AMERICAN NOBLE GAS, INC. - Annual Report: 2012 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

For the fiscal year ended December 31, 2012

or

For the transition period from _________ to _________.

Commission file number: 0-17204

Infinity Energy Resources, Inc.

 (Exact name of registrant as specified in its charter)

(913) 948-9512

 (Registrant’s telephone number, including area code)

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [  ] No [X]

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [  ] No [X]

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

FORM 10-K

INFINITY ENERGY RESOURCES, INC.

DECEMBER 31, 2012

Table of Contents

Note Regarding Forward Looking Statements

This annual report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “intends,” and other variations of these words or comparable words. In addition, any statements that refer to expectations, projections or other characterizations of events, circumstances or trends and that do not relate to historical matters are forward-looking statements. To the extent that there are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. The actual results or events may differ materially from those anticipated and as reflected in forward-looking statements included in 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 annual report on Form 10-K 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.

As used in this annual report, “Infinity,” the “Company,”“we,” “us” and “our” refer collectively to Infinity Energy Resources, Inc., its predecessors and subsidiaries or one or more of them as the context may require.

Part I

Overview

Infinity Energy Resources, Inc. is an independent energy company that was engaged in the acquisition, exploration and development of natural gas and oil properties in the United States through our wholly-owned subsidiaries, Infinity Oil and Gas of Texas, Inc. (“Infinity-Texas”) (sold July 2012) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”). We are pursuing an oil and gas exploration opportunity offshore of Nicaragua in the Caribbean Sea. Infinity previously operated in the Fort Worth Basin of north central Texas and Wyoming, and still holds leases in Wyoming; all Texas properties were sold in December 2011.

Corporate History

Infinity was incorporated as a Colorado corporation in April 1987 and reincorporated as a Delaware corporation in September 2005. From January 1, 2002 through December 31, 2004, we produced natural gas and oil and grew our production through exploration and development drilling exclusively in the Rocky Mountain region. During this period, we completed the drilling of 36 oil and gas wells with a success rate of 75% at our two projects in the Greater Green River Basin. Exploratory wells accounted for 69%, or 25 of the total wells drilled. Beginning in 2005, our primary exploration focus shifted to the Fort Worth Basin in north central Texas. During 2005, 2006 and 2007, we completed the drilling of 29 gas wells in the Fort Worth Basin. Exploratory wells accounted for 100% of the total wells drilled.

On December 15, 2006, we sold our oilfield services subsidiaries, Consolidated Oil Well Services, Inc. and CIS-Oklahoma, Inc. to Q Consolidated Oil Well Services, LLC, a Delaware limited liability company.

On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by it in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest Oil Corporation, a New York corporation (“Forest”). During the year ended December 31, 2008, Infinity-Texas property was not cash flowing and operations were scaled back. During the year ended December 31, 2008 the remaining values of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate and as such, were written down to zero. In December 2011, we sold the Texas properties. In July 2012, we sold all or our investment in Infinity-Texas. We are now focused solely on the development of our properties offshore Nicaragua.

Nicaragua

Since 1999, we have pursued an oil and gas exploration opportunity offshore Nicaragua in the Caribbean Sea. Over such time period, we have built relationships with the Instituto Nicaraguense de Energia (“INE”) and undertook the geological and geophysical research that helped us to become one of only six companies qualified to bid on offshore blocks in the first international bidding round held by INE in January 2003.

On March 5, 2009, we signed the contracts granting us the Perlas and Tyra concession blocks offshore Nicaragua (the “Nicaraguan Concessions”). Since such point, we conducted an environmental study and the development of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired over the concession blocks offshore Nicaragua. We are seeking offers from other industry operators for interests in the acreage in exchange for cash and a carried interest in exploration and development operations or other strategic partnership. The funds raised through the subordinated note transaction described below were used to fund these expenses.

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 offshore Nicaragua. We issued letters of credit totaling approximately $1.0 million for this initial work on the leases. We commenced significant activity under the initial work plan and are waiting for formal governmental approval of the environmental study. We intend to seek joint venture or working interest partners prior to the commencement of any exploratory drilling operations on the Nicaraguan Concessions.

Recent Developments - Retirement of Debt

Effective February 16, 2011, we entered into a Fifth Forbearance Agreement (the “Fifth Forbearance”) with Amegy Bank (“Amegy”) under which advances of $1,050,000, increased to $1,260,000 on September 12, 2011, were approved. As of December 31, 2011, Amegy had made advances of $1,396,758, which were $136,758 in excess of the approved amount. After December 31, 2011, Amegy had made additional advances of $272,070, for a total of $1,668,828 as of February 28, 2012.

On February 28, 2012, we signed definitive agreements with Amegy and Off-Shore Finance LLC (“Off-Shore”) relating to outstanding debt and other obligations we owed to them. On April 13, 2012, under the terms of these agreements, we issued 130,000 shares of Series A Preferred Stock (the “Series A Preferred”) and 2,000,000 shares of common stock to Amegy and it agreed to cancel a warrant exercisable to purchase 931,561 shares of our common stock that we issued to it in February 2011 in conversion, exchange and payment in full of all debt and other obligations we owed to Amegy. In addition, we agreed to issue Off-Shore 15,016 shares of Series B Preferred Stock (the “Series B Preferred”) in conversion, exchange and payment in full of all debt and other obligations we owed to Off-Shore. As a result of the transactions, we cancelled debt, accrued interest and fees, and the derivative liability recorded relative to the Amegy warrant, all of which totaled $21,833,393 at April 13, 2012. These transactions were recorded in the second quarter of 2012.

Our corporate office is located at 11900 College Boulevard, Suite 310, Overland Park, Kansas 66210. Our telephone number is (913) 948-9512.

Infinity-Texas

Infinity-Texas was engaged in the acquisition, exploration, development and production of natural gas in the Fort Worth Basin of north central Texas. Infinity-Texas, a Delaware corporation with its headquarters located in Overland Park, Kansas, was sold by us on July 31, 2012.

Infinity-Texas was formed in June 2004 to acquire, explore, develop and produce natural gas from the Barnett Shale formation and other producing formations in the Fort Worth Basin. The Barnett Shale is a marine shale formation that is natural gas bearing at depths believed to range from 1,000 to 8,500 feet and is believed to be ubiquitous across the Fort Worth Basin.

During the year ended December 31, 2008, Infinity-Texas property was not cash flowing and operations were scaled back. The main salt water disposal well was struck by lightning in April, 2009 and we made the decision to cease operations under the force majeure clause of the leases. During the year ended December 31, 2008, the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate and, as such, were written down to zero. In December 2011, we signed an agreement to sell the Texas properties for $1,000,000. The buyers issued us a non-interesting bearing note with a four-year term, payable from the buyer’s net profits from oil and gas sales from the property, with payments to commence after the buyer’s repayment of start-up funding. Due to uncertainty as to timing and amounts of repayments, the note receivable was recorded net of a 100% valuation allowance.

On July 31, 2012, we sold 100% of the stock of Infinity-Texas to an individual who was the sole owner of the LLC that purchased the Infinity-Texas properties in December 2011. The purchase price was $1. By purchasing the stock the buyer assumed all the liabilities of Infinity-Texas as of that date, which aggregated $5,152,111. We believed that we might retain certain contingent liabilities related to reclamation of the properties, and estimated these to be $780,000. A gain on the sale of Infinity-Texas was recorded in the amount of $4,372,111 and is included in consolidated statement of operations for the year ended December 31, 2012.

Infinity-Wyoming

Infinity-Wyoming was engaged in the acquisition, exploration, development and production of natural gas, condensate and crude oil in the Rocky Mountain region in Wyoming and Colorado. This subsidiary is a Wyoming corporation. On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by it in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest. Following the sale, Infinity-Wyoming had no wells producing crude oil or natural gas and it is inactive.

Revolving Credit Facility and Fifth Forbearance Agreement - Retirement of Debt

On January 10, 2007, we entered into a reserve-based revolving credit facility (the “Revolving Credit Facility”) with Amegy. Under the related loan agreement (the “Loan Agreement”) between us, Infinity-Texas and Infinity-Wyoming (each a wholly-owned subsidiary and together, the “Guarantors”) and Amegy, we could borrow, repay and re-borrow on a revolving basis up to the aggregate sums permitted under the borrowing base, $22,000,000 (reduced to $10,500,000 effective as of August 10, 2007 and subsequently reduced to $3,806,000 effective as of March 26, 2008) and subsequently reduced to $2,900,000 on December 4, 2009. The Revolving Credit Facility had an initial term of two years. Amounts borrowed bear interest at a stated rate of 5.5% at December 31, 2011 and 2010. Interest payments were due on a monthly basis, and principal payments may be required to meet a borrowing base deficiency or monthly borrowing commitment reductions. The borrowing base under the Revolving Credit Facility and the applicable interest rate was subject to adjustment at least once every three months. Amounts borrowed under the Revolving Credit Facility were collateralized by substantially all of our assets and those of our subsidiaries and were guaranteed by our subsidiaries. The Revolving Credit Facility contained certain standard continuing covenants and agreements and required us to maintain certain financial ratios and thresholds.

We previously entered into four separate forbearance agreements resulting from our breach of certain covenants in the Loan Agreement. Effective as of February 16, 2011, we entered into the Fifth Forbearance Agreement under the Loan Agreement. The Fifth Forbearance related to the breach by us and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”). Under the Fifth Forbearance, the borrowing base remained the same. The borrowing base was not subject to redetermination by Amegy during the period from January 31, 2010 to December 31, 2011 (the “Forbearance Period”). The borrowing base deficiency had to be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital. Under the Fifth Forbearance, Amegy agreed to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the Forbearance Period, unless otherwise extended or earlier terminated by Amegy due to a further default under the Loan Agreement. In connection with the Fifth Forbearance, the maturity date of the Loan Agreement and related note was extended to December 31, 2011.

During the Forbearance Period, the interest rate continued at the stated rate plus the applicable margin, which is 5.5% at December 31, 2011 as set forth under the revolving note, and certain operating and financial limitations remain in place. In addition, under the Fifth Forbearance Amegy agreed, upon the request of the Company, to issue one or more letters of credit in an amount not to exceed $850,000 as security for the Company’s obligations with respect to the Nicaragua Concessions.

Amegy made additional Forbearance Period advances of $1,050,000, which was increased to $1,260,000 on September 12, 2011, with an interest rate of prime plus 2% and the personal guarantee of the Company’s President and Chief Executive Officer for up to $500,000 of the advances. As of December 31, 2011, Amegy had made advances of $1,396,758, which was $136,758 in excess of the approved maximum for advances. From January 1, 2012 through February 28, 2012 Amegy made additional advances of $272,070 to us, for a total of $1,668,828.

Retirement of Debt. On February 28, 2012, we signed definitive agreements with Amegy and Off-Shore relating to outstanding debt and other obligations we owed to them. Under these documents, we agreed to issue 130,000 shares of Series A Preferred and 2,000,000 shares of common stock to Amegy and it agreed to cancel a warrant exercisable to purchase 931,561 shares of our common stock that we issued to it in February 2011 in conversion, exchange and payment in full of all debt and other obligations we owed to Amegy. In addition, we agreed to issue Off-Shore 15,016 shares of Series B Preferred in conversion, exchange and payment in full of all debt and other obligations we owed to Off-Shore. The transactions with Amegy and Off-Shore closed on April 13, 2012. As a result of the transactions, we cancelled debt, accrued interest and fees, and the derivative liability recorded relative to the Amegy warrant, all of which totaled $21,883,393 at April 13, 2012.The transactions were recorded in the second quarter of 2012.

The Series A Preferred and Series B Preferred accrue a 6% dividend per annum and are convertible into common stock at a price of $6.50 per share. Both series of Preferred Stock automatically convert into common stock if the average of the closing prices of the common stock for 30 consecutive trading days equals at least $7.50 per share. We have the right to redeem both series of Preferred Stock at any point for an amount equal to their issue price of $100 per share plus all accrued and unpaid dividends. Commencing January 1, 2013, the Series A Preferred will vote with the common stock on all matters presented to the holders of the common stock with the number of votes equal to the number of shares of common stock issuable upon conversion of the Series A Preferred. Beginning January 1, 2014, the Series A Preferred shareholder will have a majority vote on all such matters and the right to elect a majority of the Board of Directors, if the Series A Preferred has not been redeemed or converted into common stock. Neither series of Preferred Stock is transferrable for 180 days after issuance.

Business Strategy

Our principal objective is to create stockholder value through the development of our Nicaraguan Concessions. We will seek to commence the geological and geophysical exploration of the Nicaraguan Concessions while also seeking joint venture or working interest partners.

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, net proceeds from the sales of assets.

EXPLORATION AND PRODUCTION

Nicaragua Oil and Natural Gas Concession

Preliminary analyses and interpretation of available 2-D seismic data by independent consultants has revealed that the Nica-Tinkham Ridge, the single most important structure in the basin, traverses both of the blocks (Tyra and Perlas) in Infinity’s offshore concessions and controlled the deposition of Eocene and possibly younger reef systems. Such preliminary analyses have identified four prospects covering a total of over 547 square miles. The Company’s consultants, Brazilian-based Consultoria em Geologia Geofísica e Informática do Petróleo LTDA (“CGGIP”) and its senior geological consultant, Luciano Seixas Chagas, working in concert with Thompson & Knight Global Energy Services LLC, are building a credible model suggesting that the Eocene geologic zone alone has a potential that hydrocarbons could be present, based upon certain assumptions involving porosity, saturation, recovery and other parameters. This model is also subject to the complex geology of the region and the fact that the reef system has never been drilled. While 2-D seismic data is not sufficient to identify or evaluate prospects in the deeper Cretaceous zone, we and our consultants continue to believe that Cretaceous, as well as Eocene, hydrocarbons could be present within the Nicaraguan Concessions, although we can offer no assurances in this regard.

These estimates are based upon preliminary conclusions and are subject to further analysis, additional seismic data and interpretation, and various assumptions that cannot be confirmed or disproved until the prospects are drilled. We believe these estimate and model support our long-held belief that the Nicaraguan Concessions have the potential for multiple oil discoveries. We are seeking to partner with a larger entity that has the resources to assist in the further exploration and development of the concessions.

In April 2011, we filed with the Nicaraguan government an Environmental Impact Assessment (“EIA”) covering proposed seismic activities on our Nicaraguan Concessions. The filing of the EIA will be followed by a comment period during which there will be interaction between us the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the autonomous regions of Nicaragua that are nearest to the Nicaraguan Concessions. After the EIA has been formally approved by the Nicaraguan government, we expect to be cleared to commence 2-D and 3-D seismic mapping activities in the area, although we can offer no assurances in this regard.

As of December 31, 2012 and March 28, 2013, the Company is in Sub-Period 1 for both Perlas and Tyra. The Company is awaiting notification of final approval of the EIA by the Nicaraguan government before proceeding to Sub-Period 2. In accordance with the concession agreements, the Company has provided the Ministry of Energy with the required letters of credit in the amounts of $443,100 for Perlas (expiring March 2013) and $408,450 for Tyra (expiring September 2013). The Company has also made all required expenditures related to the Nicaraguan Concessions for training programs and as “area fees,” both for 2011 and 2012 and, in early 2013, for that year. The Company considers it is fully in compliance with the terms of the Nicaraguan Concession agreements.

Customers and Markets

We have no production and no customers.

Competition

We compete in virtually all facets of our businesses with numerous other companies in the oil and gas industry, including many that have significantly greater financial and other resources. Such competitors will be able to pay more for desirable oil and gas leases and to evaluate, bid for, and purchase a greater number of properties than our financial or personnel resources permit.

Our business strategy includes highly competitive oil and natural gas exploration, development and production. We face intense competition from a large number of independent exploration and development companies as well as major oil and gas companies in a number of areas such as:

Many of our competitors have financial and technological resources substantially exceeding those available to us. We cannot be sure that we will be successful in developing and operating profitable properties in the face of this competition.

Government Regulation of the Oil and Gas Industry

In April 2011, we filed with the Nicaraguan government an Environmental Impact Assessment (“EIA”) covering proposed seismic activities on our Nicaraguan Concessions. The filing of the EIA will be followed by a comment period during which there will be interaction between us, the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the autonomous regions of Nicaragua that are nearest to the Nicaraguan Concessions. After the EIA has been formally approved by the Nicaraguan government, we expect to be cleared to commence 2-D and 3-D seismic mapping activities in the area, although we can offer no assurances in this regard.

General

Infinity’s business is affected by numerous laws and regulations, including, among others, laws and regulations relating to energy, environment, conservation and tax. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and/or criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to Infinity, we cannot predict the overall effect of such laws and regulations on our future operations.

If we commence operations in Nicaragua we will be subject to legal and regulatory oversight by its energy-related agencies, such as the Nicaraguan Energy Institute, with respect to its energy or hydrocarbons laws. In such case, from time to time, in varying degrees, political developments and federal and state laws and regulations affect our operations in Nicaragua. In particular, price controls, taxes and other laws relating to the crude oil and natural gas industry, changes in these laws and changes in administrative regulations have affected and in the future could affect crude oil and natural gas production, operations and economics. We cannot predict how Nicaraguan agencies or courts will interpret existing laws and regulations or the effect these adoptions and interpretations may have on our business or financial condition at that point.

Our business will also be subject to laws and regulations promulgated by federal and local authorities, including the Ministry of Energy and Mines, relating to the exploration for, and the development, production and marketing of, crude oil and natural gas, as well as safety matters. Legal requirements may be frequently changed and subject to interpretation and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our future operations in Nicaragua. In such event, we may be required to make significant expenditures to comply with governmental laws and regulations.

Further, future operations in Nicaragua will be subject to complex federal and local environmental laws and regulations. The discharge of natural gas, crude oil, or other pollutants into the air, soil or water may give rise to significant liabilities on our part to government agencies and third parties and may require us to incur substantial costs of remediation. In addition, in the future we may incur costs and penalties in addressing regulatory agency procedures involving instances of possible non-compliance.

The following discussion contains summaries of certain laws and regulations and is qualified as mentioned above.

Environmental and Land Use Regulation

Various federal, state and local laws and regulations relating to the protection of the environment affect our operations and costs. The areas affected include:

The environmental and land use laws and regulations affecting oil and natural gas operations have been changed frequently in the past, and in general, these changes have imposed more stringent requirements that increase operating costs and/or require capital expenditures in order to remain in compliance. Our business operations are not in compliance with current laws and regulations in the United States. Failure to comply with these requirements can result in civil and/or criminal fines and liability for non-compliance, clean-up costs and other environmental damages. It is also possible that unanticipated developments or changes in law could cause us to make environmental expenditures significantly greater than those we currently expect.

The following is a summary discussion of the framework of key environmental and land use regulations and requirements affecting our oil and natural gas exploration, development, production and transportation operations.

Discharges to Waters. The Federal Water Pollution Control Act of 1972, as amended (the “Clean Water Act”), and comparable state statutes impose restrictions and controls, primarily through the issuance of permits, on the discharge of produced waters and other oil and natural gas wastes into regulated waters and wetlands. These controls have become more stringent over the years, and it is possible that additional restrictions will be imposed in the future, including potential restrictions on the use of hydraulic fracturing. These laws prohibit the discharge of produced waters and sand, drilling fluids, drill cuttings and other substances related to the oil and natural gas industry into onshore, coastal and offshore waters without a permit.

The Clean Water Act also regulates storm water discharges from industrial properties and construction activities and requires separate permits and implementation of a storm water management plan establishing best management practices, training, and periodic monitoring. Certain operations are also required to develop and implement “Spill Prevention, Control, and Countermeasure” plans or Facility Response Plans to address potential oil spills.

The Clean Water Act provides for civil, criminal and administrative penalties for unauthorized discharges of oil, hazardous substances and other pollutants. It also imposes substantial potential liability for the costs of removal or remediation associated with discharges of oil or hazardous substances. State laws governing discharges to water also provide varying civil, criminal and administrative penalties and impose liabilities in the case of a discharge of petroleum or its derivatives, or other hazardous substances into regulated waters.

Oil Spill Regulations. The Oil Pollution Act of 1990, as amended (the “OPA”), amends and augments oil spill provisions of the Clean Water Act, imposing potentially unlimited liability on responsible parties, without regard to fault, for the costs of cleanup and other damages resulting from an oil spill in U.S. waters. Responsible parties include (i) owners and operators of onshore facilities and pipelines and (ii) lessees or permit tees of offshore facilities.

Air Emissions. Our operations are subject to local, state and federal regulations governing emissions of air pollution. Administrative enforcement actions for failure to comply strictly with air pollution regulations or permits are generally resolved by payment of monetary fines and correction of any identified deficiencies. Alternatively, regulatory agencies could require us to forego construction, modification or operation of certain air emission sources. Air emissions from oil and natural gas operations also are regulated by oil and natural gas permitting agencies including the MMS, BLM and state agencies.

We may generate wastes, including hazardous wastes that are subject to the federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes, although certain oil and natural gas exploration and production wastes currently are exempt from regulation under RCRA. The EPA has limited the disposal options for certain wastes that are designated as hazardous under RCRA (“Hazardous Wastes”). Furthermore, it is possible that certain wastes generated by our historical oil and natural gas operations that are currently exempt from treatment as Hazardous Wastes may in the future be designated as Hazardous Wastes, and therefore be subject to more rigorous and costly operating, disposal and clean-up requirements. State and federal oil and natural gas regulations also provide guidelines for the storage and disposal of solid wastes resulting from the production of oil and natural gas, both on- and off-shore.

Superfund. Under some environmental laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, also known as CERCLA or the Superfund law, and similar state statutes, responsibility for the entire cost of cleanup of a contaminated site, as well as natural resource damages, can be imposed upon any current or former site owners or operators, or upon any party who discharged one or more designated substances (“Hazardous Substances”) at the site, regardless of the lawfulness of the original activities that led to the contamination. CERCLA also authorizes the EPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the potentially responsible parties the costs of such action. Although CERCLA generally exempts petroleum from the definition of Hazardous Substances, in the course of our operations we may have generated and may generate wastes that fall within CERCLA’s definition of Hazardous Substances. We may also be an owner or operator of facilities at which Hazardous Substances have been released by previous owners or operators. We may be responsible under CERCLA for all or part of the costs to clean up facilities at which such substances have been released and for natural resource damages. We have not, to our knowledge, been identified as a potentially responsible party under CERCLA, nor are we aware of any prior owners or operators of our properties that have been so identified with respect to their ownership or operation of those properties.

Abandonment and Remediation Requirements. Federal, state and local regulations provide detailed requirements for the abandonment of wells, closure or decommissioning of production and transportation facilities, and the environmental restoration of operations sites. The Colorado Oil and Gas Conservation Commission, Wyoming Oil and Gas Conservation Commission and the Texas Railroad Commission are the principal state agencies and BLM the primary federal agency responsible for regulating the drilling, operation, maintenance and abandonment of all oil and natural gas wells in the state. State and BLM regulations require operators to post performance bonds.

Potentially Material Costs Associated with Environmental Regulation of Our Oil and Natural Gas Operations. Significant potential costs relating to environmental and land use regulations associated with our existing properties and operations include those relating to (i) plugging and abandonment of facilities, (ii) clean-up costs and damages due to spills or other releases and (iii) civil penalties imposed for spills, releases or non-compliance with applicable laws and regulations.

Title to Properties

The Company has sold domestic acreage and leases related to Infinity-Texas. Currently domestic acreage and leases of Infinity-Wyoming may be lost due to nonproduction. For the year end December 31, 2008, the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate and as such, we wrote them down to zero value.

Operating Hazards and Insurance

The oil and natural gas business involves a variety of operating risks. We were unable to maintain insurance against such potential risks and losses.

In addition, pollution and environmental risks are not insured. If a significant accident or other event occurs not covered by insurance, it could adversely affect us.

Employees

On December 31, 2012, we had two employees, whose salaries we have deferred. We also use outside contractors to perform services.

Exploration and Development

We incurred exploration expenditures on our Nicaraguan Concessions in the fiscal years ended December 31, 2012 and 2011 of $581,723and $731,347, respectively.

Not applicable.

None.

This section is an explanation and detail of some of the relevant project groupings from our overall inventory of projects and prospects. Our principal focus is our Nicaraguan Concessions, which are located in the Caribbean Sea, offshore Nicaragua.

Nicaragua

Subsequent to being awarded two concessions in 2003, we negotiated a number of key terms and conditions of an exploration and production contract covering the approximate 1.4 million acre Tyra (approximately 826,000 acres in the north) and Perlas (approximately 560,000 acres in the south) concession areas offshore Nicaragua. The contract, which was finalized in May 2006, contemplates an exploration period of up to six years with four sub-phases and a production period of up to 30 additional years (with a potential five-year extension). We have completed and submitted an environmental study and to develop geological information from the reprocessing and additional evaluation of existing 2-D seismic data to be acquired over the Perlas and Tyra concession blocks. We are awaiting approval of the environmental studies by the responsible agency of the Nicaraguan government.

We expect that our exploration offshore Nicaragua will focus on Eocene and Cretaceous Carbonate reservoirs and our management and consultants believe: (i) numerous analogies can be made between the our concession block and production from fractured Cretaceous carbonates in Mexico, Venezuela and Guatemala and (ii) the presence of Cretaceous source rocks onshore Honduras and Nicaragua can be projected into the offshore Caribbean Shelf. We plan to seek offers from industry operators for interests in the acreage in exchange for cash and a carried interest in exploration and development operations. No assurance can be given that any such transactions will be consummated or the terms of such transaction.

Greater Green River Basin

For purposes of presentation, we divide our Greater Green River Basin operations into two main property areas: Pipeline Field and Labarge Field.

Pipeline Field

Infinity-Wyoming has not produced from the Pipeline Field since 2007.

Labarge Field

Infinity-Wyoming has not produced from the Labarge field since 2006

Northwest Colorado

For purposes of presentation, we divide our northwest Colorado operations into two main property areas: Sand Wash Prospect and Piceance Basin Prospect.

Sand Wash Prospect

Infinity-Wyoming has not produced from the Sand Wash Prospect since 2007.

Piceance Basin Prospect

Infinity-Wyoming has not produced from the Piceance Basin Prospect since 2007.

Proved Reserves Reporting

We had no proved reserves as of December 31, 2012 and 2011.

Production, Prices and Production Costs

We had no production during the years ended December 31, 2012 or 2011.

Development, Exploration and Acquisition Capital Expenditures

The following table sets forth certain information regarding the costs we incurred in the purchase of proved and unproved properties and in development and exploration activities in Nicaragua:

There were no development, exploration or acquisition costs incurred during 2012 and 2011 on our domestic properties.

Drilling Activity

We had no drilling activity during the years ended December 31, 2012 or 2011.

Acreage Data

The following table sets forth the gross and net acres of developed and undeveloped oil and gas leases we held as of December 31, 2012. Developed acreage is acreage assigned to producing wells for the spacing unit of the producing formation. Domestic acreage may be lost due to nonproduction. For the year end December 31, 2008 the remaining value of Infinity-Texas and Infinity-Wyoming were written down to zero due to uneconomical operating conditions and in 2011 the Infinity-Texas properties were sold.

Present Activities

We hold a 100% interest in the Perlas Block (560,000 acres/2,268 km) and Tyra Block (826,000 acres/3,342 km) located in shallow waters offshore Nicaragua. Within 15 days of entering an exploration sub-period, we are required to provide an irrevocable guarantee (“Irrevocable Guarantee”) in favor of the Nicaraguan Ministry of Energy, payable in Nicaragua, in an amount equal to the estimated cost of such exploration sub-period, subject to an accumulated credit carry forward for the excess of work performed in the preceding exploration sub-period, as provided in the Nicaraguan Concession agreements.

As of December 31, 2012 and March 28, 2013, the Company is in Sub-Period 1 for both Perlas and Tyra. The Company has provided Environmental Impact Studies to the Nicaraguan Ministry of Energy effective April 2011 and is awaiting approval of these studies before proceeding to Sub-Period 2. In accordance with the concession agreements, the Company has provided the Ministry of Energy with the required letters of credit in the amounts of $443,100 for Perlas (expiring March 2013) and $408,450 for Tyra (expiring September 2013). The Company has also made all required expenditures related to the concessions for training programs and as “area fees,” both for 2011 and 2012 and, in early 2013, for that year. The Company considers it is fully in compliance with the terms of the Nicaraguan Concession agreements.

Minimum Work Program – Perlas

Minimum Work Program – Tyra

Contractual and Fiscal Terms

Delivery Commitments

In June 2005, Infinity-Texas entered into a long-term gas gathering contract for natural gas production from its properties in Erath County, Texas, under which Infinity-Texas was to pay a gathering fee of $0.35 per Mcf gathered to LDH Gas Development, L.P (LDH). The contract contains minimum delivery volume commitments through December 31, 2011 associated with firm transportation rights. The aggregate amount owing related to the shortfalls was $2,845,458 (which had been entirely accrued prior to 2011). In July 2012, the Company sold 100% of the common stock of Infinity-Texas for $1. By purchasing such stock the buyer assumed all of the Infinity-Texas liabilities (see Note 8). As a result, the LDH liability is no longer a Company obligation after that date. The amount of the liability is presented in the accompanying consolidated balance sheets as an element of “current liabilities of discontinued operation” at December 31, 2011.

We are involved in the following material litigation:

Exterran Energy Solutions, L.P. f/k/a Hanover Compression Limited Partnership, filed an action in the District Court of Erath County, Texas, number CV30512, on March 31, 2010 against Infinity Oil and Gas of Texas, Inc., Infinity Energy Resources, Inc., Longhorn Properties, LLC, and Forest Oil Corporation. Exterran Energy Solutions, L.P. provided certain gas compressor and related equipment pursuant to a Gas Compressor/Production Equipment Master Rental & Servicing Agreement with Infinity dated January 3, 2005 in Erath County, Texas and is claiming breach of contract for failure to pay amounts due. The Company has recorded the full amount claimed in this matter, including attorney fees and the liability of $445,521 is included in accrued liabilities of the Company at both December 31, 2012 and 2011.

LDH Gas Development, L.P. filed an action in the District Court of Harris County, Texas in 2010 against Infinity Oil and Gas of Texas, Inc. In May 2005 LDH Gas Development, L.P. entered into a Gas Purchase Agreement with Infinity Oil and Gas of Texas, Inc. In the agreement, LDH agreed to purchase specified quantities of gas from leasehold interests held by Infinity that are located close to LDH’s Gathering System, and is claiming breach of gas purchase agreement for failure to meet minimum quantities of gas. Infinity-Texas accrued $2,845,458 for these liabilities in 2009. The Company sold 100% of the stock of Infinity-Texas on July 31, 2012. Such liabilities were included within “current liabilities of discontinued operation” as of December, 31, 2011. The liability ceased to be an obligation of the Company as of the date of the sale.

Not applicable.

 PART II

Principal Market and Price Range of Common Stock

Infinity’s common stock trades on the Over- the-Counter QB Tier Market (OTCQB) under the symbol “IFNY.PK.” The following table sets forth the high and low closing bid prices for Infinity’s common stock as reported by the OTCQB. The closing price of the common stock on March 28, 2013 was $ 1.81 per share. The quotations reflect interdealer bid prices without retail markup, markdown or commission and may not represent actual transactions.

Holders of Common Stock

At December 31 2012, there were approximately 133stockholders of record of our common stock.

Dividend Policy

Holders of common stock are entitled to receive such dividends as may be declared by our Board of Directors. We have not declared or paid and do not anticipate declaring or paying any dividends on our common stock in the near future. Any future determination as to the declaration and payment of dividends will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and such other factors as the board deems relevant.

Under the terms of the definitive agreements entered into with Amegy and Off-Shore, LLC on February 28, 2012 (effective April 13, 2012), Amegy received Series A Preferred Shares and Off-Shore received Series B Preferred Shares; both these issues accrue a 6% dividend per annum which has a payment preference over dividends which could be declared and paid to the holders of common stock.

Securities Authorized for Issuance under Equity Compensation Plans

In May 2006, the our stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 470,000 shares of our common stock are reserved for issuance under the 2006 Plan. Options granted under the 2006 Plan allow for the purchase of common stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by our Board of Directors and generally expire ten years after the date of grant. As of December 31, 2012 and 2011, 148,463 shares were available for future grants under all plans.

 The following table sets forth certain information regarding our stock option plans as of December 31, 2012:

Recent Issuances of Unregistered Securities

There have been no sales of unregistered securities during the fiscal years ended December 31, 2012 and 2011 except for the issuance of shares of common stock and Series A Preferred Stock and Series B Preferred Stock in April 2012 in satisfaction of certain indebtedness and issuance of common stock purchase warrants in August 2012 in connection with a short-term credit facility of $250,000 See Item 1, “Business – Recent Developments – Retirement of Debt and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources: Going Concern.”

Not applicable.

This annual report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “intends,” and other variations of these words or comparable words. In addition, any statements that refer to expectations, projections or other characterizations of events, circumstances or trends and that do not relate to historical matters are forward-looking statements. To the extent that there are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. The actual results or events may differ materially from those anticipated and as reflected in forward-looking statements included herein. Factors that may cause actual results or events to differ from those anticipated in the forward-looking statements included herein include the risk factors described below.

 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 report to be accurate as of the date hereof. Changes may occur after that date, and we will not update that information except as required by law.

Factors that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected include, but are not limited to: (i) we have a history of losses and are experiencing substantial liquidity problems; (ii) while we have retired our obligations to Amegy and Off-Shore, we still have substantial obligations to a number of third parties, and there can be no assurance that we will be able to meet them; (iii) we require working capital for our operations and obligations for the next 12 months and capital to continue our exploration and development efforts on the Nicaraguan Concessions and there can be no assurances we will be able to obtain it or do so on terms favorable to us; (iv) we and our independent registered public accounting firm have concluded that there exists substantial doubt about our ability to continue as a going concern; (v) our Nicaraguan Concessions and planned future exploration activities are in a country with a developing economy and are subject to the risks of political and economic instability associated with such economies; (vi) exploration and development of our Nicaraguan Concessions will require large amounts of capital or a commercial relationship with an industry operator which we may not be able to obtain; (vii) we may not have sufficient resources to conduct 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 on the OTCQB, which may not have the visibility or liquidity that we seek for our common stock; (xix) we depend on key personnel; (xx) sufficient voting power by coalitions of a few of our larger stockholders to make corporate governance decisions that could have significant effect on us and the other stockholders, including Amegy; (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; (xxii) possible issuance of common stock subject to the Series A Preferred, Series B Preferred, 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, including conversion of the Series A Preferred (held by Amegy) and Series B Preferred (held by Off-Shore); (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) Amegy, as the holder of the Series A Preferred, has voting rights through which it could control our Board of Directors and affairs; and (xxiv) indemnification of our officers and directors.

The following information should be read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in this annual report on Form 10-K. Infinity follows the full-cost method of accounting for oil and gas properties. See “Summary of Significant Accounting Policies,” included in Note 1 to the Consolidated Financial Statements for the Years Ended December 31, 2012 and 2011.

The Company is engaged in the acquisition and exploration of oil and gas properties offshore Nicaragua in the Caribbean Sea.

On March 5, 2009 Infinity signed the contracts relating to its Nicaraguan Concessions. Infinity has submitted an environmental study and the development of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired over the Nicaraguan Concessions located offshore. Infinity is awaiting approval of the environmental studies before proceeding with further activities. Infinity is currently seeking offers from other industry operators for interests in the acreage in exchange for cash and a carried interest in exploration and development operations. The funds raised through the subordinated note transaction and Forbearance advances from the bank were used to fund these expenses. No assurance can be given that these funds will be sufficient to cover the exploration and development cost until a partner is found.

During the year ended December 31, 2008, Infinity-Texas property was not cash flowing and operations were scaled back. The main salt water disposal well was struck by lightning in April 2009 and we made the decision to cease operations under the force majeure clause of the leases. During the year ended December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate and as such, were written down to zero value. In December 2011, we signed an agreement to sell the Texas properties for $1,000,000. The buyer issued us a non-interest bearing note with a four-year term, payable from the buyer’s net profits from oil and gas sales from the property, with payments to commence after the buyer’s repayment of start-up funding. Due to uncertainty as to timing and amounts of repayments, the note receivable was recorded net of a 100% valuation allowance. We sold our investment in Infinity-Texas in July 2012 and this note is no longer our asset.

2012 Operational and Financial Objectives

Corporate Activities

On April 14, 2011, we announced that we had completed and filed with the Nicaraguan government the Environmental Impact Assessment (“EIA”) covering proposed seismic activities on the 1.4 million-acres in our Nicaraguan Concessions. The filing of the EIA will be followed by a “comment period” during which there will be interaction among Infinity; the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the autonomous regions of Nicaragua that are nearest the Nicaraguan Concessions. During this process, we will continue to maintain our relationship with the autonomous regions. After the EIA has been formally approved by the Nicaraguan government, Infinity expects to be cleared to commence 3-D seismic mapping activities in the area, although no assurances can be offered in this regard.

Subject to obtaining sufficient capital, we plan to commence our seismic mapping activities. The 3-D seismic program will seek to further evaluate the structures that were previously identified with 2-D seismic in the Eocene Zone. Our geological consultants have estimated that these Eocene structures may contain recoverable oil in place. In addition, 3-D seismic should provide our first look at the potential for oil resources in the Cretaceous Zone, which we could not evaluate using less precise 2-D seismic mapping.

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, 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:

Off-Balance Sheet Arrangements

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

For the Years Ended December 31, 2012 and 2011

Results of Operations

Infinity generated net income applicable to common shareholders of $894,570, or $0.04 per share, for the year ended December 31, 2012 compared to a net loss of $(3,529,599), or $(0.19) per share, for the year ended December 31, 2011.In 2012, the Company issued Series A and Series B redeemable convertible preferred stock effective April 13, 2012. The 6% cumulative dividend accrued as well as the accretion in the value ascribed to the preferred shares from April 13 to December 31, 2012 (which represents value attributable to holders of the preferred rather than common stock) decreases the Company’s net income of $2,904,958 to arrive at net income applicable to common shareholders.

The Company’s consolidated statements of operations for both 2012 and 2011 segregate the operating expenses of the Company’s formerly 100% owned subsidiary, Infinity-Texas, which was sold in its entirety effective July 31, 2012, as “Loss of discontinued operation.” See Note 10 to the consolidated financial statements. A gain on that sale in the amount of $4,372,111 is included as “gain on sale of discontinued operation” for 2012.

Revenue

The Company had no revenues either 2012 or 2011. It focused solely on the exploration, development and financing of the Nicaraguan Concessions.

Production and Other Operating Expenses

The Company had no operating expenses in either 2012 or 2011. The Company sold its investment in Infinity-Texas in July 2012 (see above) and had sold the Texas properties in December 2011. The Company believes, however, that it may continue to have obligations relative to reclamation costs for its Wyoming properties and for Texas properties through the date of the sale of Infinity-Texas (see Note 10). It continues to record asset recovery liability accretions on the Wyoming properties and has recorded a potential liability related to Texas reclamation costs of $780,000 in 2012, which reduced the recognized gain on the sale of Infinity-Texas.

The Company has no domestic exploration and development activities in order to conserve cash. It is not actively working on any domestic property.

General and Administrative Expenses

General and administrative expenses of $921,345 for the year ended December 31, 2012 decreased slightly from those in 2011, which were $944,715. The Company has two officers but no employees. Office services (for which payment is deferred) are provided by the CFO’s accounting firm; charges for those services increased from $193,108 in 2011 to $262,501 in 2012, and consist primarily of accounting and administration fees. Other professional fees (auditing and legal) decreased in aggregate from $285,043 in 2011 to $259,039 in 2012, reflecting higher costs included in 2011 associated with the Company’s re-establishing itself as a reporting company under the Securities Exchange Act of 1934, as amended. Officer salaries ($351,056 in 2011 and $332,101 in 2012) reflected deferred salary amounts of $150,000 in both years plus values attributed to stock options awarded to officers ($201,056 in 2011 and $182,101 in 2012).

Other income (expense)

Interest expense net of amounts capitalized to oil and gas properties decreased from $3,035,511 for the year ended December 31, 2011 to $407,930 in 2012. This significant decrease was entirely attributable to the fact that all debt due Amegy and Off-Shore outstanding for the entire period in 2011 was satisfied effective April 13, 2012 by the issuance of common stock and Series A and B redeemable convertible preferred stock (see Note 3). Also, the 2011 period reflected the accrual of forbearance fees due Amegy for the entire period and the accrual of such fees ceased effective December 31, 2011. No forbearance fees were reflected within the comparative 2012 period. The 2012 period also includes interest expense and debt discount amortization related to notes payable to a related party and a vendor law firm (in satisfaction of a portion of legal fees) entered into August and November 2012, respectively.

The fair value of the Company’s derivative liability, related to the Amegy Warrant (cancelled effective April 13, 2012) (see Note 3), decreased during 2012, resulting in an increase to other income item in the amount of $118,685. In addition to this, a derivative liability created in 2012 related to warrants issued to the related party holder of the Company’s short-term note payable, also decreased in value in the amount of $6,146 combining for a $124,831 other income item for the 2012 period. During the year ended December 31, 2011, the Amegy Warrant derivative liability increased from its February 2011 issuance date through December 31, 2012 by the amount of $65,137, resulting in an other expense item. These derivative values, which are required to be presented in accordance with generally accepted accounting principles, primarily reflect the liability associated with remaining life of the related warrants with changes in fair value being principally impacted by the volatility of the Company’s stock price.

Income Tax

The Company recognized a deferred tax asset on its consolidated balance sheet as of, and a corresponding deferred tax benefit on its consolidated statement of operations for the year ended, December 31, 2011, in the amount of $700,000. This benefit related to the anticipated use of net operating losses to offset taxable income triggered by the transaction with Amegy and Off-Shore that closed in April 2012 (see Note 3). As recorded, the Company did not realize any gain in association with the transaction, and the deferred tax asset set up at December 31, 2011 was applied as a reduction in additional paid-in capital during 2012 in recording the debt cancellation and related transactions.

For the year ended December 31, 2012, the Company realized net income. This net income for tax reporting purposes, is effectively entirely offset by net operating losses created in prior periods. However, the excess of debt forgiven by creditors over the fair value of common and Series A and B redeemable, convertible preferred stock issued in exchange, recorded as an addition to additional paid-in capital for financial reporting purposes (see Note 3), is subject to current income taxation. The estimated tax related to this amount, $150,000, is accrued as a current tax expense in 2012. The income for 2012 is entirely attributable to gain recognized relative to the sale of Infinity-Texas, a non-recurring event, and the Company’s consolidated statement of operations reflects an operating loss for 2012. After its sale of Infinity-Texas in 2012, the Company continues to carry a net operating loss carryforward, available to offset future taxable income. The Company anticipates operating losses and additional tax losses for the foreseeable future and does not anticipate utilization of its tax loss carryforward. Therefore, because of the uncertainty as to the ultimate utilization of the Company’s loss carryforward, any deferred tax asset at December 31, 2012 which resulted from anticipated benefit from future utilization of such carryforward has been fully offset by a valuation allowance.

Liquidity and Capital Resources; Going Concern

The Company has had a history of losses. Although the sale of Infinity-Texas relieved us of a considerable portion of our current liabilities, we continue to have a significant working capital deficit and continues to experience substantial liquidity issues. As also discussed in Note 2 of the Financial Statements, as of December 31, 2011 we were operating under the Fifth Forbearance Agreement with Amegy under the Revolving Credit Facility. We had entered into the Fifth Forbearance under the Revolving Credit Facility as a result of our failure to meet substantially all financial and certain other covenants during 2007, 2008, 2009 and 2010. Under this Agreement, Amegy agreed to forebear from exercising any remedies under the Revolving Credit Facility, the revolving note and the related loan documents and to temporarily waive the covered events of default through December 31, 2011.

We continued to operate under the Fifth Forbearance Agreement through February 28, 2012, when we entered into definitive agreements with Amegy and Off-Shore relating to outstanding debt and other obligations we owed to them. Effective April 13, 2012, the transactions contemplated under these agreements closed and we issued shares of common stock and Series A Preferred and Series B in satisfaction of all the outstanding Amegy and Off-Shore debt, related accrued interest and other fees, and the Amegy Warrant. At December 31, 2011 the entirety of the debt and related accruals was classified as current liability on the accompanying consolidated balance sheet and the derivative liability related to the Amegy Warrant was classified as a long-term liability; these balances were no longer outstanding at December 31, 2012.

During 2012 we borrowed $250,000 under a short-term credit facility with a related party. We issued an interest-bearing note and common stock purchase warrants in connection with the facility. Although we repaid this debt when it matured in February 2013, we have entered into other short-term credit facilities in the first quarter of 2013 to meet certain obligations and provide working capital.

We conducted an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data acquired on our Nicaraguan Concessions. We issued letters of credit totaling $851,550. We commenced significant activity under the work plan and are waiting for governmental approval of the environmental study. Once the approval is received the minimum cash requirements for the next twelve month period will be $1,894,000 of which $1,634,677 is related to seismic and $259,300 is related to the training and area fees under the Nicaraguan Concession.

We estimate that we will require approximately $2,480,000 in working capital for the next 12 months. Such figure does not include annual salaries of $200,000 to our officers, which we will continue to defer if we do not have sufficient capital or we have obligations that we owe to third parties. The $2,480,000 includes $1,894,000 for expenditures projected to be required under Sub-period 2 of the Nicaraguan Concessions, which would occur after our receipt of all approvals of the Environmental Impact Assessment, $270,000 in expenditures for direct Nicaragua expenditures not required under the Nicaraguan Concessions and $315,000 in estimated administrative expenditures required to satisfy SEC reporting requirements. We can offer no assurances regarding the receipt of such approvals or, if received, their timing.

We plan to raise capital to satisfy the foregoing needs through an offering of our equity or debt securities and/or through a commercial relationship with other industry operators, which may involve the granting of revenue or other interests in the Nicaraguan Concessions in exchange for cash and a carried interest in exploration and development operations or the creation of a joint venture or other strategic partnership. There can be no assurance that we will obtain such funding or obtain it on terms acceptable to us. Further, if we cannot meet our obligations respecting the Nicaraguan Concessions, we will lose our rights to them.

Due to the uncertainties related to these matters, there exists substantial doubt about our ability to continue as a going concern. 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 we be unable to continue as a going concern.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We believe certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. Our significant accounting policies are summarized in the notes to our consolidated financial statements included in Item 8, “Financial Statements”, of this annual report.

The application of our accounting policies regarding full cost accounting for oil and gas properties, accounting for the cancellation of debt by exchange of equity securities (Note 3), and accounting for issues surrounding the sale of our subsidiary, Infinity-Texas (Note 10) are critical to two accounting estimates made in 2012.

The Company follows the full cost method of accounting for exploration and development activities and capitalizes direct costs, overhead costs and interest related to such activities. All of the Company’s investment in such costs at December 31, 2012 and 2011 relate to unproved properties that relate to the Nicaraguan Concessions. Management must assess at least annually to ascertain whether impairment of the recorded values has occurred, which involves evaluation of estimates of lease terms for the properties; geographic and geologic data obtained, and estimated future net revenues. For the Nicaraguan Concessions this involves considering terms of the government concessions, status of ongoing environmental study, evaluation of seismic data, and plans to seek industry participation in future exploration and development.

The Company in April 2012 executed agreements cancelling debt, accrued interest and related fees, and a derivative warrant liability, in exchange for issuing common and convertible preferred stock. The determination of the fair value of the equities exchanged relative to the carrying value of the obligations required estimation of the fair value of the equities and determining proper accounting. The common stock was recorded at the fair value based on the closing price of the Company’s stock on April 13, 2012, the date the agreement was effective. The preferred shares, which have both conversion and redemption privileges, as well as voting rights, have been treated as mezzanine securities. The fair value at which they were recorded required estimating when conversion might occur and consideration of an appropriate rate of return to assume in discounting conversion value back to the issue date.

The sale of Infinity-Texas on July 31, 2012 resulted in the recording of a gain attributable to the effective assumption of Infinity-Texas’ liabilities by the purchaser of its stock. After the sale date but before year-end, the State of Texas filed a lawsuit naming Infinity-Texas, the Company, and its officers, relating to recovery of reclamation costs related to a single well, and related administrative expenses and penalties. The officers of the Company are indemnified by the Company against claims and liabilities they might incur as a result of their positions. Therefore, any liabilities which might result from this litigation and the extension of its claims to other Texas wells would be the obligations of the Company. Management made an estimate of the possible exposure the Company might have from this litigation and as it might pertain to other properties, and set aside that amount as a reduction in gain otherwise recognizable on the sale of Infinity-Texas and as a liability on the Company’s balance sheet. This estimate was $780,000 and was recorded as “officer indemnification liability.” A settlement agreement that would reduce the aggregate liability, in this action and any extension of this to other Texas wells, to $45,103 has been negotiated with the Texas Attorney General and that amount has been paid. Certain performance obligations remain which must be satisfied before August 1, 2013 in order to finally settle and dismiss the matter. The remaining balance of the original estimate, as reduced by the settlement payment, remains a liability at December 31, 2012 pending satisfactory performance of the performance obligations and their acceptance by the State of Texas.

As of and for the year ended December 31, 2012, there have been no material changes or updates to our critical accounting policies.

Inflation and Seasonality

Inflation has not materially affected us during the past fiscal year. We do not believe that our business is seasonal in nature.

Not applicable.

Infinity Energy Resources, Inc.

Consolidated Financial Statements

and Accompanying Notes

December 31, 2012 and 2011

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Infinity Energy Resources, Inc. and Subsidiaries

Overland Park, Kansas

We have audited the accompanying consolidated balance sheets of Infinity Energy Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Infinity Energy Resources, Inc. and Subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses, has no on-going operations, and has a significant working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans with regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

EKS&H LLLP

Denver, Colorado

April 1, 2013

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

See Notes to Consolidated Financial Statements.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

See Notes to Consolidated Financial Statements.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

See Notes to Consolidated Financial Statements.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Deficit

For the Years Ended December 31, 2012 and 2011

See Notes to Consolidated Financial Statements.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

See Notes to Consolidated Financial Statements.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

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

Nature of Operations

We are engaged in the exploration of the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions”).

Basis of Presentation

The consolidated financial statements include the accounts of Infinity Energy Resources, Inc. and its wholly-owned subsidiaries, Infinity Oil and Gas of Texas, Inc. (“Infinity-Texas”) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”) in 2011. The Company sold the stock of Infinity-Texas effective July 31, 2012 (see Note 10). The operating results and the assets and liabilities of Infinity-Texas are included as those of a discontinued operation in the accompanying consolidated statements. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

On March 5, 2009 Infinity signed the contracts relating to its Nicaraguan Concessions. Infinity is conducting an environmental study and the development of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired for the Nicaraguan Concessions. Infinity is seeking offers from other industry operators and other third parties for interests in the acreage in exchange for cash and a carried interest in exploration and development operations. The funds raised through the subordinated note transaction described below and Forbearance advances from Amegy Bank, N.A. (“Amegy”) were used to fund these expenditures (see Note 2). These funds will not be sufficient to cover our expected operating exploration costs.

Going Concern

On February 28, 2012, we signed definitive agreements with Amegy and Off-Shore relating to outstanding debt and other obligations we owed to them. Under these documents, we agreed to issue to Amegy 130,000 shares of Series A Preferred and 2,000,000 shares of common stock as payment in full of all debt and related obligations owed Amegy; the Company and Amegy also agreed to cancel a warrant held by Amegy exercisable to purchase 968,000 shares of the Company’s common stock that had been issued in February 2011. In addition, we agreed to issue Off-Shore 15,016 shares of Series B Preferred in conversion, exchange and payment in full of all debt and other obligations we owed to Off-Shore. The transactions with Amegy and Off-Shore closed on April 13, 2012 and are described more fully in Note 3.

Although the cash outflow necessary to pay Amegy has been eliminated under terms of the Stock Purchase Agreement, the Company is still in need of additional capital to meet its obligations under the Nicaraguan Concessions, and is seeking sources of additional equity or debt financing. There can be no assurance that the Company will be able to obtain such capital or obtain it on favorable terms.

The Company has classified the entire balance outstanding under the Revolving Credit Facility at December 31, 2011 as a current liability in the accompanying Consolidated Balance Sheets.

The Company conducted an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data acquired over its Nicaraguan Concessions. It issued letters of credit totaling $851,550 for this initial work on the leases. The Company commenced certain activity under the initial work plan and is waiting for governmental approval of the environmental study. The Company intends to seek joint venture or working interest partners prior to the commencement of any exploration or drilling operations on the Nicaraguan Concessions. There can be no assurance that it will obtain such partners or obtain them on terms favorable to the Company.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

As reflected in the accompanying Consolidated Statements of Operations, with the exception of the gain reported in the third quarter of 2012 on the sale of Infinity-Texas, the Company has had a history of losses. In addition, the Company has a significant working capital deficit and currently experiences substantial liquidity issues. As discussed in Note 2 and below, the Company through December 31, 2011operated under forbearance facilities with Amegy related to the Revolving Credit Facility with that bank.

Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern. 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 consolidated 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 consolidated 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 consolidated financial statements include the estimated carrying value of unproved properties, the estimated cost and timing related to asset retirement obligations, the estimated fair value of derivative liabilities, stock based awards and overriding royalty interests, and the realization of deferred tax assets.

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 exploration and development activities is also capitalized. In the years ended December 31, 2012 and 2011, the Company capitalized direct costs, overhead costs and interest as follows:

Costs associated with production and general corporate activities are expensed in the period incurred.

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 added to the costs to be amortized, or is reported as a period expense, as appropriate. All unproved property costs as of December 31, 2012 and 2011 relate to the Company’s Nicaraguan Concessions that were entered into in March 2009. In assessing the unproved property costs for impairment, the Company takes into consideration the terms of the government concessions, the status of the ongoing environmental study, evaluation of the seismic data and plans to seek industry participation in the future exploration and development.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

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, 2012 and 2011, the Company did not have any proved oil and gas properties, and all unproved property costs relate to the Company’s 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. During 2011 Infinity-Texas, the Company’s 100%-owned subsidiary, sold its oil and gas properties in Texas, to a single-member LLC, the owner of which purchased 100% of the stock of Infinity-Texas from the Company in July 2012 (see Note 10). The costs associated with these properties were entirely written off in prior periods. The properties were sold in return for a non-interest-bearing note with repayment conditional upon net profit from sales of oil and gas from the properties. Due to the uncertainty of when and in what amount payments on the note will be received, the Company has recorded the note net of a 100% valuation reserve and has recognized no gain or loss on this transaction. The note was sold as an asset of Infinity-Texas in the July 2012 sale of such company’s stock.

Concentrations

The Company’s only asset is the Nicaraguan Concessions and it expects to be active in Nicaragua for the foreseeable future, given sufficient capital. 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, 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 the Nicaraguan Concessions.

Derivative Instruments

The Company accounts for derivative instruments or hedging activities under the provisions of ASC 815 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities.) 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 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.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

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 December 31, 2012 and 2011 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 (Note 5), those warrants are required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in earnings.

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. We routinely assess the realizability of our 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. The Company 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, it 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 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. The Company recognized a deferred tax asset, net of valuation allowance, of $0 at December 31, 2012 and $700,000 at December 31, 2011 related to the anticipated use of net operating losses to offset taxable income triggered by the transaction with Amegy and Off-Shore that closed in April 2012 (see Note 3). As recorded, the Company did not realize any gain in association with the transaction, and the deferred tax asset set up at December 31, 2011 was recorded as a reduction in additional paid-in capital during 2012 in recording the debt cancellation and related transactions.

Cash

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 December 31, 2012 and2011, 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(see Note 3).

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

Asset Retirement Obligations

The Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410 (formerly SFAS No. 143, Accounting for Asset Retirement Obligations.) 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 has recognized full impairment of the value of all remaining domestic oil and gas properties in prior periods, the Company may retain title to certain abandoned non-producing domestic leasehold properties. 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 (see Note 10), but may retain some asset retirement obligation related to properties of Infinity-Wyoming. Therefore, the Company has continued to maintain the asset retirement obligation as a liability in its financial statements and, in accordance with ASC 410, to accrete such obligation regularly. The following table summarizes the activity for the Company’s asset retirement obligations for the periods ended December 31, 2012 and 2011:

Capitalized Interest and Debt Discount Amortization

The Company capitalizes interest costs and debt discount amortization to oil and gas properties on expenditures made in connection with exploration and development projects that are not subject to current depletion. Such costs are capitalized only for the period that activities are in progress to bring these projects to their intended use. Interest costs and debt discount amortization capitalized for the years ended December 31, 2012 and 2011 were $77,616 and $261,746, respectively.

Fair Value of Financial Instruments

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

The carrying value of the Company’s debt under its Revolving Credit Facility represents its estimated fair value due to its short-term nature, its adjustable rate of interest, associated fees and expenses and initially recorded discount.

The Company uses the income valuation technique to estimate the fair value of asset retirement obligations using the amounts and timing of expected future dismantlement costs, credit-adjusted risk-free rate and time value of money. Accordingly, the fair value is based on unobservable pricing inputs and therefore is included within the Level 3 fair value hierarchy. During the years ended December 31, 2012 and 2011, the Company recorded asset retirement obligations of $83,546 and $75,953 (net of $17,736 and $32,928 included in loss of discontinued operation in 2012 and 2011, respectively), as discussed elsewhere in this note under “Asset Retirement Obligations.”

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

The estimated fair value of the Company’s non-current derivative liabilities, all of which relate to warrants, is estimated using a “Black-Scholes” model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, interest rates, and non-performance risk factors, among other items (ASC 820, Fair Value Measurements (“ASC 820”) fair value hierarchy level 2). As defined in ASC 820, fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based upon observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement), pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable and are valued using models or other valuation methodologies (level 2), and the lowest priority to unobservable inputs (level 3 measurement). .

The fair value of the Company’s Series A and B redeemable, convertible preferred stock, classified as mezzanine securities (see Note 3) is estimated on assumptions that: the shares will either be converted to common stock at the provided rate or, in the alternative, will be redeemed at an equivalent amount; this conversion or redemption will occur at an estimated date (December 31, 2013); and utilizing as a discount rate an estimated fair rate of return for securities of similar risk outstanding for a similar period of time. .In the ASC 820 hierarchy, which is based on observability of inputs used, these are considered level 3 (unobservable inputs) measurements.

There were no changes in valuation techniques or reclassifications of fair value measurements between levels 1, 2 or 3 during the years ended December 31, 2012 and 2011.

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) attributable to common shareholders 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 from continuing operations are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common share equivalents (295,106 and 290,583 shares for the years ended December 31, 2012 and 2011, respectively) would have an anti-dilutive effect.

During the year ended December 31, 2012 the Company had outstanding an additional 2,000,000 shares of common stock for the period April 13 through December 31, 2012. Weighted average common shares outstanding for the year ended December 31, 2012 reflect the effects of the shares outstanding for this period. The calculation of income (loss) per common share for the year ended December 31, 2012 reflects these amounts which are attributable to the preferred shareholders as increases in the net income (loss) for those periods allocable to common shareholders

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 consolidated results of operations in the period in which they occur. The Company does not have any cash accounts denominated in foreign currencies.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

Recent Accounting Pronouncements

Effective January 1, 2011, the Company adopted new authoritative for fair value disclosures requiring that purchases, sales, issuances and settlements in the roll forward activity in Level 3 measurements be disclosed. The adoption had no impact on the Company’s consolidated financial position, results of operations or cash flows. Refer to the discussion elsewhere in this note as to other information concerning our assets and liabilities measured at fair value.

Note 2 — Debt

Debt consists of the following at December 31, 2012 and 2011:

Revolving Credit Facility

On January 10, 2007, the Company entered into a reserve-based revolving credit facility (the “Revolving Credit Facility”) with Amegy. Under the related loan agreement (the “Loan Agreement”) between Infinity, Infinity-Texas and Infinity-Wyoming (each wholly-owned subsidiaries of the Company and together, the “Guarantors”) and Amegy, Infinity could borrow, repay and re-borrow on a revolving basis up to the aggregate sums permitted under the then current borrowing base. Amounts borrowed under the Revolving Credit Facility are collateralized by substantially all of the assets of Infinity and its subsidiaries and are guaranteed by Infinity’s subsidiaries. The Revolving Credit Facility contained certain standard continuing covenants and agreements and requires the Company to maintain certain financial ratios and thresholds. Per the terms of the loan agreement, amounts borrowed bear interest at 5.5%, or at 11.0% if the loan is in default. The Company accrued interest at 11.0% on the balance of the loan during the periods (all of 2011 and through March 31, 2012) that the debt was outstanding. No interest was accrued on the loan balance after March 31, 2012 and the loans were satisfied with the distribution of common and redeemable convertible Series A Preferred Stock effective April 13, 2012.

The Company entered into four separate forbearance agreements resulting from its breach of certain covenants in the Loan Agreement during the period 2007 through 2010.

Effective as of February 16, 2011 the Company entered into a Fifth Forbearance Agreement under the Loan Agreement. This agreement relates to the breach by the Company and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”). Under this Agreement, Amegy agreed to forbear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the forbearance period commencing as of January 31, 2011 and continuing through December 31, 2011, unless otherwise extended or earlier terminated by Amegy due to a further default under the Agreement. In connection with the Fifth Forbearance Agreement, the term of the Loan Agreement and related note was extended until December 31, 2011.

Amegy initially approved additional Forbearance Period advances of $1,050,000, which was increased to $1,260,000 on September 12, 2011, with an interest rate of prime plus 2% and the personal guarantee of the Company’s President and CEO for up to $500,000 of the advances. At December 31, 2011, $500,000 of the advances was personally guaranteed by the Company’s CEO. No additional compensation was granted for the personal guarantee. As of December 31, 2011 advances of $1,396,758 had been made, with $232,464 used to reduce prior obligations to Amegy, $56,084 used to repay hedge termination fees, and $21,000 used to pay current commitment fees in accordance with the Fifth Forbearance Agreement. As of December 31, 2011, Amegy had advanced a total amount of $1,396,758, which was $136,758 in excess of the approved maximum for advances. From January 1, 2012 through February 28, 2012, Amegy made additional advances of $272,070 for a total advance of $1,668,828.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

On February 28, 2012, the Company signed definitive agreements with Amegy and Off-Shore Finance, LLC, a Nevada limited liability company (“Off-Shore”) relating to outstanding debt and other obligations we owed to them. The transactions contemplated under these agreements closed April 13, 2012. These transactions are more fully discussed in Note 3.

In 2011, Infinity had granted Amegy a warrant to purchase 931,561 shares of the Company’s common stock (the “Amegy Warrant”) at an exercise price of $5.01 per share during a ten-year period following the issuance of the warrant (see Note 5). The Amegy Warrant was cancelled as part of the agreements the Company and Amegy entered into on February 28, 2012 (see Note 3). The Company recorded a debt discount equal to the estimated fair value of the Amegy Warrant on the date of issuance in the amount of $535,626, and expensed $1,188,474 in forbearance fees associated with the Fifth Forbearance Agreement (see below) during the year ended December 31, 2011, which amounts are included in the accompanying consolidated statements of operations. Interest expense for the year ended December 31, 2011 included the amortization of the debt discount in its full amount, $535,626.

Because the Fifth Forbearance Agreement ceased its effectiveness after December 31, 2011, and the Company and Amegy were in the process of negotiating and signing an agreement to exchange equity securities in full payment of the Company’s obligations to Amegy, no further forbearance fees were accrued after that date.

The Company’s intention had been to market and sell all remaining assets of Infinity-Wyoming and Infinity-Texas and to apply the net sales proceeds, if any, to payment of the revolving note, and in December 2011 the Company sold its Texas assets; no proceeds will be received as such note receivable, which was fully allowed for, and which was sold in connection with the sale by the Company of 100% of the common stock of Infinity-Texas in July 2012.

Infinity had accrued interest, forbearance and additional fees due in connection with the Forbearance Agreements of $7,896,442 as of December 31, 2011. The total as of the effective date that the Amegy debt was cancelled, April 13, 2012, was $8,201,324.

Subordinated Note Payable to Related Party

Effective March 5, 2009, the Company entered into two contracts relating to its Nicaraguan Concessions, as awarded by the Republic of Nicaragua in 2003. In addition, the Company entered into a subordinated loan with Off-Shore, a related party (see Note 9) in an aggregate amount of $1,275,000, which was released as the Company needed funds for the Nicaraguan Concessions. Amegy allowed the subordinated loans to be secured by the assets of the Company, subject to Amegy’s security interest. The note bore interest at 6% and would have been due March 23, 2012. This note was retired under the agreement between the Company and Off-Shore dated February 28, 2012, under which Off-Shore accepted 15,016 shares of the Company’s Series B Preferred Stock in full payment of the note and its related accrued interest at such date (see also Note 3).

Further, Amegy allowed the Company to grant a one percent revenue sharing interest with respect to the Nicaraguan Concessions to Off-Shore to obtain the subordinated loan.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

In connection with the issuance of the Subordinated Note Payable discussed above, the Company recorded a debt discount, through a reduction to unproved properties, of $637,620, which was amortized over the maturity of the Note utilizing the effective interest method and was fully amortized as of the date the debt was effectively satisfied (April 13, 2012) by issuance of Series B preferred stock. During the period amortization of the discount was occurring, the Company capitalized a portion of the amortization of debt discount to oil and gas properties on expenditures made in connection with exploration and development projects that are not subject to current depletion. By policy, amortization of debt discount was capitalized only for the period that activities are in progress to bring these projects to their intended use. Total subordinated note payable debt discount amortized during the years ended December 31, 2012 and 2011 were $83,088 and $267,395, respectively, of which $62,316 and $200,546, respectively, were capitalized to oil and gas properties.

Interest Bearing Liabilities to Vendors

At December 31, 2012 and 2011, the Company had agreed to pay interest of 8% on certain accrued liabilities aggregating $410,500. The total amount of interest accrued relating this agreement for the years ended December 31, 2012 and 2011 was $32,930 and $32,840.

Included in liabilities of discontinued operation at December 31, 2011 was a note payable to vendor of $278,022 bearing interest at 18%; this note was assumed by the purchaser of Infinity-Texas as of July 31, 2012. Interest accrued relating to this note during 2012 through July 31, 2012, was $44,553 and for the year ended December 31, 2011 was $67,126. All of the interest expense related to the note is included in loss from discontinued operation on the accompanying consolidated statements of operations for the respective periods. of discontinued operations. Accrued interest on the note in the amount of $133,162 at December 31, 2011 was also included in liabilities of discontinued operation at that date.

In November 2012 the Company entered into an agreement with its law firm to issue to issue the firm a 3% note payable in satisfaction of $212,400 in fees. The note is due with all accrued interest on March 14, 2014. The note and accrued interest are convertible to shares of the Company’s common stock at $3 per share at any time prior to and including maturity date. The note was discounted to its estimated fair value and the amount of the discount at issue date, $40,435, was recorded as a reduction in legal expense in 2012. Interest expense for the year ended December 31, 2012 includes interest at the stated rate of 3% in the amount of $1,062 and amortization of discount in the amount of $4,326.

Note Payable to Related Party

On August 28, 2012, the Company borrowed $250,000 from an entity that is 49% owned by a board member of another corporation for which Infinity’s CEO serves as CEO and chairman of the board. The Company issued a short-term note payable to the entity in this amount, bearing interest at 8% per annum, maturing February 28, 2013. At the same time, the Company issued the entity a warrant exercisable to purchase 120,000 shares of the Company’s common stock at a price of $2.50 per share, expiring August 2017. The note was repaid February 27, 2013. The Company has recorded the estimated fair value of the warrant as of August 28, 2012 as a discount on note payable in the amount of $48,654 and a non-current derivative liability in the same amount at that date. The discount of $48,654 is being amortized on a straight line basis over the expected outstanding period of the note (August 28, 2012 through February 28, 2013) and interest expense for the year ended December 31,2012 includes discount amortization in the amount of $32,968.The estimated current value of the warrant derivative liability was decreased as of December 31, 2012 to $42,508 and this decrease in derivative liability (an income item) is included in “Change in derivative fair value” on the accompanying consolidated state of operations.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

Note 3 - Cancellation of Debt and Related Obligations and Issuance of Securities in Exchange for Debt

On February 28, 2012, the Company signed definitive agreements with Amegy and Off-Shore relating to outstanding debt and other obligations owed them. In accordance with these agreements, on April 13, 2012, the Company issued Amegy 2,000,000 shares of common stock and 130,000 shares of Series A redeemable convertible preferred stock, and issued Off-Shore 15,016 shares of Series B redeemable convertible preferred stock. Amegy also agreed to cancel the Amegy Warrant (that had originally been issued in February 2011), exercisable to purchase 931,561 shares of common stock. In aggregate, the Company cancelled debt, accrued interest and fees and the derivative liability that had been recorded relative to the Amegy Warrant in the aggregate amount of $21,883,393.

The Series A and Series B redeemable convertible preferred stock have a 6% annual dividend and are convertible into common stock at a price of $6.50 per share. Both series of preferred stock automatically convert into common stock if the average of the closing prices of the common stock for 30 consecutive trading days equals at least $7.50 per share. The Company has the right to redeem both series of preferred stock at any point for an amount equal to their issue price of $100 per share plus all accrued and unpaid dividends; however the Series A preferred stock has a higher liquidation preference and must be redeemed prior to any redemption of Series B preferred stock. Commencing January 1, 2013, the Series A preferred stock will vote with the common stock on all matters presented to the holders of the common stock with the number of votes equal to the number of Common Shares into which the preferred shares are convertible. Beginning January 1, 2014, the Series A preferred shareholders will have a majority vote on all such matters and the right to elect a majority of the Board of Directors, if the Series A preferred stock has not been redeemed or converted into common stock. Series B preferred stock has no voting privileges. Neither series of preferred stock is transferrable for 180 days after issuance.

The common stock issued to Amegy has been recorded at a value equal to the closing price of the shares of the Company’s common stock on April 13, 2012, the date the agreement was effective, a total of $2,980,000. Taking into consideration the rights and preferences accruing to the preferred stock issued, as summarized above, the Company has classified both Series A and B preferred stock as mezzanine securities on the accompanying consolidated balance sheet at December 31, 2012 and accordingly has recorded such stock initially at their estimated fair value. That estimated fair value was $9,743,209 for Series A preferred and $1,106,625 for Series B preferred at the date of issuance, April 13, 2012. During the period April 13 through December 31, 2012, the recorded fair value of Series A and B preferred shares accreted (increased in calculated present value) by $1,237,525 and $149,294, respectively, to $10,980,734 and $1,255,919, respectively, as of December 31, 2012. Both Series A and B preferred are being accreted to their face values over a period commencing April 14, 2012 through December 31, 2013. Accrued dividends payable on the preferred shares in the amount of $623,569 ($559,000 for Series A and $64,569 for Series B) have been recorded as of December 31, 2012. In addition, a $700,000 deferred tax benefit recorded at December 31, 2011 in anticipation that the Company would recognize a gain from the above transaction during 2012 has been applied in this transaction.

The aggregate amount of debt, warrant derivative and other related liabilities cancelled in the transaction exceeded the recorded amounts for common stock and Series A and B preferred stock, and the deferred tax benefit application, in the amount of $7,353,558. Management believes that the appropriate accounting for this excess is to regard it as an addition to additional paid-in capital, because of the extent and exclusivity of the financing provided by Amegy and Off-Shore to the Company since 2009, the continued willingness of Amegy to forbear from existing remedies allowed it under its 2007 agreement as it continued to provide the Company advances necessary to satisfy funding requirements of the Nicaraguan Concessions, and the voting privileges accorded the Series A preferred stockholders commencing in 2013.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

The following table summarizes the transaction as recorded by the Company as of April 13, 2012:

Note 4 — Stock Options

The Company applies ASC 718, Stock Compensation, which requires companies to recognize compensation expense for share-based payments based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the value of equity instruments issued under share-based compensation arrangements to be presented as financing cash inflows in the statement of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted, and is estimated in accordance with the provisions of ASC 718.

In May 2006, the Company’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 470,000 shares of the Company’s common stock are reserved for issuance under the 2006 Plan. Options granted under the 2006 Plan allow for the purchase of common stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Company’s Board of Directors and generally expire ten years after the date of grant. The Company also has other equity incentive plans with terms similar to the 2006 Plan. As of December 31, 2012 and 2011, 148,463 shares were available for future grants under all plans. Options granted in November 2012 and in February and August 2011 were not issued under any of the equity incentive plans.

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 for the years ended December 31, 2012 and 2011. The actual forfeiture rate could differ from these estimates.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

The following table summarizes the inputs used in the calculation of fair value of options granted during the years ended December 31, 2012 and 2011:

The following table summarizes stock option activity as of and for the periods ended December 31, 2012 and 2011:

The Company recognized expense in connection with options granted of $197,936 during the year ended December 31, 2012 and $214,906 during the year ended December 31, 2011. The weighted average grant date fair value of the November 2012 options granted was $0.48. The November options have a life of nine years and vest one-third immediately, and one-third on the first and second anniversary of the award (November 2013 and 2014); due to this vesting provision, one third of the total calculated compensation award value ($593,808) was recorded as compensation expense in 2012. The unrecognized compensation cost as of December 31, 2012 related to the unvested stock options as of that date was $395,872. The February and August 2011 options granted were 100% vested at award date and the weighted average grant date fair value of these awards was $0.28 and $0.10. There is no unrecognized compensation associated with these 2011 awards or any previous option awards.

Within the November 2012 grant were included 250,000 options issued to non-employees for services rendered, of which 100,000 were issued to the Company’s general counsel, 80,000 to employees of related parties and 70,000 to individuals performing other services for the Company. Within the August 2011 grant were included 100,000 options issued to non-employees for services rendered to the Company, of which 60,000 were to employees of related parties and the remainder to individuals performing other services for the Company. Within the February 2011 grant were included 50,000 options issued to the Company’s general counsel.

Note 5 — Derivative Instruments and Warrants

Commodity Derivatives

As of December 31, 2012 and 2011, the Company had no oil and natural gas derivative arrangements outstanding.

Derivatives – Amegy Fifth Forbearance Warrant

On February 16, 2011, in connection with the signing of the Fifth Forbearance Agreement (see Note 2) the Company granted Amegy the Amegy Warrant exercisable to purchase 931,561 shares of the Company’s common stock at an exercise price of $5.01 per share during a ten-year period following its issuance. The Amegy Warrant was cancelled under the agreements between the Company and Amegy dated February 28, 2012 (effective April 13, 2012) (see Note 3).

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

The Amegy Warrant was subject to a registration rights agreement under which the Company has 120 days after the notification by Amegy to have such underlying shares registered. Such agreement was cancelled under the agreements between the Company and Amegy dated February 28, 2012 (effective April 13, 2012) that also cancelled the Amegy Warrant. (See Notes 2 and 3.)

In addition, the Amegy Warrant contained provisions upon which Amegy had the right, upon certain conditions, to put the Warrant to the Company at fair value. It also contained a provision under which the $5.01 per share exercise price is to be re-priced upon the issuance by the Company of equity instruments at a price less than $5.01. Further, the Company was required, during the period the Warrant could be exercised, to have authorized and reserved 110% of the number of shares of common stock required for the exercise of the shares to be issued under the Amegy Warrant. As a result of Amegy’s conditional ability to put the Warrant back to the Company, it had classified the estimated fair of the Amegy Warrant (derivative liability) as a noncurrent liability in the accompanying consolidated balance sheet as of December 31, 2011. Prospective changes in the fair value of the Amegy Warrant were recorded in the consolidated statement of operations until the Warrant was cancelled. During the year ended December 31, 2012 the Company recorded an income item of $118,685 representing the net decrease in fair value of the Amegy Warrant for the period, (which along with the $6,146 decrease in warrant liability discussed in the following paragraph comprises the $124,831 set forth as “Change in derivative fair value” in the accompanying consolidated statement of operations), and during the year ended December 31, 2011 the Company recorded expense of $65,137 representing the net increase in the fair value of the Amegy Warrant for the period from its issuance through December 31, 2011.

Derivatives – Warrant Issued Relative to Note Payable to Related Party

In connection with the short-term note payable entered into with a related party (see Note 2) the Company issued the same entity a warrant exercisable to purchase 120,000 shares of the Company’s common stock at a price of $2.50 per share, expiring August 2017. The note was repaid in full on February 27, 2013. The Company recorded the estimated fair value of the warrant as of August 28, 2012, as a discount on note payable in the amount of $48,654 and a non-current derivative liability in the same amount at that date. The estimated fair value of the warrant derivative liability was decreased as of December 31, 2012 to $42,508 and this $6,146 decrease in derivative liability (an income item) is included in “Change in derivative fair value” on the accompanying consolidated state of operations (see above paragraph).

Note 6 — Supplemental Oil and Gas Information

Estimated Proved Oil and Gas Reserves (Unaudited)

As of December 31, 2012 and 2011, the Company had no proved reserves. As such, there are no estimates of proved reserves to disclose, nor standardized measure of discounted future net cash flows relating to proved reserves.

Costs Incurred in Oil and Gas Activities

Costs incurred in connection with the Company’s oil and gas acquisition, exploration and development activities are shown below.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

Aggregate capitalized costs relating to the Company’s oil and gas producing activities, and related accumulated depreciation, depletion, amortization and ceiling write-downs are as follows:

Costs Not Being Amortized

Oil and gas property costs not being amortized at December 31, 2012, by year that the costs were incurred, are as follows:

The above unevaluated costs relate to the Company’s approximate 1,400,000 acre concessions offshore Nicaragua.

The Company anticipates that these unproved costs in the table above will be reclassified to proved costs within the next five years.

Note 7 — Income Taxes

The provision for income taxes consists of the following:

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

The effective income tax rate on continuing operations varies from the statutory federal income tax rate as follows (no taxes are related to discontinued operations):

The significant temporary differences and carry-forwards and their related deferred tax asset (liability) and deferred tax asset valuation allowance balances are as follows:

For income tax purposes, the Company has net operating loss carry-forwards of approximately $55,242,000 which expire from 2025 through 2028. For 2012, the Company has provided for a 100% valuation allowance due to the uncertainty of realizing the tax benefits from its net deferred tax asset. The deferred tax benefit recognized in 2011 reflected the anticipated net earnings that it anticipated would result in 2012 from the recording of the effects of the agreements signed in February 2012, with Amegy and Off-Shore (Note 10), net of projected 2012 operating expenses. When the transactions reflecting the agreements were recorded in 2012 no such net earnings were recognized and during 2012 the $700,000 deferred tax asset recorded at December 31, 2011 was applied to reduce the amount which was recorded as an increase in additional paid-in capital.

During the years ended December 31, 2012 and 2011, the Company realized certain tax benefits related to stock option plans in the amounts of $73,000 and $79,000, respectively. Such benefits were recorded as a deferred tax asset as they increased the Company’s net operating losses and an increase in additional paid in capital. The recognition of the valuation allowance offset the impact of this benefit.

Certain tax positions taken by the Company for purposes of determining taxable income related to tax returns that have not been filed for the tax years 2008 through 2012. Additionally, the Company has a state tax lien over a dispute the Company is vigorously defending itself against.

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 indicate that no ownership changes have occurred, and are currently not subject to an annual limitation but may be further limited by additional ownership changes which may occur in the future

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

As discussed in Note 1, “Summary of Significant Accounting Policies,” tax positions are evaluated in a two-step process. We first determine whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Management has identified no tax positions taken that would meet or exceed these thresholds and therefore there are no gross interest, penalties and unrecognized tax expense/benefits that are not expected to ultimately result in payment or receipt of cash in the consolidated financial statements.

Note 8 — Commitments and Contingencies

The Company has no insurance coverage on its U.S domestic oil and gas properties. The Company is currently not in compliance with Federal and State laws regarding the U.S. domestic oil and gas properties. The Company’s known compliance issues relate to the Texas Railroad Commission regarding administrative filings and renewal permits. The ultimate resolution of these compliance issues could have a significant adverse impact on the Company’s financial statements.

Nicaragua Concessions

The significant terms and work commitments associated with the Nicaraguan Concessions by area (Perlas and Tyra blocks) are summarized below. Within 15 days of entering an exploration sub-period, the Company is required to provide an irrevocable guarantee (“Irrevocable Guarantee”) in favor of the Nicaraguan Ministry of Energy, payable in Nicaragua, in an amount equal to the estimated cost of such exploration sub-period, subject to an accumulated credit carry forward for the excess of work performed in the preceding exploration sub-period, as provided in the agreements relating to the Nicaraguan Concessions.

As of December 31, 2012 and March 30, 2013, the Company is in Sub-Period 1 for both Perlas and Tyra. The Company has provided Environmental Impact Studies to the Nicaraguan Ministry of Energy effective April 2011 and is awaiting official approval of these studies by the Nicaraguan government before proceeding to Sub-Period 2. In accordance with the concession agreements, the Company has provided the Ministry of Energy with the required letters of credit in the amounts of $443,100 for Perlas (expiring March 2013) and $408,450 for Tyra (expiring September 2013). The Company has also made all required expenditures related to the concessions for training programs and as “area fees,” for 2011, 2010 and, in early 2012, for that year. The Company considers it is fully in compliance with the terms of the Nicaraguan Concession agreements.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

Minimum Work Program – Perlas

Minimum Work Program - Tyra

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

Contractual and Fiscal Terms

The Sub Period 2 starts when the Nicaraguan Government approves the environmental impact study. The study is currently pending approval by the Nicaraguan government. Once the approval is received the minimum cash requirements for the next twelve month period will be $1,894,000 of which $1,634,677 is related to seismic and $259,300 is related to the training and area fees under the concession. See Note 1 for discussion of Going Concern.

Delivery Commitments

In June 2005, Infinity-Texas entered into a long-term gas gathering contract for natural gas production from its properties in Erath County, Texas, under which Infinity-Texas was to pay a gathering fee of $0.35 per Mcf gathered to LDH Gas Development, L.P (LDH). The contract contains minimum delivery volume commitments through December 31, 2011 associated with firm transportation rights. The aggregate amount owing related to the shortfalls was $2,845,458 (which had been entirely accrued prior to 2011). In July 2012, the Company sold 100% of the common stock of Infinity-Texas for $1 and the assumption of all the Infinity - Texas liabilities by the purchaser (see Note 10). In accordance with the results of this transaction, the LDH liability is no longer a Company obligation after that date. The amount of the liability is presented in the accompanying consolidated balance sheets as an element of “current liabilities of discontinued operation” at December 31, 2011.

Revenue Sharing Commitments

On March 23, 2009, the Company entered into a Securities Purchase Agreement dated, effective as of March 23, 2009, with Off-Shore, an accredited investor, to issue a subordinated secured 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. As of December 31, 2012, Off-Shore had funded $1,275,000 (the “Funding Amount”).

Under the Revenue Sharing Agreement (the “Revenue Agreement”), Infinity assigned to Off-Shore a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP shall 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 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. At any time within three (3) years from the date of the Revenue Agreement, the Company had the right to redeem the RSP by paying Off-Shore amounts specified in the Agreement; however, these redemption rights expired, unexercised, as of March 23, 2012. Off-Shore was dissolved in 2012 and the RSP was allocated pro-rata to the constituent owners of Off-Shore.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

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 (the “RSP”) equal to the revenue derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP shall 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 these 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 (the “RSP”) equal to the revenue derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP shall 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.

On September 8, 2009 the Company entered into a Revenue Sharing Agreement with Thompson Knight Global Energy Services (“Thompson Knight”) 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 Thompson Knight a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP shall 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 Thompson Knight 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 Thompson Knight.

The Revenue Sharing Agreement of 1% were each valued at $637,620 using the same method as the 1% RSP assigned to Off-Shore as debt discount. Of the aggregate $1,912,860 initially expensed in 2009 for the three 1% RSP’s (with an offset to unproved properties), $1,243,359 was recapitalized to unproved properties as such amounts were deemed to be representative of those amounts incurred for the acquisition and exploration of the Nicaraguan concessions.

Lack of Compliance with Law Regarding Domestic Properties

Infinity is not in compliance with existing federal, state and local laws, rules and regulations for its domestic properties and this could have a material or significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of Infinity. For the year end December 31, 2008 the remaining values of the Infinity-Texas and Infinity-Wyoming were written down to zero as the Company focused solely on the development of the Nicaraguan Concessions. Management believes the estimate of the Company’s asset retirement obligations consisting of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties is sufficient to cover any noncompliance liabilities. The Company no longer carries insurance on the domestic properties.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

Contingent Fees

In addition to the Revenue Sharing Agreement with Thompson Knight to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing and assisting in the Farmout, the Company agreed to compensate Thompson Knight a success fee of 5% of the upfront cash fee paid to Infinity by a third party earning an interest in the Nicaragua asset up to $20 million and 10% of any amount exceeding the $20 million. A 2% success fee would be paid to Thompson Knight of the remaining cash investment in subsequent years. As of December 31, 2012 and 2011, no amounts had been accrued under these contingent fee arrangements.

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 consolidated balance sheets.

The Company is currently involved in the following material litigation:

Exterran Energy Solutions, L.P., f/k/a Hanover Compression Limited Partnership, who filed an action in the District Court of Erath County, Texas, number CV30512, on March 31, 2010 against Infinity Oil and Gas of Texas, Inc., Infinity Energy Resources, Inc., Longhorn Properties, LLC, and Forest Oil Corporation. Exterran Energy Solutions, L.P. provided certain gas compressor and related equipment pursuant to a Gas Compressor/Production Equipment Master Rental & Servicing Agreement with Infinity dated January 3, 2005 in Erath County, Texas and is claiming breach of contract for failure to pay amounts due. The Company has included the impacts of this litigation as liabilities in its accounts payable because it does not dispute the amount owed. In 2009 the Company recorded the amount claimed. The Company will seek to settle the lawsuit when it has the financial resources to do so. The suit is in the discovery stage.

Certain litigation had been filed against Infinity Oil and Gas of Texas (Infinity-Texas) by LDH Gas Development, L.P. In connection with this matter, Infinity-Texas had recorded accounts payable and accrued expense in the aggregate amount of $2,845,458 in 2009. These liabilities have been reflected since 2009 in the Company’s consolidated financial statements and were included in “current liabilities of discontinued operation” in the Company’s consolidated balance sheet at December 31, 2011. In July 2012, the Company sold 100% of the common stock of Infinity-Texas for $1 and the assumption of all the Infinity-Texas liabilities by the purchaser. In accordance with the results of this transaction, the LDH liability is no longer a Company obligation after that date. The amount of the liability is presented in the accompanying consolidated balance sheets as an element of “current liabilities of discontinued operations” at December 31, 2011.

In October 2012 the State of Texas filed a lawsuit naming Infinity-Texas, the Company and the corporate officers of Infinity-Texas, seeking $30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties. See discussion of this matter in Note 10.

Note 9 — Related Party Transactions

The corporate office was located in Denver, Colorado until November 2008 when the Denver office was closed. The corporate office moved to the business office of the CFO of the Company. The Company currently does not have any employees (other than its two officers) and the staff of the CFO provides the office services. These services are billed at the CFO firm’s standard billing rate plus out-of-pocket expenses. For the years ended December 31, 2012 and 2011, the Company was billed $262,521 and $193,109, respectively. The amount due to the CFO’s firm for services provided was $767,407 and $514,885 at December 31, 2012 and 2011, respectively.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

The Company entered into a subordinated loan with Off-Shore in the aggregate amount of $1,275,000 for funds for the Nicaraguan Concessions. This note was satisfied by the Company’s issuance of shares of Series B redeemable convertible preferred stock effective April 13, 2012 to Off-Shore (see Note 3). Off-Shore was dissolved in 2012 and the Series B preferred stock was reissued to, and is held in share amounts pro-rata to their investment amounts in Off-Shore by, the former investors in Off-Shore. The managing partner of Off-Shore and the Company’s CFO are partners in the accounting firm which the Company uses for its corporate office.

While the relationship with Amegy Bank was ongoing and debt was outstanding (through April 13, 2012), the Company’s CEO personally guaranteed up to $500,000 of the Forbearance advances. His guarantee obligation was never called upon and he was not compensated by the Company for such guarantee.

As of December 31, 2012 and 2011, the Company had accrued compensation to its officers and directors of $950,708 and $744,708, respectively.

As discussed in Note 2, on August 28, 2012, the Company borrowed $250,000 from an entity that is 49% owned by a board member of another corporation for which Infinity’s CEO serves as CEO and chairman of the board. The Company issued a short-term note to the entity bearing interest at 8% per annum and maturing February 28, 2013. The note was repaid February 27, 2013. In connection with the transaction, the Company issued the lender a warrant exercisable to purchase 120,000 shares of the Company’s common stock at a price of $2.50 per share, expiring August 2017.

Note 10 — Sale of Infinity-Texas, Related Potential Litigation, and Discontinued Operations Reporting

On July 31, 2012, the Company sold 100% of the stock of its wholly-owned subsidiary, Infinity Oil and Gas of Texas (Infinity-Texas) to an individual, the single member of an LLC which purchased the oil and gas properties of Infinity-Texas in 2011 (see “Oil and Gas Properties” in Note 1). The terms of the Stock Purchase Agreement with the purchaser are that purchaser would acquire 100% of the stock of Infinity-Texas for $1 and thereby assume all of it liabilities. At the date of the sale, Infinity-Texas had net liabilities of $5,152,111. Management believes that there are certain contingent liabilities related to Texas properties for which the Company, the parent entity, may retain financial responsibility. The liabilities are related to the reclamation of oil and gas properties and include the cost of plugging inactive wells and removal and recovery of any remaining production equipment. Infinity-Texas, as an independent entity following its sale, is primarily responsible for such obligations, but the officers of Infinity-Texas at the time such wells were in production, in their capacities as signators of certain regulatory filings, could be personally responsible.

In October 2012 the State of Texas filed a lawsuit naming Infinity-Texas, the Company and the corporate officers of Infinity-Texas, seeking $30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties. The Company has engaged in negotiations with the State of Texas in late 2012 and early 2013 and has reached a settlement agreement that would reduce the aggregate liability, in this action and any extension of this to other Texas wells, to $45,103, which amount has been paid. Certain performance obligations remain which must be satisfied before August 1, 2013 in order to finally settle and dismiss the matter.

Pending satisfactory performance of the performance obligations and their acceptance by the State of Texas, the officers retain potential liability on the above matter, and the officers are held personally harmless by indemnification provisions of the Company. Therefore these liabilities, to the extent they might become actual, are the obligations of the Company. The extent of the liabilities associated with this matter were estimated by Management to not exceed $780,000, calculated as $30,000 for each of the 26 Infinity-Texas operated wells. This related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103, is classified as officer indemnification liability on the consolidated balance sheet dated December 31, 2012.

The assets, liabilities and operations of Infinity-Texas are reported on the accompanying consolidated financial statements as those of a discontinued operation for the current and prior periods and dates presented. Because Infinity-Texas has not been actively operating during any of the periods presented, no overhead costs have been allocated to the discontinued operations during such periods.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

The analysis below sets forth the major classes of the assets and liabilities of Infinity-Texas, which are presented separately in the accompanying consolidated balance sheet at December 31, 2011. Infinity-Texas also had title at December 31, 2011 to a note receivable from the single member LLC which purchased its oil and gas properties in December 2011, which was carried at December 31, 2011 net of a 100% valuation allowance and is therefore not reflected as an asset in the analysis below.

The following analysis relates the assets and liabilities set forth in the table above to the gain recognized in sale of Infinity-Texas: