UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
[X] ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2013
or
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from _________ to _________.
Commission file number:
0-17204
Infinity Energy
Resources, Inc.
(Exact name of registrant
as specified in its charter)
Delaware |
|
20-3126427 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S.
Employer
Identification No.) |
|
|
|
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: Common Stock
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ]
No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
[X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]
No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined
in Rule 12b-2 of the Act).
Large
accelerated filer [ ] |
Accelerated
filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
Smaller reporting
company [X] |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
[ ] No [X]
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class |
|
Outstanding
at November 7, 2014 |
|
|
|
Preferred
Stock, $0.0001 par value |
|
-0- |
|
|
|
Common
Stock, $0.0001 par value |
|
25,559,678 |
FORM
10-K
INFINITY
ENERGY RESOURCES, INC.
DECEMBER
31, 2013
Table
of Contents
Note
Regarding Forward Looking Statements
This
annual report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the
safe harbors created thereby. In some cases, you can identify forward-looking statements by terminology such as “may,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” “continue,” “intends,” and other variations of these
words or comparable words. In addition, any statements that refer to expectations, projections or other characterizations of events,
circumstances or trends and that do not relate to historical matters are forward-looking statements. To the extent that there
are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition,
involve risks and uncertainties. In any forward-looking statement, where we express an expectation or belief as to future results
or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will be achieved or accomplished. The actual results or events may differ
materially from those anticipated and as reflected in forward-looking statements included in this report.
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which
speak only as of the date of this report. Except as required by law, we do not undertake to update or revise any of the forward-looking
statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.
Readers
are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date
hereof. We believe the information contained in this annual report on Form 10-K to be accurate as of the date hereof. Changes
may occur after that date, and we will not update that information except as required by law.
As
used in this annual report, “Infinity,” the “Company,” “we,” “us” and “our”
refer collectively to Infinity Energy Resources, Inc., its predecessors and subsidiaries or one or more of them as the context
may require.
Part
I
Item
1. Business.
Overview
Infinity
Energy Resources, Inc. is an independent energy company that was engaged in the acquisition, exploration and development of natural
gas and oil properties in the United States through our wholly-owned subsidiaries, Infinity Oil and Gas of Texas, Inc. (“Infinity-Texas”)
(sold July 2012) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”). We are pursuing an oil and
gas exploration opportunity offshore of Nicaragua in the Caribbean Sea. Infinity previously operated in the Fort Worth Basin
of north central Texas and Wyoming, and still holds leases in Wyoming; all Texas properties were sold in December 2011.
Corporate
History
Infinity
was incorporated as a Colorado corporation in April 1987 and reincorporated as a Delaware corporation in September 2005.
From January 1, 2002 through December 31, 2004, we produced natural gas and oil and grew our production through exploration
and development drilling exclusively in the Rocky Mountain region. During this period, we completed the drilling of 36 oil and
gas wells with a success rate of 75% at our two projects in the Greater Green River Basin. Exploratory wells accounted for 69%,
or 25 of the total wells drilled. Beginning in 2005, our primary exploration focus shifted to the Fort Worth Basin in north
central Texas. During 2005, 2006 and 2007, we completed the drilling of 29 gas wells in the Fort Worth Basin. Exploratory wells
accounted for 100% of the total wells drilled.
On
December 15, 2006, we sold our oilfield services subsidiaries, Consolidated Oil Well Services, Inc. and CIS-Oklahoma, Inc. to
Q Consolidated Oil Well Services, LLC, a Delaware limited liability company.
On
January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and
Wyoming, along with 80% of the working interest owned by it in undeveloped leaseholds in Routt County, Colorado and Sweetwater
County, Wyoming to Forest Oil Corporation, a New York corporation (“Forest”). During the year ended December 31,
2008, Infinity-Texas property was not cash flowing and operations were scaled back. During the year ended December 31, 2008 the
remaining values of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate and as such,
were written down to zero. In December 2011, we sold the Texas properties. In July 2012, we sold all or our investment in Infinity-Texas.
We are now focused solely on the development of our properties offshore Nicaragua.
Nicaragua
Since
1999, we have pursued an oil and gas exploration opportunity offshore Nicaragua in the Caribbean Sea. Over such time period, we
have built relationships with the Instituto Nicaraguense de Energia (“INE”) and undertook the geological and geophysical
research that helped us to become one of only six companies qualified to bid on offshore blocks in the first international bidding
round held by INE in January 2003.
On
March 5, 2009, we signed the contracts granting us the Perlas and Tyra concession blocks offshore Nicaragua (the “Nicaraguan
Concessions”). Since such point, we conducted an environmental study and the development of geological information from
reprocessing and additional evaluation of existing 2-D seismic data that was acquired over the concession blocks offshore Nicaragua.
We are seeking offers from other industry operators for interests in the acreage in exchange for cash and a carried interest in
exploration and development operations or other strategic partnership. The funds raised through the subordinated note transaction
described below were used to fund these expenses.
Since
our acquisition of the Nicaraguan Concessions, we have conducted an environmental study and developed geological information from
the reprocessing and additional evaluation of existing 2-D seismic data acquired over our Perlas and Tyra concession blocks offshore
Nicaragua. We issued letters of credit totaling approximately $1.0 million for this initial work on the leases. We commenced significant
activity under the initial work plan and received formal governmental approval of the environmental study in 2013. We have recently
acquired new 2-D and 3-D seismic data and are in process of reviewing it in order to select our initial drilling sites for exploratory
wells. We intend to seek joint venture or working interest partners prior to the commencement of any exploratory drilling operations
on the Nicaraguan Concessions.
Our
corporate office is located at 11900 College Boulevard, Suite 310, Overland Park, Kansas 66210. Our telephone number is (913)
948-9512.
Infinity-Texas
Infinity-Texas
was engaged in the acquisition, exploration, development and production of natural gas in the Fort Worth Basin of north central
Texas. We sold Infinity-Texas, a Delaware corporation with its headquarters located in Overland Park, Kansas on July 31, 2012.
Infinity-Texas
was formed in June 2004 to acquire, explore, develop and produce natural gas from the Barnett Shale formation and other producing
formations in the Fort Worth Basin. The Barnett Shale is a marine shale formation that is natural gas bearing at depths believed
to range from 1,000 to 8,500 feet and is believed to be ubiquitous across the Fort Worth Basin.
During
the year ended December 31, 2008, Infinity-Texas property was not cash flowing and operations were scaled back. The main
salt water disposal well was struck by lightning in April, 2009 and we made the decision to cease operations under the force majeure
clause of the leases. During the year ended December 31, 2008, the remaining value of the Infinity-Texas and Infinity-Wyoming
properties were determined to be uneconomical to operate and, as such, were written down to zero. In December 2011, we signed
an agreement to sell the Texas properties for $1,000,000. The buyer issued us a non-interesting bearing note with a four-year
term, payable from the buyer’s net profits from oil and gas sales from the property, with payments to commence after the
buyer’s repayment of start-up funding. Due to uncertainty as to timing and amounts of repayments, the note receivable was
recorded net of a 100% valuation allowance.
On
July 31, 2012, we sold 100% of the stock of Infinity-Texas to an individual who was the sole owner of the LLC that purchased the
Infinity-Texas properties in December 2011. The purchase price was $1.00. By purchasing the stock the buyer assumed all the liabilities
of Infinity-Texas as of that date, which aggregated $5,152,111. We believed that we might be subject to certain contingent liabilities
related to reclamation of the properties, and estimated these to be $780,000. A gain on the sale of Infinity-Texas was recorded
in the amount of $4,372,111 and is included in consolidated statement of operations for the year ended December 31, 2012.
Infinity-Wyoming
Infinity-Wyoming
was engaged in the acquisition, exploration, development and production of natural gas, condensate and crude oil in the Rocky
Mountain region in Wyoming and Colorado. This subsidiary is a Wyoming corporation. On January 7, 2008, Infinity-Wyoming completed
the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest
owned by it in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest. Following the sale,
Infinity-Wyoming had no wells producing crude oil or natural gas and it is inactive.
Revolving
Credit Facility and Fifth Forbearance Agreement - Retirement of Debt
On
January 10, 2007, we entered into a reserve-based revolving credit facility (the “Revolving Credit Facility”)
with Amegy. Under the related loan agreement (the “Loan Agreement”) between us, Infinity-Texas and Infinity-Wyoming
(each a wholly-owned subsidiary and together, the “Guarantors”) and Amegy, we could borrow, repay and re-borrow on
a revolving basis up to the aggregate sums permitted under the borrowing base, $22,000,000 (reduced to $10,500,000 effective as
of August 10, 2007 and subsequently reduced to $3,806,000 effective as of March 26, 2008) and subsequently reduced to $2,900,000
on December 4, 2009. The Revolving Credit Facility had an initial term of two years. Amounts borrowed bear interest at a stated
rate of 5.5% at December 31, 2011 and 2010. Interest payments were due on a monthly basis, and principal payments may be required
to meet a borrowing base deficiency or monthly borrowing commitment reductions. The borrowing base under the Revolving Credit
Facility and the applicable interest rate was subject to adjustment at least once every three months. Amounts borrowed under
the Revolving Credit Facility were collateralized by substantially all of our assets and those of our subsidiaries and were guaranteed
by our subsidiaries. The Revolving Credit Facility contained certain standard continuing covenants and agreements and required
us to maintain certain financial ratios and thresholds.
We
previously entered into four separate forbearance agreements resulting from our breach of certain covenants in the Loan Agreement.
Effective as of February 16, 2011, we entered into the Fifth Forbearance Agreement under the Loan Agreement. The Fifth Forbearance
related to the breach by us and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan
Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”).
Under the Fifth Forbearance, the borrowing base remained the same. The borrowing base was not subject to redetermination by Amegy
during the period from January 31, 2010 to December 31, 2011 (the “Forbearance Period”). The borrowing base deficiency
had to be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means
of raising capital. Under the Fifth Forbearance, Amegy agreed to forebear from exercising any remedies under the Loan Agreement
and related loan documents and to waive the Existing Defaults for the Forbearance Period, unless otherwise extended or earlier
terminated by Amegy due to a further default under the Loan Agreement. In connection with the Fifth Forbearance, the maturity
date of the Loan Agreement and related note was extended to December 31, 2011.
During
the Forbearance Period, the interest rate continued at the stated rate plus the applicable margin, which was 5.5% at December
31, 2011 as set forth under the revolving note, and certain operating and financial limitations remain in place. In addition,
under the Fifth Forbearance Amegy agreed, upon the request of the Company, to issue one or more letters of credit in an amount
not to exceed $850,000 as security for the Company’s obligations with respect to the Nicaragua Concessions.
Amegy
made additional Forbearance Period advances of $1,050,000, which were increased to $1,260,000 on September 12, 2011, with an interest
rate of prime plus 2% and the personal guarantee of the Company’s President and Chief Executive Officer for up to $500,000
of the advances. As of December 31, 2011, Amegy had made advances of $1,396,758, which was $136,758 in excess of the approved
maximum for advances. From January 1, 2012 through February 28, 2012 Amegy made additional advances of $272,070 to us, for a total
of $1,668,828.
Retirement
of Debt. On February 28, 2012, we signed definitive agreements with Amegy and Off-Shore relating to outstanding debt and other
obligations we owed to them. Under these documents, we agreed to issue 130,000 shares of Series A Preferred and 2,000,000 shares
of common stock to Amegy and it agreed to cancel a warrant exercisable to purchase 931,561 shares of our common stock that we
issued to it in February 2011 in conversion, exchange and payment in full of all debt and other obligations we owed to Amegy.
In addition, we agreed to issue Off-Shore 15,016 shares of Series B Preferred in conversion, exchange and payment in full of all
debt and other obligations we owed to Off-Shore. The transactions with Amegy and Off-Shore closed on April 13, 2012. As a result
of the transactions, we cancelled debt, accrued interest and fees, and the derivative liability recorded relative to the Amegy
warrant, all of which totaled $21,883,393 at April 13, 2012.The transactions were recorded in the second quarter of 2012.
The
Series A Preferred and Series B Preferred accrued a 6% dividend per annum and were convertible into common stock at a price of
$6.50 per share. Both series of Preferred Stock automatically convert into common stock if the average of the closing prices of
the common stock for 30 consecutive trading days equals at least $7.50 per share. We had the right to redeem both series of Preferred
Stock at any point for an amount equal to their issue price of $100 per share plus all accrued and unpaid dividends. Commencing
January 1, 2013, the Series A Preferred will vote with the common stock on all matters presented to the holders of the common
stock with the number of votes equal to the number of shares of common stock issuable upon conversion of the Series A Preferred.
Beginning January 1, 2014, the Series A Preferred shareholder would have a majority vote on all such matters and the right to
elect a majority of the Board of Directors, if the Series A Preferred has not been redeemed or converted into common stock. Neither
series of Preferred Stock is transferrable for 180 days after issuance.
On
December 30, 2013, we completed all transactions contemplated by the Stock Exchange Agreement (the “Exchange Agreement”)
between us and Amegy Bank, N.A. (“Amegy”). Under the Agreement Amegy exchanged all 130,000 shares of our Series A
Preferred Stock (the “Series A Preferred”) that it owned for 3,250,000 shares of our common stock. Each share of Series
A Preferred had a price of $100. We also issued Amegy an additional 341,250 shares of our common stock for $1,365,000, the amount
of the accrued and unpaid dividends on the Series A Preferred as of the date of the transaction. As a result we issued a total
of 3,591,250 shares of common stock valued at $4.00 per share. Thus, the transactions were valued at $14,365,000, which amount
has been reflected as common stock and additional paid in capital in our consolidated balance sheet.
Effective
February 28, 2014, we received conversion notices from Offshore Finance, LLC that effected the conversion of all Series B Preferred
Stock outstanding including accrued dividends thereon into shares of our common stock. In the transaction Offshore Finance, LLC
exchanged all 15,016 shares of Series B Preferred Stock that it owned for 375,400 shares of our common stock. Each share of Series
B Preferred had a liquidation and value of $100. Offshore Finance, LLC also agreed to receive an additional 45,048 shares of common
stock for $180,192, the amount of the accrued and unpaid dividends on the Series B Preferred as of the effective date of the transaction.
As a result, we issued a total of 420,448 shares of common stock which was valued at $4.00 per share, or a total of $1,681,792.
Business
Strategy
Our
principal objective is to create stockholder value through the development of our Nicaraguan Concessions. We will seek to commence
the geological and geophysical exploration of the Nicaraguan Concessions while also seeking joint venture or working interest
partners.
We
intend to finance our business strategy through external financing, which may include debt and equity capital raised in public
and private offerings, joint ventures, sale of working or other interests, employment of working capital and cash flow from operations,
if any, net proceeds from the sales of assets.
Recent
Development
On
October 13, 2014 the Company announced that it had entered into a Letter of Intent (“LOI”) with Granada Exploration,
LLC, which has agreed to join with the Company to explore for potential hydrocarbons beneath Infinity’s 1.4 million-acre
oil and gas concessions in the Caribbean Sea offshore Nicaragua. Under the terms of the LOI, Granada Exploration will provide
its services in exchange for a working interest in the Nicaraguan Concessions. The scope of such services will be more specifically
described in a mutually acceptable Exploration Services Agreement (“ESA”) which is currently being negotiated. The
ESA is anticipated to provide that Granada will earn an assignment from Infinity of an undivided 30% working interest in the Concessions,
based on an 80% net revenue interest. Granada and Infinity are also anticipated to enter into a Joint Operating Agreement. Granada
may, at its discretion, participate in an initial exploratory well for up to an additional undivided 20% working interest, on
a prospect-by-prospect basis, with such additional interest to be based on an 80% net revenue interest.
The
LOI is subject to Granada’s normal and customary due diligence including the evaluation of the Company’s Form 10-K
and 10-Q filings, concession documents showing that the Company is in good standing with the Nicaraguan government, negotiation
and approval of mutually acceptable formal agreements, and final approval by a majority of the partners that comprise Granada
Exploration, LLC. The Company hopes to complete the ESA and Joint Operating Agreement with Granada in the first quarter of 2015.
EXPLORATION
AND PRODUCTION
Nicaragua
Oil and Natural Gas Concession
Preliminary
analyses and interpretation of available 2-D seismic data by independent consultants has revealed that the Nica-Tinkham Ridge,
the single most important structure in the basin, traverses both of the blocks (Tyra and Perlas) in Infinity’s offshore
concessions and controlled the deposition of Eocene and possibly younger reef systems. Such preliminary analyses have identified
four prospects covering a total of over 547 square miles. The Company’s consultants, Brazilian-based Consultoria em Geologia
Geofísica e Informática do Petróleo LTDA (“CGGIP”) and its senior geological consultant, Luciano
Seixas Chagas, working in concert with Thompson & Knight Global Energy Services LLC, are building a credible model suggesting
that the Eocene geologic zone alone has a potential that hydrocarbons could be present, based upon certain assumptions involving
porosity, saturation, recovery and other parameters. This model is also subject to the complex geology of the region and the fact
that the reef system has never been drilled. While 2-D seismic data is not sufficient to identify or evaluate prospects in the
deeper Cretaceous zone, we and our consultants continue to believe that Cretaceous, as well as Eocene, hydrocarbons could be present
within the Nicaraguan Concessions, although we can offer no assurances in this regard.
These
estimates are based upon preliminary conclusions and are subject to further analysis, additional seismic data and interpretation,
and various assumptions that cannot be confirmed or disproved until the prospects are drilled. We believe these estimate and model
support our long-held belief that the Nicaraguan Concessions have the potential for multiple oil discoveries. We are seeking to
partner with a larger entity that has the resources to assist in the further exploration and development of the concessions.
In
April 2011, we filed with the Nicaraguan government an Environmental Impact Assessment (“EIA”) covering proposed seismic
activities on our Nicaraguan Concessions. The filing of the EIA was followed by a comment period during which there was interaction
between us the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the
autonomous regions of Nicaragua that are nearest to the Nicaraguan Concessions. On April 13, 2013 the EIA was formally approved
by the Nicaraguan government and we were cleared to commence 2-D and 3-D seismic mapping activities in the area. In late 2013
and early 2014 CGG Services (US) Inc. – NASA, a fully integrated Geoscience company that provides geological, geophysical
and reservoir services to the global oil and gas industry, conducted 2-D and 3-D seismic data covering selected areas within the
boundaries of the Nicaraguan Concessions in the first quarter of 2014. In March 2014 we opened a seismic data room at CGG’s
Houston headquarters in order to invite potential strategic and/or financial partners to view the fully processed results of the
seismic survey activities conducted by CGG. The data room remains available to us and potential strategic and/or financial partners.
As
of December 31, 2012, the Company was in Sub-Period 1 of the exploration phase of the 30-year concession for both Perlas and Tyra.
The Company received notification of final approval of the EIA by the Nicaraguan government on April 13, 2013, which began Sub-Period
2. Therefore, the Company has progressed to Sub-Period 2 of the exploration phase of the 30-year concession for both Perlas and
Tyra as of December 31, 2013. In accordance with the Nicaraguan Concession agreements, the Company has provided the Ministry of
Energy with the required letters of credit in the amounts of $443,100 for Perlas (expired March 2014) and $408,450 for Tyra (expired
September 2014). The Company is currently negotiating the renewal of the required letters of credit with the Nicaraguan Government
and its lenders. The Company has also made all required expenditures related to the Nicaraguan Concessions for training programs
and as “area fees,” both for 2013 and 2012 and, in early 2014, for that year. The Company considers it is fully in
compliance with the terms of the Nicaraguan Concession agreements pending renewal of the expired letters of credit and is in year
3 of the Exploration phase of the 30-year concession.
Customers
and Markets
We
have no production and no customers.
Competition
We
compete in virtually all facets of our businesses with numerous other companies in the oil and gas industry, including many that
have significantly greater financial and other resources. Such competitors will be able to pay more for desirable oil and gas
leases and to evaluate, bid for, and purchase a greater number of properties than our financial or personnel resources permit.
Our
business strategy includes highly competitive oil and natural gas exploration, development and production. We face intense competition
from a large number of independent exploration and development companies as well as major oil and gas companies in a number of
areas such as:
|
● |
Obtaining
financing to pursue our Nicaraguan Concessions; |
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● |
Seeking
to acquire the services, equipment, labor and materials necessary to explore, operate and develop those properties. |
Many
of our competitors have financial and technological resources substantially exceeding those available to us. We cannot be sure
that we will be successful in developing and operating profitable properties in the face of this competition.
Government
Regulation of the Oil and Gas Industry
In
April 2011, we filed with the Nicaraguan government an Environmental Impact Assessment (“EIA”) covering proposed seismic
activities on our Nicaraguan Concessions. The filing of the EIA will be followed by a comment period during which there will be
interaction between us, the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government;
and the autonomous regions of Nicaragua that are nearest to the Nicaraguan Concessions. Phase II of Sub-Period 1 started April
13, 2013, when the Nicaraguan Government approved the EIA, therefore we were able to commence 2-D and 3-D seismic mapping activities
in the area in late 2013 as noted above.
General
Our
business is affected by numerous laws and regulations, including, among others, laws and regulations relating to energy, environment,
conservation and tax. Failure to comply with these laws and regulations may result in the assessment of administrative, civil
and/or criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations
could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws
and regulations, including their applicability to Infinity, we cannot predict the overall effect of such laws and regulations
on our future operations.
If
we commence operations in Nicaragua we will be subject to legal and regulatory oversight by its energy-related agencies, such
as the Nicaraguan Energy Institute, with respect to its energy or hydrocarbons laws. In such case, from time to time, in varying
degrees, political developments and federal and state laws and regulations affect our operations in Nicaragua. In particular,
price controls, taxes and other laws relating to the crude oil and natural gas industry, changes in these laws and changes in
administrative regulations have affected and in the future could affect crude oil and natural gas production, operations and economics.
We cannot predict how Nicaraguan agencies or courts will interpret existing laws and regulations or the effect these adoptions
and interpretations may have on our business or financial condition at that point.
Our
business will also be subject to laws and regulations promulgated by federal and local authorities, including the Ministry of
Energy and Mines, relating to the exploration for, and the development, production and marketing of, crude oil and natural gas,
as well as safety matters. Legal requirements may be frequently changed and subject to interpretation and we are unable to predict
the ultimate cost of compliance with these requirements or their effect on our future operations in Nicaragua. In such event,
we may be required to make significant expenditures to comply with governmental laws and regulations.
Further,
future operations in Nicaragua will be subject to complex federal and local environmental laws and regulations. The discharge
of natural gas, crude oil, or other pollutants into the air, soil or water may give rise to significant liabilities on our part
to government agencies and third parties and may require us to incur substantial costs of remediation. In addition, in the future
we may incur costs and penalties in addressing regulatory agency procedures involving instances of possible non-compliance.
The
following discussion contains summaries of certain laws and regulations and is qualified as mentioned above.
Environmental
and Land Use Regulation
Various
federal, state and local laws and regulations relating to the protection of the environment affect our operations and costs. The
areas affected include:
|
● |
unit
production expenses primarily related to the control and limitation of air emissions, spill prevention and the disposal of
produced water; |
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|
|
|
● |
capital
costs to drill development wells resulting from expenses primarily related to the management and disposal of drilling fluids
and other oil and natural gas exploration wastes; |
|
|
|
|
● |
capital
costs to construct, maintain and upgrade equipment and facilities; |
|
|
|
|
● |
operational
costs associated with ongoing compliance and monitoring activities; and |
|
|
|
|
● |
exit
costs for operations that we are responsible for closing, including costs for dismantling and abandoning wells and remediating
environmental impacts. |
The
environmental and land use laws and regulations affecting oil and natural gas operations have been changed frequently in the past,
and in general, these changes have imposed more stringent requirements that increase operating costs and/or require capital expenditures
in order to remain in compliance. Our business operations are not in compliance with current laws and regulations in the United
States. Failure to comply with these requirements can result in civil and/or criminal fines and liability for non-compliance,
clean-up costs and other environmental damages. It is also possible that unanticipated developments or changes in law could cause
us to make environmental expenditures significantly greater than those we currently expect.
The
following is a summary discussion of the framework of key environmental and land use regulations and requirements affecting our
oil and natural gas exploration, development, production and transportation operations.
Discharges
to Waters. The Federal Water Pollution Control Act of 1972, as amended (the “Clean Water Act”), and comparable
state statutes impose restrictions and controls, primarily through the issuance of permits, on the discharge of produced waters
and other oil and natural gas wastes into regulated waters and wetlands. These controls have become more stringent over the years,
and it is possible that additional restrictions will be imposed in the future, including potential restrictions on the use of
hydraulic fracturing. These laws prohibit the discharge of produced waters and sand, drilling fluids, drill cuttings and other
substances related to the oil and natural gas industry into onshore, coastal and offshore waters without a permit.
The
Clean Water Act also regulates storm water discharges from industrial properties and construction activities and requires separate
permits and implementation of a storm water management plan establishing best management practices, training, and periodic monitoring.
Certain operations are also required to develop and implement “Spill Prevention, Control, and Countermeasure” plans
or Facility Response Plans to address potential oil spills.
The
Clean Water Act provides for civil, criminal and administrative penalties for unauthorized discharges of oil, hazardous substances
and other pollutants. It also imposes substantial potential liability for the costs of removal or remediation associated with
discharges of oil or hazardous substances. State laws governing discharges to water also provide varying civil, criminal and administrative
penalties and impose liabilities in the case of a discharge of petroleum or its derivatives, or other hazardous substances into
regulated waters.
Oil
Spill Regulations. The Oil Pollution Act of 1990, as amended (the “OPA”), amends and augments oil spill provisions
of the Clean Water Act, imposing potentially unlimited liability on responsible parties, without regard to fault, for the costs
of cleanup and other damages resulting from an oil spill in U.S. waters. Responsible parties include (i) owners and
operators of onshore facilities and pipelines and (ii) lessees or permit tees of offshore facilities.
Air
Emissions. Our operations are subject to local, state and federal regulations governing emissions of air pollution. Administrative
enforcement actions for failure to comply strictly with air pollution regulations or permits are generally resolved by payment
of monetary fines and correction of any identified deficiencies. Alternatively, regulatory agencies could require us to forego
construction, modification or operation of certain air emission sources. Air emissions from oil and natural gas operations also
are regulated by oil and natural gas permitting agencies including the MMS, BLM and state agencies.
We
may generate wastes, including hazardous wastes that are subject to the federal Resource Conservation and Recovery Act (“RCRA”)
and comparable state statutes, although certain oil and natural gas exploration and production wastes currently are exempt from
regulation under RCRA. The EPA has limited the disposal options for certain wastes that are designated as hazardous under RCRA
(“Hazardous Wastes”). Furthermore, it is possible that certain wastes generated by our historical oil and natural
gas operations that are currently exempt from treatment as Hazardous Wastes may in the future be designated as Hazardous Wastes,
and therefore be subject to more rigorous and costly operating, disposal and clean-up requirements. State and federal oil and
natural gas regulations also provide guidelines for the storage and disposal of solid wastes resulting from the production of
oil and natural gas, both on- and off-shore.
Superfund.
Under some environmental laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
also known as CERCLA or the Superfund law, and similar state statutes, responsibility for the entire cost of cleanup of a contaminated
site, as well as natural resource damages, can be imposed upon any current or former site owners or operators, or upon any party
who discharged one or more designated substances (“Hazardous Substances”) at the site, regardless of the lawfulness
of the original activities that led to the contamination. CERCLA also authorizes the EPA and, in some cases, third parties to
take actions in response to threats to the public health or the environment and to seek to recover from the potentially responsible
parties the costs of such action. Although CERCLA generally exempts petroleum from the definition of Hazardous Substances, in
the course of our operations we may have generated and may generate wastes that fall within CERCLA’s definition of Hazardous
Substances. We may also be an owner or operator of facilities at which Hazardous Substances have been released by previous owners
or operators. We may be responsible under CERCLA for all or part of the costs to clean up facilities at which such substances
have been released and for natural resource damages. We have not, to our knowledge, been identified as a potentially responsible
party under CERCLA, nor are we aware of any prior owners or operators of our properties that have been so identified with respect
to their ownership or operation of those properties.
Abandonment
and Remediation Requirements. Federal, state and local regulations provide detailed requirements for the abandonment of wells,
closure or decommissioning of production and transportation facilities, and the environmental restoration of operations sites.
The Colorado Oil and Gas Conservation Commission, Wyoming Oil and Gas Conservation Commission and the Texas Railroad Commission
are the principal state agencies and BLM the primary federal agency responsible for regulating the drilling, operation, maintenance
and abandonment of all oil and natural gas wells in the state. State and BLM regulations require operators to post performance
bonds.
Potentially
Material Costs Associated with Environmental Regulation of Our Oil and Natural Gas Operations. Significant potential costs
relating to environmental and land use regulations associated with our existing properties and operations include those relating
to (i) plugging and abandonment of facilities, (ii) clean-up costs and damages due to spills or other releases and (iii)
civil penalties imposed for spills, releases or non-compliance with applicable laws and regulations.
Title
to Properties
The
Company sold domestic acreage and leases related to Infinity-Texas in 2012. It also sold certain acreage under lease held by Infinity-Wyoming
during 2013. Management believes that it has now divested itself of all domestic acreage and leases of Infinity-Wyoming. During
the year ended December 31, 2008, the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to
be uneconomical to operate and as such, we wrote them down to zero value.
Operating
Hazards and Insurance
The
oil and natural gas business involves a variety of operating risks. We were unable to maintain insurance against such potential
risks and losses.
In
addition, pollution and environmental risks are not insured. If a significant accident or other event occurs not covered by insurance,
it could adversely affect us.
Employees
On
December 31, 2013, we had two employees, whose salaries we have partially deferred. We also use outside contractors including
the Company CFO’s accounting firm to perform services.
Exploration
and Development
We
incurred exploration expenditures on our Nicaraguan Concessions in the fiscal years ended December 31, 2013 and 2012 of $6,051,411
and $581,723, respectively.
Item
1A. Risk Factors.
Not
applicable.
Item
1B. Unresolved Staff Comments.
None.
Item
2. Properties.
This
section contains an explanation and detail of some of the relevant project groupings from our overall inventory of projects and
prospects. Our sole focus is our Nicaraguan Concessions, which are located in the Caribbean Sea, offshore Nicaragua.
Nicaragua
Subsequent
to the initial award of the Nicaraguan Concessions in 2003, we negotiated a number of key terms and conditions of an exploration
and production contract covering the approximate 1.4 million acre Tyra (approximately 826,000 acres in the north)
and Perlas (approximately 560,000 acres in the south) concession areas offshore Nicaragua. The contract, which was finalized
in 2009, contemplates an exploration period of up to six years with four sub-phases and a production period of up to 30 additional
years (with a potential five-year extension). We submitted an environmental study in 2011, which was approved in April 2013 and
we have developed new specific geological information from the acquisition of new 2-D and 3-D seismic studies along with the reprocessing
and additional evaluation of existing 2-D seismic data over the Perlas and Tyra concession blocks. We acquired new seismic survey
data in late 2013 and early 2014 and we are performing ongoing evaluation of such data in order to determine the scope our exploration
program.
We
plan to seek offers from industry operators for interests in the acreage in exchange for cash and a carried interest in exploration
and development operations. No assurance can be given that any such transactions will be consummated or the terms of such transaction.
Proved
Reserves Reporting
We
had no proved reserves as of December 31, 2013 and 2012.
Production,
Prices and Production Costs
We
had no production during the years ended December 31, 2013 or 2012.
Development,
Exploration and Acquisition Capital Expenditures
The
following table sets forth certain information regarding the costs we incurred in the purchase of proved and unproved properties
and in development and exploration activities in Nicaragua:
| |
2013 | | |
2012 | |
Property acquisition costs: | |
| | | |
| | |
Proved | |
$ | - | | |
$ | - | |
Unproved | |
| - | | |
| - | |
Total property acquisition costs | |
| - | | |
| - | |
Development costs | |
| - | | |
| - | |
Exploration costs | |
| 6,150,411 | | |
| 581,723 | |
| |
| | | |
| | |
Total costs | |
$ | 6,150,411 | | |
$ | 581,723 | |
Exploration
costs during the year ended December 31, 2013 included $5,937,013 of costs incurred for the acquisition of new 2D and 3D seismic
data on the Nicaragua Concessions.
There
were no development, exploration or acquisition costs incurred during 2013 and 2012 on our domestic properties.
Drilling
Activity
We
had no drilling activity during the years ended December 31, 2013 or 2012.
Acreage
Data
The
following table sets forth the gross and net acres of developed and undeveloped oil and gas leases we held as of December 31,
2013. For the year end December 31, 2008 the remaining value of Infinity-Wyoming were written down to zero due to uneconomical
operating conditions and in 2012 the Infinity-Texas properties were sold.
| |
Developed Acreage | | |
Undeveloped Acreage | |
| |
Gross | | |
Net | | |
Gross | | |
Net | |
| |
| | |
| | |
| | |
| |
Onshore U.S. | |
| - | | |
| - | | |
| - | | |
| - | |
Offshore Nicaragua | |
| - | | |
| - | | |
| 1,386,000 | | |
| 1,386,000 | |
Total | |
| - | | |
| - | | |
| 1,386,000 | | |
| 1,386,000 | |
Present
Activities
We
hold a 100% interest in the Perlas Block (560,000 acres/2,268 km) and Tyra Block (826,000 acres/3,342 km) located in shallow waters
offshore Nicaragua. Within 15 days of entering an exploration sub-period, we are required to provide an irrevocable guarantee
(“Irrevocable Guarantee”) in favor of the Nicaraguan Ministry of Energy, payable in Nicaragua, in an amount equal
to the estimated cost of such exploration sub-period, subject to an accumulated credit carry forward for the excess of work performed
in the preceding exploration sub-period, as provided in the Nicaraguan Concession agreements.
As
of December 31, 2012, the Company was in Sub-Period 1 of the exploration phase of the 30-year concession for both Perlas and Tyra.
The Company received notification of final approval of the EIA by the Nicaraguan government on April 13, 2013, which began Sub-Period
2. Therefore, the Company has progressed to Sub-Period 2 of the exploration phase of the 30-year concession for both Perlas and
Tyra as of December 31, 2013. In accordance with the Nicaraguan Concession agreements, the Company has provided the Ministry of
Energy with the required letters of credit in the amounts of $443,100 for Perlas (expired March 2014) and $408,450 for Tyra (expired
September 2014). The Company has also made all required expenditures related to the Nicaraguan Concessions for training programs
and as “area fees,” for each respective year for 2010 through 2013. The Company is currently negotiating the renewal
of the required letters of credit with the Nicaraguan Government and its lenders; however, there can be no assurances that it
will be successful in this regard. The Company considers it is fully in compliance with the terms of the Nicaraguan Concession
agreements pending renewal of the expired letters of credit and is in year three of the exploration phase of the 30-year Nicaraguan
Concessions.
Minimum
Work Program – Perlas
Block
Perlas – Exploration Minimum Work Commitment and Relinquishments |
Exploration
Period
(6
Years) |
Duration
(Years) |
Work
Commitment |
Relinquishment |
Irrevocable
Guarantee |
Sub-Period
1 |
2 |
-
Environmental Impact Study
-
Acquisition & interpretation of 333km of new 2D seismic
-
Acquisition, processing & interpretation of 667km of new 2D seismic (or equivalent in 3D)
|
26km2 |
$
443,100 |
Sub-Period
2
Optional |
1 |
-
Acquisition, processing & interpretation of 200km2 of 3D seismic |
53km2 |
$
1,356,227 |
Sub-Period
3
Optional |
1 |
-
Drilling of one exploration well to the Cretaceous or 3,500m, whichever is shallower |
80km2 |
$
10,220,168 |
Sub-Period
4
Optional |
2 |
-
Drilling of one exploration well to the Cretaceous or 3,500m, whichever is shallower
-
Geochemical analysis |
All
acreage except
areas
with discoveries |
$
10,397,335 |
Minimum
Work Program - Tyra
Block
Tyra – Exploration Minimum Work Commitment and Relinquishments |
Exploration
Period
(6
Years) |
Duration
(Years) |
Work
Commitment |
Relinquishment |
Irrevocable
Guarantee |
Sub-Period
1 |
1.5 |
-
Environmental Impact Study
-
Acquisition & interpretation of 667km of existing 2D seismic
-
Acquisition of 667km of new 2D seismic (or equivalent in 3D) |
26km2 |
$
408,450 |
Sub-Period
2
Optional |
0.5 |
-
Processing & interpretation of the 667km 2D seismic (or equivalent in 3D) acquired
in the previous sub-period |
40km2 |
$
278,450 |
Sub-Period
3
Optional |
2 |
-
Acquisition, processing & interpretation of 250km2 of new 3D seismic |
160km2 |
$
1,818,667 |
Sub-Period
4
Optional |
2 |
-
Drilling of one exploration well to the Cretaceous or 3,500m, whichever is shallower
-
Geochemical analysis |
All
acreage except
areas
with discoveries |
$
10,418,667 |
Contractual
and Fiscal Terms
Training
Program |
US
$50,000 per year, per block |
Area
Fee |
Yr
1-3
Yr
4-7
Yr
8 fwd |
$0.05/hectare
$0.10/hectare
$0.15/hectare |
Royalties |
Recovery
Factor
0
– 1.5
1.5
– 3.0
>3.0 |
Percentage
5%
10%
15% |
Natural
Gas Royalties |
Market
value at production |
5% |
Corporate
Tax |
Rate
no higher than 30% |
Social
Contribution |
3%
of the net profit (1.5% for each autonomous region) |
Investment
Protection |
ICSID
arbitration
OPIC
insurance |
Sub-Period
2 of the exploration phase began April 13, 2013 when the Nicaraguan Government approved the environmental impact study. The minimum
cash requirements related to the Nicaraguan Concessions for the next twelve month period will be approximately $5,415,000, of
which $4,945,000 is related to seismic activities and $470,000 is related to the training fees, area fees and other expenditures
under the concession. The Company estimates that the actual cost of 2D and 3D seismic activities for the acreage will be a minimum
of $8,000,000 (including $5,937,013 already expended for seismic activities) over the next 18-24 month period. In addition to
the minimum cash requirements related to the Nicaraguan Concessions, the Company estimates that it will require approximately
$315,000 of working capital to maintain corporate operations for the next 12 months, but not including debt obligations owed to
third parties.
Item
3. Legal Proceedings.
We
are involved in the following material litigation:
|
● |
Exterran
Energy Solutions, L.P., f/k/a Hanover Compression Limited Partnership, who filed an action in the District Court of Erath
County, Texas, number CV30512, on March 31, 2010 against Infinity Oil and Gas of Texas, Inc., Infinity Energy Resources, Inc.,
Longhorn Properties, LLC, and Forest Oil Corporation. Exterran Energy Solutions, L.P. provided certain gas compressor and
related equipment pursuant to a Gas Compressor/Production Equipment Master Rental & Servicing Agreement with Infinity
dated January 3, 2005 in Erath County, Texas and has claiming breach of contract for failure to pay amounts due. On October
13, 2011, a default judgment was entered against the Company in the amount of $445,521 plus interest and attorney fees. The
Company has included the impacts of this litigation as liabilities in its accounts payable. The Company will seek to settle
the default judgment when it has the financial resources to do so. |
|
● |
In
October 2012 the State of Texas filed a lawsuit naming Infinity-Texas, the Company and the corporate officers of Infinity-Texas,
seeking $30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties.
The Company has engaged in negotiations with the State of Texas in late 2012 and early 2013 and has reached a settlement agreement
that would reduce the aggregate liability, in this action and any extension of this to other Texas wells, to $45,103, which
amount has been paid. Certain performance obligations remain which must be satisfied in 2013 in order to finally settle and
dismiss the matter. |
|
|
|
|
|
Pending
satisfactory performance of the performance obligations and their acceptance by the State of Texas, the officers retain potential
liability on the above matter, and the officers are held personally harmless by indemnification provisions of the Company.
Therefore these liabilities, to the extent they might become actual, are the obligations of the Company. Management estimates
that the liabilities associated with this matter will not exceed $780,000, calculated as $30,000 for each of the 26 Infinity-Texas
operated wells. This related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103, is classified
as officer indemnification liability on the consolidated balance sheets. |
|
|
|
|
● |
Timothy
Berge, who filed an action in the District Court, City and County of Denver Colorado number 09CV9566, and was granted a default
judgment on November 8, 2010 against the Company in the amount of $304,921 plus costs. Mr. Berge provided certain geological
services to Infinity Oil and Gas of Texas, Inc. and claimed breach of contract for failure to pay amounts he alleged were
due. The Company was unable to defend itself in this matter due to limited financial resources even though it believes that
it had meritorious defenses. Subsequent to December 31, 2013 the Company settled this litigation by the issuance of 100,000
shares of common stock and the payment of $10,000 cash. The Company has included the impact of this litigation as an accrued
liability in the accompanying balance sheet. |
Item
4. Mine Safety Disclosures.
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Principal
Market and Price Range of Common Stock
Infinity’s
common stock trades on the Over-the-Counter QB Tier Market (OTCQB) under the symbol “IFNY.PK.” The following table
sets forth the high and low closing bid prices for Infinity’s common stock as reported by the OTCQB. The closing price of
the common stock on November 7, 2014 was $0.85 per share. The quotations reflect interdealer bid prices without retail markup,
markdown or commission and may not represent actual transactions.
Year Ended December 31, 2012 | | |
High | | |
Low | |
1st Quarter | | |
$ | 1.90 | | |
$ | 1.29 | |
2nd Quarter | | |
$ | 1.70 | | |
$ | 1.16 | |
3rd Quarter | | |
$ | 1.80 | | |
$ | 1.10 | |
4th Quarter | | |
$ | 2.29 | | |
$ | 1.63 | |
Year
Ended December 31, 2013 | | |
| High | | |
| Low | |
1st Quarter | | |
$ | 2.25 | | |
$ | 1.42 | |
2nd Quarter | | |
$ | 2.19 | | |
$ | 1.48 | |
3rd Quarter | | |
$ | 3.48 | | |
$ | 1.90 | |
4th Quarter | | |
$ | 3.62 | | |
$ | 1.20 | |
Holders
of Common Stock
At
December 31 2013, there were approximately 147 stockholders of record of our common stock.
Dividend
Policy
Holders
of common stock are entitled to receive such dividends as may be declared by our Board of Directors. We have not declared or paid
and do not anticipate declaring or paying any dividends on our common stock in the near future. Any future determination as to
the declaration and payment of dividends will be at the discretion of our board of directors and will depend on then-existing
conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business
prospects and such other factors as the board deems relevant.
Under
the terms of the definitive agreements entered into with Amegy and Offshore Finance, LLC on February 28, 2012 (effective April
13, 2012), we issued Amegy shares of Series A Preferred and Off-Shore Finance shares of Series B Preferred; both these issues
accrued a 6% dividend per annum which has a payment preference over any dividends declared and paid to the holders of common stock.
Amegy exchanged all of its shares of Series A Preferred for shares of common stock, including accrued and unpaid dividends, as
of December 30, 2013 and Offshore Finance, LLC converted all of its shares of Series B Preferred, including accrued and unpaid
dividends, into common stock on February 28, 2014.
Securities
Authorized for Issuance under Equity Compensation Plans
In
May 2006, the our stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive
and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of
470,000 shares of our common stock are reserved for issuance under the 2006 Plan. Options granted under the 2006 Plan allow for
the purchase of common stock at prices not less than the fair market value of such stock at the date of grant, become exercisable
immediately or as directed by our Board of Directors and generally expire ten years after the date of grant. As of December 31,
2013 and 2012, 148,463 shares were available for future grants under all plans.
The
following table sets forth certain information regarding our stock option plans as of December 31, 2013:
Plan category | |
Number of securities to
be
issued upon exercise of
outstanding options,
warrants and rights (a) | | |
Weighted-average
exercise price of
outstanding options,
warrants and rights (b) | | |
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (c) | |
Equity compensation plans approved by stockholders | |
| 903,500 | | |
$ | 2.92 | | |
| 148,463 | |
Options grants not issued under a plan approved by stockholders | |
| 2,496,000 | | |
| 4.58 | | |
| n/a
| |
Total | |
| 3,399,500 | | |
$ | 4.14 | | |
| 148,463 | |
Recent
Issuances of Unregistered Securities
The
following sets forth information regarding the issuance of unregistered securities by the Company in its fiscal year ended December
31, 2013.
On
December 27, 2013 the Company borrowed $1,050,000 under an unsecured credit facility with a private, third-party lender. The facility
is represented by a promissory note (the “Note”) with a maturity date of March 12, 2014. On March 7, 2014 the Company
and the lender agreed to extend the maturity date of the Note to May 11, 2014 and on May 11, 2014 the parties agreed to extend
the maturity date of the Note from May 11, 2014 to December 7, 2014 (the “New Maturity Date”). All other terms of
the Note remain the same. The parties have agreed in principle to further extension of the Note to April 7, 2014 and to decrease
the exercise price of the warrant from $1.50 per share to $1.00 per share and extend term of the warrant to the third anniversary
of the extended maturity date, subject to execution of formal documentation.
The
Company used the loan proceeds to make a $1,000,000 progress payment to CGG Services (US) Inc. – NASA, which conducted seismic
survey activities on the Company’s Nicaraguan Concessions, and to pay the lender a $50,000 origination fee.
In
connection with the extension of the Note to the new Maturity Date, the Company agreed to enter into a definitive revenue sharing
agreement with the lender to grant the lender under the revenue sharing agreement an irrevocable right to receive a monthly payment
equal to one half of one percent (1/2%) of the gross revenue derived from the share of all hydrocarbons produced at the wellhead
from the Nicaraguan Concessions and any other oil and gas concessions that the Company and its affiliates may acquire. This percent
would increase to one percent (1%) if the Company did not pay the Note in full by August 7, 2014 which did not occur. Therefore,
the revenue sharing agreement is fixed at 1%. The Company paid no other consideration in connection with the extension of the
Note, but paid the legal expenses of the lender related to the extensions of $25,000. The Note may be prepaid without penalty
at any time. The Note is subordinated to all existing and future senior indebtedness, as such terms are defined in the Note.
In
connection with its loan, the Company granted the lender a Warrant exercisable to purchase 1,000,000 shares of its common stock
at an exercise price of $1.50 per share. In connection with the extension of the maturity date of the Note to the New Maturity
Date, the parties amended the date for exercise of the Warrant to be a period commencing December 7, 2014 and expiring on the
third anniversary of such date. The Company issued no additional warrants to the lender in connection with the extension of the
Note to the New Maturity Date. If the Company fails to pay the note on or before its New Maturity Date, the number of shares issuable
under the Warrant increases to 13,333,333 and the exercise price drops to $0.075 per share. All other terms of the Warrant remain
the same.
On
December 13, 2013, Company entered into a Stock Exchange Agreement (the “Exchange Agreement”) with Amegy Bank, N.A.
(“Amegy”). Under the Exchange Agreement Amegy exchanged 130,000 shares of Series A Preferred Stock that it owns for
3,250,000 shares of Common Stock of the Company. Each share of Series A Preferred had a price of $100. Amegy received an additional
341,250 shares of Common Stock for $1,365,000, the amount of the accrued and unpaid dividends on the Series A Preferred. As a
result the Company issued a total of 3,591,250 new shares of Common Stock. The price of Series A Preferred was $100 per share
and the Common Stock to be issued in the transactions is valued at $4.00 per share. As a result, the transactions were valued
at $14,365,000. The transactions closed on December 30, 2013.
In
issuing the shares of Common Stock in exchange for the Series A Preferred the Company relied on the exemption from registration
under Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”). The Company relied on the
exemption from registration set forth in Section 4(2) of the Securities Act for issuance of the shares of Common Stock in lieu
of the accrued and unpaid dividends on the Series A Preferred. The Company did not pay any compensation or fees to any party in
connection with the issuance of the shares of Common Stock.
The
exchange of the Series A Preferred for Common Stock cancelled the Series A Preferred and thus eliminated any future dividend accrual
and liquidation preferences that the Series A Preferred had over the outstanding shares of Common Stock. In addition, all super
majority voting rights that were attributable to the Series A Preferred were terminated in connection with the cancellation of
the Series A Preferred. Amegy retained certain registration rights under the Investor Rights Agreement between the parties.
On
February 13, 2013, the Company borrowed $250,000 under an unsecured credit facility with a private, third-party lender. The loan
was represented by a promissory note, bore interest at the rate of 8% per annum and was payable interest and principal in full
60 days from the date of issuance. It may be prepaid without penalty at any time. The Note was subordinated to all existing and
future senior indebtedness, as such terms were defined in the Note.
The
Company used the loan proceeds for obligation due for its Nicaraguan Concessions and for working capital. The Company paid the
note in full on or prior to its maturity date.
In
connection with such loan, the Company granted the lender a warrant exercisable to purchase 250,000 shares of its common stock
at an exercise price of $2.50 per share for a period of two years. If the Company failed to pay the note on its maturity date,
the number of shares issuable under the Warrant would increase to 2,500,000 and the exercise price dropped to $0.10 per share.
The Company relied on the exemption from registration set forth in Section 4(2) of the Securities Act for issuance of the note
and the warrant. It paid no compensation in connection with the issuance of the note and warrant.
On
February 26 and 27, 2013, the Company borrowed $125,000 and $150,000, respectively, under an unsecured credit facility provided
by two private, third-party lenders. The loans were represented by promissory notes, bore interest at the rate of 8% per annum
and were payable interest and principal in full 60 days from the date of issuance. They may be prepaid without penalty at any
time. The notes were subordinated to all existing and future senior indebtedness, as such terms were defined in the notes. The
Company used the loan proceeds to retire the note in the principal amount of $250,000 it had issued in August 2012 and to provide
working capital.
In
connection with its new loans, the Company would grant the lenders warrants exercisable to purchase 125,000 and 150,000 shares,
respectively, of its common stock, at an exercise price of $2.50 per share for a period of two years. If the Company failed to
pay the notes on their maturity dates, the number of shares issuable under the warrants would increase to 1,250,000 and 1,500,000,
respectively, and the exercise price would drop to $.10 per share. The Company relied on the exemption from registration set forth
in Section 4(2) of the Securities Act for issuance of the notes and warrants. It paid no compensation in connection with the issuance
of the notes and warrants.
On
March 29, April 4, April 5, and April 15, 2013 the Company borrowed $50,000, $100,000, $100,000 and $50,000, respectively, under
an unsecured credit facility provided by three private, third-party lenders. The loans were represented by promissory notes, bore
interest at the rate of 8% per annum and were payable interest and principal in full 60 days from their respective dates of issuance.
They may be prepaid without penalty at any time. The notes were subordinated to all existing and future senior indebtedness, as
such terms was defined in the notes. The Company used a portion of the loan proceeds to pay a note it had issued on February 13,
2013 in the principal amount of $150,000 and provide working capital.
In
connection with its new loans, the Company granted the lenders warrants exercisable to purchase 50,000, 100,000, 100,000 and 50,000
shares, respectively, of its common stock, at an exercise price of $2.50 per share for a period of two years. If the Company fails
to pay the Notes on their respective maturity dates, the number of shares issuable under the warrants would increase to 500,000,
1,000,000, 1,000,000 and 500,000, respectively, and the exercise price would drop to $0.10 per share. The Company raised sufficient
equity to pay the notes in full on or before their respective maturity dates.
In
April 2013, the Company conducted a private placement of its common stock in which it sold 556,250 units, each consisting of one
share of common stock and one half of a common stock purchase warrant, at a price of $1.60 per unit, for total cash proceeds of
$890,000. In addition, a holder of a promissory note issued by the Company in February 2013 participated in the private placement
and converted his note in the principal amount $125,000 plus accrued interest into 79,170 units. Accordingly, the Company sold
a total 635,420 units with an aggregate value of $1,016,672. The common stock purchase warrants provide for an exercise price
of $2.50 per share, are immediately exercisable and have a term of five years. The Company used the proceeds to fund certain requirements
of its Nicaraguan Concessions, pay the notes it had issued in March and April 2013 and provide working capital. The Company paid
no compensation in connection with the sale of the units. It relied on the exemption from registration set forth in Section 4(2)
of the Securities Act for issuance of the shares of common stock and warrants.
The
warrants are redeemable by the Company at a price $0.05 per warrant if (i) the closing prices of the Common Stock have averaged
$7.50 per share or higher for a period of 20 trading days or (ii) the Company has achieved a liquidity event, such as a merger,
reorganization, acquisition or sale of all or substantially all of the assets of the Company to a third party. The Company granted
the holders of the warrants “piggyback” registration rights respecting any registration statement that the Company
files while the warrants are outstanding if no other registration statement is then effective respecting the shares of Common
Stock to be issued on exercise of the warrants. This registration right is subject to the registration rights of existing shareholders.
The
Company entered into a line-of-credit facility on September 23, 2013, which after amendments, provides for borrowings on a revolving
basis up to a maximum of $100,000 at December 31, 2013. The parties agreed to extend the maturity date of this facility November
23, 2013 to January 23, 2014 and subsequently to February 28, 2015. The entity providing the credit facility is owned by an officer
of another corporation for which the Company’s president and chairman of the board serves as president and chairman of the
board. The facility is unsecured and bears interest at 8%. The Company granted the lender common stock purchase warrants to acquire
a total of 50,000 shares of common stock at a weighted average exercise price of $2.50 per share, which warrants are immediately
exercisable and expire from September 23, 2015 to November 23, 2015. The Company used the loan proceeds for working capital and
paid no compensation to any party in connection with the establishment credit facility and warrants. It relied on the exemption
from registration set forth in Section 4(2) of the Securities Act for issuance of the credit facility and warrants.
Item
6. Selected Financial Data.
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
This
annual report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the
safe harbors created thereby. In some cases, you can identify forward-looking statements by terminology such as “may,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” “continue,” “intends,” and other variations of these
words or comparable words. In addition, any statements that refer to expectations, projections or other characterizations of events,
circumstances or trends and that do not relate to historical matters are forward-looking statements. To the extent that there
are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition,
involve risks and uncertainties. In any forward-looking statement, where we express an expectation or belief as to future results
or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will be achieved or accomplished. The actual results or events may differ
materially from those anticipated and as reflected in forward-looking statements included herein. Factors that may cause actual
results or events to differ from those anticipated in the forward-looking statements included herein include the risk factors
described below.
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which
speak only as of the date of this report. Except as required by law, we do not undertake to update or revise any of the forward-looking
statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.
Readers
are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date
hereof. We believe the information contained in this report to be accurate as of the date hereof. Changes may occur after that
date, and we will not update that information except as required by law.
Factors
that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to
be adversely affected include, but are not limited to: (i) we have a history of losses and are experiencing substantial liquidity
problems; (ii) while we have retired our debt obligations to Amegy and Off-Shore, we still have substantial obligations to a number
of third parties, including a substantial short-term promissory note due in February and April 2015, and there can be no assurance
that we will be able to meet them; (iii) we require working capital for our operations and obligations for the next 12 months
and capital to continue our exploration and development efforts on the Nicaraguan Concessions and there can be no assurances we
will be able to obtain it or do so on terms favorable to us; (iv) we and our independent registered public accounting firm have
concluded that there exists substantial doubt about our ability to continue as a going concern; (v) our Nicaraguan Concessions
and planned future exploration activities are in a country with a developing economy and are subject to the risks of political
and economic instability associated with such economies; (vi) exploration and development of our Nicaraguan Concessions will require
large amounts of capital or a commercial relationship with an industry operator which we may not be able to obtain; (vii) we may
not have sufficient resources to conduct required seismic mapping on our Nicaraguan Concessions; (viii) the oil and gas exploration
business involves a high degree of business and financial risk; (ix) we will be subject to regulations affecting our activities
with the Nicaraguan Concessions; (x) our operations may be adversely affected by changes in the fiscal regime of Nicaragua; (xi)
we are continuing to negotiate with our creditors and may face additional claims in the future; (xii) oil prices may be affected
by regional factors; (xiii) any future production will be contingent on successful exploration, development and acquisitions to
establish reserves and revenue in the future; (xv) the oil and gas industry is highly competitive; (xvi) exploratory drilling
is an uncertain process with many risks; (xvii) oil and gas prices are volatile, and declines in prices would hurt our revenues
and ability to achieve profitable operations; (xviii) our common stock is traded on the OTCQB, which may not have the visibility
or liquidity that we seek for our common stock; (xix) we depend on key personnel; (xx) sufficient voting power by coalitions of
a few of our larger stockholders to make corporate governance decisions that could have significant effect on us and the other
stockholders, including Amegy; (xxi) sale of substantial amounts of our common stock that may have a depressive effect on the
market price of the outstanding shares of our common stock; (xxii) possible issuance of common stock subject to the Series B Preferred,
options and warrants may dilute the interest of stockholders; (xxiii) our ability to comply with Sarbanes-Oxley Act of 2002 Section
404 as it may be required; (xxiv) our nonpayment of dividends and lack of plans to pay dividends in the future; (xxv) future sale
or issuance of a substantial number of shares of our common stock that could depress the trading price of our common stock, lower
our value and make it more difficult for us to raise capital; (xxvi) our additional securities available for issuance, which,
if issued, could adversely affect the rights of the holders of our common stock; (xxvii) our stock price is likely to be highly
volatile due to a number of factors, including a relatively limited public float; (xxviii) indemnification of our officers and
directors; (xxix) whether we will be able to find an industry or other financial partner to enable us to explore and develop our
Nicaraguan Concessions; and (xxx) whether we will be able to renew the required letters of credit for the Nicaraguan Concessions
with the Nicaraguan government and our lenders.
The
following information should be read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in
this annual report on Form 10-K. Infinity follows the full-cost method of accounting for oil and gas properties. See “Summary
of Significant Accounting Policies,” included in Note 1 to the Consolidated Financial Statements for the Years Ended
December 31, 2013 and 2012.
We
are engaged in the acquisition and exploration of oil and gas properties offshore Nicaragua in the Caribbean Sea.
On
March 5, 2009 we signed the contracts relating to our Nicaraguan Concessions. In April 2011, we filed with the Nicaraguan government
an Environmental Impact Assessment (“EIA”) covering proposed seismic activities on our Nicaraguan Concessions. In
April 2013 the EIA was formally approved by the Nicaraguan government and we were cleared to commence 2-D and 3-D seismic mapping
activities in the area. In late 2013 and early 2014 CGG, conducted 2-D and 3-D seismic mapping beneath the waters of our Tyra
and Perlas concession blocks. CGG completed the processing and interpretation of 2-D and 3-D seismic data covering selected areas
within the boundaries of the Nicaraguan Concessions in the first quarter of 2014. We require additional capital to pursue our
business plan to develop the Nicaraguan Concessions. No assurance can be given that these funds will be sufficient to cover the
exploration and development costs until a partner is found.
In
December 2011, we signed an agreement to sell our Texas properties for $1,000,000. The buyer issued us a non-interest bearing
note with a four-year term, payable from the buyer’s net profits from oil and gas sales from the property, with payments
to commence after the buyer’s repayment of start-up funding. Due to uncertainty as to timing and amounts of repayments,
the note receivable was recorded net of a 100% valuation allowance. We sold our investment in Infinity-Texas in July 2012 and
this note is no longer our asset.
2014
Operational and Financial Objectives
Corporate
Activities
We
hold a 100% interest in the Perlas Block (560,000 acres/2,268 km) and Tyra Block (826,000 acres/3,342 km) located in shallow waters
offshore Nicaragua. As of December 31, 2012, the Company was in Sub-Period 1 of the exploration phase of the 30-year concession
for both Perlas and Tyra. The Company received notification of final approval of the EIA by the Nicaraguan government on April
13, 2013, which began Sub-Period 2. Therefore, the Company has progressed to Sub-Period 2 of the exploration phase of the 30-year
concession for both Perlas and Tyra as of December 31, 2013. In accordance with the Nicaraguan Concession agreements, we have
provided the Ministry of Energy with the required letters of credit in the amounts of $443,100 for Perlas (expired March 2014)
and $408,450 for Tyra (expired September 2014). The Company has also made all required expenditures related to the Nicaraguan
Concessions for training programs and as “area fees,” for each respective year for 2010 through 2013. The Company
is currently negotiating the renewal of the required letters of credit with the Nicaraguan Government and its lenders. The Company
considers it is fully in compliance with the terms of the Nicaraguan Concession agreements pending renewal of the letters of credit
and is in year three of the exploration phase of the 30-year concessions.
During
December 2013 and January 2014, we completed the 2-D and 3-D seismic survey activities in the area as required under both of the
Nicaraguan Concessions at this point. We believe that the newly acquired 2-D and 3-D seismic data, together with the previously
acquired reprocessed 2-D seismic, will help us to further evaluate the structures that were previously identified with 2-D seismic
in the Eocene Zone. Our geological consultants have estimated that these Eocene structures may contain recoverable oil in place.
In addition, the 3-D seismic should provide our first look at the potential for oil resources in the Cretaceous Zone, which we
could not evaluate using less precise 2-D seismic mapping. The evaluation of the newly acquired seismic data is ongoing in order
to determine the scope our exploration program.
We
intend to finance our business strategy through external financing, which may include debt and equity capital raised in public
and private offerings, joint ventures, sale of working or other interests, employment of working capital and cash flow from operations,
if any, net proceeds from the sales of assets.
Our
ability to complete these activities is dependent on a number of factors, including, but not limited to:
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The
availability of the capital resources required to fund the activities; |
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The
availability of third party contractors for completion services; and |
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The
approval by regulatory agencies of applications for permits to conduct exploration activities in a timely manner. |
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations)
or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial
conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or
significant components of revenue or expenses.
For
the Years Ended December 31, 2013 and 2012
Results
of Operations
Overview
Infinity
incurred a net loss applicable to common shareholders of $5,587,909, or $0.26 per share, for the year ended December 31,
2013 compared to net income applicable to common shareholders of $894,570, or $0.04 per share, for the year ended December
31, 2012. The Company issued Series A Preferred and Series B Preferred redeemable convertible stock effective April 13, 2012.
The 6% cumulative dividend accrued as well as the accretion in the value ascribed to the Series A Preferred and Series B Preferred
stock (which represents value attributable to holders of the Series A Preferred and Series B Preferred stock rather than common
stock) effects the Company’s net income (loss) by $(3,161,043) and $(2,010,388) to arrive at net loss applicable to common
shareholders for the year ended December 31, 2013 and 2012, respectively.
The
Company’s consolidated statements of operations for 2012 segregate the operating expenses of the Company’s formerly
100% owned subsidiary, Infinity-Texas, which was sold in its entirety effective July 31, 2012, as “Loss of discontinued
operation.” See Note 12 to the consolidated financial statements. A gain on that sale in the amount of $4,372,111 is included
as “gain on sale of discontinued operation” for 2012.
Revenue
The
Company had no revenues in either 2013 or 2012. It focused solely on the exploration, development and financing of the Nicaraguan
Concessions.
Production
and Other Operating Expenses (income)
The
Company had no production related operating expenses in either 2013 or 2012. The Company sold its investment in Infinity-Texas
in July 2012, as noted above, and had sold the Texas properties in December 2011. The Company believes, however, that it may continue
to have obligations relative to reclamation costs for its Texas properties through the date of the sale of Infinity-Texas (see
Note 12). It continues to record a potential liability related to Texas reclamation costs of $780,000 in 2012, which reduced the
recognized gain on the sale of Infinity-Texas.
The
Company has no domestic exploration and development activities in order to conserve cash. It is not actively working on any domestic
property.
General
and Administrative Expenses
Stock based compensation
expenses of $1,631,098 for the year ended December 31, 2013 increased 724% from those in 2012, which were $197,936. The Company
has had minimal resources to pay employees, consultants and other service providers. Therefore, it has issued stock options to
compensate and motivate its officers, directors and other service providers. During the year ended December 31, 2013, the Company
granted 96,000 options which have an exercise price of $3.00 and terms ranging from five to ten years. A total of 36,000 options
vested immediately while the remaining 60,000 options vest at a rate of one-third at the grant date and one-third for each of
the two year’s thereafter. During the year ended December 31, 2012, the Company granted 1,250,000 which have an exercise
price of $3.00 and a term of nine years. The options granted in 2012 vested one-third immediately, and one-third on the first
and second anniversary of the award (November 2013 and 2014). The significant increase in stock based compensation expense during
2013 compared to 2012 is attributable to the amortization of expense related to the November 2012 grant and the additional stock
options awarded in 2013.
Other general
and administrative expenses of $817,199 for the year ended December 31, 2013 increased 1% from those in 2012, which were $806,955.
The increase in general and administrative expenses is attributable to an increase of $327,777 related to general and administrative
expenses related to its Nicaraguan operations as the concessions progressed to the exploration phase and 2D and 3D seismic mapping
activities commenced after the Environmental Impact Assessment was accepted by the Nicaraguan government. Reductions in general
and administrative expenses during 2013 were partially offset by decreases in general administrative expenses related to the services
provided by the Company CFO’s accounting firm and other professional fees. The Company has two officers and no other employees,
therefore certain general and administrative services (for which payment is deferred) were provided by the CFO’s accounting
firm; charges for those services decreased from $262,501 in 2012 to $-0- in 2013, and consist primarily of accounting, tax and
general administrative fees. Other professional fees (auditing and legal) decreased in aggregate from $275,306 in 2012 to $159,939
in 2013, reflecting higher costs included in 2012 associated with the Company’s re-establishing itself as a reporting company
under the Securities Exchange Act of 1934, as amended.
Gain
on sale of undeveloped leases
The
Company’s sold undeveloped acreage under leases in Colorado during 2013 which resulted in the gain on sale of asset totaling
$68,640. No similar sale occurred in 2012.
Other
income (expense)
Interest
expense net of amounts capitalized to oil and gas properties increased from $407,930 for the year ended December 31, 2012 to $832,651
in 2013. This significant increase was attributable to the fact that during 2013 the Company borrowed approximately $1,825,000
on a short-term basis by issuing subordinated promissory notes with detachable warrants to purchase common shares. The fair value
of the warrants resulted in a substantial increase in the overall effective borrowing costs. The Company’s current financial
condition has made traditional bank loans and customary financing terms unattainable; therefore the Company may find it necessary
to continue with these types of short-term borrowings with high effective interest rates.
Other
income increased from $33,126 in for the year ended December 31, 2012 to $218,543 in 2013. Other income in 2013 primarily related
to derecognition of certain liabilities due to the expiration of the statute of limitations on collection. The Company received
a $33,126 franchise tax refund in 2012 from the State of Delaware, which was included in other income.
Income
Tax
For
income tax purposes, the Company has net operating loss carry-forwards of approximately $56,420,000, which expire from 2025 through
2029. The Company has provided a 100% valuation allowance due to the uncertainty of realizing the tax benefits from its net deferred
tax asset.
The
Company appealed an assessment of Kansas corporate income tax that had been issued by the Department of Revenue for the tax year
ended December 31, 2006 in the amount of approximately $653,000, which was accrued for and was reported under accrued liabilities
in the consolidated balance sheet at December 31, 2012. On July 30, 2013, the Kansas Department of Revenue issued a letter to
the Company advising it that it no longer owed any corporate income tax to the State of Kansas and released the Company from the
payment of such taxes. Consequently, the related accrual was reversed and an income tax benefit of $653,000 was recorded for the
year ended December 31, 2013.
For
the year ended December 31, 2012, the Company realized net income. This net income for tax reporting purposes was effectively
entirely offset by net operating losses created in prior periods. However, the excess of debt forgiven by creditors over the fair
value of common and Series A Preferred and Series B Preferred redeemable, convertible stock issued in exchange, recorded as an
addition to additional paid-in capital for financial reporting purposes (see Note 3), is subject to current income taxation. The
estimated tax related to this amount is $150,000, which was accrued as a current tax expense in 2012. The income for 2012 is entirely
attributable to gain recognized relative to the sale of Infinity-Texas, a non-recurring event, and the Company’s consolidated
statement of operations reflects an operating loss for 2012. After its sale of Infinity-Texas in 2012, the Company continues to
carry a net operating loss carryforward, available to offset future taxable income. The Company anticipates operating losses and
additional tax losses for the foreseeable future and does not anticipate utilization of its tax loss carryforward. Therefore,
because of the uncertainty as to the ultimate utilization of the Company’s loss carryforward, any deferred tax asset at
December 31, 2012 that resulted from anticipated benefit from future utilization of such carryforward has been fully offset by
a valuation allowance.
Discontinued
operations
On
July 31, 2012, the Company sold 100% of the stock of its wholly-owned subsidiary, Infinity Oil and Gas of Texas (Infinity-Texas)
to an individual, the single member of a limited liability company that purchased the oil and gas properties of Infinity-Texas
in 2011. Under the stock purchase agreement, the purchaser acquired 100% of the stock of Infinity-Texas for $1 and thereby assumed
all of it liabilities. At the date of the sale, Infinity-Texas had net liabilities of $5,152,111. Management believes that there
are certain contingent liabilities related to Texas properties for which the Company, the parent entity, may retain financial
responsibility. The liabilities are related to the reclamation of oil and gas properties and include the cost of plugging inactive
wells and removal and recovery of any remaining production equipment. Infinity-Texas, as an independent entity following its sale,
is primarily responsible for such obligations, but the officers of Infinity-Texas at the time such wells were in production, in
their capacities as signatories of certain regulatory filings, could be personally responsible.
The
assets, liabilities and operations of Infinity-Texas are reported in the consolidated financial statements as those of a discontinued
operation for the current and prior periods and dates presented. Because Infinity-Texas has not been actively operating during
any of the periods presented, no overhead costs have been allocated to the discontinued operations during such periods. The Company
reported a loss from discontinued operations of $62,289 for the period January 1, 2012 through the date of sale (July 31, 2012)
and a gain on sale of discontinued operation of $4,372,111 during the year ended December 31, 2012.
Net
income (loss)
As
a result of the above, we reported a net loss of $2,426,866 and net income of $2,904,958 for the years ended December 31, 2013
and 2012, respectively, a deterioration of $5,331,824 (184%).
Income
(loss) applicable to common shareholders
The
Company has classified both Series A Preferred and Series B Preferred stock as mezzanine securities in the consolidated balance
sheet. Both Series A Preferred and Series B Preferred stock are being accreted to their face values over a period commencing April
14, 2012 through December 31, 2013. During the year ended December 31, 2013 and for the period April 13 through December 31, 2012,
the recorded fair value of Series A Preferred and Series B Preferred stock accreted (increased in calculated present value) by
$2,264,947 and $1,386,819, respectively. Accrued dividends payable on the Series A Preferred and Series B Preferred stock in the
amount of $896,096 and $623,569 were recorded as of December 31, 2013 and 2012, respectively.
The
Series A Preferred and Series B Preferred stock has a preference over common shareholders and therefore such amounts have been
deducted from net income (loss) to report loss applicable to common shareholders of $(5,587,909) and $894,570 for the years ended
December 31, 2013 and 2012, respectively.
Basic
and Diluted Loss per Share
Basic
net income (loss) per share is computed by dividing the net loss attributable to common shareholders by the weighted-average number
of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss attributable to
common shareholders by the weighted-average number of common and common equivalent shares outstanding during the period. Common
share equivalents included in the diluted computation represent shares issuable upon assumed exercise of stock options and warrants
using the treasury stock and “if converted” method. For periods in which net losses from continuing operations are
incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion
of common share equivalents would have an anti-dilutive effect.
The
basic and diluted income (loss) per share was $(0.26) and $0.04 for the years ended December 31, 2013 and 2012, respectively,
for the reasons previously noted. All outstanding stock options were considered antidilutive and therefore excluded from the calculation
of diluted loss per share for the years ended December 31, 2013 and 2012 because of the net loss reported for each period. Potential
common shares as of December 31, 2013 that have been excluded from the computation of diluted net loss per share amounted to 5,537,210
shares which included 2,137,710 outstanding warrants, and 3,399,500 outstanding stock options.
Liquidity
and Capital Resources; Going Concern
We
have had a history of losses. We financed our operations primarily through a line of credit with Amegy Bank and Offshore Finance
through February 28, 2012, when we entered into definitive agreements with Amegy and Off-Shore relating to outstanding debt and
other obligations we owed to them. Effective April 13, 2012, the transactions contemplated under these agreements closed and we
issued shares of common stock and Series A Preferred and Series B Preferred stock in satisfaction of all the outstanding Amegy
and Off-Shore debt, related accrued interest and other fees, and the Amegy Warrant. Although the conversion of Amegy and Offshore
debt to equity in 2012 and the sale of Infinity-Texas in 2012 relieved us of a considerable portion of our current liabilities,
we continue to have a significant working capital deficit and we continue to experience substantial liquidity issues. Amegy exchanged
all of its shares of Series A Preferred, including accrued and unpaid dividends, for shares of common stock as of December 30,
2013 and Offshore Finance, LLC converted all of its shares of Series B Preferred, including accrued and unpaid dividends, into
shares of common stock on February 28, 2014.
During
2012 we borrowed $250,000 under a short-term credit facility with a related party. We issued an interest-bearing note and common
stock purchase warrants in connection with the facility. During 2013 the Company borrowed approximately $1,825,000 on a short-term
basis by issuing various subordinated promissory notes with detachable warrants to purchase common shares. The fair value of the
warrants resulted in a substantial increase in the overall effective borrowing costs. We used the proceeds of these notes to repay
previously issued notes, including the foregoing related party note, meet obligations and conduct seismic mapping related to our
Nicaraguan Concessions and provide working capital.
As
of December 31, 2013 we owed a net of $1,050,000 plus accrued interest on one remaining note, which is due on May 11, 2014 (subsequently
extended to December 7, 2014).
In
April 2013, we conducted a private placement of units composed of common stock and warrants under which we raised $890,000 in
proceeds and exchanged $125,000 principal amount of an outstanding note plus accrued interest for units. We used part of these
proceeds to retire notes issued earlier in 2013. See “Recent Issuances of Unregistered Securities.”
Subsequent
to December 31, 2013, the Company has issued a total of six new promissory notes for total cash proceeds of $525,000. The promissory
notes have current maturity dates, as amended, ranging from December 7, 2014 through February 28, 2015. The Company granted new
warrants to purchase a total of 475,000 common shares of stock at an exercise price of $1.50 and 50,000 common shares at $1.00
per share all of which are immediately exercisable and terminate five years from the date of issuance.
Subsequent
to December 31, 2013, the Company was unable to pay principal amounts due on promissory notes representing $450,000 in debt. The
Company negotiated extensions of due dates and cured the default by granting new warrants to purchase 450,000 shares of common
stock at an exercise price of $1.00 each with a 60 month term, modifying the existing warrant agreements covering 450,000 shares
providing by extending the term of warrants to 60 months and reducing the exercise price to $1.00 per share. The promissory notes,
as amended, have a current maturity date of February 28, 2015.
Subsequent
to December 31, 2013, the Company was unable to pay balances due on its line-of-credit with a related party with an outstanding
balance of $94,640 as of December 31, 2013. The parties negotiated extensions of due dates by granting new warrants to purchase
400,000 shares of common stock at an exercise price of $1.00 to $1.50 each with a 60 month-term, modifying the existing warrant
agreements covering 300,000 shares to increase the term of warrants to 60 months and reducing the exercise price to $1.50 per
share. The line-of-credit has a current maturity date, as amended, of February 28, 2015.
Our
current financial condition has made traditional bank loans and normal financing terms unattainable therefore we may find it necessary
to continue with these types of short-term borrowings with high effective interest rates. We believe these short-term borrowings
with high effective interest rate will continue to be the primary source of our working capital during 2014.
As
of December 31, 2012, the Company was in Sub-Period 1 of the exploration phase of the 30-year concession for both Perlas and Tyra.
The Company received notification of final approval of the EIA by the Nicaraguan government on April 13, 2013, which began Sub-Period
2. Therefore, the Company has progressed to Sub-Period 2 of the exploration phase of the 30-year concession for both Perlas and
Tyra as of December 31, 2013. In accordance with the Nicaraguan Concession agreements, the Company has provided the Ministry of
Energy with the required letters of credit in the amounts of $443,100 for Perlas (expired March 2014) and $408,450 for Tyra (expired
September 2014). The Company is in process of negotiating the renewal of the letters of credit with the Nicaraguan government
and its lenders; however, there can be no assurances that it will be successful in this regard. The Company has also made all
required expenditures related to the Nicaraguan Concessions for training programs and as “area fees,” for each respective
year for 2010 through 2013. The Company considers it is fully in compliance with the terms of the Nicaraguan Concession agreements
pending renewal of the expired letters of credit and is in year three of the exploration phase of the 30-year term of the Nicaraguan
Concessions.
Sub-Period
2 of the exploration phase began April 13, 2013, when the Nicaraguan Government approved the environmental impact study. The minimum
cash requirements related to the Nicaraguan Concessions for the next twelve month period will be approximately $5,415,000, of
which $4,945,000 is related to seismic activities and $470,000 is related to the training fees, area fees and other expenditures
under the Nicaraguan Concessions. The Company estimates that the total actual cost of 2D and 3D seismic activities for the acreage
will be a minimum of $8,000,000 (which includes $5,937,013 already incurred for seismic activities) over the next 18-24 month
period. In addition to the minimum cash requirements related to the Nicaraguan Concessions, the Company estimates that it will
require approximately $315,000 of working capital to maintain corporate operations for the next 12 months, but not including debt
obligations owed to third parties.
We
plan to raise long-term capital to satisfy the foregoing needs through an offering of our equity or debt securities and/or through
a commercial relationship with other industry operators, which may involve the granting of revenue or other interests in the Nicaraguan
Concessions in exchange for cash and a carried interest in exploration and development operations or the creation of a joint venture
or other strategic partnership. There can be no assurance that we will obtain such funding or obtain it on terms acceptable to
us. Further, if we cannot meet our obligations respecting the Nicaraguan Concessions, we will lose our rights to them.
Due
to the uncertainties related to these matters, there exists substantial doubt about our ability to continue as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts
or the amount and classification of liabilities that might result should we be unable to continue as a going concern.
Critical
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. We believe
certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated
financial statements. Our significant accounting policies are summarized in the notes to our consolidated financial statements
included in Item 8, “Financial Statements”, of this annual report.
The
application of our accounting policies regarding full cost accounting for oil and gas properties, accounting for the cancellation
of debt by exchange of equity securities (Note 3), accounting for issues surrounding the sale of our subsidiary, Infinity-Texas
(Note 12) and, estimates involving our stock based compensation are considered critical to four accounting estimates made in 2013
and 2012.
The
Company follows the full cost method of accounting for exploration and development activities and capitalizes direct costs, overhead
costs and interest related to such activities. All of the Company’s investment in such costs at December 31, 2013 and 2012
relate to unproved properties that relate to the Nicaraguan Concessions. Management must assess at least annually to ascertain
whether impairment of the recorded values has occurred, which involves evaluation of estimates of lease terms for the properties;
geographic and geologic data obtained, and estimated future net revenues. For the Nicaraguan Concessions this involves considering
terms of the government concessions, status of ongoing environmental study, evaluation of seismic data, and plans to seek industry
participation in future exploration and development.
The
Company in April 2012 executed agreements cancelling debt, accrued interest and related fees, and a derivative warrant liability,
in exchange for issuing common and convertible preferred stock. The determination of the fair value of the equities exchanged
relative to the carrying value of the obligations required estimation of the fair value of the equities and determining proper
accounting. The common stock was recorded at the fair value based on the closing price of the Company’s stock on April 13,
2012, the date the agreement was effective. The preferred shares, which have both conversion and redemption privileges, as well
as voting rights, have been treated as mezzanine securities. The fair value at which they were recorded required estimating when
conversion might occur and consideration of an appropriate rate of return to assume in discounting conversion value back to the
issue date.
The
sale of Infinity-Texas on July 31, 2012 resulted in the recording of a gain attributable to the effective assumption of Infinity-Texas’
liabilities by the purchaser of its stock. After the sale date but before year-end, the State of Texas filed a lawsuit naming
Infinity-Texas, the Company, and its officers, relating to recovery of reclamation costs related to a single well, and related
administrative expenses and penalties. The officers of the Company are indemnified by the Company against claims and liabilities
they might incur as a result of their positions. Therefore, any liabilities which might result from this litigation and the extension
of its claims to other Texas wells would be the obligations of the Company. Management made an estimate of the possible exposure
the Company might have from this litigation and as it might pertain to other properties, and set aside that amount as a reduction
in gain otherwise recognizable on the sale of Infinity-Texas and as a liability on the Company’s balance sheet. This estimate
was $780,000 and was recorded in “asset retirement obligations.” A settlement agreement that would reduce the aggregate
liability, in this action and any extension of this to other Texas wells, to $45,103 has been negotiated with the Texas Attorney
General and that amount has been paid. Certain performance obligations remain which must be satisfied before August 1, 2013 in
order to finally settle and dismiss the matter. The remaining balance of the original estimate, as reduced by the settlement payment,
remains a liability at December 31, 2013 pending satisfactory performance of the performance obligations and their acceptance
by the State of Texas.
We
grant stock options to our employees and directors and such benefits provided are share-based payment awards, which require us
to make significant estimates related to determining the value of our share-based compensation. Our expected stock-price volatility
assumption is based on historical volatilities of the underlying stock obtained from public data sources. We granted 96,000 and
1,250,000 options during the years ended December 31, 2013 and 2012, respectively. The assumptions used for determining the grant-date
fair value of options granted during the year ended December 31, 2013 are reflected in Note 6 to the Consolidated Financial statements.
If
factors change and we develop different assumptions in future periods, the compensation expense that we record in the future may
differ significantly from what we have recorded in the current period. There is a high degree of subjectivity involved when using
option pricing models to estimate share-based compensation. Changes in the subjective input assumptions can materially affect
our estimates of fair values of our share-based compensation. Certain share-based payment awards, such as employee stock options,
may expire worthless or otherwise result in zero intrinsic value compared to the fair values originally estimated on the grant
date and reported in our financial statements. Alternatively, values may be realized from these instruments that are significantly
in excess of the fair values originally estimated on the grant date and reported in our financial statements. Although the fair
value of employee share-based awards is determined using an established option pricing model, that value may not be indicative
of the fair value observed in a willing buyer/willing seller market transaction.
As
of and for the year ended December 31, 2013, there have been no material changes or updates to our critical accounting policies.
Inflation
and Seasonality
Inflation
has not materially affected us during the past fiscal year. We do not believe that our business is seasonal in nature.
Item
7A. Quantitative and Qualitative Disclosures about Market Risk.
Not
applicable.
Item
8. Financial Statements and Supplementary Data.
Infinity
Energy Resources, Inc.
Consolidated
Financial Statements
and
Accompanying Notes
December
31, 2013 and 2012
Table
of Contents
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Infinity
Energy Resources, Inc. and Subsidiaries
Overland
Park, Kansas
We
have audited the accompanying consolidated balance sheet of Infinity Energy Resources, Inc. and Subsidiaries (the “Company”)
as of December 31, 2013, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for
the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audit provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Infinity
Energy Resources, Inc. and Subsidiaries as of December 31, 2013 and the results of their operations and their cash flows for the
year then ended in conformity with accounting principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses, has no on-going operations,
and has a significant working capital deficit, which raises substantial doubt about its ability to continue as a going concern.
Management’s plans with regard to these matters are also described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ L.L.
Bradford & Company
Leawood,
Kansas
November
18, 2014
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Infinity
Energy Resources, Inc. and Subsidiaries
Overland
Park, Kansas
We
have audited the accompanying consolidated balance sheet of Infinity Energy Resources, Inc. and Subsidiaries (the “Company”)
as of December 31, 2012, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for
the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audit provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Infinity
Energy Resources, Inc. and Subsidiaries as of December 31, 2012, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses, has no on-going operations,
and has a significant working capital deficit, which raises substantial doubt about its ability to continue as a going concern.
Management’s plans with regard to these matters are also described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
EKS&H
LLLP
Denver,
Colorado
April
1, 2013
INFINITY
ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
| |
December 31, 2013 | | |
December 31, 2012 | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 74 | | |
$ | 32,721 | |
Prepaid expenses | |
| 12,723 | | |
| 3,131 | |
Total current assets | |
| 12,797 | | |
| 35,852 | |
| |
| | | |
| | |
Oil and gas properties, using full cost accounting, net of accumulated depreciation, depletion,
amortization and ceiling write-down: | |
| | | |
| | |
Unproved | |
| 10,477,214 | | |
| 4,425,803 | |
| |
| | | |
| | |
Other asset – deposit | |
| - | | |
| 5,000 | |
Total assets | |
$ | 10,490,011 | | |
$ | 4,466,655 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 5,705,367 | | |
$ | 1,109,915 | |
Accrued liabilities (including $788,520 and $793,520 due to related parties
at December 31, 2013 and 2012) | |
| 2,733,500 | | |
| 3,361,583 | |
Income tax liability | |
| 150,000 | | |
| 150,000 | |
Accrued interest and fees – bank and other | |
| 194,238 | | |
| 167,457 | |
Officer indemnification liability | |
| 734,897 | | |
| 734,897 | |
Current portion of asset retirement obligations | |
| 432,027 | | |
| 432,027 | |
Derivative liabilities | |
| 853,365 | | |
| - | |
Line-of-credit with related party | |
| 94,640 | | |
| - | |
Note payable, net of discount of $784,096 at December 31, 2013 | |
| 265,904 | | |
| - | |
Note payable to related party, net of discount of
$15,686 at December 31, 2012 | |
| - | | |
| 234,314 | |
Total current liabilities | |
| 11,163,938 | | |
| 6,190,193 | |
| |
| | | |
| | |
Long-term liability | |
| | | |
| | |
Note payable, net of discount of $36,109 at December 31, 2012 | |
| - | | |
| 176,291 | |
Asset retirement obligations, less current portion | |
| 549,079 | | |
| 549,079 | |
Derivative liabilities | |
| - | | |
| 42,508 | |
Total long-term liabilities | |
| 549,079 | | |
| 767,878 | |
| |
| | | |
| | |
Total liabilities | |
| 11,713,017 | | |
| 6,958,071 | |
| |
| | | |
| | |
Redeemable, convertible preferred stock, par value $.0001, 6% cumulative dividend,
authorized 10,000,000 shares: | |
| | | |
| | |
Series-A, -0- and 130,000 shares issued and outstanding
at December 31, 2013 and 2012, respectively, liquidation preference $13,000,000 plus undeclared dividends
of $559,000 at December 31, 2012 | |
| - | | |
| 11,539,734 | |
Series-B (related party), 15,016 shares issued and
outstanding at December 31, 2013 and December 31, 2012, liquidation preference $1,501,600 plus undeclared dividends of $154,665
and $64,569 at December 31, 2013 and December 31, 2012 | |
| 1,656,265 | | |
| 1,320,488 | |
Commitments and contingencies (Note 10) | |
| | | |
| | |
Stockholders’ deficit: | |
| | | |
| | |
Common stock, par value $.0001, authorized 75,000,000 shares, 25,039,230
and 20,668,575 shares issued and outstanding at December 31, 2013 and December 31, 2012 | |
| 2,503 | | |
| 2,066 | |
Additional paid-in capital | |
| 103,742,424 | | |
| 88,843,628 | |
Accumulated deficit | |
| (106,624,198 | ) | |
| (104,197,332 | ) |
Total stockholders’ deficit | |
| (2,879,271 | ) | |
| (15,351,638 | ) |
Total liabilities and stockholders’ deficit | |
$ | 10,490,011 | | |
$ | 4,466,655 | |
See
notes to consolidated financial statements.
INFINITY
ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
| |
For the Year Ended December 31, | |
| |
2013 | | |
2012 | |
Operating expenses (income): | |
| | | |
| | |
General and administrative expenses | |
$ | 2,448,297 | | |
$ | 1,004,891 | |
Gain on sale of undeveloped leases | |
| (68,640 | ) | |
| - | |
Total operating expenses, net | |
| 2,379,657 | | |
| 1,004,891 | |
| |
| | | |
| | |
Operating loss | |
| 2,379,657 | | |
| 1,004,891 | |
Other income (expense): | |
| | | |
| | |
Interest expense, net of capitalized interest | |
| (832,651 | ) | |
| (407,930 | ) |
Change in derivative fair value | |
| (75,017 | ) | |
| 124,831 | |
Loss on conversion of note payable | |
| (11,085 | ) | |
| - | |
Other income | |
| 218,543 | | |
| 33,126 | |
| |
| | | |
| | |
Total other income (expense) | |
| (700,209 | ) | |
| (249,973 | ) |
| |
| | | |
| | |
Loss from continuing operations before income taxes | |
| 3,079,866 | | |
| 1,254,864 | |
Income tax (benefit) expense | |
| (653,000 | ) | |
| 150,000 | |
Loss from continuing operations | |
| 2,426,866 | | |
| 1,404,864 | |
| |
| | | |
| | |
Loss from discontinued operation | |
| - | | |
| (62,289 | ) |
Gain on sale of discontinued operation | |
| - | | |
| 4,372,111 | |
| |
| | | |
| | |
Net income (loss) | |
| (2,426,866 | ) | |
| 2,904,958 | |
| |
| | | |
| | |
Accrual of 6% dividend payable on Series A and B redeemable, convertible preferred stock | |
| (896,096 | ) | |
| (623,569 | ) |
| |
| | | |
| | |
Accretion of Series A and B redeemable, convertible preferred stock to
liquidation value | |
| (2,264,947 | ) | |
| (1,386,819 | ) |
| |
| | | |
| | |
Income (loss) applicable to common shareholders | |
$ | (5,587,909 | ) | |
$ | 894,570 | |
| |
| | | |
| | |
Basic and diluted net income (loss) per share: | |
| | | |
| | |
Loss from continuing operations | |
$ | (0.26 | ) | |
$ | (0.18 | ) |
Income from discontinued operation | |
| - | | |
| 0.22 | |
| |
| | | |
| | |
Basic and diluted net income (loss) per share | |
$ | (0.26 | ) | |
$ | 0.04 | |
| |
| | | |
| | |
Weighted average shares outstanding – basic and diluted | |
| 21,205,155 | | |
| 20,104,191 | |
See
notes to consolidated financial statements.
INFINITY
ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
| |
Common Stock | | |
Additional Paid-in | | |
Accumulated
| | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| |
| | |
| | |
| | |
| | |
| |
Balance, December 31, 2011 | |
| 18,668,575 | | |
$ | 1,866 | | |
$ | 80,322,722 | | |
$ | (107,102,290 | ) | |
$ | (26,777,702 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stock based compensation | |
| - | | |
| - | | |
| 197,936 | | |
| - | | |
| 197,936 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock related to conversion of debt to Series A redeemable,
convertible preferred stock | |
| 2,000,000 | | |
| 200 | | |
| 2,979,800 | | |
| - | | |
| 2,980,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accretion of Series A and B redeemable, convertible preferred stock to liquidation
value | |
| - | | |
| - | | |
| (1,386,819 | ) | |
| - | | |
| (1,386,819 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accrual of 6% dividend payable on Series A and B redeemable, convertible
preferred stock | |
| - | | |
| - | | |
| (623,569 | ) | |
| - | | |
| (623,569 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Excess of debt forgiven by creditors over fair value of common and redeemable,
convertible preferred Series A and B stock issued in exchange (Note 3) net of tax of $700,000 | |
| - | | |
| - | | |
| 7,353,558 | | |
| - | | |
| 7,353,558 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| - | | |
| - | | |
| - | | |
| 2,904,958 | | |
| 2,904,958 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2012 | |
| 20,668,575 | | |
| 2,066 | | |
| 88,843,628 | | |
| (104,197,332 | ) | |
| (15,351,638 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stock based compensation | |
| - | | |
| - | | |
| 1,631,098 | | |
| - | | |
| 1,631,098 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock purchase warrants issued for debt issuance costs | |
| - | | |
| - | | |
| 60,290 | | |
| - | | |
| 60,290 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Transition of derivative liability to equity | |
| - | | |
| - | | |
| 695,723 | | |
| - | | |
| 695,723 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock and warrants for cash | |
| 556,250 | | |
| 56 | | |
| 889,944 | | |
| - | | |
| 890,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for services rendered | |
| 40,000 | | |
| 4 | | |
| 80,746 | | |
| - | | |
| 80,750 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock on conversion of notes payable | |
| 151,634 | | |
| 15 | | |
| 337,400 | | |
| - | | |
| 337,415 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Exercise of common stock purchase warrants on a cashless basis | |
| 31,521 | | |
| 3 | | |
| (3 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of Series A preferred stock to common stock | |
| 3,591,250 | | |
| 359 | | |
| 14,364,641 | | |
| - | | |
| 14,365,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accretion of Series A and B redeemable, convertible preferred stock to liquidation
value | |
| - | | |
| - | | |
| (2,264,947 | ) | |
| - | | |
| (2,264,947 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accrual of 6% dividend payable on Series A and B redeemable, convertible
preferred stock | |
| - | | |
| - | | |
| (896,096 | ) | |
| - | | |
| (896,096 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (2,426,866 | ) | |
| (2,426,866 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2013 | |
| 25,039,230 | | |
$ | 2,503 | | |
$ | 103,742,424 | | |
$ | (106,624,198 | ) | |
$ | (2,879,271 | ) |
See
notes to consolidated financial statements.
INFINITY
ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated
Statements Cash Flows
| |
For the Year Ended | |
| |
December 31, | |
| |
2013 | | |
2012 | |
Cash flows from operating activities | |
| | | |
| | |
Net income (loss) | |
$ | (2,426,866 | ) | |
$ | 2,904,958 | |
Adjustments to reconcile net income (loss) to net cash used in operating
activities: | |
| | | |
| | |
Income tax benefit | |
| (653,000 | ) | |
| - | |
Gain on sale of discontinued operation | |
| - | | |
| (4,372,111 | ) |
Accretion of asset retirement obligations | |
| - | | |
| 101,282 | |
Stock-based compensation | |
| 1,631,098 | | |
| 197,936 | |
Common stock issued for services rendered | |
| 80,750 | | |
| - | |
Change in fair value of derivative liability | |
| 75,017 | | |
| (124,831 | ) |
Loss on conversion of note | |
| 11,085 | | |
| - | |
Gain on exchange of note payable for accounts payable | |
| | | |
| (40,435 | ) |
Amortization of debt discount and debt issuance cost | |
| 76,421 | | |
| 58,066 | |
Change in operating assets and liabilities | |
| | | |
| | |
Decrease in prepaid expenses and other assets | |
| 5,805 | | |
| 4,369 | |
Increase (decrease) in accounts payable and accrued liabilities | |
| (186,322 | ) | |
| 1,090,857 | |
Increase in income tax liability | |
| - | | |
| 150,000 | |
Decrease in officer indemnification liability | |
| - | | |
| (45,103 | ) |
Increase in current liabilities of discontinued operations | |
| - | | |
| 44,553 | |
Net cash used in operating activities | |
| (686,012 | ) | |
| (30,459 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
(Increase) decrease in deposit | |
| 5,000 | | |
| (5,000 | ) |
Investment in oil and gas properties | |
| (211,275 | ) | |
| (454,107 | ) |
Net cash used in investing activities | |
| (206,275 | ) | |
| (459,107 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Proceeds from private placement of common stock and warrants | |
| 890,000 | | |
| - | |
Proceeds from line-of-credit, net | |
| 94,640 | | |
| - | |
Repayment of note payable to related party | |
| (250,000 | ) | |
| - | |
Proceeds from debt and subordinated note payable | |
| 825,000 | | |
| 522,070 | |
Repayment of notes payable | |
| (700,000 | ) | |
| - | |
Net cash provided by financing activities | |
| 859,640 | | |
| 522,070 | |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| (32,647 | ) | |
| 32,504 | |
| |
| | | |
| | |
Cash and cash equivalents | |
| | | |
| | |
Beginning | |
| 32,721 | | |
| 217 | |
End | |
$ | 74 | | |
$ | 32,721 | |
| |
| | | |
| | |
Supplemental cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 23,428 | | |
$ | - | |
Cash paid for taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Supplemental noncash disclosures: | |
| | | |
| | |
Investments in oil and gas properties funded by accounts payable | |
$ | 4,840,136 | | |
$ | - | |
Investments in oil and gas properties financed through issuance of note | |
$ | 1,000,000 | | |
$ | - | |
Issuance of note payable to settle accounts payable | |
$ | - | | |
$ | 171,965 | |
Noncash capitalized interest | |
$ | - | | |
$ | 77,616 | |
Noncash transaction; Series A Preferred shares and related accrued dividends
fees satisfied by issuance of common shares | |
$ | 14,365,000 | | |
$ | - | |
Noncash transaction; debt, subordinated note payable and related accrued
interest and other fees satisfied by issuance of common and Series A and B Preferred shares | |
$ | - | | |
$ | 21,883,393 | |
Conversion of note and accrued interest to common stock | |
$ | 337,415 | | |
$ | - | |
Discount from warrant derivative issued in connection with notes payable | |
$ | 1,488,167 | | |
$ | - | |
Transition of derivative liability to equity | |
$ | 695,723 | | |
$ | - | |
Accretion in fair value of redeemable preferred stock | |
$ | 2,264,947 | | |
$ | 1,386,819 | |
Preferred dividends accrued | |
$ | 896,096 | | |
$ | 623,569 | |
Common stock purchase warrants issued for debt issuance costs | |
$ | 60,290 | | |
$ | - | |
Cashless exercise of common stock purchase warrants | |
$ | 3 | | |
$ | - | |
See
notes to consolidated financial statements.
INFINITY
ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
Note
1 — Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
Nature of Operations
Infinity
Energy Resources, Inc. (the “Company”, “we”, “our”) is engaged in the exploration of potential
oil and gas resources in the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan
Concessions”). The Company sold its wholly-owned subsidiary Infinity Oil and Gas of Texas, Inc. in 2012 and continues to
hold its wholly-owned subsidiary Infinity Oil and Gas of Wyoming, Inc. which has been inactive in recent years.
On
March 5, 2009 Infinity signed the contracts relating to its Nicaraguan Concessions. Infinity is conducting activities to develop
geological information from the processing and evaluation of newly acquired and existing 2-D and 3-D seismic data that was acquired
for the Nicaraguan Concessions. Infinity is seeking capital to continue its geological activities and offers from other industry
operators and other third parties for interests in the acreage in exchange for cash and a carried interest in exploration and
development operations.
Basis
of Presentation and Principles of Consolidation
The
consolidated financial statements include the accounts of Infinity Energy Resources, Inc. and its wholly-owned subsidiaries, Infinity
Oil and Gas of Texas, Inc. (“Infinity-Texas”) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”).
The Company sold the stock of Infinity-Texas effective July 31, 2012 (See Note 12). The operating results and the gain on the
sale of Infinity-Texas are included as those of discontinued operations in the accompanying consolidated statements of operations.
All significant intercompany balances and transactions have been eliminated in consolidation.
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States.
Going
Concern
As
reflected in the accompanying consolidated statements of operations, the Company has had a history of losses. In addition, the
Company has a significant working capital deficit and is currently experiencing substantial liquidity issues.
On
February 28, 2012, we signed definitive agreements with Amegy Bank (“Amegy”) and Off-Shore, LLC (“Off-Shore”)
relating to outstanding debt and other obligations we owed to them (see Note 3). On December 30, 2013, we completed the exchange
of all 130,000 shares of Series A Preferred Stock and accrued dividends that Amegy owned for a total of 3,591,250 shares of our
common stock. Although the cash outflow necessary to pay Amegy has been eliminated under terms of the agreements, we are still
in need of additional capital to meet our obligations under the Nicaraguan Concessions, and are seeking sources of additional
equity or debt financing. There can be no assurance that we will be able to obtain such capital or obtain it on favorable terms.
The
Company conducted an environmental study and developed geological information from the reprocessing and additional evaluation
of existing 2-D seismic data acquired over its Nicaraguan Concessions. It issued letters of credit totaling $851,550 for this
and additional work on the leases as required by the Nicaraguan Concessions. The Company has completed certain activity under
the initial work plan to date but there remains significant additional activities to comply with the Nicaraguan Concessions. The
Company intends to seek joint venture or working interest partners prior to the commencement of any significant exploration or
drilling operations on the Nicaraguan Concessions. The Company satisfied its commitment under the Nicaraguan Concessions to acquire,
process and interpret additional 2-D / 3-D seismic data. The Company is evaluating the newly acquired seismic data and is in process
of selecting potential exploratory drill sites in accordance with the Nicaragua Concessions. The Company must gain approval of
the drill sites upon submission of an updated environmental impact assessment before commencing with exploration activities. The
Company currently does not have the working capital to complete the activities required by the work plan and consequently it must
raise the necessary funding to fulfil such requirements. This is a substantial operational and financial issue that must be successfully
mitigated during 2014 or the Company’s ability to satisfy the conditions necessary to maintain its Nicaragua Concessions
is in significant doubt.
Due
to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as
a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue
as a going concern
Management
Estimates
The
preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates with regard
to the consolidated financial statements include the estimated carrying value of unproved properties, the estimated fair value
of derivative liabilities, stock based awards and overriding royalty interests, and the realization of deferred tax assets.
Oil
and Gas Properties
The
Company follows the full cost method of accounting for exploration and development activities. Accordingly, all costs incurred
in the acquisition, exploration, and development of properties (including costs of surrendered and abandoned leaseholds, delay
lease rentals, dry holes and seismic costs) and the fair value of estimated future costs of site restoration, dismantlement, and
abandonment activities are capitalized. Overhead related to development activities is also capitalized during the acquisition
phase. In the years ended December 31, 2013 and 2012, the Company capitalized direct costs, overhead costs and interest as follows:
| |
For the Years | |
| |
Ended December 31, | |
| |
2013 | | |
2012 | |
| |
| | | |
| | |
Direct costs | |
$ | 6,051,411 | | |
$ | 454,107 | |
Overhead costs | |
| - | | |
| 50,000 | |
Interest costs | |
| - | | |
| 77,616 | |
| |
| | | |
| | |
| |
$ | 6,051,411 | | |
$ | 581,723 | |
On
April 13, 2013 the Environmental Impact Assessment (“EIA”) was formally approved by the Nicaraguan government and
the Company was cleared to commence 2-D and 3-D seismic mapping activities in the area. In late 2013 and early 2014 we conducted
2-D and 3-D seismic mapping beneath the waters of the Tyra and Perlas concession blocks. Concurrent with the approval of the EIA,
management concluded that the acquisition phase of the Nicaraguan concession had been completed and the exploration phase had
commenced with the start 2-D and 3-D seismic mapping activities. Accordingly, the Company ceased the capitalization of overhead,
legal costs, certain consulting and ancillary costs paid to the Nicaraguan government in accordance with the Concession agreement.
Direct
costs capitalized during the year ended December 31, 2013 included $5,937,013 of costs related to the acquisition of new 2D and
3D seismic data on the Nicaragua Concessions.
Costs
associated with production and general corporate activities are expensed in the period incurred.
Depletion
of proved oil and gas properties is computed on the units-of-production method, with oil and gas being converted to a common unit
of measure based on relative energy content, whereby capitalized costs, as adjusted for estimated future development costs and
estimated asset retirement costs, are amortized over the total estimated proved reserve quantities. Investments in unproved properties,
including capitalized interest and internal costs, are not depleted pending determination of the existence of proved reserves.
Unproved properties are assessed periodically (at least annually) to ascertain whether impairment has occurred. Unproved properties
whose costs are individually significant are assessed individually by considering the primary lease terms of the properties, the
holding period of the properties, geographic and geologic data obtained relating to the properties, and estimated discounted future
net cash flows from the properties. Estimated discounted future net cash flows are based on discounted future net revenues associated
with probable and possible reserves, risk adjusted as appropriate. Where it is not practicable to assess individually the amount
of impairment of properties for which costs are not individually significant, such properties are grouped for purposes of assessing
impairment. The amount of impairment assessed is added to the costs to be amortized, or is reported as a period expense, as appropriate.
All unproved property costs as of December 31, 2013 and December 31, 2012 relate to the Company’s Nicaraguan Concessions
that were entered into in March 2009. In assessing the unproved property costs for impairment, the Company takes into consideration
the terms of the government concessions, the status of the ongoing environmental study, evaluation of the seismic data and plans
to seek industry participation in the future exploration and development.
Pursuant
to full cost accounting rules, the Company must perform a “ceiling test” each quarter. The ceiling test provides that
capitalized costs less related accumulated depletion and deferred income taxes for each cost center may not exceed the sum of
(1) the present value of future net revenue from estimated production of proved oil and gas reserves using prices based on
the arithmetic mean of the previous 12 months’ first-of-month prices and current costs, including the effects of derivative
instruments accounted for as cash flow hedges but excluding the future cash outflows associated with settling asset retirement
obligations that have been accrued on the balance sheet, and a discount factor of 10%; plus (2) the cost of properties not
being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs
being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties.
If capitalized costs exceed the ceiling, the excess must be charged to expense and may not be reversed in future periods. As of
December 31, 2013 and 2012, the Company did not have any proved oil and gas properties, and all unproved property costs relate
to the Company’s Nicaraguan Concessions.
Proceeds
from the sales of oil and gas properties are accounted for as adjustments to capitalized costs with no gain or loss recognized,
unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas,
in which case the gain or loss would be recognized in the determination of the Company’s net earnings/loss. During 2011
Infinity-Texas, the Company’s 100%-owned subsidiary, sold its oil and gas properties in Texas, to a single-member limited
liability company, the owner of which purchased 100% of the stock of Infinity-Texas from the Company in July 2012 (see Note 12).
The costs associated with these properties were entirely written off in prior periods. The properties were sold in return for
a non-interest-bearing note with repayment conditional upon net profit from sales of oil and gas from the properties. Due to the
uncertainty of when and in what amount payments on the note will be received, the Company has recorded the note net of a 100%
valuation reserve and has recognized no gain or loss on this transaction. The note was sold as an asset of Infinity-Texas in the
July 2012 sale of such company’s stock.
Concentrations
The
Company’s only asset is the Nicaraguan Concessions and it expects to be active in Nicaragua for the foreseeable future,
given sufficient capital. The political climate in Nicaragua could become unstable and subject to radical change over a short
period of time. In the event of a significant negative change in political and economic stability in the vicinity of the Nicaraguan
Concessions or of the inability of the Company to obtain sufficient financing, the Company might be forced to abandon or suspend
its efforts and its rights under its Nicaraguan Concessions.
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 income (loss) and are recognized in the statement of operations when the hedged item affects
earnings. Ineffective portions of changes in the fair value of cash flow hedges, if any, are recognized in earnings. Changes in
the fair value of derivatives that do not qualify for hedge treatment are recognized in earnings.
The
purpose of hedging is to provide a measure of stability to the Company’s cash flows in an environment of volatile oil and
gas prices and to manage the exposure to commodity price risk. As of December 31, 2013 and 2012 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
6 and 7), those warrants are required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized
in earnings.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes. This method requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary differences between financial accounting bases and
tax bases of assets and liabilities. The tax benefits of tax loss carryforwards and other deferred taxes are recorded as an asset
to the extent that management assesses the utilization of such assets to be more likely than not. 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 December 31, 2013 and 2012.
The
Company is potentially subject to taxation in many jurisdictions, and the calculation of income tax liabilities (if any) involves
dealing with uncertainties in the application of complex income tax laws and regulations in various taxing jurisdictions. It recognizes
certain income tax positions that meet a more-likely-than not recognition threshold. If the Company ultimately determines that
the payment of these liabilities will be unnecessary, it will reverse the liability and recognize an income tax benefit. No liability
for unrecognized tax benefit was recorded as of December 31, 2013 and 2012.
Cash
and Cash Equivalents
For
purposes of reporting cash flows, cash consists of cash on hand and demand deposits with financial institutions. Although the
Company had minimal cash as of December 31, 2013 and 2012, it is the Company’s policy that all highly liquid investments
with a maturity of three months or less when purchased would be cash equivalents and would be included along with cash as cash
and equivalents.
Asset
Retirement Obligations
The
Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410 (formerly SFAS No. 143, Accounting
for Asset Retirement Obligations.) ASC 410 requires entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived
asset. Subsequent to initial measurement, the asset retirement liability is required to be accreted each period. The Company’s
asset retirement obligations consist of costs related to the plugging of wells, the removal of facilities and equipment, and site
restoration on oil and gas properties. Capitalized costs are depleted as a component of the full cost pool using the units of
production method. Although the Company has recognized full impairment of the value of all remaining domestic oil and gas properties
in prior periods, the Company may retain title to certain abandoned non-producing domestic leasehold properties. Management believes
the Company has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas oil
and gas properties in 2011 and its sale of 100% of the stock in Infinity-Texas in 2012 (see Note 12), but may retain some asset
retirement obligation related to properties of Infinity-Wyoming. Therefore, the Company has continued to maintain the asset retirement
obligation as a liability in its financial statements and, in accordance with ASC 410, to accrete such obligation regularly. The
following table summarizes the activity for the Company’s asset retirement obligations for the periods ended December 31,
2012 and 2011:
Current and long-term balances
at December 31, 2011 (net of $389,759 included in liabilities of discontinued operation) |
|
$ |
897,560 |
|
Accretion expense for the year (net of
$17,736 included within loss of discontinued operation for the period through July 31, 2012, when Infinity-Texas was
sold) |
|
|
83,546 |
|
Current and long-term balances at December
31, 2012 and 2013 |
|
|
981,106 |
|
Less: current
portion of asset retirement obligations |
|
|
(432,027 |
) |
Asset retirement obligations, less current
portion |
|
$ |
549,079 |
|
The
Company has divested of all domestic oil and gas properties as of December 31, 2013 and therefore has ceased the accretion of
asset retirement obligations during 2013. The remaining liabilities for asset retirement obligations and officer indemnifications
liability as of December 31, 2013 is considered adequate to cover any remaining contingent liabilities related to the divested
domestic properties.
Fair
Value of Financial Instruments
The
carrying values of the Company’s accounts receivable, accounts payable and accrued liabilities and short term notes represent
the estimated fair value due to the short-term nature of the accounts.
The
carrying value of the Company’s debt under its Line-of Credit with related party represents its estimated fair value due
to its short-term nature, its adjustable rate of interest, associated fees and expenses and initially recorded discount.
The
estimated initial fair value and subsequent re-measurement of fair values related to the Company’s Series A and B redeemable
convertible preferred stock was determined based upon estimates of the expected occurrence and timing of certain future events,
such as the date such shares might be redeemed or converted (assumed to be December 31, 2013); an estimate of discount rates to
be utilized in determining net present value of the preferred stock, based upon rates observed in similar or analogous, but not
identical, market transactions, upon past Company-specific effective borrowing rates, and the assessment of each instrument’s
specific rights and obligations. The fair values for the Series A and B redeemable convertible preferred stock as of December
31, 2013 and 2012 were classified under the fair value hierarchy as Level 3.
The estimated fair value
of the Company’s derivative liabilities as of December 31, 2012 all of which relate to warrants, is estimated using a “Black-Scholes”
model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s
common stock, interest rates, and non-performance risk factors, among other items (ASC 820, Fair
Value Measurements (“ASC 850”) fair value hierarchy level 2). As defined in ASC 820, fair value is the
price that would be received in the sale of an asset of paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing
the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These
inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based
upon observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair
value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(level 1 measurement), pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable
and are valued using models or other valuation methodologies (level 2), and the lowest priority to unobservable inputs (level
3 measurement).
The
estimated fair value of the Company’s derivative liabilities as of December 31, 2013, all of which are related to
detachable warrants issued in connection with notes payable, were estimated using a closed-ended option pricing model
utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the
Company’s common stock, interest rates, the probability of both the downward adjustment of the exercise price and the
upward adjustment to the number of warrants as provided by the warrant agreement terms and non-performance risk factors,
among other items. The fair values for the warrant derivatives as of December 31, 2013 were classified under the fair value
hierarchy as Level 3.
There
were no changes in valuation techniques or reclassifications of fair value measurements between levels 1, 2 or 3 during the years
ended December 31, 2013 and 2012 except for the derivative liabilities related to the warrants which were fair valued under level
3 during 2013 and level 2 during 2012.
Net
Income (Loss) Per Share
Pursuant
to FASB ASC Topic 260, Earnings Per Share, basic net income (loss) per share is computed by dividing the net income (loss)
attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net
income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average
number of common and common equivalent shares outstanding during the period. Common share equivalents included in the diluted
computation represent shares issuable upon assumed exercise of stock options and warrants using the treasury stock and “if
converted” method. For periods in which net losses from continuing operations are incurred, weighted average shares outstanding
is the same for basic and diluted loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive
effect.
Potential
common shares as of December 31, 2013 that have been excluded from the computation of diluted net loss per share amounted to 5,537,210
shares which included 2,137,710 outstanding warrants, and 3,399,500 outstanding stock options.
Foreign
Currency
The
United States dollar is the functional currency for the Company’s operations. Although the Company’s acquisition and
exploration activities have been conducted in Nicaragua, a significant portion of the payments incurred for exploration activities
are denominated in United States dollars. The Company expects that a significant portion of its required and discretionary expenditures
in the foreseeable future will also be denominated in United States dollars. Any foreign currency gains and losses are included
in the consolidated results of operations in the period in which they occur. The Company does not have any cash accounts denominated
in foreign currencies.
Reclassifications
Certain
reclassifications have been made to the statement of operations and balance sheet as of and for the year ended December
31, 2012 to conform them to their respective 2013 presentations with no effect on net income or stockholders’ equity.
Recent
Accounting Pronouncements
The
Company evaluates the pronouncements of various authoritative accounting organizations, including the FASB and the SEC, to determine
the impact of new pronouncements on GAAP and the Company. There are no new accounting pronouncements that have been issued or
adopted during the year ended December 31, 2013, that are expected to have a significant effect on the Company’s consolidated
financial statements
Note
2 — Debt
Debt
consists of the following at December 31, 2013 and 2012:
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | |
| |
Line-of-credit with related party | |
$ | 94,640 | | |
$ | - | |
Note payable, net of unamortized discount of $784,096, short term | |
$ | 265,904 | | |
$ | - | |
Notes payable to vendor, net of unamortized discount of $15,686, long-term | |
$ | - | | |
$ | 176,291 | |
Note payable to related party, net of discount, short-term | |
$ | - | | |
$ | 234,314 | |
Line-of-Credit
with Related Party
The
Company entered into a line-of-credit facility on September 23, 2013 which provides for borrowings on a revolving basis up to
a maximum of $50,000 (maximum increased to $100,000 at December 31, 2013) with an initial maturity of November 23, 2013. The entity
providing the credit facility is owned by an officer of another corporation for which Infinity’s president and chairman
of the board serves as president and chairman of the board. The facility is unsecured, bears interest at 8%, and was renewed at
its maturity on November 23, 2013 for an additional two months or until January 23, 2014. The Company granted the holder common
stock purchase warrants to acquire a total of 50,000 shares of common stock at a weighted average exercise price of $2.50, which
are immediately exercisable and expires from September 23, 2015 to November 23, 2015. The Company estimated the fair value of
these warrants at $60,290 as of the grant date, which has been recorded as debt issuance costs and classified in prepaid expenses
in the accompanying consolidated balance sheets. The weighted average grant date fair value for these warrants was $1.21 per share
which was calculated using the Black-Scholes option model with the following assumptions: 1) stock market price of $1.50 to $3.62;
2) expected volatility of 86% to 136%: 3) discount rate of 0.23% to 0.38%, and 4) expected term of 2.0 years.
Such
costs are amortized ratably over the term of the credit facility which totaled $47,568 for the year ended December 31, 2013 and
the remaining unamortized balance was $12,723 as of December 31, 2013.
Note
Payable – Short-term
On
December 27, 2013 the Company borrowed $1,050,000 under an unsecured credit facility with a private, third-party lender. The loan
is represented by a promissory note (the “Note”), bears interest at the rate of 8% per annum and is payable, interest
and principal in full on December 7, 2014. It may be prepaid without penalty at any time. The Note is subordinated to all existing
and future senior indebtedness, as such terms are defined in the Note.
The
Company used the loan proceeds to make a $1,000,000 progress payment to CGG Services (US) Inc. – NASA, which conducted seismic
survey activities on the Company’s Nicaraguan Concessions, and to pay the lender a $50,000 origination fee, which was recorded
as a debt discount and amortized on a straight-line basis over the term of the note.
In
connection with its loan, the Company granted the lender common stock purchase warrants to acquire 1,000,000 shares of its common
stock at an exercise price of $1.50 per share for a period commencing March 14, 2014 and expiring on the third anniversary of
such date. If the Company fails to pay the note on its Maturity Date, the number of shares issuable under the Warrant increases
to 13,333,333 and the exercise price drops to $0.075 per share.
The
Company has recorded the estimated fair value of the warrant as of December 27, 2013 as a discount on note payable in the amount
of $790,103 and a derivative liability in the same amount at that date. The discount of $790,103 is amortized on a straight line
basis over the expected term of the note and interest expense for the year ended December 31, 2013 includes discount amortization
in the amount of $56,007. As of December 31, 2013, the unamortized discount amounted to $784,096.
Other
than the $1,050,000 short-term note described above, during the year ended December 31, 2013, the Company borrowed an aggregate
of $825,000 from six entities or individuals. The term of each note was for a period of 60 days and bore interest at 8% per annum.
At the date of borrowing, each entity or individual was also issued a warrant for the purchase of common shares of stock at $2.50
per share, in aggregate, for 825,000 shares, valid for a period of two years from the date of the note. The terms of each warrant
provides that should the note and interest not be paid in full by its respective maturity date the warrants’ exercise price
would be reduced to $0.10 per share and the number of shares under the warrant would be increased to an aggregate of 8,250,000
shares. The ratchet provision in the warrant’s exercise price required that these be accounted for as derivative liabilities.
The Company recorded the estimated fair value of the warrants as discounts on note payable and as a derivative liability in the
same amount, each as of the date of the respective note.
Other
than the $1,050,000 short-term note described above, all notes payable have been paid off or converted to equity on or prior to
their maturity date thereby the ratchet provisions on the warrants expired. The discounts were amortized on a straight line basis
(substantially equivalent to the effective-interest basis) over the terms of the notes. Interest expense for the year ended December
31, 2013 includes discount amortization in the amount of $704,715.
Note
payable to Vendor
In
November 2012 the Company entered into an agreement with its law firm to issue the firm a 3% note payable in satisfaction of $212,400
in fees. The note was due with all accrued interest on March 14, 2014. The note and accrued interest were convertible to shares
of the Company’s common stock at $3.00 per share at any time prior to and including maturity date. The note was discounted
to its estimated fair value and the amount of the discount at issue date, $40,435, was recorded as a debt discount and a reduction
in legal expense in 2012. Interest expense for the years ended December 31, 2013 and 2012 includes interest discount amortization
of $18,374 and $4,326, respectively. On August 23, 2013, the holder exercised its right to convert the note payable to common
stock at the contractual conversion price of $3.00 per share and was issued 72,464 common shares in full satisfaction of the promissory
note and accrued interest which totaled $217,392. The unamortized discount at the date of conversion of $17,735 was charged to
additional paid in capital. Such law firm has ceased representing the Company.
Note
Payable to Related Party
On
August 28, 2012, the Company borrowed $250,000 from an entity that is 49% owned by a board member of another corporation for which
Infinity’s president and chairman of the board serves as president and chairman of the board. The Company issued a short-term
note payable to the entity in this amount, bearing interest at 8% per annum, maturing February 28, 2013. At the same time, the
Company issued the same entity a warrant exercisable to purchase 120,000 shares of the Company’s common stock at a price
of $2.50 per share, expiring August 2017. The note was repaid February 27, 2013. The Company has recorded the estimated fair value
of the warrant as of August 28, 2012 as a discount on note payable in the amount of $48,654 and a derivative liability in the
same amount at that date. The discount of $48,654 was amortized on a straight line basis over the expected outstanding period
of the note (August 28, 2012 through February 28, 2013) and interest expense for the year ended December 31, 2013 and 2012 includes
discount amortization in the amount of $15,686 and $32,968, respectively. The estimated current value of the warrant derivative
liability was increased to $201,080 as of the date the note was repaid, February 28, 2013, and at that date the derivative liability
was terminated and the balance was recorded as an addition to additional paid-in capital as a transition back to equity.
Interest
Bearing Liabilities to Vendors
At
December 31, 2013 and 2012, the Company had agreed to pay interest of 8% on certain accrued liabilities aggregating $410,500. Interest
expense was $32,840 and $32,930 for the years ended December 31, 2013 and 2012 respectively, and total accrued interest related
to this agreement was $147,015 and $114,175 as of December 31, 2013 and 2012 respectively.
Note
3 — Cancellation of Debt and Related Obligations and Issuance of Securities in Exchange for Debt
On
February 28, 2012, the Company signed definitive agreements with Amegy and Off-Shore relating to outstanding debt and other obligations
owed them. In accordance with these agreements, on April 13, 2012, the Company issued Amegy 2,000,000 shares of common stock and
130,000 shares of Series A redeemable convertible preferred stock, and issued Off-Shore 15,016 shares of Series B redeemable convertible
preferred stock. Amegy also agreed to cancel the Amegy Warrant (that had originally been issued in February 2011), exercisable
to purchase 931,561 shares of common stock. In aggregate, the Company cancelled debt, accrued interest and fees and the derivative
liability that had been recorded relative to the Amegy Warrant in the aggregate amount of $21,883,393.
The
Series A and Series B redeemable convertible preferred stock have a 6% annual dividend and are convertible into common stock at
a price of $6.50 per share. Both series of preferred stock automatically convert into common stock if the average of the closing
prices of the common stock for 30 consecutive trading days equals at least $7.50 per share. The Company has the right to redeem
both series of preferred stock at any point for an amount equal to their issue price of $100 per share plus all accrued and unpaid
dividends; however the Series A preferred stock has a higher liquidation preference and must be redeemed prior to any redemption
of Series B preferred stock. Commencing January 1, 2013, the Series A preferred stock will vote with the common stock on all matters
presented to the holders of the common stock. Beginning January 1, 2014, the Series A preferred shareholders will have a majority
vote on all such matters and the right to elect a majority of the Board of Directors, if the Series A preferred stock has not
been redeemed or converted into common stock. Series B preferred stock has no voting privileges. Neither series of preferred stock
is transferrable for 180 days after issuance.
The
common stock issued to Amegy was recorded at a value equal to the closing price of the shares of the Company’s common stock
on April 13, 2012, the date the agreement was effective, a total of $2,980,000. Taking into consideration the rights and preferences
accruing to the preferred stock issued, as summarized above, the Company classified both Series A and B preferred stock as mezzanine
securities on the accompanying consolidated balance sheet at December 31, 2012 and accordingly recorded such stock at their estimated
fair value. That estimated fair value was $9,743,209 for Series A preferred and $1,106,625 for Series B preferred at the date
of issuance, April 13, 2012. During the period April 13 through December 31, 2012, the recorded fair value of Series A and B preferred
shares accreted (increased in calculated present value) by $1,237,525 and $149,294, respectively, to $10,980,734 and $1,255,919,
respectively, as of December 31, 2012. During 2013 accretion was recorded totaling $2,264,947 ($2,019,266 for Series A and $245,681
for Series B) Both Series A and B preferred are being accreted to their face values over a period commencing April 14, 2012 through
December 31, 2013. Accrued dividends payable on the preferred shares in the amount of $896,096 ($806,000 for Series A and $90,096
for Series B) and $623,569 ($559,000 for Series A and $64,569 for Series B) have been recorded as of December 31, 2013 and 2012,
respectively. In addition, a $700,000 deferred tax benefit recorded at December 31, 2011 in anticipation that the Company would
recognize a gain from the above transaction during 2012 has been applied in this transaction.
The
aggregate amount of debt, warrant derivative and other related liabilities cancelled in the transaction exceeded the recorded
amounts for common stock and Series A and B preferred stock, and the deferred tax benefit application, in the amount of $7,353,558.
Management believes that the appropriate accounting for this excess is to regard it as an addition to additional paid-in capital
because of the extent and exclusivity of the financing provided by Amegy and Off-Shore to the Company since 2009, the continued
willingness of Amegy to forbear from existing remedies allowed it under its 2007 agreement as it continued to provide the Company
advances necessary to satisfy funding requirements of the Nicaraguan Concessions, and the voting privileges accorded the Series
A preferred stockholders commencing in 2013.
Following
tabular presentation summarizes the transaction as recorded by the Company as of April 13, 2012:
Debt and related liabilities at April 13, 2012: | |
| | | |
| | |
Note and line of credit borrowing, Amegy Bank | |
$ | 11,679,322 | | |
| | |
Subordinated note payable, Off-Shore | |
| 1,269,441 | | |
| | |
Accrued interest and other fees due Amegy | |
| 8,201,314 | | |
| | |
Accrued interest due Off-Shore | |
| 251,238 | | |
| | |
Derivative liability related to Amegy warrant | |
| 482,078 | | |
$ | 21,883,393 | |
| |
| | | |
| | |
Equities issued in exchange for above, at estimated fair value on April 13, 2012: | |
| | | |
| | |
Common stock | |
| 2,980,000 | | |
| | |
Redeemable, convertible preferred stock, Series A | |
| 9,743,210 | | |
| | |
Redeemable, convertible preferred stock, Series B | |
| 1,106,625 | | |
| 13,829,835 | |
| |
| | | |
| 8,053,558 | |
Deferred income tax asset applied in recording transaction | |
| | | |
| 700,000 | |
| |
| | | |
| | |
Excess of debt forgiven by creditors over fair value of common and Series
A and B redeemable, convertible preferred stock issued in exchange, recorded as an addition to additional paid-in capital | |
| | | |
$ | 7,353,558 | |
On
December 30, 2013, the Company completed all transactions contemplated by a Stock Exchange Agreement (the “Agreement”)
between it and Amegy Bank, N.A. (“Amegy”). Under the Agreement Amegy exchanged all of its 130,000 shares of Series
A preferred stock of the Company that it owned for 3,250,000 shares of Common Stock of the Company. Each share of Series A preferred
had a price of $100. Amegy also agreed to receive an additional 341,250 shares of common stock for $1,365,000, the amount of the
accrued and unpaid dividends on the Series A preferred as of the date of the transaction. As a result, the Company issued a total
of 3,591,250 new shares of Common Stock which was valued at $4.00 per share. Accordingly, the transactions were valued at $14,365,000
which has been reflected as common stock and additional paid in capital in the accompanying consolidated balance sheets.
Note
4 — Common Stock
During
the year ended December 31, 2013, the Company conducted a private placement of its common stock in which it sold 556,250 units,
each consisting of one share of common stock and one half of a common stock purchase warrant at a price of $1.60 per unit, for
total proceeds of $890,000. One holder of a promissory note issued by the Company in February 2013 participated in the private
placement and converted the principal amount of $125,000 plus accrued interest into 79,170 units. As a result of the conversion,
the Company recognized a loss on conversion of $11,085 during the year ended December 31, 2013. The common stock purchase warrants
provide for an exercise price of $2.50 per share, are immediately exercisable and have a term of five years.
During
2013, the Company issued a total of 40,000 common shares to a third parties for services rendered. The Company recorded general
and administrative expense of $80,500 which was determined based upon the closing market price on the date of issuance and a corresponding
credit to common stock and additional paid-in capital.
During
2013, a warrant holder exercised warrants to purchase 125,000 common shares on a cashless basis resulting in 31,521 net shares
being issued to the warrant holder after 93,479 shares were surrendered relative to the cashless exercise provision.
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 470,000 shares of the Company’s common stock are reserved for issuance under the 2006 Plan. Options granted
under the 2006 Plan allow for the purchase of common stock at prices not less than the fair market value of such stock at the
date of grant, become exercisable immediately or as directed by the Company’s Board of Directors and generally expire ten
years after the date of grant. The Company also has other equity incentive plans with terms similar to the 2006 Plan. As of December
31, 2013 and 2012, 148,463 shares were available for future grants under all plans.
The
fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires
the input of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected
dividends. These estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating
the expected term of options granted, the Company aggregates option recipients into groups that have similar option exercise behavioral
traits. Expected volatilities used in the valuation model are based on the expected volatility that would be used by an independent
market participant in the valuation of certain of the Company’s warrants. The risk-free rate for the expected term of the
option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption
used in determining its stock-based compensation expense is estimated based on historical data for the years ended December 31,
2013. The actual forfeiture rate could differ from these estimates. The following table summarizes the inputs used in the calculation
of fair value of options granted during the years ended December 31, 2013 and 2012:
| |
Year Ended
December 31, 2013 | |
Year Ended
December 31, 2012 | |
Expected term (in years) | |
2.5 – 5.0 | |
| 5.0 | |
Expected stock price volatility | |
131% - 132% | |
| 49.3 | % |
Expected dividends | |
- | |
| - | |
Risk-free rate | |
0.13% - 0.60% | |
| 0.18 | % |
The
following table summarizes stock option activity for the years ended December 31, 2013 and 2012:
| |
Number of Options | | |
Weighted Average Exercise
Price Per Share | | |
Weighted Average Remaining Contractual
Term | | |
Aggregate Intrinsic Value | |
Outstanding at December 31, 2011 | |
| 2,053,000 | | |
$ | 4.88 | | |
7.3 years | | |
$ | - | |
Granted | |
| 1,250,000 | | |
| 3.00 | | |
| | |
| | |
Exercised | |
| - | | |
| - | | |
| | |
| | |
Forfeited | |
| - | | |
| - | | |
| | |
| | |
Outstanding at December 31, 2012 | |
| 3,303,500 | | |
| 4.17 | | |
7.3 years | | |
| 498,130 | |
Granted | |
| 96,000 | | |
| 3.00 | | |
| | |
| | |
Exercised | |
| - | | |
| - | | |
| | |
| | |
Forfeited | |
| - | | |
| - | | |
| | |
| | |
Outstanding at December 31, 2013 | |
| 3,399,500 | | |
$ | 4.14 | | |
6.4
years | | |
$ | 389,815 | |
Outstanding and exercisable at December 31, 2013 | |
| 2,942,833 | | |
$ | 4.31 | | |
6.2
years | | |
$ | 389,815 | |
The
Company stock-based compensation expense in connection with the vesting of options granted above in the amount of $1,631,098 and
$197,936 during the years ended December 31, 2013 and 2012, respectively.
During
the year ended December 31, 2013, the Company granted 96,000 options which have an exercise price of $3.00 and terms ranging from
five to ten years. A total of 36,000 options vested immediately while the remaining 60,000 options vest at a rate of one-third
at the grant date and one-third for each of the two year’s thereafter. The weighted average grant date fair value for these
options was $1.88 per share which was calculated using the Black-Scholes option model.
During
the year ended December 31, 2012, the Company granted 1,250,000 which have an exercise price of $3.00 and a term of nine years.
The weighted average grant date fair value of the options granted in 2012 was $0.48 and vested one-third immediately, and one-third
on the first and second anniversary of the award (November 2013 and 2014).
The
unrecognized compensation cost as of December 31, 2013 related to the unvested stock options as of that date was $286,875.
During
2013 management changed its method for estimating volatility to include more historical stock price data including the period
it traded on the Pink Sheets which was before the Company’s Registration Statement on Form 10 became effective on May 3,
2012.
Note
6 — Derivative Instruments and Warrants
Commodity
Derivatives
As
of December 31, 2013 and 2012, the Company had no oil and natural gas derivative arrangements outstanding.
Derivatives
– Warrants Issued Relative to Note Payables
In connection with the
short-term note payable entered into with a related party (see Note 2) the Company issued the same entity a warrant exercisable
to purchase 120,000 shares of the Company’s common stock at a price of $2.50 per share, expiring August 2017. The note repaid
in full on February 27, 2013. The Company recorded the estimated fair value of the warrant as of August 28, 2012, as a discount
on note payable in the amount of $48,654 and a non-current derivative liability in the same amount at that date. The estimated
fair value of the warrant derivative liability was decreased as of December 31, 2012 to $42,508 and this $6,146 decrease derivative
liability (an income item) is included in “Change in derivative fair value” on the accompanying consolidated state
of operations.
The
estimated fair value of the Company’s derivative liabilities, all of which are related to detachable warrants issued in
connection with notes payable, were estimated using a closed-ended option pricing as of December 31, 2013, model utilizing assumptions
related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, interest
rates, the probability of both the downward adjustment of the exercise price and the upward adjustment to the number of warrants
as provided by the warrant agreement terms (Note 2) and non-performance risk factors, among other items (ASC 820, Fair Value
Measurements ("ASC 820") fair value hierarchy Level 3). All notes payable except one have been paid off as of December
31, 2013, therefore the derivative liability was adjusted as of the extinguishment date of the notes and the resulting derivative
liability was transitioned from a liability to equity as of such date. A comparison of the assumptions used in calculating estimated
fair value of derivative liabilities at the issue date and as of the date of the transition from liability to equity during the
year ended December 31, 2013 is as follows:
| |
Upon Issuance | |
As of date of
transition to
equity | |
As of December 31, 2013 |
| |
| |
| |
|
Volatility – range | |
89.75% - 102.3% | |
88.07% - 136.11% | |
102.2% |
Contractual term | |
2-3 years | |
2 years | |
3 years |
Exercise price | |
$1.50 - $2.50 | |
$2.50 | |
1.50 |
Number of warrants in aggregate | |
1,825,000 | |
825,000 | |
1,000,000 |
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:
| |
Amount | |
Balance at December 31, 2011 | |
$ | 600,763 | |
Fair value of warrant derivative at issuance date | |
| 48,654 | |
Unrealized derivative gains included in other expense | |
| (124,831 | ) |
Transition of derivative liability to equity | |
| (482,078 | ) |
Balance at December 31, 2012 | |
| 42,508 | |
Fair value of warrant derivative at issuance date | |
| 1,431,563 | |
Unrealized derivative losses included in other expense | |
| 75,017 | |
Transition of derivative liability to equity | |
| (695,723 | ) |
| |
| | |
Balance at December 31, 2013 | |
$ | 853,365 | |
Note
7 — Warrants
The
following table summarizes warrant option activity for the year ended December 31, 2013 and 2012:
| |
Number of
Warrants | | |
Weighted Average
Exercise Price
Per Share | |
Outstanding and exercisable at December 31, 2011 | |
| - | | |
$ | - | |
Issued in conjunction with notes payable (Note 2) | |
| 120,000 | | |
| 2.50 | |
Exercised | |
| - | | |
| - | |
| |
| | | |
| | |
Outstanding and exercisable at December 31, 2012 | |
| 120,000 | | |
| 2.50 | |
Issued in conjunction with notes payable (Note 2) | |
| 1,775,000 | | |
| 1.94 | |
Issued in private placement of common stock (Note 4) | |
| 317,710 | | |
| 2.50 | |
Issued in conjunction with line-of-credit (Note 2) | |
| 50,000 | | |
| 2.50 | |
Exercised | |
| (125,000 | ) | |
| (2.50 | ) |
| |
| | | |
| | |
Outstanding and exercisable at December 31, 2013 | |
| 2,137,710 | | |
$ | 2.18 | |
The
weighted average term of all outstanding common stock purchase warrants was 2.68 and 4.67 years as of December 31, 2013 and 2012,
respectively. 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 December 31, 2013 and 2012. During 2013, a warrant holder exercised warrants to purchase
125,000 common shares on a cashless basis resulting in 31,521 net shares being issued to the warrant holder after 93,479 shares
were surrendered relative to the cashless exercise provision.
Note
8 — Supplemental Oil and Gas Information
Estimated
Proved Oil and Gas Reserves (Unaudited)
As
of December 31, 2013 and 2012, the Company had no proved reserves. As such, there are no estimates of proved reserves to disclose,
nor standardized measure of discounted future net cash flows relating to proved reserves.
Costs
Incurred in Oil and Gas Activities
Costs
incurred in connection with the Company’s oil and gas acquisition, exploration and development activities are shown below.
| |
December 31, 2013 | | |
December 31, 2012 | |
Property acquisition costs: | |
| | | |
| | |
Proved | |
$ | - | | |
$ | - | |
Unproved | |
| - | | |
| - | |
Total property acquisition costs | |
| - | | |
| - | |
Development costs | |
| - | | |
| | |
Exploration costs | |
| 6,051,411 | | |
| 581,723 | |
| |
| | | |
| | |
Total costs | |
$ | 6,051,411 | | |
$ | 581,723 | |
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | |
| |
Proved oil and gas properties | |
$ | - | | |
$ | - | |
Unproved oil and gas properties | |
| 10,477,214 | | |
| 4,425,803 | |
Total | |
| 10,477,214 | | |
| 4,425,803 | |
Less accumulated depreciation, depletion, amortization and ceiling write-downs | |
| - | | |
| - | |
| |
| | | |
| | |
Net capitalized costs | |
$ | 10,477,214 | | |
$ | 4,425,803 | |
Exploration
costs during the year ended December 31, 2013 included $5,937,013 of costs related to the acquisition of new 2D and 3D seismic
data on the Nicaragua concessions.
Aggregate
capitalized costs relating to the Company’s oil and gas producing activities, and related accumulated depreciation, depletion,
amortization and ceiling write-downs are as follows:
Costs
Not Being Amortized
Oil
and gas property costs not being amortized at December 31, 2013, by year that the costs were incurred, are as follows:
Year Ended December 31, | |
| |
2013 | |
$ | 6,051,411 | |
2012 | |
| 581,723 | |
2011 | |
| 731,347 | |
Prior | |
| 3,112,733 | |
Total costs not being amortized | |
$ | 10,477,214 | |
The
above unevaluated costs relate to the Company’s approximate 1,400,000 acre concessions offshore Nicaragua.
The
Company anticipates that these unproved costs in the table above will be reclassified to proved costs within the next five years.
Note
9 — Income Taxes
The
provision for income taxes consists of the following:
| |
For the Years Ended
December 31, | |
| |
2013 | | |
2012 | |
| |
(in thousands) | |
Current income tax expense (benefit) | |
$ | (653 | ) | |
$ | 150 | |
Deferred income tax benefit | |
| - | | |
| - | |
Value of NOL surrendered in sale of Infinity-Texas | |
| - | | |
| (20,580 | ) |
Change in valuation allowance | |
| - | | |
| 20,580 | |
Total income tax expense (benefit) | |
$ | (653 | ) | |
$ | 150 | |
The
effective income tax rate on continuing operations varies from the statutory federal income tax rate as follows:
| |
For the Years Ended December 31, | |
| |
2013 | | |
2012 | |
Federal income tax rate | |
| (34.0 | )% | |
| (34.0 | )% |
State income tax rate | |
| (4.1 | ) | |
| (4.1 | ) |
Tax recorded, related to excess of debt forgiven by creditors over fair value of Common and Series
A and B redeemable, convertible preferred stock issued in exchange, which is not recorded as income for financial reporting
purposes | |
| - | | |
| 12.0 | |
State tax assessment reversed | |
| (21.2 | ) | |
| - | |
Change in valuation allowance | |
| 38.0 | | |
| 38.1 | |
Other, net | |
| 0.1 | | |
| - | |
| |
| | | |
| | |
Effective tax rate | |
| (21.2 | )% | |
| 12.0 | % |
The
significant temporary differences and carry-forwards and their related deferred tax asset (liability) and deferred tax asset valuation
allowance balances are as follows:
| |
For the Years Ended December 31, | |
| |
2013 | | |
2012 | |
| |
(in thousands) | |
Deferred tax assets: | |
| | | |
| | |
Accruals and other | |
$ | 1,765 | | |
$ | 1,420 | |
Property and equipment | |
| - | | |
| 2,886 | |
Derivatives | |
| 299 | | |
| - | |
Stock-based compensation | |
| 695 | | |
| - | |
Alternative minimum tax credit carry-forward | |
| 172 | | |
| 405 | |
Statutory depletion carryforward | |
| - | | |
| 1,599 | |
Contributions carry-forward | |
| 4 | | |
| - | |
Net operating loss carry-forward | |
| 21,439 | | |
| 20,440 | |
Gross deferred tax assets | |
| 24,374 | | |
| 26,750 | |
Less valuation allowance | |
| (24,374 | ) | |
| (26,750 | ) |
Deferred tax asset | |
$ | - | | |
$ | - | |
For
income tax purposes, the Company has net operating loss carry-forwards of approximately $56,420,000, which expire from 2025 through
2029. The Company has provided a 100% valuation allowance due to the uncertainty of realizing the tax benefits from its net deferred
tax asset.
The
Company previously appealed an assessment of Kansas corporate income tax that had been issued by the Department of Revenue for
the tax year ended December 31, 2006 in the amount of approximately $653,000 which was accrued for and was reported under accrued
liabilities in the consolidated balance sheet at December 31, 2012. On July 30, 2013, the Kansas Department of Revenue issued
a letter to the Company advising it that it no longer owed any corporate income tax to the State of Kansas and has released the
Company from the payment of such taxes. Consequently, the related accrual was reversed and an income tax benefit of $653,000 was
recorded for the year ended December 31, 2013.
The
Company has not completed the filing of tax returns for the tax years 2008 through 2013. Therefore all such tax returns are open
to examination by the Internal Revenue Service.
The
Internal Revenue Code contains provisions under Section 382 which limit a company’s ability to utilize net operating loss
carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Current estimates
prepared by the Company indicate that no ownership changes have occurred, and are currently not subject to an annual limitation
but may be further limited by additional ownership changes which may occur in the future.
As
discussed in Note 1, "Summary of Significant Accounting Policies," tax positions are evaluated in a two-step process.
Management first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax
position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize
in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of
being realized upon ultimate settlement. Management has identified no tax positions taken that would meet or exceed these thresholds
and therefore there are no gross interest, penalties and unrecognized tax expense/benefits that are not expected to ultimately
result in payment or receipt of cash in the consolidated financial statements.
Note
10 — Commitments and Contingencies
The
Company has no insurance coverage on its U.S domestic oil and gas properties. The Company is not in compliance with Federal and
State laws regarding the U.S. domestic oil and gas properties. The Company’s known compliance issues relate to the Texas
Railroad Commission regarding administrative filings and renewal permits. The ultimate resolution of these compliance issues could
have a material adverse impact on the Company’s financial statements.
Nicaraguan
Concessions
As
of December 31, 2012, the Company was in Sub-Period 1 of the exploration phase of the 30-year concession for both Perlas and Tyra.
The Company received notification of final approval of the EIA by the Nicaraguan government on April
13, 2013, which began Sub-Period 2. Therefore, the Company has progressed to Sub-Period 2 of the exploration phase of the
30-year concession for both Perlas and Tyra as of December 31, 2013. In accordance with the Nicaraguan Concession agreements,
the Company has provided the Ministry of Energy with the required letters of credit in the amounts of $443,100 for Perlas (expired
March 2014) and $408,450 for Tyra (expired September 2014). The Company has also made all required expenditures related to the
Nicaraguan Concessions for training programs and as “area fees,” for each respective year for 2010 through 2013. The
Company is currently negotiating the renewal of the required letters of credit with the Nicaraguan Government and its lenders;
however, there can be no assurance that it will be successful in this regard. The Company considers it is fully in compliance
with the terms of the Nicaraguan Concessions agreements pending renewal of the expired letters of credit and is in year three
of the exploration phase of the 30-year Nicaraguan Concessions.
Minimum
Work Program – Perlas
Block
Perlas – Exploration Minimum Work Commitment and Relinquishments |
Exploration
Period
(6
Years) |
Duration
(Years) |
Work
Commitment |
Relinquishment |
Irrevocable
Guarantee |
Sub-Period
1 |
2 |
-
Environmental Impact Study
-
Acquisition & interpretation of 333km of new 2D seismic
-
Acquisition, processing & interpretation of 667km of new 2D seismic (or equivalent in 3D)
|
26km2 |
$
443,100 |
Sub-Period
2
Optional |
1 |
-
Acquisition, processing & interpretation of 200km2 of 3D seismic |
53km2 |
$
1,356,227 |
Sub-Period
3
Optional |
1 |
-
Drilling of one exploration well to the Cretaceous or 3,500m, whichever is shallower |
80km2 |
$
10,220,168 |
Sub-Period
4
Optional |
2 |
-
Drilling of one exploration well to the Cretaceous or 3,500m, whichever is shallower
-
Geochemical analysis |
All
acreage except
areas
with discoveries |
$
10,397,335 |
Minimum
Work Program - Tyra
Block
Tyra – Exploration Minimum Work Commitment and Relinquishments |
Exploration
Period
(6
Years) |
Duration
(Years) |
Work
Commitment |
Relinquishment |
Irrevocable
Guarantee |
Sub-Period
1 |
1.5 |
-
Environmental Impact Study
-
Acquisition & interpretation of 667km of existing 2D seismic
-
Acquisition of 667km of new 2D seismic (or equivalent in 3D) |
26km2 |
$
408,450 |
Sub-Period
2
Optional |
0.5 |
-
Processing & interpretation of the 667km 2D seismic (or equivalent in 3D) acquired
in the previous sub-period |
40km2 |
$
278,450 |
Sub-Period
3
Optional |
2 |
-
Acquisition, processing & interpretation of 250km2 of new 3D seismic |
160km2 |
$
1,818,667 |
Sub-Period
4
Optional |
2 |
-
Drilling of one exploration well to the Cretaceous or 3,500m, whichever is shallower
-
Geochemical analysis |
All
acreage except
areas
with discoveries |
$
10,418,667 |
Contractual
and Fiscal Terms
Training
Program |
US
$50,000 per year, per block |
Area
Fee |
Yr
1-3
Yr
4-7
Yr
8 fwd |
$0.05/hectare
$0.10/hectare
$0.15/hectare |
Royalties |
Recovery
Factor
0
– 1.5
1.5
– 3.0
>3.0 |
Percentage
5%
10%
15% |
Natural
Gas Royalties |
Market
value at production |
5% |
Corporate
Tax |
Rate
no higher than 30% |
Social
Contribution |
3%
of the net profit (1.5% for each autonomous region) |
Investment
Protection |
ICSID
arbitration
OPIC
insurance |
Sub-Period
2 of the exploration phase began April 13, 2013, when the Nicaraguan Government approved the environmental impact study. The minimum
cash requirements related to the Nicaraguan Concessions for the next twelve month period will be approximately $5,415,000, of
which $4,945,000 is related to seismic activities and $470,000 is related to the training fees, area fees and other expenditures
under the Nicaraguan Concession. The Company estimates that the total actual cost of 2D and 3D seismic activities for the acreage
will be a minimum of $8,000,000 (including $5,937,013 already expended for seismic activities) over the next 18-24 month period.
In addition to the minimum cash requirements related to the Nicaraguan Concessions, the Company estimates
that it will require approximately $315,000 of working capital to maintain corporate operations for the next 12 months,
but not including debt obligations owed to third parties.
Revenue
Sharing Commitments
On
March 23, 2009, the Company entered into a Securities Purchase Agreement, dated effective as of March 23, 2009, with Off-Shore,
an accredited investor, to issue a subordinated secured promissory note in the aggregate principal amount of up to $1,275,000
and a one percent (1%) revenue sharing interest in the Nicaraguan Concessions. As of December 31, 2009, Off-Shore had funded $1,275,000
(the “Funding Amount”).
Under
the Revenue Sharing Agreement (the “Revenue Agreement”), Infinity assigned to Off-Shore a monthly payment (the “RSP”)
equal to the revenue derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from
the Nicaraguan Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the
point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional
costs. The RSP shall be paid to Off-Shore by the last day of each month based on the revenue received by Infinity from the purchaser
of the production during the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation
for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights in the Nicaraguan Concessions for
Off-Shore. Off-Shore assigned its RSP to its members in connection with its dissolution. On June 6, 2009 the Company entered into
a Revenue Sharing Agreement with the officers and directors for services provided. Infinity assigned to officers and directors
a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of Infinity’s share of the
hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP shall bear its proportionate share of all costs
incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance
and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received
by Infinity from the purchaser of the production during the previous month from the Nicaraguan Concessions. The Revenue Agreement
does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights
in the Nicaraguan Concessions for officers and directors.
The
Company intends to seek joint venture or working interest partners (the “Farmout”) prior to the commencement of any
exploratory drilling operations on the Nicaraguan Concessions. On September 8, 2009 the Company entered into a Revenue Sharing
Agreement with Jeff Roberts to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing
and assisting in the Farmout. Infinity assigned to Jeff Roberts a monthly payment (the “RSP”) equal to the revenue
derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions.
The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated
purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid
to Jeff Roberts by the last day of each month based on the revenue received by Infinity from the purchaser of the production during
the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain
or develop the Nicaraguan Concessions, and does not create any rights in the Nicaraguan Concessions for Jeff Roberts.
On
September 8, 2009 the Company entered into a Revenue Sharing Agreement with Thompson Knight Global Energy Services (“Thompson
Knight”) to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing and assisting
in the Farmout. Infinity assigned to Thompson Knight a monthly payment (the “RSP”) equal to the revenue derived from
one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP
shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser,
including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Thompson
Knight by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the
previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain
or develop the Nicaraguan Concessions, and does not create any rights in the Nicaraguan Concessions for Thompson Knight. This
Revenue Sharing Agreement is expected to expire as a result of the Letter of Intent entered into with Granada Exploration, LLC
(see note 13).
In
connection with the extension of the Note payable with a $1,050,000 principal balance issued in December 2013, the Company entered
into a Revenue Sharing Agreement during 2014. Infinity assigned to the note holder a monthly payment (the “RSP”) equal
to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead
from the Nicaraguan Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons
to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain
additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser
of the production during the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation
for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights in the Nicaraguan Concessions for
officers and directors.
Lack
of Compliance with Law Regarding Domestic Properties
Infinity
is not in compliance with existing federal, state and local laws, rules and regulations for its domestic properties and this could
have a material or significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of
Infinity. For the year ended December 31, 2008 the remaining values of Infinity-Texas and Infinity-Wyoming were written down to
zero as the Company focused solely on the development of the Nicaraguan Concessions. In addition, Infinity-Texas was disposed
of in July 2012 (See Note 12) however the Company may remain liable for certain asset retirement costs should the new owner not
complete their obligations. Management believes the estimate of asset retirement obligations and the Company’s officer indemnification
liabilities consisting of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration
on oil and gas properties for its former Texas oil properties is sufficient to cover any noncompliance liabilities. The Company
no longer carries insurance on the domestic properties.
Contingent
Fees
In
addition to the Revenue Sharing Agreement with Thompson Knight to assist the Company with its technical studies of gas and oil
holdings in Nicaragua and managing and assisting in the Farmout, the Company agreed to compensate Thompson Knight a success fee
of 5% of the upfront cash fee paid to Infinity by a third party earning an interest in the Nicaragua asset up to $20 million and
10% of any amount exceeding the $20 million. A 2% success fee would be paid to Thompson Knight of the remaining cash investment
in subsequent years.
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:
| ● | Exterran
Energy Solutions, L.P., f/k/a Hanover Compression Limited Partnership, who filed an action
in the District Court of Erath County, Texas, number CV30512, on March 31, 2010 against
Infinity Oil and Gas of Texas, Inc., Infinity Energy Resources, Inc., Longhorn Properties,
LLC, and Forest Oil Corporation. Exterran Energy Solutions, L.P. provided certain gas
compressor and related equipment pursuant to a Gas Compressor/Production Equipment Master
Rental & Servicing Agreement with Infinity dated January 3, 2005 in Erath County,
Texas and has claiming breach of contract for failure to pay amounts due. On October
13, 2011, a default judgment was entered against the Company in the amount of $445,521
plus interest and attorney fees. The Company has included the impacts of this litigation
as liabilities in its accounts payable. The Company will seek to settle the default judgment
when it has the financial resources to do so. |
| | |
| ● | In
October 2012 the State of Texas filed a lawsuit naming Infinity-Texas, the Company and
the corporate officers of Infinity-Texas, seeking $30,000 of reclamation costs associated
with a single well, in addition to administrative expenses and penalties. The Company
has engaged in negotiations with the State of Texas in late 2012 and early 2013 and has
reached a settlement agreement that would reduce the aggregate liability, in this action
and any extension of this to other Texas wells, to $45,103, which amount has been paid.
Certain performance obligations remain which must be satisfied in order to finally settle
and dismiss the matter. |
Pending
satisfactory performance of the performance obligations and their acceptance by the State of Texas, the officers retain potential
liability on the above matter, and the officers are held personally harmless by indemnification provisions of the Company. Therefore
these liabilities, to the extent they might become actual, are the obligations of the Company. Management estimates that the liabilities
associated with this matter will not exceed $780,000, calculated as $30,000 for each of the 26 Infinity-Texas operated wells.
This related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103, is classified as officer
indemnification liability on the consolidated balance sheets.
| ● | Timothy
Berge, who filed an action in the District Court, City and County of Denver Colorado
number 09CV9566, was granted a default judgment on November 8, 2010 against the Company
in the amount of $304,921 plus costs. Mr. Berge provided certain geological services
to Infinity Oil and Gas of Texas, Inc. and claimed breach of contract for failure to
pay amounts he alleged were due. The Company was unable to defend itself in this matter
due to limited financial resources even though it believes that it had meritorious defenses.
Subsequent to December 31, 2013 the Company settled this litigation by the issuance of
100,000 shares of common stock and the payment of $10,000 cash. The Company has included
the impact of this litigation as an accrued liability in the accompanying balance sheet. |
Note
11 — Related Party Transactions
The
Company currently does not have any employees other than the CEO and CFO. Certain general and administrative services (for which
payment is deferred) were provided by the CFO’s accounting firm at their standard billing rates plus out-of-pocket expenses
and consist primarily of accounting, tax and general administrative fees. For the years ended December 31, 2013 and 2012, the
Company was billed $-0- and $262,521, respectively. The amount due to the CFO’s firm for services provided was $762,407
and $767,407 at December 31, 2013 and 2012, respectively.
The
Company entered into a subordinated loan with Off-Shore in the aggregate amount of $1,275,000 for funds for the Nicaraguan Concessions.
This note was satisfied by the Company’s issuance of shares of Series B redeemable convertible preferred stock effective
April 13, 2012 to Off-Shore (see Note 3). The managing partner of Off-Shore and the CFO are partners in the accounting firm which
the Company uses for its corporate office. The Series B preferred stock continues to be held by Off-Shore.
While
the relationship with Amegy Bank was ongoing and debt was outstanding (through April 13, 2012), the Company’s CEO personally
guaranteed up to $500,000 of the Forbearance advances. His guarantee obligation was never called upon and he was not compensated
by the Company for such guarantee.
As
of December 31, 2013 and 2012, the Company had accrued compensation to its officers and directors of $1,034,708 and $950,708,
respectively.
As
discussed in Note 2, on August 28, 2012, the Company borrowed $250,000 from an entity that is 49% owned by a board member of another
corporation for which Infinity’s CEO serves as CEO and chairman of the board. The Company issued a short-term note to the
entity bearing interest at 8% per annum and maturing February 28, 2013. The note was repaid February 27, 2013. In connection with
the transaction, the Company issued the lender a warrant exercisable to purchase 120,000 shares of the Company’s common
stock at a price of $2.50 per share, expiring August 2017.
In
addition, the Company entered into a line-of-credit facility on September 23, 2013 which provides for borrowings on a revolving
basis up to a maximum of $50,000 (maximum increased to $100,000 at December 31, 2013) with an initial maturity of November 23,
2013. The entity providing the credit facility is owned by an officer of another corporation for which Infinity’s president
and chairman of the board serves as president and chairman of the board. The facility is unsecured, bears interest at 8% and was
renewed at its maturity on November 23, 2013 for an additional two months or until January 23, 2014. The Company granted the holder
common stock purchase warrants to acquire a total of 50,000 shares of common stock at a weighted average exercise price of $2.50
per share, which warrants are immediately exercisable and expire from September 23, 2015 to November 23, 2015. The Company estimated
the fair value of these warrants at $60,290 as of the grant date, which amount has been recorded as debt issuance costs and classified
in prepaid expenses in the accompanying consolidated balance sheets.
Note
12 — Sale of Infinity-Texas, Related Potential Litigation, and Discontinued Operations Reporting
On
July 31, 2012, the Company sold 100% of the stock of its wholly-owned subsidiary, Infinity Oil and Gas of Texas (Infinity-Texas)
to an individual, who is the single member of a limited liability company that purchased the oil and gas properties of Infinity-Texas
in 2011. Under the Stock Purchase Agreement the purchaser acquired 100% of the stock of Infinity-Texas for $1.00 and thereby assumed
all of it liabilities. At the date of the sale, Infinity-Texas had net liabilities of $5,152,111. Management believes that there
are certain contingent liabilities related to Texas properties for which the Company, the parent entity, may retain financial
responsibility and the Company has recorded Asset retirement obligations and an officer indemnification liability to reserve for
such potential liabilities, in the accompanying balance sheet. The liabilities are related to the reclamation of oil and gas properties
and include the cost of plugging inactive wells and removal and recovery of any remaining production equipment. Infinity-Texas,
as an independent entity following its sale, is primarily responsible for such obligations, but the officers of Infinity-Texas
at the time such wells were in production, in their capacities as signatories of certain regulatory filings, could be personally
responsible.
The
assets, liabilities and operations of Infinity-Texas are reported on the accompanying consolidated financial statements as those
of a discontinued operation for the current and prior periods and dates presented. Because Infinity-Texas has not been actively
operating during any of the periods presented, no overhead costs have been allocated to the discontinued operations during such
periods.
The
analysis below sets forth the total assets and liabilities of Infinity-Texas as of the date of sale (July 31, 2012) and the determination
of the gain recognized on sale of discontinued operation of Infinity-Texas:
Total liabilities of Infinity-Texas at date of sale (July 31,2012) | |
$ | 5,155,103 | |
Total assets of Infinity-Texas at date of sale (July 31,2012) | |
| 2,992 | |
Net liabilities of Infinity-Texas at date of sale (July 31,2012) | |
| 5,152,111 | |
| |
| | |
Potential liabilities related to indemnification of officers by the Company | |
| (780,000 | ) |
| |
| | |
Gain on sale of discontinued operation, during the year ended December
31, 2012 | |
$ | 4,372,111 | |
| |
| | |
The operating expenses of Infinity-Texas
for the year ended December 31, 2012 (Through July 31, 2012): | |
| | |
| |
| | |
General and administrative expenses | |
$ | - | |
Accretion expense | |
| 17,736 | |
Interest expense | |
| 44,553 | |
Total expenses | |
$ | 62,289 | |
Note
13 — Subsequent Events
Effective
February 28, 2014, the Company received Conversion Notices from Offshore Finance, LLC that effected the conversion of all Series
B preferred stock outstanding including accrued and unpaid dividends thereon into shares of common stock. In the transaction,
Offshore Finance, LLC exchanged all of its 15,016 shares of Series B preferred stock of the Company that it owned for 375,400
shares of Common Stock of the Company. Each share of Series B preferred had a liquidation and par value of $100. The Company also
issued Offshore Finance, LLC an additional 45,048 shares of common stock for $180,192, the amount of the accrued and unpaid dividends
on the Series B preferred stock as of the effective date of the transaction. As a result, the Company issued a total of 420,448
new shares of Common Stock which was valued at $4.00 per share for a total of $1,681,792.
On
January 17, 2014, the Company’s Board of Directors approved the grant of stock options totaling 900,000 shares to its officers
and directors. The stock option agreements provide for an exercise price of $3.00 per share, vest one-third on date of grant and
one-third on each of January 16, 2015 and January 16, 2016. The stock options expire on January 17, 2024.
On
May 27, 2014 the Company and Timothy Berge settled the lawsuit filed by Mr. Berge, who had filed an action in the District Court,
City and County of Denver Colorado number 09CV9566, and was granted a default judgment on November 8, 2010 against the Company
in the amount of $304,921 plus costs. The settlement required the Company to issue of 100,000 shares of common stock to pay $10,000
in cash to settle the matter which has been completed.
On
December 27, 2013 the Company borrowed $1,050,000 under an unsecured credit facility with a private, third-party lender. The facility
is represented by a promissory note (the “Note”) with an original due date of March 12, 2014. On March 7, 2014 the
Company and the lender agreed to extend the maturity date of the Note to May 9, 2014 and on May 9, 2014 the parties agreed to
extend the maturity date of the Note from May 9, 2014 to December 7, 2014 (the “New Maturity Date”). All other terms
of the Note remain the same.
In
connection with the extension of the Note to the new Maturity Date, the Company agreed to enter into a definitive revenue sharing
agreement with the lender to grant the lender under the revenue sharing agreement an irrevocable right to receive a monthly payment
equal to one half of one percent (1/2%) of the gross revenue derived from the share of all hydrocarbons produced at the wellhead
from the Nicaraguan Concessions and any other oil and gas concessions that the Company and its affiliates may acquire. This percent
increased to one percent (1%) when the Company did not pay the Note in full by August 7, 2014. Therefore, the revenue sharing
agreement is fixed at 1%. The Company paid no other consideration in connection with the extension of the Note, but paid the legal
expenses of the lender related to the extensions of $25,000. The Note may be prepaid without penalty at any time. The Note is
subordinated to all existing and future senior indebtedness, as such terms are defined in the Note. The parties are in discussion
and agree in principal to further extension of the Note to April 7, 2014, subject to execution of formal documentation.
In
connection with its loan, the Company granted the lender a Warrant exercisable to purchase 1,000,000 shares of its common stock
at an exercise price of $1.50 per share. In connection with the extension of the maturity date of the Note to the New Maturity
Date, the parties amended the date for exercise of the Warrant to be a period commencing December 7, 2014 and expiring on the
third anniversary of such date. The Company issued no additional warrants to the lender in connection with the extension of the
Note to the New Maturity Date. If the Company fails to pay the note on or before its New Maturity Date, the number of shares issuable
under the Warrant increases to 13,333,333 and the exercise price drops to $0.075 per share. All other terms of the Warrant remain
the same.
Subsequent
to December 31, 2013, the Company has issued a total of six new promissory notes for total cash proceeds of $525,000. The promissory
notes have maturity dates, as amended, ranging from December 7, 2014 through February 28, 2015. The Company granted new warrants
to purchase a total of 475,000 common shares of stock at an exercise price of $1.50 and 50,000 common shares at $1.00 per share
all of which are immediately exercisable and terminate five years from the date of issuance.
Subsequent
to December 31, 2013, the Company was unable to pay the outstanding principal due on promissory notes representing $450,000 in
debt on their respective maturity dates. The Company negotiated extensions of their maturity dates to February 28, 2015 by granting
new warrants to purchase 450,000 shares of common stock at an exercise price of $1.00 each with a five-year term, modifying existing
warrant agreements covering 450,000 shares providing for an increase in the term of warrants to five years and reducing the exercise
price to $1.00 per share.
Subsequent
to December 31, 2013, the Company was unable to pay balances due on its line-of-credit with a related party with an outstanding
balance of $94,640 as of December 31, 2013. The Company and such party agreed to extend the maturity date to February 28, 2015
and the Company granted new warrants to purchase 400,000 shares of common stock at an exercise price of $1.00 to $1.50 per share
with a five-year term, modified existing warrant agreements covering 300,000 shares providing for an increase in the term of warrants
to five years and reducing the exercise price to $1.50 per share.
On
October 13, 2014 the Company announced that it had entered into a Letter of Intent (“LOI”) with Granada Exploration,
LLC, which has agreed to join with the Company to explore for potential hydrocarbons beneath Infinity’s 1.4 million-acre
oil and gas concessions in the Caribbean Sea offshore Nicaragua. Under the terms of the LOI, Granada Exploration will provide
its services in exchange for a working interest in the Nicaraguan Concessions. The scope of such services will be more specifically
described in a mutually acceptable Exploration Services Agreement (“ESA”) which is currently being negotiated and
finalized. The ESA is anticipated to provide that Granada will earn an assignment from Infinity of an undivided 30% working interest
in the Concessions, based on an 80% net revenue interest. Granada and Infinity are also anticipated to enter into a Joint Operating
Agreement. Granada may, at its discretion, participate in an initial exploratory well for up to an additional undivided 20% working
interest, on a prospect-by-prospect basis, with such additional interest to be based on an 80% net revenue interest.
The
LOI is subject to Granada’s normal and customary due diligence including the evaluation of the Company’s Form 10-K
and 10-Q filings, concession documents showing that the Company is in good standing with the Nicaraguan government, negotiation
and approval of mutually acceptable formal agreements, and final approval by a majority of the partners that comprise Granada
Exploration, LLC. The Company hopes to complete the ESA and Joint Operating Agreement with Granada in the first quarter of 2015.
The Company has not resolved
the contingency related to the expired letters of credit for its Nicaraguan Concessions (see Note 10). The Company continues to
negotiate the renewal of the letters of credit with the Nicaraguan Government and its lenders, however there are no assurances
that it will be successful.
****************************
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
On
April 24, 2013, the Audit Committee determined to dismiss EKS&H LLLP (“EKS&H”) as the Company’s independent
registered public accounting firm for the year ended December 31, 2013 effective immediately.
The
reports of EKS&H on the Company’s consolidated financial statements as of and for the years ended December 31, 2012
and 2011, did not contain an adverse opinion or a disclaimer of opinion, nor were such report qualified or modified as to audit
scope or accounting principles, however, the reports included an emphasis of a matter paragraph with respect to the uncertainty
of the ability of the Company to continue as a going concern.
During
the years ended December 31, 2012 and 2011, and through April 24, 2013, there were no (a) disagreements with EKS&H on any
matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved
to EKS&H’s satisfaction, would cause EKS&H to disclose that in its reports on the Company’s financial statements
for such years; or (b) reportable events, as described under Item 301(a)(1)(v) of Regulation S-K.
Contemporaneous
with the determination to dismiss EKS&H, the Audit Committee engaged MaloneBailey LLP (“MB”) as the Company’s
independent registered public accounting firm for the year ended December 31, 2013.
During
the years ended December 31, 2012 and 2011, and the subsequent interim period through April 26, 2013, the Company did not consult
with MB regarding any of the matters or events set forth in Item 304(a)(2) of Regulation S-K.
The
Audit Committee of Infinity Energy Resources, Inc. (the “Company”) recently completed a process to determine what
audit firm would serve as the Company’s independent registered public account firm for the year ended December 31, 2013
and beyond in order to remedy its current delinquent status with respect to the filing of its Annual Report on Form 10-K for the
Year ended December 31, 2013. On September 5, 2014, the Audit Committee determined to dismiss MaloneBailey, LLP (“Malone”)
as the Company’s independent registered public accounting firm effective immediately.
The
Company had engaged Malone on April 24, 2013 to audit its consolidated financial statements for the year ended December 31, 2013
and reaudit the year ended December 31, 2012, but Malone has not issued an opinion on such consolidated financial statements due
to its inability to complete the audits of 2013 and 2012 caused by disagreements with the Company’s management and its prior
auditors regarding the Company’s accounting policy for certain costs that are capitalized and included in the Company’s
Oil and Gas properties and the valuation of certain equity based and derivative instruments.
During
Malone’s audit for the year ended December 31, 2013 and the reaudit of the year ended December 31, 2012, and through September
5, 2014, there were (a) disagreements with Malone on the capitalization of certain costs included in the Company’s Oil and
Gas properties for the years 2013, 2012 and periods prior to 2012 and disagreements on the valuation of certain stock options
and warrants granted in 2011 and 2012 that if not resolved to Malone’s satisfaction, would cause Malone to disclose that
in its reports on the Company’s financial statements for such year; and (b) reportable events, as described under Item 304(a)(1)(v)
of Regulation S-K related to the matters mentioned in (a).
Contemporaneous
with the determination to dismiss Malone, the Audit Committee engaged L.L. Bradford & Company (“Bradford”) as
the Company’s independent registered public accounting firm for the year ended December 31, 2013 and for the fiscal year
ending December 31, 2014.
During
the year ended December 31, 2013, and the subsequent interim period through September 5, 2014 the Company did not consult with
Bradford regarding any of the matters or events set forth in Item 304(a)(2) of Regulation S-K.
Item
9A. Controls and Procedures.
Conclusion
Regarding the Effectiveness 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 Securities
Exchange Act of 1934. Based on their evaluation as of December 31, 2013, the end of the period covered by this annual report on
Form 10-K, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls
and procedures are effective but not timely in assuring that financial statement presentation and disclosure are in conformity
with those which are required to be included in our periodic SEC filings. The lack of timeliness is a material weakness which
management believes could be relieved with sufficient working capital to allow full-time accounting staff or the equivalent.
Management's
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control
over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes
those policies and procedures that:
| ● | Pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of our assets; |
| | |
| ● | Provide
reasonable assurance that the transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles,
and that our receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and |
| | |
| ● | Provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the financial statements. |
All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies or procedures may deteriorate.
In
connection with the filing of this annual report on Form 10-K, our management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria set forth by Committee
of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on our assessment
using those criteria, management believes that, as of December 31, 2013, our internal control over financial reporting were not
effective due to material weaknesses identified as follows:
| a) | Lack
of control processes in place that provide multiple levels of review and supervision
and, |
| | |
| b) | Lack
of segregation of duties |
This
annual report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report
in this annual report.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended December 31,
2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item
9B. Other Information.
None.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
The
following table sets forth the names, positions and ages of our directors and executive officers. Our directors were elected by
the majority written consent of our stockholders in lieu of a meeting. Our directors are typically elected at each annual meeting
and serve for one year and until their successors are elected and qualify. Officers are elected by our board of directors and
their terms of office are at the discretion of our board.
Name
|
|
Age |
|
Positions
and Offices Held |
Stanton E. Ross |
|
52 |
|
Chairman, President
and Chief Executive Officer |
Daniel F. Hutchins |
|
58 |
|
Director, Chief
Financial Officer, Secretary |
Leroy C. Richie |
|
72 |
|
Director |
Stanton
E. Ross. From March 1992 to June 2005, Mr. Ross was Infinity’s Chairman and President and served as
an officer and director of each of its subsidiaries. He resigned all of these positions with Infinity in June 2005, except Chairman,
but was reappointed as Infinity’s President in October 2006. Mr. Ross has served as Chairman, President and Chief Executive
Officer of Digital Ally, Inc. (“Digital”) since September 2005. Digital is a publicly held company whose common stock
is traded on the Nasdaq Capital Market under the symbol DGLY. From 1991 until March 1992, he founded and served as President of
Midwest Financial, a financial services corporation involved in mergers, acquisitions and financing for corporations in the Midwest.
From 1990 to 1991, Mr. Ross was employed by Duggan Securities, Inc., an investment banking firm in Overland Park, Kansas, where
he primarily worked in corporate finance. From 1989 to 1990, he was employed by Stifel, Nicolaus & Co., a member of the New
York Stock Exchange, where he was an investment executive. From 1987 to 1989, Mr. Ross was self-employed as a business consultant.
From 1985 to 1987, Mr. Ross was President and founder of Kansas Microwave, Inc., which developed a radar detector product. From
1981 to 1985, he was employed by Birdview Satellite Communications, Inc., which manufactured and marketed home satellite television
systems, initially as a salesman and later as National Sales Manager. Mr. Ross allocates his time between Digital and the Company
as he deems necessary to discharge his fiduciary duties to each of them. Because of the Company's reduced level of activity and
the needs of Digital, he has devoted most of his time to Digital and the balance to the Company during the last year. Mr. Ross
served on the board of directors of Studio One Media, Inc., a publicly held company, from January 2013 to March 2013. Mr. Ross
holds no public company directorships other than with Digital and Infinity currently and has not held any others during the previous
five years, except for Studio One Media, Inc. The Company believes that Mr. Ross’ broad entrepreneurial, financial and business
experience and his experience with micro-cap public companies and role as Chairman, President and CEO gives him the qualifications
and skills to serve as a director.
Daniel
F. Hutchins. Mr. Hutchins was elected to serve as a Director of Infinity and was also appointed to serve as Chief Financial
Officer of Infinity effective as of August 13, 2007. Mr. Hutchins was elected as a Director of Digital Ally, Inc. in December
2007, serves as Chairman of its Audit Committee and is its financial expert. He is also a member of Digital's Nominating and Governance
Committee. Mr. Hutchins, a Certified Public Accountant, is a Principal with the accounting firm of Hutchins & Haake, LLC.
He was previously a member of the Advisory Board of Digital Ally. Mr. Hutchins has served as an instructor for the Becker CPA
exam with the Keller Graduate School of Management and has over 17 years of teaching experience preparing CPA candidates for the
CPA exam. He has 30 years of public accounting experience, including five years with Deloitte & Touche, LLP. He holds no other
public directorships and has not held any others during the previous five years. He has served on the boards of various non-profit
groups and is a member of the American Institute of Certified Public Accountants. Mr. Hutchins earned his Bachelor of Business
Administration degree in Accounting at Washburn University in Topeka, Kansas. Mr. Hutchins holds no other public company directorships
currently and for the previous five years. The Company believes that Mr. Hutchins’ significant experience in finance and
accounting gives him the qualifications to serve as a director.
Leroy
C. Richie. Since June 1, 1999 Mr. Richie has been a director of Infinity. Since 2005, Mr. Richie has served as the lead
outside director of Digital Ally, Inc. and currently serves as a member of Digital’s Audit Committee and is the Chairman
of Digital’s Nominating and Governance and Compensation Committees. Additionally, Mr. Richie serves as a member of the boards
of directors of the following corporations and serves in the additional capacities noted: OGE Energy Corp., Chairman of the Compensation
Committee and a member of the Corporate Governance Committee; and member of the board of directors of Columbia Mutual Funds, an
investment company within the mutual fund family managed by Ameriprise Financial, Inc. Since 2004, he has been of counsel to the
Detroit law firm of Lewis & Munday, P.C. From September 2000 to November 2004, he was Chairman and Chief Executive Officer
of Q Standards World Wide, Inc. From April 1999 to August 2000, he was President of Capitol Coating Technologies, Inc. He holds
no other public directorships and has not held any others during the previous five years, except for Kerr-McGee Corporation (1998-2005).
Mr. Richie was formerly Vice President of Chrysler Corporation and General Counsel for automotive legal affairs, where he directed
all legal affairs for that company’s automotive operations from 1986 until his retirement in 1997. Before joining Chrysler,
he was an associate with the New York law firm of White & Case (1973-1978), and served as director of the New York office
of the Federal Trade Commission (1978-1983). Mr. Richie received a B.A. from City College of New York, where he was valedictorian,
and a J.D. from the New York University School of Law, where he was awarded an Arthur Garfield Hays Civil Liberties Fellowship.
The Company believes that Mr. Richie’s extensive experience as a lawyer and as an officer or director of public companies
gives him the qualifications and skills to serve as a Director.
Family
Relationships
There
is no family relationship between any of our directors, director nominees and executive officers.
Board
of Directors and Committee Meetings
Our
Board of Directors held five meetings during the fiscal year ended December 31, 2013. In addition, our Board of Directors acted
by unanimous written consent ten times during fiscal year ended December 31, 2013. Our directors attended all of the meetings
of the Board of Directors. Our directors are expected, absent exceptional circumstances, to attend all Board meetings.
Committees
of the Board of Directors
We
do not have Audit, Compensation or Nominating and Governance Committees. Our full Board of Directors discharges the duties that
such committees would normally have. We do not have such committees because of our stage of operations and because our Board of
Directors consists of only three members.
Our
full Board is comprised of three Directors, one of whom is independent, as defined by the rules and regulations of the Securities
and Exchange Commission. The members of our Board of Directors are Stanton E. Ross, Leroy C. Richie and Daniel F. Hutchins. The
Board of Directors determined that Mr. Richie qualifies as an “audit committee financial expert,” as defined under
the rules and regulations of the Securities and Exchange Commission, and is independent as noted above.
Under
the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by the Company’s independent accountants must
be approved in advance by the Board to assure that such services do not impair the accountants’ independence from the Company.
Our full board of directors performs the equivalent functions of an audit committee, therefore, no policies or procedures other
than those required by SEC rules on auditor independence, have been implemented.
Report
of the Board of Directors Serving the Equivalent Functions of an Audit Committee
Review
and Discussion with Management
Our
Board has reviewed and discussed with management our audited financial statements for the fiscal year ended December 31, 2013,
the process designed to achieve compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and our assessment of internal control
over financial reporting.
Review
and Discussions with Independent Registered Public Accounting Firm
Our
Board has discussed with L.L. Bradford & Company, our independent registered public accounting firm for fiscal year 2013,
the matters the Board, serving the equivalent functions of an audit committee, is required to discuss pursuant to Statement on
AU 380 (Communication with Audit Committees), which includes, among other items, matters related to the conduct of the audit of
our financial statements.
Our
Board also has received the written disclosures and the letter from L.L. Bradford & Company required by PCAOB Rule 3526 and
has discussed with such firm any relationships that may impact its independence, and satisfied itself as to the independent registered
public accounting firm’s independence.
Conclusion
Based
on the review and discussions referred to above, the Board, serving the equivalent functions of the audit committee, approved
our audited financial statements for the fiscal year ended December 31, 2013 be included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2013 for filing with the Securities and Exchange Commission.
Board
of Directors’ Role in the Oversight of Risk Management
We
face a variety of risks, including credit, liquidity and operational risks. In fulfilling its risk oversight role, our Board of
Directors focuses on the adequacy of our risk management process and overall risk management system. Our Board of Directors believes
that an effective risk management system will (i) adequately identify the material risks that we face in a timely manner; (ii)
implement appropriate risk management strategies that are responsive to our risk profile and specific material risk exposures;
(iii) integrate consideration of risk and risk management into our business decision-making; and (iv) include policies and procedures
that adequately transmit necessary information regarding material risks to senior executives and, as appropriate, to the Board
or relevant committee.
Our
Board of Directors oversees risk management for us. Accordingly, the Board schedules time for periodic review of risk management,
in addition to its other duties. In this role, the Board receives reports from management, certified public accountants, outside
legal counsel, and to the extent necessary, from other advisors, and strives to generate serious and thoughtful attention to our
risk management process and system, the nature of the material risks we face, and the adequacy of our policies and procedures
designed to respond to and mitigate these risks.
Board
Leadership Structure
Our
Board of Directors has a Chairman of the Board. Our Board of Directors does not have a policy on whether or not the roles of Chief
Executive Officer and Chairman of the Board of Directors should be separate and, if they are to be separate, whether the Chairman
of the Board should be selected from the non-employee directors or be an employee. Our Board of Directors believes that it should
be free to make a choice from time to time in any manner that is in the best interests of us and our shareholders. The Board of
Directors believes that Mr. Ross’s service as both Chief Executive Officer and Chairman of the Board is in the best interests
of us and our stockholders. Mr. Ross possesses detailed and in-depth knowledge of the issues, opportunities and challenges we
face and is thus best positioned to develop agendas, with the input of the other directors that ensure that the Board’s
time and attention are focused on the most critical matters. His combined role enables decisive leadership, ensures clear accountability,
and enhances our ability to communicate our message and strategy clearly and consistently to our stockholders, employees, customers
and suppliers, particularly given the issues and other challenges the Company has faced in recent years. Our Board has determined
that our Board leadership structure is appropriate given the size of our Board and the nature of our business.
Stockholder
Communications with the Board of Directors
Stockholders
may communicate with the Board of Directors by writing to us as follows: Infinity Energy Resources, Inc., attention: Corporate
Secretary, 11900 College Blvd., Suite 310, Overland Park, KS 66210. Stockholders who would like their submission directed to a
particular member of the Board of Directors may so specify and the communication will be forwarded as appropriate.
Process
and Policy for Director Nominations
Our
full Board will consider candidates for Board membership suggested by Board members, management and our stockholders. In evaluating
the suitability of potential nominees for membership on the Board, the Board members will consider the Board’s current composition,
including expertise, diversity, and balance of inside, outside and independent directors. The Board considers the general qualifications
of the potential nominees, including integrity and honesty; recognized leadership in business or professional activity; a background
and experience that will complement the talents of the other board members; the willingness and capability to take the time to
actively participate in board and committee meetings and related activities; the extent to which the candidate possesses pertinent
technological, political, business, financial or social/cultural expertise and experience; the absence of realistic possibilities
of conflict of interest or legal prohibition; the ability to work well with the other directors; and the extent of the candidate’s
familiarity with issues affecting our business.
While
the Board considers diversity and variety of experiences and viewpoints to be important factors, it does not believe that a director
nominee should be chosen solely or mainly because of race, color, gender, national origin or sexual identity or orientation. Thus,
although diversity may be a consideration in the Board’s process, it does not have a formal policy regarding the consideration
of diversity in identifying director nominees.
Stockholder
Recommendations for Director Nominations. Our Board of Directors does not have a formal policy with respect to consideration
of any director candidate recommendation by stockholders. While the Board of Directors may consider candidates recommended by
stockholders, it has no requirement to do so. To date, no stockholder has recommended a candidate for nomination to the Board.
Given that we have not received director nominations from stockholders in the past and that we do not canvass stockholders for
such nominations, we believe it is appropriate not to have a formal policy in that regard. We do not pay a fee to any third party
to identify or evaluate or assist in identifying or evaluating potential nominees.
Stockholder
recommendations for director nominations may be submitted to the Company at the following address: Infinity Energy Resources,
Inc., attention: Corporate Secretary, 11900 College Blvd., Suite 310, Overland Park, KS 66210. Such recommendations will be forwarded
to the Board for consideration, provided that they are accompanied by sufficient information to permit the Board to evaluate the
qualifications and experience of the nominees, and provided that they are in time for the Board to do an adequate evaluation of
the candidate before the annual meeting of stockholders. The submission must be accomplished by a written consent of the individual
to stand for election if nominated by the Board of Directors and to serve if elected and to cooperate with a background check.
Stockholder
Nominations of Directors. The bylaws of the Company provide that in order for a stockholder to nominate a director at an annual
meeting, the stockholder must give timely, written notice to the Secretary of the Company and such notice must be received at
the principal executive offices of the Company not less than 90 days nor more than 120 days prior to the date of the meeting.
Such stockholder’s notice shall include, with respect to each person whom the stockholder proposes to nominate for election
as a director, all information relating to such person, including such person’s written consent to being named in the proxy
statement as a nominee, serving as a director, that is required under the Securities Exchange Act of 1934, as amended, and cooperating
with a background investigation. In addition, the stockholder must include in such notice his name and address, as they appear
on the Company’s records, of the stockholder proposing the nomination of such person, and the name and address of the beneficial
owner, if any, on whose behalf the nomination is made, the class or series and number of shares of capital stock of the Company
that are owned beneficially and of record by such stockholder of record and by the beneficial owner, if any, on whose behalf the
nomination is made, and any material interest, relationship, arrangement or understanding that such stockholder of record and/or
the beneficial owner, if any, on whose behalf the nomination is made may respectively have in such business or with such nominee.
At the request of the Board of Directors, any person nominated for election as a director shall furnish to the Secretary of the
Company the information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee.
If
public disclosure of the date of the meeting is made less than 100 days prior to the date of the meeting, a stockholder’s
notice must be received not later than the close of business on the tenth day following the day on which such public disclosure
of the date of the meeting was made. With respect to a special meeting called at the written request of stockholders, any notice
submitted by a stockholder making the request must be provided simultaneously with such request.
Code
of Ethics and Conduct
Our
Board of Directors has adopted a Code of Ethics and Conduct that is applicable to all of our employees, officers and directors.
Our Code of Ethics and Conduct is intended to ensure that our employees act in accordance with the highest ethical standards.
A copy of our Code of Ethics and Conduct may be obtained by sending a written request to us at 11900 College Blvd., Suite
310, Overland Park, KS 66210; Attn: President and the Code of Ethics and Conduct is filed as an exhibit to this Annual
Report on Form 10-K.
Section
16(a) Beneficial Ownership Reporting
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who own more
than ten percent (10%) of our common stock, to file with the Securities and Exchange Commission reports of ownership of, and transactions
in, our securities and to provide us with copies of those filings. To our knowledge, based solely on our review of the copies
of such forms received by us, or written representations from certain reporting persons, we believe that during the year ended
December 31, 2013, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners
were complied with during fiscal year 2013, except each director had one late filing in which each failed to report one transaction.
Item
11. Executive Compensation.
The
following table shows compensation paid, accrued or awarded with respect to our named executive officers during the years indicated,
a significant portion of all compensation after 2008 is accrued but not paid:
2013
Summary Compensation Table (1)
Name and Principal Position (2) | |
Year | |
Salary
($) | | |
Bonus
($) (4) | | |
Stock Awards ($) | | |
Option Awards ($) | | |
Non-Equity Incentive
Plan Compensation | | |
Change in Pension Value
and Nonqualified Deferred Compensation Earnings ($) | | |
All Other Compensation
($) | | |
Total
($) | |
Stanton Ross CEO | |
2013 | |
$ | 100,000 | | |
$ | -- | | |
$ | -- | | |
$ | -- | | |
$ | -- | | |
$ | -- | | |
$ | -- | | |
$ | 100,000 | |
| |
2012 | |
$ | 100,000 | | |
$ | -- | | |
$ | -- | | |
$ | 237,523 | | |
$ | -- | | |
$ | -- | | |
$ | -- | | |
$ | 337,523 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Daniel F Hutchins CFO | |
2013 | |
$ | 100,000 | | |
$ | -- | | |
$ | -- | | |
$ | -- | | |
$ | -- | | |
$ | -- | | |
$ | -- | | |
$ | 100,000 | |
| |
2012 | |
$ | 100,000 | | |
$ | -- | | |
$ | -- | | |
$ | 118,761 | | |
$ | -- | | |
$ | -- | | |
$ | 262,521 | | |
$ | 481,282 | |
| (1) | Due
to the financial condition of the Company, Mr. Ross has deferred the receipt of a portion
of his salary since January 2009. Mr. Ross received $90,000 and $30,000 of his salary
in cash during the years ended December 31, 2013 and 2012 respectively. As of December
31, 2013, a total of $315,208 of salary has been accrued but was unpaid. |
| | |
| (2) | Mr.
Hutchins began serving the Company as Chief Financial Officer in August 2007. Since January
2009 he has deferred his compensation and a total of $500,000 of direct compensation
was accrued but unpaid as of December 31, 2013. His other compensation is indirect and
consists of services billed at the CFO firm’s normal standard billing rate plus
out-of-pocket expenses. For the year ended December 31, 2013 the Company was billed $-0-
and for the year ended 2012 it was billed $262,521. Total amounts accrued for his indirect
compensation was $788,520 and $793,520 as of December 31, 2013 and 2012, respectively. |
Compensation
Policies and Objectives
We
structure compensation for executive officers, including the named executive officers, to drive performance, to accomplish both
our short-term and long-term objectives, and to enable us to attract, retain and motivate well qualified executives by offering
competitive compensation and by rewarding superior performance. We also seek to link our executives’ total compensation
to the interests of our shareholders. To accomplish this, our board of directors relies on the following elements of compensation,
each of which is discussed in more detail below:
| ● | salary; |
| | |
| ● | annual
performance-based cash awards; |
| | |
| ● | equity
incentives in the form of stock and/or stock options; and |
| | |
| ● | other
benefits. |
Our
board of directors believes that our executive compensation package, consisting of these components, is comparable to the compensation
provided in the market in which we compete for executive talent and is critical to accomplishing our recruitment and retention
aims.
In
setting the amounts of each component of an executive’s compensation and considering the overall compensation package, the
Committee generally considers the following factors:
Benchmarking—For
executive officers, the board of directors considers the level of compensation paid to individuals in comparable executive positions
of other oil and gas exploration and production companies of a similar size. The board of directors believes that these companies
are the most appropriate for review because they are representative of the types of companies with which we compete to recruit
and retain executive talent. The information reviewed by the board of directors includes data on salary, annual and long-term
cash incentive bonuses and equity compensation, as well as total compensation.
Internal
Equity—The board of directors considers the salary level for each executive officer and each position in overall management
in order to reflect their relative value to us.
Individual
Performance—The board of directors considers the individual responsibilities and performance of each named executive
officer, which is based in part on the board of directors’ assessment of that individual’s performance as well as
the evaluation of the individual by the Chief Executive Officer.
All
executive officers are eligible for annual cash bonuses and equity incentive awards that reinforce the relationship between pay
and performance by conditioning compensation on the achievement of the Company’s short- and long-term financial and operating
goals, including operating profits, reserve finding costs, and growth in the Company’s daily oil and gas production and
estimated proved, probable and possible recoverable oil and gas reserves.
Components
of Executive Compensation
The
following provides an analysis of each element of compensation, what each element is designed to reward and why the board of directors
chose to include it as an element of our executive compensation.
Salaries
Salaries
for executive officers are intended to incentivize the officers to focus on executing the Company’s day-to-day business
and are reviewed annually. Changes are typically effective in April of each year and are based on the factors discussed above.
Compensation arrangements with Mr. Hutchins were determined through arms-length negotiations.
Annual
Bonuses
The
awarding of annual bonuses to executives is at the Committee’s discretion. The objective of the annual bonus element of
compensation is to align the interest of executive officers with the achievement of superior Company performance for the year
and also to encourage and reward extraordinary individual performance. In light of the Company’s operating results for 2013,
the Committee determined that it was appropriate not to grant annual bonuses to the executive officers for 2013.
Stock
Options
Including
an equity component in executive compensation closely aligns the interests of the executives and our shareholders and rewards
executives consistent with shareholder gains. Stock options produce value for executives only if our stock price increases over
the exercise price, which is set at the market price on the date of grant. Also, through vesting and forfeiture provisions, stock
options serve to encourage executive officers to remain with the Company. Awards made other than pursuant to the annual equity
grants are typically made to newly hired or recently promoted employees.
In
determining the stock option grants for Messrs. Ross and Hutchins, the Board considered the number of options previously granted
that remained outstanding, the number and value of shares underlying the options being granted and the related effect on dilution.
The Board also took into account the number of shares that remained available for grant under our stock incentive plans. Messrs.
Ross and Hutchins were not granted stock options during the year ended December 31, 2013. Messrs. Ross and Hutchins were granted
500,000 and 250,000 options, respectively, in November 2012. Information regarding all outstanding equity awards as of December
31, 2013 for the named executive officers is set forth below in the “Outstanding Equity Awards at Fiscal Year End”
table.
Other
Elements of Executive Compensation
We
have not provided cash perquisites to our executive officers given our limited funds.
On
June 6, 2009, the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided. Infinity
assigned to officers and directors a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%)
of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP shall
bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser,
including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last
day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from
the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan
Concessions, and does not create any rights in the Nicaraguan Concessions for officers and directors.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
| |
Option Awards | |
Stock Awards | |
Name | |
Number of Securities
Underlying Unexercised Options (#) Exercisable | | |
Number of Securities
Underlying Unexercised Options (#) Unexercisable | | |
Equity Incentive Plan
Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | |
Option Exercise Price
($) | | |
|
Option Expiration Date | |
Number of Shares or Units
of Stock That Have Not Vested (#) | | |
Market Value of Shares
or Units of Stock That Have Not Vested ($) | | |
Equity Incentive Plan
Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | |
Equity Incentive Plan
Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |
Ross (2) | |
| 60,000 | | |
| | | |
| | | |
$ | 4.26 | | |
| 06 | /17/2014 | |
| | | |
| | | |
| | | |
| | |
| |
| 20,000 | | |
| | | |
| | | |
$ | 8.50 | | |
| 02 | /03/2015 | |
| | | |
| | | |
| | | |
| | |
| |
| 40,000 | | |
| | | |
| | | |
$ | 7.51 | | |
| 07 | /18/2015 | |
| | | |
| | | |
| | | |
| | |
| |
| 50,000 | | |
| | | |
| | | |
$ | 6.48 | | |
| 05 | /23/2016 | |
| | | |
| | | |
| | | |
| | |
| |
| 100,000 | | |
| | | |
| | | |
$ | 3.97 | | |
| 10 | /10/2016 | |
| | | |
| | | |
| | | |
| | |
| |
| 70,000 | | |
| | | |
| | | |
$ | 3.06 | | |
| 05 | /17/2017 | |
| | | |
| | | |
| | | |
| | |
| |
| 200,000 | | |
| | | |
| | | |
$ | 5.25 | | |
| 02 | /10/2021 | |
| | | |
| | | |
| | | |
| | |
| |
| 200,000 | | |
| | | |
| | | |
$ | 7.50 | | |
| 08 | /02/2021 | |
| | | |
| | | |
| | | |
| | |
| |
| 333,333 | | |
| 166,667 | | |
| | | |
$ | 3.00 | | |
| 11 | /06/2021 | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Hutchins (2) | |
| 25,000 | | |
| | | |
| | | |
$ | 2.15 | | |
| 08 | /21/2017 | |
| | | |
| | | |
| | | |
| | |
| |
| 155,750 | | |
| | | |
| | | |
$ | 0.26 | | |
| 04 | /01/2018 | |
| | | |
| | | |
| | | |
| | |
| |
| 175,000 | | |
| | | |
| | | |
$ | 5.25 | | |
| 02 | /10/2021 | |
| | | |
| | | |
| | | |
| | |
| |
| 175,000 | | |
| | | |
| | | |
$ | 7.50 | | |
| 08 | /02/2021 | |
| | | |
| | | |
| | | |
| | |
| |
| 166,667 | | |
| 83,334 | | |
| | | |
$ | 3.00 | | |
| 11 | /06/2021 | |
| | | |
| | | |
| | | |
| | |
DIRECTOR
COMPENSATION
The
following table discloses the cash, equity awards and other compensation earned, paid or awarded, as the case may be, to each
of the Company’s directors during the fiscal years ended December 31, 2013 and 2012.
Name | |
Year | |
Fees
Earned or Paid in Cash ($) | | |
Stock
Awards ($) | | |
Option
Awards ($) (1) | | |
Non-Equity
Incentive Plan Compensation ($)(3) | | |
Change
in Pension Value and Non-Qualified Deferred Compensation Earnings ($) | | |
All
Other Compensation ($) (2) | | |
Total
($) | |
Leroy C. Richie | |
2013 | |
$ | 36,000 | | |
| | | |
$ | - | | |
| | | |
| | | |
| | | |
$ | 36,000 | |
| |
2012 | |
$ | 36,000 | | |
| | | |
$ | 118,761 | | |
| | | |
| | | |
| | | |
$ | 154,761 | |
| (1) | Mr.
Richie received no cash compensation in 2013, but has accrued $219,500 for his services
on the Board since January 1, 2008. |
| | |
| (2) | Mr.
Ross’ and Mr. Hutchins’ compensation and option awards are noted in the Executive
Compensation table because neither of them received compensation or stock options for
their services as a director. |
Compensation
Committee Interlocks and Insider Participation
Leroy
C. Richie was the sole member of the Compensation Committee in 2013 and 2012. Mr. Richie is not currently and has not ever been
an officer or employee of Infinity or its subsidiaries.
Employment
Contracts and Termination of Employment and Change-In-Control Arrangements
We
have no employment agreements or similar contracts with Stanton E. Ross or Daniel F. Hutchins.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
following table sets forth, as of November 7, 2014, the number and percentage of outstanding shares of common stock beneficially
owned by each person known by us to beneficially own more than five percent of such stock. We have no other class of capital stock
outstanding.
Security
Ownership of Certain Beneficial Owners
Name and address of beneficial owner | |
Amount and
nature of
beneficial
ownership | | |
Percent
of class | |
5% Stockholders (excluding
executive officers and directors): | |
| | | |
| | |
Amegy Bank NA (1) | |
| 5,591,250 | | |
| 19.5 | % |
|
|
|
(1) |
Based solely on
an Amendment No. 1 to Schedule 13D filed by Amegy Bank NA on December 30, 2013. |
The
following table sets forth, as of November 7, 2014, the number and percentage of outstanding shares of common stock beneficially
owned by each director of the Company, each named officer of the Company, and all our directors and executive officers as a group.
We have no other class of capital stock outstanding.
Security
Ownership of Management
Name and address of beneficial owner | |
Amount and nature of
beneficial ownership | | |
Percent of class | |
Executive Officers & Directors:
(1) | |
| | | |
| | |
Stanton E. Ross (2) | |
| 1,655,000 | | |
| 5.1 | % |
Leroy C. Richie (3) | |
| 835,750 | | |
| 2.9 | % |
Daniel F. Hutchins (4) | |
| 1,010,750 | | |
| 3.5 | % |
| |
| | | |
| | |
All officers and directors as a group (3 individuals) | |
| 3,501,500 | | |
| 11.5 | % |
|
|
|
(1) |
The
address of these persons is c/o 11900 College Blvd., Suite 310, Overland Park, KS 66210. |
|
|
|
|
(2) |
Mr.
Ross’s shares include vested options to purchase 1,380,000 shares of common stock. Mr. Ross has pledged 275,000 shares
of common stock and all of his outstanding options to purchase common stock to third parties as collateral for personal loans. |
|
|
|
|
(3) |
Mr.
Richie’s total shares include vested options to purchase 835,750 shares of common stock. |
|
|
|
|
(4) |
Mr.
Hutchins’ total shares include vested options to purchase 830,750 shares of common stock. |
Item
13. Certain Relationships and Related Transactions and Director Independence.
The
charter for the Company’s Audit Committee includes a requirement for the Audit Committee to review and approve any transaction
involving the Company and a related party at least once a year or upon any significant change in the transaction or relationship.
For these purposes, a “related party transaction” includes any transaction required to be disclosed pursuant to Item
404 of Regulation S-K.
On
March 23, 2009, the Company entered into a Securities Purchase Agreement, dated effective as of March 23, 2009, with Off-Shore
Finance, LLC, a Nevada limited liability company and an accredited investor (“Off-Shore”), to issue a subordinated
secured promissory note in the aggregate principal amount of up to $1,275,000 and a one percent (1%) revenue sharing interest
with respect to the Company’s Nicaragua concessions in the Tyra and Perlas Blocks, offshore Nicaragua. The managing partner
of Off-Shore and the CFO of Infinity are business partners in the accounting firm which the Company uses for its corporate office.
Under
the Revenue Sharing Agreement (the “Revenue Agreement”), Infinity assigned to Off-Shore a monthly payment (the “RSP”)
equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead
from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point
of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs.
The RSP shall be paid to Off-Shore by the last day of each month based on the revenue received by Infinity from the purchaser
of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity
to maintain or develop the Concessions, and does not create any rights in the Concessions for Off-Shore. At any time within three
(3) years from the date of the Revenue Agreement, Infinity shall have the right to redeem the RSP by paying Off-Shore an amount
as follows: (i) if during the first year of the Revenue Agreement, a sum equal to three (3) times the amount of investor funding
by Off-Shore to Infinity as of December 31, 2009 (the “Funding Amount”); (ii) if during the second year of the Revenue
Agreement, a sum equal to five (5) times the Funding Amount; or (iii) if during the third year of the Revenue Agreement, a sum
equal to ten (10) times the Funding Amount. Upon the redemption of the RSP by Infinity, the Revenue Agreement shall terminate.
On
June 6, 2009, we entered into a revenue sharing agreement with Messrs. Ross, Richie and Hutchins for services provided. We assigned
to them a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of our share of
the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP shall bear its proportionate share of all costs
incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance
and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received
by Infinity from the purchaser of the production during the previous month from the Nicaraguan Concessions. The Revenue Agreement
does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights
in them for officers and directors.
The
Company currently does not have any employees other than the CEO and CFO. Certain general and administrative services (for which
payment is deferred) were provided by the CFO’s accounting firm at their standard billing rates plus out-of-pocket expenses
and consist primarily of accounting, tax and general administrative fees. For the years ended December 31, 2013 and 2012, the
Company was billed $-0- and $262,521, respectively. The amount due to the CFO’s firm for services provided was $762,407
and $767,407 at December 31, 2013 and 2012, respectively.
Stanton
E. Ross, Leroy C. Richie and Daniel F. Hutchins are the directors of the Company. Messrs. Ross and Hutchins are not considered
“independent” in accordance with rule 5605(a)(2) of the NASDAQ Marketplace Rules. The Board of Directors has determined
that Mr. Richie is independent in accordance with the Nasdaq and SEC rules. We are currently traded on the OTC QB, which does
not require that a majority of the board be independent. If we ever become an issuer whose securities are listed on a national
securities exchange or on an automated inter-dealer quotation system of a national securities association, which has independent
director requirements, we intend to comply with all applicable requirements relating to director independence.
While
the relationship with Amegy Bank was ongoing and debt was outstanding (through April 13, 2012), the Company’s CEO personally
guaranteed up to $500,000 of the Forbearance advances. His guarantee obligation was never called upon and he was not compensated
by the Company for such guarantee.
As
of December 31, 2013 and 2012, the Company had accrued compensation to its officers and directors of $1,034,708 and $950,708,
respectively.
As
discussed in Note 2, on August 28, 2012, the Company borrowed $250,000 from an entity that is 49% owned by a board member of another
corporation for which Infinity’s president and chairman of the board serves as president and chairman of the board. The
Company issued a short-term note to the entity bearing interest at 8% per annum and maturing February 28, 2013. The note was repaid
February 27, 2013. In connection with the transaction, the Company issued the lender a warrant exercisable to purchase 120,000
shares of its common stock at a price of $2.50 per share, expiring August 2017.
In
addition, the Company entered into a line-of-credit facility on September 23, 2013 which provides for borrowings on a revolving
basis up to a maximum of $50,000 (maximum increased to $100,000 at December 31, 2013) with an initial maturity of November 23,
2013. The entity providing the credit facility is owned by an officer of another corporation for which Infinity’s president
and chairman of the board serves as president and chairman of the board. The facility is unsecured, bears interest at 8% and was
renewed at its maturity on November 23, 2013 for an additional two months or until January 23, 2014. The Company granted the holder
common stock purchase warrants to acquire a total of 50,000 shares of common stock at a weighted average exercise price of $2.50
per share, which warrants are immediately exercisable and expire from September 23, 2015 to November 23, 2015. The Company estimated
the fair value of these warrants at $60,291 as of the grant date, which amount has been recorded as debt issuance costs and classified
in prepaid expenses in the accompanying consolidated balance sheets.
Item
14. Principal Accounting Fees and Services.
Audit
and Related Fees
The
Audit committee of the Company completed a process to determine what audit firm would serve as the Company’s independent
registered public account firm for the year ending December 31, 2013. On April 24, 2013, the Audit Committee determined to dismiss
EKS&H LLLP (“EKS&H”) as the Company’s independent registered public accounting firm effective immediately.
Contemporaneous with the determination to dismiss EKS&H, the Audit Committee engaged Malone Bailey LLP (“Malone”)
as the Company’s independent registered public accounting firm for the year ending December 31, 2013 and later the Audit
Committee determined that Malone would also audit the consolidated financial statements for the year ended December 31, 2012 for
inclusion in this Form 10K.
On
September 5, 2014, the Audit Committee determined to dismiss Malone as the Company’s independent registered public accounting
firm effective immediately. Contemporaneous with the determination to dismiss Malone, the Audit Committee engaged L.L. Bradford
& Company (“Bradford”) as the Company’s independent registered public accounting firm for the year ending
December 31, 2013.
The
following table is a summary of the fees rendered to us by Bradford for the year ended December 31, 2013, Malone for the fiscal
years ended December 31, 2013 and 2012 and EKS&H for the year ended December 31, 2012:
Fee Category: | |
2013 | | |
2012 | |
Audit Fees-Bradford | |
$ | 22,000 | | |
$ | - | |
Audit Fees-Malone | |
| 25,000 | | |
| 7,500 | |
Audit Fees-EKS&H | |
| - | | |
| 87,120 | |
Audit-Related Fees-Bradford | |
| - | | |
| - | |
Audit-Related Fees-Malone | |
| - | | |
| - | |
Audit-Related Fees-EKS&H | |
| - | | |
| 17,500 | |
Tax Fees-Bradford | |
| - | | |
| - | |
Tax Fees-Malone | |
| - | | |
| - | |
Tax Fees-EKS&H | |
| - | | |
| - | |
All Other Fees-Bradford | |
| - | | |
| - | |
All Other Fees-Malone | |
| - | | |
| - | |
All Other Fees-EKS&H | |
| - | | |
| - | |
Total Fees | |
$ | 47,000 | | |
$ | 112,120 | |
Audit
Fees. Such amount consists of fees billed for professional services rendered in connection with the audit of our
annual financial statements and review of the interim financial statements included in our quarterly reports. It also includes
services that are normally provided by our independent registered public accounting firms in connection with statutory and regulatory
filings or engagements.
Audit-Related
Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance
of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include
employee benefit plan audits, accounting consultations in connection with acquisitions, attest services that are not required
by statute or regulation, and consultations concerning financial accounting and reporting standards.
Tax
Fees. Tax fees consist of fees billed for professional services related to tax compliance, tax advice and tax planning.
These services include assistance regarding federal, state and international tax compliance, tax audit defense, customs and duties,
mergers and acquisitions, and international tax planning.
All
Other Fees. Consists of fees for products and services other than the services reported above. In fiscal 2013 and
2012, there were no fees related to this category.
The
Audit Committee’s practice is to consider and approve in advance all proposed audit and non-audit services to be provided
by our independent registered public accounting firm. All of the fees shown above were pre-approved by the Audit Committee.
The
audit report of L.L. Bradford & Company on the consolidated financial statements of the Company for the year ended December
31, 2013 did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit
scope or accounting principles. The opinion did emphasize a matter regarding the Company’s ability to continue as a going
concern.
During
our fiscal years ended December 31, 2013 and 2012, there were no disagreements with L.L. Bradford & Company on any matter
of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to L.L. Bradford & Company’s satisfaction would have caused it to make reference to the subject matter
of such disagreements in connection with its reports on the financial statements for such periods.
During
our fiscal years ended December 31, 2013 and 2012, there were no reportable events (as described in Item 304(a)(1)(v) of Regulation
S-K).
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
(a) | | The
following documents are filed as part of this annual report on Form 10-K: |
| 1. | Consolidated
Financial Statements: |
All
financial statements set forth under Part II, Item 8 of this annual report.
| 2. | Financial
Statement Schedules: |
All
schedules are omitted because they are not applicable or are not required, or because the required information is included in
the consolidated financial statements or notes in this annual report.
EXHIBITS
Exhibit
Number |
|
Description
of Exhibits |
|
|
|
2.1 |
|
Agreement and
Plan of Merger between Infinity Energy Resources, Inc. and Infinity, Inc. (1) |
3.1 |
|
Certificate of
Incorporation (3) |
3.2 |
|
Bylaws (1) |
10.1 |
|
2004 Stock Option
Plan (1) |
10.2 |
|
2005 Equity Incentive
Plan (1) |
10.3 |
|
2006 Equity Incentive
Plan (1) |
10.4 |
|
Form of Incentive
Stock Option for 2006 Equity Incentive Plan (1) |
10.5 |
|
Form of Nonqualified
Stock Option for 2006 Equity Incentive Plan (1) |
10.6 |
|
Loan Agreement
between Infinity Energy Resources, Inc., and Infinity Oil and Gas of Texas, Inc. and Infinity Oil & Gas of Wyoming, Inc.
and Amegy Bank N.A., dated effective as of January 9, 2007 (3) |
10.7 |
|
Revolving Promissory
Note between Infinity Energy Resources, Inc. and Amegy Bank N.A., dated January 10, 2007 (1) |
10.8 |
|
Nicaraguan Concession
- Perlas Prospect (3) |
10.9 |
|
Nicaraguan Concession
- Tyra Prospect (3) |
10.10 |
|
Forbearance Agreement
with Amegy Bank N.A., dated August 31, 2007 (1) |
10.11 |
|
Second Forbearance
Agreement with Amegy Bank N.A., dated March 26, 2008 (1) |
10.12 |
|
Third Forbearance
Agreement with Amegy Bank N.A., dated October 16, 2008 (3) |
10.13 |
|
First Amendment
to Revolving Promissory Note - Amegy Bank, N.A., dated October 16, 2008 (3) |
10.14 |
|
Fourth Forbearance
Agreement with Amegy Bank N.A., dated December 4, 2009 (3) |
10.15 |
|
Fifth Forbearance
Agreement with Amegy Bank N.A., dated February 16, 2011 (2) |
10.16 |
|
Guarantee of Obligation
with Amegy Bank N.A., dated February 16, 2011 (1) |
10.17 |
|
Omnibus Amendment
with Amegy Bank N.A., dated February 16, 2011 (1) |
10.18 |
|
Third Amendment
to Revolving Promissory Note with Amegy Bank N.A., dated January 31, 2010 (1) |
10.19 |
|
Forbearance Period
Advance Promissory Note with Amegy Bank N.A., dated February 16, 2011 (1) |
10.20 |
|
Registration Rights
with Amegy Bank N.A., dated February 16, 2011 (3) |
10.21 |
|
Securities Purchase
Agreement with Amegy Bank N.A., dated February 16, 2011 (3) |
10.22 |
|
Warrant to Purchase
Common Stock with Amegy Bank N.A., dated February 16, 2011 (3) |
10.23 |
|
Subordinate Secured
Promissory Note Off-Shore Finance, LLC, dated March 23, 2009 (1) |
10.24 |
|
Securities Purchase
Agreement Off-Shore Finance, LLC, dated March 23, 2009 (2) |
10.25 |
|
Revenue Sharing
Agreement with Off-Shore Finance, LLC, dated March 23, 2009 (1) |
10.26 |
|
Revenue Sharing
Agreement with Officers and Directors, dated June 6, 2009 (3) |
10.27 |
|
Map: Nicaraguan
Concessions (2) |
10.28 |
|
Revenue Sharing
Agreement with Jeff Roberts, dated September 16, 2009 (3) |
10.29 |
|
Revenue Sharing
Agreement with Thompson Knight Global Energy, dated September 8, 2009 (3) |
10.30 |
|
Stock Purchase
Agreement with Amegy Bank, N.A., dated as of February 28, 2012 (5) |
10.31 |
|
Stock Purchase
Agreement with Off-Shore Finance, LLC, dated as of February 28, 2012 (5) |
10.32 |
|
Investor Rights
Agreement with Amegy Bank, N.A., dated April 13, 2012 (5) |
10.33 |
|
Certificate of
Designation of Series A Preferred and Series B Preferred (5) |
10.34 |
|
8% Promissory
Note in principal amount of $250,000, dated February 13, 2013 (6) |
10.35 |
|
Common Stock Purchase
Warrant for 250,000 shares, dated February 13, 2013 (6) |
10.36 |
|
Form of 8% Promissory
Note (7) |
10.37
|
|
Form of Common
Stock Purchase Warrant (7) |
10.38 |
|
Stock Exchange
Agreement between the Company and Amegy Bank, NA. (8) |
10.39 |
|
8% Note, dated
December 27, 2013 (9) |
10.40 |
|
Common Stock Purchase
Warrant (1,000,000 shares), dated December 27, 2013 (9) |
14.1 |
|
Code of Ethics
and Code of Conduct. (4) |
21.1 |
|
Subsidiaries of
Registrant (1) |
31.1 |
|
Certificate of
Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith) |
31.2 |
|
Certificate of
Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith) |
32.1 |
|
Certificate of
Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith) |
32.2 |
|
Certificate of
Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith) |
99.1 |
|
Audited Financial
Statements as of and for the years ended December 31, 2013 and 2012. (filed herewith) |
101.INS* |
|
XBRL Instance
Document. |
101.SCH* |
|
XBRL Taxonomy
Extension Schema Document. |
101.CAL* |
|
XBRL Calculation
Linkbase Document. |
101.LAB* |
|
XBRL Taxonomy
Labels Linkbase Document. |
101.PRE* |
|
XBRL Taxonomy
Presentation Linkbase Document. |
(1) Filed
as an exhibit to Form 10 by the Company on May 13, 2011.
(2) Filed
as an exhibit to Amendment No. 1 to Form 10 by the Company on July 1, 2011.
(3) Filed
as an exhibit to Amendment No. 2 to Form 10 by the Company on April 5, 2012.
(4) Filed
as an exhibit to Form 10-K by the Company on April 16, 2012.
(5) Filed
as an exhibit to Form 8-K by the Company on April 19, 2012.
(6) Filed
as an exhibit to Form 8-K by the Company on February 19, 2013.
(7) Filed
as an Exhibit to Form 8-K by the Company on March 1, 2013.
(8) Filed
as an Exhibit to Form 8-K by the Company on April 29, 2013
(9) Filed
as an Exhibit to Form 8-K by the Company on January 3, 2014
*XBRL
related information in Exhibit 101 to this annual report on Form 10-K shall not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not
be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall
be expressly set forth by specific reference in such filing or document.
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November
18, 2014 |
Infinity
Energy Resources, Inc., |
|
a
Delaware corporation |
|
|
|
|
By: |
/s/
Stanton E. Ross |
|
|
Stanton E. Ross |
|
|
Chief Executive
Officer |
|
|
|
|
By: |
/s/
Daniel F. Hutchins |
|
|
Daniel F. Hutchins |
|
|
Chief Financial
Officer |
Each
person whose signature appears below authorizes Stanton E. Ross to execute in the name of each such person who is then an officer
or director of the registrant, and to file, any amendments to this annual report on Form 10-K necessary or advisable to enable
the registrant to comply with the Securities Exchange Act of 1934 and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, which amendments may make such changes in such annual report as such attorney-in-fact
may deem appropriate.
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
and Title |
|
Date |
|
|
|
/s/
Stanton E. Ross |
|
November
18, 2014 |
Stanton E.
Ross, Director and Chief Executive Officer |
|
|
|
|
|
/s/
Leroy C. Richie |
|
November
18, 2014 |
Leroy C. Richie,
Director and Audit Committee Chairman |
|
|
|
|
|
/s/
Daniel F. Hutchins |
|
November
18, 2014 |
Daniel F.
Hutchins, Director and Chief Financial Officer |
|
|
Exhibit
31.1
CERTIFICATIONS
I,
Stanton E. Ross, Chief Executive Officer of Infinity Energy Resources, Inc., certify that;
(1) |
I
have reviewed this Annual Report on Form 10-K of Infinity Energy Resources, Inc.; |
|
|
(2) |
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
|
|
(3) |
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
(4) |
The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13-15(e) and 15d-15(e)) an internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(1) and 15d-15(f) for the registrant and have: |
|
|
|
a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
|
|
d) |
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
|
|
|
(5) |
The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions): |
|
|
|
a) |
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
|
|
b) |
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date: November 18, 2014 |
|
|
|
|
By: |
/s/
Stanton E. Ross |
|
Name: |
Stanton
E. Ross
|
|
Title: |
Chief Executive
Officer |
|
Exhibit
31.2
CERTIFICATIONS
I,
Daniel F. Hutchins, Chief Financial Officer of Infinity Energy Resources, Inc., certify that;
(1) |
I
have reviewed this Annual Report on Form 10-K of Infinity Energy Resources, Inc.; |
|
|
(2) |
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
|
|
(3) |
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
(4) |
The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13-15(e) and 15d-15(e)) an internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(1) and 15d-15(f) for the registrant and have: |
|
|
|
a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
|
|
d) |
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
|
|
|
(5) |
The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions): |
|
|
|
a) |
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
|
|
b) |
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date: November 18, 2014 |
|
|
|
|
By: |
/s/
Daniel F. Hutchins |
|
Name: |
Daniel F. Hutchins |
|
Title: |
Chief Financial
Officer |
|
Exhibit
32.1
CERTIFICATION
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Infinity Energy Resources, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
|
(1) |
the
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
(2) |
the
information contained in the Report fairly presents in all material respects, the financial condition and results of operations
of the Company. |
|
By: |
/s/
Stanton E. Ross |
|
Name: |
Stanton E. Ross |
|
Title: |
Chief Executive
Officer |
|
|
|
|
Date: |
November 18, 2014 |
Exhibit
32.2
CERTIFICATION
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Infinity Energy Resources, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
|
(1) |
the
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
(2) |
the
information contained in the Report fairly presents in all material respects, the financial condition and results of operations
of the Company. |
|
By: |
/s/
Daniel F. Hutchins |
|
Name: |
Daniel F. Hutchins |
|
Title: |
Chief Financial
Officer |
|
|
|
|
Date: |
November 18, 2014 |
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