| Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies | 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 balance sheets, statements of operations,
and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results
that may be expected for 2018 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 pursuing the exploration
of potential oil and gas resources 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 Company sold its
wholly-owned subsidiary Infinity Oil and Gas of Texas, Inc. in 2012 and its wholly-owned subsidiary, Infinity Oil and Gas of Wyoming,
Inc., was administratively dissolved in 2009. The Company has been pursuing exploration
and development of the Nicaraguan Concessions, which represents its principal asset and only exploration and development project.
On March 5, 2009 Infinity signed the contracts relating to its Nicaraguan Concessions. Infinity conducted activities to develop
geological information from the processing and evaluation of 2-D seismic data that was acquired for the Nicaraguan Concessions.
The Company identified multiple sites for exploratory drilling and intends to plan the initial exploratory well on the Perlas Block
in order to determine the existence of commercial hydrocarbon reserves, subject to receipt from the Nicaraguan government of authorizations
for the drilling of up to five wells, financing and satisfaction of other conditions. In order to meet its obligations under the
Perlas Block of the Nicaraguan Concession, the Company had to drill its initial exploratory well during 2016, which did not occur.
As a result of this and other defaults, the Company is in default of the Perlas development plan and may lose its rights under
the Nicaraguan Concessions. The work plan on the Tyra block now requires the Company to shoot additional seismic prior to the commencement
of exploratory drilling. The Company is seeking a waiver of the additional seismic mapping on the Tyra Block and extension of time
to complete its initial well from the Nicaraguan government. The Company has not been able to pay the 2016, 2017 and 2018 area
fees and training fees for both the Perlas and Tyra blocks as required under the Nicaraguan Concessions and is in technical default.
The Company is attempting to negotiate extensions, waivers and/or new Perlas and Tyra Concession agreements with the Nicaraguan
government at June 30, 2018 to cure such defaults. There can be no assurance whether it will be able to obtain such extensions,
waivers and/or new agreements that will cure its various defaults under the Nicaraguan Concessions. The current environment for
oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given
the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets
for exploration and development projects. There can be no assurance whether the Company will be able to cure its various defaults
under the Nicaraguan Concessions and obtain adequate financing to fund the exploration and development of its Nicaraguan Concessions. On May 7, 2015, the Company completed
the private placement (the “May 2015 Private Placement”) of a $12.0 million principal amount Secured Convertible Note
(the “Note”) and a common stock purchase warrant to purchase 1,800,000 shares of the Company’s common stock (the
“Warrant”) with an institutional investor (the “Investor”). At the closing, the Investor acquired the Note
by paying $450,000 in cash and issuing a promissory note, secured by cash, with a principal amount of $9,550,000 (the “Investor
Note”). On May 4, 2017, the Investor notified
the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000
principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible
Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange
for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal
balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver a new convertible note (the
“Replacement Note”) representing the remaining principal balance of $2,197,231 to replace the Convertible Note. The
Replacement Note provides for a one-year maturity from May 7, 2017, a conversion price of $0.50 per share and is currently in technical
default. The Company is negotiating with the Investor a resolution of this matter regarding the issuance of the Replacement Note
under the terms of the financing and taking into consideration that the Investor only funded $510,000 in the entire transaction,
but there can be no assurance that it will be successful in this regard. The Note was to mature on the three-year
anniversary of its issuance, bore interest at 8% per annum, and was convertible at any time at the option of the holder into shares
of the Company’s common stock at $5.00 per share (the “Conversion Price”). The Note is now in technical default
and the Company has had discussions with the Holder regarding a resolution to the default. As a part of the May 2015 Private Placement,
the Company issued a Warrant to the Investor giving it the right to purchase up to an aggregate of 1,800,000 shares of the Company’s
common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance
for a period of seven years from the date of issuance. The Note ranked senior to the Company’s existing and future indebtedness
and is secured by all the assets of the Company, excluding the Concessions. The proposed Replacement Note would have the same security
interest as the Convertible Note. In addition, the Company continues to
seek offers from industry operators and other third parties for interests in the acreage in the Nicaraguan Concessions in exchange
for cash and a carried interest in exploration and development operations or other joint venture arrangement. Going Concern As reflected in the accompanying unaudited
condensed statements of operations, the Company has had a history of losses. In addition, the Company has a significant working
capital deficit, has notes payable that are in default and is currently experiencing substantial liquidity issues. In addition,
the Company’s most significant asset and its primary business plan is the exploration and development of the Nicaraguan Concessions
which are now in default and in risk of being terminated. The Company has relied on raising debt
and equity capital to fund its ongoing maintenance/expenditure obligations under the Nicaraguan Concession, for its day-to-day
operations and its corporate overhead because it has generated no operating revenues or cash flows in recent years. The $1.0 million
December 2013 Note (See Note 3) matured in April 2016 and is currently in technical default and five other notes payable with principal
balances of $338,125 as of June 30, 2018 are now either due on demand or currently in default. The Company is seeking resolutions
to these default including extensions of 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 is also exploring the possibility
of obtaining financing, conversion and/or compromise of existing indebtedness and satisfaction of other outstanding obligations
to third parties and those relating to the Nicaraguan Concessions, through a possible combination or merger with a private entity
involving the issuance of the Company’s equity, stock options and warrants. The Company and such entity are in discussions,
conducting due diligence and exploring the feasibility of a possible transaction. They have not entered into negotiations regarding
a definitive agreement. There can be no assurance that the parties will enter into a definitive agreement or ultimately close a
transaction or on what terms. The Company was in default of various
provisions of the 30-year Concession for both Perlas and Tyra blocks as of June 30, 2018, including (1) the drilling of at least
one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (3) the provision of the Ministry
of Energy with the required letters of credit in the amounts totaling $1,356,227 for the Perlas block and $278,450 for the Tyra
block for exploration requirements on the leases; (4) payment of the 2016, 2017 and 2018 area fees required for both the Perlas
and Tyra which total approximately $139,000; and (5) payment of the 2016, 2017 and 2018 training fees required for both the Perlas
and Tyra totaling approximately $250,000. 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 must raise
substantial amounts of debt and equity capital from other sources in the immediate future in order to fund: (1) the annual training
program and area fees for 2016, 2017 and 2018; (2) required letters of credit to the Nicaraguan Government; (3) the drilling of
at least one exploratory well on the Perlas Block of the Nicaraguan Concessions during 2018; (4) the shooting of additional seismic
on the Tyra Block of the Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement from the Nicaraguan
government; (5) normal day-to-day operations and corporate overhead; and (6) outstanding debt and other financial obligations as
they become due, including the $1.0 million December 2013 Note, and the five notes payable totaling $338,125, which are either
due on demand or currently in technical default and the Replacement Note, if issued. These are substantial operational and financial
issues that must be successfully addressed during 2018 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 to fund the substantial needs enumerated above, as well as satisfying its existing debt obligations.
The Company is attempting to obtain extensions of the maturity date for its debt; however, there can be no assurance that it will
be able to do so or what the final terms will be if the lenders agree to such extensions. The Company is also exploring the possibility
of obtaining financing, conversion and/or compromise of existing indebtedness and satisfaction of other outstanding obligations
to third parties and those relating to the Nicaraguan Concessions through a possible combination, merger or other transaction with
a private entity involving the issuance of the Company’s equity, stock options and warrants to such entity or its owners
(the “Merger Alternative”). The Company and such entity are in discussions, conducting due diligence and exploring
the feasibility of a possible transaction. They have not entered into negotiations regarding a definitive agreement. There can
be no assurance that the parties will enter into a definitive agreement or ultimately close a transaction or on what terms. Due to the uncertainties related to
these matters, there exists substantial doubt about the Company’s ability to continue as a going concern within one year
after the date the financials are issued. The 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 and it other financial obligations. The political climate in Nicaragua
is currently unstable and is subject to radical change over a short period of time. In the event 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 June
30, 2018 and December 31, 2017, it is the Company’s policy that all highly liquid investments with a maturity of three months
or less when purchased would be cash equivalents and would be included along with cash as cash and equivalents. Oil and Gas Properties The Company follows the full cost method
of accounting for exploration and development activities. Accordingly, all costs incurred in the acquisition, exploration, and
development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and seismic
costs) and the fair value of estimated future costs of site restoration, dismantlement, and abandonment activities are capitalized.
Overhead related to development activities is also capitalized during the acquisition phase. Depletion of proved oil and gas properties
is computed on the units-of-production method, with oil and gas being converted to a common unit of measure based on relative energy
content, whereby capitalized costs, as adjusted for estimated future development costs and estimated asset retirement costs, are
amortized over the total estimated proved reserve quantities. Investments in unproved properties, including capitalized interest
and internal costs, are not depleted pending determination of the existence of proved reserves. Unproved properties are assessed periodically
(at least annually) to ascertain whether impairment has occurred. Unproved properties whose costs are individually significant
are assessed individually by considering the primary lease terms of the properties, the holding period of the properties, geographic
and geologic data obtained relating to the properties, and estimated discounted future net cash flows from the properties. Estimated
discounted future net cash flows are based on discounted future net revenues associated with probable and possible reserves, risk
adjusted as appropriate. Where it is not practicable to assess individually the amount of impairment of properties for which costs
are not individually significant, such properties are grouped for purposes of assessing impairment. The amount of impairment assessed
is deducted from the costs to be amortized, and reported as a period expense when the impairment is recognized. All unproved property
costs as of June 30, 2018 and December 31, 2017 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 December 31, 2017 and June 30,
2018 and has concluded that a full impairment reserve should be provided on the costs capitalized for the Nicaraguan Concessions
oil and gas properties. All costs related to the Nicaraguan Concessions from January 1, 2016 through June 30, 2018 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 December 31, 2017 and June 30, 2018, the Company did
not have any proved oil and gas properties, and all unproved property costs relate to its Nicaraguan Concessions. Proceeds from the sales of oil and gas
properties are accounted for as adjustments to capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss
would be recognized in the determination of the Company’s net earnings/loss. Asset Retirement Obligations The Company records estimated future
asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities to record the fair value of a liability
for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of
the related long-lived asset. Subsequent to initial measurement, the asset retirement liability is required to be accreted each
period. The Company’s asset retirement obligations consist of costs related to the plugging of wells, the removal of facilities
and equipment, and site restoration on oil and gas properties. Capitalized costs are depleted as a component of the full cost pool
using the units of production method. Although the Company had divested all of its domestic oil properties that contain operating
and abandoned wells as of December 31, 2012, the Company may have obligations related to the divestiture of certain abandoned non-producing
domestic leasehold properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. Management
believes the Company has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas
oil and gas properties in 2011 and its sale of 100% of the stock in Infinity-Texas in 2012. The Company has recognized an additional
liability of $734,897 related to its former Texas oil and gas producing properties (included in asset retirement obligations) to
recognize the potential personal liability of the Company and its officers for the Infinity-Texas oil and gas properties should
the new owner not perform its obligations to reclaim abandoned wells in a timely manner. In addition, management believes the Company
has been relieved from asset retirement obligations related to Infinity-Wyoming because of the sale of its Wyoming and Colorado
oil and gas properties in 2008; however, the Company has recognized since 2012 an additional liability of $981,106 related to its
former Wyoming and Colorado oil and gas producing properties (included in asset retirement obligations) to recognize the potential
liability of the Company and its officers should the new owner not perform its obligations to reclaim abandoned wells in a timely
manner. Derivative Instruments The Company accounts for derivative
instruments or hedging activities under the provisions of ASC 815 Derivatives and Hedging The purpose of hedging is to provide
a measure of stability to the Company’s cash flows in an environment of volatile oil and gas prices and to manage the exposure
to commodity price risk. As of June 30, 2018 and December 31, 2017 and during the periods then ended, the Company had no oil and
natural gas derivative arrangements outstanding. As a result of certain terms, conditions
and features included in certain common stock purchase warrants issued by the Company (Notes 2, 3, 5 and 6), those warrants are
required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in operations. Fair Value of Financial Instruments The carrying values of the Company’s
accounts payable, accrued liabilities and short term notes represent the estimated fair value due to the short-term nature of the
accounts. In accordance with ASC Topic 820 — Fair
Value Measurements and Disclosures ASC 820 utilizes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief
description of those three levels:
● Level 1 — Quoted prices in active markets for identical assets and liabilities.
● Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities).
● Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value. The estimated fair value of the Company’s
Note and various derivative liabilities, which are related to detachable warrants issued in connection with various notes payable,
were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments,
estimated volatility of the price of the Company’s common stock, interest rates, the probability of both of the downward
adjustment of the exercise price and the upward adjustment to the number of warrants as provided by the warrant agreement terms
and non-performance risk factors, among other items. The fair values for the warrant derivatives as of June 30, 2018 and December
31, 2017 were classified under the fair value hierarchy as Level 3. The following table represents the Company’s
hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2018 and December
31, 2017:
June 30, 2018 Level 1 Level 2 Level 3 Total
Liabilities:
Senior convertible note payable $ — $ — $ 2,197,231 $ 2,197,231
Derivative liabilities — — 83,182 83,182
$ — $ — $ 2,280,413 $ 2,280,413
December 31, 2017 Level 1 Level 2 Level 3 Total
Liabilities:
Senior convertible note payable $ — $ — $ 2,046,437 $ 2,046,437
Derivative liabilities — — 104,183 104,183
$ — $ — $ 2,150,620 $ 2,150,620 There were no changes in valuation techniques
or reclassifications of fair value measurements between Levels 1, 2 or 3 during the six months ended June 30, 2018 and for the
year ended December 31, 2017. Income Taxes The Company uses the asset and liability
method of accounting for income taxes. This method requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. The
tax benefits of tax loss carryforwards and other deferred taxes are recorded as an asset to the extent that management assesses
the utilization of such assets to be more likely than not. Management routinely assesses the realizability of the Company’s
deferred income tax assets, and a valuation allowance is recognized if it is determined that deferred income tax assets may not
be fully utilized in future periods. Management considers future taxable earnings in making such assessments. Numerous judgments
and assumptions are inherent in the determination of future taxable earnings, including such factors as future operating conditions.
When the future utilization of some portion of the deferred tax asset is determined not to be more likely than not, a valuation
allowance is provided to reduce the recorded deferred tax asset. When the Company can project that a portion of the deferred tax
asset can be realized through application of a portion of tax loss carryforward, the Company will record that utilization as a
deferred tax benefit and recognize a deferred tax asset in the same amount. There can be no assurance that facts and circumstances
will not materially change and require the Company to adjust its deferred income tax asset valuation allowance in a future period.
The Company recognized a deferred tax asset, net of valuation allowance, of $0 at June 30, 2018 and December 31, 2017. The Company is potentially subject to
taxation in many jurisdictions, and the calculation of income tax liabilities (if any) involves dealing with uncertainties in the
application of complex income tax laws and regulations in various taxing jurisdictions. It recognizes certain income tax positions
that meet a more-likely-than not recognition threshold. If the Company ultimately determines that the payment of these liabilities
will be unnecessary, it will reverse the liability and recognize an income tax benefit. No liability for unrecognized tax benefit
was recorded as of December 31, 2017. During the Six months ended June 30, 2018 the Company determined that the payment of the
certain liabilities related to the alternative minimum tax from prior years will be unnecessary, and therefore it reversed the
liability and recognized an income tax benefit as described in the following section. On December 22, 2017, the U.S. enacted
the Tax Cuts and Jobs Act (the “Act”),which significantly changes U.S. corporate income tax laws by, among other things,
reducing the U.S. corporate income tax rate to 21% starting in 2018. Under the Act,
corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a
corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as
a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit
carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however,
the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior
years totaling $150,000 which previously was reported as income taxes payable on the Company’s balance sheet and the corresponding
deferred tax asset was fully reserved based on all available evidence, the Company considered it more likely than not that all
of the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it
more likely than not that all the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income
benefit of $150,000 during the six months ended June 30, 2018 as it reduced the corresponding income taxes payable to zero as of
June 30, 2018. The Company will receive no cash from the elimination of this AMT tax credit carryforward because the Company had
not previously paid the AMT tax but rather it recorded the income tax liability on the accompanying balance sheet. Net Income (Loss) per Share Pursuant to FASB ASC Topic 260, Earnings
per Share, 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. |
