Notes
to Condensed Financial Statements
June
30, 2021
(Unaudited)
Note
1 – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
Unaudited
Interim Financial Information
Infinity
Energy Resources, Inc. (collectively, “we,” “ours,” “us,” “Infinity” or the “Company”)
has prepared the accompanying condensed financial statements pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”) for interim financial reporting. These financial statements are unaudited and, in our opinion, include all adjustments
consisting of normal recurring adjustments and accruals necessary for a fair presentation of our condensed balance sheets, statements
of operations, statements of stockholders’ deficit and cash flows for the periods presented. Operating results for the periods
presented are not necessarily indicative of the results that may be expected for 2021 due to various factors. Certain information and
footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in
the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed financial
statements should be read in conjunction with the audited financial statements and accompanying notes in Item 8, “Financial Statements
and Supplementary Data,” of our Annual Report on Form 10-K, filed with the SEC.
Nature
of Operations
“Infinity,”
the “Company,” “we,” “us” and “our” refer collectively to Infinity Energy Resources,
Inc., its predecessors and subsidiaries or one or more of them as the context may require. Since 2009, we had planned to pursue the exploration
of potential oil and gas resources in the United States and in the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean
Sea (the “Nicaraguan Concessions” or “Concessions”), which contain a total of approximately 1.4 million acres.
Civil unrest within Nicaragua and difficulties encountered with negotiations on extensions and the issuance of permits to drill with
the Nicaraguan government made the exploration and development of the underlying concessions problematic. In addition, the Company was
in technical default of the certain terms of the Nicaraguan Concession and the Nicaraguan government terminated both of the underlying
Concessions. As a result, the Company abandoned all of its efforts to explore and develop the Nicaraguan Concessions effective January
1, 2020.
We
sold our wholly-owned subsidiary, Infinity Oil and Gas of Texas, Inc. (“Infinity Texas”) in 2012 and its wholly-owned subsidiary,
Infinity Oil and Gas of Wyoming, Inc. (“Infinity Wyoming”), was administratively dissolved in 2009.
Subsequent
to the termination of the Nicaraguan Concessions, we began assessing various opportunities and strategic alternatives involving the acquisition,
exploration and development of gas and oil properties in the United States, including the possibility of acquiring businesses or assets
that provide support services for the production of oil and gas in the United States. As a result, on July 31, 2019, we acquired an option
(the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral
rights/leasehold for oil & gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological
formation covering over 11,000 contiguous acres (the “Properties”). We paid a non-refundable deposit of $50,000 to bind the
Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to
exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms
as the previous Option, however the newly acquired Option permitted the Company to purchase the Properties at a reduced price of $900,000
at any time prior to November 1, 2020 and the Company agreed to immediately conduct a capital raise of between approximately $2-10 million
to fund its acquisition and development of the Properties. On December 14, 2020 the parties executed an Asset Purchase and Sale Agreement
which extended the new Option to January 11, 2021, which expired.
We
and Core, as well as all of the members of Core, Mandalay LLC and Coal Creek Energy, LLC (collectively, the “Seller”) entered
into that certain side letter agreement on June 30, 2021 (the “Side Letter”), pursuant to which we and Core agreed to set
the closing date on which the Properties would be purchased pursuant to the asset purchase and sale agreement, entered into by the Company
and the Seller on December 14, 2020 (the “Asset Purchase Agreement”), to April 1, 2021 (the “APA Closing Date”).
Pursuant to the Side Letter, the Company is responsible for reimbursing the Seller for certain prorated revenues and expenses from January
1, 2021 through the APA Closing Date.
On
April 1, 2021 we completed the acquisition of the Properties, under the same terms of the Asset Purchase Agreement which provided a purchase
price of $900,000. The Company raised approximately $2.05 million on March 26, 2021 through the issuance of Convertible Preferred Stock
with detachable common stock purchase warrants. The funds raised pursuant to the Convertible Preferred Stock issuance were used to complete
the acquisition of the Properties on April 1, 2021 and to retire all outstanding Convertible Notes Payable.
The
purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D
seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater
disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand zone with an approximate depth
of 3,600 feet.
We
commenced rework of the existing production wells after completion of the acquisition of the Properties and have performed testing and
evaluation of the existence of noble gas reserves on the Properties including helium, argon and krypton. Testing of the Properties for
noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing
the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil & gas reserves while continuing
the evaluation of the existence of new oil & gas zones and other mineral reserves and specifically the noble gas reserves that the
Properties may hold.
We
may find it necessary to obtain new sources of debt and/or equity capital to fund the exploration and development of the Properties enumerated
above, as well as satisfying our existing debt obligations. We can provide no assurance that we will be able to obtain sufficient new
debt/equity capital to fund our planned development of the Properties.
Covid–19
Pandemic
The
unaudited condensed financial statements contained in this quarterly report on Form 10-Q as well as the description of our business contained
herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of June 30, 2021.
Economies throughout the world continue to suffer disruptions by the effects of the quarantines, business closures and the reluctance
of individuals to leave their homes as a result of the outbreak of the coronavirus (Covid-19) including the recent rise of the new Delta
variant. In particular, the oil and gas market has been severely impacted by the negative effects of the coronavirus because of the substantial
and abrupt decrease in the demand for oil and gas globally. In addition, the capital markets have experienced periods of disruption and
our efforts to raise necessary capital in the future may be adversely impacted by the pandemic and investor sentiment and we cannot forecast
with any certainty when the lingering uncertainty caused by the Covid-19 pandemic will cease to impact our business and the results of
our operations. In reading this Quarterly Report on Form 10-Q, including our discussion of our ability to continue as a going concern
set forth herein, in each case, consider the additional uncertainties caused by the outbreak of Covid-19.
Going
Concern
The
Company must raise substantial amounts of debt and equity capital from other sources in the future in order to fund the (i) development
of the Properties acquired on April 1, 2021; (ii) normal day-to-day operations and corporate overhead; and (iii) outstanding debt and
other financial obligations as they become due, as described below. These are substantial operational and financial issues that must
be successfully addressed during 2021 and beyond.
The
Company has made substantial progress in resolving many of its existing financial obligations during the six months ended June 30, 2021.
In that regard, on March 31, 2021, the Company and six creditors entered into Debt Settlement Agreements which extinguished accounts
payable and accrued liabilities totaling $2,866,497
in exchange for the issuance of $28,665
in principal balance of 3%
Convertible Promissory Notes with detachable warrants to purchase 5,732,994
shares of common stock for $0.50
per share. On April 1, 2021, the Company and
the holders of two notes payable that were in default reached a settlement whereby the Company issued a total of 245,000
shares of Common stock in exchange for the extinguishment
of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $123,830
as of April 1, 2021. The Company has
made substantial progress in resolving its financial obligations: however, there is in excess of $1.9 million remaining that are in default
and that the Company is attempting to obtain extensions of the maturity dates and/or compromises regarding payment of its obligations.
The
Company will have significant financial commitments to execute its planned exploration and development of the Properties especially if
the Company determines that it will explore for and develop the potential noble gas reserves that may be on the Properties. The Company
may find it necessary to raise substantial amounts of debt or equity capital to fund such exploration and development activities and
may seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and a carried interest
in exploration and development operations or other joint venture arrangement. There can be no assurance that it will be able to obtain
such new funding or be able to reach agreements with industry operators and other third parties or on what terms.
Due
to the uncertainties related to the foregoing matters, there exists substantial doubt about the Company’s ability to continue as
a going concern within one year after the date the unaudited condensed financial statements are issued. The unaudited condensed financial
statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to continue as a going concern.
Revenue Recognition
On January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue
from Contracts with Customers (Topic 606)” and the series of related accounting standard updates that followed,
using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance
of equity and did not change the Company’s amount and timing of revenues.
The Company’s revenues are primarily derived
from its interests in the sale of oil and natural gas production. To date, such revenues have only included the sale of oil however the
Company expects to begin generating revenues from the sale of natural gas and noble gases in the future. The Company recognizes revenue
from its interests in the sales of oil and gas in the period that its performance obligations are satisfied. Performance obligations
are satisfied when the customer obtains control of product, when the Company has no further obligations to perform related to the sale,
when the transaction price has been determined and when collectability is probable. The sales of oil and gas are made under contracts
which the third-party operators of the wells have negotiated with customers, which typically include variable consideration that is based
on pricing tied to local indices and volumes delivered in the current month. The Company receives payment from the sale of oil and gas
production from one to three months after delivery. At the end of each month when the performance obligation is satisfied, the variable
consideration can be reasonably estimated and amounts due from customers are accrued in trade receivables, net in the balance sheets.
Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received, however,
differences have been and are insignificant. The Company’s oil is typically sold at delivery points under contracts terms
that are common in our industry.
Convertible
Instruments
In
August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” which is intended to reduce complexity in applying
GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting
for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion
and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately
from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded
conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments
revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that
are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required
for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification
(and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract.
The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings
per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for
purposes of calculating diluted EPS when an instrument may be settled in cash or shares.
The
amendments in ASU 2020-06 are effective for public entities that meet the definition of an SEC filer, excluding smaller reporting companies
as defined by the SEC, for fiscal years beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal
years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.
The
Company early adopted ASU 2020-06 effective January 1, 2021 and has applied its effects to the 3% Convertible Promissory Notes issued
on March 31, 2021 (See Note 3). The Company elected to adopt ASU 2020-06 using the modified retrospective method which enables
entities to apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative
period presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings
(accumulated deficit) on the first day of the period adopted. Therefore, this transition method applies the amendments in ASU 2020-06
to outstanding financial instruments as of the beginning of the fiscal year of adoption (January 1, 2021), with the cumulative effect
of the change recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) as of the date of adoption.
In accordance with the modified retrospective method, no adjustment was made to the comparative-period information including earnings
(loss) per share.
The
Company applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06). The
convertible notes payable issued on August 19, 2020 was the only outstanding financial instrument effected by this new accounting standard
as of January 1, 2021. Therefore the application of ASU-2020-06 to this convertible note payable was used to determine the cumulative
effect of the adoption of the new accounting standard. The cumulative effect of the adoption of the new accounting standard was determined
and recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) which resulted in an increase to the
carrying value of convertible notes payable as of January 1, 2021 by $160,900, a decrease to additional paid in capital of $252,961 and
a decrease to accumulated deficit of $92,061. See Note 3.
Prior
to the adoption of ASU 2020-06, the Company applied the existing accounting standards for derivatives and hedging and for distinguishing
liabilities from equity when accounting for hybrid contracts that feature conversion options. The accounting standards require companies
to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according
to certain criteria. The criteria includes circumstances in which (i) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument
with the same terms as the embedded derivative instrument would be considered a derivative instrument. The derivative is subsequently
marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.
Conversion
options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity
or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation
from the host instrument.
Management
Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Significant
estimates include, but are not limited to, oil and gas reserves; depreciation, depletion and amortization of proved oil and gas properties;
future cash flows from oil and gas properties; impairment of long-lived assets; fair value of derivatives; fair value of equity compensation;
the realization of deferred tax assets; fair values of assets acquired and liabilities assumed in business combinations.
Oil and gas properties
On
April 1, 2021 we completed the acquisition of the Properties, under the terms of the Asset Purchase Agreement which provided a purchase
price of $900,000. The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square
miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection
well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand
zone with an approximate depth of 3,600 feet.
The
Company has performed workovers of the wells subsequent to the Properties purchase which was necessary to put the lease back into production
status. Therefore, these tangible and intangible workover costs were expensed as lease operating expenses rather than capitalized in
the full cost pool in the three and six months ended June 30, 2021. In addition, the Company is currently evaluating the Properties oil
and gas reserves and specifically the potential for noble gas reserves such as helium, argon and krypton. Based on these evaluations,
the Company may redirect its efforts to the production of noble gases rather than crude oil on the Properties. These noble gas evaluation
costs have also been expensed as lease operating costs during the three and six months ended June 30, 2021.
The
accounting for, and disclosure of, oil and gas producing activities require that we choose between two GAAP alternatives: the full cost
method or the successful efforts method. We adopted and use the full cost method of accounting, which involves capitalizing all exploration,
exploitation, development and acquisition costs. Once we incur costs, they are recorded in the depletable pool of proved properties or
in unproved properties, collectively, the full cost pool. Our unproved property costs, which include unproved oil and gas properties,
properties under development, and major development projects, which were zero at June 30, 2021 and December 31, 2020, and are not subject
to depletion. We review our unproved oil and gas property costs on a quarterly basis to assess for impairment and transfer unproved costs
to proved properties as a result of extensions or discoveries from drilling operations or determination that no proved reserves are attributable
to such costs. We expect these costs to be evaluated in one to seven years and transferred to the depletable portion of the full cost
pool during that time. The full cost pool is comprised of intangible drilling costs, lease and well equipment and exploration and development
costs incurred plus acquired proved and unproved leaseholds.
When
we acquire significant amounts of undeveloped acreage, we capitalize interest on the acquisition costs in accordance with FASB ASC Subtopic
835-20 for Capitalization of Interest. We capitalize interest upon identification and development of shale resource opportunities in
the Haynesville and Marcellus areas. When the unproved property costs are moved to proved developed and undeveloped oil and gas properties,
or the properties are sold, we cease capitalizing interest.
Capitalized
costs to acquire oil and natural gas properties are depreciated and depleted on a units-of-production basis based on estimated proved
reserves. Capitalized costs of exploratory wells and development costs are depreciated and depleted on a units-of-production basis based
on estimated proved developed reserves. Under this method, the sum of the full cost pool, excluding the book value of unproved properties,
and all estimated future development costs are divided by the total estimated quantities of proved reserves. This rate is applied to
our total production for the quarter, and the appropriate expense is recorded. Support equipment and other property, plant and equipment
related to oil and gas producing activities, as well as property, plant and equipment unrelated to oil and gas producing activities,
are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets.
Sales,
dispositions and other oil and gas property retirements are accounted for as adjustments to the full cost pool, with no recognition of
gain or loss, unless the disposition would significantly alter the amortization rate and/or the relationship between capitalized costs
and Proved Reserves.
Pursuant
to Rule 4-10(c)(4) of Regulation S-X, at the end of each quarterly period, companies that use the full cost method of accounting for
their oil and gas properties must compute a limitation on capitalized costs, or ceiling test. The ceiling test involves comparing the
net book value of the full cost pool, after taxes, to the full cost ceiling limitation defined below. In the event the full cost ceiling
is less than the full cost pool, we must record a ceiling test write-down of our oil and gas properties to the value of the full cost
ceiling. The full cost ceiling limitation is computed as the sum of the present value of estimated future net revenues from our proved
reserves by applying average prices as prescribed by the SEC Release No. 33-8995, less estimated future expenditures (based on current
costs) to develop and produce the proved reserves, discounted at 10%, plus the cost of properties not being amortized and the lower of
cost or estimated fair value of unproved properties included in the costs being amortized, net of income tax effects.
The
ceiling test is computed using the simple average spot price for the trailing twelve-month period using the first day of each month.
For the period ended June 30, 2021, the trailing twelve-month reference price was $52.13 per Bbl for the West Texas Intermediate oil
at Cushing, Oklahoma. This reference price for oil is further adjusted for quality factors and regional differentials to derive estimated
future net revenues. Under full cost accounting rules, any ceiling test write-downs of oil and gas properties may not be reversed in
subsequent periods. There were no ceiling test write-downs for the three or six months ended June 30, 2021.
The
ceiling test calculation is based upon estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities
of proved reserves, in projecting the future rates of production and in the timing of development activities. The accuracy of any reserve
estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling,
testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are
often different from the quantities of oil and gas that are ultimately recovered.
Basic
and Diluted Earnings (Loss) Per Share
Net
earnings (loss) per share is calculated in accordance with FASB ASC 260, Earnings Per Share, for the periods presented. Basic net loss
per share is based upon the weighted average number of shares of Common Stock outstanding. Diluted net earnings (loss) per share is based
on the assumption that all dilutive convertible shares, warrants and stock options were converted or exercised or excluded from the calculations
if their inclusion would be antidilutive. Dilution is computed by applying the if-converted/treasury stock method. Under this method,
options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase shares of Common Stock at the average market price during the period. The Company has outstanding convertible
promissory notes payable and Convertible Preferred Stock both of which is potentially dilutive. Such potential dilutive effect is included
in diluted earnings (loss) per share at the beginning of the period (or at the time of issuance, if later) if they have a dilutive effect
or such potentially dilutive securities are excluded from the calculations if their inclusion would be antidilutive.
The
Company has outstanding convertible promissory notes payable and convertible preferred stock both of which is potentially dilutive. The
adoption of ASU 2020-06 requires the Company to assume share settlement when an instrument can be settled in cash or shares at the entity’s
option. This applies both to convertible instruments and freestanding arrangements that could result in cash or share settlement. ASU
2020-06 also stipulates that an average market price for the period should be used in the computation of the diluted earnings (loss)
per share denominator in cases when the exercise price of an instrument may change based on an entity’s share price or changes
in the entity’s share price may affect the number of shares that would be used to settle a financial instrument. Lastly, an entity
should use the weighted-average share count from each quarter when calculating the year-to-date weighted average share count for all
potentially dilutive securities.
During
the three and six months ended June 30, 2021, the Company had outstanding the following securities that were potentially dilutive; 1)
Series A Convertible Preferred Stock, 2) Convertible Note Payable through its retirement on March 26, 2021, 3) 3% Convertible Promissory
Notes issued on March 31, 2021, 4) Common Stock purchase warrants and 5) stock purchase options. The inclusion of all potentially
dilutive securities in diluted earnings (loss) for the three and six months ended June 30, 2021 and 2020 were excluded because of their
anti-dilutive effect because of the net loss reported for both periods.
Recent
Accounting Pronouncements
Reference
Rate Reform. - In March 2020, the Financial Accounting Standard Board (the “FASB”) issued an accounting standard update
which provides optional expedients and expectations for applying GAAP to contracts, hedging relationships and other transactions to ease
financial reporting burdens to the expected market transition from the London Interbank Offered Rate (“LIBOR”) or another
reference rate to alternative reference rates. The amendments in this accounting standards update became effective March 12, 2020, and
an entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this
guidance may have on the Company’s financial statements.
Income
Taxes – Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued an accounting standard update which
simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This accounting standards
update removes the following exceptions: (i) exception to the incremental approach for intraperiod tax allocation when there is a loss
from continuing operations and income or a gain from other items; (ii) exception to the requirements to recognize a deferred tax liability
for equity method investments when a foreign subsidiary becomes an equity method investment; (iii) exception to the ability not to recognize
a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (iv) exception to
the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the
year. The amendments in the accounting standards update also improve consistency and simplify other areas of Topic 740 by clarifying
and amending existing guidance. The guidance became effective for interim and annual periods beginning after December 15, 2020, with
early adoption permitted. The Company adopted the guidance effective January 1, 2021, with all of the anticipated and applicable effects
to be required on a prospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Other
accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact on
the Company’s financial position, results of operations and cash flows.
Note
2 – Oil and Gas Properties Acquired
On
April 1, 2021, the Company completed the previously announced acquisition of certain oil and gas properties and interests from Core Energy,
LLC, effective as of January 1, 2021 (the “Oil & Gas Properties Acquisition”). On December 14, 2020, the Company entered
into an asset purchase and sale agreement (the “Agreement”) with Core Energy, as well as all of the members of Core, Mandalay
LLC and Coal Creek Energy, LLC, to purchase certain oil and gas properties in the Central Kansas Uplift geological formation, covering
over 11,000 contiguous acres, including, among other things, the production and mineral rights to and a leasehold interest in the Oil
& Gas Properties and all contracts, agreements and instruments. The Agreement provided for an aggregate purchase price consisting
of $900,000 in cash at closing.
The
following represents the purchase price allocation for the Oil & Gas Properties Acquisition for $900,000 in cash. The Oil & Gas
Property Acquisition qualify as an asset acquisition. As such, Infinity recognized the assets acquired and liabilities assumed at their
fair values as of April 1, 2021, the date of closing. The fair value of the Oil & Gas Properties acquired approximate the value of
the consideration paid, and the asset retirement obligation to be assumed, which management has concluded approximates the fair value
that would be paid by a typical market participant. As a result, neither goodwill nor a bargain purchase gain will be recognized related
to the acquisition.
The
Company determined the amount of the asset retirement obligation assumed to be $13,425 as of the date of acquisition. The obligation
relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development,
or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support
wells at the conclusion of their useful lives.
The
following table summarizes the allocation of the assets acquired and the liabilities assumed related to the Oil & Gas Properties:
Schedule
of Oil and Gas Properties Acquired
|
|
Amount
|
|
Oil and gas properties, subject to depreciation, depletion and amortization
|
|
$
|
913,425
|
|
Asset retirement obligation assumed
|
|
|
(13,425
|
)
|
Total purchase price of the Oil & Gas Properties
|
|
$
|
900,000
|
|
Note
3 – Debt Obligations
Debt
obligations is comprised of the following at June 30, 2021 and December 31, 2020:
Schedule of Debt Outstanding
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Notes payable:
|
|
|
|
|
|
|
|
|
Convertible promissory notes payable
|
|
$
|
28,665
|
|
|
$
|
—
|
|
Convertible note payable, (less discount of $-0- and $231,606 as of June 30, 2021 and December 31, 2020, respectively)
|
|
|
—
|
|
|
|
133,563
|
|
Note payable
|
|
|
—
|
|
|
|
50,000
|
|
Note payable
|
|
|
—
|
|
|
|
35,000
|
|
Total notes payable
|
|
|
28,665
|
|
|
|
218,563
|
|
Less: Long-term portion
|
|
|
28,665
|
|
|
|
—
|
|
Notes payable, short-term
|
|
$
|
—
|
|
|
$
|
218,563
|
|
Debt
obligations become due and payable as follows:
Schedule of Debt Obligations Maturities
Years ended
|
|
Principal
balance due
|
|
|
|
|
|
2021 (July 1, 2021 through December 31, 2021)
|
|
$
|
—
|
|
2022
|
|
|
—
|
|
2023
|
|
|
—
|
|
2024
|
|
|
—
|
|
2025
|
|
|
—
|
|
2026
|
|
|
28,665
|
|
Total
|
|
$
|
28,665
|
|
Convertible
Promissory Notes Payable
On
March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished
accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible
Promissory Notes (the “ 3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share.
The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30,
2026 (“Maturity Date”). The 3% Notes are convertible as to principal and any accrued interest, at the option of the holder,
into shares of the Company’s Common Stock at any time after the issue date and prior to the close of business on the business day
preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.
An
aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties.
Such related parties were issued $25,777 principal balance of the 3% Convertible Promissory Notes and warrants to purchase 5,155,454
shares of Common Stock in exchange for the extinguishment of their respective debt obligations. See Note 9.
Convertible
Note Payable
On
August 19, 2020, the Company entered into a securities purchase agreement with an accredited investor (the “August Investor”)
for the Company’s senior unsecured convertible note due August 19, 2021 (the “August Note”), with an aggregate principal
face amount of approximately $365,169. The August Note was, subject to certain conditions, convertible into an aggregate of 3,943,820
shares of Common Stock, at a price of $0.10 per share. The Company also issued a five-year common stock purchase warrant to purchase
up to 800,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “August Warrant”).
The August Warrant is immediately exercisable and on a cashless basis if the shares underlying such warrant have not been registered
within 180 days after the date of issuance. The August Investor purchased such securities from the Company for an aggregate purchase
price of $325,000. The Company also granted the August Investor certain automatic and piggy-back registration rights whereby the Company
has agreed to register the resale by the August Investor of the shares underlying the August Warrant and the conversion of the August
Note.
The
August Note bore interest at a rate of eight percent (8%) per annum with 12 months guaranteed, may be voluntarily repaid in cash in full
or in part by the Company at any time in an amount equal to 115% of the principal amount of the August Note and any accrued and unpaid
interest, and shall be mandatorily repaid in cash in an amount equal to 115% of the principal amount of the August Note and any accrued
and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to
which the Company receives gross proceeds of at least $2,500,000. In addition, pursuant to the August Note, so long as the August Note
remained outstanding, the Company could not enter into any financing transactions pursuant to which the Company sells its securities
at a price lower than ten cents per share without written consent of the August Investor.
The
conversion of the August Note and the exercise of the August Warrant are each subject to beneficial ownership limitations such that the
August Investor may not convert the August Note or exercise the August Warrant to the extent that such conversion or exercise would result
in the August Investor being the beneficial owner in excess of 4.99% (or, upon election of the August Investor, 9.99%) of the number
of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such
conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided
that any increase in such limitation will not be effective until 61 days following notice to the Company.
The
Company and the August Investor agreed that for so long as the August Note and August Warrant remains outstanding, the August Investor
has a right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or debt, up to
an amount equal to thirty-five percent (35%) of such subsequent financing.
The
August Note and August Warrant each contain customary events of default, representations, warranties, agreements of the Company and the
August Investor and customary indemnification rights and obligations of the parties thereto, as applicable.
As
described in Note 1 the Company elected to early adopt ASU 2020-06 using the modified retrospective method which enables entities to
apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period
presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated
deficit) on the first day of the period adopted.
The
Company applied ASU-2020-06 to all to outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06).
The convertible notes payable issued on August 19, 2020 was the only outstanding financial instrument effected by this new accounting
standard as of January 1, 2021. Therefore the application of ASU-2020-06 to this convertible note payable was used to determine the cumulative
effect of the adoption of the new accounting standard. The cumulative effect of the adoption of the new accounting standard was determined
and recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) which resulted in an increase to the
carrying value of convertible notes payable as of January 1, 2021 by $160,900, a decrease to additional paid in capital of $252,961 and
a decrease to accumulated deficit of $92,061. See Note 1.
On
March 26, 2021, the Company exercised its right to retire the August Note in conjunction with the issuance of Convertible Preferred Stock
(See Note 3 and 11). In accordance with the prepayment provisions contained in the August Note, the Company paid all principal, accrued
interest and the 15% prepayment premium as follows:
Schedule of Prepayment of Note
|
|
Amount
|
|
Principal balance at par
|
|
$
|
365,169
|
|
Remaining discount included in principal balance
|
|
|
(44,883
|
)
|
Accrued interest
|
|
|
17,448
|
|
Prepayment premium (including remaining discount due to early retirement)
|
|
|
115,805
|
|
|
|
|
|
|
Total payment to retire the August Note
|
|
$
|
453,539
|
|
The
prepayment premium was charged to non-operating expense as a loss from retirement of convertible note payable (See Note 9).
Following
is a summary of the August Note as previously reported on December 31, 2020 through June 30, 2021 follows:
Summary of Amortization and Retirement of Note
|
|
Amount
|
|
Balance
December 31, 2020 - August Note
|
|
$
|
133,563
|
|
Cumulative
effect of adoption of ASU 2020-06
|
|
|
160,900
|
|
Amortization
of discount through the March 26, 2021 retirement date
|
|
|
25,823
|
|
Remaining
discount recognized as a loss from retirement of convertible note payable
|
|
|
44,883
|
|
Retirement
of August Note at par value on March 26, 2021
|
|
|
(365,169
|
)
|
|
|
|
|
|
Balance
June 30, 2021 - August Note
|
|
$
|
—
|
|
Other
notes payable
The
Company had short-term notes outstanding with entities or individuals as follows:
|
●
|
On
July 7, 2015, the Company borrowed a total of $50,000
from an individual under a convertible note
payable with the conversion rate of $5.60
per share. The term of such note was for
a period of 90 days and bears interest at 8% per annum. In connection with the loan and subsequent extensions, the Company issued
the individual a warrant for the purchase of 5,000
shares of Common Stock at $5.60
per share for a period of five years from
the date of such note and/or extensions. The ratchet provision in such warrant requires that such warrant be accounted for as derivative
liability. The related warrant derivative liability balance was $72
and $189
as of April 1, 2021 (the extinguishment
date) and December 31, 2020, respectively. See Note 6.
|
|
|
|
|
|
On
April 1, 2021, the Company and the holder of the $50,000 note payable that was in default reached a settlement whereby the Company
issued a total of 145,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest
and associated common stock purchase warrants which totaled $72,874 as of April 1, 2021. The 145,000 shares issued to extinguish
the debt obligations were valued at $40,600 based on the closing market price on the date of the extinguishment. The extinguishment
of the debt obligations resulted in a gain of $32,274 which was recorded in the three and six months ended June 30, 2021.
|
|
|
|
|
●
|
On
July 15, 2015, the Company borrowed a total of $35,000
from an individual under a convertible note
payable with the conversion rate of $5.60
per share. The term of such note was for
a period of 90 days and bears interest at 8% per annum. In connection with the loan and subsequent extensions, the Company issued
the individual a warrant for the purchase of 3,500
shares of Common Stock at $5.60
per share for a period of five years from
the date of such note and/or extensions. The ratchet provision in such warrant requires that such warrant be accounted for as derivative
liability. The related warrant derivative liability balance was $50
and $132
as of April 1, 2021 (the extinguishment
date) and December 31, 2020, respectively. See Note 6.
|
|
|
|
|
|
On
April 1, 2021, the Company and the holder of the $35,000 note payable that was in default reached a settlement whereby the Company
issued a total of 100,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest
and associated common stock purchase warrants which totaled $50,956 as of April 1, 2021. The 100,000 shares issued to extinguish
the debt obligations were valued at $28,000 based on the closing market price on the date of the extinguishment. The extinguishment
of the debt obligations resulted in a gain of $22,956 which was recorded in the three and six months ended June 30, 2021.
|
Note
4 – Accrued liabilities
Accrued
liabilities consist of the following at June 30, 2021 and December 31, 2020:
Schedule of Accrued Liabilities
|
|
June 31,
2021
|
|
|
December 31,
2020
|
|
Accrued compensation (see Notes 9 and 12)
|
|
$
|
—
|
|
|
$
|
1,425,708
|
|
Accrued board of director fees (see Notes 9 and 12)
|
|
|
—
|
|
|
|
363,500
|
|
Accrued accounting services – Related party (see Notes 9 and 12)
|
|
|
—
|
|
|
|
762,407
|
|
Accrued rent
|
|
|
614,917
|
|
|
|
614,917
|
|
Accrued Nicaragua Concession fees
|
|
|
544,485
|
|
|
|
544,485
|
|
Accrued financing costs – Related party (see Notes 9 and 12)
|
|
|
—
|
|
|
|
26,113
|
|
Accrued franchise taxes
|
|
|
225
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
1,159,628
|
|
|
$
|
3,737,580
|
|
The
accrued rent balances relate to unpaid rent for the Company’s previous headquarters in Denver Colorado and represents unpaid rents
and related costs for the period June 2006 through November 2008. The Company has not had any correspondence with the landlord for several
years and will seek to settle and/or negotiate the matter when it has the financial resources to do so.
The
accrued Nicaraguan Concession fees were accrued during the time the Concessions had lapsed and the Company was attempting to negotiate
extensions to the underlying concessions with the Nicaraguan government which were unsuccessful. The Company abandoned all efforts to
negotiate an extension to the Concessions effective January 1, 2020 and ceased the accrual of all related fees at that time.
On
March 31, 2021, the Company and six creditors entered into Debt Settlement Agreements which extinguished accounts payable and accrued
liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes with
detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. Such creditors included those described in the
above table as: 1) accrued compensation, 2) accrued board of director’s fees, 3) accrued accounting services and 4) accrued financing
costs. (See Note 3, 9 and 12)
Note
5 – Stock Options
The
Company applies ASC 718, Stock Compensation, which requires companies to recognize compensation expense for share-based payments
based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the
value of equity instruments issued under share-based compensation arrangements to be presented as financing cash inflows in the statement
of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted and is estimated
in accordance with the provisions of ASC 718.
In
May 2006, the Company’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive
and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 47,000
shares of the Company’s Common Stock is reserved for issuance under the 2006 Plan. In June 2005, the Company’s stockholders
approved the 2005 Equity Incentive Plan (the “2005 Plan”), under which both incentive and non-statutory stock options may
be granted to employees, officers, non-employee directors and consultants. An aggregate of 47,500 shares of the Company’s Common
Stock were reserved for issuance under the 2005 and 2006 Plans; however, such Plans have now expired, and no further issuances can be
made. Options granted under the 2005 Plan and 2006 Plan allow for the purchase of shares of Common Stock at prices not less than the
fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Company’s Board of Directors
and generally expire ten years after the date of grant. The Company also has issued other stock options not pursuant to a formal plan
with terms similar to the 2005 and 2006 Plans.
At
the Annual Meeting of Stockholders held on September 25, 2015 and the stockholders approved the Infinity Energy Resources, Inc. 2015
Stock Option and Restricted Stock Plan (the “2015 Plan”) and reserved 500,000 shares for issuance under the 2015 Plan.
As
of June 30, 2021, 500,000 shares were available for future grants under the 2015 Plan. All other Plans have now expired.
The
fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input
of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These
estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of
options granted, the Company aggregates option recipients into groups that have similar option exercise behavioral traits. Expected volatilities
used in the valuation model are based on the expected volatility based on historical volatility. The risk-free rate for the expected
term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption
used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ
from these estimates. There were 1,800,000 options issued during the six months ended June 30, 2021 and there were no
stock options granted during the six months
ended June 30, 2020.
The
following is the assumptions used in calculating the estimated grant-date fair value of the stock options granted during the six
months ended June 30, 2021:
Schedule of Stock Option valuation Assumption
|
|
As
of
June 4, 2021
(issuance
date)
|
|
|
|
|
|
Volatility – range
|
|
|
286.6
|
%
|
Risk-free rate
|
|
|
1.56
|
%
|
Contractual term
|
|
|
10.0
years
|
|
Exercise price
|
|
$
|
0.50
|
|
Number of options in aggregate
|
|
|
1,800,000
|
|
The
following table summarizes stock option activity for the six months ended June 30, 2021:
Summary of Stock Option Activity
|
|
Number of Options
|
|
|
Weighted Average Exercise
Price Per
Share
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2020
|
|
|
332,000
|
|
|
$
|
41.86
|
|
|
|
1.28 years
|
|
|
$
|
—
|
|
Granted
|
|
|
1,800,000
|
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(55,000
|
)
|
|
|
(52.50
|
)
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
2,077,000
|
|
|
$
|
5.73
|
|
|
|
8.75 years
|
|
|
$
|
—
|
|
Outstanding and exercisable at June 30, 2021
|
|
|
277,000
|
|
|
$
|
39.75
|
|
|
|
1.02
years
|
|
|
$
|
—
|
|
The
Company recorded stock-based compensation expense in connection with the vesting of options granted aggregating $25,500 during the three
and six months ended June 30, 2021 and $-0- for the three and six months ended June 30, 2020.
The total grant date fair value of the 1,800,000
stock options issued during the six months ended June 30, 2021 was $305,997 in total or $0.17 per share and there were no stock options
granted during the six months ended June 30, 2020.
The
intrinsic value as of June 30, 2021 related to the vested and unvested stock options as of that date was $-0-.
The unrecognized compensation cost as of June 30, 2021 related to the unvested stock options as of that date was $280,497
which will be amortized over the next eleven
months in accordance with the respective vesting
scale.
Restricted
stock grants. During August 2020 the Board of Directors granted 5,000,000 shares of restricted stock awards to our officers,
directors and a consultant. During October 2019 the Board of Directors granted 2,000,000 shares of restricted stock awards to our new
Chief Operating Officer. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted
stock awards typically vest over a period of time generally corresponding to yearly anniversaries of the grant date. Unvested shares
of restricted stock awards may be forfeited upon the termination of service of employment with the Company, depending upon the circumstances
of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have
full stockholder’s rights, including voting rights and the right to receive cash dividends.
A
summary of all restricted stock activity under the equity compensation plans for the six months ended June 30, 2021 is as follows:
Schedule of Restricted Stock Unit Activity
|
|
Number
of
Restricted
shares
|
|
|
Weighted
average
grant date
fair value
|
|
Nonvested
balance, December 31, 2020
|
|
|
3,750,000
|
|
|
$
|
0.13
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(1,250,000
|
)
|
|
|
(0.13
|
)
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Nonvested
balance, June 30, 2021
|
|
|
2,500,000
|
|
|
$
|
0.13
|
|
The
Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted granted aggregating $81,250 and
$162,500 during the three and six months ended June 30, 2021, respectively. The Company recorded stock-based compensation expense in
connection with the issuance/vesting of restricted granted aggregating $24,308 and $48,619 during the three and six months ended June
30, 2020, respectively.
The
Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of
June 30, 2021, there were $325,000 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants,
which will be amortized over the next 15 months in accordance with the respective vesting scale.
The
nonvested balance of restricted stock vests as follows:
Schedule of Nonvested Restricted Stock Unit Activity
Years ended
|
|
Number of
shares
|
|
|
|
|
|
2021
|
|
|
1,250,000
|
|
2022
|
|
|
1,250,000
|
|
Note
6 – Derivative Instruments
The
estimated fair value of the Company’s derivative liabilities, all of which were related to the detachable warrants issued in connection
with various notes payable, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual
term of the instruments, estimated volatility of the price of the Company’s common stock and current interest rates. The detachable
warrants issued in connection with the two other short-term notes payable (See Note 3) contained ratchet and anti-dilution provisions
that remain in effect during the term of the warrants while the ratchet and anti-dilution provisions of the other notes payable cease
when the related note payable is extinguished.
On
April 1, 2021, the outstanding warrants treated as derivatives and the related notes payable containing such ratchet and anti-dilution
provisions were extinguished through an exchange transaction as described in Note 3. Therefore, the derivative liability was adjusted
to fair value and extinguished and included in the gain on extinguishment of notes payable as of the termination date (See Note 9).
A
comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of the April 1, 2021 termination
date and December 31, 2020 is as follows:
Schedule of Estimated Fair Value of Derivative Liabilities
|
|
As of
April 1, 2021 (termination date)
|
|
|
As of
December 31, 2020
|
|
|
|
|
|
|
|
|
Volatility – range
|
|
|
373.9
|
%
|
|
|
379.4
|
%
|
Risk-free rate
|
|
|
0.92
|
%
|
|
|
0.38
|
%
|
Contractual term
|
|
|
0.2 years
|
|
|
|
0.5 – 0.8 years
|
|
Exercise price
|
|
$
|
5.60
|
|
|
$
|
5.60
|
|
Number of warrants in aggregate
|
|
|
8,500
|
|
|
|
17,000
|
|
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:
Summary of Changes in Fair Value Derivative Financial Instruments
|
|
Amount
|
|
Balance at December 31, 2020
|
|
$
|
321
|
|
Unrealized derivative gains included in other income/expense for the period
|
|
|
(199
|
)
|
Extinguishment of derivative liability as part of the
exchange of debt for common stock (See Note 3 & 9)
|
|
|
(122
|
)
|
|
|
|
|
|
Balance at June 30, 2021
|
|
$
|
—
|
|
Note
7 – Warrants
The
following table summarizes warrant activity for the six months ended June 30, 2021:
Summary of Warrant Activity
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise Price
Per Share
|
|
Outstanding and exercisable at December 31, 2020
|
|
|
1,528,380
|
|
|
$
|
0.65
|
|
Issued in connection with issuance of Series A convertible preferred stock (See Note 3)
|
|
|
5,256,410
|
|
|
|
0.39
|
|
Issued in connection with issuance of convertible promissory notes (see Note 3 & 13)
|
|
|
5,732,994
|
|
|
|
0.50
|
|
Forfeited/expired
|
|
|
(37,000
|
)
|
|
|
(5.28
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at June 30, 2021
|
|
|
12,480,784
|
|
|
$
|
0.46
|
|
The
weighted average term of all outstanding common stock purchase warrants was 4.9 years as of June 30, 2021. The intrinsic value of all
outstanding common stock purchase warrants and the intrinsic value of all vested common stock purchase warrants was zero as of June 30,
2021.
Note
8 – Income Taxes
The
effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due
to the net operating loss history of the Company maintaining a full reserve on all net deferred tax assets during the three months ended
June 30, 2021 and 2020.
The
Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at June 30, 2021.
Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh
the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it determined to
continue to provide a 100% valuation allowance on its net deferred tax assets. The Company expects to continue to maintain a full valuation
allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To
the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future
taxable income, a portion or all of the valuation allowance will be reversed.
For
income tax purposes, the Company has net operating loss carry-forwards of approximately $61,235,000 in accordance with its 2020 Federal
Income tax return as filed, which expire from 2028 through 2039.
The
Company has recently completed the filing of its tax returns for the tax years 2012 through 2020. Therefore, all such tax returns are
open to examination by the Internal Revenue Service.
The
Internal Revenue Code contains provisions under Section 382 which limit a company’s ability to utilize net operating loss carry-forwards
in the event that it has experienced a more than 50% change in ownership over a three-year period. Management has completed its review
of whether such ownership changes have occurred, and based upon such review, management believes that the Company is not currently subject
to an annual limitation or the possibility of the complete elimination of the net operating loss carry- forwards. In addition, the Company
may be limited by additional ownership changes which may occur in the future.
Note
9 – Gain on Exchange and Extinguishment of Liabilities
During
the three and six months ended June 30, 2021 and 2020, the Company recorded gains on the extinguishment of liabilities through
the negotiation of settlements with certain creditors and through the operation of law.
Schedule of Estimated Gain On Exchange and Extinguishment of Debt
|
|
June
30,
2021
|
|
June
30,
2020
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June
30,
2021
|
|
June
30,
2020
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on Exchange and Extinguishment of Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on exchange and extinguishment of liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
124,177
|
|
|
$
|
—
|
|
Gain from settlement of litigation (See Note 11)
|
|
|
—
|
|
|
|
—
|
|
|
|
23,000
|
|
|
|
—
|
|
Loss from retirement of convertible note payable (See Notes 3)
|
|
|
—
|
|
|
|
—
|
|
|
|
(115,805
|
)
|
|
|
—
|
|
Gain from exchange and extinguishment of notes payable (See Note 3)
|
|
|
55,230
|
|
|
|
—
|
|
|
|
55,230
|
|
|
|
-
|
|
Total
|
|
$
|
55,230
|
|
|
$
|
—
|
|
|
$
|
86,602
|
|
|
$
|
—
|
|
Gain
on exchange and extinguishment of liabilities - On March 31, 2021, the Company entered into Debt Settlement Agreements
with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497
in exchange for the issuance of $28,665
in principal balance of 3%
Convertible Promissory Notes (the “3% Notes”) with detachable warrants to purchase 5,732,994
shares of Common Stock for $0.50
per share. The 3% Notes allows for prepayment
at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026. The 3% Notes are convertible
as to principal and any accrued interest, at the option of holder, into shares of the company’s Common Stock at any time after
the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50)
per share, subject to normal and customary adjustment.
The
warrants to purchase 5,732,994 shares of common stock issued pursuant to the Debt Settlement Agreements were valued at $1,605,178 using
the black-scholes methodology. The following assumptions were used in calculating the estimated fair value of the warrants as of March
31, 2021, their date of issuance:
Schedule of Fair Value of the Warrants Estimated Valuation Assumptions
|
|
As
of
March
31,
2021
|
|
|
|
|
|
Volatility
– range
|
|
|
374.0
|
%
|
Risk-free
rate
|
|
|
0.92
|
%
|
Contractual
term
|
|
|
5.0
years
|
|
Exercise
price
|
|
$
|
0.50
|
|
Number
of warrants in aggregate
|
|
|
5,732,994
|
|
An
aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties.
Such related parties were issued $25,777 principal balance of the 3% Convertible Promissory Notes and warrants to purchase 5,155,454
shares of Common Stock in exchange for the extinguishment of their respective debt obligations. The Company recognized a gain on extinguishment
of liabilities for the portion of the extinguishment with non-related parties. Furthermore, it recognized the portion of the gain on
extinguishment of liabilities with related parties as a contribution of capital.
The
gain on extinguishment of liabilities from the Debt Settlement Agreements was determined as follows:
Schedule of Gain on Extinguishment of Liabilities
|
|
Amount
|
|
|
|
|
|
Total accounts payable and accrued liabilities extinguished
|
|
$
|
2,866,497
|
|
Less: Principal balance of 3% Convertible Promissory Notes issued
|
|
|
(28,665
|
)
|
Less: Fair value of warrants to purchase common stock issued
|
|
|
(1,605,178
|
)
|
|
|
|
|
|
Total gain on extinguishment of liabilities
|
|
$
|
1,232,654
|
|
Less: Related party amounts reported as a capital contribution
|
|
|
(1,108,477
|
)
|
|
|
|
|
|
Gain on extinguishment of liabilities
|
|
$
|
124,177
|
|
Note
10 – Asset Retirement Obligations
The
Company’s asset retirement obligations primarily relate to the Company’s portion of future plugging and abandonment costs
for wells and related facilities. The following table presents the changes in the asset retirement obligations for the six months ended
June 30, 2021:
Schedule
of Assets Retirement Obligation
|
|
Amount
|
|
|
|
|
|
Asset retirement obligation at December 31, 2020
|
|
$
|
1,716,003
|
|
Liabilities added from acquisition of Oil & Gas Properties (See Note 2)
|
|
|
13,425
|
|
Accretion expense during the period
|
|
|
279
|
|
|
|
|
|
|
Asset retirement obligation at June 30, 2021
|
|
$
|
1,729,707
|
|
The
$1,716,003 asset retirement obligation existing at December 31, 2020 and in years prior to 2020 represented the remaining potential liability
for wells Infinity had owned in Texas and Wyoming prior to their sales/disposal in 2012. Infinity was not in compliance with then existing
federal, state and local laws, rules and regulations for its previously owned Texas and Wyoming domestic oil and gas properties. Regardless,
that all previously owned domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas being disposed of in 2012
and prior years; the Company may remain liable for certain asset retirement costs should the new owners not complete their asset retirement
obligations. Management believes the asset retirement obligations recorded relative to these Texas and Wyoming wells of $1,716,003 as
of June 30, 2021 and December 31, 2020 are sufficient to cover any potential noncompliance liabilities relative to the plugging of abandoned
wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas properties.
The
$13,425 asset retirement obligation assumed pursuant to an acquisition on April 1, 2021 and the related $279 accretion expense during
the six months ended June 30, 2021 related to the acquisition of the Oil & Gas Properties as further described in Note 2.
Note
11 – Commitments and Contingencies
Lack
of Compliance with Law Regarding Domestic Properties
Infinity
was not in compliance with then existing federal, state and local laws, rules and regulations for domestic oil and gas properties owned
and disposed of in 2012 and in years prior to 2020 and could have a material or significantly adverse effect upon the liquidity, capital
expenditures, earnings or competitive position of Infinity. All domestic oil and gas properties held by Infinity – Wyoming and
Infinity-Texas were disposed of in 2012 and prior; however, the Company may remain liable for certain asset retirement costs should the
new owners not complete their obligations. Management believes the total asset retirement obligations recorded for these prior matters
of $1,716,003 as of June 30, 2021 and December 31, 2020 are sufficient to cover any potential noncompliance liabilities relative to the
plugging of abandoned wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil
and gas properties.
Non-binding
Term Sheet to enter into Joint Venture Agreement
On
April 30, 2021, the Company and US Noble Gas, LLC (“USNG”) entered a non-binding term sheet to set terms and conditions whereby
the parties would formalize a joint venture for the purpose of exploring for and development of various potential noble gas reserves
on the Company’s recently acquired Properties. The joint venture would cover all of the noble gas rights production rights potentially
existing on the approximate 11,000 acres included in the Company’s Properties.
The
term sheet contains various provisions and conditions including the Company receiving the 50% net revenue-share of all noble gases sold
with the Company being responsible for 37.5% of the related expenses. Pursuant to the term sheet, USNG among other items, would provide
all research/testing/exploration data developed on the Properties, the equipment necessary for extraction of all noble gases, all consulting
necessary to explore for and develop any existing noble gas reserves. The Company would be required to issue warrants to issue 2,000,000
shares of common stock at an exercise price of $0.50 for a five-year term to the principal consultants involved with USNG.
The
term sheet requires the parties to execute definitive agreements including a Farmout Agreement, Operating Agreement and any other agreements
satisfactory to the parties to meet the terms of the joint venture described in the term sheet. There can be no assurances that the parties
will complete and execute the definitive agreements and if successful, what the final terms will be. Furthermore, there can be no assurances
that the Companies Properties hold potential reserves of noble gases or that they can be produced on a commercially profitable basis.
The
parties have been negotiating certain changes and revisions to the April 30, 2021 non-binding term sheet due to positive developments
in the evaluation of the possible existence of noble gas reserves on the Properties. The parties are considering certain expansions to
the Company’s Board of Directors and alliance with several substantial downstream companies in the noble gas industry. There can
be no assurance that the parties will agree on an amended joint venture term sheet and resulting definitive agreements agreement, if
at all. In addition, there can be no assurance of what the ultimate negotiated terms will be and whether such terms will be beneficial
to the Company.
Litigation
The
Company is subject to numerous claims and legal actions in which vendors are claiming breach of contract due to the Company’s failure
to pay amounts due. The Company believes that it has made adequate provision for these claims in the accompanying financial statements.
The
Company is currently involved in litigation as follows:
●
|
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
engaged in negotiations with the State of Texas in late 2012 and early 2013 and 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 have potential liability
regarding the above matter, and the officers are held personally harmless by indemnification provisions of the Company. Therefore,
to the extent they might actually occur, these liabilities 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 included in the asset retirement
obligation on the accompanying balance sheets.
|
●
|
Cambrian
Consultants America, Inc. (“Cambrian”) filed an action in the District Court of Harris County, Texas, number CV2014-55719,
on September 26, 2014 against Infinity Energy Resources, Inc. resulting from certain professional consulting services provided for
quality control and management of seismic operations during November and December 2013 on the Nicaraguan Concessions. Cambrian provided
these services pursuant to a Master Consulting Agreement with Infinity, dated November 20, 2013, and has claimed breach of contract
for failure to pay amounts due. On December 8, 2014, a default judgment was entered against the Company in the amount of $96,877
plus interest and attorney fees. The Company has included the impact of this litigation as a liability in its accounts payable. The
Company will seek to settle the default judgment when it has the financial resources to do so.
|
●
|
Torrey
Hills Capital, Inc. (“Torrey”) notified the Company by letter, dated August 15, 2014, of its demand for the payment of
$56,000, which it alleged was unpaid and owed under a consulting agreement dated October 18, 2013. The parties entered into a consulting
agreement under which Torrey agreed to provide investor relations services in exchange for payment of $7,000 per month and the issuance
of 15,000 shares of Common Stock. The agreement was for an initial three month-term with automatic renewals unless terminated upon
30 days’ written notice by either party. The Company made payments totaling $14,000 and issued 15,000 shares of Common Stock
during 2013. The Company contends that Torrey breached the agreement by not performing the required services and that it had provided
proper notice of termination to Torrey. Furthermore, the Company contends that the parties agreed to settle the dispute on or about
June 19, 2014 under which it would issue 2,800 shares of Common Stock in full settlement of any balance then owed and final termination
of the agreement. Torrey disputed the Company’s contentions and submitted the dispute to binding arbitration. The Company was
unable to defend itself and the arbitration panel awarded Torrey a total of $79,594 in damages. The Company has accrued this amount
in accounts payable as of June 30, 2021 and December 31, 2020, which management believes is sufficient to provide for the ultimate
resolution of this dispute.
|
●
|
Joseph
Ryan (“Ryan”) filed an action in the District Court of Johnson County, Kansas,
number 20CV01493, on March 20, 2020 against Infinity Energy Resources, Inc. resulting from
certain professional consulting services Ryan alleges he performed for Social, Environmental
and Economic Impact Assessments during July 2012 through September 2015 on the Nicaraguan
Concessions. Ryan alleges that such services were provided pursuant to oral agreements with
Infinity. Ryan claims breach of contract for failure to pay $12,000 amounts invoiced and
due. On December 23, 2020, Ryan filed a Motion for Default Judgment for $12,000 in unpaid
invoices plus legal, fees, statutory interest and any expert testimony fees.
On
February 10, 2021, the parties agreed to a full and complete settlement of the matter with prejudice. The terms of the settlement
required the Company to pay a total of $10,000 to extinguish accounts payable to Ryan totaling $33,000. As a result, the Company
recorded a $23,000 gain from settlement of litigation during the six months ended June 30, 2021 (See note 9).
|
Note
12 – Convertible Preferred Stock
The
Company is authorized to issue up to 10,000,000 preferred shares with a par value of $0.0001 per share.
On
March 16, 2021, the Company approved and filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible
Preferred Stock (“COD”). The COD provides for the issuance of up to 27,778 shares of Series A Convertible Preferred Stock
with a stated/liquidation value of $100 per share. Pursuant to the provisions of the COD, the Series A Convertible Preferred Stock is
convertible, at the option of the holders thereof, at any time, subject to certain beneficial ownership limitations, into shares of Common
Stock determined on a per share basis by dividing the $100 stated/liquidation value of such share of Convertible Preferred Stock by the
$0.32 per share conversion price, which conversion price is subject to certain adjustments. In addition, the COD provides for the payment
of 10% per annum cumulative dividends, in (i) cash, or (ii) shares of Common Stock, to the holders of the Series A Convertible Preferred
Stock based on the stated/liquidation value, until the earlier of (i) the date on which the shares of Series A Convertible Preferred
Stock are converted to common stock or (ii) date the Company’s obligations under the COD have been satisfied in full. The shares
of Series A Convertible Preferred Stock also (i) vote on an as-converted to Common Stock basis, subject to certain beneficial ownership
limitations, (ii) are subject to mandatory conversion into Common Stock upon the closing of any equity financing transaction consummated
after the original issue date, pursuant to which the Company raises gross proceeds of not less than $5,000,000, (iii) rank senior to
the Common Stock and any class or series of capital stock created after the Series A Convertible Preferred Stock and (iv) have a special
preference upon the liquidation of the Company.
On
March 26, 2021 the Company entered into a securities purchase agreement with five (5) accredited investors providing for an aggregate
investment of $2,050,000 by the investors for the issuance by the Company to them of (i) 22,776 shares of Series A Convertible Preferred
Stock, par value $0.0001 per share, with a stated/liquidation value of $100 per share of the Company convertible into an aggregate of
up to 7,117,500 shares of Common Stock, of the Company that are issuable from time to time upon conversion of such shares of Series A
Convertible Preferred Stock; (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to
purchase an aggregate of up to 5,256,410 shares of Common Stock at an exercise price of $0.39 per share, subject to customary adjustments
thereunder. Holders of the Warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration
statement for the sale of the Warrant Shares within six (6) months following the Closing Date, as defined in the Warrants, by exercising
on a cashless basis pursuant to the formula provided in the Warrants. Net proceeds from the issuance of Series A Convertible Preferred
Stock totaled $1,929,089 after deducting the placement agent fee and other expenses of the offering. The Company intends to use the proceeds
of the Series A Convertible Preferred Stock offering to complete the acquisition and development of the Properties, to pay-off the outstanding
convertible note payable (See Note 3 & 9) and for general working capital purposes.
The
Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement
within forty-five (45) days following the closing of the acquisition of the Properties which occurred on April 1, 2021 to register the
conversion shares and the warrant Shares. The Company is to use its best efforts to cause such registration statement to be declared
effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar
day following the closing of the acquisition of the Properties which occurred on April 1, 2021.
The
holders of the Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability
to convert its Series A Convertible Preferred Stock and/or exercise its common stock purchase warrants. Such limitation can be raised
to 9.99% upon 60 days advance notice to the Company.
The
Company has accrued and paid preferred dividends totaling $60,528
relative to the Series A Convertible Preferred
Stock which was charged to additional paid in capital as during the six months ended June 30, 2021. Preferred dividends totaled $56,784
for the three months ended June 30, 2021.
Note
13 – Related Party Transactions
The
Company’s Chief Operating Officer is a non-controlling member of Core. The Company acquired an Option from Core to purchase the
production and mineral rights/leasehold for the Properties. The Company paid a non-refundable deposit of $50,000
in 2019 to bind the original Option, which gave
it the right to acquire the Properties for $2.5
million prior to December 31, 2019. The Company
was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under
similar terms as the previous Option, however the newly acquired Option permitted the Company to purchase the Properties at a reduced
price of $900,000
at any time prior to November 1, 2020 and the Company agreed
to immediately conduct a capital raise of between approximately $2-10
million to fund its acquisition and development
of the Properties. On December 14, 2020 the parties executed an asset purchase and sale agreement which extended the new Option to January
11, 2021, which expired. The parties entered
into a Side Letter agreement on March 31, 2021, pursuant to which we and Core agreed to set the closing date on which the Properties
would be purchased to April 1, 2021. Pursuant to the Side Letter, the Company is responsible for reimbursing Core for certain prorated
revenues and expenses from January 1, 2021 through the April 1, 2021 closing date. On April 1, 2021 we completed the acquisition of the
Properties, under the same terms of the asset purchase agreement executed on December 14, 2020 which provided a purchase price of $900,000.
The Company raised approximately $2.05
million on March 26, 2021 through the issuance
of convertible preferred stock with detachable common stock purchase warrants. The funds raised pursuant to the Series A Convertible
Preferred Stock issuance were used to complete the acquisition of the Properties on April 1, 2021, to retire the outstanding convertible
note payable and for working capital purposes.
The
Company does not have any employees other than its Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. In previous
years, certain general and administrative services (for which payment is deferred) had been provided by the Company’s Chief Financial
Officer’s accounting firm at its standard billing rates plus out-of-pocket expenses consisting primarily of accounting, tax and
other administrative fees. The Company no longer utilizes its Chief Financial Officer’s accounting firm for such support services
and was not billed for any such services during the six months ended June 30, 2021 and 2020. On March 31, 2021 the parties
entered into a Debt Settlement Agreement whereby all amounts due to such firm for services totaling $762,407
were extinguished upon the issuance of $7,624
principal balance of 3%
Note and the issuance of warrants to purchase 1,524,814
shares of Common Stock as further described in
Notes 3, 7 & 9. Total amounts due to the related party was $-0-
and $762,407
as of June 30, 2021 and December 31, 2020, respectively.
The
Company has accrued compensation to its officers and directors in previous years. The Board of Directors authorized the Company to cease
the accrual of compensation for its officers and directors, effective January 1, 2018. On March 31, 2021 the parties entered into
Debt Settlement Agreements whereby all accrued amounts due for such services totaling $1,789,208
were extinguished upon the issuance of $17,892
principal balance of 3%
Convertible Promissory Note and the issuance of warrants to purchase 3,578,416
shares of Common Stock as further described in
Notes 3, 7 & 9. Total amounts due to the officers and directors related to accrued compensation was $-0-
and $1,789,208
as of June 30, 2021 and December 31, 2020, respectively.
Offshore
Finance, LLC was owed financing costs in connection with a subordinated loan to the Company which was converted to common shares in 2014.
The managing partner of Offshore and the Company’s CFO are partners in the accounting firm which the Company used for general corporate
purposes in the past. On March 31, 2021 the parties entered into a Debt Settlement Agreement whereby all amounts due for such
services totaling $26,113
were extinguished upon the issuance of $261
principal balance of 3%
Convertible Promissory Note and the issuance of warrants to purchase 52,226
shares of common stock as further described in
Notes 3, 7 & 9. Total amounts due to this related party was $-0-
and $26,113
as of June 30, 2021 and December 31, 2020, respectively.
On
May 13, 2020, the Company borrowed $41,000 from its Chairman, CEO & President in the form of an unsecured promissory note bearing
6% interest and due on demand. The proceeds were used for general working capital purposes. The entire $41,000 principal balance and
$654 of accrued interest related to the note was retired on August 19, 2020 and there is no remaining balance as of June 30, 2021 and
December 31, 2020.
Note
14 – Subsequent Events
Non-binding
Term Sheet to enter into Joint Venture Agreement
On
April 30, 2021, the Company and US Noble Gas, LLC (“USNG”) entered a non-binding term sheet to set terms and conditions whereby
the parties would formalize a joint venture for the purpose of exploring for and development of various potential noble gas reserves
on the Company’s recently acquired Properties. The joint venture would cover all of the noble gas rights production rights potentially
existing on the approximate 11,000 acres included in the Company’s Properties.
The
term sheet contains various provisions and conditions including the Company receiving the 50% net revenue-share of all noble gases sold
with the Company being responsible for 37.5% of the related expenses. Pursuant to the term sheet, USNG among other items, would provide
all research/testing/exploration data developed on the Properties, the equipment necessary for extraction of all noble gases, all consulting
necessary to explore for and develop any existing noble gas reserves. The Company would be required to issue warrants to issue 2,000,000
shares of common stock at an exercise price of $0.50 for a five-year term to the principal consultants involved with USNG.
The
term sheet requires the parties to execute definitive agreements including a Farmout Agreement, Operating Agreement and any other agreements
satisfactory to the parties to meet the terms of the joint venture described in the term sheet. There can be no assurances that the parties
will complete and execute the definitive agreements and if successful, what the final terms will be. Furthermore, there can be no assurances
that the Companies Properties hold potential reserves of noble gases or that they can be produced on a commercially profitable basis.
The
parties have been negotiating certain changes and revisions to the April 30, 2021 non-binding term sheet due to positive developments
in the evaluation of the possible existence of noble gas reserves on the Properties. The parties are considering certain expansions to
the Company’s Board of Directors and alliance with several substantial downstream companies in the noble gas industry. There can
be no assurance that the parties will agree on an amended joint venture term sheet and resulting definitive agreements agreement, if
at all. In addition, there can be no assurance of what the ultimate negotiated terms will be and whether such terms will be beneficial
to the Company.
**********************