AMERICAN NOBLE GAS, INC. - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2021.

For the transition period from __________ to __________.

Commission File Number: 000-17204

INFINITY ENERGY RESOURCES, INC.

(Exact name of registrant as specified in its charter)

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

(Address of principal executive offices) (Zip Code)

(913) 948-9512

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

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

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

As of August 10, 2021, the registrant had 18,793,265 shares of common stock, $0.0001 par value per share outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

INFINITY ENERGY RESOURCES, INC.

Condensed Balance Sheets

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

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Operations

(Unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Stockholders’ Deficit

(Unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Cash Flows

(Unaudited)

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

INFINITY ENERGY RESOURCES, INC.

Notes to Condensed Financial Statements

June 30, 2021

(Unaudited)

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

Unaudited Interim Financial Information

Infinity Energy Resources, Inc. (collectively, “we,” “ours,” “us,” “Infinity” or the “Company”) has prepared the accompanying condensed financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These financial statements are unaudited and, in our opinion, include all adjustments consisting of normal recurring adjustments and accruals necessary for a fair presentation of our condensed balance sheets, statements of operations, statements of stockholders’ deficit and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2021 due to various factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed financial statements should be read in conjunction with the audited financial statements and accompanying notes in Item 8, “Financial Statements and Supplementary Data,” of our Annual Report on Form 10-K, filed with the SEC.

Nature of Operations

“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. Since 2009, we had planned to pursue the exploration of potential oil and gas resources in the United States and in the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which contain a total of approximately 1.4 million acres. Civil unrest within Nicaragua and difficulties encountered with negotiations on extensions and the issuance of permits to drill with the Nicaraguan government made the exploration and development of the underlying concessions problematic. In addition, the Company was in technical default of the certain terms of the Nicaraguan Concession and the Nicaraguan government terminated both of the underlying Concessions. As a result, the Company abandoned all of its efforts to explore and develop the Nicaraguan Concessions effective January 1, 2020.

We sold our wholly-owned subsidiary, Infinity Oil and Gas of Texas, Inc. (“Infinity Texas”) in 2012 and its wholly-owned subsidiary, Infinity Oil and Gas of Wyoming, Inc. (“Infinity Wyoming”), was administratively dissolved in 2009.

Subsequent to the termination of the Nicaraguan Concessions, we began assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of gas and oil properties in the United States, including the possibility of acquiring businesses or assets that provide support services for the production of oil and gas in the United States. As a result, on July 31, 2019, we acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for oil & gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). We paid a non-refundable deposit of $50,000 to bind the Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the newly acquired Option permitted the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020 and the Company agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. On December 14, 2020 the parties executed an Asset Purchase and Sale Agreement which extended the new Option to January 11, 2021, which expired.

We and Core, as well as all of the members of Core, Mandalay LLC and Coal Creek Energy, LLC (collectively, the “Seller”) entered into that certain side letter agreement on June 30, 2021 (the “Side Letter”), pursuant to which we and Core agreed to set the closing date on which the Properties would be purchased pursuant to the asset purchase and sale agreement, entered into by the Company and the Seller on December 14, 2020 (the “Asset Purchase Agreement”), to April 1, 2021 (the “APA Closing Date”). Pursuant to the Side Letter, the Company is responsible for reimbursing the Seller for certain prorated revenues and expenses from January 1, 2021 through the APA Closing Date.

On April 1, 2021 we completed the acquisition of the Properties, under the same terms of the Asset Purchase Agreement which provided a purchase price of $900,000. The Company raised approximately $2.05 million on March 26, 2021 through the issuance of Convertible Preferred Stock with detachable common stock purchase warrants. The funds raised pursuant to the Convertible Preferred Stock issuance were used to complete the acquisition of the Properties on April 1, 2021 and to retire all outstanding Convertible Notes Payable.

The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand zone with an approximate depth of 3,600 feet.

We commenced rework of the existing production wells after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and krypton. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil & gas reserves while continuing the evaluation of the existence of new oil & gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

We may find it necessary to obtain new sources of debt and/or equity capital to fund the exploration and development of the Properties enumerated above, as well as satisfying our existing debt obligations. We can provide no assurance that we will be able to obtain sufficient new debt/equity capital to fund our planned development of the Properties.

Covid–19 Pandemic

The unaudited condensed financial statements contained in this quarterly report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of June 30, 2021. Economies throughout the world continue to suffer disruptions by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the outbreak of the coronavirus (Covid-19) including the recent rise of the new Delta variant. In particular, the oil and gas market has been severely impacted by the negative effects of the coronavirus because of the substantial and abrupt decrease in the demand for oil and gas globally. In addition, the capital markets have experienced periods of disruption and our efforts to raise necessary capital in the future may be adversely impacted by the pandemic and investor sentiment and we cannot forecast with any certainty when the lingering uncertainty caused by the Covid-19 pandemic will cease to impact our business and the results of our operations. In reading this Quarterly Report on Form 10-Q, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties caused by the outbreak of Covid-19.

Going Concern

The Company must raise substantial amounts of debt and equity capital from other sources in the future in order to fund the (i) development of the Properties acquired on April 1, 2021; (ii) normal day-to-day operations and corporate overhead; and (iii) outstanding debt and other financial obligations as they become due, as described below. These are substantial operational and financial issues that must be successfully addressed during 2021 and beyond.

The Company has made substantial progress in resolving many of its existing financial obligations during the six months ended June 30, 2021. In that regard, on March 31, 2021, the Company and six creditors entered into Debt Settlement Agreements which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes with detachable warrants to purchase 5,732,994 shares of common stock for $0.50 per share. On April 1, 2021, the Company and the holders of two notes payable that were in default reached a settlement whereby the Company issued a total of 245,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $123,830 as of April 1, 2021. The Company has made substantial progress in resolving its financial obligations: however, there is in excess of $1.9 million remaining that are in default and that the Company is attempting to obtain extensions of the maturity dates and/or compromises regarding payment of its obligations.

The Company will have significant financial commitments to execute its planned exploration and development of the Properties especially if the Company determines that it will explore for and develop the potential noble gas reserves that may be on the Properties. The Company may find it necessary to raise substantial amounts of debt or equity capital to fund such exploration and development activities and may seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. There can be no assurance that it will be able to obtain such new funding or be able to reach agreements with industry operators and other third parties or on what terms.

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

Revenue Recognition

On January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and the series of related accounting standard updates that followed, using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity and did not change the Company’s amount and timing of revenues.

The Company’s revenues are primarily derived from its interests in the sale of oil and natural gas production. To date, such revenues have only included the sale of oil however the Company expects to begin generating revenues from the sale of natural gas and noble gases in the future. The Company recognizes revenue from its interests in the sales of oil and gas in the period that its performance obligations are satisfied. Performance obligations are satisfied when the customer obtains control of product, when the Company has no further obligations to perform related to the sale, when the transaction price has been determined and when collectability is probable. The sales of oil and gas are made under contracts which the third-party operators of the wells have negotiated with customers, which typically include variable consideration that is based on pricing tied to local indices and volumes delivered in the current month. The Company receives payment from the sale of oil and gas production from one to three months after delivery. At the end of each month when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in trade receivables, net in the balance sheets. Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received, however, differences have been and are insignificant. The Company’s oil is typically sold at delivery points under contracts terms that are common in our industry.

Convertible Instruments

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” which is intended to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

The amendments in ASU 2020-06 are effective for public entities that meet the definition of an SEC filer, excluding smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

The Company early adopted ASU 2020-06 effective January 1, 2021 and has applied its effects to the 3% Convertible Promissory Notes issued on March 31, 2021 (See Note 3). The Company elected to adopt ASU 2020-06 using the modified retrospective method which enables entities to apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated deficit) on the first day of the period adopted. Therefore, this transition method applies the amendments in ASU 2020-06 to outstanding financial instruments as of the beginning of the fiscal year of adoption (January 1, 2021), with the cumulative effect of the change recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) as of the date of adoption. In accordance with the modified retrospective method, no adjustment was made to the comparative-period information including earnings (loss) per share.

The Company applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06). The convertible notes payable issued on August 19, 2020 was the only outstanding financial instrument effected by this new accounting standard as of January 1, 2021. Therefore the application of ASU-2020-06 to this convertible note payable was used to determine the cumulative effect of the adoption of the new accounting standard. The cumulative effect of the adoption of the new accounting standard was determined and recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) which resulted in an increase to the carrying value of convertible notes payable as of January 1, 2021 by $160,900, a decrease to additional paid in capital of $252,961 and a decrease to accumulated deficit of $92,061. See Note 3.

Prior to the adoption of ASU 2020-06, the Company applied the existing accounting standards for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion options. The accounting standards require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (i) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.

Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.

Management Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include, but are not limited to, oil and gas reserves; depreciation, depletion and amortization of proved oil and gas properties; future cash flows from oil and gas properties; impairment of long-lived assets; fair value of derivatives; fair value of equity compensation; the realization of deferred tax assets; fair values of assets acquired and liabilities assumed in business combinations.

Oil and gas properties

On April 1, 2021 we completed the acquisition of the Properties, under the terms of the Asset Purchase Agreement which provided a purchase price of $900,000. The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand zone with an approximate depth of 3,600 feet.

The Company has performed workovers of the wells subsequent to the Properties purchase which was necessary to put the lease back into production status. Therefore, these tangible and intangible workover costs were expensed as lease operating expenses rather than capitalized in the full cost pool in the three and six months ended June 30, 2021. In addition, the Company is currently evaluating the Properties oil and gas reserves and specifically the potential for noble gas reserves such as helium, argon and krypton. Based on these evaluations, the Company may redirect its efforts to the production of noble gases rather than crude oil on the Properties. These noble gas evaluation costs have also been expensed as lease operating costs during the three and six months ended June 30, 2021.

The accounting for, and disclosure of, oil and gas producing activities require that we choose between two GAAP alternatives: the full cost method or the successful efforts method. We adopted and use the full cost method of accounting, which involves capitalizing all exploration, exploitation, development and acquisition costs. Once we incur costs, they are recorded in the depletable pool of proved properties or in unproved properties, collectively, the full cost pool. Our unproved property costs, which include unproved oil and gas properties, properties under development, and major development projects, which were zero at June 30, 2021 and December 31, 2020, and are not subject to depletion. We review our unproved oil and gas property costs on a quarterly basis to assess for impairment and transfer unproved costs to proved properties as a result of extensions or discoveries from drilling operations or determination that no proved reserves are attributable to such costs. We expect these costs to be evaluated in one to seven years and transferred to the depletable portion of the full cost pool during that time. The full cost pool is comprised of intangible drilling costs, lease and well equipment and exploration and development costs incurred plus acquired proved and unproved leaseholds.

When we acquire significant amounts of undeveloped acreage, we capitalize interest on the acquisition costs in accordance with FASB ASC Subtopic 835-20 for Capitalization of Interest. We capitalize interest upon identification and development of shale resource opportunities in the Haynesville and Marcellus areas. When the unproved property costs are moved to proved developed and undeveloped oil and gas properties, or the properties are sold, we cease capitalizing interest.

Capitalized costs to acquire oil and natural gas properties are depreciated and depleted on a units-of-production basis based on estimated proved reserves. Capitalized costs of exploratory wells and development costs are depreciated and depleted on a units-of-production basis based on estimated proved developed reserves. Under this method, the sum of the full cost pool, excluding the book value of unproved properties, and all estimated future development costs are divided by the total estimated quantities of proved reserves. This rate is applied to our total production for the quarter, and the appropriate expense is recorded. Support equipment and other property, plant and equipment related to oil and gas producing activities, as well as property, plant and equipment unrelated to oil and gas producing activities, are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets.

Sales, dispositions and other oil and gas property retirements are accounted for as adjustments to the full cost pool, with no recognition of gain or loss, unless the disposition would significantly alter the amortization rate and/or the relationship between capitalized costs and Proved Reserves.

Pursuant to Rule 4-10(c)(4) of Regulation S-X, at the end of each quarterly period, companies that use the full cost method of accounting for their oil and gas properties must compute a limitation on capitalized costs, or ceiling test. The ceiling test involves comparing the net book value of the full cost pool, after taxes, to the full cost ceiling limitation defined below. In the event the full cost ceiling is less than the full cost pool, we must record a ceiling test write-down of our oil and gas properties to the value of the full cost ceiling. The full cost ceiling limitation is computed as the sum of the present value of estimated future net revenues from our proved reserves by applying average prices as prescribed by the SEC Release No. 33-8995, less estimated future expenditures (based on current costs) to develop and produce the proved reserves, discounted at 10%, plus the cost of properties not being amortized and the lower of cost or estimated fair value of unproved properties included in the costs being amortized, net of income tax effects.

The ceiling test is computed using the simple average spot price for the trailing twelve-month period using the first day of each month. For the period ended June 30, 2021, the trailing twelve-month reference price was $52.13 per Bbl for the West Texas Intermediate oil at Cushing, Oklahoma. This reference price for oil is further adjusted for quality factors and regional differentials to derive estimated future net revenues. Under full cost accounting rules, any ceiling test write-downs of oil and gas properties may not be reversed in subsequent periods. There were no ceiling test write-downs for the three or six months ended June 30, 2021.

The ceiling test calculation is based upon estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves, in projecting the future rates of production and in the timing of development activities. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.

Basic and Diluted Earnings (Loss) Per Share

Net earnings (loss) per share is calculated in accordance with FASB ASC 260, Earnings Per Share, for the periods presented. Basic net loss per share is based upon the weighted average number of shares of Common Stock outstanding. Diluted net earnings (loss) per share is based on the assumption that all dilutive convertible shares, warrants and stock options were converted or exercised or excluded from the calculations if their inclusion would be antidilutive. Dilution is computed by applying the if-converted/treasury stock method. Under this method, options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase shares of Common Stock at the average market price during the period. The Company has outstanding convertible promissory notes payable and Convertible Preferred Stock both of which is potentially dilutive. Such potential dilutive effect is included in diluted earnings (loss) per share at the beginning of the period (or at the time of issuance, if later) if they have a dilutive effect or such potentially dilutive securities are excluded from the calculations if their inclusion would be antidilutive.

The Company has outstanding convertible promissory notes payable and convertible preferred stock both of which is potentially dilutive. The adoption of ASU 2020-06 requires the Company to assume share settlement when an instrument can be settled in cash or shares at the entity’s option. This applies both to convertible instruments and freestanding arrangements that could result in cash or share settlement. ASU 2020-06 also stipulates that an average market price for the period should be used in the computation of the diluted earnings (loss) per share denominator in cases when the exercise price of an instrument may change based on an entity’s share price or changes in the entity’s share price may affect the number of shares that would be used to settle a financial instrument. Lastly, an entity should use the weighted-average share count from each quarter when calculating the year-to-date weighted average share count for all potentially dilutive securities.

During the three and six months ended June 30, 2021, the Company had outstanding the following securities that were potentially dilutive; 1) Series A Convertible Preferred Stock, 2) Convertible Note Payable through its retirement on March 26, 2021, 3) 3% Convertible Promissory Notes issued on March 31, 2021, 4) Common Stock purchase warrants and 5) stock purchase options. The inclusion of all potentially dilutive securities in diluted earnings (loss) for the three and six months ended June 30, 2021 and 2020 were excluded because of their anti-dilutive effect because of the net loss reported for both periods.

Recent Accounting Pronouncements

Reference Rate Reform. - In March 2020, the Financial Accounting Standard Board (the “FASB”) issued an accounting standard update which provides optional expedients and expectations for applying GAAP to contracts, hedging relationships and other transactions to ease financial reporting burdens to the expected market transition from the London Interbank Offered Rate (“LIBOR”) or another reference rate to alternative reference rates. The amendments in this accounting standards update became effective March 12, 2020, and an entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on the Company’s financial statements.

Income Taxes – Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued an accounting standard update which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This accounting standards update removes the following exceptions: (i) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items; (ii) exception to the requirements to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (iii) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (iv) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in the accounting standards update also improve consistency and simplify other areas of Topic 740 by clarifying and amending existing guidance. The guidance became effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company adopted the guidance effective January 1, 2021, with all of the anticipated and applicable effects to be required on a prospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

Note 2 – Oil and Gas Properties Acquired

On April 1, 2021, the Company completed the previously announced acquisition of certain oil and gas properties and interests from Core Energy, LLC, effective as of January 1, 2021 (the “Oil & Gas Properties Acquisition”). On December 14, 2020, the Company entered into an asset purchase and sale agreement (the “Agreement”) with Core Energy, as well as all of the members of Core, Mandalay LLC and Coal Creek Energy, LLC, to purchase certain oil and gas properties in the Central Kansas Uplift geological formation, covering over 11,000 contiguous acres, including, among other things, the production and mineral rights to and a leasehold interest in the Oil & Gas Properties and all contracts, agreements and instruments. The Agreement provided for an aggregate purchase price consisting of $900,000 in cash at closing.

The following represents the purchase price allocation for the Oil & Gas Properties Acquisition for $900,000 in cash. The Oil & Gas Property Acquisition qualify as an asset acquisition. As such, Infinity recognized the assets acquired and liabilities assumed at their fair values as of April 1, 2021, the date of closing. The fair value of the Oil & Gas Properties acquired approximate the value of the consideration paid, and the asset retirement obligation to be assumed, which management has concluded approximates the fair value that would be paid by a typical market participant. As a result, neither goodwill nor a bargain purchase gain will be recognized related to the acquisition.

The Company determined the amount of the asset retirement obligation assumed to be $13,425 as of the date of acquisition. The obligation relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development, or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support wells at the conclusion of their useful lives.

The following table summarizes the allocation of the assets acquired and the liabilities assumed related to the Oil & Gas Properties:

 Schedule of Oil and Gas Properties Acquired

Note 3 – Debt Obligations

Debt obligations is comprised of the following at June 30, 2021 and December 31, 2020:

 Schedule of Debt Outstanding

Debt obligations become due and payable as follows:

 Schedule of Debt Obligations Maturities

Convertible Promissory Notes Payable

On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes (the “ 3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026 (“Maturity Date”). The 3% Notes are convertible as to principal and any accrued interest, at the option of the holder, into shares of the Company’s Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.

An aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties. Such related parties were issued $25,777 principal balance of the 3% Convertible Promissory Notes and warrants to purchase 5,155,454 shares of Common Stock in exchange for the extinguishment of their respective debt obligations. See Note 9.

Convertible Note Payable

On August 19, 2020, the Company entered into a securities purchase agreement with an accredited investor (the “August Investor”) for the Company’s senior unsecured convertible note due August 19, 2021 (the “August Note”), with an aggregate principal face amount of approximately $365,169. The August Note was, subject to certain conditions, convertible into an aggregate of 3,943,820 shares of Common Stock, at a price of $0.10 per share. The Company also issued a five-year common stock purchase warrant to purchase up to 800,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “August Warrant”). The August Warrant is immediately exercisable and on a cashless basis if the shares underlying such warrant have not been registered within 180 days after the date of issuance. The August Investor purchased such securities from the Company for an aggregate purchase price of $325,000. The Company also granted the August Investor certain automatic and piggy-back registration rights whereby the Company has agreed to register the resale by the August Investor of the shares underlying the August Warrant and the conversion of the August Note.

The August Note bore interest at a rate of eight percent (8%) per annum with 12 months guaranteed, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 115% of the principal amount of the August Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to 115% of the principal amount of the August Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,500,000. In addition, pursuant to the August Note, so long as the August Note remained outstanding, the Company could not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than ten cents per share without written consent of the August Investor.

The conversion of the August Note and the exercise of the August Warrant are each subject to beneficial ownership limitations such that the August Investor may not convert the August Note or exercise the August Warrant to the extent that such conversion or exercise would result in the August Investor being the beneficial owner in excess of 4.99% (or, upon election of the August Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.

The Company and the August Investor agreed that for so long as the August Note and August Warrant remains outstanding, the August Investor has a right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of such subsequent financing.

The August Note and August Warrant each contain customary events of default, representations, warranties, agreements of the Company and the August Investor and customary indemnification rights and obligations of the parties thereto, as applicable.

As described in Note 1 the Company elected to early adopt ASU 2020-06 using the modified retrospective method which enables entities to apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated deficit) on the first day of the period adopted.

The Company applied ASU-2020-06 to all to outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06). The convertible notes payable issued on August 19, 2020 was the only outstanding financial instrument effected by this new accounting standard as of January 1, 2021. Therefore the application of ASU-2020-06 to this convertible note payable was used to determine the cumulative effect of the adoption of the new accounting standard. The cumulative effect of the adoption of the new accounting standard was determined and recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) which resulted in an increase to the carrying value of convertible notes payable as of January 1, 2021 by $160,900, a decrease to additional paid in capital of $252,961 and a decrease to accumulated deficit of $92,061. See Note 1.

On March 26, 2021, the Company exercised its right to retire the August Note in conjunction with the issuance of Convertible Preferred Stock (See Note 3 and 11). In accordance with the prepayment provisions contained in the August Note, the Company paid all principal, accrued interest and the 15% prepayment premium as follows:

Schedule of Prepayment of Note 

The prepayment premium was charged to non-operating expense as a loss from retirement of convertible note payable (See Note 9).

Following is a summary of the August Note as previously reported on December 31, 2020 through June 30, 2021 follows:

 Summary of Amortization and Retirement of Note

Other notes payable

The Company had short-term notes outstanding with entities or individuals as follows:

Note 4 – Accrued liabilities

Accrued liabilities consist of the following at June 30, 2021 and December 31, 2020:

 Schedule of Accrued Liabilities

The accrued rent balances relate to unpaid rent for the Company’s previous headquarters in Denver Colorado and represents unpaid rents and related costs for the period June 2006 through November 2008. The Company has not had any correspondence with the landlord for several years and will seek to settle and/or negotiate the matter when it has the financial resources to do so.

The accrued Nicaraguan Concession fees were accrued during the time the Concessions had lapsed and the Company was attempting to negotiate extensions to the underlying concessions with the Nicaraguan government which were unsuccessful. The Company abandoned all efforts to negotiate an extension to the Concessions effective January 1, 2020 and ceased the accrual of all related fees at that time.

On March 31, 2021, the Company and six creditors entered into Debt Settlement Agreements which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. Such creditors included those described in the above table as: 1) accrued compensation, 2) accrued board of director’s fees, 3) accrued accounting services and 4) accrued financing costs. (See Note 3, 9 and 12)

Note 5 – Stock Options

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

In May 2006, the Company’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 47,000 shares of the Company’s Common Stock is reserved for issuance under the 2006 Plan. In June 2005, the Company’s stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 47,500 shares of the Company’s Common Stock were reserved for issuance under the 2005 and 2006 Plans; however, such Plans have now expired, and no further issuances can be made. Options granted under the 2005 Plan and 2006 Plan allow for the purchase of shares of Common Stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Company’s Board of Directors and generally expire ten years after the date of grant. The Company also has issued other stock options not pursuant to a formal plan with terms similar to the 2005 and 2006 Plans.

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

As of June 30, 2021, 500,000 shares were available for future grants under the 2015 Plan. All other Plans have now expired.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of options granted, the Company aggregates option recipients into groups that have similar option exercise behavioral traits. Expected volatilities used in the valuation model are based on the expected volatility based on historical volatility. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ from these estimates. There were 1,800,000 options issued during the six months ended June 30, 2021 and there were no stock options granted during the six months ended June 30, 2020.

The following is the assumptions used in calculating the estimated grant-date fair value of the stock options granted during the six months ended June 30, 2021:

Schedule of Stock Option valuation Assumption 

The following table summarizes stock option activity for the six months ended June 30, 2021:

 Summary of Stock Option Activity

The Company recorded stock-based compensation expense in connection with the vesting of options granted aggregating $25,500 during the three and six months ended June 30, 2021 and $-0- for the three and six months ended June 30, 2020.

The total grant date fair value of the 1,800,000 stock options issued during the six months ended June 30, 2021 was $305,997 in total or $0.17 per share and there were no stock options granted during the six months ended June 30, 2020.

The intrinsic value as of June 30, 2021 related to the vested and unvested stock options as of that date was $-0-. The unrecognized compensation cost as of June 30, 2021 related to the unvested stock options as of that date was $280,497 which will be amortized over the next eleven months in accordance with the respective vesting scale.

Restricted stock grants. During August 2020 the Board of Directors granted 5,000,000 shares of restricted stock awards to our officers, directors and a consultant. During October 2019 the Board of Directors granted 2,000,000 shares of restricted stock awards to our new Chief Operating Officer. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over a period of time generally corresponding to yearly anniversaries of the grant date. Unvested shares of restricted stock awards may be forfeited upon the termination of service of employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends.

A summary of all restricted stock activity under the equity compensation plans for the six months ended June 30, 2021 is as follows:

 Schedule of Restricted Stock Unit Activity

The Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted granted aggregating $81,250 and $162,500 during the three and six months ended June 30, 2021, respectively. The Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted granted aggregating $24,308 and $48,619 during the three and six months ended June 30, 2020, respectively.

The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of June 30, 2021, there were $325,000 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next 15 months in accordance with the respective vesting scale.

The nonvested balance of restricted stock vests as follows:

 Schedule of Nonvested Restricted Stock Unit Activity

Note 6 – Derivative Instruments

The estimated fair value of the Company’s derivative liabilities, all of which were related to the detachable warrants issued in connection with various notes payable, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock and current interest rates. The detachable warrants issued in connection with the two other short-term notes payable (See Note 3) contained ratchet and anti-dilution provisions that remain in effect during the term of the warrants while the ratchet and anti-dilution provisions of the other notes payable cease when the related note payable is extinguished.

On April 1, 2021, the outstanding warrants treated as derivatives and the related notes payable containing such ratchet and anti-dilution provisions were extinguished through an exchange transaction as described in Note 3. Therefore, the derivative liability was adjusted to fair value and extinguished and included in the gain on extinguishment of notes payable as of the termination date (See Note 9).

A comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of the April 1, 2021 termination date and December 31, 2020 is as follows:

 Schedule of Estimated Fair Value of Derivative Liabilities

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

 Summary of Changes in Fair Value Derivative Financial Instruments

Note 7 – Warrants

The following table summarizes warrant activity for the six months ended June 30, 2021:

 Summary of Warrant Activity

The weighted average term of all outstanding common stock purchase warrants was 4.9 years as of June 30, 2021. The intrinsic value of all outstanding common stock purchase warrants and the intrinsic value of all vested common stock purchase warrants was zero as of June 30, 2021.

Note 8 – Income Taxes

The effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due to the net operating loss history of the Company maintaining a full reserve on all net deferred tax assets during the three months ended June 30, 2021 and 2020.

The Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at June 30, 2021. Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it determined to continue to provide a 100% valuation allowance on its net deferred tax assets. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed.

For income tax purposes, the Company has net operating loss carry-forwards of approximately $61,235,000 in accordance with its 2020 Federal Income tax return as filed, which expire from 2028 through 2039.

The Company has recently completed the filing of its tax returns for the tax years 2012 through 2020. Therefore, all such tax returns are open to examination by the Internal Revenue Service.

The Internal Revenue Code contains provisions under Section 382 which limit a company’s ability to utilize net operating loss carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Management has completed its review of whether such ownership changes have occurred, and based upon such review, management believes that the Company is not currently subject to an annual limitation or the possibility of the complete elimination of the net operating loss carry- forwards. In addition, the Company may be limited by additional ownership changes which may occur in the future.

Note 9 – Gain on Exchange and Extinguishment of Liabilities

During the three and six months ended June 30, 2021 and 2020, the Company recorded gains on the extinguishment of liabilities through the negotiation of settlements with certain creditors and through the operation of law.

 Schedule of Estimated Gain On Exchange and Extinguishment of Debt

Gain on exchange and extinguishment of liabilities - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. The 3% Notes allows for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026. The 3% Notes are convertible as to principal and any accrued interest, at the option of holder, into shares of the company’s Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.

The warrants to purchase 5,732,994 shares of common stock issued pursuant to the Debt Settlement Agreements were valued at $1,605,178 using the black-scholes methodology. The following assumptions were used in calculating the estimated fair value of the warrants as of March 31, 2021, their date of issuance:

Schedule of Fair Value of the Warrants Estimated Valuation Assumptions 

An aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties. Such related parties were issued $25,777 principal balance of the 3% Convertible Promissory Notes and warrants to purchase 5,155,454 shares of Common Stock in exchange for the extinguishment of their respective debt obligations. The Company recognized a gain on extinguishment of liabilities for the portion of the extinguishment with non-related parties. Furthermore, it recognized the portion of the gain on extinguishment of liabilities with related parties as a contribution of capital.

The gain on extinguishment of liabilities from the Debt Settlement Agreements was determined as follows:

 Schedule of Gain on Extinguishment of Liabilities

Note 10 – Asset Retirement Obligations

The Company’s asset retirement obligations primarily relate to the Company’s portion of future plugging and abandonment costs for wells and related facilities. The following table presents the changes in the asset retirement obligations for the six months ended June 30, 2021:

 Schedule of Assets Retirement Obligation

The $1,716,003 asset retirement obligation existing at December 31, 2020 and in years prior to 2020 represented the remaining potential liability for wells Infinity had owned in Texas and Wyoming prior to their sales/disposal in 2012. Infinity was not in compliance with then existing federal, state and local laws, rules and regulations for its previously owned Texas and Wyoming domestic oil and gas properties. Regardless, that all previously owned domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas being disposed of in 2012 and prior years; the Company may remain liable for certain asset retirement costs should the new owners not complete their asset retirement obligations. Management believes the asset retirement obligations recorded relative to these Texas and Wyoming wells of $1,716,003 as of June 30, 2021 and December 31, 2020 are sufficient to cover any potential noncompliance liabilities relative to the plugging of abandoned wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas properties.

The $13,425 asset retirement obligation assumed pursuant to an acquisition on April 1, 2021 and the related $279 accretion expense during the six months ended June 30, 2021 related to the acquisition of the Oil & Gas Properties as further described in Note 2.

Note 11 – Commitments and Contingencies

Lack of Compliance with Law Regarding Domestic Properties

Infinity was not in compliance with then existing federal, state and local laws, rules and regulations for domestic oil and gas properties owned and disposed of in 2012 and in years prior to 2020 and could have a material or significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of Infinity. All domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas were disposed of in 2012 and prior; however, the Company may remain liable for certain asset retirement costs should the new owners not complete their obligations. Management believes the total asset retirement obligations recorded for these prior matters of $1,716,003 as of June 30, 2021 and December 31, 2020 are sufficient to cover any potential noncompliance liabilities relative to the plugging of abandoned wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas properties.

Non-binding Term Sheet to enter into Joint Venture Agreement

On April 30, 2021, the Company and US Noble Gas, LLC (“USNG”) entered a non-binding term sheet to set terms and conditions whereby the parties would formalize a joint venture for the purpose of exploring for and development of various potential noble gas reserves on the Company’s recently acquired Properties. The joint venture would cover all of the noble gas rights production rights potentially existing on the approximate 11,000 acres included in the Company’s Properties.

The term sheet contains various provisions and conditions including the Company receiving the 50% net revenue-share of all noble gases sold with the Company being responsible for 37.5% of the related expenses. Pursuant to the term sheet, USNG among other items, would provide all research/testing/exploration data developed on the Properties, the equipment necessary for extraction of all noble gases, all consulting necessary to explore for and develop any existing noble gas reserves. The Company would be required to issue warrants to issue 2,000,000 shares of common stock at an exercise price of $0.50 for a five-year term to the principal consultants involved with USNG.

The term sheet requires the parties to execute definitive agreements including a Farmout Agreement, Operating Agreement and any other agreements satisfactory to the parties to meet the terms of the joint venture described in the term sheet. There can be no assurances that the parties will complete and execute the definitive agreements and if successful, what the final terms will be. Furthermore, there can be no assurances that the Companies Properties hold potential reserves of noble gases or that they can be produced on a commercially profitable basis.

The parties have been negotiating certain changes and revisions to the April 30, 2021 non-binding term sheet due to positive developments in the evaluation of the possible existence of noble gas reserves on the Properties. The parties are considering certain expansions to the Company’s Board of Directors and alliance with several substantial downstream companies in the noble gas industry. There can be no assurance that the parties will agree on an amended joint venture term sheet and resulting definitive agreements agreement, if at all. In addition, there can be no assurance of what the ultimate negotiated terms will be and whether such terms will be beneficial to the Company.

Litigation

The Company is subject to numerous claims and legal actions in which vendors are claiming breach of contract due to the Company’s failure to pay amounts due. The Company believes that it has made adequate provision for these claims in the accompanying financial statements.

The Company is currently involved in litigation as follows:

Note 12 – Convertible Preferred Stock

The Company is authorized to issue up to 10,000,000 preferred shares with a par value of $0.0001 per share.

On March 16, 2021, the Company approved and filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock (“COD”). The COD provides for the issuance of up to 27,778 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share. Pursuant to the provisions of the COD, the Series A Convertible Preferred Stock is convertible, at the option of the holders thereof, at any time, subject to certain beneficial ownership limitations, into shares of Common Stock determined on a per share basis by dividing the $100 stated/liquidation value of such share of Convertible Preferred Stock by the $0.32 per share conversion price, which conversion price is subject to certain adjustments. In addition, the COD provides for the payment of 10% per annum cumulative dividends, in (i) cash, or (ii) shares of Common Stock, to the holders of the Series A Convertible Preferred Stock based on the stated/liquidation value, until the earlier of (i) the date on which the shares of Series A Convertible Preferred Stock are converted to common stock or (ii) date the Company’s obligations under the COD have been satisfied in full. The shares of Series A Convertible Preferred Stock also (i) vote on an as-converted to Common Stock basis, subject to certain beneficial ownership limitations, (ii) are subject to mandatory conversion into Common Stock upon the closing of any equity financing transaction consummated after the original issue date, pursuant to which the Company raises gross proceeds of not less than $5,000,000, (iii) rank senior to the Common Stock and any class or series of capital stock created after the Series A Convertible Preferred Stock and (iv) have a special preference upon the liquidation of the Company.

On March 26, 2021 the Company entered into a securities purchase agreement with five (5) accredited investors providing for an aggregate investment of $2,050,000 by the investors for the issuance by the Company to them of (i) 22,776 shares of Series A Convertible Preferred Stock, par value $0.0001 per share, with a stated/liquidation value of $100 per share of the Company convertible into an aggregate of up to 7,117,500 shares of Common Stock, of the Company that are issuable from time to time upon conversion of such shares of Series A Convertible Preferred Stock; (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 5,256,410 shares of Common Stock at an exercise price of $0.39 per share, subject to customary adjustments thereunder. Holders of the Warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the Warrant Shares within six (6) months following the Closing Date, as defined in the Warrants, by exercising on a cashless basis pursuant to the formula provided in the Warrants. Net proceeds from the issuance of Series A Convertible Preferred Stock totaled $1,929,089 after deducting the placement agent fee and other expenses of the offering. The Company intends to use the proceeds of the Series A Convertible Preferred Stock offering to complete the acquisition and development of the Properties, to pay-off the outstanding convertible note payable (See Note 3 & 9) and for general working capital purposes.

The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the acquisition of the Properties which occurred on April 1, 2021 to register the conversion shares and the warrant Shares. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90^th) calendar day following the closing of the acquisition of the Properties which occurred on April 1, 2021.

The holders of the Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its Series A Convertible Preferred Stock and/or exercise its common stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.

The Company has accrued and paid preferred dividends totaling $60,528 relative to the Series A Convertible Preferred Stock which was charged to additional paid in capital as during the six months ended June 30, 2021. Preferred dividends totaled $56,784 for the three months ended June 30, 2021.

Note 13 – Related Party Transactions

The Company’s Chief Operating Officer is a non-controlling member of Core. The Company acquired an Option from Core to purchase the production and mineral rights/leasehold for the Properties. The Company paid a non-refundable deposit of $50,000 in 2019 to bind the original Option, which gave it the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the newly acquired Option permitted the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020 and the Company agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. On December 14, 2020 the parties executed an asset purchase and sale agreement which extended the new Option to January 11, 2021, which expired. The parties entered into a Side Letter agreement on March 31, 2021, pursuant to which we and Core agreed to set the closing date on which the Properties would be purchased to April 1, 2021. Pursuant to the Side Letter, the Company is responsible for reimbursing Core for certain prorated revenues and expenses from January 1, 2021 through the April 1, 2021 closing date. On April 1, 2021 we completed the acquisition of the Properties, under the same terms of the asset purchase agreement executed on December 14, 2020 which provided a purchase price of $900,000. The Company raised approximately $2.05 million on March 26, 2021 through the issuance of convertible preferred stock with detachable common stock purchase warrants. The funds raised pursuant to the Series A Convertible Preferred Stock issuance were used to complete the acquisition of the Properties on April 1, 2021, to retire the outstanding convertible note payable and for working capital purposes.

The Company does not have any employees other than its Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. In previous years, certain general and administrative services (for which payment is deferred) had been provided by the Company’s Chief Financial Officer’s accounting firm at its standard billing rates plus out-of-pocket expenses consisting primarily of accounting, tax and other administrative fees. The Company no longer utilizes its Chief Financial Officer’s accounting firm for such support services and was not billed for any such services during the six months ended June 30, 2021 and 2020. On March 31, 2021 the parties entered into a Debt Settlement Agreement whereby all amounts due to such firm for services totaling $762,407 were extinguished upon the issuance of $7,624 principal balance of 3% Note and the issuance of warrants to purchase 1,524,814 shares of Common Stock as further described in Notes 3, 7 & 9. Total amounts due to the related party was $-0- and $762,407 as of June 30, 2021 and December 31, 2020, respectively.

The Company has accrued compensation to its officers and directors in previous years. The Board of Directors authorized the Company to cease the accrual of compensation for its officers and directors, effective January 1, 2018. On March 31, 2021 the parties entered into Debt Settlement Agreements whereby all accrued amounts due for such services totaling $1,789,208 were extinguished upon the issuance of $17,892 principal balance of 3% Convertible Promissory Note and the issuance of warrants to purchase 3,578,416 shares of Common Stock as further described in Notes 3, 7 & 9. Total amounts due to the officers and directors related to accrued compensation was $-0- and $1,789,208 as of June 30, 2021 and December 31, 2020, respectively.

Offshore Finance, LLC was owed financing costs in connection with a subordinated loan to the Company which was converted to common shares in 2014. The managing partner of Offshore and the Company’s CFO are partners in the accounting firm which the Company used for general corporate purposes in the past. On March 31, 2021 the parties entered into a Debt Settlement Agreement whereby all amounts due for such services totaling $26,113 were extinguished upon the issuance of $261 principal balance of 3% Convertible Promissory Note and the issuance of warrants to purchase 52,226 shares of common stock as further described in Notes 3, 7 & 9. Total amounts due to this related party was $-0- and $26,113 as of June 30, 2021 and December 31, 2020, respectively.

On May 13, 2020, the Company borrowed $41,000 from its Chairman, CEO & President in the form of an unsecured promissory note bearing 6% interest and due on demand. The proceeds were used for general working capital purposes. The entire $41,000 principal balance and $654 of accrued interest related to the note was retired on August 19, 2020 and there is no remaining balance as of June 30, 2021 and December 31, 2020.

Note 14 – Subsequent Events

Non-binding Term Sheet to enter into Joint Venture Agreement

On April 30, 2021, the Company and US Noble Gas, LLC (“USNG”) entered a non-binding term sheet to set terms and conditions whereby the parties would formalize a joint venture for the purpose of exploring for and development of various potential noble gas reserves on the Company’s recently acquired Properties. The joint venture would cover all of the noble gas rights production rights potentially existing on the approximate 11,000 acres included in the Company’s Properties.

The term sheet contains various provisions and conditions including the Company receiving the 50% net revenue-share of all noble gases sold with the Company being responsible for 37.5% of the related expenses. Pursuant to the term sheet, USNG among other items, would provide all research/testing/exploration data developed on the Properties, the equipment necessary for extraction of all noble gases, all consulting necessary to explore for and develop any existing noble gas reserves. The Company would be required to issue warrants to issue 2,000,000 shares of common stock at an exercise price of $0.50 for a five-year term to the principal consultants involved with USNG.

The term sheet requires the parties to execute definitive agreements including a Farmout Agreement, Operating Agreement and any other agreements satisfactory to the parties to meet the terms of the joint venture described in the term sheet. There can be no assurances that the parties will complete and execute the definitive agreements and if successful, what the final terms will be. Furthermore, there can be no assurances that the Companies Properties hold potential reserves of noble gases or that they can be produced on a commercially profitable basis.

The parties have been negotiating certain changes and revisions to the April 30, 2021 non-binding term sheet due to positive developments in the evaluation of the possible existence of noble gas reserves on the Properties. The parties are considering certain expansions to the Company’s Board of Directors and alliance with several substantial downstream companies in the noble gas industry. There can be no assurance that the parties will agree on an amended joint venture term sheet and resulting definitive agreements agreement, if at all. In addition, there can be no assurance of what the ultimate negotiated terms will be and whether such terms will be beneficial to the Company.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Note Regarding Forward Looking Statements

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

As used in this quarterly 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.

Overview

The Company is an oil and gas exploration, development and production company, which is primarily in the business of drilling and operating oil and gas wells. From 2009 to 2020, the Company had pursued the exploration of potential oil and gas resources in the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which contain a total of approximately 1.4 million acres. However, in January 2020, the Company abandoned the Concessions. The Company has also assessed various opportunities and strategic alternatives involving the acquisition, exploration and development of gas and oil properties in the United States, including the possibility of acquiring businesses or assets that provide support services for the production of oil and gas in the United States, such as in the Central Kansas Uplift geological formation covering over 11,000 acres (the “Properties”).

On April 1, 2021 we completed the acquisition of the Properties, under the same terms of the Asset Purchase Agreement which provided a purchase price of $900,000. The Company raised approximately $2.05 million on March 26, 2021 through the issuance of Convertible Preferred Stock with detachable common stock purchase warrants. The funds raised pursuant to the Convertible Preferred Stock issuance were used to complete the acquisition of the Properties on April 1, 2021 and to retire all outstanding Convertible Notes Payable.

The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand zone with an approximate depth of 3,600 feet.

We commenced rework of the existing production wells immediately after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and krypton. Testing of the Properties for noble gas reserves has provided encouraging but not yet conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil & gas reserves while continuing the evaluation of the existence of new oil & gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

We may find it necessary to obtain new sources of debt and/or equity capital to fund the exploration and development of the Properties enumerated above, as well as satisfying our existing debt obligations. We can provide no assurance that we will be able to obtain sufficient new debt/equity capital to fund our planned development of the Properties.

2021 Operational and Financial Objectives

COVID–19 PANDEMIC

The financial statements contained in this Quarterly Report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of June 30, 2021. Economies throughout the world continue to suffer disruptions by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the outbreak of the coronavirus (Covid-19) including the recent rise of the new Delta variant. In particular, the oil and gas market has been severely impacted by the negative effects of the coronavirus because of the substantial and abrupt decrease in the demand for oil and gas globally. In addition, the capital markets have experienced periods of disruption and our efforts to raise necessary capital in the future may be adversely impacted by the pandemic and investor sentiment and we cannot forecast with any certainty when the lingering uncertainty caused by the Covid-19 pandemic will cease to impact our business and the results of our operations. In reading this Quarterly Report on Form 10-Q, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties caused by the outbreak of Covid-19.

Corporate Activities

The Company’s 2021 operating objectives have focused on: 1) completing the acquisition of the Properties, 2) raising the necessary funds to complete the acquisition of the Properties, 3) commencing rework on the Properties including testing and evaluation of noble gas reserves in additional to the oil and gas producing zones and 4) resolution of obligations in default and/or past due.

Recent financings –

Issuance of Convertible Preferred Stock - On March 26, 2021, the Company issued Convertible Preferred Stock (the “Preferred Stock”), with an aggregate principal face amount of up to $2,500,000 subject to a 10% original issue discount. The Convertible Preferred Stock is, subject to certain conditions, convertible into shares of Common Stock at a rate of $0.32 per share and will be subject to a 10% dividend rate per annum, payable quarterly in cash or registered Common Stock, subject to equity conditions. The holders were also granted demand registration rights. The Company also issued warrants along side of the Convertible Preferred Stock investors to purchase up to 6,410,250 shares (assuming the $2.5 million offering is fully subscribed) of Common Stock at an exercise price of $0.39 per share, subject to customary adjustments. The common stock purchase warrants are exercisable commencing six (6) months after issuance on a cashless basis at the holders’ discretion with a term of five (5) years. On March 26, 2021, investors purchased Preferred Stock with an aggregate cash purchase price of $2,050,000 together with warrants to purchase a total of 5,256,410 shares of Common Stock.

Net proceeds from the issuance of Convertible Preferred Stock was $1,929,089 after deducting the placement agent fee and other expenses of the offering. The Company used the proceeds of the Convertible Preferred Stock offering to complete the acquisition and development of the Properties, to pay-off all outstanding convertible notes payable and for general working capital.

Issuance of Convertible Promissory Notes with Detachable Warrants - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. The 3% Notes allows for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026. The 3% Notes are convertible as to principal and any accrued interest, at the option of holder, into shares of the Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustments. The warrants to purchase 5,732,994 shares of Common Stock issued pursuant to the Debt Settlement Agreements were valued at $1,605,178 using the Black-Scholes methodology.

Issuance of Convertible Notes Payable - On August 19, 2020, we entered into a securities purchase agreement with an accredited investor (the “August Investor”) for our senior unsecured convertible note payable due August 19, 2021 (the “August Note”), with an aggregate principal face amount of approximately $365,169. The August Note is, subject to certain conditions, convertible into an aggregate of 3,943,820 shares of Common Stock, at a price of $0.10 per share (the “Fixed Conversion Price”). We also issued a five-year common stock purchase warrant (the “August Warrant”) to purchase up to 800,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments. The August Warrant is immediately exercisable and on a cashless basis if the shares underlying such warrant have not been registered within 180 days after the date of issuance. The August Investor purchased such securities from the Company for an aggregate purchase price of $325,000. We also granted the August Investor certain automatic and piggy-back registration rights whereby we agreed to register the resale by the August Investor of the shares underlying the August Warrant and the conversion of the August Note.

The August Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by us at any time in an amount equal to 115% of the principal amount of the August Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to 115% of the principal amount of the August Note and any accrued and unpaid interest in the event of the consummation by us of any public or private offering or other financing pursuant to which we receive gross proceeds of at least $2,500,000. The August Note is convertible at any time by the August Investor and we shall have the right to request that the August Investor convert the August Note in full or in part at the Fixed Conversion Price in the event that the VWAP (as defined in the August Note) of the Common Stock exceeds $0.75 for twenty consecutive trading days. In addition, pursuant to the August Note, so long as the August Note remains outstanding, we shall not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than the Fixed Conversion Price, without written consent of the August Investor.

The conversion of the August Note and the exercise of the August Warrant are each subject to beneficial ownership limitations such that the August Investor may not convert the August Note or exercise the August Warrant to the extent that such conversion or exercise would result in the August Investor being the beneficial owner in excess of 4.99% (or, upon election of the August Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to us, provided that any increase in such limitation will not be effective until 61 days following notice to us.

We used the proceeds of the August Note to pay off $60,125 in principal balance of notes payable that were in default, to pay the $100,000 required by the Exchange Agreement (as defined and described below) and for general working capital.

On March 26, 2021, the Company exercised its right to retire the August Note in conjunction with the issuance of Series A Convertible Preferred Stock. In accordance with the prepayment provisions contained in the August Note, the Company paid all principal, accrued interest and the 15% prepayment premium which totaled $453,539.

Extinguishment of liabilities –

Debt Settlement Agreements - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. The 3% Notes allows for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026. The 3% Notes are convertible as to principal and any accrued interest, at the option of Holder, into shares of the Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment. The warrants to purchase 5,732,994 shares of Common Stock issued pursuant to the Debt Settlement Agreements were valued at $1,605,178 using the Black-Scholes methodology.

Extinguishment of Convertible Note Payable - On March 26, 2021, the Company exercised its right to retire the convertible note payable issued in August 2019 with a par value of $365,169 in conjunction with the issuance of the Series A Convertible Preferred Stock. In accordance with the prepayment provisions contained in the August Note, the Company paid $453,539 to retire all principal, accrued interest and the 15% prepayment premium.

Extinguishment of Notes Payable – On April 1, 2021, the Company and the holder of a $50,000 note payable that was in default reached a settlement whereby the Company issued a total of 145,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $72,874 as of April 1, 2021. The 145,000 shares issued to extinguish the debt obligations were valued at $40,600 based on the closing market price on the date of the extinguishment. The extinguishment of the debt obligations resulted in a gain of $32,274 which was recorded in the three and six months ended June 30, 2021.

On April 1, 2021, the Company and the holder of the $35,000 note payable that was in default reached a settlement whereby the Company issued a total of 100,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $50,956 as of April 1, 2021. The 100,000 shares issued to extinguish the debt obligations were valued at $28,000 based on the closing market price on the date of the extinguishment. The extinguishment of the debt obligations resulted in a gain of $22,956 which was recorded in the three and six months ended June 30, 2021.

Extinguishment of $1,050,000 Note Payable -On September 24, 2020, the Company entered into an Exchange and Settlement Agreement (the “Exchange Agreement”) with a note holder (the “Holder”), pursuant to which the Holder agreed to exchange its 8% promissory note in the original principal amount of $1,050,000, representing outstanding principal balance of $1,000,000 and accrued and unpaid interest thereon (which totaled $542,762 as of September 24, 2020), for (i) a cash payment in the amount of $100,000 and (ii) 737,532 newly issued shares of Common Stock (the “Exchange”).

In connection with the Exchange Agreement, the Company and the Holder agreed to terminate the following agreements: (i) the preemptive rights agreement, dated as of December 27, 2013, between the Company and the Holder, (ii) the revenue sharing agreement, dated as of May 30, 2014, between the Company and the Holder and (iii) the indemnity agreement, dated as of December 27, 2013, between the Company and the Holder. Additionally, pursuant to the Exchange Agreement, the Holder acknowledged the expiration on March 12, 2017, by its terms, of a common stock purchase warrant, issued to the Holder, for the purchase of up to 100,000 shares of Common Stock. The Company and the Holder also agreed to provide mutual limited releases, releasing each of them from all liabilities and obligations to the other, as between them with respect to claims relating to the Note, such preemptive rights agreement, the Holder’s warrant and all other agreements relating thereto.

The closing of the Exchange occurred concurrently with the execution of the Exchange Agreement. At the closing, the Company made the $100,000 cash payment and issued 737,532 shares of Common Stock (valued at $132,756 based on the closing market price of the shares on the date of the Exchange) to the Holder and the underlying documents and obligations summarized above were surrendered and/or cancelled.

Acquisition of Oil and Gas Properties - On July 31, 2019, we acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for the Properties. We paid a non-refundable deposit of $50,000 to bind the Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020 and the Company has agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. On December 14, 2020 the parties executed an Asset Purchase and Sale Agreement (“Asset Purchase Agreement”) which extended the new Option to January 11, 2021 which expired.

We and Core entered into a Side Letter agreement on March 31, 2021, pursuant to which we and Core agreed to set the closing date on which the Properties would be purchased pursuant to the Asset Purchase Agreement, which the parties entered into on December 14, 2020, to April 1, 2021. Pursuant to the Side Letter, the Company is responsible for reimbursing Core for certain prorated revenues and expenses from January 1, 2021 through the April 1, 2021 closing date.

On April 1, 2021 we completed the acquisition of the Properties, under the same terms of the Asset Purchase Agreement which provided a purchase price of $900,000. The Company raised approximately $2.05 million on March 26, 2021 through the issuance of Convertible Preferred Stock with detachable common stock purchase warrants. The funds raised pursuant to the Convertible Preferred Stock issuance were used to complete the acquisition of the Properties on April 1, 2021 and to retire all outstanding Convertible Notes Payable.

Upon completion of the acquisition, the purchase included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand zone with an approximate depth of 3,600 feet.

We commenced rework of the existing production wells immediately after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and krypton. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil & gas reserves while continuing the evaluation of the existence of new oil & gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

Off-Balance Sheet Arrangements

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

For the Three Months Ended June 30, 2021 and 2020

Results of Operations

Revenue

The Company began generating revenues from the production and sale of crude oil resulting from the closing of its acquisition of the Oil & Gas Properties on April 1, 2021. Revenues totaled $20,828 for the three months ended June 30, 2021. The Company had no revenues in 2020 as it focused on identification of acquisition of domestic oil & gas producing properties targets.

On April 1, 2021 we completed the acquisition of the Oil and Gas Properties, under the terms of the Asset Purchase Agreement which provided a purchase price of $900,000. The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand zone with an approximate depth of 3,600 feet.

We commenced rework of the existing production wells immediately after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and krypton. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil & gas reserves while continuing the evaluation of the existence of new oil & gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

Oil and Gas Lease Operating Expenses

The Company began generating revenues from the production and sale of crude oil resulting from the closing of its acquisition of the Oil & Gas Properties on April 1, 2021. Total oil and gas lease operating expenses totaled $226,795 for the three months ended June 30, 2021.

We commenced rework of the existing production wells after completion of the acquisition of the Properties in order to restore the three producing wells to full operational condition and all such rework costs were expensed as routine maintenance rather capitalized to oil and gas properties and equipment under the full-cost method. In addition, we have performed certain testing and evaluation for the existence of noble gas reserves on the Properties including helium, argon and krypton. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil & gas reserves while continuing the evaluation of the existence of new oil & gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

The Company had no oil and gas lease operating expenses in 2020 as it held no oil and gas producing properties and instead was focused on identification of acquisition of domestic oil & gas producing properties targets.

Depreciation, Depletion and Amortization

The Company began generating revenues from the production and sale of crude oil resulting from the closing of its acquisition of the Oil & Gas Properties on April 1, 2021 which it acquired for $900,000 cash plus the assumption of asset retirement obligations of $13,425. The Company allocated the purchase price of $913,425 to oil and gas properties and equipment which is subject to depreciation, depletion and amortization as the Oil & Gas Property Acquisition qualified as an asset acquisition. Total depreciation, depletion and amortization was $30,834 for the three months ended June 30, 2021. There was no depreciation, depletion and amortization for the three months ended June 30, 2020 as the Company held no properties 2020 as it focused on identification of acquisition of domestic oil & gas producing properties targets.

Capitalized costs to acquire oil and natural gas properties are depreciated and depleted on a units-of-production basis based on estimated proved reserves. Capitalized costs of exploratory wells and development costs are depreciated and depleted on a units-of-production basis based on estimated proved developed reserves. Under this method, the sum of the full cost pool, excluding the book value of unproved properties, and all estimated future development costs are divided by the total estimated quantities of proved reserves. This rate is applied to our total production for the quarter, and the appropriate expense is recorded. Support equipment and other property, plant and equipment related to oil and gas producing activities, as well as property, plant and equipment unrelated to oil and gas producing activities, are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets.

Accretion of Asset Retirement Obligation

Total expense for the accretion of asset retirement obligations was $279 and $-0- for the three months ended June 30, 2021 and 2020, respectively. The Company determined the amount of the asset retirement obligation assumed to be $13,425 as of April 1, 2021, the date of the Oil & Gas Property Acquisition. The obligation relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development, or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support wells at the conclusion of their useful lives.

Oil and Gas Production Related Taxes

The Company began generating revenues from the production and sale of crude oil resulting from the closing of its acquisition of the Oil & Gas Properties on April 1, 2021. Oil and gas production related taxes totaled $966 and $-0- for the three months ended June 30, 2021 and 2020, respectively. Such taxes are deducted from gross oil and gas revenue by the crude oil purchaser upon payment to the Company and include primarily severance taxes imposed by the state of Kansas and Kansas conservation assessment fees to a lesser extent. Revenues totaled $20,828 for the three months ended June 30, 2021 which resulted in the deduction of $966 in production related taxes. The Company had no revenues in 2020 as it focused on identification of acquisition of domestic oil & gas producing properties targets and therefore there was no deduction for Kansas production related taxes.

Other General and Administrative Expenses

Other general and administrative expenses were $242,296 for the three months ended June 30, 2021, an increase of $199,682, or 469%, from other general and administrative expenses of $42,614 in the same period in 2020. The increase in other general and administrative expenses is primarily attributable to an increase of $51,441 for legal fees and a $31,000 increase in audit fees as the Company began operating the newly acquired oil and gas properties lease which required various filings with the Securities and Exchange Commission. In addition, the increase in other general and administrative expenses were attributable to a $30,000 bonus paid to the Company’s CEO attributable to his efforts in closing the acquisition and an increase in stock-based compensation of $82,442 related to the amortization of the June 2021 stock option grants and the August 2020 restricted stock grants in 2021 compared to 2020. The stock option expense will be amortized ratable through June 2022 and the restricted stock granted to our officers, directors and certain consultants will continue be amortized ratably through June 2022.

Interest Expense

Interest expense decreased to $214 for the three months ended June 30, 2021, compared to $22,104 for the comparable period in 2020, a decline of $21,890, or 99%. Interest expense declined during the three months ended June 30, 2021 was primarily due to the pay-off of the convertible note payable issued in August 2019, which had a stated principal balance of $365,169 and bore interest at an 8% rate until it was retired on March 26, 2021.

On April 1, 2021, the Company and the holder of the $50,000 note payable that was in default reached a settlement whereby the Company issued a total of 145,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $72,874 as of April 1, 2021. In addition, on April 1, 2021, the Company and the holder of the $35,000 note payable that was in default reached a settlement whereby the Company issued a total of 100,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $50,956 as of April 1, 2021. The 100,000 shares issued to extinguish the debt obligations were valued at $28,000 based on the closing market price on the date of the extinguishment. Accordingly, there was less interest related to these notes payable in the three months ended June 30, 2021 as compared to the same period in 2020.

On March 31, 2021, the Company issued $28,665 principal balance of 3% Notes in connection with the Debt Settlement Agreements. Interest expense totaled $214 related to these outstanding promissory notes and were the only interest-bearing notes outstanding during the three months ended June 30, 2021 and will continue to affect interest expense in future quarters.

Gain on Extinguishment of Liabilities

The Company reported a gain on extinguishment of liabilities of $55,230 for the three months ended June 30, 2021, as compared to $-0- for the same period in 2020.

On April 1, 2021, the Company and the holder of the $50,000 note payable that was in default reached a settlement whereby the Company issued a total of 145,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $72,874 as of April 1, 2021. The 145,000 shares issued to extinguish the debt obligations were valued at $40,600 based on the closing market price on the date of the extinguishment. The extinguishment of the debt obligations resulted in a gain of $32,274 which was recorded in the second quarter of 2021.

On April 1, 2021, the Company and the holder of the $35,000 note payable that was in default reached a settlement whereby the Company issued a total of 100,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $50,956 as of April 1, 2021. The 100,000 shares issued to extinguish the debt obligations were valued at $28,000 based on the closing market price on the date of the extinguishment. The extinguishment of the debt obligations resulted in a gain of $22,956 which was recorded in the second quarter of 2021.

Change in Derivative Fair Value

The conversion feature in certain outstanding promissory notes and common stock purchase warrants issued in connection with short-term notes. The underlying notes payable were paid off on April 1, 2021 and the derivative warrants were terminated which resulted in no derivative warrants outstanding during the three months ended June 30, 2021. Such notes payable and the related derivative warrants were outstanding during the three months ended June 30, 2020 and treated as derivative instruments because such notes and warrants contain ratchet and anti-dilution provisions. The change in derivative fair value was $-0- during the three months ended June 30, 2021 and the mark-to-market process resulted in a loss of $1,286 during the three months ended June 30, 2020.

Income Tax

The Company recorded no income tax benefit (expense) in the three months ended June 30, 2021 and 2020. The Company has been in a cumulative tax loss position and has substantial net operating loss carryforwards available for its utilization at June 30, 2021. The Company has continued to carry a 100% reserve on its net deferred tax assets and therefore recorded no income tax expense on its income before income taxes during the three months ended June 30, 2021 and 2020.

Net Loss

The Company reported a net loss of $425,326 for the three months ended June 30, 2021, compared to a net loss of $66,004 for the same period in 2020. This represents a deterioration of $359,322 in 2021 compared to 2020.

Convertible Preferred Stock Dividends

The Company recorded $56,784 and $-0- in convertible preferred stock dividends in the three months ended June 30, 2021 and 2020, respectively. On March 26, 2021 the Company issued and classified its Series A Convertible Preferred Stock as equity securities in the condensed balance sheet. Such Convertible Preferred Stock bears a cumulative dividend at a 10% rate based on its stated/liquidation value. There were no outstanding Series A Convertible Preferred Stock during the three months ended June 30, 2020.

Net Loss Applicable to Common Stockholders

The Series A Convertible Preferred Stock issued on March 26, 2021 has a preference over Common Stock and therefore such accrued Convertible Preferred Stock dividend amounts have been deducted from net loss to report net loss applicable to common stockholders of $482,110 and $66,004 for the three months ended June 30, 2021 and 2020, respectively.

Basic and Diluted Net Loss Attributable to Common Stockholders per Share

Basic net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss attributable to common stockholders per share is computed by dividing the net loss net loss attributable to common stockholders by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Common stock equivalents included in the diluted net loss attributable to common stockholders per share computation represent shares of common stock issuable upon the assumed conversion of Convertible Promissory Notes, Convertible Preferred Stock and the assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in which net losses attributable to common stockholders are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common stock equivalents would have an anti-dilutive effect. In addition, in periods in which there is net earnings attributable to common stockholders and the effect of including common stock equivalents in the diluted per share calculations would be anti-dilutive (such as when the conversion or exercise price of the common stock equivalents are higher than the average closing market price per share) such anti-dilutive common stock equivalents would also be excluded from the calculation of basic and diluted weighted average shares outstanding.

The Company incurred a net loss attributable to common stockholders during the three months ended June 30, 2021 and 2020, therefore all Common Stock equivalents were considered anti-dilutive and excluded from diluted net loss attributable to common stockholders per share computations. The basic and diluted net loss attributable to common stockholders per share were $0.03 and $0.01 for the three months ended June 30, 2021 and 2020, respectively.

Potential equivalent shares of common stock as of June 30, 2021 totaled 21,732,614 shares of Common Stock, which included 57,330 shares of Common Stock underlying the Convertible Promissory Notes, 7,117,500 shares of Common Stock underlying the conversion of Series A Convertible Preferred Stock, 12,480,784 shares of Common Stock underlying outstanding warrants and 2,077,000 shares of Common Stock underlying outstanding stock options.

For the Six Months Ended June 30, 2021 and 2020

Results of Operations

Revenue

The Company began generating revenues from the production and sale of crude oil resulting from the closing of its acquisition of the Oil & Gas Properties on April 1, 2021. Revenues totaled $20,828 for the six months ended June 30, 2021. The Company had no revenues in 2020 as it focused on identification of acquisition of domestic oil & gas producing properties targets.

On April 1, 2021 we completed the acquisition of the Oil and Gas Properties, under the terms of the Asset Purchase Agreement which provided a purchase price of $900,000. The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand zone with an approximate depth of 3,600 feet.

We commenced rework of the existing production wells after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and krypton. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil & gas reserves while continuing the evaluation of the existence of new oil & gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

Oil and Gas Lease Operating Expenses

The Company began generating revenues from the production and sale of crude oil resulting from the closing of its acquisition of the Oil & Gas Properties on April 1, 2021. Total oil and gas lease operating expenses totaled $226,795 for the six months ended June 30, 2021.

We commenced rework of the existing production wells after completion of the acquisition of the Properties in order to restore the three producing wells to full operational condition and all such rework costs were expensed as routine maintenance rather capitalized to oil and gas properties and equipment under the full-cost method. In addition, we have performed certain testing and evaluation for the existence of noble gas reserves on the Properties including helium, argon and krypton. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil & gas reserves while continuing the evaluation of the existence of new oil & gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

The Company had no oil and gas lease operating expenses in 2020 as it held no oil and gas producing properties and instead was focused on identification of acquisition of domestic oil & gas producing properties targets.

Depreciation, Depletion and Amortization

The Company began generating revenues from the production and sale of crude oil resulting from the closing of its acquisition of the Oil & Gas Properties on April 1, 2021 which it acquired for $900,000 cash plus the assumption of asset retirement obligations of $13,425. The Company allocated the purchase price of $913,425 to oil and gas properties and equipment which is subject to depreciation, depletion and amortization as the Oil & Gas Property Acquisition qualified as an asset acquisition. Total depreciation, depletion and amortization was $30,834 for the six months ended June 30, 2021. There was no depreciation, depletion and amortization for the six months ended June 30, 2020 as the Company held no properties 2020 as it focused on identification of acquisition of domestic oil & gas producing properties targets.

Capitalized costs to acquire oil and natural gas properties are depreciated and depleted on a units-of-production basis based on estimated proved reserves. Capitalized costs of exploratory wells and development costs are depreciated and depleted on a units-of-production basis based on estimated proved developed reserves. Under this method, the sum of the full cost pool, excluding the book value of unproved properties, and all estimated future development costs are divided by the total estimated quantities of proved reserves. This rate is applied to our total production for the quarter, and the appropriate expense is recorded. Support equipment and other property, plant and equipment related to oil and gas producing activities, as well as property, plant and equipment unrelated to oil and gas producing activities, are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets.

Accretion of Asset Retirement Obligation

Total expense for the accretion of asset retirement obligations was $279 and $-0- for the six months ended June 30, 2021 and 2020, respectively. The Company determined the amount of the asset retirement obligation assumed to be $13,425 as of April 1, 2021, the date of the Oil & Gas Property Acquisition. The obligation relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development, or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support wells at the conclusion of their useful lives.

Oil and Gas Production Related Taxes

The Company began generating revenues from the production and sale of crude oil resulting from the closing of its acquisition of the Oil & Gas Properties on April 1, 2021. Oil and gas production related taxes totaled $966 and $-0- for the six months ended June 30, 2021 and 2020, respectively. Such taxes are deducted from gross oil and gas revenue by the crude oil purchaser upon payment to the Company and include primarily severance taxes imposed by the state of Kansas and Kansas conservation assessment fees to a lesser extent. Revenues totaled $20,828 for the six months ended June 30, 2021 which resulted in the deduction of $966 in production related taxes. The Company had no revenues in 2020 as it focused on identification of acquisition of domestic oil & gas producing properties targets and therefore there was no deduction for Kansas production related taxes.

Other General and Administrative Expenses

Other general and administrative expenses were $443,266 for the six months ended June 30, 2021, an increase of $337,199, or 318%, from other general and administrative expenses of $106,067 in the same period in 2020. The increase in other general and administrative expenses is primarily attributable to an increase of $52,953 for legal fees and a $35,000 increase in auditor fees as the Company began operating the newly acquired oil and gas properties lease which required various filings with the Securities and Exchange commission. In addition, the increase in other general and administrative expenses were attributable to the $75,000 charge-off of the Option to acquire the Properties which expired, a $30,000 bonus paid to the Company’s CEO attributable to his efforts in closing the acquisition and an increase in stock-based compensation of $139,384 related to the amortization of the June 2021 stock option grants and the August 2020 restricted stock grants in 2021 compared to 2020. The stock option expense will be amortized ratable through June 2022 and the restricted stock granted to our officers, directors and certain consultants will continue be amortized ratably through June 2022.

Interest Expense

Interest expense decreased to $34,439 for the six months ended June 30, 2021, compared to $44,126 for the comparable period in 2020, a decline of $9,687, or 22%. Interest expense declined during the six months ended June 30, 2021 was primarily due to the pay-off of the convertible note payable issued in August 2019, which had a stated principal balance of $365,169 and bore interest at an 8% rate until it was retired on March 26, 2021. The retirement of the two notes payable totaling $85,000 on April 1, 2021 and the August Note on March 31, 2021 resulted in less interest expense being reported during the six months ended June 30, 2021 as compared to the same period in 2020.

On March 31, 2021, the Company issued $28,665 principal balance of 3% Notes in connection with the Debt Settlement Agreements. Interest expense totaled $214 related to these outstanding promissory notes and were the only interest-bearing notes outstanding during the three months ended June 30, 2021 and will continue to affect interest expense in future quarters.

Gain on Extinguishment of Liabilities

The Company reported a gain on exchange and extinguishment of liabilities of $86,602 and $-0- in the six months ended June 30, 2021 and 2020, respectively.

On April 1, 2021, the Company and the holder of the $50,000 note payable that was in default reached a settlement whereby the Company issued a total of 145,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $72,874 as of April 1, 2021. The 145,000 shares issued to extinguish the debt obligations were valued at $40,600 based on the closing market price on the date of the extinguishment. The extinguishment of the debt obligations resulted in a gain of $32,274 which will be recorded in the second quarter of 2021.

On April 1, 2021, the Company and the holder of the $35,000 note payable that was in default reached a settlement whereby the Company issued a total of 100,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $50,956 as of April 1, 2021. The 100,000 shares issued to extinguish the debt obligations were valued at $28,000 based on the closing market price on the date of the extinguishment. The extinguishment of the debt obligations resulted in a gain of $22,956 which will be recorded in the second quarter of 2021.

On March 31, 2021 the Company recorded a net gain on extinguishment of liabilities totaling $31,372 which was attributable to six transactions that extinguished outstanding liabilities during the six months ended June 30, 2021; (i) the Debt Settlement Agreements which extinguished accounts payable and accrued liabilities with a total outstanding balance of $2,866,497 for the issuance of $28,665 in principal balance of the 3% Notes with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share which was valued at $1,605,178 which resulted in a total gain of $1,232,654 of which $124,177 was reported as a gain on extinguishment of liabilities and $1,108,477 was reported as a capital contribution because it was attributable to related parties, (ii) the $23,000 gain from settlement of litigation which extinguished $33,000 of trade payables for a cash payment of $10,000 and (iii) the loss of $115,805 relative to the early retirement of $365,169 principal balance of convertible note payable. There were no similar extinguishments during the six months ended June 30, 2020.

Change in Derivative Fair Value

The conversion feature in certain outstanding promissory notes and common stock purchase warrants issued in connection with short-term notes outstanding during the six months ended June 30, 2021 and 2020 are treated as derivative instruments because such notes and warrants contain ratchet and anti-dilution provisions. The mark-to-market process resulted in a gain of $199 during the six months ended June 30, 2021, compared to a loss of $576 during the six months ended June 30, 2020. All short-term notes and their related derivative warrants have been terminated as of June 30, 2021.

Income Tax

The Company recorded no income tax benefit (expense) in the six months ended June 30, 2021 and 2020. The Company has been in a cumulative tax loss position and has substantial net operating loss carryforwards available for its utilization at June 30, 2021. The Company has continued to carry a 100% reserve on its net deferred tax assets and therefore recorded no income tax expense on its income before income taxes during the six months ended June 30, 2021 and 2020.

Net Loss

The Company reported a net loss of $628,950 for the six months ended June 30, 2021, compared to a net loss of $150,769 for the same period in 2020. This represents a deterioration of $478,181 in 2021 compared to 2020.

Convertible Preferred Stock Dividends

The Company recorded $60,528 and $-0- in convertible preferred stock dividends in the six months ended June 30, 2021 and 2020, respectively. On March 26, 2021 the Company issued and classified its Series A Convertible Preferred Stock as equity securities in the condensed balance sheet. Such Convertible Preferred Stock bears a cumulative dividend at a 10% rate based on its stated/liquidation value. There were no outstanding Series A Convertible Preferred Stock during the six months ended June 30, 2020.

Net Loss Applicable to Common Stockholders

The Series A Convertible Preferred Stock issued on March 26, 2021 has a preference over Common Stock and therefore such accrued Convertible Preferred Stock dividend amounts have been deducted from net loss to report net loss applicable to common stockholders of $689,478 and $150,769 for the six months ended June 30, 2021 and 2020, respectively.

Basic and Diluted Net Loss Attributable to Common Stockholders per Share

Basic net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss attributable to common stockholders per share is computed by dividing the net loss net loss attributable to common stockholders by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Common stock equivalents included in the diluted net loss attributable to common stockholders per share computation represent shares of common stock issuable upon the assumed conversion of Convertible Promissory Notes, Convertible Preferred Stock and the assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in which net losses attributable to common stockholders are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common stock equivalents would have an anti-dilutive effect. In addition, in periods in which there is net earnings attributable to common stockholders and the effect of including common stock equivalents in the diluted per share calculations would be anti-dilutive (such as when the conversion or exercise price of the common stock equivalents are higher than the average closing market price per share) such anti-dilutive common stock equivalents would also be excluded from the calculation of basic and diluted weighted average shares outstanding.

The Company incurred a net loss attributable to common stockholders during the six months ended June 30, 2021 and 2020, therefore all Common Stock equivalents were considered anti-dilutive and excluded from diluted net loss attributable to common stockholders per share computations. The basic and diluted net loss attributable to common stockholders per share were $0.04 and $0.01 for the six months ended June 30, 2021 and 2020, respectively.

Potential equivalent shares of common stock as of June 30, 2021 totaled 21,732,614 shares of Common Stock, which included 57,330 shares of Common Stock underlying the Convertible Promissory Notes, 7,117,500 shares of Common Stock underlying the conversion of Series A Convertible Preferred Stock, 12,480,784 shares of Common Stock underlying outstanding warrants and 2,077,000 shares of Common Stock underlying outstanding stock options.

Liquidity and Capital Resources; Going Concern

We have had a history of losses and have generated little or no operating revenues for a number of years, as we concentrated on development of our Nicaraguan Concessions, which was a long-term, high-risk/reward exploration project in an otherwise unproven part of the world. We abandoned the Concessions in early 2020 due to the challenging economic and political issues in Nicaragua and the oil and gas industry in general. We are now assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of gas and oil properties in the United States, including the possibility of acquiring businesses or assets that provide support services for the production of oil and gas in the United States. As a result, we completed the purchase of the Properties on April 1, 2021 and have commenced certain rework to the existing producing wells and intend to perform workovers and other develop activities on the Properties during the remainder of 2021. We plan to evaluate the Properties for additional reserves of noble gases which may change our development plans should we determine that reserves of noble gases exist on the Properties at commercial quantities. The planned development of the Properties will require us to raise additional capital to accomplish our operating plan, which cannot be assured. Historically, we financed our operations through the issuance of equity and various short and long-term debt financing that contained some level of detachable warrants to provide the holders with a level of equity participation.

Capital Expenditures

On July 31, 2019, we acquired the Option from Core to purchase the production and mineral rights/leasehold for the Properties. We paid a non-refundable deposit of $50,000 to bind the Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020 and the Company agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. On December 14, 2020 the parties executed the Asset Purchase Agreement which extended the new Option to January 11, 2021, which expired.

We and Core entered into a Side Letter agreement on March 31, 2021, pursuant to which we and Core agreed to set the closing date on which the Properties would be purchased pursuant to the Asset Purchase Agreement, which the parties entered into on December 14, 2020, to April 1, 2021. Pursuant to the Side Letter, the Company is responsible for reimbursing Core for certain prorated revenues and expenses from January 1, 2021 through the April 1, 2021 closing date.

On April 1, 2021 we completed the acquisition of the Properties, under the same terms of the Asset Purchase Agreement which provided a purchase price of $900,000. The Company raised approximately $2.05 million on March 26, 2021 through the issuance of Convertible Preferred Stock with detachable common stock purchase warrants. The funds raised pursuant to the Convertible Preferred Stock issuance were used to complete the acquisition of the Properties on April 1, 2021 and to retire all outstanding Convertible Notes Payable.

The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand zone with an approximate depth of 3,600 feet.

We commenced rework of the existing production wells after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and krypton. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil & gas reserves while continuing the evaluation of the existence of new oil & gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

We may find it necessary to obtain new sources of debt and/or equity capital to fund the exploration and development of the Properties enumerated above, as well as satisfying our existing debt obligations. We can provide no assurance that we will be able to obtain sufficient new debt/equity capital to fund our planned development of the Properties.

Going Concern

The Company must raise substantial amounts of debt and equity capital from other sources in the future in order to fund the (i) development of the Properties acquired on April 1, 2021; (ii) normal day-to-day operations and corporate overhead; and (iii) outstanding debt and other financial obligations including the payment of preferred stock dividends as they become due, as described below. These are substantial operational and financial issues that must be successfully addressed during the remainder of 2021.

The Company has made substantial progress in resolving many of its existing financial obligations during the six months ended June 30, 2021. In that regard, on March 31, 2021, the Company and six creditors entered into Debt Settlement Agreements which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. On April 1, 2021, the Company and the holders of two notes payable that were in default reached a settlement whereby the Company issued a total of 245,000 shares of Common Stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $123,830 as of April 1, 2021. The Company has made substantial progress in resolving its financial obligations: however, there is in excess of $1.9 million remaining that are in default and that the Company is attempting to obtain extensions of the maturity dates and/or compromises regarding payment of its obligations.

The Company will have significant financial commitments to execute its planned exploration and development of the Properties. The Company may find it necessary to raise substantial amounts of debt or equity capital to fund such exploration and development activities and may seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. There can be no assurance that it will be able to obtain such new funding or be able to reach agreements with industry operators and other third parties or on what terms.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on their evaluation as of June 30, 2021, the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are not effective in assuring that financial statement presentation and disclosure are in conformity with those which are required to be included in our periodic SEC filings.

Changes in Internal Control Over Financial Reporting

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

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information regarding certain legal proceedings in which Infinity Energy, Inc. (the “Company”, “we”, “us” or “our”) are involved is set forth in Note 11 of the Notes to the Unaudited Condensed Financial Statements, entitled “Commitments and Contingencies – Litigation”, which is included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and such information is incorporated by reference into this Item 1.

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

ITEM 1A. RISK FACTORS

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On April 1, 2021, the Company and a holder of a $50,000 note payable that was in default reached a settlement whereby the Company issued a total of 145,000 shares of Common Stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $72,874 as of April 1, 2021. The 145,000 shares issued to extinguish the debt obligations were valued at $40,600 based on the closing market price of our Common Stock on the date of the extinguishment. On April 1, 2021, the Company and the holder of another $35,000 note payable that was in default also reached a settlement whereby the Company issued a total of 100,000 shares of Common Stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $50,956 as of April 1, 2021. The 100,000 shares issued to extinguish the debt obligations were valued at $28,000 based on the closing market price of our Common Stock on the date of the extinguishment. The shares Common Stock and warrants were issued to each creditor pursuant to Section 4(a)(2) because each creditor represented that it had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. Furthermore, each of the creditors made representations that the securities issued to extinguish the obligations were taken for investment purposes and not with a view to resale.

On June 4, 2021, the Company’s board of directors authorized the grant of stock options to purchase up to (i) 500,000 shares of Common Stock to Stanton E. Ross, the Company’s President, Chief Executive Officer and Chairman of the board of directors, (ii) 100,000 shares of Common Stock to Leroy C. Richie, a member of the Company’s board of directors, (iii) 100,000 shares of Common Stock to Daniel F. Hutchins, the Company’s Chief Financial Officer, Treasurer, Corporate Secretary and member of the Company’s board of directors, (iv) 350,000 shares of Common Stock to John L. Loeffelbein, the Company’s Chief Operating Officer and (v) a total of 750,000 shares of Common Stock to two Company consultants and two potential Board of Director nominees. All such stock options vest on June 4, 2022, contingent upon the holder of such options continuing to serve the Company on such date, have 10-year terms and are exercisable at $0.50 per share. Such individuals were granted such stock options pursuant to the exemption provided by Section 4(a)(2) of the Securities Act based on representations made by each officer or director and the options were granted in consideration for the time and efforts such individuals devoted to assisting the Company acquire the Properties and commence its drilling program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(c) Exhibits.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Infinity Energy Resources, Inc.