AMERICAN NOBLE GAS, INC. - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2023

For the transition period from __________ to __________.

Commission File Number: 000-17204

AMERICAN NOBLE GAS INC

(Exact name of registrant as specified in its charter)

15612 College Blvd, Lenexa, KS 66219

(Address of principal executive offices) (Zip Code)

(913) 955-0532

(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, 2023, the registrant had 22,924,515 shares of common stock, $0.0001 par value per share outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

AMERICAN NOBLE GAS INC

Condensed Balance Sheets

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

AMERICAN NOBLE GAS, INC.

(formerly Infinity Energy Resources, Inc.)

Condensed Statements of Operations

(Unaudited)

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

AMERICAN NOBLE GAS INC

Condensed Statements of Changes in Stockholders’ Deficit

(unaudited)

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

AMERICAN NOBLE GAS INC

Condensed Statements of Cash Flows

(unaudited)

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

AMERICAN NOBLE GAS, INC.

Notes to Unaudited Condensed Financial Statements

June 30, 2023

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

Unaudited Interim Financial Information

American Noble Gas, Inc. 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 the remainder of 2023 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 for the year ended December 31, 2022, filed with the SEC.

Nature of Operations

The Company has assessed various opportunities and strategic alternatives involving the acquisition, exploration and development of oil and gas oil producing 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 are now involved with the following oil and gas producing properties:

Central Kansas Uplift - On April 1, 2021, we completed the acquisition of the Central Kansas Uplift Properties, for a purchase price of $900,000. The Central Kansas Uplift Properties include the production and mineral rights/leasehold for oil and gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). 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 other rare earth minerals/gases. 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 and gas reserves while continuing the evaluation of the existence of new oil and gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.

During the year ended December 31, 2022, the Company changed its strategy regarding the Central Kansas Uplift considering the reduced net cash flows from the sale of crude oil production. The reduction in net cash flows was attributable to lower spot crude oil prices during 2022 compared to 2021 and higher than anticipated operating costs related to the operation of the horizontal wells on the Properties. The Company has shut down the horizontal production wells as of June 30, 2023 and December 31, 2022 and is considering the reworking the conventional wells on the property to emphasize crude oil production that may be present behind casing pipe in the deeper producing zones. Accordingly, the Company has recorded an impairment charge of $712,812 to reduce the capitalized tangible and intangible costs related to its Central Kansas Uplift properties to zero as of June 30, 2023 and December 31, 2022.

Hugoton Gas Field Farm-Out - On April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor (“Scout”) with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Company has joined three other parties to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement (collectively the “Hugoton JV”).

The Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing. The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.

The Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety of dissolved minerals including bromine and iodine. The Hugoton JV plans to target brine minerals with commercial quantities of bromine and iodine. The Company through the Hugoton JV is currently developing proprietary technology to recover brine minerals, particularly with respect to bromine, which is well underway and has demonstrated recovery efficiency and is expected to be available for use in existing and future development wells.

The Hugoton JV believes that its unconventional theory has not previously been targeted for exploration by historical operations in the field. The initial exploratory well was spud on May 7, 2022 near Garden City, Kansas, with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves. The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production and sales of natural gas, natural gas liquids and helium on August 17, 2022. The Company is continuing to evaluate the initial flows of both natural gas and helium to determine its plan for additional wells on the farmout and whether it should attempt to extend the time period before it has to drill additional wells in Hugoton Gas Field per the farm-out agreement.

The Company performed the ceiling test to assess potential impairment of the capitalized costs relative to its Hugoton Gas Field Project. The ceiling test indicated an impairment charge of $192,762 was required to reduce the total capitalized costs to $88,687 as of December 31, 2022. Accordingly, the Company has recorded an impairment charge of $192,762 to reduce the capitalized tangible and intangible costs related to its Hugoton Gas Field properties to $88,687 as of December 31, 2022. The Company recorded an addition to depreciation and amortization expense of $3,411 during the three months ended June 30, 2023.

Investment in GMDOC, LLC - On May 3, 2022, the Company entered into an operating agreement (the “Operating Agreement”) pursuant to which the Company acquired 17 (or 60.7143%) of 28 limited liability membership interests (the “Interests”) in GMDOC, LLC, a Kansas limited liability company (“GMDOC”), for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.

The Company paid the cash contribution for the membership interests of $850,000, during May 2022. The remainder of the Company’s capital contribution, or $3,187,500, was financed by the Bank Loan (as defined below).

GMDOC had previously acquired 70% of the working interests (the “Acquisition”) in certain oil and gas leases (the “GMDOC Leases”) from Castelli Energy, L.L.C., an Oklahoma limited liability company (“Castelli”). The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis.

GMDOC is managed by two members: Darrah Oil Company, LLC, and Grand Mesa Operating Company, (collectively the “Managing Members”), which also serve as the operating companies under the GMDOC Leases.

Going Concern

The Company has incurred losses from operations, has a stockholders’ deficit, incurred net cash used in operating activities and has a significant working capital deficit as of and for the three and six months ended June 30, 2023 and as of and for the year ended December 31, 2022. The Company must raise substantial amounts of debt and equity capital from other sources in the future in order to fund (i) the development of the Properties acquired on April 1, 2021; (ii) our obligations for exploration and development under the Hugoton Farmout Agreement; (iii) normal day-to-day operations and corporate overhead; and (iv) outstanding debt and other financial obligations as they become due, as described below. Most of the Company’s outstanding debt and other financial obligations are currently past due and the Company must negotiate forbearance and/or restructuring agreements with the holders of such debt. These are substantial operational and financial issues that must be successfully addressed during 2023 and beyond.

The Company has made substantial progress in resolving many of its existing financial obligations and acquiring oil and gas producing properties to deploy its new operational strategy during the period through June 30, 2023.

The Company will have significant financial commitments executing its planned exploration and development of the Properties and the Hugoton Gas Field. 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.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update (“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 and natural gas however the Company expects to begin generating more substantial revenues from the sale of 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.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash consists of cash on hand and demand deposits with financial institutions. The Company’s policy is that all highly liquid investments with an original maturity of three months or less when purchased would be cash equivalents and would be included along with cash as cash and equivalents.

The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with several financial institutions if necessary to remain below the federally insured limit of $250,000 per bank. At June 30, 2023 and December 31, 2022, the uninsured balance amounted to $152,630 and $-0-, respectively.

Convertible Instruments

In August 2020, the Financial Accounting Standards Board (“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 Accounting Standards Codification (“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 Company early adopted ASU 2020-06 effective January 1, 2021 and applied ASU 2020-06 to all outstanding financial instruments as of January 1, 2021.

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.

Derivative Instruments

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

The purpose of hedging is to provide a measure of stability to the Company’s cash flows in an environment of volatile oil and gas prices and to manage the exposure to commodity price risk. As of June 30, 2023 and December 31, 2022 and during the periods then ended, the Company had no oil and natural gas derivative arrangements outstanding.

As a result of certain terms, conditions and features included in certain common stock purchase warrants issued by the Company (Notes 4 and 11), those warrants were required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in operations.

Fair Value of Financial Instruments

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

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

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

The estimated fair value of warrant derivative liabilities, which are related to detachable warrants issued in connection with the Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Convertible Preferred Stock”) were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, par value $0.001 per Share (the “Common Stock”) and current interest rates. The fair values for the warrant derivatives as of June 30, 2023 and December 31, 2022 were classified under the fair value hierarchy as Level 3.

The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022:

 Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis

There were no changes in valuation techniques or reclassifications of fair value measurements between Levels 1, 2 or 3 during the three and six months ended June 30, 2023 and 2022.

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; asset retirement obligations, our control over equity method investments, fair value of equity compensation; warrants issued in connection with convertible debt; the realization of deferred tax assets; fair values of assets acquired and liabilities assumed in business combinations.

Oil and gas properties

Central Kansas Uplift Properties - On April 1, 2021, we completed the acquisition of the Properties, under the terms of the Asset Purchase Agreement, for 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 through December 31, 2022. In addition, the Company is currently evaluating the Properties for 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 through June 30, 2023.

Hugoton Gas Field Farm-Out -The first exploratory well commenced on May 7, 2022 near Garden City, Kansas with a goal to evaluate its unconventional theory of where substantial oil, natural gas and noble gases may be present in the Hugoton Gas Field. The initial well in which the Company has acquired a 40% participation together with three other venture partners was spud on May 7, 2022 with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves.

The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production on August 17, 2022. The Company is continuing to evaluate the initial flows of both natural gas and helium to determine its plan for additional wells on the farmout and whether it should attempt to extend the time period before it has to drill additional wells in Hugoton Gas Field per the farm-out agreement.

Full Cost Accounting

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, were zero as of June 30, 2023 and December 31, 2022, 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. 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. The trailing twelve-month reference price was $94.14 per barrel for the West Texas Intermediate oil at Cushing, Oklahoma through December 31, 2022. 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. We recognized an impairment charge of $905,574 as of June 30, 2023 and December 31, 2022 which is attributable to changing our strategy to exploring for noble gases and away from crude oil production at our Central Kansas Uplift properties which resulted in a large decrease in estimated future cash flows.

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.

Equity Method Investments

The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate share of the net income or loss of these investees is included in our Statements of Operations. Judgment regarding the level of influence over each equity method investment includes considering key factors such as the Company’s ownership interest, legal form of the investee, representation on the board of directors, participation in policy-making decisions and material intra-entity transactions.

The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time and the extent to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than temporary is recognized in the period identified.

The Company accounts for distributions received from equity method investees under the “nature of the distribution” approach. Under this approach, distributions received from equity method investees are classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities).

Issuance of Debt Instruments With Detachable Stock Purchase Warrants

Proceeds from the issuance of a debt instrument with stock purchase warrants (detachable call options) are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the warrants are recorded as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. Such issuances generally result in a discount (or, occasionally, a reduced premium) relative to the debt instrument, which is amortized to interest expense using the effective interest rate method.

Asset Retirement Obligations

The Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to its initial measurement, the asset retirement liability is required to be accreted each period. The Company’s asset retirement obligations consist of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties.

During April 2021, the Company acquired the Properties and assumed the related asset retirement obligation existing at the date of acquisition. The asset retirement obligation assumed for the Properties relates to the plug and abandonment costs when the wells acquired are no longer useful. The Company determined the value of the liability by obtaining quotes for this service and estimated the increased costs that the Company will face in the future. We then discounted the future value based on an intrinsic interest rate that is appropriate for us. If costs rise more than what we have expected there could be additional charges in the future; however, we monitor the costs of the abandoned wells and we will adjust this liability if necessary.

As of December 31, 2012, the Company had divested all of its domestic oil properties that contained operating and abandoned wells in Texas, Colorado and Wyoming. The Company may have obligations related to the divestiture of certain abandoned non-producing domestic leasehold properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. Management believes the Company has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas oil and gas properties in 2011 and its sale of 100% of the stock in Infinity-Texas in 2012. The Company has recognized an additional liability of $734,897 related to its former Texas oil and gas producing properties (included in asset retirement obligations) to recognize the potential personal liability of the Company and its officers for the Infinity-Texas oil and gas properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. In addition, management believes the Company has been relieved from asset retirement obligations related to Infinity-Wyoming because of the sale of its Wyoming and Colorado oil and gas properties in 2008; however, the Company has recognized since 2012 an additional liability of $981,106 related to its former Wyoming and Colorado oil and gas producing properties (included in asset retirement obligations) to recognize the potential liability of the Company and its officers should the new owner not perform its obligations to reclaim abandoned wells in a timely manner.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. This method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. The tax benefits of tax loss carryforwards and other deferred taxes are recorded as an asset to the extent that management assesses the utilization of such assets to be more likely than not. Management routinely assesses the realizability of the Company’s deferred income tax assets, and a valuation allowance is recognized if it is determined that deferred income tax assets may not be fully utilized in future periods. Management considers future taxable earnings in making such assessments. Numerous judgments and assumptions are inherent in the determination of future taxable earnings, including such factors as future operating conditions. When the future utilization of some portion of the deferred tax asset is determined not to be more likely than not, a valuation allowance is provided to reduce the recorded deferred tax asset. When the Company can project that a portion of the deferred tax asset can be realized through application of a portion of tax loss carryforward, the Company will record that utilization as a deferred tax benefit and recognize a deferred tax asset in the same amount. There can be no assurance that facts and circumstances will not materially change and require the Company to adjust its deferred income tax asset valuation allowance in a future period. The Company recognized a deferred tax asset, net of valuation allowance, of $-0- at June 30, 2023 and December 31, 2022.

The Company is potentially subject to taxation in many jurisdictions, and the calculation of income tax liabilities (if any) involves dealing with uncertainties in the application of complex income tax laws and regulations in various taxing jurisdictions. It recognizes certain income tax positions that meet a more-likely-than not recognition threshold. If the Company ultimately determines that the payment of these liabilities will be unnecessary, it will reverse the liability and recognize an income tax benefit. No liability for unrecognized tax benefit was recorded as of June 30, 2023 and December 31, 2022.

Stock-based compensation

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.

Related Party Transactions

The Company’s financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances and similar items in the ordinary course of business. Disclosure of related party transactions include: 1) the nature of the relationships involved, 2) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements, 3) the dollar amounts of the transactions for each periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period, and 4) amounts due from or to related parties as of the date of each balance sheet presented and if not otherwise apparent,5) the terms of settlement.

Basic and Diluted Income (Loss) Per Share

Net income (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 notes payable, Series A Convertible Preferred Stock and Series B Convertible Preferred Stock all of which are 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 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, 2023 and 2022, the Company had outstanding the following securities that were potentially dilutive: i) Series A and Series B Convertible Preferred Stock, ii) various convertible notes payable, iii) warrants to purchase Common Stock and iv) options to purchase Common Stock. All potentially dilutive securities were considered for inclusion or exclusion from the calculation of diluted income (loss) per share for the three and six months ended June 30, 2023 and 2022. Any potentially dilutive security that were considered anti-dilutive were excluded from the net income (loss) per share reported for the three and six months ended June 30, 2023 and 2022.

Debt – Modifications and Extinguishments / Troubled Debt Restructuring:

In accordance with ASC 470, the Company assesses restructuring of debt as troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grant a concession to the debtor that it would not otherwise consider. The Company records a gain on restructuring of payables when it transfers its assets to a creditor to fully settle a payable. The gain is measured by the excess of the carrying amount of the payable over the fair value of the assets transferred or fair value of equity interest granted.

The Company follows ASC 470-50 Debt – Modifications and Extinguishments (“ASC 470-50”), which requires the Company to assess whether the modified terms had resulted in a change that was substantial from the original agreement. ASC 470-50 requires the Company to assess if an exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a nontroubled debt situation is deemed to have been accomplished with debt instruments that are substantially different based on an analysis of the present value of the future cash flows under the terms of the new debt instrument compared to the present value of the remaining cash flows under the terms of the original instrument. The accounting treatment is different depending on whether such difference in the present value of future cash flows is greater than or less than 10 percent as follows:

Recent Accounting Pronouncements

Business Combinations - In October 2021, FASB issued ASU 2021-08 Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The Company adopted this ASU on January 1, 2023 and its adoption did not have a material impact on our 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 and Equipment

Oil and gas properties and equipment is comprised of the following at June 30, 2023 and December 31, 2022:

 Schedule of Oil and Gas Properties and Equipment

Note 3 – Investment in unconsolidated subsidiary – GMDOC

A summary of the Company’s investment in unconsolidated subsidiary-GMDOC during the three and six months ended June 30, 2023 and 2022 follows:

 Schedule of Investment Unconsolidated Subsidiary

The following table presents summarized balance sheet financial information of the Company’s unconsolidated subsidiary – GMDOC as of June 30, 2023 and December 31, 2022:

 Schedule of Unconsolidated Subsidairy Balance Sheet Financial Information

The following table presents summarized income statement financial information of the Company’s unconsolidated subsidiary – GMDOC for the three and six months ended June 30, 2023 and 2022:

 Schedule of Unconsolidated Subsidiary Financial Information

The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee, GMDOC. Management’s judgment regarding its level of influence over the operations of GMDOC included considering key factors such as the Company’s ownership interest, legal form of the investee, its’ lack of participation in policy-making decisions and its’ lack of control over the day-to-day operations of GMDOC.

Note 4 – Debt Obligations

Debt obligations were comprised of the following at June 30, 2023 and December 31, 2022:

 Schedule of Debt Outstanding

Debt obligations become due and payable as follows:

 Schedule of Debt Obligations Maturities

3% Convertible Notes Payable due March 30, 2026

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 notes payable (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for fifty cents ($0.50) per share (the “3% Note Warrants”). 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 (the “Maturity Date”). The 3% Notes are convertible as to principal and any accrued interest, at the option of the holder, into shares of 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.

8% Convertible Notes Payable due September 30, 2023

On October 29, 2021, the Company issued to two accredited investors (the “October 8% Note Investors”) unsecured convertible notes payable due October 29, 2022 (the “October 8% Notes”), with an aggregate principal face amount of approximately $500,000. The October 8% Notes are, subject to certain conditions, convertible into an aggregate of 1,000,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued five and one half-year Common Stock purchase warrants to purchase up to 1,500,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “October 8% Note Warrants”) which are immediately exercisable. The conversion price of the October 8% Note and the related warrant exercise price were adjusted to $0.05 per share due to the dilutive issuance of the Series B Convertible Preferred Stock on May 4, 2023. The October 8% Note Investors purchased the October 8% Notes and October 8% Note Warrants from the Company for an aggregate purchase price of $500,000 and the proceeds were used for general working capital purposes. The Company also granted the October 8% Note Investors certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the October 8% Note Warrants and the conversion of the October 8% Notes unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.

The October 8% Notes all bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest. Fifty percent (50%) of the 8% Note and the October 8% Notes shall be mandatorily repaid in cash in an amount equal to 120% of the principal amount of the underlying notes 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 $2,000,000 and one-hundred percent (100%) of the underlying notes plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the October 8% Notes, so long as the underlying notes remain outstanding, the Company cannot enter into any financing transactions pursuant to which the Company sells its securities at a price lower than $0.50 cents per share without the written consent of the October 8% Note Investor.

The conversion of the October 8% Notes and the exercise of the underlying warrants are each subject to beneficial ownership limitations such that the October 8% Note Investors may not convert the underlying notes or exercise the underlying warrants to the extent that such conversion or exercise would result in any of the investors being the beneficial owner in excess of 4.99% (or, upon election of the investors, 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 October 8% Note Investors have agreed that for so long as the underlying warrants remain outstanding, the investors have the 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 Company did not pay the principal balance due on the October 8% Notes upon their original maturity on October 29, 2022 and the remaining balance remained due and payable and was therefore in technical default as of December 31, 2022. The Company reached an agreement with the two October 8% Note Investors on January 10, 2023. On January 10, 2023, the Company and the October 8% Note Holders amended each of the notes by entering into a Letter Agreement between the October 8% Note Investors and the Company. The Letter Agreement modifies the terms of the October 8% Notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.

The Company evaluated the terms of the January 10, 2023 Letter Agreement which amended the October 8% Notes. This evaluation included analyzing whether there are significant and consequential changes to the economic substance of the October 8% Notes based on an analysis of the amended future cash flows. If the change was deemed insignificant (generally less than 10% difference in estimated net present value of future cash flows between the amended notes and the original notes) then the change is considered a debt modification in the financial statements, whereas if the change is considered substantial (generally over 10% difference in estimated net present value of future cash flows between the amended notes and the original notes) then the change is reflected as a debt extinguishment in the financial statements. A modification or an exchange that changes the substantive conversion option as of the conversion date would generally be considered substantial and require extinguishment accounting. The amendment of the Fixed Conversion Price to $0.10 from $0.50 per share, as provided for in the Letter Agreement, would be considered substantive based on the likelihood of the conversion option being exercised in the future. Accordingly, the Company accounted for the amendment of the Notes as an extinguishment of the original Bridge Notes.

Following is an analysis of estimated net present value of future cash flows of the amended notes as compared to the original notes as of January 10, 2023, the date of the amendment:

 Schedule of Convertible Debt

The difference between estimated net present value of future cash flows of the amended notes as compared to the original notes as of January 10, 2023, the date of the amendment exceeded 10%. As a result, the Company recorded a gain on extinguishment of convertible notes payable totaling $103,977 during the six months ended June 30, 2023.

The conversion rate on the October 8% Notes was reduced to $0.05 per share as a result of the dilutive issuance of the Series B Convertible Preferred Stock that occurred on May 4, 2023 (See Note 13).

8% Convertible Note Payable due September 30, 2023

On August 30, 2021, the Company issued to an accredited investor (the “8% Note Investor”) an unsecured convertible note due October 29, 2022 (the “8% Note”), with an aggregate principal face amount of approximately $100,000. The 8% Note is, subject to certain conditions, convertible into an aggregate of 200,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five and one half-year Common Stock purchase warrant to purchase up to 200,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “8% Note Warrant”) which are immediately exercisable. The conversion price of the 8% Note and the related warrant exercise price were adjusted to $0.05 per share due to the dilutive issuance of the Series B Convertible Preferred Stock on May 4, 2023.The 8% Note Investor purchased the 8% Note and 8% Note Warrant from the Company for an aggregate purchase price of $100,000 and the proceeds were used for general working capital purposes. The Company also granted the 8% Note Investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the 8% Note Warrant and the conversion of the 8% Note unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.

The 8% Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest. Fifty percent (50%) of the 8% Note shall be mandatorily repaid in cash in an amount equal to 120% of the principal amount of the underlying notes 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 $2,000,000 and one-hundred percent (100%) of the underlying notes plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the 8% Note, so long as the underlying notes remain outstanding, the Company cannot enter into any financing transactions pursuant to which the Company sells its securities at a price lower than $0.50 cents per share without the written consent of the 8% Note Investor.

The conversion of the 8% Note and the exercise of the underlying warrants are each subject to beneficial ownership limitations such that the 8% Note Investor may not convert the underlying notes or exercise the underlying warrants to the extent that such conversion or exercise would result in any of the investors being the beneficial owner in excess of 4.99% (or, upon election of the investors, 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 8% Note Investor have agreed that for so long as the underlying warrants remain outstanding, the investors have the 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 underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors and customary indemnification rights and obligations of the parties thereto, as applicable.

On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including $100,000 outstanding principal balance of the 8% Note), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into a new convertible promissory note (the “New Note”), exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable was cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable. The Company treated the refinancing of the $100,000 8% Note Payable as an extinguishment of the old note which resulted in a gain on extinguishment of $24,190 during the three months ended June 30, 2023.

The Company evaluated the modification of the 8% Note that occurred on May 5, 2023. This evaluation included analyzing whether there are significant and consequential changes to the economic substance of the October 8% Notes based on an analysis of the amended future cash flows. If the change was deemed insignificant (generally less than 10% difference in estimated net present value of future cash flows between the amended notes and the original notes) then the change is considered a debt modification in the financial statements, whereas if the change is considered substantial (generally over 10% difference in estimated net present value of future cash flows between the amended notes and the original notes) then the change is reflected as a debt extinguishment in the financial statements. A modification or an exchange that changes the substantive conversion option as of the conversion date would generally be considered substantial and require extinguishment accounting. The analysis of the present value of future cash flows under the new debt instrument compared to the old debt instrument resulted in a difference in excess of 10%. Accordingly, the Company accounted for the amendment of the Note as an extinguishment of the original 8% Note.

Following is an analysis of estimated net present value of future cash flows of the amended notes as compared to the original notes as of May 5, 2023, the date of the amendment:

 Schedule of Convertible Debt

The difference between estimated net present value of future cash flows of the amended notes as compared to the original notes as of May 5, 2023, the date of the amendment exceeded 10%. As a result, the Company recorded a gain on extinguishment of convertible notes payable totaling $24,290 during the three and six months ended June 30, 2023.

8% Convertible Notes Payable due October 29, 2022 (in default)

On October 29, 2021, the Company issued to an accredited investor (the “Second 8% Note Investor”) an unsecured convertible note payable due October 29, 2022 (the “Second 8% Notes”), with an aggregate principal face amount of approximately $50,000. The Second 8% Note is, subject to certain conditions, convertible into an aggregate of 100,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued five and one half-year Common Stock purchase warrants to purchase up to 150,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “Second 8% Note Warrants”) which are immediately exercisable. The conversion price of the Second 8% Notes and the related warrant exercise price were adjusted to $0.05 per share due to the dilutive issuance of the Series B Convertible Preferred Stock on May 4, 2023.The Second 8% Note Investor purchased the Second 8% Note and the Second 8% Warrants from the Company for an aggregate purchase price of $50,000 and the proceeds were used for general working capital purposes. The Company also granted the Second 8% Note Investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the Second 8% Note Warrants and the conversion of the Second 8% Note unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.

The Second 8% Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest. Fifty percent (50%) of the Second 8% Note shall be mandatorily repaid in cash in an amount equal to 120% of the principal amount of the underlying notes 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 $2,000,000 and one-hundred percent (100%) of the underlying notes plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the Second 8% Note, so long as the underlying notes remain outstanding, the Company cannot enter into any financing transactions pursuant to which the Company sells its securities at a price lower than $0.50 cents per share without the written consent of the Second 8% Note Investor.

The conversion of the Second 8% Note and the exercise of the underlying warrants are each subject to beneficial ownership limitations such that the 8% Note Investor may not convert the underlying notes or exercise the underlying warrants to the extent that such conversion or exercise would result in any of the investors being the beneficial owner in excess of 4.99% (or, upon election of the investors, 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, the Second 8% Note Investor have agreed that for so long as the underlying warrants remain outstanding, the investors have the 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 underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors and customary indemnification rights and obligations of the parties thereto, as applicable.

The Company has accrued default interest aggregating $12,349 and $10,668 as of June 30, 2023 and December 31, 2022, respectively related to the repayment default on this note.

The conversion rate on the Second 8% Note was reduced to $0.05 per share as a result of the dilutive issuance of the Series B Convertible Preferred Stock that occurred on May 4, 2023 (See Note 13).

8% Convertible Notes Payable due September 30, 2023

On June 8, 2022, the Company issued to an accredited investor an unsecured convertible note due September 15, 2022 (the “June 2022 Note”), with an aggregate principal face amount of $350,000. The June 2022 Note is, subject to certain conditions, convertible into an aggregate of 700,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five-year Common Stock purchase warrant to purchase up to 700,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “June 2022 Warrants”) which are immediately exercisable. The investor purchased the June 2022 Note and June 2022 Warrant from the Company for an aggregate purchase price of $350,000 and the proceeds were used for drilling and completion costs on the initial well drilled under the Hugoton Gas Field participation agreement and general working capital purposes. The Company also granted the investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares of Common Stock underlying the June 2022 Warrant and the conversion of the June 2022 Note unless the shares of the Company commence to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.

The June 2022 Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to the remaining principal amount of the underlying note and any accrued and unpaid interest.

The underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors and customary indemnification rights and obligations of the parties thereto, as applicable.

On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including the June 2022 Note), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into a new convertible promissory note (the “New Note”), exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.

The Company evaluated the modification of the 8% Note that occurred on May 5, 2023. This evaluation included analyzing whether there are significant and consequential changes to the economic substance of the October 8% Notes based on an analysis of the amended future cash flows. If the change was deemed insignificant (generally less than 10% difference in estimated net present value of future cash flows between the amended notes and the original notes) then the change is considered a debt modification in the financial statements, whereas if the change is considered substantial (generally over 10% difference in estimated net present value of future cash flows between the amended notes and the original notes) then the change is reflected as a debt extinguishment in the financial statements. A modification or an exchange that changes the substantive conversion option as of the conversion date would generally be considered substantial and require extinguishment accounting. The analysis of the present value of future cash flows under the new debt instrument compared to old debt instrument resulted in a difference less than 10%. Accordingly, the Company accounted for the amendment of the Note as a modification of the original 8% Note resulting in no gain or loss on the date of modification. Rather a new effective interest rate is calculated, and interest expenses are accounted for under the interest method using the new effective interest rate on a prospective basis.

Following is an analysis of estimated net present value of future cash flows of the amended notes as compared to the original notes as of May 5, 2023, the date of the amendment:

 Schedule of Convertible Debt

The difference between estimated net present value of future cash flows of the amended notes as compared to the original notes as of May 5, 2023, the date of the amendment was less than 10%. As a result, the Company did not record a gain on extinguishment of convertible notes payable.

8% Convertible Notes Payable due September 30, 2023 (the “May 22 Notes”)

The Company entered into a securities purchase agreement with two accredited investors for the Company’s 8% convertible notes payable due June 29, 2022 (the “May 2022 Notes”), with an aggregate principal amount of $850,000. The May 2022 Notes are, subject to certain conditions, convertible into an aggregate of 2,125,000 shares of Common Stock, at a price of forty cents ($0.40) per share. The conversion price of the May 22 Notes and the related warrant exercise price were adjusted to $0.05 per share due to the dilutive issuance of the Series B Convertible Preferred Stock on May 4, 2023. The Company also issued an aggregate of 425,000 shares of Common Stock as commitment shares (“Commitment Shares” and, together with the May 2022 Notes and Conversion Shares, the “Securities”) to the investors as additional consideration for the purchase of the May 2022 Notes. The closing of the offering of the Securities occurred on May 13, 2022, when the investors purchased the Securities for an aggregate purchase price of $850,000. The Company has also granted the Investors certain automatic and piggy-back registration rights whereby the Company has agreed to register the resale by the Investors of the Conversion Shares. The proceeds of this offering of Securities were used to purchase the Company’s membership interests in GMDOC.

The May 2022 Notes bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time (subject to the occurrence of an event of default) in an amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to a) fifty percent (50%) of the then outstanding principal amount equal to 120% of the principal amount of each May 2022 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 $2,000,000 but not greater than $3,000,000; or b) one hundred percent (100%) of the then outstanding principal amount equal to 120% of the principal amount of a May 2022 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 in excess of $3,000,000. In addition, pursuant to the May 2022 Notes, so long as such May 2022 Notes remain outstanding, the Company shall not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than the $0.40 per share conversion price, subject to certain adjustments, without the written consent of the investors.

The conversion of the May 2022 Notes are each subject to beneficial ownership limitations such that the investors may not convert the May 2022 Notes to the extent that such conversion or exercise would result in an investor being the beneficial owner in excess of 4.99% (or, upon election of the 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, 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.

Pursuant to the purchase agreement for the Securities, for a period of twelve (12) months after the closing date, the investors have a right to participate in any issuance of the Company’s Common Stock, Common Stock equivalents, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of the subsequent financing.

The Company also entered into that certain registration rights side letter, pursuant to which, in the event the Company’s shares of Common Stock have not commenced trading on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date, and, thereafter, the Company agreed to file a registration statement under the Securities Act to register the offer and sale, by the Company, of Common Stock underlying the May 2022 Notes in the event that such notes are not repaid prior to such 120-day period.

The Company paid half of the May 2022 Notes principal balance upon its maturity on June 29, 2022 and an additional $112,500 in September 2022 and the remaining balance remains due and payable and was therefore in technical default as of December 31, 2022.

The Company and the two May 2022 Note Holders reached an agreement on January 10, 2023. On January 10, 2023, the Company amended each of those notes by entering into a Letter Agreement between the investors and the Company. The Letter Agreement modifies the terms of the May 2022 Notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.

The Company evaluated the terms of the January 10, 2023 Letter Agreement which amended the May 2022 Notes. This evaluation included analyzing whether there are significant and consequential changes to the economic substance of the May 2022 Notes based on an analysis of the amended future cash flows. If the change was deemed insignificant (generally less than 10% difference in estimated future cash flows between the amended notes and the original notes) then the change is considered a debt modification in the financial statements, whereas if the change is considered substantial (generally over 10% difference in estimated net present value of future cash flows between the amended notes and the original notes) then the change is reflected as a debt extinguishment in the financial statements. A modification or an exchange that changes the substantive conversion option as of the conversion date would generally be considered substantial and require extinguishment accounting. The amendment of the Fixed Conversion Price to $0.10 from $0.50 per share, as provided for in the Letter Agreement, would be considered substantive based on the likelihood of the conversion option being exercised in the future. Accordingly, the Company accounted for the amendment of the Notes as an extinguishment of the original Bridge Notes.

Following is an analysis of estimated net present value of future cash flows of the amended notes as compared to the original notes as of January 10, 2023, the date of the amendment:

 Schedule of Convertible Debt

The difference between estimated net present value of future cash flows of the amended notes as compared to the original notes as of January 10, 2023, the date of the amendment exceeded 10%. As a result, the Company recorded a gain on extinguishment of convertible notes payable totaling $64,985 during the six months ended June 30, 2023.

On January 13, 2023, one of the May 22 Note holders exercised its right to convert $46,296 of principal and $3,704 accrued interest into 500,000 shares of common stock. The remaining outstanding principal balance on the two May 2022 Notes totaled $266,204 and $312,500 as of June 30, 2023 and December 31, 2022, respectively.

Note 5 – Accrued liabilities

Accrued liabilities consisted of the following at June 30, 2023 and December 31, 2022:

 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.

From 2009 to 2020, the Company had pursued the exploration of potential oil and gas resources in the United States and in the Perlas and Tyra concession blocks in offshore Nicaragua in the Caribbean Sea (the “Concessions”), which contain a total of approximately 1.4 million acres. In January 2020, the Company decided to cease its activities, exploration and production in the Concessions. 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.

Note 6 – Stock Options

Total stock-based compensation is comprised of the following for the three and six months ended June 30, 2023 and 2022:

 Schedule of Stock-Based Compensation

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.

At the Company’s Annual Meeting of Stockholders held on September 25, 2015, the stockholders approved the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”) and the Company reserved 500,000 shares for issuance under the 2015 Plan. At the Company’s Annual Meeting of Stockholders held on October 13, 2021, the stockholders approved the 2021 Stock Option and Restricted Stock Plan (the “2021 Plan”) and the Company reserved 5,000,000 shares for issuance under the 2021 Plan.

The 2021 Plan and the 2015 Plan provide for under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 5,500,000 shares of the Company’s Common Stock is reserved for issuance under the 2021 Plan and the 2015 Plan. Options granted under the 2021 Plan and 2015 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 has issued stock options and restricted stock awards that are not pursuant to a formal plan with terms similar to the 2021 and 2015 Plans.

As of June 30, 2023, 5,500,000 shares were available for future grants under the 2021 Plan and the 2015 Plan.

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.

Stock option grants

The following table summarizes stock option activity for the six months ended June 30, 2023 and 2022:

 Summary of Stock Option Activity

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s option plans as of June 30, 2023:

 Summary of Exercise Price and Weighted Average Remaining Contractual Life

There were no stock options granted during the three and six months ended June 30, 2023 and 2022. The Company recorded stock-based compensation expense in connection with the vesting of stock options granted aggregating $-0- and $51,000 for the three months ended June 30, 2023 and 2022, respectively and $-0- and $127,499 for the three months ended June 30, 2023 and 2022, respectively.

The intrinsic value as of June 30, 2023 and December 31, 2022 related to the vested and unvested stock options as of that date was $-0-. There is no unrecognized compensation cost as of June 30, 2023 related to the unvested stock options as of that date.