Note, and the notes payable totaling $285,000, which currently are in technical default and resolution of the Replacement Note matter. These are substantial operational and financial issues that must be successfully addressed during 2017 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

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 forfactors caused the Company to obtain adequate financing to fund the explorationhalt such efforts and development of its Nicaraguan projects.

The following charts set forth the minimum work programs required under for the Perlas and Tyra blocks comprisingabandon the Concessions in order forJanuary 2020.

In connection with the Company to retain them unless it is successful in obtaining extensions, renewals or the renegotiationextension 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,December 2013 Note, 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”),in May 2014. Infinity assigned to Off-Shorethe note holder 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.Concessions and any other oil and gas concessions that the Company and its affiliates may acquire in the future. The RSPRevenue Sharing Agreement 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 the Company’s former subsidiaries, Infinity – Wyoming and Infinity-TexasInfinity Texas, were disposed of well prior to SeptemberJune 30, 2017;2020; 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 SeptemberJune 30, 20172020 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 June 30, 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.

TheAs part of the claims and legal actions referred to above, the Company is currently involved in court litigation as follows:

Note 9 – Related Party Transactions

The Company does not have any employees other than the CEOits Chief Executive Officer, Chief Operating Officer and CFO.Chief Financial Officer. In previous years, certain general and administrative services (for which payment is deferred) had been provided by the CFO’sCompany’s Chief Financial Officer’s accounting firm at its standard billing rates plus out-of-pocket expenses consisting primarily of accounting, tax and other administrative fees. The Company no longer utilizes the CFO’sits Chief Financial Officer’s accounting firm for such support services and was not billed for any such services during the ninesix months ended SeptemberJune 30, 20172020 and 2016.2019. The amount due to the CFO’ssuch firm for services previously provided was $762,407 at SeptemberJune 30, 20172020 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 the 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 officersOption, 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 officers and directors a monthly payment equal to the revenue derived from one percent (1%) of Infinity’s shareparties are negotiating an extension 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, severanceOption 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 purchasera reduction of the production duringpurchase price, although there can be no assurance that the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinityparties will reach an agreement to maintain or develop the Nicaraguan Concessions and does not create any rights in the Nicaraguan Concessions for officers and directors.do so.

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

As of SeptemberJune 30, 20172020 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.

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. The outstanding principal on the note was $41,000 as of June 30, 2020 and $-0- as of December 31, 2019.

Note 10 – Subsequent Events

COVID–19 PANDEMIC

The Company entered into a line-of-credit facilitycondensed financial statements contained in this quarterly report on September 23, 2013Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of June 30, 2020. Continuing after such date, we believe that provided it with borrowing capacity on a revolving basis upour efforts 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 providingraise necessary capital will likely be adversely impacted by the credit facility is owned by an officer of another corporation for which Infinity’s president and chairmanoutbreak of the board serves as presidentcoronavirus (Covid-19) and chairman ofwe cannot forecast with any certainty when the board. The facility was unsecured, bore interest at 8% per annum, and was renewed at its maturity several times untildisruptions caused by it was paid in full on its extended maturity date on November 28, 2016. In consideration for the origination of the line of credit facilitywill cease to impact our business and the various renewals,results of our operations in subsequent quarterly periods. In reading this quarterly 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 Company grantedadditional uncertainties to the lender common stock purchase warrants. On February 28, 2016,results of our operations in such subsequent periods caused by the Company extended the line-of-credit expiration date to May 28, 2016 and issued a warrant to purchase 10,000 common shares at an exercise priceoutbreak of $5.00 per share, which warrants were immediately exercisable and expire on February 28, 2021. On May 28, 2016, the Company extended the line-of-credit expiration date to August 28, 2016 and issued a warrant to purchase 10,000 common shares at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on May 28, 2021. On August 28, 2016, the Company extended the line-of-credit expiration date to November 28, 2016 and issued a warrant to purchase 10,000 common shares at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on August 28, 2021.Covid-19.

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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 (the “Exchange Act”), which are intended to be covered by the safe harbors created thereby. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “intends,” and other variations of these words or comparable words. In addition, 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 causeAs used in this quarterly report, “Infinity,” the “Company,” “we,” “us” and “our” refer collectively to Infinity Energy Resources, Inc., its predecessors and subsidiaries or contribute to our actual results differing materially from those discussed hereinone or for our stock price to be adversely affected include, but are not limited to: (i) we have a historymore of losses, are experiencing substantial liquidity problemsthem as the context may require.

Overview

The Company is an oil and our continuation as a going concern; (ii) we have substantial obligations to a number of third parties, including our December 2013natural gas exploration, development and production company, which is primarily in the original principal amountbusiness of $1,050,000 duedrilling and operating oil & gas wells. The Company also provided oilfield services. Since 2009, the Company has planned to pursue the exploration of potential oil and gas resources in April 2016, notes withthe Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which contain a total principal balance of $325,000approximately 1.4 million acres. However, in January, 2020, the Company abandoned the Concessions. The Company has also assessed various opportunities and strategic alternatives involving 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 ouracquisition, exploration and development of natural gas and oil properties in the United States, including the possibility of acquiring businesses or assets that provide support services for the production of oil and gas in the United States, such as in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). The Company intends to complete the acquisition of the Properties prior to the end of 2020, subject to successful renegotiations and obtaining adequate financing.

2020 Operational and Financial Objectives

COVID–19 PANDEMIC

The condensed financial statements contained in this quarterly report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of June 30, 2020. 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 quarterly report on the Nicaraguan Concessions,Form 10-Q, including our defaults under the letterdiscussion 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 areconcern set forth herein, in a country with a developing economy and are subject toeach case, consider the risksadditional uncertainties caused by the outbreak 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 elsewhere in this quarterly report on Form 10-Q. See Note 1 –“Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies,” to the Condensed Financial Statements for the Three and Nine months ended September 30, 2017 and 2016.

2017 Operational and Financial ObjectivesCovid-19.

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, Chief Executive Officer and 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 the Company’s common stock, par value $0.0001 per share (the “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 Company’s obligations in connection with its issuance of the $1,050,000 promissory note to a lender in December 2013 (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 (the “May 2015 Note”) and related warrant to purchase 1,800,000 shares of Common Stock; (ii) notes payable with a principal balance of $240,000; and (iii) warrant to purchase 240,000 shares of Common Stock issued to the placement agent for the May 2015 private placement transaction. These obligations were extinguished and exchanged for the issuance of shares of Common Stock and new warrants to purchase shares of Common Stock. Such exchange transactions 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 such exchange transactions.

On July 29, 2019, the Company entered into a non-binding term sheet with the holder of the 30-year Concession for both the Perlas and Tyra blocksDecember 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 an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for the Properties, subject to overriding royalties to third parties. The Company paid a nonrefundable deposit of $50,000 to bind the 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 Covid-19 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 aggregate outstanding principal balance of debt$1,145,125 and equity capital from other sources in the immediate future$1,104,125 as of June 30, 2020 and December 31, 2019, respectively related to fund its obligations under the Concessions.such notes’ due on demand and/or default status, as applicable. 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.

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 andcontinue as 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.going concern.

Off-Balance Sheet Arrangements

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

ForComparison of the Three Months Ended SeptemberJune 30, 20172020 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 acquisition of the exploration, development, financing and maintenance ofOption for 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-Texasits former subsidiary, Infinity Oil and Gas of Texas, Inc. (“Infinity Texas”), in July 2012 and held no developed or undeveloped oil and gas properties in the United States in 20172020 and 2016.2019.